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CST: 22/11/2019 04:47:28   

Tactile Systems Technology, Inc. Reports Third Quarter 2019 Financial Results; Updates 2019 Outlook

17 Days ago

Third Quarter Revenue Increased 37% Year-Over-Year; Operating Income Up 134%

MINNEAPOLIS, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Tactile Systems Technology, Inc. (“Tactile Medical”) (Nasdaq: TCMD), a medical technology company focused on developing medical devices for the treatment of chronic diseases at home, today reported financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 Summary:

  • Third quarter total revenue increased 37% year-over-year, to $49.6 million, compared to $36.3 million in third quarter 2018; the adoption of new lease accounting standards contributed three percentage points of the year-over-year increase in total revenue.
  • Operating income of $3.2 million, compared to $1.4 million in third quarter 2018.
  • Net income of $2.4 million, compared to $1.7 million in third quarter 2018.
  • Adjusted EBITDA of $6.4 million, compared to $4.6 million in third quarter 2018.
  • On July 22, 2019, the Company announced the appointment of Jay Stracke to the position of Vice President of Reimbursement and Payer Relations, effective July 15, 2019. Mr. Stracke succeeded Tactile Medical’s Senior Vice President of Reimbursement and Payer Relations, Mary (Maggie) Thompson, RN, who retired from her full-time role and transitioned into a part-time role as Vice President, Payer Initiatives.

“Our strong execution continued in the third quarter with revenue growth of 37% year-over-year and steady improvements in profitability,” said Gerald R. Mattys, Chief Executive Officer of Tactile Medical. “These accomplishments were primarily driven by the ongoing investments in the field sales team, in combination with solid market adoption of the Flexitouch Plus system, a keen focus on targeting the most productive accounts in the lymphedema market and the broad in-network coverage we have obtained with commercial payers.”

Mr. Mattys continued, “We are raising our 2019 revenue guidance today and look forward to closing out the year with financial and operational momentum as we continue to deliver on our strategy to raise awareness of lymphedema and chronic venous insufficiency, bring our at-home therapies to new patients and increase our share of the more than $4 billion U.S. market opportunity that these chronic conditions represent.”

Third Quarter 2019 Financial Results

Revenue for the third quarter of 2019 increased $13.3 million, or 37%, to $49.6 million, compared to $36.3 million for the quarter ended September 30, 2018. The increase in revenue was attributable to an increase of $11.4 million, or 34%, in sales and rentals of the Flexitouch system and an increase of $1.9 million, or 64%, in sales and rentals of the Entre system in the quarter ended September 30, 2019. This revenue increase was largely driven by expansion of our salesforce, increased physician and patient awareness of the treatment options for lymphedema, broad in-network coverage with national and regional insurance payers and growth in the Medicare channel.

Effective January 1, 2019, the Company adopted ASU No. 2016-02, “Leases” (Topic 842) (“ASC 842”) which superseded the then-existing guidance for lease accounting, “Leases” (Topic 840) (“ASC 840”). Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months. Under ASC 840, our rental revenue was recognized as month-to-month cancelable leases, however, under ASC 842, these are recognized as sales-type leases.

In accordance with applicable guidance, we will continue to recognize rental agreements commencing prior to December 31, 2018, on a month-to-month basis as an operating lease until they are completed, which we anticipate to be in the fourth quarter of this year. Rental agreements initiated subsequent to January 1, 2019, are recorded as sales-type leases in accordance with ASC 842, whereby rental revenue and cost of rental revenue are recognized upon the lease commencement date. Total rental revenue for the first, second and third quarters of 2019 includes both operating and sales-type lease revenue. The impact of the Company’s adoption of ASC 842 contributed three percentage points of the year-over-year increase in total revenue in the third quarter of 2019.

Gross profit for the third quarter of 2019 increased $9.2 million, or 35%, to $35.4 million, compared to $26.2 million in the third quarter of 2018. Gross margin was 71.3% of revenue in the third quarter of 2019, compared to 72.1% of revenue in the third quarter of 2018. The decrease in gross margin was primarily attributable to sales and rental mix by product and by payer and amortization expense related to the assets licensed from Sun Scientific, Inc. in October 2018.

