Tactile Systems Technology(TCMD) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Financial Statements The company reported a 15% revenue increase to $107.6 million for H1 2022, driven by an acquisition, but incurred a net loss of $20.2 million due to higher operating expenses Condensed Consolidated Balance Sheets The balance sheet shows a decrease in cash and total assets, alongside an increase in total liabilities and a decrease in stockholders' equity | Indicator | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $23,350 | $28,229 | | Total current assets | $107,269 | $113,547 | | Total assets | $237,303 | $244,270 | | Liabilities & Equity | | | | Total current liabilities | $46,546 | $34,461 | | Total liabilities | $123,187 | $116,043 | | Total stockholders' equity | $114,116 | $128,227 | Condensed Consolidated Statements of Operations The company reported a net loss of $20.2 million for the six months ended June 30, 2022, despite a 15% increase in total revenue | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $59,645 | $51,060 | $107,623 | $93,832 | | Gross profit | $43,223 | $36,205 | $77,085 | $66,435 | | Loss from operations | ($4,087) | ($76) | ($18,988) | ($4,160) | | Net (loss) income | ($4,640) | $1,305 | ($20,208) | ($961) | | Diluted EPS | ($0.23) | $0.07 | ($1.01) | ($0.05) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $128.2 million at the end of 2021 to $114.1 million as of June 30, 2022, primarily due to a net loss of $20.2 million, partially offset by $5.1 million in stock-based compensation[17] Condensed Consolidated Statements of Cash Flows The company experienced a net decrease in cash of $4.9 million for the six months ended June 30, 2022, driven by operating and financing activities | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($900) | ($1,917) | | Net cash used in investing activities | ($416) | ($743) | | Net cash (used in) provided by financing activities | ($3,563) | $3,812 | | Net (decrease) increase in cash | ($4,879) | $1,152 | | Cash and cash equivalents – end of period | $23,350 | $49,007 | Notes to the Condensed Consolidated Financial Statements This section details the company's business, product lines, acquisition impacts, debt structure, and ongoing legal proceedings - The company manufactures and distributes medical devices for lymphedema (Flexitouch®, Entre™) and chronic respiratory conditions (AffloVest), with the AffloVest business acquired on September 8, 2021[20][21] - Business is seasonal, with substantially reduced demand in the first quarter due to insurance deductibles resetting, and higher revenue in the third and fourth quarters[23] - The COVID-19 pandemic has negatively affected business through reduced patient numbers at clinics and staffing challenges, with the long-term impact remaining difficult to estimate[27] - The AffloVest acquisition involved an $80.0 million upfront payment and up to $20.0 million in potential earn-out payments based on revenue targets, adding $31.1 million in goodwill[32][36][40] - As of June 30, 2022, the company had outstanding debt of $25.5 million from a term loan and $25.0 million from a revolving credit facility, with no further availability under the Credit Agreement[50] - The company is involved in a securities class action lawsuit and a stockholder derivative lawsuit, both alleging materially false or misleading public statements[66][67] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2022 revenue growth to the AffloVest acquisition, while increased operating expenses led to a net loss and decreased liquidity Overview The company provides medical devices for chronic diseases, expanding its product portfolio and field staff - The company develops and provides medical devices for underserved chronic diseases, focusing on vascular disease (lymphedema), oncology-related lymphedema, and chronic respiratory conditions[106] - The company's product portfolio includes the Flexitouch and Entre systems for lymphedema and the AffloVest for airway clearance, with lymphedema products accounting for 86% of revenue in the first six months of 2022 and AffloVest accounting for the remaining 14%[107][110] - The company expanded its field staff from 234 as of June 30, 2021, to 286 as of June 30, 2022, to support its direct-to-patient and provider model[111] - In July 2022, the company launched Kylee™, a free mobile app for patients to track treatments and symptoms[116] Results of Operations Revenue growth was driven by airway clearance products, while increased operating expenses impacted profitability Revenue by Product Line (Q2) | Product Line | Q2 2022 Revenue (in thousands) | Q2 2021 Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Lymphedema products | $51,634 | $51,060 | 1% | | Airway clearance products | $8,011 | $— | N.M. | | Total | $59,645 | $51,060 | 17% | Revenue by Product Line (Six Months) | Product Line | H1 2022 Revenue (in thousands) | H1 2021 Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Lymphedema products | $92,288 | $93,832 | (2)% | | Airway clearance products | $15,335 | $— | N.M. | | Total | $107,623 | $93,832 | 15% | - Gross margin improved to 73% in Q2 2022 from 71% in Q2 2021[128] - Sales and marketing expenses increased by 38% in Q2 2022 compared to Q2 2021, primarily due to a $4.8 million increase in personnel-related compensation from higher headcount and a $1.3 million increase in travel expenses[129] - Intangible asset amortization and earn-out expense increased significantly to $1.7 million in Q2 2022, mainly due to an increase in the estimated fair value of the AffloVest acquisition earn-out liability[134] Liquidity and Capital Resources The company's liquidity relies on cash and receivables, with management confident in meeting future obligations despite debt - Principal sources of liquidity as of June 30, 2022, were $23.4 million in cash and cash equivalents and $64.5 million in net accounts receivable[140] Cash Flow Summary (Six Months Ended June 30) | (In thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(900) | $(1,917) | | Net cash used in investing activities | $(416) | $(743) | | Net cash (used in) provided by financing activities | $(3,563) | $3,812 | | Net (decrease) increase in cash | $(4,879) | $1,152 | - Net cash used in financing activities of $3.6 million in H1 2022 was primarily due to $4.5 million in payments on the term loan[145] - As of June 30, 2022, the company had an outstanding balance of $25.5 million on its term loan and $25.0 million on its revolving credit facility, with no remaining availability, and was in compliance with all financial covenants[151][153] - Management believes existing cash and cash flows from operations will be sufficient to meet working capital, capital expenditure, and debt repayment requirements for at least the next twelve months[156] Quantitative and Qualitative Disclosures About Market Risk The company states there have been no material changes in its market risks from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes to the company's market risk disclosures since the year-end 2021 report[160] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2022, and concluded they were effective at a reasonable assurance level, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level[161] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[162] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and exhibits filed with the quarterly report Legal Proceedings The company is involved in legal proceedings as detailed in Note 10 of the financial statements, including a securities class action lawsuit and a stockholder derivative lawsuit, both arising from similar subject matter concerning alleged false or misleading statements - The company is defending a securities class action lawsuit (Mart v. Tactile Systems) alleging false or misleading public statements between May 2018 and June 2020[66][163] - A stockholder derivative lawsuit (Weaver v. Moen, et al.) was filed in May 2022, arising from the same subject matter as the Mart lawsuit, against certain officers and directors[67][163] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred in the company's risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[164] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of preferred or common stock during the reporting period[165] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and financial statements formatted in Inline XBRL - The Exhibit Index lists all documents filed as part of the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer[169][172]