What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-07 · 67 added, 150 removed, 116 unchanged (65% of the section changed)

1 unchanged sentence

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 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 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.

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.

However, we cannot assure you 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.

We are a medical technology company that develops and provides innovative medical devices for the treatment of underserved chronic diseases.

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phlebolymphedema and lipedema.

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

We introduced our Entre system in the United States in February 2013 and the second generation, Entre Plus, in March 2023.

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.

Sales and rentals of our lymphedema products represented 85% and 99% of our revenue in the nine months ended September 30, 2022 and 2021, respectively.

Sales and rentals of our lymphedema products represented 85% of our revenue in each of the three months ended March 31, 2023 and 2022.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance product line from IBC, a privately-held company which developed and manufactured AffloVest.

AffloVest is a portable, wearable vest

that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders.

For the nine months ended September 30, 2022 and 2021 sales of AffloVest represented 15% and 1% of our revenue, respectively.

AffloVest is a portable, wearable vest that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders.

For each of the three months ended March 31, 2023 and 2022, sales of AffloVest represented 15% of our revenue.

To support the growth of our business, we continue to invest in our commercial infrastructure, consisting of our direct sales force, training resources, reimbursement capabilities and clinical expertise.

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We also employ a small group of respiratory specialists, who educate DME representatives, provide product demonstrations for targeted clinicians and support technical questions related to the AffloVest.

As of September 30, 2022, we employed a field staff of 297 Tactile employees, made up of sales representatives, as well as managers, who provide support throughout the United States for our lymphedema and respiratory therapies.

This compares to 249 as of September 30, 2021.

As of March 31, 2023, we employed a field staff of 289, which consisted of 250 field sales representatives and 24 field managers for our lymphedema products, as well as a team of 15 supporting our airway clearance products.

This compares to a field staff of 271 as of March 31, 2022, which consisted of approximately 238 field sales representatives and 20 field managers for our lymphedema products, as well as a team of 13 supporting our airway clearance products.

We invest 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.

While the U.S.

government’s declaration of a public health emergency (PHE) related to the COVID-19 pandemic has relaxed some Medicare criteria for respiratory patients, these circumstances are ever-changing, and 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.

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.

We also have a clinical team, consisting of a scientific advisory board, in-house therapists and nurses, and a Chief Medical Officer, 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.

In 2021, all of our clinical trials resumed research activities, including study visits and new patient enrollments, albeit more slowly than the 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 products, perform quality assurance and ship our products from our facility in Minnesota.

The AffloVest device continued to be manufactured and shipped by IBC on our behalf pursuant to a Transition Services Agreement through April 30, 2022.

On May 1, 2022, we began manufacturing and shipping the AffloVest device from our Minnesota-based facility.

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 or that we will be able to meet any increased demand.

In July 2022, we launched Kylee™ a free mobile app that makes it easier for patients to manage their conditions by tracking treatments and symptoms, as well as having direct access to educational resources.

For the three months ended September 30, 2022, we generated revenue of $65.3 million and had a net loss of $2.3 million, compared to revenue of $52.5 million and a net loss of $3.4 million for the three months ended September 30, 2021.

For the nine months ended September 30, 2022, we generated revenue of $172.9 million and had a net loss of $22.5 million, compared to revenue of $146.3 million and a net loss of $4.3 million for the nine months ended September 30, 2021.

Our primary sources of capital since our initial public offering in 2016 have been from operating income and bank financing.

For the three months ended March 31, 2023, we generated revenue of $58.8 million and had a net loss of $1.9 million, compared to revenue of $48.0 million and a net loss of $15.6 million for the three months ended March 31, 2022.

Our primary sources of capital since our initial public offering in 2016 have been from operating income, bank financing and our public offering in February 2023.

We operate in one segment for financial reporting purposes.

Current Economic Conditions and the Effects of Coronavirus (COVID-19)

The lingering effects of the COVID-19 pandemic, as well as general global economic downturns and macroeconomic trends, including heightened inflation, capital market volatility, interest rate fluctuations, increased unemployment and economic slowdown or recession, may result in unfavorable conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic.

From the onset of the pandemic, we have seen declines in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, and have also seen staffing challenges, both in our organization and at the clinics we serve.

While we saw some level of recovery in 2022 and in the first quarter of 2023 , there are no reliable estimates of how long the pandemic will last 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.

