What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-03 compared with 2020-05-04 · 135 added, 74 removed, 137 unchanged (60% of the section changed)

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Subject to that, we are focusing our efforts on attempting to continue our business operations in this unprecedented environment.

Part of our strategy includes changing many of our processes and practices in an effort to help mitigate the impact of COVID-19 on our business so that we can support our clinicians and safely make our at-home therapies available to patients These include, but are not limited to:

● Adjusting work and operations to keep employees safe while continuing to serve our clinicians and patients.

As an essential business under federal guidelines, we continue to manufacture product and we have implemented multiple, smaller rotational shifts and other best practices to help protect the health and safety of our workforce.

● Implementing remote and flexible work arrangements for employees wherever possible, including real-time, online training of our new sales representatives.

● Initiating employee travel and contact restrictions to reduce exposure.

Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to our employees, clinicians and patients needs.

These changes to our business include, but are not limited to:

● Initially, we modified our operations with the primary focus on keeping our employees safe while continuing to serve our clinicians and patients.

As an essential business under federal guidelines, we continued to manufacture product and implemented multiple, smaller rotational shifts and other best practices to help protect the health and safety of our workforce.

More recently, we have migrated closer to our pre-COVID work shifts, however we have implemented more stringent safety measures including mandatory use of face masks, social distancing and temperature checks for our employees.

● We have continued to incorporate remote and flexible work arrangements for employees whenever possible, including real-time, online training of our new sales representatives.

● Continuing employee travel and contact restrictions to reduce exposure.

● Collaborating with payers to modify coverage requirements by serving patients virtually.

● Postponing large medical education programs and conducting virtual meetings whenever possible, including virtual patient demonstrations and trainings.

● In concert with COVID-19 social distancing requirements and recommendations, we moved to a “no contact” virtual patient training model.

This new model substantially reduced the need for in-person contact and visits to patients’ homes and clinics in order to protect the health and limit the exposure of both our trainers and patients.

Accordingly in the second quarter of 2020, we inactivated our independent healthcare practitioners, who acted as at-home trainers to educate patients on the proper use of our systems, in order to allow these individuals to have access to specific COVID related financial relief.

● We continue to transition large, in-person medical education programs in favor of conducting virtual meetings whenever possible.

● When in-person visits are required, we are supporting clinicians and patients by using rigorous infection control practices.

We cannot assure you that these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business.

We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.

Additional information related to the COVID-19 pandemic is included in the MD&A sections below.

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Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases.

Our products are the Flexitouch system, Entre system and Airwear wrap.

Our current products are the Flexitouch system and Entre system.

A predecessor to our Flexitouch system received 510(k) clearance from the U.S.

Food and Drug Administration (the “FDA”) in July 2002, and we introduced the system to address the many limitations of self-administered home-based manual lymphatic drainage therapy.

We began selling our more advanced Flexitouch system after receiving 510(k)

clearance from the FDA in October 2006.

We began selling our more advanced Flexitouch system after receiving 510(k) clearance from the FDA in October 2006.

In September 2016, we received 510(k) clearance from the FDA for the Flexitouch system in treating lymphedema of the head and neck.

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We derive the vast majority of our revenue from our Flexitouch system.

Sales and rentals of our Flexitouch system represented 88% and 91% of our revenue in the three months ended March 31, 2020 and 2019, respectively.

Sales and rentals of our Flexitouch system represented 88% and 91% of our revenue in the six months ended June 30, 2020 and 2019, respectively.

We introduced our Entre system in the United States in February 2013.

The Entre system is sold or rented to patients who need a simple pump or who do not yet qualify for insurance reimbursement for an advanced compression device such as our Flexitouch system.

For the three months ended March 31, 2020 and 2019, sales and rentals of our Entre system represented 12% and 9% of our revenue, respectively.

In October 2018, we licensed the intellectual property rights related to the Airwear Gradient Compression Wrap, or the Airwear wrap, in the United States and Canada, for use in all medical applications, including but not limited to swelling/edema and ulcers (including lymphedema and chronic venous insufficiency conditions), but excluding the use of the intellectual property in the field of prophylaxis for deep vein thrombosis.

