Tactile Systems Technology, Inc. (NASDAQ:TCMD) Q3 2025 Earnings Call Transcript

Tactile Systems Technology, Inc. (NASDAQ:TCMD) Q3 2025 Earnings Call Transcript November 3, 2025

Tactile Systems Technology, Inc. beats earnings expectations. Reported EPS is $0.36, expectations were $0.16.

Operator: Welcome, ladies and gentlemen, to the Third Quarter 2025 Earnings Conference Call for Tactile Medical. [Operator Instructions] 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’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 Factors section of our annual report on Form 10-K as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website.

We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. With that, I’ll now turn the call over to Sheri.

Sheri Dodd: Thanks, Sam. Good afternoon, everyone, and welcome to our third quarter 2025 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We are looking forward to sharing our strong third quarter financial and business results with you today. As we’ll discuss, these results reflect our progress in both strategy and operational execution, demonstrated by meaningful advances in business transformation, product innovation and market leadership. In the third quarter, we delivered total revenue of $85.8 million, representing growth of 17% year-over-year. By business line, lymphedema revenue increased 11% year-over-year to $72.4 million, and airway clearance revenue increased 71% year-over-year to $13.4 million.

We were also pleased to see sequential growth in both business lines with lymphedema revenue up 10% versus Q2 and airway clearance revenue, which is typically more seasonally depressed in Q3, up 3% versus Q2. Q3 gross margins increased 80 basis points year-over-year to 76%, while on the bottom line, adjusted EBITDA increased 34% year-over-year to $14.4 million. We also made progress with respect to our balance sheet in terms of strong cash generation. Based on our performance through the third quarter and sustaining momentum, we are raising our full year 2025 total revenue guidance to a range of $317 million to $321 million, representing growth of approximately 8% to 10% year-over-year. I will now focus on a deeper review of performance by individual business line and share progress updates on our key 2025 strategic priorities, which, as a reminder, center on: one, improved access to care, a core element of our growth strategy given our massively underpenetrated markets; two, expanding treatment options to optimize patient care and reinforce our market-leading position; and three, enhancing the lifetime patient value given the chronic nature of the disease states we support with both products and services.

Elaine will follow with a review of our full third quarter results and additional details of our updated guidance. Our lymphedema business is continuing to demonstrate a steady recovery, and we expect this momentum to persist. In Q3, lymphedema revenue grew 11% year-over-year and 10% sequentially, driven by execution excellence of our go-to-market commercial strategy. With 2 full quarters behind us following the rebalance and optimization of our field sales organization, in addition to a new CRM launch, we have increasing conviction that our approach to field headcount, investments and the hardwiring of Salesforce CRM into daily sales activities and productivity visibility is delivering as intended. We ended Q3 with 329 total reps, well ahead of our year-end goal of 300 reps and split roughly evenly between 167 account managers and 162 product specialists.

This represents a 25% increase in total reps compared to the end of Q1. With these additions, we now have the largest field presence in Tactile’s history, and we have them placed in the right roles in the right geographic location to meet and drive demand. My confidence in our field organization goes beyond the number of heads, depth and breadth of provider relationships and sales leadership, although these are all very important. We have a strong CRM technology adoption and have embedded market data algorithms and 3 tech enhancements since July, all of which support a data-driven and efficient approach to sales activities. The CRM is not a documentation tool, but rather a daily sales guide to opportunity identification, next best action, incomplete order details and tracking productivity performance.

We have recruited and onboarded high-caliber reps, engaging them immediately in new sales hire training and giving them early exposure and experiences in all sales channels. Our tenured account managers are now experiencing the multiplier impact of a robust CRM in-territory support resources and focused channel strategies. Our go-to-market philosophy and staffing model of roughly 1 account manager to product specialist in similar sized territories supports our Q4 productivity expectations and positions us well for next year. Shifting to a review of our Q3 lymphedema payer mix and respective year-over-year comparisons. This quarter, sales in our Medicare channel increased 130% year-over-year, while our commercial and VA channels declined 9%.

While these appear to be dramatic swings, there are a few dynamics to note. As you know, a change in documentation interpretation by Medicare administrators in Q2 of 2024 created a pervasive headwind that lasted throughout the year. During that period, we focused on understanding the MAC position and redirected efforts to call points with higher concentration of VA and commercial patients, which were unaffected by these documentation challenges. As a result, non-Medicare business growth was unusually strong in Q3 last year. Since then, we have adapted to the new Medicare documentation requirements by launching e-prescribing, adding headcount to the back office, deploying our go-to-market headcount strategy and reimagining our order management processes.

