Tactile Systems Technology, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company develops and sells or rents at-home compression medical devices, principally the Flexitouch system, for lymphedema and related conditions.
Financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $51.1 million | $35.1 million | $93.8 million | $78.8 million |
| Gross profit / margin | $36.2 million / 71% | $24.9 million / 71% | $66.4 million / 71% | $56.0 million / 71% |
| Operating income (loss) | $(0.1) million | $(8.0) million | $(4.2) million | $(12.4) million |
| Net income (loss) | $1.3 million | $(13.9) million | $(1.0) million | $(15.2) million |
- Q2 revenue grew 45% year over year; first-half revenue rose 19%. Flexitouch generated 88% of revenue in both periods.
- Q2 sales revenue was $43.6 million and rental revenue was $7.4 million. First-half sales and rental revenue were $79.8 million and $14.1 million, respectively.
- Q2 net income included a $1.4 million income-tax benefit; first-half results included a $3.2 million tax benefit, primarily from an R&D credit study covering tax years 2017–2020. The company remained loss-making before taxes for both periods.
- For the six months, operating cash flow was negative $1.9 million, investing cash flow was negative $0.7 million, and financing cash flow was positive $3.8 million. Cash increased by $1.2 million to $49.0 million.
- At June 30, cash and cash equivalents were $49.0 million, accounts receivable were $42.6 million, and current assets and current liabilities were $126.6 million and $26.6 million. Total liabilities were $48.9 million, including $20.5 million of operating lease liabilities.
- No borrowings were outstanding under the $25 million revolving credit facility, which matures April 30, 2024. The company was in compliance with its financial covenants. The facility permits up to $30 million of additional revolving or term-loan capacity, subject to conditions.
Changes and management commentary
- Management attributed revenue growth to partial recovery from pandemic-related clinic restrictions, improved salesforce productivity, virtual education programs that expanded the prescriber base, and increased Medicare patients served.
- The gross margin rate remained 71%. Q2 sales and marketing expense increased 20%, mainly from commercial headcount, patient training, and travel; first-half sales and marketing expense declined 2% year over year.
- First-half operating loss improved from $12.4 million to $4.2 million. The prior-year comparison included a $4.0 million non-cash impairment charge associated with discontinuing the Airwear wrap product line in 2020.
- Management said it believes cash, operating cash flows, and available credit will meet working-capital and capital-expenditure needs for at least the next 12 months. No specific revenue or earnings guidance was provided.
Risks, contingencies, and unusual items
- COVID-19 continued to affect clinic capacity and patient access; management saw some recovery in Q2 but said the duration and longer-term business effects remain uncertain. Clinical trial activity was gradually resuming, and management reported no material supply-chain impact to date while cautioning that future disruption is possible.
- Revenue is seasonal, typically stronger in the third and fourth quarters for commercially insured patients; management cautioned that 2021 seasonality may differ because of the pandemic.
- A competitor’s qui tam lawsuit has remaining False Claims Act allegations. The court dismissed two counts in March 2021; the company says it intends to defend the remaining allegations.
- A securities class action filed in 2020 was amended in April 2021. The company and individual defendants moved to dismiss in June; the motion had not been decided by the filing date.
- Two vendors accounted for 33% of purchases in both Q2 and the first half. Purchase orders for goods expected within a year totaled $19.8 million. Additional building lease commitments of $7.6 million had not yet commenced.
Important facts for investors to verify
- Whether clinic access, patient throughput, and the Q2 recovery in sales persist amid COVID-19 uncertainty.
- How the R&D tax credit benefit and prior-year Airwear impairment affect comparisons with underlying operating performance.
- Cash conversion and working-capital trends, especially inventory, receivables, and lease investments, alongside available borrowing capacity and covenant compliance.
- Developments in both legal proceedings, payer reimbursement coverage, and reliance on two major vendors.