TACTILE SYSTEMS TECHNOLOGY INC 10-Q

Item 1. Financial Statements ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Condensed Consolidated Balance Sheets (Unaudited) ​ March 31, December 31, (In thousands, except share and per share data) 2025 2024 Assets ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash ​ $ 83,619 ​ $ 94,367 Accounts receivable, net ​ 35,693 ​ 44,937 Net investment in leases ​ 14,850 ​ 14,540 Inventories ​ 18,867 ​ 18,666 Income taxes receivable ​ 1,193 ​ — Prepaid expenses and other current assets ​ 5,900 ​ 5,053 Total current assets ​ 160,122 ​ 177,563 Non-current assets ​ ​ ​ ​ ​ ​ Property and equipment, net ​ 5,391 ​ 5,603 Right of use operating lease assets ​ 16,174 ​ 16,633 Intangible assets, net ​ 41,866 ​ 42,789 Goodwill ​ ​ 31,063 ​ ​ 31,063 Deferred income taxes ​ 18,059 ​ 18,311 Other non-current assets ​ 7,567 ​ 5,962 Total non-current assets ​ 120,120 ​ 120,361 Total assets ​ $ 280,242 ​ $ 297,924 Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 7,224 ​ $ 5,648 Note payable ​ ​ 2,956 ​ ​ 2,956 Accrued payroll and related taxes ​ 10,929 ​ 17,923 Accrued expenses ​ 7,177 ​ 7,780 Income taxes payable ​ — ​ 270 Operating lease liabilities ​ 3,036 ​ 2,980 Other current liabilities ​ 4,079 ​ 3,147 Total current liabilities ​ 35,401 ​ 40,704 Non-current liabilities ​ ​ ​ ​ ​ ​ Note payable, non-current ​ ​ 22,481 ​ ​ 23,220 Accrued warranty reserve, non-current ​ 1,201 ​ 1,209 Income taxes payable, non-current ​ 355 ​ 239 Operating lease liabilities, non-current ​ ​ 15,173 ​ 15,955 Total non-current liabilities ​ 39,210 ​ 40,623 Total liabilities ​ 74,611 ​ 81,327 ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of March 31, 2025 and December 31, 2024 ​ — ​ — Common stock, $ 0.001 par value, 300,000,000 shares authorized; 23,584,471 shares issued and outstanding as of March 31, 2025; 23,883,475 shares issued and outstanding as of December 31, 2024 ​ 24 ​ 24 Additional paid-in capital ​ 172,727 ​ 180,719 Retained earnings ​ 32,880 ​ 35,854 Total stockholders’ equity ​ 205,631 ​ 216,597 Total liabilities and stockholders’ equity ​ $ 280,242 ​ $ 297,924 ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ ​ 4 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Condensed Consolidated Statements of Operations (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (In thousands, except share and per share data) 2025 2024 Revenue ​ ​ ​ ​ ​ ​ Sales revenue ​ $ 52,469 ​ $ 53,307 Rental revenue ​ 8,799 ​ 7,781 Total revenue ​ 61,268 ​ 61,088 Cost of revenue ​ ​ ​ ​ ​ ​ Cost of sales revenue ​ 13,891 ​ 14,944 Cost of rental revenue ​ 2,031 ​ 2,715 Total cost of revenue ​ 15,922 ​ 17,659 Gross profit ​ ​ ​ ​ ​ ​ Gross profit - sales revenue ​ 38,578 ​ 38,363 Gross profit - rental revenue ​ 6,768 ​ 5,066 Gross profit ​ 45,346 ​ 43,429 Operating expenses ​ ​ ​ ​ ​ ​ Sales and marketing ​ 27,516 ​ 27,357 Research and development ​ 1,741 ​ 2,143 Reimbursement, general and administrative ​ 19,998 ​ 16,261 Intangible asset amortization and earn-out ​ ​ 633 ​ ​ 632 Total operating expenses ​ 49,888 ​ 46,393 Loss from operations ​ ( 4,542 ) ​ ( 2,964 ) Interest income ​ ​ 895 ​ ​ 713 Interest expense ​ ​ ( 424 ) ​ ​ ( 567 ) Other income ​ — ​ 9 Loss before income taxes ​ ( 4,071 ) ​ ( 2,809 ) Income tax benefit ​ ( 1,097 ) ​ ( 600 ) Net loss ​ $ ( 2,974 ) ​ $ ( 2,209 ) Net loss per common share ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.13 ) ​ $ ( 0.09 ) Diluted ​ $ ( 0.13 ) ​ $ ( 0.09 ) Weighted-average common shares used to compute net loss per common share ​ ​ ​ ​ ​ ​ Basic ​ ​ 23,710,643 ​ ​ 23,665,829 Diluted ​ ​ 23,710,643 ​ ​ 23,665,829 ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ ​ 5 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Paid-In ​ Retained ​ ​ ​ (In thousands, except share data) Shares Par Value Capital Earnings Total Balances, December 31, 2024 ​ 23,883,475 ​ $ 24 ​ $ 180,719 ​ $ 35,854 ​ $ 216,597 Stock-based compensation ​ — ​ ​ — ​ ​ 2,066 ​ ​ — ​ ​ 2,066 Exercise of common stock options and vesting of performance and restricted stock units ​ 336,599 ​ ​ — ​ ​ 10 ​ ​ — ​ ​ 10 Share repurchases ​ ( 635,603 ) ​ ​ — ​ ​ ( 10,068 ) ​ ​ — ​ ​ ( 10,068 ) Net loss for the period ​ — ​ ​ — ​ ​ — ​ ​ ( 2,974 ) ​ ​ ( 2,974 ) Balances, March 31, 2025 ​ 23,584,471 ​ $ 24 ​ $ 172,727 ​ $ 32,880 ​ $ 205,631 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, December 31, 2023 ​ 23,600,584 ​ $ 24 ​ $ 