While there will always be order management paperwork, we have effectively neutralized last year’s coverage headwind and have several initiatives underway to support scale and operating leverage. Year-over-year, our Q3 2025 payer mix illustrates the impact of these dramatic policy shifts. We’re recovering from a softer Medicare comparison, aided also by these newly implemented initiatives and our increased focus within vascular practices while simultaneously facing stronger prior year results in our commercial and VA channels. Importantly, our Q3 payer mix itself indicates a return to a more normalized mix environment, which we expect to sustain, supporting more balanced year-over-year comparisons moving forward. Our commercial go-to-market plan remains focused on deploying reps across each of our lymphedema call points, VA, Oncology, Vascular and Lymphatic therapy practices.

Further, the transition from the LCD to the NCD is an additional tailwind that should help drive continued improvement in Q4 and beyond. Elaine will speak to this in more detail shortly. Turning now to our Q3 airway clearance business line performance. What a fantastic quarter on top of a great year thus far. Sales of AffloVest increased 71% year-over-year and 3% sequentially. The key drivers of Q3’s growth remain consistent with what we have shared previously. We have secured partnerships with the top 10 respiratory DMEs and prioritized placement agreements among a select handful of these DMEs, and we are executing well across these partnerships. We are seeing growing demand for AffloVest as broader awareness of bronchiectasis and its available treatment options continue to expand.

And we have an excellent product with AffloVest and are continuing to take market share. While the claims data are lagging, we know we are very close to achieving a market-leading position as our commercial momentum accelerates. Looking ahead, we remain focused on strengthening relationships with each of our top DME partners and penetrating deeper within these accounts. With our highly focused and skilled airway clearance field team, we are deploying a proven strategy of a differentiated product, strong partnerships and high-quality medical education and training for providers and DME staff. We are expecting this strategy to continue to drive AffloVest penetration to the 5 million diagnosed and undiagnosed bronchiectasis patients in the U.S. I would like to now share a few new progress updates on each of our 3 strategic priorities that are designed to unlock our TAM and enable scalable, profitable growth.

Let me begin with an update on our foundational priority to improve access to care. As mentioned on previous calls, clinical evidence generation is a key element of improving access to care. And as the market leader, we are proud to be associated with robust evidence generation and peer-reviewed clinical evidence publications. Last week, we announced late-breaking 6-month data from our head and neck lymphedema RCT, which was presented at the American Congress of Rehabilitation Medicine 2025 Annual Fall Conference. This trial examined the effectiveness of Flexitouch Plus compared to usual care in treatment-naive head and neck cancer survivors with lymphedema, and this new long-term data follows an earlier presentation of 2-month data at the ASCO Annual Meeting in June.

The study was designed to support treatment guidelines, patient care pathways and reimbursement coverage for advanced pump therapy in this population. The results confirm what we had suspected, and we are very pleased to now have high-quality data demonstrating the sustained long-term effectiveness of Flexitouch Plus as an evidence-supported alternative to usual care at 6 months. Specific areas of Flexitouch Plus differentiation versus usual care demonstrated reduced internal swelling across the majority of anatomical sites with statistically significant improvement achieved in 2 sites in particular. Clinician-reported outcome measures of both internal and external soft tissue swelling also favored Flexitouch Plus over usual care. The 6-month manuscript is in the investigator review process right now and will be submitted in November.

Additional manuscripts include a deeper analysis into usual care, defined in this study as therapist-guided lymphedema treatment and lifelong home-based self-care, which will be submitted in early 2026. In the meantime, we continue active discussions with commercial payers regarding their current experimental and investigational policy language for head and neck lymphedema, and we aim to influence those policies and reduce barriers for patients. A second update related to improving access to care is specific to a recently implemented pilot integrating AI-enabled technology into our order operations to improve speed, accuracy and leverage throughout the order intake and medical record review processes for traditional non-eprescribed orders. The first phase of this pilot focused specifically on the medical record review process, which identifies if payer required medical necessity criteria is documented in the patient medical records.

Early results from the pilot have been encouraging. Not only can the tool deliver efficiency in scanning the records themselves, but it is also able to quickly inform our sales team as to what’s missing in the medical records. From there, our team can work more easily with our provider partners to obtain the necessary documentation. The next phase of the rollout will focus on the order intake process, and we look forward to sharing additional details on our next earnings call. Our second strategic priority is focused on expanding treatment options. In our lymphedema business line, sustained demand for Nimbl continues through the third quarter. Nimbl’s full upper and lower extremity offerings launched just 9 months ago, and we remain pleased with the feedback we’ve received from both providers and patients.