We cannot assure you 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.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

Comparison of the Three Months Ended March 31, 2023 and 2022

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

Three Months Ended

September 30,

(In thousands)

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“N.M.” Not Meaningful

Nine Months Ended

September 30,

(In thousands)

Consolidated Statement

of Operations Data:

Sales revenue

Rental revenue

Total revenue

Cost of revenue

Cost of sales revenue

Cost of rental revenue

Total cost of revenue

Gross profit - sales revenue

Gross profit - rental revenue

Operating expenses

Sales and marketing

Research and development

Reimbursement, general and administrative

Intangible asset amortization and earn-out

Total operating expenses

Loss from operations

Other expense

Loss before income taxes

Income tax expense (benefit)

“N.M.” Not Meaningful

Revenue increased $12.8 million, or 24%, to $65.3 million in the three months ended September 30, 2022, compared to $52.5 million in the three months ended September 30, 2021.

The increase in total revenue was attributable to an increase of $10.2 million in sales of the airway clearance product line, which includes the AffloVest product acquired on September 8, 2021, and an increase of $2.6 million, or 5%, in sales and rentals of the lymphedema product line in the quarter ended September 30, 2022, compared to the 2021 third quarter.

Revenue increased $26.6 million, or 18%, to $172.9 million in the nine months ended September 30, 2022, compared to $146.3 million in the nine months ended September 30, 2021.

The increase in total revenue was attributable to an increase of $25.5 million in sales of the airway clearance product line, which includes the AffloVest product acquired on September 8, 2021, and an increase of $1.0 million, or 1%, in sales and rentals of the lymphedema product line for the nine months ended September 30, 2022.

The first nine months of 2022 revenue from the lymphedema product line was adversely affected by the fact that first quarter 2022 revenue was negatively impacted by the prolonged recovery from COVID-19, including the resurgence due to the Omicron variant during the period, which resulted in restricted access to clinics and hospitals and disrupted the recovery in patient visits versus the pre-COVID environment.

In addition, the challenging labor market continued to impact our ability to recruit and retain quality candidates for our direct sales force, particularly during the first quarter of 2022.

Revenue from the Veterans Administration represented 10% and 13% of total revenue in the three months ended September 30, 2022 and 2021, respectively.

Revenue from the Veterans Administration represented 11% and 14% of total revenue in the nine months ended September 30, 2022 and 2021, respectively.

Revenue from Medicare represented 17% of total revenue in each of the three months ended September 30, 2022 and 2021.

Revenue from Medicare represented 17% and 18% of total revenue in the nine months ended September 30, 2022 and 2021, respectively.

The following table summarizes our revenue by product line for the three and nine months ended September 30, 2022 and 2021, both in dollars and percentage of total revenue:

Revenue increased $10.9 million, or 23%, to $58.8 million in the three months ended March 31, 2023, compared to $48.0 million in the three months ended March 31, 2022.

The increase in total revenue was attributable to an increase of $9.1 million, or 22%, in sales and rentals of the lymphedema product line and an increase of $1.8 million, or 24%, in sales of the airway clearance product line in the quarter ended March 31, 2023, compared to the quarter ended March 31, 2022.

The following table summarizes our revenue by product line for the three months ended March 31, 2023 and 2022, both in dollars and percentage of total revenue:

Three Months Ended

September 30,

(In thousands)

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“N.M.” Not Meaningful

Nine Months Ended

September 30,

(In thousands)

Lymphedema products

Airway clearance products

Percentage of total revenues

Lymphedema products

Airway clearance products

“N.M.” Not Meaningful

Our business is affected by seasonality.

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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 have been, and may continue to be, significantly different than historical trends as a result of the COVID-19 pandemic and related impacts.

Cost of Revenue and Gross Margin

Cost of revenue increased $3.0 million, or 19%, to $18.5 million in the three months ended September 30, 2022, compared to $15.5 million in the three months ended September 30, 2021.

Cost of revenue increased $6.1 million, or 14%, to $49.0 million in the nine months ended September 30, 2022, compared to $42.9 million in the nine months ended September 30, 2021.

The increase in cost of revenue in both periods was primarily attributable to the additional contribution of AffloVest sales and an increase in inbound freight costs.

The total gross margin was 72% and 70% of revenue in the three months ended September 30, 2022 and 2021, respectively, and 72% and 71% of revenue in the nine months ended September 30, 2022 and 2021, respectively.

Cost of revenue increased $3.3 million, or 23%, to $17.4 million in the three months ended March 31, 2023, compared to $14.1 million in the three months ended March 31, 2022.

The increase in cost of revenue was primarily attributable to the additional contribution of AffloVest sales and an increase in inbound freight costs.

Gross margin was 70.5% and 70.6% in the three months ended March 31, 2023 and 2022, respectively.

