What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-18 compared with 2024-02-20 · 157 added, 171 removed, 734 unchanged (31% of the section changed)

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We have audited the accompanying consolidated balance sheets of Tactile Systems Technology, Inc.

(a Delaware corporation) and subsidiary (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023 and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

(a Delaware corporation) and subsidiary (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 18, 2025 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Transaction Price Adjustment – Uncollected Lymphedema Product Sales with Commercial Payers and Medicare

As described further in Note 3.

Summary of Significant Accounting Policies – Revenue Recognition to the consolidated financial statements, revenue is recognized upon transfer of control of the product to the patient based on a transaction price determined to be the amount of expected consideration to be received for the product.

In most cases, there is a contracted third-party payer, such as a commercial insurer or Medicare

involved with the transaction.

Transaction Price Adjustments – Uncollected Lymphedema Product Sales with Commercial Payers and Medicare

As described further in Note 3 Summary of Significant Accounting Policies – Revenue Recognition to the consolidated financial statements, revenue is recognized upon transfer of control of the product to the patient based on a transaction price determined to be the amount of expected consideration to be received for the

In most cases, there is a contracted third-party payer, such as a commercial insurer or Medicare, involved with the transaction.

The transaction price is impacted by multiple factors including the terms and conditions contracted by third-party payers.

Thus, payments from third-party payers typically are less than the Company’s standard charge and represent an implicit price concession, resulting in variable consideration.

The transaction price for commercial payers is determined based on the payment history of the payer drawn from actual write-off and collections experience over a rolling 12-month period, as well as historical patient collections by payer.

The Company assesses the variable consideration for each Medicare claim as a percentage of the total invoice price based on ultimate approval and collection history.

The transaction price for commercial payers and Medicare is determined based on the payment history of the payer drawn from actual write-off and collections experience over a rolling 12-month period, as well as historical patient collections by payer.

The results of the variable consideration assessment are the primary source of information in estimating the recognition of net revenue and the net valuation of the related accounts receivable.

We identified the transaction price adjustment, as it relates to the uncollected lymphedema product sales to commercial payers and Medicare, as a critical audit matter.

We identified transaction price adjustments, as it relates to the uncollected lymphedema product sales with commercial payers and Medicare, as a critical audit matter.

The principal considerations for our determination that this is a critical audit matter are:

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● As it relates to sales with Medicare, the future collection could significantly differ from those subjective estimates given the payment uncertainty due to the appeals process for claims initially denied .

Our audit procedures related to the transaction price adjustment – uncollected lymphedema product sales with commercial payers and Medicare included the following, among others:

● We tested the design and operating effectiveness of management’s key controls relating to their Medicare and commercial payer transaction price assessments and commercial payer lookback analysis through reperformance, observation of the control being performed, and inspection of supporting documentation providing evidence of control performance.

● To test management’s estimate of the commercial payer transaction price adjustment, we:

(1) recomputed management’s calculation of the historical collection amount by payer based on transactions that occurred during the year for a sample of commercial payers and (2) tested the completeness and accuracy of the underlying data used in management’s calculation of the historical collection amount.

● For sales to patients insured by commercial payers, we assessed the reasonableness of management’s year-end analysis of the transaction price adjustment recorded in the prior year compared to actual pricing adjustments experienced in the current period by recomputing the results of management’s historical lookback analysis of collection amounts by payer portfolio and total reserve.

● For sales to patients covered by Medicare, we:

(1) tested management’s estimate by evaluating the determination of collection percentage assumptions, (2) recalculated the related transaction price adjustment based upon management’s assumptions and (3) tested the completeness and accuracy of the underlying data inputs for the collection percentage determination .

Our audit procedures related to the transaction price adjustments – uncollected lymphedema product sales with commercial payers and Medicare included the following, among others:

● We tested the design and operating effectiveness of management’s key controls relating to their commercial payer and Medicare transaction price adjustments and commercial payer lookback analysis through reperformance, observation of the controls being performed, and inspection of supporting documentation providing evidence of control performance.

● To test management’s estimate of the commercial payer and Medicare transaction price adjustments, we:

(1) recomputed management’s calculation of the historical collection amounts by payer based on transactions that occurred during the year for a sample of commercial payers and Medicare (2) assessed management’s qualitative adjustments to any claims and (3) tested the completeness and accuracy of the underlying data used in management’s calculation of the historical collection amount s.

● For sales to patients insured by commercial payers, we assessed the reasonableness of management’s year-end analysis of the transaction price adjustments recorded in the prior year compared to actual pricing adjustments experienced in the current period by recomputing the results of management’s historical lookback analysis of collection amounts by payer portfolio and total reserve.

/s/ GRANT THORNTON LLP

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Consolidated Balance Sheets

At December 31,

(In thousands, except share and per share data)

Current assets

Cash and cash equivalents

Accounts receivable

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Accounts payable

Earn-out, current

Accrued payroll and related taxes

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Non-current liabilities

Revolving line of credit, non-current

Note payable, non-current

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Total liabilities

Commitments and Contingencies (see Note 12)

Stockholders’ equity:

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

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

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

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

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Additional paid-in capital

Retained earnings (accumulated deficit)

Retained earnings

Total stockholders’ equity

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Income (loss) from operations

Other expense

Interest income

Interest expense

Income (loss) before income taxes

Income tax (benefit) expense

Income tax expense (benefit)

Net income (loss)

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

Taxes paid for net share settlement of restricted stock units

Common shares issued for employee stock purchase plan

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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 loss for the period

Net income for the period

Balances, December 31, 2023

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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

Share repurchases

Common shares issued for employee stock purchase plan

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Cash flows from investing activities

Payments related to acquisition

Purchases of property and equipment

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Proceeds from issuance of note payable

Proceeds from revolving line of credit

Payments on earn-out

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Payments of deferred debt issuance costs

Taxes paid for net share settlement of performance and restricted stock units

Proceeds from exercise of common stock options

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

Payments for repurchases of common stock

Proceeds from issuance of common stock at market

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents – beginning of period

Cash and cash equivalents – end of period

Net cash (used in) provided by financing activities

Net increase (decrease) in cash

Cash – beginning of period

Cash – end of period

Supplemental cash flow disclosure

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(“we,” “us,” and “our”) manufactures and distributes medical devices for the treatment of patients with underserved chronic diseases at home.

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 and sell or rent them through 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.

We provide our Flexitouch Plus, Entre Plus and Nimbl systems, which help control symptoms of lymphedema, a chronic progressive medical condition, through our direct sales force for use in the home and sell or rent them through vascular, wound and lymphedema clinics throughout the United States.

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

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

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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 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

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Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash on hand and deposits.

Cash consists of all cash on hand and deposits.

Our cash was held primarily in checking accounts and an Institutional Insured Liquid Deposit demand account as of December 31, 2024 and 2023.

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We update our assessment on a quarterly basis, which to date has not resulted in any material adjustments to the valuation of our accounts receivable.

We believe the assessment provides reasonable estimates of our

accounts receivable valuation, and therefore we believe that substantially all accounts receivable are fully collectible.

We believe the assessment provides reasonable estimates of our accounts receivable valuation, and therefore we believe that substantially all accounts receivable are fully collectible.

A portion of claims to Medicare are initially denied and enter the appeals process, where many are ultimately reviewed by an Administrative Law Judge.

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Leasehold improvements are depreciated over the remaining life of the respective building lease agreement.

The value of demonstration equipment in the possession of our field sales representatives is capitalized and depreciated over the estimated useful life of the equipment.

Major expenditures for property and equipment are capitalized.

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When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accumulated depreciation accounts and the resulting gains or losses are included in income.

The value of demonstration equipment in the possession of our field sales representatives is capitalized and depreciated over the estimated useful life of the equipment.

Software Costs

We capitalize certain implementation costs incurred during the development stage of implementing new software.

Capitalized costs are included within prepaid expenses and other current assets and other non-current assets on the Consolidated Balance Sheets.

We expense costs as incurred during the post-implementation/operation stage.

Capitalized implementation costs are amortized on a straight-line basis over the contractual term of the cloud computing arrangement, which includes renewal options that are reasonably certain to be exercised.

Revenue Recognition

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

Flexitouch Plus and Entre Plus

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

Flexitouch Plus, Entre Plus and Nimbl

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

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Revenue is recognized from such sales upon transfer of control of the product to the customer at a transaction price determined by collection history.

As a result, the transaction price is impacted by multiple factors, including the terms and conditions contracted by various third-party payers, and therefore payments from third-party payers typically are less than our standard charge and

represent an implicit price concession, resulting in variable consideration.

As most contracts are with each individual sale to a patient, we have elected the portfolio approach to determine the transaction price, and ultimately the expected consideration.

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For our products sold to Medicare patients, we recognize revenue from such sales upon shipment of our products, which can occur only after we have received a prescription from a physician and all applicable patient documentation is obtained.

The transaction price for our Entre Plus systems is determined based on the payment history using the same methodology as our private insurers.

The transaction price for our Entre Plus and Nimbl systems is determined based on the payment history using the same methodology as our private insurers.

A portion of claims for payment for our Flexitouch Plus system are initially denied, and enter the appeals process, which can be lengthy.

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Generally, there is no post-shipment obligation on products sold other than warranty obligations in the normal and ordinary course of business.

Consequently,

revenue from the sale of the AffloVest product is recognized at shipment, unless circumstances dictate that control has not yet passed to the distributor.

Consequently, revenue from the sale of the AffloVest product is recognized at shipment, unless circumstances dictate that control has not yet passed to the distributor.

Certain of our contracts include volume-based incentives which involve rebates that are negotiated at or prior to the time of sale with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase.

Under these incentive programs, at the time of sale, we determine the most likely amount of the rebate to be paid based on forecasted sales levels.

Under these incentive programs, at the time of sale, we determine

the most likely amount of the rebate to be paid based on forecasted sales levels.

These forecasts are updated at least quarterly for applicable customers, and the transaction price is reduced for the anticipated cost of the rebate.

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As a result, the sale of these products represents a single performance obligation that is satisfied at a point in time and is short-term in nature.

Advertising costs are charged to operations when incurred.

Advertising expense was $ 0.1 million for each of the years ended December 31, 2023, 2022 and 2021.

Research and Development Costs

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Stock-Based Compensation

Stock options are valued using the Black-Scholes option-pricing model.

We provide stock-based compensation in the form of various types of equity-based awards, including time-based restricted stock units, performance-based restricted stock units, stock options, and through our Employee Stock Purchase Plan (“ESPP”).

Stock-based compensation expense is based on the estimated fair value of the award on the grant date for equity awards, or on the first date of the ESPP purchase period for shares under the ESPP, and recognized over the requisite service periods on our Consolidated Statements of Income using the straight-line expense attribution approach.

The estimated fair value of time-based and performance based restricted stock units is based on the closing price of our common stock on the grant date.

Stock options and ESPP shares are valued using the Black-Scholes option-pricing model.

The Black-Scholes valuation model requires the input of highly subjective assumptions.

The assumptions include the expected term of the option, the expected volatility of the price of our common stock, expected dividend yield and the risk-free interest rate.

The assumptions include the expected term of the option or ESPP shares, the expected volatility of the price of our common stock, expected dividend yield and the risk-free interest rate.

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

If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

We recognize compensation expense for these options on a straight-line basis over the requisite service period (see Note 13 – “Stockholders’ Equity”).

If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future (see Note 13 – “Stockholders’ Equity”).

Income taxes are accounted for under the liability method.

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Diluted net income (loss) per common share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential stock-based awards outstanding during the period using the treasury stock method.

Dilutive potential stock-based awards include outstanding common stock options, time- and performance-based restricted stock units and employee stock purchase plan shares.

Dilutive potential stock-based awards include outstanding common stock options, time- and performance-based restricted stock units and ESPP shares.

Business Segments

We operate and report in only one operating and reportable segment.

Our chief operating decision maker does not use financial information below revenue to allocate resources.

The Company operates as one operating segment.

The Company's Chief Operating Decision Maker ("CODM") is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

The CODM uses consolidated net income (loss) as the measure of segment profit or loss.

Significant segment expenses are those expenses reported in the Consolidated Statement of Operations.

The CODM assesses performance for the segment, allocates resources and monitors budget versus actual results using consolidated revenue and net income (loss) which is reflected in the Consolidated Statement of Operations.

Accounting Pronouncement Not Yet Adopted

In November 2024, 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.

