Tactile Systems Technology(TCMD) - 2020 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section contains the unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, Management's Discussion and Analysis (MD&A) of the company's financial condition and results of operations, and disclosures on market risk and internal controls Item 1. Financial Statements For the three months ended March 31, 2020, Tactile Systems Technology reported total assets of $155.5 million and total liabilities of $42.5 million, with revenue of $43.7 million and a net loss of $1.3 million Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands of dollars) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $32,297 | $22,770 | | Total current assets | $112,321 | $108,335 | | Total assets | $155,519 | $151,752 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $24,721 | $21,428 | | Total liabilities | $42,479 | $39,157 | | Total stockholders' equity | $113,040 | $112,595 | | Total liabilities and stockholders' equity | $155,519 | $151,752 | Condensed Consolidated Statements of Operations Q1 2020 vs Q1 2019 Statement of Operations (in thousands of dollars, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total revenue | $43,675 | $37,617 | | Gross profit | $31,073 | $26,258 | | Total operating expenses | $35,524 | $28,060 | | Loss from operations | ($4,451) | ($1,802) | | Net (loss) income | ($1,307) | $1,472 | | Diluted EPS | ($0.07) | $0.08 | Condensed Consolidated Statements of Cash Flows Q1 2020 vs Q1 2019 Cash Flow Summary (in thousands of dollars) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $909 | $1,273 | | Net cash provided by investing activities | $9,606 | $3,725 | | Net cash used in financing activities | ($988) | ($1,549) | | Net increase in cash and cash equivalents | $9,527 | $3,449 | Notes to the Condensed Consolidated Financial Statements - The company's business is seasonal, with substantially reduced demand in the first quarter due to patients' insurance deductibles resetting. This trend may be significantly different in 2020 due to the COVID-19 pandemic[29] - In response to COVID-19, the company has implemented measures such as remote work, virtual patient training, and modified manufacturing shifts to protect employees while continuing operations as an essential business[33][36] Revenue by Product (in thousands of dollars) | Product | Q1 2020 Revenue | Q1 2019 Revenue | % of Total (2020) | | :--- | :--- | :--- | :--- | | Flexitouch system | $38,586 | $34,109 | 88% | | Other products | $5,089 | $3,508 | 12% | | Total | $43,675 | $37,617 | 100% | Revenue by Payer (in thousands of dollars) | Payer | Q1 2020 Revenue | Q1 2019 Revenue | | :--- | :--- | :--- | | Private insurers and other payers | $30,237 | $25,882 | | Veterans Administration | $7,058 | $7,670 | | Medicare | $6,380 | $4,065 | | Total | $43,675 | $37,617 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 16% year-over-year revenue increase to $43.7 million for Q1 2020, driven by Flexitouch system sales, despite COVID-19 impact, leading to an operating loss of $4.5 million Overview - The company's direct sales force expanded to over 250 employees as of March 31, 2020, from over 210 employees a year prior, supporting its direct-to-patient and -provider model[107] - The COVID-19 pandemic has restricted access to clinicians and patients, prompting a shift to virtual interactions, and patient recruitment for clinical studies has been suspended[108][110] - To date, the company's supply chain has not been materially impacted by COVID-19, and it believes it has sufficient safety stock for short and mid-term demand[112] Results of Operations - Revenue increased 16% to $43.7 million in Q1 2020, with strong growth in January and February negatively impacted by the COVID-19 pandemic beginning in March[116] - The increase in revenue was driven by a $4.5 million (13%) rise in Flexitouch system sales and a $1.6 million (45%) increase in sales of other products, primarily the Entre system[117] - Sales and marketing expenses rose by $5.6 million (32%) year-over-year, mainly due to continued investment in the field sales team, including increased personnel-related compensation[123] Liquidity and Capital Resources - As of March 31, 2020, principal sources of liquidity included $32.3 million in cash and cash equivalents, $12.5 million in marketable securities, and an undrawn $10.0 million revolving credit facility[128][136] - The company believes its existing cash, marketable securities, and operating cash flows, along with its credit facility, will be sufficient to meet capital requirements for at least the next twelve months[139] - Under the CARES Act, the company was able to carry back net operating losses (NOLs), resulting in the recording of a $2.6 million income tax receivable[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes to its market risks since its Annual Report on Form 10-K for the year ended December 31, 2019 - There have been no material changes in the company's market risks from those disclosed in the 2019 Annual Report on Form 10-K[148] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective at a reasonable assurance level[150] - No changes occurred during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[151] PART II—OTHER INFORMATION This section covers other required disclosures, including legal proceedings, risk factors, and information on equity securities, highlighting an ongoing qui tam lawsuit and COVID-19 as a new risk Item 1. Legal Proceedings The company is defending a qui tam lawsuit filed by a competitor alleging violations of the Federal Anti-Kickback Statute and False Claims Act, with the U.S. government declining to intervene - The company is defending a qui tam action filed by a competitor alleging violations related to Medicare and Medicaid programs, with the United States declining to intervene in the case[153] - A motion to dismiss the case was denied in February 2020, and the company filed its answer and asserted counterclaims in March 2020, believing the plaintiff's allegations are without merit[153] Item 1A. Risk Factors The COVID-19 pandemic is identified as a new, significant risk factor expected to adversely affect the business through reduced demand, supply chain disruptions, and workforce limitations - The COVID-19 pandemic is introduced as a new risk factor that has adversely affected the business and is expected to continue doing so[155] - Key potential negative impacts from the pandemic include reduced demand for products, disruptions to the supply chain, continued restricted access to clinicians, and limitations on the ability of the workforce to perform their duties effectively[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during Q1 2020 and no material change in the planned use of IPO proceeds - There were no unregistered sales of common or preferred stock during the quarter[158] - There has been no material change in the company's planned use of the net proceeds from its initial public offering in 2016[161] Item 3. Defaults Upon Senior Securities This item is not applicable as the company has no defaults upon senior securities to report - Not applicable[162] Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[163] Item 5. Other Information The company reported no other information for the quarter - None[164] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer - The report includes various exhibits, such as forms of stock option and restricted stock unit agreements, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act[167]