GlobeNewswire Inc | Nov 2, 2020 04:05PM EST

November 02, 2020

Third Quarter Revenue Decreased 1% Year-Over-Year; Flat Year-Over-Year on an Operational Basis

First Nine Months Revenue Decreased 3% Year-over-Year; Flat Year-over-Year on an Operational Basis

MINNEAPOLIS, Nov. 02, 2020 (GLOBE NEWSWIRE) -- Tactile Systems Technology, Inc. (Tactile Medical) (Nasdaq: TCMD), a medical technology company focused on developing medical devices for the at-home treatment of chronic diseases, today reported financial results for the third quarter and nine months ended September 30, 2020.

Third Quarter 2020 Summary:

-- Total revenue decreased 1% year-over-year, to $49.1 million, compared to $49.6 million in third quarter 2019. Excluding the contribution to third quarter 2019 revenue related to the Companys adoption of ASC 842, third quarter 2020 revenue reflects a flat year-over-year change on an operational basis.Revenue for the third quarter of 2020 was negatively impacted by the COVID-19 pandemic. -- Operating income of $1.8 million, compared to operating income of $3.2 million in third quarter 2019. -- Net income of $2.4 million, compared to net income of $2.4 million in third quarter 2019. -- Adjusted EBITDA of $6.0 million, compared to Adjusted EBITDA of $6.4 million in third quarter 2019. -- Cash, cash equivalents, and marketable securities of $42.2 million at September 30, 2020, compared to $45.2 million at December 31, 2019.

We were pleased with our strong execution in the third quarter, which resulted in better-than-expected financial results despite continued business disruption associated with the COVID-19 pandemic, said Dan Reuvers, President and Chief Executive Officer of Tactile Medical. While were pleased to see patients returning to seek treatment and healthcare facilities adapting to the environment, the challenge remains that many healthcare facilities are operating at significantly lower rates of productivity due to COVID-19. Despite many facilities still operating with constraints related to social distancing and safety protocols, our team has done an impressive job of supporting our clinicians and patients, while expanding our prescriber base, in part, by leveraging virtual education events.

Mr. Reuvers continued, We remain cautiously optimistic with respect to the near-term impacts of COVID-19 on our results. We are providing an updated 2020 financial outlook, which reflects expectations for a modest return to revenue growth on a year-over-year basis in the fourth quarter. We are well-capitalized, which allows us to continue to invest strategically in both expanding our industry leadership position, and our market development activities, in the $5B+ U.S. lymphedema market. We expect the combination of our strong execution, and the eventual subsiding of the pandemic, will result in the return to our long-term track record of strong growth and improving profitability.

Third Quarter 2020 Financial Results

Total revenue in the third quarter of 2020 decreased $0.5 million, or 1%, to $49.1 million, compared to $49.6 million in the third quarter of 2019. Total revenue in the third quarter of 2020 was flat on an operational basis, excluding the contribution to third quarter 2019 revenue related to the Companys adoption of ASC 842. The decrease in total revenue was attributable to a decrease of $1.8 million, or 4%, in sales and rentals of the Flexitouch system, which was partially offset by an increase of $1.3 million, or 26%, in sales and rentals of the Entre system in the quarter ended September 30, 2020. Third quarter revenue continued to be negatively impacted by COVID-19, primarily from social distancing requirements and safety protocols imposed within clinics. The decrease in third quarter revenue was partially offset by the continued expansion of our commercial team, effective virtual educational events, and an increase in the number of Medicare patients served.

Gross profit in the third quarter of 2020 decreased $0.4 million, or 1%, to $35.0 million, compared to $35.4 million in the third quarter of 2019. Gross margin was 71.2% of revenue, compared to 71.3% of revenue in the third quarter of 2019.

Operating expenses in the third quarter of 2020 increased $1.0 million, or 3%, to $33.2 million, compared to $32.2 million in the third quarter of 2019. The increase in operating expenses in the third quarter of 2020 was driven by reimbursement, general and administrative expenses, primarily due to a $1.6 million increase in personnel-related compensation expense in our reimbursement operations, payer development and corporate functions and a $1.0 million increase in occupancy costs, depreciation expense, legal and professional fees. The increase in reimbursement, general and administrative expenses was partially offset by lower sales and marketing expenses, which decreased $1.2 million, or 6%, to $19.5 million, compared to $20.7 million in the third quarter of 2019 and, to a lesser extent, by lower research and development expenses, which decreased $0.4 million, or 25%, to $1.1 million, compared to $1.5 million in the third quarter of 2019.

