Tactile Systems Technology(TCMD) - 2023 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023, showing a 15% revenue increase in Q2 2023, significantly narrowed net loss, and improved cash position due to a February 2023 stock offering Condensed Consolidated Balance Sheets The balance sheet indicates an increase in total assets as of June 30, 2023, primarily driven by a significant rise in cash and cash equivalents, alongside a decrease in total liabilities and an increase in total shareholders' equity Key Balance Sheet Items Comparison (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $63,212 | $21,929 | | Total Assets | $273,728 | $254,996 | | Total Liabilities | $114,965 | $133,596 | | Total Shareholders' Equity | $158,763 | $121,400 | Condensed Consolidated Statements of Operations The statements of operations show year-over-year revenue growth of 15% for Q2 2023 and 18% for H1 2023, with net loss significantly narrowing, approaching breakeven in Q2, due to revenue growth and expense control Operating Performance Comparison (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $68,339 | $59,645 | $127,185 | $107,623 | | Operating Income (Loss) | $2,058 | $(4,087) | $(1,748) | $(18,988) | | Net Loss | $(100) | $(4,640) | $(1,986) | $(20,208) | | Net Loss Per Share (Diluted) | $0.00 | $(0.23) | $(0.09) | $(1.01) | Condensed Consolidated Statements of Cash Flows The cash flow statement indicates $13.4 million in positive cash flow from operating activities in H1 2023, a significant improvement from the prior year, with financing activities providing $29 million in net cash from a public stock offering Cash Flow Summary (in thousands) - Six Months Ended June 30 | Item | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $13,407 | $(900) | | Net Cash Used in Investing Activities | $(1,142) | $(416) | | Net Cash from (Used in) Financing Activities | $29,018 | $(3,563) | | Net Increase (Decrease) in Cash and Cash Equivalents | $41,283 | $(4,879) | - Cash inflow from financing activities primarily resulted from the public offering of common stock in February 2023, raising $34.6 million in net proceeds[21][26] Notes to the Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's financial condition and operating results, covering business nature, contingent consideration for the AffloVest acquisition, credit agreement terms, legal proceedings, and revenue breakdown by product line and channel - The company primarily manufactures and sells medical devices in the U.S. for chronic conditions, including Flexitouch® and Entre™ systems for lymphedema, and AffloVest® for chronic respiratory conditions[22][23] - The company amended its credit agreement for the fourth time on August 1, 2023, extending the term to August 1, 2026, and modifying financial covenants, with $47.5 million in outstanding borrowings as of June 30, 2023[54][59] - The company reached preliminary settlement agreements for securities class action and shareholder derivative lawsuits, with no expected cash payment from the company for the $5 million settlement amount[73][75] Revenue by Product Line (in thousands) | Product Line | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Lymphedema Products | $59,999 | $51,634 | $109,751 | $92,288 | | Airway Clearance Products | $8,340 | $8,011 | $17,434 | $15,335 | | Total | $68,339 | $59,645 | $127,185 | $107,623 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and operating results, highlighting strong revenue growth from lymphedema and airway clearance products, significantly improved profitability, enhanced liquidity from a successful stock offering and positive operating cash flow, and extended debt maturity through credit agreement revisions Results of Operations Revenue increased by 15% in Q2 2023 and 18% in H1 2023 year-over-year, driven by growth in both lymphedema and airway clearance products, while a slight decrease in gross margin was offset by controlled sales and marketing expenses and reduced intangible asset amortization and contingent consideration expenses Revenue Growth Analysis (in thousands) | Period | Total Revenue Growth | Lymphedema Product Growth | Airway Clearance Product Growth | | :--- | :--- | :--- | :--- | | Q2 2023 vs Q2 2022 | +$8.7M (+15%) | +$8.4M (+16%) | +$0.3M (+4%) | | H1 2023 vs H1 2022 | +$19.6M (+18%) | +$17.5M (+19%) | +$2.1M (+14%) | - Gross margin was 70.7% in Q2 2023, down from 72.5% in the prior year, and 70.6% for H1 2023, down from 71.6% in the prior year[131] - Sales and marketing expenses decreased by 2% in Q2 2023 due to reduced travel and entertainment, while increasing by 3% in H1 2023 primarily due to higher sales team personnel-related compensation[132][135] - Intangible asset amortization and contingent consideration expenses significantly decreased by $6.3 million in H1 2023, primarily due to reduced fair value adjustments for the AffloVest acquisition's contingent consideration[140] Liquidity and Capital Resources As of June 30, 2023, the company maintained a strong liquidity position with $63.2 million in cash and cash equivalents, primarily sourced from $13.4 million in operating cash flow and $34.6 million net proceeds from a February 2023 stock offering, further enhanced by an extended debt maturity through credit agreement revisions - As of June 30, 2023, primary liquidity sources included $63.2 million in cash and cash equivalents and $62.0 million in net accounts receivable[143] - Operating activities provided $13.4 million in net cash during H1 2023, compared to a net outflow of $0.9 million in the prior year period[144][145] - Financing activities provided $29.0 million in net cash during H1 2023, primarily from $34.6 million in net proceeds from common stock issuance, partially offset by $5.0 million in contingent consideration payments and $1.5 million in loan repayments[148] - The company amended its credit agreement for the fourth time on August 1, 2023, extending the maturity date from September 8, 2024, to August 1, 2026, and securing an additional $8.25 million term loan to repay revolving credit[156] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's quantitative and qualitative disclosures about market risk during the reporting period compared to the information disclosed in the December 31, 2022 annual report on Form 10-K - No material changes to the company's market risk have occurred since December 31, 2022[163] Controls and Procedures Management, including the CEO and CFO, assessed the disclosure controls and procedures as of June 30, 2023, concluding their effectiveness at a reasonable assurance level, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[164] - No material changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2023[165] PART II—OTHER INFORMATION Legal Proceedings Information regarding certain legal proceedings involving the company is described in Note 10, 'Commitments and Contingencies,' to the financial statements in Part I of this report, which is incorporated herein by reference - For detailed information on legal proceedings, refer to Note 10 of the financial statements[166] Risk Factors No material changes to the company's risk factors have occurred during the reporting period compared to those disclosed in the December 31, 2022 annual report on Form 10-K - No material changes to the company's risk factors have occurred since the 2022 annual report disclosure[167] Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities during the reporting period - No unregistered securities were issued during the reporting period[168] Defaults Upon Senior Securities This item is not applicable - Not applicable[169] Mine Safety Disclosures This item is not applicable - Not applicable[171] Other Information This section discloses the Fourth Amendment to the Credit Agreement, executed on August 1, 2023, extending the maturity date to August 1, 2026, modifying financial covenants, and providing an additional $8.25 million term loan, along with the adoption of Rule 10b5-1(c) trading plans by two company insiders - The company executed the Fourth Amendment to the Credit Agreement on August 1, 2023, extending the maturity date to August 1, 2026, modifying financial covenants, and obtaining an additional $8.25 million term loan[172][175] - Senior Vice President Kristie Burns and Chairman William W. Burke adopted Rule 10b5-1 stock trading plans on May 24, 2023, and June 13, 2023, respectively[177][178] Exhibits This section lists exhibits filed with this quarterly report on Form 10-Q, including the Third and Fourth Amendments to the Credit Agreement, executive employment letters, and CEO and CFO certifications - Exhibits filed include the Third and Fourth Amendments to the Credit Agreement (Exhibit 10.1, 10.2) and financial statement data in XBRL format[180][183]