Operating expenses for the third quarter of 2019 increased $7.4 million, or 30%, to $32.2 million, compared to $24.8 million in the third quarter of 2018. The increase in operating expenses was primarily driven by an increase of $5.1 million, or 33% year-over-year, in sales and marketing expenses due to continued investment in field sales team expansion, patient training, and marketing initiatives to increase clinician awareness. Reimbursement, general and administrative expenses increased $2.0 million, or 25%, to $10.0 million in the quarter ended September 30, 2019, compared to $8.0 million in the quarter ended September 30, 2018. This increase was primarily attributable to increased personnel-related compensation expense in our reimbursement operations, payer development and corporate functions, as well as increased professional fees and legal expenses.

Operating income for the third quarter of 2019 increased $1.8 million, or 134%, to $3.2 million, compared to $1.4 million in the third quarter of 2018.

Income tax expense for the third quarter of 2019 was $0.9 million, compared to an income tax benefit of $0.2 million in the third quarter of 2018. The change in income tax expense/benefit was primarily driven by decreased tax benefits related to share-based compensation, compared to the prior year period.

Net income for the third quarter of 2019 increased $0.7 million, or 39%, to $2.4 million, or $0.12 per diluted share, compared to $1.7 million, or $0.09 per diluted share, in the third quarter of 2018. Weighted average shares used to compute diluted net income per share were 19.6 million and 19.5 million for the third quarters of 2019 and 2018, respectively. Adjusted EBITDA increased $1.8 million or 39% to $6.4 million for the third quarter of 2019, compared to $4.6 million in the third quarter of 2018.

First Nine Months 2019 Financial Results:

Total revenue for the nine months ended September 30, 2019 increased $35.1 million, or 36%, to $132.4 million, compared to $97.3 million for the nine months ended September 30, 2018. The increase in revenue was driven by an increase of approximately $30.6 million, or 34%, year-over-year in sales and rentals of the Flexitouch system and an increase of $4.6 million, or 57%, in sales and rentals of the Entre system. The impact of the Company’s adoption of ASC 842 contributed five percentage points of the year-over-year increase in total revenue in the nine months ended September 30, 2019.

Net income for the nine months ended September 30, 2019 increased $2.4 million, or 57%, to $6.7 million, or $0.34 per diluted share, compared to $4.3 million, or $0.22 per diluted share, for the nine months ended September 30, 2018. Weighted average shares used to compute diluted net income per share were 19.6 million and 19.3 million for the nine months ended September 30, 2019 and 2018, respectively.

Adjusted EBITDA for the nine months ended September 30, 2019, increased approximately $5.7 million, or 63%, to $14.6 million, compared to $9.0 million for the nine months ended September 30, 2018.

Cash Position

At September 30, 2019, cash, cash equivalents and marketable securities were $44.7 million, compared to $45.9 million at December 31, 2018. The Company had no outstanding borrowings on its $10.0 million revolving credit facility at September 30, 2019.

2019 Financial Outlook

The Company now expects full year 2019 total revenue in the range of $186.0 million to $187.0 million, representing growth of 29% to 30% year-over-year, compared to total revenue of $143.8 million in 2018. The Company’s prior 2019 revenue guidance expectations called for total revenue in the range of $182.0 million to $184.0 million, representing growth of 26.5% to 28% year-over-year.

2019 total revenue guidance includes the impact of the Company’s adoption of ASC 842 which is estimated to increase revenue by approximately $6.0 million for the full year.