The Airwear wrap is indicated for the management of venous insufficiency, venous hypertension, venous ulcerations and lymphedema.

We began selling the Airwear wrap in a limited market in the fourth quarter of 2019.

Our Airwear wrap did not represent a material revenue stream in the first quarter of 2020.

For the six months ended June 30, 2020 and 2019, sales and rentals of our Entre system represented 12% and 9% of our revenue, respectively.

In October 2018, we licensed, from Sun Scientific, Inc., the intellectual property rights related to the Airwear Gradient Compression Wrap, or the Airwear wrap, in the United States and Canada, for use in all medical applications, including but not limited to swelling/edema and ulcers (including lymphedema and chronic venous insufficiency conditions), but excluding the use of the intellectual property in the field of prophylaxis for deep vein thrombosis.

In the second quarter of 2020, we reevaluated the Airwear wrap go-to market plan, and determined to focus our strategy on more advanced solutions within our core, long-standing Flexitouch and Entre franchises.

Accordingly, we made the strategic decision to discontinue the Airwear wrap in the second quarter of 2020.

Due to the planned discontinuation of the product line, we recorded 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.

See Note 3 - “Summary of Significant Accounting Policies” to the consolidated financial statements in this report for more information regarding this impairment charge and discontinuation.

Further, effective July 31, 2020, Sun Scientific, Inc.

terminated the license agreement with us related to the Airwear wrap.

To support the growth of our business, we invest heavily in our commercial infrastructure, consisting of our direct sales force, home training materials, contracted at-home trainers, reimbursement capabilities and clinical expertise.

We market our products in the United States using a direct-to-patient and -provider model.

Our direct salesforce has grown to a team of over 250 employees as of March 31, 2020, compared to over 210 employees as of March 31, 2019.

Our direct salesforce has grown to a team of 250 employees as of June 30, 2020, compared to over 215 employees as of June 30, 2019.

This model allows us to directly approach patients and clinicians, whereby we disintermediate the traditional durable medical equipment channel, allowing us to capture both the manufacturer and distributor margins.

We also utilize over 560 licensed, independent healthcare practitioners as at-home trainers who educate patients on the proper use of our systems.

As it relates to the impact of COVID-19 on our first quarter commercial processes, a certain number of healthcare facilities and clinics restricted access to their clinicians, reduced patient consultations and treatments, or closed temporarily due to the pandemic.

In concert with COVID-19 social distancing requirements, we moved to a “no contact” virtual patient training model.

This new model substantially reduced the need for in-person contact and visits to patients’ homes and clinics.

Accordingly in the second quarter of 2020, we inactivated our independent healthcare practitioners, who acted as at-home trainers to educate patients on the proper use of our systems.

As it relates to the impact of COVID-19 on our second quarter commercial processes, we continue to see a certain number of healthcare facilities and clinics with restricted access to their clinicians, reduced patient

consultations and treatments, or being closed temporarily due to the pandemic.

Towards the latter half of the quarter, we began to see some of the restrictions loosen, in line with the applicable governmental regulations.

As most of our clinician customers practice outside of a hospital, we can interact with clinicians and patients on a virtual basis, using video conferencing and other non-direct means.

We expect these virtual interactions with clinicians and patients to continue into the future until the pandemic subsides, and perhaps as a best practice in the future.

To that end, we have continued to expand our commercial organization throughout the first quarter of 2020 by adding to our direct sales force.

To that end, we will continue to work towards expanding our commercial organization throughout the second half of 2020 by adding to our direct sales force.

We invest substantial resources in our Reimbursement Department to improve operational efficiencies and enhance individual payer expertise, while continuing our strategic focus of payer development.

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We have seen increasing flexibility in coverage criteria with select payers in which they will now allow the use of virtual patient interactions in place of the previously required in-person interactions.

However, the extent to which these changes will impact our business in the future is not determinable at this time.

However, as these circumstances are ever-changing, the extent to which these changes will impact our business in the future is not determinable at this time.