Sales and Marketing Expenses

Sales and marketing expenses increased $4.4 million, or 20%, to $26.6 million in the three months ended September 30, 2022, compared to $22.2 million in the three months ended September 30, 2021.

The increase was primarily attributable to a:

● $4.3 million increase in personnel-related compensation expense as a result of the increased headcount in the collective field commercial team;

● $0.5 million increase in travel and entertainment expense;

● $0.1 million increase related to sales meetings and tradeshows .

These increases were p artially offset by a $0.5 million decrease in expenses for new product introduction.

Sales and marketing expenses increased $17.4 million, or 28%, to $79.3 million in the nine months ended September 30, 2022, compared to $61.9 million in the nine months ended September 30, 2021.

The increase was primarily attributable to a:

● $12.7 million increase in personnel-related compensation expense as a result of the increased headcount in the collective field commercial team;

● $2.6 million increase in travel and entertainment expense;

● $1.2 million increase related to our annual national sales training meeting;

● $0.5 million increase related to sales meetings and tradeshows;

● $0.4 million increase in expenses for new product introduction.

Sales and marketing expenses increased $2.4 million, or 10%, to $26.3 million in the three months ended March 31, 2023, compared to $23.9 million in the three months ended March 31, 2022.

The increase was primarily attributable to an increase in personnel-related compensation expense as a result of the increased headcount in the collective field commercial team.

Research and Development Expenses

Research and development (“R&D”) expenses increased $0.2 million, or 12%, to $1.6 million in the three months ended September 30, 2022, compared to $1.4 million in the three months ended September 30, 2021, which was primarily attributable to an increase in personnel-related compensation expense and R&D supplies.

R&D expenses increased $1.1 million, or 27%, to $5.0 million in the nine months ended September 30, 2022, compared to $3.9 million in the nine months ended September 30, 2021, which was primarily attributable to an increase in personnel-related compensation expense, R&D supplies, and professional services.

Research and development (“R&D”) expenses increased $0.7 million, or 47%, to $2.2 million in the three months ended March 31, 2023, compared to $1.5 million in the three months ended March 31, 2022, which was primarily attributable to an increase in personnel-related compensation expense, third-party consulting and R&D supplies.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses increased $1.8 million, or 12%, to $16.3 million in the three months ended September 30, 2022, compared to $14.5 million in the three months ended September 30, 2021.

This increase was primarily attributable to a:

● $1.3 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions;

● $1.3 million increase in occupancy costs, depreciation expense, and legal and professional fees.

These increases were partially offset by a $0.8 million decrease in acquisition costs.

Reimbursement, general and administrative expenses increased $4.6 million, or 11%, to $47.4 million in the nine months ended September 30, 2022, compared to $42.8 million in the nine months ended September 30, 2021.

This increase was primarily attributable to a:

● $2.7 million increase in occupancy costs, depreciation expense, and legal and professional fees;

● $2.6 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions;

● $0.1 million increase in travel and entertainment expenses.

These increases were partially offset by a $0.8 million decrease in acquisition costs.

Reimbursement, general and administrative expenses decreased $0.8 million, or 5%, to $15.4 million in the three months ended March 31, 2023, compared to $16.2 million in the three months ended March 31, 2022.

This decrease was primarily attributable to a $1.6 million decrease in occupancy costs, depreciation

expense, and legal and professional fees, partially offset by a $0.8 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions.

Intangible Asset Amortization and Earn-out Expense

Intangible asset amortization and earn-out expense increased $3.8 million to $4.0 million in the three months ended September 30, 2022, compared to $0.2 million in the three months ended September 30, 2021.

The increase in intangible asset amortization and earn-out expense was partially attributable to the increase in the estimated fair value of our earn-out liability and partially attributable to a full quarter of amortization in the 2022 period versus a half month of amortization in the 2021 period.

Intangible asset amortization and earn-out expense increased $12.5 million to $12.8 million in the nine months ended September 30, 2022, compared to $0.3 million in the nine months ended September 30, 2021.

The increase in intangible asset amortization and earn-out expense was primarily attributable to the increase in the estimated fair value of our earn-out liability.

Intangible asset amortization and earn-out expense decreased $5.8 million to $1.3 million in the three months ended March 31, 2023, compared to $7.1 million in the three months ended March 31, 2022.

The decrease in intangible asset amortization and earn-out expense was mainly attributable to a $0.7 million adjustment to the fair value of the earn-out liability for the three months ended March 31, 2023, compared to a $6.5 million adjustment for the three months ended March 31, 2022.

