TACTILE SYSTEMS TECHNOLOGY INC 10-K

Item 8. Financial Statements and Supplementary Data. Index to Financial Statements ​ ​ ​ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID Number 248 ) ​ 85 Consolidated Balance Sheets ​ 87 Consolidated Statements of Operations ​ 88 Consolidated Statements of Stockholders’ Equity ​ 89 Consolidated Statements of Cash Flows ​ 90 Notes to Consolidated Financial Statements ​ 91 ​ ​ ​ 84 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Tactile Systems Technology, Inc. Opinion on the financial statements ​ We have audited the accompanying consolidated balance sheets of Tactile Systems Technology, Inc. (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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical audit matter ​ The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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 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 85 Table of Contents product. 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 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 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: ​ ● The transaction price adjustment is related to material accounts and disclosures that are important to the users of the consolidated financial statements ● Significant judgment is required to estimate the expected amount of cash consideration to be collected, which is a key input into management’s transaction price adjustment ● 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 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 We have served as the Company’s auditor since 2015. Minneapolis, Minnesota February 18, 2025 ​ 86 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Consolidated Balance Sheets ​ December 31, December 31, (In thousands, except share and per share data) 2024 2023 Assets ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash ​ $ 94,367 ​ $ 61,033 Accounts receivable ​ 44,937 ​ 43,173 Net investment in leases ​ 14,540 ​ 14,195 Inventories ​ 18,666 ​ 22,527 Prepaid expenses and other current assets ​ 5,053 ​ 4,366 Total current assets ​ 177,563 ​ 145,294 Non-current assets ​ ​ ​ ​ ​ ​ Property and equipment, net ​ 5,603 ​ 6,195 Right of use operating lease assets ​ 16,633 ​ 19,128 Intangible assets, net ​ 42,789 ​ 46,724 Goodwill ​ ​ 31,063 ​ ​ 31,063 Accounts receivable, non-current ​ — ​ 10,936 Deferred income taxes ​ 18,311 ​ 19,378 Other non-current assets ​ 5,962 ​ 2,720 Total non-current assets ​ 120,361 ​ 136,144 Total assets ​ $ 297,924 ​ $ 281,438 Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 5,648 ​ $ 6,659 Note payable ​ ​ 2,956 ​ ​ 2,956 Accrued payroll and related taxes ​ 17,923 ​ 16,789 Accrued expenses ​ 7,780 ​ 5,904 Income taxes payable ​ 270 ​ 1,467 Operating lease liabilities ​ 2,980 ​ 2,807 Other current liabilities ​ 3,147 ​ 4,475 Total current liabilities ​ 40,704 ​ 41,057 Non-current liabilities ​ ​ ​ ​ ​ ​ Note payable, non-current ​ ​ 23,220 ​ ​ 26,176 Accrued warranty reserve, non-current ​ 1,209 ​ 1,681 Income taxes payable, non-current ​ 239 ​ 446 Operating lease liabilities, non-current ​ ​ 15,955 ​ 18,436 Total non-current liabilities ​ 40,623 ​ 46,739 Total liabilities ​ 81,327 ​ 87,796 ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of December 31, 2024 and December 31, 2023 ​ — ​ — Common stock, $ 0.001 par value, 300,000,000 shares authorized; 23,883,475 shares issued and outstanding as of December 31, 2024; 23,600,584 shares issued and outstanding as of December 31, 2023 ​ 24 ​ 24 Additional paid-in capital ​ 180,719 ​ 174,724 Retained earnings ​ 35,854 ​ 18,894 Total stockholders’ equity ​ 216,597 ​ 193,642 Total liabilities and stockholders’ equity ​ $ 297,924 ​ $ 281,438 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 87 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Consolidated Statements of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands, except share and per share data) 2024 2023 2022 Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales revenue ​ $ 256,012 ​ $ 239,493 ​ $ 211,345 Rental revenue ​ 36,972 ​ 34,930 ​ 35,440 Total revenue ​ 292,984 ​ 274,423 ​ 246,785 Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales revenue ​ 64,815 ​ 66,713 ​ 59,619 Cost of rental revenue ​ 11,481 ​ 12,577 ​ 11,190 Total cost of revenue ​ 76,296 ​ 79,290 ​ 70,809 Gross profit ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit - sales revenue ​ 191,197 ​ 172,780 ​ 151,726 Gross profit - rental revenue ​ 25,491 ​ 22,353 ​ 24,250 Gross profit ​ 216,688 ​ 195,133 ​ 175,976 Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales and marketing ​ 112,009 ​ 107,119 ​ 106,418 Research and development ​ 8,832 ​ 7,823 ​ 7,088 Reimbursement, general and administrative ​ 71,135 ​ 62,074 ​ 60,796 Intangible asset amortization and earn-out ​ ​ 2,531 ​ ​ 76 ​ ​ 14,432 Total operating expenses ​ 194,507 ​ 177,092 ​ 188,734 Income (loss) from operations ​ 22,181 ​ 18,041 ​ ( 12,758 ) Interest income ​ ​ 3,384 ​ ​ 1,874 ​ ​ 60 Interest expense ​ ​ ( 2,085 ) ​ ​ ( 4,147 ) ​ ​ ( 2,788 ) Other income ​ 9 ​ 2 ​ 13 Income (loss) before income taxes ​ 23,489 ​ 15,770 ​ ( 15,473 ) Income tax expense (benefit) ​ 6,529 ​ ( 12,745 ) ​ 2,393 Net income (loss) ​ $ 16,960 ​ $ 28,515 ​ $ ( 17,866 ) Net income (loss) per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.71 ​ $ 1.24 ​ $ ( 0.89 ) Diluted ​ $ 0.70 ​ $ 1.23 ​ $ ( 0.89 ) Weighted-average common shares used to compute net income (loss) per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 23,883,729 ​ ​ 22,925,497 ​ ​ 20,067,969 Diluted ​ ​ 24,138,244 ​ ​ 23,176,169 ​ ​ 20,067,969 ​ The accompanying notes are an integral part of these consolidated financial statements . ​ ​ ​ ​ ​ ​ ​ ​ 88 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Consolidated Statements of Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Retained ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Earnings ​ ​ ​ ​ ​ Common Stock ​ Paid-In ​ (Accumulated ​ ​ ​ (In thousands, except share data) Shares Par Value Capital Deficit) Total Balances, December 31, 2021 ​ 19,877,786 ​ $ 20 ​ $ 119,962 ​ $ 8,245 ​ $ 128,227 Stock-based compensation ​ — ​ ​ — ​ ​ 9,600 ​ ​ — ​ ​ 9,600 Exercise of common stock options and vesting of performance and restricted stock units ​ 225,282 ​ ​ — ​ ​ 153 ​ ​ — ​ ​ 153 Common shares issued for employee stock purchase plan ​ 149,609 ​ ​ — ​ ​ 1,286 ​ ​ — ​ ​ 1,286 Net loss for the period ​ — ​ ​ — ​ ​ — ​ ​ ( 17,866 ) ​ ​ ( 17,866 ) Balances, December 31, 2022 ​ 20,252,677 ​ $ 20 ​ $ 131,001 ​ $ ( 9,621 ) ​ $ 121,400 Stock-based compensation ​ — ​ ​ — ​ ​ 7,547 ​ ​ — ​ ​ 7,547 Exercise of common stock options and vesting of performance and restricted stock units ​ 283,624 ​ ​ 1 ​ ​ 13 ​ ​ — ​ ​ 14 Sale of common stock from follow-on public offering, net of offering expenses ​ 2,875,000 ​ ​ 3 ​ ​ 34,622 ​ ​ — ​ ​ 34,625 Common shares issued for employee stock purchase plan ​ 189,283 ​ ​ — ​ ​ 1,541 ​ ​ — ​ ​ 1,541 Net income for the period ​ — ​ ​ — ​ ​ — ​ ​ 28,515 ​ ​ 28,515 Balances, December 31, 2023 ​ 23,600,584 ​ $ 24 ​ $ 174,724 ​ $ 18,894 ​ $ 193,642 Stock-based compensation ​ — ​ ​ — ​ ​ 7,819 ​ ​ — ​ ​ 7,819 Exercise of common stock options and vesting of performance and restricted stock units ​ 317,443 ​ ​ — ​ ​ 24 ​ ​ — ​ ​ 24 Share repurchases ​ ( 195,518 ) ​ ​ — ​ ​ ( 3,508 ) ​ ​ — ​ ​ ( 3,508 ) Common shares issued for employee stock purchase plan ​ 160,966 ​ ​ — ​ ​ 1,660 ​ ​ — ​ ​ 1,660 Net income for the period ​ — ​ ​ — ​ ​ — ​ ​ 16,960 ​ ​ 16,960 Balances, December 31, 2024 ​ 23,883,475 ​ $ 24 ​ $ 180,719 ​ $ 35,854 ​ $ 216,597 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 89 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Consolidated Statements of Cash Flows ​ ​ ​ ​ ​ Year Ended December 31, (In thousands) 2024 2023 2022 Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 16,960 ​ $ 28,515 ​ $ ( 17,866 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 6,792 ​ ​ 6,539 ​ ​ 6,268 Deferred income taxes ​ ​ 1,067 ​ ​ ( 19,378 ) ​ ​ ( 32 ) Stock-based compensation expense ​ ​ 7,819 ​ ​ 7,547 ​ ​ 9,600 Loss on disposal of property and equipment