We also have a clinical team, consisting of a scientific advisory board, in-house therapists and nurses, and a medical director (part-time), that serves as a resource to clinicians and patients and guides the development of clinical evidence in support of our products.

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However, we cannot assure you that our supply chain will not be materially impacted in the future.

For the three months ended March 31, 2020, we generated revenue of $43.7 million and had a net loss of $1.3 million, compared to revenue of $37.6 million and net income of $1.5 million for the three months ended March 31, 2019.

For the three months ended June 30, 2020, we generated revenue of $35.1 million and had a net loss of $13.9 million, compared to revenue of $45.2 million and net income of $2.8 million for the three months ended June 30, 2019.

For the six months ended June 30, 2020, we generated revenue of $78.8 million and had a net loss of $15.2 million, compared to revenue of $82.8 million and net income of $4.3 million for the six months ended June 30, 2019.

Our primary sources of capital to date have been from operating income, private placements of our capital stock and capital raised in our initial public offering, which closed on August 2, 2016.

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

The following table presents our results of operations for the periods indicated:

Comparison of the Three and Six Months Ended June 30, 2020 and 2019

The following tables present our results of operations for the periods indicated:

Three Months Ended

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Total operating expenses

Loss from operations

Loss before income taxes

Income tax benefit

(Loss) income from operations

(Loss) income before income taxes

Income tax expense

Net (loss) income

“N.M.” Not Meaningful

Revenue increased $6.1 million, or 16%, to $43.7 million in the three months ended March 31, 2020, compared to $37.6 million in the three months ended March 31, 2019.

Our revenue in the first two months of 2020 was ahead of our expectations.

Beginning in March 2020, our revenue was negatively impacted by the COVID-19 pandemic, which disrupted our ability to access our clinician customers and their patients.

Six Months Ended

(In thousands)

Condensed Consolidated Statement

of Operations Data:

Sales revenue

Rental revenue

Total revenue

Cost of revenue

Cost of sales revenue

Cost of rental revenue

Total cost of revenue

Gross profit - sales revenue

Gross profit - rental revenue

Operating expenses

Sales and marketing

Research and development

Reimbursement, general and administrative

Total operating expenses

(Loss) income from operations

(Loss) income before income taxes

Income tax expense (benefit)

Net (loss) income

“N.M.” Not Meaningful

Revenue decreased $10.1 million, or 22%, to $35.1 million in the three months ended June 30, 2020, compared to $45.2 million in the three months ended June 30, 2019.

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 our limited ability to access 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.

Revenue decreased $4.0 million, or 5%, to $78.8 million in the six months ended June 30, 2020, compared to $82.8 million in the six months ended June 30, 2019, which decrease was primarily attributable to a decrease of approximately $5.4 million, or 7%, in sales and rentals of our 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 ended June 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 .

The growth in revenue in the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily attributable to an increase of approximately $4.5 million, or 13%, in sales and rentals of our Flexitouch system.

The increase in Flexitouch system sales and rentals was largely driven by expansion of our salesforce, increased physician and patient awareness of the treatment options for lymphedema, the broad in-network coverage with national and regional insurance payers and growth in the Medicare channel.

The growth in revenue was also attributable to an increase of approximately $1.6 million, or 45%, in sales and rentals of our Entre system in the three months ended March 31, 2020.

The increase in Entre system sales and rentals was largely driven by the continued benefit from managing orders in-house and broad in-network coverage with national and regional insurance payers.

Revenue from the Veterans Administration represented 16% and 20% of total revenue in the three months ended March 31, 2020 and 2019, respectively.

Revenue from Medicare represented 15% and 11% of total revenue in the three months ended March 31, 2020 and 2019, respectively.

The following tables summarize our revenue by product for the three months ended March 31, 2020 and 2019, both in dollars and percentage of total revenue:

Revenue from the Veterans Administration represented 12% and 18% of total revenue in the three months ended June 30, 2020 and 2019, respectively.

Revenue from the Veterans Administration represented 14% and 19% of total revenue in the six months ended June 30, 2020 and 2019, respectively.

Revenue from Medicare represented 15% and 11% of total revenue in the three months ended June 30, 2020 and 2019, respectively.

Revenue from Medicare represented 15% and 11% of total revenue in the six months ended June 30, 2020 and 2019, respectively.

The following tables summarize our revenue by product for the three and six months ended June 30, 2020 and 2019, both in dollars and percentage of total revenue:

Three Months Ended

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(1) The “other products” line primarily includes revenue from our Entre system.

The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for both of the three months ended March 31, 2020 and 2019.

The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for each of the three months ended June 30, 2020 and 2019.

Six Months Ended

(In thousands)

Flexitouch system

Other products (1)

Percentage of total revenues

Flexitouch system

Other products (1)

(1) The “other products” line primarily includes revenue from our Entre system.

The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for each of the six months ended June 30, 2020 and 2019.

Our business is affected by seasonality.

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Cost of Revenue and Gross Margin

Cost of revenue increased $1.2 million, or 11%, to $12.6 million in the three months ended March 31, 2020, compared to $11.4 million in the three months ended March 31, 2019.

The increase in cost of revenue

was primarily attributable to an increase in the number of Flexitouch and Entre systems sold and rented, as well as additional manufacturing headcount to support increased volumes.

Sales gross margin was 71% of sales revenue in the three months ended March 31, 2020, compared to 70% of sales revenue in the three months ended March 31, 2019.

Rental gross margin was 72% of rental revenue in the three months ended March 31, 2020, compared to 71% of rental revenue in the three months ended March 31, 2019.

The total gross margin rate increase to 71% for the three months ended March 31, 2020, compared to 70% for the three months ended March 31, 2019, was primarily attributable to the composition of sales and rental mix by payer.

Cost of revenue decreased $3.5 million, or 25%, to $10.2 million in the three months ended June 30, 2020, compared to $13.7 million in the three months ended June 30, 2019.

Cost of revenue decreased $2.2 million, or 9%, to $22.8 million in the six months ended June 30, 2020, compared to $25.1 million in the six months ended June 30, 2019.

The decrease in cost of revenue in both periods was primarily attributable to a decrease in the number of Flexitouch systems sold and rented, slightly offset by, in the six month period, an increase in other products sales and rentals, and in both periods, the $0.4 million inventory impairment charge related to discontinuing the Airwear wrap product line.

The total gross margin rate increase to 71% of sales in each of the three and six months ended June 30, 2020, compared to 70% in each of the three and six months ended June 30, 2019, were primarily attributable to the composition of sales and rental mix by payer.

Sales and Marketing Expenses

Sales and marketing expenses increased $5.6 million, or 32%, to $23.0 million in the three months ended March 31, 2020, compared to $17.4 million in the three months ended March 31, 2019.

The increase was primarily attributable to our continued investment in our field sales team, patient training and marketing initiatives to increase clinician awareness, resulting in an increase of $3.7 million in personnel-related compensation expense, including $0.1 million of incremental stock-based compensation expense, as well as an increase of $1.9 million in associated expenses.

Sales and marketing expenses decreased $1.0 million, or 6%, to $17.4 million in the three months ended June 30, 2020, compared to $18.4 million in the three months ended June 30, 2019.

The decrease was primarily attributable to a $1.7 million reduction of our external patient training expense as a result of pivoting to more virtual patient trainings, $0.8 million of reduced travel and entertainment expense due to decreased travel and a $0.6 million decrease from reduced tradeshows and professional services, partially offset by continued investment in our field sales team and marketing initiatives to increase clinician awareness, resulting in an increase of $2.1 million in personnel-related compensation expense, including $0.2 million of incremental stock-based compensation expense.

Sales and marketing expenses increased $4.6 million, or 13%, to $40.4 million in the six months ended June 30, 2020, compared to $35.8 million in the six months ended June 30, 2019.

The increase was primarily attributable to our continued investment in our field sales team and marketing initiatives to increase clinician awareness, resulting in an increase of $5.8 million in personnel-related compensation expense, including $0.2 million of incremental stock-based compensation expense, partially offset by a reduction of $1.2 million of other

sales associated expenses including external patient training expense and travel and entertainment expense, as a result of moving to increased virtual patient trainings and decreased travel activities.

Research and Development Expenses

Research and development (“R&D”) expenses increased $0.4 million, or 31%, to $1.7 million in the three months ended March 31, 2020, compared to $1.3 million in the three months ended March 31, 2019, which increase was primarily attributable to continued investment in our R&D team and increased clinical studies projects.

Research and development (“R&D”) expenses decreased $0.1 million, or 10%, to $1.1 million in the three months ended June 30, 2020, compared to $1.2 million in the three months ended June 30, 2019, which decrease was primarily attributable to slowing of clinical studies activities as a result of COVID-19.

R&D expenses increased $0.3 million, or 11%, to $2.8 million in the six months ended June 30, 2020, compared to $2.5 million in the six months ended June 30, 2019, which increase was primarily attributable to first quarter investments in our R&D team and clinical studies projects, partially offset by the slowing of these projects upon the onset of COVID-19.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses increased $1.5 million, or 16%, to $10.9 million in the three months ended March 31, 2020, compared to $9.4 million in the three months ended March 31, 2019.

This increase was primarily attributable to a $0.9 million increase in occupancy costs, depreciation expense as well as legal and professional fees.

Reimbursement, general and administrative expenses increased $5.6 million, or 63%, to $14.4 million in the three months ended June 30, 2020, compared to $8.8 million in the three months ended June 30, 2019.

This increase was primarily attributable to a $3.6 million impairment charge related to the write-off of our Airwear wrap-related long-lived assets and a $1.7 million increase in occupancy costs, depreciation expense, legal and professional fees.

The increase in reimbursement, general and administrative expenses was also attributable to a $0.3 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer development and corporate functions.

Reimbursement, general and administrative expenses increased $7.0 million, or 39%, to $25.2 million in the six months ended June 30, 2020, compared to $18.2 million in the six months ended June 30, 2019.

This increase was primarily attributable to a $3.6 million impairment charge related to the write-off of our Airwear wrap-related long-lived assets and a $2.5 million increase in occupancy costs, depreciation expense, legal and professional fees.

The increase in reimbursement, general and administrative expenses was also attributable to a $0.9 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer development and corporate functions.

Other Income, Net

Other income, net, was $0.3 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.

The increase in other income was primarily due to the interest income realized on marketable securities and a one-time gain on a cost method investment .

We recorded an income tax benefit of $2.9 million and $3.1 million for the three months ended March 31, 2020 and 2019, respectively.

The primary driver of the change in our income tax benefit was a decrease in tax-deductible share-based compensation activity, as compared to the prior year period.

Other income, net, was less than $0.1 million and was $0.2 million for the three months ended June 30, 2020 and 2019, respectively, and was $0.3 million for each of the six months ended June 30, 2020 and 2019, respectively.

Other income was primarily impacted by interest income realized on marketable securities and a one-time gain on a cost method investment in the first quarter of 2020 .

We recorded an income tax expense of $5.9 million and an income tax expense of $0.4 million for the three months ended June 30, 2020 and 2019, respectively.

We recorded an income tax expense of $3.0 million and an income tax benefit of $2.7 million for the six months ended June 30, 2020 and 2019, respectively.

The primary driver of the change in our income tax expense in both periods was a decrease in tax-deductible share-based compensation activity, as compared to the prior year period.

Liquidity and Capital Resources

At March 31, 2020, our principal sources of liquidity were cash and cash equivalents of $ 32.3 million, marketable securities of $ 12.5 million and net accounts receivable of $ 30.8 million, as well as the borrowing capacity available under our Credit Agreement.

At June 30, 2020, our principal sources of liquidity were cash and cash equivalents of $ 31.3 million, marketable securities of $ 6.0 million and net accounts receivable of $ 30.6 million, as well as the borrowing capacity available under our Credit Agreement.

The following table summarizes our cash flows for the periods indicated:

Three Months Ended

Six Months Ended

(In thousands)

Net cash provided by (used in):

Net cash (used in) provided by:

Operating activities

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Operating Activities

Net cash provided by operating activities during the three months ended March 31, 2020, was $0.9 million, resulting from a net loss of $1.3 million and non-cash net income adjustments of $4.4 million, which were offset by a net increase in operating assets and liabilities of $2.2 million.

