SEC Filing - Tactile Systems Technology, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37799

Tactile Systems Technology, Inc.

(Exact name of registrant as specified in its charter)


Delaware	3701 Wayzata Blvd, Suite 300	41-1801204
(State or other jurisdiction of incorporation or organization)	Minneapolis, Minnesota 55416	(I.R.S. Employer Identification No.)
	(Address and zip code of principal executive offices)

	(612) 355-5100
	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.001 Per Share	TCMD	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☑	Non-accelerated filer	◻

Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

23,966,748 shares of common stock, par value $0.001 per share, were outstanding as of August 1, 2024.

Table of Contents

TABLE OF CONTENTS


	PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

Table of Contents

Forward-Looking Information

All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition, are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "ongoing," "plan," "potential," "predict," "project," "should," "target," "will," "would," or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report on Form 10-Q. These risks, uncertainties and other factors include, but are not limited to:

●

our ability to obtain reimbursement from third-party payers for our products;

●

the impact of inflation, rising interest rates or recession;

●

the adequacy of our liquidity to pursue our business objectives;

●

adverse economic conditions or intense competition;

●

price increases for supplies and components;

●

wage and component price inflation;

●

loss of a key supplier;

●

entry of new competitors and products;

●

compliance with and changes in federal, state and local government regulation;

●

loss or retirement of key executives, including transition matters related to our recent Chief Executive Officer change;

●

technological obsolescence of our products;

●

technical problems with our research and products;

●

our ability to expand our business through strategic acquisitions;

●

our ability to integrate acquisitions and related businesses;

●

the effects of current and future U.S. and foreign trade policy and tariff actions; and

●

the inability to carry out research, development and commercialization plans.

You should read the matters described in "Risk Factors" and the other cautionary statements made in our Annual Report on Form 10-K for the year ended December 31, 2023, and in subsequent Quarterly Reports on Form 10-Q. We cannot assure you that the forward-looking statements in this report will prove to be accurate and therefore you are encouraged not to place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. You are urged to carefully review and consider the various disclosures made by us in this report and in other filings with the Securities and Exchange Commission (the “SEC”) that advise of the risks and factors that may affect our business. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements


Tactile Systems Technology, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
	June 30,		December 31,
(In thousands, except share and per share data)	2024		2023
Assets
Current assets
Cash and cash equivalents	$	73,618	$	61,033
Accounts receivable		41,935		43,173
Net investment in leases		13,551		14,195
Inventories		18,846		22,527
Prepaid expenses and other current assets		3,909		4,366
Total current assets		151,859		145,294
Non-current assets
Property and equipment, net		5,691		6,195
Right of use operating lease assets		17,828		19,128
Intangible assets, net		44,883		46,724
Goodwill		31,063		31,063
Accounts receivable, non-current		4,511		10,936
Deferred income taxes		19,408		19,378
Other non-current assets		3,541		2,720
Total non-current assets		126,925		136,144
Total assets	$	278,784	$	281,438
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	5,094	$	6,659
Note payable		2,956		2,956
Accrued payroll and related taxes		12,090		16,789
Accrued expenses		6,702		5,904
Income taxes payable		496		1,467
Operating lease liabilities		2,799		2,807
Other current liabilities		4,075		4,475
Total current liabilities		34,212		41,057
Non-current liabilities
Note payable, non-current		24,698		26,176
Accrued warranty reserve, non-current		1,561		1,681
Income taxes payable, non-current		495		446
Operating lease liabilities, non-current		17,142		18,436
Total non-current liabilities		43,896		46,739
Total liabilities		78,108		87,796

Commitments and Contingencies (see Note 9)

Stockholders’ equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of June 30, 2024 and December 31, 2023		—		—
Common stock, $0.001 par value, 300,000,000 shares authorized; 23,966,748 shares issued and outstanding as of June 30, 2024; 23,600,584 shares issued and outstanding as of December 31, 2023		24		24
Additional paid-in capital		179,669		174,724
Retained earnings		20,983		18,894
Total stockholders’ equity		200,676		193,642
Total liabilities and stockholders’ equity	$	278,784	$	281,438

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents


Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except share and per share data)	2024		2023		2024		2023
Revenue
Sales revenue	$	64,267	$	59,802	$	117,574	$	112,593
Rental revenue		8,951		8,537		16,732		14,592
Total revenue		73,218		68,339		134,306		127,185
Cost of revenue
Cost of sales revenue		16,263		16,865		31,207		31,507
Cost of rental revenue		2,852		3,175		5,567		5,911
Total cost of revenue		19,115		20,040		36,774		37,418
Gross profit
Gross profit - sales revenue		48,004		42,937		86,367		81,086
Gross profit - rental revenue		6,099		5,362		11,165		8,681
Gross profit		54,103		48,299		97,532		89,767
Operating expenses
Sales and marketing		28,608		28,206		55,965		54,508
Research and development		2,234		1,833		4,377		4,066
Reimbursement, general and administrative		16,779		14,991		33,040		30,425
Intangible asset amortization and earn-out		633		1,211		1,265		2,516
Total operating expenses		48,254		46,241		94,647		91,515
Income (loss) from operations		5,849		2,058		2,885		(1,748)
Other income (expense)		225		(838)		380		(1,831)
Income (loss) before income taxes		6,074		1,220		3,265		(3,579)
Income tax expense (benefit)		1,776		1,320		1,176		(1,593)
Net income (loss)	$	4,298	$	(100)	$	2,089	$	(1,986)
Net income (loss) per common share
Basic	$	0.18	$	0.00	$	0.09	$	(0.09)
Diluted	$	0.18	$	0.00	$	0.09	$	(0.09)
Weighted-average common shares used to compute net income (loss) per common share
Basic		23,873,379		23,352,530		23,769,604		22,323,856
Diluted		24,099,047		23,352,530		24,073,986		22,323,856

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents


Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)


						Retained
				Additional		Earnings
	Common Stock			Paid-In		(Accumulated
(In thousands, except share data)	Shares	Par Value		Capital		Deficit)		Total
Balances, March 31, 2024	23,761,897	$	24	$	176,764	$	16,685	$	193,473
Stock-based compensation	—		—		1,860		—		1,860
Exercise of common stock options and vesting of performance and restricted stock units	96,944		—		1		—		1
Common shares issued for employee stock purchase plan	107,907		—		1,044		—		1,044
Net income for the period	—		—		—		4,298		4,298
Balances, June 30, 2024	23,966,748	$	24	$	179,669	$	20,983	$	200,676

Balances, December 31, 2023	23,600,584	$	24	$	174,724	$	18,894	$	193,642
Stock-based compensation	—		—		3,899		—		3,899
Exercise of common stock options and vesting of performance and restricted stock units	258,257		—		2		—		2
Common shares issued for employee stock purchase plan	107,907		—		1,044		—		1,044
Net income for the period	—		—		—		2,089		2,089
Balances, June 30, 2024	23,966,748	$	24	$	179,669	$	20,983	$	200,676

Balances, March 31, 2023	23,235,065	$	23	$	167,646	$	(11,507)	$	156,162
Stock-based compensation	—		—		1,808		—		1,808
Exercise of common stock options and vesting of performance and restricted stock units	102,421		—		11		—		11
Common shares issued for employee stock purchase plan	120,816		—		882		—		882
Net loss for the period	—		—		—		(100)		(100)
Balances, June 30, 2023	23,458,302	$	23	$	170,347	$	(11,607)	$	158,763

Balances, December 31, 2022	20,252,677	$	20	$	131,001	$	(9,621)	$	121,400
Stock-based compensation	—		—		3,831		—		3,831
Exercise of common stock options and vesting of performance and restricted stock units	209,809		—		11		—		11
Sale of common stock from follow-on public offering, net of offering expenses	2,875,000		3		34,622		—		34,625
Common shares issued for employee stock purchase plan	120,816		—		882		—		882
Net loss for the period	—		—		—		(1,986)		(1,986)
Balances, June 30, 2023	23,458,302	$	23	$	170,347	$	(11,607)	$	158,763

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents


Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Six Months Ended June 30,
(In thousands)	2024		2023
Cash flows from operating activities
Net income (loss)	$	2,089	$	(1,986)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		3,345		3,269
Deferred income taxes		(30)		—
Stock-based compensation expense		3,899		3,831
Loss on disposal of property and equipment and intangibles		54		3
Change in fair value of earn-out liability		—		1,230
Changes in assets and liabilities, net of acquisition:
Accounts receivable		1,238		8,273
Net investment in leases		644		2,911
Inventories		3,681		2,809
Income taxes		(922)		(3,967)
Prepaid expenses and other assets		(364)		(697)
Right of use operating lease assets		(2)		50
Accounts receivable, non-current		6,425		7,631
Accounts payable		(1,592)		(696)
Accrued payroll and related taxes		(4,699)		(3,300)
Accrued expenses and other liabilities		300		(5,954)
Net cash provided by operating activities		14,066		13,407
Cash flows from investing activities
Purchases of property and equipment		(982)		(1,043)
Proceeds from sale of property and equipment		12		—
Intangible assets expenditures		(57)		(99)
Net cash used in investing activities		(1,027)		(1,142)
Cash flows from financing activities
Payments on earn-out		—		(5,000)
Payments on note payable		(1,500)		(1,500)
Proceeds from exercise of common stock options		2		11
Proceeds from the issuance of common stock from the employee stock purchase plan		1,044		882
Proceeds from issuance of common stock at market		—		34,625
Net cash (used in) provided by financing activities		(454)		29,018
Net increase in cash and cash equivalents		12,585		41,283
Cash and cash equivalents – beginning of period		61,033		21,929
Cash and cash equivalents – end of period	$	73,618	$	63,212

Supplemental cash flow disclosure
Cash paid for interest	$	1,099	$	1,925
Cash paid for taxes	$	2,177	$	2,415
Capital expenditures incurred but not yet paid	$	27	$	8

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

Tactile Systems Technology, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Nature of Business and Operations

Tactile Systems Technology, Inc. (“we,” “us,” “our,” and the “Company”) manufactures and distributes medical devices for the treatment of patients with underserved chronic diseases at home. We provide our Flexitouch® Plus and Entre™ Plus systems, which help control symptoms of lymphedema, a chronic progressive medical condition, through our direct sales force for use in the home following receipt of prescriptions from vascular, wound and lymphedema clinics throughout the United States.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance business (“AffloVest Acquisition”). AffloVest is a portable, wearable vest that treats patients with chronic respiratory conditions. We sell this device through home medical equipment and durable medical equipment (“DME”) providers throughout the United States.

We were originally incorporated in Minnesota under the name Tactile Systems Technology, Inc. on January 30, 1995. During 2006, we established a merger corporation and subsequently, on July 21, 2006, merged with and into this merger corporation, resulting in our reincorporation as a Delaware corporation. The resulting corporation assumed the name Tactile Systems Technology, Inc. In September 2013, we began doing business as “Tactile Medical”.

On August 2, 2016, we closed the initial public offering of our common stock, which resulted in the sale of 4,120,000 shares of our common stock at a public offering price of $10.00 per share. We received net proceeds from the initial public offering of approximately $35.4 million, after deducting underwriting discounts and approximately $2.9 million of transaction expenses.

On February 27, 2023, we closed on a public offering of 2,875,000 shares of our common stock at a public offering price of $13.00 per share. We received net proceeds from this offering of $34.6 million after deducting underwriting discounts, commissions, and offering expenses.

Our business is affected by seasonality. In the first quarter of each year, when most patients have started a new insurance year and have not yet met their annual out-of-pocket payment obligations, we experience substantially reduced demand for our products. We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and because patients desire to exhaust their flexible spending accounts at year end. This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products.

Note 2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.

The results for the six months ended June 30, 2024, are not necessarily indicative of results to be expected for the year ending December 31, 2024, or for any other interim period or for any future year. The condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Table of Contents

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Tactile Systems Technology, Inc. and its wholly owned subsidiary, Swelling Solutions, Inc. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies

There were no material changes in our significant accounting policies during the six months ended June 30, 2024. See Note 3 – “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, for information regarding our significant accounting policies.

Accounting Pronouncement Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which requires entities to enhance disclosures around segment reporting. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” which requires entities to enhance disclosures around income taxes. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures.

Note 4. Inventories

Inventories consisted of the following:


(In thousands)	At June 30, 2024		At December 31, 2023
Finished goods	$	6,365	$	7,979
Component parts and work-in-process		12,481		14,548
Total inventories	$	18,846	$	22,527

Note 5. Goodwill and Intangible Assets

Goodwill

In the third quarter of fiscal 2021, we completed the AffloVest Acquisition. The purchase price of the AffloVest product line exceeded the net acquisition-date estimated fair value amounts of the identifiable assets acquired and the liabilities assumed by $31.1 million, which was assigned to goodwill.

Table of Contents

Intangible Assets

Our patents and other intangible assets are summarized as follows:


	Weighted-	At June 30, 2024
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	1,060	$	290	$	770
Defensive intangible assets	1 year		1,125		993		132
Customer accounts	—		125		125		—
Customer relationships	10 years		31,000		6,704		24,296
Developed technology	8 years		13,000		3,322		9,678
Subtotal			46,310		11,434		34,876
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			507		—		507
Total intangible assets		$	56,317	$	11,434	$	44,883


	Weighted-	At December 31, 2023
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	1,018	$	248	$	770
Defensive intangible assets	1 year		1,125		920		205
Customer accounts	—		125		125		—
Customer relationships	11 years		31,000		5,511		25,489
Developed technology	9 years		13,000		2,731		10,269
Subtotal			46,268		9,535		36,733
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			491		—		491
Total intangible assets		$	56,259	$	9,535	$	46,724

Amortization expense was $1.0 million for each of the three months ended June 30, 2024 and 2023, and $1.9 million for each of the six months ended June 30, 2024 and 2023, of which $0.3 million in each of the three months ended June 30, 2024 and 2023, and $0.6 million in each of the six months ended June 30, 2024 and 2023, were recorded in cost of sales revenue. Future amortization expenses are expected as follows:


(In thousands)
2024 (July 1 - December 31)	$	1,899
2025		3,708
2026		3,643
2027		3,635
2028		3,632
Thereafter		18,359
Total	$	34,876

In the third quarter of 2023, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASU No. 2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events.” Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting

Table of Contents

unit was less than the carrying value. As a result, it was not deemed necessary to proceed to the quantitative test and no impairment was recognized.

Note 6. Accrued Expenses

Accrued expenses consisted of the following:


(In thousands)	At June 30, 2024		At December 31, 2023
Warranty	$	2,131	$	2,357
Legal and consulting		1,161		611
In-transit inventory		1,102		401
Travel		933		1,038
Clinical studies		339		363
Sales and use tax		108		183
Other		928		951
Total	$	6,702	$