TACTILE SYSTEMS TECHNOLOGY INC

Tactile Systems Technology, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Nature of Business and Operations

Tactile Systems Technology, Inc. (“we,” “us,” “our,” and the “Company”) manufactures and distributes medical devices for the treatment of patients with underserved chronic diseases in the home. Our lymphedema product portfolio includes the Flexitouch® Plus, Entre™ Plus, and Nimbl compression device systems, which help manage the symptoms of lymphedema, a chronic and progressive medical condition. We market these products through a direct sales force that engages healthcare providers involved in the diagnosis and treatment of lymphedema, including vascular specialists, vein and wound care clinicians, oncology providers, and certified lymphedema therapists throughout the United States. Our lymphedema products are prescribed for home use and are sold or rented to patients through commercial and government channels, including the Department of Veterans Affairs.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance business (“AffloVest Acquisition”). AffloVest is a portable, wearable vest that treats patients with chronic respiratory conditions. We sell this device through home medical equipment and durable medical equipment (“DME”) providers throughout the United States.

On February 17, 2026, we acquired all outstanding equity interests of LymphaTech, Inc. (“LymphaTech”). LymphaTech is a medical technology company pioneering a digital, three-dimensional (the “3D”) full body measurement and monitoring platform designed specifically for lymphedema.

On April 24, 2026, we entered into a 3-year exclusive distribution agreement with ElastiMed, Inc. to bring MyoSleeve™, a discreet, wearable non-pneumatic compression device for the lower leg, to Department of Veterans Affairs (“VA”) and Department of Defense (“DoD”) patients across the United States. Under the agreement, we received exclusive rights to distribute MyoSleeve through the VA and DoD channels and limited non-exclusive distribution rights in the broader U.S. commercial market, subject to certain contractual conditions. In exchange for these rights, we made a$3.0 million upfront payment in the second quarter of 2026, which was recorded as an intangible asset and will be amortized on a straight-line basis beginning on the date the product is commercially available for sale, which is expected to be in the second half of 2026.

We were originally incorporated in Minnesota under the name Tactile Systems Technology, Inc. on January 30, 1995. During 2006, we established a merger corporation and subsequently, on July 21, 2006, merged with and into this merger corporation, resulting in our reincorporation as a Delaware corporation. The resulting corporation assumed the name Tactile Systems Technology, Inc. In September 2013, we began doing business as “Tactile Medical”.

On August 2, 2016, we closed the initial public offering of our common stock, which resulted in the sale of 4,120,000 shares of our common stock at a public offering price of$10.00 per share. We received net proceeds from the initial public offering of approximately$35.4 million, after deducting underwriting discounts and approximately$2.9 million of transaction expenses.

On February 27, 2023, we closed on a public offering of 2,875,000 shares of our common stock at a public offering price of$13.00 per share. We received net proceeds from this offering of$34.6 million after deducting underwriting discounts, commissions, and offering expenses.

Our business is affected by seasonality. In the first quarter of each year, when most patients have started a new insurance year and have not yet met their annual out-of-pocket payment obligations, we experience substantially reduced demand for our products. We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and because patients desire to exhaust their flexible spending accounts at year end. This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those

payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products.

Note 2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.

The results for the six months ended June 30, 2026, are not necessarily indicative of results to be expected for the year ending December 31, 2026, or for any other interim period or for any future year. The condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Tactile Systems Technology, Inc. and its wholly owned subsidiaries, Swelling Solutions, Inc. and LymphaTech, Inc. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies

There were no material changes in our significant accounting policies during the six months ended June 30, 2026. See Note 3 – “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025, for information regarding our significant accounting policies.

Business Segments

The Company operates asone operating segment. The Company's Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated net income (loss) as the measure of segment profit or loss. Significant segment expenses are those expenses reported in the Consolidated Statement of Operations. The CODM assesses performance for the segment, allocates resources and monitors budget versus actual results using consolidated revenue and net income (loss) which is reflected in the Consolidated Statement of Operations.

