Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this report.
Overview
We are a medical technology company that develops and provides innovative medical devices for the treatment of underserved chronic diseases. Our mission is to help people suffering from chronic diseases live better and care for themselves at home. We focus our efforts on advancing the standard of care in treating underserved chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures. Our areas of therapeutic focus are (1) vascular disease, with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency, (2) oncology, where lymphedema is a common consequence among cancer survivors and (3) providing airway clearance therapy for those suffering from chronic respiratory conditions. We possess a unique, scalable platform to deliver at-home healthcare solutions throughout the United States. This evolving home care delivery model is recognized by policymakers and insurance payers as a key for controlling rising healthcare costs. Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases.
Our current lymphedema products are the Flexitouch Plus and Entre Plus systems and our airway clearance product is the AffloVest. A predecessor to our Flexitouch system received 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) in July 2002, and we introduced the system to address the many limitations of self-administered home-based manual lymphatic drainage therapy. We began selling our more advanced Flexitouch system after receiving 510(k) clearance from the FDA in October 2006. In September 2016, we received 510(k) clearance from the FDA for the Flexitouch system in treating lymphedema of the head and neck. In June 2017, we announced that we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system. In December 2020, we received 510(k) clearance for two new indications for our Flexitouch Plus system: phlebolymphedema and lipedema. We introduced our Entre system in the United States in February 2013 and the second generation, Entre Plus, in March 2023. The Entre Plus 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 Plus system. Sales and rentals of our lymphedema products represented 88% and 85% of our revenue in the nine months ended September 30, 2023 and 2022, respectively.
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, 2023 and 2022, sales of AffloVest represented 12% and 15% of our revenue, respectively.
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. We market our lymphedema products in the United States using a direct-to-patient and -provider model. The AffloVest device is sold through respiratory durable medical equipment providers throughout the United States that service patients and bill third-party payers for the product. 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, 2023, we employed 246 (245 at June 30, 2023) field sales representatives for our lymphedema products and a team of 13 (10 at June 30, 2023) supporting our airway clearance products. This compares to 251 field sales representatives for our lymphedema products and a team of 10 supporting our airway clearance products as of September 30, 2022.
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.
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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.
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.
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, 2023, we generated revenue of $69.6 million and had net income of $22.3 million, compared to revenue of $65.3 million and a net loss of $2.3 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, we generated revenue of $196.8 million and had net income of $20.3 million, compared to revenue of $172.9 million and a net loss of $22.5 million for the nine months ended September 30, 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 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.
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Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2023 and 2022
The following table presents our results of operations for the periods indicated:
Three Months Ended
September 30,
Change
(In thousands)
2023
2022
$
%
Condensed Consolidated Statement
% of
% of
of Operations Data:
revenue
revenue
Revenue
Sales revenue
$
58,866
85
%
$
55,545
85
%
$
3,321
6
%
Rental revenue
10,720
15
%
9,717
15
%
1,003
10
%
Total revenue
69,586
100
%
65,262
100
%
4,324
7
%
Cost of revenue
Cost of sales revenue
17,016
24
%
15,476
24
%
1,540
10
%
Cost of rental revenue
3,211
5
%
2,992
4
%
219
7
%
Total cost of revenue
20,227
29
%
18,468
28
%
1,759
10
%
Gross profit
Gross profit - sales revenue
41,850
61
%
40,069
61
%
1,781
4
%
Gross profit - rental revenue
7,509
10
%
6,725
11
%
784
12
%
Gross profit
49,359
71
%
46,794
72
%
2,565
5
%
Operating expenses
Sales and marketing
26,030
37
%
26,583
41
%
(553)
(2)
%
Research and development
1,964
3
%
1,581
2
%
383
24
%
Reimbursement, general and administrative
16,449
24
%
16,257
25
%
192
1
%
Intangible asset amortization and earn-out
(3,073)
(4)
%
3,993
6
%
(7,066)
(177)
%
Total operating expenses
41,370
60
%
48,414
74
%
(7,044)
(15)
%
Income (loss) from operations
7,989
11
%
(1,620)
(2)
%
9,609
N.M.
%
Other expense
(404)
(1)
%
(736)
(2)
%
332
(45)
%
Income (loss) before income taxes
7,585
10
%
(2,356)
(4)
%
9,941
N.M.
%
Income tax benefit
(14,714)
(21)
%
(77)
—
%
(14,637)
N.M.
%
Net income (loss)
$
22,299
31
%
$
(2,279)
(4)
%
$
24,578
N.M.
%
“N.M.” Not Meaningful
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Nine Months Ended
September 30,
Change
(In thousands)
2023
2022
$
%
Consolidated Statement
% of
% of
of Operations Data:
revenue
revenue
Revenue
Sales revenue
$
171,459
87
%
$
147,980
86
%
$
23,479
16
%
Rental revenue
25,312
13
%
24,905
14
%
407
2
%
Total revenue
196,771
100
%
172,885
100
%
23,886
14
%
Cost of revenue
Cost of sales revenue
48,523
24
%
41,366
24
%
7,157
17
%
Cost of rental revenue
9,122
5
%
7,640
4
%
1,482
19
%
Total cost of revenue
57,645
29
%
49,006
28
%
8,639
18
%
Gross profit
Gross profit - sales revenue
122,936
63
%
106,614
62
%
16,322
15
%
Gross profit - rental revenue
16,190
8
%
17,265
10
%
(1,075)
(6)
%
Gross profit
139,126
71
%
123,879
72
%
15,247
12
%
Operating expenses
Sales and marketing
80,538
41
%
79,335
46
%
1,203
2
%
Research and development
6,030
3
%
4,949
3
%
1,081
22
%
Reimbursement, general and administrative
46,874
24
%
47,369
27
%
(495)
(1)
%
Intangible asset amortization and earn-out
(557)
—
%
12,834
8
%
(13,391)
(104)
%
Total operating expenses
132,885
68
%
144,487
84
%
(11,602)
(8)
%
Income (loss) from operations
6,241
3
%
(20,608)
(12)
%
26,849
(130)
%
Other expense
(2,235)
(1)
%
(1,765)
(1)
%
(470)
27
%
Income (loss) before income taxes
4,006
2
%
(22,373)
(13)
%
26,379
(118)
%
Income tax (benefit) expense
(16,307)
(8)
%
114
—
%
(16,421)
N.M.
%
Net income (loss)
$
20,313
10
%
$
(22,487)
(13)
%
$
42,800
(190)
%
Revenue
Revenue increased $4.3 million, or 7%, to $69.6 million in the three months ended September 30, 2023, compared to $65.3 million in the three months ended September 30, 2022. The increase in total revenue was attributable to an increase of $8.3 million, or 15%, in sales and rentals of the lymphedema product line, partially offset by a decrease of $4.0 million, or 36%, in sales of the airway clearance product line in the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022.
Revenue increased $23.9 million, or 14%, to $196.8 million in the nine months ended September 30, 2023, compared to $172.9 million in the nine months ended September 30, 2022. The increase in total revenue was attributable to an increase of $25.8 million, or 18%, in sales and rentals of the lymphedema product line, partially offset by a decrease of $1.9 million, or 7%, in sales of the airway clearance product line in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
The increase in the lymphedema product line revenue in the three and nine months ended September 30, 2023, was attributable to increasing productivity of our field sales team and enhancing our portfolio through the development and introduction of new products. The decrease in the airway clearance product line revenue in the three and nine months ended September 30, 2023, was attributable to one large DME provider experiencing slowed placements of our AffloVest system due to the expiration of the COVID-19 Public Health Emergency waiver and a return to “pre-public health emergency’ eligibility requirements.
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The following table summarizes our revenue by product line for the three and nine months ended September 30, 2023 and 2022, both in dollars and percentage of total revenue:
Three Months Ended
September 30,
Change
(In thousands)
2023
2022
$
%
Revenue
Lymphedema products
$
62,506
$
54,214
$
8,292
15%
Airway clearance products
7,080
11,048
(3,968)
(36)%
Total
$
69,586
$
65,262
$
4,324
7%
Percentage of total revenue
Lymphedema products
90%
83%
Airway clearance products
10%
17%
Total
100%
100%
“N.M.” Not Meaningful
Nine Months Ended
September 30,
Change
(In thousands)
2023
2022
$
%
Revenue
Lymphedema products
$
172,257
$
146,502
$
25,755
18%
Airway clearance products
24,514
26,383
(1,869)
(7)%
Total
$
196,771
$
172,885
$
23,886
14%
Percentage of total revenues
Lymphedema products
88%
85%
Airway clearance products
12%
15%
Total
100%
100%
Our business is affected by seasonality. In the first quarter of each year, when most patients have started a new insurance year and have not yet met their annual out-of-pocket payment obligations, we experience substantially reduced demand for our products. We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and 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.
Cost of Revenue and Gross Margin
Cost of revenue increased $1.8 million, or 10%, to $20.2 million in the three months ended September 30, 2023, compared to $18.5 million in the three months ended September 30, 2022. Cost of revenue increased $8.6 million, or 18%, to $57.6 million in the nine months ended September 30, 2023, compared to $49.0 million in the nine months ended September 30, 2022. The increase in cost of revenue was primarily attributable to the increase in sales and rentals of the lymphedema product line in both periods.
Gross margin was 70.9% and 71.7% in the three months ended September 30, 2023 and 2022, respectively, and 70.7% and 71.7% in the nine months ended September 30, 2023 and 2022, respectively.
Sales and Marketing Expenses
Sales and marketing expenses decreased $0.6 million, or 2%, to $26.0 million in the three months ended September 30, 2023, compared to $26.6 million in the three months ended September 30, 2022. The
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decrease was primarily attributable a $0.6 million decrease in personnel-related compensation expenses and a $0.4 million decrease in travel and entertainment expenses. These decreases were partially offset by a $0.3 million increase in expenses for new product introduction and a $0.1 million increase in subscription fee expenses.
Sales and marketing expenses increased $1.2 million, or 2%, to $80.5 million in the nine months ended September 30, 2023, compared to $79.3 million in the nine months ended September 30, 2022. The increase was primarily attributable to a $1.4 million increase in personnel-related compensation expenses, a $0.3 million increase in subscription fee expenses and a $0.2 million increase in expenses for new product introduction. These increases were partially offset by a $0.5 million decrease in travel and entertainment expenses and a $0.2 million decrease in expenses related to sales meetings and tradeshows.
Research and Development Expenses
Research and development (“R&D”) expenses increased $0.4 million, or 24%, to $2.0 million in the three months ended September 30, 2023, compared to $1.6 million in the three months ended September 30, 2022. The increase was primarily attributable to a $0.2 million increase in personnel-related compensation expenses and a $0.2 million increase in clinical study related expenses.
R&D expenses increased $1.1 million, or 22%, to $6.0 million in the nine months ended September 30, 2023, compared to $4.9 million in the nine months ended September 30, 2022. The increase was primarily attributable to a $0.8 million increase in personnel-related compensation expenses and a $0.3 million increase in clinical study related expenses.
Reimbursement, General and Administrative Expenses
Reimbursement, general and administrative expenses increased $0.2 million, or 1%, to $16.5 million in the three months ended September 30, 2023, compared to $16.3 million in the three months ended September 30, 2022. This increase was primarily attributable to a $0.2 million increase in personnel-related compensation expenses.
Reimbursement, general and administrative expenses decreased $0.5 million, or 1%, to $46.9 million in the nine months ended September 30, 2023, compared to $47.4 million in the nine months ended September 30, 2022. This decrease was primarily attributable to a $2.0 million decrease in occupancy costs, depreciation expense, and legal and professional fees, partially offset by a $1.5 million increase in personnel-related compensation expenses.
Intangible Asset Amortization and Earn-out Expense
Intangible asset amortization and earn-out expense decreased $7.1 million to a benefit of $3.1 million in the three months ended September 30, 2023, compared to an expense of $4.0 million in the three months ended September 30, 2022. The benefit primarily related to a decrease in the fair value of the earn-out expense of $3.7 million for the three months ended September 30, 2023, due to the lower than expected airway clearance product revenue, compared to an increase in the fair value of the earn-out expense of $3.4 million for the three months ended September 30, 2022.
Intangible asset amortization and earn-out expense decreased $13.4 million to a benefit of $0.6 million in the nine months ended September 30, 2023, compared to an expense of $12.8 million in the nine months ended September 30, 2022. The benefit primarily related to a decrease in the fair value of the earn-out expense of $2.5 million for the nine months ended September 30, 2023, due to the lower than expected airway clearance product revenue, compared to an increase in the fair value of the earn-out expense of $10.9 million for the nine months ended September 30, 2022.
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Other Expense, Net
Other expense, net was $0.4 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively. The decrease was primarily due to an increase in interest income. Other expense, net was $2.2 million and $1.8 million for the nine months ended September 30, 2023 and 2022, respectively. The increase was due to an increase in interest expense, partially offset by an increase in interest income.
Income Taxes
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 primary driver of the change was attributable to the release of the 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. The primary driver of the change was attributable to the release of the valuation allowance related to the future realization of deferred tax assets.
Liquidity and Capital Resources
Cash Flows
At September 30, 2023, our principal sources of liquidity were cash and cash equivalents of $ 66.0 million and net accounts receivable of $ 58.5 million. This compares to cash and cash equivalents of $23.4 million and net accounts receivable of $69.5 million at September 30, 2022.
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended
September 30,
(In thousands)
2023
2022
Net cash provided by (used in):
Operating activities
$
17,503
$
1,354
Investing activities
(1,541)
(1,844)
Financing activities
28,145
(4,313)
Net increase (decrease) in cash and cash equivalents
$
44,107
$
(4,803)
Operating Activities
Net cash provided by operating activities during the nine months ended September 30, 2023 was $17.5 million, resulting from net income of $20.3 million and a net increase in operating assets and liabilities of $9.9 million, which were partially offset by non-cash net income adjustments of $12.7 million. Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $19.3 million and a decrease in net investment in leases of $2.5 million, partially offset by a decrease in accrued expenses of $5.5 million, a decrease in accounts payable of $3.6 million, a decrease in accrued payroll and related taxes of $2.3 million, and an increase in prepaid expenses and inventories of $0.7 million. The negative non-cash net loss adjustments consisted primarily of $20.7 million of deferred income taxes and a $2.5 million change in the fair value of earn-out liability, offset by $5.6 million of stock-based compensation expense and $4.9 million of depreciation and amortization expense.
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
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expenses and other liabilities of $6.8 million, accounts payable of $6.1 million, and accrued payroll and related taxes of $1.4 million.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2023, was $1.5 million, consisting of purchases of property and equipment, and patent costs.
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.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2023, was $28.1 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million and $1.0 million in proceeds from the issuance of common stock under the ESPP, partially offset by a payment of $5.0 million on the AffloVest earn-out and a $2.3 million payment made on our term loan.
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.
Credit Agreement
On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. 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 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. 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 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.
On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amends the Credit Agreement. 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. 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”).
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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, decreased the commitment fees payable under the revolving credit facility and eliminated the temporary increase in the applicable margin for Adjusted Term SOFR loans. 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. 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.
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.
Future Cash Requirements
For a discussion of our material estimated future cash requirements under our contractual obligations and commercial commitments, in total and disaggregated into current and long-term , see “Future Cash Requirements” included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes since December 31, 2022.
Adequacy of Resources
Our future cash requirements may vary significantly from those now planned and will depend on many factors, including:
● 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;
● response of competitors to our solutions and applications;
● costs associated with clinical research activities;
● increases in interest rates;
● labor shortages and wage inflation;
● component price inflation;
● costs to develop and implement new products; and
● use of capital for acquisitions or licenses, if any.
Historically, we have experienced increases in our expenditures consistent with the growth in our revenue, operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.
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Although the impact of the COVID-19 pandemic and other factors such as inflation and rising interest rates are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, debt repayment and related interest, and other cash requirements for at least the next twelve months.
Recent Accounting Pronouncements
Refer to Note 3 – “Summary of Significant Accounting Policies” of the condensed consolidated financial statements contained in this report for a description of recently issued accounting pronouncements that are applicable to our business.
Critical Accounting Estimates
Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. For additional information, please see the discussion of our most critical accounting estimates under “Critical Accounting Estimates ” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion on our market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes since December 31, 2022.
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