What changed in this filing

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Item 1. Financial Statements

2024-05-06 compared with 2023-11-06 · 118 added, 229 removed, 393 unchanged (47% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(In thousands, except share and per share data)

16 unchanged sentences

Accounts payable

Earn-out, current

Accrued payroll and related taxes

5 unchanged sentences

Non-current liabilities

Revolving line of credit, non-current

Note payable, non-current

7 unchanged sentences

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

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

none issued and outstanding as of March 31, 2024 and December 31, 2023

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

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

23,761,897 shares issued and outstanding as of March 31, 2024;

23,600,584 shares issued and outstanding as of December 31, 2023

Additional paid-in capital

Retained earnings (accumulated deficit)

Retained earnings

Total stockholders’ equity

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except share and per share data)

14 unchanged sentences

Total operating expenses

Income (loss) from operations

Loss from operations

Other expense

Income (loss) before income taxes

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

Loss before income taxes

Income tax benefit

Net loss per common share

Weighted-average common shares used to compute net 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, June 30, 2023

Stock-based compensation

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

Net income for the period

Balances, September 30, 2023

Balances, December 31, 2023

1 unchanged sentence

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

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

Common shares issued for employee stock purchase plan

Net income for the period

Balances, September 30, 2023

Balances, June 30, 2022

Stock-based compensation

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

Net loss for the period

Balances, September 30, 2022

Balances, March 31, 2024

Balances, December 31, 2022

1 unchanged sentence

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

Common shares issued for employee stock purchase plan

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

Net loss for the period

Balances, September 30, 2022

Balances, March 31, 2023

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Cash flows from operating activities

Net income (loss)

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

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

Depreciation and amortization

12 unchanged sentences

Accrued expenses and other liabilities

Net cash provided by operating activities

Net cash provided by (used in) 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

Proceeds from exercise of common stock options

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

Proceeds from issuance of common stock at market

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents – beginning of period

11 unchanged sentences

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.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance business (“AffloVest Acquisition”).

AffloVest is a portable, wearable vest that treats patients with chronic respiratory conditions.

11 unchanged sentences

In the first quarter of each year, when most patients have started a new insurance year and have not yet met their annual out-of-pocket payment obligations, we experience substantially reduced demand for our products.

We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and have an increasing desire to exhaust their flexible spending accounts at year end.

We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and because patients desire to exhaust their flexible spending accounts at year end.

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

3 unchanged sentences

In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.

The results for the 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

statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

The results for the three months ended March 31, 2024, are not necessarily indicative of results to be expected for the year ending December 31, 2024, 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 statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Principles of Consolidation

2 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

Risks and Uncertainties

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 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 nine months ended September 30, 2023.

There were no material changes in our significant accounting policies during the three months ended March 31, 2024.

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, 2023, for information regarding our significant accounting policies.

Accounting Pronouncement Recently Adopted

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

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

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

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

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

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

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.

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

At closing, $ 80.0 million of the purchase price was paid, of which a total of $ 0.5 million was deposited into an escrow account at closing for purposes of satisfying certain post-closing purchase price adjustments and indemnification claims.

Subsequent to closing, $ 0.2 million was returned to us as a result of working capital adjustments and the remaining $ 0.3 million was released to IBC.

The AffloVest Acquisition was funded through a combination of cash on hand and proceeds from borrowings.

On November 4, 2022, we entered into an Amendment to the AffloVest APA (the “APA Amendment”) with IBC, which modifies the terms of the earn-out arrangement under the AffloVest APA, as follows:

● Initial Earn-Out:

The AffloVest APA provided for an initial earn-out equal to 1.5 times the amount by which the AffloVest U.S.

revenues in the period from October 1, 2021 to September 30, 2022 (the “Initial Earn-Out Period”) exceed a specified amount;

provided that in no event will the payment exceed $ 10.0 million.

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

● Second Earn-Out:

The AffloVest APA provided for a second earn-out equal to 1.5 times the amount by which the AffloVest U.S.

revenues in the period from October 1, 2022 to September 30, 2023 exceed the revenues recognized during the Initial Earn-Out Period;

provided that in no event will the payment exceed $ 10.0 million.

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.

The fair value of the earn-out, reflecting management’s estimate of the likelihood of achieving these targets, was determined by employing a Monte Carlo Simulation model.

This amount and the current versus non-current allocation is remeasured at the end of each reporting period until the payment requirement ends, with any adjustments reported in income from operations (see Note 15 – “Fair Value Measurements”).

Accounting Pronouncement Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” which requires entities to enhance disclosures around segment reporting.

The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures” which requires entities to enhance disclosures around income taxes.

The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures .

Inventories consisted of the following:

(In thousands)

At September 30, 2023

At March 31, 2024

At December 31, 2023

7 unchanged sentences

Our patents and other intangible assets are summarized as follows:

At September 30, 2023

At March 31, 2024

(In thousands)

17 unchanged sentences

Total intangible assets

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.

Amortization expense was $ 0.9 million and $ 1.0 million for the three months ended March 31, 2024 and 2023, respectively.

Future amortization expenses are expected as follows:

(In thousands)

2023 (October 1 - December 31)

2024 (April 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 September 30, 2023

At March 31, 2024

At December 31, 2023

In-transit inventory

Legal and consulting

Clinical studies

In-transit inventory

Sales and use tax

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

23 unchanged sentences

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 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.

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

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.

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 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.

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 March 31, 2024, we had outstanding borrowings of $ 28.5 million under the Credit Agreement, comprised entirely of the term loan.

At March 31, 2024, all outstanding borrowings were subject to interest at a rate calculated at Adjusted Term SOFR plus an applicable margin, for an interest rate of 7.16 % .

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:

Maturities of the term loan for the next three years as of March 31, 2024, were as follows:

(In thousands)

2023 (October 1 - December 31)

2024 (April 1 - December 31)

Deferred financing fees

Net Note Payable

Current portion of note payable

Non-current portion of note payable

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.

As of March 31, 2024, the Credit Agreement contained a number of restrictions and covenants, including that we maintain compliance with a maximum consolidated total leverage ratio, a minimum fixed charge coverage ratio and a minimum consolidated EBITDA covenant.

As of March 31, 2024, we were in compliance with all financial covenants under the Credit Agreement.

Commitments and Contingencies

12 unchanged sentences

We lease certain office and warehouse space at various locations in the United States where we provide services.

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 September 30, 2023.

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 recognized on a straight-line basis over the term of the lease.

The remaining lease terms vary from approximately one to seven years as of March 31, 2024.

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.

3 unchanged sentences

The portion of the space covered under the initial lease was placed in service in September 2019.

This portion was recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets.

The portion of the space covered under the second lease commenced in September 2020.

Finally, the portion of the space covered under the third lease commenced in September 2021.

We lease vehicles for certain members of our field sales organization under a vehicle fleet program whereby the initial, noncancelable lease is for a term of 367 days , thus more than one year.

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 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.

The three portions were recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets.

Computer and Office Equipment

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

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 remaining lease terms as of March 31, 2024, 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 September 30, 2023

At March 31, 2024

At December 31, 2023

4 unchanged sentences

Weighted average discount rate

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information for our operating leases:

Cash paid for operating lease liabilities

Non-cash right of use assets obtained in exchange for new operating lease obligations

The table below reconciles the undiscounted cash flows for the periods presented to the operating lease liabilities recorded on the Condensed Consolidated Balance Sheet for the periods presented:

(In thousands)

2023 (October 1 - December 31)

2024 (April 1 - December 31)

Total minimum lease payments

3 unchanged sentences

Non-current obligations under operating lease liabilities

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.

Operating lease costs were $ 0.9 million for each of the three months ended March 31, 2024 and 2023.

Major Vendors

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.

We had purchases from one vendor that accounted for 23 % of our total purchases for the three months ended March 31, 2024 and purchases from one vendor that accounted for 29 % of our total purchases for the three months ended March 31, 2023.

Purchase Commitments

We issued purchase orders prior to September 30, 2023, totaling $ 27.7 million for goods that we expect to receive within the next year.

We issued purchase orders prior to March 31, 2024, totaling $ 25.7 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 $ 0.4 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.

We recorded an expense related to our discretionary contributions to the 401(k) plan of $ 0.7 million and $ 0.4 million for the three months ended March 31, 2024 and 2023, respectively.

Legal Proceedings

From time to time, we are subject to various claims and legal proceedings arising in the ordinary course of business.

F rom time to time, we are subject to various claims and legal proceedings arising in the ordinary course of business.

Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

We and certain of our present or former officers have been sued in a purported securities class action lawsuit that was filed in the United States District Court for the District of Minnesota on September 29, 2020, and that is pending under the caption Brian Mart v.

Tactile Systems Technology, Inc., et al ., File No.

0:20-cv-02074-NEB-BRT (the “Mart Lawsuit”).

On April 19, 2021, the plaintiff filed an Amended Complaint against us and eight of our present and former officers and directors.

Plaintiff seeks to represent a class consisting of investors who purchased our common stock in the market during the time period from May 7, 2018 through June 8, 2020 (“alleged class period”).

The Amended Complaint alleges the following claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”):

(1) that we and certain officer defendants made materially false or misleading public statements about our business, operational and compliance policies, and results during the alleged class period in violation of Section 10(b) of the Exchange Act;

(2) that we and the individual defendants engaged in a scheme to defraud investors in order to allow the individual defendants to sell our stock in violation of Section 10(b) of the Exchange Act;

(3) that the individual defendants engaged in improper insider trading of our stock in violation of Section 20A of the Exchange Act;

and (4) that we and the individual defendants are liable under Section 20(a) of the Exchange Act because each defendant is a controlling person.

On June 18, 2021, we and the individual defendants filed a motion to dismiss the Amended Complaint.

On March 31, 2022, the court granted in part, and denied in part, the defendants’ motion to dismiss.

All claims against three individual defendants were dismissed, and most claims against four other individual defendants were dismissed.

On November 21, 2022, the Company announced that it entered into a Memorandum of Understanding to settle this matter.

The Company does not expect to fund any portion of cash payments made in connection with the $ 5 million settlement amount.

The settlement does not constitute an admission of liability or wrongdoing by the Company.

The settlement is subject to court approval.

On February 28, 2023, the parties executed a stipulation of settlement and the plaintiff filed an unopposed motion for preliminary approval of the class settlement with the court.

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

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

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.

Moen, et al., File No.

0:22-cv-01403-NEB-BRT.

This complaint generally arises out of the same subject matter as the Mart Lawsuit and alleges the following claims under the Exchange Act and common law:

0:22-cv-01403-NEB-BRT (the “Weaver Lawsuit”).

The Weaver Lawsuit generally arises out of the same subject matter as a previously settled securities class action captioned Brian Mart v.

Tech., Inc., et al., File No.

0:20-cv-02074-NEB-BRT (D.

Minn.) (the “Mart Lawsuit”), which alleged, inter alia, that we and eight of our former officers and directors made materially false or misleading statements about our business, operational and compliance policies.

The Weaver Lawsuit alleges the following claims under the Exchange Act and common law:

(1) that the director defendants made materially false or misleading public statements in proxy statements in violation of Section 14(a) of the Exchange Act;

3 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.

12 unchanged sentences

In addition, all awards granted under our 2007 Omnibus Stock Plan and our 2003 Stock Option Plan that were outstanding when the 2016 Plan became effective and that are forfeited, expired, cancelled, settled for cash or otherwise not issued, will become available for issuance under the 2016 Plan.

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

As of September 30, 2023, 5,773,265 shares were available for future grant pursuant to the 2016 Plan.

Pursuant to the automatic increase feature of the 2016 Plan, 1,180,019 shares were added as available for issuance thereunder on January 1, 2024.

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

As of March 31, 2024, 6,451,155 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 $ 2.6 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.

We recorded stock-based compensation expense of $ 2.0 million for each of the three months ended March 31, 2024 and 2023.

This expense was allocated as follows:

Three 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 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:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $ 0.1 million and $ 0.3 million for the three months ended March 31, 2024 and 2023, respectively.

At March 31, 2024, there was approximately $ 0.1 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 three months ended March 31, 2024, was as follows:

Exercise Price

4 unchanged sentences

Cancelled/Expired

Balance at September 30, 2023

Options exercisable at September 30, 2023

Balance at March 31, 2024

Options exercisable at March 31, 2024

(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 402,979 as of September 30, 2022, had a weighted-average exercise price of $ 44.18 per share.

Options exercisable of 479,622 as of March 31, 2023, had a weighted-average exercise price of $ 44.60 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 $ 1.2 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:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.4 million and $ 1.3 million for the three months ended March 31, 2024 and 2023, respectively.

At March 31, 2024, there was approximately $ 9.9 million of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.2 years.

Our time-based restricted stock unit activity for the three months ended March 31, 2024, was as follows:

Average Grant

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Balance at December 31, 2023

Balance at September 30, 2023

Balance at March 31, 2024

(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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These PSUs have both performance-based and time-based vesting features.

The PSUs granted in 2021 were earned based on the extent to which performance goals based on revenue and adjusted EBITDA were achieved in 2022.

The PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in 2023.

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 2024 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 2024 (ranging from 25 % to 175 % of target), one-third will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA change are achieved in 2025 (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 2026.

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

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:

Stock-based compensation expense recognized for PSUs was $ 0.4 million and $ 0.2 million for the three months ended March 31, 2024 and 2023, respectively.

At March 31, 2024, there was approximately $ 3.1 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.5 years.

Our PSU activity for the three months ended March 31, 2024, was as follows:

Average Grant

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Balance at December 31, 2023

Balance at September 30, 2023

Balance at March 31, 2024

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

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This share reserve will automatically be supplemented each January 1, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the least of (a) 1 % of the shares of our common stock outstanding on the immediately preceding December 31, (b) 500,000 shares or (c) such lesser amount as our Board of Directors may determine.

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

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.

Pursuant to the automatic increase feature of the ESPP, 236,003 shares were added as available for issuance thereunder on January 1, 2024.

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

As of March 31, 2024, 1,605,871 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 March 31, 2024 and 2023, 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

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 nine months ended September 30, 2023 and 2022, are summarized in the following table:

Our revenue by channel, inclusive of sales and rental revenue, for the three months ended March 31, 2024 and 2023, are summarized in the following table:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Each rental agreement contains two components, the controller and related garments, both of which are interdependent and recognized as one lease component.

The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Condensed Consolidated Balance Sheet.

The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Condensed Consolidated Balance Sheets.

We bill the patients’ insurance payers monthly over the duration of the rental term.

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As the rental contract resides with the patients, we have elected the portfolio approach, at the payer level, to determine the expected consideration, which considers the impact of early terminations.

While the contract is with the patient, in certain circumstances, the third-party payer elects an initial rental period with an option to extend.

While the contract is with the

patient, in certain circumstances, the third-party payer elects an initial rental period with an option to extend.

We assess the likelihood of extending the lease at the onset of the lease to determine if the option is reasonably certain to be exercised.

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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 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,

Rental revenue for the three months ended March 31, 2024 and 2023, was primarily from private insurers.

Sales-type lease revenue and the associated cost of revenue for the three months ended March 31, 2024 and 2023, was:

Three Months Ended March 31,

(In thousands)

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These differences relate primarily to different methods used for income tax reporting purposes, including for depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable and inventory reserves.

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 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.

Our provision for income taxes includes current federal and state income tax expense, as well as deferred federal and state income tax expense.

The effective tax rate for the three months ended March 31, 2024, was a benefit of 21.4 % , compared to a benefit of 60.7 % for the three months ended March 31, 2023.

The primary driver of the change in our effective tax rate was attributable to the fact that we did not have a full valuation allowance on our deferred tax assets for the current year period, while the prior year period reported a full valuation allowance.

We recorded an income tax benefit of $ 0.6 million and an income tax benefit of $ 2.9 million for the three months ended March 31, 2024 and 2023, respectively.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-not to sustain the position following an audit.

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The Company currently is not under examination in any jurisdictions.

Net Income (Loss) Per Share

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

Net Loss Per Share

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

Three 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 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:

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:

Three 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 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.

As of March 31, 2024, our obligations under the AffloVest Acquisition earn-out arrangements had been paid in full.

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.

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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.

The earn-out liability was adjusted to fair value at each reporting date until the end of the earn-out period, which was September 30, 2023.

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

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 September 30, 2023

(In thousands)

Earn-out liability at December 31, 2021

Fair value adjustments

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

Quoted Prices

(In thousands)

Recurring Fair Value Measurements:

Earn-out liability

Earn-out liability at March 31, 2023

On May 25, 2023, the Company paid $ 5.0 million, plus an imputed interest payment of $ 250,000 , relating to the initial earn-out.

Subsequent to September 30, 2023, it was determined that the calculated amount of the second earn-out payment was $ 5.6 million, which was paid by the Company on November 28, 2023.

The carrying amounts of financial instruments such as cash equivalents, accounts receivable, other assets, accounts payable, accrued expenses and other liabilities approximate their related fair values due to the short-term maturities of these items.

1 unchanged sentence

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