Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this report.
Coronavirus (COVID-19)
The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during 2020 and the first quarter of 2021. While we saw some level of recovery in the second quarter of 2021, there are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have. For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time.
Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients. For a detailed listing of the changes to our business practices since the onset of the pandemic, refer to previous reports filed with the Securities and Exchange Commission. Continued modifications to our business include, but are not limited to:
● Incorporating remote and flexible work arrangements for employees whenever possible, including real-time, online training of our new sales representatives. In addition, we are actively developing our long-term in-office and remote work strategy with the goal of launching it in the second half of 2021.
● Eliminating employee travel restrictions in alignment with the opening of healthcare facilities and clinics while also continuing to maintain social distancing contact restrictions to reduce exposure.
● Utilizing a mix of employee trainers and independent healthcare practitioners to educate patients on the proper use of our solutions virtually or in-person.
● Continuing to host large virtual medical education programs, while also beginning to schedule smaller in-person meetings.
● Supporting clinicians and patients by using rigorous infection control practices when in-person visits are required.
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.
Overview
We are a medical technology company that develops and provides innovative medical devices for the treatment of chronic diseases. Our mission is to help people suffering from chronic diseases live better and care for themselves at home. We focus our efforts on advancing the standard of care in treating chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures. Our initial area of therapeutic focus is vascular disease, with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency. We possess a unique, scalable platform to deliver at-home healthcare solutions throughout the United States. This evolving home care delivery model is recognized by policy-makers and insurance payers as a key for controlling rising healthcare costs. Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases.
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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. In September 2016, we received 510(k) clearance from the FDA for the Flexitouch system in treating lymphedema of the head and neck. In June 2017, we announced that we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system. In December 2020, we received 510(k) clearance for two new indications for our Flexitouch Plus system: phlebolymphedema and lipedema. We derive the vast majority of our revenue from our Flexitouch system. Sales and rentals of our Flexitouch system represented 88% of our revenue in each of the six months ended June 30, 2021 and 2020.
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 each of the six months ended June 30, 2021 and 2020, sales and rentals of our Entre system represented 12% of our revenue.
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. Further, effective July 31, 2020, Sun Scientific, Inc. terminated the license agreement with us related to the Airwear wrap. See Note 8 - “Intangible Assets” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information regarding this impairment charge and discontinuation.
To support the growth of our business, we invest heavily in our commercial infrastructure, consisting of our direct sales force, training resources, reimbursement capabilities and clinical expertise. We market our products in the United States using a direct-to-patient and -provider model. Our field commercial team consists of our direct sales force and a team of Field Support Specialists. Our collective field commercial team has grown to over 300 employees as of June 30, 2021, compared to 285 employees as of December 31, 2020. 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.
As it relates to the impact of COVID-19 on our commercial processes in the first half of 2021, we continued to see restrictions loosen, in line with the applicable governmental regulations. As a result, we continue to expand our interactions with clinicians and patients on an in-person basis, where possible, while continuing to engage in virtual interactions as requested. 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 plan to continue to work towards expanding our commercial organization throughout 2021 by adding to our overall commercial team.
We invest substantial resources in our reimbursement function to improve operational efficiencies and enhance individual payer expertise, while continuing our strategic focus of payer development. Our payer relations function focuses on payer policy development, education, contract negotiations, and data analysis. Our reimbursement operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary. Since the onset of COVID-19, our reimbursement function has been actively working with Medicare and a broad base of private payers to understand the ever-changing reimbursement criteria being introduced. 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
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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 Chief Medical Officer (part-time), that serves as a resource to clinicians and patients and guides the development of clinical evidence in support of our products. Most clinical studies require observation and interaction with clinicians and patients to monitor results and progress. Given the impact of COVID-19, patient recruitment for our clinical studies involving our products and clinical outcomes had previously been suspended in 2020. However, in the first half of 2021, approximately half of our clinical trial sites had resumed research activities as the healthcare provider staff are being reallocated from COVID-19 response teams or furloughs back to research activities. Study visits and new patient enrollments are gradually resuming, albeit more slowly than targeted enrollment rates.
