Welcome, ladies and gentlemen, to the Second Quarter 2025 Earnings Conference Call for Tactile Medical. 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.

Good afternoon, and thank you for joining the call today. With me from Tactile's management team are Sheri Dodd, Chief Executive Officer; Elaine 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 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.

Thanks, Sam. Good afternoon, everyone, and welcome to our second quarter 2025 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We delivered a strong performance this quarter, marked by total revenue growth of 7.8% year-over-year to $78.9 million, ahead of our previously stated Q2 expectations. By business line, lymphedema revenue increased 2% year-over-year to $66 million and airway clearance revenue increased 51.6% year-over-year to $12.9 million. Q2 gross margins increased 60 basis points year-over-year to 74.5%. On the bottom line, adjusted EBITDA of $7.7 million was down 15% year-over-year as expected due to our planned technology and sales headcount investments. From a balance sheet perspective, we ended Q2 with $81.5 million after accounting for additional stock buyback under our recently completed stock repurchase program. We have moved past the early disruptive stages of our Q1 CRM implementation and sales force rebalance and optimization plan. Our growth and leverage strategies are in their execution phase, and we are increasingly confident in our ability to drive consistently improving results. Elaine will elaborate on our full second quarter results as well as provide an update on our financial guidance for 2025. I will focus the rest of my remarks on a review of our individual business line performance and share progress on our key 2025 strategic priorities: improving access to care, expanding treatment options for lymphedema patients, and enhancing the lifetime patient value. Beginning with the Q2 review of our lymphedema business line. Lymphedema revenue grew 2% year-over-year and over 30% sequentially. Our performance reflects focused execution of our go-to-market commercial strategy, including strong adoption of Nimbl. From a field perspective, our Q1 sales force rebalance and optimization process provided us with a strategic investment roadmap for the right roles in the right geographic locations to meet and drive demand across our lymphedema business. Specific to headcount, we ended the quarter with 293 total reps split between 161 account managers and 132 product specialists. This is an 11% increase compared to our sales headcount at the end of Q1. We continue to experience manageable attrition, and our goal for 2025 remains to employ over 300 total reps by year-end. We are pleased with the pace of our talent acquisition and the caliber of our recently hired reps. Their time to productivity is enhanced by a well-designed CRM and a structured onboarding plan that exposes them to all channel call points, which includes vascular, oncology, therapists, and the VA. For newer reps in particular, the combination of Nimbl and our e-prescribing tool, in addition to well-established vascular call points, has positively influenced their initial selling activity. We are confident that all channels are healthy and with more capacity and feet on the street moving forward, we expect to see continued growth in all channels over time. As a reminder, each of our channels has a different inherent product mix and based on those demographics, a different payer mix. With increased and strategically placed field resources, coupled with the CRM module enhancements and developing proficiency, we expect rep productivity, as measured by referrals per territory, to incrementally improve over the year. Compared to where we were in Q1, we are very pleased with the momentum and remain committed to our 2025 go-to-market plan. We also remain confident in the attractive fundamentals of the broader lymphedema market. We estimate there are approximately 145,000 patients in the U.S. that are diagnosed with lymphedema and currently being treated with either a pneumatic compression device or a non-pneumatic compression device. We estimate this patient population is growing at 10% annually. Then there are approximately 2 million U.S. patients who are diagnosed with lymphedema and not currently receiving a PCD or non-PCD treatment. Further penetration into this patient population represents our near-term commercial focus. Finally, there are approximately 20 million U.S. patients with lymphedema who are undiagnosed and an even larger population beyond that of patients who fall within our product indication. This represents our mid- to long-term commercial focus, and we are eager to build out those strategies. From a reimbursement perspective, we continue to see a favorable near-term payer policy environment following last year's challenging Medicare coverage dynamics. Through successful claims adjudication and direct engagement with the MACs, we are gaining more clarity on the interpretation of the unique characteristic requirements. We believe the coverage landscape is becoming more supportive for patients that need advanced pump therapy. These patients now have a clearer path to receive the right product that meets their clinical needs at the right time. Turning now to our airway clearance business line. Sales of AffloVest increased 52% year-over-year and 21% sequentially in Q2, demonstrating sustained momentum following our strong start to the year. The key drivers of performance are consistent with what we had previously shared. We are executing well against secured partnerships across the top 10 respiratory DMEs and see growing demand due to increased awareness of bronchiectasis. Our product priority position with leading DMEs is also supported by training and education events for providers and hospital care coordinators as well as respiratory DMEs, including their sales trainers and operations staff. In the first half of this year, our team educated nearly 1,200 respiratory DME partners and clinical customers on bronchiectasis and the role of AffloVest in its care. We expect broader awareness of bronchiectasis and available treatment options, including AffloVest, to benefit our market share, and we remain focused on fortifying relationships with each of our top DME partners and penetrating deeper within these accounts to continue our strong growth throughout the rest of 2025. Continued commercial acceleration in this area will pull us closer to being the #1 market share holder in the space and as a result, help introduce AffloVest to the 5 million diagnosed and undiagnosed bronchiectasis patients in the U.S. Earlier this year, I shared our 3 strategic priorities for 2025 to unlock the lymphedema TAM and enable scalable, profitable growth. Similar to Q1, I will share progress updates on each of these priorities. Beginning first with our goal to improve access to care. We are working diligently to remove the long-standing training and education, policy, and evidence barriers that prevent more lymphedema patients from accessing the right treatment options that best fit their clinical conditions. Our target and associated investments are focused on increasing PCD therapy adoption in the diagnosed population. One area of focus is simplifying the workflow process of patient identification, patient referral, and order processing. This is a foundational investment for scale, and we expect it to support both top and bottom line growth through increased referrals as well as operating expense leverage. An example is the CRM tool, which helps our sales and marketing teams identify where new patient identification opportunities are within our existing channels and it supports sales effectiveness during those prescriber interactions. A second key