GlobeNewswire Inc | Aug 3, 2020 04:06PM EDT

August 03, 2020

Second Quarter Revenue Decreased 22% Year-Over-Year; Decreased 20% Year-Over-Year on an Operational Basis

First Half Revenue Decreased 5% Year-over-Year; Flat Year-over-Year on an Operational Basis

MINNEAPOLIS, Aug. 03, 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 second quarter and six months ended June 30, 2020.

Second Quarter 2020 Summary:

-- Total revenue decreased 22% year-over-year, to $35.1 million, compared to $45.2 million in second quarter 2019.- Excluding the contribution to second quarter 2019 revenue related to the Companys adoption of ASC 842, second quarter 2020 revenue reflects a year-over-year decrease of 20% on an operational basis.- Revenue for the second quarter of 2020 was negatively impacted by the COVID-19 pandemic.

-- Flexitouch revenue decreased 24% year-over-year, to $31.1 million, compared to $41.0 million in second quarter 2019. -- Operating loss of $8.0 million, compared to operating income of $3.0 million in second quarter 2019. -- Net loss of $13.9 million, compared to net income of $2.8 million in second quarter 2019. -- Operating loss and net loss for the second quarter of 2020 included a $4.0 million non-cash impairment charge to fully write-off the inventory and long-lived assets of the Airwear wrap in the quarter ended June 30, 2020. -- Adjusted EBITDA loss of $0.7 million, compared to Adjusted EBITDA of $6.3 million in second quarter 2019.

Second Quarter 2020 Highlights:

-- On April 6, 2020, the Company reported preliminary first quarter 2020 revenue results, withdrew its 2020 financial outlook and provided a COVID-19 business update. -- On May 21, 2020, the Company announced the appointment of Daniel L. Reuvers as President and Chief Executive Officer, effective June 8, 2020. Mr. Reuvers succeeds Gerald R. Mattys who retired, as previously disclosed. Mr. Reuvers also joined the Board of Directors, effective June 8, 2020, filling a seat created by Mr. Mattys retirement from the Board, effective that same day.

As expected, our second quarter operating and financial results were significantly impacted by the business disruption related to the COVID-19 pandemic, said Dan Reuvers, President and Chief Executive Officer of Tactile Medical. We were pleased to see improving trends as we moved through the second quarter and remain cautiously optimistic on the prospects for continued improvement in business trends in the second half of 2020. Specifically, after a challenging start to the quarter where we saw revenue for April and May combined decline 32% year-over-year, our business trends improved in the latter half of May and throughout June as healthcare facilities and clinics began to reopen, lift restrictions on access to their clinicians and resume patient consultations and treatments. Revenue for June reflected strong improvement over April and May but were still modestly lower than the prior year period. While we are encouraged by the improving trends over the second half of the quarter, we remain in the early stages of recovery.

Mr. Reuvers continued: As we look ahead to the remainder of 2020, we expect the COVID-19 pandemic to continue to impact our financial and operational results. While we are not currently able to predict the extent to which COVID-19 will impact our business over the near-term, we are well-capitalized to weather this crisis and remain confident in the attractive long-term opportunity that lies ahead of us as we work to expand our share of the $5B+ U.S. lymphedema market. With this in mind, we plan to continue investing for growth, focusing on the expansion of our commercial organization, as well as leveraging virtual education, selling and service opportunities which we expect to yield some enduring improvements to our long-term growth and profitability profile.

Second Quarter 2020 Financial Results

Total revenue in the second quarter of 2020 decreased $10.1 million, or 22%, to $35.1 million, compared to $45.2 million in the second quarter of 2019. Total revenue in the second quarter of 2020 decreased 20% on an operational basis, excluding the contribution to second quarter 2019 revenue related to the Companys adoption of ASC 842. The decrease in total revenue was attributable to a decrease of $9.8 million, or 24%, in sales and rentals of the Flexitouch system and a decrease of $0.2 million, or 6%, in sales and rentals of the Entre system in the quarter ended June 30, 2020. The COVID-19 pandemic continued to have an impact on second quarter revenue. The decrease in second quarter revenue was impacted by limited access to our clinician customers and their patients. Specifically, we continued to see healthcare facilities and clinics restricting access to their clinicians, reducing patient consultations, or closing temporarily due to COVID-19.

