Company Overview and History

Tactile Systems Technology, Inc. (NASDAQ:TCMD) is a leading medical technology company dedicated to empowering patients with chronic disorders to take control of their health and improve their quality of life. With a rich history spanning over three decades, Tactile Medical has established itself as a trailblazer in the development and provision of innovative, clinically-proven therapies for underserved chronic conditions.

Tactile Systems Technology, Inc. was originally incorporated in Minnesota in 1995. In 2006, the company underwent a significant corporate restructuring, establishing a merger corporation and subsequently merging with it, resulting in its reincorporation as a Delaware corporation. This strategic move allowed the company to maintain its name while potentially benefiting from Delaware’s business-friendly legal environment.

Product Development and Innovation

The company’s journey in medical device innovation began with the development of its flagship product, the Flexitouch system. In 2002, Tactile Systems received its first 510(k) clearance from the FDA for the predecessor Flexitouch system, which addressed the limitations of self-administered home-based manual lymphatic drainage therapy. Building on this success, the company introduced a more advanced version of the Flexitouch system in 2006, following additional 510(k) clearance from the FDA.

Continuing its commitment to innovation, Tactile Systems expanded its product portfolio with the introduction of the Entre system in the United States in 2013. This more basic pneumatic compression device catered to patients who did not yet qualify for insurance reimbursement or required a simpler pump. In 2023, the company launched the second generation, Entre Plus, further enhancing its offerings in this category.

A significant milestone in Tactile Systems’ history came in 2016 when the company received FDA clearance for the Flexitouch system’s use in treating lymphedema of the head and neck, broadening the application of its flagship product. This was followed by another achievement in 2017 with the 510(k) clearance for the Flexitouch Plus, the third-generation version of the Flexitouch system, showcasing the company’s ongoing commitment to product improvement and innovation.

Strategic Expansion

In a strategic move to diversify its product portfolio and address additional chronic respiratory conditions, Tactile Systems acquired the assets of the AffloVest airway clearance product line in September 2021. AffloVest is a portable, wearable vest that provides airway clearance therapy for patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders. This acquisition marked Tactile Systems’ entry into the airway clearance market, expanding its reach in treating underserved chronic diseases.

The company’s recent launch of its next-generation pneumatic compression platform, Nimbl, in 2024, further demonstrates its commitment to innovation. Nimbl is significantly smaller, lighter, and more compact than previous devices, making it an ideal therapy for daily use at home or on the go. The device’s connectivity to Tactile Medical’s Kylee digital application enhances patient engagement and adherence to their treatment regimen.

Financials

Tactile Medical’s financial performance has been marked by a focus on profitability and operational efficiency. As of the third quarter of 2024, the company reported total revenue of $73.1 million, representing a 5% year-over-year increase. This growth was primarily driven by a 4.4% increase in lymphedema product sales and a 10.3% increase in airway clearance product sales. Gross margin also expanded, reaching 75% in the same period, up from 70.9% in the prior year quarter. This 410 basis point margin expansion was primarily driven by lower manufacturing and warranty costs, reflecting the company’s ongoing efforts to optimize its operations.

For the full year 2023, Tactile Medical reported revenue of $274.42 million, net income of $28.52 million, operating cash flow of $35.85 million, and free cash flow of $33.37 million. In the most recent quarter (Q3 2024), the company achieved net income of $5.16 million, operating cash flow of $24.32 million, and free cash flow of $22.32 million.

Liquidity

In terms of liquidity, Tactile Medical has maintained a strong balance sheet, with cash and cash equivalents of $82.15 million as of September 30, 2024. The company’s debt-to-equity ratio stands at 0.26, with a $25 million revolving credit facility and $27 million in term loan outstanding. Tactile Medical’s current ratio of 4.37 and quick ratio of 3.80 further underscore its solid financial position. This strong liquidity has enabled the company to invest in research and development, sales and marketing initiatives, and the ongoing expansion of its product portfolio.

One notable development in the third quarter of 2024 was the announcement of a share repurchase program, authorizing the company to repurchase up to $30 million of its outstanding common stock. This strategic move aligns with Tactile Medical’s commitment to delivering value to its shareholders and effectively deploying its financial resources.

Product Segments

Tactile Medical’s revenue is primarily generated from two main product lines: the lymphedema product line and the airway clearance product line.

The lymphedema product line, which includes the Flexitouch Plus, Entre Plus, and Nimbl systems, accounted for 88% of the company’s total revenue in both the three and nine months ended September 30, 2024. The Flexitouch Plus, Tactile’s flagship product, received 510(k) clearance from the FDA in June 2017 and offers advanced pneumatic compression therapy for lymphedema patients. The Entre Plus, introduced in March 2023, serves as an entry-level device for patients who require a simpler pump or do not yet qualify for insurance reimbursement of more advanced devices. In June 2024, Tactile received 510(k) clearance for its Nimbl system, a next-generation pneumatic compression platform for upper extremity lymphedema treatment, which became commercially available in October 2024.

The airway clearance product line, featuring the AffloVest device, contributed 12% of the company’s total revenue in the same periods. The AffloVest, acquired in September 2021, is a portable, wearable vest that provides high-frequency chest wall oscillation therapy for patients with chronic respiratory conditions.

Revenue from the lymphedema product line increased 4% year-over-year in the three months ended September 30, 2024, and 6% year-over-year in the nine months ended September 30, 2024. The airway clearance product line saw a 10% year-over-year increase in the three months ended September 30, 2024, and a 2% year-over-year increase in the nine months ended September 30, 2024.

Challenges and Future Outlook

Tactile Medical’s success has not been without its challenges. In the third quarter of 2024, the company experienced a slight revenue shortfall due to a combination of factors, including the impact of increased documentation requirements for Medicare patients and uneven buying patterns in the airway clearance business. The company has proactively addressed these issues by implementing a range of operational and technological initiatives, such as the national rollout of its e-prescribing tool and the redeployment of resources to support administrative tasks.

Looking ahead, Tactile Medical remains cautiously optimistic about its future prospects. The company has revised its full-year 2024 revenue guidance to a range of $292 million to $295 million, representing growth of approximately 6% to 8% year-over-year. This is a slight reduction from the previous guidance of $293 million to $298 million, reflecting the near-term challenges faced. However, the company has raised its 2024 adjusted EBITDA guidance to a new range of $35 million to $37 million, up from the previous range of $34 million to $36 million, demonstrating confidence in its ability to maintain strong profitability and cash flow generation.

Tactile Medical’s story is one of innovation, resilience, and a relentless pursuit of better healthcare solutions for those living with chronic conditions. The company operates primarily in the United States, with no significant international operations reported. As the company navigates the evolving market landscape, its focus on clinical evidence, patient-centric design, and operational excellence positions it well to capitalize on the growing demand for its transformative therapies in the large and underpenetrated lymphedema and airway clearance markets.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.