Tactile Systems Technology(TCMD) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents unaudited condensed consolidated financial statements, management's discussion, market risk, and internal controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at period-end | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $152,987 | $177,563 | | Total non-current assets | $120,061 | $120,361 | | Total assets | $273,048 | $297,924 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $40,403 | $40,704 | | Total non-current liabilities | $37,719 | $40,623 | | Total liabilities | $78,122 | $81,327 | | Total stockholders' equity | $194,926 | $216,597 | | Total liabilities and stockholders' equity | $273,048 | $297,924 | - Total assets decreased by $24.876 million from December 31, 2024, to June 30, 2025, primarily driven by a decrease in cash and accounts receivable[15] - Total stockholders' equity decreased by $21.671 million, from $216.597 million at December 31, 2024, to $194.926 million at June 30, 2025[15] Condensed Consolidated Statements of Operations This section details the company's financial performance over specific periods, including revenue, expenses, and net income | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $78,905 | $73,218 | $140,173 | $134,306 | | Total cost of revenue | $20,112 | $19,115 | $36,034 | $36,774 | | Gross profit | $58,793 | $54,103 | $104,139 | $97,532 | | Total operating expenses | $54,710 | $48,254 | $104,598 | $94,647 | | Income (loss) from operations | $4,083 | $5,849 | $(459) | $2,885 | | Income before income taxes | $4,524 | $6,074 | $453 | $3,265 | | Income tax expense | $1,307 | $1,776 | $210 | $1,176 | | Net income | $3,217 | $4,298 | $243 | $2,089 | | Basic EPS | $0.14 | $0.18 | $0.01 | $0.09 | | Diluted EPS | $0.14 | $0.18 | $0.01 | $0.09 | - Net income for the three months ended June 30, 2025, decreased by 25% to $3.217 million from $4.298 million in the prior year period[17] - Net income for the six months ended June 30, 2025, significantly decreased by 88% to $0.243 million from $2.089 million in the prior year period[17] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity accounts, including common stock, paid-in capital, and retained earnings | (In thousands, except share data) | Balances, December 31, 2024 | Balances, June 30, 2025 | | :--- | :--- | :--- | | Common Stock (Shares) | 23,883,475 | 22,292,145 | | Common Stock (Par Value) | $24 | $22 | | Additional Paid-In Capital | $180,719 | $158,807 | | Retained Earnings | $35,854 | $36,097 | | Total Stockholders' Equity | $216,597 | $194,926 | - The company repurchased 1,507,496 shares for $16.704 million during the three months ended June 30, 2025, and 2,143,099 shares for $26.772 million during the six months ended June 30, 2025[19] - Stock-based compensation contributed $1.939 million for the three months and $4.005 million for the six months ended June 30, 2025[19] Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities over specific periods | (In thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,174 | $14,066 | | Net cash used in investing activities | $(804) | $(1,027) | | Net cash used in financing activities | $(27,209) | $(454) | | Net (decrease) increase in cash | $(12,839) | $12,585 | | Cash – end of period | $81,528 | $73,618 | - Net cash provided by operating activities increased to $15.174 million for the six months ended June 30, 2025, from $14.066 million in the prior year[22] - Net cash used in financing activities significantly increased to $27.209 million for the six months ended June 30, 2025, primarily due to common stock repurchases[22] Note 1. Nature of Business and Operations This note describes the company's core business, product lines, and operational characteristics, including seasonality - Tactile Systems Technology, Inc. (Tactile Medical) manufactures and distributes medical devices for chronic diseases, focusing on lymphedema products (Flexitouch® Plus, Entre™ Plus, Nimbl) and airway clearance products (AffloVest)[24][25][26] - The company experiences seasonality, with reduced demand in Q1 due to new insurance year deductibles and higher revenue in Q3 and Q4 as deductibles are met and flexible spending accounts are exhausted[29] Note 2. Basis of Presentation This note explains the accounting principles and consolidation methods used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting and SEC rules, and include the accounts of Tactile Systems Technology, Inc. and its wholly owned subsidiary, Swelling Solutions, Inc[30][34] Note 3. Summary of Significant Accounting Policies This note outlines the key accounting policies applied, including segment reporting and the evaluation of new accounting pronouncements - There were no material changes in significant accounting policies during the six months ended June 30, 2025[36] - The company operates as one operating segment, with the CEO reviewing consolidated financial information[37] - The company is evaluating the impact of new FASB ASUs on expense disaggregation disclosures (ASU 2024-03, effective 2026/2027) and income tax disclosures (ASU 2023-09, effective 2024)[38][39] Note 4. Inventories This note provides a breakdown of the company's inventory components and their carrying values at period-end | (In thousands) | At June 30, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Finished goods | $6,930 | $6,149 | | Component parts and work-in-process | $10,181 | $12,517 | | Total inventories | $17,111 | $18,666 | - Total inventories decreased by $1.555 million from December 31, 2024, to June 30, 2025[40] Note 5. Goodwill and Intangible Assets This note details the company's goodwill and intangible assets, including their composition and amortization expense - Goodwill of $31.1 million was recognized from the AffloVest Acquisition in Q3 2021[41] | (In thousands) | At June 30, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Total intangible assets (Net Amount) | $40,904 | $42,789 | | Patents | $750 | $815 | | Customer relationships | $21,912 | $23,104 | | Developed technology | $8,496 | $9,087 | | Tradenames | $9,500 | $9,500 | | Patents pending | $246 | $223 | - Amortization expense was $0.9 million for Q2 2025 and $1.9 million for the six months ended June 30, 2025[43] Note 6. Accrued Expenses This note provides a breakdown of the company's accrued expenses, highlighting changes in key categories | (In thousands) | At June 30, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | In-transit inventory | $2,256 | $1,013 | | Sales and use tax | $1,765 | $802 | | Warranty | $1,395 | $1,784 | | Travel | $1,106 | $1,120 | | Legal and consulting | $872 | $1,318 | | Clinical studies | $34 | $304 | | Other | $752 | $1,439 | | Total | $8,180 | $7,780 | - Total accrued expenses increased by $0.4 million to $8.180 million at June 30, 2025, from $7.780 million at December 31, 2024, primarily due to increases in in-transit inventory and sales and use tax[44] Note 7. Warranty Reserves This note details the company's warranty reserve movements, including provisions and processed claims over reporting periods | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Beginning balance | $2,774 | $3,836 | $2,993 | $4,038 | | Warranty provision | $441 | $902 | $921 | $1,742 | | Processed warranty claims | $(579) | $(1,046) | $(1,278) | $(2,088) | | Ending balance | $2,636 | $3,692 | $2,636 | $3,692 | - The warranty provision decreased significantly from $902 thousand in Q2 2024 to $441 thousand in Q2 2025, and from $1.742 million in H1 2024 to $0.921 million in H1 2025[45] Note 8. Credit Agreement This note describes the company's credit facilities, including recent amendments, revolving credit, and term loan status - On July 31, 2025, the company entered into a 2025 Restated Credit Agreement, expanding the revolving credit facility from $25.0 million to $40.0 million and extending its maturity to July 31, 2028[57] - The 2025 Restated Credit Agreement eliminated the minimum consolidated EBITDA financial covenant and revised applicable margins and unused line fees[57] - The company paid off the full $24.4 million outstanding term loan on July 31, 2025, using cash on hand, and the new agreement removes committed term loan provisions[58] Note 9. Commitments and Contingencies This note outlines the company's contractual obligations, operating lease liabilities, purchase commitments, and legal contingencies | (In thousands) | At June 30, 2025 | At December 31, 2024 | | :--- | :--- | :--- | | Right of use operating lease assets | $15,462 | $16,633 | | Operating lease liabilities (Current) | $3,095 | $2,980 | | Operating lease liabilities (Non-current) | $14,380 | $15,955 | | Total Operating lease liabilities | $17,475 | $18,935 | - The company has purchase commitments totaling $30.4 million for goods expected within the next year[68] - The company is involved in two qui tam complaints alleging false claims related to Medicare and other government payers, with actions stayed until November 25, 2025, for government review[71] Note 10. Stockholders' Equity This note details changes in stockholders' equity, including share repurchases, stock-based compensation, and equity incentive plans - The company completed its $30.0 million share repurchase program as of June 24, 2025, repurchasing 2,338,617 shares in aggregate[75] | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total stock-based compensation expense | $1,939 | $1,860 | $4,005 | $3,899 | - The 2025 Equity Incentive Plan was approved on May 7, 2025, authorizing 1,850,000 shares for awards, with 1,595,027 shares available for future grant as of June 30, 2025[76] Note 11. Revenue This note provides a detailed breakdown of revenue by product line and payer type for the reporting periods | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Lymphedema products | $65,969 | $64,683 | $116,524 | $116,996 | | Airway clearance products | $12,936 | $8,535 | $23,649 | $17,310 | | Total Revenue | $78,905 | $73,218 | $140,173 | $134,306 | - Total revenue increased by 8% to $78.9 million in Q2 2025 and by 4% to $140.2 million in H1 2025, driven by a significant increase in airway clearance product sales[91] | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Private insurers and other payers | $39,041 | $44,066 | $67,986 | $75,343 | | Veterans Administration | $7,506 | $8,071 | $14,043 | $14,897 | | Medicare | $19,422 | $12,546 | $34,495 | $26,756 | | Durable medical equipment distributors | $12,936 | $8,535 | $23,649 | $17,310 | | Total | $78,905 | $73,218 | $140,173 | $134,306 | Note 12. Income Taxes This note explains the company's effective tax rates, the factors influencing them, and the impact of new tax legislation - The effective tax rate for Q2 2025 was 28.9% (vs. 29.2% in Q2 2024) and for H1 2025 was 46.4% (vs. 36.0% in H1 2024)[97][98] - The change in effective tax rate was primarily due to the relative impact of stock-based compensation discrete tax items, which had a larger proportional effect on lower pre-tax income in H1 2025[98] - The recently enacted One Big Beautiful Bill Act (OBBBA) is expected to have a minimal impact on the effective tax rate but a favorable impact on cash taxes, with an estimated full-year 2025 cash tax benefit of approximately $4.6 million[102] Note 13. Net Income Per Share This note presents the basic and diluted net income per share calculations and the underlying share counts | (In thousands, except share and per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $3,217 | $4,298 | $243 | $2,089 | | Basic EPS | $0.14 | $0.18 | $0.01 | $0.09 | | Diluted EPS | $0.14 | $0.18 | $0.01 | $0.09 | | Weighted-average common shares (Basic) | 23,092,469 | 23,873,379 | 23,399,848 | 23,769,604 | | Weighted-average common shares (Diluted) | 23,237,671 | 24,099,047 | 23,679,220 | 24,073,986 | - Basic and diluted EPS decreased from $0.18 in Q2 2024 to $0.14 in Q2 2025, and from $0.09 in H1 2024 to $0.01 in H1 2025[103] Note 14. Fair Value Measurements This note discusses the fair value hierarchy and measurement approaches for the company's financial and non-financial assets - The carrying amounts of short-term financial instruments (accounts receivable, payables, accrued expenses) approximate their fair values[105] - Non-financial assets like equipment and intangible assets are subject to non-recurring fair value measurements if impaired[105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and operational results, covering revenue, expenses, and liquidity Overview This section provides a general description of Tactile Medical's business, product focus, and sales model - Tactile Medical develops and commercializes medical devices for underserved chronic conditions, focusing on home-based solutions for lymphedema (Flexitouch Plus, Entre Plus, Nimbl) and chronic respiratory conditions (AffloVest)[108][109][110] - Lymphedema products accounted for 83% of revenue in H1 2025, while airway clearance products (AffloVest) grew to 17% of revenue in H1 2025[109][110] - The company employs a direct-to-patient and -clinician model for lymphedema products and sells AffloVest through durable medical equipment (DME) providers[108][111] Results of Operations This section analyzes the company's revenue, gross profit, operating expenses, and income from operations for the reported periods Revenue Performance (YoY Change) | Metric | Q2 2025 Revenue (in thousands) | Q2 2024 Revenue (in thousands) | Q2 Change ($) | Q2 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $78,905 | $73,218 | $5,687 | 8% | | Lymphedema products | $65,969 | $64,683 | $1,286 | 2% | | Airway clearance products | $12,936 | $8,535 | $4,401 | 52% | | Metric | H1 2025 Revenue (in thousands) | H1 2024 Revenue (in thousands) | H1 Change ($) | H1 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $140,173 | $134,306 | $5,867 | 4% | | Lymphedema products | $116,524 | $116,996 | $(472) | 0% | | Airway clearance products | $23,649 | $17,310 | $6,339 | 37% | - Airway clearance product line revenue increased significantly by 52% in Q2 2025 and 37% in H1 2025, primarily due to increased placements of AffloVest among DME partners[122][123][124] - Lymphedema product revenue saw a modest 2% increase in Q2 2025 due to increased headcount and productivity, but a slight 0.4% decrease in H1 2025 attributed to CRM system implementation disruption and delayed hiring[124][125] Gross Profit and Operating Expenses (YoY Change) | Metric (in thousands) | Q2 2025 | Q2 2024 | Q2 Change ($) | Q2 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gross profit | $58,793 | $54,103 | $4,690 | 9% | | Gross margin | 75% | 74% | 1 pp | | | Sales and marketing | $30,039 | $28,608 | $1,431 | 5% | | Research and development | $2,018 | $2,234 | $(216) | (10)% | | Reimbursement, general and administrative | $22,034 | $16,779 | $5,255 | 31% | | Total operating expenses | $54,710 | $48,254 | $6,456 | 13% | | Income from operations | $4,083 | $5,849 | $(1,766) | (30)% | | Metric (in thousands) | H1 2025 | H1 2024 | H1 Change ($) | H1 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gross profit | $104,139 | $97,532 | $6,607 | 7% | | Gross margin | 75% | 73% | 2 pp | | | Sales and marketing | $57,555 | $55,965 | $1,590 | 3% | | Research and development | $3,759 | $4,377 | $(618) | (14)% | | Reimbursement, general and administrative | $42,032 | $33,040 | $8,992 | 27% | | Total operating expenses | $104,598 | $94,647 | $9,951 | 11% | | Income (loss) from operations | $(459) | $2,885 | $(3,344) | (116)% | - Gross margin improved to 75% in both Q2 and H1 2025. Operating expenses increased significantly, particularly reimbursement, general and administrative expenses (31% in Q2, 27% in H1), driven by personnel, IT, and occupancy costs[128][134][135] - Income from operations decreased by 30% in Q2 2025 and resulted in a loss of $0.459 million in H1 2025, a 116% decrease, primarily due to the substantial increase in operating expenses[120][121] Liquidity and Capital Resources This section discusses the company's cash position, cash flow activities, credit facilities, and future liquidity outlook Cash Flows Summary (Six Months Ended June 30) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,174 | $14,066 | | Net cash used in investing activities | $(804) | $(1,027) | | Net cash used in financing activities | $(27,209) | $(454) | | Net (decrease) increase in cash | $(12,839) | $12,585 | | Cash – end of period | $81,528 | $73,618 | - Cash balance at June 30, 2025, was $81.5 million, down from $94.4 million at December 31, 2024, primarily due to significant cash usage in financing activities for share repurchases[15][143][147] - The company completed its $30.0 million share repurchase program by June 24, 2025, repurchasing 2,143,099 shares for $26.6 million during the six months ended June 30, 2025[147][162] - The 2025 Restated Credit Agreement, effective July 31, 2025, expanded the revolving credit facility to $40.0 million and extended its maturity, while the term loan was fully paid off[158][159] - Management believes current cash and cash flows from operations will be sufficient to meet requirements for at least the next twelve months, despite potential tariff impacts of up to $1.5 million for FY2025[166][167] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section references the Annual Report on Form 10-K for market risk disclosures, noting no material changes since December 31, 2024 - No material changes in market risks have occurred since December 31, 2024, as referenced in the Annual Report on Form 10-K[170] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[171] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2025[172] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, safety disclosures, other information, and exhibits Item 1. Legal Proceedings This section incorporates by reference details on legal proceedings, including two qui tam complaints, from Note 9 of the financial statements - Information on legal proceedings, including two qui tam complaints, is incorporated by reference from Note 9 of the condensed consolidated financial statements[173] Item 1A. Risk Factors This section references the Annual Report on Form 10-K for risk factors, noting no material changes since December 31, 2024 - No material changes in risk factors have occurred since December 31, 2024, as disclosed in the Annual Report on Form 10-K[174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, including shares repurchased and total cost during the quarter ended June 30, 2025 Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1, 2025 - April 30, 2025 | 320,118 | $13.66 | | May 1, 2025 - May 31, 2025 | 399,082 | $10.42 | | June 1, 2025 - June 30, 2025 | 788,296 | $10.16 | | Total | 1,507,496 | | - The company completed its $30.0 million share repurchase program as of June 24, 2025, having utilized substantially all of the authorization[176] Item 3. Defaults Upon Senior Securities This item confirms no applicable defaults upon senior securities - This item is not applicable, indicating no defaults upon senior securities[177] Item 4. Mine Safety Disclosures This item confirms no applicable mine safety disclosures - This item is not applicable, indicating no mine safety disclosures[178] Item 5. Other Information This section discloses significant post-reporting events, including a credit agreement amendment, executive compensation, and trading arrangements - On July 31, 2025, the company entered into a 2025 Restated Credit Agreement, expanding the revolving credit facility to $40.0 million and extending its maturity to July 31, 2028, while paying off the $24.4 million term loan[179][180] - The Compensation and Organization Committee approved a monthly housing stipend of $3,400 for the CEO, Ms. Dodd, starting August 2025, with no tax gross-ups[182] - No directors or officers adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[183] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, plans, agreements, and certifications - The exhibit index includes the Amended and Restated Certificate of Incorporation, By-laws, 2025 Equity Incentive Plan, various stock unit agreements, the Amended and Restated Credit Agreement dated July 31, 2025, and certifications from the Principal Executive and Financial Officers[185]