10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37799

Tactile Systems Technology, Inc.

(Exact name of registrant as specified in its charter)

Delaware	3701 Wayzata Blvd, Suite 300	41-1801204
(State or other jurisdiction of incorporation or organization)	Minneapolis, Minnesota 55416	(I.R.S. Employer Identification No.)
	(Address and zip code of principal executive offices)
	(612) 355-5100
	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.001 Per Share	TCMD	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑  No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑  No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	◻	Non-accelerated filer	◻
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☑

19,782,295 shares of common stock, par value $0.001 per share, were outstanding as of July 29, 2021.

TABLE OF CONTENTS

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35

2

Forward-Looking Information

All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition, are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "target," "ongoing," "plan," "potential," "predict," "project," "should," "will," "would," or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report on Form 10-Q. These risks, uncertainties and other factors include, but are not limited to:

● the impacts of the COVID-19 pandemic on our business, financial condition and results of operations, and our inability to mitigate such impacts;

● the adequacy of our liquidity to pursue our business objectives;

● our ability to obtain reimbursement from third-party payers for our products;

● loss or retirement of key executives, including prior to identifying a successor;

● adverse economic conditions or intense competition;

● loss of a key supplier;

● entry of new competitors and products;

● adverse federal, state and local government regulation;

● technological obsolescence of our products;

● technical problems with our research and products;

● our ability to expand our business through strategic acquisitions;

● our ability to integrate acquisitions and related businesses;

● price increases for supplies and components;

● the effects of current and future U.S. and foreign trade policy and tariff actions; and

● the inability to carry out research, development and commercialization plans.

You should read the matters described in "Risk Factors" and the other cautionary statements made in our Annual Report on Form 10-K for the year ended December 31, 2020, and in this Quarterly Report on Form 10-Q. We cannot assure you that the forward-looking statements in this report will prove to be accurate and therefore you are encouraged not to place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. You are urged to carefully review and consider the various disclosures made by us in this report and in other filings with the Securities and Exchange Commission (the “SEC”) that advise of the risks and factors that may affect our business. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.

3

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Tactile Systems Technology, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
	June 30,		December 31,
(In thousands, except share and per share data)	2021		2020
Assets
Current assets
Cash and cash equivalents	$	49,007	$	47,855
Accounts receivable		42,629		43,849
Net investment in leases		11,741		10,708
Inventories		21,153		18,563
Prepaid expenses and other current assets		2,092		2,638
Total current assets		126,622		123,613
Non-current assets
Property and equipment, net		6,399		6,957
Right of use operating lease assets		19,138		20,132
Intangible assets, net		1,702		1,680
Accounts receivable, non-current		11,874		9,433
Deferred income taxes		13,779		10,198
Other non-current assets		2,118		2,074
Total non-current assets		55,010		50,474
Total assets	$	181,632	$	174,087
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	5,060	$	4,197
Accrued payroll and related taxes		10,303		11,588
Accrued expenses		4,010		4,423
Income taxes payable		1,530		2,658
Operating lease liabilities		2,024		2,006
Other current liabilities		3,716		1,842
Total current liabilities		26,643		26,714
Non-current liabilities
Accrued warranty reserve, non-current		3,450		3,235
Income taxes payable, non-current		348		—
Operating lease liabilities, non-current		18,475		19,388
Total non-current liabilities		22,273		22,623
Total liabilities		48,916		49,337
Commitments and Contingencies (see Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of June 30, 2021 and December 31, 2020		—		—
Common stock, $0.001 par value, 300,000,000 shares authorized; 19,782,295 shares issued and outstanding as of June 30, 2021; 19,492,718 shares issued and outstanding as of December 31, 2020		20		19
Additional paid-in capital		113,601		104,675
Retained earnings		19,095		20,056
Total stockholders’ equity		132,716		124,750
Total liabilities and stockholders’ equity	$	181,632	$	174,087