and intangibles ​ ​ 308 ​ ​ 3 ​ ​ 20 Change in fair value of earn-out liability ​ ​ — ​ ​ ( 2,475 ) ​ ​ 11,850 Changes in assets and liabilities, net of acquisition: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ ( 1,764 ) ​ ​ 11,653 ​ ​ ( 5,348 ) Net investment in leases ​ ​ ( 345 ) ​ ​ 1,935 ​ ​ ( 3,648 ) Inventories ​ ​ 3,861 ​ ​ 597 ​ ​ ( 3,907 ) Income taxes ​ ​ ( 1,404 ) ​ ​ ( 721 ) ​ ​ 2,270 Prepaid expenses and other assets ​ ​ ( 3,929 ) ​ ​ 72 ​ ​ ( 950 ) Right of use operating lease assets ​ ​ 187 ​ ​ 71 ​ ​ 168 Accounts receivable, non-current ​ ​ 10,936 ​ ​ 12,125 ​ ​ ( 10,214 ) Accounts payable ​ ​ ( 1,087 ) ​ ​ ( 3,853 ) ​ ​ 4,961 Accrued payroll and related taxes ​ ​ 1,134 ​ ​ ( 311 ) ​ ​ 4,961 Accrued expenses and other liabilities ​ ​ 120 ​ ​ ( 6,464 ) ​ ​ 7,076 Net cash provided by operating activities ​ ​ 40,655 ​ ​ 35,855 ​ ​ 5,209 Cash flows from investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ​ ( 2,392 ) ​ ​ ( 2,324 ) ​ ​ ( 1,780 ) Proceeds from sale of property and equipment ​ ​ 12 ​ ​ — ​ ​ 11 Intangible assets expenditures ​ ​ ( 117 ) ​ ​ ( 157 ) ​ ​ ( 140 ) Net cash used in investing activities ​ ​ ( 2,497 ) ​ ​ ( 2,481 ) ​ ​ ( 1,909 ) Cash flows from financing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from issuance of note payable ​ ​ — ​ ​ 8,250 ​ ​ — Payments on earn-out ​ ​ — ​ ​ ( 10,575 ) ​ ​ ( 5,000 ) Payments on note payable ​ ​ ( 3,000 ) ​ ​ ( 3,000 ) ​ ​ ( 6,000 ) Payments on revolving line of credit ​ ​ — ​ ​ ( 25,000 ) ​ ​ — Payments of deferred debt issuance costs ​ ​ — ​ ​ ( 125 ) ​ ​ ( 39 ) Proceeds from exercise of common stock options ​ ​ 24 ​ ​ 14 ​ ​ 153 Proceeds from the issuance of common stock from the employee stock purchase plan ​ ​ 1,660 ​ ​ 1,541 ​ ​ 1,286 Payments for repurchases of common stock ​ ​ ( 3,508 ) ​ ​ — ​ ​ — Proceeds from issuance of common stock at market ​ ​ — ​ ​ 34,625 ​ ​ — Net cash (used in) provided by financing activities ​ ​ ( 4,824 ) ​ ​ 5,730 ​ ​ ( 9,600 ) Net increase (decrease) in cash ​ ​ 33,334 ​ ​ 39,104 ​ ​ ( 6,300 ) Cash – beginning of period ​ ​ 61,033 ​ ​ 21,929 ​ ​ 28,229 Cash – end of period ​ $ 94,367 ​ $ 61,033 ​ $ 21,929 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow disclosure ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 2,106 ​ $ 4,560 ​ $ 2,186 Cash paid for taxes ​ $ 6,848 ​ $ 5,815 ​ $ 44 Capital expenditures incurred but not yet paid ​ $ 76 ​ $ 528 ​ $ 38 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 90 Table of Contents ​ Tactile Systems Technology, Inc. Notes to the Consolidated Financial Statement s Note 1. Nature of Business and Operations Tactile Systems Technology, Inc. (“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, 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. We sell this device through home medical equipment and durable medical equipment (“DME”) providers throughout the United States. We were originally incorporated in Minnesota under the name Tactile Systems Technology, Inc. on January 30, 1995. During 2006, we established a merger corporation and subsequently, on July 21, 2006, merged with and into this merger corporation, resulting in us being reincorporated as a Delaware corporation. The resulting corporation assumed the name Tactile Systems Technology, Inc. In September 2013, we began doing business as “Tactile Medical.” On August 2, 2016, we closed the initial public offering of our common stock, which resulted in the sale of 4,120,000 shares of our common stock at a public offering price of $ 10.00 per share. We received net proceeds from the initial public offering of approximately $ 35.4 million, after deducting underwriting discounts and approximately $ 2.9 million of transaction expenses. On February 27, 2023, we closed on a public offering of 2,875,000 shares of our common stock at a public offering price of $ 13.00 per share. We received net proceeds from this offering of $ 34.6 million after deducting underwriting discounts, commissions, and offering expenses. 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 because patients desire to exhaust their flexible spending accounts at year end. This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products. Note 2. Basis of Presentation Our accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. The results for the year ended December 31, 2024, are not necessarily indicative of results to be expected for any future year. Principles of Consolidation Our accompanying consolidated financial statements include the accounts of Tactile Systems Technology, Inc. and its wholly owned subsidiary, Swelling Solutions, Inc. All intercompany balances and transactions have been eliminated in consolidation. 91 Table of Contents Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. ​ Note 3. Summary of Significant Accounting Policies Cash 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. At times the amount of cash on deposit may exceed the federally insured limit of the bank. Deposit accounts at each of the institutions are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). At December 31, 2024 and 2023, the Company exceeded FDIC limits at various institutions. The Company has not experienced any losses in such accounts. Equity Investments Equity investments (including equity securities) with readily determinable fair value are reported at fair value, with unrealized gains and losses included in the determination of net income (loss). For equity investments with no readily determinable fair value, we measure these investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Such observable price changes may include instances where the investee issues equity securities to new investors, thus creating a new indicator of fair value, as an example. As of each of December 31, 2024 and 2023, the total carrying value of our equity investments, with no readily determinable fair value, was $ 0.3 million, and are included in other non-current assets on our Consolidated Balance Sheets. On an annual basis, we perform a qualitative assessment considering impairment indicators to evaluate whether these investments are impaired and also monitor for any observable price changes. During the years ended December 31, 2024 and 2023, we did not have any impairment loss on these investments. Accounts Receivable The majority of our accounts receivable and revenue are from commercial insurance payers and government payers, such as Medicare, the Veterans Administration and Medicaid. Accounts receivable are recorded based on management’s assessment of the expected consideration to be received, based on a detailed review of historical pricing adjustments and collections. Management relies on the results of the assessment, which includes payment history of the applicable payer as well as historical patient collections, as a primary source of information in estimating the collectability of our accounts receivable. 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. A portion of claims to Medicare are initially denied and enter the appeals process, where many are ultimately reviewed by an Administrative Law Judge. After final adjudication of all claims, approximately 90 % of the claims submitted are approved (this is on a number of claims, not a dollars claimed, basis across all our products). The appeals process can be lengthy, lasting more than a year in most cases. Accordingly, we classify a portion of our Medicare accounts receivable as non-current based on our experience with Medicare collections. Inventories Inventories are valued at the lower of cost (first-in, first-out method) or net realizable value. 92 Table of Contents Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of three to seven years . 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. Maintenance, repairs and minor renewals are expensed as incurred. 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. 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, 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. In general, revenue from the sale or rental of a product is recognized upon shipment, unless circumstances dictate that control has not yet passed to the customer. We provide a warranty for these products against defects in material and workmanship for a period of one to five years on garments and one to two years on controllers. In accordance with applicable accounting guidance, we have determined these were assurance warranties and therefore not considered a performance obligation. In addition, we did not evaluate immaterial promised goods or services in the context of the contract. As a result, the sale or rental of these products represent a single performance obligation that is satisfied at a point in time and is short-term in nature. In certain cases, we receive payment from Medicare sales over a period of time that may exceed one year . Despite these extended payment terms, no significant financing component is deemed to exist as the terms are not for the benefit of the patient with whom we have the contract. Rather, the extended payment terms occur as a result of an initial claim denial, which subsequently enters the Medicare appeals process as noted below. We commercially distribute these products directly to patients who are referred to us by physicians, therapists or nurses. In most cases, there is a third-party payer, such as a commercial insurer, Medicare or the Veterans Administration, involved with the transaction. Our contractual relationship resides with the patient when the third-party payer is either a commercial insurer or Medicare and with the Veterans Administration if the patient is covered under their services. 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. The portfolios used to determine transaction price are at the payer level, with pricing for each payer assessed based on the underlying similar characteristics. 93 Table of Contents For any of our products sold to patients covered by private payers, such as commercial insurance companies, revenue is recognized upon shipment. A product is not shipped until we have received a prescription from a physician for our products and, as applicable, receipt of prior authorization from payers. At shipment, we invoice the payer for the total product price, and we recognize revenue in the amount of cash consideration anticipated to be received based on the transaction price. After the insurance payer has remitted payment, we separately invoice the patient for their portion of the payment obligation, such as copayments and deductibles. The transaction price is determined based on the payment history of the applicable payer drawn from actual write-off and collections experience from the payer over a rolling 12-month period, as well as historical patient collections. 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 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. We assess the variable consideration for each of these claims as a percentage of the total invoice price based on ultimate approval and collection history. For our products sold to the Veterans Administration on behalf of the patient, our contract is with the Veterans Administration rather than the patient. We enter into individual sales contracts with the Veterans Administration on behalf of each patient. These contracts determine the amount of consideration, which is typically paid in full within 2 - 3 days of shipment, and therefore there is no implicit price concession. In addition, the contracts provide for the right of control to transfer to the Veterans Administration upon delivery of the product to the patient, at which time revenue is recognized. We incur incremental costs that directly relate to the sales of our products; however, as the amortization period would be less than one year , we have elected the practical expedient to expense these costs as incurred. We sell and rent these products either directly to patients or the Veterans Administration on behalf of patients, who are referred to us by physicians, therapists or nurses. We bill private insurers and other payers, Medicare, and the Veterans Administration directly for purchases or rentals of our product on behalf of a patient and bill patients directly for their cost-sharing amounts, including any portion of an unsatisfied deductible and any copayments or co-insurance obligation. A portion of our revenue is derived from patients who obtain our products under multiple-month rental arrangements. We bill these patients’ insurance payers monthly over the duration of the rental term. Title to these products passes to the patients at the end of the rental period. Rental agreements are recorded as sales-type leases in accordance with Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842) (“ASC 842”). Accordingly, as sales-type leases, the transaction price for the entire rental term is recognized upon transfer of control. AffloVest The AffloVest device is sold through durable medical equipment providers. Revenue is recognized when control of the promised goods or services is transferred to the distributors, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or providing services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the distributor has obtained control of the goods or services, we consider any future performance obligations. 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. 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 94 Table of Contents 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. If the forecasted sales for a customer change, the accrual for rebates is adjusted to reflect the new rebates expected to be earned by the customer. Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in revenue in the accompanying Consolidated Statements of Operations. Shipping and handling costs incurred for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of revenue sold in the accompanying Consolidated Statements of Operations. We provide a warranty for the AffloVest products against defects in material and workmanship for a period of five years . In accordance with applicable accounting guidance, we have determined these were assurance warranties and therefore not considered a performance obligation. In addition, we did not evaluate immaterial promised goods or services in the context of the contract. 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. Research and Development Costs We expense research and development costs as incurred, including expenses associated with clinical research studies and development. Shipping and Handling Costs Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in total revenue in the accompanying Consolidated Statements of Operations. Shipping and handling costs incurred for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of revenue in the accompanying Consolidated Statements of Operations. Product Warranty We provide a warranty for our products against defects in material and workmanship for a period of one to five years . We record a liability for future warranty claims at the time of sale for the warranty period offered to a customer. If the assumptions used in calculating the provision were to materially change, such as incurring higher than anticipated warranty claims, an additional provision may be required. Impairment of Long-Lived Assets We review long-lived assets, including property and equipment and patents, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. We will assess long-lived assets used in operations for impairment indicators, including when undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount (see Note 8 – “Goodwill and Intangible Assets”). Goodwill Goodwill represents the excess of the purchase price paid over the estimated fair value of the net assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized, but is tested for impairment at least annually or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We perform our annual assessment of goodwill for impairment as of July 1st of each fiscal year. See Note 8 – “Goodwill and Intangible Assets” for additional information. 