What changed in this filing

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Item 1. Financial Statements

2022-11-07 compared with 2022-08-01 · 141 added, 118 removed, 485 unchanged (35% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(In thousands, except share and per share data)

32 unchanged sentences

Total liabilities

Commitments and Contingencies (see Note 10)

Stockholders’ equity:

Preferred stock, $ 0.001 par value, 50,000,000 shares authorized;

none issued and outstanding as of June 30, 2022 and December 31,

none issued and outstanding as of September 30, 2022 and December 31,

Common stock, $ 0.001 par value, 300,000,000 shares authorized;

20,132,145 shares issued and outstanding as of June 30, 2022;

20,155,704 shares issued and outstanding as of September 30, 2022;

19,877,786 shares issued and outstanding as of December 31, 2021

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except share and per share data)

18 unchanged sentences

Income tax (benefit) expense

Net (loss) income

Net (loss) income per common share

Weighted-average common shares used to compute net (loss) income per common share

Net loss per common share

Weighted-average common shares used to compute net loss per common share

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands, except share data)

Balances, March 31, 2022

Balances, June 30, 2022

Stock-based compensation

Exercise of common stock options and vesting of performance and restricted stock units

Common shares issued for employee stock purchase plan

Net loss for the period

Balances, June 30, 2022

Balances, September 30, 2022

Balances, December 31, 2021

3 unchanged sentences

Net loss for the period

Balances, September 30, 2022

Balances, June 30, 2021

Balances, March 31, 2021

Stock-based compensation

Exercise of common stock options and vesting of performance and restricted stock units

Common shares issued for employee stock purchase plan

Net income for the period

Balances, June 30, 2021

Taxes paid for net share settlement of performance and restricted stock units

Net loss for the period

Balances, September 30, 2021

Balances, December 31, 2020

4 unchanged sentences

Net loss for the period

Balances, June 30, 2021

Balances, September 30, 2021

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

1 unchanged sentence

Stock-based compensation expense

Loss on disposal of property and equipment and intangibles

Change in fair value of earn-out liability

8 unchanged sentences

Accrued expenses and other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities

Payments related to acquisition

Purchases of property and equipment

2 unchanged sentences

Cash flows from financing activities

Payment on note payable

Payment of deferred debt issuance costs

Proceeds from issuance of note payable

Proceeds from revolving line of credit

Payments on note payable

Payments of deferred debt issuance costs

Taxes paid for net share settlement of performance and restricted stock units

2 unchanged sentences

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents – beginning of period

9 unchanged sentences

Tactile Systems Technology, Inc.

(“we,” “us,” and “our”) manufactures and distributes medical devices that help control symptoms of lymphedema, a chronic and progressive medical condition.

We provide our Flexitouch® and Entre™ systems through our direct sales force for use in the home and sell or rent them through vascular, wound and lymphedema clinics throughout the United States.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance business (“AffloVest Acquisition”) from International Biophysics Corporation (“IBC”), a privately-held company which developed and manufactures AffloVest.

(“we,” “us,” and “our”) manufactures and distributes medical devices for the treatment of patients with underserved chronic diseases at home.

We provide our Flexitouch® and Entre™ systems, which help control symptoms of lymphedema, a chronic progressive medical condition, through our direct sales force for use in the home and sell or rent them through vascular, wound and lymphedema clinics throughout the United States.

AffloVest is a portable, wearable vest that treats patients with chronic respiratory conditions.

5 unchanged sentences

In September 2013, we began doing business as “Tactile Medical”.

On August 2, 2016, we closed the initial public offering of our common stock, which resulted in the sale of 4,120,000 shares of our common stock at a public offering price of $ 10.00 per share.

We received net proceeds from the initial public offering of approximately $ 35.4 million, after deducting underwriting discounts and approximately $ 2.9 million of transaction expenses.

Our business is affected by seasonality.

7 unchanged sentences

In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.

The results for the six months ended June 30, 2022, are not necessarily indicative of results to be expected for the year ending December 31, 2022, or for any other interim period or for any future year.

The results for the nine months ended September 30, 2022, are not necessarily indicative of results to be expected for the year ending December 31, 2022, or for any other interim period or for any future year.

The condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

7 unchanged sentences

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 most of 2021 and during the first quarter of 2022.

We have also seen staffing challenges, both in our organization and at the clinics we serve, as another consequence of the COVID-19 pandemic.

