Tactile Systems Technology, Inc. Reports Third Quarter 2019 Financial Results; Updates 2019 Outlook

MINNEAPOLIS, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Tactile Systems Technology, Inc. (“Tactile Medical”) (Nasdaq: TCMD), a medical technology company focused on developing medical devices for the treatment of chronic diseases at home, today reported financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 Summary:

• Third quarter total revenue increased 37% year-over-year, to $49.6 million, compared to $36.3 million in third quarter 2018; the adoption of new lease accounting standards contributed three percentage points of the year-over-year increase in total revenue.
• Operating income of $3.2 million, compared to $1.4 million in third quarter 2018.
• Net income of $2.4 million, compared to $1.7 million in third quarter 2018.
• Adjusted EBITDA of $6.4 million, compared to $4.6 million in third quarter 2018.
• On July 22, 2019, the Company announced the appointment of Jay Stracke to the position of Vice President of Reimbursement and Payer Relations, effective July 15, 2019. Mr. Stracke succeeded Tactile Medical’s Senior Vice President of Reimbursement and Payer Relations, Mary (Maggie) Thompson, RN, who retired from her full-time role and transitioned into a part-time role as Vice President, Payer Initiatives.

“Our strong execution continued in the third quarter with revenue growth of 37% year-over-year and steady improvements in profitability,” said Gerald R. Mattys, Chief Executive Officer of Tactile Medical. “These accomplishments were primarily driven by the ongoing investments in the field sales team, in combination with solid market adoption of the Flexitouch Plus system, a keen focus on targeting the most productive accounts in the lymphedema market and the broad in-network coverage we have obtained with commercial payers.”

Mr. Mattys continued, “We are raising our 2019 revenue guidance today and look forward to closing out the year with financial and operational momentum as we continue to deliver on our strategy to raise awareness of lymphedema and chronic venous insufficiency, bring our at-home therapies to new patients and increase our share of the more than $4 billion U.S. market opportunity that these chronic conditions represent.”

Third Quarter 2019 Financial Results

Revenue for the third quarter of 2019 increased $13.3 million, or 37%, to $49.6 million, compared to $36.3 million for the quarter ended September 30, 2018. The increase in revenue was attributable to an increase of $11.4 million, or 34%, in sales and rentals of the Flexitouch system and an increase of $1.9 million, or 64%, in sales and rentals of the Entre system in the quarter ended September 30, 2019. This revenue increase was largely driven by expansion of our salesforce, increased physician and patient awareness of the treatment options for lymphedema, broad in-network coverage with national and regional insurance payers and growth in the Medicare channel.

Effective January 1, 2019, the Company adopted ASU No. 2016-02, “Leases” (Topic 842) (“ASC 842”) which superseded the then-existing guidance for lease accounting, “Leases” (Topic 840) (“ASC 840”). Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months. Under ASC 840, our rental revenue was recognized as month-to-month cancelable leases, however, under ASC 842, these are recognized as sales-type leases.

In accordance with applicable guidance, we will continue to recognize rental agreements commencing prior to December 31, 2018, on a month-to-month basis as an operating lease until they are completed, which we anticipate to be in the fourth quarter of this year. Rental agreements initiated subsequent to January 1, 2019, are recorded as sales-type leases in accordance with ASC 842, whereby rental revenue and cost of rental revenue are recognized upon the lease commencement date. Total rental revenue for the first, second and third quarters of 2019 includes both operating and sales-type lease revenue. The impact of the Company’s adoption of ASC 842 contributed three percentage points of the year-over-year increase in total revenue in the third quarter of 2019.

Gross profit for the third quarter of 2019 increased $9.2 million, or 35%, to $35.4 million, compared to $26.2 million in the third quarter of 2018. Gross margin was 71.3% of revenue in the third quarter of 2019, compared to 72.1% of revenue in the third quarter of 2018. The decrease in gross margin was primarily attributable to sales and rental mix by product and by payer and amortization expense related to the assets licensed from Sun Scientific, Inc. in October 2018.

Operating expenses for the third quarter of 2019 increased $7.4 million, or 30%, to $32.2 million, compared to $24.8 million in the third quarter of 2018. The increase in operating expenses was primarily driven by an increase of $5.1 million, or 33% year-over-year, in sales and marketing expenses due to continued investment in field sales team expansion, patient training, and marketing initiatives to increase clinician awareness. Reimbursement, general and administrative expenses increased $2.0 million, or 25%, to $10.0 million in the quarter ended September 30, 2019, compared to $8.0 million in the quarter ended September 30, 2018. This increase was primarily attributable to increased personnel-related compensation expense in our reimbursement operations, payer development and corporate functions, as well as increased professional fees and legal expenses.

Operating income for the third quarter of 2019 increased $1.8 million, or 134%, to $3.2 million, compared to $1.4 million in the third quarter of 2018.

Income tax expense for the third quarter of 2019 was $0.9 million, compared to an income tax benefit of $0.2 million in the third quarter of 2018. The change in income tax expense/benefit was primarily driven by decreased tax benefits related to share-based compensation, compared to the prior year period.

Net income for the third quarter of 2019 increased $0.7 million, or 39%, to $2.4 million, or $0.12 per diluted share, compared to $1.7 million, or $0.09 per diluted share, in the third quarter of 2018. Weighted average shares used to compute diluted net income per share were 19.6 million and 19.5 million for the third quarters of 2019 and 2018, respectively. Adjusted EBITDA increased $1.8 million or 39% to $6.4 million for the third quarter of 2019, compared to $4.6 million in the third quarter of 2018.

First Nine Months 2019 Financial Results:

Total revenue for the nine months ended September 30, 2019 increased $35.1 million, or 36%, to $132.4 million, compared to $97.3 million for the nine months ended September 30, 2018. The increase in revenue was driven by an increase of approximately $30.6 million, or 34%, year-over-year in sales and rentals of the Flexitouch system and an increase of $4.6 million, or 57%, in sales and rentals of the Entre system. The impact of the Company’s adoption of ASC 842 contributed five percentage points of the year-over-year increase in total revenue in the nine months ended September 30, 2019.

Net income for the nine months ended September 30, 2019 increased $2.4 million, or 57%, to $6.7 million, or $0.34 per diluted share, compared to $4.3 million, or $0.22 per diluted share, for the nine months ended September 30, 2018. Weighted average shares used to compute diluted net income per share were 19.6 million and 19.3 million for the nine months ended September 30, 2019 and 2018, respectively.

Adjusted EBITDA for the nine months ended September 30, 2019, increased approximately $5.7 million, or 63%, to $14.6 million, compared to $9.0 million for the nine months ended September 30, 2018.

Cash Position

At September 30, 2019, cash, cash equivalents and marketable securities were $44.7 million, compared to $45.9 million at December 31, 2018. The Company had no outstanding borrowings on its $10.0 million revolving credit facility at September 30, 2019.

2019 Financial Outlook

The Company now expects full year 2019 total revenue in the range of $186.0 million to $187.0 million, representing growth of 29% to 30% year-over-year, compared to total revenue of $143.8 million in 2018. The Company’s prior 2019 revenue guidance expectations called for total revenue in the range of $182.0 million to $184.0 million, representing growth of 26.5% to 28% year-over-year.

2019 total revenue guidance includes the impact of the Company’s adoption of ASC 842 which is estimated to increase revenue by approximately $6.0 million for the full year.

• The updated guidance for total revenue growth of 29% to 30% year-over-year is expected to be driven by the following:
  • Sales revenue for 2019 is expected to be in the range of $159.0 million to $160.0 million, compared to sales revenue of $130.2 million in 2018. This compares to the Company’s prior guidance range of $157.0 million to $158.5 million.
  • Rental revenue for 2019 is expected to be approximately $27.0 million, compared to rental revenue of $13.6 million in 2018. This compared to the Company’s prior guidance range of $25.0 million to $25.5 million. The projected year-over-year increase in rental revenue for 2019 is expected to be driven by:
    • the impact of the adoption of ASC 842 – representing 44% of the expected increase in rental revenue for 2019;
    • operational growth of approximately 35% over 2018 rental revenue which compares to the Company’s prior operational growth expectations of 20% to 22% – representing approximately one third of the expected increase in rental revenue for 2019; and
    • the remainder of the expected increase relates to the reclassification of garment revenue to rental revenue that was previously reported in sales revenue. 

