Third Quarter Revenue Decreased 1% Year-Over-Year; Flat Year-Over-Year on an Operational Basis
First Nine Months Revenue Decreased 3% Year-over-Year; Flat Year-over-Year on an Operational Basis
Third Quarter 2020 Summary:
- Total revenue decreased 1% year-over-year, to
$49.1 million , compared to$49.6 million in third quarter 2019.- Excluding the contribution to third quarter 2019 revenue related to the Company’s adoption of ASC 842, third quarter 2020 revenue reflects a flat year-over-year change on an operational basis.
- Revenue for the third quarter of 2020 was negatively impacted by the COVID-19 pandemic.
- Operating income of
$1.8 million , compared to operating income of$3.2 million in third quarter 2019. - Net income of
$2.4 million , compared to net income of$2.4 million in third quarter 2019. - Adjusted EBITDA of
$6.0 million , compared to Adjusted EBITDA of$6.4 million in third quarter 2019. - Cash, cash equivalents, and marketable securities of
$42.2 million atSeptember 30, 2020 , compared to$45.2 million atDecember 31, 2019 .
“We were pleased with our strong execution in the third quarter, which resulted in better-than-expected financial results despite continued business disruption associated with the COVID-19 pandemic,” said
Third Quarter 2020 Financial Results
Total revenue in the third quarter of 2020 decreased
Gross profit in the third quarter of 2020 decreased
Operating expenses in the third quarter of 2020 increased
Operating income in the third quarter of 2020 decreased
Income tax benefit in the third quarter of 2020 was
Net income in the third quarter of 2020 was
Adjusted EBITDA was
First Nine Months 2020 Financial Results:
Total revenue for the nine months ended September 30, 2020, decreased $4.5 million, or 3%, to $127.9 million, compared to $132.4 million for the nine months ended September 30, 2019. Total revenue for the nine months ended
Net loss for the nine months ended September 30, 2020 was $12.7 million, or
Adjusted EBITDA was
Cash Position
At
2020 Financial Outlook
The Company is providing updated full year 2020 revenue guidance. The Company originally provided full year 2020 revenue guidance on
The Company expects full year 2020 total revenue in the range of
Pursuant to the Company’s adoption of ASC 842, full year 2019 revenue included approximately
Conference Call
Management will host a conference call at
For those unable to participate, a replay of the call will be available for two weeks at 877-660-6853 (201-612-7415 for international callers); access code 13711024. The webcast will be archived at investors.tactilemedical.com.
About
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,” “look forward,” “poised,” “designed,” “plan,” “return,” “focused,” “prospects” or “remain” 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 impacts of the COVID-19 pandemic on the Company’s business, financial condition and results of operations; the course of the COVID-19 pandemic and its impact on general economic, business and market conditions; the Company’s inability to execute on its plans to respond to the COVID-19 pandemic; 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; the Company’s Chief Executive Officer transition, including disruptions and uncertainties related thereto, the potential impact on the Company’s business and future strategic direction resulting from the transition to a new Chief Executive Officer and the Company’s ability to retain other key members of senior management; 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
Use of Non-GAAP Financial Measures
This press release includes the non-GAAP financial measures of Adjusted EBITDA, non-GAAP revenue change, adjusted gross margin and Adjusted EBITDA margin, which differ from financial measures calculated in accordance with
Adjusted EBITDA in this release represents net income or loss, plus interest expense, net, or less interest income, net, less income tax benefit or plus income tax expense, plus depreciation and amortization, plus stock-based compensation expense, plus impairment charges and inventory write-offs and plus CEO transition costs. Adjusted EBITDA margin in this release represents net margin (net income or loss divided by total revenue), plus or less the same items as with Adjusted EBITDA, but on a percentage of revenue basis. Reconciliations of Adjusted EBITDA to net income (loss), and Adjusted EBITDA margin to net margin, are included in this press release.