Nimbl’s unit growth continues to outpace market growth. And in a short period of time, we have moved into a market leadership position in the basic pneumatic, non-pneumatic compression pump category. We look forward to serving more lymphedema patients with this therapy. On the advanced compression pump side, we are making good progress on our product innovation road map, and we’ll have more details to share on our fourth quarter call. I have exciting product innovation news to share in the airway clearance business. In early Q4, we submitted a 510(k) to FDA for our next-generation AffloVest product. The product is currently under FDA review. And while we are not yet able to provide more details regarding expected clearance, I’m pleased to share a brief preview on the product itself.

The most notable enhancements with this new next-generation AffloVest include reduced weight, the addition of digital connectivity and improved sizing adjustability to allow for a more customized patient fit. The current AffloVest is already proven to be patient-preferred versus other high-velocity chest wall oscillation products and is effective in managing the symptoms associated with bronchiectasis and other airway clearance conditions. We look forward to introducing this next-generation AffloVest, and I believe the enhanced features will support the patient experience while promoting adherence. Finally, our third strategic priority is aimed at enhancing the lifetime patient value. We are seeing increasing opportunities to enhance support for lymphedema patients across the full care continuum.

This includes more efficient and personalized engagement before, during and after the order and delivery process. One way we are approaching this is through expanded utilization and efficient operations of our patient services organization. This organization is composed of our Patient Education Consultants or PECs, who support the majority of patient product demos and training and our back-office patient support team who support patient advocacy, financial services, clinical and product support and other patient-related services. These 2 teams interface directly and most frequently with our patients. Last quarter, we announced plans to launch a small care navigation pilot designed to proactively reach out to patients earlier and more consistently throughout the order process to better understand the moments that matter most for patients to receive more information and solidify their engagement in the process.

This is important because often the order progression requires the patient to do something, such as follow-up with their clinician post 4 weeks of conservative therapy or to be available for a product demo and initial treatment. We are taking a measured approach with care navigation pilots as we want to ensure efficient scalability, a positive patient experience and improved yield impact. Our first pilot demonstrated proof of concept that patients appreciate more information about the order process and expectation setting. One outcome we identified is a clear need to meet patients where they are by modernizing our communication infrastructure. To do this effectively, we’re investing in a comprehensive omnichannel platform that integrates text, e-mail, chat, self-service and phone support, ensuring seamless personalized engagement through the patient journey.

Our future plans include technology infrastructure investment in this area. In the interim, we will continue to leverage current resources to pilot targeted care navigation initiatives at key engagement points in the order process. These pilots will help us define our future patient engagement strategies and optimize communication scripts to better support the patient experience. With continued expansion in scope, we expect care navigation to further reduce the need for sales rep involvement in the order process, help mitigate patient leakage and enhance the overall patient support connectivity and experience. As you can see, we are executing well across a diverse set of strategic priorities, supported by key investments in our sales organization, order operations, clinical evidence generation and new product development.

As we’ve shared previously, these initiatives are designed to unlock our TAM and position the business for sustained profitable growth. We are already seeing the impact of these investments on our top line through our commercial go-to-market strategy, and now those benefits are beginning to flow through to the bottom line as well. In Q3, our profit margin was flat year-over-year despite these ongoing investments and adjusted EBITDA grew 34%. As Elaine will discuss shortly, we are raising our full year adjusted EBITDA guidance to reflect the increasing operating leverage these investments are generating. We have made these investments with a clear goal of driving profitable growth, and we’re pleased to see those returns materializing earlier than expected.

Before turning the call over to Elaine, I want to share a brief update on our capital allocation strategy. As we have shared previously, we are increasingly benefiting from generating free cash flow, a trend we expect to continue. This provides us the luxury of continuing to evaluate various investment opportunities to drive growth and increase shareholder value while also initiating a second share repurchase program of up to $25 million of outstanding stock. We believe this strategic action and near-term use of cash aligns with our conviction in the trajectory of our business as well as our ability to execute our financial and operational initiatives. To be clear, our strong balance sheet affords us a multitude of options in terms of meaningful capital deployment, and we will continue to evaluate ways to leverage our market leadership and strong commercial and operational footprint to invest and drive incremental growth.

With that, I will now have Elaine review our Q3 financial results in more detail and provide an update on our guidance for 2025.

Elaine Birkemeyer: Thanks, Sheri. Unless noted otherwise, all references to third quarter financial results are on a GAAP and year-over-year basis. Total revenue in the third quarter increased by $12.7 million or 17% to $85.8 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Entre and Nimbl systems, increased $7.1 million or 11% to $72.4 million and sales of our airway clearance products, which includes our AffloVest systems, increased $5.6 million or 71% to $13.4 million. Continuing down the P&L. Gross margin was 76% of revenue compared to 75% in the third quarter of 2024. The increase in gross margin was attributable primarily to lower manufacturing and warranty costs, reflecting enhancements in product design and stronger collections reflected in our revenue.