174,724 ​ $ 18,894 ​ $ 193,642 Stock-based compensation ​ — ​ ​ — ​ ​ 2,039 ​ ​ — ​ ​ 2,039 Exercise of common stock options and vesting of performance and restricted stock units ​ 161,313 ​ ​ — ​ ​ 1 ​ ​ — ​ ​ 1 Net loss for the period ​ — ​ ​ — ​ ​ — ​ ​ ( 2,209 ) ​ ​ ( 2,209 ) Balances, March 31, 2024 ​ 23,761,897 ​ $ 24 ​ $ 176,764 ​ $ 16,685 ​ $ 193,473 ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 6 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ Tactile Systems Technology, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ Three Months Ended March 31, (In thousands) 2025 2024 Cash flows from operating activities ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 2,974 ) ​ $ ( 2,209 ) Adjustments to reconcile net loss to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 1,726 ​ ​ 1,634 Deferred income taxes ​ ​ 252 ​ ​ 84 Stock-based compensation expense ​ ​ 2,066 ​ ​ 2,039 Loss on disposal of property and equipment and intangibles ​ ​ 5 ​ ​ — Changes in assets and liabilities, net of acquisition: ​ ​ ​ ​ ​ ​ Accounts receivable, net ​ ​ 9,244 ​ ​ 2,682 Net investment in leases ​ ​ ( 310 ) ​ ​ ( 129 ) Inventories ​ ​ ( 201 ) ​ ​ 1,683 Income taxes ​ ​ ( 1,347 ) ​ ​ ( 693 ) Prepaid expenses and other assets ​ ​ ( 2,452 ) ​ ​ ( 787 ) Right of use operating lease assets ​ ​ ( 267 ) ​ ​ 2 Accounts receivable, non-current ​ ​ — ​ ​ 3,983 Accounts payable ​ ​ 1,387 ​ ​ ( 1,396 ) Accrued payroll and related taxes ​ ​ ( 6,994 ) ​ ​ ( 5,766 ) Accrued expenses and other liabilities ​ ​ 282 ​ ​ ( 203 ) Net cash provided by operating activities ​ ​ 417 ​ ​ 924 Cash flows from investing activities ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ​ ( 379 ) ​ ​ ( 482 ) Intangible assets expenditures ​ ​ ( 28 ) ​ ​ ( 20 ) Net cash used in investing activities ​ ​ ( 407 ) ​ ​ ( 502 ) Cash flows from financing activities ​ ​ ​ ​ ​ ​ Payments on note payable ​ ​ ( 750 ) ​ ​ ( 750 ) Proceeds from exercise of common stock options ​ ​ 10 ​ ​ 1 Payments for repurchases of common stock ​ ​ ( 10,018 ) ​ ​ — Net cash used in financing activities ​ ​ ( 10,758 ) ​ ​ ( 749 ) Net decrease in cash ​ ​ ( 10,748 ) ​ ​ ( 327 ) Cash – beginning of period ​ ​ 94,367 ​ ​ 61,033 Cash – end of period ​ $ 83,619 ​ $ 60,706 ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow disclosure ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 444 ​ $ 583 Cash paid for taxes ​ $ 15 ​ $ 54 Accrued excise tax on stock repurchases ​ $ 50 ​ $ — Capital expenditures incurred but not yet paid ​ $ 189 ​ $ 225 ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 7 Table of Contents ​ Tactile Systems Technology, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) Note 1. Nature of Business and Operations Tactile Systems Technology, Inc. (“we,” “us,” “our,” and the “Company”) 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 oncology-related clinicians, vascular disease clinicians and wound, vein and lymphatic massage clinics throughout the United States. On September 8, 2021, we acquired the assets of the AffloVest airway clearance business (“AffloVest Acquisition”). 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 our reincorporation 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 The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. The results for the three months ended March 31, 2025, are not necessarily indicative of results to be expected for the year ending December 31, 2025, or for any other interim period or for any future year. The condensed consolidated interim financial statements should be read in conjunction with the audited financial 8 Table of Contents statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024. Principles of Consolidation The accompanying unaudited condensed 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. 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 Significant Accounting Policies There were no material changes in our significant accounting policies during the three months ended March 31, 2025. See Note 3 – “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, for information regarding our significant accounting policies. 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. 