Operating income in the third quarter of 2020 decreased $1.4 million, or 44%, to $1.8 million, compared to $3.2 million in the third quarter of 2019.

Income tax benefit in the third quarter of 2020 was $0.8 million, compared to income tax expense of $0.9 million in the third quarter of 2019. The year-over-year change in income tax expense/benefit was primarily due to changes in our effective tax rate, which was primarily attributable to a change in projected taxable income, including proportionately higher tax benefits for stock-based compensation as compared to the same period last year.

Net income in the third quarter of 2020 was $2.4 million, or $0.12 per diluted share, compared to net income of $2.4 million, or $0.12 per diluted share, in the third quarter of 2019. Weighted average shares used to compute diluted net income per share were 19.7 million and 19.6 million in the third quarters of 2020 and 2019, respectively.

Adjusted EBITDA was $6.0 million in the third quarter of 2020, compared to Adjusted EBITDA of $6.4 million in the third quarter of 2019.

First Nine Months 2020 Financial Results:

Total revenue for the nine months endedSeptember 30, 2020,decreased$4.5 million, or 3%, to$127.9 million, compared to$132.4 millionfor the nine months endedSeptember 30, 2019. Total revenue for the nine months ended September 30, 2020, was flat on an operational basis, excluding the contribution to revenue in the nine months ended September 30, 2019 related to the Companys adoption of ASC 842. The decrease in revenue was driven by a decrease of approximately$7.1 million, or 6%, in sales and rentals of the Flexitouch system, offset partially by an increase of $2.6 million, or 21%, in sales and rentals of the Entre system for the nine months endedSeptember 30, 2020. Revenue in the first two months of 2020 was ahead of our expectations. Beginning inMarch 2020and continuing through the third quarter, revenue was impacted by the COVID-19 pandemic, which limited our ability to access our clinician customers and their patients. Specifically, we saw healthcare facilities and clinics restricting access to their clinicians, reducing patient consultations, or closing temporarily due to COVID-19.

Net loss for the nine months endedSeptember 30, 2020was$12.7 million, or $(0.66) per diluted share, compared to net income of $6.7 million, or $0.34 per diluted share,for the nine months endedSeptember 30, 2019. Weighted average shares used to compute diluted net loss/income per share were 19.3 million and 19.6 million for the nine months endedSeptember 30, 2020and 2019, respectively.

Adjusted EBITDA was $4.8 million in the nine months ended September 30, 2020, compared to adjusted EBITDA of $14.9 million in the nine months ended September 30, 2019.

Cash Position

At September 30, 2020, cash, cash equivalents and marketable securities were $42.2 million, compared to $45.2 million at December 31, 2019. The Company had no outstanding borrowings on its $10.0 million revolving credit facility at September 30, 2020.

2020 Financial Outlook

The Company is providing updated full year 2020 revenue guidance. The Company originally provided full year 2020 revenue guidance on February 26, 2020, but subsequently withdrew its guidance on April 6, 2020, due to the rapidly evolving environment and continued uncertainties associated with COVID-19.

The Company expects full year 2020 total revenue in the range of $184.9 million to $186.9 million, representing a decline of 1% to 2% year-over-year, compared to total revenue of $189.5 million in 2019.

Pursuant to the Companys adoption of ASC 842, full year 2019 revenue included approximately $5.0 million of rental revenue related to operating leases, which will not contribute to the Companys revenue results going forward. Excluding the contribution to full year 2019 revenue related to the Companys adoption of ASC 842, the 2020 expected revenue range reflects revenue growth of approximately 0% to 1% year-over-year on an operational basis.

Conference Call

Management will host a conference call at 5:00 p.m. Eastern Time on November 2, 2020, to discuss the results of the quarter with a question and answer session. Those who would like to participate may dial 877-407-3088 (201-389-0927 for international callers) and provide access code 13711024. A live webcast of the call will also be provided on the investor relations section of the Company's website at investors.tactilemedical.com.

For those unable to participate, a replay of the call will be available for two weeks at 877-660-6853 (201-612-7415 for international callers); access code 13711024. The webcast will be archived at investors.tactilemedical.com.

About Tactile Systems Technology, Inc. (DBA Tactile Medical)

Tactile Medical is a leader in developing and marketing at-home therapy devices that treat chronic swelling conditions such as lymphedema and chronic venous insufficiency. Tactile Medicals mission is to help people suffering from chronic diseases live better and care for themselves at home. The Companys unique offering includes advanced, clinically proven pneumatic compression devices, as well as continuity of care services provided by a national network of product specialists and trainers, reimbursement experts, patient advocates and clinicians. This combination of products and services ensures that tens of thousands of patients annually receive the at-home treatment necessary to better manage their chronic conditions. Tactile Medical takes pride in the fact that our solutions help increase clinical efficacy, reduce overall healthcare costs and improve the quality of life for patients with chronic conditions.

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, continue, confident, outlook, guidance, project, goals, look forward, poised, designed, plan, return, focused, prospects or remain 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 Companys control that can make such statements untrue, including, but not limited to, the impacts of the COVID-19 pandemic on the Companys business, financial condition and results of operations; the course of the COVID-19 pandemic and its impact on general economic, business and market conditions; the Companys inability to execute on its plans to respond to the COVID-19 pandemic; the adequacy of the Companys liquidity to pursue its business objectives; the Companys ability to obtain reimbursement from third party payers for its products; loss or retirement of key executives; the Companys Chief Executive Officer transition, including disruptions and uncertainties related thereto, the potential impact on the Companys business and future strategic direction resulting from the transition to a new Chief Executive Officer and the Companys ability to retain other key members of senior management; 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 Companys products; technical problems with the Companys research and products; the Companys ability to expand its business through strategic acquisitions; the Companys ability to integrate acquisitions and related businesses; price increases for supplies and components; the effects of current and future U.S. and foreign trade policy and tariff actions; or 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 Companys filings with the SEC. Investors and security holders are urged to read these documents free of charge on the SECs website 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.

Use of Non-GAAP Financial Measures

This press release includes the non-GAAP financial measures of Adjusted EBITDA, non-GAAP revenue change, adjusted gross margin and Adjusted EBITDA margin, which differ from financial measures calculated in accordance with U.S. generally accepted accounting principles (GAAP).

Adjusted EBITDA in this release represents net income or loss, plus interest expense, net, or less interest income, net, less income tax benefit or plus income tax expense, plus depreciation and amortization, plus stock-based compensation expense, plus impairment charges and inventory write-offs and plus CEO transition costs. Adjusted EBITDA margin in this release represents net margin (net income or loss divided by total revenue), plus or less the same items as with Adjusted EBITDA, but on a percentage of revenue basis. Reconciliations of Adjusted EBITDA to net income (loss), and Adjusted EBITDA margin to net margin, are included in this press release.

Non-GAAP revenue change in this release represents third quarter and first nine months of 2020 revenue compared to third quarter and first nine months of 2019 revenue less operating lease revenue that was recognized in those 2019 periods in connection with the Companys adoption of ASC 842. This release also includes the Companys projected full year 2020 non-GAAP revenue change compared to full year 2019 revenue less operating lease revenue that was recognized in 2019 in connection with the Companys adoption of ASC 842. Reconciliations of historical and projected non-GAAP revenue change to historical and projected GAAP revenue change are included in this press release.

Adjusted gross margin in this release represents gross margin plus inventory write-offs. A reconciliation of adjusted gross margin to gross margin is included in this press release.

These non-GAAP financial measures are presented because the Company believes they are useful indicators of its operating performance. Management uses these measures principally as measures of the Companys operating performance and for planning purposes, including the preparation of the Companys annual operating budget and financial projections. The Company believes these measures are useful to investors as supplemental information and because they are frequently used by analysts, investors and other interested parties to evaluate companies in its industry. The Company also believes these non-GAAP financial measures are useful to its management and investors as a measure of comparative operating performance from period to period. In addition, Adjusted EBITDA is used as a performance metric in the Companys compensation program.

Adjusted EBITDA, non-GAAP revenue change, adjusted gross margin and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as an alternative to, or superior to, net income or loss, GAAP revenue change, gross margin or net margin, respectively, as measures of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP, and they should not be construed to imply that the Companys future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA is not intended to be a measure of free cash flow for managements 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 non-GAAP financial measures, 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 Companys presentation of non-GAAP financial measures 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 Companys GAAP results in addition to using non-GAAP financial measures on a supplemental basis. The Companys definition of these non-GAAP financial measures is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

Tactile Systems Technology, Inc.Condensed Consolidated Balance Sheets(Unaudited) September December 30, 31,(Inthousands,except share and per share data) 2020 2019Assets Current assets Cash and cash equivalents $ 42,204 $ 22,770Marketable securities ? 22,464Accounts receivable 36,033 33,444Net investment in leases 9,451 8,147Inventories 22,419 19,059Prepaid expenses and other current assets 4,003 2,451Total current assets 114,110 108,335Non-current assets Property and equipment, net 7,177 7,408Right of use operating lease assets 20,717 15,885Intangible assets, net 1,671 5,312Accounts receivable, non-current 7,100 4,184Deferred income taxes 5,010 8,970Other non-current assets 1,965 1,658Total non-current assets 43,640 43,417Total assets $ 157,750 $ 151,752Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 5,053 $ 3,843Accrued payroll and related taxes 10,864 10,098Accrued expenses 3,582 4,498Income taxes payable 1,459 632Operating lease liabilities 2,010 1,454Other current liabilities 2,673 903Total current liabilities 25,641 21,428Non-current liabilities Accrued warranty reserve, non-current 3,071 2,541Income taxes, non-current ? 54Operating lease liabilities, non-current 19,919 15,134Total non-current liabilities 22,990 17,729Total liabilities 48,631 39,157 Stockholders? equity: Preferred stock, $0.001 par value, 50,000,000shares authorized; none issued and outstanding as ? ?of September 30, 2020 and December 31, 2019Common stock, $0.001 par value, 300,000,000shares authorized; 19,424,679 shares issued andoutstanding as of September 30, 2020; 19,152,715 19 19shares issued and outstanding as of December 31,2019Additional paid-in capital 101,157 91,874Retained earnings 7,943 20,676Accumulated other comprehensive income ? 26Total stockholders? equity 109,119 112,595Total liabilities and stockholders? equity $ 157,750 $ 151,752

Tactile Systems Technology, Inc.Condensed Consolidated Statements of Operations(Unaudited) Three Months Ended Nine Months Ended September 30, September 30,(Inthousands,exceptshare 2020 2019 2020 2019and per share data)Revenue Sales revenue $ 42,573 $ 42,882 $ 109,714 $ 112,503 Rental revenue 6,519 6,730 18,173 19,926 Total revenue 49,092 49,612 127,887 132,429 Cost of revenue Cost of sales revenue 11,558 12,233 30,868 33,231 Cost of rental revenue 2,562 2,006 6,062 6,062 Total cost of revenue 14,120 14,239 36,930 39,293 Gross profit Gross profit - sales revenue 31,015 30,649 78,846 79,272 Gross profit - rental revenue 3,957 4,724 12,111 13,864 Gross profit 34,972 35,373 90,957 93,136 Operating expenses Sales and marketing 19,488 20,737 59,856 56,546 Research and development 1,102 1,467 3,891 3,982 Reimbursement, general and 12,588 9,972 37,830 28,177 administrativeTotal operating expenses 33,178 32,176 101,577 88,705 Income (loss) from operations 1,794 3,197 (10,620 ) 4,431 Other (expense) income (121 ) 166 181 498 Income (loss) before income 1,673 3,363 (10,439 ) 4,929 taxesIncome tax (benefit) expense (751 ) 932 2,294 (1,759 )Net income (loss) $ 2,424 $ 2,431 $ (12,733 ) $ 6,688 Net income (loss) per common shareBasic $ 0.12 $ 0.13 $ (0.66 ) $ 0.35 Diluted $ 0.12 $ 0.12 $ (0.66 ) $ 0.34 Weighted-average common sharesused to compute net income (loss) per common shareBasic 19,415,640 18,981,015 19,309,344 18,870,622 Diluted 19,747,365 19,641,853 19,309,344 19,630,721

Tactile Systems Technology, Inc.Condensed Consolidated Statements of Cash Flows(Unaudited) Nine Months Ended September30,(Inthousands) 2020 2019Cash flows from operating activities Net (loss) income $ (12,733 ) $ 6,688 Adjustments to reconcile net (loss) income tonet cash (used in) provided by operating activities:Depreciation and amortization 2,102 2,808 Net amortization of premiums and discounts on (91 ) (225 )securities available-for-saleDeferred income taxes 3,934 (31 )Stock-based compensation expense 8,288 7,387 Gain on other investments and maturities of 10 ? marketable securitiesImpairment losses 4,025 ? Changes in assets and liabilities: Accounts receivable (2,589 ) (3,349 )Net investment in leases (1,304 ) (7,628 )Inventories (3,538 ) (5,693 )Income taxes 773 (2,051 )Prepaid expenses and other assets (1,553 ) (418 )Right of use operating lease assets 509 107 Medicare accounts receivable, non-current (2,916 ) (1,141 )Accounts payable 938 979 Accrued payroll and related taxes 766 3,915 Accrued expenses and other liabilities 1,134 1,073 Net cash (used in) provided by operating (2,245 ) 2,421 activitiesCash flows from investing activities Proceeds from maturities of securities 22,500 16,000 available-for-salePurchases of securities available-for-sale ? (14,859 )Purchases of property and equipment (1,623 ) (4,276 )Intangible assets costs (163 ) (154 )Other investments (30 ) ? Net cash provided by (used in) investing 20,684 (3,289 )activitiesCash flows from financing activities Taxes paid for net share settlement of (1,592 ) (3,107 )restricted stock unitsProceeds from exercise of common stock 762 1,838 optionsProceeds from the issuance of common stock 1,825 1,852 from the employee stock purchase planNet cash provided by financing activities 995 583 Net increase (decrease) in cash and cash 19,434 (285 )equivalentsCash and cash equivalents ? beginning of 22,770 20,099 periodCash and cash equivalents ? end of period $ 42,204 $ 19,814 Supplemental cash flow disclosure Cash paid for taxes $ 475 $ 326 Capital expenditures incurred but not yet $ 41 $ 801 paid

The following table summarizes revenue by product for the three and nine months ended September 30, 2020 and 2019:

Tactile Systems Technology, Inc.Supplemental Financial Information(Unaudited) Three Months Ended Nine Months Ended September 30, Change September 30, Change(Dollars 2020 2019 $ % 2020 2019 $ %inthousands)Flexitouch System $ 42,908 $ 44,699 $ (1,791 ) (4 ) % $ 112,621 $ 119,767 $ (7,146 ) (6 ) %Other products^(1) 6,184 4,913 1,271 26 % 15,266 12,662 2,604 21 %Total Revenue $ 49,092 $ 49,612 $ (520 ) (1 ) % $ 127,887 $ 132,429 $ (4,542 ) (3 ) %

(1) The other products line primarily includes revenue from our Entre system. The Actitouch system and Airwear wrap contributed immaterial amounts of revenue for both of the three and nine months ended September 30, 2020 and 2019.

The following table contains a reconciliation of the revenue change rate to the non-GAAP revenue change rate for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:

Tactile Systems Technology, Inc.Reconciliation of Third Quarter and Year to Date Revenue Change Rates(Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (Dollarsin 2020 2019 % Change 2020 2019 % Changethousands)Total $ 49,092 $ 49,612 (1 ) % $ 127,887 $ 132,429 (3 ) %revenueLess:Operatinglease N/A (640 ) 1 % N/A (4,835 ) 3 %revenue^(1)Totalnon-GAAP $ 49,092 $ 48,972 0 % $ 127,887 $ 127,594 0 %revenue

(1) The operating lease revenue excluded from revenue for the three and nine months ended September 30, 2019, in the adjustment was related to rental agreements commencing prior to December 31, 2018, which were recognized as month-to-month operating leases for the three and nine months ended September 30, 2019, and did not contribute to the Companys revenue results in 2020.

The following table contains a reconciliation of net income (loss) to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019, as well as the dollar and percentage change between the comparable periods:

Tactile Systems Technology, Inc.Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA(Unaudited) Three Months Ended Increase Nine Months Ended Increase September 30, (Decrease) September 30, (Decrease)(Dollars 2020 2019 $ % 2020 2019 $ %inthousands)Net income $ 2,424 $ 2,431 $ (7 ) (0 ) % $ (12,733 ) $ 6,688 $ (19,421 ) N.M. %(loss)Interestexpense 19 (86 ) 105 (122 ) % (61 ) (262 ) 201 (77 ) %(income), netIncome taxexpense (751 ) 932 (1,683 ) (181 ) % 2,294 (1,759 ) 4,053 N.M. %(benefit)Depreciationand 652 830 (178 ) (21 ) % 2,102 2,808 (706 ) (25 ) %amortizationStock-based 3,164 2,330 834 36 % 8,288 7,387 901 12 %compensationImpairmentcharges and ? ? ? ? % 4,025 ? 4,025 ? %inventorywrite-offsExecutivetransition 499 ? 499 ? % 876 ? 876 ? %costsAdjusted $ 6,007 $ 6,437 $ (430 ) (7 ) % $ 4,791 $ 14,862 $ (10,071 ) (68 ) %EBITDA

The following table contains a reconciliation of net margin to Adjusted EBITDA margin for the three and nine months ended September 30, 2020 and 2019, as well as the basis point change between the comparable periods:

Tactile Systems Technology, Inc.Reconciliation of Net Margin to Adjusted EBITDA Margin(Unaudited) Three Months Ended Nine Months Ended September 30, Increase September 30, Increase(As apercentage 2020 2019 (Decrease) 2020 2019 (Decrease)of revenue)Net margin 4.9 % 4.9 % ? bps (10.0 ) % 5.1 % (1,510 ) bpsInterestexpense ? % (0.2 ) % 20 bps ? % (0.2 ) % 20 bps(income),netIncome taxexpense (1.5 ) % 1.9 % (340 ) bps 1.8 % (1.4 ) % 320 bps(benefit)Depreciationand 1.3 % 1.7 % (40 ) bps 1.6 % 2.1 % (50 ) bpsamortizationStock-based 6.5 % 4.7 % 180 bps 6.5 % 5.6 % 90 bpscompensationImpairmentcharges and ? % ? % ? bps 3.1 % ? % 310 bpsinventorywrite-offsExecutivetransition 1.0 % ? % 100 bps 0.7 % ? % 70 bpscostsAdjustedEBITDA 12.2 % 13.0 % (80 ) bps 3.7 % 11.2 % (750 ) bpsmargin

The following table contains a reconciliation of gross margin to adjusted gross margin for the three and nine months ended September 30, 2020 and 2019:

Tactile Systems Technology, Inc.Reconciliation of Gross Margin to Adjusted Gross Margin(Unaudited) Three Months Ended Nine Months Ended September 30, September 30,(Dollars 2020 2019 2020 2019inthousands)Gross profit, $ 34,972 $ 35,373 $ 90,957 $ 93,136 as reportedGross margin, 71.2 % 71.3 % 71.1 % 70.3 %as reportedReconcilingitem affecting gross margin:Inventory ? 428 write-offsNon-GAAPadjusted gross $ 34,972 $ 91,385 profitNon-GAAPadjusted gross 71.2 % 71.5 % margin

The following table contains a reconciliation of the projected revenue change rate to the projected non-GAAP revenue change rate:

Tactile Systems Technology, Inc.Reconciliation of Projected 2020 Revenue Change Rate to Projected 2020 Non-GAAPRevenue Change Rate(Unaudited) Projected Year Ended Year Ended Projected Change Rate December 31, 2020 December 31, % Change % Change 2019(Dollarsin Low High Reported Low Highthousands)Total $ 184,900 $ 186,900 $ 189,492 (2 ) % (1 ) %revenueLess:Operatinglease N/A N/A (5,018 ) 2 % 2 %revenue^(1)Totalnon-GAAP $ 184,900 $ 186,900 $ 184,474 0 % 1 %revenue

(1)The operating lease revenue excluded from 2019 revenue in the adjustment was related to rental agreements commencing prior to December 31, 2018, which were recognized as month-to-month operating leases in 2019 and do not contribute to the Companys revenue results in 2020.The 2020 expected revenue range reflects revenue growth of approximately 0% to 1% year-over-year on an operational basis.



Investor Inquiries:Mike Piccinino, CFAManaging DirectorWestwicke Partners443-213-0500investorrelations@tactilemedical.com