investment in workflow process improvement is in our e-prescribing tool, Parachute, designed to streamline the order process by more efficiently collecting the required patient documentation. Since its full launch late last year, we have been growing adoption, resulting in over 25% of Nimbl orders to date being generated through Parachute. We are building the required interfaces to support expansion of Parachute and Flexitouch orders and plan to launch this functionality for both providers and clinicians later this year. E-prescribing solves for the order processing speed and increased accuracy, but we know that not all clinicians will adopt this type of technology. Our third workflow improvement investment is embedding an AI-based technology to support speed, accuracy, and leverage in our order intake and medical record review processes for traditional non-e-prescribed orders. For order intake, the AI tool can quickly analyze patient referrals and extract required information regardless of whether that referral comes via fax, e-portal, or e-mail. For context, we receive roughly 1,000 faxes per day as part of the order intake alone. Similarly, the tool is trained to scan patient medical records, which can range from a few pages to over 100. This medical record review step is currently done manually, and it identifies if the payer required medical necessity criteria is documented. With AI, this process will be faster and will provide an early initial assessment of patient eligibility. To ensure accuracy, our team would then validate this assessment by reviewing the required or missing information flagged by the tool. From a P&L perspective, we expect the top line to benefit from faster referral to order conversion, which should help mitigate patient leakage due to a historically protracted onboarding experience. On the bottom line, increased automation translates to leveraged operating expense by decreasing manual data entry tasks and increasing accuracy to minimize human error. We will start with the pilot of the AI tool over the next few months so that we can learn and ensure seamless integration with our other IT systems and change the management of our order operations team. Clinical evidence is another element of improving access to care. And in the second quarter, we delivered tangible progress on this front with the presentation of 2-month data from our head and neck lymphedema randomized controlled trial at the American Society of Clinical Oncology's Annual Meeting in June. As a reminder, this trial examines the effectiveness of Flexitouch Plus compared to usual care in treating lymphedema among head and neck cancer survivors. Current modalities for managing head and neck cancer-related lymphedema include therapist-guided lymphedema treatment and lifelong home-based self-care. We are very pleased with the 2-month data as it validates Flexitouch Plus as a clinically supported alternative to usual care. We are proud to have these results accepted for presentation at a total of 3 different clinical conferences. Our next study deliverable is finalization of the 6-month analysis and then manuscript submission in early Q4. 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 going forward. Our second strategic priority is aimed at ensuring diagnosed patients have appropriate treatment options available to them based on their individual conditions, symptoms, and needs. Nimbl is a notable example of our strategy to expand treatment options. Strong adoption of Nimbl continued through the second quarter, driven by both patient and provider preferences for the product given its unique features and capability. We believe this sustained demand since its initial rollout last fall is helping grow the overall market for lymphedema PCDs, particularly as Nimbl so far is outpacing broader market growth. Among our lymphedema PCD offerings, Nimbl is also growing faster than Flexitouch. While Flexitouch still represents the majority of our lymphedema revenue, we are pleased with Nimbl’s success to date and believe it is a testament to our ability to serve the broad lymphedema market needs across both basic and advanced pumps, which we now enjoy a market-leading position in both categories. We remain committed to new product innovation and are not stopping with Nimbl. Development of our next-generation advanced lymphedema pump is underway and progressing in line with scope, budget, and timelines, and our product roadmap also includes further Nimbl enhancements. Finally, our third strategic priority is focused on enhancing the lifetime patient value. We believe there is an opportunity for us to support lymphedema patients more efficiently over a longer duration as they manage their disease symptoms and treatments, both prior to and during the order and shipment process. There are several ways we are approaching this. Last quarter, we established a patient services organization, which centralized our patient education consultants or PECs and back-office patient support team into one consolidated function. These teams within patient services interface most directly and frequently with our patients, and we will now benefit from a consistent approach when engaging with patients pre-, during, and post-shipment. The PEC team specifically supports in-home patient product demo and training. This workforce has been a vital resource for our sales team since its inception in 2023. We ended Q2 with 60.5% of patient demos performed by PEC, up from 52% at the end of Q4. Looking ahead, we envision staffing our large, well-developed territories with dedicated PEC resources rather than shared. This will help ensure our account managers and product specialists can allocate even more of their time to engaging with clinicians and hand off the patient support requirements to the PEC. We are also looking at new ways we can support patients at the front end of the order process. Given the dynamic payer nuances in the order process, including medical necessity documentation and prior authorization, this portion of the patient journey is often the most complex and drawn out. We recently launched a care navigation pilot designed to proactively reach out to patients earlier and more consistently throughout the order process. During the pilot and subsequent expansion, we will gain insight into the moments that matter most for patients to receive more information and solidify their engagement in the process. This is important because many times, 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. At scale, care navigation should further reduce the need for the sales rep's involvement in the order process, help mitigate patient leakage, and enhance the overall patient support connectivity and experience. We are also utilizing our patient engagement tool, Kylee, as a means to enhance overall patient connectivity. At the end of June, we hit over 53,000 individual patient profiles registered with Kylee and 1.1 million total check-ins. We plan to further increase utilization by introducing Kylee at the onset of the patient care journey, which can be supported through our care navigation evolution and with our PEC team. Regardless of how patients are introduced to Kylee, we have a digitally connected platform that can support order progress visibility, symptoms, measurements, therapy treatment tracking, product training, disease education, warranty submissions, e-commerce, troubleshooting and product support, as well as sharing patient-reported data and photos with clinicians. Kylee enables a more connected care pathway and provides our organization with more insights into opportunities to help support patients with product and service innovation. With that, I will now have Elaine review our Q2 financial results in more detail and provide an update on our guidance for 2025.

Thanks, Sheri. Unless noted otherwise, all references to second quarter financial results are on a GAAP and year-over-year basis. Total revenue in the second quarter increased by $5.7 million or 7.8% to $78.9 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Entre, and Nimbl systems, increased $1.3 million or 2% to $66 million. And sales of our airway clearance products, which includes our AffloVest system, increased $4.4 million or 52% to $12.9 million. Continuing down the P&L, gross margin was 74.5% of revenue compared to 73.9% in the second 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. Second quarter operating expenses increased $6.5 million or 13% to $54.7 million. The change in GAAP operating expenses reflected a $1.4 million increase in sales and marketing expenses, a $0.2 million decrease in research and development expenses, and a $5.3 million increase in reimbursement, general and administrative expenses, including primarily driven by strategic technology investments. Operating income decreased $1.8 million or 30% to $4.1 million. Interest income increased $0.1 million or 13% to $0.9 million due to increased cash position. Interest expense decreased $0.1 million or 22% to $0.4 million. Income tax expense decreased $0.5 million or 26% year-over-year to $1.3 million. Net income decreased $1.1 million or 25% to $3.2 million or $0.14 per diluted share compared to $4.3 million or $0.18 per diluted share. Adjusted EBITDA decreased as expected to $7.7 million compared to $9.1 million. With respect to our balance sheet, we had $81.5 million in cash and cash equivalents and $24.8 million of 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. We also completed an additional $16.5 million of stock buyback, which concludes the current stock repurchase program. Subsequent to the quarter, we retired our $24 million term loan and refinanced our revolving credit facility, increasing the capacity from $25 million to $40 million. Turning to a review of our 2025 outlook. For the full year 2025, we now expect total revenue in the range of $310 million to $315 million, representing growth of approximately 6% to 8% year-over-year. This reflects the sales vacancy and the impact of the CRM launch on sales rep productivity in the lymphedema business during the first half of the year, along with the strength in the airway clearance business. Our 2025 total revenue guidance range assumes that growth for our lymphedema product line will be 1.5% to 3% and growth for our airway clearance product line will be 40% to 43%. 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 10% to 11% year-over-year as we invest in our sales organization and advance our tech-related investments throughout the year. 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 to 24 million shares. As a result of our stronger-than-expected gross margin, we now expect to generate adjusted EBITDA of approximately $33 million to $35 million in 2025. Our adjusted EBITDA expectation assumes certain non-cash items, including stock compensation expense of approximately $8.1 million, intangible amortization of approximately $1.3 million, and depreciation expense of approximately $5.3 million. We've successfully implemented a range of tariff mitigation strategies, including reshoring manufacturing, enforcing supplier compliance, and leveraging exemption policies, which have significantly reduced our exposure. As a result, we now expect the full year tariff impact to be approximately $1 million to $1.5 million. Looking ahead, if no further changes occur, we anticipate an ongoing annual impact beyond 2025 of roughly half this amount.