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. ​ 9 Table of Contents Note 4. Inventories Inventories consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) At March 31, 2025 At December 31, 2024 Finished goods ​ $ 5,966 ​ $ 6,149 Component parts and work-in-process ​ 12,901 ​ 12,517 Total inventories ​ $ 18,867 ​ $ 18,666 ​ ​ ​ Note 5. Goodwill and Intangible Assets Goodwill In the third quarter of fiscal 2021, we completed the AffloVest Acquisition. The purchase price of the AffloVest product line 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 March 31, 2025 ​ ​ Average ​ Gross ​ ​ ​ ​ ​ ​ Amortization ​ Carrying ​ Accumulated ​ Net (In thousands) Period ​ Amount ​ Amortization ​ Amount Definite-lived intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Patents ​ 11 years ​ $ 1,131 ​ $ 338 ​ $ 793 Defensive intangible assets ​ < 1 year ​ ​ 1,125 ​ ​ 1,102 ​ ​ 23 Customer accounts ​ — ​ ​ 125 ​ ​ 125 ​ ​ — Customer relationships ​ 9 years ​ ​ 31,000 ​ ​ 8,492 ​ ​ 22,508 Developed technology ​ 7 years ​ ​ 13,000 ​ ​ 4,209 ​ ​ 8,791 Subtotal ​ ​ ​ ​ 46,381 ​ ​ 14,266 ​ ​ 32,115 Unamortized intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tradenames ​ ​ ​ ​ 9,500 ​ ​ — ​ ​ 9,500 Patents pending ​ ​ ​ ​ 251 ​ ​ — ​ ​ 251 Total intangible assets ​ ​ ​ $ 56,132 ​ $ 14,266 ​ $ 41,866 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 10 Table of Contents Amortization expense was $ 1.0 million and $ 0.9 million for the three months ended March 31, 2025 and 2024, respectively, of which $ 0.3 million in each of the three months ended March 31, 2025 and 2024, was recorded in cost of sales revenue. Future amortization expenses are expected as follows: ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ 2025 (April 1 - December 31) $ 2,764 2026 ​ ​ 3,650 2027 ​ 3,641 2028 ​ 3,638 2029 ​ 3,633 Thereafter ​ 14,789 Total ​ $ 32,115 ​ In the third quarter of 2024, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASU No. 2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events.” Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying value. As a result, it was not deemed necessary to proceed to the quantitative test and no impairment was recognized. Note 6. Accrued Expenses Accrued expenses consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) At March 31, 2025 At December 31, 2024 In-transit inventory ​ $ 1,662 ​ $ 1,013 Warranty ​ ​ 1,573 ​ ​ 1,784 Travel ​ ​ 1,210 ​ ​ 1,120 Sales and use tax ​ ​ 935 ​ ​ 802 Legal and consulting ​ ​ 934 ​ ​ 1,318 Clinical studies ​ ​ 28 ​ ​ 304 Other ​ 835 ​ 1,439 Total ​ $ 7,177 ​ $ 7,780 ​ ​ ​ Note 7. Warranty Reserves The activity in the warranty reserve during and as of the end of the reporting periods presented was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (In thousands) 2025 2024 Beginning balance ​ $ 2,993 ​ $ 4,038 Warranty provision ​ 480 ​ 840 Processed warranty claims ​ ( 699 ) ​ ( 1,042 ) Ending balance ​ $ 2,774 ​ $ 3,836 ​ ​ ​ ​ ​ ​ ​ Accrued warranty reserve, current ​ $ 1,573 ​ $ 2,191 Accrued warranty reserve, non-current ​ ​ 1,201 ​ ​ 1,645 Total accrued warranty reserve ​ $ 2,774 ​ $ 3,836 ​ ​ 11 Table of Contents Note 8. Credit Agreement On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. The Restated Credit Agreement amended and restated in its entirety our prior credit agreement. On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amended the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent. The Amendment, among other things, added a $ 30.0 million incremental term loan to the $ 25.0 million revolving credit facility provided by the Restated Credit Agreement. The term loan is reflected on our condensed consolidated financial statements as a note payable. The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $ 25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $ 80.0 million. On September 8, 2021, in connection with the closing of the 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. 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 % . As of March 31, 2025, all outstanding borrowings were subject to interest at a rate calculated at Adjusted Term SOFR plus an applicable margin, for an interest rate of 6.14 % . 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 12 Table of Contents 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 . ​ 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 . Maturities of the term loan for the next three years as of March 31, 2025, are as follows: ​ ​ ​ ​ ​ (In thousands) Amount 2025 (April 1 - December 31) ​ $ 2,250 2026 ​ ​ 23,250 Total ​ ​ 25,500 Less: Deferred financing fees ​ ​ ( 63 ) Net Note Payable ​ ​ 25,437 Less: Current portion of note payable ​ ​ ( 2,956 ) Non-current portion of note payable ​ $ 22,481 ​ 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 March 31, 2025, 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 March 31, 2025, we were in compliance with all covenants under the Credit Agreement. Note 9. 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 non-lease 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 Condensed Consolidated Balance Sheets. None of our lease agreements contain material restrictive covenants or residual value guarantees. 13 Table of Contents 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 Condensed 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 six years as of March 31, 2025. 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 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 Condensed 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 March 31, 2025, 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. ​ 14 Table of Contents 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 March 31, 2025 At December 31, 2024 Right of use operating lease assets ​ $ 16,174 ​ $ 16,633 ​ ​ ​ ​ ​ ​ ​ Operating lease liabilities: ​ ​ ​ ​ ​ ​ Current ​ $ 3,036 ​ $ 2,980 Non-current ​ 15,173 ​ 15,955 Total ​ $ 18,209 ​ $ 18,935 ​ ​ ​ ​ ​ ​ ​ Operating leases: ​ ​ ​ ​ ​ ​ Weighted average remaining lease term ​ 5.6 years ​ ​ 5.8 years Weighted average discount rate ​ ​ 4.3 % ​ ​ 4.4 % ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ 2025 ​ 2024 Supplemental cash flow information for our operating leases: ​ ​ ​ ​ ​ ​ Cash paid for operating lease liabilities ​ $ 925 ​ $ 867 ​ The table below reconciles the undiscounted cash flows for the periods presented to the operating lease liabilities recorded on the Condensed Consolidated Balance Sheet for the periods presented: ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ 2025 (April 1 - December 31) ​ $ 2,810 2026 ​ ​ 3,808 2027 ​ 3,311 2028 ​ 3,275 2029 ​ 3,309 Thereafter ​ 3,692 Total minimum lease payments ​ ​ 20,205 Less: Amount of lease payments representing interest ​ ​ ( 1,996 ) Present value of future minimum lease payments ​ ​ 18,209 Less: Current obligations under operating lease liabilities ​ ​ ( 3,036 ) Non-current obligations under operating lease liabilities ​ $ 15,173 ​ Operating lease costs were $ 0.9 million for each of the three months ended March 31, 2025 and 2024. Major Vendors We had purchases from one vendor that accounted for 13 % of our total purchases for the three months ended March 31, 2025 and 23 % of our total purchases for the three months ended March 31, 2024. Purchase Commitments We issued purchase orders prior to March 31, 2025, totaling $ 24.4 million for goods that we expect to receive within the next year. 15 Table of Contents Retirement Plan We maintain a 401(k) retirement plan for our employees in 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 $ 0.7 million for each of the three months ended March 31, 2025 and 2024. Legal Proceedings F rom 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 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. On February 24, 2025, the parties (the relators under both complaints and the Company) filed a joint motion requesting that both actions be stayed until November 25, 2025, to provide time for the government to review and assess sample claims for the purpose of assessing the allegations. On February 25, 2025, the Court granted the motion and issued orders that stay both actions until November 25, 2025. We will defend the actions as they proceed . Note 10. Stockholders' Equity 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 repurchases under the share repurchase program in the following periods, which include the market price of the shares, commissions and excise tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, (In thousands, except share and per share data) ​ ​ 2025 ​ ​ 2024 Number of shares repurchased ​ ​ 635,603 ​ ​ — Total share repurchased cost ​ $ 10,068 ​ $ — Average total cost per repurchased share ​ $ 15.76 ​ $ — ​ 16 Table of Contents As of March 31, 2025, approximately $ 16.5 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, expired, cancelled, 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. As of March 31, 2025, 5,966,176 shares were available for future grant pursuant to the 2016 Plan. On March 25, 2025, our Board of Directors approved, on the recommendation of the Compensation and Organization Committee, the Tactile Systems Technology, Inc. 2025 Equity Incentive Plan (the “2025 Plan”), subject to stockholder approval at the 2025 annual meeting of stockholders, which is scheduled for May 7, 2025. If approved by our stockholders, 1,850,000 shares of our common stock will be reserved for issuance under the 2025 Plan, plus the number of shares subject to any awards under the 2016 Plan that are outstanding on the date our stockholders approve the 2025 Plan, that later expires, is cancelled or forfeited, is settled for cash or otherwise does not result in the issuance of all of the shares subject to such award. If our stockholders approve the 2025 Plan, no additional grants will be made under 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. We recorded stock-based compensation expense of $ 2.1 million and $ 2.0 million for the three months ended March 31, 2025 and 2024, respectively. This expense was allocated as follows: ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ March 31, (In thousands) 2025 2024 Cost of revenue $ 99 ​ $ 83 Sales and marketing expenses ​ 503 ​ ​ 738 Research and development expenses ​ 33 ​ ​ 33 Reimbursement, general and administrative expenses ​ 1,431 ​ ​ 1,185 Total stock-based compensation expense $ 2,066 ​ $ 2,039 ​ 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-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $ 0.0 million and $ 0.1 million for 17 Table of Contents the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, there was approximately $ 20,358 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 0.6 years. Our stock option activity for the three months ended March 31, 2025, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Weighted- ​ ​ ​ ​ ​ ​ ​ Average ​ Average ​ Aggregate ​ ​ Options ​ Exercise Price ​ Remaining ​ Intrinsic (In thousands except options and per share data) ​ Outstanding ​ Per Share ​ Contractual Life ​ Value (1) Balance at December 31, 2024 ​ 394,871 ​ $ 40.70 ​ 2.8 years ​ $ 309 Exercised ​ ( 2,364 ) ​ $ 4.23 ​ ​ ​ $ 22 Cancelled/Expired ​ ( 18,109 ) ​ $ 43.75 ​ ​ ​ ​ ​ Balance at March 31, 2025 ​ 374,398 ​ $ 40.78 ​ 2.6 years ​ $ 149 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options exercisable at March 31, 2025 ​ 366,517 ​ $ 41.49 ​ 2.6 years ​ $ 108 ​ (1) 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 395,952 as of March 31, 2024, had a weighted-average exercise price of $ 41.94 per share. Time-Based Restricted Stock Units 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 the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.5 million and $ 1.4 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, there was approximately $ 9.5 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 2.3 years. Our time-based restricted stock unit activity for the three months ended March 31, 2025, 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, 2024 ​ 728,426 ​ $ 14.33 ​ $ 12,478 Granted ​ 342,779 ​ $ 15.17 ​ ​ ​ Vested ​ ( 233,509 ) ​ $ 14.80 ​ ​ ​ Cancelled ​ ( 26,193 ) ​ $ 15.48 ​ ​ ​ Balance at March 31, 2025 ​ 811,503 ​ $ 14.52 ​ $ 10,728 ​ (1) The aggregate intrinsic value of 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 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 based on revenue change and adjusted EBITDA change are achieved in 2026 (ranging from 25 % to 175 % of target). The PSUs granted in 2025 have three separate performance periods, and one-third of each grant will be earned if and to the extent performance goals based on revenue and adjusted EBITDA margin are achieved 18 Table of Contents in 2025 (ranging from 25 % to 175 % of target), one-third will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA change are achieved in 2026 (ranging from 25 % to 175 % of target), and one-third will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA change are achieved in 2027 (ranging from 25 % to 175 % of target). All earned and vested PSUs will be settled in shares of common stock. Stock-based compensation expense recognized for PSUs was $ 0.4 million for each of the three months ended March 31, 2025 and 2024. As of March 31, 2025, there was approximately $ 3.4 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.6 years. Our PSU activity for the three months ended March 31, 2025, 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, 2024 ​ 272,919 ​ $ 15.19 ​ $ 4,675 Granted ​ 168,722 ​ $ 15.38 ​ ​ ​ Vested ​ ( 120,436 ) ​ $ 16.67 ​ ​ ​ Cancelled ​ ( 9,033 ) ​ $ 13.77 ​ ​ ​ Balance at March 31, 2025 ​ 312,172 ​ $ 14.75 ​ $ 4,127 ​ (1) The aggregate intrinsic value of PSUs outstanding was based on our closing stock price on the last trading day of the period. Employee Stock Purchase Plan Our employee stock purchase plan (“ESPP”), which was approved by our Board of Directors on April 27, 2016, and by our stockholders on June 20, 2016, allows participating employees to purchase shares of our common stock at a discount through payroll deductions. 