We rely on third party contract manufacturers for the sourcing of parts, the assembly of our controllers and the manufacturing of the garments used with our systems. We conduct final assembly of the garments used with our Flexitouch system, perform quality assurance and ship our products from our facility in Minneapolis, Minnesota.
To date, our supply chain has not been materially impacted by COVID-19. We continue to receive our product on time and believe that we have enough safety stock to meet our short and mid-term demand. However, we cannot assure you that our supply chain will not be materially impacted in the future.
For the three months ended June 30, 2021, we generated revenue of $51.1 million and had net income of $1.3 million, compared to revenue of $35.1 million and a net loss of $13.9 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, we generated revenue of $93.8 million and had a net loss of $1.0 million, compared to revenue of $78.8 million and a net loss of $15.2 million for the six months ended June 30, 2020. Our primary sources of capital since inception 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.
We operate in one segment for financial reporting purposes.
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Results of Operations
Comparison of the Three and Six Months Ended June 30, 2021 and 2020
The following table presents our results of operations for the periods indicated:
Three Months Ended
June 30,
Change
(In thousands)
2021
2020
$
%
Condensed Consolidated Statement
% of
% of
of Operations Data:
revenue
revenue
Revenue
Sales revenue
$
43,630
85
%
$
29,518
84
%
$
14,112
48
%
Rental revenue
7,430
15
%
5,602
16
%
1,828
33
%
Total revenue
51,060
100
%
35,120
100
%
15,940
45
%
Cost of revenue
Cost of sales revenue
12,638
25
%
8,388
24
%
4,250
51
%
Cost of rental revenue
2,217
4
%
1,820
5
%
397
22
%
Total cost of revenue
14,855
29
%
10,208
29
%
4,647
46
%
Gross profit
Gross profit - sales revenue
30,992
60
%
21,130
60
%
9,862
47
%
Gross profit - rental revenue
5,213
11
%
3,782
11
%
1,431
38
%
Gross profit
36,205
71
%
24,912
71
%
11,293
45
%
Operating expenses
Sales and marketing
20,933
41
%
17,398
50
%
3,535
20
%
Research and development
1,206
2
%
1,105
3
%
101
9
%
Reimbursement, general and administrative
14,142
28
%
14,372
41
%
(230)
(2)
%
Total operating expenses
36,281
71
%
32,875
94
%
3,406
10
%
Loss from operations
(76)
—
%
(7,963)
(23)
%
7,887
(99)
%
Other (expense) income
(24)
—
%
36
—
%
(60)
(167)
%
Loss before income taxes
(100)
—
%
(7,927)
(23)
%
7,827
(99)
%
Income tax (benefit) expense
(1,405)
(3)
%
5,923
17
%
(7,328)
(124)
%
Net income (loss)
$
1,305
3
%
$
(13,850)
(40)
%
$
15,155
(109)
%
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Six Months Ended
June 30,
Change
(In thousands)
2021
2020
$
%
Condensed Consolidated Statement
% of
% of
of Operations Data:
revenue
revenue
Revenue
Sales revenue
$
79,755
85
%
$
67,141
85
%
$
12,614
19
%
Rental revenue
14,077
15
%
11,654
15
%
2,423
21
%
Total revenue
93,832
100
%
78,795
100
%
15,037
19
%
Cost of revenue
Cost of sales revenue
23,329
25
%
19,310
25
%
4,019
21
%
Cost of rental revenue
4,068
4
%
3,500
4
%
568
16
%
Total cost of revenue
27,397
29
%
22,810
29
%
4,587
20
%
Gross profit
Gross profit - sales revenue
56,426
60
%
47,831
60
%
8,595
18
%
Gross profit - rental revenue
10,009
11
%
8,154
11
%
1,855
23
%
Gross profit
66,435
71
%
55,985
71
%
10,450
19
%
Operating expenses
Sales and marketing
39,718
42
%
40,368
51
%
(650)
(2)
%
Research and development
2,476
3
%
2,789
4
%
(313)
(11)
%
Reimbursement, general and administrative
28,401
30
%
25,242
32
%
3,159
13
%
Total operating expenses
70,595
75
%
68,399
87
%
2,196
3
%
Loss from operations
(4,160)
(4)
%
(12,414)
(16)
%
8,254
(66)
%
Other (expense) income
(34)
—
%
302
—
%
(336)
(111)
%
Loss before income taxes
(4,194)
(4)
%
(12,112)
(16)
%
7,918
(65)
%
Income tax (benefit) expense
(3,233)
(3)
%
3,045
4
%
(6,278)
N.M.