Third quarter operating expenses increased $6 million or 13% to $54 million. The change in GAAP operating expenses reflected a $3 million increase in sales and marketing expenses, a $0.2 million increase in research and development expenses and a $3.3 million increase in reimbursement, general and administrative expenses, including and primarily driven by strategic investments. Operating income increased $4.2 million or 62% to $11 million. Interest income declined by $0.3 million or 31% to $0.7 million due to a lower cash position following the repayment of our term loan. Interest expense decreased $0.3 million or 63% to $0.2 million. Income tax expense increased $1.2 million or 55% year-over-year to $3.2 million. Net income increased $3.1 million or 59% to $8.2 million or $0.36 per diluted share compared to $5.2 million or $0.21 per diluted share.

Adjusted EBITDA increased to $14.4 million compared to $10.7 million. With respect to our balance sheet, we had $66 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $94.4 million in cash and $26.3 million of outstanding borrowings as of December 31, 2024. As mentioned during our last call, subsequent to the end of the second quarter, we retired our $24 million term loan and refinanced our revolving credit facility to increase capacity from $25 million to $40 million. Excluding the impact of the debt repayment, our third quarter ending cash balance increased $9.2 million. Turning to a review of our 2025 outlook. For the full year 2025, we are raising our guidance and now expect total revenue in the range of $317 million to $321 million, representing growth of approximately 8% to 10% year-over-year.

By product line, our updated total revenue guidance range assumes that growth for our lymphedema products will be 3% to 4% and growth for our airway clearance products will be 52% to 55%. This updated guidance is driven by several key factors. In addition to the continued strength of our airway clearance business and the commercial momentum in lymphedema that Sheri highlighted earlier, we are also benefiting from a favorable Medicare policy environment, an important tailwind for our business. As Sheri mentioned, this stems from the retirement of the LCD and the transition to the less restricted NCD, which expands access to advanced pump therapy. Nearly a year into this transition, we now have a clearer understanding of the NCD. Patients with complex lymphedema affecting areas such as the head, neck, chest or trunk can now access advanced pumps like the Flexitouch directly without first undergoing a basic pump trial.

This change eliminates a significant administrative hurdle and accelerates access to the appropriate therapy. We are actively engaging with providers to educate them on the NCD and reinforce that with proper documentation, patients with unique clinical conditions now have a direct pathway to coverage for advanced therapy. We expect to begin seeing positive impacts in Q4 with more meaningful momentum building into next year. For modeling purposes for the full year 2025, we now expect our GAAP gross margin to be approximately 75%, our GAAP operating expenses to increase approximately 11% year-over-year as we invest in our sales organization and advance our tech-related investments, net interest income of approximately $1.8 million, a tax rate of 28% and a fully diluted weighted average share count of approximately 23 million shares.

As a result of our stronger-than-expected revenue, we now expect to generate adjusted EBITDA of approximately $38 million to $39.5 million in 2025. Our adjusted EBITDA expectation assumes certain noncash items, including stock compensation expense of approximately $7.8 million, intangible amortization of approximately $1.3 million and depreciation expense of approximately $5.3 million. Finally, we continue to expect the full year tariff impact on our business to be approximately $1 million after the successful implementation of a range of tariff mitigation strategies as announced last quarter. Looking ahead, if no further changes occur, we anticipate an ongoing annual impact beyond 2025 of roughly half that amount. With that, I’ll turn the call back to Sheri for some closing remarks.

Sheri?

Sheri Dodd: Thank you, Elaine. Our financial performance and operational execution in the third quarter leave us incrementally confident in our ability to achieve and exceed our full year 2025 expectations. Both of our business lines are performing well with healthy call points. We are generating meaningful clinical evidence to support improved access to care for currently underrepresented patient groups. Our investments in people and various workflow processes are materializing and paying off as expected. And our commercial organization is robust, well organized and poised to take advantage of the tailwinds in front of us over the near, medium and longer term. We are confident in the trajectory of our business as reflected in our guidance update and new stock repurchase program.

And our healthy balance sheet affords us a multitude of additional options in terms of meaningful capital deployment to drive growth and increase shareholder value. We look forward to closing out 2025 from a position of strength and continuing to execute in 2026 and beyond. With that, operator, we’ll now open the call for questions.

Q&A Session

Operator: [Operator Instructions] And our first question comes from Adam Maeder with Piper Sandler.

Kyle Edward Winborne: This is Kyle Winborne on for Adam. Congrats on a good quarter. I guess, first, maybe like to double-click on the AffloVest performance. It was another really strong quarter, and would just love to hear more about what continues to drive the good performance there. You gave helpful color on the progress with the different DMEs. So maybe just be curious how did these different accounts perform in the quarter? Are you seeing growth across most of the accounts? And I know there’s also this effort to continue increasing awareness. So just any additional insights you could give would be helpful as we try to just kind of understand the sustainability of the growth in this business here as we exit 2025 with another guidance raise.

Sheri Dodd: Sure. Kyle, we are, as I said, really pleased with just a fantastic quarter of AffloVest performance. And as you can see, the revenue contribution now for AffloVest is about 16% versus prior year was 11%. I wish I could share something more colorful actually in terms of what’s happening with that growth, but it is exactly what we’ve been saying all year. We really have 3 strategies that are working in our favor, and they’re ones that we’ve been working on for a while, and they’ve really come to fruition this year. The first is we do have those deep relationships with the top 10 DMEs. And while we don’t report out growth or call out any one of those, where we have those relationships, again, and we do across all 10, certain things are working very well.

One, we have preferred product position in several of those top 10 DMEs. That is compensating their reps for this product. And so it’s in their bag of respiratory products and one that they continue to sell and see appropriate placement. The other thing is we have got really good alignment on inventory and the cadence of when they want the product aligned with their financial team. So there’s no surprises as to what those ordering patterns look like. And then we’re able to continue our supply chain in a way that’s super healthy and able to get — and keep up with the demand. So from the DME partnership standpoint, that’s all going very well. You are right that there is increased awareness of bronchiectasis, and we’re both driving that with our medical education that we’re providing not just to DMEs across their operations team and their reps, but also we’re providing that medical education to clinicians themselves.

And so that is going very well and just general market awareness is coming up. And then really last but not least, we just have an excellent product. We have a differentiated product, and we’re taking share and are achieving this market-leading position. As it relates to growth, we’re also comparing against what was a pretty low growth year from last year. So I don’t think there’s — not projecting into 2026, but we shouldn’t be expecting that we’re going to see this type of growth next year, but we are happy with where we’re at. And of course, the growth in AffloVest contributed to our overall guidance that we’re taking up for the end of the year, and we’ll be able to share more on what we think our 2026 growth should be.

Kyle Edward Winborne: That’s super helpful additional color there. Maybe just to follow up on the Vest business. Could you maybe give us any color, remind us where AffloVest sits in terms of market share? And maybe if you aren’t able to kind of share specifics there, could you just give us an idea of how quickly this market is growing and maybe just kind of some of the broader market trends to understand how this — how it fits into — in the broader market?

Sheri Dodd: Sure. So while I can’t — what I can share is the key players kind of in this space, Baxter has been #1 for a really long time. I think they’ve been on the market for over 30 years. And as we have said, we feel like we are in a very close #1, if not already #1 in taking over them as the market leader. In terms of overall growth of the market, very hard to share. It’s growing clearly double digits, and that growth is really coming from I think you’ve got more therapies in this space, but I think more — that’s what’s more relevant right now is the fact that there’s just more awareness of the disease. There’s been an introduction of a pharmaceutical product that’s helped bring overall awareness. They were very prolific within some of the most recent conferences.

But the good news is, is that regardless of whether or not there is a drug in place, it’s really complementary to the Vest therapies. So as awareness grows, so grows the opportunity for us to penetrate the 5 million patients that are currently underserved. So we don’t anticipate any change happening in this market from a negative standpoint, negative change.

Operator: And moving on to Ryan Zimmerman with BTIG.

Ryan Zimmerman: Sheri, Elaine congrats on the nice quarter here. So I want to ask about guidance a little bit, and I appreciate you giving the color on the segments, Elaine. Just to be clear, it looks like certainly AffloVest is coming up for the fourth quarter. It looks as if lymphedema is coming down maybe into the low single digits. I want to first make sure I’m clear about that. But then as I think about kind of historical performance from 3Q to 4Q, particularly in lymphedema, it’s typically stepped up more than kind of what you’re assuming from 3Q to 4Q, at least for this year. And so I just want to understand, was there anything that was maybe pulled forward or onetime in nature in the third quarter, particularly in the lymphedema business? And then I do have a follow-up.