Gross profit in the second quarter of 2020 decreased $6.6 million, or 21%, to $24.9 million, compared to $31.5 million in the second quarter of 2019. Gross margin was 70.9% of revenue, compared to 69.7% of revenue in the second quarter of 2019. The increase in gross margin was primarily attributable to changes in sales and rental mix by payer compared to the prior year period. The current period gross margin was impacted by a $0.4 million non-cash write-off of our Airwear inventory. Excluding the impact of the non-cash inventory write-off in the period, non-GAAP adjusted gross margin was 72.2% of revenue in the second quarter of 2020, compared to GAAP gross margin of 69.7% of revenue in the second quarter of 2019.

Operating expenses in the second quarter of 2020 increased $4.4 million, or 16%, to $32.9 million, compared to $28.5 million in the second quarter of 2019. The increase in operating expenses in the second quarter of 2020 was primarily driven by reimbursement, general and administrative expenses, which increased $5.6 million, or 63%, to $14.4 million, compared to $8.8 million in the second quarter of 2019. The increase in reimbursement, general and administrative expenses was driven by a $3.6 million impairment charge related to the write-off of our Airwear wrap-related long-lived assets and by a $2.0 million increase in occupancy costs, depreciation expense, legal and professional fees and personnel-related compensation expense in our reimbursement operations, payer development and corporate functions.

The increase in reimbursement, general and administrative expenses was partially offset by lower sales and marketing expenses, which decreased $1.0 million, or 6%, to $17.4 million, compared to $18.4 million in the second quarter of 2019 and, to a lesser extent, by lower research and development expenses, which decreased $0.1 million, or 10%, to $1.1 million, compared to $1.2 million in the second quarter of 2019.

Loss from operations in the second quarter of 2020 was $8.0 million, compared to income from operations of $3.0 million in the second quarter of 2019. Excluding the $4.0 million non-cash Airwear inventory write-off and impairment charge in the second quarter of 2020, non-GAAP adjusted loss from operations was $4.0 million, compared to income from operations of $3.0 million in the second quarter of 2019.

Income tax expense in the second quarter of 2020 increased $5.5 million to $5.9 million, compared to $0.4 million in the second quarter of 2019. The increase in income tax expense was primarily due to changes in our effective tax rate, which were attributable to a change in projected taxable income, including proportionately lower benefits for stock-based compensation, as compared to the same period last year.

Net loss in the second quarter of 2020 was $13.9 million, or $(0.72) per diluted share, compared to net income of $2.8 million, or $0.14 per diluted share, in the second quarter of 2019. Weighted average shares used to compute diluted net loss/income per share were 19.3 million and 19.6 million in the second quarters of 2020 and 2019, respectively.

Adjusted EBITDA loss was $0.7 million in the second quarter of 2020, compared to Adjusted EBITDA of $6.3 million in the second quarter of 2019.

First Six Months 2020 Financial Results:

Total revenue for the six months endedJune 30, 2020decreased$4.0 million, or 5%, to$78.8 million, compared to$82.8 millionfor the six months endedJune 30, 2019. Total revenue for the six months ended June 30, 2020 increased 0.2% on an operational basis, excluding the contribution to revenue in the six months ended June 30, 2019 related to the Companys adoption of ASC 842. The decrease in revenue was driven by a decrease of approximately$5.4 million, or 7%, in sales and rentals of the Flexitouch system, offset partially by an increase of $1.3 million, or 17%, in sales and rentals of the Entre system for the six months endedJune 30, 2020. Revenue in the first two months of 2020 was ahead of our expectations. Beginning in March 2020 and continuing throughout the second quarter, revenue was impacted by the COVID-19 pandemic, which disrupted 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 six months endedJune 30, 2020was$15.2 million, or $(0.79) per diluted share, compared to net income of $4.3 million, or $0.22 per diluted share,for the six months endedJune 30, 2019. Weighted average shares used to compute diluted net loss/income per share were 19.3 million and 19.6 million for the six months endedJune 30, 2020and 2019, respectively.

Adjusted EBITDA loss was $1.2 million in the six months ended June 30, 2020, compared to adjusted EBITDA of $8.4 million in the six months ended June 30, 2019.