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except share and per share data)	2021		2020		2021		2020
Revenue
Sales revenue	$	43,630	$	29,518	$	79,755	$	67,141
Rental revenue		7,430		5,602		14,077		11,654
Total revenue		51,060		35,120		93,832		78,795
Cost of revenue
Cost of sales revenue		12,638		8,388		23,329		19,310
Cost of rental revenue		2,217		1,820		4,068		3,500
Total cost of revenue		14,855		10,208		27,397		22,810
Gross profit
Gross profit - sales revenue		30,992		21,130		56,426		47,831
Gross profit - rental revenue		5,213		3,782		10,009		8,154
Gross profit		36,205		24,912		66,435		55,985
Operating expenses
Sales and marketing		20,933		17,398		39,718		40,368
Research and development		1,206		1,105		2,476		2,789
Reimbursement, general and administrative		14,142		14,372		28,401		25,242
Total operating expenses		36,281		32,875		70,595		68,399
Loss from operations		(76)		(7,963)		(4,160)		(12,414)
Other (expense) income		(24)		36		(34)		302
Loss before income taxes		(100)		(7,927)		(4,194)		(12,112)
Income tax (benefit) expense		(1,405)		5,923		(3,233)		3,045
Net income (loss)	$	1,305	$	(13,850)	$	(961)	$	(15,157)
Net income (loss) per common share
Basic	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)
Diluted	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)
Weighted-average common shares used to compute net income (loss) per common share
Basic		19,691,156		19,337,644		19,618,759		19,255,612
Diluted		20,047,277		19,337,644		19,618,759		19,255,612

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Net income (loss)	$	1,305	$	(13,850)	$	(961)	$	(15,157)
Other comprehensive income (loss):
Unrealized loss on marketable securities		—		(36)		—		(7)
Income tax related to items of other comprehensive loss		—		27		—		10
Total other comprehensive income (loss)		—		(9)		—		3
Comprehensive income (loss)	$	1,305	$	(13,859)	$	(961)	$	(15,154)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
(In thousands, except share data)	Shares	Par Value		Capital		Earnings		(Loss) Income		Total
Balances, March 31, 2021	19,639,113	$	20	$	107,312	$	17,790	$	—	$	125,122
Stock-based compensation	—		—		2,658		—		—		2,658
Exercise of common stock options and vesting of performance and restricted stock units	101,088		—		2,089		—		—		2,089
Common shares issued for employee stock purchase plan	42,094		—		1,542		—		—		1,542
Comprehensive income for the period	—		—		—		1,305		—		1,305
Balances, June 30, 2021	19,782,295	$	20	$	113,601	$	19,095	$	—	$	132,716
Balances, December 31, 2020	19,492,718	$	19	$	104,675	$	20,056	$	—	$	124,750
Stock-based compensation	—		—		5,115		—		—		5,115
Exercise of common stock options and vesting of performance and restricted stock units	268,463		1		3,384		—		—		3,385
Taxes paid for net share settlement of performance and restricted stock units	(20,980)		—		(1,115)		—		—		(1,115)
Common shares issued for employee stock purchase plan	42,094		—		1,542		—		—		1,542
Comprehensive loss for the period	—		—		—		(961)		—		(961)
Balances, June 30, 2021	19,782,295	$	20	$	113,601	$	19,095	$	—	$	132,716
Balances, March 31, 2020	19,226,665	$	19	$	93,614	$	19,369	$	38	$	113,040
Stock-based compensation	—		—		2,396		—		—		2,396
Exercise of common stock options and vesting of performance and restricted stock units	148,898		—		376		—		—		376
Taxes paid for net share settlement of performance and restricted stock units	(7,812)		—		(393)		—		—		(393)
Common shares issued for employee stock purchase plan	43,653		—		1,825		—		—		1,825
Comprehensive loss for the period	—		—		—		(13,850)		(9)		(13,859)
Balances, June 30, 2020	19,411,404	$	19	$	97,818	$	5,519	$	29	$	103,385
Balances, December 31, 2019	19,152,715	$	19	$	91,874	$	20,676	$	26	$	112,595
Stock-based compensation	—		—		5,124		—		—		5,124
Exercise of common stock options and vesting of performance and restricted stock units	245,084		—		548		—		—		548
Taxes paid for net share settlement of performance and restricted stock units	(30,048)		—		(1,553)		—		—		(1,553)
Common shares issued for employee stock purchase plan	43,653		—		1,825		—		—		1,825
Comprehensive loss for the period	—		—		—		(15,157)		3		(15,154)
Balances, June 30, 2020	19,411,404	$	19	$	97,818	$	5,519	$	29	$	103,385