The non-cash net income adjustments consisted primarily of $2.7 million of stock-based compensation expense, a $0.9 million decrease in deferred taxes and $0.7 million of depreciation and amortization expense.

The uses of cash related to changes in operating assets primarily consisted of increases in the income taxes receivable of $4.2 million, inventories of $3.3 million and net investment in leases of $0.7 million, partially offset by a decrease in accounts receivable of $1.7 million.

The changes in operating liabilities consisted of increases in accounts payable of $4.7 million and accrued expenses of $1.0 million, partially offset by a decrease in accrued payroll and related taxes of $1.8 million.

Net cash provided by operating activities during the three months ended March 31, 2019, was $1.3 million, resulting from net income of $1.5 million and non-cash net income adjustments of $1.5 million, which were offset by a net increase in operating assets and liabilities of $1.7 million.

Net cash used in operating activities during the six months ended June 30, 2020, was $8.0 million, resulting from a net loss of $15.2 million and net decrease in operating assets and liabilities of $7.7 million, which were offset by non-cash net income adjustments of $14.8 million.

The non-cash net income adjustments consisted primarily of $5.1 million of stock-based compensation expense, a $4.3 million decrease in deferred taxes, a $4.0 million impairment loss charge related to the write-off of our Airwear wrap product line, and $1.4 million of depreciation and amortization expense.

The uses of cash related to changes in operating assets primarily consisted of increases in inventories of $5.9 million, an increase in income taxes of $1.6 million, increase in net investment in leases of $0.5 million and an increase in prepaid expenses and other assets, partially offset by a decrease in accounts receivable of $1.2 million.

The changes in operating liabilities consisted of increases in accounts payable of $1.6 million and accrued expenses of $1.0 million, offset by a decrease in accrued payroll and related taxes of $3.1 million.

Net cash provided by operating activities during the six months ended June 30, 2019, was $0.9 million, resulting from net income of $4.3 million and non-cash net income adjustments of $5.3 million, which were offset by a net increase in operating assets and liabilities of $8.7 million.

The non-cash net income adjustments consisted of $5.1 million of stock-based compensation expense and $1.8 million of depreciation and amortization expense, partially offset by deferred income tax changes of $1.6 million.

The uses of cash related to changes in operating assets primarily consisted of increases in net investment in leases of $3.4 million, right of use operating lease assets of $3.4 million and income taxes receivable of $1.0 million, partially offset by a decrease in accounts receivable of $2.7 million.

The changes in operating liabilities consisted of increases in right of use operating lease liabilities of $3.5 million and accounts payable of $0.7 million, partially offset by a decrease in accrued payroll and related taxes of $0.6 million.

These changes occurred primarily due to the adoption of ASC 842.

The uses of cash related to changes in operating assets primarily consisted of increases in net investment in leases of $5.9 million, inventory of $2.0 million, income taxes receivable of $1.5 million, and increase in accounts receivable of $1.2 million.

The changes in operating liabilities consisted of increases in accounts payable of $1.6 million and accrued expense of $0.5 million, partially offset by a decrease in accrued payroll and related taxes of $0.4 million.

Investing Activities

Net cash provided by investing activities during the three months ended March 31, 2020, was $9.6 million, primarily consisting of $10.0 million in proceeds from maturities of marketable securities partially offset by $0.4 million in purchases of property and equipment.

Net cash provided by investing activities during the three months ended March 31, 2019, was $3.7 million, primarily consisting of $4.5 million in maturities of marketable securities partially offset by $0.7 million in purchases of property and equipment.

Net cash provided by investing activities during the six months ended June 30, 2020, was $15.7 million, primarily consisting of $16.5 million in proceeds from maturities of marketable securities, partially offset by $0.8 million in purchases of property and equipment and patent costs.

Net cash provided by investing activities during the six months ended June 30, 2019, was $3.7 million, primarily consisting of $5.6 million in net marketable securities activity partially offset by $1.8 million in purchases of product tooling and computer and manufacturing equipment, leasehold improvements and furniture and fixtures.