Thank you, Elaine. In sum, we are pleased with our second quarter performance. We delivered on our Q2 expectations across the P&L for lymphedema and airway clearance, reflecting solid execution in both business lines. We have moved past the early disruption from our CRM implementation and sales force optimization. As we look ahead to the second half of 2025, we are focused on driving operational and financial performance and are confident in our ability to sustain this momentum and believe our strategic initiatives will position us well ahead into 2026 and beyond. With that, operator, we'll now open the call for questions.

And our first question will come from Adam Maeder with Piper Sandler.

Yes. This is Kyle Winborne on for Adam. Congrats on a good quarter. I guess maybe to start, if I could just push a little bit on the guidance. I'm seeing that you guys beat Street numbers by about $5 million, but then raised the full year guidance by about $1 million at the midpoint. So I was just kind of curious if you could walk us through some of the components here and maybe why more of the Q2 upside wasn't pushed through for the full year.

Yes. Thanks, Kyle, for joining. This is Sheri. We were really excited to exceed expectations in Q2, and we took a really thoughtful approach as we thought about the back half of the year. Our Q2 performance gave us the confidence to raise our bottom end of the guidance up by $1 million. The positive momentum that we've had with the sales reps that we brought on, actually exceeding our target, the stronger CRM adoption and proficiency, and market share growth in Nimbl and AffloVest give us a lot of confidence. And we also know that there are some realities of scaling our commercial organization. So we had some lessons learned with our CRM rollout in Q1, which showed that even when you've made the investment and have a well-managed plan and implementation, you can still get some short-term disruption. So knowing that we're going to be launching AI tools in the second half, we just thought to be really thoughtful about our approach to this and hedge a little bit against some short-term variability. But all that being said, we're really excited about the momentum that we have and put forward the very best guidance based on the information that we have, and we expect to deliver on that.

That's helpful to hear. I'm glad to know that the 6-month data release for the head and neck project is still on track for later this year, specifically in early Q4 if I understood correctly. How soon do you think you can get payers on board after that? Also, when can we expect to see impacts on the profit and loss statement?

Sure. Yes, we are really excited about that head and neck data. And again, as I said in my prepared remarks, we've had that 2-month data presented now, it will be in 3 different conferences. The manuscript submission will go in, in Q4. Obviously, it's very contingent on the journal and how fast they are to actually publishing, but it is our intention to get that in early Q4. As it relates to full commercialization, I just want to put a little bit of context around this. I just want to remind you and everyone else that we already have the indication for head and neck, so it's not about a new indication. This really is around coverage and the fact that currently, commercial plans tend to see head and neck lymphedema with PCD as being experimental and investigational. We are already engaging in conversations with our commercial payers. They understand and have more awareness now that their policies may not reflect what is now we're going to be able to show more of a standard of care being able to use pumps, but that does take time. They have to review their policies. They typically have a cadence of where they update policies that is not our timelines, but it will be their timelines. But it will certainly help to have the manuscript. It helps to have the posters and the abstracts. And we know that 90% of patients with head and neck cancer are going to have lymphedema. So the fact that this is a patient population that is likely going to be at risk of getting on to earlier therapy is going to be better. So it will take some time. We're driving as much as we can right now, and we've definitely had some inroads with the commercial payers. As it relates to Medicare, the NCD does allow a path for patients with unique characteristics, which is things like having lymphedema in the head and neck area, to go directly to a pump. We are engaging and continue to have conversations with the MACs about this and are looking forward to seeing that expanded patient population have better coverage. And so we expect this to continue to move forward in 2025, but probably have a bigger impact in 2026 and beyond, obviously.

Our next question comes from Ryan Zimmerman with BTIG.

Congrats on the quarter. Sheri, I want to ask, you gave some good stats, I think, on the market. And you talked about 145,000 patients, I think, being treated. I'm curious if you can kind of give us your thoughts on where you think your share estimate is there. I put it at about 1/3 maybe of that market. But given the market is growing at 10%, as you said, given where your lymphedema business has been growing, I'm curious kind of how to reconcile that with the plans to kind of get back to that market growth rate over time? And do you think that, that 10% is kind of the right long-term growth rate to think of for Tactile over the long term?

Yes. Thanks for your question, Ryan. We definitely believe that Tactile can return to double-digit growth, and we're headed that way. When I think about the drivers, I want to break them down into market, as you mentioned, market share product mix, which is closely tied to channel strategy, and then kind of streamlining the back office. So for market, the lymphedema market continues to expand, and the number of patients treated with both PCDs and non-pneumatic compression devices appears to be growing at a 10% CAGR, and we expect this momentum to continue. Less than 10% of diagnosed lymphedema patients get treatment at all. So as a market leader, we are well positioned to influence this through clinical education, patient engagement tools like Kylee, etc. So nothing has changed in that market fundamentals, and we think it's going to continue to grow, and we're going to be able to get into that with both diagnosed patients on the short term and undiagnosed over the longer term, move them into undiagnosed to diagnosed. From a market share and product mix perspective, we don't report out specifically on our share by product. But we do know that growing this business to double digits will require deep market penetration into both product categories. What we do know is that the basic pump for us, Nimbl, is growing faster than that total market CAGR. So we are outperforming the market CAGR with Nimbl. And that has been great for us and will continue to be really good for us. But that growth does have a muted impact on revenue growth relative to unit growth. So as our mix stabilizes and we're no longer lapping the shifting portfolio, we expect the revenue growth to more closely mirror unit growth as represented by the CAGR.

That's helpful, Sheri. And just to push on that, when do you think you lap? I mean, you launched Nimbl, I think, maybe late last year, if I'm not mistaken. So is it fair to assume that by the end of this year, that's when you start to lap that?

Nimbl launched the upper extremity late last year and the lower extremity in February of this year. We haven't even completed a full year of having the full Nimbl product line. However, we have been focused on our Entre Plus and Nimbl within the basic category, and we have observed consistent growth over time in that basic pump segment. We have also introduced e-prescribing and have been concentrating our efforts on expanding in the basic pump growth area. Regarding our channel strategy, new representatives find it easier to sell Nimbl and e-prescribing compared to entering an oncology suite. Therefore, the vascular channel aligns well with Nimbl and e-prescribing. As the representatives become more experienced, they will access all channels. As they gain experience and we effectively implement our channel strategies, we believe this will significantly impact the balance between Nimbl, Entre, basic pumps, and advanced pumps, reflecting the broader market trends.

Yes. And Ryan, I think specific, I know you're getting to timing. I think you know that this has been a multi-year journey for us to really make a concerted effort to penetrate that basic pump space, which is why our growth has really accelerated there. Before the Entre Plus, we now have the Nimbl, we have Flexitouch. And so I think what we're seeing is that while we're starting to see kind of really good traction, hence now our product mix more closely representing the industry, that's why we said we're not quite there yet, but we're getting closer to that. We'll be able to share a bit more on timing as we get into early next year here full 2026. But we wanted to at least provide sort of that dynamic as to why temporarily our revenue growth has not quite matched the industry growth there.

Our next question comes from Brian Vasquez with William Blair.

I wanted to first focus on the composition of the guidance and the updated guidance. Previously, lymphedema sales were slightly higher while airway clearance sales were a bit lower. The good news is that these two can offset each other. I would like to discuss what is slowing down on the lymphedema side and what is performing strongly on the airway clearance side to help adjust the mix and enhance the guidance.

Sure, let me start by discussing Afflo, as it’s an impressive story. It might sound repetitive from what we shared in Q1, but Afflo truly exemplifies our strategic execution. We've established secured partnerships with the top 10 respiratory durable medical equipment providers, which includes preferred product placements for several of these providers. Our finance team is fully aligned with them, and they are planning on the product volume, which affects their respective balance sheets due to the 13-month cap rental of the product. We're also observing increased demand driven by the 1,200 clinical education events we've conducted, along with a growing awareness in the market. We are excited about offering a unique product that is genuinely mobile, battery-powered, and lightweight, which are key differentiators for both providers and patients. We are doing everything we committed to, we have an outstanding product, we are educating effectively, and we have secured strong partnerships, which we expect to continue through 2025.

In terms of lymphedema, we are experiencing a different unit mix between our basic pumps and advanced pumps. Nimbl is growing at a faster rate than the market and outpacing Flexitouch. However, the revenue allocation for basic versus advanced pumps differs, which impacts our percentage growth in revenue. We are confident in our commercial strategies, both in channel management and go-to-market approaches with our sales representatives. We are ensuring the right support systems are in place, and we believe we will continue to capitalize on the growing market, expand our market share, and ultimately have our revenue reflect the true product mix as indicated by the CAGR of the broader market.

One of the more positive updates is that you've shared some unique characteristics related to reimbursement that seem to be looking up, or at least you feel more optimistic about those developments. Could you discuss what you are observing in the underlying business, particularly regarding the reimbursement update that is making you feel more at ease?

Sure. I'll share this with Elaine. We mentioned that the transition from LCD to NCD was a significant improvement for patients since it removes the necessity for a patient to undergo a basic pump trial before advancing to an advanced pump trial. For a Medicare patient, this means that they would no longer need to have a basic pump that didn't even cover their head and neck before qualifying for an advanced pump. The unique characteristics now allow for documentation demonstrating that a patient has edema beyond just the limb, including areas such as the chest, trunk, head, and neck, as well as possible skin changes like fibrosis or hyperpigmentation. Because these unique characteristics are part of the NCD, there is now a pathway for patients to access an advanced pump if they fulfill the clinical requirements. I will now let Elaine provide some real-time insights on what we're observing.

Yes. I think to tag on to what Sheri is saying, what we're excited about is it's really becoming clear to us that the pivotal policy is meant to make sure patients get the right product for their clinical indication the first time. There's no longer this pathway that's needed against for these Medicare patients. It also complements our strategy. We've been focused on ensuring we've got that basic pump penetration so we can serve those patients well that just have lymphedema confined to their limbs and also that other more distinct group who have more complex cases where the lymphedema is extending to parts of their body and skin conditions with our Flexitouch. We have 2 great products, and we now have a really good strong foothold in both segments. So we feel like we're well positioned to take advantage of this NCD approach of ensuring the right patient gets the right product.

Moving next to Suraj Kalia with Oppenheimer.

This is Seamus speaking on behalf of Suraj. Congratulations on the impressive quarter. I've been reviewing the revenue by channel and noticed some ongoing weakness in the commercial segment. I’m curious about what might be happening there. Are you observing any changes, either positive or negative? I would appreciate any insights you can share.

Sure. Thanks, Seamus. I want to remind you that when we discuss channel, we are really referring to call points since that is where our representatives concentrate their efforts, rather than on payer type. However, there is a correlation between channel and the specific product mix, which in turn affects the payer mix. Just to clarify, when we mention channel, we are indeed talking about call points. From the payer mix perspective, the commercial payer mix is somewhat lower compared to last year, while Medicare has increased. The VA payer mix remains about the same as last year. What you are observing is influenced by several factors, particularly with Medicare. We experienced multiple quarters of reduced Medicare shipments last year due to changes in documentation requirements. Consequently, there is some improvement now, but it is mainly driven by policy changes rather than any shifts in the actual population.

