What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-02 compared with 2020-08-03 · 82 added, 78 removed, 194 unchanged (45% of the section changed)

38 unchanged sentences

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 six months ended June 30, 2020 and 2019, respectively.

Sales and rentals of our Flexitouch system represented 88% and 90% of our revenue in the nine months ended September 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 six months ended June 30, 2020 and 2019, sales and rentals of our Entre system represented 12% and 9% of our revenue, respectively.

For the nine months ended September 30, 2020 and 2019, sales and rentals of our Entre system represented 12% and 10% 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.

7 unchanged sentences

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 250 employees as of June 30, 2020, compared to over 215 employees as of June 30, 2019.

Our direct salesforce has grown to a team of over 250 employees as of September 30, 2020, compared to over 230 employees as of September 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.

2 unchanged sentences

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

As it relates to the impact of COVID-19 on our third quarter commercial processes, we continued 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.

We continued 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 will continue to work towards expanding our commercial organization throughout the second half of 2020 by adding to our direct sales force.

To that end, we will continue to work towards expanding our commercial organization throughout the fourth quarter 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.

2 unchanged sentences

Since the onset of COVID-19, our Reimbursement Department has been actively working with Medicare and a broad base of private payers to understand the ever-changing reimbursement criteria that are being introduced.

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

However, as these circumstances are ever-changing, the extent to which these changes will remain in place and the impact on our business in the future are 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 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.

For the three months ended September 30, 2020, we generated revenue of $49.1 million and had net income of $2.4 million, compared to revenue of $49.6 million and net income of $2.4 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, we generated revenue of $127.9 million and had a net loss of $12.7 million, compared to revenue of $132.4 million and net income of $6.7 million for the nine months ended September 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 and Six Months Ended June 30, 2020 and 2019

Comparison of the Three and Nine Months Ended September 30, 2020 and 2019

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

Three Months Ended

September 30,

(In thousands)

15 unchanged sentences

Total operating expenses

(Loss) income from operations

(Loss) income before income taxes

Income tax expense

Net (loss) income

“N.M.” Not Meaningful

Six Months Ended

Income from operations

Other (expense) income

Income before income taxes

Income tax (benefit) expense

Nine Months Ended

September 30,

(In thousands)

20 unchanged sentences

“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 decreased $0.5 million, or 1%, to $49.1 million in the three months ended September 30, 2020, compared to $49.6 million in the three months ended September 30, 2019.

The decrease in total revenue was attributable to a decrease of $1.8 million, or 4%, in sales and rentals of the Flexitouch system, offset partially by an increase of $1.3 million, or 26%, in sales and rentals of the Entre system in the quarter ended September 30, 2020.

The decrease in 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.

Revenue decreased $4.5 million, or 3%, to $127.9 million in the nine months ended September 30, 2020, compared to $132.4 million in the nine months ended September 30, 2019, which decrease was primarily attributable to a decrease of approximately $7.1 million, or 6%, in sales and rentals of our 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 ended September 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.

Beginning in March 2020 and 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 .

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:

Revenue from the Veterans Administration represented 14% and 16% of total revenue in the three months ended September 30, 2020 and 2019, respectively.

Revenue from the Veterans Administration represented 14% and 18% of total revenue in the nine months ended September 30, 2020 and 2019, respectively.

Revenue from Medicare represented 16% and 12% of total revenue in the three months ended September 30, 2020 and 2019, respectively.

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

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

Three Months Ended

September 30,

(In thousands)

5 unchanged sentences

(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 three months ended June 30, 2020 and 2019.

Six Months Ended

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

Nine Months Ended

September 30,

(In thousands)

5 unchanged sentences

(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.

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

Our business is affected by seasonality.

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Cost of Revenue and Gross Margin

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.

Cost of revenue decreased $0.1 million, or 1%, to $14.1 million in the three months ended September 30, 2020, compared to $14.2 million in the three months ended September 30, 2019.

Cost of revenue decreased $2.4 million, or 6%, to $36.9 million in the nine months ended September 30, 2020, compared to $39.3 million in the nine months ended September 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 an increase in other products sales and rentals, and in the nine month period, the $0.4 million inventory impairment charge related to discontinuing the Airwear wrap product line.

The total gross margin rate was 71% of sales in each of the three and nine months ended September 30, 2020, compared to 71% and 70% in the three and nine months ended September 30, 2019, respectively.

The increase for the nine month period was primarily attributable to the composition of sales and rental mix by payer.

Sales and Marketing 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.

Sales and marketing expenses decreased $1.2 million, or 6%, to $19.5 million in the three months ended September 30, 2020, compared to $20.7 million in the three months ended September 30, 2019.

The decrease was primarily attributable to a $1.6 million reduction of our external patient training expense as a result of pivoting to more virtual patient trainings, $1.1 million decrease from reduced tradeshows and professional services, and $0.7 million of reduced travel and entertainment expense due to decreased travel activities, partially offset by continued investment in our field sales team and marketing initiatives to increase clinician awareness, resulting in an increase of $2.2 million in personnel-related compensation expense, including $0.4 million of incremental stock-based compensation expense.

Sales and marketing expenses increased $3.3 million, or 6%, to $59.9 million in the nine months ended September 30, 2020, compared to $56.6 million in the nine months ended September 30, 2019.

expense, including $0.7 million of incremental stock-based compensation expense, partially offset by a reduction of $2.9 million in our external patient training expense as a result of moving to increased virtual patient trainings, $1.5 million in reduced travel and entertainment expense due to decreased travel activities and a $0.6 million decrease from reduced tradeshows and professional services.

Research and Development Expenses

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.

Research and development (“R&D”) expenses decreased $0.4 million, or 25%, to $1.1 million in the three months ended September 30, 2020, compared to $1.5 million in the three months ended September 30, 2019, which decrease was primarily attributable to slowing of clinical studies activities as a result of COVID-19.

