Tactile Systems Technology, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Tactile Medical develops and sells home-use medical devices, primarily for lymphedema; it added the AffloVest airway-clearance business in September 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $59.6 million | $51.1 million | $107.6 million | $93.8 million |
| Gross profit / margin | $43.2 million / 73% | $36.2 million / 71% | $77.1 million / 72% | $66.4 million / 71% |
| Operating loss | $4.1 million | $0.1 million | $19.0 million | $4.2 million |
| Net income (loss) | $(4.6) million | $1.3 million | $(20.2) million | $(1.0) million |
| Diluted earnings (loss) per share | $(0.23) | $0.07 | $(1.01) | $(0.05) |
| Net cash used in operating activities | Six months: $0.9 million | Prior-year six months: $1.9 million |
Q2 revenue grew 17%; six-month revenue grew 15%. Airway-clearance products contributed $8.0 million in Q2 and $15.3 million for the six months, while lymphedema revenue increased 1% in Q2 but fell 2% for the six months. Sales and rental revenue both increased. Gross margin improved, but higher operating expenses more than offset revenue growth.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $23.4 million, versus $28.2 million at December 31, 2021. Net accounts receivable was $64.5 million, versus $62.3 million.
- Cash declined $4.9 million over the six months. Investing activities used $0.4 million; financing activities used $3.6 million, including $4.5 million of term-loan repayments.
- Borrowings were approximately $50.5 million: a $25.5 million term loan and $25.0 million drawn on the revolving facility. No credit-facility availability remained. Both facilities mature September 8, 2024; borrowings carried a 4.49% rate at quarter-end.
- The company reported compliance with its credit covenants. Management said cash, cash equivalents and operating cash flows should be sufficient for working capital, capital spending, debt service and other needs for at least 12 months.
- Purchase orders outstanding for goods expected within a year totaled $41.5 million. The company also had $24.6 million of operating lease liabilities.
Material changes and unusual items
- Sales and marketing expense rose 38% in Q2 and 33% for the six months, mainly from commercial-team compensation, travel, sales training and product introductions. Total operating expenses increased 30% in Q2 and 36% for the six months.
- Six-month operating results included $7.6 million of expense from remeasuring the AffloVest earn-out liability; the liability rose to $13.8 million at June 30, including $9.8 million current. The remeasurement was a significant noncash adjustment in operating cash flows.
- Six-month results also reflected higher intangible-asset amortization following the AffloVest acquisition and higher interest expense. The 2021 comparison included a $3.2 million income-tax benefit related to an R&D credit study; the 2022 six-month period recorded $0.2 million of tax expense.
- AffloVest represented 13% of Q2 revenue and 14% of six-month revenue. The company began manufacturing and shipping it from its Minnesota facility on May 1, 2022, after the transition-services arrangement ended.
Outlook, commentary and risks
The filing gives no specific revenue or earnings guidance. Management cited a second-quarter recovery from COVID-related disruption but said the pandemic’s duration and longer-term business effects could not be reliably estimated. First-quarter lymphedema revenue was affected by restricted clinic access, the Omicron resurgence and difficulty recruiting and retaining sales staff. The company also noted seasonality: demand typically strengthens in the third and fourth quarters as commercially insured patients meet deductibles.
- Key uncertainties include COVID-19 and clinic capacity, reimbursement and payer policies, staffing and wage pressures, inflation in components and freight, interest rates, competition, and reliance on suppliers.
- Two vendors accounted for 26% of purchases in the first half of 2022. Management said supply had not been materially disrupted and safety stock was adequate for short- and mid-term demand, while cautioning that future disruption was possible.
- A securities class action remains pending against the company on certain claims; a related stockholder derivative lawsuit was filed in May 2022. The company is defending both matters; the filing does not state a clear loss estimate.
- The company reported effective disclosure controls and no material change in internal control over financial reporting. It launched the Kylee patient-management app in July 2022, after the reporting period.
Important facts for investors to verify
- Whether lymphedema revenue returns to growth and whether AffloVest sales continue to expand.
- How much future earnings volatility could result from remeasurement of the AffloVest earn-out liability and whether revenue targets trigger payments.
- Cash generation, the $41.5 million of near-term purchase orders, debt repayments and the absence of remaining revolver availability.
- Whether clinic access, staffing, reimbursement conditions and supply costs improve or constrain growth and margins.
- Developments in the securities and derivative lawsuits, including any potential financial exposure.