Non-GAAP revenue change in this release represents third quarter and first nine months of 2020 revenue compared to third quarter and first nine months of 2019 revenue less operating lease revenue that was recognized in those 2019 periods in connection with the Company’s adoption of ASC 842. This release also includes the Company’s projected full year 2020 non-GAAP revenue change compared to full year 2019 revenue less operating lease revenue that was recognized in 2019 in connection with the Company’s adoption of ASC 842. Reconciliations of historical and projected non-GAAP revenue change to historical and projected GAAP revenue change are included in this press release.
Adjusted gross margin in this release represents gross margin plus inventory write-offs. A reconciliation of adjusted gross margin to gross margin is included in this press release.
These non-GAAP financial measures are presented because the Company believes they are useful indicators of its operating performance. Management uses these measures principally as measures 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 these measures are useful to investors as supplemental information and because they are frequently used by analysts, investors and other interested parties to evaluate companies in its industry. The Company also believes these non-GAAP financial measures are 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, non-GAAP revenue change, adjusted gross margin and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as an alternative to, or superior to, net income or loss, GAAP revenue change, gross margin or net margin, respectively, as measures of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP, and they 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 non-GAAP financial measures, 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 non-GAAP financial measures 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 these non-GAAP financial measures is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.
Condensed Consolidated Balance Sheets | ||||||
(Unaudited) | ||||||
(In thousands, except share and per share data) | 2020 | 2019 | ||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 42,204 | $ | 22,770 | ||
Marketable securities | — | 22,464 | ||||
Accounts receivable | 36,033 | 33,444 | ||||
Net investment in leases | 9,451 | 8,147 | ||||
Inventories | 22,419 | 19,059 | ||||
Prepaid expenses and other current assets | 4,003 | 2,451 | ||||
Total current assets | 114,110 | 108,335 | ||||
Non-current assets | ||||||
Property and equipment, net | 7,177 | 7,408 | ||||
Right of use operating lease assets | 20,717 | 15,885 | ||||
Intangible assets, net | 1,671 | 5,312 | ||||
Accounts receivable, non-current | 7,100 | 4,184 | ||||
Deferred income taxes | 5,010 | 8,970 | ||||
Other non-current assets | 1,965 | 1,658 | ||||
Total non-current assets | 43,640 | 43,417 | ||||
Total assets | $ | 157,750 | $ | 151,752 | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities | ||||||
Accounts payable | $ | 5,053 | $ | 3,843 | ||
Accrued payroll and related taxes | 10,864 | 10,098 | ||||
Accrued expenses | 3,582 | 4,498 | ||||
Income taxes payable | 1,459 | 632 | ||||
Operating lease liabilities | 2,010 | 1,454 | ||||
Other current liabilities | 2,673 | 903 | ||||
Total current liabilities | 25,641 | 21,428 | ||||
Non-current liabilities | ||||||
Accrued warranty reserve, non-current | 3,071 | 2,541 | ||||
Income taxes, non-current | — | 54 | ||||
Operating lease liabilities, non-current | 19,919 | 15,134 | ||||
Total non-current liabilities | 22,990 | 17,729 | ||||
Total liabilities | 48,631 | 39,157 | ||||