R&D expenses decreased $0.1 million, or 2%, to $3.9 million in the nine months ended September 30, 2020, compared to $4.0 million in the nine months ended September 30, 2019, which decrease was primarily attributable to the slowing of clinical studies activities as a result of COVID-19, partially offset by first quarter investments in our R&D team and clinical studies projects.

Reimbursement, General and Administrative Expenses

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.

Reimbursement, general and administrative expenses increased $2.6 million, or 26%, to $12.6 million in the three months ended September 30, 2020, compared to $10.0 million in the three months ended September 30, 2019.

This increase was primarily attributable to a $1.6 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer development and corporate functions, including $0.4 million severance related expense related to the departure of our Chief Operating Officer.

The increase in reimbursement, general and administrative expenses was also attributable to a $1.0 million increase in occupancy costs, depreciation expense, legal and professional fees.

Reimbursement, general and administrative expenses increased $9.7 million, or 34%, to $37.8 million in the nine months ended September 30, 2020, compared to $28.2 million in the nine months ended September 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 $3.3 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 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.

The increase in reimbursement, general and administrative expenses was also attributable to a $2.8 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer development and corporate functions, including $0.4 million severance related expense related to the departure of our Chief Operating Officer.

Other Income (Expense), Net

Other income (expense), net was an expense of $0.1 million and income of $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and was income of $0.2 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Other income (expense) was primarily impacted by interest income realized on marketable securities and the gain and loss on cost method investments .

We recorded an income tax benefit of $0.8 million and an income tax expense of $0.9 million for the three months ended September 30, 2020 and 2019, respectively.

The primary driver of this change was an increase in tax-deductible share-based compensation activity, as compared to the prior year period.

We recorded an income tax expense of $2.3 million and an income tax benefit of $1.8 million for the nine months ended September 30, 2020 and 2019, respectively.

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

Liquidity and Capital Resources

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.

At September 30, 2020, our principal sources of liquidity were cash and cash equivalents of $ 42.2 million and net accounts receivable of $ 36.0 million, as well as the borrowing capacity available under our Credit Agreement.

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

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

3 unchanged sentences

Financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

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 $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.

Net cash used in operating activities during the nine months ended September 30, 2020, was $2.2 million, resulting from a net loss of $12.7 million and a net increase in operating assets and liabilities of $7.9 million, which were offset by non-cash net income adjustments of $18.2 million.

The non-cash net income adjustments consisted primarily of $8.3 million of stock-based compensation expense, a $4.0 million impairment loss charge related to the write-off of our Airwear wrap product line, a $3.9 million decrease in deferred taxes and $2.1 million of depreciation and amortization expense.

The uses of cash related to changes in operating assets primarily consisted of increases in accounts receivable of $5.5 million, in inventories of $3.5 million, in prepaid expenses and other assets of $1.6 million and in net investment in leases of $1.3 million, partially offset by a decrease in income taxes receivable of $0.7 million.

The changes in operating liabilities consisted primarily of increases in accrued expenses and other liabilities of $1.1 million, in accounts payable of $0.9 million and I accrued payroll and related taxes of $0.8 million.

Net cash provided by operating activities during the nine months ended September 30, 2019, was $2.4 million, resulting from net income of $6.7 million and non-cash net income adjustments of $9.9 million, which were offset by a net increase in operating assets and liabilities of $14.2 million.

The non-cash net income adjustments consisted primarily of $7.4 million of stock-based compensation expense and $2.6 million of depreciation and amortization expense.

The uses of cash related to changes in operating assets primarily consisted of increases in net investment in leases of $7.6 million, in inventory of $5.7 million, in accounts receivable of $4.5 million, and in income taxes receivable of $2.1 million.

The changes in operating liabilities consisted of increases in accrued payroll and related taxes of $3.9 million, in accrued expenses and other liabilities of $1.1 million and in accounts payable of $1.0 million.

Investing Activities

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.

Net cash provided by investing activities during the nine months ended September 30, 2020, was $20.7 million, primarily consisting of $22.5 million in proceeds from maturities of marketable securities, partially offset by $1.8 million in purchases of property and equipment and patent costs.

Net cash used in investing activities during the nine months ended September 30, 2019, was $3.3 million, primarily consisting of $4.3 million in purchases of property and equipment partially offset by $1.1 million in net marketable securities activity.

Financing Activities

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.

Net cash provided by financing activities during the nine months ended September 30, 2020, was $1.0 million, consisting of $2.6 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 nine months ended September 30, 2019, was $0.6 million, consisting of proceeds from the issuance of common stock under the ESPP of $1.9 million and exercises of common stock options of $1.8 million, partially offset by $3.1 million in taxes paid for the net share settlement of restricted stock units.

Credit Agreement

1 unchanged sentence

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

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

As of September 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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Historically, we have experienced increases in our expenditures consistent with the growth in our revenue, operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.

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 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.

Although the impact of the COVID-19 pandemic is difficult to predict, we believe our cash, cash equivalents 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 nine months ended September 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.

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.

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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 in the first quarter of 2020.

In the third quarter, we collected $2.9 million related to the carry back of our NOLs arising from these prior tax years.

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.

14 unchanged sentences

A “critical accounting policy” is one that is both important to the portrayal of our financial condition and results and requires management’s most subjective or complex judgments, often as a result of the need to make estimates about the effect of items that are inherently uncertain.

For additional information, please see the discussion of our significant accounting policies under “Critical Accounting Policies and Significant Estimates ” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019.

For additional information, please see the discussion of our significant accounting policies under “Critical Accounting Policies and Significant

Estimates ” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019.

Quantitative and Qualitative Disclosures About Market Risk

2 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