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
	Six Months Ended June 30,
(In thousands)	2021		2020
Cash flows from operating activities
Net loss	$	(961)	$	(15,157)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,287		1,450
Net amortization of premiums and discounts on securities available-for-sale		—		(89)
Deferred income taxes		(3,581)		4,282
Stock-based compensation expense		5,115		5,124
Gain on other investments and maturities of marketable securities		—		40
Impairment losses		—		4,025
Changes in assets and liabilities:
Accounts receivable		1,220		2,892
Net investment in leases		(1,033)		(542)
Inventories		(2,590)		(5,945)
Income taxes		(780)		(1,646)
Prepaid expenses and other assets		502		(317)
Right of use operating lease assets		99		135
Medicare accounts receivable, non-current		(2,441)		(1,697)
Accounts payable		855		1,602
Accrued payroll and related taxes		(1,285)		(3,127)
Accrued expenses and other liabilities		1,676		990
Net cash used in operating activities		(1,917)		(7,980)
Cash flows from investing activities
Proceeds from maturities of securities available-for-sale		—		16,500
Purchases of property and equipment		(603)		(660)
Intangible assets costs		(140)		(109)
Net cash (used in) provided by investing activities		(743)		15,731
Cash flows from financing activities
Taxes paid for net share settlement of performance and restricted stock units		(1,115)		(1,553)
Proceeds from exercise of common stock options		3,385		548
Proceeds from the issuance of common stock from the employee stock purchase plan		1,542		1,825
Net cash provided by financing activities		3,812		820
Net increase in cash and cash equivalents		1,152		8,571
Cash and cash equivalents – beginning of period		47,855		22,770
Cash and cash equivalents – end of period	$	49,007	$	31,341
Supplemental cash flow disclosure
Cash paid for taxes	$	1,141	$	475
Capital expenditures incurred but not yet paid	$	8	$	241

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

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,” and “our”) is the sole manufacturer and distributor of the Flexitouch® and Entre™ systems, medical devices that help control symptoms of lymphedema, a chronic and progressive medical condition. We provide our products for use in the home and sell or rent them through vascular, wound and lymphedema clinics 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. In connection with the closing of the initial public offering, all of our outstanding redeemable convertible preferred stock automatically converted to common stock on August 2, 2016.

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. Further, seasonality trends in 2021 may be significantly different than in prior years as a result of the COVID-19 pandemic and related impacts.

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 six months ended June 30, 2021, are not necessarily indicative of results to be expected for the year ending December 31, 2021, 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 statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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.

9

Risks and Uncertainties

Coronavirus (COVID-19)

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during 2020 and the first quarter of 2021. While we saw some level of recovery in the second quarter of 2021, there are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have.  For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time. Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients.

We cannot assure you that these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business. We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.

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.

Comprehensive Income (Loss)

Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income (loss) represents net income (loss) adjusted for unrealized gains and losses on available-for-sale marketable securities and the related taxes.

Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies

There were no material changes in our significant accounting policies during the six months ended June 30, 2021. 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, 2020, for information regarding our significant accounting policies.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects of the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted ASU 2019-12 as of January 1, 2021, and it did not have an impact on the condensed consolidated financial statements.

Note 4. Marketable Securities

There were no investments in marketable securities at June 30, 2021 and December 31, 2020.

10

There were no net pre-tax unrealized gains for marketable securities at June 30, 2021. There were no sales of marketable securities during the six months ended June 30, 2021.

There were no marketable securities in an unrealized loss position at June 30, 2021 and December 31, 2020.