Other Expense, Net

Other expense, net was $0.7 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and was $1.8 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase in both periods was primarily attributable to an increase in interest expense .

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

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

The differences relate to a full valuation allowance being recorded for net deferred tax assets for the current year periods, whereas no valuation allowance was recorded for the 2021 periods.

Other expense, net was $1.0 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.

The increase was primarily attributable to an increase in interest expense .

We recorded an income tax benefit of $2.9 million and an income tax expense of $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

The difference relates to the fact that we expect to have current taxes payable for 2023, despite having a full valuation allowance.

Additionally, there are significant permanent adjustments for nondeductible meals expense and nondeductible stock issuance costs which were not relevant to the prior year period.

Liquidity and Capital Resources

At September 30, 2022, our principal sources of liquidity were cash and cash equivalents of $ 23.4 million and net accounts receivable of $ 69.5 million.

This compares to cash and cash equivalents of $22.4 million and net accounts receivable of $44.3 million at September 30, 2021.

At March 31, 2023, our principal sources of liquidity were cash and cash equivalents of $ 55.0 million and net accounts receivable of $ 71.0 million.

This compares to cash and cash equivalents of $21.2 million and net accounts receivable of $59.5 million at March 31, 2022.

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

Net cash provided by (used in):

Net cash (used in) provided by:

Operating activities

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Financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2022 was $1.4 million, primarily resulting from non-cash net (loss) income adjustments of $23.3 million and a net increase in operating assets and liabilities of $0.6 million, partially offset by a net loss of $22.5 million.

The non-cash net (loss) income adjustments consisted primarily of $10.9 million related to a change in fair value of earn-out liability, $7.7 million of stock-based compensation expense and $4.7 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 $2.6 million, accounts receivable of $2.3 million, inventories of $3.8 million, and prepaid expenses and other assets of $0.3 million.

The changes in operating liabilities consisted of increases in accrued expenses and other liabilities of $6.8 million, accounts payable of $6.1 million, and accrued payroll and related taxes of $1.4 million.

Net cash used in operating activities during the nine months ended September 30, 2021, was $3.0 million, resulting from a net loss of $4.3 million and a net decrease in operating assets and liabilities, net of acquisition, of $6.8 million, which was partially offset by non-cash net income (loss) adjustments of $8.1 million.

The non-cash net income (loss) adjustments consisted primarily of $7.7 million of stock-based compensation

expense, $2.1 million of depreciation and amortization expense and a $1.7 million increase in deferred taxes.

The uses of cash related to changes in operating assets primarily consisted of increases in inventories of $3.6 million, in accounts receivable of $3.4 million, in net investment in leases of $1.7 million, in income taxes of $1.2 million, and in prepaid expenses and other assets of $1.1 million.

The changes in operating liabilities consisted of increases in accrued expenses and other liabilities of $2.9 million and accounts payable of $2.0 million, partially offset by a decrease in accrued payroll and related taxes of $1.3 million.

Net cash used in operating activities during the three months ended March 31, 2023 was $0.5 million, resulting from a net decrease in operating assets and liabilities of $2.9 million and a net loss of $1.9 million, which were partially offset by non-cash net loss adjustments of $4.3 million.

The non-cash net loss adjustments consisted primarily of $2.0 million of stock-based compensation expense, $1.6 million of depreciation and amortization expense and a $0.7 million change in fair value of earn-out liability.

Operating liabilities were unfavorably impacted by a decrease in accrued payroll and related taxes, accrued expenses and other liabilities and income taxes payable.

Operating assets were favorably impacted by a decrease in accounts receivable, net investment in leases and inventories.

Net cash used in operating activities during the three months ended March 31, 2022, was $3.2 million, resulting from a net loss of $15.6 million and a net decrease in operating assets and liabilities of $2.1 million, which was partially offset by non-cash net income (loss) adjustments of $10.3 million.

The non-cash net income (loss) adjustments consisted primarily of $6.5 million related to a change in fair value of earn-out liability, $2.2 million of stock-based compensation expense, $1.5 million of depreciation and amortization expense and $0.1 million of deferred income tax expense.

The uses of cash related to changes in operating assets primarily consisted of decreases in accounts receivable of $2.8 million and in net investment in leases of $0.2 million, partially offset by increases in prepaid expenses and other assets of $0.6 million and in inventories of $0.3 million.

The changes in operating liabilities consisted of a decrease in accrued payroll and related taxes of $2.7 million, partially offset by increases in accrued expenses and other liabilities of $1.4 million and accounts payable of $1.2 million.

Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2022, was $1.8 million, consisting of purchases of property and equipment, and patent costs.

