What changed in this filing

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Item 1. Financial Statements

2023-11-06 compared with 2023-08-07 · 146 added, 136 removed, 476 unchanged (37% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(In thousands, except share and per share data)

3 unchanged sentences

Net investment in leases

Income taxes receivable

Prepaid expenses and other current assets

5 unchanged sentences

Accounts receivable, non-current

Deferred income taxes

Other non-current assets

21 unchanged sentences

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

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

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

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

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

23,497,557 shares issued and outstanding as of September 30, 2023;

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

Additional paid-in capital

Accumulated deficit

Retained earnings (accumulated deficit)

Total stockholders’ equity

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except share and per share data)

17 unchanged sentences

Income (loss) before income taxes

Income tax expense (benefit)

Net loss per common share

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

Income tax (benefit) expense

Net income (loss)

Net income (loss) per common share

Weighted-average common shares used to compute net income (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, 2023

Balances, June 30, 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

Net income for the period

Balances, September 30, 2023

Balances, December 31, 2022

3 unchanged sentences

Common shares issued for employee stock purchase plan

Net loss for the period

Net income for the period

Balances, September 30, 2023

Balances, June 30, 2022

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, September 30, 2022

Balances, December 31, 2021

3 unchanged sentences

Net loss for the period

Balances, June 30, 2022

Balances, September 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

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 provided by (used in) operating activities:

Net income (loss)

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

Depreciation and amortization

12 unchanged sentences

Accrued expenses and other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities

3 unchanged sentences

Cash flows from financing activities

Proceeds from issuance of note payable

Payment on earn-out

Payments on note payable

Payment on revolving line of credit

Payments of deferred debt issuance costs

15 unchanged sentences

Tactile Systems Technology, Inc.

(“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.

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

We provide our Flexitouch® Plus and Entre™ Plus systems, which help control symptoms of lymphedema, a chronic progressive medical condition, through our direct sales force for use in the home following receipt of prescriptions from 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 manufactured AffloVest.

18 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, 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 nine months ended September 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

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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 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.

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.

While we saw some level of recovery in 2022 and the first nine months of 2023, consequences of the pandemic remain uncertain.

Although the effects of the COVID-19 pandemic on our operating results continue to subside, the pandemic could still have an unfavorable effect on our financial position, results of operations and cash flows.

Use of Estimates

3 unchanged sentences

Significant Accounting Policies

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

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

2 unchanged sentences

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 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.

2 unchanged sentences

Under the terms of the AffloVest APA, we agreed to pay IBC a total of up to $ 100.0 million for the purchase of substantially all of the assets related to its branded high frequency chest wall oscillation vest therapy business, other than specifically identified excluded assets.

We acquired AffloVest to further expand our position as a leader in treating patients with underserved chronic conditions in the home.

We acquired AffloVest to further expand our position as a leader in treating patients with underserved chronic

conditions in the home.

The acquired assets included inventory, tooling, intellectual property, permits and approvals, data and records, and customer and supplier information.

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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.

o Subsequent to September 30, 2023, it was determined that the calculated amount of the second earn-out payment is $ 5.6 million, which is payable by the Company on or before November 28, 2023 (see Note 15 – “Fair Value Measurements”).

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

3 unchanged sentences

(In thousands)

At June 30, 2023

At September 30, 2023

At December 31, 2022

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Our patents and other intangible assets are summarized as follows:

At June 30, 2023

At September 30, 2023

(In thousands)

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Total intangible assets

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.

Amortization expense was $ 0.9 million and $ 1.0 million for the three months ended September 30, 2023 and 2022, respectively, and $ 2.9 million for each of the nine months ended September 30, 2023 and 2022.

Future amortization expenses are expected as follows:

(In thousands)

2023 (July 1 - December 31)

2023 (October 1 - December 31)

In the third quarter of 2023, 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 June 30, 2023

At September 30, 2023

At December 31, 2022

Legal and consulting

In-transit inventory

Clinical studies

In-transit inventory

Sales and use tax

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

12 unchanged sentences

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

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.

3 unchanged sentences

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.

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

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 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.

1 unchanged sentence

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 (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.

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.

At September 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 7.72 % .

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 .

The Fourth Amendment, among other things, decreased 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 eliminated 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 in the above paragraph.

The Fourth Amendment also eliminated the liquidity financial covenant and modified 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 provided for an additional term loan in the amount of $ 8.25 million, which we used for a paydown of the revolving credit facility.

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

As of September 30, 2023, we had outstanding borrowings of $ 46.8 million under the Credit Agreement, comprised of $ 30.0 million under the term loan and $ 16.8 million under the revolving credit facility.

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

Maturities of the term loan for the next four years as of September 30, 2023, were as follows:

(In thousands)

2023 (October 1 - December 31)

Our obligations under the Credit Agreement are secured by a security interest in substantially all of our and our subsidiary’s assets and are also guaranteed by our subsidiary.

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

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

Commitments and Contingencies

8 unchanged sentences

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

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.

We classify our leases as buildings, vehicles or computer and office equipment and do not separate lease and non-lease 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.

2 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 June 30, 2023.

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

8 unchanged sentences

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

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.

The nonlease components are not significant.

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.

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

The non-lease components are not significant.

As of September 30, 2023, we did not 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 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 remaining lease terms as of September 30, 2023, 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, 2023

At September 30, 2023

At December 31, 2022

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)

2023 (July 1 - December 31)

2023 (October 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 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.

Operating lease costs were $ 0.9 million for each of the three months ended September 30, 2023 and 2022.

Operating lease costs were $ 2.7 million and $ 2.8 million for the nine months ended September 30, 2023 and 2022, respectively.

Major Vendors

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.

We had purchases from one vendor that accounted for 29 % of our total purchases for the three months ended September 30, 2023 and purchases from one vendor that accounted for 26 % of our total purchases for the nine months ended September 30, 2023.

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.

Purchase Commitments

We issued purchase orders prior to June 30, 2023, totaling $ 43.1 million for goods that we expect to receive within the next year.

We issued purchase orders prior to September 30, 2023, totaling $ 27.7 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, 2023 and 2022, and $ 0.7 million for each of the six months ended June 30, 2023 and 2022.

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 September 30, 2023 and 2022, and $ 1.1 million for each of the nine months ended September 30, 2023 and 2022.

Legal Proceedings

21 unchanged sentences

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 August 23, 2023, the Court held the hearing on the motion for final approval of the settlement and on August 25, 2023 entered an order granting the motion, bringing the matter to a close.

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.

7 unchanged sentences

(5) that the individual defendants breached their fiduciary duties;

and (6) that the individual defendants were unjustly enriched.

and (6) that the individual defendants were

unjustly enriched.

The lawsuit seeks unspecified damages.

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

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.

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 while the parties continue 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 June 30, 2023, 5,661,942 shares were available for future grant pursuant to the 2016 Plan.

As of September 30, 2023, 5,773,265 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 $ 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.

We recorded stock-based compensation expense of $ 1.8 million and $ 2.6 million for the three months ended September 30, 2023 and 2022, respectively, and $ 5.6 million and $ 7.7 million for the nine months ended September 30, 2023 and 2022, respectively.

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 $ 0.2 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:

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 September 30, 2023 and 2022, respectively, and $ 0.8 million and $ 2.0 million for the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, there was approximately $ 0.4 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 0.9 years.

Our stock option activity for the nine months ended September 30, 2023, was as follows:

Exercise Price

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Cancelled/Expired

Balance at June 30, 2023

Options exercisable at June 30, 2023

Balance at September 30, 2023

Options exercisable at September 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 482,154 as of June 30, 2022, had a weighted-average exercise price of $ 41.52 per share.

Options exercisable of 402,979 as of September 30, 2022, had a weighted-average exercise price of $ 44.18 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 $ 1.6 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:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.2 million and $ 1.5 million for the three months ended September 30, 2023 and 2022, respectively, and $ 3.8 million and $ 4.5 million for the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, there was approximately $ 7.6 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 1.6 years.

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

Average Grant

2 unchanged sentences

Balance at December 31, 2022

Balance at June 30, 2023

Balance at September 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.

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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 2023 have three separate performance periods, and one-third of each grant will be earned

if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in each of 2023 and 2024 (ranging from 25 % to 175 % of target), and one-third will be earned if and to the extent performance goals to be established are achieved in 2025.

The PSUs granted in 2023 have three separate performance periods, and one-third of each grant will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in each of 2023 and 2024 (ranging from 25 % to 175 % of target), and one-third will be earned if and to the extent performance goals to be established are achieved in 2025.

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

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:

Stock-based compensation expense recognized for PSUs was $ 0.3 million for each of the three months ended September 30, 2023 and 2022, and $ 0.6 million and $ 0.5 million for the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, there was approximately $ 1.7 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.1 years.

Our PSU activity for the nine months ended September 30, 2023, was as follows:

Average Grant

2 unchanged sentences

Balance at December 31, 2022

Balance at June 30, 2023

Balance at September 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 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.

As of September 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 $ 0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $ 0.4 million and $ 0.7 million for the nine months ended September 30, 2023 and 2022, respectively.

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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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Airway clearance products

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:

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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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, 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,

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

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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, 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 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.

The effective tax rate for the three months ended September 30, 2023, was a benefit of 194.0 % , compared to a benefit of 3.4 % for the three months ended September 30, 2022.

The primary driver of the change in our effective tax rate was attributable to the release of our valuation allowance related to the future realization of deferred tax assets.

We recorded an income tax benefit of $ 14.7 million and an income tax benefit of $ 0.1 million for the three months ended September 30, 2023 and 2022, respectively.

The effective tax rate for the nine months ended September 30, 2023, was a benefit of 407.1 % , compared to an expense of 0.5 % for the nine months ended September 30, 2022.

The primary driver of the change in the Company’s effective tax rate was attributable to the release of our valuation allowance related to the future realization of deferred tax assets.

We recorded an income tax benefit of $ 16.3 million and an income tax expense of $ 0.1 million for the nine months ended September 30, 2023 and 2022, respectively.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of September 30, 2023, in part because in the current year we achieved three years of cumulative pretax income in the U.S.

federal tax jurisdiction, management determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes of $ 17.9 million are realizable.

We therefore reduced the valuation allowance accordingly, which resulted in the increased effective tax rate benefit in the three and nine months ended September 30, 2023 as discussed above.

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.

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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:

Net Income (Loss) Per Share

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except share and per share data)

Net income (loss)

Weighted-average shares outstanding

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:

Net income (loss) per share - Basic

Net income (loss) per share - Diluted

The following common stock equivalents were excluded from the computation of diluted net income (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 lowest priority is given to unobservable inputs (Level 3).

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.

The earn-out liability was valued by employing a Monte Carlo Simulation model in a risk-neutral framework, which is a Level 3 input.

The underlying simulated variable includes recognized revenue.

As of September 30, 2023, we had an obligation to pay $ 5.6 million in cash under the second, final earn-out payment based on the level of AffloVest U.S.

revenues in the period from October 1, 2022 to September 30, 2023.

Prior to the determination of the actual amount of the earn-out, the earn-out liability was valued by employing a Monte Carlo Simulation model in a risk-neutral framework, which is a Level 3 input.

The underlying simulated variable included recognized revenue.

The recognized revenue volatility estimate was based on a study of historical asset volatility for a set of comparable public companies.

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 is adjusted to fair value at each reporting date until settled.

The model included 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 was adjusted to fair value at each reporting date until the end of the earn-out period.

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

As of September 30, 2023 the AffloVest U.S.

revenues were known and the earn-out was no longer subject to a fair value measurement.

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

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Fair value adjustments

Earn-out liability at June 30, 2023

Earn-out liability at September 30, 2023

(In thousands)

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Fair value adjustments

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

(In thousands)

Recurring Fair Value Measurements:

Earn-out liability

Earn-out liability at September 30, 2022

As of September 30, 2023, the remaining $ 5.6 million of the earn-out liability had been earned and is to be paid by the Company on or before November 28, 2023.

There was no remaining contingent earn-out liability as of September 30, 2023.

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

At December 31, 2022

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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