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Tactile Systems Technology, Inc. Reports Third Quarter 2016 Financial Results and Updates Fiscal Year 2016 Outlook
Q3 Revenue Increased 35% Year-over-Year; Year-to-date Revenue Up 34%

MINNEAPOLIS, Nov. 10, 2016 (GLOBE NEWSWIRE) -- Tactile Systems Technology, Inc. (“Tactile Medical”) (Nasdaq:TCMD), a medical technology company that develops and provides innovative medical devices for the treatment of chronic diseases at home, today reported financial results for the third quarter and nine months ended September 30, 2016.

Third Quarter 2016 Highlights:

  • Total revenue of $22.6 million, up 35% year-over-year, compared to revenue of $16.8 million in the third quarter of 2015.
    • Flexitouch® revenue increased 33% year-over-year to $19.4 million, from $14.6 million.
    • Revenue from other products, consisting of revenue from sales of the Company’s Entré™ and ACTitouch® Systems, increased 47% year-over-year, to $3.2 million, from $2.2 million.
  • Operating income of $1.0 million, or 4.3% of total revenue, compared to $1.5 million, or 8.7% of total revenue, in the third quarter of 2015.
  • Net income of $0.5 million, compared to net income of $0.9 million in the third quarter of 2015.
  • Adjusted EBITDA of $1.9 million, compared to $1.8 million in the third quarter of 2015.
  • On August 2, 2016, the Company closed an initial public offering (IPO) of its common stock that resulted in the sale of 4,120,000 shares at a public offering price of $10.00 per share. The Company received net proceeds from the IPO of approximately $35.4 million, after deducting underwriting discounts and offering expenses.
  • On September 22, 2016, the Company announced that it had received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for the Flexitouch System in treating lymphedema of the head and neck, a common consequence of head and neck cancer.

“Revenue growth of 35% in the third quarter continued the impressive performance that we delivered in the first half of 2016,” said Gerald R. Mattys, Chief Executive Officer. “Our top-line growth this year reflects the powerful combination of our field team expansion, growing awareness among clinicians and patients of our Flexitouch technology’s clinical benefits, and the increase in payer contracts that expands patient access to our products.”

Mr. Mattys continued: “Looking forward, we expect continued success as we focus on the core elements of our growth strategy: expanding our sales coverage to further penetrate the U.S. market, growing the portfolio of clinical and economic support for our innovative home care technologies, expanding reimbursement coverage, and introducing new products to address the unmet needs of the large and growing lymphedema and chronic venous insufficiency patient populations.”

The following table summarizes revenues by product for the three and nine months ended September 30, 2016 and 2015:

                       
  Three Months Ended September 30,   Increase / Decrease   Nine Months Ended September 30,   Increase / Decrease
($,thousands)   2016     2015      $ Change   % Change      2016     2015      $ Change   % Change 
Flexitouch System   19,387     14,609       4,778     32.7 %     47,988     36,098       11,890     32.9 %
Entré & ACTitouch  Systems   3,248     2,211       1,037     46.9 %     8,076     5,614       2,462     43.9 %
Total Revenue: $ 22,635   $ 16,820     $ 5,815     34.6 %   $ 56,064   $ 41,712     $ 14,352     34.4 %
                                                       

Third Quarter 2016 Financial Results:

Total revenue increased $5.8 million, or 35%, year-over-year, to $22.6 million, compared to $16.8 million for the quarter ended September 30, 2015. The increase in revenue was driven by an increase of $4.8 million, or 33%, year-over-year, in sales of the Flexitouch System and an increase of $1.0 million, or 47%, year-over-year, in sales of the Entré and ACTitouch Systems. The increase in Flexitouch sales was primarily driven by the expansion of the Company’s sales force, increased physician and patient awareness of the lymphedema condition, and increased contractual coverage with national and regional insurance payers.

