Tactile Systems Technology (NASDAQ:TCMD) grew third-quarter revenue 7% to $91.9 million, but net income fell to $7.2 million from $8.2 million. Shares dropped about 8% in after-hours trading. Its core lymphedema business is still growing at a double-digit pace. The problem is that spending is growing just as fast, so those sales gains aren't reaching profit. The airway clearance slump looks like a timing issue. Tactile launched a new version of its AffloVest vest in the second quarter, and the release blames the drop on medical equipment suppliers working through inventory during the switch. When dealers run down old stock before ordering a new model, sales dip even if patient demand holds. The release doesn't say when orders will normalize. Spending is the bigger issue. Gross margin improved on lower manufacturing costs and better product mix, yet operating income fell to $9.6 million from $11.0 million. Sales and marketing, plus the reimbursement and administrative line, both grew faster than revenue. Tactile is hiring and spending ahead of growth, which only pays off if sales speed up.
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