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 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 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…

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 entree 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…

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 roadmap, 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 significant long-term 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.