Gross profit increased $4.0 million, or 32%, year-over-year, to $16.4 million, compared to $12.4 million for the third quarter of 2015. Gross margin of 72% of sales in the third quarter of 2016 compared to 73% of sales for the third quarter of 2015. The change in gross margin rate year-over-year was driven primarily by payer and product mix effects.

Operating expenses increased $4.5 million, or 41%, year-over-year, to $15.4 million, compared to $10.9 million for the third quarter of 2015. The increase in total operating expenses in the third quarter was primarily driven by an increase of $2.8 million, or 45%, in sales and marketing expenses due to field sales team expansion and increased variable sales expense on higher revenues, and a $1.5 million, or 42%, increase in reimbursement, general and administrative expenses due to increased personnel, stock compensation expense and incremental public company costs.

Operating income decreased approximately $0.5 million to $1.0 million, compared to $1.5 million for the third quarter of 2015. Operating margin decreased to 4.3% of sales in the third quarter of 2016, compared to 8.7% of sales for the third quarter of 2015.

Net income decreased $0.4 million year-over-year, to $0.5 million, compared to $0.9 million for the third quarter of 2015. Net income attributable to common stockholders increased to $0.2 million, or $0.01 per diluted share, compared to net income attributable to common stockholders of $0.1 million, or $0.03 per diluted share, last year. Net income attributable to common stockholders in the third quarter of 2016 reflected the accrual of convertible preferred dividends of $0.2 million, compared to $0.5 million last year, as well as the allocation of undistributed earnings to preferred stockholders of approximately $0.1 million, compared to $0.3 million for the third quarter of 2015.  Weighted average shares used to compute diluted net income per share were 14.0 million and 4.8 million for the third quarter of 2016 and 2015, respectively.

Nine-Months 2016 Financial Results:

Total revenue for the nine months ended September 30, 2016 increased $14.4 million, or 34%, year-over-year, to $56.1 million, compared to $41.7 million for the nine months ended September 30, 2015. The increase in revenue was driven by an increase of approximately $11.9 million, or 33%, year-over-year, in sales of the Flexitouch System and an increase of approximately $2.5 million, or 44%, year-over-year, in sales of the Entré and ACTitouch Systems, compared to the nine months ended September 30, 2015.

Net income for the nine months ended September 30, 2016 increased approximately $0.4 million, to $0.5 million, compared to net income of $0.1 million for the nine months ended September 30, 2015. Net loss attributable to common stockholders for the nine months ended September 30, 2016 and September 30, 2015, was $0.7 million, or $0.12 per diluted share, and $1.3 million, or $0.44 per diluted share, respectively. Net loss attributable to common stockholders for the nine months ended September 30, 2016 includes the accrual of convertible preferred dividends of $1.2 million, compared to $1.4 million for the nine months ended September 30, 2015. Weighted average shares used to compute diluted net loss per share were 6.3 million and 2.9 million for the nine months ended September 30, 2016 and 2015, respectively.

Cash Position at September 30, 2016

As of September 30, 2016, cash and cash equivalents were $39.3 million, and the Company had no debt outstanding, compared to $7.1 million of cash and cash equivalents and no debt outstanding as of December 31, 2015. On August 2, 2016, the Company completed its IPO, raising net proceeds of approximately $35.4 million, after deducting underwriting discounts and offering expenses of approximately $5.8 million. The Company paid $8.2 million in cumulative accrued dividends to its Series A preferred stockholders from the net offering proceeds. Additionally, the Company generated $4.3 million in cash flow from operations in the nine months ended September 30, 2016.

Updated Fiscal Year 2016 Outlook:

For the full year 2016, the Company expects total revenue in the range of $79.5 million to $81.5 million, representing growth of 26% to 30% year-over-year, compared to total revenue of $62.9 million in fiscal year 2015. This compares to the Company’s prior revenue guidance range of $77.0 million to $79.0 million.