Sheri Dodd: Yes. So I would say there’s nothing that was pulled forward. I think from a comparison to last year, just to reset, and I’m remarking on this because it’s been a year now, really when I joined on kind of what was my first quarter. At that time, if you remember, there was the change in interpretation of the NCD. I know we’ve talked — LCD, sorry, we’ve talked about that a lot, but our entire lymphedema went into a major slowdown with that headwind. More documentation was required. We — if you think about the number of reps that we had, it was considerably less than we have today. And so the business was just incredibly slow last year, and it dragged on for the remaining of the year. We don’t have anything happening this year.

In fact, we’ve got the opposite where we have some tailwinds starting with the NCD, while we haven’t seen that completely materialize as much as it will happen in a little bit in Q4 — sorry, in Q4 as well as in next year. That’s more of a tailwind where before it was very much of a headwind. So we did step up our overall guidance in lymphedema. We did have it at 1% to 2%, and we’ve raised that 3% to 4% for the end of this year.

Elaine Birkemeyer: Yes. I think specifically on — why does year-over-year growth kind of look like it’s slowing down for Q4. I think this is a little bit what Sheri is talking about is that comparable to last year. Unfortunately, last quarter 3, which is really depressed with us kind of being at that bottom trough of the impact. We started to have that recovery in Q4 and then more so into 2026. So I think that’s part of it. And then you mentioned kind of sequential. So yes, sequentials were a bit different this year. And I think we alluded to that we expect to see that based on the hiring that we’re doing. So we hired close to 30 additional reps there in Q2. So we had just a much bigger workforce as we moved into Q3. So that sort of created this kind of a naturally higher growth from Q2 to Q3 than we normally see and that also moderating that Q3 to Q4 growth as well a bit there.

So sequentials are a bit different, but I would say, looking at half 2 altogether, it’s still, I would say, actually on the high end when you think about a sequential year-over-year growth for us. I think the Q3, Q4 cadence is a little bit different this year just due to the sales rep hiring.

Ryan Zimmerman: Okay. Very helpful, that color. And then as I think about ’26, and I don’t know if you’ll comment on this, but what do you see as the market growth rate in lymphedema? Because I mean, right now, I think the Street is assuming that you guys can get back to that high single-digit kind of growth in lymphedema for next year. And I want to make sure that, that’s not unreasonable in your mind or — and I know, Sheri, I’ve asked you this certainly when you joined, which is if you have any commentary on the long-term targets that were kind of set out before you joined and what you — whether you feel those are appropriate, I guess?

Sheri Dodd: Sure. Thanks, Ryan. Well, I can — the market is growing at 10% in the lymphedema market. So there’s nothing at this point that indicates to us that we should underperform the market. So I’m not going to comment on next year. But certainly, we believe that this is a market that’s growing 10%. And with our products and our sales force and our productivity and supporting our back office and the investments we’ve been making, we believe we should be able to be in this range as well. Our new guidance for the end of this year ticks us up between 8% and 10%. And so that is a nice recovery than what we had at the beginning of this year. This recovery is fueled by, again, adding to our sales headcount, having our CRM, our channel strategies as well as our back office support.

all of these things were part of our strategy. They’re all building. We’re executing. We’ve got the momentum. So again, not providing any guidance on 2026, but I don’t have any reason to believe that we should be underperforming the market.

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

Brandon Vazquez: Maybe first on a high level, there’s a lot of tailwinds going on for you guys. It’s really encouraging. Can you — is there anything 1 or 2 top initiatives or reimbursement improvements that you would call out that’s driving growth? It feels like this quarter was a bit of inflection, frankly, in both sides of the business. So curious if there’s anything you’d call out? Or is it just really broad-based across all the initiatives?

Sheri Dodd: I would say what we — and AffloVest, I already spoke to with the previous question from Kyle. I think that one just reflects again our strategy in action with our DME relationships as well as growth of the market with awareness of bronchiectasis as well as just great products. On the lymphedema side, a few things that we’re seeing, again, it’s also very aligned to our strategy. So our go-to-market strategy, our Q1, we did a rebalance. We did an optimization. We said we reevaluated the number of account managers we needed versus the number of product specialists. We did that. We executed. You saw some of that lift happening in Q2. You’re seeing it in Q3, and we’re going to continue to see that in Q4. That essentially boils down to productivity.

We measure productivity as the revenue per territory. So now we’ve got the right headcount in the right geography with the right scopes, and so we’re going to continue to see that materialize and get optimized as a multiplier as we go into latter half — Q4 and as we go into 2026. So that’s a big part of the lymphedema growth standpoint is on that productivity. We also are going to see, and we’ll see it more in Q4 is really the impact of the NCD. The NCD was announced in November of last year. As a reminder, we didn’t get trained until February. Between February and early summer, there were some changes in their interpretation. So the NCD itself in terms of what is the interpretation has only really been on stable ground now for about 4 months.

