Tactile Systems Technology, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; it does not provide a separate Q4 income statement. Tactile Medical develops and sells at-home medical devices, principally the Flexitouch and Entre systems for lymphedema and vascular conditions, and acquired the AffloVest respiratory therapy business in September 2021. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $208.1 million | $187.1 million |
| Gross profit / gross margin | $148.2 million / 71% | $132.8 million / 71% |
| Operating loss | $1.8 million | $3.6 million |
| Net loss | $11.8 million | $0.6 million |
| Cash from operating activities | $2.6 million | $2.8 million |
- Revenue rose 11%. Flexitouch contributed $176.2 million (85% of revenue), Entre $26.7 million (13%), and AffloVest $5.1 million (2%, from the acquisition date).
- Operating loss narrowed by $1.9 million, but net loss widened chiefly because the company recorded $9.5 million of income tax expense, including a $12.0 million valuation allowance against deferred tax assets. FY2020 included a $1.6 million tax benefit.
- Cash and cash equivalents were $28.2 million at year-end, down from $47.9 million. Net accounts receivable was $62.3 million, including $12.8 million classified as non-current, largely reflecting delayed Medicare appeals and collections.
- Year-end borrowings were $55.0 million: a $30.0 million term loan and $25.0 million revolving credit draw. No availability remained under the facility at December 31, 2021. Debt is secured by substantially all company and subsidiary assets; the facility matures September 2024.
- Investing cash outflow was $82.2 million, including $79.8 million of acquisition-related payments. Financing cash inflow was $59.9 million, primarily from $55.0 million of debt borrowings.
Changes from the prior year
- Revenue increased $20.9 million, driven by growth in Flexitouch and Entre and the addition of AffloVest. Flexitouch revenue rose 8%; Entre rose 15%.
- Gross margin held at 71%. Operating expenses increased 10% to $150.0 million, including higher sales-force compensation, travel, occupancy and professional costs.
- Reported earnings were affected by the tax valuation allowance and the absence of the $1.2 million CARES Act Provider Relief Fund income recognized in 2020.
- The AffloVest acquisition added $53.5 million of intangible assets and $31.1 million of goodwill. Up to $20.0 million of additional earn-out payments depend on future revenue targets; the recorded fair value at year-end was $6.2 million.
Outlook, risks and unusual items
- Outlook: The filing provides no specific revenue or earnings guidance. Management said cash, cash flows and available resources were expected to meet working-capital, capital expenditure and debt-service needs for at least the next 12 months, while noting uncertainty from COVID-19 and other factors.
- Management reported that clinic access and patient visits improved early in 2021 but were disrupted in the second half by COVID-19 variants. Recruiting and retention were also challenged by labor-market conditions and the company’s employee vaccination policy.
- The business remains highly dependent on Flexitouch, which generated 85% of revenue. Other key risks include reimbursement and Medicare appeals, payer pricing pressure, supply-chain reliance, sales-force execution, regulatory compliance, and integration of AffloVest.
- On February 22, 2022, after year-end, the company amended its credit agreement, made a mandatory $3.0 million term-loan prepayment, and agreed to revised financial covenants and a $7.5 million minimum-liquidity covenant during a relief period through June 30, 2023. The amendment also increased the LIBOR-loan margin to 3.50% during that period and provided for mandatory prepayments from certain aged receivable collections.
- A securities class action remained pending at filing; defendants’ motion to dismiss had not been decided. A separate qui tam action was dismissed with prejudice on February 18, 2022, with no damages or fees paid.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor excluded the acquired AffloVest business from the internal-control assessment for 2021; it represented 21.7% of year-end assets and 2.5% of annual revenue.
Most important facts for investors to verify
- Progress on the revised debt covenants, minimum-liquidity requirement, mandatory repayments and the company’s ability to generate cash while servicing debt.
- Collection timing and recoverability of Medicare receivables, particularly the $12.8 million classified as non-current, and concentration of receivables with two insurers.
- Whether revenue growth can continue despite COVID-related access constraints, labor challenges and the 85% revenue concentration in Flexitouch.
- AffloVest integration, performance against earn-out targets, and the contribution and amortization burden of acquired intangible assets.
- Developments in the securities class action and any changes in reimbursement coverage, pricing, or regulatory requirements.