Cash Position

At June 30, 2020, cash, cash equivalents and marketable securities were $37.4 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 June 30, 2020.

2020 Financial Outlook

On April 6, 2020, the Company withdrew its full year 2020 financial outlook due to the rapidly evolving environment and continued uncertainties associated with COVID-19. Given the continued uncertainty surrounding the magnitude and duration of the continuing impacts of COVID-19, the Company cannot reliably estimate the future impact of the pandemic on its operations and financial results at this time.

Conference Call

Management will host a conference call at 5:00 p.m. Eastern Time on August 3, 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 13705943. 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 13705943. 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 operating loss, 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 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. A reconciliation of Adjusted EBITDA to net (loss) income is included in this press release.

Non-GAAP revenue change in this release represents second quarter and first six months of 2020 revenue compared to second quarter and first six months of 2019 revenue less operating lease revenue that was recognized in those 2019 periods in connection with the Companys adoption of ASC 842. A reconciliation of non-GAAP revenue change to GAAP revenue change is 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.

Adjusted operating loss in this release represents loss from operations plus impairment charges and inventory write-offs. A reconciliation of adjusted operating loss to loss from operations 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 operating loss 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 loss from operations, 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) June 30, December 31,(Inthousands,except share and per share data) 2020 2019Assets Current assets Cash and cash equivalents $ 31,341 $ 22,770Marketable securities 6,013 22,464Accounts receivable 30,552 33,444Net investment in leases 8,689 8,147Inventories 24,826 19,059Income taxes receivable 960 ?Prepaid expenses and other current assets 2,195 2,451Total current assets 104,576 108,335Non-current assets Property and equipment, net 7,009 7,408Right of use operating lease assets 15,126 15,885Intangible assets, net 1,674 5,312Accounts receivable, non-current 5,881 4,184Deferred income taxes 4,745 8,970Other non-current assets 2,519 1,658Total non-current assets 36,954 43,417Total assets $ 141,530 $ 151,752Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 5,686 $ 3,843Accrued payroll and related taxes 6,971 10,098Accrued expenses 3,743 4,498Income taxes payable ? 632Operating lease liabilities 1,508 1,454Other current liabilities 2,578 903Total current liabilities 20,486 21,428Non-current liabilities Accrued warranty reserve, non-current 2,861 2,541Income taxes, non-current ? 54Operating lease liabilities, non-current 14,798 15,134Total non-current liabilities 17,659 17,729Total liabilities 38,145 39,157 Stockholders? equity: Preferred stock, $0.001 par value, 50,000,000 sharesauthorized; none issued and outstanding as of June 30, ? ?2020 and December 31, 2019Common stock, $0.001 par value, 300,000,000 sharesauthorized; 19,411,404 shares issued and outstanding as 19 19of June 30, 2020; 19,152,715 shares issued andoutstanding as of December 31, 2019Additional paid-in capital 97,818 91,874Retained earnings 5,519 20,676Accumulated other comprehensive income 29 26Total stockholders? equity 103,385 112,595Total liabilities and stockholders? equity $ 141,530 $ 151,752

Tactile Systems Technology, Inc.Condensed Consolidated Statements of Operations(Unaudited) Three Months Ended Six Months Ended June 30, June 30,(Inthousands,exceptshare 2020 2019 2020 2019 and per share data)Revenue Sales revenue $ 29,518 $ 38,790 $ 67,141 $ 69,621 Rental revenue 5,602 6,410 11,654 13,196 Total revenue 35,120 45,200 78,795 82,817 Cost of revenue Cost of sales revenue 8,388 11,586 19,310 20,998 Cost of rental revenue 1,820 2,109 3,500 4,056 Total cost of revenue 10,208 13,695 22,810 25,054 Gross profit Gross profit - sales revenue 21,130 27,204 47,831 48,623 Gross profit - rental revenue 3,782 4,301 8,154 9,140 Gross profit 24,912 31,505 55,985 57,763 Operating expenses Sales and marketing 17,398 18,418 40,368 35,809 Research and development 1,105 1,234 2,789 2,515 Reimbursement, general and 14,372 8,811 25,242 18,205 administrativeTotal operating expenses 32,875 28,463 68,399 56,529 (Loss) income from operations (7,963 ) 3,042 (12,414 ) 1,234 Other income 36 165 302 332 (Loss) income before income (7,927 ) 3,207 (12,112 ) 1,566 taxesIncome tax expense (benefit) 5,923 422 3,045 (2,691 )Net (loss) income $ (13,850 ) $ 2,785 $ (15,157 ) $ 4,257 Net (loss) income per common shareBasic $ (0.72 ) $ 0.15 $ (0.79 ) $ 0.23 Diluted $ (0.72 ) $ 0.14 $ (0.79 ) $ 0.22 Weighted-average common sharesused to compute net (loss) income per common shareBasic 19,337,644 18,881,526 19,255,612 18,814,511 Diluted 19,337,644 19,591,129 19,255,612 19,619,213

Tactile Systems Technology, Inc.Condensed Consolidated Statements of Cash Flows(Unaudited) Six Months Ended June30,(Inthousands) 2020 2019 Cash flows from operating activities Net (loss) income $ (15,157 ) $ 4,257 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:Depreciation and amortization 1,450 1,978 Net amortization of premiums and discounts on (89 ) (145 )securities available-for-saleDeferred income taxes 4,282 (1,552 )Stock-based compensation expense 5,124 5,057 Gain on maturities of marketable securities 40 ? Impairment losses 4,025 ? Changes in assets and liabilities: Accounts receivable 2,892 (426 )Net investment in leases (542 ) (5,869 )Inventories (5,945 ) (1,976 )Income taxes (1,646 ) (1,458 )Prepaid expenses and other assets (317 ) 15 Right of use operating lease assets 135 (12 )Medicare accounts receivable, non-current (1,697 ) (725 )Accounts payable 1,602 1,637 Accrued payroll and related taxes (3,127 ) (415 )Accrued expenses and other liabilities 990 485 Net cash (used in) provided by operating activities (7,980 ) 851 Cash flows from investing activities Proceeds from maturities of securities 16,500 11,500 available-for-salePurchases of securities available-for-sale ? (5,929 )Purchases of property and equipment (660 ) (1,760 )Intangible assets costs (109 ) (97 )Net cash provided by investing activities 15,731 3,714 Cash flows from financing activities Taxes paid for net share settlement of restricted (1,553 ) (3,018 )stock unitsProceeds from exercise of common stock options 548 1,542 Proceeds from the issuance of common stock from the 1,825 1,852 employee stock purchase planNet cash provided by financing activities 820 376 Net increase in cash and cash equivalents 8,571 4,941 Cash and cash equivalents ? beginning of period 22,770 20,099 Cash and cash equivalents ? end of period $ 31,341 $ 25,040 Supplemental cash flow disclosure Cash paid for taxes $ 475 $ 322 Capital expenditures incurred but not yet paid $ 241 $ 136

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

Tactile Systems Technology, Inc.Supplemental Financial Information(Unaudited) Three Months Ended Six Months Ended June 30, Change June 30, Change(Dollars 2020 2019 $ % 2020 2019 $ %inthousands)Flexitouch System $ 31,127 $ 40,959 $ ) ) $ 69,713 $ 75,068 $ ) (7 )% (9,832 (24 % (5,355Other products^(1) 3,993 4,241 (248 ) (6 ) 9,082 7,749 1,333 17 % %Total Revenue $ 35,120 $ 45,200 $ ) ) $ 78,795 $ 82,817 $ ) (5 )% (10,080 (22 % (4,022

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

Tactile Systems Technology, Inc.Reconciliation of Second Quarter and Year to Date Revenue Change Rates(Unaudited) Three Months Ended Six Months Ended June 30, June 30, (Dollars %in 2020 2019 Change 2020 2019 % Changethousands)Total $ 35,120 $ 45,200 )% $ 78,795 $ 82,817 )%revenue (22 (5Less:Operatinglease N/A (1,374 ) 2 % N/A (4,195 ) 5 %revenue^(1)Total non-GAAP $ 35,120 $ 43,826 (20 )% $ 78,795 $ 78,622 0 %revenue

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

The following table contains a reconciliation of net (loss) income to Adjusted EBITDA:

Tactile Systems Technology, Inc.Reconciliation of Net (Loss) Income to Non-GAAP Adjusted EBITDA(Unaudited) Three Months Ended Increase Six Months Ended Increase June 30, (Decrease) June 30, (Decrease)(Dollars 2020 2019 $ % 2020 2019 $ %inthousands)Net (loss) $ (13,850 ) $ 2,785 $ (16,635 ) N.M.% $ (15,157 ) $ 4,257 $ (19,414 ) N.M.%incomeInterest (25 ) (78 ) 53 (68)% (80 ) (176 ) 96 (55)income, net %Income taxexpense 5,923 422 5,501 N.M.% 3,045 (2,691 ) 5,736 N.M.%(benefit)Depreciation (27)and 720 914 (194 ) (21)% 1,450 1,978 (528 ) %amortizationStock-based 2,396 2,274 122 5% 5,124 5,057 67 1%compensationImpairmentcharges and 4,025 ? 4,025 ?% 4,025 ? 4,025 ?%inventorywrite-offsCEOtransition 65 ? 65 ?% 377 ? 377 ?%costsAdjusted $ (746 ) $ 6,317 $ (7,063 ) (112)% $ (1,216 ) $ 8,425 $ (9,641 ) (114)EBITDA %

The following table contains a reconciliation of net margin to Adjusted EBITDA margin:

Three Months Ended Six Months Ended June 30, Increase June 30, Increase(As apercentage of 2020 2019 (Decrease) 2020 2019 (Decrease)revenue)Net margin (39.4 )% 6.2 % (4,560 ) (19.2 ) 5.1 % (2,430 ) bps % bpsInterest (0.1 )% (0.2 )% 10 bps (0.1 ) (0.2 ) 10 bpsincome, net % %Income tax 16.9 % 1.0 % 1,590 bps 3.9 % (3.2 ) 710 bpsbenefit %Depreciation )and 2.1 % 2.0 % 10 bps 1.8 % 2.4 % (60 bpsamortizationStock-based 6.8 % 5.0 % 180 bps 6.5 % 6.1 % 40 bpscompensationImpairmentcharges and 11.4 % ? % 1,140 bps 5.1 % ? % 510 bpsinventorywrite-offsCEOtransition 0.2 % ? % 20 bps 0.5 % ? % 50 bpscostsAdjusted (2.1 )% 14.0 % (1,610 ) (1.5 ) 10.2 % (1,170 )EBITDA margin bps % bps

The following table contains a reconciliation of gross margin to adjusted gross margin:

Three Months Ended Six Months Ended June 30, June 30,(Dollars 2020 2019 2020 2019inthousands)Gross profit, $ 24,912 $ 31,505 $ 55,985 $ 57,763 as reportedGross margin, 70.9 % 69.7 % 71.1 % 69.8 %as reportedReconcilingitem affecting gross margin:Inventory 428 428 write-offsNon-GAAPadjusted gross $ 25,340 $ 56,413 profitNon-GAAPadjusted gross 72.2 % 71.6 % margin

The following table contains a reconciliation of operating (loss) income to adjusted operating (loss) income:

Tactile Systems Technology, Inc.Reconciliation of (Loss) Income from Operations to Non-GAAP Adjusted Operating(Loss) Income(Unaudited) Three Months Ended Six Months Ended June 30, June 30,(Dollars inthousands) 2020 2019 2020 2019(Loss) income from operations $ (7,963 ) $ 3,042 $ (12,414 ) $ 1,234Impairment charges and inventory 4,025 ? 4,025 ?write-offsNon-GAAP adjusted operating (loss) $ (3,938 ) $ 3,042 $ (8,389 ) $ 1,234income

The following table contains a reconciliation of (loss) income from operations margin to adjusted operating (loss) income margin:

Three Months Six Months Ended Ended June 30, June 30,(As a percentage of revenue) 2020 2019 2020 2019(Loss) income from operations margin (22.7 ) 6.7 % (15.8 ) 1.5 % % %Impairment charges and inventory 11.5 % - % 11.5 % - %write-offsNon-GAAP adjusted operating (loss) (11.2 ) 6.7 % (4.3 ) 1.5 %income margin % %



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