Stockholders’ equity: | ||||||
Preferred stock, |
— | — | ||||
Common stock, |
19 | 19 | ||||
Additional paid-in capital | 101,157 | 91,874 | ||||
Retained earnings | 7,943 | 20,676 | ||||
Accumulated other comprehensive income | — | 26 | ||||
Total stockholders’ equity | 109,119 | 112,595 | ||||
Total liabilities and stockholders’ equity | $ | 157,750 | $ | 151,752 |
Condensed Consolidated Statements of Operations | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
(In thousands, except share and per share data) | 2020 |
2019 | 2020 |
2019 |
|||||||||||
Revenue | |||||||||||||||
Sales revenue | $ | 42,573 | $ | 42,882 | $ | 109,714 | $ | 112,503 | |||||||
Rental revenue | 6,519 | 6,730 | 18,173 | 19,926 | |||||||||||
Total revenue | 49,092 | 49,612 | 127,887 | 132,429 | |||||||||||
Cost of revenue | |||||||||||||||
Cost of sales revenue | 11,558 | 12,233 | 30,868 | 33,231 | |||||||||||
Cost of rental revenue | 2,562 | 2,006 | 6,062 | 6,062 | |||||||||||
Total cost of revenue | 14,120 | 14,239 | 36,930 | 39,293 | |||||||||||
Gross profit | |||||||||||||||
Gross profit - sales revenue | 31,015 | 30,649 | 78,846 | 79,272 | |||||||||||
Gross profit - rental revenue | 3,957 | 4,724 | 12,111 | 13,864 | |||||||||||
Gross profit | 34,972 | 35,373 | 90,957 | 93,136 | |||||||||||
Operating expenses | |||||||||||||||
Sales and marketing | 19,488 | 20,737 | 59,856 | 56,546 | |||||||||||
Research and development | 1,102 | 1,467 | 3,891 | 3,982 | |||||||||||
Reimbursement, general and administrative | 12,588 | 9,972 | 37,830 | 28,177 | |||||||||||
Total operating expenses | 33,178 | 32,176 | 101,577 | 88,705 | |||||||||||
Income (loss) from operations | 1,794 | 3,197 | (10,620 | ) | 4,431 | ||||||||||
Other (expense) income | (121 | ) | 166 | 181 | 498 | ||||||||||
Income (loss) before income taxes | 1,673 | 3,363 | (10,439 | ) | 4,929 | ||||||||||
Income tax (benefit) expense | (751 | ) | 932 | 2,294 | (1,759 | ) | |||||||||
Net income (loss) | $ | 2,424 | $ | 2,431 | $ | (12,733 | ) | $ | 6,688 | ||||||
Net income (loss) per common share | |||||||||||||||
Basic | $ | 0.12 | $ | 0.13 | $ | (0.66 | ) | $ | 0.35 | ||||||
Diluted | $ | 0.12 | $ | 0.12 | $ | (0.66 | ) | $ | 0.34 | ||||||
Weighted-average common shares used to compute net income (loss) per common share | |||||||||||||||
Basic | 19,415,640 | 18,981,015 | 19,309,344 | 18,870,622 | |||||||||||
Diluted | 19,747,365 | 19,641,853 | 19,309,344 | 19,630,721 |
Condensed Consolidated Statements of Cash Flows | ||||||||
(Unaudited) | ||||||||
Nine Months Ended |
||||||||
(In thousands) | 2020 |
2019 |
||||||
Cash flows from operating activities | ||||||||
Net (loss) income | $ | (12,733 | ) | $ | 6,688 | |||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 2,102 | 2,808 | ||||||
Net amortization of premiums and discounts on securities available-for-sale | (91 | ) | (225 | ) | ||||
Deferred income taxes | 3,934 | (31 | ) | |||||
Stock-based compensation expense | 8,288 | 7,387 | ||||||
Gain on other investments and maturities of marketable securities | 10 | — | ||||||
Impairment losses | 4,025 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (2,589 | ) | (3,349 | ) | ||||
Net investment in leases | (1,304 | ) | (7,628 | ) | ||||
Inventories | (3,538 | ) | (5,693 | ) | ||||
Income taxes | 773 | (2,051 | ) | |||||
Prepaid expenses and other assets | (1,553 | ) | (418 | ) | ||||
Right of use operating lease assets | 509 | 107 | ||||||
Medicare accounts receivable, non-current | (2,916 | ) | (1,141 | ) | ||||
Accounts payable | 938 | 979 | ||||||
Accrued payroll and related taxes | 766 | 3,915 | ||||||
Accrued expenses and other liabilities | 1,134 | 1,073 | ||||||
Net cash (used in) provided by operating activities | (2,245 | ) | 2,421 | |||||
Cash flows from investing activities | ||||||||
Proceeds from maturities of securities available-for-sale | 22,500 | 16,000 | ||||||
Purchases of securities available-for-sale | — | (14,859 | ) | |||||
Purchases of property and equipment | (1,623 | ) | (4,276 | ) | ||||
Intangible assets costs | (163 | ) | (154 | ) | ||||
Other investments | (30 | ) | — | |||||
Net cash provided by (used in) investing activities | 20,684 | (3,289 | ) | |||||
Cash flows from financing activities | ||||||||
Taxes paid for net share settlement of restricted stock units | (1,592 | ) | (3,107 | ) | ||||
Proceeds from exercise of common stock options | 762 | 1,838 | ||||||
Proceeds from the issuance of common stock from the employee stock purchase plan | 1,825 | 1,852 | ||||||
Net cash provided by financing activities | 995 | 583 | ||||||
Net increase (decrease) in cash and cash equivalents | 19,434 | (285 | ) | |||||
Cash and cash equivalents – beginning of period | 22,770 | 20,099 | ||||||
Cash and cash equivalents – end of period | $ | 42,204 | $ | 19,814 | ||||
Supplemental cash flow disclosure | ||||||||
Cash paid for taxes | $ | 475 | $ | 326 | ||||
Capital expenditures incurred but not yet paid | $ | 41 | $ | 801 |
The following table summarizes revenue by product for the three and nine months ended
Supplemental Financial Information | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||
(Dollars in thousands) | 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | ||||||||||||||||||||
Flexitouch System | $ | 42,908 | $ | 44,699 | $ | (1,791 | ) | (4 | ) | % | $ | 112,621 | $ | 119,767 | $ | (7,146 | ) | (6 | ) | % | ||||||||
Other products(1) | 6,184 | 4,913 | 1,271 | 26 | % | 15,266 | 12,662 | 2,604 | 21 | % | ||||||||||||||||||
Total Revenue | $ | 49,092 | $ | 49,612 | $ | (520 | ) | (1 | ) | % | $ | 127,887 | $ | 132,429 | $ | (4,542 | ) | (3 | ) | % |
(1) The “other products” line primarily includes revenue from our Entre system. The Actitouch system and Airwear wrap contributed immaterial amounts of revenue for both of the three and nine months ended
The following table contains a reconciliation of the revenue change rate to the non-GAAP revenue change rate for the three and nine months ended
Reconciliation of Third Quarter and Year to Date Revenue Change Rates | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
(Dollars in thousands) | 2020 | 2019 |
% Change | 2020 | 2019 |
% Change | ||||||||||||||||
Total revenue | $ | 49,092 | $ | 49,612 | (1 | ) | % | $ | 127,887 | $ | 132,429 | (3 | ) | % | ||||||||
Less: Operating lease revenue(1) | N/A | (640 | ) | 1 | % | N/A | (4,835 | ) | 3 | % | ||||||||||||
Total non-GAAP revenue | $ | 49,092 | $ | 48,972 | 0 | % | $ | 127,887 | $ | 127,594 | 0 | % |
(1) The operating lease revenue excluded from revenue for the three and nine months ended
The following table contains a reconciliation of net income (loss) to Adjusted EBITDA for the three and nine months ended
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA | ||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
Three Months Ended | Increase | Nine Months Ended | Increase | |||||||||||||||||||||||||||||
(Decrease) | (Decrease) | |||||||||||||||||||||||||||||||
(Dollars in thousands) | 2020 |
2019 |
$ | % | 2020 |
2019 |
$ | % | ||||||||||||||||||||||||
Net income (loss) | $ | 2,424 | $ | 2,431 | $ | (7 | ) | (0 | ) | % | $ | (12,733 | ) | $ | 6,688 | $ | (19,421 | ) | N.M. | % | ||||||||||||
Interest expense (income), net | 19 | (86 | ) | 105 | (122 | ) | % | (61 | ) | (262 | ) | 201 | (77 | ) | % | |||||||||||||||||
Income tax expense (benefit) | (751 | ) | 932 | (1,683 | ) | (181 | ) | % | 2,294 | (1,759 | ) | 4,053 | N.M. | % | ||||||||||||||||||
Depreciation and amortization | 652 | 830 | (178 | ) | (21 | ) | % | 2,102 | 2,808 | (706 | ) | (25 | ) | % | ||||||||||||||||||
Stock-based compensation | 3,164 | 2,330 | 834 | 36 | % | 8,288 | 7,387 | 901 | 12 | % | ||||||||||||||||||||||
Impairment charges and inventory write-offs | — | — | — | — | % | 4,025 | — | 4,025 | — | % | ||||||||||||||||||||||
Executive transition costs | 499 | — | 499 | — | % | 876 | — | 876 | — | % | ||||||||||||||||||||||
Adjusted EBITDA | $ | 6,007 | $ | 6,437 | $ | (430 | ) | (7 | ) | % | $ | 4,791 | $ | 14,862 | $ | (10,071 | ) | (68 | ) | % |
The following table contains a reconciliation of net margin to Adjusted EBITDA margin for the three and nine months ended
Reconciliation of |
||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
Increase | Increase | |||||||||||||||||||||||
(As a percentage of revenue) | 2020 | 2019 | (Decrease) | 2020 | 2019 | (Decrease) | ||||||||||||||||||
Net margin | 4.9 | % | 4.9 | % | — | bps | (10.0 | ) | % | 5.1 | % | (1,510 | ) | bps | ||||||||||
Interest expense (income), net | — | % | (0.2 | ) | % | 20 | bps | — | % | (0.2 | ) | % | 20 | bps | ||||||||||
Income tax expense (benefit) | (1.5 | ) | % | 1.9 | % | (340 | ) | bps | 1.8 | % | (1.4 | ) | % | 320 | bps | |||||||||
Depreciation and amortization | 1.3 | % | 1.7 | % | (40 | ) | bps | 1.6 | % | 2.1 | % | (50 | ) | bps | ||||||||||
Stock-based compensation | 6.5 | % | 4.7 | % | 180 | bps | 6.5 | % | 5.6 | % | 90 | bps | ||||||||||||
Impairment charges and inventory write-offs | — | % | — | % | — | bps | 3.1 | % | — | % | 310 | bps | ||||||||||||
Executive transition costs | 1.0 | % | — | % | 100 | bps | 0.7 | % | — | % | 70 | bps | ||||||||||||
Adjusted EBITDA margin | 12.2 | % | 13.0 | % | (80 | ) | bps | 3.7 | % | 11.2 | % | (750 | ) | bps |
The following table contains a reconciliation of gross margin to adjusted gross margin for the three and nine months ended
Reconciliation of Gross Margin to Adjusted Gross Margin | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(Dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Gross profit, as reported | $ | 34,972 | $ | 35,373 | $ | 90,957 | $ | 93,136 | ||||||||
Gross margin, as reported | 71.2 | % | 71.3 | % | 71.1 | % | 70.3 | % | ||||||||
Reconciling item affecting gross margin: | ||||||||||||||||
Inventory write-offs | — | 428 | ||||||||||||||
Non-GAAP adjusted gross profit | $ | 34,972 | $ | 91,385 | ||||||||||||
Non-GAAP adjusted gross margin | 71.2 | % | 71.5 | % |
The following table contains a reconciliation of the projected revenue change rate to the projected non-GAAP revenue change rate:
Reconciliation of Projected 2020 Revenue Change Rate to Projected 2020 Non-GAAP Revenue Change Rate | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Projected Year Ended | Year Ended | Projected Change Rate | ||||||||||||||||
% Change | % Change | |||||||||||||||||
(Dollars in thousands) | Low | High | Reported | Low | High | |||||||||||||
Total revenue | $ | 184,900 | $ | 186,900 | $ | 189,492 | (2 | ) | % | (1 | ) | % | ||||||
Less: Operating lease revenue(1) | N/A | N/A | (5,018 | ) | 2 | % | 2 | % | ||||||||||
Total non-GAAP revenue | $ | 184,900 | $ | 186,900 | $ | 184,474 | 0 | % | 1 | % |
(1) The operating lease revenue excluded from 2019 revenue in the adjustment was related to rental agreements commencing prior to
Investor Inquiries:Mike Piccinino , CFA Managing DirectorWestwicke Partners 443-213-0500 [email protected]
Source: Tactile Systems Technology, Inc.