Tactile Systems Technology Aktie

Welcome, ladies and gentlemen, to the Third Quarter 2026 Earnings Conference Call for Tactile Medical. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly.

I would now like to turn the call over to Sam Bentzinger, Investor Relations at Gilmartin Group for a few introductory comments. Please go ahead.

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

Before we begin, I'd like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. This 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 third quarter 2026 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We delivered total revenue of $91.9 million in Q3, led by a 13% year-over-year growth in lymphedema, marking our fifth consecutive quarter of above-market double-digit growth.

This consistency demonstrates the durability of our leadership position and the substantial runway created by a market that remains significantly underpenetrated. Airway clearance revenue was $10 million, down year-over-year as anticipated due to the onetime DME inventory transition associated with the launch of our next-generation AffloVest system. The same DME customers we highlighted in Q2 continued to work through temporary excess inventory during Q3. There were no material changes in the underlying dynamics of the business, and we continue to expect airway clearance revenue to improve sequentially in the fourth quarter.

Across the portfolio, we continue to balance strong growth in our core lymphedema business with disciplined execution. Gross margin expanded 90 basis points year-over-year in Q3 to 76.7%, contributing to adjusted EBITDA of $14.3 million. This marks the 12th consecutive quarter of year-over-year gross margin expansion. Importantly, we have achieved this sustained improvement while continuing to invest in our product offerings to deliver greater value to patients and providers.

Based on our year-to-date performance and our expectations for the fourth quarter, we are maintaining our full year 2026 revenue guidance of $360 million to $366 million and raising our adjusted EBITDA guidance to $50 million to $52 million. This outlook reflects our continued confidence in low double-digit growth in our business and our expectation for sequential improvement in airway clearance revenue in the fourth quarter. We expect full year airway clearance revenue to decline mid- to high single digits year-over-year.

I'll now turn a closer review of our lymphedema business line, including Q3 performance and recent progress against our 3 strategic priorities. Elaine will then review our financial results and the outlook for the remainder of the year. Lymphedema remains our core business and primary growth.

Our Q3 results demonstrate our market leadership in both basic and advanced pneumatic compression devices with revenue growing 13% year-over-year to $81.8 million. Sequentially, lymphedema revenue grew 11%, supported by a recovery from the Medicare ordering timing disruption associated with the April implementation of prior authorization requirements.

As expected, the prior authorization process has stabilized as our teams and the MACs have gained experience with the new requirements, and we believe this timing disruption is now behind us.

Medicare revenue returned to growth in Q3, up 11% year-over-year. Beyond Medicare stabilization, the quarter's performance was driven by execution across several key drivers. Our go-to-market investments in sales reps and CRM technology are extending the reach and impact of our commercial organization. Clinic visits increased 19% year-over-year in the third quarter, and referring clinics grew more than 10% year-to-date. These results are enabled by enhanced market insights that help our teams identify and prioritize referral opportunities across our account base.

Our clinician-focused marketing programs are also delivering measurable returns with select events generating 20% to 45% order growth from participating accounts in the 90 days following the event compared to the 90 days prior. And through our medical education team, we have educated more than 13,000 clinicians who treat lymphedema patients so far in 2026, already 25% more than in all of 2025. This expands the number of providers equipped to identify patients and refer them to appropriate therapy.

Additionally, broader patient access to advanced pumps remains durable following our tighter alignment with the NCD policy, and this is reflected in our product mix. As part of the next phase of our go-to-market playbook, this quarter, we established a dedicated strategic accounts team within our broader commercial organization. This team will focus on deepening engagement with larger health systems and IDNs while expanding referral opportunities within existing high-volume regional and national accounts.

Taken together, these trends give us confidence in our ability to deliver sequential lymphedema growth in Q4. We are beginning to see benefits from investments in our operating model and order process, which are improving efficiency and service quality as patients move from referral to therapy. The strong prior year comparison next quarter resulting from the initial benefit of our alignment with the NCD will moderate year-over-year growth but does not change our confidence in the underlying momentum of the business.

Looking beyond our third quarter results, we are executing well on our 3 strategic priorities designed to sustain double-digit growth, expanding access to care, creating value across the patient journey and expanding treatment options. Together, these priorities form a compelling growth model, supporting performance today while strengthening the drivers for sustained lymphedema performance over time.

As with most market development opportunities, growth starts with diagnosis. Patients must first be identified, diagnosed and referred before we can help them access clinically appropriate therapy.

Expanding access to care means helping more patients get diagnosed and referred into the care pathway, but a referral is only the beginning of the order process and growth also requires pulling a higher percentage of referrals through to shipments. Today, not every diagnosed patient with lymphedema makes it through the documentation and order process necessary to receive therapy. And each patient lost along the way is a diagnosed patient who potentially goes underserved.

Creating value across the patient journey is about closing the gap and converting more eligible referrals to shipments, which is where we serve the patient and how we generate revenue. And expanding treatment options supports every step of that pathway. A broader portfolio gives clinicians more solutions for their patients, supports more additional referral opportunities and extends the patient populations and disease stages we can serve. As these capabilities scale, we also expect greater productivity and operating leverage to support adjusted EBITDA growth over time.

Put simply, sustained growth in our lymphedema business is not solely a function of adding sales representatives. It comes from helping more patients get diagnosed and referred, supporting more of those referrals so they can reach therapy and expanding the range of patients and therapy needs we can address.

Our first priority is expanding access to care through earlier diagnosis and broader patient coverage. The opportunity is significant. An estimated 20 million people in the U.S. are living with undiagnosed lymphedema and many diagnosed patients continue to face coverage barriers. Our LymphaTech 3D Scanner currently gives clinicians an FDA-cleared quantitative way to measure limb volume and circumference, supporting earlier and more consistent identification of the disease.

We are encouraged that LymphaTech is currently in use and generating revenue at leading academic medical centers, even ahead of an established reimbursement pathway, demonstrating its utility in clinical practice. We recently achieved an important regulatory milestone, receiving FDA 510(k) clearance for an expanded indication of the LymphaTech 3D Scanner.

LymphaTech is now cleared to provide circumference and volume measurements to aid in the assessment of lymphedema. This expands LymphaTech's clinical positioning beyond measurement and surveillance alone, and this expanded indication strengthens the foundation for our broader diagnostic strategy, including our work on clinical adoption, reimbursement and further integrated diagnostics.

On LymphaTech 3D Scanner reimbursement, our application for a Category III CPT code was discussed during our Q2 earnings call and is scheduled for final review at the February 2027 meeting. While a Category III code is a tracking code rather than a coverage decision, it is an important step towards broader reimbursement.

Together, these regulatory milestones are intended to support wider adoption of LymphaTech, enabling earlier and more objective identification of lymphedema and monitoring of fluid over time and ultimately helping bring more patients into the care pathway.

We are also making progress in broadening payer access for patients who already have been diagnosed with lymphedema. Following publication of the 6-month results from our randomized controlled trial of Flexitouch therapy for head and neck cancer-related lymphedema, we have begun to see movement among commercial payers with a small number removing restrictive experimental and investigational designation from their policies.

Significant work remains, but these early policy changes demonstrate that our clinical evidence and payer engagement can expand coverage over time, opening access to therapy for more eligible patients and supporting additional referral opportunities.

Our second priority is creating value across the patient journey. While we see opportunities to improve the experience at every stage of care, our current focus is on the highest impact stage of the journey, helping more eligible patients successfully start therapy. By reducing friction in the upfront documentation and order process, we can improve conversion from referral to shipment and ensure more patients receive the therapy prescribed by their clinician.

This benefits patients, simplifies the experience for referring clinicians and their staff and supports a more efficient and stable operating model. Ultimately, increasing access to therapy is a key driver of both patient value and sustainable growth. During the quarter, we made organizational and operating model changes to strengthen how orders move from referral to shipment.

We also continue to replatform our end-to-end order process through our AI-enabled order management platform and care navigation work. Together, these efforts are designed to reduce friction, improve visibility into patient progression and strengthen execution across the referral to shipment process. We are already seeing tangible results in medical record review, one step within the broader order process, where technology-enabled improvements have reduced average review time by approximately 50%.

While meaningful work remains, this early result demonstrates the potential to improve service levels, increase capacity and support future order growth more efficiently as we extend these capabilities across the end-to-end process.

Building on this progress, we are taking another important step in the evolution of our operating model. As announced today, Steve Kiewiet, is joining Tactile Medical as Chief Operating Officer. In this newly created role, Steve will lead our order operations and patient services teams, connecting capabilities that support a patient from referral through shipment into one operating organization.

This structure will enable more coordinated decision-making across the full journey and help us extend process improvements more broadly, creating a better experience, greater capacity and a more scalable operating model. Steve brings breadth and depth of experience in revenue cycle management, field-based patient educators, call center and DME operations. This is the right time to bring an executive level enterprise operations leader to our team, and we are excited to have him on board.

Our third priority is expanding treatment options. A broader innovation portfolio allows us to address more patient needs, support additional referral opportunities and serve patients across a broader range of disease stages. We are advancing opportunities that complement our core pneumatic compression therapies and expand the patient populations we can address.

Consistent with our previously stated commitment, a significant milestone came in October when we filed a 510(k) application for Flexitouch Pro, a meaningful enhancement to our advanced pneumatic compression system. Flexitouch Pro is designed to improve the patient and clinician experience through usability and connectivity enhancements that simplify therapy administration while delivering the clinical effectiveness that has made Flexitouch the long-standing market leader.

Subject to completion of the regulatory process, we are targeting a commercial launch of Flexitouch Pro in the second half of 2027. This innovation is intended to reinforce our leadership in advanced pneumatic compression and increase the value we deliver through our core franchise. We are also preparing to introduce MyoSleeve in the U.S. through our partnership with ElastiMed. Our next milestone is a focused VA pilot beginning in late Q4, which will help us evaluate the patient experience, clinical fit and appropriate go-to-market model before broader commercialization.

MyoSleeve is not reflected in our 2026 guidance, and we expect its contribution to build gradually over time. Strategically, it represents an opportunity to serve additional patients and expand the range of therapy needs our portfolio can address. Overall, we remain confident in the durability of our lymphedema business and the opportunities ahead in 2027 and beyond.

Each of our strategic priorities is at a different stage of development and their impact will build over time. Collectively, they are designed to strengthen the fundamental drivers of our lymphedema business, more patients being identified and referred, more eligible patients receiving therapy and a broader range of patients and care needs we can serve. That is the growth model we believe can support durable revenue growth and improving profitability over time.

With that, I'll turn the call over to Elaine to review our financial results and full year outlook.

Thanks, Sheri. Unless noted otherwise, all references to third quarter financial results are on a GAAP and year-over-year basis. Third quarter total revenue was $91.9 million, up $6.1 million or 7.1% as double-digit growth in lymphedema more than offset the expected decline in airway clearance.

By product line, revenue from our lymphedema products, including Flexitouch, Nimbl and LymphaTech increased $9.5 million or 13.1% to $81.8 million. Lymphedema growth was broad-based across payer channels with Medicare revenue increasing approximately 11% and commercial revenue increasing approximately 17% year-over-year, while VA revenue was approximately flat.

Revenue from our airway clearance product, AffloVest, decreased $3.4 million or 25.1% to $10 million, consistent with the DME inventory dynamics Sheri discussed earlier. Year-to-date, total revenue increased 12% to $252.8 million, led by 15% growth in lymphedema.

Moving down the P&L. Gross margin expanded to 76.7% of revenue from 75.8% in the third quarter of 2025. The increase primarily reflected lower manufacturing costs and favorable product mix and was consistent with the expectations embedded in our full year outlook. Third quarter operating expenses increased $6.9 million or 12.7% to $60.9 million. The increase primarily reflected the annualization of prior year sales force hiring and continued investment in technology and other capabilities supporting our growth.

These investments are directed at the growth drivers Sheri outlined, generating referrals, converting more referrals to shipment and expanding our portfolio. By expense category, the increase in operating expenses reflected a $3.2 million increase in sales and marketing expenses, a $0.3 million increase in research and development expenses, a $3.2 million increase in reimbursement, general and administrative expenses and a $0.1 million increase in intangible asset amortization and contingent consideration. Operating income was $9.6 million compared with $11 million in the prior year period.

Net interest income was $0.5 million, consistent with the prior year period. Income tax expense was $3 million compared to $3.2 million in the prior year period. Net income was $7.2 million or $0.31 per diluted share compared with $8.2 million or $0.36 per diluted share in the third quarter of 2025.

Adjusted EBITDA was $14.3 million compared to $14.4 million in the prior year period, and adjusted EBITDA margin was 15.6% compared to 16.8%. Gross margin improved 90 basis points, while higher operating expenses, including the annualization of prior year sales force hiring and continued investment in technology and operating capabilities more than offset that improvement.

Year-to-date, adjusted EBITDA has increased approximately 35% to $29.5 million, and we continue to expect adjusted EBITDA growth for the full year. Over time, as our investments mature and scale, we expect operating expenses to grow more slowly than revenue, supporting operating leverage and adjusted EBITDA growth.

On the balance sheet, we ended the quarter with $75.1 million in cash and no outstanding borrowings, up from $69.9 million at the end of the second quarter. During the third quarter, we generated $12 million in operating cash flow, which more than funded approximately $6.2 million in share repurchases.

As of September 30, 2026, approximately $12.5 million remained available under our $25 million share repurchase program. Our capital allocation priorities are unchanged. We will continue to invest in the commercial, operational and strategic capabilities that support organic growth, preserve capacity for disciplined M&A and repurchase shares when we believe valuation is attractive and doing so does not constrain our strategic priorities.

Now turning to our outlook. As Sheri mentioned, we are maintaining our full year 2026 revenue guidance of $360 million to $366 million, representing growth of approximately 9% to 11% year-over-year. Stronger lymphedema performance is offsetting a lower airway clearance outlook.

In lymphedema, we continue to expect low double-digit growth for the full year. For the fourth quarter, we expect meaningful sequential growth with a moderation in year-over-year growth compared to recent quarters as we lap a particularly strong fourth quarter of 2025 when lymphedema grew 16% on the initial benefit of NCD alignment.

In airway clearance, we now expect full year revenue to decline in the mid- to high single digits compared with our prior expectation of approximately flat. DME customers are taking longer than we initially expected to work through existing inventory as they transition to the next-generation AffloVest, so we now assume a more gradual normalization of ordering. This reflects ordering timing, not a change in patient demand or market leadership.

We expect sequential improvement in the fourth quarter with revenue remaining below the prior year, consistent with our full year outlook. Our total revenue range mainly reflects the timing of lymphedema referrals converting to shipments in the fourth quarter, our seasonally largest quarter. For modeling purposes, we expect the following for the full year: GAAP gross margin of approximately 76.5%, GAAP operating expense growth of 10% to 12%, net interest income of approximately $2.4 million, an effective tax rate of approximately 28% and fully diluted weighted average shares outstanding of approximately 23 million.

We are raising our full year 2026 EBITDA guidance to $50 million to $52 million, representing growth of approximately 12% to 16% compared with $44.8 million in 2025. Our adjusted EBITDA expectation includes the following adjustments: stock-based compensation expense of approximately $8.6 million, depreciation and amortization expense of approximately $7.3 million, executive transition costs of approximately $1.3 million, acquisition-related and integration costs of approximately $1.3 million and litigation-related costs of approximately $1 million.

With that, I'll turn the call back to Sheri for some closing remarks. Sheri?

Thanks, Elaine. To close, this quarter reinforced the strength and durability of our core lymphedema business. We delivered another quarter of double-digit lymphedema growth, expanded gross margins and generated strong cash flow while investing in the capabilities that can support our next phase of growth. Our opportunity extends well beyond the patients we serve today.

By helping more patients get diagnosed and referred, converting more of those referrals to shipments and broadening the range of patients and therapy needs we can serve, we believe we can continue to expand the market we serve and increase the value we create along the patient journey.

At the same time, we remain focused on translating that growth into greater operating leverage over time. Our revenue guidance reflects our year-to-date performance and expectations for the remainder of the year, while our adjusted EBITDA guidance demonstrates continued financial discipline as we invest to support long-term growth. We believe Tactile is well positioned to deliver durable growth, expand operating leverage and long-term value for our shareholders.

Finally, I'd like to thank our Tactile Medical employees for their continued commitment to our patients, our clinical customers and one another.

With that, operator, we'll now open the call for questions.

[Operator Instructions] And our first question will come from Ryan Zimmerman with BTIG.

Elaine, congrats, the profitability. You have the company in such good fighting shape. Just wanted to mention that. If I could ask a little bit about 2027. I know it's early, and we're not going to get guidance. But first, as we think about any puts and takes, particularly with the airway clearance business normalizing, I wanted to get your thoughts around that. But then two, to ask in another way, is there any reason why the lymphedema market would change or slow down or your position and growth would be impacted in any capacity?

Because as I think about both the contributions from, say, Flexitouch Pro, you have the ElastiMed contributions coming in, in '27, you potentially have benefits from LymphaTech. It would seem that there should be some acceleration in the business, particularly on the lymphedema side. I know it's a lot.

Ryan, well, we're smiling here, and thanks for the shout out on the profitability piece. Definitely a lot of work has been done on that side, and appreciate you acknowledging that. I'm going to start with the last point first on the lymphedema business. We don't see any reason why there should be a slowdown.

And in fact, the byproduct of more market awareness with the diagnostic coming into play with the continued, hopefully, favorable policies that support right patient, right pump at the right time. And certainly, from our standpoint, our operating model and our footprint in the field, we believe that this is not a disease area or category or even from our business that would see a slowdown. So we're feeling very good about lymphedema as a core growth driver for our business and the market to be super favorable in that area.

Your question about 2027. So we're not going to be putting any specific guides on 2027. But lymphedema business, we're feeling very confident in the durable growth, what you've seen over the past 5 consecutive quarters of double-digit growth, 13% in this quarter alone. And then for the AffloVest, as we've said, the inventory pacing is going to be a little bit different in Q4. We are going to see a sequential growth from Q3 to Q4.

It's going to be a bit more moderated than what we had talked about in Q2 as we've learned a little bit more about what's happening so far. But we believe that business will step back into what is going to be a good business, and we'll be able to participate with the products that we have, our next-generation AffloVest product, which remains the only untethered vest. It's still the lightest vest. It's a connected vest and continues to provide great value to patients. So without giving any guide on 2027, hopefully, that kind of gives you a flavor of how we're thinking about it.

Very helpful. And Flexitouch Pro, any considerations that we need to be thinking about whether from a price or a margin standpoint as you introduce that to the market? I know you talked about some of the benefits maybe qualitatively, but just any quantitative considerations are helpful.

Yes, you bet. So Flexitouch Pro will fall as an EO652. So that reimbursement will be what it currently is and whether we expect that to be for next year, which is usually increased at the same rate of [ COLA ]. So there won't be any upside or anything different from what is actually the reimbursement from the code standpoint. From an internal standpoint, gross margins will be in the ZIP code of our current products, of the current Flexitouch portfolio.

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

This is Kyle on for Adam. I might just push my luck here again with a 2027 question. I know you're not providing guidance at this time. But from a P&L standpoint, 2025 was an investment year. 2026, there were a lot of investments made as well, while you were also still able to show some good EBITDA growth in both years. So just curious, maybe just at a high level, qualitatively, how are you thinking about that for next year? Should we expect to kind of continue to see some leverage while also still investing in growth? Anything around that could be helpful.