%
Net loss
$
(961)
(1)
%
$
(15,157)
(20)
%
$
14,196
(94)
%
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Revenue
Revenue increased $15.9 million, or 45%, to $51.1 million in the three months ended June 30, 2021, compared to $35.1 million in the three months ended June 30, 2020. The increase in total revenue was attributable to an increase of $14.0 million, or 45%, in sales and rentals of the Flexitouch system and an increase of $2.0 million, or 49%, in sales and rentals of the Entre system in the quarter ended June 30, 2021. Second quarter 2021 revenue benefited from the initial stages of recovery from the COVID-19 pandemic, with a portion of healthcare facilities and clinics relaxing restrictions and increasing patient throughput. The increase in second quarter revenue was further driven by improvements in salesforce productivity and effective virtual education events yielding an expanded prescriber base and an increase in Medicare patients served.
Revenue increased $15.0 million, or 19%, to $93.8 million in the six months ended June 30, 2021, compared to $78.8 million in the six months ended June 30, 2020. The increase was primarily attributable to an increase of $12.8 million, or 18%, in sales and rentals of our Flexitouch system and an increase of $2.2 million, or 24%, in sales and rentals of the Entre system for the six months ended June 30, 2021. Revenue for the six months ended June 30, 2021, benefited from the initial stages of recovery from the COVID-19 pandemic, with a portion of healthcare facilities and clinics relaxing restrictions and increasing patient throughput, as well as an expanded prescriber base.
Revenue from the Veterans Administration represented 14% and 12% of total revenue in the three months ended June 30, 2021 and 2020, respectively. Revenue from the Veterans Administration represented 14% of total revenue in each of the six months ended June 30, 2021 and 2020. Revenue from Medicare represented 16% and 15% of total revenue in the three months ended June 30, 2021 and 2020, respectively. Revenue from Medicare represented 18% and 15% of total revenue in the six months ended June 30, 2021 and 2020, respectively.
The following table summarizes our revenue by product for the three and six months ended June 30, 2021 and 2020, both in dollars and percentage of total revenue:
Three Months Ended
June 30,
Change
(In thousands)
2021
2020
$
%
Revenue
Flexitouch system
$
45,093
$
31,127
$
13,966
45%
Other products (1)
5,967
3,993
1,974
49%
Total
$
51,060
$
35,120
$
15,940
45%
Percentage of total revenue
Flexitouch system
88%
89%
Other products (1)
12%
11%
Total
100%
100%
(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, 2021 and 2020.
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Six Months Ended
June 30,
Change
(In thousands)
2021
2020
$
%
Revenue
Flexitouch system
$
82,530
$
69,713
$
12,817
18%
Other products (1)
11,302
9,082
2,220
24%
Total
$
93,832
$
78,795
$
15,037
19%
Percentage of total revenues
Flexitouch system
88%
88%
Other products (1)
12%
12%
Total
100%
100%
(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, 2021 and 2020.
Our business is affected by seasonality. In the first quarter of each year, when most patients have started a new insurance year and have not yet met their annual out-of-pocket payment obligations, we experience substantially reduced demand for our products. We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and because patients desire to exhaust their flexible spending accounts at year end. This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products. Further, seasonality trends in 2021 may be significantly different than in prior years as a result of the COVID-19 pandemic and related impacts.
Cost of Revenue and Gross Margin
Cost of revenue increased $4.6 million, or 46%, to $14.9 million in the three months ended June 30, 2021, compared to $10.2 million in the three months ended June 30, 2020. Cost of revenue increased $4.6 million, or 20%, to $27.4 million in the six months ended June 30, 2021, compared to $22.8 million in the six months ended June 30, 2020. The increase in cost of revenue in both periods was primarily attributable to an increase in the number of Flexitouch and Entre systems sold and rented.
The total gross margin rate was 71% of sales in each of the three and six months ended June 30, 2021 and June 30, 2020.
Sales and Marketing Expenses
Sales and marketing expenses increased $3.5 million, or 20%, to $20.9 million in the three months ended June 30, 2021, compared to $17.4 million in the three months ended June 30, 2020. The increase was primarily attributable to a $2.1 million increase in personnel-related compensation expense as a result of the increased headcount in the commercial team, a $0.7 million increase in our external patient training expense as a result of increased in-person trainings and a $0.7 million increase in travel and entertainment expense due to eased restrictions on travel .
Sales and marketing expenses decreased $0.6 million, or 2%, to $39.7 million in the six months ended June 30, 2021, compared to $40.4 million in the six months ended June 30, 2020. The decrease was primarily attributable to a $2.0 million decrease from reduced sales meetings, tradeshows and professional services and a $0.6 reduction in external patient training expense, partially offset by a $2.0 million increase in personnel-related compensation expense as a result of the increased headcount in the commercial team.
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Research and Development Expenses
Research and development (“R&D”) expenses increased $0.1 million, or 9%, to $1.2 million in the three months ended June 30, 2021, compared to $1.1 million in the three months ended June 30, 2020, which was primarily attributable to an increase in clinical studies activity.
R&D expenses decreased $0.3 million, or 11%, to $2.5 million in the six months ended June 30, 2021, compared to $2.8 million in the six months ended June 30, 2020, which was primarily attributable to a $0.2 million decrease in professional services and a $0.1 million decrease in personnel-related compensation expense.
Reimbursement, General and Administrative Expenses
Reimbursement, general and administrative expenses decreased $0.2 million, or 2%, to $14.1 million in the three months ended June 30, 2021, compared to $14.4 million in the three months ended June 30, 2020. This decrease was primarily attributable to a $3.6 million impairment charge related to the write-off of our Airwear wrap-related long-lived assets recorded in the second quarter of 2020, partially offset by a $1.9 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions and a combined $1.4 million increase in occupancy costs, depreciation expense and legal fees, in each case in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
Reimbursement, general and administrative expenses increased $3.2 million, or 13%, to $28.4 million in the six months ended June 30, 2021, compared to $25.2 million in the six months ended June 30, 2020. The increase was primarily attributable to a combined $3.5 million increase in occupancy costs, depreciation expense, legal and professional fees and a $3.3 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions, partially offset by a $3.6 million impairment charge related to the write-off of our Airwear wrap-related long-lived assets recorded in the second quarter of 2020.
Other Income (Expense), Net
Other income (expense), net was an expense of $24,000 and income of $36,000 for the three months ended June 30, 2021 and 2020, respectively, and was an expense of $34,000 and income of $0.3 million for the six months ended June 30, 2021 and 2020, respectively. Other income (expense) was primarily impacted by interest income realized on marketable securities and the gain and loss on cost method investments .
Income Taxes
We recorded an income tax benefit of $1.4 million and expense of $5.9 million for the three months ended June 30, 2021 and 2020, respectively. We recorded an income tax benefit of $3.2 million and expense of $3.0 million for the six months ended June 30, 2021 and 2020, respectively. The primary driver of these changes was a tax benefit related to a research and development credit recognized in the second quarter of 2021.
Liquidity and Capital Resources
Cash Flows
At June 30, 2021, our principal sources of liquidity were cash and cash equivalents of $ 49.0 million and net accounts receivable of $ 42.6 million, as well as the borrowing capacity available under our Restated Credit Agreement.
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The following table summarizes our cash flows for the periods indicated:
Six Months Ended
June 30,
(In thousands)
2021
2020
Net cash (used in) provided by:
Operating activities
$
(1,917)
$
(7,980)
Investing activities
(743)
15,731
Financing activities
3,812
820
Net increase in cash and cash equivalents
$
1,152
$
8,571
Operating Activities
Net cash used in operating activities during the six months ended June 30, 2021, was $1.9 million, resulting from a net loss of $1.0 million and a net decrease in operating assets and liabilities of $3.7 million, which was partially offset by non-cash net income (loss) adjustments of $2.8 million. The non-cash net income (loss) adjustments consisted primarily of $5.1 million of stock-based compensation expense, $3.6 million in deferred taxes and $1.3 million of depreciation and amortization expense. The uses of cash related to changes in operating assets primarily consisted of increases in inventories of $2.6 million, accounts receivable of $1.2 million, net investment in leases of $1.0 million and income taxes of $0.8 million, partially offset by a decrease in prepaid expenses and other assets of $0.5 million. The changes in operating liabilities consisted of increases in accrued expenses of $1.7 million and accounts payable of $0.9 million, partially offset by a decrease in accrued payroll and related taxes of $1.2 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, income taxes of $1.6 million, net investment in leases of $0.5 million and prepaid expenses and other assets of $0.3 million, 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.
Investing Activities
Net cash used in investing activities during the six months ended June 30, 2021, was $0.7 million, consisting of purchases of property and equipment, and patent costs.
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.
Financing Activities
Net cash provided by financing activities during the six months ended June 30, 2021, was $3.8 million, consisting of $4.9 million in proceeds from exercise of common stock options and the issuance of common stock under the ESPP, partially offset by $1.1 million in taxes paid for the net share settlement of performance and restricted stock units.
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.
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Credit Agreement
On August 3, 2018, we entered into a credit agreement with Wells Fargo Bank, National Association, which was amended by a First Amendment dated February 12, 2019, a Waiver and Second Amendment dated March 25, 2019, and a Third Amendment dated August 2, 2019 (collectively, the “2018 Credit Agreement”). On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent, which expires on April 30, 2024. The Restated Credit Agreement amends and restates in its entirety the 2018 Credit Agreement. As of June 30, 2021, and the date on which we filed this report, we did not have any outstanding borrowings under the Restated Credit Agreement.
The Restated Credit Agreement provides for a $25 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 $30 million in the aggregate, subject to satisfaction of certain conditions.
Our obligations under the Restated 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 Restated 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, 2021, we were in compliance with all financial covenants under the Restated Credit Agreement.
Adequacy of Capital Resources
Our future capital requirements may vary significantly from those now planned and will depend on many factors, including:
● the impact of the COVID-19 pandemic on our business;
● sales and marketing resources needed to further penetrate our market;
● expansion of our operations domestically and/or internationally;
● response of competitors to our solutions and applications;
● costs associated with clinical research activities;
● costs to develop and implement new products; and
● use of capital for acquisitions or licenses, if any.
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 and cash flows from operations together with the Restated 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, 2021, 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 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
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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.
Coronavirus Aid, Relief, and Economic Security (CARES) Act
On March 27, 2020 the CARES Act was signed into law. The CARES Act is a tax-and-spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. 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. In the third quarter of 2020, 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. 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. As of December 31, 2020, we recognized all of the funds received in the initial allotment as other income.
Contractual and Commercial Commitments Summary
For a discussion on our contractual and commercial commitments, see “Contractual and Commercial Commitments Summary,” included in Item 7, 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, 2020. There have been no material changes since December 31, 2020.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
Recent Accounting Pronouncements
Refer to Note 3 – “Summary of Significant Accounting Policies” of the condensed consolidated financial statements contained in this report for a description of recently issued accounting pronouncements that are applicable to our business.
Critical Accounting Policies and Estimates
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, 2020.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion on our market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes since December 31, 2020.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.