While we saw some level of recovery in the second quarter of 2022, 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.

We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic.

While we saw some level of recovery in the second and third quarters of 2022, ongoing consequences of the pandemic remain uncertain.

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.

7 unchanged sentences

Significant Accounting Policies

There were no material changes in our significant accounting policies during the six months ended June 30, 2022.

There were no material changes in our significant accounting policies during the nine months ended September 30, 2022.

See Note 3 – “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, for information regarding our significant accounting policies.

12 unchanged sentences

The AffloVest acquisition was funded through a combination of cash on hand and proceeds from borrowings.

Two earn-out payments of up to $ 10.0 million each are potentially due to IBC under the AffloVest APA depending on the achievement of specified revenue targets, as follows:

On November 4, 2022, we entered into an Amendment to the AffloVest APA (the “APA Amendment”) with IBC, which modifies the terms of the earn-out arrangement under the AffloVest APA, as follows:

● Initial Earn-Out:

Equal to 1.5 times the amount by which the AffloVest U.S.

The AffloVest APA provided for an initial earn-out equal to 1.5 times the amount by which the AffloVest U.S.

revenues in the period from October 1, 2021 to September 30, 2022 (the “Initial Earn-Out Period”) exceed a specified amount;

provided that in no event will the payment exceed $ 10.0 million.

o The APA Amendment provides that the calculated amount of the initial earn-out payment is $ 10.0 million, of which the Company will pay $ 5.0 million on or before November 28, 2022, and of which the Company will pay $ 5.0 million, plus an imputed interest payment of $ 250,000 , on or before May 26, 2023.

● Second Earn-Out:

Equal to 1.5 times the amount by which the AffloVest U.S.

The AffloVest APA provided for a second earn-out equal to 1.5 times the amount by which the AffloVest U.S.

revenues in the period from October 1, 2022 to September 30, 2023 exceed the revenues recognized during the Initial Earn-Out Period;

provided that in no event will the payment exceed $ 10.0 million.

o The APA Amendment changes the 1.5 times multiplier to 3.0 times, but still provides that in no event will the second earn-out payment exceed $ 10.0 million.

The fair value of the earn-out as of the acquisition date was $ 6.4 million.

The fair value of the earn-out, reflecting management’s estimate of the likelihood of achieving these targets, was determined by employing a Monte Carlo Simulation model.

This amount and the current versus non-current allocation will be remeasured at the end of each reporting period until the payment requirement ends, with any adjustments reported in income from operations (see Note 15 – “Fair Value Measurements”).

This amount and the current versus non-current allocation is remeasured at the end of each reporting period until the payment requirement ends, with any adjustments reported in income from operations (see Note 15 – “Fair Value Measurements”).

On the date of AffloVest Acquisition, we allocated the assets acquired based on an estimate of their fair values.

7 unchanged sentences

The goodwill reflects expected synergies of combining the acquired products and customer information with our existing operations, and is deductible for tax purposes over 15 years .

The following table reflects the allocation of purchase price to the acquired intangible assets and related estimated useful lives:

The following table reflects the allocation of the purchase price to the acquired intangible assets and related estimated useful lives:

(In millions)

4 unchanged sentences

Total intangible assets

The weighted-average amortization period of the acquired intangible assets was 12.3 years.

The weighted-average amortization period of the acquired definite-lived intangible assets was 12.3 years.

The fair market valuations associated with the assets acquired fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value.

3 unchanged sentences

(In thousands)

At June 30, 2022

At September 30, 2022

At December 31, 2021

7 unchanged sentences

Our patents and other intangible assets are summarized as follows:

At June 30, 2022

At September 30, 2022

(In thousands)

17 unchanged sentences

Total intangible assets

Amortization expense was $ 1.0 million and $ 0.1 million for the three months ended June 30, 2022 and 2021, and $ 1.9 million and $ 0.1 million for the six months ended June 30, 2022 and 2021, respectively.

Amortization expense was $ 1.0 million and $ 0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $ 2.9 million and $ 0.4 million for the nine months ended September 30, 2022 and 2021, respectively.

Future amortization expenses are expected as follows:

(In thousands)

2022 (July 1 - December 31)

2022 (October 1 - December 31)

In the third quarter of 2022, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASU No.

2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events.

Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying value.