Accounting Pronouncements Not Yet Adopted

In September 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2025-06, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” which modernizes the accounting for internal-use software costs to better align with the way that software is currently developed. The update removes all references to the project stages of software development and establishes two criteria that must be

met to begin capitalizing software costs. This update is effective for interim and annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” which requires entities to disclose additional information about specific expense categories in the notes to financial statements on an annual and interim basis. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

Note 4. Inventories

Inventories consisted of the following:

Note 5. Goodwill and Intangible Assets

Goodwill

In the third quarter of fiscal 2021, we completed the AffloVest Acquisition. The purchase price of the AffloVest product line exceeded the net acquisition-date estimated fair value amounts of the identifiable assets acquired and the liabilities assumed by$31.1 million, which was assigned to goodwill. In the first quarter of fiscal 2026, we completed the acquisition of LymphaTech. The purchase price of LymphaTech exceeded the net acquisition-date estimated fair value amounts of the identifiable assets acquired and the liabilities assumed by$8.5 million, which was assigned to goodwill.

The changes in the carrying amount of goodwill were as follows:

Intangible Assets

Our patents and other intangible assets are summarized as follows:

Amortization expense was$1.1 million and$0.9 million for the three months ended June 30, 2026 and 2025, respectively, and$2.0 million and$1.9 million for the six months ended June 30, 2026 and 2025, respectively, of which$0.5 million and$0.3 million for the three months ended June 30, 2026 and 2025, respectively, and$0.8 million and$0.6 million for the six months ended June 30, 2026 and 2025, respectively, was recorded in cost of sales revenue. Future amortization expenses are expected as follows:

In the third quarter of 2025, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASU No. 2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events.” Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting

unit was less than the carrying value. As a result, it was not deemed necessary to proceed to the quantitative test andno impairment was recognized.

Note 6. Accrued Expenses

Accrued expenses consisted of the following:

Note 7. Warranty Reserves

The activity in the warranty reserve during and as of the end of the reporting periods presented was as follows:

Note 8. Credit Agreement

On July 31, 2025, we entered into an Amended and Restated Credit Agreement with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent (the “2025 Credit Agreement”), which amended and restated the credit agreement that we had in place prior to that time (the “Prior Credit Agreement”). The 2025 Credit Agreement provides for a$40.0 million revolving credit facility with a scheduled maturity date of July 31, 2028.

In connection with the entry into the 2025 Credit Agreement, on July 31, 2025, we paid off the full amount outstanding under the term loan that was outstanding under the Prior Credit Agreement, which was$24.4 million (inclusive of principal and interest), using cash on hand. The term loan had been reflected on our condensed consolidated financial statements as a note payable. The 2025 Credit Agreement removed the provisions from the Prior Credit Agreement related to a committed term loan, such that the only term loan related provisions in the 2025 Credit Agreement relate to our ability to request uncommitted incremental term loan facilities and/or an increase in the amount of the revolving loans available under the 2025 Credit Agreement in an amount not to exceed$25.0 million in the aggregate, subject to the satisfaction of certain conditions.

Amounts drawn under the revolving credit facility bear interest, at our option, at a rate equal to (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) Adjusted Term SOFR (defined as term Secured Overnight Financing Rate) for a one-month tenor plus 1% (the “Base Rate”) plus an applicable

margin or (b) Adjusted Term SOFR for an interest period of one, three or six months, at our option, plus the applicable margin. The applicable margin is 0.75% to 1.75% on loans bearing interest at the Base Rate and 1.75% to 2.75% on loans bearing interest at Adjusted Term SOFR, in each case depending on our consolidated total leverage ratio.

The 2025 Credit Agreement provides for a commitment fee at a rate per annum ranging from 0.125% to 0.250% for the unused portion of the revolving credit facility, depending on our consolidated total leverage ratio.