Yes. Thanks for the question. So we have committed to operating leverage and we're -- that is our commitment, and we'll continue to see that into next year. This year, of course, we had some annualization of the sales rep head, and we continue to invest in our business, both in terms of the transformational platform for our order operations, and those investments will continue into 2028. But we expect to see ongoing leverage, and that is our goal to both grow top line as well as bottom line.

From a revenue perspective, and as I shared with my comments with Ryan, there's nothing that says anything is going to be going down, that's going to be pulling or the market becomes less attractive. There is a reality that there is a large proportion of patients that are underserved, and there's no automatic button that allows suddenly a whole bolus of patients to get diagnosed even though we have the 3D Scanner in our portfolio.

There's a lot that needs to happen in order for these patients to get diagnosed. They still have to have the documentation. They still have to see their physicians. So we believe that there is a healthy market there, but I also want to temper some expectations that there isn't just a sudden hockey stick that happens because now we will have the Flexitouch Pro and the 3D Scanner. Takes time, it's chipping, but we are in the best position to be able to demonstrate some durable, sustainable growth in a way that is going to return value to shareholders. Does that answer your question?

Great. That's helpful. Yes, it did. That was great. And maybe just as a quick follow-up, congrats on the head and neck progress with payers. Just wanted to ask if you're willing to quantify how many wins you saw in removing some of that restrictive language? And then similarly, is there anything you could quantify in terms of when some of maybe the -- we could see some gradual revenue contribution from that population or just kind of how you expect that to unfold with those payer wins?

Yes. So consistent to what we shared before, and I wish I had a different story here, but the nature of overturning and changing commercial policies has to be based on evidence and being kind of share of mind for the payers. And so we're not going to quantify or kind of call out the specific payers, but we did see some of those policies change that now have moved from E&I into covered. And so that gives us confidence that the evidence is resonating that payers are willing to change their policies. And then it's just kind of a block and tackle, block and tackle all the way down of getting that to change.

But that also takes some time and we'll build what we believe to be that pace into our 2027 revenue, but it won't be a hockey stick either. But the good news is more patients are going to get access to the only available therapy, compression pump therapy for the head and neck area post them surviving head and neck cancer. So it's an important technology advance and important population, and we're continuing to work really hard to make those policies change.

We'll go next to Brandon Vazquez with William Blair.

I wanted to ask first on AffloVest. Can you just talk a little bit about -- you made a comment that rebuilding inventory has been taking a little longer than you would have expected. Just talk a little bit about the visibility that you actually have on the sell-through of AffloVest and maybe why those -- the rebuilding of inventory is taking a little longer and the confidence you have that we're at the trough here on inventory.

Yes. Thanks, Brandon. So Q2 AffloVest -- sorry, Q3 AffloVest delivered on expectations, and we gave our guidance at a time based on what we saw. And as we've gotten into Q4, we are seeing that pace of burning through the inventory being a little bit slower than we had forecasted when we last spoke to you. And so that is reflected in our current earnings as we've demonstrated here.

What's behind it is, again, there's no new DMEs that suddenly have said we have an inventory. It's the same DMEs that we identified in Q2. And depending on where that inventory is held, sometimes it's in the individual branches and sometimes it's central, but it can be different. And while we don't have real-time visibility into every location, we do know that because this is so concentrated with a few of our customers that when their timing is off, it actually can impact our quarter.

And so that's why we're being prudent and we're giving the guidance specifically on Afflo (sic) [ AffloVest ], and we're calling as we see it, which is a slight slowdown. What we do know is that there's no change in the underlying patient demand, the therapy effectiveness or competition. And so those things remain true. It's just this pace in our indirect business model, those aren't things that I can impact directly.

What we can do, again, is having great therapy, continue to train, continue to help the DMEs and support the work that they're doing, but this pace is something that really is not something I can directly control, and we're coming in as we see it right now.

Okay. And then on the lymphedema side, you guys have given a metric I don't think we get too often, which is that the referring clinics were up 10% year-to-date. I was curious if you could kind of talk a little bit about how does that number historically trend? Is this kind of a good predictor for you guys as you look forward into future growth? What type of accounts are new into the referral network? Are they different than what they've historically been? Just any more commentary around that. I thought it was a good interesting metric on the success you guys are seeing there on referrals. Just curious if we could get more color on how that might -- how it's developing and might impact the business.

Yes. This isn't probably something we're going to update every time. But when we're reflecting on what we could share, we thought it would be good to put a little more quantification around what that rep productivity is actually really looking like. So -- and there's 2 aspects, right? So we have more feet on the street, and then we talked about the rep productivity being enhanced by the CRM tool. And then additionally, we have this overlay of market data that really helps the rep identify where are patients being diagnosed?

And are they in the clinics they're currently calling on or maybe they're in clinics that are outside of the current call point? And so that enhanced market insights really help our teams identify and prioritize the referral opportunities. So literally, more feet on the street and better tools. And while the insights are not real time, they're lagging 3 to 6 months, it's still good data. And so that is why we're seeing this really nice uptick on that year-over-year in clinic visits. And then looking at as well as I gave some metrics on -- just on our marketing programs, actually showing the 90-day pre and the 90-day post, what that actually does to help drive order growth.

So our investments in sales and marketing, when we look at metrics like this and then sharing a few of them with you hope to, you're seeing the value of the investments that we made in 2025 and where our dollars continue to go in, in 2026.

[Operator Instructions] And we'll go next to Ben Haynor with Lake Street Capital Markets.

First off for me, just on airway clearance and the DMEs that presumably some of them have worked through any inventory issues. Can you talk any about what you're seeing from those that do not have the inventory situation?

Sure. So when we look at our -- a small handful of them have inventory issues and they're burning through that. On those that did not have excess inventory and they went and are currently selling Gen 6, what we're hearing is really strong feedback from both clinicians and patients on the product.

And so that appears to be going well, and we continue to help like we do even for those that have the excess inventory, help those DMEs help identify the patients that have bronchiectasis that haven't been put on treatment yet. And so that all is going as it's going. What I want to caution though is even though that adoption of the Gen 6 is good in the small handful of those that are still burning through their excess inventory, our forecasting for Q4 is reflecting both health in those that don't have inventory issues as well as the burn down in those that do.

But we just can't -- Ben, to be honest, we just can't overcome the excess -- the slowdown in the excess inventory burn with performance in the other DMEs. They're performing well, but they can't overcome, if you will, the slowdown with those that have the excess inventory.

Okay. That's helpful color. And then dipping my toe into 2027, anything you could tell us on expectations for what the kind of the field sales force looks like as we get into or exit next year?

You know what, we're super excited to be basically activating our playbook. And when I say excited about that because it's one thing to say you have a playbook, it's another thing to actually use it. And so we are on, I think, part 6 of our go-to-market playbook which the basis of it is when territories get bigger, then we will split territories.

And then splitting that territory, we will put in place both a, what we call a territory account manager as well as that product specialist. So every time you split, you put 2 more in. And so as we look at territory performance, we'll be looking at splitting and some of those maybe that be underperforming, there could be some consolidation. So -- but nothing dramatic is going to happen here.

Just we'll run it like we said we were going to run it. The one difference, and I called this out in the script, is that we did stand up a strategic accounts function. Strategic accounts function, I think, is a natural evolution of any field commercial organization when there is national accounts, those accounts that are starting to be kind of high volume, how do you have a differentiated offering and more of a key account manager that helping to support both the programs and the relationships.

And so standing that up just this past quarter, we won't see any revenue tied to that in Q4, but we definitely would expect strong revenue performance in -- going into 2027, in line with the realities that I mentioned before. You want to have that connectivity to the strategic account, but it doesn't suddenly all of a sudden open up thousands and thousands and thousands of referrals that start coming through in a fast clip. But it's just a maturing of our organization and strategic accounts is a really good first step for us.

Okay. That makes sense. And lastly for me on the LymphaTech clearance, congrats on that. I believe you're monetizing that via a SaaS model at the moment. If you do get that Category I code down the line, do you intend to stick with the SaaS model? Or is this something where it could be a click fee? Or any thoughts that you care to share on how that ultimately gets monetized?

We are still taking a look at that full business model. Pleased that right now, the 3D Scanner currently has a couple of large academic centers that are paying for it as a SaaS model. CPT III, the coding, it just starts as a tracking code and you have to build over time. So we're in early stages of building out that reimbursement pathway. And then we'll be taking and are currently taking and looking to reveal more of that next year what that actual business model looks like. So we're pleased to get the approval, obviously, of the expanded indication. That's the first step. The Category III code, that becomes the next step and then moving on to actually seeing full year commercialization, which will be seen later in '28 and '29.

It's a little bit down the line, but thanks for the thoughts there. And congrats on the quarter.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Sheri Dodd for closing comments.

Thanks, [ Chris ]. I just want to thank everyone for your thoughtful questions. Pleased that we were able to deliver again against our core business, that 13% growth in lymphedema and deliver on what we said we were going to do. We managed the AffloVest kind of shortfall with that strength of lymphedema and are really pleased to be able to keep our guide for the year and increase our pull-up on our EBITDA guide as we finish out the year. So thanks to you, and we look forward to having the one-on-one conversations. And for everyone else, we'll see you next 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.

Please stand by. Welcome, ladies and gentlemen, to the second quarter 2026 earnings conference call for Tactile Medical. At this time all participants have been placed in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference call is being recorded and will be available on the company's website for replay shortly. would now like to turn the call over to Sam Bensinger, Investor Relations at Guild Martin Group for a few introductory comments. Please go ahead.

Good afternoon and thank you for joining today's call. With me from Tactile's management team are Sherry Dodd, Chief Executive Officer, and Elaine Berkemeyer, Chief Financial Officer. Before we begin, I'd like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and are not intended to be used to address the problems of the current inherent risks, and uncertainties. These could cause actual results to differ materially from those indicated, including those identified in the risk factor 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 DAP.

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 Investors Relations portion of our website.

With that, I'll now turn the call over to Sherry. Thanks, Sam. Good afternoon, everyone, and welcome to our second quarter 2026 earnings call. Here with me is Elaine Berkemeyer, our chief financial officer. We delivered another strong quarter of execution in Q2, highlighted by continued strength in our lymphedema business and meaningful profitability expansion. Global revenue was $85.7 million, up 9% year over year, with lymphedema contributing $73.6 million, up 12% year over year. AfroVest contributed $12.1 million, a 7% decline year over year due to temporary inventory management dynamics among several of our large DME partners associated with the launch. launch of our next generation Aflovesk system during the quarter. Importantly, on a trailing 12-month basis, Aflovesk revenue remains up 32% year over year, underscoring the durability of the underlining growth trend, even as we work through this near-term dynamic, which I will touch on shortly.

Our strong revenue performance was complemented by another quarter of meaningful profitability expansion. Growth margin improved 180 basis points year over year and adjusted 49% to $11.4 million, reflecting both operating leverage and disciplined execution across the business. We continue to be strategic and measured in our capital allocation, ending the second quarter with approximately $70 million in cash. Our cash balance sheet is strong, providing flexibility to invest in growth and return capital to shareholders over the short, medium, and long-term horizons. Based on our first half performance, we are updating our full year 2026 revenue guidance to a range of $360 to $366 million. Within that outlook, we are projecting continued strength in revenue expectations for the lymphedema business while anticipating a more conservative view of the ordering patterns in our area. way clearance business as some of our DME partners work through inventory as they convert to the next generation AFOVAS system. I will now review our second quarter performance by business line and provide updates on our ongoing strategic priorities.

Elaine will then discuss our financial results in greater detail and provide additional perspectives on our outlook for the balance of 2026. Both the lymphedema market and our lymphedema business are healthy, and we are pleased to see the continued growth momentum, reflected in a 12% year-over-year revenue growth in Q2. As we have shared in the past, our sales organization calls on a variety of payer types, including vascular and oncology practices, lymphatic therapists, and the VA, each of which tends to serve different patient needs. As a result, our revenue mix across payer types, Medicare, commercial, and VA naturally reflects these points. and is further influenced by the unique coverage policy dynamics. Since aligning our documentation criteria with the now stable Medicare NCD policy, we continue to see increasing volume of FlexiTouch orders, driven in part by our large number of Medicare patients accessing advanced pump therapy more directly than was allowed under the previous LCD policy. That growth was partially offset by the April 13th Medicare Prior Authorization requirement, which introduced additional administrative steps into the order process and contributed to some near-term moderation in Medicare order volumes during the quarter, even as FlexiTouch adoption itself continues to grow. While the time from order completion to shipment is now slightly longer for these patients, prior authorization approval rates and adjudication timelines have tracked in line with our expectations.

We moved quickly to prepare for these requirements ahead of the April 13th effective date and entered the quarter well positioned to execute the new prior authorization process. With a full quarter of experience now behind us, we expect the initial impacts of the implementation to moderate and operational efficiency to continue improving as our teams in the MACs gain familiarity with the new requirements. Our commercial revenue mix continues to demonstrate durable growth, fueled by patient demand, product therapy options, and sales execution across the provider and clinician channels. While the coverage policies are not uniform across commercial payers, we continue to see broad access to our therapies. Our efforts remain focused on reducing administrative burden and expanding patient access in areas where payer requirements or coverage limitations have not yet evolved to reflect the growing body of clinical evidence, society-based guidelines, and current standards of care. Regarding the VA, revenue performance here has less quarter-to-quarter variability due to the stable reimbursement environment and a more streamlined operating model. We continue to view the VA as a strategic long-term opportunity, given the breadth of providers and patient needs.

To that end, we're really excited about our recently- announced distribution agreement with Elastomed to bring a novel compression therapy device specifically to veterans, active duty service members, and other beneficiaries served through the Department of Defense. We believe this opportunity will be an incremental growth contributor within the VA channel over time by expanding the range of treatment options available to patients and clinicians. I'll come back to this partnership in more detail shortly when we discuss our strategic initiatives. Turning now to airway clearance. As I mentioned, sales of AFLOVEST were down 7% year-over-year in the second quarter, reflecting temporary inventory management dynamics among several of our large D&E partners associated with the launch of our next generation AFLOVEST system during the quarter. As we work closely with the DMEs around the launch of our next generation AfloVest system, we learned of a few larger partners that had been carrying elevated AfloVest inventory levels. We expect this to moderate purchasing activity among these particular organizations as they work through existing inventory. As many of you know, this type of inventory management dynamic is common among DMEs.

Based on our visibility today, we expect these inventory management dynamics to continue influencing ordering patterns throughout the third quarter, with purchasing activity beginning to normalize in the fourth quarter as their inventory levels rebalance. The underlining fundamentals of this business remain strong. The patient demand, coverage environment, environment and AfloVest competitive positions are favorable. AfloVest is a differentiated product in a market leadership position supported by strong DMA partnerships and a large addressable market. On a trailing 12-month basis, AfloVest revenue has grown at a compound annual rate of approximately 28% over the past two years and remains up 32% year-over-year in Q2, again on a TTM basis. This underscores the durability of the underlining growth trend despite the near-term inventory management dynamics. associated with the launch of our next generation AfloVest system during the quarter. Importantly, airway clearance remains a profitable contributor to our business.

We are confident that the recently launched next generation AfloVest system will continue to solidify our category leadership position in high frequency chest wall oscillation and remain the product of choice for DME partners, clinicians, and the patients they serve. Turning now to an update on Lymphatech. We believe this acquisition addresses two of the most important unmet needs in the lymphedema patient journey. more objective diagnosis and monitoring disease progression, and the ability to personalize therapy to a patient's specific clinical needs over time. Starting with diagnosis, lymphedema is a chronic progressive disease that's largely diagnosed and monitored today through clinician evaluation, including girth measurement and patient reported symptoms. Inputs that are hard to standardize and unreliable for early detection. There are 20 million patients in the U.S. who have lymphedema but remain unreliable. undiagnosed and unlocking that population is a significant growth opportunity for us and more importantly, for patient care. Lymphatex FDA cleared platform addresses the undiagnosed patient issue directly, providing objective, quantitative assessment of limb volume and circumference and generating a clinical grade 3D model of the affected anatomy.

This provides clinicians with a clear view of disease progression and gives patients a visual. understanding of their own condition, which we believe strengthens engagement and supports more timely access to therapy. Today, Lymphatec is deployed as a software-as-a-service solution, primarily in oncology centers, where clinicians use it to establish patient baselines and monitor change over time. We see a larger opportunity ahead in expanding Lymphatec's role specifically as a diagnostic aid, helping close the gap for the millions of undiagnosed patients. patients I just mentioned. As the market leader in this space, we would like to be the first to begin supporting these diagnostic needs of physicians and the complex patients they treat. To that end, we have submitted for an expanded indication as a diagnostic aid for lymphedema with an FDA-expected approval in 2027. In parallel, we are advancing efforts to secure a Category 3 CPT code, which would establish a reimbursement pathway and support broader adoption over time. Looking ahead, Lymphatec also expands our R&D capabilities towards the second unmet need, integrating sensing and measurement directly into personalized therapy delivery, so treatment can be tailored to the patient's specific lymphatic care needs over time.

We continue to advance integration activities with early clinician feedback reinforcing these key strategic opportunities we see ahead. And we'll provide additional updates as we make progress on commercialization, reimbursement, and product development initiatives. Our Q2 performance was anchored by continued execution of our three ongoing strategic priorities, improving access to care, expanding treatment options, and enhancing the lifetime patient value. Beginning with improving access to care, our stated focus has been on internal and external initiatives aimed at breaking down the barriers barriers, and friction points along the patient care journey. From an external perspective, improving market access conditions is supported by clinical evidence generation, guideline dissemination, and engagement with government and commercial payers. With respect to clinical evidence generation, today I'm pleased to share that the six-month manuscript for our Head and Neck Clinical Evidence Program has been published in the International Journal of Radiation Oncology, Biology, and Physics. This study, a 236-patient trial across 10 sites, represents the largest randomized control trial to date evaluating advanced pneumatic compression therapy for head and neck cancer-related lymphedema.

The results showed that FlexiTouch delivered patient-reported outcomes comparable to therapist-guided care in a treatment-based way. naive population with a strong safety profile and durable benefit over the six month study period. We believe these findings are clinically meaningful because many head and neck lymphedema patients face barriers to accessing lymphatic massage therapy, including travel burden, cost, and delays in care. An at-home advanced pneumatic compression option can help address that access gap and support more timely treatment for this underserved patient population. With this publication, we will continue to focus on translating the evidence into broader provider awareness and payer engagement. Notably, the NCD policy language already allows advanced pump coverage for patients with head and neck lymphedema. Our efforts post-publication will now be centered on working with commercial payers to remove restrictive experimental and investigational designations so coverage policies can reflect the growing body of clinical evidence. We view this as a deliberate, evidence-driven effort to expand awareness, improve access to care, and support broader adoption over time.