Conference Call:

Management will host a conference call at 5:00 p.m. Eastern Time on November 10th to discuss the results of the quarter, and to host a question and answer session. Those who would like to participate may dial 866-393-4306 (734- 385-2616 for international callers) and provide access code 98522691. A live webcast of the call will also be provided on the investor relations section of the Company's website at Investors.tactilemedical.com.

About Tactile Systems Technology, Inc.:

Tactile Systems Technology, Inc. (“Tactile Medical”) is a medical technology company that develops and provides innovative medical devices for the treatment of chronic diseases at home. The Company is the sole manufacturer and distributor of the Flexitouch and Entré Systems, medical devices to help control symptoms of lymphedema, a chronic and progressive medical condition that is often an unintended consequence of cancer treatment, and the ACTitouch System, a medical device to treat venous leg ulcers and chronic venous insufficiency. The Company provides products for use both in the home and in health care institutions, including hospitals and vascular, wound and lymphedema clinics throughout the United States.  For additional information, please visit http://www.tactilemedical.com. To receive future press releases via email, please visit Investors.tactilemedical.com.

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," or "project" 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 complete 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; and 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, including the final prospectus for the Company’s initial public offering. Investors and security holders are urged to read these documents free of charge on the SEC's web site 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.

 
Tactile Systems Technology, Inc.
Condensed Consolidated Balance Sheets
             
    September 30,   December 31,
    2016   2015
(In thousands, except share and per share data)   (unaudited)      
Assets            
Current assets            
Cash and cash equivalents   $ 39,294     $ 7,060  
Accounts receivable, net     13,021       14,151  
Inventories     6,248       5,781  
Deferred income taxes     1,781       1,766  
Prepaid expenses     808       602  
Total current assets     61,152       29,360  
Property and equipment, net     1,399       1,346  
Other assets            
Patent costs, net     2,304       2,489  
Medicare accounts receivable – long term     1,644       2,039  
Deferred income taxes     387       402  
Other non-current assets     50       1,337  
Total other assets     4,385       6,267  
Total assets   $ 66,936     $ 36,973  
             
Liabilities and Stockholders’ Equity (Deficit)            
Current liabilities            
Accounts payable   $ 4,808     $ 3,336  
Accrued payroll and related taxes     4,250       3,355  
Accrued expenses     1,212       916  
Future product royalties     265       991  
Income taxes payable     172       904  
Total current liabilities     10,707       9,502  
Long-term liabilities            
Deferred compensation     150       193  
Total liabilities     10,857       9,695  
Convertible preferred stock            
Series B convertible preferred stock; $0.001 par value, no shares authorized, issued or outstanding as of September 30, 2016 and 5,319,066 shares authorized and 2,733,468 shares issued and outstanding as of December 31, 2015           12,599  
Series A convertible preferred stock; $0.001 par value, no shares authorized, issued or outstanding as of September 30, 2016 and 3,112,153 shares authorized and 3,108,589 shares issued and 3,061,488 shares outstanding as of December 31, 2015           20,328  
Stockholders’ equity (deficit)              
Preferred stock; $0.001 par value, 50,000,000 shares authorized and no shares issued and outstanding as of September 30, 2016            
Common stock; $0.001 par value, 300,000,000 shares authorized, 16,812,655 shares issued and 16,746,645 shares outstanding as of September 30, 2016, and 14,184,175 shares authorized, 3,222,902 shares issued and outstanding as of December 31, 2015     17       3  
Additional paid-in capital     61,214        
Accumulated deficit     (5,152 )     (5,652 )
Total stockholders’ equity (deficit)     56,079       (5,649 )
Total liabilities and stockholders’ equity (deficit)   $ 66,936     $ 36,973  
                 


Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
                         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(In thousands, except share and per share data)   2016   2015   2016   2015
Revenues, net   $ 22,635   $ 16,820   $ 56,064     $ 41,712  
Cost of goods sold     6,282     4,466     15,417       11,839  
Gross profit     16,353     12,354     40,647       29,873  
Operating expenses                        
Sales and marketing     8,979     6,199     23,858       17,297  
Research and development     1,285     1,094     3,314       2,922  
Reimbursement, general and administrative     5,115     3,599     12,495       9,448  
Total operating expenses     15,379     10,892     39,667       29,667  
Income from operations     974     1,462     980       206  
Other income     10     3     20       18  
Income before income taxes     984     1,465     1,000       224  
Income tax expense     492     589     500       90  
Net income     492     876     500       134  
Convertible preferred stock dividends     224     470     1,247       1,396  
Allocation of undistributed earnings to preferred stockholders     99     262            
Net income (loss) attributable to common stockholders   $ 169   $ 144   $ (747 )   $ (1,262 )
Net income (loss) per common share attributable to common stockholders                        
Basic   $ 0.01   $ 0.05   $ (0.12 )   $ (0.44 )
Diluted   $ 0.01   $ 0.03   $ (0.12 )   $ (0.44 )
Weighted-average common shares used to compute net income (loss) per common share attributable to common stockholders                        
Basic     12,253,877     3,148,294     6,317,875       2,854,112  
Diluted     13,982,799     4,799,308     6,317,875       2,854,112  
                             


Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
             
    Nine Months Ended
    September 30,
(In thousands)   2016   2015
Cash flows from operating activities            
Net income   $ 500     $ 134  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:            
Depreciation and amortization     675       622  
Deferred income taxes           90  
Stock-based compensation expense     859       232  
Deferred compensation           (6 )
Change in allowance for doubtful accounts     465       250  
Changes in assets and liabilities            
Accounts receivable     665       1,092  
Inventories     (467 )     (1,849 )
Prepaid expenses and other non-current assets     (233 )     (708 )
Medicare accounts receivable – long-term     395       (704 )
Accounts payable     1,695       1,053  
Accrued payroll and related taxes     895       246  
Accrued expenses and income taxes payable     (387 )     (173 )
Future product royalties     (726 )     (445 )
Net cash provided by (used in) operating activities     4,336       (166 )
Cash flows from investing activities            
Purchases of property and equipment     (518 )     (420 )
Patent costs     (24 )     (18 )
Net cash used in investing activities     (542 )     (438 )
Cash flows from financing activities            
Payments on notes payable           (7 )
Proceeds from exercise of common stock options and warrants     224       867  
Dividends paid on preferred stock     (8,207 )      
Fees paid for IPO     (4,777 )      
Proceeds from IPO     41,200        
Net cash provided by financing activities     28,440       860  
Net change in cash and cash equivalents     32,234       256  
Cash and cash equivalents – beginning of period     7,060       5,416  
Cash and cash equivalents – end of period   $ 39,294     $ 5,672  
Supplemental cash flow disclosure            
Cash paid for interest   $     $  
Cash paid for taxes   $ 1,261     $ 226  
                 

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 represents net income less interest income, net, plus income tax expense, depreciation and amortization and stock-based compensation expense.  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 Adjusted EBITDA is useful to investors as supplemental information 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.

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 as an inference that the Company's future results will be unaffected by unusual or non-recurring items. In addition, the measure 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 Adjusted EBITDA on a supplemental basis.  The Company's definition of this measure is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

The following table contains a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure.

 
Tactile Systems Technology, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
(Unaudited)
         
    Three Months Ended September 30,   Nine Months Ended September 30,
 ($, thousands)   2016   2015   2016   2015
GAAP Net Income   $   492     $   876     $   500     $   134  
Interest income, net       (6 )       (3 )       (16 )       (18 )
Income tax expense       492         589         500         90  
Depreciation and amortization       237         212         675         622  
Stock-based compensation expense       709         87         859         232  
Adjusted EBITDA   $   1,924     $   1,761     $   2,518     $   1,060  
                                         

 

Investor Inquiries:

Mike Piccinino, CFA
Managing Director
Westwicke Partners
433-213-0500
investorrelations@tactilemedical.com

Tactile Systems Technology
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