What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-08 · 126 added, 84 removed, 486 unchanged (30% of the section changed)

38 unchanged sentences

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

none issued and outstanding as of March 31, 2023 and December 31, 2022

none issued and outstanding as of June 30, 2023 and December 31, 2022

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

23,235,065 shares issued and outstanding as of March 31, 2023;

23,458,302 shares issued and outstanding as of June 30, 2023;

20,252,677 shares issued and outstanding as of December 31, 2022

1 unchanged sentence

Accumulated deficit

Accumulated other comprehensive income

Total stockholders’ equity

4 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except share and per share data)

14 unchanged sentences

Total operating expenses

Loss from operations

Income (loss) from operations

Other expense

Loss before income taxes

Income tax (benefit) expense

Income (loss) before income taxes

Income tax expense (benefit)

Net loss per common share

4 unchanged sentences

(In thousands, except share data)

Balances, March 31, 2023

Stock-based compensation

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

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

Common shares issued for employee stock purchase plan

Net loss for the period

Balances, June 30, 2023

Balances, December 31, 2022

2 unchanged sentences

Sale of common stock from follow-on public offering, net of offering expenses

Common shares issued for employee stock purchase plan

Net loss for the period

Balances, June 30, 2023

Balances, March 31, 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, December 31, 2021

1 unchanged sentence

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, March 31, 2022

Balances, June 30, 2022

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 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

12 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

3 unchanged sentences

Cash flows from financing activities

Payment on earn-out

Payments on note payable

1 unchanged sentence

Proceeds from exercise of common stock options

Proceeds from the issuance of common stock from the employee stock purchase plan

Proceeds from issuance of common stock at market

28 unchanged sentences

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.

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 have an increasing 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.

3 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 three months ended March 31, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, or for any other interim period or for any future year.

The results for the six months ended June 30, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, 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

9 unchanged sentences

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 2022 and the first quarter of 2023, ongoing consequences of the pandemic remain uncertain.

While we saw some level of recovery in 2022 and the first two quarters of 2023, 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.

8 unchanged sentences

Significant Accounting Policies

There were no material changes in our significant accounting policies during the three months ended March 31, 2023.

There were no material changes in our significant accounting policies during the six months ended June 30, 2023.

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, 2022, for information regarding our significant accounting policies.

Accounting Pronouncement Not Yet Adopted

Accounting Pronouncement Recently Adopted

I n December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2022-06, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2022-06”), which provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The ASU deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The ASU is effective as of December 31, 2022 through December 31, 2024.

to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

We have not elected any expedients to date and are currently evaluating any potential future impacts on the consolidated financial statements.

The ASU deferred the sunset date of Topic 848 from December 31, 2022 to

December 31, 2024.

We adopted this ASU in the quarter ended June 30, 2023.

The adoption of this standard did not have a significant impact on the Company’s financial statements.

On September 8, 2021, we entered into an Asset Purchase Agreement (“AffloVest APA”) to acquire the AffloVest airway clearance business from IBC.

10 unchanged sentences

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 paid $ 5.0 million on 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.

o The APA Amendment provides that the calculated amount of the initial earn-out payment is $ 10.0 million, of which the Company paid $ 5.0 million on November 28, 2022, and $ 5.0 million, plus an imputed interest payment of $ 250,000 , on May 25, 2023.

● Second Earn-Out:

8 unchanged sentences

(In thousands)

At March 31, 2023

At June 30, 2023

At December 31, 2022

7 unchanged sentences

Our patents and other intangible assets are summarized as follows:

At March 31, 2023

At June 30, 2023

(In thousands)

17 unchanged sentences

Total intangible assets

Amortization expense was $ 1.0 million for each of the three months ended March 31, 2023 and 2022.

Amortization expense was $ 1.0 million for each of the three months ended June 30, 2023 and 2022, and $ 1.9 million for each of the six months ended June 30, 2023 and 2022.

Future amortization expenses are expected as follows:

(In thousands)

2023 (April 1 - December 31)

2023 (July 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.

4 unchanged sentences

(In thousands)

At March 31, 2023

At June 30, 2023

At December 31, 2022

6 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands)

12 unchanged sentences

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

The term loan and the revolving credit facility mature on September 8, 2024.

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.

The maturity date of the term loan and the revolving credit facility was September 8, 2024, until the Fourth Amendment Agreement (as described below) extended the maturity date to August 1, 2026.

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 amended the Credit Agreement.

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.

The Second Amendment modified the maximum leverage ratio, the minimum fixed charge coverage ratio and the minimum consolidated EBITDA covenants under the Credit Agreement, and added a minimum liquidity covenant, through the quarter ended June 30, 2023.

The Second Amendment also increased 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.

On June 21, 2023, we entered into a Third Amendment Agreement (the “Third Amendment”) that replaced the interest rate benchmark under the Credit Agreement from LIBOR to the term Secured Overnight Financing Rate (“SOFR”).

All tenors of term SOFR are subject to a credit spread adjustment of 0.10 % (“Adjusted Term SOFR”).

The principal of the term loan is required to be repaid in quarterly installments of $ 750,000 .

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 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.

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.

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 March 31, 2023, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 8.28 % .

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 two years as of March 31, 2023, are as follows:

As of June 30, 2023, we had outstanding borrowings of $ 47.5 million under the Credit Agreement, comprised of $ 22.5 million under the term loan and $ 25.0 million under the revolving credit facility.

Pursuant to the Fourth Amendment (as defined below), we borrowed under the term loan, and made a payment on the revolving credit facility, in the amount of $ 8.25 million on August 1, 2023.

Following the Third Amendment, 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) Adjusted Term SOFR for a one-month tenor plus 1 % (the “Base Rate”) plus an applicable margin or (b) Adjusted Term SOFR for an interest period of 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 Adjusted Term SOFR, in each case depending on our consolidated total leverage ratio;

except that, pursuant to the Second Amendment and the Third 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 and Adjusted Term SOFR loans, as applicable, was 3.50 % .

At June 30, 2023, all outstanding borrowings were subject to interest at a rate calculated at Adjusted Term SOFR plus an applicable margin, for an interest rate of 8.81 % .

The undrawn portions of the revolving credit facility were

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 two years as of June 30, 2023, were as follows:

(In thousands)

2023 (April 1 - December 31)

2023 (July 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 and a minimum consolidated EBITDA covenant.

As of March 31, 2023, we were in compliance with all financial covenants under the Credit Agreement.

As of June 30, 2023, the Credit Agreement contained a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum liquidity covenant and a minimum consolidated EBITDA covenant.

As of June 30, 2023, we were in compliance with all financial covenants under the Credit Agreement.

On August 1, 2023, we entered into a Fourth Amendment Agreement (the “Fourth Amendment”), which further amends the Credit Agreement.

The Fourth Amendment, among other things, decreases the commitment fees payable under the revolving credit facility under the Credit Agreement such that the undrawn portions of the revolving credit facility are subject to an unused line fee at a rate per annum from 0.125 % to 0.200 % , depending on our consolidated leverage ratio, and eliminates the language providing that the applicable margin for Adjusted Term SOFR loans was 3.50 % , such that the interest rates are in effect as set forth above.

The Fourth Amendment also eliminates the liquidity financial covenant and modifies the remaining financial covenants to reflect the termination of the temporary covenant relief period that was in place until June 30, 2023 pursuant to the Second Amendment, such that the financial covenants now include a maximum consolidated total leverage ratio covenant, a minimum consolidated EBITDA covenant and a minimum fixed charge coverage ratio covenant.

In addition, the Fourth Amendment provides for an additional term loan in the amount of $ 8.25 million, which we used for a paydown of the revolving credit facility.

Following such payment, as of August 1, 2023 , we had outstanding borrowings of $ 46.75 million under the Credit Agreement, comprised of $ 30.0 million under the term loan and $ 16.75 million under the revolving credit facility.

The Fourth Amendment also extends the maturity date of the term loans and revolving credit facility under the Credit Agreement from September 8, 2024, to August 1, 2026 .

Commitments and Contingencies

6 unchanged sentences

When available, we use the rate implicit in the lease to discount lease payments to present value;

certain leases do not provide a readily determinable implicit rate.

however, certain leases do not provide a readily determinable implicit rate.

Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

4 unchanged sentences

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 March 31, 2023.

The remaining lease terms vary from approximately one to eight years as of June 30, 2023.

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.

10 unchanged sentences

The nonlease components are not significant.

As of March 31, 2023, we no longer have any vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities.

As of June 30, 2023, we no longer have any vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities.

Computer and Office Equipment

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

The remaining lease terms as of March 31, 2023, ranged from less than one year to approximately three years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities.

The remaining lease terms as of June 30, 2023, ranged from less than one year to approximately three 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 March 31, 2023

At June 30, 2023

At December 31, 2022

4 unchanged sentences

Weighted average discount rate

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information for our operating leases:

3 unchanged sentences

(In thousands)

2023 (April 1 - December 31)

2023 (July 1 - December 31)

Total minimum lease payments

3 unchanged sentences

Non-current obligations under operating lease liabilities

Operating lease costs were $ 0.9 million and $ 1.0 million for the three months ended March 31, 2023 and 2022, respectively.

Operating lease costs were $ 0.9 million and $ 1.0 million for the three months ended June 30, 2023 and 2022, respectively.

Operating lease costs were $ 1.8 million and $ 1.9 million for the six months ended June 30, 2023 and 2022, respectively.

Major Vendors

We had purchases from one vendor that accounted for 29 % of our total purchases for the three months ended March 31, 2023, and purchases from two vendors that accounted for 29 % of our total purchases for the three months ended March 31, 2022.

We had purchases from two vendors that accounted for 30 % of our total purchases for the three months ended June 30, 2023 and purchases from one vendor that accounted for 24 % of our total purchases for the six months ended June 30, 2023.

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.

Purchase Commitments

We issued purchase orders prior to March 31, 2023, totaling $ 37.4 million for goods that we expect to receive within the next year.

We issued purchase orders prior to June 30, 2023, totaling $ 43.1 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 $ 0.4 million for each of the three months ended March 31, 2023 and 2022.

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, 2023 and 2022, and $ 0.7 million for each of the six months ended June 30, 2023 and 2022.

Legal Proceedings

20 unchanged sentences

On April 26, 2023, the court issued a minute order indicating the motion would be approved and on May 4, 2023, issued the written order granting the motion for preliminary approval of the settlement.

A hearing for final approval of the settlement will be held on August 23, 2023.

On July 19, 2023, the plaintiff filed a motion for final approval of the settlement.

A hearing for final approval of the settlement is scheduled for August 23, 2023.

On May 24, 2022, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Company against certain of our present and former officers and directors and the Company (as a nominal defendant), captioned Jack Weaver v.

12 unchanged sentences

The plaintiff filed an Amended Complaint on March 3, 2023.

On March 31, 2023, we filed a motion to dismiss the Amended Complaint.

We are defending the action as it proceeds.

On March 31, 2023, we filed a motion to dismiss the Amended Complaint , which is pending.

On July 31, 2023, the plaintiff filed a Joint Notice of Preliminary Settlement indicating that the parties have reached a non-binding settlement-in-principal on most of the material terms that would resolve all claims between the

parties and requested that the Court temporarily stay all deadlines, hearings, and conferences until September 1, 2023, to allow the parties time to finalize settlement.

Stockholders' Equity

7 unchanged sentences

Our Board of Directors exercised its prerogative to forego the automatic increase on each of January 1, 2023 and 2022.

As of March 31, 2023, 5,614,397 shares were available for future grant pursuant to the 2016 Plan.

As of June 30, 2023, 5,661,942 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 $ 2.0 million and $ 2.2 million for the three months ended March 31, 2023 and 2022, respectively.

We recorded stock-based compensation expense of $ 1.8 million and $ 2.9 million for the three months ended June 30, 2023 and 2022, respectively, and $ 3.8 million and $ 5.1 million for the six months ended June 30, 2023 and 2022, respectively.

This expense was allocated as follows:

Three Months Ended

Six Months Ended

(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 $ 0.3 million and $ 0.7 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was approximately $ 1.0 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 1.1 years.

Our stock option activity for the three months ended March 31, 2023, was as follows:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $ 0.2 million and $ 0.6 million for the three months ended June 30, 2023 and 2022, respectively, and $ 0.5 million and $ 1.4 million for the six month ended June 30, 2023 and 2022, respectively.

At June 30, 2023, there was approximately $ 0.7 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 1.0 years.

Our stock option activity for the six months ended June 30, 2023, was as follows:

Exercise Price

4 unchanged sentences

Cancelled/Expired

Balance at March 31, 2023

Options exercisable at March 31, 2023

Balance at June 30, 2023

Options exercisable at June 30, 2023

(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 576,134 as of March 31, 2022, had a weighted-average exercise price of $ 36.57 per share.

Options exercisable of 482,154 as of June 30, 2022, had a weighted-average exercise price of $ 41.52 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 $ 1.3 million and $ 1.4 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was approximately $ 9.8 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 2.2 years.

Our time-based restricted stock unit activity for the three months ended March 31, 2023, was as follows:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.3 million and $ 1.6 million for the three months ended June 30, 2023 and 2022, respectively, and $ 2.6 million and $ 3.0 million for the six months ended June 30, 2023 and 2022, respectively.

At June 30, 2023, there was approximately $ 9.2 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 1.8 years.

Our time-based restricted stock unit activity for the six months ended June 30, 2023, was as follows:

Average Grant

2 unchanged sentences

Balance at December 31, 2022

Balance at March 31, 2023

Balance at June 30, 2023

(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.

8 unchanged sentences

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

Stock-based compensation expense recognized for PSUs was $ 0.2 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was approximately $ 2.6 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.4 years.

Our PSU activity for the three months ended March 31, 2023, was as follows:

Stock-based compensation expense recognized for PSUs was $ 0.1 million and $ 0.3 million for the three months ended June 30, 2023 and 2022, respectively, and $ 0.3 million and $ 0.1 million for the six months ended June 30, 2023 and 2022, respectively.

At June 30, 2023, 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 PSU activity for the six months ended June 30, 2023, was as follows:

Average Grant

2 unchanged sentences

Balance at December 31, 2022

Balance at March 31, 2023

Balance at June 30, 2023

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

7 unchanged sentences

Our Board of Directors exercised its prerogative to forego the automatic increase on each of January 1, 2023 and 2022.

As of March 31, 2023, 1,559,151 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 March 31, 2023 and 2022 .

As of June 30, 2023, 1,438,335 shares were available for future issuance under the ESPP.

We recognized stock-based compensation expense associated with the ESPP of $ 0.1 million and $ 0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $ 0.3 million and $ 0.6 million for the six months ended June 30, 2023 and 2022, 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

(In thousands)

4 unchanged sentences

Airway clearance products

Our revenue by channel, inclusive of sales and rental revenue, for the three months ended March 31, 2023 and 2022, are summarized in the following table:

Our revenue by channel, inclusive of sales and rental revenue, for the three and six months ended June 30, 2023 and 2022, are summarized in the following table:

Three Months Ended

Six Months Ended

(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 months ended March 31, 2023 and 2022, was primarily from private insurers.

Sales-type lease revenue and the associated cost of revenue for the three months ended March 31, 2023 and 2022, was:

Three Months Ended March 31,

Rental revenue for the three and six months ended June 30, 2023 and 2022, was primarily from private insurers.

Sales-type lease revenue and the associated cost of revenue for the three and six months ended June 30, 2023 and 2022, was:

Three Months Ended June 30,

Six Months Ended June 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 March 31, 2023, was a benefit of 60.7 % , compared to an expense of 1.4 % for the three months ended March 31, 2022.

The effective tax rate for the three months ended June 30, 2023, was an expense of 108.3 % , compared to a benefit of 0.4 % for the three months ended June 30, 2022.

The primary driver of the change in our effective tax rate is attributable to our expectation that we will have current taxes payable for 2023, despite having a full valuation allowance.

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

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

We recorded an income tax expense of $ 1.3 million and an income tax benefit of $ 20 thousand for the three months ended June 30, 2023 and 2022, respectively.

The effective tax rate for the six months ended June 30, 2023, was a benefit of 44.5 % , compared to an expense of 1.0 % for the six months ended June 30, 2022.

The benefit for the current year period reflects the tax effects of year-to-date losses that we expect to realize, whereas tax benefits from losses in the prior year period were not expected to be realized.

We recorded an income tax benefit of $ 1.6 million and an income tax expense of $ 0.2 million for the six months ended June 30, 2023 and 2022, 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.

4 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except share and per share data)

5 unchanged sentences

Three Months Ended

Six Months Ended

Restricted stock units

9 unchanged sentences

The lowest priority is given to unobservable inputs (Level 3).

As of March 31, 2023, we had obligations to pay a $ 5.0 million agreed-upon earn-out payment in cash and up to an additional $ 10.0 million earn-out payment in cash if certain future U.S.

As of June 30, 2023, we had an obligation to pay up to $ 10.0 million in an earn-out payment in cash if certain future U.S.

revenues of the AffloVest are met.

8 unchanged sentences

Earn-out liability at December 31, 2022

Payment on earn-out

Fair value adjustments

Earn-out liability at March 31, 2023

Earn-out liability at June 30, 2023

(In thousands)

1 unchanged sentence

Fair value adjustments

Earn-out liability at March 31, 2022

As of March 31, 2023, the fair value of the earn-out liability accrued but not yet earned totaled $ 8.7 million and was classified as a current liability.

The remaining $ 5.0 million of the earn-out liability had been earned, is to be paid by May 26, 2023 and was classified as a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of March 31, 2023, and December 31, 2022, according to the three-level fair value hierarchy:

At March 31, 2023

Earn-out liability at June 30, 2022

As of June 30, 2023, the fair value of the earn-out liability accrued but not yet earned totaled $ 9.3 million and was classified as a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of June 30, 2023, and December 31, 2022, according to the three-level fair value hierarchy:

At June 30, 2023

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