Tactile Systems Technology, Inc. — Q3 2022 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. Tactile sells and rents at-home medical devices, primarily for lymphedema, and sells AffloVest airway-clearance products. The AffloVest business was acquired in September 2021. Results are seasonal, with patient demand typically stronger in the third and fourth quarters.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $65.3M | $52.5M | $172.9M | $146.3M |
| Gross profit / margin | $46.8M / 72% | $37.0M / 70% | $123.9M / 72% | $103.4M / 71% |
| Operating loss | $1.6M | $1.4M | $20.6M | $5.5M |
| Net loss | $2.3M | $3.4M | $22.5M | $4.3M |
| Diluted loss per share | $0.11 | $0.17 | $1.12 | $0.22 |
Cash flow and liquidity: Nine-month operating cash flow was $1.4M, versus cash used of $3.0M in 2021. Investing used $1.8M and financing used $4.3M; cash declined $4.8M to $23.4M. At September 30, cash was $23.4M and net accounts receivable was $69.5M. Current assets were $116.8M and current liabilities $55.7M.
Debt: The company disclosed approximately $24.8M outstanding on its term loan and $25.0M on its revolving facility, with no remaining credit availability. Borrowings bore interest at 5.93% at September 30, 2022, and mature September 8, 2024. The company reported compliance with financial covenants.
Material changes versus prior periods
- Revenue increased 24% in Q3 and 18% for the nine-month period. Airway-clearance revenue was $11.0M in Q3 and $26.4M year to date, compared with $0.9M in the corresponding 2021 periods, reflecting the AffloVest acquisition. Lymphedema revenue grew 5% in Q3 but only 1% year to date.
- Gross margin improved to 72% in both reported 2022 periods, supported by a lower cost-of-revenue percentage; higher freight costs and AffloVest sales increased costs.
- Operating expenses rose 26% in Q3 and 33% year to date. The nine-month operating loss widened to $20.6M, with $12.8M of intangible amortization and earn-out expense, including a $10.9M noncash increase in the earn-out liability’s fair value.
- Q3 net loss improved year over year, partly reflecting a $77,000 tax benefit versus $1.9M tax expense in Q3 2021. Year-to-date net loss worsened substantially; the company recorded a full valuation allowance on net deferred tax assets in 2022.
Outlook, commentary, risks, and unusual items
- No numeric revenue or earnings guidance is provided. Management said cash, cash equivalents, and operating cash flows should be sufficient for working capital, capital expenditures, debt service, and other needs for at least the next 12 months.
- Management cited lingering COVID-19 effects, clinic access and staffing constraints, labor shortages, wage and component-cost inflation, and rising interest rates. It said the pandemic’s longer-term effects remain uncertain. The company also noted that supply had not been materially affected to date, but future disruption or capacity to meet increased demand was not assured.
- On November 4, 2022, after quarter-end, the company amended the AffloVest earn-out terms. The initial earn-out was set at $10.0M: $5.0M due by November 28, 2022, and $5.0M plus $0.25M imputed interest due by May 26, 2023. The second earn-out multiplier increased from 1.5 to 3.0, subject to its $10.0M cap.
- Two shareholder matters are disclosed: a securities class action, in which the company remains a defendant on certain claims, and a stockholder derivative action seeking unspecified damages. The company says it is defending both.
- Growth also depends on third-party reimbursement, supplier continuity, the AffloVest integration and commercial performance, and execution of product and clinical plans. The company identified no material change to its previously disclosed risk factors.
Important facts for investors to verify
- Whether lymphedema demand recovers from the COVID-related and staffing disruptions, and whether AffloVest growth continues after acquisition-driven comparisons.
- Collections and working-capital trends, including receivables, lease investments, and inventory, alongside cash generation and the absence of undrawn credit availability.
- Debt service and covenant headroom as interest rates and scheduled repayments evolve.
- Cash timing and ultimate amount of the AffloVest earn-outs, including the amended second-period calculation and its maximum payment.
- Developments in the securities class action and derivative lawsuit, and any resulting financial or operational exposure.