OREANDA-NEWS. September 08, 2016. 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 second quarter ended June 30, 2016.  

Second Quarter 2016 Highlights:

  • Total revenue of \\$19.7 million, up 34% year-over-year, compared to revenue of \\$14.8 million in the second quarter of 2015.
    • Flexitouch® revenue increased 34% year-over-year to \\$16.9 million, from \\$12.6 million.
    • Revenue for other products, consisting of revenue from sales of the Company’s ACTitouch® and Entr?™ Systems, increased 31% year-over-year, to \\$2.8 million, from \\$2.2 million.
  • Operating income of \\$1.8 million, or 9.1% of total revenue, compared to \\$0.2 million, or 1.5% of total revenue, in the second quarter of 2015.
  • Net income of \\$1.0 million, compared to net income of \\$0.1 million in the prior year quarter.

Highlights Subsequent to Quarter-End:

  • 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 price of \\$10.00 per share. The Company received net proceeds from the IPO of approximately \\$35.8 million, after deducting underwriting discounts and offering expenses.

“We are pleased with our performance in the second quarter,” said Gerald R. Mattys, Chief Executive Officer. “Our operating and financial results over the first half of 2016 reflect a combination of increasing market penetration and the growing awareness of Tactile Medical’s innovative solutions for the treatment of vascular disease among patients, providers and payers. Importantly, we are still in the early stages of executing our growth strategy and look forward to pursuing future opportunities as we leverage the investments in our distribution and reimbursement infrastructure.”

“We are delighted to have completed our IPO in July and are excited about the many opportunities ahead of us,” said Lynn Blake, Chief Financial Officer. “The IPO enabled us to strengthen Tactile Medical’s balance sheet while providing substantial capacity to further grow the business.”

Second Quarter 2016 Financial Results:

  Three Months Ended June 30, Increase / Decrease 
(In thousands) 2016 2015 \\$ Change % Change 
Flexitouch System \\$16,892 \\$12,604 \\$4,288 34.0%
ACTitouch & Entr? Systems  2,837  2,167  670 30.9%
Total Revenue: \\$ 19,729 \\$ 14,771 \\$ 4,958  33.6%
             

Total revenue increased \\$4.9 million, or 34% year-over-year, to \\$19.7 million, compared to \\$14.8 million last year. The increase in revenue was driven by an increase of approximately \\$4.3 million, or 34% year-over-year, in sales of the Flexitouch System and an increase of approximately \\$0.7 million, or 31% year-over-year, in sales of the ACTitouch and Entr? Systems.

Gross profit increased \\$4.0 million, or 39% year-over-year, to \\$14.4 million, compared to \\$10.4 million last year. Gross margin increased to 73% of sales in the second quarter of 2016, compared to 70% of sales last year, driven primarily by increased sales of the Flexitouch System.

Operating expenses increased \\$2.5 million, or 24% year-over-year, to \\$12.6 million, compared to \\$10.1 million last year. The increase in total operating expenses in the second quarter was driven by higher sales and marketing and reimbursement, general and administrative expenses, which increased 28% and 24%, respectively, year-over-year. These increases were driven primarily by the expansion in the field sales team as well as additional personnel in the reimbursement operations and corporate staff functions.

Operating income increased \\$1.6 million to \\$1.8 million, compared to \\$0.2 million last year. Operating margin increased to 9.1% of sales in the second quarter of 2016, compared to 1.5% of sales last year.

Net income increased \\$0.9 million year-over-year, to \\$1.0 million, compared to \\$0.1 million last year. Net income attributable to common stockholders increased to \\$0.2 million, or \\$0.04 per diluted share, compared to a net loss attributable to common stockholders of \\$0.3 million, or \\$0.12 per diluted share, last year. Net loss attributable to common stockholders in both the current and prior periods includes the accrual of convertible preferred dividends of \\$0.5 million.

Six-Months 2016 Financial Results:

Total revenue for the six months ended June 30, 2016 increased \\$8.5 million, or 34% year-over-year, to \\$33.4 million, compared to \\$24.9 million last year. The increase in revenue was driven by an increase of approximately \\$7.1 million, or 34% year-over-year, in sales of the Flexitouch System and an increase of approximately \\$1.4 million, or 42% year-over-year, in sales of the ACTitouch and Entr? Systems, compared to the prior year.

Net income increased \\$0.7 million, to \\$8,000, compared to a net loss of \\$0.7 million in the prior year. Net loss attributable to common stockholders for the six months ended June 30, 2016 and June 30, 2015, was \\$1.0 million, or \\$0.30 per diluted share, and \\$1.7 million, or \\$0.61 per diluted share, respectively. Net loss attributable to common stockholders includes the accrual of convertible preferred dividends of \\$1.0 million, compared to \\$0.9 million last year.

As of June 30, 2016, cash and cash equivalents were \\$6.7 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 \\$35.8 million, after deducting underwriting discounts and offering expenses of approximately \\$5.4 million. The Company paid \\$8.2 million in cumulative accrued dividends to its Series A preferred stockholders from the net offering proceeds. Information on the intended use of proceeds from the Company’s IPO was contained in the prospectus filed with the SEC on July 27, 2016.

Fiscal Year 2016 Outlook:

For the full year 2016, the Company expects total revenue in the range of \\$77.0 million to \\$79.0 million, representing growth of 22% to 26% year-over-year, compared to total revenue of \\$62.9 million in fiscal year 2015.

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 Entr? 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 http://investors.tactilemedical.com/phoenix.zhtml?c=254364&p=irol-alerts&t=&id=&.

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 
  
           
  June 30,  Pro Forma as of December 31,  
  2016 June 30, 2016 2015 
(In thousands, except share and per share data) (unaudited) (unaudited)    
Assets          
Current assets          
Cash and cash equivalents \\$ 6,719  \\$ 6,719  \\$ 7,060  
Accounts receivable, net   12,606    12,606    14,151  
Inventories   5,945    5,945    5,781  
Deferred income taxes   1,781    1,781    1,766  
Prepaid expenses   434    434    602  
Total current assets   27,485    27,485    29,360  
Property and equipment, net   1,441    1,441    1,346  
Other assets          
Patent costs, net   2,356    2,356    2,489  
Medicare accounts receivable – long term   1,787    1,787    2,039  
Deferred income taxes   387    387    402  
Other non-current assets   2,296    2,296    1,337  
Total other assets   6,826    6,826    6,267  
Total assets \\$ 35,752  \\$ 35,752  \\$ 36,973  
           
Liabilities and Stockholders’ Equity (Deficit)          
Current liabilities          
Accounts payable \\$ 4,353  \\$ 4,353  \\$ 3,336  
Accrued payroll and related taxes   1,987    1,987    3,355  
Accrued expenses   1,092    9,192    916  
Future product royalties   495    495    991  
Income taxes payable   —    —    904  
Total current liabilities   7,927    16,027    9,502  
Long-term liabilities          
Deferred compensation   193    193    193  
Total liabilities   8,120    16,220    9,695  
Convertible preferred stock          
Series B convertible preferred stock; \\$0.001 par value, 5,319,066 shares authorized and 2,733,468 shares issued and outstanding as of June 30, 2016 (unaudited) and December 31, 2015 and no shares authorized, issued or outstanding as of June 30, 2016 (pro forma)   12,970    —    12,599  
Series A convertible preferred stock; \\$0.001 par value, 3,112,153 shares authorized, 3,108,589 shares issued and 3,061,488 shares outstanding as of June 30, 2016 (unaudited) and December 31, 2015 and no shares authorized, issued or outstanding as of June 30, 2016 (pro forma)   20,980    —    20,328  
Stockholders’ equity (deficit)          
Preferred stock; \\$0.001 par value, 50,000,000 shares authorized and no shares issued and outstanding as of June 30, 2016 (pro forma)   —    —    —  
Common stock; \\$0.001 par value, 14,184,175 shares authorized and 3,414,137 shares issued and outstanding as of June 30, 2016 (unaudited) and 300,000,000 shares authorized and 12,625,376 shares issued and outstanding as of June 30, 2016 (pro forma) and 14,184,175 shares authorized and 3,222,902 shares issued and outstanding as of December 31, 2015   3    13    3  
Additional paid-in capital   —    25,840    —  
Accumulated deficit   (6,321)   (6,321)   (5,652) 
Total stockholders’ (deficit) equity   (6,318)   19,532    (5,649) 
Total liabilities and stockholders’ equity (deficit) \\$ 35,752  \\$ 35,752  \\$ 36,973  
                 
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) 2016 2015 2016 2015 
Revenues, net \\$19,729 \\$ 14,771  \\$ 33,429  \\$ 24,892  
Cost of goods sold  5,324   4,401    9,135    7,373  
Gross profit  14,405   10,370    24,294    17,519  
Operating expenses             
Sales and marketing  7,598   5,929    14,879    11,098  
Research and development  1,049   1,011    2,029    1,828  
Reimbursement, general and administrative  3,966   3,202    7,380    5,849  
Total operating expenses  12,613   10,142    24,288    18,775  
Income (loss) from operations  1,792   228    6    (1,256) 
Other income (expense)  5   3    10    15  
Income (loss) before income taxes  1,797   231    16    (1,241) 
Income tax expense (benefit)  809   93    8    (499) 
Net income (loss)  988   138    8    (742) 
Convertible preferred stock dividends  509   466    1,023    926  
Allocation of undistributed earnings to preferred stockholders  302   —    —    —  
Net income (loss) attributable to common stockholders \\$177 \\$ (328) \\$ (1,015) \\$ (1,668) 
Net income (loss) per common share attributable to common stockholders             
Basic \\$0.05 \\$ (0.12) \\$ (0.30) \\$ (0.61) 
Diluted \\$0.04 \\$ (0.12) \\$ (0.30) \\$ (0.61) 
Weighted-average common shares used to compute net income (loss) per common share attributable to common stockholders             
Basic  3,406,420   2,808,004    3,349,873    2,724,320  
Diluted  4,846,327   2,808,004    3,349,873    2,724,320  
Pro forma net income per common share attributable to common stockholders             
Basic       \\$ —     
Diluted       \\$ —     
Weighted-average shares used to compute pro forma net income per common share attributable to common stockholders             
Basic         13,406,568     
Diluted         14,846,475     
                
Tactile Systems Technology, Inc. 
Condensed Consolidated Statements of Cash Flows 
(Unaudited) 
        
  Six months ended  
  June 30,  
(In thousands) 2016 2015 
Cash flows from operating activities       
Net income (loss) \\$  8  \\$  (742) 
Adjustments to reconcile net income (loss) to net cash flows used in operating activities:       
Depreciation and amortization    437     411  
Deferred income taxes   —     (496) 
Stock-based compensation expense    150     145  
Change in allowance for doubtful accounts    300    —  
Changes in assets and liabilities       
Accounts receivable    1,245     1,637  
Inventories    (164)    (866) 
Prepaid expenses and other non-current assets    (791)    37  
Medicare accounts receivable – long-term    252     (278) 
Accounts payable    1,017     517  
Accrued payroll and related taxes    (1,368)    (430) 
Accrued expenses and income taxes payable    (728)    (209) 
Future product royalties    (496)    (297) 
Net cash used in operating activities    (138)    (571) 
Cash flows from investing activities       
Purchases of property and equipment    (393)    (261) 
Patent costs    (6)   —  
Net cash used in investing activities    (399)    (261) 
Cash flows from financing activities       
Payments on notes payable   —     (5) 
Proceeds from exercise of common stock options and warrants    196     551  
Net cash provided by financing activities    196     546  
Net change in cash and cash equivalents    (341)    (286) 
Cash and cash equivalents – beginning of period    7,060     5,416  
Cash and cash equivalents – end of period \\$  6,719  \\$  5,130  
Supplemental cash flow disclosure       
Cash paid for interest \\$ —  \\$ —  
Cash paid for taxes \\$  964  \\$  212