Tactile Systems Technology, Inc. (NASDAQ:TCMD) is a leading medical technology company that develops and provides innovative medical devices for the treatment of underserved chronic diseases. The company's mission is to help people suffering from chronic diseases live better and care for themselves at home. Tactile Systems focuses its efforts on advancing the standard of care in treating underserved chronic diseases in the home setting to improve patient outcomes and quality of life, while also helping to control rising healthcare expenditures.

Business Overview

Tactile Systems' areas of therapeutic focus are vascular disease, with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency, oncology, where lymphedema is a common consequence among cancer survivors, and providing airway clearance therapy for those suffering from chronic respiratory conditions. The company possesses a unique, scalable platform to deliver at-home healthcare solutions throughout the United States.

Financials

In fiscal year 2023, Tactile Systems generated revenue of $274.4 million and net income of $28.5 million. The company also reported annual operating cash flow of $35.9 million and free cash flow of $33.4 million. These strong financial results demonstrate Tactile Systems' ability to execute on its strategic priorities and deliver value to shareholders.

Quarterly Performance

Looking at the company's quarterly performance, Tactile Systems reported revenue of $61.1 million in the first quarter of 2024, representing a 4% increase compared to the same period in the prior year. This growth was driven by a 5% increase in sales and rentals of the company's lymphedema products, which include the Flexitouch and Entre systems. Sales of the company's airway clearance product, the AffloVest, declined 4% year-over-year, but the company expects a recovery in this segment in the second half of 2024 as the impact of the COVID-19 Public Health Emergency waiver expiration subsides.

Gross margin for the first quarter of 2024 was 71.1%, compared to 70.5% in the same period of 2023. The company's non-GAAP gross margin, which excludes non-cash intangible amortization, was 71.6% in the first quarter of 2024, up from 71% in the prior year period, driven by lower manufacturing and freight costs.

Operating expenses increased 2.5% year-over-year to $46.4 million in the first quarter of 2024, primarily due to higher sales and marketing expenses and reimbursement, general and administrative expenses, partially offset by a decrease in non-cash intangible asset amortization and earn-out expense. The company's operating loss decreased 22.1% to $3 million, and its non-GAAP operating loss decreased 22.3% to $1.7 million.

Liquidity

Tactile Systems' balance sheet remains strong, with $60.7 million in cash and cash equivalents and $28.5 million of outstanding borrowings as of March 31, 2024. The company made significant progress in the first quarter with cash collections and working down its accounts receivable balance, which helped offset the impact of certain one-time cash outflows.

Outlook

For the full year 2024, Tactile Systems reaffirmed its guidance for total revenue in the range of $300 million to $305 million, representing growth of approximately 9% to 11% year-over-year. The company expects its GAAP gross margins to be up slightly compared to the prior year, while GAAP operating expenses are expected to increase in the low double digits as the company advances its technology-related investments. Tactile Systems also continues to expect to generate adjusted EBITDA of approximately $33 million to $35 million in 2024.

Recent Developments

Strategic Priorities

One of Tactile Systems' key strategic priorities for 2024 is investing in growing its sales force and improving productivity within both its lymphedema and respiratory channels. The company ended the first quarter of 2024 with 269 field sales representatives for its lymphedema products, up from 246 at the end of the first quarter of 2023, representing a 9% increase. Tactile Systems is also focused on expanding its AffloVest sales specialist team, increasing the number of airway clearance representatives to 17 from 12 a year ago.

Technology Investments

In addition to growing its sales force, Tactile Systems is making strategic investments in technology to enhance its customers' prescribing experience and improve internal operational efficiency. This includes the deployment of an e-prescribing platform to streamline the process of collecting and exchanging patient medical records with payers, as well as the implementation of a new customer relationship management (CRM) tool later this year.

Product Development

The company is also continuing to advance its product development efforts, with the next-generation lymphedema therapy platform expected to launch in late 2024. This new platform is designed to bring a host of new lifestyle-friendly attributes to patients, further improving the user experience and demonstrating Tactile Systems' ongoing leadership in this space.

Clinical Education and Evidence Generation

Tactile Systems' clinical education and evidence generation initiatives also remain a key focus area. In the first quarter of 2024, the company reached over 3,000 clinicians across its lymphedema and AffloVest product lines through its medical education programming. Additionally, Tactile Systems recently completed enrollment in a multi-center randomized control clinical trial evaluating its Flexitouch Plus system for the treatment of lymphedema among head and neck cancer survivors, with initial results expected near the end of 2024.

The company also published positive results from a new clinical study among VA patients in the Journal of Vascular Surgery last month. The study, which followed 179 veterans with lymphedema treated with the Flexitouch system, demonstrated statistically significant improvements in quality of life, as well as decreases in cellulitis events and limb girth, and improvements in skin changes.

Conclusion

Tactile Systems operates in a large and growing market, with significant opportunities to continue expanding its reach and improving patient outcomes. The company's focus on innovation, clinical evidence, and operational excellence positions it well to capitalize on these opportunities and drive sustainable, profitable growth in the years ahead.