What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-21 · 95 added, 121 removed, 223 unchanged (49% of the section changed)

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Discussion of 2021 results and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 21, 2023.

Coronavirus (COVID-19)

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

We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during most of 2021 and during the first quarter of 2022.

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

While we saw some level of recovery in 2022 after the first quarter, ongoing consequences of the pandemic remain uncertain.

There are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have.

For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time.

Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients.

However, we cannot assure you these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business.

We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.

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

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Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases.

Our current lymphedema products are the Flexitouch and Entre systems and our airway clearance product is the AffloVest.

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.

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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:

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.

The Entre system is sold or rented to patients who need a simple pump or who do not yet qualify for insurance reimbursement for an advanced compression device such as our Flexitouch system.

We introduced our Entre system in the United States in February 2013 and our Entre Plus system 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 86% of our revenue in the years ended December 31, 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.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance product line from International Biophysics Corporation (“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.

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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 December 31, 2022, we employed a field staff of 287 Tactile employees, made up of sales representatives, as well as managers, who provide support throughout the United States for our lymphedema and respiratory therapies.

This compares to a field staff of 262 as of December 31, 2021.

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 December 31, 2023, we employed 254 field sales representatives for our lymphedema products and a team of 16 supporting our airway clearance products.

This compares to 241 field sales representatives (excluding 9 key account managers) for our lymphedema products and a team of 10 specialists supporting our airway clearance products as of December 31, 2022.

We invest in our reimbursement function to improve operational efficiencies and enhance individual payer expertise, while continuing our strategic focus of payer development.

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Our reimbursement operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary.

Since the onset of COVID-19, our reimbursement function has been actively working with Medicare and a broad base of private payers to understand the ever-changing reimbursement criteria being introduced.

While the U.S.

government’s declaration of a public health emergency (PHE) related to the COVID-19 pandemic has relaxed some Medicare criteria for respiratory patients, these circumstances are ever-changing, and the extent to which these changes will remain in place and the impact on our business in the future are not determinable at this time.

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.

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

To date, our supply chain has not been materially impacted by COVID-19.

We continue to receive our product on time and believe that we have enough safety stock to meet our short and mid-term demand.

However, we cannot assure you that our supply chain will not be materially impacted in the future or that we will be able to meet any increased demand.

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

For the year ended December 31, 2022, we generated revenue of $246.8 million and had a net loss of $17.9 million, compared to revenue of $208.1 million and a net loss of $11.8 million for the year ended

December 31, 2021, and revenue of $187.1 million and a net loss of $0.6 million for the year ended December 31, 2020.

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

For the year ended December 31, 2023, we generated revenue of $274.4 million and had net income of $28.5 million, compared to revenue of $246.8 million and a net loss of $17.9 million for the year ended December 31, 2022, and revenue of $208.1 million and a net loss of $11.8 million for the year ended December 31, 2021.

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

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.

Components of our Results of Operations

We derive revenue from sales and rentals of our Flexitouch and Entre systems to patients in the United States.

Revenue growth has been driven by increased clinician, patient and payer awareness of lymphedema and the clinical efficacy of our Flexitouch system, and the launch of our Entre system in 2013.

We derive revenue from sales and rentals of our Flexitouch Plus and Entre Plus systems to patients in the United States.

Revenue growth has been driven by increased clinician, patient and payer awareness of lymphedema and the clinical efficacy of our Flexitouch Plus system, and the launch of our Entre Plus system in March 2023.

We have expanded our direct sales force, which helps us drive and support our revenue growth and intend to continue this expansion.

However, any reversal in these recent trends could have a negative impact on our future revenue.

We sell or rent our Flexitouch and Entre systems either directly to patients or to the Veterans Administration on behalf of patients, who are referred to us by physicians, therapists or nurses.

We sell or rent our Flexitouch Plus and Entre Plus systems either directly to patients or to the Veterans Administration on behalf of patients, who are referred to us by physicians, therapists or nurses.

We bill payers, such as private insurers, Medicare, or Medicaid, on behalf of our patients and bill patients directly for their cost-sharing amounts, including any portion of an unsatisfied deductible and any copayments or co-insurance.

We bill the Veterans Administration directly for the purchase or lease of our product on behalf of the patient.

Approximately 10% of our revenue in 2022 and 13% of our revenue in 2021 came from the Veterans Administration.

Approximately 10% of our revenue in each of 2023 and 2022 came from the Veterans Administration.

Approximately 24% of our revenue in 2023 and 19% of our revenue in 2022 came from Medicare patients.

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Our products currently are not subject to the competitive bidding process for supplying covered items to Medicare recipients.

We derive revenue from sales of our AffloVest product to accredited DME providers.

We also derive revenue from sales of our AffloVest product to accredited DME providers.

These respiratory DME providers provide a full range of solutions for these patients with complex diseases, and represent a large, developed channel.

Respiratory DME partners serve the role of receiving prescriptions, verifying coverage criteria, shipping, billing and training the patient.

We intend to expand and support our respiratory DME partners, in an effort to help demonstrate HFCWO as a staple among the host of treatments they bring to chronic respiratory patients, thereby allowing us to continue to grow revenue from this product offering.

We intend to expand and support our respiratory DME partners, in an effort to help demonstrate High Frequency Chest Wall Oscillation (“HFCWO”) as a staple among the host of treatments they bring to chronic respiratory patients, thereby allowing us to continue to grow revenue from this product offering.

Our revenue has fluctuated, and we expect our revenue to continue to fluctuate, from quarter to quarter due to a variety of factors, including seasonality.

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Cost of revenue also includes depreciation expense for product tooling and equipment as well as shipping costs.

We expect overhead costs as a percentage of revenue to decrease as a result of expected

increases in production volume and yields.

We expect overhead costs as a percentage of revenue to decrease as a result of expected increases in production volume and yields.

We expect cost of revenue to increase in absolute dollars primarily if, and to the extent, our revenue grows.

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we test for impairment on these assets annually.

The fair value of the earn-out, which is payable if certain future U.S.

revenues of AffloVest are met, is recorded as a liability.

On a quarterly basis the earn-out is revalued to fair value.

Any gain or loss related to this revaluation is recorded through the income statement.

The fair value of the earn-out, which was payable based on certain U.S.

revenues of AffloVest being met, was recorded as a liability.

On a quarterly basis the earn-out was revalued to fair value until the end of the earn-out period, which was September 30, 2023.

Any gain or loss related to the revaluation was recorded through the income statement.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses consist primarily of compensation, including salaries, bonuses and benefits for employees in our patient services and advocacy, billing and collections, case management, payer relations and governmental affairs and reimbursement operations departments, as well as finance, human resources and administration, information technology, business development and general

management functions, and facilities costs.

Reimbursement expenses also include consulting, travel to payer case manager seminars, professional development and training, and certification expenses.

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Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, and related disclosure of contingent

assets and liabilities, revenue and expenses at the date of the financial statements.

Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances.

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Revenue Recognition

We derive revenue from the sales and rentals of our proprietary line of Flexitouch and Entre systems, and from sales of our AffloVest product.

We derive revenue from the sales and rentals of our proprietary line of Flexitouch Plus and Entre Plus systems, and from sales of our AffloVest product.

We recognize revenue when control of the product has been transferred to our customer, in the amount of the expected consideration to be received for the product.

Expected consideration is estimated as follows:

● Flexitouch and Entre systems.

● Flexitouch Plus and Entre Plus systems.

Expected consideration to be received is estimated based on a detailed review of historical pricing adjustments and collections.

Specifically, payment history of the applicable payer, as well as historical patient collections, serve as primary sources of information in estimating expected consideration.

We update our assessment of collectability on a quarterly basis, with any adjustments for Flexitouch and Entre systems being reflected as sales and rental revenue and AffloVest products being reflected as bad debt expense within reimbursement, general and administrative expenses in the Consolidated Statements of Operations in the period of adjustment.

● AffloVest product.

Expected consideration to be received is based on agreements in place with DME providers.

We update our assessment of collectability on a quarterly basis, with any adjustments for Flexitouch Plus and Entre Plus systems being reflected as sales and rental revenue and AffloVest products being reflected as bad debt expense within reimbursement, general and administrative expenses in the Consolidated Statements of Operations in the period of adjustment.

If in the future we determine that another method is more reasonable, or if another method for calculating these input assumptions is prescribed by authoritative guidance, the expected consideration associated with the sales and rentals of our products could change significantly.

Changes in contractual pricing,

payment trends and rebate structures would impact, either positively or negatively, our sales and rental revenue.

Changes in contractual pricing, payment trends and rebate structures would impact, either positively or negatively, our sales and rental revenue.

Stock-Based Compensation

The fair value of stock options is estimated at the date of grant, using the Black-Scholes option-pricing model, except for the valuation of certain “CEO” related stock options subject to a market condition which uses the Monte Carlo Simulation model.

The fair value of stock options is estimated at the date of grant, using the Black-Scholes option-pricing model.

We recognize the fair value of each award as an expense on a straight-line basis over the requisite service period, which is generally the vesting period of the equity grant.

The Monte Carlo Simulation and Black-Scholes valuation models require the input of highly subjective assumptions, including the expected term of the option, the expected volatility of the price of our common stock, the risk-free interest rate and the expected dividend yield.

The Black-Scholes valuation model requires the input of highly subjective assumptions, including the expected term of the option, the expected volatility of the price of our common stock, the risk-free interest rate and the expected dividend yield.

These estimates involve inherent uncertainties and the significant application of management's judgment.

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● Expected term .

We use the "simplified method"

to determine the expected term of the stock option.

We use the "simplified method" to determine the expected term of the stock option.

● Expected volatility .

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Total operating expenses

Loss from operations

Income (loss) from operations

Other expense

Loss before income taxes

Income tax expense

Income (loss) before income taxes

Income tax (benefit) expense

Net income (loss)

“N.M.” Not Meaningful

Revenue increased $27.6 million, or 11%, to $274.4 million in the year ended December 31, 2023, compared to $246.8 million in the year ended December 31, 2022.

The increase in revenue was attributable to an increase of approximately $29.4 million in sales of our airway clearance product line, which consists of the AffloVest product we acquired on September 8, 2021, and an increase of $9.4 million, or 5%, in sales and rentals of the lymphedema product line compared to the year ended December 31, 2021.

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

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

Revenue from the Veterans Administration represented 10% and 12% of total revenue for the years ended December 31, 2022 and 2021, respectively.

The increase in revenue was attributable to an increase of $29.5 million, or 14%, in sales and rentals of the lymphedema product line, partially offset by a decrease of $1.8 million, or 5%, in sales of the airway clearance product line in the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase in the lymphedema product line revenue in the year ended December 31, 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 year ended December 31, 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 (PHE) waiver and a return to “pre-public health emergency” eligibility requirements.

Revenue from the Veterans Administration represented 10% of total revenue for each of the years ended December 31, 2023 and 2022.

Revenue from Medicare represented 24% and 19% of total revenue for the years ended December 31, 2023 and 2022, respectively.

The following table summarizes our revenue by product for the years ended December 31, 2022 and 2021, both in dollars and percentage of total revenue:

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

(In thousands)

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Airway clearance products

Percentage of total revenue

Percentage of total revenues

Lymphedema products

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Cost of revenue increased $8.5 million, or 12%, to $79.3 million during the year ended December 31, 2023, compared to $70.8 million during the year ended December 31, 2022.

The increase in cost of revenue was primarily attributable to the additional cost of revenue related to AffloVest.

Gross margin was 71% for both of the years ended December 31, 2022 and 2021.

The increase in cost of revenue was primarily attributable to the increase in sales and rentals of the lymphedema product line.

Gross margin was 71% in each of the years ended December 31, 2023 and 2022.

Sales and Marketing Expenses

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The increase was primarily attributable to a:

● $15.8 million increase in personnel-related compensation expense as a result of the increased headcount in the collective field commercial team;

● $2.6 million increase in travel and entertainment expenses;

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

● $0.6 million increase related to sales meetings and tradeshows;

● $0.5 million increase in IT & service fees;

● $0.4 million increase in expenses for new product introductions;

These increases were partially offset by a $0.7 million decrease in professional services.

● $0.2 million increase in personnel-related compensation expense;

● $0.2 million increase in educational grants.

These increases were partially offset by a $0.3 million decrease in travel and entertainment expenses and a $0.3 million decrease related to sales meetings and tradeshows.

Research and Development Expenses

Research and development (“R&D”) expenses increased $1.4 million, or 25%, to $7.1 million during the year ended December 31, 2022, compared to $5.7 million during the year ended December 31, 2021, which was primarily attributable to an increase in personnel-related expense and R&D supplies.

Research and development (“R&D”) expenses increased $0.7 million, or 10%, to $7.8 million during the year ended December 31, 2023, compared to $7.1 million during the year ended December 31, 2022, which was primarily attributable to an increase in personnel-related expenses.

Reimbursement, General and Administrative Expenses

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● $1.6 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions;

● $0.7 million increase in occupancy costs, depreciation expense, and legal and professional fees;

● $0.1 million increase in travel and entertainment.

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

● $0.9 million increase in IT related expenses;

● $0.2 million increase in travel and entertainment expenses.

These increases were partially offset by a $1.4 million decrease in occupancy costs, depreciation expense and professional fees.

Intangible Asset Amortization and Earn-out

Intangible asset amortization and earn-out expenses increased $13.7 million to $14.4 million during the year ended December 31, 2022, compared to $0.7 million during the year ended December 31, 2021.

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

Intangible asset amortization and earn-out expenses decreased $14.4 million to $0.1 million during the year ended December 31, 2023, compared to $14.4 million during the year ended December 31, 2022.

The decrease was due to a benefit of $2.5 million being recorded for the fair value of the earn-out for the twelve months ended December 31, 2023, as actual revenues for the second year earn-out calculation were lower than the estimated 2023 revenues that were used in forecasting the earn-out liability at December 31, 2022.

This compares to an earn-out expense of $11.9 million for the twelve months ended December 31, 2022.

Other Expense, Net

Other expense, net was $2.3 million for the year ended December 31, 2023, compared to $2.7 million for the year ended December 31, 2022.

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

The decrease was primarily attributable to an increase in interest income.

Income Tax Expense

We recorded an income tax expense of $2.4 million and $9.5 million for the years ended December 31, 2022 and 2021, respectively.

The current year tax expense was primarily driven by the change in deferred tax assets and corresponding increase in the full valuation allowance which remains in place after an assessment of existing positive and negative evidence indicated these deferred tax assets would not be realizable.

We recorded an income tax benefit of $12.7 million and an income tax expense of $2.4 million for the years ended December 31, 2023 and 2022, respectively.

The current year tax benefit was primarily driven by the release of the valuation allowance related to the future realization of deferred tax assets.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

Based on this evaluation, as of December 31, 2022 and 2021, a valuation allowance of $17.8 million and $12.0 million, respectively, was recorded to recognize only the residual portion of the existing deferred tax asset that are more likely than not to be realized and which comprises the assets that will not be offset by the reversal of deferred tax liabilities.

The amount of the deferred tax asset considered realizable which will be offset by reversing deferred tax liabilities, however, could be adjusted in the future if estimates of taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

Based on this evaluation, as of December 31, 2023, we reduced the valuation allowance related to the future realization of deferred tax assets, in part because in the current year we achieved three years of cumulative pretax income in the U.S.

federal tax jurisdiction, and therefore management determined that there was sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes of $19.4 million are realizable.

Our business is affected by seasonality.

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This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products.

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

Liquidity and Capital Resources

As of December 31, 2023, we had cash and cash equivalents of $61.0 million and net accounts receivable of $54.1 million compared to cash and cash equivalents of $21.9 million and net accounts receivable of $77.9 million as of December 31, 2022.

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

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.

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

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Financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the year ended December 31, 2023, was $35.9 million, resulting from net income of $28.5 million and a change in operating assets and liabilities of $15.1 million, which were partially offset by non-cash net income adjustments of $7.8 million.

Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $23.8 million, a decrease in net investment in leases of $1.9 million and a decrease in inventories of $0.6 million, partially offset by a decrease in accrued expenses of $6.5 million, a decrease in accounts payable of $3.9 million, a decrease in income taxes payable of $0.7 million and a decrease in accrued payroll and related taxes of $0.3 million.

The negative non-cash net income adjustments consisted primarily of $19.4 million of deferred income taxes and a $2.5 million change in the fair value of earn-out liability, partially offset by $7.5 million of stock-based compensation expense and $6.5 million of depreciation and amortization expense.

Net cash provided by operating activities during the year ended December 31, 2022, was $5.2 million, resulting from a net loss of $17.9 million and non-cash net income adjustments of $27.7 million, which were offset by a change in net operating assets and liabilities of $4.6 million.

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Changes in operating assets and liabilities were unfavorably impacted by increasing accounts receivable, net investment in leases and continued investment in inventory designed to meet future projected demand, partially offset by an increase in current liabilities.

Net cash provided by operating activities during the year ended December 31, 2021, was $2.6 million, resulting from a net loss of $11.8 million and non-cash net income adjustments of $23.9 million, which were offset by an increase in net operating assets and liabilities of $9.5 million.

The non-cash net income adjustments primarily consisted of $10.2 million of stock-based compensation expense, $10.2 million of deferred income tax expense and $3.7 million of depreciation and amortization expense.

Changes in operating assets and liabilities were unfavorably impacted by increasing accounts receivable, net investment in leases and income taxes payable, partially offset by an increase in current liabilities.

Net Cash Used in Investing Activities

Net cash used in investing activities during the year ended December 31, 2023, was $2.5 million, primarily consisting of $2.3 million in purchases of property and equipment primarily related to production tooling and office equipment and $0.2 million related to the acquisition of patents and other intangible assets.

Net cash used in investing activities during the year ended December 31, 2022, was $1.9 million, primarily consisting of $1.8 million in purchases of property and equipment primarily related to office equipment, production tooling and tenant improvements and $0.1 million related to the acquisition of patents and other intangible assets.

Net cash used in investing activities during the year ended December 31, 2021, was $82.2 million, primarily consisting of acquisition-related payments of $79.8 million associated with the acquisition of the AffloVest business and $2.1 million in purchases of property and equipment primarily related to office

equipment, production tooling and tenant improvements and $0.3 million related to the acquisition of patents and other intangible assets.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities during the year ended December 31, 2022, was $9.6 million, primarily consisting of payments of $6.0 million on notes payable and a payment of $5.0 million on the AffloVest earn-out, partially offset by $1.4 million in proceeds from exercises of common stock options and the issuance of common stock under the ESPP.

Net cash provided by financing activities during the year ended December 31, 2021, was $59.9 million, primarily consisting of borrowings of $54.8 million net of debt issuance costs incurred and $6.3 million in proceeds from exercises of common stock options and the issuance of common stock under the ESPP, partially offset by $1.2 million in taxes paid for the net share settlement of performance and restricted stock units.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities during the year ended December 31, 2023, was $5.7 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million, $8.3 million in borrowings under our term loan, and $1.5 million in proceeds from the issuance of common stock under the ESPP, partially offset by payments of $25.0 million on the revolving credit facility, $10.6 million on the AffloVest earn-out, and $3.0 million on our term loan.

Net cash used in financing activities during the year ended December 31, 2022, was $9.6 million, primarily consisting of payments of $6.0 million on our term loan and a payment of $5.0 million on the AffloVest earn-out, partially offset by $1.4 million in proceeds from exercises 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 the prior credit agreement.

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

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

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

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 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.

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

As of December 31, 2022, we were in compliance with all financial covenants under the Credit Agreement.

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

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

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

The Second Amendment modifies the maximum leverage ratio, the minimum fixed charge coverage ratio and the minimum consolidated EBITDA covenants under the Credit Agreement, and adds a minimum liquidity covenant.

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

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

As of December 31, 2022, we had outstanding borrowings of $49.0 million under the Credit Agreement, comprised of $24.0 million under the term loan and $25.0 million under the revolving credit facility.

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”).

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.

On December 21, 2023, we made a payment of $16.8 million to repay in full the outstanding balance on the revolving credit facility.

As of December 31, 2023, we had outstanding borrowings of $29.3 million under the Credit Agreement, comprised entirely of the term loan.

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 11 – “Credit Agreement” of the consolidated financial statements contained in this report.

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Note payable payments (3)

Revolving line of credit payments (4)

Interest payments (4)

Earn-out obligation (6)

(1) We issued purchase orders in 2023 totaling $24.3 million for goods that we expect to receive and pay for in 2024.

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We entered into a fleet vehicle program for certain members of our field sales organization in 2016.

At December 31, 2022, we had two vehicles under this program with current lease commitments.

At December 31, 2023, we did not have any vehicles under this program with current lease commitments.

Furthermore, we lease office equipment from time-to-time based on our needs and these commitments are classified as operating leases.

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Refer to Note 11 ‘‘Credit Agreement’’ to our consolidated financial statements included in this report for additional information regarding the maturities of debt principal.

(4) Reflects re payment of the principal of outstanding borrowings under our revolving line of credit based on the scheduled maturity date.

(4) Interest payment amounts on long-term debt are calculated using outstanding balances and interest rates in effect on December 31, 2023.

(6) In connection with the acquisition of AffloVest, as of December 31, 2022, we were obligated to make an earn-out payment in the amount of $5.0 million (as well as an imputed interest payment of $250,000) by May 26, 2023, and may be obligated to make an additional earn-out payment of up to $10.0 million in cash, if certain future financial results of the AffloVest business are met.

The fair value of this obligation at December 31, 2022 was $13.1 million, which is reflected on our Consolidated Balance Sheets.

Adequacy of Resources

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

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

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

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

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● labor shortages and wage inflation;

● component price inflation;

● costs to develop and implement new products;

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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.

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.

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.

Inflation and changing prices did not have a material effect on our business during the year ended December 31, 2023, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.

Coronavirus Aid, Relief, and Economic Security (CARES) Act

On March 27, 2020 the CARES Act was signed into law.

The CARES Act is a tax-and-spending package intended to provide economic relief to address the impact of the COVID-19 pandemic.

The CARES Act includes several tax provisions that, among other things, allow businesses to carry back net operating losses (“NOLs”) arising in 2018, 2019, and 2020 to the prior five tax years.

In the third quarter of 2020, we collected $2.9 million related to the carry back of our NOLs arising from these prior tax years.

In addition, the CARES Act provided $100 billion in relief funds to hospitals and other healthcare providers on the front lines of the COVID-19 pandemic.

An initial $30 billion of the funds were released for immediate infusion and were distributed to all facilities and providers that received Medicare fee-for-service (“FFS”) reimbursements in 2019.

On April 10, 2020, we received $1.2 million of the initial allotment to all facilities and providers which was determined to be our proportionate share.

Within 45 days of each reporting period end, we complied with the reporting requirements confirming funds were utilized in a manner described within the terms and conditions outlined by the U.S.

Department of Health & Human Services.

As of December 31, 2020, we recognized all of the funds received in the initial allotment as other income.

Off-Balance Sheet Arrangements

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What changed 10-K

Item 7. Management’s Discussion and Analysis