The 2025 Credit Agreement includes financial covenants consisting of a maximum consolidated total leverage ratio covenant and a minimum fixed charge coverage ratio covenant. In addition, the 2025 Credit Agreement includes customary negative covenants, including a restricted payment covenant that permits the Company to repurchase shares of its common stock and make certain other payments, as long as the Company is not in default under the 2025 Credit Agreement, has a consolidated total leverage ratio of no greater than 1.75 to 1.00, and has liquidity of not less than$30.0 million, in each case both before and after giving effect to such stock repurchases or the making of such payments. As of June 30, 2026, we were in compliance with all covenants under the 2025 Credit Agreement.

Our obligations under the 2025 Credit Agreement are secured by a security interest in substantially all of our and our subsidiary’s assets and are also guaranteed by our subsidiary.

As of June 30, 2026, we hadno outstanding borrowings under the 2025 Credit Agreement.

Note 9. Commitments and Contingencies

Lease Obligations

We lease property and equipment under operating leases, typically with terms greater than 12 months, and determine if an arrangement contains a lease at inception. In general, an arrangement contains a lease if there is an identified asset and we have the right to direct the use of and obtain substantially all of the economic benefit from the use of the identified asset. We record an operating lease liability at the present value of lease payments over the lease term on the commencement date. The related right of use (“ROU”) operating lease asset reflects rental escalation clauses, as well as renewal options and/or termination options. The exercise of lease renewal and/or termination options are at our discretion and are included in the determination of the lease term and lease payment obligations when it is deemed reasonably certain that the option will be exercised. When available, we use the rate implicit in the lease to discount lease payments to present value; however, certain leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

We classify our leases as buildings, vehicles or computer and office equipment and do not separate lease and non-lease components of contracts for any of the aforementioned classifications. In accordance with applicable guidance, we do not record leases with terms that are less than one year on the Condensed Consolidated Balance Sheets.

None of our lease agreements contain material restrictive covenants or residual value guarantees.

Buildings

We lease certain office and warehouse space at various locations in the United States where we provide services. These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded on the Condensed Consolidated Balance Sheets, with rent expense recognized on a straight-line basis over the term of the lease. The remaining lease terms vary from approximatelyone tofive years as of June 30, 2026.

We entered into a lease (“initial lease”) in October 2018, for approximately 80,000 square feet of office space for our new corporate headquarters in Minneapolis, Minnesota. In December 2018, we amended the

initial lease to add approximately 29,000 square feet of additional office space, which is accounted for as a separate lease (“second lease”) in accordance with ASU No. 2016-02, “Leases” (Topic 842) (“ASC 842”). In December 2019, we further amended the lease which extended the expiration date of the initial lease, extended the expiration date of and added approximately 4,000 square feet to the second lease, as well as added approximately 37,000 square feet of additional office space, accounted for as a separate lease (“third lease”) in accordance with ASC 842. The portion of the space covered under the initial lease was placed in service in September 2019. The portion of the space covered under the second lease commenced in September 2020. Finally, the portion of the space covered under the third lease commenced in September 2021. The three portions were recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets.

Computer and Office Equipment

We also have operating lease agreements for certain computer and office equipment. The remaining lease terms as of June 30, 2026, ranged from less thanone year to approximatelytwo years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities. The leases provide an option to purchase the related equipment at fair market value at the end of the lease. The leases will automatically renew as a month-to-month rental at the end of the lease if the equipment is not purchased or returned.

Lease Position, Undiscounted Cash Flow and Supplemental Information

The table below presents information related to our ROU operating lease assets and operating lease liabilities that we have recorded:

The table below reconciles the undiscounted cash flows for the periods presented to the operating lease liabilities recorded on the Condensed Consolidated Balance Sheet for the periods presented:

Operating lease costs were$0.9 million for each of the three months ended June 30, 2026 and 2025. Operating lease costs were$1.8 million for each of the six months ended June 30, 2026 and 2025.

Major Vendors

We had purchases fromone vendor that accounted for 10% and 12% of our total purchases for the three months ended June 30, 2026 and 2025, respectively. We had purchases fromone vendor that accounted for 11% and 12% of our total purchases for the six months ended June 30, 2026 and 2025, respectively.

Purchase Commitments

We issued purchase orders prior to June 30, 2026, totaling$39.4 million for goods that we expect to receive within the next year.

Retirement Plan

We maintain a 401(k) retirement plan for our employees in which eligible employees can contribute a percentage of their pre-tax compensation. We recorded an expense related to our discretionary contributions to the 401(k) plan of$0.8 million and$0.7 million for the three months ended June 30, 2026 and 2025, respectively, and$1.6 and$1.4 million for the six months ended June 30, 2026 and 2025, respectively.

Legal Proceedings

From time to time, we are subject to various claims and legal proceedings arising in the ordinary course of business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

On October 25, 2024, the United States District Court, District of Massachusetts (Boston) unsealed two qui tam complaints against us, and we were served with these complaints on January 14, 2025, and January 21, 2025. The first complaint is captioned United States ex. rel. Benjaman Scarborough vs. Tactile Systems Technology, Inc., Case No. 1:21-cv-10813-IT, and was filed under seal on May 17, 2021, on behalf of the United States by a former employee (the “Scarborough Complaint”). The Scarborough Complaint alleges that we submitted false claims and made false statements in connection with the Medicare programs, in violation of the Federal False Claims Act. The second complaint is captioned United States ex. rel. Jackie Gorham, an individual, and Dustin Gast, an individual, vs. Tactile Systems Technology, Inc. Case No. 1:21-cv-11809-IT, and was filed under seal on September 1, 2021, on behalf of the United States by two former employees (the “Gorham Complaint”). The Gorham Complaint alleges that we submitted false claims and made false statements in connection with the Medicare, Medicare Advantage plans, Medicaid and other government payers, in violation of the Federal False Claims Act and submitted false claims resulting from kickbacks in violation of the Federal False Claims Act and the Federal Anti-Kickback Statute. Both complaints seek

damages, statutory penalties, attorneys’ fees, and costs. On February 24, 2025, the parties (the relators under both complaints and the Company) filed a joint motion requesting that both matters (hereinafter the “Actions”) be stayed until November 25, 2025, to provide time for the government to review and assess sample claims for the purpose of assessing the allegations. On February 25, 2025, the court granted the motion and issued orders that stayed the Actions until November 25, 2025. By joint motions of the parties granted by the court, the stay was extended until March 25, 2026, and subsequently until June 23, 2026.

On April 14, 2026, the affected parties (government, relators, and the Company) reached an agreement in principle to settle the Actions for an aggregate payment by the Company of approximately$0.6 million, plus relators’ attorneys’ fees and costs. In connection with the agreement in principle, the Company recorded an accrual of approximately$1.0 million, inclusive of the proposed settlement amount and estimated relators’ attorneys’ fees and related costs, which is reflected in accrued expenses on the Condensed Consolidated Balance Sheet as of June 30, 2026. On July 14, 2026, the parties (government, relators, and the Company) executed the final settlement agreement resolving the Actions for an aggregate payment by the Company of approximately$0.6 million, plus relators’ attorneys’ fees and costs in an amount to be determined.

Note 10. Stockholders' Equity

Share Repurchase Program

On October 16, 2025, our Board of Directors authorized a new program to repurchase up to$25.0 million of our common stock, following the prior repurchase authorization that had been fully utilized. Under the new program, purchases may be made from time to time in the open market, in privately negotiated purchases, or both. The timing and number of shares to be purchased will be based on the price of the Company's common stock, general business and market conditions and other investment considerations and factors. This share repurchase program expires on November 3, 2027. The program does not obligate the Company to repurchase any specific number of shares and may be suspended or discontinued at any time without prior notice.