As a result, it was not deemed necessary to proceed to the quantitative test and no impairment was recognized.

Accrued Expenses

1 unchanged sentence

(In thousands)

At June 30, 2022

At September 30, 2022

At December 31, 2021

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

18 unchanged sentences

Pursuant to the Second Amendment, we made a mandatory principal prepayment of the term loan of $ 3.0 million on February 22, 2022.

As of June 30, 2022, the outstanding balance of the term loan was $ 25.5 million and the outstanding balance under the revolving credit facility was $ 25.0 million.

As of June 30, 2022, there was no availability under our Credit Agreement.

The term loan and amounts drawn under the revolving credit facility bear interest, at our option, at a rate equal to (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) LIBOR for an interest period of one month plus 1 % (the “Base Rate”) plus an applicable margin or (b) LIBOR for an interest period of one, three or six months, at our option, plus the applicable margin.

As of September 30, 2022, the outstanding balance of the term loan was $ 24.8 million and the outstanding balance under the revolving credit facility was $ 25.0 million.

As of September 30, 2022, there was no availability under our Credit Agreement.

one, three or six months, at our option, plus the applicable margin.

The applicable margin is 0.75 % to 2.25 % on loans bearing interest at the Base Rate and 1.75 % to 3.25 % on loans bearing interest at LIBOR, in each case depending on our consolidated total leverage ratio;

except that, pursuant to the Second Amendment, during the period commencing on February 22, 2022 and ending on the last day of the fiscal quarter ending June 30, 2023, the applicable margin for LIBOR rate loans is 3.50 % .

At June 30, 2022, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 4.49 % .

At September 30, 2022, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 5.93 % .

Undrawn portions of the revolving credit facility are subject to an unused line fee at a rate per annum from 0.300 % to 0.375 % , depending on our consolidated total leverage ratio.

Maturities of the term loan for the next three years as of June 30, 2022, are as follows:

Maturities of the term loan for the next three years as of September 30, 2022, are as follows:

(In thousands)

2022 (July 1 - December 31)

2022 (October 1 - December 31)

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, a minimum fixed charge coverage ratio, a minimum consolidated EBITDA covenant, and a minimum liquidity covenant.

As of June 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

As of September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

Commitments and Contingencies

9 unchanged sentences

We classify our leases as buildings, vehicles or computer and office equipment and do not separate lease and nonlease components of contracts for any of the aforementioned classifications.

In accordance with

applicable guidance, we do not record leases with terms that are less than one year on the Condensed Consolidated Balance Sheets.

In accordance with applicable guidance, we do not record leases with terms that are less than one year on the Condensed Consolidated Balance Sheets.

None of our lease agreements contain material restrictive covenants or residual value guarantees.

1 unchanged sentence

These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded on the Condensed Consolidated Balance Sheets, with rent expense to be recognized on a straight-line basis over the term of the lease.

The remaining lease terms vary from approximately one to eight years as of June 30, 2022.

The remaining lease terms vary from approximately one to eight years as of September 30, 2022.

We entered into a lease (“initial lease”) in October 2018, for approximately 80,000 square feet of office space for our new corporate headquarters in Minneapolis, Minnesota.

3 unchanged sentences

The portion of the space covered under the initial lease was placed in service in September 2019.

This portion was recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets.

The portion of the space covered under the second lease commenced in September 2020.

2 unchanged sentences

Subsequent to the initial term, the lease becomes a month-to-month, cancelable lease.

As of June 30, 2022, we had approximately 16 vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities.

As of September 30, 2022, we had approximately nine vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities.

In addition to monthly rental fees specific to the vehicle, there are fixed monthly nonlease components that have been included in the ROU operating lease assets and operating lease liabilities.

2 unchanged sentences

We also have operating lease agreements for certain computer and office equipment.

The remaining lease terms as of June 30, 2022, ranged from less than one year to approximately four years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities.

The remaining lease terms as of September 30, 2022, ranged from less than one year to approximately four years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities.

The leases provide an option to purchase the related equipment at fair market value at the end of the lease.

3 unchanged sentences

(In thousands)

At June 30, 2022

At September 30, 2022

At December 31, 2021

4 unchanged sentences

Weighted average discount rate

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information for our operating leases:

3 unchanged sentences

(In thousands)

2022 (July 1 - December 31)

2022 (October 1 - December 31)

Total minimum lease payments

3 unchanged sentences

Non-current obligations under operating lease liabilities

Operating lease costs were $ 1.0 million and $ 0.8 million for the three months ended June 30, 2022 and 2021, respectively.

