Tactile Systems Technology, Inc. — Q1 2022 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Tactile sells and rents home medical devices, primarily for lymphedema; its AffloVest airway-clearance business, acquired in September 2021, contributed its first full quarter of revenue. Results are affected by seasonality, with Q1 typically a period of lower demand.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $48.0 million | $42.8 million | +12% |
| Gross profit / margin | $33.9 million / 71% | $30.2 million / 71% | +12% profit; margin steady |
| Operating expenses | $48.8 million | $34.3 million | +42% |
| Operating loss | $14.9 million | $4.1 million | Loss widened |
| Net loss | $15.6 million | $2.3 million | Loss widened |
| Diluted loss per share | $0.78 | $0.12 | — |
| Cash used in operations | $3.2 million | $0.8 million | Use increased |
- Revenue mix: Lymphedema revenue was $40.7 million, down 5%; airway-clearance revenue was $7.3 million, or 15% of total revenue. Sales revenue rose 14% to $41.2 million; rental revenue rose 2% to $6.8 million.
- Cash and working capital: Cash and equivalents were $21.2 million at March 31, down from $28.2 million at year-end 2021. Current assets were $103.2 million and current liabilities $40.3 million. Net accounts receivable, including non-current amounts, was $59.5 million.
- Debt: Outstanding term loan was $26.3 million and revolving borrowings were $25.0 million; no credit-facility availability remained. Debt matures September 2024. Borrowings bore interest at 3.70% at quarter-end. The company reported compliance with financial covenants.
- Other balance-sheet items: Total assets were $233.0 million; total liabilities were $118.0 million. The AffloVest earn-out liability was $12.7 million, including a $6.45 million fair-value increase recognized in the quarter.
Material changes versus Q1 2021
- Revenue increased by $5.2 million, mainly from AffloVest; lymphedema sales and rentals declined by $2.1 million.
- Gross margin held at 71%. Higher freight costs and AffloVest sales contributed to increased cost of revenue.
- Sales and marketing expense increased 27%, primarily from added commercial headcount and higher travel costs. Reimbursement, general and administrative expense rose 14%.
- Operating expenses included $7.1 million of intangible amortization and earn-out expense, versus $0.1 million a year earlier, primarily due to the earn-out remeasurement.
- The effective tax rate changed from a 44.6% benefit to a 1.4% expense, primarily because a full valuation allowance was recorded against deferred tax assets in Q1 2022.
- Cash declined by $7.1 million during the quarter. Financing cash outflow was $3.7 million, primarily term-loan payments.
Outlook, commentary and risks
- Management provided no numerical revenue or earnings guidance in this filing. It expects cash, cash equivalents and operating cash flows to cover working capital, capital expenditures, debt service and other needs for at least the next 12 months.
- Management cited COVID-19 and Omicron-related restrictions on clinic and hospital access, which disrupted patient-visit recovery; impacts were similar to Q1 2021. The long-term effects remain uncertain.
- A challenging labor market affected recruitment and retention of sales personnel. Management also identified inflation, wage pressure and rising interest rates as factors that could affect future cash requirements.
- The company said supply had not been materially disrupted and it believed safety stock was adequate for short- and medium-term demand, but noted future disruption could occur. Two vendors accounted for 29% of Q1 purchases; purchase orders outstanding totaled $38.8 million.
- AffloVest manufacturing and shipping transitioned from IBC to Tactile after the transition-services arrangement ended April 30, 2022.
- A purported securities class action remained pending. The court dismissed some claims and defendants on March 31, 2022; the company remained a defendant on certain claims and was defending the action. The filing does not provide a clear estimate of potential loss.
- Management noted commercial-insurance seasonality and that pandemic effects may alter historical patterns. Other identified risks include reimbursement, competition, supplier dependence, acquisitions and regulatory changes.
Important facts for investors to verify
- Whether AffloVest growth and the manufacturing transition can be sustained, and whether lymphedema revenue recovers from its Q1 decline.
- Whether operating expenses—especially sales and marketing—and earn-out remeasurement continue to weigh on profitability and cash flow.
- Liquidity and covenant headroom given $21.2 million of cash, $51.3 million of borrowings and no remaining facility availability.
- Future earn-out payments, which may total up to $20 million and depend on AffloVest revenue targets.
- Developments in the securities litigation, COVID-related access constraints, sales-force staffing and the company’s concentrated supplier exposure.