TACTILE SYSTEMS TECHNOLOGY, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this report.
Overview
We are a medical technology company that develops and provides innovative
medical devices for the treatment of underserved chronic diseases. Our mission
is to help people suffering from chronic diseases live better and care for
themselves at home. We focus our efforts on advancing the standard of care in
treating underserved chronic diseases in the home setting to improve patient
outcomes and quality of life and help control rising healthcare expenditures.
Our areas of therapeutic focus are (1) vascular disease, with a goal of
advancing the standard of care in treating lymphedema and chronic venous
insufficiency, (2) oncology, where lymphedema is a common consequence among
cancer survivors and (3) providing airway clearance therapy for those suffering
from chronic respiratory conditions. We possess a unique, scalable platform to
deliver at-home healthcare solutions throughout
Our current lymphedema products are the Flexitouch and Entre systems and our
airway clearance product is the AffloVest. A predecessor to our Flexitouch
system received 510(k) clearance from the
On
To support the growth of our business, we continue to invest in our commercial
infrastructure, consisting of our direct sales force, training resources,
reimbursement capabilities and clinical expertise. We market our lymphedema
products in
We invest in our reimbursement function to improve operational efficiencies and enhance individual payer expertise, while continuing our strategic focus of payer development. Our payer relations function focuses on payer policy development, education, contract negotiations, and data analysis. Our reimbursement
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operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary.
We also have a clinical team, consisting of a scientific advisory board, in-house therapists and nurses, and a Chief Medical Officer, that serves as a resource to clinicians and patients and guides the development of clinical evidence in support of our products. Most clinical studies require observation and interaction with clinicians and patients to monitor results and progress.
We rely on third-party contract manufacturers for the sourcing of parts, the
assembly of our controllers and the manufacturing of the garments used with our
systems. We conduct final assembly of the garments used with our products,
perform quality assurance and ship our products from our facility in
In
For the three months ended
We operate in one segment for financial reporting purposes.
Current Economic Conditions and the Effects of Coronavirus (COVID-19)
The lingering effects of the COVID-19 pandemic, as well as general global economic downturns and macroeconomic trends, including heightened inflation, capital market volatility, interest rate fluctuations, increased unemployment and economic slowdown or recession, may result in unfavorable conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.
Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients. We cannot assure you these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business. We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.
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Results of Operations
Comparison of the Three Months Ended
The following table presents our results of operations for the periods
indicated:
Three Months Ended
March 31, Change
(In thousands) 2023 2022 $ %
Condensed Consolidated % of % of
Statement
of Operations Data: revenue revenue
Revenue
Sales revenue $ 52,791 90 % $ 41,170 86 % $ 11,621 28 %
Rental revenue 6,055 10 % 6,808 14 % (753) (11) %
Total revenue 58,846 100 % 47,978 100 % 10,868 23 %
Cost of revenue
Cost of sales revenue 14,642 25 % 12,080 25 % 2,562 21 %
Cost of rental revenue 2,736 5 % 2,036 4 % 700 34 %
Total cost of revenue 17,378 30 % 14,116 29 % 3,262 23 %
Gross profit
Gross profit - sales revenue 38,149 65 % 29,090 61 % 9,059 31 %
Gross profit - rental revenue 3,319 5 % 4,772 10 % (1,453) (30) %
Gross profit 41,468 70 % 33,862 71 % 7,606 22 %
Operating expenses
Sales and marketing 26,302 45 % 23,930 50 % 2,372 10 %
Research and development 2,233 4 % 1,520 3 % 713 47 %
Reimbursement, general and
administrative 15,434 26 % 16,217 34 % (783) (5) %
Intangible asset amortization
and earn-out 1,305 2 % 7,096 15 % (5,791) (82) %
Total operating expenses 45,274 77 % 48,763 102 % (3,489) (7) %
Loss from operations (3,806) (7) % (14,901) (31) % 11,095 (74) %
Other expense (993) (2) % (456) (1) % (537) 118 %
Loss before income taxes (4,799) (9) % (15,357) (32) % 10,558 (69) %
Income tax (benefit) expense (2,913) (5) % 211 - % (3,124) N.M. %
Net loss $ (1,886) (4) % $ (15,568) (32) % $ 13,682 (88) %
"N.M." Not Meaningful
Revenue
Revenue increased
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The following table summarizes our revenue by product line for the three months
ended
Three Months Ended
March 31, Change
(In thousands) 2023 2022 $ %
Revenue
Lymphedema products $ 49,752 $ 40,654 $ 9,098 22%
Airway clearance products 9,094 7,324 1,770 24%
Total $ 58,846 $ 47,978 $ 10,868 23%
Percentage of total revenue
Lymphedema products 85% 85%
Airway clearance products 15% 15%
Total 100% 100%
"N.M." Not Meaningful
Our business is affected by seasonality. In the first quarter of each year, when
most patients have started a new insurance year and have not yet met their
annual out-of-pocket payment obligations, we experience substantially reduced
demand for our products. We typically experience higher revenue in the third and
fourth quarters of the year when patients have met their annual insurance
deductibles, thereby reducing their out-of-pocket costs for our products, and
because patients desire to exhaust their flexible spending accounts at year end.