We now are doing our appropriate shift and making sure that we’re set up well so that patients who meet the criteria for advanced pump therapy like Flexitouch can get to that directly without having to go through the 4-week basic pump trial. So that’s also going in our favor. And then we’re starting to see some of the impact of our initiatives. So sales force, certainly, again, not just documentation tool, but really like a job aid. It is the go-to for all of our sales reps in terms of how to plan their work. And we’re starting to see efficiencies in the back office. This is also realized not just on the top line, but we’re seeing some of that come through on the bottom line. So we feel really well positioned for continued financial performance on both the top and bottom line as we go into Q4 and beyond.

Brandon Vazquez: Okay. That’s great. And 2 quick follow-ups to that on 2 of the points that you had made. First, on the sales side or the sales rep side, I think you said 329 reps you’re at now, you’re above your goal that was for 300. So help us think about where do you go from here? Do you need more reps? Are you pretty good on sales force count? And how does that trend into next year? And then the other follow-up is just on the NCD side, if you could spend a minute talking about I think you mentioned that it was an easier pathway now for patients to get on Flexitouch. Is that a shortened cycle? Like any data that you can give us around what that pathway looks like now for those patients under the new NCD would be helpful.

Sheri Dodd: Sure. So on the reps standpoint, I mean, we feel really well positioned on our headcount strategy and execution. We’ll make new headcount additions with this balance of 1:1, again, one account manager to one product specialist. We’ll staff based on how these territories grow. And so we feel in good shape. We’re going to continue to round that out, and we’ll get to the right headcount based on that strategy that we set in Q1. As it relates to the NCD, so the NCD does allow a path for patients with unique characteristics to go directly to an advanced pump. And those unique characteristics have to do with where the edema is located as well as different type of skin conditions. We understand and have better clarification from the MACs of what they’re looking for from a documentation standpoint.

The documentation requirements are still there. It’s just that now there is a path for that patient to go directly to that therapy without having to go to a basic pump therapy. We aren’t yet going to be reporting nor do we report specifically on the breakout of the — what will have changed. But we are anticipating that the NCD is a tailwind, will allow more patients to go directly to the right pump that they need based on what their conditions are. And again, this is just getting started, but until there is a policy change, we anticipate the NCD to be in place, and this is the policy that our Medicare patients can progress to as they are and working with their provider to determine what is the right therapy for them. Hope that answers your question.

Operator: Our next question comes from Anderson Schock with B. Riley Securities.

Anderson Schock: Congrats on a really strong quarter. So first, on the lymphedema revenue growth, could you just break down the main drivers here? And then what percentage of lymphedema revenue is now Nimbl versus Flexitouch? And has that mix stabilized from the second quarter to third quarter? Or when do you expect to reach a target mix?

Sheri Dodd: Anderson, so I’ll start with the mix first. We don’t report out Nimbl versus Flexitouch. So what we have said in the past and will say is currently happening is that Nimbl is growing faster than the market. And so as a reminder, we are just less than 9 months into a full product launch of Nimbl. So it continues to have great adoption from providers, great adoption from patients. It’s doing incredibly well. It’s a great addition. And with that introduction, we now have taken a market leadership position in the basic pump category. So we’re feeling really good about where that is. The NCD allows us a path to see even greater unit growth from Flexitouch. But again, we won’t be breaking that out, but we are really pleased with what the policy environment is as well as the success of Nimbl.

And Flexitouch is a great product. I mean we’re glad that patients can get direct access to it that need it, especially those that have head and neck lymphedema, chest lymphedema, trunk lymphedema. These patients were definitely not served with a basic pump prior. And now I forgot what your second question was.

Elaine Birkemeyer: Yes. I think you asked the question around just the drivers of lymphedema. And so I think just again, to hit on what I think Sheri [ also was ] talking about before was really expanded headcount. So if you look at — we’ve added a significant number of reps, 66 reps or 25% more than the end of Q1 there. So it’s a big amount of growth. And each quarter that goes by, they’re getting more and more tenured. And so that leads into increased productivity. So we’ve got sales reps that are ramping as well as now the CRM tool that maybe we’ve never had before that not only helps them organize their work, but really identify where they should be best spending their time and which clinicians that are seeing a lot of these lymphedema patients there. And then again, lastly, that strong airway clearance performance that Sheri also talked about.

Anderson Schock: Okay. Got it. That’s helpful. And then what are you seeing in growth in bronchiectasis awareness and diagnosis in the third and fourth quarter following the approval of the first bronchiectasis drug in August?

Sheri Dodd: Where are we seeing it? Did you say?

Anderson Schock: I guess, just how are you seeing this impact the overall bronchiectasis market as far as diagnoses and growth there?

Sheri Dodd: Well, we certainly believe that it’s creating an uplift. Market awareness, both for lymphedema and for bronchiectasis has been one of the bigger challenges when we think about addressing the total addressable market is simply that these patients are undiagnosed and untreated. So with the launch of a pharmaceutical product and those dollars going into awareness, we believe that, that’s a lift. We also believe that it is a market share gain. So I’m not going to attribute it all to increased awareness. We know and we can see in our DMEs that we’re seeing growth in those areas, and we believe that’s coming directly from share growth as well.

Operator: [Operator Instructions] We’ll go next to Ben Haynor with Lake Street Capital Markets.

Benjamin Haynor: Congrats on both the quarter and the Flexitouch study. And regarding the study in the head and neck cancer-related lymphedema, you mentioned that I think that you had some payer — you’ve had some payer discussions or you have some payer discussions coming up. What should we kind of expect in terms of how quickly some of these policies could get reviewed? Or do we need the manuscripts out? Do we need the scheduled review to come around? Or could some of these folks or some of these entities act a little bit faster?

Sheri Dodd: Yes. Thanks, Ben. Regarding coverage, we’re engaging with commercial payers and bringing awareness of their current policies for head and neck lymphedema because many of them have classified it as experimental and investigational. And we know that is a market access barrier for patients that could otherwise benefit from therapy. So these conversations have been ongoing. We have a dossier. We’ve been engaging with payers. And many of them have been open to understanding more what data is currently available as well as understanding and investigating more of their current policy. In general, been really receptive to our outreach, and we expect that they will be reevaluating their current coverage policies. That said, the time line for policy changes are likely more in the 2026 time period.

This is really consistent with what we have seen previously and what we’ve shared previously. I wish it could go faster. They’re on a schedule for policy review, and some of them will do off-cycle review. I’m sure having the 6-month data and especially this being such a landmark study that’s showing the benefit of Flexitouch, particularly in treatment-naive patients. These are patients that did not receive a basic pump nor have they ever received therapist-guided lymphatic therapy that we’ll be able to have a really robust conversation. But I would anticipate that the bigger changes in policy are going to happen more in 2026 and unfortunately, probably throughout that year, not necessarily in the beginning.

Benjamin Haynor: Makes sense. And then lastly for me, you just — you’ve done the kind of the strategic optimizations, rebalances, kind of some tech upgrades internally. What — how would you characterize kind of what inning of the impact that we’ll ultimately see from some of these maneuvers as they kind of play out in terms of revenue growth and leverage on expenses?

Sheri Dodd: Sure. Well, I’m pleased that we’re already starting to see that come through. And I think that, that’s even better than we had expected. But let me break these down kind of individually. When I think about the CRM tool itself, right? So that got put into place. We knew that would help with productivity, but then we also added 50-plus sales heads between Q2 and Q3. So what — a 25% increase actually, we’ve added since the beginning of the year in sales. And these sales reps are starting to use the tool, the Salesforce tool versus our more tenured reps had to actually make a conversion between their older handmade tools into the CRM. So we’ll continue to see the benefit of that, and we’re not stopping our investment.

We’ll continue to refine that tool, make it better for the reps, help them really understand what is the best opportunity, where do they need to go. And then we’ll be looking at incorporating more of our back office order process pieces into Salesforce as well. So it becomes basically the tool on record, not just for the CRM activities that the sales reps are doing, but for the order. This is a big part of the investment that we’re making into next year. We’ve already spent dollars this year. It will continue to evolve next year. So when you kind of talk about innings, not necessarily like the World Series where a wrap-up in 7 games and either your team won or didn’t win, this is going to be an ongoing game. And our commitment has always been that we needed some of these dollars in 2025 to get us going, and then we committed to continuing to show a return on that investment.

So I mentioned our care navigation, we’re going to stand up more of that omnichannel platform for next year. That’s going to have returns, but those returns will be in late ’26 and into ’27. Our investments in Salesforce, big stand up in investment dollars now, that’s going to return in order operations efficiency, yield, leverage, all of those things will happen. So we are transforming our business, both in terms of what that go-to-market strategy looks like, but also that order process streamlining and making it easier, and we know that will have a return. So it will be a multi-inning game, but we’d continue to commit to being able to show return on that investment, and we’ll be teeing a lot of that up when we talk about our 2026 plan when we’re all back together at the beginning of next year.

Operator: 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.