Net cash used in investing activities during the nine months ended September 30, 2021, was $81.2 million, primarily consisting of acquisition-related payments of $79.8 million associated with the purchase of the AffloVest business and $1.4 million in purchases of property and equipment, and patent costs.

Net cash used in investing activities during the three months ended March 31, 2023, was $0.3 million, consisting of purchases of property and equipment, and patent costs.

Net cash used in investing activities during the three months ended March 31, 2022, was $0.2 million, consisting of purchases of property and equipment, and patent costs.

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2022, was $4.3 million, primarily consisting of payments of $5.3 million made on our term loan, slightly offset by $1.0 million in proceeds from exercise of common stock options and the issuance of common stock under the ESPP.

Net cash provided by financing activities during the nine months ended September 30, 2021, was $58.8 million, primarily consisting of borrowings of $54.8 million net of debt issuance costs incurred and $5.1 million in proceeds from the exercise of common stock options and the issuance of common stock under the ESPP, partially offset by $1.2 million in taxes paid for the net share settlement of performance and restricted stock units.

Net cash provided by financing activities during the three months ended March 31, 2023, was $33.9 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million, slightly offset by a $0.8 million payment made on our term loan.

Net cash used by financing activities during the three months ended March 31, 2022, was $3.7 million, primarily consisting of payments of $3.8 million made on our term loan, slightly offset by $0.1 million in proceeds from exercise of common stock options.

Credit Agreement

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The Restated Credit Agreement amended and restated in its entirety our prior credit agreement.

On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amends the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent.

The Amendment, among other things, adds a $30.0 million incremental term loan to the $25.0 million revolving credit facility provided by the Restated Credit Agreement.

On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amended the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent.

The Amendment, among other things, added a $30.0 million incremental term loan to the $25.0 million revolving credit facility provided by the Restated Credit Agreement.

The term loan is reflected on our condensed consolidated financial statements as a note payable.

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The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $80.0 million.

On September 8, 2021, in connection with the closing of the AffloVest Acquisition, we borrowed the $30.0 million term loan and utilized that borrowing, together with a draw of $25.0 million under the revolving credit facility and cash on hand, to fund the purchase price.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amends the Credit Agreement, including with respect to the financial covenants.

On September 8, 2021, in connection with the closing of the acquisition of the AffloVest business, we borrowed the $30.0 million term loan and utilized that borrowing, together with a draw of $25.0 million under the revolving credit facility and cash on hand, to fund the purchase price.

The principal of the term loan is required to be repaid in quarterly installments of $750,000 commencing January 7, 2022, through July 8, 2024, with the remaining outstanding balance due on September 8, 2024.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amends the Credit Agreement.

The Second Amendment modifies the maximum leverage ratio,

the minimum fixed charge coverage ratio and the minimum consolidated EBITDA covenants under the Credit Agreement, and adds a minimum liquidity covenant.

The second amendment also increases the applicable margin for LIBOR rate loans under the Credit Agreement during the period commencing on the date of the Second Amendment and ending on the last day of the fiscal quarter ending June 30, 2023.

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 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.

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

As of March 31, 2023, we had outstanding borrowings of $48.3 million under the Credit Agreement, comprised of $23.3 million under the term loan and $25.0 million under the revolving credit facility.

For additional information regarding the Credit Agreement, including interest rates, fees and maturities, see Note 9 – “Credit Agreement” of the condensed consolidated financial statements contained in this report.

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There have been no material changes since December 31, 2022.

As discussed in Note 4 – “Acquisitions” of the condensed consolidated financial statements contained in this report, t he initial earn-out payment under the AffloVest Acquisition is $10.0 million, of which we will pay $5.0 million on or before November 28, 2022, and of which we will pay $5.0 million, plus an imputed interest payment of $250,000, on or before May 26, 2023.

As discussed in Note 4 – “Acquisitions” of the condensed consolidated financial statements contained in this report, t he initial earn-out payment under the AffloVest Acquisition was $10.0 million, $5.0 million of which we paid in the fourth quarter of 2022, and $5.0 million, plus an imputed interest payment of $250,000, of which we are obligated to pay on or before May 26, 2023.

Adequacy of Resources

Our future cash requirements may vary significantly from those now planned and will depend on many factors, including:

● the impact and duration of the COVID-19 pandemic on our business;

● the impacts of inflation, rising interest rates or a recession on our business;

● sales and marketing resources needed to further penetrate our market;

● expansion of our operations domestically and/or internationally;

● expansion of our operations;

● response of competitors to our solutions and applications;

16 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis