TACTILE SYSTEMS TECHNOLOGY INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this report. Overview We are a medical technology company that develops and provides innovative medical devices for the treatment of underserved chronic diseases. Our mission is to help people suffering from chronic diseases live better and care for themselves at home. We focus our efforts on advancing the standard of care in treating underserved chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures. Our areas of therapeutic focus are (1) vascular disease, with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency, (2) oncology, where lymphedema is a common consequence among cancer survivors and (3) providing airway clearance therapy for those suffering from chronic respiratory conditions. We possess a unique, scalable platform to deliver at-home healthcare solutions throughout the United States. This evolving home care delivery model is recognized by policymakers and insurance payers as a key for controlling rising healthcare costs. Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases. Our current lymphedema products are the Flexitouch Plus, Entre Plus and Nimbl systems and our airway clearance product is the AffloVest. A predecessor to our Flexitouch system received 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) in July 2002, and we introduced the system to address the many limitations of self-administered home-based manual lymphatic drainage therapy. We began selling our more advanced Flexitouch system after receiving 510(k) clearance from the FDA in October 2006. In September 2016, we received 510(k) clearance from the FDA for the Flexitouch system in treating lymphedema of the head and neck. In June 2017, we announced that we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system. In December 2020, we received 510(k) clearance for two new indications for our Flexitouch Plus system: phlebolymphedema and lipedema. We introduced our Entre system in the United States in February 2013 and the second generation, Entre Plus, in March 2023. The Entre Plus system is sold or rented to patients who need a simple pump or who do not yet qualify for insurance reimbursement for an advanced compression device such as our Flexitouch Plus system. Nimbl, our next-generation pneumatic compression platform, received 510(k) clearance in June 2024 and, beginning in October 2024, is commercially available throughout the United States for the treatment of upper extremity lymphedema. Sales and rentals of our lymphedema products represented 88% of our revenue in each of the nine months ended September 30, 2024 and 2023. 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 each of the nine months ended September 30, 2024 and 2023, sales of AffloVest represented 12% of our revenue. To support the growth of our business, we continue to invest in our commercial infrastructure, consisting of our direct sales force, training resources, reimbursement capabilities and clinical expertise. We market our lymphedema products in the United States using a direct-to-patient and -provider model. The AffloVest device is sold through respiratory durable medical equipment providers throughout the United States that service patients and bill third-party payers for the product. We also employ a small group of respiratory specialists, who educate DME representatives, provide product demonstrations for targeted clinicians and support technical questions related to the AffloVest. As of September 30, 2024, we employed 270 field sales representatives for our lymphedema products and a team of 19 supporting our airway clearance products. This compares to 246 field sales representatives for our lymphedema products and a team of 13 specialists supporting our airway clearance products as of September 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. Our payer relations function focuses on payer policy development, education, contract negotiations, and data analysis. Our reimbursement 24 Table of Contents operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary. We also have a clinical team, consisting of a scientific advisory board, in-house therapists and nurses, and a Chief Medical Officer, that serves as a resource to clinicians and patients and guides the development of clinical evidence in support of our products. Most clinical studies require observation and interaction with clinicians and patients to monitor results and progress. We rely on third-party contract manufacturers for the sourcing of parts, the assembly of our controllers and the manufacturing of the garments used with our systems. We conduct final assembly of the garments used with our products, perform quality assurance and ship our products from our facility in Minnesota. We also manufacture and ship the AffloVest device from our Minnesota-based facility. I n 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. Flexitouch Plus and Nimbl devices include Bluetooth technology, which is viewable using Kylee. ​ For the three months ended September 30, 2024, we generated revenue of $73.1 million and had net income of $5.2 million, compared to revenue of $69.6 million and net income of $22.3 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, we generated revenue of $207.4 million and had net income of $7.2 million, compared to revenue of $196.8 million and net income of $20.3 million for the nine months ended September 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. 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. ​ ​ 25 Table of Contents Results of Operations Comparison of the Three and Nine Months Ended September 30, 2024 and 2023 The following table presents our results of operations for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ Change (In thousands) ​ 2024 ​ 2023 ​ $ ​ % Condensed Consolidated Statement ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ ​ ​ of Operations Data: ​ ​ ​ ​ revenue ​ ​ ​ ​ revenue ​ ​ ​ ​ ​ ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales revenue ​ $ 63,168 ​ 86 % ​ $ 58,866 ​ 85 % ​ $ 4,302 ​ 7 % Rental revenue ​ ​ 9,925 ​ 14 % ​ ​ 10,720 ​ 15 % ​ ​ (795) ​ (7) % Total revenue ​ ​ 73,093 ​ 100 % ​ ​ 69,586 ​ 100 % ​ ​ 3,507 ​ 5 % Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales revenue ​ ​ 15,603 ​ 21 % ​ ​ 17,016 ​ 24 % ​ ​ (1,413) ​ (8) % Cost of rental revenue ​ ​ 2,703 ​ 4 % ​ ​ 3,211 ​ 5 % ​ ​ (508) ​ (16) % Total cost of revenue ​ ​ 18,306 ​ 25 % ​ ​ 20,227 ​ 29 % ​ ​ (1,921) ​ (9) % Gross profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit - sales revenue ​ ​ 47,565 ​ 65 % ​ ​ 41,850 ​ 61 % ​ ​ 5,715 ​ 14 % Gross profit - rental revenue ​ ​ 7,222 ​ 10 % ​ ​ 7,509 ​ 10 % ​ ​ (287) ​ (4) % Gross profit ​ ​ 54,787 ​ 75 % ​ ​ 49,359 ​ 71 % ​ ​ 5,428 ​ 11 % Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales and marketing ​ ​ 26,838 ​ 37 % ​ ​ 26,030 ​ 37 % ​ ​ 808 ​ 3 % Research and development ​ ​ 2,417 ​ 3 % ​ ​ 1,964 ​ 3 % ​ ​ 453 ​ 23 % Reimbursement, general and administrative ​ ​ 18,118 ​ 25 % ​ ​ 16,449 ​ 24 % ​ ​ 1,669 ​ 10 % Intangible asset amortization and earn-out ​ ​ 633 ​ 1 % ​ ​ (3,073) ​ (4) % ​ ​ 3,706 ​ (121) % Total operating expenses ​ ​ 48,006 ​ 66 % ​ ​ 41,370 ​ 60 % ​ ​ 6,636 ​ 16 % Income from operations ​ ​ 6,781 ​ 9 % ​ ​ 7,989 ​ 11 % ​ ​ (1,208) ​ (15) % Other income (expense) ​ ​ 452 ​ 1 % ​ ​ (404) ​ (1) % ​ ​ 856 ​ N.M. % Income before income taxes ​ ​ 7,233 ​ 10 % ​ ​ 7,585 ​ 10 % ​ ​ (352) ​ (5) % Income tax expense (benefit) ​ ​ 2,078 ​ 3 % ​ ​ (14,714) ​ (21) % ​ ​ 16,792 ​ (114) % Net income ​ $ 5,155 ​ 7 % ​ $ 22,299 ​ 31 % ​ $ (17,144) ​ (77) % ​ ​ 26 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ Change (In thousands) ​ 2024 ​ 2023 ​ $ ​ % Condensed Consolidated Statement ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ ​ ​ of Operations Data: ​ ​ ​ ​ revenue ​ ​ ​ ​ revenue ​ ​ ​ ​ ​ ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales revenue ​ $ 180,742 ​ 87 % ​ $ 171,459 ​ 87 % ​ $ 9,283 ​ 5 % Rental revenue ​ ​ 26,657 ​ 13 % ​ ​ 25,312 ​ 13 % ​ ​ 1,345 ​ 5 % Total revenue ​ ​ 207,399 ​ 100 % ​ ​ 196,771 ​ 100 % ​ ​ 10,628 ​ 5 % Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales revenue ​ ​ 46,810 ​ 23 % ​ ​ 48,523 ​ 24 % ​ ​ (1,713) ​ (4) % Cost of rental revenue ​ ​ 8,270 ​ 4 % ​ ​ 9,122 ​ 5 % ​ ​ (852) ​ (9) % Total cost of revenue ​ ​ 55,080 ​ 27 % ​ ​ 57,645 ​ 29 % ​ ​ (2,565) ​ (4) % Gross profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit - sales revenue ​ ​ 133,932 ​ 64 % ​ ​ 122,936 ​ 63 % ​ ​ 10,996 ​ 9 % Gross profit - rental revenue ​ ​ 18,387 ​ 9 % ​ ​ 16,190 ​ 8 % ​ ​ 2,197 ​ 14 % Gross profit ​ ​ 152,319 ​ 73 % ​ ​ 139,126 ​ 71 % ​ ​ 13,193 ​ 9 % Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales and marketing ​ ​ 82,803 ​ 40 % ​ ​ 80,538 ​ 41 % ​ ​ 2,265 ​ 3 % Research and development ​ ​ 6,794 ​ 3 % ​ ​ 6,030 ​ 3 % ​ ​ 764 ​ 13 % Reimbursement, general and administrative ​ ​ 51,158 ​ 24 % ​ ​ 46,874 ​ 24 % ​ ​ 4,284 ​ 9 % Intangible asset amortization and earn-out ​ ​ 1,898 ​ 1 % ​ ​ (557) ​ — % ​ ​ 2,455 ​ N.M. % Total operating expenses ​ ​ 142,653 ​ 68 % ​ ​ 132,885 ​ 68 % ​ ​ 9,768 ​ 7 % Income from operations ​ ​ 9,666 ​ 5 % ​ ​ 6,241 ​ 3 % ​ ​ 3,425 ​ 55 % Other income (expense) ​ ​ 832 ​ — % ​ ​ (2,235) ​ (1) % ​ ​ 3,067 ​ (137) % Income before income taxes ​ ​ 10,498 ​ 5 % ​ ​ 4,006 ​ 2 % ​ ​ 6,492 ​ 162 % Income tax expense (benefit) ​ ​ 3,254 ​ 2 % ​ ​ (16,307) ​ (8) % ​ ​ 19,561 ​ (120) % Net income ​ $ 7,244 ​ 3 % ​ $ 20,313 ​ 10 % ​ $ (13,069) ​ (64) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue Revenue increased $3.5 million, or 5%, to $73.1 million in the three months ended September 30, 2024, compared to $69.6 million in the three months ended September 30, 2023. The increase in total revenue was attributable to an increase of $2.8 million, or 4%, in sales and rentals of the lymphedema product line and an increase of $0.7 million, or 10%, in sales of the airway clearance product line in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. ​ Revenue increased $10.6 million, or 5%, to $207.4 million in the nine months ended September 30, 2024, compared to $196.8 million in the nine months ended September 30, 2023. The increase in total revenue was attributable to an increase of $10.0 million, or 6%, in sales and rentals of the lymphedema product line, and an increase of $0.6 million, or 2%, in sales of the airway clearance product line in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. ​ The increase in the lymphedema product line revenue in each of the three and nine months ended September 30, 2024, was attributable to the growth of our field sales team and ongoing technology and workflow initiatives. The increase in the airway clearance product line revenue in the three and nine months ended September 30, 2024, was primarily attributable to the onboarding of a new DME partner in 2024. ​ 27 Table of Contents The following table summarizes our revenue by product line for the three and nine months ended September 30, 2024 and 2023, both in dollars and percentage of total revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ September 30, ​ Change (In thousands) 2024 ​ 2023 ​ $ ​ % Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ $ 65,282 ​ $ 62,506 ​ $ 2,776 ​ 4% Airway clearance products ​ ​ 7,811 ​ ​ 7,080 ​ ​ 731 ​ 10% Total ​ $ 73,093 ​ $ 69,586 ​ $ 3,507 ​ 5% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of total revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ 89% ​ 90% ​ ​ ​ ​ Airway clearance products ​ ​ 11% ​ ​ 10% ​ ​ ​ ​ ​ Total ​ 100% ​ 100% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ ​ ​ ​ ​ ​ September 30, ​ Change (In thousands) 2024 ​ 2023 ​ $ ​ % Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ $ 182,278 ​ $ 172,257 ​ $ 10,021 ​ 6% Airway clearance products ​ ​ 25,121 ​ ​ 24,514 ​ ​ 607 ​ 2% Total ​ $ 207,399 ​ $ 196,771 ​ $ 10,628 ​ 5% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of total revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ 88% ​ 88% ​ ​ ​ ​ Airway clearance products ​ ​ 12% ​ ​ 12% ​ ​ ​ ​ ​ Total ​ 100% ​ 100% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Our business is affected by seasonality. In the first quarter of each year, when most patients have started a new insurance year and have not yet met their annual out-of-pocket payment obligations, we experience substantially reduced demand for our products. We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and have an increasing desire to exhaust their flexible spending accounts at year end. This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products. Cost of Revenue and Gross Margin Cost of revenue decreased $1.9 million, or 9%, to $18.3 million in the three months ended September 30, 2024, compared to $20.2 million in the three months ended September 30, 2023. Cost of revenue decreased $2.6 million, or 4%, to $55.1 million in the nine months ended September 30, 2024, compared to $57.6 million in the nine months ended September 30, 2023. The decrease in cost of revenue in both periods was primarily attributable to lower manufacturing and warranty costs. Gross margin was 75.0% and 70.9% in the three months ended September 30, 2024 and 2023, respectively, and 73.4% and 70.7% in the nine months ended September 30 2024 and 2023, respectively. Sales and Marketing Expenses Sales and marketing expenses increased $0.8 million, or 3%, to $26.8 million in the three months ended September 30, 2024, compared to $26.0 million in the three months ended September 30, 2023. The increase 28 Table of Contents was primarily attributable to a $0.5 million increase in travel and entertainment expenses and a $0.4 million increase in personnel-related compensation expenses, partially offset by a decrease of $0.1 million in tradeshow related expense s. Sales and marketing expenses increased $2.3 million, or 3%, to $82.8 million in the nine months ended September 30, 2024, compared to $80.5 million in the nine months ended September 30, 2023. The increase was primarily attributable to a $1.1 million increase in travel and entertainment expenses, a $0.7 million increase in personnel-related compensation expenses and a $0.5 million increase in meetings, seminars and tradeshow related expenses. Research and Development Expenses Research and development (“R&D”) expenses increased $0.5 million, or 23%, to $2.4 million in the three months ended September 30, 2024, compared to $2.0 million in the three months ended September 30, 2023. The increase was primarily attributable to a $0.4 million increase in professional fees and a $0.2 million increase in personnel-related compensation expenses, partially offset by a $0.1 million decrease in clinical study related expenses. R&D expenses increased $0.8 million, or 13%, to $6.8 million in the nine months ended September 30, 2024, compared to $6.0 million in the nine months ended September 30, 2023. The increase was primarily attributable to a $0.5 million increase in professional fees, a $0.2 million increase in personnel-related compensation expenses, and a $0.1 million increase in clinical study related expenses. Reimbursement, General and Administrative Expenses Reimbursement, general and administrative expenses increased $1.7 million, or 10%, to $18.1 million in the three months ended September 30, 2024, compared to $16.5 million in the three months ended September 30, 2023. This increase was primarily attributable to a $1.2 million increase in personnel-related compensation expenses and a $0.9 million increase in IT related expenses, partially offset by a $0.4 million decrease in occupancy costs, depreciation expense and professional fees. Reimbursement, general and administrative expenses increased $4.3 million, or 9%, to $51.2 million in the nine months ended September 30, 2024, compared to $46.9 million in the nine months ended September 30, 2023. This increase was primarily attributable to a $2.3 million increase in personnel-related compensation expenses, and a $2.0 million increase in IT related expenses. Intangible Asset Amortization and Earn-out Expense Intangible asset amortization and earn-out expense increased $3.7 million to an expense of $0.6 million in the three months ended September 30, 2024, compared to a benefit of $3.1 million in the three months ended September 30, 2023. The increase in expense was related to there being no earn-out expense in the three months ended September 30, 2024, as final payment under the AffloVest Acquisition earn-out arrangement was made on November 28, 2023, and therefore there was no change in fair value of an earn-out expense recorded in the three months ended September 30, 2024, compared to a decrease in the fair value of the earn-out expense of $3.7 million for the three months ended September 30, 2023, due to the lower than expected airway clearance product revenue. Intangible asset amortization and earn-out expense increased $2.5 million to an expense of $1.9 million in the nine months ended September 30, 2024, compared to a benefit of $0.6 million in the nine months ended September 30, 2023. The increase was related to there being no earn-out expense in the nine months ended September 30, 2024, as final payment under the AffloVest Acquisition earn-out arrangement was made on November 28, 2023, and therefore there was no change in fair value of an earn-out expense recorded in the nine months ended September 30, 2024, compared to a decrease in the fair value of the earn-out expense of $2.5 million for the nine months ended September 30, 2023, due to the lower than expected airway clearance product revenue. 29 Table of Contents ​ ​ Other Income (Expense), Net We recorded other income, net of $0.5 million and other expense, net of $0.4 million for the three months ended September 30, 2024 and 2023, respectively. The primary drivers of the change were a decrease in interest expense of $0.4 million and an increase in interest income of $0.4 million. We recorded other income, net of $0.8 million and other expense, net of $2.2 million for the nine months ended September 30, 2024 and 2023, respectively. The primary drivers of the change were a decrease in interest expense of $1.6 million and an increase in interest income of $1.4 million. Income Taxes We recorded income tax expense of $2.1 million and an income tax benefit $14.7 million for the three months ended September 30, 2024 and 2023, respectively. The primary driver of the change was the fact that we did not have a full valuation allowance on our deferred tax assets for the current year period, while in the prior year period there was a release of a valuation allowance to recognize the full value of our deferred tax assets. We recorded an income tax expense of $3.3 million and an income tax benefit of $16.3 million for the nine months ended September 30, 2024 and 2023, respectively. The primary driver of the change was the fact that we did not have a full valuation allowance on our deferred tax assets for the current year period, while in the prior year period there was a release of a valuation allowance to recognize the full value of our deferred tax assets. Liquidity and Capital Resources Cash Flows On September 30, 2024, our principal sources of liquidity were cash and cash equivalents of $ 82.1 million and net accounts receivable of $ 43.2 million. This compares to cash and cash equivalents of $66.0 million and net accounts receivable of $58.5 million at September 30, 2023. The following table summarizes our cash flows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, (In thousands) 2024 2023 Net cash provided by (used in): ​ ​ ​ ​ ​ ​ Operating activities $ 24,322 ​ $ 17,503 Investing activities ​ ​ (2,005) ​ ​ (1,541) Financing activities ​ ​ (1,204) ​ ​ 28,145 Net increase in cash and cash equivalents $ 21,113 ​ $ 44,107 ​ ​ Operating Activities Net cash provided by operating activities during the nine months ended September 30, 2024 was $24.3 million, resulting from non-cash net income adjustments of $11.0 million, net income of $7.2 million and a net increase in operating assets and liabilities of $6.1 million. The positive non-cash net income adjustments consisted primarily of $6.0 million of stock-based compensation expense and $5.1 million of depreciation. Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $10.5 million, a decrease in inventories of $1.4 million and a $0.6 million increase in accounts payable, partially offset by a decrease in accrued payroll and related taxes of $3.7 million, an increase in prepaid 30 Table of Contents expenses and other assets of $1.8 million, a decrease in income taxes payable of $0.8 million and a decrease in accrued expenses and other liabilities of $0.3 million. Net cash provided by operating activities during the nine months ended September 30, 2023 was $17.5 million, resulting from net income of $20.3 million and a net increase in operating assets and liabilities of $9.9 million, which were partially offset by non-cash net income adjustments of $12.7 million. Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $19.3 million and a decrease in net investment in leases of $2.5 million, partially offset by a decrease in accrued expenses of $5.5 million, a decrease in accounts payable of $3.6 million, a decrease in accrued payroll and related taxes of $2.3 million, and an increase in prepaid expenses and inventories of $0.7 million. The negative non-cash net loss adjustments consisted primarily of $20.7 million of deferred income taxes and a $2.5 million change in the fair value of earn-out liability, offset by $5.6 million of stock-based compensation expense and $4.9 million of depreciation and amortization expense. Investing Activities Net cash used in investing activities during the nine months ended September 30, 2024, was $2.0 million, consisting of purchases of property and equipment primarily related to tenant improvements, and patent costs. Net cash used in investing activities during the nine months ended September 30, 2023, was $1.5 million, consisting of purchases of property and equipment, and patent costs. Financing Activities Net cash used in financing activities during the nine months ended September 30, 2024, was $1.2 million, primarily consisting of a $2.3 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 nine months ended September 30, 2023, was $28.1 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million and $1.0 million in proceeds from the issuance of common stock under the ESPP, partially offset by a payment of $5.0 million on the AffloVest earn-out and a $2.3 million payment made on our term loan. ​ Credit Agreement On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. The Restated Credit Agreement amended and restated in its entirety our prior credit agreement. On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amended the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent. The Amendment, among other things, added a $30.0 million incremental term loan to the $25.0 million revolving credit facility provided by the Restated Credit Agreement. The term loan is reflected on our condensed consolidated financial statements as a note payable. The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $80.0 million. On September 8, 2021, in connection with the closing of the acquisition of the AffloVest business, we borrowed the $30.0 million term loan and utilized that borrowing, together with a draw of $25.0 million under the revolving credit facility and cash on hand, to fund the purchase price. ​ 31 Table of Contents On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amends the Credit Agreement. The Second Amendment modified the maximum leverage ratio, the minimum fixed charge coverage ratio and the minimum consolidated EBITDA covenants under the Credit Agreement, and added a minimum liquidity covenant, through the quarter ended June 30, 2023. The Second Amendment also increased the applicable margin for LIBOR rate loans under the Credit Agreement during the period commencing on the date of the Second Amendment and ending on the last day of the fiscal quarter ending June 30, 2023. Pursuant to the Second Amendment, we made a mandatory principal prepayment of the term loan of $3.0 million on February 22, 2022. ​ On June 21, 2023, we entered into a Third Amendment Agreement (the “Third Amendment”) that replaced the interest rate benchmark under the Credit Agreement from LIBOR to the term Secured Overnight Financing Rate (“SOFR”). All tenors of term SOFR are subject to a credit spread adjustment of 0.10% (“Adjusted Term SOFR”). ​ 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 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 November 1, 2024, we entered into a Fifth Amendment Agreement (the “Fifth Amendment”), which further amended the Credit Agreement. The Fifth Amendment permits the Company to make payments to repurchase shares of its common stock, as long as the Company is not in default before and after giving effect to such repurchases, and as long as such repurchases do not exceed $30.0 million. ​ 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 September 30, 2024, we had outstanding borrowings of $27.0 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 8 – “Credit Agreement” of the condensed consolidated financial statements contained in this report. ​ Share Repurchase Program ​ On October 30, 2024, our Board of Directors authorized a program to repurchase up to $30.0 million of common stock. Under the program, purchases may be made from time to time in the open market, in privately negotiated purchases, or both. The timing and number of shares to be purchased will be based on the price of our common stock, general business and market conditions and other investment considerations and factors. The share repurchase program expires on October 31, 2026. The program does not obligate us to repurchase any specific number of shares and may be suspended or discontinued at any time without prior notice. We intend to finance the share repurchase program with cash on hand. ​ Future Cash Requirements For a discussion of our material estimated future cash requirements under our contractual obligations and commercial commitments, in total and disaggregated into current and long-term , see “Future Cash Requirements” included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes since December 31, 2023. 32 Table of Contents Adequacy of Resources Our future cash requirements may vary significantly from those now planned and will depend on many factors, including: ● the impacts of inflation, rising interest rates or a recession on our business; ● sales and marketing resources needed to further penetrate our market; ● expansion of our operations; ● response of competitors to our solutions and applications; ● costs associated with clinical research activities; ● increases in interest rates; ● labor shortages and wage inflation; ● component price inflation; ● costs to develop and implement new products; and ● use of capital for acquisitions or licenses, if any. Historically, we have experienced increases in our expenditures consistent with the growth in our revenue, operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business. 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 September 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 Refer to Note 3 – “Summary of Significant Accounting Policies” of the condensed consolidated financial statements contained in this report for a description of recently issued accounting pronouncements that are applicable to our business. Critical Accounting Estimates Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. For additional information, please see the discussion of our most critical accounting estimates under “Critical Accounting Estimates ” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023. 33 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk For a discussion on our market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes since December 31, 2023.