  • The updated guidance for total revenue growth of 29% to 30% year-over-year is expected to be driven by the following:
    • Sales revenue for 2019 is expected to be in the range of $159.0 million to $160.0 million, compared to sales revenue of $130.2 million in 2018. This compares to the Company’s prior guidance range of $157.0 million to $158.5 million.
    • Rental revenue for 2019 is expected to be approximately $27.0 million, compared to rental revenue of $13.6 million in 2018. This compared to the Company’s prior guidance range of $25.0 million to $25.5 million. The projected year-over-year increase in rental revenue for 2019 is expected to be driven by:
      • the impact of the adoption of ASC 842 – representing 44% of the expected increase in rental revenue for 2019;
      • operational growth of approximately 35% over 2018 rental revenue which compares to the Company’s prior operational growth expectations of 20% to 22% – representing approximately one third of the expected increase in rental revenue for 2019; and
      • the remainder of the expected increase relates to the reclassification of garment revenue to rental revenue that was previously reported in sales revenue. 

Management will host a conference call at 5:00 p.m. Eastern Time on November 4 to discuss the results of the quarter with a question and answer session. Those who would like to participate may dial 833-286-5804 (647-689-4449 for international callers) and provide access code 9563758. A live webcast of the call will also be provided on the investor relations section of the Company's website at investors.tactilemedical.com.

For those unable to participate, a replay of the call will be available for two weeks at 800-585-836 (416-621-4642 for international callers); access code 9563758. The webcast will be archived at investors.tactilemedical.com.

About Tactile Systems Technology, Inc. (DBA Tactile Medical)

Tactile Medical is a leader in developing and marketing at-home therapy devices that treat chronic swelling conditions such as lymphedema and chronic venous insufficiency. Tactile Medical’s Mission is to help people suffering from chronic diseases live better and care for themselves at home. The Company’s unique offering includes advanced, clinically proven pneumatic compression devices, as well as continuity of care services provided by a national network of product specialists and trainers, reimbursement experts, patient advocates and clinicians. This combination of products and services ensures that tens of thousands of patients annually receive the at-home treatment necessary to better manage their chronic conditions. Tactile Medical takes pride in the fact that our solutions help increase clinical efficacy, reduce overall healthcare costs and improve the quality of life for patients with chronic conditions.

Legal Notice Regarding Forward-Looking Statements

This release contains forward-looking statements. Forward-looking statements are generally identifiable by the use of words like “may,” “will,” “should,” “could,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “continue,” “confident,” “outlook,” “guidance,” “project,” “goals” or “look forward” or the negative of these words or other variations on these words or comparable terminology. The reader is cautioned not to put undue reliance on these forward-looking statements, as these statements are subject to numerous factors and uncertainties outside of the Company’s control that can make such statements untrue, including, but not limited to, the adequacy of the Company’s liquidity to pursue its business objectives; the Company’s ability to obtain reimbursement from third party payers for its products; loss or retirement of key executives; adverse economic conditions or intense competition; loss of a key supplier; entry of new competitors and products; adverse federal, state and local government regulation; technological obsolescence of the Company’s products; technical problems with the Company’s research and products; the Company’s ability to expand its business through strategic acquisitions; the Company’s ability to integrate acquisitions and related businesses; price increases for supplies and components; the effects of current and future U.S. and foreign trade policy and tariff actions; or the inability to carry out research, development and commercialization plans. In addition, other factors that could cause actual results to differ materially are discussed in the Company’s filings with the SEC. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company undertakes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

This press release includes the non-GAAP financial measure of Adjusted EBITDA, which differs from financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA in this release represents net income less interest income, net, less income tax benefit or plus income tax expense, plus depreciation and amortization, and plus stock-based compensation expense. A reconciliation of Adjusted EBITDA to net income is included in this press release.

Adjusted EBITDA is presented because the Company believes it is a useful indicator of its operating performance. Management uses the measure principally as a measure of the Company’s operating performance and for planning purposes, including the preparation of the Company’s annual operating budget and financial projections. The Company believes this measure is useful to investors as supplemental information and because it is frequently used by analysts, investors and other interested parties to evaluate companies in its industry. The Company believes Adjusted EBITDA is useful to its management and investors as a measure of comparative operating performance from period to period. In addition, Adjusted EBITDA is used as a performance metric in the Company’s compensation program.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to, or superior to, net income or loss, as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP, and it should not be construed to imply that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In evaluating Adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of Adjusted EBITDA should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on the Company’s GAAP results in addition to using non-GAAP financial measures on a supplemental basis. The Company’s definition of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

             
             
Tactile Systems Technology, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
    September 30,   December 31,
(In thousands, except share and per share data)   2019   2018
Assets          
Current assets            
Cash and cash equivalents   $ 19,814   $ 20,099  
Marketable securities     24,920     25,786  
Accounts receivable, net     27,681     24,332  
Net investment in leases     7,628      
Inventories     16,882     11,189  
Income taxes receivable     3,847     1,793  
Prepaid expenses and other current assets     1,956     1,762  
Total current assets     102,728     84,961  
Non-current assets            
Property and equipment, net     7,499     4,810  
Right of use operating lease assets     15,204      
Intangible assets, net     5,074     5,339  
Medicare accounts receivable, non-current     3,025     1,884  
Deferred income taxes     8,840     8,820  
Other non-current assets     1,405     1,257  
Total non-current assets     41,047     22,110  
Total assets   $ 143,775   $ 107,071  
Liabilities and Stockholders' Equity            
Current liabilities            
Accounts payable   $ 6,289   $ 5,110  
Accrued payroll and related taxes     11,336     7,421  
Accrued expenses     3,696     2,785  
Operating lease liabilities     1,990      
Other current liabilities     817     760  
Total current liabilities     24,128     16,076  
Non-current liabilities            
Accrued warranty reserve, non-current     2,227     1,725  
Income taxes, non-current     54      
Operating lease liabilities, non-current     13,399      
Total non-current liabilities     15,680     1,725  
Total liabilities     39,808     17,801  
               
Stockholders’ equity:              
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued
and outstanding as of September 30, 2019 and December 31, 2018
         
Common stock, $0.001 par value, 300,000,000 shares authorized; 19,016,032
shares issued and outstanding as of September 30, 2019; 18,631,125 shares
issued and outstanding as of December 31, 2018
    19     19  
Additional paid-in capital     87,524     79,554  
Retained earnings     16,393     9,705  
Accumulated other comprehensive income (loss)     31     (8 )
Total stockholders’ equity     103,967     89,270  
Total liabilities and stockholders’ equity   $ 143,775   $ 107,071  
               
               


Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
                         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(In thousands, except share and per share data)   2019   2018     2019
  2018
Revenue                        
Sales revenue   $ 42,882   $ 32,969     $ 112,503     $ 87,731  
Rental revenue     6,730     3,353       19,926       9,572  
Total revenue     49,612     36,322       132,429       97,303  
Cost of revenue                        
Cost of sales revenue     12,233     9,153       33,231       24,275  
Cost of rental revenue     2,006     988       6,062       2,785  
Total cost of revenue     14,239     10,141       39,293       27,060  
Gross profit                        
Gross profit - sales revenue     30,649     23,816       79,272       63,456  
Gross profit - rental revenue     4,724     2,365       13,864       6,787  
Gross profit     35,373     26,181       93,136       70,243  
Operating expenses                        
Sales and marketing     20,737     15,632       56,546       42,641  
Research and development     1,467     1,223       3,982       3,949  
Reimbursement, general and administrative     9,966     7,956       28,159       22,799  
Total operating expenses     32,170     24,811       88,687       69,389  
Income from operations     3,203     1,370       4,449       854  
Other income     160     128       480       351  
Income before income taxes     3,363     1,498       4,929       1,205  
Income tax expense (benefit)     932     (248 )     (1,759 )     (3,063 )
Net income   $ 2,431   $ 1,746     $ 6,688     $ 4,268  
Net income per common share                        
Basic   $ 0.13   $ 0.10     $ 0.35     $ 0.23  
Diluted   $ 0.12   $ 0.09     $ 0.34     $ 0.22  
Weighted-average common shares used to compute net income per common share                        
Basic     18,981,015     18,344,956       18,870,622       18,166,999  
Diluted     19,641,853     19,525,686       19,630,721       19,328,947  
                               
                               


Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
    Nine Months Ended
    September 30,
(In thousands)   2019
  2018
Cash flows from operating activities            
Net income   $ 6,688     $ 4,268  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization     2,583       2,474  
Deferred income taxes     (31 )     (1,411 )
Stock-based compensation expense     7,387       5,638  
Loss on disposal of equipment           3  
Changes in assets and liabilities:            
Accounts receivable     (3,349 )     (2,556 )
Net investment in leases     (7,628 )      
Inventories     (5,693 )     (3,879 )
Income taxes     (2,051 )     (2,090 )
Prepaid expenses and other assets     (418 )     (1,358 )
Right of use operating lease assets     107        
Medicare accounts receivable, non-current     (1,141 )     1,707  
Accounts payable     979       (508 )
Accrued payroll and related taxes     3,915       1,586  
Accrued expenses and other liabilities     1,073       (190 )
Net cash provided by operating activities     2,421       3,684  
Cash flows from investing activities            
Proceeds from sales of securities available-for-sale           2,000  
Proceeds from maturities of securities available-for-sale     16,000       11,000  
Purchases of securities available-for-sale     (14,859 )     (14,792 )
Purchases of property and equipment     (4,276 )     (2,384 )
Intangible assets costs     (154 )     (1,052 )
Net cash used in investing activities     (3,289 )     (5,228 )
Cash flows from financing activities            
Taxes paid for net share settlement of restricted stock units     (3,107 )     (1,922 )
Proceeds from exercise of common stock options     1,838       1,218  
Proceeds from the issuance of common stock from the employee stock purchase plan     1,852       1,416  
Net cash provided by financing activities     583       712  
Net decrease in cash and cash equivalents     (285 )     (832 )
Cash and cash equivalents – beginning of period     20,099       23,968  
Cash and cash equivalents – end of period   $ 19,814     $ 23,136  
             
Supplemental cash flow disclosure            
Cash paid for interest   $     $ 3  
Cash paid for taxes   $ 326     $ 448  
Capital expenditures incurred but not yet paid   $ 801     $ 184  
                 
                 


Tactile Systems Technology, Inc.
Reconciliation of Net Income to Non-GAAP Adjusted EBITDA
(Unaudited)
                                                 
    Three Months Ended   Increase   Nine Months Ended   Increase
    September 30,   (Decrease)   September 30,   (Decrease)
(Dollars in thousands)   2019
  2018
  $   %   2019
  2018
  $   %
Net income   $ 2,431     $ 1,746     $ 685     39 %   $ 6,688     $ 4,268     $ 2,420   57 %
Interest income, net     (86 )     (95 )     9     (9)%     (262 )     (339 )     77   (23)%
Income tax expense (benefit)     932       (248 )     1,180     N.M.%     (1,759 )     (3,063 )     1,304   (43)%
Depreciation and amortization     750       787       (37 )   (5)%     2,583       2,474       109   4 %
Stock-based compensation     2,330       2,380       (50 )   (2)%     7,387       5,638       1,749   31 %
Adjusted EBITDA   $ 6,357     $ 4,570     $ 1,787     39 %   $ 14,637     $ 8,978     $ 5,659   63 %
                                                       


Tactile Systems Technology, Inc.
Supplemental Financial Information
(Unaudited)
                                                 
    Three Months Ended       Nine Months Ended    
    September 30,   Increase   September 30,   Increase
(Dollars in thousands)   2019   2018   $   %     2019     2018   $   %
Flexitouch System   $ 44,699   $ 33,330   $ 11,369   34 %   $ 119,767   $ 89,216   $ 30,551   34 %
Entre / Actitouch Systems     4,913     2,992     1,921   64 %     12,662     8,087     4,575   57 %
Total Revenue   $ 49,612   $ 36,322   $ 13,290   37 %   $ 132,429   $ 97,303   $ 35,126   36 %
                                             
Investor Inquiries:
Mike Piccinino, CFA
Managing Director
Westwicke Partners
443-213-0500
investorrelations@tactilemedical.com

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