I understand. Thank you for that. I have one more question. We noticed that you completed the share buyback this quarter and paid off the term loan. Can you provide insights on how we should think about cash usage and capital deployment for the remainder of the year and beyond?

Yes. No, we're excited to be in the position where we are where we were able to exhaust our share buyback, and we continue to sit on capital and growing capital. As we've shared in other meetings, we continue to look at opportunities that are strategically aligned with our business to really determine the best use of capital for shareholder returns. We'll continue to look at that and again, continue to enjoy a very durable cash balance that will continue to grow over time.

And our next question comes from Anderson Schock with B. Riley Securities.

Congrats on the strong quarter. So you had a really impressive quarter for sales of AffloVest. Could you just talk about what's driving this? And then also any trends you're seeing on bronchiectasis diagnosis growth? And what percent of patients are then being prescribed airway clearance devices?

Yes, thanks, Anderson. We are definitely pleased with that growth. Similar to what I mentioned earlier, we believe this is a product of everything aligning perfectly. While last year we established some advanced secured partnerships, we often lacked financial alignment, meaning CFOs and DMEs didn't plan for the product demand that sat on their balance sheets. We not only advanced those secured partnerships by ensuring appropriate product placement, but we also aligned with the CFOs at the DMEs. After seeing Q1, we wanted to ensure that this would be a sustainable growth, and we have no reason to doubt that we won't finish the year strong with continued partnerships. There's certainly been increased awareness around bronchiectasis. As I mentioned, we've educated 1,200 individuals, not just clinicians but also DME sales teams and their order and clinical teams. These individuals are becoming much more aware of the disease, how to identify patients potentially suffering from bronchiectasis, and how to navigate the appropriate screenings. We are leveraging this opportunity and believe we are in a robust position to surpass competitors. Baxter is currently number one, and we are very close behind, pleased with the strong demand. I cannot specifically comment on market share or growth concerning the Vest due to the lagging data that is available for claims analysis. Current information is not available because everything is about a year delayed, but we are definitely pleased with the exponential demand we are experiencing, which is reflected in our financial results.

Okay. Got it. That's very helpful. And then you mentioned the disruption of the new CRM system is behind you now. How should we think about productivity going forward as you continue to expand the sales force and implement some of these new AI sales tools?

Yes. I would say when we talk about productivity, we have been very intentional, and we talked about it in Q1, saying we were investing both in making sure we had the right FTE in the right geography. That's why we had our Q1 temporary pause in backfilling roles. So we could actually look at placing the right kind of account manager and then resource that with product specialists. The account manager is going to be the one that's driving the clinical engagement and the sales, clinician engagement. The specialist is primarily going to be looking at documentation, although they can back up for that account manager, as well as help support existing accounts. We are resourcing, as you saw in our total numbers, and we're going to get to over 300 by the end of the year, this balance between account managers and specialists. When we put those together, along with how we're thinking about our PECs, we'll essentially have a fully resourced territory. We’re now looking at productivity as referrals per territory that would look like everyone I talk about top of license. The rep is selling, the specialist is helping to support, and the PEC is there helping to take patient engagement workload off of the rep. That is how we're measuring and looking at how is that referral per territory increasing over time, and it is. We have a target on what that needs to look like. Of course, there's a ramp with new reps coming on. But that's how we're measuring productivity. When we look at CRM productivity, we've moved beyond what is people logging on and updating some data. We're looking at how they are driving into their book of business, how they are following up on action plans, etc. That tool gives us great visibility to the kind of commercial execution plans that are happening. Both Elaine and I remain very close to Aaron Snodgrass, our VP of Sales, as well as our core AVPs, and we're feeling very good about the CRM as well as the headcount. As it relates to AI, I just want to admit that that's more of a back-office support versus a selling tool. The reps are going to be selling to the clinicians, and the documentation is going to be collected. But when that documentation comes in-house, instead of that being a very manual process by our teams reviewing what could be, as I mentioned, 1,000 faxes per day or 10 to 100 pages of medical records per order per patient, there's going to be a much faster way, higher quality way because it will eliminate human error where we can actually move through that faster. We think that's going to support more on the yield side and mitigate the patient leakage. So it's less on selling and more on the efficiency on the order process. I hope that's clear.

Yes. Very clear. Congrats again on the quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.