We made repurchases under the applicable share repurchase program in the following periods, which include the market price of the shares, commissions and excise tax:

As of June 30, 2026, approximately$18.7 million of authorized share repurchases were remaining under the share repurchase program. We expect that repurchases will be funded through available cash balances and ongoing business operating cash generation. Shares of common stock repurchased under the program are immediately retired. Repurchases under our share repurchase program reduce the weighted-average number of shares of common stock outstanding for basic and diluted earnings per share calculations.

Stock-Based Compensation

On May 7, 2025, our stockholders approved the Tactile Systems Technology, Inc. 2025 Equity Incentive Plan (the “2025 Plan”), which authorizes us to grant stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards to employees, non-employee directors and certain consultants and advisors. The 2025 Plan provides for the issuance of up to 1,850,000 shares of our common stock, plus the number of shares subject to any award under the 2016 Equity Incentive Plan (the “2016 Plan”) that was outstanding on May 7, 2025 and that later expires, is cancelled or forfeited, is settled for cash or otherwise does not result in the issuance of all of the shares subject to such award. As of June 30, 2026,1,449,457 shares were available for future grant pursuant to the 2025 Plan.

Following our stockholders’ approval of the 2025 Plan on May 7, 2025, no additional grants will be made under the 2016 Plan. However, outstanding awards under the 2016 Plan will continue to be governed by their respective original terms.

We recorded stock-based compensation expense of$2.3 million and$1.9 million for the three months ended June 30, 2026 and 2025, respectively, and$4.0 million for each of the six months ended June 30, 2026 and 2025. This expense was allocated as follows:

Stock Options

Stock options issued to participants other than non-employees typically vest over three orfour years and typically have a contractual term ofseven orten years. No stock-based compensation expense was included in the Condensed Consolidated Statements of Operations for stock options for each of the three and six months ended June 30, 2026 and 2025. As of June 30, 2026, there wasno unrecognized pre-tax stock option expense under our equity compensation plans.

Our stock option activity for the three months ended June 30, 2026, was as follows:

Options exercisable of 272,690 as of June 30, 2025, had a weighted-average exercise price of$41.45 per share.

Time-Based Restricted Stock Units

We have granted time-based restricted stock units to certain participants under the 2016 Plan and the 2025 Plan that are stock-settled with common shares. Time-based restricted stock units vest overone tothree years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was$1.6 million and$1.4 million for the three months ended June 30, 2026 and 2025, respectively, and$2.9 million for each of the six months ended June 30, 2026 and 2025. As of June 30, 2026, there was approximately$10.4 million of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.0 years.

Our time-based restricted stock unit activity for the six months ended June 30, 2026, was as follows:

Performance-Based Restricted Stock Units

We have granted performance-based restricted stock units (“PSUs”) to certain participants. These PSUs have both performance-based and time-based vesting features. The PSUs granted in 2025 have three separate performance periods, andone-third of each grant will be earned if and to the extent performance goals based on revenue and adjusted EBITDA margin are achieved in 2025 (ranging from 25% to 175% of target), one-third will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA change are achieved in 2026 (ranging from 25% to 175% of target), andone-third will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA change are achieved in 2027 (ranging from 25% to 175% of target). The PSUs granted in 2026 have three separate performance periods, andone-third of each grant will be earned if and to the extent performance goals based on revenue and adjusted EBITDA margin are achieved in 2026 (ranging from 25% to 175% of target), one-third will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA change are achieved in 2027 (ranging from 25% to 175% of target), andone-third will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA change are achieved in 2028 (ranging from 25% to 175% of target). All earned and vested PSUs will be settled in shares of common stock.

Stock-based compensation expense recognized for PSUs was$0.5 million and$0.3 million for the three months ended June 30, 2026 and 2025, respectively, and$0.8 million and$0.7 million for the six months ended June 30, 2026 and 2025, respectively. As of June 30, 2026, there was approximately$3.2 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.3 years.

Our PSU activity for the six months ended June 30, 2026, was as follows:

Employee Stock Purchase Plan

Our employee stock purchase plan (“ESPP”), which was approved by our Board of Directors on April 27, 2016, and by our stockholders on June 20, 2016, allows participating employees to purchase shares of our common stock at a discount through payroll deductions. The ESPP is available to all of our employees and employees of participating subsidiaries. Participating employees may purchase common stock, on a voluntary after-tax basis, at a price equal to 85% of the lower of the closing market price per share of our common stock on the first or last trading day of each stock purchase period. The ESPP provides forsix-month purchase periods, beginning on May 16 and November 16 of each calendar year.

A total of 1,600,000 shares of common stock was initially reserved for issuance under the ESPP. This share reserve was automatically supplemented each January 1, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the least of (a)1% of the shares of our common stock outstanding on the immediately preceding December 31, (b)500,000 shares or (c) such lesser amount as our Board of Directors may determine. Pursuant to the automatic increase feature of the ESPP,224,381 shares were added as available for issuance thereunder on January 1, 2026 and 240,780 shares were added as available for issuance thereunder on January 1, 2025. As of June 30, 2026,1,691,730 shares were available for future issuance under the ESPP. We recognized stock-based compensation expense associated with the ESPP of$0.2 million for each of the three months ended June 30, 2026 and 2025, and$0.3 million and$0.4 million for the six months ended June 30, 2026 and 2025, respectively.

Note 11. Revenue

We derive our revenue from the sale and rental of our products to our customers in the United States. The following table presents our revenue, inclusive of sales and rental revenue, disaggregated by product line:

Our revenue by channel, inclusive of sales and rental revenue, for the three and six months ended June 30, 2026 and 2025, are summarized in the following table:

Our rental revenue is derived from rent-to-purchase arrangements that typically range from three toten months. As title transfers to the patient, with whom we have the contract, upon the termination of the lease term and because collectability is probable, under ASC 842, these are recognized as sales-type leases. Each rental agreement contains two components, the controller and related garments, both of which are interdependent and recognized as one lease component.

The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Condensed Consolidated Balance Sheets. We bill the patients’ insurance payers monthly over the duration of the rental term. We record the net investment in leases and recognize revenue upon commencement of the lease in the amount of the expected consideration to be received through the monthly payments. Similar to our sales revenue, the transaction price is impacted by multiple factors, including the terms and conditions contracted by third-party payers. As the rental contract resides with the patients, we have elected the portfolio approach, at the payer level, to determine the expected consideration, which considers the impact of early terminations. While the contract is with the patient, in certain circumstances, the third-party payer elects an initial rental period with an option to extend. We assess the likelihood of extending the lease at the onset of the lease to determine if the option is reasonably certain to be exercised. As the lease is short-term in nature, we anticipate collection of substantially all of the net investment within the first year of the lease agreement. Completion of these payments represents the fair market value of the equipment, and as such, interest income is not applicable.

Rental revenue for each of the three and six months ended June 30, 2026 and 2025, was primarily from private insurers and Medicare. Sales-type lease revenue and the associated cost of revenue for the three and six months ended June 30, 2026 and 2025, was:

Note 12. Income Taxes

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjusting for discrete tax items recorded in the period. Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods used for income tax reporting purposes, including for depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable and inventory reserves. Our provision for income taxes included current federal and state income tax expense, as well as deferred federal and state income tax expense.

The effective tax rate for the three months ended June 30, 2026 was a benefit of 5.7%, compared to an expense of 28.9% for the three months ended June 30, 2025. The primary driver of the change in the Company’s effective tax rate was attributable to the relative impact of stock-based compensation discrete tax items. We recorded an income tax benefit of$0.4 million and an income tax expense of$1.3 million for the three months ended June 30, 2026 and 2025, respectively.

The effective tax rate for the six months ended June 30, 2026 was an expense of 7.0%, compared to an expense of 46.4% for the six months ended June 30, 2025. The primary driver of the change in the Company’s effective tax rate was attributable to the relative impact of stock-based compensation discrete tax items. We recorded an income tax expense of$0.5 million and an income tax expense of$0.2 million for the six months ended June 30, 2026 and 2025, respectively.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-not to sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company currently is not under income tax examination in any jurisdictions.

Note 13. Net Income Per Share

The following table sets forth the computation of our basic and diluted net income per share:

The following common stock equivalents were excluded from the computation of diluted net income per share for the periods presented because including them would have been anti-dilutive:

Note 14. Fair Value Measurements

We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3).

The carrying amounts of financial instruments such as accounts receivable, other current assets, accounts payable, accrued expenses and other current liabilities approximate their related fair values due to the short-term maturities of these items. Non-financial assets, such as equipment and leasehold improvements, and intangible assets are subject to non-recurring fair value measurements if they are deemed impaired.

The following table provides information regarding the fair value measurement of our contingent consideration liability as of June 30, 2026, according to the three-level fair value hierarchy:

See Note 15 – “Business Combination” for additional information regarding this contingent consideration liability.

Note 15. Business Combination

On February 17, 2026, we acquired all outstanding equity interests of LymphaTech pursuant to the Stock Purchase Agreement, dated as of February 17, 2026. LymphaTech is a medical technology company pioneering a digital, three-dimensional (the “3D”) full body measurement and monitoring platform designed specifically for lymphedema. We acquired LymphaTech to further expand our position as a leader in treating lymphedema by extending our solutions across the care continuum, including earlier identification, assessment, and long‑term monitoring.

The total purchase consideration for LymphaTech payable at closing, on a cash-free, debt-free basis, was approximately$7.2 million. Each holder of issued and outstanding shares of LymphaTech capital stock received their pro rata portion (based on their relative ownership percentage) of the consideration paid at closing, less$0.2 million, which was utilized to pay the sellers’ transaction expenses. The other component of purchase consideration is contingent consideration based on the achievement of non-financial milestones after closing, which contingent consideration had an estimated fair value of approximately$4.9 million as of the acquisition date.

The acquisition date fair value of contingent consideration was measured using the income approach, specifically the probability weighted expected return method for the milestone payments. We will remeasure the fair value of the contingent liability on a quarterly basis. Estimates and assumptions used in the valuation include the probability of achieving these non-financial milestones, the expected timing of achieving these milestones, and a discount rate. These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. Any changes in the fair value subsequent to the acquisition date will be recognized in our consolidated statements of operations. There wasno change in fair value for contingent consideration as of June 30, 2026.

The acquisition of LymphaTech was funded by cash on hand. We recognized transaction costs of$0.8 million in the six months ended June 30, 2026. These costs are reported in Reimbursement, general and administrative expenses in our Condensed Consolidated Statements of Operations. Transaction costs include, but are not limited to, investment banker, advisory, legal, and other professional fees.

The following table reflects the allocation of the purchase consideration between the amount paid at closing and the contingent consideration:

Fair Value of Assets Acquired and Liabilities Assumed

The acquisition of LymphaTech has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with the Company treated as the accounting acquirer, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair value on the acquisition date. Acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. The process for estimating the fair values of identifiable intangible assets and certain tangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates.

The purchase price allocation for the LymphaTech acquisition is considered final as of June 30, 2026. The table below presents the estimated fair values of assets acquired and liabilities assumed on the acquisition date based on valuations and management estimates. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.

Identifiable Intangible Assets

The identifiable intangible assets acquired consist of a developed technology asset, customer relationship assets and a tradename asset. The estimated fair value of the developed technology asset was prepared using the relief from royalty method which calculates the value of the developed technology based on royalties that would be paid if licensed by a third party. The estimated fair value of customer relationship assets was prepared using the multi-period excess earnings method which calculates the present value of the incremental after-tax cash flows attributable solely to each customer relationship. The estimated fair value of the tradename asset was prepared using the relief from royalty method which calculates the value of the tradename based on royalties that would be paid if licensed by a third party. The estimated useful lives are based on forecasted periods of benefit for each intangible asset. Estimated useful lives and estimated preliminary fair values are presented in the table below.