Tactile Systems Technology(TCMD) - 2020 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements The company reported a nine-month net loss of $12.7 million on total assets of $157.8 million as of September 30, 2020 Condensed Consolidated Balance Sheets Total assets grew to $157.8 million, driven by increased cash, while total stockholders' equity slightly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $42,204 | $22,770 | | Accounts receivable | $36,033 | $33,444 | | Total current assets | $114,110 | $108,335 | | Total assets | $157,750 | $151,752 | | Liabilities & Equity | | | | Total current liabilities | $25,641 | $21,428 | | Total liabilities | $48,631 | $39,157 | | Total stockholders' equity | $109,119 | $112,595 | | Total liabilities and stockholders' equity | $157,750 | $151,752 | Condensed Consolidated Statements of Operations The company posted a nine-month net loss of $12.7 million, a sharp decline from a $6.7 million profit in the prior year Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $49,092 | $49,612 | $127,887 | $132,429 | | Gross Profit | $34,972 | $35,373 | $90,957 | $93,136 | | Income (loss) from operations | $1,794 | $3,197 | $(10,620) | $4,431 | | Net income (loss) | $2,424 | $2,431 | $(12,733) | $6,688 | | Diluted EPS | $0.12 | $0.12 | $(0.66) | $0.34 | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $2.2 million for the nine-month period, a reversal from cash provided in the prior year Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,245) | $2,421 | | Net cash provided by (used in) investing activities | $20,684 | $(3,289) | | Net cash provided by financing activities | $995 | $583 | | Net increase (decrease) in cash | $19,434 | $(285) | Notes to the Condensed Consolidated Financial Statements Key disclosures include COVID-19 impacts, a $4.0 million impairment charge, and revenue details by product and payer - The company is the sole manufacturer of the Flexitouch® and Entre™ systems, with seasonal business demand[29][32] - In response to COVID-19, the company implemented a 'no contact' virtual patient training model and remote work policies[36][37] - The company discontinued its Airwear wrap product line in Q2 2020, resulting in a $4.0 million non-cash impairment charge[42] Revenue by Product (Nine Months Ended Sep 30, in thousands) | Product | 2020 Revenue | 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Flexitouch system | $112,621 | $119,767 | -6% | | Other products | $15,266 | $12,662 | +21% | | Total | $127,887 | $132,429 | -3% | Revenue by Payer (Nine Months Ended Sep 30, in thousands) | Payer | 2020 Revenue | 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Private insurers and other | $90,459 | $93,932 | -4% | | Veterans Administration | $18,168 | $23,690 | -23% | | Medicare | $19,260 | $14,807 | +30% | | Total | $127,887 | $132,429 | -3% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue declines to COVID-19 but confirms liquidity is sufficient for the next twelve months Overview and COVID-19 Impact The pandemic negatively impacted business access, prompting a shift to virtual models and a product line discontinuation - The company's mission is to help people with chronic diseases care for themselves at home[102] - The Flexitouch system is the main revenue source, accounting for 88% of revenue in the first nine months of 2020[103] - The company discontinued the Airwear wrap product line in Q2 2020, recording a $4.0 million non-cash impairment charge[105] - Due to COVID-19, the company moved to a 'no contact' virtual patient training model and suspended clinical study recruitment[107][112] Results of Operations Revenue decreased 3% over nine months due to COVID-19, while operating expenses rose, leading to an operating loss Revenue Change by Product (Q3 2020 vs Q3 2019) | Product | Q3 2020 Revenue (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | | Flexitouch system | $42,908 | $(1,791) | -4% | | Other products | $6,184 | $1,271 | +26% | | Total | $49,092 | $(520) | -1% | - Gross margin remained stable at 71% for both the three and nine-month periods ended September 30, 2020[126] - Sales and marketing expenses decreased 6% in Q3 2020 but increased 6% over nine months due to sales team investments[127][128] - RG&A expenses increased 34% for the nine months, driven by a $3.6 million impairment charge and higher professional fees[133] Liquidity and Capital Resources The company maintains strong liquidity with $42.2 million in cash and an undrawn $10.0 million credit facility - Principal sources of liquidity are $42.2 million in cash and cash equivalents and borrowing capacity under a Credit Agreement[136] - The company has a $10.0 million revolving credit facility expiring in August 2021, with no outstanding borrowings[144][145] - Under the CARES Act, the company received $1.2 million in relief funds and collected $2.9 million from NOL carrybacks[151][152] - Management believes current capital resources are sufficient to meet needs for at least the next twelve months[148] Quantitative and Qualitative Disclosures About Market Risk Market risk exposures have not materially changed from the disclosures in the 2019 Annual Report on Form 10-K - There have been no material changes to market risk disclosures since the 2019 Annual Report on Form 10-K[159] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[160] - No material changes to the internal control over financial reporting occurred during the quarter ended September 30, 2020[161] PART II—OTHER INFORMATION Legal Proceedings The company is defending a qui tam action from a competitor and a securities class action lawsuit - The company is defending a qui tam lawsuit alleging violations of the Federal Anti-Kickback Statute and False Claims Act[163] - A securities class action lawsuit was filed on September 29, 2020, alleging materially false and misleading statements[164] Risk Factors A new significant risk factor has been added detailing the ongoing adverse impacts of the COVID-19 pandemic - A new risk factor has been added specifically addressing the adverse effects of the COVID-19 pandemic on the business[166] - Potential negative impacts from COVID-19 include reduced demand, supply chain disruptions, and workforce limitations[168][169] Unregistered Sales of Equity Securities and Use of Proceeds The company confirms no unregistered sales of equity securities occurred during the reporting period - There were no unregistered sales of common or preferred stock during the reporting period[172] Defaults Upon Senior Securities This section is not applicable as there were no defaults upon senior securities - Not applicable[173] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[174] Other Information No other material information was required to be reported during the period - None[175] Exhibits This section lists all exhibits filed with the report, including officer certifications and XBRL data - The exhibits filed include officer certifications (31.1, 31.2, 32.1, 32.2) and financial data in Inline XBRL format (101.1)[178]