2024-03, “Income Statement – Reporting Comprehensive Income – Expense disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses” which requires entities to disclose additional information about specific expense categories in the notes to financial statements on an annual and interim basis.

The guidance is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

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

In December 2023, the FASB issued ASU No.

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Recently Adopted Accounting Pronouncement

In December 2022, the FASB issued 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.

In November 2023, the FASB issued 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 adopted ASU 2023-07 with respect to the year ended December 31, 2024.

As a result, we have enhanced our segment disclosures in this report.

The adoption of this ASU affects only our disclosures, with no impacts to our financial condition and results of operations.

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

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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 “Amendment” with IBC, which modifies the terms of the earn-out arrangement under the AffloVest APA, as follows:

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

● Initial Earn-Out:

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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;

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.

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This amount and the current versus non-current allocation was remeasured at the end of each reporting period until the payment requirement ended, with any adjustments reported in income from operations (see Note 17 – “Fair Value Measurements”).

On the date of AffloVest Acquisition, we allocated the assets acquired based on an estimate of their fair values.

The following table summarizes the purchase price allocation:

(In millions)

Allocated Fair Value

Property and equipment (1)

Intangible assets

Purchase price

(1) The purchase price included less than $ 0.1 million of property and equipment.

The goodwill reflects expected synergies of combining the acquired products and customer information with our existing operations and is deductible for tax purposes over 15 years .

The following table reflects the allocation of purchase price to the acquired intangible assets and related estimated useful lives:

(In millions)

Allocated Fair Value

Estimated Useful Life

Customer relationships

Developed technology

Total intangible assets

The weighted-average amortization period of the acquired intangible assets was 12.3 years.

The fair market valuations associated with the assets acquired fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value.

The fair value measurements were calculated using unobservable inputs, primarily using the income approach, specifically the discounted cash flow method.

The amount and timing of future cash flows within our analysis was based on our due diligence models, most recent operational budgets, long-range strategic plans and other estimates.

Transaction costs, such as legal and other costs, related to the acquisition aggregated approximately $ 0.8 million.

These costs have been expensed as incurred and are included in reimbursement, general and administrative expenses in our Consolidated Statements of Operations for the year ended December 31, 2021.

The Consolidated Statements of Operations reflect the AffloVest operations beginning September 9, 2021.

As the AffloVest business has been integrated with our existing operations, we are unable to determine the amount of AffloVest earnings from the acquisition date that is included in the Consolidated Statements of Operations.

The following unaudited pro forma information for the year ended December 31, 2021 presents the revenue and net income assuming the acquisition of AffloVest had occurred as of January 1, 2021.

information has been prepared for comparative purposes only and is not indicative of what actual results would have been if the acquisition had taken place at the beginning of fiscal 2021, or of future results.

(In thousands)

Total revenue

Net (loss) income

These pro forma results include certain adjustments, primarily due to increases in amortization expense due to fair value adjustments of intangible assets, increases in interest expense due to additional borrowings incurred to finance the acquisition and amortization of debt issuance costs incurred to finance the transaction, acquisition related costs including transaction costs such as legal, accounting, valuation and other professional services, and related tax effects.

Accounts Receivable

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Total intangible assets

Amortization expense was $ 3.8 million, $ 3.8 million, and $ 1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Amortization expense was $ 3.8 million for each of the years ended December 31, 2024, 2023 and 2022, of which $ 1.3 million in each of the years ended December 31, 2024, 2023 and 2022, were recorded in cost of sales revenue.

Future amortization expenses are expected as follows:

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In-transit inventory

Clinical studies

Sales and use tax

Clinical studies

Warranty Reserves

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At December 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 6.42 %.

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.

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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.

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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 December 31, 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 December 31, 2023, we were in compliance with all financial covenants under the Credit Agreement.

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

Commitments and Contingencies

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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 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 eight years as of December 31, 2023.

The remaining lease terms vary from approximately one to seven years as of December 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.

In December 2018, we amended the

initial lease to add approximately 29,000 square feet of additional office space, which is accounted for as a separate lease (“second lease”) in accordance with ASU No.

In December 2018, we amended the initial lease to add approximately 29,000 square feet of additional office space, which is accounted for as a separate lease (“second lease”) in accordance with ASU No.