Management will host a conference call at 5:00 p.m. Eastern Time on November 4 to discuss the results of the quarter with a question and answer session. Those who would like to participate may dial 833-286-5804 (647-689-4449 for international callers) and provide access code 9563758. A live webcast of the call will also be provided on the investor relations section of the Company's website at investors.tactilemedical.com.

For those unable to participate, a replay of the call will be available for two weeks at 800-585-836 (416-621-4642 for international callers); access code 9563758. The webcast will be archived at investors.tactilemedical.com.

About Tactile Systems Technology, Inc. (DBA Tactile Medical)

Tactile Medical is a leader in developing and marketing at-home therapy devices that treat chronic swelling conditions such as lymphedema and chronic venous insufficiency. Tactile Medical’s Mission is to help people suffering from chronic diseases live better and care for themselves at home. The Company’s unique offering includes advanced, clinically proven pneumatic compression devices, as well as continuity of care services provided by a national network of product specialists and trainers, reimbursement experts, patient advocates and clinicians. This combination of products and services ensures that tens of thousands of patients annually receive the at-home treatment necessary to better manage their chronic conditions. Tactile Medical takes pride in the fact that our solutions help increase clinical efficacy, reduce overall healthcare costs and improve the quality of life for patients with chronic conditions.

Legal Notice Regarding Forward-Looking Statements

This release contains forward-looking statements. Forward-looking statements are generally identifiable by the use of words like “may,” “will,” “should,” “could,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “continue,” “confident,” “outlook,” “guidance,” “project,” “goals” or “look forward” or the negative of these words or other variations on these words or comparable terminology. The reader is cautioned not to put undue reliance on these forward-looking statements, as these statements are subject to numerous factors and uncertainties outside of the Company’s control that can make such statements untrue, including, but not limited to, the adequacy of the Company’s liquidity to pursue its business objectives; the Company’s ability to obtain reimbursement from third party payers for its products; loss or retirement of key executives; adverse economic conditions or intense competition; loss of a key supplier; entry of new competitors and products; adverse federal, state and local government regulation; technological obsolescence of the Company’s products; technical problems with the Company’s research and products; the Company’s ability to expand its business through strategic acquisitions; the Company’s ability to integrate acquisitions and related businesses; price increases for supplies and components; the effects of current and future U.S. and foreign trade policy and tariff actions; or the inability to carry out research, development and commercialization plans. In addition, other factors that could cause actual results to differ materially are discussed in the Company’s filings with the SEC. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company undertakes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

This press release includes the non-GAAP financial measure of Adjusted EBITDA, which differs from financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA in this release represents net income less interest income, net, less income tax benefit or plus income tax expense, plus depreciation and amortization, and plus stock-based compensation expense. A reconciliation of Adjusted EBITDA to net income is included in this press release.

Adjusted EBITDA is presented because the Company believes it is a useful indicator of its operating performance. Management uses the measure principally as a measure of the Company’s operating performance and for planning purposes, including the preparation of the Company’s annual operating budget and financial projections. The Company believes this measure is useful to investors as supplemental information and because it is frequently used by analysts, investors and other interested parties to evaluate companies in its industry. The Company believes Adjusted EBITDA is useful to its management and investors as a measure of comparative operating performance from period to period. In addition, Adjusted EBITDA is used as a performance metric in the Company’s compensation program.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to, or superior to, net income or loss, as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP, and it should not be construed to imply that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In evaluating Adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of Adjusted EBITDA should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on the Company’s GAAP results in addition to using non-GAAP financial measures on a supplemental basis. The Company’s definition of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.