Operating lease costs were $ 1.9 million and $ 1.7 million for the six months ended June 30, 2022 and 2021, respectively.

Operating lease costs were $ 0.9 million for each of the three months ended September 30, 2022 and 2021.

Operating lease costs were $ 2.8 million and $ 2.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Major Vendors

We had purchases from two vendors that accounted for 31 % and 26 % of our total purchases for the three and six months ended June 30, 2022, respectively.

We had purchases from two vendors that accounted for 33 % of our total purchases for each of the three and six months ended June 30, 2021.

We had purchases from one vendor that accounted for 24 % of our total purchases for the three months ended September 30, 2022 and purchases from two vendors that accounted for 44 % of our total purchases for the nine months ended September 30, 2022.

We had purchases from two vendors that accounted for 36 % of our total purchases for the three months ended September 30, 2021 and purchases from one vendor that accounted for 24 % of our total purchases for the nine months ended September 30, 2021.

Purchase Commitments

We issued purchase orders prior to June 30, 2022, totaling $ 41.5 million for goods that we expect to receive within the next year.

We issued purchase orders prior to September 30, 2022, totaling $ 36.3 million for goods that we expect to receive within the next year.

Retirement Plan

We maintain a 401(k) retirement plan for our employees in which eligible employees can contribute a percentage of their pre-tax compensation.

We recorded an expense related to our discretionary contributions to the 401(k) plan of $ 0.3 million for each of the three months ended June 30, 2022 and 2021, and $ 0.7 million and $ 0.6 million for the six months ended June 30, 2022 and 2021, respectively.

We recorded an expense related to our discretionary contributions to the 401(k) plan of $ 0.4 million and $ 0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $ 1.1 million and $ 0.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Legal Proceedings

27 unchanged sentences

The lawsuit seeks unspecified damages.

In August 2022, the matter was transferred to the United States District Court for the District of Delaware by order granting the Parties Stipulation to Transfer.

It is now captioned Jack Weaver v.

Moen , et al., File No.

1:22-cv-01063-GBW.

We are defending the action as it proceeds.

4 unchanged sentences

The 2016 Plan provides that the number of shares reserved and available for issuance under the 2016 Plan will automatically increase annually on January 1 of each calendar year, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the lesser of:

(a) 5 % of the number of common shares of stock outstanding as of December 31 of the immediately

preceding calendar year, or (b) 2,500,000 shares;

(a) 5 % of the number of common shares of stock outstanding as of December 31 of the immediately preceding calendar year, or (b) 2,500,000 shares;

provided, however, that our Board of Directors may determine that any annual increase be a lesser number.

2 unchanged sentences

Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022.

As of June 30, 2022, 5,879,162 shares were available for future grant pursuant to the 2016 Plan.

As of September 30, 2022, 5,916,065 shares were available for future grant pursuant to the 2016 Plan.

Upon adoption and approval of the 2016 Plan, all of our previous equity incentive compensation plans were terminated.

However, existing awards under those plans continue to vest in accordance with the original vesting schedules and will expire at the end of their original terms.

We recorded stock-based compensation expense of $ 2.9 million and $ 2.7 million for the three months ended June 30, 2022 and 2021, respectively, and $ 5.1 million for each of the six months ended June 30, 2022 and 2021.

We recorded stock-based compensation expense of $ 2.6 million for each of the three months ended September 30, 2022 and 2021, and $ 7.7 million for each of the nine months ended September 30, 2022 and 2021.

This expense was allocated as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

6 unchanged sentences

Stock options issued to participants other than non-employees typically vest over three or four years and typically have a contractual term of seven or ten years .

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $ 0.6 million and $ 1.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ 1.4 million and $ 2.3 million for the six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022, there was approximately $ 1.7 million of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.7 years.

Our stock option activity for the six months ended June 30, 2022, was as follows:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $ 0.6 million and $ 1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $ 2.0 million and $ 3.3 million for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, there was approximately $ 2.2 million of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.2 years.