Financing Activities

Net cash used in financing activities during the three months ended March 31, 2020, was $1.0 million, consisting primarily of $1.2 million in taxes paid for the net share settlement of restricted stock units.

Net cash used in financing activities during the three months ended March 31, 2019, was $1.5 million, consisting of $2.4 million in taxes paid for the net share settlement of restricted stock units, offset by proceeds from exercises of common stock options of $0.9 million.

Net cash provided by financing activities during the six months ended June 30, 2020, was $0.8 million, consisting of $2.4 million in proceeds from exercise of common stock options and the issuance of common stock under the ESPP, partially offset by $1.6 million in taxes paid for the net share settlement of restricted stock units.

Net cash provided by financing activities during the six months ended June 30, 2019, was $0.4 million, consisting of proceeds from the issuance of common stock under the ESPP of $1.9 million and exercises of

common stock options of $1.5 million, partially offset by $3.0 million in taxes paid for the net share settlement of restricted stock units.

Credit Agreement

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The Credit Agreement provides for a $10.0 million revolving credit facility, with the ability to increase the amount of the revolving loans available and/or add one or more term loan facilities not to exceed an incremental $25.0 million, subject to satisfaction of certain conditions.

As of March 31, 2020, and the date on which we filed this report, we did not have any outstanding borrowings under the Credit Agreement.

As of June 30, 2020, and the date on which we filed this report, we did not have any outstanding borrowings under the Credit Agreement.

Our obligations under the Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets and are also guaranteed by our subsidiaries.

The Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio and a minimum liquidity covenant.

As of March 31, 2020, we were in compliance with all financial covenants under the Credit Agreement.

As of June 30, 2020, we were in compliance with all financial covenants under the Credit Agreement.

For additional information on the Credit Agreement, see Note 9 – “Credit Agreement” to the condensed consolidated financial statements in this report .

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Although the impact of the COVID-19 pandemic is difficult to predict, we believe our cash, cash equivalents, marketable securities and cash flows from operations together with the Credit Agreement will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business during the three months ended March 31, 2020, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business during the six months ended June 30, 2020, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.

In August 2017, we filed a shelf registration statement on Form S-3 with the SEC.

Under the shelf registration statement, we may offer and sell from time to time up to $200.0 million of common stock, preferred stock, debt securities, warrants, rights or units.

The shelf registration statement also registered for resale from time to time up to 5,703,534 shares of our common stock held by the selling stockholders named therein.

In September 2017, certain of the selling stockholders completed a secondary offering of 3,795,000 shares of our

common stock at a public offering price of $33.00 per share.

The shelf registration statement also registered for resale from

time to time up to 5,703,534 shares of our common stock held by the selling stockholders named therein.

In September 2017, certain of the selling stockholders completed a secondary offering of 3,795,000 shares of our common stock at a public offering price of $33.00 per share.

We did not receive any proceeds from the sale of the shares by the selling stockholders.

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The CARES Act includes several tax provisions that, among other things, allow businesses to carry back net operating losses (“NOLs”) arising in 2018, 2019, and 2020 to the prior five tax years.

As a result, we were able to carry back NOLs allowing us to record a $2.6 million income tax receivable.

As a result, we were able to carry back NOLs allowing us to record a $2.6 million income tax receivable in the first quarter of 2020.

In addition, the CARES Act provided $100 billion in relief funds to hospitals and other healthcare providers on the front lines of the COVID-19 pandemic.

An initial $30 billion of the funds were released for immediate infusion and were distributed to all facilities and providers that received Medicare fee-for-service (“FFS”) reimbursements in 2019.

On April 10, 2020, we received $1.2 million of the initial allotment to all facilities and providers which was determined to be our proportionate share.

Within 45 days of each reporting period end, we are required to comply with reporting requirements confirming funds were utilized in a manner described within the terms and conditions outlined by the U.S.

Department of Health & Human Services.

We are currently in the process of evaluating the impact and applicability of these funds on our financial statements.

Contractual and Commercial Commitments Summary

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis