What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-05 compared with 2024-05-06 · 97 added, 45 removed, 136 unchanged (51% of the section changed)

18 unchanged sentences

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 86% and 85% of our revenue in the three months ended March 31, 2024 and 2023, respectively.

Sales and rentals of our lymphedema products represented 87% and 86% of our revenue in the six months ended June 30, 2024 and 2023, respectively.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance product line.

AffloVest is a portable, wearable vest that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders.

For the three months ended March 31, 2024 and 2023, sales of AffloVest represented 14% and 15% of our revenue, respectively.

For the six months ended June 30, 2024 and 2023, sales of AffloVest represented 13% and 14% of our revenue, respectively.

To support the growth of our business, we continue to invest in our commercial infrastructure, consisting of our direct sales force, training resources, reimbursement capabilities and clinical expertise.

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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 March 31, 2024, we employed 269 field sales representatives for our lymphedema products and a team of 17 supporting our airway clearance products.

This compares to 246 field sales representatives (excluding 4 key account managers) for our lymphedema products and a team of 12 specialists supporting our airway clearance products as of March 31, 2023.

As of June 30, 2024, we employed 264 field sales representatives for our lymphedema products and a team of 19 supporting our airway clearance products.

This compares to 245 field sales representatives (excluding 4 key account managers) for our lymphedema products and a team of 12 specialists supporting our airway clearance products as of June 30, 2023.

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

For the three months ended March 31, 2024, we generated revenue of $61.1 million and had a net loss of $2.2 million, compared to revenue of $58.8 million and a net loss of $1.9 million for the three months ended March 31, 2023.

For the three months ended June 30, 2024, we generated revenue of $73.2 million and had net income of $4.3 million, compared to revenue of $68.3 million and a net loss of $0.1 million for the three months ended June 30, 2023.

For the six months ended June 30, 2024, we generated revenue of $134.3 million and had net income of $2.1 million, compared to revenue of $127.2 million and a net loss of $2.0 million for the six months ended June 30, 2023.

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.

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Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

The following table presents our results of operations for the periods indicated:

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Total operating expenses

Loss from operations

Income from operations

Other income (expense)

Loss before income taxes

Income tax benefit

Revenue increased $2.2 million, or 4%, to $61.1 million in the three months ended March 31, 2024, compared to $58.8 million in the three months ended March 31, 2023.

The increase in total revenue was attributable to an increase of $2.6 million, or 5%, in sales and rentals of the lymphedema product line, partially offset by a decrease of $0.3 million, or 4%, in sales of the airway clearance product line in the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023.

The increase in the lymphedema product line revenue in the three months ended March 31, 2024, was attributable to increasing productivity of our field sales team and continued strength within our entry-level Entre Plus system.

The decrease in the airway clearance product line revenue in the three months ended March 31, 2024, was attributable to one large DME provider experiencing slowed placements of our AffloVest system due to the expiration of the COVID-19 Public Health Emergency waiver in May 2023 and a return to “pre-public health emergency’ eligibility requirements.

The following table summarizes our revenue by product line for the three months ended March 31, 2024 and 2023, both in dollars and percentage of total revenue:

Income before income taxes

Income tax expense

Net income (loss)

Six Months Ended

(In thousands)

Condensed Consolidated Statement

of Operations Data:

Sales revenue

Rental revenue

Total revenue

Cost of revenue

Cost of sales revenue

Cost of rental revenue

Total cost of revenue

Gross profit - sales revenue

Gross profit - rental revenue

Operating expenses

Sales and marketing

Research and development

Reimbursement, general and administrative

Intangible asset amortization and earn-out

Total operating expenses

Income (loss) from operations

Other income (expense)

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Revenue increased $4.9 million, or 7%, to $73.2 million in the three months ended June 30, 2024, compared to $68.3 million in the three months ended June 30, 2023.

The increase in total revenue was attributable to an increase of $4.7 million, or 8%, in sales and rentals of the lymphedema product line and an increase of $0.2 million, or 2%, in sales of the airway clearance product line in the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Revenue increased $7.1 million, or 6%, to $134.3 million in the six months ended June 30, 2024, compared to $127.2 million in the six months ended June 30, 2023.

The increase in total revenue was attributable to an increase of $7.2 million, or 7%, in sales and rentals of the lymphedema product line, slightly offset by a decrease of $0.1 million, or 1%, in sales of the airway clearance product line in the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The increase in the lymphedema product line revenue in each of the three and six months ended June 30, 2024, was attributable to the growth of our field sales team and continued strength of our lymphedema therapy solutions.

The increase in the airway clearance product line revenue in the three months ended June 30, 2024, was primarily attributable to the onboarding of a new DME partner in 2024.

The decrease in the airway clearance product line revenue in the six months ended June 30, 2024, was primarily attributable to one large DME provider experiencing slowed placements of our AffloVest system due to the expiration of the COVID-19 Public Health Emergency waiver in May 2023 and a return to “pre-public health emergency’ eligibility requirements, partially offset by the onboarding of a new DME partner in 2024.

The following table summarizes our revenue by product line for the three and six months ended June 30, 2024 and 2023, both in dollars and percentage of total revenue:

Three Months Ended

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Airway clearance products

Six Months Ended

(In thousands)

Lymphedema products

Airway clearance products

Percentage of total revenues

Lymphedema products

Airway clearance products

Our business is affected by seasonality.

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Cost of Revenue and Gross Margin

Cost of revenue increased $0.3 million, or 2%, to $17.7 million in the three months ended March 31, 2024, compared to $17.4 million in the three months ended March 31, 2023.

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

Gross margin was 71.1% and 70.5% in the three months ended March 31, 2024 and 2023, respectively.

Cost of revenue decreased $0.9 million, or 5%, to $19.1 million in the three months ended June 30, 2024, compared to $20.0 million in the three months ended June 30, 2023.

Cost of revenue decreased $0.6 million, or 2%, to $36.8 million in the six months ended June 30, 2024, compared to $37.4 million in the six months ended June 30, 2023.

The decrease in cost of revenue in both periods was primarily attributable to lower manufacturing and warranty costs.

Gross margin was 73.9% and 70.7% in the three months ended June 30, 2024 and 2023, respectively, and 72.6% and 70.6% in the six months ended June 30 2024 and 2023, respectively.

Sales and Marketing Expenses

Sales and marketing expenses increased $1.1 million, or 4%, to $27.4 million in the three months ended March 31, 2024, compared to $26.3 million in the three months ended March 31, 2023.

The increase was

primarily attributable a $0.5 million increase in travel and entertainment expenses, a $0.3 million increase in personnel-related compensation expenses and a $0.3 million increase in general office and printing expenses .

Sales and marketing expenses increased $0.4 million, or 1%, to $28.6 million in the three months ended June 30, 2024, compared to $28.2 million in the three months ended June 30, 2023.

The increase was primarily

attributable to a $0.7 million increase in meetings, seminars and tradeshow related expenses and a $0.3 million increase in travel and entertainment expenses , partially offset by a $0.2 million decrease in educational grants expense, a $0.2 million decrease in expenses relating to demo units and a $0.2 million decrease in personnel-related compensation expenses.

Sales and marketing expenses increased $1.5 million, or 3%, to $56.0 million in the six months ended June 30, 2024, compared to $54.5 million in the six months ended June 30, 2023.

The increase was primarily attributable to a $0.7 million increase in travel and entertainment expenses, a $0.6 million increase in meetings, seminars and tradeshow related expenses and a $0.2 million increase in personnel-related compensation expenses.

Research and Development Expenses

Research and development (“R&D”) expenses decreased $0.1 million, or 4%, to $2.1 million in the three months ended March 31, 2024, compared to $2.2 million in the three months ended March 31, 2023.

The decrease was primarily attributable to a $0.2 million decrease in professional fees, partially offset by a $0.1 million increase in personnel-related compensation expenses.

Research and development (“R&D”) expenses increased $0.4 million, or 22%, to $2.2 million in the three months ended June 30, 2024, compared to $1.8 million in the three months ended June 30, 2023.

The increase was primarily attributable to a $0.3 million increase in professional fees and a $0.1 million increase in clinical study related expenses.

R&D expenses increased $0.3 million, or 8%, to $4.4 million in the six months ended June 30, 2024, compared to $4.1 million in the six months ended June 30, 2023.

The increase was primarily attributable to a $0.1 million increase in professional fees, a $0.1 million increase in clinical study related expenses and a $0.1 million increase in personnel-related compensation expenses.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses increased $0.8 million, or 5%, to $16.3 million in the three months ended March 31, 2024, compared to $15.4 million in the three months ended March 31, 2023.

This increase was primarily attributable to a $0.5 million increase in personnel-related compensation expenses and a $0.4 million increase in IT related expenses, partially offset by a $0.1 million decrease in professional fees.

Reimbursement, general and administrative expenses increased $1.8 million, or 12%, to $16.8 million in the three months ended June 30, 2024, compared to $15.0 million in the three months ended June 30, 2023.

This increase was primarily attributable to a $0.8 million increase in occupancy costs, depreciation expense and professional fees, a $0.5 million increase in personnel-related compensation expenses and a $0.5 million increase in IT related expenses.

Reimbursement, general and administrative expenses increased $2.6 million, or 9%, to $33.0 million in the six months ended June 30, 2024, compared to $30.4 million in the six months ended June 30, 2023.

This increase was primarily attributable to a $1.0 million increase in personnel-related compensation expenses, a $1.0 million increase in IT related expenses, and a $0.6 million increase in occupancy costs, depreciation expense and professional fees.

Intangible Asset Amortization and Earn-out Expense

Intangible asset amortization and earn-out expense decreased $0.7 million to $0.6 million in the three months ended March 31, 2024, compared to $1.3 million in the three months ended March 31, 2023.

The decrease was related to there being no earn-out expense in the three months ended March 31, 2024 compared to an increase in the fair value of the earn-out expense of $0.7 million for the three months ended March 31, 2023.

Intangible asset amortization and earn-out expense decreased $0.6 million to $0.6 million in the three months ended June 30, 2024, compared to $1.2 million in the three months ended June 30, 2023.

The decrease was related to there being no earn-out expense in the three months ended June 30, 2024, as final payment under the AffloVest Acquisition earn-out Arrangement was made on November 28, 2023, compared to an increase in the fair value of the earn-out expense of $0.6 million for the three months ended June 30, 2023.

Intangible asset amortization and earn-out expense decreased $1.3 million to $1.3 million in the six months ended June 30, 2024, compared to $2.5 million in the six months ended June 30, 2023.

The decrease was related to there being no earn-out expense in the six months ended June 30, 2024, as final payment under the AffloVest Acquisition earn-out arrangement was made on November 28, 2023, compared to an increase in the fair value of the earn-out expense of $1.2 million for the six months ended June 30, 2023.

Other Income (Expense), Net

We recorded other income, net of $0.1 million and other expense, net of $1.0 million for the three months ended March 31, 2024 and 2023, respectively.

We recorded other income, net of $0.2 million and other expense, net of $0.8 million for the three months ended June 30, 2024 and 2023, respectively.

The primary drivers of the change were a decrease in interest expense of $0.6 million and an increase in interest income of $0.4 million.

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 recorded other income, net of $0.4 million and other expense, net of $1.8 million for the six months ended June 30, 2024 and 2023, respectively.

The primary drivers of the change were a decrease in interest expense of $1.2 million and an increase in interest income of $1.0 million.

We recorded income tax expense of $1.8 million and $1.3 million for the three months ended June 30, 2024 and 2023, respectively.

The primary driver of the change in our effective tax rate was 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 expense of $1.2 million and an income tax benefit of $1.6 million for the six months ended June 30, 2024 and 2023, respectively.

Additionally, in the prior year period we had year-to-date losses that we expected to realize, which drove a tax benefit.

Liquidity and Capital Resources

At March 31, 2024, our principal sources of liquidity were cash and cash equivalents of $ 60.7 million and net accounts receivable of $ 47.4 million.

This compares to cash and cash equivalents of $55.0 million and net accounts receivable of $71.0 million at March 31, 2023.

At June 30, 2024, our principal sources of liquidity were cash and cash equivalents of $ 73.6 million and net accounts receivable of $ 46.4 million.

This compares to cash and cash equivalents of $63.2 million and net accounts receivable of $62.0 million at June 30, 2023.

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

Three Months Ended

Six Months Ended

(In thousands)

3 unchanged sentences

Financing activities

Net (decrease) increase in cash and cash equivalents

Net increase in cash and cash equivalents

Operating Activities

Net cash provided by operating activities during the three months ended March 31, 2024 was $0.9 million, resulting from non-cash net loss adjustments of $3.8 million, partially offset by a net loss of $2.2 million and a net decrease in operating assets and liabilities of $0.6 million.

The positive non-cash net loss adjustments consisted primarily of $2.0 million of stock-based compensation expense and $1.6 million of depreciation and amortization expense.

Cash used relating to the change in operating assets and liabilities primarily consisted of a decrease in accrued payroll and related taxes of $5.8 million, a decrease in accounts payable and accrued expenses of $1.6, an increase in prepaid expenses and other assets of $0.8 million and a decrease in income taxes payable of $0.7 million, partially offset by a decrease in accounts receivable of $6.7 million and an increase in inventories of $1.7 million.

Net cash used in operating activities during the three months ended March 31, 2023 was $0.5 million, resulting from a net decrease in operating assets and liabilities of $2.9 million and a net loss of $1.9 million, which were partially offset by non-cash net loss adjustments of $4.3 million.

Net cash provided by operating activities during the six months ended June 30, 2024 was $14.1 million, resulting from non-cash net income adjustments of $7.3 million, a net increase in operating assets and liabilities of $4.7 million and net income of $2.1 million.

The positive non-cash net income adjustments consisted primarily of $3.9 million of stock-based compensation expense and $3.3 million of depreciation and amortization expense.

Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $7.7 million, a decrease in inventories of $3.7 million and a $0.6 million decrease in net investments in leases, partially offset by a decrease in accrued payroll and related taxes of $4.7 million, a decrease in accounts payable of $1.6 million and a decrease in income taxes payable of $0.9 million.

Net cash provided by operating activities during the six months ended June 30, 2023 was $13.4 million, resulting from a net increase in operating assets and liabilities of $7.1 million and non-cash net loss adjustments

of $8.3 million, which were partially offset by a net loss of $2.0 million.

Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $15.9 million, a decrease in net investment in leases of $2.9 million and a decrease in inventories of $2.8 million, partially offset by a decrease in accrued expenses of $6.0 million, a decrease in accrued payroll and related taxes and income taxes payable of $4.0 million, a decrease in income taxes payable of $3.3 million, an increase in prepaid expenses of $0.7 million and a decrease in accounts payable of $0.7 million.

The non-cash net loss adjustments consisted primarily of $3.8 million of stock-based compensation expense, $3.3 million of depreciation and amortization expense and a $1.2 million change in fair value of earn-out liability.

Operating liabilities were unfavorably impacted by a decrease in accrued payroll and related taxes, accrued expenses and other liabilities and income taxes payable.

Operating assets were favorably impacted by a decrease in accounts receivable, net investment in leases and inventories.

Investing Activities

Net cash used in investing activities during the three months ended March 31, 2024, was $0.5 million, consisting of purchases of property and equipment primarily related to tenant improvements, and patent costs.

Net cash used in investing activities during the three months ended March 31, 2023, was $0.3 million, consisting of purchases of property and equipment, and patent costs.

Net cash used in investing activities during the six months ended June 30, 2024, was $1.0 million, consisting of purchases of property and equipment primarily related to tenant improvements, and patent costs.

Net cash used in investing activities during the six months ended June 30, 2023, was $1.1 million, consisting of purchases of property and equipment, and patent costs.

Financing Activities

Net cash used in financing activities during the three months ended March 31, 2024, was $0.7 million, primarily consisting of a $0.8 million payment made on our term loan.

Net cash provided by financing activities during the three months ended March 31, 2023, was $33.9 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million, slightly offset by a $0.8 million payment made on our term loan.

Net cash used in financing activities during the six months ended June 30, 2024, was $0.5 million, primarily consisting of a $1.5 million payment made on our term loan, partially offset by $1.0 million in proceeds from the issuance of common stock under the ESPP.

Net cash provided by financing activities during the six months ended June 30, 2023, was $29.0 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million and $1.0 million in proceeds from the issuance of common stock under the ESPP.

The increase was partially offset by a payment of $5.0 million on the AffloVest earn-out and a $1.5 million payment made on our term loan.

Credit Agreement

8 unchanged sentences

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.

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.

7 unchanged sentences

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.

As of June 30, 2024, we had outstanding borrowings of $27.8 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.

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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 quarter ended March 31, 2024, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business during the quarter ended June 30, 2024, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.

Recent Accounting Pronouncements

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis