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Item 2. Management’s Discussion and Analysis

2025-05-05 compared with 2024-11-04 · 85 added, 125 removed, 118 unchanged (64% of the section changed)

1 unchanged sentence

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this report.

We are a medical technology company that develops and provides innovative medical devices for the treatment of underserved chronic diseases.

Our mission is to help people suffering from chronic diseases live better and care for themselves at home.

We focus our efforts on advancing the standard of care in treating underserved chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures.

Our areas of therapeutic focus are (1) vascular disease, with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency, (2) oncology, where lymphedema is a common consequence among cancer survivors and (3) providing airway clearance therapy for those suffering from chronic respiratory conditions.

We possess a unique, scalable platform to deliver at-home healthcare solutions throughout the United States.

This evolving home care delivery model is recognized by policymakers and insurance payers as a key for controlling rising healthcare costs.

Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases.

Our current lymphedema products are the Flexitouch Plus, Entre Plus and Nimbl systems and our airway clearance product is the AffloVest.

A predecessor to our Flexitouch system received 510(k) clearance from the U.S.

Food and Drug Administration (the “FDA”) in July 2002, and we introduced the system to address the many limitations of self-administered home-based manual lymphatic drainage therapy.

We began selling our more advanced Flexitouch system after receiving 510(k) clearance from the FDA in October 2006.

We are a medical technology company that develops and commercializes medical devices in the United States.

Our mission is to reveal and treat people with underserved chronic conditions and help them care for themselves at home.

We focus our efforts on advancing the standard of care in home-based solutions for patients with lymphedema and chronic respiratory conditions by improving clinical, patient and economic outcomes.

In our lymphedema product line, our sales and marketing channel focus includes (1) oncology-related clinicians who treat cancer survivors diagnosed with secondary lymphedema related to their cancer treatments, (2) vascular disease clinicians who support patients with lymphedema, chronic venous insufficiency, and lipedema and (3) wound, vein and lymphatic massage clinics.

In our airway clearance product line, we support patients suffering from chronic respiratory conditions, particularly bronchiectasis, and we sell our products indirectly through home medical equipment and DME providers.

We generally employ a direct-to-patient and -clinician business model within our lymphedema portfolio, through which we obtain patient referrals from clinicians, manage insurance claims on behalf of our patients and their clinicians, deliver our solutions directly to patients and train them on the proper use of our solutions.

Across our two product lines, our home-based solutions deliver cost-effective, clinically proven and long-term treatment for indicated patients.

Our current lymphedema products are the Flexitouch Plus, Entre Plus and Nimbl pneumatic compression pump systems and our airway clearance product is a High-Frequency Chest Wall Oscillation (“HFCWO”) device called AffloVest.

The Flexitouch system product line is considered an advanced pneumatic compression device.

The first generation Flexitouch system received 510(k) clearance from the U.S.

Food and Drug Administration (the “FDA”) in July 2002, introducing a medical device technology to address the many limitations of self-administered home-based manual lymphatic drainage therapy.

A second generation Flexitouch system received 510(k) clearance from the FDA in October 2006.

In September 2016, we received 510(k) clearance from the FDA for the Flexitouch system in treating lymphedema of the head and neck.

In June 2017, we announced that we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system.

In December 2020, we received 510(k) clearance for two new indications for our Flexitouch Plus system:

A third generation, Flexitouch Plus, received 510(k) clearance from the FDA in June 2017.

In December 2020, we received 510(k) clearance from the FDA for two new indications for our Flexitouch Plus system:

phlebolymphedema and lipedema.

We introduced our Entre system in the United States in February 2013 and the second generation, Entre Plus, in March 2023.

The Entre Plus system is sold or rented to patients who need a simple pump or who do not yet qualify for insurance reimbursement for an advanced compression device such as our Flexitouch Plus system.

Nimbl, our next-generation pneumatic compression platform, received 510(k) clearance in June 2024 and, beginning in October 2024, is commercially available throughout the United States for the treatment of upper extremity lymphedema.

Sales and rentals of our lymphedema products represented 88% of our revenue in each of the nine months ended September 30, 2024 and 2023.

The Entre system product line and Nimbl product line are considered basic, or simple, pneumatic compression devices.

These systems are sold or rented to patients who need a simple pump or who do not yet qualify for insurance reimbursement for an advanced compression device e.g., a Flexitouch Plus system.

We introduced the Entre system in the United States in February 2013, this device was manufactured by Thermotek, Inc.

and received FDA clearance in 2010.

In 2015, we received FDA clearance for our own first generation Entre system and the second generation, Entre Plus, was released in March 2024.

Nimbl, our next-generation pneumatic compression platform, received 510(k) clearance in June 2024 and was commercially launched for upper extremity lymphedema in October 2024 and launched for lower extremity lymphedema in February 2025.

Sales and rentals of our lymphedema products represented 83% and 86% of our revenue in the three months ended March 31, 2025 and 2024, respectively.

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

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

For each of the nine months ended September 30, 2024 and 2023, sales of AffloVest represented 12% of our revenue.

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

We market our lymphedema products in the United States using a direct-to-patient and -provider model.

For the three months ended March 31, 2025 and 2024, sales of AffloVest represented 17% and 14% of our revenue, respectively.

To support the growth of our business, we continue to invest in our commercial infrastructure, consisting of our direct sales force, DME sales team, marketing team including clinical education programs, patient education team, reimbursement capabilities and clinical expertise.

We market our lymphedema products using a direct-to-patient and -clinician model.

The AffloVest device is sold through respiratory durable medical equipment providers throughout the United States that service patients and bill third-party payers for the product.

We also employ a small group of respiratory specialists, who educate DME representatives, provide product demonstrations for targeted clinicians and support technical questions related to the AffloVest.

As of September 30, 2024, we employed 270 field sales representatives for our lymphedema products and a team of 19 supporting our airway clearance products.

This compares to 246 field sales representatives for our lymphedema products and a team of 13 specialists supporting our airway clearance products as of September 30, 2023.

As of March 31, 2025, we employed 161 account managers and 103 specialists for our lymphedema products and a

team of 19 specialists supporting our airway clearance products.

This compares to 158 account managers and 111 specialists for our lymphedema products and a team of 17 specialists supporting our airway clearance products as of March 31, 2024.

We invest in our reimbursement function to improve operational efficiencies and enhance individual payer expertise, while continuing our strategic focus of payer development.

Our payer relations function focuses on payer policy development, education, contract negotiations, and data analysis.

Our reimbursement

operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary.

Our reimbursement operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary.

We also have a clinical team, consisting of a scientific advisory board, in-house therapists and nurses, and a Chief Medical Officer, that serves as a resource to clinicians and patients and guides the development of clinical evidence in support of our products.

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Flexitouch Plus and Nimbl devices include Bluetooth technology, which is viewable using Kylee.

For the three months ended September 30, 2024, we generated revenue of $73.1 million and had net income of $5.2 million, compared to revenue of $69.6 million and net income of $22.3 million for the three months ended September 30, 2023.

For the nine months ended September 30, 2024, we generated revenue of $207.4 million and had net income of $7.2 million, compared to revenue of $196.8 million and net income of $20.3 million for the nine months ended September 30, 2023.

For the three months ended March 31, 2025, we generated revenue of $61.3 million and had a net loss of $3.0 million, compared to revenue of $61.1 million and a net loss of $2.2 million for the three months ended March 31, 2024.

Our primary sources of capital since our initial public offering in 2016 have been from operating income, bank financing and our public offering in February 2023.

We operate in one segment for financial reporting purposes.

Current Economic Conditions

General global economic downturns and macroeconomic trends, including heightened inflation, capital market volatility, interest rate fluctuations, increased unemployment and economic slowdown or recession, may result in unfavorable conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Comparison of the Three Months Ended March 31, 2025 and 2024

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

Three Months Ended

September 30,

(In thousands)

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Total operating expenses

Income from operations

Other income (expense)

Income before income taxes

Income tax expense (benefit)

Nine Months Ended

September 30,

(In thousands)

Condensed Consolidated Statement

of Operations Data:

Sales revenue

Rental revenue

Total revenue

Cost of revenue

Cost of sales revenue

Cost of rental revenue

Total cost of revenue

Gross profit - sales revenue

Gross profit - rental revenue

Operating expenses

Sales and marketing

Research and development

Reimbursement, general and administrative

Intangible asset amortization and earn-out

Total operating expenses

Income from operations

Other income (expense)

Income before income taxes

Income tax expense (benefit)

Revenue increased $3.5 million, or 5%, to $73.1 million in the three months ended September 30, 2024, compared to $69.6 million in the three months ended September 30, 2023.

The increase in total revenue was attributable to an increase of $2.8 million, or 4%, in sales and rentals of the lymphedema product line and an increase of $0.7 million, or 10%, in sales of the airway clearance product line in the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Revenue increased $10.6 million, or 5%, to $207.4 million in the nine months ended September 30, 2024, compared to $196.8 million in the nine months ended September 30, 2023.

The increase in total revenue was attributable to an increase of $10.0 million, or 6%, in sales and rentals of the lymphedema product line, and an increase of $0.6 million, or 2%, in sales of the airway clearance product line in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

The increase in the lymphedema product line revenue in each of the three and nine months ended September 30, 2024, was attributable to the growth of our field sales team and ongoing technology and workflow initiatives.

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

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

Loss from operations

Interest income

Interest expense

Loss before income taxes

Income tax benefit

Revenue increased $0.2 million, or 0.3%, to $61.3 million in the three months ended March 31, 2025, compared to $61.1 million in the three months ended March 31, 2024.

The increase in total revenue was attributable to an increase of $1.9 million, or 22%, in sales of the airway clearance product line in the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

The increase was mostly offset by a decrease of $1.8 million, or 3%, in sales and rentals of the lymphedema product line in the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

The increase in the airway clearance product line revenue in the three months ended March 31, 2025, was primarily attributable to increased placements of AffloVest among our DME partners.

The decrease in the lymphedema product line revenue in the three months ended March 31, 2025 was primarily attributable to a decrease in headcount of our field sales team.

The following table summarizes our revenue by product line for the three months ended March 31, 2025 and 2024, both in dollars and percentage of total revenue:

Three Months Ended

September 30,

(In thousands)

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Airway clearance products

Nine Months Ended

September 30,

(In thousands)

Lymphedema products

Airway clearance products

Percentage of total revenues

Lymphedema products

Airway clearance products

Our business is affected by seasonality.

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Cost of Revenue and Gross Margin

Cost of revenue decreased $1.9 million, or 9%, to $18.3 million in the three months ended September 30, 2024, compared to $20.2 million in the three months ended September 30, 2023.

Cost of revenue decreased $2.6 million, or 4%, to $55.1 million in the nine months ended September 30, 2024, compared to $57.6 million in the nine months ended September 30, 2023.

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

Gross margin was 75.0% and 70.9% in the three months ended September 30, 2024 and 2023, respectively, and 73.4% and 70.7% in the nine months ended September 30 2024 and 2023, respectively.

Cost of revenue decreased $1.7 million, or 10%, to $15.9 million in the three months ended March 31, 2025, compared to $17.7 million in the three months ended March 31, 2024.

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

Gross margin was 74% and 71% in the three months ended March 31, 2025 and 2024, respectively.

Sales and Marketing Expenses

Sales and marketing expenses increased $0.8 million, or 3%, to $26.8 million in the three months ended September 30, 2024, compared to $26.0 million in the three months ended September 30, 2023.

was primarily attributable to a $0.5 million increase in travel and entertainment expenses and a $0.4 million increase in personnel-related compensation expenses, partially offset by a decrease of $0.1 million in tradeshow related expense s.

Sales and marketing expenses increased $2.3 million, or 3%, to $82.8 million in the nine months ended September 30, 2024, compared to $80.5 million in the nine months ended September 30, 2023.

The increase was primarily attributable to a $1.1 million increase in travel and entertainment expenses, a $0.7 million increase in personnel-related compensation expenses and a $0.5 million increase in meetings, seminars and tradeshow related expenses.

Sales and marketing expenses increased $0.2 million, or 1%, to $27.5 million in the three months ended March 31, 2025, compared to $27.4 million in the three months ended March 31, 2024.

The increase was primarily attributable to a $0.6 million increase in travel and entertainment expenses, partially offset by a $0.2

million decrease in expenses for a new product launch, a $0.1 million decrease in personnel-related compensation expenses and a $0.1 million decrease in expenses related to sales meetings and tradeshow s.

Research and Development Expenses

Research and development (“R&D”) expenses increased $0.5 million, or 23%, to $2.4 million in the three months ended September 30, 2024, compared to $2.0 million in the three months ended September 30, 2023.

The increase was primarily attributable to a $0.4 million increase in professional fees and a $0.2 million increase in personnel-related compensation expenses, partially offset by a $0.1 million decrease in clinical study related expenses.

R&D expenses increased $0.8 million, or 13%, to $6.8 million in the nine months ended September 30, 2024, compared to $6.0 million in the nine months ended September 30, 2023.

The increase was primarily attributable to a $0.5 million increase in professional fees, a $0.2 million increase in personnel-related compensation expenses, and a $0.1 million increase in clinical study related expenses.

Research and development (“R&D”) expenses decreased $0.4 million, or 19%, to $1.7 million in the three months ended March 31, 2025, compared to $2.1 million in the three months ended March 31, 2024.

The decrease was primarily attributable to a $0.3 million decrease in clinical study related expenses and a $0.2 million decrease in personnel-related compensation expenses, partially offset by a $0.1 million increase in IT-related expenses.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses increased $1.7 million, or 10%, to $18.1 million in the three months ended September 30, 2024, compared to $16.5 million in the three months ended September 30, 2023.

This increase was primarily attributable to a $1.2 million increase in personnel-related compensation expenses and a $0.9 million increase in IT related expenses, partially offset by a $0.4 million decrease in occupancy costs, depreciation expense and professional fees.

Reimbursement, general and administrative expenses increased $4.3 million, or 9%, to $51.2 million in the nine months ended September 30, 2024, compared to $46.9 million in the nine months ended September 30, 2023.

This increase was primarily attributable to a $2.3 million increase in personnel-related compensation expenses, and a $2.0 million increase in IT related expenses.

Reimbursement, general and administrative expenses increased $3.7 million, or 23%, to $20.0 million in the three months ended March 31, 2025, compared to $16.3 million in the three months ended March 31, 2024.

This increase was primarily attributable to a $2.5 million increase in personnel-related compensation expenses, a $1.0 million increase in IT-related expenses, and $0.2 million increase in occupancy costs, depreciation expense and professional fees.

Intangible Asset Amortization and Earn-out Expense

Intangible asset amortization and earn-out expense increased $3.7 million to an expense of $0.6 million in the three months ended September 30, 2024, compared to a benefit of $3.1 million in the three months ended September 30, 2023.

The increase in expense was related to there being no earn-out expense in the three months ended September 30, 2024, as final payment under the AffloVest Acquisition earn-out arrangement was made on November 28, 2023, and therefore there was no change in fair value of an earn-out expense recorded in the three months ended September 30, 2024, compared to a decrease in the fair value of the earn-out expense of $3.7 million for the three months ended September 30, 2023, due to the lower than expected airway clearance product revenue.

Intangible asset amortization and earn-out expense increased $2.5 million to an expense of $1.9 million in the nine months ended September 30, 2024, compared to a benefit of $0.6 million in the nine months ended September 30, 2023.

The increase was related to there being no earn-out expense in the nine months ended September 30, 2024, as final payment under the AffloVest Acquisition earn-out arrangement was made on November 28, 2023, and therefore there was no change in fair value of an earn-out expense recorded in the nine months ended September 30, 2024, compared to a decrease in the fair value of the earn-out expense of $2.5 million for the nine months ended September 30, 2023, due to the lower than expected airway clearance product revenue.

Other Income (Expense), Net

We recorded other income, net of $0.5 million and other expense, net of $0.4 million for the three months ended September 30, 2024 and 2023, respectively.

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

We recorded other income, net of $0.8 million and other expense, net of $2.2 million for the nine months ended September 30, 2024 and 2023, respectively.

The primary drivers of the change were a decrease in interest expense of $1.6 million and an increase in interest income of $1.4 million.

We recorded income tax expense of $2.1 million and an income tax benefit $14.7 million for the three months ended September 30, 2024 and 2023, respectively.

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

We recorded an income tax expense of $3.3 million and an income tax benefit of $16.3 million for the nine months ended September 30, 2024 and 2023, respectively.

Intangible asset amortization and earn-out expense remained consistent at $0.6 million for each of the three months ended March 31, 2025 and 2024.

Interest Income and Interest Expense

Interest income increased $0.2 million, or 26%, to $0.9 million in the three months ended March 31, 2025, compared to $0.7 million in the three months ended March 31, 2024, primarily due to a higher cash balance in an Institutional Insured Liquid Deposit demand account.

Interest expense decreased $0.2 million, or 25%, to $0.4 million in the three months ended March 31, 2025, compared to $0.6 million in the three months ended March 31, 2024, primarily due to the decrease in the outstanding balance of our term loan.

We recorded an income tax benefit of $1.1 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively.

The primary driver of the change in our effective tax rate was attributable to the Company recording less expense related to stock-based compensation discrete items when compared to the prior year period.

Liquidity and Capital Resources

On September 30, 2024, our principal sources of liquidity were cash and cash equivalents of $ 82.1 million and net accounts receivable of $ 43.2 million.

This compares to cash and cash equivalents of $66.0 million and net accounts receivable of $58.5 million at September 30, 2023.

On March 31, 2025, our principal sources of liquidity were cash of $ 83.6 million and net accounts receivable of $ 35.7 million.

This compares to cash of $60.7 million and net accounts receivable of $47.4 million at March 31, 2024.

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Financing activities

Net increase in cash and cash equivalents

Net decrease in cash

Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2024 was $24.3 million, resulting from non-cash net income adjustments of $11.0 million, net income of $7.2 million and a net increase in operating assets and liabilities of $6.1 million.

Net cash provided by operating activities during the three months ended March 31, 2025 was $0.4 million, resulting from non-cash net income adjustments of $4.0 million, a net loss of $3.0 million and a net decrease in operating assets and liabilities of $0.7 million.

The positive non-cash net income adjustments consisted primarily of $2.1 million of stock-based compensation expense and $1.7 million of depreciation.

Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $10.5 million, a decrease in inventories of $1.4 million and a $0.6 million increase in accounts payable, partially offset by a decrease in accrued payroll and related taxes of $3.7 million, an increase in prepaid

expenses and other assets of $1.8 million, a decrease in income taxes payable of $0.8 million and a decrease in accrued expenses and other liabilities of $0.3 million.

Net cash provided by operating activities during the nine months ended September 30, 2023 was $17.5 million, resulting from net income of $20.3 million and a net increase in operating assets and liabilities of $9.9 million, which were partially offset by non-cash net income adjustments of $12.7 million.

Cash provided relating to the change in operating assets and liabilities primarily consisted of a decrease in accounts receivable of $19.3 million and a decrease in net investment in leases of $2.5 million, partially offset by a decrease in accrued expenses of $5.5 million, a decrease in accounts payable of $3.6 million, a decrease in accrued payroll and related taxes of $2.3 million, and an increase in prepaid expenses and inventories of $0.7 million.

The negative non-cash net loss adjustments consisted primarily of $20.7 million of deferred income taxes and a $2.5 million change in the fair value of earn-out liability, offset by $5.6 million of stock-based compensation expense and $4.9 million of depreciation and amortization expense.

Cash used relating to the change in operating assets and liabilities primarily consisted of a decrease in net accounts receivable of $9.2 million, a $1.4 million increase in accounts payable and a $0.3 million increase in accrued expenses and other liabilities, partially offset by a decrease in accrued payroll and related taxes of $7.0 million, an increase in prepaid expenses and other assets of $2.5 million, a decrease in income taxes payable of $1.3 million, an increase in right of use operating lease assets of $0.3 million, an increase in net investment in leases of $0.3 million and an increase in inventories of $0.2 million.

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

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

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

Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2024, was $2.0 million, consisting of purchases of property and equipment primarily related to tenant improvements, and patent costs.

Net cash used in investing activities during the nine months ended September 30, 2023, was $1.5 million, consisting of purchases of property and equipment, and patent costs.

Net cash used in investing activities during the three months ended March 31, 2025, was $0.4 million, consisting of purchases of property and equipment and patent costs.

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

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2024, was $1.2 million, primarily consisting of a $2.3 million payment made on our term loan, partially offset by $1.0 million in proceeds from the issuance of common stock under the ESPP.

Net cash provided by financing activities during the nine months ended September 30, 2023, was $28.1 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million and $1.0 million in proceeds from the issuance of common stock under the ESPP, partially offset by a payment of $5.0 million on the AffloVest earn-out and a $2.3 million payment made on our term loan.

Net cash used in financing activities during the three months ended March 31, 2025, was $10.8 million, primarily consisting of payments of $10.0 million for the repurchase of our common stock and a payment of $0.8 million made on our term loan.

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

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.

Administrative Agent.

The Restated Credit Agreement amended and restated in its entirety our prior credit agreement.

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The Fifth Amendment permits the Company to make payments to repurchase shares of its common stock, as long as the Company is not in default before and after giving effect to such repurchases, and as long as such repurchases do not exceed $30.0 million.

On December 21, 2023, we made a payment of $16.8 million to repay in full the outstanding balance on the revolving credit facility.

As of September 30, 2024, we had outstanding borrowings of $27.0 million under the Credit Agreement, comprised entirely of the term loan.

As of March 31, 2025, we had outstanding borrowings of $25.5 million under the Credit Agreement, comprised entirely of the term loan.

The principal of the term loan is required to be repaid in quarterly installments of $750,000.

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The program does not obligate us to repurchase any specific number of shares and may be suspended or discontinued at any time without prior notice.

We intend to finance the share repurchase program with cash on hand.

During the three months ended March 31, 2025, we repurchased 635,603 shares for approximately $10.0 million.

We used cash on hand to fund these repurchases.

As of March 31, 2025, approximately $16.5 million remained authorized under the stock repurchase program.

Future Cash Requirements

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● expansion of our operations;

● IT investments to scale our business;

● response of competitors to our solutions and applications;

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● component price inflation;

● costs to develop and implement new products;

● costs to develop and implement new products and revisions to existing products;

● use of capital for acquisitions or licenses, if any.

Historically, we have experienced increases in our expenditures consistent with the growth in our revenue, operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.

We believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, debt repayment and related interest, and other cash requirements for at least the next twelve months.

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

We believe our cash and cash flows from operations will be sufficient to meet our working capital, capital expenditure, debt repayment and related interest, and other cash requirements for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business during the quarter ended March 31, 2025.

However, recent changes and announcements in U.S.

and global tariff frameworks could negatively impact our supply chain and increase our cost of goods sold.

The ultimate impact of tariffs, including any related responses, are uncertain and will depend on various factors, including which tariffs are ultimately implemented, the timing of implementation, any exemptions available, and the amount, scope and nature of the tariffs.

We continue to analyze the potential impact of recently announced tariffs, trade actions and related effects on our business and, at this time, we estimate that the impacts on our cost of goods sold could be up to $5.0 million for the year ended December 31, 2025.

While we are actively working to mitigate tariff impacts, there is no assurance that such actions will be effective.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis