Executive Summary / Key Takeaways

• Strategic Transformation Driving Growth: Tactile Medical is executing a comprehensive strategy focused on enhancing market access, expanding treatment options, and improving lifetime patient value, which is translating into robust financial performance and a raised full-year 2025 outlook.
• Technological Edge and Product Innovation: The company's differentiated product portfolio, including the advanced Flexitouch Plus, the next-generation Nimbl, and the portable AffloVest, along with investments in e-prescribing and AI-enabled order processing, underpins its competitive advantage and market leadership in key segments.
• Accelerating Financial Performance: Strong Q3 2025 results, with total revenue up 17% year-over-year and adjusted EBITDA increasing 34%, demonstrate the early realization of operating leverage from strategic investments.
• Favorable Policy Environment: The transition to the less restrictive National Coverage Determination (NCD) for lymphedema treatment is a significant tailwind, streamlining patient access to advanced therapies and supporting future growth.
• Healthy Balance Sheet and Capital Deployment: With a strong cash position and no outstanding term loan, Tactile Medical is actively returning capital to shareholders through a new $25 million share repurchase program, while maintaining flexibility for strategic investments.

Unlocking Underserved Markets: Tactile Medical's Strategic Evolution

Tactile Systems Technology, Inc. (TCMD), operating as Tactile Medical, is a medical technology company dedicated to revealing and treating individuals with underserved chronic conditions, primarily lymphedema and chronic respiratory conditions, within the home setting. The company's mission revolves around advancing the standard of care through home-based solutions that improve clinical, patient, and economic outcomes. This focus positions Tactile Medical in a niche yet significantly underpenetrated market, where millions of patients remain undiagnosed or undertreated.

The company's journey began in 1995, leading to the FDA clearance of its first-generation Flexitouch system in 2002. Over the years, Tactile Medical systematically expanded its lymphedema portfolio with subsequent Flexitouch generations, the Entre system, and notably, the acquisition of the AffloVest airway clearance business in 2021. This acquisition marked a strategic diversification into chronic respiratory care, funded by a $30 million term loan and a revolving credit facility. The company's strategic evolution has been characterized by continuous product innovation, a direct-to-patient and -clinician business model, and a persistent focus on generating clinical evidence and advocating for favorable reimbursement policies.

A pivotal moment occurred in 2024 when the company successfully navigated increased documentation requirements by Medicare Administrative Contractors (MACs) under the former LCD policy. This challenge, which created administrative hurdles and impacted sales, ultimately led to the retirement of the LCD in November 2024. The subsequent transition to the less restrictive National Coverage Determination (NCD) is now a significant tailwind, expanding access to advanced pump therapy for patients with complex lymphedema. This historical context of adapting to regulatory shifts and continuously innovating underscores Tactile Medical's resilience and strategic agility.

Technological Innovation and Competitive Edge

Tactile Medical's core competitive advantage is deeply rooted in its differentiated technology and patient-centric innovation across its product lines.

The company's lymphedema portfolio is spearheaded by the Flexitouch Plus system, an advanced pneumatic compression device. This technology stands out for its ability to treat lymphedema in various anatomical sites, including the head and neck, phlebolymphedema, and lipedema. Recent six-month data from a randomized controlled trial (RCT) on head and neck lymphedema demonstrated sustained long-term effectiveness of Flexitouch Plus as a first-line therapy compared to usual care. The study showed reduced internal swelling across the majority of anatomical sites, with statistically significant improvement achieved in two specific sites. This evidence is crucial for influencing payer policies and clinical guidelines, potentially broadening access for a large, underserved population of head and neck cancer survivors, 90% of whom develop lymphedema.

Complementing Flexitouch Plus is Nimbl, Tactile Medical's next-generation basic pneumatic compression platform. Launched for upper extremity lymphedema in October 2024 and lower extremity lymphedema in February 2025, Nimbl offers significant user benefits. It utilizes 94% less hosing than its predecessor, Entre Plus, making it exceptionally easy to transport and store at home. This portability and ease of use have driven Nimbl's unit growth to outpace the broader lymphedema market, establishing Tactile Medical as a market leader in the basic pneumatic compression pump category. The device also features Bluetooth technology, connecting seamlessly with the Kylee mobile app, a patient engagement tool that tracks treatments, symptoms, and provides educational resources. Kylee has garnered over 53,000 registered patient profiles and 1.1 million check-ins, offering valuable insights into patient adherence and outcomes while fostering a more connected care pathway.

In the airway clearance segment, the AffloVest is a portable, wearable high-frequency chest wall oscillation (HFCWO) vest. This device is patient-preferred over other HFCWO products and is highly effective in managing symptoms associated with bronchiectasis and other chronic respiratory conditions. Tactile Medical's commitment to innovation in this area is evident with the submission of a 510(k) to the FDA in early Q4 2025 for a next-generation AffloVest. This enhanced product is designed with reduced weight, digital connectivity, and improved sizing adjustability, aiming to further support patient experience and adherence.

Beyond devices, Tactile Medical is leveraging technology to streamline its operational workflows. The e-prescribing platform, Parachute, is designed to simplify the order process, with over 25% of Nimbl orders currently generated through this tool. The company plans to expand this functionality to Flexitouch orders, aiming for increased efficiency and accuracy. Furthermore, a pilot program for an AI-based tool was launched in Q3 2025 to integrate artificial intelligence into order intake and medical record review processes for traditional non-e-prescribed orders. Early results are encouraging, as the tool can quickly identify missing documentation, thereby improving speed and accuracy in a historically manual and protracted process. These technological advancements contribute directly to Tactile Medical's competitive moat by enhancing product utility, improving operational efficiency, and ultimately driving higher patient satisfaction and retention.

Competitive Positioning and Market Dynamics

Tactile Medical operates in a competitive landscape, facing both large, diversified medical device conglomerates and more specialized players. In the airway clearance market, Tactile Medical is rapidly gaining ground against established competitors like Baxter International , which has historically held the number one position. Management indicates that AffloVest is "very close to achieving a market-leading position" and is "taking market share" due to its differentiated product, strong partnerships with top 10 respiratory Durable Medical Equipment (DME) providers, and effective medical education. Baxter International (BAX), while a major player in healthcare products, often emphasizes institutionalized solutions, whereas AffloVest's portability and ease of use for at-home care provide a distinct advantage.

In the lymphedema market, Tactile Medical is a "dominant market leader in advanced pumps" with its Flexitouch Plus system and has achieved "market leadership position in the basic pneumatic, non-pneumatic compression pump category" with Nimbl. This dual leadership positions the company strongly against competitors who may specialize in only one segment. Larger medical technology companies like Medtronic (MDT) and Stryker Corporation (SYK), while having broad portfolios and extensive distribution networks, typically do not possess the same specialized focus on at-home lymphedema and chronic respiratory care that Tactile Medical does. TCMD's patient-centric approach and emphasis on portability offer a unique value proposition, fostering strong customer loyalty in its niche.

However, TCMD's smaller scale compared to these multi-billion-dollar rivals can lead to higher customer acquisition costs and potential supply chain dependencies. While stringent regulatory approvals and high R&D costs act as significant barriers to entry, protecting TCMD's market, larger competitors possess greater financial resilience and R&D depth. Industry trends, such as the increasing integration of AI in healthcare, could also present challenges. While TCMD is adopting AI for internal efficiencies, larger competitors with more extensive AI investments might gain an edge in diagnostics or integrated care solutions, potentially impacting TCMD's market share if not adequately addressed. Despite these challenges, Tactile Medical's targeted innovation and strategic investments are designed to maintain and expand its competitive standing.

Financial Performance and Outlook

Tactile Medical's recent financial performance reflects a business in a strong recovery and growth phase, with strategic investments beginning to yield tangible returns. For the three months ended September 30, 2025, total revenue surged by 17% year-over-year to $85.8 million. This growth was fueled by an 11% increase in lymphedema product sales and rentals, reaching $72.4 million, and a remarkable 71% increase in airway clearance product sales, totaling $13.4 million. The company also demonstrated healthy sequential growth, with lymphedema revenue up 10% from Q2 2025 and airway clearance revenue increasing 3% sequentially, despite typical seasonal slowdowns for the latter.

Profitability metrics also showed significant improvement. Gross margin for Q3 2025 expanded by 80 basis points year-over-year to 76%, primarily driven by lower manufacturing and warranty costs, reflecting product design enhancements and stronger collections. Adjusted EBITDA saw a substantial 34% year-over-year increase, reaching $14.4 million. For the nine months ended September 30, 2025, total revenue grew 9% year-over-year to $225.9 million, with gross profit increasing 11% to $169.1 million.

The company's balance sheet remains robust, providing ample liquidity for continued strategic execution. As of September 30, 2025, Tactile Medical held $66 million in cash and cash equivalents and had no outstanding borrowings,

following the repayment of its $24.40 million term loan on July 31, 2025.

The revolving credit facility was also expanded to $40 million with an extended maturity to July 31, 2028. This strong cash generation and disciplined capital management enabled the completion of a $30 million share repurchase program by June 2025, and a new $25 million program was authorized in October 2025, signaling management's confidence in the company's valuation and future prospects.

For the full year 2025, Tactile Medical has raised its revenue guidance to a range of $317 million to $321 million, representing an 8% to 10% year-over-year growth. This updated outlook anticipates lymphedema product growth of 3% to 4% and airway clearance product growth of 52% to 55%. The company expects a GAAP gross margin of approximately 75% and adjusted EBITDA in the range of $38 million to $39.5 million. These projections are underpinned by the continued strength of the airway clearance business, commercial momentum in lymphedema, and a favorable Medicare policy environment. The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, is expected to provide a cash tax benefit of approximately $4.5 million for the full year 2025, further enhancing financial flexibility.

Risks and Challenges

Despite the positive momentum, Tactile Medical faces several risks. Legal proceedings, specifically two qui tam complaints unsealed in October 2024 and served in January 2025, allege false claims and kickbacks related to government payers. While the U.S. government has not intervened at this time, these matters remain ongoing and could result in significant costs regardless of the outcome. The company's business is also subject to seasonality, with lower demand in the first quarter due to unmet insurance deductibles, which can impact revenue predictability. Furthermore, while mitigation strategies are in place, tariffs are expected to have an impact of approximately $1 million for full-year 2025, with an ongoing annual impact of about $0.5 million beyond 2025. The initial disruption from the Q1 2025 Salesforce CRM launch and sales force optimization, though largely overcome, highlights the potential for temporary setbacks during significant operational transformations.

Conclusion

Tactile Medical is demonstrating a compelling investment narrative, characterized by strategic transformation, robust product innovation, and accelerating financial performance. The company's commitment to addressing underserved chronic conditions with differentiated, patient-centric technologies like Flexitouch Plus, Nimbl, and AffloVest is driving market share gains and expanding its total addressable market. Strategic investments in its sales organization, e-prescribing, and AI-enabled order processing are enhancing operational efficiency and improving patient access to care, with early returns already visible in its strong Q3 2025 results.

The favorable shift in Medicare policy with the National Coverage Determination (NCD) provides a significant tailwind, streamlining the path for patients to receive advanced lymphedema therapies. With a healthy balance sheet, disciplined capital allocation, and a clear roadmap for continued product development, Tactile Medical is well-positioned for sustained profitable growth. While legal risks and operational challenges warrant monitoring, the company's foundational strengths, technological leadership, and strategic execution underscore a positive long-term outlook for investors.