This seasonality applies only to purchases and rentals of our products by
patients covered by commercial insurance and is not relevant to Medicare,
Medicaid or the
Cost of Revenue and Gross Margin
Cost of revenue increased
Gross margin was 70.5% and 70.6% in the three months ended
Sales and Marketing Expenses
Sales and marketing expenses increased
Research and Development Expenses
Research and development ("R&D") expenses increased
Reimbursement, General and Administrative Expenses
Reimbursement, general and administrative expenses decreased
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expense, and legal and professional fees, partially offset by a
Intangible Asset Amortization and Earn-out Expense
Intangible asset amortization and earn-out expense decreased
Other Expense, Net
Other expense, net was
Income Taxes
We recorded an income tax benefit of
Liquidity and Capital Resources
Cash Flows
At
The following table summarizes our cash flows for the periods indicated:
Three Months Ended
March 31,
(In thousands) 2023 2022
Net cash (used in) provided by:
Operating activities $ (502) $ (3,206)
Investing activities (291) (175)
Financing activities 33,875 (3,698)
Net increase (decrease) in cash and cash equivalents
Operating Activities
Net cash used in operating activities during the three months ended
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Net cash used in operating activities during the three months ended
Investing Activities
Net cash used in investing activities during the three months ended
Net cash used in investing activities during the three months ended
Financing Activities
Net cash provided by financing activities during the three months ended
Net cash used by financing activities during the three months ended
Credit Agreement
On
On
On
On
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the minimum fixed charge coverage ratio and the minimum consolidated EBITDA
covenants under the Credit Agreement, and adds a minimum liquidity covenant. The
second amendment also increases the applicable margin for LIBOR rate loans under
the Credit Agreement during the period commencing on the date of the Second
Amendment and ending on the last day of the fiscal quarter ending
Pursuant to the Second Amendment, we made a mandatory principal prepayment of
the term loan of
As of
For additional information regarding the Credit Agreement, including interest rates, fees and maturities, see Note 9 - "Credit Agreement" of the condensed consolidated financial statements contained in this report.
Future Cash Requirements
For a discussion of our material estimated future cash requirements under our
contractual obligations and commercial commitments, in total and disaggregated
into current and long-term, see "Future Cash Requirements" included in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the year ended
As discussed in Note 4 - "Acquisitions" of the condensed consolidated financial
statements contained in this report, the initial earn-out payment under the
AffloVest Acquisition was
Adequacy of Resources
Our future cash requirements may vary significantly from those now planned and will depend on many factors, including:
? the impacts of inflation, rising interest rates or a recession on our business;
? sales and marketing resources needed to further penetrate our market;
? expansion of our operations;
? response of competitors to our solutions and applications;
? costs associated with clinical research activities;
? increases in interest rates;
? labor shortages and wage inflation;
? component price inflation;
? costs to develop and implement new products; and
? use of capital for acquisitions or licenses, if any.
Historically, we have experienced increases in our expenditures consistent with the growth in our revenue, operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.
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Although the impact of the COVID-19 pandemic and other factors such as inflation and rising interest rates are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, debt repayment and related interest, and other cash requirements for at least the next twelve months.
Recent Accounting Pronouncements
Refer to Note 3 - "Summary of Significant Accounting Policies" of the condensed consolidated financial statements contained in this report for a description of recently issued accounting pronouncements that are applicable to our business.
Critical Accounting Estimates
Critical accounting estimates are those that involve a significant level of
estimation uncertainty and have had or are reasonably likely to have a material
impact on our financial condition and results of operations. For additional
information, please see the discussion of our most critical accounting estimates
under "Critical Accounting Estimates" in Management's Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K
for the year ended
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