Tactile Systems Technology, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 23, 2021. This is an annual report, not a standalone fourth-quarter filing. Tactile Medical develops and sells at-home compression systems, primarily for lymphedema and chronic venous conditions.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $187.1 million | $189.5 million |
| Gross profit / margin | $132.8 million / 71% | $134.2 million / 71% |
| Operating income (loss) | $(3.6) million | $10.5 million |
| Net income (loss) | $(0.6) million | $11.0 million |
| Diluted earnings (loss) per share | $(0.03) | $0.56 |
| Cash from operating activities | $2.8 million | $2.5 million |
| Cash and cash equivalents at year-end | $47.9 million | $22.8 million |
| Working capital at year-end | $96.9 million | $86.9 million |
- Cash from operations remained modest relative to revenue and net income in 2019. FY2020 operating cash flow included substantial non-cash expenses and was reduced by growth in operating assets, including receivables and lease investments.
- Current assets were $123.6 million and current liabilities $26.7 million at year-end. The company had no borrowings under its $10 million revolving facility; the facility was scheduled to expire August 3, 2021. The filing says management expected available cash, operating cash flows and the facility to cover requirements for at least 12 months.
- Operating lease liabilities totaled $21.4 million. Accounts receivable were $53.3 million in total, including $9.4 million classified as non-current, largely reflecting delayed Medicare appeals.
Changes versus the prior year
- Revenue declined 1%. Flexitouch revenue fell 4% to $163.9 million, while other-product revenue, primarily Entre, rose 28% to $23.2 million. Flexitouch represented 88% of revenue, down from 90%.
- Gross margin held at 71%, but operating expenses increased 10% to $136.4 million. Reimbursement, general and administrative expense rose 30% to $51.5 million, contributing to a swing from operating income to operating loss.
- FY2020 included a $4.0 million non-cash impairment for discontinuing the Airwear wrap, including $3.6 million in long-lived assets and $0.4 million in inventory. The company also recorded $2.4 million more litigation defense costs and other professional fees than in 2019.
- Other income included $1.2 million of CARES Act Provider Relief Fund proceeds, recognized for COVID-related lost revenue. The company also collected $2.9 million from carryback of tax losses.
- Cash and cash equivalents increased as marketable securities matured; there were no marketable securities at December 31, 2020, versus $22.5 million a year earlier.
Outlook, commentary and key risks
- Management expects revenue growth over time from greater awareness and adoption, sales-force expansion, clinical evidence and broader reimbursement, while anticipating private-payer pricing pressure. The filing provides no specific numerical revenue or earnings guidance.
- COVID-19 restricted clinician access and patient consultations, adversely affecting demand. The company shifted to virtual patient training and education; management could not estimate the pandemic’s longer-term impact.
- Product concentration is significant: Flexitouch generated 88% of FY2020 revenue. Reimbursement coverage and policy changes, particularly Medicare criteria and appeals, are important risks.
- The company relies on third-party suppliers, including single-source suppliers for some components, and reported that two vendors accounted for 32% of purchases in 2020. Its main research, assembly and finished-goods activities are concentrated in Minneapolis.
- Two material legal matters were disclosed: a competitor-filed qui tam action alleging anti-kickback and false-claims violations, and a purported securities class action alleging misleading statements during May 2018–June 2020. The company denies the allegations and intends to defend both matters; motions in the qui tam case were pending, and the securities case was at an early stage.
- CEO Daniel Reuvers took office in June 2020; the former COO departed in September 2020. The company discontinued Airwear in 2020 and formally discontinued Actitouch.
- The revolving credit facility is secured by substantially all company assets and includes leverage and minimum-liquidity covenants. The company reported covenant compliance at year-end. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether patient referrals and Flexitouch sales recover from pandemic-related disruption, and whether Entre’s growth can offset Flexitouch concentration.
- Medicare receivable collectability, appeal timelines and denial outcomes; review the $9.4 million non-current balance and the filing’s collection assumptions.
- Updates and potential financial exposure from both legal proceedings, including defense costs and any settlement or court developments.
- Whether rising operating expenses, payer pricing pressure and reimbursement changes affect margins, earnings and operating cash generation.
- Renewal, replacement or repayment arrangements for the credit facility due to expire in August 2021, plus commitments for leases and purchase orders.