Next, on expanding treatment options, where we have an exciting update to highlight. In July, we announced an exclusive U.S. distribution agreement with Elastomed to bring MyoSleeve to veterans, active duty service members, and other beneficiaries served through the Department of Defense. Myosleeve is a discreet, wearable, non-pneumatic compression device for the lower leg, providing an additional treatment option for patients in the earlier stages of chronic swelling, where consistent therapy adherence is important for slowing disease progression. Compression therapy is not one size fits all. Clinicians benefit from having a range of treatment options that can be matched to the patient's clinical needs, anatomy, lifestyle, and disease stage. The device is designed to integrate seamlessly into daily life. It can be worn beneath clothing, allowing patients to receive therapy while going about their normal activities, which provides a more discreet and flexible compression solution.

Leveraging electroactive polymer technology, Myoslee delivers dynamic compression through the flexible bands that contract in sequence, all within a fully battery-powered design that requires no tubing, cords, or external controller. Importantly, the device can function in both active and passive compression modes, providing flexibility to support patient preferences while helping promote long-term therapy adherence and engagement. MyoSleeve expands our market-leading portfolio of lymphatic care solutions and is specifically a natural fit within the VA channel, where we have historically not offered a basic compression product. It is designed specifically for lower leg patients earlier in their care continuum who may not require foot or knee coverage or the advanced capabilities of a pneumatic compression device. result we view Myosleeve as complementary to rather than a replacement for our pneumatic compression therapies including FlexiTouch. We plan to leverage our established VA relationships, reimbursement expertise, and patient support infrastructure to launch MyoSleeve. While adoption is expected to build over time, we believe the product increases our addressable patient population within the VA channel and further advances our strategy of delivering comprehensive solutions to patients. across the lymphatic care continuum. We look forward to providing additional updates as we progress through commercialization.

Finally, our third strategic priority of enhancing lifetime patient values. Consistent with previous updates, we are continuing our targeted care navigation work, designed to give patients clearer guidance earlier in the process and reduce administrative friction. We believe embedding this work in our referral to ship process will reduce patient leakage, enhance the patient experience, and over time reduce sales rep involvement in the order process, supporting both referral growth and operating leverage. With that, I'll now have Elaine review our Q2 financial results in more detail and provide an update on our outlook for 2026.

Thanks, Sherry. Unless noted otherwise, all references to second quarter financial results are on a gap and year-over-year basis. Revenue and profitability exceeded our expectations during the quarter, driven by continued strength in our lymphedema business and disciplined execution across the organization. Total revenue in the second quarter increased by $6.8 million or 9% to $85.7 million, driven by continued strength in our lymphedema business. By product line, sales and rentals of lymphedema products, which includes our FlexiTouch, Nimble, and Lymphatex systems increased $7.7 million, or 12% to $73.6 million. And sales of our Aeroid clearance products, which includes our AfloVest system, decreased $0.9 million, or 7%, to $12.1 million, reflecting temporary inventory management dynamics associated with the launch of our next-generation AppleVest system among a few DME partners during the quarter. Trinket profitability. Growth margin was 76.3% of revenue compared to 74.5% in the second quarter of 2025. The increase in growth margin was attributable primarily to lower manufacturing costs, stronger collections reflected in revenue, and favorable mixed benefits.

Second quarter operating expenses increased $3.8 million or 7% to $58.5 million, reflecting continued strategic investments to support long-term growth, including investments in our commercial organization, technology initiatives, and operational capabilities. The change in GAAP operating expenses reflected a $2 million increase in sales and marketing expenses, $0.5 million increase in research and development expenses, and a $1.3 million increase in reimbursement general and administrative expenses, including and primarily driven by strategic investments. Operating income increased $2.7 million or 67% to $6.8 million. Interest income decreased $0.3 million or 34% to $0.6 million due to our decreased cash position. Interest expense decreased $0.4 million or 95% to $19,000. income tax benefit with $0.4 million compared to income tax expense of $1.3 million. Net income increased $4.6 million or 142% to $7.8 million or 34 cents per diluted share compared to $3.2 million or 14 cents per diluted share. adjusted EBITDA increased 49% to $11.4 million compared to $7.7 million in the prior year period driven by revenue growth, first margin expansion, and disciplined expense management. With respect to our balance sheet, we had $69.9 million in cash and cash equivalents and no outstanding borrowings at quarter end.

This compares to $83.4 million in cash and no outstanding borrowings as of December 31st, 2025. The decline in cash during the quarter primarily reflects the upfront payments made to allow last amend to secure the exclusive distribution rights for myoslate in the VA and Department share repurchases completed during the quarter under our repurchase program. Excluding new strategic uses of cash, we generated positive operating cash flow during the quarter, and our balance sheet continues to provide meaningful flexibility to investing growth and return capital to shareholders. Moving to review of our 2026 outlook. For the full year 2026, we are updating your guidance and now expect total revenue in the range of 360 to $366 million, representing growth of approximately 9% to 11% year over year. At the product line level, we continue to expect lymphedema revenue growth in the low double-digit range for the full year, while airway clearance revenue is now expected to be closer to flat year over year. This range reflects continued strength across our lymphedema business and a temporary impact of the inventory management dynamics within the airway clearance channel during the second and third quarters that Shuri discussed earlier.

For modeling purposes for the full year 2026, we expect our gap growth margins to be 76 to 76.5%. Our gap operating expenses to increase 10 to 12% year over year as the annualized or sales organization investments. and advance our tech-related investments throughout the year, net interest income of approximately $2.4 million, a tax rate of 28%, and a fully diluted weighted average share count of approximately 23 million shares. We continue to expect to generate adjusted EBITDA of approximately $49 to $51 million in 2026. While we are pleased with our strong first-half profitability, maintaining your outlook reflects a balanced view of temporary airway clearance inventory dynamics, the Medicare prior authorization transition and continued investment in strategic growth initiatives. Adjusted EBITDA expectation assumes certain non-cash items, including stock compensation expense of approximately $8.6 million, intangible amortization of approximately $4.2 million, depreciation expense of approximately $3.3 million, litigation-related costs of approximately $1 million, and one-time acquisition related and an integration cost of 1.3 million dollars. With that, I'll turn the call back to Sherry for some closing remarks. Sherry? Thank you, Elaine. We believe our second quarter top and bottom line results reinforce the strength and resilience of our business model.

We are growing. Our profitability profile continues to improve, and we have the financial flexibility to continue to invest in opportunities that can further strengthen our long-term growth profile while maintaining a disciplined approach to execution. Our focus remains clear, improving access to care, broadening treatment options, and creating lifetime value through an enhanced patient experience. At scale, these strategies will drive growth through market leadership, market development, and operational excellence. Notably, Lymphatec expands our platform across the lymphedema care continuum, including upstream diagnosis and monitoring. The next generation AfloVest system reinforces our commitment to innovation and airway clearance. And our MyoSleeve distribution agreement broadens our portfolio with an additional treatment option for veterans and active duty service members and their beneficiaries through the Department of Defense. Our clinical evidence and payer strategies will support broader access to care for underserved patient populations, and our order operations transformation will continue to unlock leverage and referral expansion.

Tactile is well positioned to generate sustainable, profitable growth and deliver meaningful long-term value for our shareholders. I want to thank the Tactile medical employees for all they do for patients, our clinical customer, and for each other. With that, operator, we'll now open the call for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question will come from Adam Meader with Piper Sandler.

Hi, this is on for Adam. Thanks for taking our questions. I guess maybe I'll start on lymphedema. The performance was good there in the quarter. And maybe on the prior authorization updates that you gave. Given the performance and the momentum, it seems like maybe some of the ability to navigate some of the turbulence there was offset maybe by some strength. in the underlying business momentum. But just curious because last quarter we had a lot of discussion about sales acceleration in Q1 and maybe some shift in revenue into Q3 from Q2 due to the prior authorization requirements. So just kind of curious if you could maybe quantify any shift in orders and revenue between the quarters just so we can kind of maybe get a sense of where normal order patterns are.

Because being that it was so, you know, such a good quarter there, you know, Was it kind of just maybe these weren't as prevalent as feared or did your team's experience with this process kind of carry you through successfully?.

Yes, thanks for the question. So, a couple of things. Definitely, lymphedema was a primary driver of the upside, and we continue to see really strong execution across our commercial organization, which is both healthy referral trends. We have improved territory productivity, and then the continued NCD-driven FlexiTouch adoption. Remember that. we started to align our policy with that NCD change in November of last year. We added the additional reps so we've got more referrals coming in, that productivity is happening, so all of these things were really contributing to that overall growth. For sure the Medicare prior off as we reported in Q1 did have a timing impact on when we thought those orders would flow through given there was more upfront administrative work. But that is starting to normalize more and more now.

We're starting to see exactly what we expected to see, where the MACs are converging a bit more in terms of their adjudication policies. We were really proud of how our our team stood up our capabilities, and we're seeing the MACs also starting to resource what they need on their side. So it really was a product of healthy referral trends, territory productivity, NCD-driven flexi-touch adoption, and what we expected to see on that fire off on Medicare. Really, really pleased with the results on Lumpini.

Okay, great. That's helpful. And then maybe just continuing in the lymphedema business. with this new distribution agreement with Elastomed. I wanted to just kind of get a better understanding of how this will fit into the business model and what we should expect for impact to our models. I understand it looks like there was a commitment to minimum purchase agreements, marketing and sales promotion. So should we expect maybe some added OPEX here from the agreement? Or given kind of your already established infrastructure, should this really just be more plug and play? What could we expect from a revenue impact perspective? Sorry if I missed if there was kind of any timing here when we could expect contribution. Thank you.

Yes, thanks. So, I'll answer your last question first. So, we do see Myosleep as an incremental growth contributor within the VA channel over time, but our current guidance does not assume any material contribution from Myosleep. So, that answers the revenue side of your question. As it relates to OpEx, what we really like about this agreement is we are leveraging our existing infrastructure. So we already have the VA as a call point. We already have very talented reps. Of course, they call on all call points, but they already have relationships within the VA.

They're already used to selling in multi-provider specialties within the VA with FlexiTouch. The offers them another opportunity of going in with a more expansive portfolio, kind of using the same talent that we already have within our current sales force. So we're really excited to be leveraging the resources that we already have, which made the VA a really great starting point for that product introduction. That's helpful. Thank you. Yes, thank you.

And our next question will come from Ryan Zimmerman with US Bank Corp BTIG.

Thank you and good afternoon. Just on the airway clearance dynamics, I wonder if we could dig in a little farther there. You know, why, I guess, why do the ordering patterns normalize in 4Q? What are you seeing right now in terms of inventory levels that need to burn through, burn down? And when do we see the impact of the new AfloVest product start to kick in?.

Yes, hi Ryan. So thanks for that. From a dynamic standpoint, you know, the not complicated you know, in launching our next-gen kind of product, it really forces people our partners to take a look at overall inventory. And in planning for the launch of a new product, they identified, so then we also identified when they did, that we had more inventory sitting in some of those partners, so it was very limited, where they do need to burn down that inventory before they pick up on their normal patterns. of what that inventory looks like, and that has been built into our back half guidance. So, that's why we're saying we believe that Q3, they'll start to burn through that inventory, and then starting in Q4, they'll start to pick back up on their overall ordering pattern. So, we feel confident that we have good visibility now to what the current an inventory is. We know what normal buying patterns are. This business can be a little bit lumpy on things we can't control, which would be like cold and flu seasonality, a little bit on patient affordability dynamics.

But right now, everything is really stable with the reimbursement. It really is this temporary kind of one-time dynamic. that's happening with the introduction of a new product. As it relates to Gen 6, or our next generation product, our DMEs are really excited to be bringing this product to patients. Remember, there's no incremental reimbursement for this. This is just a better product on top of what was already the best product on the market. So it has size adjustability, which is great. It has, it's even lighter than our current product.

It remains still the only untethered vest that's out there, and now it offers connectivity. So our DNA partners are excited to bring this to patients. They just need to burn through some inventory in a few number of our partners at a few of their branches, and then we'll be back off exactly where we want to be starting in Q4 with Regi.

ordering patterns. Okay. And just maybe to dig in a little bit farther on the guidance, Sherry and Elaine, I mean if you break down the contributions, I appreciate you gave the color for double-digit lymphedema growth, but I just want to, you know, dig in there. I mean, does that include any contribution from lymph And then, you know, arguably, how much are you taking the airway clearance guidance down? If it's overall $1 million at the midpoint, is there any incremental contributions, say, from Lymphatec that are, you know, maybe offsetting that incremental airway clearance down?.

revenue? Yes, so Lymphatec is already built into the overall guide. That's reflected when we talk about the health of the lymphedema business. But we'll say that, you know, Lymphatec continues to be a really small portion of what is the broader lymphedema business. growth for us. Again, that growth really on the back of having great referral trends. We'd love the momentum there. We'd love seeing the territory productivity. And then this NCD-driven change in alignment is really helping with our overall flexi-touch adoption. So all of that is really in the strengths of the lymphedema business, which is why we are our confident that we're going to be delivering in that low double digit, double digit growth on the Aflo vest.

You know, that is just us knowing what we know right now has been the philosophy of what's called the shot based on what we know right now, what we believe to be the ordering patterns. back normalizing back in the back half of the year and that's why we just changed the the top end but we held the bottom end of the overall guide.

Okay, fair enough. And I just sneak one little tiny little question in. You said there's a near-term moderation in, from 2Q in the lymphedema business just because of the prior off requirement. Were you – are you able to size that, Elaine, just as to what you may or may not make up as a result of that potentially in 3Q?.

So I think the best way to look at it, if you take a look at, and you can see in our filing, the Medicare business was down in the quarter. That's reflective of kind of what we're talking about. That, you know, typically we wouldn't have expected to kind of to see that. So I think what we're saying is that over time, we think. that will start to normalize. And from a sequential perspective, I think we mentioned this before and it's holding that Q3 sequential growth is going to be kind of on that bigger side compared to years past, more similar to last year. When you think about we had that bigger step up there and that really is kind of that timing push that we're talking about from the IQ2 to Q3 related to Medicare. Thank you.

Thanks Ryan. And as a reminder that is star one if you would like to ask a question. We'll go next to Brandon Vasquez with William Blair.

Hey everyone, thanks for taking the question. I wanted to stick with AppleVest first. Is there any way you can talk a little bit about kind of the sell-through versus the sell-in to the channel, just trying to get a better sense of end market demand? Is it still growing kind of in line with market? Can you quantify it or even just talk about it a little bit?.

Sure. I mean, the good news about the ASCO story here, and I know it may not seem like great news, but let's put this in context. This is a temporary dynamic that was driven from us introducing a new product. This is not uncommon in DMEs. Whenever they have a next-gen product coming in or a manufacturer or is upgrading or kind of changing out of platform, they typically go back and they check to make sure what do they currently have so that they can determine what their buying patterns are. It's a forced function of launching a new product. And we're really excited for both patients as well as clinicians to be bringing good product. This is just an unfortunate outcome that comes with that, but again it's temporary and it's very contained to a small number of our largest DMH.

Overall from a market standpoint, nothing is changing. So we continue to see the market growing, there's more awareness of the disease state, and we already have the market leading product and we're adding an even better product by the connectivity, the sizing adjustment, as well as being even lighter. So we feel very confident in this business. It's a great business for us. The patients are there. The clinicians are super excited about this next-gen product. It is a profitable product for us. It's a healthy part of our overall business, and we will get past this one-time temporary dynamic.

again triggered by the launch of a new product introduction. Got it. Okay, thanks. And then I'll ask maybe two like reimbursement questions or market access questions that I'll lump together here. The first one, you have the new six-month head and neck data published. Congrats. What are kind of the next steps here? What are the timelines for us to be keeping a lookout for to improve market access on the private side? And then the other kind of market access question, if you could just talk a little bit more. I know you were using AI internally to kind of improve kind of market access on the Medicare front. I think it was. Just talk a little bit there on how those AI efforts are going and kind of how those trends are going into the rest of the year.

Thanks. Yes, thanks for the question. I like talking about both of these. So we're very excited to have that head and neck publication, six months data, finally in a great peer-reviewed journal, and eager to both have that in the hands of payers as well as clinicians so that they can see the benefit. Again, a FlexiTouch versus usual care, and again, and this was in treatment naive patients. These are patients who had never received even conservative care and showing the great FlexiTouch benefit in outcomes and sustaining those outcomes at two, four, and six months is going to show a lot of benefit both from a payer's side as well as a clinician and a patient side. So we had already been engaging with payers to share with them the two-month data that we had, letting them know that we were going to be having that six-month manuscript. Now we have it. We're back in front of payers right now, and we're asking for two things.

We're asking for immediate reconsideration of their current E&I policy. And then if they don't agree to an immediate reconsideration, at least get it in the docket. for when they do an update on their coverage policies. So that is going on right now, and we're having good discussions, and we really feel that the weight of this evidence is going to be very helpful. The thing I cannot control is their timing. We can help make a case for it. We can talk about it from a patient advocacy standpoint. We've got the data. It is supportive, but ultimately it is the payer's decisions on when they change that policy.

And I'm saying when they change, because I'm expecting that they will change, but that timing is challenging. But we're moving on that fast. Just not expect payer coverage to change immediately. It does take time. But also wanted to do a reminder that the Medicare NCD already allows for head and neck patients to receive a product. So this is just in the commercial. straight up commercial as well as Medicare MA plans that need to change their policy, but the commercial Medicare fee-for-service already allows for this path, and hopefully then the publication will just help drive that clinician awareness and identifying more patients. Your second question was on AI and operations. It's interesting. In this earnings call, we didn't discuss a lot on operations, and that's actually hopefully serious. is a positive.

Our operations and the way we're adding AI and technology and our tech transformation is going really well. We continue to partner with AI companies looking for ways to streamline the work, take the friction points out of moving documents from the physician into the order management process, and those continue to go really well. well and we'll provide an update as something material is there, but it's going really well. We're pleased with the way we're leveraging the existing technology and upcoming technology that's going to help make this aspect of the journey a little easier for providers, easier for us, and hopefully get that access to the therapy sooner for patients.

Thanks, Brandon. And we'll go next to Ben Hainer with Lake Street Capital.

Good afternoon. Thanks for taking the question. Just one more, maybe on the Apple vest. It sounds like it's a handful of distributors or DMEs. Can you maybe share How much of the sales of Apple vests are coming from the top half of DMEs versus the bottom half of DMEs that you deal with? Just trying to get a sense of whether that's 60% or 90%. you know, what's kind of the mix of sales volumes at these places.

Sure. And so, Ben, there are 1,000 plus, there's a lot of DMEs that are out there. So, we have been focused and have shared publicly that we are really focused on the top 10 DMEs by volume. And again, these are respiratory DMEs. So, they focus in respiratory solutions for patients with respiratory illnesses. So, we call on non-top 10. or we help support them, but our focus with our 20 account managers is on that top 10 DMEs. And so specifically as it relates to different DMEs have different inventory management policies. Some of them are super hyper diligent and some of them kind of get triggered and kind of do, if you will, reassess and clean up when there's a triggering event.

So, I would say the best I can say here is that this is limited to a very few partners, but they are larger partners because that's where focusing. But the good news is here, we have a lot of visibility now where we didn't before in an indirect model. There's a lot more in what inventory they're carrying. And they are as eager as we are to help make sure that that inventory continues to move and then they can have the next set of patients coming up on this next. cold and flu season, you know, on our NextGen product. So that's,.

I hope that's helpful to you. No, that makes sense. I mean, it's not like the spread. It doesn't sound like from your 10th DME is... to the first DMA is like the first to the thousands of the DMAs that are out there. It's relatively high selling folks to begin with. Correct. Yes. And look, this is not inventory that we were pushing into the channel. It truly is DMA partners. Okay.

They all manage their inventory differently, and that's why this is not widespread. This is not prolific across all DMEs. This is very focused and centered on a few of our larger partners. We're working with them. We all have awareness of the inventory they have. And then we, as per our guidance and as we shared in the script, were eager to move through in Q3 with burning their current inventory, getting that placed on patients, and then starting to normalize ordering patterns and starting in Q4.

That's definitely helpful. I think I got it. And then on lymph attack, you got the FDA submission in, you're working on a category three code. Once you get those things in place, what's the plan to take this thing out there more broadly?.

Yes, so we're currently working on more full integration. The product right now is sold as software as a service, largely into oncology centers, but we continue to look at that broader opportunity from a science perspective. where you've got 20 million patients that currently are undiagnosed and those patients are sitting not just in oncology, but they're also in vascular and they're in the VA, they are with therapists. So getting the FDA clearance as a diagnostic aid is going to be a really important first step to us being able to get the FDA clearance. being able to market a objective tool for clinicians that help identify those patients. And then with the CPT-3 code, there's various steps, but it definitely does start. broader path to reimbursement coverage starting to track the code it helps to kind of support the broader reimbursement payment etc so the dive getting the the clearance on the diagnostic aid is our first step but we continue to look at the broader integration and determine what is going to be the the best step for commercialization.

Lastly, just real quickly on account managers, field sales force territories, it looks like there are a few fewer account managers this quarter versus last quarter. Just the plans as we go into the end of the year, then anything you might be able to suggest.

like in 2027. Yes, you know what? We're only down two than what we reported in Q1, so I think we're... Yes, no, that's okay. So I'd call that flat. You know, any dynamics on any given day, you're going to have a little bit of flow, but we are very committed and have seen a lot of stabilization in that one-to-one territory manager to a product specialist model. So we're in good shape. We love seeing, again, as I mentioned, the strength of the – business in Q2 really reflected increased in overall referrals and that and the productivity that we're seeing with that go to market investment in 2025, the maturation of that team, them using the CRM tools. So we're good there and we're going to hold at this ratio and continue to evaluate. target additions where there might be an opportunity based on territory growth but we're really focused right now on just making sure that we're optimizing the both the people and the tools that we have.

Okay, great. Thanks for taking the questions and congrats on the quarter and the progress.

Thank you, Beth. And that concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This also concludes today's teleconference. You may disconnect your lines and have a wonderful day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Conference Call for Tactile Medical. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly. I would now like to turn the call over to Sam Bentzinger, Investor Relations at Gilmartin Group for a few introductory comments. Please go ahead.

Good afternoon, and thank you for joining the call today. With me from Tactile's management team are Sheri Dodd, Chief Executive Officer; and Elaine Birkemeyer, Chief Financial Officer. Before we begin, I'd like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. These could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our annual report on Form 10-K as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website.

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

Thanks, Sam. Good afternoon, everyone, and welcome to our first quarter 2026 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We are pleased to report a strong start to 2026 with first quarter results reflecting focused execution of our three strategic priorities, continued strength and durability of our commercial action plan and operational excellence, including preparing for recent changes regarding the introduction of prior authorization for Medicare fee-for-service patients. Specifically, in Q1, we delivered total revenue of $75.3 million, representing growth of 23% year-over-year.

By business line, lymphedema revenue grew 23% year-over-year to $62.2 million and airway clearance revenue increased 22% year-over-year to $13 million. Q1 results include a minimal contribution from our recent acquisition, LymphaTech. Our revenue performance reflects continued strategy and execution against key revenue drivers. Our phased technology and people go-to-market investments, which drive referrals and market share; NCD-related tailwinds, which drive favorable advanced pump product mix; depth and breadth of our DME relationships, which drive market expansion and share and not to be understated, disciplined operational execution across the enterprise.

Further, top line strength drove meaningful margin expansion. Gross margins increased 250 basis points to 76.5% and adjusted EBITDA increased $4 million year-over-year to $3.7 million. We ended the first quarter with approximately $75 million in cash, maintaining substantial financial flexibility as we continue to invest for long-term growth.

For 2026, we are updating our full year revenue guidance to a range of $360 million to $368 million. This update reflects the inclusion of LymphaTech and our increased confidence in commercial execution while maintaining a disciplined approach as prior authorization outcomes under new Medicare requirement for our category continue to mature.

For the remaining of the call, I will review our Q1 performance by business line and then provide updates on our ongoing strategic priorities. Elaine will follow with a review of our first full quarter financial results and an update on our outlook for 2026.

Turning first to lymphedema. Revenue grew 23% year-over-year in Q1. We are pleased to see the significant growth compared to last year, which was expected given the momentum of our field and back-office strategy execution. Our go-to-market investments are delivering. Our sales organization is fully resourced with broad geographic coverage and a well-balanced staffing model of approximately one account manager for every product specialist.

With those resources in place, we are shifting our focus from capacity investment and onboarding to productivity and operating leverage. Territory productivity increased meaningfully in Q1 year-over-year. Robust CRM utilization, combined with continued enhancements, including workflow tools, is increasingly supporting referral management, prioritization and account development, and we expect continued territory optimization and sustained productivity gains over time.

From a product perspective, overall lymphedema growth in the quarter was supported by both Nimbl and Flexitouch with Flexitouch growth outpacing Nimbl. As expected, this dynamic was largely tied to our decision in October of 2025 to align our advanced pump documentation criteria with the Medicare NCD. While this alignment had always been planned, the timing reflected our increasing confidence that the max administration of the NCD had stabilized. Importantly, the NCD has created a more direct and clinically aligned pathway for patients who require advanced pump therapy compared to the prior LCD policy. This will continue to be a tailwind for Flexitouch volume as we continue to educate providers on the policy change and drive the right patient right pump messaging.

Notably, the NCD policy language also allows for advanced pump coverage for patients with head and neck lymphedema, and we are pleased to see increasing clinical adoption of Flexitouch for these underserved patients who have no other pneumatic or non-pneumatic compression device options. This NCD-driven Flexitouch strength was also evident in our Q1 payer mix with sales in our Medicare channel growing 40% year-over-year. To a smaller extent, Medicare strength also reflects some order acceleration ahead of the April 13 effective date for the new prior authorization requirement for PCDs billed under traditional Medicare fee-for-service.

Importantly, underlying demand remains healthy. And as the new prior authorization process settles, we expect quarterly ordering patterns to normalize. As a reminder, the inclusion of the prior authorization process for basic and advanced PCDs for Medicare patients was announced in January of 2026 and aligns with Medicare's prior authorization decisions in other growing DME categories. During our Q4 call, we discussed our expectation that this new requirement will add additional steps to the order process such as assembling and submitting a prior authorization documentation packet and checking the status of each submission in order to process the claim.

Additionally, these new requirements require patients to have face-to-face clinical visits with a treating physician, not just therapists to establish a document medical necessity. To be ready for the go-live date, we accelerated the prior authorization module in our AI portfolio, which had originally been planned for launch in 2027. In the weeks leading up to April 13, we demonstrated operational agility in validating the technology and systems, training and staffing our teams and successfully deploying a new process on schedule.

The Medicare PCD prior authorization requirement has been in place for just 3 weeks. We are actively managing early transition dynamics as both we and the MACs adjust our respective processes.

As the industry leader and a DME provider with extensive experience operating in other prior authorization environments across Medicare Advantage and commercial plans, we believe we are well positioned to support patients through this transition.

Turning to our other payer channels. Our commercial business remains healthy and is demonstrating quarter-over-quarter consistency. In the VA channel, performance reflects a different operating and growth profile than Medicare and commercial. Unlike those channels where reimbursement policies are more dynamic and have driven more pronounced year-over-year comparisons, the VA reimbursement environment is notably more stable, which naturally results in less quarter-to-quarter volatility.

From a commercial execution standpoint, the VA call point spans a diverse set of specialties, including vascular, oncology and therapy practices with success driven by sustained relationship-based engagement and navigation of local VA systems. As our recently expanded field organization continues to deepen engagement, establish workflows and build trusted relationships within these accounts, we expect the VA to become a more meaningful contributor over time. We view the VA as a strategic long-term opportunity that is well aligned with our evolving portfolio and an incremental growth contributor alongside our Medicare and commercial channels with growth unfolding in a deliberate and durable manner.

Turning now to airway clearance. Sales of AffloVest increased 22% year-over-year in the first quarter. The key drivers of our robust performance remain consistent with what I have shared previously. Our relationships with the top respiratory DMEs remain strong, including at the C-suite and AffloVest continues to be well placed across these accounts. There are additional opportunities to deepen engagement within our top 10 DME partners given the breadth and scale of their national footprints and alignment of individual branch performance goals.

We are committed to delivering high-quality medical education and training for providers and DME staff supporting sales skills of AffloVest and airway clearance therapies at the DME National and area sales meetings, manufacturing a superior airway clearance product and providing AffloVest account manager continuity to our DME partners, all of which we believe are critical inputs to driving consistent growth and valued partner status.

As the market leader in airway clearance therapy, we remain focused on serving the millions of diagnosed and undiagnosed bronchiectasis patients in the U.S. We expect our commercial strategy, clinical education efforts and strong DME partnerships to continue driving growth throughout the year, in addition to the launch of our next-generation AffloVest product, which I'll touch on shortly.

We are committed to evolving our lymphedema strategy for growth from that of a product company to an integrated solutions leader for lymphatic dysfunction and the acquisition of LymphaTech is an important milestone in this exciting evolution. LymphaTech fits squarely within our strategy to support patients across the full continuum of care, which begins with getting an accurate, timely and objective lymphedema diagnosis. LymphaTech 's 3D measurement and monitoring platform addresses this need directly, replacing traditional manual measurement methods that are time-consuming, highly variable and dependent on clinician technique.

Currently, the LymphaTech platform is FDA cleared and commercially available as a SaaS-based solution. As we shared last quarter, a key element of this acquisition is broadening our R&D capabilities to support next-generation approaches to disease assessment and treatment, and we look forward to sharing updates on our progress in the quarters ahead.

The integration is progressing as planned since closing in February. The LymphaTech co-founders and team are actively contributing to both the go-to-market commercialization strategy as well as helping to identify the capabilities and integration points across the diagnostic and therapy product development road maps. We are being deliberate and strategic in our approach to maximizing the provider, clinician and patient experience.

Beyond the team and the technology, LymphaTech also recently earned selection as a funding recipient under a new federal research program focused on lymphatic disease. Specifically, the Advanced Research Project Agency for Health recently announced two landmark programs, LIGHT and GUIDE, committing a combined more than $290 million across all awardees over 5 years to advance lymphatic diagnosis and therapeutics.

LymphaTech was selected as 1 of 7 GUIDE funding recipients and is focusing its research on the development of a new responsive garment using bioimpedance feedback to deliver adaptive compression with Bluetooth-enabled remote monitoring. We believe this program has the potential to extend personalized treatment to millions of diagnosed patients. Along with the first U.S. clinical practice guidelines for lower extremity lymphedema presented in March, which validated PCD therapy, we believe awareness of lymphatic disease and evidence-supported therapies is reaching a historic inflection point for the category.

As the industry leader, Tactile Medical is well positioned at the center of this momentum, further bolstered by our three ongoing strategic priorities focused on improving access to care, expanding treatment options and enhancing lifetime patient value.

Let me now provide a few updates on each of these. Beginning with improving access to care, where we are focused on several internal and external-facing initiatives. Internally, we continue to transform each step of the order process with new technology infrastructure and more efficient workflows.

AI-enabled technology is playing an increasingly meaningful role in our back-office transformation. Over the past several months, we have been leveraging AI capabilities in our order intake processes and parts of our medical record review and have been pleased with both the technology performance and the enhanced workflow efficiencies it's enabling. As I shared earlier, this quarter, we successfully accelerated and launched the prior authorization component of our AI platform for Medicare fee-for-service orders ahead of the April 13 deadline.

Looking ahead, we remain on track to further expand the use of AI capabilities across the entire order process including patient eligibility and verification of benefits and full medical record review. With the rollout of these expanded features, we believe we will accelerate speed to therapy, reduce revenue impacting human errors and improve operational efficiency, each of which should support margin expansion over time.

Externally, improving market access conditions is supported by clinical evidence generation, guideline dissemination and engagement with government and commercial payers.

For commercial payers, we continue to make steady progress on head and neck coverage and are working to align certain commercial policies to the NCD rather than their current alignment to the retired LCD. As part of that work, our head and neck clinical evidence program continues to advance with data progressing through the peer-reviewed and publication process.

Payer engagement is a continued patient advocacy commitment we make for all patients, operationalized through payer education, appealing denials and activating clinical support with medical directors as needed.

Next, on expanding treatment options. We are excited to share we recently received FDA 510(k) clearance for our next-generation AffloVest product. Key enhancements with this next-generation device are focused on improving the patient experience and include further weight reduction, new digital connectivity and improved size adjustability to allow for a more customized fit.

Additionally, the clearance maintains our indication for use across the full patient age spectrum from pediatrics through geriatric populations, reinforcing AffloVest's position as a versatile airway clearance solution for bronchiectasis patients at every stage of life. We remain on track for commercial launch this year to ensure the product is available for the 2026 to 2027 winter respiratory season, and we look forward to sharing more updates with respect to timing as we get closer.

Our second innovation area is focused on the advanced pump category. As we shared last quarter, our product road map includes the introduction of incremental features and product enhancements for Flexitouch focused on the patient experience. These include a new controller, reduced external hosing and remote control functionality through our Kylee patient engagement application. We anticipate go-to-market readiness in 2027 for these features.

Beyond these innovation updates, we are also focused on identifying integration points across the combined LymphaTech and Tactile product development portfolios. While it's too early to share specific details of a LymphaTech integrated product portfolios, we are excited by the expansion of diagnostic and therapy delivery opportunities.

Finally, our third strategic priority of enhancing the lifetime patient value, which encompasses more efficient and personalized engagement before, during and after the order and delivery process. As we shared last quarter, we are continuing to focus on targeted care navigation pilots designed to provide clear guidance to patients earlier in the process and reduce administrative friction.

Results to date continue to support our thesis that patients value clear communication and guidance earlier in the process. We are refining these pilots to optimize touch points, and we are evaluating how to expand their impact in a measured and scalable way. We believe this work will reduce patient leakage, enhance the patient experience and over time, decrease the need for sales rep involvement in the order process, supporting both growth and operating leverage.

Taken together, our progress across these strategic priorities reinforces our confidence in the durability of our commercial momentum. Our Q1 results reflect strong execution across both business lines, meaningful progress and agility in our operation transformation initiatives and the expected return on our go-to-market people and technology investments.

Intentionality and discipline are key constructs in the way we are operationalizing our strategy. And as a result, the business performance is there. This approach is supported by a strong balance sheet and a thoughtful capital allocation strategy that balances growth investments with shareholder returns. We are confident in the trajectory of our business and the multiple catalysts ahead as we move through 2026 and beyond.

With that, I'll now have Elaine review our Q1 financial results in more detail and provide an update on our outlook for 2026.

Thanks, Sheri. Unless noted otherwise, all references to first quarter financial results are on a GAAP and year-over-year basis. Total revenue in the first quarter increased by $14 million or 23% to $75.3 million. Our product line sales and rentals of lymphedema products, which includes our Flexitouch Entre, Nimbl and LymphaTech systems increased $11.7 million or 23% to $62.2 million. And sales of our airway clearance products, which includes our AffloVest system, increased $2.3 million or 22% to $13 million.

Growth was broad-based and reflected strength across both volume and revenue per unit, including higher shipments, strong collections and a favorable mix across payer and product categories.

Continuing down the P&L. Gross margin was 76.5% of revenue compared to 74% in the first quarter of 2025. The increase in gross margin was attributable primarily to lower manufacturing costs, stronger collections and favorable product and payer mix reflected in our revenue. Importantly, these improvements reflect structural enhancements in the business rather than temporary cost actions.

First quarter operating expenses increased $9.3 million or 19% to $59.1 million. The change in GAAP operating expenses reflected a $5.2 million increase in sales and marketing expenses, a $1 million increase in research and development expenses and a $3 million increase in reimbursement, general and administrative expenses. As we discussed previously, we are annualizing investments made in 2025 while continuing to invest in IT infrastructure and automation to support long-term growth.

Despite these ongoing investments, operating loss decreased $3 million to 66% to $1.5 million. Interest income decreased $0.2 million or 26% to $0.7 million due to our decreased cash position. Interest expense decreased $0.4 million or 93% to $28,000.

Income tax expense was $0.9 million compared to an income tax benefit of $1.1 million. Net loss decreased to $1.2 million or 41% to $1.8 million or $0.08 per diluted share compared to $3 million or $0.13 per diluted share.

Adjusted EBITDA increased to $3.7 million compared to an adjusted EBITDA loss of $0.3 million in the prior year, with margin expanding to 4.9% from negative 0.4%, reflecting a meaningful improvement in operating leverage.

With respect to our balance sheet, we had $75 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $83.4 million in cash and no outstanding borrowings as of December 31, 2025. The change in cash during the quarter primarily reflects the LymphaTech acquisition, share repurchases and normal seasonal items such as bonus payments. We continue to see improvement in working capital efficiency, including a meaningful reduction in days sales outstanding.

Turning to a review of our 2026 outlook. For the full year 2026, we are raising our guidance and now expect total revenue in the range of $360 million to $368 million, representing growth of approximately 9% to 12% year-over-year. This guidance assumes both our lymphedema and airway clearance businesses will grow in a similar overall range with airway clearance growing modestly faster. The increase in guidance is driven by three primary factors. First, we continue to expect strength in the commercial execution across the business. Second, we have included the contribution from LymphaTech. Third, we have incremental early confidence in how the MACs are navigating the new prior authorization requirements we discussed on our last call. More broadly, we believe underlying demand remains durable and our tools and processes designed to support prior authorizations are tracking well against plan. While prior authorization approval data is still early and continuing to take shape, our outlook appropriately reflects discipline until we have a longer track record of consistent outcomes. For modeling purposes, for the full year 2026, we expect our GAAP gross margins to be 76% to 77%.

Our GAAP operating expenses to increase 10% to 12% year-over-year. The increase relative to our prior outlook reflects onetime acquisition and legal-related costs, net interest income of approximately $3 million, a tax rate of 28% and a fully diluted weighted average share count of approximately 22 million to 23 million shares.

We continue to expect to generate adjusted EBITDA of approximately $49 million to $51 million in 2026. This outlook reflects the annualization of 2025 investments and continued strategic investments in 2026, which we believe are important to support long-term growth and operating leverage.

Our adjusted EBITDA expectation assumes certain noncash items, including a stock compensation expense of approximately $9 million, intangible amortization of approximately $3.6 million, depreciation expense of approximately $3.2 million, litigation-related expenses of approximately $1 million and onetime acquisition-related and integration costs of $1.3 million.

With that, I'll turn the call back to Sheri for some closing remarks. Sheri?

Thank you, Elaine. We are encouraged by a strong balanced start to the year and the trajectory of our business. Our Q1 results demonstrated broad-based performance and reflect disciplined execution, improving productivity from a fully built commercial organization and the increasing benefits from investments we have made in technology and infrastructure.

As we look ahead, our focus remains on the fundamentals that matter most, expanding access to care, innovating across our product portfolio and enhancing lifetime patient value. While we remain mindful of near-term adjustments related to Medicare prior authorization, ultimately, we believe this change reinforces our emphasis on clinical rigor, access durability and long-term reimbursement stability, and we are well positioned to navigate it.

We are operating from a position of strength, supported by a resilient balance sheet, multiple growth levers in motion and a clear strategy to translate consistent execution into sustained growth over time.

With that, operator, we'll now open the call for questions.

[Operator Instructions] And our first question will come from Ryan Zimmerman with BTIG.

Congrats on a nice start to the year here. I want to ask about some of the dynamics that are starting to occur in second quarter. Sheri, I think you called out some pull-forward dynamic with lymphedema sales ahead of 2Q. And so one, I think if I look at the beat versus kind of where you're raising guidance came in, there's about a $1.7 million difference there. I just want to understand if that was the pull-forward effect.

And then just anecdotally, kind of what you're seeing with the MAC in 2Q, how they're responding to this, how physicians are responding to this and the cadence of sales we should think about, I apologize, there's a lot here, but the cadence of sales we should think about over the balance of the year because you've historically seen kind of 1Q step-up -- or excuse me, 2Q step-up from 1Q. So is there a bit of a pause or a dynamic in the market we need to think about for 2Q? Sorry for the multipart question there.

No, it's okay. Let's take it kind of layer by layer here. So what I'll first say is I want to kind of reorient this kind of concept of a pull-forward because it wasn't really a pull-forward. What we did is we had patients that the orders were in process and they were not all the way completed by that date, they would have been exposed to an overall denial. And so what we did is a little bit of an acceleration of that, but not necessarily stealing orders, if you will, from Q2 and shipments from Q2 into Q1. So I wouldn't characterize it necessarily as a pull-forward. But -- what we have been doing and what we have been seeing, truly, is great on our side in terms of our systems and our processes are working really pleased. We accelerated what we were going to do next year and got it all in place by that go-live date. So very pleased with that.

So what you're seeing in terms of our positioning on the prior authorization doesn't have anything to do with our readiness. It really has to do with some early variability that we're seeing within the MACs. And again, Ryan, we're only 3 weeks into this entire process. So it's still new. Orders are flowing through. We're seeing what those denial and approval rates are, but we are seeing some difference between the MACs. And so there shouldn't be variability between the MACs. If you are in one state that you're a Medicare patient and you have the exact same criteria, you shouldn't be denied based on where you live. And so we're seeing a little bit of variability -- this is not uncommon because MACs are trying to make sure their interpretation is the same, that their -- how the data and information is rolling through on their side, training and education. So everything we're seeing, we don't think is anything other than administrative, and we're going to have an opportunity of talking to the MACs about this.

We also don't see any of this as being long-standing. We believe we're going to be able to adjust and with more experience in the prior authorization, we believe that our confidence in what that true process time is as well as those approval rates, we'll have a lot more confidence. So from a guidance standpoint, we did pull through what would be the LymphaTech revenue went into there as well as some of our overall business deliver confidence.

And then we are going to hold a little bit until we have a few more weeks. It's not going to be the full year until we start to see what that prior auth process looks like, again, more from the MAC side than on our side. I think I answered majority of your questions, but anything that I forgot or Elaine, do you want to weigh in on.

You did a great job Sheri, I think…

Yes. I think, Ryan, you had a question a little bit on sequencing and kind of Q2 to Q3. So we do continue to expect to see growth in Q2 over Q1 like we always have. I will say kind of the Q2, Q3 this year will look a little bit different. I think together, those two quarters will be the same, but I would say we'll see a little bit of a lighter step-up in Q2 than some of the years past and probably a bigger step-up in Q3 as it starts to normalize just as that went into effect. It just created a little bit of a delay as that prior auth, we had to wait for those responses and for this whole new process to get going. So I would say collectively, those two quarters are going to be the same, but there'll be a little bit of a difference between the two.

Okay. Very helpful. And then I'm going to sneak one more, and I'll get back in queue because I probably have asked too many now. But just on the LymphaTech contribution, so I appreciate you guys calling that out. When do you expect that to be meaningful in the year, number one? So how should we think about when it really starts to contribute? And then two, as we think about kind of what it can do over time, how are you thinking about what LymphaTech can offer in terms of a contribution to the business as we look out further into '27 and beyond?

You bet. So on the LymphaTech, so the grants that we discussed, super excited about both the light and the GUIDE grants, that actually comes through as revenue, which is why now it's in the overall guidance that we put forward. But prior to that, when we did our original guidance, we did not see any real growth happening from LymphaTech or any big contribution. So what you're seeing now is really a result of the grants coming through as revenue. Where we're most excited about LymphaTech is not going to transpire this year. I mean we did the acquisition on multiple fronts. But that ability of the R&D capabilities that LymphaTech brings will be a big part of how we're thinking about our go forward, not just as a Flexitouch next-gen, but if you think about therapy in general.

And when you kind of see the details and as I described the details of that guide, actually looking at garments that are using bioimpedance and delivering on a personalized care, we're very excited about that. Just can't share any time lines on what that R&D portfolio looks like right now, but we'll be able to share that much more in the quarters to come as that gets further defined in our overall strategy for therapy delivery.

On the diagnostics side, one of the big drivers we know from LymphaTech is actually getting the FDA approval for more of that diagnostic indication and then getting through the CPT codes that actually enable a payment for the diagnostics. So that is going to take a little bit of time. But on the here and now, super excited to have the federal funded government grants helping to support the R&D efforts that we know are going to fit directly into our future portfolio.

Ryan, the last thing I'd say you had a great question, but I kind of want to bookend it about the guidance and the flow-through. It just -- and it's a great question. But our approach to how we're thinking about it, again, we said it's only 3 weeks in. But we saw -- and we held on the NCD when it converted from the LCD to the NCD because we knew there were going to be changes in interpretation and time needed to get progressing before we felt super confident about what we could do to lean into that.

And so everything we're doing now is really based on precedent of what we've done before, and worked well, and we're super confident that this administrative pieces in this early days of the prior auth will flow through, and we're in the best position to handle it. So it's a real thing, but we don't sit here with a lot of concern. We just want more time to be able to fully articulate what that benefit will be. So the question you didn't ask, but I wanted to kind of bookend it based on the questions that you did ask.

And our next question comes from Brandon Vazquez with William Blair.

Congrats on a nice quarter. I hate to do this, but can we stick for a second on this concept of the pull-forward versus accelerated? I'm not sure I fully understand it, and I want to make sure it's clear because I think it will be important to understand kind of, one, the strength in the quarter; and two, the sequential changes from here. So maybe just spend a second specifically on the nuances between why a pull-forward isn't -- or sorry, why accelerated sales isn't necessarily a pull-forward of sales from Q2?

Yes. So we did the order acceleration for patient benefit not to cover revenue. I would say that typically a pull-forward is because you're trying to cover revenue. You're trying to accelerate what you would have received in revenue in the next quarter and you try to bring it into this quarter. When we talk about order acceleration, we really did this for the patient benefit. So i.e., those patients that had an order in process, if they didn't clear the order by that April 13 date, it would have had to go all the way back and be resubmitted into a prior auth. So we had some orders. This is not a material amount.

We had some orders that were going to fall on that kind of magic date of April 13. So we put extra resources to help make sure that, that order went through, but we weren't taking an order from Q2 in order to book the revenue into Q1.

Okay. Got it. That's clear. Maybe a follow-up here, a little bit of a broader picture. There's a lot of commercial investments you guys have that have gone through 2025 and are ramping into this year. maybe help characterize where some of these are in terms of maturing -- should the benefits still be growing? Are we kind of reaching maturity for some of them like the commercial team, things like that. So maybe just talk to us about what inning we are in some of these real more meaningful commercial investments.

Yes. Certainly. So we're really pleased at where we sit right now in terms of our headcount. And as I stated in the prepared remarks, we're moving from capacity building and onboarding to true productivity. And so we now feel that we're at a place where we have fully resourced sales organization on that 1:1 ratio of our territory managers to our account specialists. So we feel in a really good place.

As far as our CRM tool, our reps are continuing to use that tool, including workflow tools that really help support their activity. And that is also going very well, and we expect that revenue per rep year-on-year growth to turn positive as we progress throughout the year. So I think net-net, we're certainly transitioning from what was build and bring the tool to actually having a fully resourced field organization that productivity is stepping up and continues to step up. And so we are seeing that increase in overall referrals per rep and feel in a really good place with that.

We'll go next to Adam Maeder with Piper Sandler.

This is Kyle on for Adam. Congrats on a good start to the year. Maybe I'll ask on the EBITDA guidance. The Q1 results beat expectations and then you raised revenue guidance. So just trying to kind of help understand or maybe you could help us unpack keeping the EBITDA guidance kind of where it is. I know you mentioned some of the acquisition costs and some of the onetime expenses there. And I noticed the uplift in OpEx spend for the year. So is that -- should we just understand a lot of that as kind of part of this acquisition? Or is it more of this robust R&D pipeline? Can you just help us a little bit there?

Yes. In terms of that, I think there's probably two factors. I think one is a portion of the increase is due to LymphaTech, as Sheri mentioned, that is really related to the grant work we're doing, where it's really service-based work that is on that lower margin side. Again, this is not the broader business model, but it happens to be in our revenue this year. And so that's one of the reasons why -- and then secondarily, as you said, we did have some in-period onetime costs as far as in our OpEx as well. But I would say the biggest driver of that is really just the type of revenue lift that is coming from LymphaTech and just the nature of that revenue.

Okay. Got it. That's helpful. And then congrats on the clearance for the next-gen AffloVest. I know that was exciting to get through. So just wanted to ask on that specifically. It sounds like you will be able to have this launched for this winter season, as you discussed. So just curious how we should think about that in terms of the growth with that product, with the next-gen system, with the advanced features? And then is there very much of that baked into the guidance for the full year, maybe just a little bit towards the end of the year? Or is it kind of just an upside lever at this point?

Yes. And we're super excited to have gotten the FDA approval for this product and really excited to have these features that are going to help drive that patient experience. Just as a reminder, so the reimbursement, the payment is exactly the same for our current generation as well as the [ AffloVest 6 ] generation. So there's no additional reimbursement that's in place for that. And it definitely will be available, and we're currently going to be working with our DMEs on the timing of that to make sure that they pull down the inventory that they currently have on the Gen 5 and that the training and education is all done in time for that respiratory season at the end of this year and will come into the end of next year.

From an overall guidance standpoint, our guidance assumes both lymphedema and airway clearance are going to grow in a similar overall range with airway clearance growing slightly faster. And so that's already been built into our guide. We anticipated to have the product this year. And again, with no incremental dollars out there on the reimbursement, this simply is a better patient experience, and we'll continue to drive penetration and adoption within our DMEs.

And moving next to Ben Haynor with Lake Street Capital.

First one for me, wondering on the guidelines for lower limb. Any more color you can kind of share there on what the initial reaction has been from clinicians? And then just maybe some commentary overall on mix of the lymphedema market is 52% of cases lower limb. Any color you can provide for investors there would be helpful?

Sure. On the guideline standpoint, we were really pleased to have the guidelines presented at AVS in February, and we are -- it is anticipated that those guidelines will be published this summer. So as always been, it's great to have the guidelines in terms of the dissemination of the guidelines down in training clinicians. That's something that our teams are going to be prepared for and help with the overall education about that. And what we're really pleased about the guidelines is they specifically called out pneumatic compression devices as being part of guideline-based care, which is differentiating from non-PCD products. So excited to have us positioned well within the overall evidence-based care guidelines, and we'll roll that out and help communicate that down.

Yes. And then in terms of kind of mix of kind of what is lower versus upper extremity, I think the best way to think about this is really what causes lymphedema for patients. So we've said about 1/3 of patients get lymphedema due to cancer, while the remainder are different -- other different causes with a big one being CDI. The cancer often can be upper body. If you think about breast cancer, head and neck cancer, there could still be some lower extremities with end of pelvic cancer, but that's where you tend to see the upper extremity where the other drivers, typically CDI happen to be lower extremities. So that probably gives you a little bit of a sense of that, but it really has to do with what is the underlying cause or driver of which is what causes where the area of lymphedema is in the body.

That's definitely helpful. And would you expect additional clinical guidelines to be forthcoming for upper extremities, upper areas of the body?

There certainly is -- as Elaine said, that's largely in the oncology area. So there are definitely some white papers positioned in this area. And so that could definitely transpire. I'm not aware of anything specifically that's in the work on the upper extremities side, but we're really pleased at how well positioned and the adoption of pneumatic compression therapy in upper extremity patients, in particular with therapists in oncology is not it's well understood, if you will, where lymphedema in the lower extremity, it's almost a process of elimination. You're looking for the secondary -- as a secondary. Certainly, with patients that have cancer, you know that you have removed the lymph node or you know that you've done something with the lymphatic system during a surgical procedure that's different than lower extremity.

So we tend to see that in the oncology space and with lymphedema therapists, there's more understanding of the lymphatic disruption that's happened with a specific oncology intervention. So guidelines could be helpful, but it isn't as much of a disconnect, if you will, than we've seen in the lower extremity.

So numerically, you have not only more patients, but less penetration, if you will, amongst that group. So it's kind of a double whammy theoretically for you guys.

Can you say that again? I wasn't sure.

Yes. There are more patients with lower limb lymphedema, but they're also less penetrated. So it provides a bit of a double whammy for the benefit as these guidelines get published and more clinicians are inclined to push patients towards [ PCDs ]?

I think maybe -- I think it's accurate that the lower extremity is the larger population. I think what Sheri is saying is that the guidelines are more meaningful for this population because there's not an obvious trigger to this lymphatic disruption. And so these guidelines really help they get discovered earlier versus an upper extremity, there is an obvious trigger. And so patients and clinicians are more likely to watch out for it in absence of guidelines.

Okay. I think we're on the same page. Perfect. And then lastly for me, if I could sneak in one more. Just -- is there any color you can provide on this new pharmaceutical out there for bronchiectasis is there any impact that you guys find notable on the airway clearance side of things?

Certainly. I mean, we have said and believe that the introduction of the pharmaceutical product, specifically for patients with bronchiectasis is helping awareness for the broader category. So it's been a nice category lift. The airway clearance, though, and they call it the vicious vortex is that you have issues of inflammation and you've got mucus and then you have infection. And so what the pharmaceutical product does is it helps support inflammation, but inflammation is just one part of this whole vicious vortex associated with bronchiectasis. So there's still going to be inflammation.

And with inflammation, you're still going to have mucus and with mucus, you're still going to have opportunity for infection. So that need to actually clear the airway is still very relevant for this patient population. And this is what we're hearing from our clinicians, and this is the positioning with the product as well. It is not to say it replaces airway clearance that's actually alongside -- to be used alongside and adjacent to, but it is not one versus the other. So happy that it's helping grow awareness, happy that it's creating education around the disease of bronchiectasis, but not seeing this not as the product portfolio and properties allowing for it to change the actual care pathway for these patients. It's just an option to be used alongside of an airway clearance product.

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

Welcome, ladies and gentlemen, to the Fourth Quarter and Full Year 2025 Earnings Conference Call for Tactile Medical. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly.

I would now like to turn the call over to Sam Bedziger, 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; and Elaine Birkemeyer, Chief Financial Officer.

Before we begin, I'd like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. These could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our annual report on Form 10-K to be filed with the Securities and Exchange Commission as well as our most recent 10-Q filing. 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 fourth quarter and full year 2025 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. 2025 was a pivotal year for Tactile Medical as we advanced our mission of improving the lives of over 95,000 patients with lymphedema and chronic inflammatory lung disease while also strengthening the foundation of our business for scale.

Through disciplined execution across our commercial and operational strategies, we delivered strong profitable revenue growth while continuing to make critical investments in people and workflow-related processes. Total revenue for the full year was $329.5 million, a 12% increase year-over-year.

Beyond the top line, we expanded our full year gross margins by 190 basis points year-over-year to 75.9% and adjusted EBITDA increased 21% year-over-year to $44.8 million.

From a cash perspective, we repaid the full outstanding principal balance of $26.3 million to retire our term loan and repurchased $26.5 million of our stock. We ended 2025 with $83.4 million in cash and cash equivalents and generated close to $43 million in operating cash flow during the year. This strong cash generation is durable and positions us to continue reinvesting in the business and drive growth in 2026 and beyond.

Our focus on strategy, refinement and execution throughout 2025 culminated in a strong Q4. The commercial momentum we described during our last call persisted through the fourth quarter, and we delivered total Q4 revenue growth of 21% year-over-year, resulting in $103.6 million of revenue. By business line, lymphedema revenue increased 16% year-over-year to $89.5 million and airway clearance revenue increased 66% year-over-year to $14.1 million. For 2026, we expect total revenue to be in the range of $357 million to $365 million, representing year-over-year growth between 8% and 11%.

This outlook reflects the strength of our expanded sales force, improving sales rep productivity and our market-leading positions in both lymphedema and airway clearance therapy while also incorporating a potential short-term market impact from the recently announced Medicare prior authorization requirement for pneumatic compression devices. Importantly, this outlook also reflects our proven ability to adapt and execute effectively in a dynamic reimbursement environment. Elaine will elaborate more on this guidance and new prior authorization requirements shortly.

In addition to our strong Q4 and 2025 financial performance, this afternoon, we announced our acquisition of LymphaTech, a privately held medical technology company pioneering a novel approach to assessing and monitoring fluid in patients with chronic swelling such as lymphedema. This is an exciting milestone in Tactile's evolution from a product-based company to a comprehensive integrated lymphedema solutions leader, and I believe it has meaningful potential to enable more accurate identification of lymphatic dysfunction. -- adoption of lymphedema therapy and new capabilities to inform future product development.

For the remainder of the call, I will review our strong Q4 performance by business line and then discuss our acquisition of LymphaTech in more detail. I will then provide updates on our ongoing strategic priorities, which we anticipate will continue to drive momentum through 2026. As a reminder, these priorities include improving access to care, expanding treatment options to optimize patient care and reinforce our market-leading position and enhancing the lifetime patient value with both products and services given the chronic nature of the disease states we support. Elaine will follow with a review of our full fourth quarter results and outlook for 2026.

With that, let's turn to a deeper review of our fourth quarter performance. In our lymphedema business line, we grew revenue 16% year-over-year and 24% sequentially in Q4, demonstrating sustained momentum and the strength of our recovery over the past several quarters. The drivers of performance are consistent with what we highlighted previously and reflect continued execution of our go-to-market commercial strategy, which integrates both people and technology.

On the people front, as mentioned last quarter, we achieved our year-end goal for sales rep hiring and remain pleased with the caliber of our recently hired reps. This phase of our go-to-market strategy is now behind us, and we believe we have the appropriate rep coverage in place to meet and drive demand across all geographic locations.

The rebalance of our sales force infrastructure and accelerated hiring have enabled us to achieve a ratio of 1 account manager to product specialist, a staffing model that will support and optimize productivity based on the diversity of clinical selling and order support activities that are required in the field. With our go-to-market playbook in hand, we will strategically add field resources as needed as we continue to refine territory splits and scale over time.

Sales productivity has been further aided by technology, including the introduction of our CRM in February of last year. The CRM capabilities that launched and enhanced over the past 12 months have been invaluable in supporting visibility, accountability and sales effectiveness, and we will continue to strengthen the tool with additional features and functionality enhancements, including more data and analytics to ensure our field organization is equipped with the right resources and insights to drive referral growth and customer value.

We have strong confidence and conviction in the market and our approach to commercial execution. The combination of clear territory design, intentional resource staffing, a robust and integrated CRM and detailed provider channel strategies and tactics position us well for 2026 and the years ahead.

Regarding our payer mix, our Medicare channel remained particularly strong in Q4, driven by a couple of factors. In addition to continuing to lap a softer prior year comparison resulting from the documentation challenges that began in Q2 of 2024, we also began to see patients who met the new NCD unique characteristics requirement move directly to our Flexitouch advanced pump after completing conservative therapy without first undergoing a basic pump trial. This is a big win for patients, which ultimately accelerates access to the most appropriate therapy for their condition, and we are pleased to see momentum growing.

Turning now to airway clearance and patients we support with chronic inflammatory lung disease. Sales of AffloVest increased 66% year-over-year and 6% sequentially in the fourth quarter to conclude an incredible year for this business line. We are thrilled with this performance, which is a testament to our focused commercial strategy as executed by our skilled airway clearance field team.

As broader awareness of bronchiectasis and its available treatment options continues to expand, so does demand for AffloVest. While the claims data are lagging, we believe we have now achieved a market-leading position in the airway clearance category as our commercial momentum accelerates, supported by the strong partnerships and prioritized placement agreements we have secured within the top 10 respiratory DMEs.

In 2026, we expect growth in airway clearance to normalize as compared to the elevated level achieved in 2025. From a commercial execution perspective, we will continue to focus on what has worked so well for us to date, strengthening our relationships with each of our top DME partners, penetrating deeper within these accounts, providing high-quality medical education and training for providers and DME staff and launching an enhanced AffloVest therapy to better serve patients.

With that backdrop on our Q4 results, I would like now to discuss our acquisition of LymphaTech in more detail. As mentioned, this is an exciting development for Tactile that adds both breadth to our current capabilities and depth to our R&D. Specifically, with LymphaTech, we are expanding our current market-leading portfolio of lymphedema solutions with digital 3D scanning technology for chronic swelling measurement and monitoring, while broadening our R&D with new competencies and programs to extend LymphaTech's current capabilities into next-generation approaches for disease assessment and treatment. Taken wholly, this acquisition strengthens our market leadership in conditions associated with lymphatic dysfunction, and we expect it to meaningfully contribute to our ongoing strategic priorities of improving access to care, expanding treatment options and enhancing the lifetime patient value.

LymphaTech's primary technology is a handheld clinically validated solution that uses proprietary algorithms and mobile scanning to deliver highly accurate fluid volume and precise circumference measurements. These elements, along with skin changes are critical to identifying lymphedema and informing the appropriate therapy options. The LymphaTech platform immediately generates a full clinical-grade 3D model of the body and limbs, replacing traditional manual measurement methods that are time-consuming, highly variable and dependent on clinician techniques.

When combined with clinician assessment of the skin, the platform delivers clinicians with a more accurate, repeatable measurement that reduces variability and streamlines clinical workflow. By introducing greater objectivity and efficiency into lymphedema assessment, the platform helps instill confidence in clinical decision-making and enables providers to focus more time on patient care. In addition to real-time measurement, the platform also supports longitudinal surveillance and monitoring, allowing clinicians to track changes over time, including disease progression and treatment response.

Beyond clinical benefits, the patient experience is next level. The 3D model measurement output offers a compelling visual of the patient's chest, trunk, head, neck and/or limb, helping them to better understand their condition and keep them engaged in their disease management throughout the care journey. We expect these digital measurement capabilities to enable more accurate disease identification and thereby accelerate therapy access for the 20 million undiagnosed symptomatic patients in the United States.

This acquisition is a milestone in Tactile's evolution from a product-based company to a comprehensive integrated solutions leader for lymphatic dysfunction. By bringing Tactile and LymphaTech together, we become uniquely positioned to support patients and clinicians from early identification and intervention to innovative connected therapy with long-term support and monitoring alongside our Kylee patient engagement application.

We expect this acquisition to directly support our longer-term strategy as we seek to capitalize on the growing scientific and clinical understanding of lymphatic dysfunction and lead the next wave of technological innovation. We are very excited about this announcement and for the LymphaTech team who share our combined passion for providing advanced solutions to large underserved patient populations to join Tactile. We will provide additional details regarding the integration on subsequent calls.

Turning now to recent updates on each of our 3 strategic priorities. These priorities are designed to unlock our TAM and enable scalable, profitable growth, and they will continue to be areas of focus for us as we move through 2026. I will begin with an update on our foundational priority to improve access to care, specifically with respect to our head and neck lymphedema, RCT.

First, I'm pleased to share that the 2-month results from our RCT comparing Flexitouch Plus to usual care in patients with head and neck lymphedema were published in the Journal of the Sciences and Specialties of the Head and Neck in January. These results, which were initially presented at the ASCO Annual Meeting last June, concluded that Flexitouch Plus is an effective first-line treatment for head and neck cancer survivors with lymphedema compared to receiving therapist-guided treatment without a compression device.

Second, following the presentation of long-term data from our RCT at the ACRM Fall Conference in October, I'm also pleased to report that the 6-month manuscript has been submitted and is currently in review. Additional manuscripts will be submitted this year and include a deeper analysis into structural barriers associated with usual care and the role of device technology in more quickly addressing the debilitating symptoms of this population.

This is truly a landmark study. Never before has there been a large RCT assessing short- and long-term outcomes of advanced pneumatic compression therapy as an evidence-supported alternative to usual care in treatment-naive head and neck cancer survivors with lymphedema. We are leveraging these data to support our ongoing discussions with commercial payers regarding their current experimental and investigational policy language for head and neck lymphedema device therapy.

Clinical data and patient value examples like these strengthen our oncology channel engagement and help to increase awareness of the clinical benefits of Flexitouch Plus for patients in this therapeutic area. While extensive coverage has not yet been fully opened, we are encouraged by the growing momentum and interest, and we'll continue to work with commercial payers to influence their policies and reduce access barriers.

Beyond clinical evidence, we are also focused on improving access to care by transforming each step of the order process through the implementation of new technology and more efficient workflows. A key component of this effort is the use of AI-enabled technology to improve speed, accuracy and efficiency for PCD orders. During the fourth quarter, we successfully completed the first phase of our new AI platform, implementing it across our order intake process as well as for certain parts of our medical record review, specifically for orders in our Medicare channel.

With the foundation set and early learnings gleaned from the initial rollout, we will continue expanding the use of this technology across the entire order process this year, including patient eligibility and verification of benefits, full medical record review and order qualification and prior authorization. Once fully implemented, we expect this technology to accelerate speed to therapy, reduce revenue impacting errors and improve operating efficiency, each of which should contribute to enhanced operating margins moving forward.

I would like now to spend a few moments discussing our product road map for 2026 and broader strategic priority of expanding treatment options. This priority spans both business lines and is centered on identifying ongoing unmet needs and addressing them through patient-centric innovation. We delivered on this in 2025 with the introduction of Nimbl for upper and lower extremity lymphedema and continue to be very pleased with patient and clinician adoption. Nearly a full year into its launch in a crowded market, we have moved into market leadership position in the basic compression pump category, and we expect to continue growing this category and serving more patients with Nimbl.

Product innovation will unlock future growth opportunities. And as we look ahead to this year and beyond, there are 2 specific additional areas of innovation I would like to highlight. First, on the airway clearance side. In early Q4, we submitted a 510(k) to FDA for our next-generation AffloVest product. While the product remains under FDA review, we expect to commercially launch it later this year to ensure it's available for the 2026 to 2027 winter respiratory season. We are very excited about this next-generation device, which will feature further weight reduction, the addition of digital connectivity and improved sizing adjustability to allow for a more customized fit. We are confident these enhancements will support the patient experience while promoting adherence.

Our second innovation area is focused on the advanced pump category. Our road map includes the phased introduction of incremental features and product enhancements for Flexitouch, including making the device smaller, lighter, more user-friendly and with less external hosing. These updates will support the patient experience, and we will provide additional updates as we progress through our product development cycles this year. Additional enhancements will follow and may include new features that change the way therapy is delivered.

With the acquisition of LymphaTech, we now also have access to an expanded capability skill set and a separate product road map from their development team. Over the next few months, we will be looking for road map integration points being deliberate and strategic to ensure new therapies and product designs improve the patient experience without compromising therapy effectiveness.

Our third strategic priority is aimed at enhancing the lifetime patient value by supporting lymphedema patients across the full care continuum, encompassing a more efficient and personalized engagement before, during and after the order and delivery process. In 2026, we plan to continue focusing on targeted care navigation pilots, leveraging our existing resources to further solidify patient engagement throughout the complex and drawn-out order process and reduce patient leakage.

These pilots are designed to proactively reach patients at key moments in the care journey, helping set expectations, reinforce required next steps and support timely progression through the order workflow. Our initial pilots have demonstrated proof of concept, showing that patients value clearer communication and guidance earlier in the process. While we continue to evaluate longer-term technology investments, our near-term focus remains on refining these pilots optimizing communication touch points and expanding their impact in a measured and scalable way. We believe this approach will improve yield, enhance the patient experience and over time, reduce the need for sales rep involvement in the order process.

As you can see, we are continuing to execute well across a diverse set of strategic priorities that are designed to unlock our TAM and drive consistent growth over the near, mid and longer term. In each of these areas, we have multiple catalysts ahead, including continued commercialization acceleration and progress across our product and clinical road maps, which we expect will support our momentum moving forward.

With that, I will now have Elaine review our Q4 financial results in more detail and provide an update on our guidance and outlook for 2026.

Thanks, Sheri. Unless noted otherwise, all references to fourth quarter financial results are on a GAAP and year-over-year basis. Total revenue in the fourth quarter increased by $80 million or 21% to $103.6 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch Entre and Nimbl systems increased $12.4 million or 16% to $89.5 million. And sales of our airway clearance products, which includes our AffloVest system, increased $5.6 million or 66% to $14.1 million.

Continuing down the P&L. Gross margin was 78.2% of revenue compared to 75.2% in the fourth quarter of 2024. The increase in gross margin was attributable primarily to lower manufacturing costs and stronger collections reflected in our revenue. First quarter operating expenses increased $10.4 million or 20% to $62.2 million. The change in GAAP operating expenses reflected a $4.7 million increase in sales and marketing expenses, a $0.5 million increase in research and development expenses and a $5.2 million increase in reimbursement, general and administrative expenses, including and primarily driven by strategic investments.

Operating income increased $6.3 million or 50% to $18.8 million. Interest income decreased $0.3 million or 28% to $0.7 million due to our decreased cash position. Interest expense decreased $0.5 million or 98% to $11,000. Income tax expense increased $5.5 million or 169% year-over-year to $8.8 million. Net income increased $0.9 million or 9% to $10.6 million or $0.46 per diluted share compared to $9.7 million or $0.40 per diluted share.

Adjusted EBITDA increased to $22 million compared to $16.2 million. With respect to our balance sheet, we had $83.4 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $94.4 million in cash and $26.3 million of outstanding borrowings as of December 31, 2024.

Turning to a review of our 2026 outlook. For the full year 2026, we expect total revenue in the range of $357 million to $365 million, representing growth of approximately 8% to 11% year-over-year. This guidance assumes our lymphedema and airway clearance businesses will grow in a similar range with airway clearance growing modestly faster.

As typical, our guidance range reflects several factors, including expected strength in airway clearance and ongoing commercial momentum in lymphedema driven by our go-to-market strategy. This guidance contemplates a recent Medicare regulatory update related to pneumatic compression devices.

Specifically in January, CMS announced a new prior authorization requirement for basic and advanced pneumatic compression device codes under traditional Medicare fee-for-service. With this update, medical device suppliers will be required to obtain prior authorization before furnishing these devices and submitting claims to Medicare beginning April 13.

To step back for a minute, Medicare policy in our category is and has been a dynamic and evolving environment. The pneumatic compression device codes impacted by this recent change have been included on the DME master list for many years, meaning that they were eligible to be selected for prior authorization at any time.

It is our understanding that as part of CMS' annual review and update process, certain DME categories are periodically moved to the required prior authorization list to provide additional oversight. This update reflects that broader CMS process and is not specific to Tactile or unique pneumatic compression devices.

Ultimately, this new requirement will add additional administrative steps to the order process for Medicare fee-for-service patients. As the industry adjust to this requirement, we expect a temporary short-term impact across the broader lymphedema market, which we've incorporated into our guidance for 2026. Importantly, we do not expect this change to alter our ability to deliver growth in line with the overall lymphedema market during this period.

As the industry leader and a DME provider with longevity in this market, we believe we are best positioned to navigate this change. We already have extensive experience operating in other prior authorization environments across Medicare Advantage and commercial plans. And the investments we made in 2025 to strengthen our back-office infrastructure, documentation workflows and payer engagement capabilities position us well to navigate this transition efficiently.

Once the industry has adjusted, we expect the lymphedema market to return to its normal growth trajectory. As that occurs, we believe our scale, experience and operating discipline position us to perform at least in line with the broader market. More broadly, we believe this change can benefit patients by helping ensure therapies are clinically appropriate and supported by evidence, promoting more consistent and timely access to care with fewer coverage disruptions. As always, we will continue to work closely with clinicians, payers and patients as the industry navigates this change to support seamless access to therapy and optimize patient outcomes.

Turning to quarterly shaping. We expect Q1 growth to be higher than the balance of the year, driven by the timing of last year's recovery with growth moderating as we move through 2026. With that backdrop, for modeling purposes for the full year 2026, we expect our GAAP gross margin to be approximately 76%, our GAAP operating expenses to increase 8% to 10% year-over-year as we annualize our sales organization investments and advance our tech-related investments throughout the year. Net interest income of approximately $3 million, a tax rate of 28% and a fully diluted weighted average share count of approximately 22 million to 23 million shares. We expect to generate adjusted EBITDA of approximately $49 million to $51 million in 2026.

This outlook reflects the annualization of 2025 investments and continued strategic initiatives in 2026, which we believe are important to support long-term growth and operating leverage. Our adjusted EBITDA expectation assumes certain noncash items, including stock compensation expense of approximately $9 million, intangible amortization of approximately $3.6 million and depreciation expense of approximately $3.2 million.

With that, I'll turn the call back to Sheri for some closing remarks. Sheri?

Thank you, Elaine. Our Q4 and full year 2025 financial performance was strong, and we are very proud of our accomplishments and momentum. We are executing well against our strategic priorities, and our investments in people and various workflow processes are materializing and paying off as expected. The foundation we have built over the past year gives us confidence in our ability to continue delivering consistent performance in line with overall market growth.

With multiple catalysts ahead, including continued commercial momentum and progress across our product and clinical road map, we believe we are entering 2026 from a position of strength. As we have seen, the lymphedema payer policy environment is adjusting. And as the industry leader, we are well prepared to react and effectively respond to any change that may arise. We have confidence in our business and look forward to sharing updates with you as we move through 2026.

I'd like to thank our team here at Tactile for their combined efforts in 2025. Without them, none of what we achieved would have been possible.

With that, operator, we'll now open the call for questions.

[Operator Instructions] And our first question will come from Adam Maeder with Piper Sandler.

This is Kyle Winborne on for Adam. Congrats on a good quarter. I guess I'd like to start with the lymphedema business. Performance was strong again in Q4 and really started to pick up momentum there in the back half of last year. Can we just drill into what drove this a little more? Did you start to see the NCD interpretation kind of fully turn into a tailwind there in Q4 as you discussed? Just seeing really good productivity and performance as a result of the increased headcount like you discussed in the prepared remarks. Can you just kind of unpack the performance there for us?

Yes. Kyle, you basically noted all the things that I was going to say. Really, what we're seeing in Q4 was multiple investments in people and processes and technology, all coming together that really enabled the company to outperform expectations. So for sure, being able to have the CRM, we talked about that, that launched a year ago about this time. By the time we got to Q4, we had really strong adoption. The data was coming through. It really was built into the workflow for our sales organization.

The other part of our go-to-market strategy was just increasing the number of reps. And as you saw, we had a nice acceleration of hiring as well as onboarding reps. Many of them came in, in Q2 and Q3. So they started to show more productivity into Q4.

And then I would say we did see some modest tailwind from that Medicare patients moving directly to Flexitouch under the new NCD criteria. And that was something that, as you know, we held on kind of going -- leaning into that more until we had more confidence that the policy was settled and had been defined. But we did start to see some of that come through, which was nice to see and that momentum we expect to see going through in 2026.

And then, of course, our airway -- you didn't ask, but I'll just throw in our airway clearance business, just did great, again, just a result of strategy and executing those partnerships and the training and education that we did. So those were the things that brought together a really stellar year -- stellar quarter for us and an overall really stellar year.

Great. That's super helpful. I guess to follow up then on the lymphedema business as we look into '26, and just kind of understanding the guidance that you gave maybe kind of around that top line growth number for the total business. And I guess as we think about some of these new prior auth requirements that you discussed, along with maybe some of these tailwinds that we're just starting to kick in from the NCD, I mean, can you just kind of help us balance the two? I mean did they kind of offset? How did you piece maybe kind of some of those headwinds and tailwinds there around reimbursement for 2026?

Sure. So very consistent with our guidance philosophy, our outlook that we put forward really incorporates a very balanced and thoughtful approach based on the information we know at the time. So if I look on the momentum and the tailwinds, we have the NCD. We have a much more seasoned sales organization. They're coming in strong. We basically, at the end of Q4, have the total number of reps we need. We have that ratio of a 1:1 that we talked about.

So for every account manager, we also have a product specialist. Nothing has changed in terms of that patient population. We still have this underserved population. We have very strong channel strategy. So all of those things are in place, and we anticipate continuing to drive forward.

for sure, the change that the Medicare requirement is asking for in the prior auth is a change than we had seen in 2025. But the fact is that we are going to be prepared for this. We already do prior authorization in our commercial business. We have to stand it up for Medicare. Medicare has never prior authorized this category before, so they'll be learning as well. So we felt it was prudent to not get ahead of our skis on this. We are prepared. We will address this. And as we work through what it takes and what that patient flow looks like, we always have the opportunity of adjusting our guidance in Q3 as we get more experience in this area. But yes, we did a balance of headwinds and tailwinds, but this prior auth is a shorter-term headwind and one that we feel very prepared to address.

Our next question comes from Ryan Zimmerman with BTIG.

This is Izzy on for Ryan. I apologize for any background noise. I also want to echo the congrats on the solid quarter as well. So just to start, I was curious if you could talk a little bit more about the LymphaTech acquisition that you guys announced today. Any color that you can provide on the expected commercialization model or high-level thoughts that we can think about for 2026 and our models with that deal coming in?

We are really excited about this acquisition to our business. I have been and leaders before and all of you as well has been asking about how can you unlock that TAM that 20 million patients in the U.S. alone that have lymphedema that have yet to be diagnosed. So it fits so nice into our overall strategy in that continuum of care. So very excited about that.

What we're also really thrilled about is, one, they already have a commercialized product. And so that commercialization model right now looks like us for measurement and surveillance with compression garment manufacturers use that for digitizing fitting and ordering. And then a few centers use it as just part of their overall workflow.

Longer term, we do see this opportunity to integrate LymphaTech into our commercial engine, put it into our reps hands and look at a very strategic segmentation approach to how would we go sell this in those centers where they have large volume where workflow efficiency is really going to make a difference, plus you have this great patient experience where you don't have someone wrapping a tape measure around your limbs and it being different based on who's doing it for you that this is one where it's a no touch and then the patient gets to actually see what their fluid volume looks like in their limbs. It's very sticky for them to understand the disease that they have.

So we're not putting in the bag of our reps right now. It certainly -- it's available in the market. There's also a regulatory and reimbursement strategy that's in place, and we'll be looking at how we can continue to develop that so that there's a payment mechanism in place for use of the tool with clinicians. But we're going to be doing more of the specific work as we get into the integration. And again, just super excited to now have this in the portfolio, really cementing and solidifying our strategy to really lead in this area and have that full care continuum of technologies and solutions for both patients and clinicians.

Got it. That's helpful. And then just to go back to the guidance for a second. I was curious what will get you to that 8% versus that 11%, understanding all of the headwinds and tailwinds that you called out for the year and the reimbursement dynamics as well.

Sure. I mean I think that, that bottom -- so a couple of things, especially when you look at it from a lymphedema standpoint, we said last year, and we'll say again that we believe that we're going to grow at the pace of the market. We do believe that this prior auth is likely going to pull down some of that market growth.

That 10% CAGR is reflective of some years higher and some years lower. And reimbursement has been a big factor in it being higher and it being lower. So I would imagine an 8% would be the prior auth is really challenging, not necessarily on our side, but for the reviewers. It's going to be a manual review. It's not an AI review. They've got to come up to speed. If they're super conservative, don't get trained. I mean those things that could potentially drag it down, that would be what we saw as being kind of pulling down the lower.

But there's nothing else that's inherently disrupting the business itself. Again, the patients are there. Our channels are here. We've got the biggest sales force we've ever had. We're operationalizing our back office. We've got CRM tools. So all of those things are kind of countering what might be a little bit of that temporary drag.

And our next question comes from Brandon Vazquez with William Blair.

I wanted to follow up on the last one on the NCD changes. Maybe you can just start, give us a little bit more color. You mentioned you've been doing prior auth on the private side already for a little while. Talk to us a little bit about what does that process look like? You have a lot of CMS and private experience now. So how much could a prior auth process lengthen that process for the CMS patients specifically? And in part because I'm trying to understand what's embedded within the '26 guidance. Does the market contract for a quarter or 2 before it returns to growth? And is that what's embedded in your guidance? Or does this remain a growth market for the next couple of quarters?

Yes. I'm going to turn over to Elaine to address some of the specifics. But you originally called out a change in the NCD. And I just want to make sure that the -- nothing is changing with the NCD. So the NCD is still in place, and that really we feel has turned into a headwind where those patients who meet the criteria for an advanced pump can get an advanced pump. This is different in that new policy specifically for Medicare in the fee-for-service on prior auth, not tied at all to NCD. But I'll let Elaine talk about the process that prior auth looks like in our commercial business.

Yes. I mean really, the process is you curate a package with that is usually some type of cover document that's specific information that a payer is looking for plus all of the supporting evidence medical records. It could be the demonstration that they can do and so forth. And that is submitted could be via their portal and then we actually would find a response typically by checking the portal.

Now that does elongate the process. And so we've seen that with commercial. We've got some payers that are really quick in turning around and some that take longer. As I think you know, this has been a really big attention the public space as far as getting prior auth in a much faster turnaround time. I think the focus is really getting that within a week, and so we're hopeful we start to see that same thing with Medicare.

So really, when we think about, to your point, is this a short term kind of slowdown from an industry, I think that's what we're suggesting is there's nothing fundamental changes the industry and we need -- we just need to learn this new process. And it really is a combination of the technical requirements, what exactly is going to constitute all of the parts and pieces of that submission packet and how would we most efficiently get the information to and from Medicare as well as any idiosyncrasies when it comes to what they're looking for.

So we're really experienced. And so we've got also the ability with our new technology to be much more nimble at implementing changes. So this is why we're acknowledging it could for a short-term period, kind of slow the growth of the industry, but we feel really well positioned to navigate this. And so we don't see this as a U.S. significant have a long-term kind of headwind for us.

Okay. Great. And maybe shifting topics a little bit, Elaine, I think -- correct me if I'm wrong, but I think this was probably the best EBITDA margin quarter in the company's history. Just talk to us a little about where you're getting the most leverage? And then where can the EBITDA margin go from here? I mean you guys obviously gave a '26 guide, but where do you see the biggest opportunities for additional leverage within the P&L. Congrats again on a nice quarter.

Yes. So yes, thank you for that. That's something that we've been excited about being able to grow profitability. And if you go back to where we started the year, this is much better than we expected. So I think a combination of really good discipline from a cost management perspective as well as starting to see benefit from those investments that we've been making. So we've talked about even some of the AI tools, and they are starting to pay off.

As we move into this year, you'll see that our guide suggests an increase to a more modest one, and this is a combination of us annualizing some of the investments such as our sales force. We didn't carry the expense for the full year. We will in this coming year in 2026, as well as continuing to finish out the strategic investments that are underway now.

So we're happy that we're going to be able to continue to expand margins, albeit a bit more modestly this year while we're able to continue those investments. Longer term, once we get these investments behind us, we do expect to see gross margin rate grow at a faster pace than we're suggesting for 2026.

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

First off for me, just for clarity's sake on the prior authorization, it doesn't sound to me like you have the specific requirements that CMS is going to be demanding. And just based upon your work with commercial insurers in the past, it doesn't sound like either that there's anything that is kind of out of the box where clinicians are not used to kind of collecting the data, and it's more of a question of how quickly CMS can turn it around. Is that the right way to think about this here?

So I would say with Medicare, it's been -- we've been learning day by day. We are -- we do understand kind of what forms we need to fill in. We're pretty clear because remember, we're getting approved post the claim. So we're pretty -- we have a good understanding of what Medicare is looking for a successful claim, which should translate very well from a prior auth perspective. But there are some technical things of what's the best way to submit it. Are there going to be anything from a prior auth that's a little bit different? So that's kind of the learning there.

Unfortunately, every payer is different. So there isn't something that's quite out of the box, but we are excited to be leveraging some of our newer technology that does leverage AI to help facilitate and this process up. So I think that's something that we're excited that will help not only make this more efficient for us, but hopefully make that turnaround time for the patient more quick as well.

Okay. Great. That's helpful. And then just on the bronchiectasis drug that launched here a number of months ago, are you seeing any impact in terms of growing the market there? What's kind of any color that you have there?

Sure. I mean the patient population that's in our airway clearance business really mimics the underserved, underdiagnosed population that we see in lymphedema. So the bronchiectasis growth, I would say, or at least the awareness has been driven by, say, pharmaceutical entrants, a lot more awareness, disease awareness, brought in training and education to the pulmonology and respiratory community. And so we've seen a nice uptick from that standpoint.

The other good thing here, Ben, is that there is not a -- no guidelines nor clinical decision that a drug should be used ahead of this therapy. They're meant to be used together. The drug therapy reduces inflammation, but it does not actually move the mucus, which is the big challenge for these patients when they get mucus and then they get infections. So it's going to work really nicely together. And so we appreciate the fact that there is more awareness from a disease state, and we also appreciate our position being in our top 10 DMEs and having the preferred placement and seeing the growth. So this continues to be a really attractive market for us and a lot of patients that need to be served.

And there are no further questions. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Welcome, ladies and gentlemen, to the Third Quarter 2025 Earnings Conference Call for Tactile Medical. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly.

I would now like to turn the call over to Sam Bentzinger, Investor Relations at Gilmartin Group, for a few introductory comments. Please go ahead.

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

Before we begin, I'd like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. These could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our annual report on Form 10-K as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise.

This call will also include references to certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

With that, I'll now turn the call over to Sheri.

Thanks, Sam. Good afternoon, everyone, and welcome to our third quarter 2025 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We are looking forward to sharing our strong third quarter financial and business results with you today. As we'll discuss, these results reflect our progress in both strategy and operational execution, demonstrated by meaningful advances in business transformation, product innovation and market leadership.

In the third quarter, we delivered total revenue of $85.8 million, representing growth of 17% year-over-year. By business line, lymphedema revenue increased 11% year-over-year to $72.4 million, and airway clearance revenue increased 71% year-over-year to $13.4 million. We were also pleased to see sequential growth in both business lines with lymphedema revenue up 10% versus Q2 and airway clearance revenue, which is typically more seasonally depressed in Q3, up 3% versus Q2.

Q3 gross margins increased 80 basis points year-over-year to 76%, while on the bottom line, adjusted EBITDA increased 34% year-over-year to $14.4 million. We also made progress with respect to our balance sheet in terms of strong cash generation. Based on our performance through the third quarter and sustaining momentum, we are raising our full year 2025 total revenue guidance to a range of $317 million to $321 million, representing growth of approximately 8% to 10% year-over-year.

I will now focus on a deeper review of performance by individual business line and share progress updates on our key 2025 strategic priorities, which, as a reminder, center on: one, improved access to care, a core element of our growth strategy given our massively underpenetrated markets; two, expanding treatment options to optimize patient care and reinforce our market-leading position; and three, enhancing the lifetime patient value given the chronic nature of the disease states we support with both products and services. Elaine will follow with a review of our full third quarter results and additional details of our updated guidance.

Our lymphedema business is continuing to demonstrate a steady recovery, and we expect this momentum to persist. In Q3, lymphedema revenue grew 11% year-over-year and 10% sequentially, driven by execution excellence of our go-to-market commercial strategy.

With 2 full quarters behind us following the rebalance and optimization of our field sales organization, in addition to a new CRM launch, we have increasing conviction that our approach to field headcount, investments and the hardwiring of Salesforce CRM into daily sales activities and productivity visibility is delivering as intended.

We ended Q3 with 329 total reps, well ahead of our year-end goal of 300 reps and split roughly evenly between 167 account managers and 162 product specialists. This represents a 25% increase in total reps compared to the end of Q1. With these additions, we now have the largest field presence in Tactile's history, and we have them placed in the right roles in the right geographic location to meet and drive demand.

My confidence in our field organization goes beyond the number of heads, depth and breadth of provider relationships and sales leadership, although these are all very important. We have a strong CRM technology adoption and have embedded market data algorithms and 3 tech enhancements since July, all of which support a data-driven and efficient approach to sales activities. The CRM is not a documentation tool, but rather a daily sales guide to opportunity identification, next best action, incomplete order details and tracking productivity performance.

We have recruited and onboarded high-caliber reps, engaging them immediately in new sales hire training and giving them early exposure and experiences in all sales channels. Our tenured account managers are now experiencing the multiplier impact of a robust CRM in-territory support resources and focused channel strategies. Our go-to-market philosophy and staffing model of roughly 1 account manager to product specialist in similar sized territories supports our Q4 productivity expectations and positions us well for next year.

Shifting to a review of our Q3 lymphedema payer mix and respective year-over-year comparisons. This quarter, sales in our Medicare channel increased 130% year-over-year, while our commercial and VA channels declined 9%. While these appear to be dramatic swings, there are a few dynamics to note.

As you know, a change in documentation interpretation by Medicare administrators in Q2 of 2024 created a pervasive headwind that lasted throughout the year. During that period, we focused on understanding the MAC position and redirected efforts to call points with higher concentration of VA and commercial patients, which were unaffected by these documentation challenges. As a result, non-Medicare business growth was unusually strong in Q3 last year.

Since then, we have adapted to the new Medicare documentation requirements by launching e-prescribing, adding headcount to the back office, deploying our go-to-market headcount strategy and reimagining our order management processes. While there will always be order management paperwork, we have effectively neutralized last year's coverage headwind and have several initiatives underway to support scale and operating leverage.

Year-over-year, our Q3 2025 payer mix illustrates the impact of these dramatic policy shifts. We're recovering from a softer Medicare comparison, aided also by these newly implemented initiatives and our increased focus within vascular practices while simultaneously facing stronger prior year results in our commercial and VA channels. Importantly, our Q3 payer mix itself indicates a return to a more normalized mix environment, which we expect to sustain, supporting more balanced year-over-year comparisons moving forward.

Our commercial go-to-market plan remains focused on deploying reps across each of our lymphedema call points, VA, Oncology, Vascular and Lymphatic therapy practices. Further, the transition from the LCD to the NCD is an additional tailwind that should help drive continued improvement in Q4 and beyond. Elaine will speak to this in more detail shortly.

Turning now to our Q3 airway clearance business line performance. What a fantastic quarter on top of a great year thus far. Sales of AffloVest increased 71% year-over-year and 3% sequentially. The key drivers of Q3's growth remain consistent with what we have shared previously. We have secured partnerships with the top 10 respiratory DMEs and prioritized placement agreements among a select handful of these DMEs, and we are executing well across these partnerships.

We are seeing growing demand for AffloVest as broader awareness of bronchiectasis and its available treatment options continue to expand. And we have an excellent product with AffloVest and are continuing to take market share. While the claims data are lagging, we know we are very close to achieving a market-leading position as our commercial momentum accelerates.

Looking ahead, we remain focused on strengthening relationships with each of our top DME partners and penetrating deeper within these accounts. With our highly focused and skilled airway clearance field team, we are deploying a proven strategy of a differentiated product, strong partnerships and high-quality medical education and training for providers and DME staff. We are expecting this strategy to continue to drive AffloVest penetration to the 5 million diagnosed and undiagnosed bronchiectasis patients in the U.S.

I would like to now share a few new progress updates on each of our 3 strategic priorities that are designed to unlock our TAM and enable scalable, profitable growth. Let me begin with an update on our foundational priority to improve access to care. As mentioned on previous calls, clinical evidence generation is a key element of improving access to care. And as the market leader, we are proud to be associated with robust evidence generation and peer-reviewed clinical evidence publications.

Last week, we announced late-breaking 6-month data from our head and neck lymphedema RCT, which was presented at the American Congress of Rehabilitation Medicine 2025 Annual Fall Conference. This trial examined the effectiveness of Flexitouch Plus compared to usual care in treatment-naive head and neck cancer survivors with lymphedema, and this new long-term data follows an earlier presentation of 2-month data at the ASCO Annual Meeting in June.

The study was designed to support treatment guidelines, patient care pathways and reimbursement coverage for advanced pump therapy in this population. The results confirm what we had suspected, and we are very pleased to now have high-quality data demonstrating the sustained long-term effectiveness of Flexitouch Plus as an evidence-supported alternative to usual care at 6 months.

Specific areas of Flexitouch Plus differentiation versus usual care demonstrated reduced internal swelling across the majority of anatomical sites with statistically significant improvement achieved in 2 sites in particular. Clinician-reported outcome measures of both internal and external soft tissue swelling also favored Flexitouch Plus over usual care.

The 6-month manuscript is in the investigator review process right now and will be submitted in November. Additional manuscripts include a deeper analysis into usual care, defined in this study as therapist-guided lymphedema treatment and lifelong home-based self-care, which will be submitted in early 2026. In the meantime, we continue active discussions with commercial payers regarding their current experimental and investigational policy language for head and neck lymphedema, and we aim to influence those policies and reduce barriers for patients.

A second update related to improving access to care is specific to a recently implemented pilot integrating AI-enabled technology into our order operations to improve speed, accuracy and leverage throughout the order intake and medical record review processes for traditional non-eprescribed orders. The first phase of this pilot focused specifically on the medical record review process, which identifies if payer required medical necessity criteria is documented in the patient medical records.

Early results from the pilot have been encouraging. Not only can the tool deliver efficiency in scanning the records themselves, but it is also able to quickly inform our sales team as to what's missing in the medical records. From there, our team can work more easily with our provider partners to obtain the necessary documentation. The next phase of the rollout will focus on the order intake process, and we look forward to sharing additional details on our next earnings call.

Our second strategic priority is focused on expanding treatment options. In our lymphedema business line, sustained demand for Nimbl continues through the third quarter. Nimbl's full upper and lower extremity offerings launched just 9 months ago, and we remain pleased with the feedback we've received from both providers and patients.

Nimbl's unit growth continues to outpace market growth. And in a short period of time, we have moved into a market leadership position in the basic pneumatic, non-pneumatic compression pump category. We look forward to serving more lymphedema patients with this therapy. On the advanced compression pump side, we are making good progress on our product innovation road map, and we'll have more details to share on our fourth quarter call.

I have exciting product innovation news to share in the airway clearance business. In early Q4, we submitted a 510(k) to FDA for our next-generation AffloVest product. The product is currently under FDA review. And while we are not yet able to provide more details regarding expected clearance, I'm pleased to share a brief preview on the product itself. The most notable enhancements with this new next-generation AffloVest include reduced weight, the addition of digital connectivity and improved sizing adjustability to allow for a more customized patient fit.

The current AffloVest is already proven to be patient-preferred versus other high-velocity chest wall oscillation products and is effective in managing the symptoms associated with bronchiectasis and other airway clearance conditions. We look forward to introducing this next-generation AffloVest, and I believe the enhanced features will support the patient experience while promoting adherence.

Finally, our third strategic priority is aimed at enhancing the lifetime patient value. We are seeing increasing opportunities to enhance support for lymphedema patients across the full care continuum. This includes more efficient and personalized engagement before, during and after the order and delivery process.

One way we are approaching this is through expanded utilization and efficient operations of our patient services organization. This organization is composed of our Patient Education Consultants or PECs, who support the majority of patient product demos and training and our back-office patient support team who support patient advocacy, financial services, clinical and product support and other patient-related services. These 2 teams interface directly and most frequently with our patients.

Last quarter, we announced plans to launch a small care navigation pilot designed to proactively reach out to patients earlier and more consistently throughout the order process to better understand the moments that matter most for patients to receive more information and solidify their engagement in the process. This is important because often the order progression requires the patient to do something, such as follow-up with their clinician post 4 weeks of conservative therapy or to be available for a product demo and initial treatment.

We are taking a measured approach with care navigation pilots as we want to ensure efficient scalability, a positive patient experience and improved yield impact. Our first pilot demonstrated proof of concept that patients appreciate more information about the order process and expectation setting. One outcome we identified is a clear need to meet patients where they are by modernizing our communication infrastructure. To do this effectively, we're investing in a comprehensive omnichannel platform that integrates text, e-mail, chat, self-service and phone support, ensuring seamless personalized engagement through the patient journey.

Our future plans include technology infrastructure investment in this area. In the interim, we will continue to leverage current resources to pilot targeted care navigation initiatives at key engagement points in the order process. These pilots will help us define our future patient engagement strategies and optimize communication scripts to better support the patient experience.

With continued expansion in scope, we expect care navigation to further reduce the need for sales rep involvement in the order process, help mitigate patient leakage and enhance the overall patient support connectivity and experience. As you can see, we are executing well across a diverse set of strategic priorities, supported by key investments in our sales organization, order operations, clinical evidence generation and new product development. As we've shared previously, these initiatives are designed to unlock our TAM and position the business for sustained profitable growth.

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

Before turning the call over to Elaine, I want to share a brief update on our capital allocation strategy. As we have shared previously, we are increasingly benefiting from generating free cash flow, a trend we expect to continue. This provides us the luxury of continuing to evaluate various investment opportunities to drive growth and increase shareholder value while also initiating a second share repurchase program of up to $25 million of outstanding stock.

We believe this strategic action and near-term use of cash aligns with our conviction in the trajectory of our business as well as our ability to execute our financial and operational initiatives. To be clear, our strong balance sheet affords us a multitude of options in terms of meaningful capital deployment, and we will continue to evaluate ways to leverage our market leadership and strong commercial and operational footprint to invest and drive incremental growth.

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

Thanks, Sheri. Unless noted otherwise, all references to third quarter financial results are on a GAAP and year-over-year basis. Total revenue in the third quarter increased by $12.7 million or 17% to $85.8 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Entre and Nimbl systems, increased $7.1 million or 11% to $72.4 million and sales of our airway clearance products, which includes our AffloVest systems, increased $5.6 million or 71% to $13.4 million.

Continuing down the P&L. Gross margin was 76% of revenue compared to 75% in the third quarter of 2024. The increase in gross margin was attributable primarily to lower manufacturing and warranty costs, reflecting enhancements in product design and stronger collections reflected in our revenue. Third quarter operating expenses increased $6 million or 13% to $54 million. The change in GAAP operating expenses reflected a $3 million increase in sales and marketing expenses, a $0.2 million increase in research and development expenses and a $3.3 million increase in reimbursement, general and administrative expenses, including and primarily driven by strategic investments.

Operating income increased $4.2 million or 62% to $11 million. Interest income declined by $0.3 million or 31% to $0.7 million due to a lower cash position following the repayment of our term loan. Interest expense decreased $0.3 million or 63% to $0.2 million. Income tax expense increased $1.2 million or 55% year-over-year to $3.2 million. Net income increased $3.1 million or 59% to $8.2 million or $0.36 per diluted share compared to $5.2 million or $0.21 per diluted share. Adjusted EBITDA increased to $14.4 million compared to $10.7 million.

With respect to our balance sheet, we had $66 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $94.4 million in cash and $26.3 million of outstanding borrowings as of December 31, 2024. As mentioned during our last call, subsequent to the end of the second quarter, we retired our $24 million term loan and refinanced our revolving credit facility to increase capacity from $25 million to $40 million. Excluding the impact of the debt repayment, our third quarter ending cash balance increased $9.2 million.

Turning to a review of our 2025 outlook. For the full year 2025, we are raising our guidance and now expect total revenue in the range of $317 million to $321 million, representing growth of approximately 8% to 10% year-over-year. By product line, our updated total revenue guidance range assumes that growth for our lymphedema products will be 3% to 4% and growth for our airway clearance products will be 52% to 55%. This updated guidance is driven by several key factors.

In addition to the continued strength of our airway clearance business and the commercial momentum in lymphedema that Sheri highlighted earlier, we are also benefiting from a favorable Medicare policy environment, an important tailwind for our business. As Sheri mentioned, this stems from the retirement of the LCD and the transition to the less restricted NCD, which expands access to advanced pump therapy. Nearly a year into this transition, we now have a clearer understanding of the NCD.

Patients with complex lymphedema affecting areas such as the head, neck, chest or trunk can now access advanced pumps like the Flexitouch directly without first undergoing a basic pump trial. This change eliminates a significant administrative hurdle and accelerates access to the appropriate therapy.

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

As a result of our stronger-than-expected revenue, we now expect to generate adjusted EBITDA of approximately $38 million to $39.5 million in 2025. Our adjusted EBITDA expectation assumes certain noncash items, including stock compensation expense of approximately $7.8 million, intangible amortization of approximately $1.3 million and depreciation expense of approximately $5.3 million.

Finally, we continue to expect the full year tariff impact on our business to be approximately $1 million after the successful implementation of a range of tariff mitigation strategies as announced last quarter. Looking ahead, if no further changes occur, we anticipate an ongoing annual impact beyond 2025 of roughly half that amount.

With that, I'll turn the call back to Sheri for some closing remarks. Sheri?

Thank you, Elaine. Our financial performance and operational execution in the third quarter leave us incrementally confident in our ability to achieve and exceed our full year 2025 expectations. Both of our business lines are performing well with healthy call points. We are generating meaningful clinical evidence to support improved access to care for currently underrepresented patient groups.

Our investments in people and various workflow processes are materializing and paying off as expected. And our commercial organization is robust, well organized and poised to take advantage of the tailwinds in front of us over the near, medium and longer term.

We are confident in the trajectory of our business as reflected in our guidance update and new stock repurchase program. And our healthy balance sheet affords us a multitude of additional options in terms of meaningful capital deployment to drive growth and increase shareholder value. We look forward to closing out 2025 from a position of strength and continuing to execute in 2026 and beyond.

With that, operator, we'll now open the call for questions.

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

This is Kyle Winborne on for Adam. Congrats on a good quarter. I guess, first, maybe like to double-click on the AffloVest performance. It was another really strong quarter, and would just love to hear more about what continues to drive the good performance there.

You gave helpful color on the progress with the different DMEs. So maybe just be curious how did these different accounts perform in the quarter? Are you seeing growth across most of the accounts? And I know there's also this effort to continue increasing awareness. So just any additional insights you could give would be helpful as we try to just kind of understand the sustainability of the growth in this business here as we exit 2025 with another guidance raise.

Sure. Kyle, we are, as I said, really pleased with just a fantastic quarter of AffloVest performance. And as you can see, the revenue contribution now for AffloVest is about 16% versus prior year was 11%. I wish I could share something more colorful actually in terms of what's happening with that growth, but it is exactly what we've been saying all year. We really have 3 strategies that are working in our favor, and they're ones that we've been working on for a while, and they've really come to fruition this year.

The first is we do have those deep relationships with the top 10 DMEs. And while we don't report out growth or call out any one of those, where we have those relationships, again, and we do across all 10, certain things are working very well. One, we have preferred product position in several of those top 10 DMEs. That is compensating their reps for this product. And so it's in their bag of respiratory products and one that they continue to sell and see appropriate placement.

The other thing is we have got really good alignment on inventory and the cadence of when they want the product aligned with their financial team. So there's no surprises as to what those ordering patterns look like. And then we're able to continue our supply chain in a way that's super healthy and able to get -- and keep up with the demand. So from the DME partnership standpoint, that's all going very well.

You are right that there is increased awareness of bronchiectasis, and we're both driving that with our medical education that we're providing not just to DMEs across their operations team and their reps, but also we're providing that medical education to clinicians themselves. And so that is going very well and just general market awareness is coming up.

And then really last but not least, we just have an excellent product. We have a differentiated product, and we're taking share and are achieving this market-leading position.

As it relates to growth, we're also comparing against what was a pretty low growth year from last year. So I don't think there's -- not projecting into 2026, but we shouldn't be expecting that we're going to see this type of growth next year, but we are happy with where we're at. And of course, the growth in AffloVest contributed to our overall guidance that we're taking up for the end of the year, and we'll be able to share more on what we think our 2026 growth should be.

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

Sure. So while I can't -- what I can share is the key players kind of in this space, Baxter has been #1 for a really long time. I think they've been on the market for over 30 years. And as we have said, we feel like we are in a very close #1, if not already #1 in taking over them as the market leader.

In terms of overall growth of the market, very hard to share. It's growing clearly double digits, and that growth is really coming from I think you've got more therapies in this space, but I think more -- that's what's more relevant right now is the fact that there's just more awareness of the disease. There's been an introduction of a pharmaceutical product that's helped bring overall awareness. They were very prolific within some of the most recent conferences.

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

And moving on to Ryan Zimmerman with BTIG.

Sheri, Elaine congrats on the nice quarter here. So I want to ask about guidance a little bit, and I appreciate you giving the color on the segments, Elaine. Just to be clear, it looks like certainly AffloVest is coming up for the fourth quarter. It looks as if lymphedema is coming down maybe into the low single digits. I want to first make sure I'm clear about that. But then as I think about kind of historical performance from 3Q to 4Q, particularly in lymphedema, it's typically stepped up more than kind of what you're assuming from 3Q to 4Q, at least for this year.

And so I just want to understand, was there anything that was maybe pulled forward or onetime in nature in the third quarter, particularly in the lymphedema business? And then I do have a follow-up.

Yes. So I would say there's nothing that was pulled forward. I think from a comparison to last year, just to reset, and I'm remarking on this because it's been a year now, really when I joined on kind of what was my first quarter. At that time, if you remember, there was the change in interpretation of the NCD. I know we've talked -- LCD, sorry, we've talked about that a lot, but our entire lymphedema went into a major slowdown with that headwind. More documentation was required.

We -- if you think about the number of reps that we had, it was considerably less than we have today. And so the business was just incredibly slow last year, and it dragged on for the remaining of the year. We don't have anything happening this year. In fact, we've got the opposite where we have some tailwinds starting with the NCD, while we haven't seen that completely materialize as much as it will happen in a little bit in Q4 -- sorry, in Q4 as well as in next year. That's more of a tailwind where before it was very much of a headwind.

So we did step up our overall guidance in lymphedema. We did have it at 1% to 2%, and we've raised that 3% to 4% for the end of this year.

Yes. I think specifically on -- why does year-over-year growth kind of look like it's slowing down for Q4. I think this is a little bit what Sheri is talking about is that comparable to last year. Unfortunately, last quarter 3, which is really depressed with us kind of being at that bottom trough of the impact. We started to have that recovery in Q4 and then more so into 2026. So I think that's part of it.

And then you mentioned kind of sequential. So yes, sequentials were a bit different this year. And I think we alluded to that we expect to see that based on the hiring that we're doing. So we hired close to 30 additional reps there in Q2. So we had just a much bigger workforce as we moved into Q3. So that sort of created this kind of a naturally higher growth from Q2 to Q3 than we normally see and that also moderating that Q3 to Q4 growth as well a bit there.

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

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

Sure. Thanks, Ryan. Well, I can -- the market is growing at 10% in the lymphedema market. So there's nothing at this point that indicates to us that we should underperform the market. So I'm not going to comment on next year. But certainly, we believe that this is a market that's growing 10%. And with our products and our sales force and our productivity and supporting our back office and the investments we've been making, we believe we should be able to be in this range as well.

Our new guidance for the end of this year ticks us up between 8% and 10%. And so that is a nice recovery than what we had at the beginning of this year. This recovery is fueled by, again, adding to our sales headcount, having our CRM, our channel strategies as well as our back office support. all of these things were part of our strategy. They're all building. We're executing. We've got the momentum. So again, not providing any guidance on 2026, but I don't have any reason to believe that we should be underperforming the market.

Our next question comes from Brandon Vazquez with William Blair.

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

I would say what we -- and AffloVest, I already spoke to with the previous question from Kyle. I think that one just reflects again our strategy in action with our DME relationships as well as growth of the market with awareness of bronchiectasis as well as just great products.

On the lymphedema side, a few things that we're seeing, again, it's also very aligned to our strategy. So our go-to-market strategy, our Q1, we did a rebalance. We did an optimization. We said we reevaluated the number of account managers we needed versus the number of product specialists. We did that. We executed. You saw some of that lift happening in Q2. You're seeing it in Q3, and we're going to continue to see that in Q4. That essentially boils down to productivity.

We measure productivity as the revenue per territory. So now we've got the right headcount in the right geography with the right scopes, and so we're going to continue to see that materialize and get optimized as a multiplier as we go into latter half -- Q4 and as we go into 2026. So that's a big part of the lymphedema growth standpoint is on that productivity.

We also are going to see, and we'll see it more in Q4 is really the impact of the NCD. The NCD was announced in November of last year. As a reminder, we didn't get trained until February. Between February and early summer, there were some changes in their interpretation. So the NCD itself in terms of what is the interpretation has only really been on stable ground now for about 4 months.

We now are doing our appropriate shift and making sure that we're set up well so that patients who meet the criteria for advanced pump therapy like Flexitouch can get to that directly without having to go through the 4-week basic pump trial. So that's also going in our favor.

And then we're starting to see some of the impact of our initiatives. So sales force, certainly, again, not just documentation tool, but really like a job aid. It is the go-to for all of our sales reps in terms of how to plan their work. And we're starting to see efficiencies in the back office. This is also realized not just on the top line, but we're seeing some of that come through on the bottom line. So we feel really well positioned for continued financial performance on both the top and bottom line as we go into Q4 and beyond.

Okay. That's great. And 2 quick follow-ups to that on 2 of the points that you had made. First, on the sales side or the sales rep side, I think you said 329 reps you're at now, you're above your goal that was for 300. So help us think about where do you go from here? Do you need more reps? Are you pretty good on sales force count? And how does that trend into next year?

And then the other follow-up is just on the NCD side, if you could spend a minute talking about I think you mentioned that it was an easier pathway now for patients to get on Flexitouch. Is that a shortened cycle? Like any data that you can give us around what that pathway looks like now for those patients under the new NCD would be helpful.

Sure. So on the reps standpoint, I mean, we feel really well positioned on our headcount strategy and execution. We'll make new headcount additions with this balance of 1:1, again, one account manager to one product specialist. We'll staff based on how these territories grow. And so we feel in good shape. We're going to continue to round that out, and we'll get to the right headcount based on that strategy that we set in Q1.

As it relates to the NCD, so the NCD does allow a path for patients with unique characteristics to go directly to an advanced pump. And those unique characteristics have to do with where the edema is located as well as different type of skin conditions.

We understand and have better clarification from the MACs of what they're looking for from a documentation standpoint. The documentation requirements are still there. It's just that now there is a path for that patient to go directly to that therapy without having to go to a basic pump therapy. We aren't yet going to be reporting nor do we report specifically on the breakout of the -- what will have changed. But we are anticipating that the NCD is a tailwind, will allow more patients to go directly to the right pump that they need based on what their conditions are.

And again, this is just getting started, but until there is a policy change, we anticipate the NCD to be in place, and this is the policy that our Medicare patients can progress to as they are and working with their provider to determine what is the right therapy for them. Hope that answers your question.

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

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

Anderson, so I'll start with the mix first. We don't report out Nimbl versus Flexitouch. So what we have said in the past and will say is currently happening is that Nimbl is growing faster than the market. And so as a reminder, we are just less than 9 months into a full product launch of Nimbl. So it continues to have great adoption from providers, great adoption from patients. It's doing incredibly well. It's a great addition. And with that introduction, we now have taken a market leadership position in the basic pump category. So we're feeling really good about where that is.

The NCD allows us a path to see even greater unit growth from Flexitouch. But again, we won't be breaking that out, but we are really pleased with what the policy environment is as well as the success of Nimbl. And Flexitouch is a great product. I mean we're glad that patients can get direct access to it that need it, especially those that have head and neck lymphedema, chest lymphedema, trunk lymphedema. These patients were definitely not served with a basic pump prior.

And now I forgot what your second question was.

Yes. I think you asked the question around just the drivers of lymphedema. And so I think just again, to hit on what I think Sheri [ also was ] talking about before was really expanded headcount. So if you look at -- we've added a significant number of reps, 66 reps or 25% more than the end of Q1 there. So it's a big amount of growth. And each quarter that goes by, they're getting more and more tenured. And so that leads into increased productivity.

So we've got sales reps that are ramping as well as now the CRM tool that maybe we've never had before that not only helps them organize their work, but really identify where they should be best spending their time and which clinicians that are seeing a lot of these lymphedema patients there.

And then again, lastly, that strong airway clearance performance that Sheri also talked about.

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

Where are we seeing it? Did you say?

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

Well, we certainly believe that it's creating an uplift. Market awareness, both for lymphedema and for bronchiectasis has been one of the bigger challenges when we think about addressing the total addressable market is simply that these patients are undiagnosed and untreated. So with the launch of a pharmaceutical product and those dollars going into awareness, we believe that, that's a lift.

We also believe that it is a market share gain. So I'm not going to attribute it all to increased awareness. We know and we can see in our DMEs that we're seeing growth in those areas, and we believe that's coming directly from share growth as well.

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

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

Yes. Thanks, Ben. Regarding coverage, we're engaging with commercial payers and bringing awareness of their current policies for head and neck lymphedema because many of them have classified it as experimental and investigational. And we know that is a market access barrier for patients that could otherwise benefit from therapy. So these conversations have been ongoing. We have a dossier. We've been engaging with payers. And many of them have been open to understanding more what data is currently available as well as understanding and investigating more of their current policy.

In general, been really receptive to our outreach, and we expect that they will be reevaluating their current coverage policies. That said, the time line for policy changes are likely more in the 2026 time period. This is really consistent with what we have seen previously and what we've shared previously. I wish it could go faster. They're on a schedule for policy review, and some of them will do off-cycle review.

I'm sure having the 6-month data and especially this being such a landmark study that's showing the benefit of Flexitouch, particularly in treatment-naive patients. These are patients that did not receive a basic pump nor have they ever received therapist-guided lymphatic therapy that we'll be able to have a really robust conversation. But I would anticipate that the bigger changes in policy are going to happen more in 2026 and unfortunately, probably throughout that year, not necessarily in the beginning.

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

Sure. Well, I'm pleased that we're already starting to see that come through. And I think that, that's even better than we had expected. But let me break these down kind of individually.

When I think about the CRM tool itself, right? So that got put into place. We knew that would help with productivity, but then we also added 50-plus sales heads between Q2 and Q3. So what -- a 25% increase actually, we've added since the beginning of the year in sales. And these sales reps are starting to use the tool, the Salesforce tool versus our more tenured reps had to actually make a conversion between their older handmade tools into the CRM. So we'll continue to see the benefit of that, and we're not stopping our investment.

We'll continue to refine that tool, make it better for the reps, help them really understand what is the best opportunity, where do they need to go. And then we'll be looking at incorporating more of our back office order process pieces into Salesforce as well. So it becomes basically the tool on record, not just for the CRM activities that the sales reps are doing, but for the order. This is a big part of the investment that we're making into next year.

We've already spent dollars this year. It will continue to evolve next year. So when you kind of talk about innings, not necessarily like the World Series where a wrap-up in 7 games and either your team won or didn't win, this is going to be an ongoing game. And our commitment has always been that we needed some of these dollars in 2025 to get us going, and then we committed to continuing to show a return on that investment.

So I mentioned our care navigation, we're going to stand up more of that omnichannel platform for next year. That's going to have returns, but those returns will be in late '26 and into '27. Our investments in Salesforce, big stand up in investment dollars now, that's going to return in order operations efficiency, yield, leverage, all of those things will happen. So we are transforming our business, both in terms of what that go-to-market strategy looks like, but also that order process streamlining and making it easier, and we know that will have a return.

So it will be a multi-inning game, but we'd continue to commit to being able to show return on that investment, and we'll be teeing a lot of that up when we talk about our 2026 plan when we're all back together at the beginning of next year.

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