On Tuesday, Tactile Systems Technology (NASDAQ:TCMD) experienced a shift in market sentiment as Oppenheimer adjusted its outlook on the medical device company. The firm downgraded the stock from Outperform to Perform, citing a combination of recent financial results and ongoing legal uncertainties.
Tactile Systems reported third-quarter revenue and earnings per share (EPS) of $73.1 million and $0.21, respectively. These figures fell short of Oppenheimer's expectations of $76.1 million in revenue and an EPS of $0.17, as well as the consensus estimate of $76.0 million in revenue and $0.19 EPS.
While the company's core lymphedema product line showed a year-over-year increase of 4.4% to $65.3 million, and its AffloVest product grew by 10% to $7.8 million, there were mixed results across different revenue streams. Commercial revenues increased by 21% to $47.6 million, and Veterans Affairs (VA) sales grew by 16% to $8.4 million. However, Medicare sales saw a significant decline of 42% to $9.3 million.
The company's sales force grew by 2% year-over-year to 270 representatives, with approximately 48% of in-home product demonstrations being conducted by patient-trainers. This figure is approaching the company's end-of-year goal of 50%. Despite these efforts, Tactile Systems revised its full-year 2024 revenue guidance downward to a range of $292-295 million from the previous forecast of $293-298 million, which is in line with Oppenheimer's and the consensus estimate of $295 million.
Adding to the concerns, two qui tam actions alleging violations of the Federal False Claims Act and Anti-Kickback Statute, filed in 2021, were unsealed. The details of these allegations have not been disclosed, but the analyst noted that a previous qui tam had a substantial impact on the company's growth. The uncertainty surrounding these legal issues has led Oppenheimer to adopt a cautious "wait and see" stance, removing the previous $20 price target and downgrading the stock to Perform.
Oppenheimer has also adjusted its estimates for Tactile Systems based on the third-quarter results and the updated fiscal year 2024 guidance. The market will be closely monitoring how the company navigates these challenges in the coming periods.
In other recent news, Tactile Systems Technology reported a 5% increase in third-quarter revenue, totaling $73.1 million, reflecting growth in both its lymphedema and Airway Clearance segments. However, the revenue fell short of expectations set by BTIG and the Street, leading to BTIG downgrading the company from Buy to Neutral. The company's Medicare business saw a significant year-over-year decline of about 41.5%, prompting Tactile Systems to lower its full-year 2024 guidance for the second time this year to revenues between $292 million and $295 million.
Despite these challenges, Tactile Medical (TASE:PMCN) announced a $30 million share repurchase program, signaling confidence in its growth trajectory. However, the company's net income and non-GAAP net income saw declines, while income tax expense rose significantly due to a prior year adjustment. The company is modernizing workflows and enhancing technology tools to address challenges in sales rep productivity and anticipates improved sales following the shift to National Coverage Determination policy.
BTIG expressed concerns that the current challenges may continue into the next few quarters, despite Tactile Systems' efforts to address the issues. The firm noted that with fiscal year 2025 revenue expectations of around 12% year-over-year growth compared to the roughly 7% Tactile Systems is on track for in fiscal year 2024, there are insufficient drivers to reaccelerate growth in the first half of 2025. Lastly, the launch of the new Nimbl device and strong clinical trial results for Flexitouch are expected to contribute to future growth.
InvestingPro Insights
Despite the recent downgrade by Oppenheimer, InvestingPro data offers some interesting perspectives on Tactile Systems Technology (NASDAQ:TCMD). The company's market cap stands at $362.14 million, with a P/E ratio of 12.32 based on the last twelve months as of Q2 2024. This relatively low P/E ratio could suggest that the stock is undervalued, especially considering the company's revenue growth of 5.71% over the same period.
An InvestingPro Tip highlights that TCMD has shown a strong return over the last three months, which is corroborated by the data showing a 30.94% price total return over that period. This positive momentum contrasts with the recent downgrade and could indicate that the market has been reacting favorably to other aspects of the company's performance.
Another InvestingPro Tip notes that TCMD operates with a moderate level of debt, which could be seen as a positive factor in light of the current economic uncertainties and legal challenges mentioned in the article. This financial stability might provide the company with some flexibility as it navigates through its current challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for TCMD, providing a deeper insight into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.