Tactile Systems Technology, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. The company develops and sells or rents at-home compression medical devices, principally the Flexitouch system. Results are unaudited.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $42.8 million | $43.7 million |
| Gross profit / margin | $30.2 million / 71% | $31.1 million / 71% |
| Operating loss | $4.1 million | $4.5 million |
| Net loss | $2.3 million; $0.12 per diluted share | $1.3 million; $0.07 per diluted share |
| Operating cash flow | $(0.8) million | $0.9 million |
| Cash and cash equivalents at quarter-end | $46.9 million | $32.3 million |
Sales revenue was $36.1 million, down 4%; rental revenue was $6.6 million, up 10%. Flexitouch products generated 88% of revenue. Medicare revenue rose to $8.6 million from $6.4 million, while private insurers and other payers declined to $28.3 million from $30.2 million and Veterans Administration revenue fell to $5.8 million from $7.1 million.
Operating expenses declined 3% to $34.3 million. Sales and marketing fell 18% to $18.8 million, and R&D fell 25% to $1.3 million; reimbursement, general and administrative expense increased 31% to $14.3 million. The income tax benefit was $1.8 million versus $2.9 million, with the prior-year period benefiting from a net operating loss carryback refund. The effective tax benefit rate was 44.7%, compared with 68.8%.
Liquidity, debt and balance sheet
Cash was $46.9 million and net accounts receivable was $40.0 million at March 31, 2021. The company had no borrowings under its credit facility and reported compliance with the financial covenants then in effect. Total liabilities were $50.2 million, including $20.9 million of operating lease liabilities. The current ratio was approximately 4.4, based on current assets of $122.5 million and current liabilities of $28.0 million.
Cash decreased $0.9 million during the quarter. Investing activities used $0.3 million, primarily for equipment and patent costs; financing activities provided $0.2 million. Operating cash use reflected the net loss and working-capital movements, including a $3.5 million inventory increase, partly offset by lower accounts receivable and higher accounts payable.
Changes, outlook and risks
- Revenue declined 2%, primarily from lower Flexitouch sales and rentals. Management attributed continued pressure to COVID-19-related clinic restrictions and safety protocols; virtual education and increased Medicare patients partly offset the decline.
- The company noted normal first-quarter seasonality from patients’ insurance deductibles, but cautioned that pandemic effects could make 2021 seasonality differ from prior years.
- Management said it could not reasonably estimate COVID-19’s long-term impact. Some clinical trial sites resumed activity in Q1, but enrollment was slower than targeted. The company reported no material COVID-19 supply-chain impact to date and said it believed safety stock could meet short- and mid-term demand.
- No specific revenue or earnings guidance was provided. Management stated that cash, cash flows from operations and the credit facility were expected to meet working-capital and capital-expenditure needs for at least the next 12 months.
- On April 30, 2021, after quarter-end, the company replaced its expiring facility with a secured $25 million revolving credit facility maturing April 30, 2024, with conditional capacity for additional facilities up to $55 million in total. It requires, among other terms, a maximum 3.00-to-1 leverage ratio and at least $5 million of quarter-end cash; no borrowings were outstanding at signing.
- Legal matters include a qui tam case in which the court dismissed two counts on March 29, 2021, leaving False Claims Act allegations pending, and a securities class action amended on April 19, 2021. The company disputes the remaining allegations and intends to defend the cases.
- Other notable items: $19.8 million of purchase orders for goods expected within a year; two vendors represented 33% of Q1 purchases. The company had $7.1 million of commitments for building-lease amendments not yet commenced.
Important facts for investors to verify
- Whether clinic access, patient consultations and treatment volumes recover, and the resulting effect on revenue and seasonality.
- Whether Medicare growth can offset softness among private payers and Veterans Administration customers, and any changes in reimbursement coverage or requirements.
- Cash conversion and working-capital trends, particularly inventory, receivables and accounts payable.
- Compliance with the new credit agreement’s financial covenants and any future facility borrowings.
- Developments and potential financial exposure in the pending legal proceedings.