2016-02, “Leases” (Topic 842) (“ASC 842”).

In December 2019, we further amended the lease which extended the expiration date of the initial lease, extended the expiration date of and added approximately 4,000 square feet to the second lease, as well as added approximately 37,000 square feet of additional office space, accounted for as a separate lease (“third lease”) in accordance with ASC 842.

December 2019, we further amended the lease which extended the expiration date of the initial lease, extended the expiration date of and added approximately 4,000 square feet to the second lease, as well as added approximately 37,000 square feet of additional office space, accounted for as a separate lease (“third lease”) in accordance with ASC 842.

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

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

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.

As of December 31, 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.

As of December 31, 2022, we had approximately two vehicles with agreements within the initial, noncancelable lease term that were recorded as ROU operating lease assets and operating lease liabilities.

Computer and Office Equipment

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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.

The Weaver Lawsuit generally arose 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:

The Weaver Lawsuit alleged 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;

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and (6) that the individual defendants were unjustly enriched.

The lawsuit seeks unspecified damages.

The Weaver Lawsuit sought unspecified damages.

In August 2022, the matter was transferred to the United States District Court for the District of Delaware by order granting the Parties Stipulation to Transfer.

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The plaintiff filed an Amended Complaint on March 3, 2023.

On March 31, 2023, we filed a motion to dismiss the Amended Complaint, which is pending.

On July 31, 2023, the plaintiff filed a Joint Notice of Preliminary Settlement indicating that the parties have reached a non-binding settlement-in-principal on most of the material terms that would resolve all claims between the parties and requested that the Court temporarily stay all deadlines, hearings, and conferences while the parties continue to finalize settlement.

On March 31, 2023, we filed a motion to dismiss the Amended Complaint.

On July 31, 2023, the plaintiff filed a Joint Notice of Preliminary Settlement indicating that the parties had reached a non-binding settlement-in-principal on most of the material terms that would resolve all claims between the parties and requested that the Court temporarily stay all deadlines, hearings, and conferences while the parties continued to finalize settlement.

On June 6, 2024, the parties entered into a Stipulation of Settlement in the Weaver Lawsuit.

On June 7, 2024, the plaintiff filed an unopposed motion for preliminary approval of the settlement.

On June 27, 2024, the Court entered an order granting the motion for preliminary approval of the settlement.

The final settlement hearing occurred on August 28, 2024, and on September 4, 2024, the Court entered its order approving the settlement, including the agreed upon attorneys’ fees and expense awards to plaintiffs’ counsel and service awards to the shareholder plaintiffs.

Pursuant to the settlement, we adopted and maintain certain corporate governance reforms.

The attorneys’ fees and expense award of approximately $ 0.5 million was covered by insurance and has been paid.

The settlement does not constitute an admission of liability or wrongdoing by us or any of our current or former directors or officers.

This matter is now concluded.

On October 25, 2024, the United States District Court, District of Massachusetts (Boston) unsealed two qui tam complaints against us, and we were served with these complaints on January 14, 2025 and January 21, 2025.

The United States has indicated that it is not intervening in either matter at this time.

The first complaint is captioned United States ex.

Benjaman Scarborough vs.

Tactile Systems Technology, Inc., Case No.

1:21-cv-10813-IT, and was filed under seal on May 17, 2021, on behalf of the United States by a former employee (the “Scarborough Complaint”).

The Scarborough Complaint alleges that we submitted false claims and made false statements in connection with the Medicare programs, in violation of the Federal False Claims Act.

The second complaint is captioned United States ex.

Jackie Gorham, an individual, and Dustin Gast, an individual, vs.

Tactile Systems Technology, Inc.

1:21-cv-11809-IT, and was filed under seal on September 1, 2021, on behalf of the United States by two former employees (the “Gorham Complaint”).

The Gorham Complaint alleges that we submitted false claims and made false statements in connection with the Medicare, Medicare Advantage plans, Medicaid and other government payers, in violation of the Federal False Claims Act and submitted false claims resulting from kickbacks in violation of the Federal False Claims Act and the Federal Anti-Kickback Statute.

Both complaints seek damages, statutory penalties, attorneys’ fees, and costs.

We will defend the actions as they proceed.

Stockholders' Equity

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We received net proceeds from this offering of $ 34.6 million after deducting underwriting discounts, commissions, and offering expenses.

Share Repurchase Program

On November 4, 2024, we announced that our board of directors authorized a program to repurchase shares of our common stock in the open market or in privately negotiated purchases, or both, in an aggregate amount not to exceed $ 30.0 million.

The share repurchase program became effective on October 30, 2024 and expires on October 31, 2026.

Upon purchase of the shares, we reduce our common stock for the par value of the shares with the excess cost applied against additional paid-in capital.

We made share repurchases under the share repurchase program as follows, which include the market price of the shares, commissions and excise tax:

(In thousands, except share and per share data)

Number of shares repurchased

Total share repurchased cost

Average total cost per repurchased share

As of December 31, 2024 $ 26.5 million of authorized share repurchases were remaining under the share repurchase program.

The timing and amount of future repurchases will be determined based on an evaluation of market conditions and other factors.

Repurchases will be funded through available cash balances and ongoing business operating cash generation and may be suspended or discontinued at any time.

Shares of stock repurchased under the program are immediately retired.

Repurchases under our share repurchase program reduce the weighted-average number of shares of common stock outstanding for basic and diluted earnings per share calculations.

Stock-Based Compensation

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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 each of January 1, 2023 and 2022.

Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2025 and January 1, 2023.

As of December 31, 2024, 6,475,903 shares were available for future grant pursuant to the 2016 Plan.

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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 options are settled in new shares of our common stock.

Stock-based compensation expense included in our Consolidated Statements of Operations for stock options was $ 0.2 million, $ 0.9 million and $ 2.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The total grant date fair value of options vested during the year was $ 0.6 million, $ 1.9 million and $ 3.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.

At December 31, 2023, there was approximately $ 0.2 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.

At December 31, 2024, there was approximately $ 29 thousand 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.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.

Annually, we make predictive assumptions regarding future stock price volatility, dividend yield, expected term and forfeiture rate.

We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors.

The dividend yield assumption is based on expected annual dividend yield on the grant date.

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Beginning in the second fiscal quarter of 2021, we had sufficient historical data to transition to utilizing our average historical volatility over a similar period as the expected term assumption used for our options as the expected volatility.

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

The risk-free interest rate is based on the yields of U.S.

Treasury securities with maturities similar to the expected term of the options for each option group.

The following table sets forth the estimated fair values of our stock options granted in each of the years indicated, and the assumptions on which the fair values were determined:

There were no stock options granted in the years ended December 31, 2024 or 2023.

The following table sets forth the estimated fair value of our stock options granted in the year indicated, and the assumptions on which the fair value was determined:

Expected term

Expected volatility

45.0 - 52.3 %

Risk-free interest rate

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Fair value on the date of grant

$ 13.04 - $ 22.90

Our stock option activity for the three years ended December 31, 2024, 2023 and 2022, was as follows:

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We have granted time-based restricted stock units to certain participants under the 2016 Plan that are stock-settled with common shares.

Time-based restricted stock units granted under the 2016 Plan vest over

one to three years .

Time-based restricted stock units granted under the 2016 Plan vest over one to three years .

Stock-based compensation expense included in our Consolidated Statements of Operations for time-based restricted stock units was $ 5.9 million, $ 5.1 million and $ 5.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2023, there was approximately $ 6.3 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 1.7 years.

As of December 31, 2024, there was approximately $ 6.1

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 1.8 years.

Our time-based restricted stock unit activity for the years ended December 31, 2024, 2023 and 2022 was as follows:

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

The PSUs granted in 2020 were earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2021.

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

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

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 each of 2024 and 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 included in our Consolidated Statements of Operations for PSUs was $ 1.2 million, $ 0.9 million and $ 0.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The stock-based compensation expense for the year ended December 31, 2023 reflects an expense of $ 0.5 million related to the PSUs granted in 2023 and an expense of $ 0.4 million related to the PSUs granted in 2022.

The stock-based compensation expense for the year ended December 31, 2022 reflects an expense of $ 0.6 million related to the PSUs granted in 2022.

The stock-based compensation expense for the year ended December 31, 2024 reflects an expense of $ 0.5 million related to the PSUs granted in 2024, an expense of $ 0.4 million related to the PSUs granted in 2023 and an expense of $ 0.3 million related to PSUs granted in 2022.

The stock-based compensation expense for the year ended December 31, 2023 reflects an expense of $ 0.5 million related to the PSUs granted in 2023 and $ 0.4 million related to PSUs granted in 2022.

As of December 31, 2024, there was approximately $ 1.3 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.0 years.

Our performance-based restricted stock unit activity at the estimated payout of 100 % of target for the years ended December 31, 2023, 2022 and 2021, was as follows:

Our PSU activity at the estimated payout of 100 % of target for the years ended December 31, 2024, 2023 and 2022, was as follows:

Average Grant

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Employee Stock Purchase Plan

Our employee stock purchase plan (“ESPP”), which was approved by our Board of Directors on April 27, 2016, and by our stockholders on June 20, 2016, allows participating employees to purchase shares of our common stock at a discount through payroll deductions.

Our ESPP, which was approved by our Board of Directors on April 27, 2016, and by our stockholders on June 20, 2016, allows participating employees to purchase shares of our common stock at a discount through payroll deductions.

The ESPP is available to all of our employees and employees of participating subsidiaries.

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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.

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 each of January 1, 2023 and 2022.

Pursuant to the automatic increase feature of the ESPP, 240,780 shares were added as available for issuance thereunder on January 1, 2025 and 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 December 31, 2024, 1,444,905 shares were available for future issuance under the ESPP.

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Cost of sales-type lease revenue

The (benefit) provision for income tax expense consisted of the following:

The provision (benefit) for income tax expense consisted of the following:

Year Ended December 31,

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Unrecognized tax benefit, State

Total (benefit) provision for income taxes

Total provision (benefit) for income taxes

The components of our deferred tax assets and liabilities were as follows:

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Deferred tax liabilities:

Right-of-use asset

Right of use operating lease assets

Prepaid expenses

Total deferred tax liabilities

Valuation allowance

Net deferred tax assets

A reconciliation of income tax (benefit) expense to the statutory federal tax rate is as follows:

A reconciliation of income tax expense (benefit) to the statutory federal tax rate is as follows:

Year Ended December 31,

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Return to provision

Research and development credits

Deferred reprice - state

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Balance beginning of the year

Gross change — tax positions in prior year

Gross changes — tax positions in prior year

Gross changes — tax positions in current year

Balance end of the year

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A portion of the state NOL carry forward amounts have begun to expire in the current year.

The state NOL carryforward amounts expire beginning in tax years 2027 if not utilized.

The Company is subject to income tax examinations in the U.S.

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The Company is not under exam in any jurisdictions.

The effective tax rate for the twelve months ended December 31, 2024, was an expense of 27.8 %, compared to a benefit of 80.8 % for the twelve months ended December 31, 2023.

The primary driver of the change in our effective tax rate was the fact that we did not have a release of a valuation allowance on our deferred tax assets for 2024, while in 2023 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 $ 6.5 million and an income tax benefit of $ 12.7 million for the twelve months ended December 31, 2024 and 2023, respectively.

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

For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest

benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

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

As of December 31, 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 was sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes of $ 19.4 million are realizable.

We therefore reduced the valuation allowance related to the future realization of deferred tax assets accordingly.

On the basis of this evaluation, all deferred tax assets are expected to be realizable.

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

Net Income (Loss) Per Common Share

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Weighted-average shares outstanding

Weighted-average shares used to compute diluted net loss per share

Weighted-average shares used to compute diluted net income (loss) per share

Net income (loss) per share - Basic

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The recognized revenue volatility estimate was based on a study of historical asset volatility for a set of comparable public companies.

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 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, which was September 30, 2023.

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Earn-out liability at December 31, 2023

(In thousands)

Earn-out liability at December 31, 2021

Payment on earn-out

Fair value adjustments

Earn-out liability at December 31, 2022

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.

There is no remaining contingent earn-out liability as of December 31, 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

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.

The carrying amounts of financial instruments such as 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.

Non-financial assets, such as equipment and leasehold improvements, and intangible assets are subject to non-recurring fair value measurements if they are deemed impaired.

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-K

Item 8. Financial Statements and Supplementary Data