95 Table of Contents Stock-Based Compensation 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 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 (see Note 13 – “Stockholders’ Equity”). Income Taxes Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and the tax basis of assets and liabilities. If we determine in the future that it is more likely than not that we will not realize all or a portion of the deferred tax assets, we will record a valuation allowance in the period the determination is made (see Note 15 – “Income Taxes”). Changes in tax rates are reflected in the tax provision as they occur. Net Income (Loss) Per Common Share Basic net income (loss) per common share is computed based on the weighted average number of shares of common stock outstanding during the period. 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 ESPP shares. Business Segments 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. 96 Table of Contents Accounting Pronouncement Not Yet Adopted In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” which requires entities to enhance disclosures around income taxes. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. Recently Adopted Accounting Pronouncement 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. Note 4. Acquisitions On September 8, 2021, we entered into an Asset Purchase Agreement (“AffloVest APA”) to acquire the AffloVest therapy business from International Biophysics Corporation (“IBC”). Under the terms of the AffloVest APA, we agreed to pay IBC a total of up to $ 100.0 million for the purchase of substantially all of the assets related to its branded high frequency chest wall oscillation vest therapy business, other than specifically identified excluded assets. We acquired AffloVest to further expand our position as a leader in treating patients with underserved chronic conditions in the home. The acquired assets included inventory, tooling, intellectual property, permits and approvals, data and records, and customer and supplier information. At closing, $ 80.0 million of the purchase price was paid, of which a total of $ 0.5 million was deposited into an escrow account at closing for purposes of satisfying certain post-closing purchase price adjustments and indemnification claims. Subsequent to closing, $ 0.2 million was returned to us as a result of working capital adjustments and the remaining $ 0.3 million was released to IBC. The AffloVest acquisition was funded through a combination of cash on hand and proceeds from borrowings. On November 4, 2022, we entered into an Amendment to the AffloVest APA, the “Amendment” with IBC, which modified the terms of the earn-out arrangement under the AffloVest APA, as follows: ​ ● Initial Earn-Out: The AffloVest APA provided for an initial earn-out equal to 1.5 times the amount by which the AffloVest U.S. revenues in the period from October 1, 2021 to September 30, 2022 (the “Initial Earn-Out Period”) exceed a specified amount; provided that in no event will the payment exceed $ 10.0 million. o The APA Amendment provides that the calculated amount of the initial earn-out payment is $ 10.0 million, of which the Company paid $ 5.0 million on November 28, 2022, and $ 5.0 million, plus an imputed interest payment of $ 250,000 , on May 25, 2023. ​ ● Second Earn-Out: The AffloVest APA provided for a second earn-out equal to 1.5 times the amount by which the AffloVest U.S. revenues in the period from October 1, 2022 to September 97 Table of Contents 30, 2023 exceed the revenues recognized during the Initial Earn-Out Period; provided that in no event will the payment exceed $ 10.0 million. o The APA Amendment changes the 1.5 times multiplier to 3.0 times, but still provides that in no event will the second earn-out payment exceed $ 10.0 million. o Subsequent to September 30, 2023, it was determined that the calculated amount of the second earn-out payment was $ 5.6 million, which was paid by the Company on November 28, 2023 (see Note 17 – “Fair Value Measurements”). ​ The fair value of the earn-out as of the acquisition date was $ 6.4 million. The fair value of the earn-out, reflecting management’s estimate of the likelihood of achieving these targets, was determined by employing a Monte Carlo Simulation model. This amount and the current versus non-current allocation 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”). ​ Note 5. Accounts Receivable We had accounts receivable from two insurers representing approximately 23 % and 12 % of accounts receivable as of December 31, 2024. We had accounts receivable from two insurers representing approximately 36 % and 14 % of accounts receivable as of December 31, 2023. Revenue from these insurers accounted for 18 % and 2 % of our total revenue for the year ended December 31, 2024, and 24 % and 1 % for the year ended December 31, 2023. The credit risks associated with customers which for these purposes are insurers considers aggregation for entities that are known to be under common control. ​ Note 6. Inventories Inventories consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) At December 31, 2024 At December 31, 2023 Finished goods ​ $ 6,149 ​ $ 7,979 Component parts and work-in-process ​ 12,517 ​ 14,548 Total inventories ​ $ 18,666 ​ $ 22,527 ​ ​ Note 7. Property and Equipment Property and equipment consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (In thousands) 2024 2023 Equipment ​ $ 5,108 ​ $ 4,459 Tooling ​ 4,652 ​ 4,555 Furniture and fixtures ​ 2,095 ​ 2,068 Leasehold improvements ​ 3,466 ​ 1,529 Demonstration equipment ​ ​ 1,106 ​ ​ 896 Construction in progress ​ ​ 152 ​ ​ 1,271 Subtotal ​ 16,579 ​ 14,778 Less: accumulated depreciation ​ ( 10,976 ) ​ ( 8,583 ) Property and equipment, net ​ $ 5,603 ​ $ 6,195 ​ Depreciation expense was $ 3.0 million, $ 2.7 million and $ 2.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. 98 Table of Contents Note 8. Goodwill and Intangible Assets Goodwill In the third quarter of fiscal 2021, we completed the AffloVest acquisition. The purchase price of the AffloVest business exceeded the net acquisition-date estimated fair value amounts of the identifiable assets acquired and the liabilities assumed by $ 31.1 million, which was assigned to goodwill. Intangible Assets Our patents and other intangible assets are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ At December 31, 2024 ​ ​ Average ​ Gross ​ ​ ​ ​ ​ ​ Amortization ​ Carrying ​ Accumulated ​ Net (In thousands) Period ​ Amount ​ Amortization ​ Amount Definite-lived intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Patents ​ 12 years ​ $ 1,148 ​ $ 333 ​ $ 815 Defensive intangible assets ​ < 1 year ​ ​ 1,125 ​ ​ 1,065 ​ ​ 60 Customer accounts ​ — ​ ​ 125 ​ ​ 125 ​ ​ — Customer relationships ​ 10 years ​ ​ 31,000 ​ ​ 7,896 ​ ​ 23,104 Developed technology ​ 8 years ​ ​ 13,000 ​ ​ 3,913 ​ ​ 9,087 Subtotal ​ ​ ​ ​ 46,398 ​ ​ 13,332 ​ ​ 33,066 Unamortized intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tradenames ​ ​ ​ ​ 9,500 ​ ​ — ​ ​ 9,500 Patents pending ​ ​ ​ ​ 223 ​ ​ — ​ ​ 223 Total intangible assets ​ ​ ​ $ 56,121 ​ $ 13,332 ​ $ 42,789 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ At December 31, 2023 ​ ​ Average ​ Gross ​ ​ ​ ​ ​ ​ Amortization ​ Carrying ​ Accumulated ​ Net (In thousands) Period ​ Amount ​ Amortization ​ Amount Definite-lived intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Patents ​ 12 years ​ $ 1,018 ​ $ 248 ​ $ 770 Defensive intangible assets ​ 1 year ​ ​ 1,125 ​ ​ 920 ​ ​ 205 Customer accounts ​ — ​ 125 ​ 125 ​ — Customer relationships ​ 11 years ​ ​ 31,000 ​ ​ 5,511 ​ ​ 25,489 Developed technology ​ 9 years ​ ​ 13,000 ​ ​ 2,731 ​ ​ 10,269 Subtotal ​ ​ ​ ​ 46,268 ​ ​ 9,535 ​ ​ 36,733 Unamortized intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tradenames ​ ​ ​ ​ 9,500 ​ ​ — ​ ​ 9,500 Patents pending ​ ​ ​ ​ 491 ​ ​ — ​ ​ 491 Total intangible assets ​ ​ ​ $ 56,259 ​ $ 9,535 ​ $ 46,724 ​ 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: ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ 2025 $ 3,714 2026 ​ ​ 3,650 2027 ​ 3,641 2028 ​ 3,638 2029 ​ 3,633 Thereafter ​ 14,790 Total ​ $ 33,066 ​ 99 Table of Contents The weighted-average remaining amortization period for these intangible assets was 9.2 years as of December 31, 2024. Note 9. Accrued Expenses Accrued expenses consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) At December 31, 2024 At December 31, 2023 Warranty ​ $ 1,784 ​ $ 2,357 Legal and consulting ​ ​ 1,318 ​ ​ 611 Travel ​ ​ 1,120 ​ ​ 1,038 In-transit inventory ​ ​ 1,013 ​ ​ 401 Sales and use tax ​ ​ 802 ​ ​ 183 Clinical studies ​ ​ 304 ​ ​ 363 Other ​ 1,439 ​ 951 Total ​ $ 7,780 ​ $ 5,904 ​ ​ Note 10. Warranty Reserves The activity in the warranty reserve during and as of the end of the years presented was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, (In thousands) 2024 2023 2022 Beginning balance $ 4,038 ​ $ 4,212 ​ $ 4,959 Warranty provision 2,677 ​ 4,611 ​ 2,047 Processed warranty claims ( 3,722 ) ​ ( 4,785 ) ​ ( 2,794 ) Ending balance $ 2,993 ​ $ 4,038 ​ $ 4,212 ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrued warranty reserve, current $ 1,784 ​ $ 2,357 ​ $ 2,005 Accrued warranty reserve, non-current ​ 1,209 ​ ​ 1,681 ​ ​ 2,207 Total accrued warranty reserve $ 2,993 ​ $ 4,038 ​ $ 4,212 ​ ​ Note 11. 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 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 AffloVest acquisition, 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. ​ 100 Table of Contents On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amended 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”). ​ Following the Third Amendment, the term loan and amounts drawn under the revolving credit facility bear interest, at our option, at a rate equal to (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) Adjusted Term SOFR for a one-month tenor plus 1 % (the “Base Rate”) plus an applicable margin or (b) Adjusted Term SOFR for an interest period of one, three or six months, at our option, plus the applicable margin. The applicable margin is 0.75 % to 2.25 % on loans bearing interest at the Base Rate and 1.75 % to 3.25 % on loans bearing interest at Adjusted Term SOFR, in each case depending on our consolidated total leverage ratio; except that, pursuant to the Second Amendment and the Third Amendment, during the period commencing on February 22, 2022 and ending on the last day of the fiscal quarter ending June 30, 2023, the applicable margin for LIBOR rate loans and Adjusted Term SOFR loans, as applicable, was 3.50 %. At 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 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. The Fourth Amendment also eliminated the liquidity financial covenant and modified the remaining financial covenants to reflect the termination of the temporary covenant relief period that was in place until June 30, 2023 pursuant to the Second Amendment, such that the financial covenants now include a maximum consolidated total leverage ratio covenant, a minimum consolidated EBITDA covenant and a minimum fixed charge coverage ratio covenant. In addition, the Fourth Amendment provided for an additional term loan in the amount of $ 8.25 million, which we used for a paydown of the revolving credit facility. The Fourth Amendment also extended the maturity date of the term loans and revolving credit facility under the Credit Agreement from September 8, 2024, to August 1, 2026. 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. ​ 101 Table of Contents As of December 31, 2024, we had outstanding borrowings of $ 26.3 million under the Credit Agreement, comprised entirely of the term loan. The principal of the term loan is required to be repaid in quarterly installments of $ 750,000 . Maturities of the term loan for the next three years as of December 31, 2024, were as follows: ​ ​ ​ ​ ​ (In thousands) Amount 2025 ​ $ 3,000 2026 ​ ​ 23,250 Total ​ ​ 26,250 Less: Deferred financing fees ​ ​ ( 74 ) Net Note Payable ​ ​ 26,176 Less: Current portion of note payable ​ ​ ( 2,956 ) Non-current portion of note payable ​ $ 23,220 ​ 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, 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. Note 12. Commitments and Contingencies Lease Obligations We lease property and equipment under operating leases, typically with terms greater than 12 months , and determine if an arrangement contains a lease at inception. In general, an arrangement contains a lease if there is an identified asset and we have the right to direct the use of and obtain substantially all of the economic benefit from the use of the identified asset. We record an operating lease liability at the present value of lease payments over the lease term on the commencement date. The related right of use (“ROU”) operating lease asset reflects rental escalation clauses, as well as renewal options and/or termination options. The exercise of lease renewal and/or termination options are at our discretion and are included in the determination of the lease term and lease payment obligations when it is deemed reasonably certain that the option will be exercised. When available, we use the rate implicit in the lease to discount lease payments to present value; however, certain leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. We classify our leases as buildings, vehicles or computer and office equipment and do not separate lease and nonlease components of contracts for any of the aforementioned classifications. In accordance with applicable guidance, we do not record leases with terms that are less than one year on the Consolidated Balance Sheets. None of our lease agreements contain material restrictive covenants or residual value guarantees. Buildings We lease certain office and warehouse space at various locations in the United States where we provide services. These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded on the Consolidated Balance Sheets, with rent expense recognized on a straight-line basis over the term of the lease. The remaining lease terms vary from approximately one to seven years as of 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. 2016-02, “Leases” (Topic 842) (“ASC 842”). In 102 Table of Contents 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. The portion of the space covered under the second lease commenced in September 2020. Finally, the portion of the space covered under the third lease commenced in September 2021. 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. Computer and Office Equipment We also have operating lease agreements for certain computer and office equipment. The remaining lease terms as of December 31, 2024, ranged from less than one year to approximately four years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities. The leases provide an option to purchase the related equipment at fair market value at the end of the lease. The leases will automatically renew as a month-to-month rental at the end of the lease if the equipment is not purchased or returned. Lease Position, Undiscounted Cash Flow and Supplemental Information ​ The table below presents information related to our ROU operating lease assets and operating lease liabilities that we have recorded: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) At December 31, 2024 At December 31, 2023 Right of use operating lease assets ​ $ 16,633 ​ $ 19,128 ​ ​ ​ ​ ​ ​ ​ Operating lease liabilities: ​ ​ ​ ​ ​ ​ Current ​ $ 2,980 ​ $ 2,807 Non-current ​ 15,955 ​ 18,436 Total ​ $ 18,935 ​ $ 21,243 ​ ​ ​ ​ ​ ​ ​ Operating leases: ​ ​ ​ ​ ​ ​ Weighted average remaining lease term ​ 5.8 years ​ ​ 6.7 years Weighted average discount rate ​ ​ 4.4 % ​ ​ 4.3 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 ​ 2023 ​ 2022 Supplemental cash flow information for our operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for operating lease liabilities ​ $ 3,566 ​ $ 3,453 ​ $ 3,575 Non-cash right of use assets obtained in exchange for new operating lease obligations ​ $ 390 ​ $ 293 ​ $ 49 ​ ​ 103 Table of Contents The table below reconciles the undiscounted cash flows under the operating lease liabilities recorded on the Consolidated Balance Sheets for the periods presented: ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ 2025 $ 3,736 2026 ​ ​ 3,808 2027 ​ 3,311 2028 ​ 3,275 2029 ​ 3,309 Thereafter ​ 3,692 Total minimum lease payments ​ ​ 21,131 Less: Amount of lease payments representing interest ​ ​ ( 2,196 ) Present value of future minimum lease payments ​ ​ 18,935 Less: Current obligations under operating lease liabilities ​ ​ ( 2,980 ) Non-current obligations under operating lease liabilities ​ $ 15,955 ​ Operating lease costs were $ 3.5 million, $ 3.6 million and $ 3.8 million for the years ended December 31, 2024, 2023 and 2022, respectively. Major Vendors We had purchases from one vendor that accounted for 20 % of our total purchases for the year ended December 31, 2024, and purchases from one vendor that accounted for 25 % of total purchases for the year ended December 31, 2023. Purchase Commitment We issued purchase orders in 2024 totaling $ 22.8 million for goods that we expect to receive within the next year. Retirement Plan We maintain a 401(k) retirement plan for our employees to which eligible employees can contribute a percentage of their pre-tax compensation. We recorded an expense related to our discretionary contributions to the 401(k) plan of $ 2.2 million, $ 1.5 million and $ 1.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. Legal Proceedings From time to time, we are subject to various claims and legal proceedings arising in the ordinary course of business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. On May 24, 2022, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Company against certain of our present and former officers and directors and the Company (as a nominal defendant), captioned Jack Weaver v. Moen, et al., File No. 0:22-cv-01403-NEB-BRT (the “Weaver Lawsuit”). The Weaver Lawsuit generally arose out of the same subject matter as a previously settled securities class action captioned Brian Mart v. Tactile Sys. 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 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; (2) that the director defendants’ stock and option awards should be rescinded under Section 29(b) of the Exchange Act; (3) that the officer defendants’ employment contract compensation should be rescinded under Section 29(b) of the Exchange Act; (4) that certain officer defendants are liable for contribution arising out of any liability incurred in the Mart Lawsuit, under 104 Table of Contents Sections 10(b) and 21D of the Exchange Act; (5) that the individual defendants breached their fiduciary duties; and (6) that the individual defendants were unjustly enriched. 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. On February 10, 2023, we filed a motion to dismiss the action. The plaintiff filed an Amended Complaint on March 3, 2023. 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. rel. 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. rel. Jackie Gorham, an individual, and Dustin Gast, an individual, vs. Tactile Systems Technology, Inc. Case No. 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. Note 13. Stockholders' Equity We completed an initial public offering of our common stock on August 2, 2016, in which we sold 4,120,000 shares of our common stock at a public offering price of $ 10.00 per share. Immediately prior to the completion of the initial public offering, all then-outstanding shares of our Series A and Series B preferred stock were converted into 5,924,453 shares of our common stock. Our Series A preferred stock converted to common stock at a ratio of 1-for- 1.03 and our Series B preferred stock converted to common stock at a ratio of 1-for- 1 . In addition, immediately prior to the completion of the initial public offering, we issued 2,354,323 additional shares of our common stock that our Series A and Series B preferred stockholders were entitled to receive in connection with the conversion of the preferred stock, and we issued 956,842 shares of our common stock to pay accrued dividends on our Series B preferred stock. We also paid $ 8.2 million in cumulative accrued dividends to our Series A convertible preferred stockholders in connection with the initial public offering, including $ 0.1 million of dividends paid to the holders of the common restricted shares. On February 27, 2023, we closed on a public offering of 2,875,000 shares of our common stock at a public offering price of $ 13.00 per share. We received net proceeds from this offering of $ 34.6 million after deducting underwriting discounts, commissions, and offering expenses. 105 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, (In thousands, except share and per share data) ​ ​ 2024 ​ ​ 2023 Number of shares repurchased ​ ​ 195,518 ​ ​ — Total share repurchased cost ​ $ 3,508 ​ $ — Average total cost per repurchased share ​ $ 17.94 ​ $ — ​ 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 Our 2016 Equity Incentive Plan (the “2016 Plan”) authorizes us to grant stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards to employees, non-employee directors and certain consultants and advisors. There were up to 4,800,000 shares of our common stock initially reserved for issuance pursuant to the 2016 Plan. The 2016 Plan provides that the number of shares reserved and available for issuance under the 2016 Plan will automatically increase annually on January 1 of each calendar year, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the lesser of: (a) 5 % of the number of common shares of stock outstanding as of December 31 of the immediately preceding calendar year, or (b) 2,500,000 shares; provided, however, that our Board of Directors may determine that any annual increase be a lesser number. In addition, all awards granted under our 2007 Omnibus Stock Plan and our 2003 Stock Option Plan that were outstanding when the 2016 Plan became effective and that are forfeited, expire, are cancelled, are settled for cash or otherwise not issued, will become available for issuance under the 2016 Plan. Pursuant to the automatic increase feature of the 2016 Plan , 1,180,019 shares were added as available for issuance thereunder on January 1, 2024. Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2025 and January 1, 2023. As of December 31, 2024, 6,475,903 shares were available for future grant pursuant to the 2016 Plan. ​ Upon adoption and approval of the 2016 Plan, all of our previous equity incentive compensation plans were terminated. However, existing awards under those plans continue to vest in accordance with the original vesting schedules and will expire at the end of their original terms. ​ 106 Table of Contents We recorded total stock-based compensation expense of $ 7.8 million, $ 7.5 million and $ 9.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. This expense was allocated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, (In thousands) 2024 2023 2022 Cost of revenue $ 365 ​ $ 420 ​ $ 367 Sales and marketing expenses ​ 2,413 ​ ​ 2,985 ​ ​ 4,060 Research and development expenses ​ 157 ​ ​ 133 ​ ​ 226 Reimbursement, general and administrative expenses ​ 4,884 ​ ​ 4,009 ​ ​ 4,947 Total stock-based compensation expense $ 7,819 ​ $ 7,547 ​ $ 9,600 ​ Stock Options 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, 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. To date, no dividend on common stock has been paid by us. Expected volatility for grants issued in and prior to the first fiscal quarter of 2021 was estimated using the average historical volatility of public companies of similar size and industry over a similar period as the expected term assumption used for our options. 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. 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: ​ ​ ​ ​ ​ 2022 Expected term 4.5 years Expected volatility 59.2 % Risk-free interest rate 4.3 % Expected dividend yield 0 % Fair value on the date of grant $ 8.11 ​ 107 Table of Contents Our stock option activity for the three years ended December 31, 2024, 2023 and 2022, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Weighted- ​ ​ ​ ​ ​ ​ ​ Average ​ Average ​ Aggregate ​ ​ Options ​ Exercise Price ​ Remaining ​ Intrinsic (In thousands except options and per share data) ​ Outstanding ​ Per Share (1) ​ Contractual Life ​ Value (2) Balance at December 31, 2021 ​ 915,224 ​ $ 39.33 ​ 5.0 years ​ $ 2,068 Granted ​ 47,280 ​ $ 6.17 ​ ​ ​ ​ ​ Exercised ​ ( 90,878 ) ​ $ 1.68 ​ ​ ​ $ 916 Forfeited ​ ( 92,981 ) ​ $ 36.28 ​ ​ ​ ​ ​ Cancelled/Expired ​ ( 163,338 ) ​ $ 37.65 ​ ​ ​ ​ ​ Balance at December 31, 2022 ​ 615,307 ​ $ 43.25 ​ 4.7 years ​ $ 164 Exercised ​ ( 4,625 ) ​ $ 2.97 ​ ​ ​ $ 98 Forfeited ​ ( 25,045 ) ​ $ 47.54 ​ ​ ​ ​ ​ Cancelled/Expired ​ ( 155,677 ) ​ $ 50.72 ​ ​ ​ ​ ​ Balance at December 31, 2023 ​ 429,960 ​ $ 40.74 ​ 3.8 years ​ $ 223 Exercised ​ ( 2,571 ) ​ $ 9.40 ​ ​ ​ $ 18 Cancelled/Expired ​ ( 32,518 ) ​ $ 43.63 ​ ​ ​ ​ ​ Balance at December 31, 2024 ​ 394,871 ​ $ 40.70 ​ 2.8 years ​ $ 309 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options exercisable at December 31, 2024 ​ 386,990 ​ $ 41.36 ​ 2.8 years ​ $ 238 ​ (1) The exercise price of each option granted during the periods shown was equal to the market price of the underlying stock on the date of grant. (2) The aggregate intrinsic value of options exercised represents the difference between the exercise price of the option and the closing stock price of our common stock on the date of exercise. The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of our common stock on the last trading day of the period. Options exercisable of 386,457 at December 31, 2023, and 435,363 at December 31, 2022 had weighted average exercise prices of $ 41.53 and $ 43.83 , respectively. The following summarizes additional information about our stock options: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, Number of: ​ 2024 ​ 2023 Non-vested options, beginning of the year ​ ​ 43,503 ​ ​ 179,944 Non-vested options, end of the year ​ ​ 7,881 ​ ​ 43,503 Vested options, end of the year ​ ​ 386,990 ​ ​ 386,457 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, Weighted-average grant date fair value of: ​ 2024 ​ 2023 Non-vested options, beginning of the year ​ $ 13.57 ​ $ 16.24 Non-vested options, end of the year ​ ​ 4.23 ​ ​ 13.57 Vested options, end of the year ​ ​ 16.52 ​ ​ 16.51 Forfeited options, during the year ​ ​ — ​ ​ 18.36 ​ Time-Based Restricted Stock Unit s 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 . 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, 2024, there was approximately $ 6.1 108 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ Average Grant Aggregate ​ ​ Units ​ Date Fair Value ​ Intrinsic (In thousands except unit and per unit data) ​ Outstanding ​ Per Unit ​ Value (1) Balance at December 31, 2021 ​ 259,147 ​ $ 42.32 ​ $ 4,932 Granted ​ 539,525 ​ $ 15.03 ​ ​ ​ Vested ​ ( 123,528 ) ​ $ 43.20 ​ ​ ​ Cancelled ​ ( 84,602 ) ​ $ 26.91 ​ ​ ​ Balance at December 31, 2022 ​ 590,542 ​ $ 19.42 ​ $ 6,779 Granted ​ 398,698 ​ $ 15.52 ​ ​ ​ Vested ​ ( 270,651 ) ​ $ 20.18 ​ ​ ​ Cancelled ​ ( 129,447 ) ​ $ 19.79 ​ ​ ​ Balance at December 31, 2023 ​ 589,142 ​ $ 16.35 ​ $ 8,425 Granted ​ 541,547 ​ $ 13.82 ​ ​ ​ Vested ​ ( 281,917 ) ​ $ 17.38 ​ ​ ​ Cancelled ​ ( 120,346 ) ​ $ 14.78 ​ ​ ​ Balance at December 31, 2024 ​ 728,426 ​ $ 14.33 ​ $ 12,478 ​ (1) The aggregate intrinsic value of time-based restricted stock units outstanding was based on our closing stock price on the last trading day of the period. Performance-Based Restricted Stock Units We have granted performance-based restricted stock units (“PSUs”) to certain participants under the 2016 Plan. These PSUs have both performance-based and time-based vesting features. The PSUs granted in 2021 were earned if and to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2022. The PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in 2023. The number of PSUs earned under these grants will depend on the level at which the performance targets are achieved and can range from 50 % of target if threshold performance is achieved and up to 150 % of target if maximum performance is achieved. One-third of the earned PSUs will vest on the date the Compensation and Organization Committee certifies the number of PSUs earned, and the remaining two-thirds of the earned PSUs will vest on the first anniversary of that certification date. All earned and vested PSUs will be settled in shares of common stock. The PSUs granted in 2023 have three separate performance periods, and one-third of each grant will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in each of 2023 and 2024 (ranging from 25 % to 175 % of target), and one-third will be earned if and to the extent performance goals to be established are achieved in 2025. 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, 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. 109 Table of Contents ​ Our PSU activity at the estimated payout of 100 % of target for the years ended December 31, 2024, 2023 and 2022, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ Average Grant Aggregate ​ ​ PSUs ​ Date Fair Value ​ Intrinsic (In thousands except unit and per unit data) ​ Outstanding ​ Per Unit ​ Value (1) Balance at December 31, 2021 ​ 54,317 ​ $ 50.22 ​ $ 1,034 Granted ​ 131,710 ​ $ 18.54 ​ ​ ​ Vested ​ ( 4,407 ) ​ $ 12.31 ​ ​ ​ Cancelled ​ ( 26,002 ) ​ $ 42.53 ​ ​ ​ Balance at December 31, 2022 ​ 155,618 ​ $ 25.05 ​ $ 1,786 Granted ​ 123,575 ​ $ 15.28 ​ ​ ​ Vested ​ ( 13,842 ) ​ $ 42.70 ​ ​ ​ Cancelled ​ ( 67,119 ) ​ $ 21.50 ​ ​ ​ Balance at December 31, 2023 ​ 198,232 ​ $ 18.93 ​ $ 2,785 Granted ​ 223,762 ​ $ 13.76 ​ ​ ​ Vested ​ ( 44,162 ) ​ $ 27.31 ​ ​ ​ Cancelled ​ ( 104,913 ) ​ $ 14.14 ​ ​ ​ Balance at December 31, 2024 ​ 272,919 ​ $ 15.19 ​ $ 4,675 ​ (1) The aggregate intrinsic value of performance-based restricted stock units outstanding was based on our closing stock price on the last trading day of the period Employee Stock Purchase Plan 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. Participating employees may purchase common stock, on a voluntary after-tax basis, at a price equal to 85 % of the lower of the closing market price per share of our common stock on the first or last trading day of each stock purchase period. The ESPP provides for six-month purchase periods, beginning on May 16 and November 16 of each calendar year. A total of 1,600,000 shares of common stock was initially reserved for issuance under the ESPP. 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, 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. We recognized $ 0.5 million, $ 0.6 million and $ 0.8 million in stock-based compensation expense related to the ESPP for the years ended December 31, 2024, 2023 and 2022, respectively. ​ 110 Table of Contents Note 14. Revenue We derive our revenue from the sale and rental of our products to our customers in the United States. The following table presents our revenue, inclusive of sales and rental revenue, disaggregated by product: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) ​ 2024 ​ 2023 ​ 2022 Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ $ 259,361 ​ $ 241,721 ​ $ 212,266 Airway clearance products ​ ​ 33,623 ​ ​ 32,702 ​ ​ 34,519 Total ​ $ 292,984 ​ $ 274,423 ​ $ 246,785 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of total revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ 89 % ​ 88 % ​ 86 % Airway clearance products ​ ​ 11 % ​ ​ 12 % ​ ​ 14 % Total ​ 100 % ​ 100 % ​ 100 % ​ Our revenue by channel, inclusive of sales and rental revenue, for the years ended December 31, 2024, 2023 and 2022, are summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) ​ 2024 ​ 2023 ​ 2022 Private insurers and other payers ​ $ 175,432 ​ $ 148,901 ​ $ 139,087 Veterans Administration ​ ​ 30,890 ​ ​ 27,003 ​ ​ 25,507 Medicare ​ ​ 53,039 ​ ​ 65,817 ​ ​ 47,672 Durable medical equipment distributors ​ ​ 33,623 ​ ​ 32,702 ​ ​ 34,519 Total ​ $ 292,984 ​ $ 274,423 ​ $ 246,785 ​ Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months . As title transfers to the patient, with whom we have the contract, upon the termination of the lease term and because collectability is probable, under ASC 842, these are recognized as sales-type leases. Each rental agreement contains two components, the controller and related garments, both of which are interdependent and recognized as one lease component. The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Consolidated Balance Sheet. We bill the patients’ insurance payers monthly over the duration of the rental term. We record the net investment in leases and recognize revenue upon commencement of the lease in the amount of the expected consideration to be received through the monthly payments. Similar to our sales revenue, the transaction price is impacted by multiple factors, including the terms and conditions contracted by various third party payers. As the rental contract resides with the patients, we have elected the portfolio approach, at the payer level, to determine the expected consideration, which considers the impact of early terminations. While the contract is with the patient, in certain circumstances, the third party payer elects an initial rental period with an option to extend. We assess the likelihood of extending the lease at the onset of the lease to determine if the option is reasonably certain to be exercised. As the lease is short-term in nature, we anticipate collection of substantially all of the net investment within the first year of the lease agreement. Completion of these payments represents the fair market value of the equipment, and as such, interest income is not applicable. ​ 111 Table of Contents Rental revenue for the years ended December 31, 2024, 2023 and 2022, was primarily from private insurers. Sales-type lease revenue and the associated cost of revenue for the years ended December 31, 2024, 2023 and 2022, was: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (In thousands) ​ ​ 2024 ​ 2023 ​ 2022 Sales-type lease revenue ​ ​ $ 36,972 ​ $ 34,930 ​ $ 35,440 Cost of sales-type lease revenue ​ ​ 11,481 ​ 12,577 ​ 11,190 Gross profit ​ ​ $ 25,491 ​ $ 22,353 ​ $ 24,250 ​ ​ ​ Note 15. Income Taxes The provision (benefit) for income tax expense consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (In thousands) 2024 2023 2022 Current income taxes, Federal ​ $ 4,304 ​ $ 5,045 ​ $ 1,838 Current income taxes, State ​ ​ 1,365 ​ ​ 1,440 ​ ​ 637 ​ ​ ​ 5,669 ​ ​ 6,485 ​ ​ 2,475 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred income taxes, Federal ​ 702 ​ ( 19,046 ) ​ ( 32 ) Deferred income taxes, State ​ ​ 365 ​ ​ ( 332 ) ​ ​ — ​ ​ ​ 1,067 ​ ​ ( 19,378 ) ​ ​ ( 32 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrecognized tax benefit, Federal ​ ( 207 ) ​ 148 ​ ( 50 ) Unrecognized tax benefit, State ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ( 207 ) ​ ​ 148 ​ ​ ( 50 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total provision (benefit) for income taxes ​ $ 6,529 ​ $ ( 12,745 ) ​ $ 2,393 ​ The components of our deferred tax assets and liabilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (In thousands) 2024 2023 Deferred tax assets: ​ ​ ​ ​ ​ ​ Operating lease liability ​ $ 4,755 ​ $ 5,394 Net operating loss carryforwards ​ ​ 1 ​ ​ 50 Accounts receivable and inventory reserves ​ ​ 5,406 ​ ​ 7,065 Stock-based compensation ​ ​ 5,818 ​ ​ 5,144 Accrued liabilities ​ 1,766 ​ 2,056 Warranty reserves ​ ​ 752 ​ ​ 1,025 Intangible assets ​ ​ 875 ​ ​ 1,645 Business credits ​ ​ 761 ​ ​ 630 R&D expenses ​ ​ 3,253 ​ ​ 2,189 Other ​ 342 ​ 309 Total deferred tax assets ​ ​ 23,729 ​ ​ 25,507 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Right of use operating lease assets ​ ( 4,177 ) ​ ( 4,799 ) Fixed assets ​ ​ ( 877 ) ​ ​ ( 975 ) Prepaid expenses ​ ​ ( 209 ) ​ ​ ( 232 ) Other ​ ​ ( 155 ) ​ ​ ( 123 ) Total deferred tax liabilities ​ ​ ( 5,418 ) ​ ​ ( 6,129 ) ​ ​ ​ ​ ​ ​ ​ Net deferred tax assets ​ $ 18,311 ​ $ 19,378 ​ 112 Table of Contents A reconciliation of income tax expense (benefit) to the statutory federal tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2024 ​ 2023 ​ 2022 Tax expense at statutory rate 21.0 % ​ 21.0 % ​ 21.0 % State income taxes, net of federal benefit ​ 4.7 ​ ​ 5.2 ​ ​ 4.1 ​ Executive compensation ​ 1.1 ​ ​ 0.9 ​ ​ — ​ Meals and entertainment ​ 1.7 ​ ​ 2.1 ​ ​ — ​ Employee Stock Purchase Plan ​ 0.4 ​ ​ 0.9 ​ ​ ( 1.0 ) ​ Federal business credits ​ ( 1.5 ) ​ ​ ( 1.5 ) ​ ​ 1.6 ​ Valuation allowance ​ — ​ ​ ( 113.3 ) ​ ​ ( 37.4 ) ​ Return to provision ​ ( 0.5 ) ​ ​ 0.5 ​ ​ ( 0.2 ) ​ Deferred reprice - state 0.9 ​ 0.2 ​ 0.9 ​ Unrecognized tax benefits ​ 0.3 ​ ​ 0.3 ​ ​ ( 0.3 ) ​ Excess benefit on non-qualified stock options and RSUs ​ 0.7 ​ ​ 2.3 ​ ​ ( 3.7 ) ​ Interest and penalties ​ — ​ ​ 0.1 ​ ​ — ​ 162(m) write down ​ — ​ ​ 1.6 ​ ​ — ​ Other ( 1.0 ) ​ ( 1.1 ) ​ ( 0.5 ) ​ Net effective rate 27.8 % ​ ( 80.8 ) % ​ ( 15.5 ) % ​ A reconciliation of unrecognized tax benefits (“UTB”) is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (In thousands) 2024 2023 2022 Balance beginning of the year ​ $ 702 ​ $ 612 ​ $ 522 Gross changes — tax positions in prior year ​ ​ ( 272 ) ​ ​ — ​ ​ — Gross changes — tax positions in current year ​ ​ 117 ​ ​ 90 ​ ​ 90 Balance end of the year ​ $ 547 ​ $ 702 ​ $ 612 ​ Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods used for income tax purposes including depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable, and inventory reserves. As of December 31, 2024, the Company had approximately $ 1 thousand of state net operating loss ("NOL") carryforwards. A portion of the state NOL carry forward amounts have begun to expire in the current year. The Company is subject to income tax examinations in the U.S. federal jurisdiction as well as in various state jurisdictions. U.S. federal and state tax years prior to 2021 are closed to examination. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense on our Consolidated Statement of Operations. 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 113 Table of Contents 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. 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. Note 16. Net Income (Loss) Per Common Share The following table sets forth the computation of our basic and diluted net income (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, (In thousands, except share and per share data) 2024 2023 2022 Net income (loss) $ 16,960 ​ $ 28,515 ​ $ ( 17,866 ) Weighted-average shares outstanding ​ 23,883,729 ​ ​ 22,925,497 ​ ​ 20,067,969 Weighted-average shares used to compute diluted net income (loss) per share ​ 24,138,244 ​ ​ 23,176,169 ​ ​ 20,067,969 Net income (loss) per share - Basic $ 0.71 ​ $ 1.24 ​ $ ( 0.89 ) Net income (loss) per share - Diluted $ 0.70 ​ $ 1.23 ​ $ ( 0.89 ) ​ The following common stock equivalents were excluded from the computation of diluted net income (loss) per common share for the periods presented because including them would have been anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, ​ 2024 2023 2022 Restricted stock units 313,458 ​ 337,202 ​ 590,542 Common stock options 360,246 ​ 389,229 ​ 615,307 Performance stock units 53,791 ​ 17,392 ​ 155,618 Employee stock purchase plan 83,598 ​ — ​ 100,506 Total 811,093 ​ 743,823 ​ 1,461,973 ​ Note 17. Fair Value Measurements We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3). As of December 31, 2023, our obligations under the AffloVest earn-out arrangements had been paid in full. Prior to the determination of the actual amount of the earn-out, the earn-out liability was valued by employing a Monte Carlo Simulation model in a risk-neutral framework, which is a Level 3 input. The underlying simulated variable included recognized revenue. 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 114 Table of Contents 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. Changes in fair value were included in intangible asset amortization and earn-out expenses in our Consolidated Statements of Operations. ​ Changes in the earn-out liability measured at fair value using Level 3 inputs were as follows: ​ ​ ​ ​ ​ (In thousands) ​ ​ Earn-out liability at December 31, 2022 ​ $ 13,050 Payments on earn-out ​ ​ ( 10,575 ) Fair value adjustments ​ ​ ( 2,475 ) Earn-out liability at December 31, 2023 ​ $ — ​ On May 25, 2023, the Company paid $ 5.0 million, plus an imputed interest payment of $ 250,000 , relating to the initial earn-out. Subsequent to September 30, 2023, it was determined that the calculated amount of the second earn-out payment was $ 5.6 million, which was paid by the Company on November 28, 2023. ​ The carrying amounts of financial instruments such as 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. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.