Our stock option activity for the nine months ended September 30, 2022, was as follows:

Exercise Price

4 unchanged sentences

Cancelled/Expired

Balance at June 30, 2022

Options exercisable at June 30, 2022

Balance at September 30, 2022

Options exercisable at September 30, 2022

(1) The exercise price of each option granted during the period shown was equal to the market price of the underlying stock on the date of grant.

1 unchanged sentence

The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of our common stock on the last trading day of the period.

Options exercisable of 509,575 as of June 30, 2021, had a weighted-average exercise price of $ 31.20 per share.

Options exercisable of 508,184 as of September 30, 2021, had a weighted-average exercise price of $ 30.45 per share.

Time-Based Restricted Stock Units

1 unchanged sentence

Time-based restricted stock units granted under the 2016 Plan vest over one to three years .

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.6 million and $ 1.2 million for the three months ended June 30, 2022 and 2021, respectively, and $ 3.0 million and $ 2.5 million for the six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022, there was approximately $ 10.5 million of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.1 years.

Our time-based restricted stock unit activity for the six months ended June 30, 2022, was as follows:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.5 million and $ 1.2 million for the three months ended September 30, 2022 and 2021, respectively, and $ 4.5 million and $ 3.7 million for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, there was approximately $ 9.4 million of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.0 years.

Our time-based restricted stock unit activity for the nine months ended September 30, 2022, was as follows:

Average Grant

2 unchanged sentences

Balance at December 31, 2021

Balance at June 30, 2022

Balance at September 30, 2022

(1) The aggregate intrinsic value of restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

4 unchanged sentences

The PSUs granted in 2021 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2022.

The PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in 2023.

The number of PSUs earned will depend on the level at which the performance targets

are achieved and can range from 50 % of target if the minimum performance threshold is achieved and up to 150 % of target if maximum performance is achieved.

The PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin

are achieved in 2023.

The number of PSUs earned will depend on the level at which the performance targets are achieved and can range from 50 % of target if the minimum performance threshold is achieved and up to 150 % of target if maximum performance is achieved.

One-third of the earned PSUs will vest on the date the Compensation and Organization Committee certifies the number of PSUs earned, and the remaining two-thirds of the earned PSUs will vest on the first anniversary of that certification date.

All earned and vested PSUs will be settled in shares of common stock.

Stock-based compensation expense recognized for PSUs was $ 0.3 million and $ 0.2 million for the three months ended June 30, 2022 and 2021, respectively, and an expense of $ 0.1 million and a benefit of $ 0.1 million for the six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022, there was approximately $ 2.5 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.5 years.

Our performance-based restricted stock unit activity for the six months ended June 30, 2022, was as follows:

Stock-based compensation expense recognized for PSUs was $ 0.3 million and $ 0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $ 0.5 million and less than $ 0.1 million for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, there was approximately $ 2.2 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.3 years.

Our performance-based restricted stock unit activity for the nine months ended September 30, 2022, was as follows:

Average Grant

2 unchanged sentences

Balance at December 31, 2021

Balance at June 30, 2022

Balance at September 30, 2022

(1) The aggregate intrinsic value of performance-based restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

8 unchanged sentences

Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022.

As of June 30, 2022, 1,623,486 shares were available for future issuance under the ESPP.

We recognized stock-based compensation expense associated with the ESPP of $ 0.4 million and $ 0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $ 0.6 million and $ 0.4 million for the six months ended June 30, 2022 and 2021, respectively.

As of September 30, 2022, 1,623,486 shares were available for future issuance under the ESPP.

We recognized stock-based compensation expense associated with the ESPP of $ 0.2 million for each of the three months ended September 30, 2022 and 2021, and $ 0.7 million and $ 0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

We derive our revenue from the sale and rental of our products to our customers in the United States.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Airway clearance products

Our revenue by channel, inclusive of sales and rental revenue, for the three and six months ended June 30, 2022 and 2021, are summarized in the following table:

Our revenue by channel, inclusive of sales and rental revenue, for the three and nine months ended September 30, 2022 and 2021, are summarized in the following table:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

14 unchanged sentences

Completion of these payments represents the fair market value of the equipment, and as such, interest income is not applicable.

Rental revenue for the three and six months ended June 30, 2022 and 2021, was primarily from private insurers.

Sales-type lease revenue and the associated cost of revenue for the three and six months ended June 30, 2022 and 2021, was:

Three Months Ended June 30,

Six Months Ended June 30,

Rental revenue for the three and nine months ended September 30, 2022 and 2021, was primarily from private insurers.

Sales-type lease revenue and the associated cost of revenue for the three and nine months ended September 30, 2022 and 2021, was:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

5 unchanged sentences

Our provision for income taxes included current federal and state income tax expense, as well as deferred federal and state income tax expense.

The effective tax rate for the three months ended June 30, 2022, was a benefit of 0.4 % , compared to a benefit of 1,405 % for the three months ended June 30, 2021.

The primary driver of the change in our effective tax rate is attributable to recording a benefit in the three months ended June 30, 2021, to recognize a tax credit for a research and development credit study conducted for tax years 2017-2020.

We recorded an income tax benefit of $ 20 thousand and $ 1.4 million for the three months ended June 30, 2022 and 2021, respectively.

The effective tax rate for the six months ended June 30, 2022, was an expense of 1.0 % , compared to a benefit of 77.1 % for the six months ended June 30, 2021.

The primary driver of the change in our effective tax rate is attributable to recording a benefit in the six months ended June 30, 2021, to recognize a tax credit for a research and development credit study conducted for tax years 2017-2020.

We recorded an income tax expense of $ 0.2 million and a benefit of $ 3.2 million for the six months ended June 30, 2022 and 2021, respectively.

The effective tax rate for the three months ended September 30, 2022, was a benefit of 3.3 % , compared to an expense of 126 % for the three months ended September 30, 2021.

The primary driver of the change in the Company’s effective tax rate is attributable to a full valuation allowance being recorded for net deferred tax assets for the current period, whereas no valuation allowance was recorded for 2021.

We recorded an income tax benefit of $ 77 thousand and an expense of $ 1.9 million for the three months ended September 30, 2022 and 2021, respectively.

The effective tax rate for the nine months ended September 30, 2022, was an expense of 0.5 % , compared to a benefit of 24 % for the nine months ended September 30, 2021.

We recorded an income tax expense of $ 0.1 million and a benefit of $ 1.4 million for the nine months ended September 30, 2022 and 2021, respectively.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-not to sustain the position following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

We are currently under examination by the New York Department of Taxation and Finance for tax years 2017, 2018, and 2019.

The examination may lead to proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods.

In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense on our Condensed Consolidated Statements of Operations.

The Company is not under examination in any other jurisdictions.

Net (Loss) Income Per Share

The following table sets forth the computation of our basic and diluted net (loss) income per share:

The Company currently is not under examination in any jurisdictions.

Net Loss Per Share

The following table sets forth the computation of our basic and diluted net loss per share:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except share and per share data)

Net (loss) income

Weighted-average shares outstanding

Dilutive effect of stock-based awards

Weighted-average shares used to compute diluted net (loss) income per share

Net (loss) income per share - Basic

Net (loss) income per share - Diluted

The following common stock equivalents were excluded from the computation of diluted net (loss) income per share for the periods presented because including them would have been anti-dilutive:

Weighted-average shares used to compute diluted net loss per share

Net loss per share - Basic

Net loss per share - Diluted

The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Restricted stock units

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The model includes other assumptions including the market price of risk, which was calculated as the weighted average cost of capital less the long-term risk-free rate.

The earn-out liability will be adjusted to fair value at each reporting date until settled.

Changes in fair value will be included in intangible asset amortization and earn-out expenses in our Condensed Consolidated Statements of Operations.

The earn-out liability is adjusted to fair value at each reporting date until settled.

Changes in fair value are included in intangible asset amortization and earn-out expenses in our Condensed Consolidated Statements of Operations.

Changes in the earn-out liability measured at fair value using Level 3 inputs were as follows:

3 unchanged sentences

Fair value adjustments

Earn-out liability at June 30, 2022

As of June 30, 2022, the fair value of the earn-out liability totaled $ 13.8 million, of which $ 4.0 million was non-current.

The following provides information regarding fair value measurements for our earn-out liability as of June 30, 2022, and December 31, 2021, according to the three-level fair value hierarchy:

At June 30, 2022

Earn-out liability at September 30, 2022

As of September 30, 2022, the earn-out liability totaled $ 17.1 million, $ 7.1 million of which was non-current and $ 10.0 million of which had been earned and is a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of September 30, 2022, and December 31, 2021, according to the three-level fair value hierarchy:

At September 30, 2022

Quoted Prices

10 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 1. Financial Statements