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. As of March 31, 2025, 1,685,685 shares were available for future issuance under the ESPP. We recognized stock-based compensation expense associated with the ESPP of $ 0.2 million and $ 0.1 million for the three months ended March 31, 2025 and 2024, respectively. ​ 19 Table of Contents Note 11. 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 line : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (In thousands) 2025 ​ 2024 Revenue ​ ​ ​ ​ ​ ​ Lymphedema products ​ $ 50,554 ​ $ 52,313 Airway clearance products ​ ​ 10,714 ​ ​ 8,775 Total ​ $ 61,268 ​ $ 61,088 ​ ​ ​ ​ ​ ​ ​ Percentage of total revenue ​ ​ ​ ​ ​ ​ Lymphedema products ​ 83 % ​ 86 % Airway clearance products ​ ​ 17 % ​ ​ 14 % Total ​ 100 % ​ 100 % ​ Our revenue by channel, inclusive of sales and rental revenue, for the three months ended March 31, 2025 and 2024, are summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (In thousands) 2025 ​ 2024 Private insurers and other payers ​ $ 28,943 ​ $ 31,277 Veterans Administration ​ ​ 6,537 ​ ​ 6,826 Medicare ​ ​ 15,074 ​ ​ 14,210 Durable medical equipment distributors ​ ​ 10,714 ​ ​ 8,775 Total ​ $ 61,268 ​ $ 61,088 ​ 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 Condensed Consolidated Balance Sheets. 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 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. 20 Table of Contents Rental revenue for each of the three months ended March 31, 2025 and 2024, was primarily from private insurers. Sales-type lease revenue and the associated cost of revenue for the three months ended March 31, 2025 and 2024, was: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, (In thousands) ​ ​ 2025 ​ 2024 Sales-type lease revenue ​ ​ $ 8,799 ​ $ 7,781 Cost of sales-type lease revenue ​ ​ 2,031 ​ 2,715 Gross profit ​ ​ $ 6,768 ​ $ 5,066 ​ Note 12. Income Taxes We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income (loss) and adjusting for discrete tax items recorded in the period. 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 reporting purposes, including for depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable and inventory reserves. Our provision for income taxes includes current federal and state income tax expense, as well as deferred federal and state income tax expense. The effective tax rate for the three months ended March 31, 2025, was a benefit of 26.9 % , compared to a benefit of 21.4 % for the three months ended March 31, 2024. 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. 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. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-not to sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company currently is not under examination in any jurisdictions. Note 13. Net Loss Per Share The following table sets forth the computation of our basic and diluted net loss per share: ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ March 31, (In thousands, except share and per share data) 2025 2024 Net loss $ ( 2,974 ) ​ $ ( 2,209 ) Weighted-average shares outstanding ​ 23,710,643 ​ ​ 23,665,829 Weighted-average shares used to compute diluted net loss per share ​ 23,710,643 ​ ​ 23,665,829 Net loss per share - Basic $ ( 0.13 ) ​ $ ( 0.09 ) Net loss per share - Diluted $ ( 0.13 ) ​ $ ( 0.09 ) ​ 21 Table of Contents The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive: ​ ​ ​ ​ ​ ​ Three Months Ended ​ March 31, ​ 2025 2024 Restricted stock units 811,503 ​ 813,602 Common stock options 374,398 ​ 422,757 Performance stock units 286,821 ​ 320,049 Employee stock purchase plan 72,280 ​ 84,891 Total 1,545,002 ​ 1,641,299 ​ Note 14. 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). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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. ​ ​ ​ ​ ​ 22 Table of Contents