Note 5. Inventories

Inventories consisted of the following:

(In thousands)	At June 30, 2021		At December 31, 2020
Finished goods	$	9,582	$	7,129
Component parts and work-in-process		11,571		11,434
Total inventories	$	21,153	$	18,563

Note 6. Intangible Assets

Our patents and other intangible assets are summarized as follows:

	Weighted-	At June 30, 2021
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Patents	11 years	$	489	$	85	$	404
Defensive intangible assets	4 years		1,125		506		619
Customer accounts	2 years		125		76		49
Total amortizable intangible assets			1,739		667		1,072
Patents pending			630		—		630
Total intangible assets		$	2,369	$	667	$	1,702

	Weighted-	At December 31, 2020
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Patents	11 years	$	413	$	65	$	348
Defensive intangible assets	4 years		1,125		421		704
Customer accounts	2 years		125		63		62
Total amortizable intangible assets			1,663		549		1,114
Patents pending			566		—		566
Total intangible assets		$	2,229	$	549	$	1,680

Amortization expense was $0.1 million for each of the three months ended June 30, 2021 and 2020, and $0.1 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively. Future amortization expenses are expected as follows:

(In thousands)
2021 (July 1 - December 31)	$	120
2022		240
2023		209
2024		188
2025		98
Thereafter		217
Total	$	1,072

11

Note 7. Accrued Expenses

Accrued expenses consisted of the following:

(In thousands)	At June 30, 2021		At December 31, 2020
Warranty	$	1,667	$	1,606
Legal and consulting		676		882
In-transit inventory		686		634
Travel		459		545
Sales and use tax		122		193
Clinical studies		72		67
Other		328		496
Total	$	4,010	$	4,423

Note 8. 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				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Beginning balance	$	4,869	$	4,242	$	4,841	$	3,759
Warranty provision		844		372		1,456		1,277
Processed warranty claims		(596)		(406)		(1,180)		(828)
Ending balance	$	5,117	$	4,208	$	5,117	$	4,208
Accrued warranty reserve, current	$	1,667	$	1,347	$	1,667	$	1,347
Accrued warranty reserve, non-current		3,450		2,861		3,450		2,861
Total accrued warranty reserve	$	5,117	$	4,208	$	5,117	$	4,208

Note 9. Credit Agreement

On August 3, 2018, we entered into a credit agreement with Wells Fargo Bank, National Association, which was amended by a First Amendment dated February 12, 2019, a Waiver and Second Amendment dated March 25, 2019, and a Third Amendment dated August 2, 2019 (collectively, the “2018 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, which expires on April 30, 2024. The Restated Credit Agreement amended and restated in its entirety the 2018 Credit Agreement.

The Restated Credit Agreement provides for a $25 million revolving credit facility, with the ability to increase the amount of the revolving loans available and/or add one or more term loan facilities not to exceed an incremental $30 million in the aggregate, subject to satisfaction of certain conditions. As of June 30, 2021, and the date on which we filed this report, we did not have any outstanding borrowings under the Restated Credit Agreement.  

Our obligations under the Restated Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets and are also guaranteed by our subsidiaries. The Restated Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio and a minimum liquidity covenant. As of June 30, 2021, we were in compliance with all financial covenants under the Restated Credit Agreement.

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Note 10. 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 Condensed Consolidated Balance Sheet.

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 Condensed Consolidated Balance Sheet, with rent expense to be recognized on a straight-line basis over the term of the lease. The remaining lease terms vary from approximately one to ten years as of June 30, 2021.

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. This portion was recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets. The portion of the space covered under the second lease commenced on September 1, 2020. Finally, the portion of the space covered under the third lease is expected to be occupied and commence in the second half of 2021.

Vehicles

We lease vehicles for certain members of our field sales organization under a vehicle fleet program whereby the initial, noncancelable lease is for a term of 367 days, thus more than one year. Subsequent to the initial term, the lease becomes a month-to-month, cancelable lease. As of June 30, 2021, we had approximately 55 vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities. In addition to monthly rental fees specific to the vehicle, there are fixed monthly nonlease components that have been included in the ROU operating lease assets and operating lease liabilities. The nonlease components are not significant.

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Computer and Office Equipment

We also have operating lease agreements for certain computer and office equipment. The remaining lease terms as of June 30, 2021, ranged from less than one year to approximately five 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 June 30, 2021		At December 31, 2020
Right of use operating lease assets	$	19,138	$	20,132
Operating lease liabilities:
Current	$	2,024	$	2,006
Non-current		18,475		19,388
Total	$	20,499	$	21,394
Operating leases:
Weighted average remaining lease term		8.9 years		9.4 years
Weighted average discount rate		4.4%		4.4%
	Six Months Ended June 30,
	2021		2020
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	1,567	$	1,148
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	304	$	686

The table below reconciles the undiscounted cash flows under the operating lease liabilities recorded on the Condensed Consolidated Balance Sheet for the periods presented:

(In thousands)
2021 (July 1 - December 31)	$	1,507
2022		2,661
2023		2,615
2024		2,582
2025		2,660
Thereafter		12,692
Total minimum lease payments		24,717
Less: Amount of lease payments representing interest		(4,218)
Present value of future minimum lease payments		20,499
Less: Current obligations under operating lease liabilities		(2,024)
Non-current obligations under operating lease liabilities	$	18,475

As of June 30, 2021, we have additional lease commitments of $7.6 million related to amendments to existing building leases that have not yet commenced. As the lessee we are involved in providing guidance to the lessor for related improvements, however these improvements are managed and owned by the lessor.

Operating lease costs were $0.8 million and $0.7 million for the three months ended June 30, 2021 and 2020, respectively. Operating lease costs were $1.7 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively.

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Major Vendors

We had purchases from two vendors that accounted for 33% of our total purchases for each of the three and six months ended June 30, 2021. We had purchases from two vendors that accounted for 33% and 32% of our total purchases for the three and six months ended June 30, 2020, respectively.

Purchase Commitments

We issued purchase orders prior to June 30, 2021, totaling $19.8 million for goods that we expect to receive within the next year.

Retirement Plan

We maintain a 401(k) retirement plan for our employees 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 $0.3 million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $0.6 million and $0.1 million for the six months ended June 30, 2021 and 2020, 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 February 13, 2019, we were served with a sealed amended complaint venued in the United States District Court for the Southern District of Texas, Houston Division, captioned United States ex rel Veterans First Medical Supply, LLC vs. Tactile Medical Systems Technology, Inc., Case No. 18-2871, which had been filed on January 23, 2019. The complaint is a qui tam action on behalf of the United States brought by one of our competitors. The United States has declined to intervene in this action. The complaint alleges that we violated the Federal Anti-Kickback Statute and the Federal False Claims Act, claiming that we submitted false claims and made false statements in connection with the Medicare and Medicaid programs, and that we engaged in unlawful retaliation in violation of the Federal False Claims Act. The complaint seeks damages, statutory penalties, attorneys’ fees, treble damages and costs. We filed a motion to dismiss on April 5, 2019. This motion was denied on February 21, 2020. On March 6, 2020, we filed our answer to the complaint and asserted counterclaims. On May 7, 2020, the plaintiff filed a motion to dismiss our counterclaims. On September 8, 2020, we filed a motion for Partial Summary Judgment. On January 2, 2021, the plaintiff filed a motion for Partial Summary Judgment. These motions were decided on March 29, 2021, wherein the court denied plaintiff’s motion to dismiss our counterclaims; granted our motion for Partial Summary Judgment and dismissed Counts I (standalone/direct violation of the Federal Anti-Kickback Statute) and III (violation of the retaliation provision of the Federal False Claims Act) of the complaint; and denied plaintiff’s motion for Partial Summary Judgment.  As a result, the remaining allegations consist of those in Count II (violations of the Federal False Claims Act) of the complaint. We believe the plaintiff’s remaining allegations are without merit and we intend to continue to vigorously defend against the lawsuit.

We and certain of our present or former officers were sued in a purported securities class action lawsuit that was filed in the United States District Court for the District of Minnesota on September 29, 2020, and that is pending under the caption Brian Mart v. Tactile Systems Technology, Inc., et al., File No. 0:20-cv-02074-NEB-BRT. On April 19, 2021, the plaintiff filed an Amended Complaint against us and eight of our present and former officers and directors. Plaintiff seeks to represent a class consisting of investors who purchased our common stock in the market during the time period from May 7, 2018 through June 8, 2020 (“alleged class period”). The Amended Complaint alleges the following claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”): (1) that we and certain officer defendants made materially false or misleading public statements about our business, operational and compliance policies, and results during the alleged class period in violation of Section 10(b) of the Exchange Act; (2) that we and the individual defendants engaged in a scheme to defraud investors  in order to allow the individual defendants to sell our stock in violation of Section 10(b) of the Exchange Act; (3) that the individual defendants engaged in improper insider trading of our stock in violation of Section 20A of the Exchange Act; and (4) that we and the individual defendants are liable under

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Section 20(a) of the Exchange Act because each defendant is a controlling person. On June 18, 2021, we and the individual defendants filed a motion to dismiss the Amended Complaint. The motion has not been decided yet.

Note 11. Stockholders' Equity

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, 972,591 and 952,697 shares were added as available for issuance thereunder on January 1, 2021 and 2020, respectively. As of June 30, 2021, 6,358,084 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.

In the second fiscal quarter of 2020, our Board of Directors appointed a new President and Chief Executive Officer (“CEO”), effective June 8, 2020. In conjunction with the acceptance of the written offer, our CEO received both restricted stock units and stock option awards under our 2016 Plan during the third fiscal quarter of 2020 and the stock options have a seven year term. A portion of the awards vested on June 30, 2021, with the remaining portion of the awards vesting over a period of three years from the date of grant. Further, the stock options were valued at the date of grant using the Monte Carlo Simulation model due to a market condition that required that our stock price exceed $40.15 for 20 consecutive trading days during the term of the option in order to vest. This condition was satisfied in the first quarter of 2021.

We recorded stock-based compensation expense of $2.7 million and $2.4 million for the three months ended June 30, 2021 and 2020, respectively, and $5.1 million for each of the six months ended June 30, 2021 and 2020. This expense was allocated as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Cost of revenue	$	173	$	105	$	284	$	187
Sales and marketing expenses		920		1,233		1,898		2,479
Research and development expenses		59		94		156		182
Reimbursement, general and administrative expenses		1,506		964		2,777		2,276
Total stock-based compensation expense	$	2,658	$	2,396	$	5,115	$	5,124

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 $1.1 million and $1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $2.3 million and $1.8 million for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021, there was approximately $7.3 million

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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 2.0 years.

Our stock option activity for the six months ended June 30, 2021, 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, 2020	1,039,709	$	36.43	5.6 years	$	13,381
Granted	149,366	$	51.88
Exercised	(130,390)	$	25.95		$	3,694
Forfeited	(52,693)	$	48.97
Cancelled/Expired	(7,362)	$	49.14
Balance at June 30, 2021	998,630	$	39.36	5.4 years	$	14,399
Options exercisable at June 30, 2021	509,575	$	31.20	4.6 years	$	11,814

(1) The exercise price of each option granted during the period 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 438,283 as of June 30, 2020, had a weighted-average exercise price of $21.86 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 $1.2 million and $1.4 million for the three months ended June 30, 2021 and 2020, respectively, and $2.5 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021, there was approximately $7.5 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 2.0 years.

Our time-based restricted stock unit activity for the six months ended June 30, 2021, 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, 2020	211,469	$	48.29	$	9,503
Granted	82,657	$	52.22
Vested	(86,347)	$	48.00
Cancelled	(21,391)	$	52.17
Balance at June 30, 2021	186,388	$	49.72	$	9,692
Deferred and unissued at June 30, 2021(2)	6,469	$	38.94	$	336

(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.

(2) For the six months ended June 30, 2021, there were no restricted stock units granted to non-employee directors in lieu of their quarterly cash retainer payments. As of June 30, 2021, there were 6,469 outstanding restricted stock units that had been previously granted to non-employee directors in lieu of their quarterly cash retainer payments.

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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 2018 were earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2019. The PSUs granted in 2019 would have been earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2020, but none were so earned. The PSUs granted in 2020 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2021. The PSUs granted in 2021 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2022. The number of PSUs earned will depend on the level at which the performance targets are achieved and can range from 50% of target if the minimum performance threshold 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.

Stock-based compensation expense recognized for PSUs was an expense of $0.2 million and a benefit of $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and a benefit of $0.1 million and an expense of $0.1 million for the six months ended June 30, 2021 and 2020, respectively. The stock-based compensation benefit for the six months ended June 30, 2021 reflected a $0.5 million benefit due to a change in the estimated payout associated with PSUs granted in 2020 being below the minimum performance target threshold level, as defined, partially offset by an expense of $0.4 million related to the PSUs granted in 2018 and 2021. At June 30, 2021, there was approximately $1.7 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.7 years.

Our performance-based restricted stock unit activity for the six months ended June 30, 2021, was as follows:

	Performance-	Weighted-
	Based	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, 2020	79,303	$	47.83	$	3,564
Granted	39,419	$	51.82
Vested	(34,159)	$	33.98
Cancelled	(23,936)	$	65.43
Balance at June 30, 2021	60,627	$	51.28	$	3,153

(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 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, 194,518 and

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190,539 shares were added as available for issuance thereunder on January 1, 2021 and 2020, respectively. As of June 30, 2021, 1,740,328 shares were available for future issuance under the ESPP. We recognized stock-based compensation expense associated with the ESPP of $0.2 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and $0.4 million and $0.6 million for the six months ended June 30, 2021 and 2020, respectively.

Note 12. Revenue

We derive our revenue from the sale and rental of our compression products to our customers in the United States. The following table presents our revenue, inclusive of sales and rental revenue, disaggregated by product categories:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Revenue
Flexitouch system	$	45,093	$	31,127	$	82,530	$	69,713
Other products(1)		5,967		3,993		11,302		9,082
Total	$	51,060	$	35,120	$	93,832	$	78,795
Percentage of total revenue
Flexitouch system		88%		89%		88%		88%
Other products(1)		12%		11%		12%		12%
Total		100%		100%		100%		100%

(1) The “other products” line primarily includes revenue from our Entre system. The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for each of the three and six months ended June 30, 2021 and 2020.

Our revenue from third-party payers, inclusive of sales and rental revenue, for the three and six months ended June 30, 2021 and 2020, are summarized in the following table:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Private insurers and other payers	$	35,348	$	25,668	$	63,631	$	55,905
Veterans Administration		7,322		4,322		13,168		11,380
Medicare		8,390		5,130		17,033		11,510
Total	$	51,060	$	35,120	$	93,832	$	78,795

Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months. Under ASC 840 (the previous guidance for lease accounting), our rental revenue was recognized as month-to-month, cancelable leases; however, because 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 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 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

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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.

Rental revenue for the three and six months ended June 30, 2021 and 2020, was primarily from private insurers. Sales-type lease revenue and the associated cost of revenue for the three and six months ended June 30, 2021 and 2020, was:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Sales-type lease revenue	$	7,430	$	5,602	$	14,077	$	11,654
Cost of sales-type lease revenue		2,217		1,820		4,068		3,500
Gross profit	$	5,213	$	3,782	$	10,009	$	8,154

Note 13. 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 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 included 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 June 30, 2021, was a benefit of 1,405%, compared to an expense of 75% for the three months ended June 30, 2020. The primary driver of the change in our effective tax rate is attributable to recording a benefit in the three months ended June 30, 2021, to recognize a tax credit for a research and development credit study conducted for tax years 2017-2020. We recorded an income tax benefit of $1.4 million and an expense of $5.9 million for the three months ended June 30, 2021 and 2020, respectively.

The effective tax rate for the six months ended June 30, 2021, was a benefit of 77%, compared to an expense of 25% for the six months ended June 30, 2020. The primary driver of the change in our effective tax rate is attributable to recording a benefit in the six months ended June 30, 2021, to recognize a tax credit for a research and development credit study conducted for tax years 2017-2020. We recorded an income tax benefit of $3.2 million and an expense of $3.0 million for the six months ended June 30, 2021 and 2020, 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. As of June 30, 2021, tax contingencies related to federal and state credits recorded within the Condensed Consolidated Balance Sheets were $0.5 million. Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies. The timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued.

We are currently under examination by the New York Department of Taxation and Finance for tax years 2017, 2018, and 2019. The examination may lead to proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods. 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 statement of operations.

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Note 14. Net Income (Loss) Per Share

The following table sets forth the computation of our basic and diluted net income (loss) per share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except share and per share data)	2021		2020		2021		2020
Net income (loss)	$	1,305	$	(13,850)	$	(961)	$	(15,157)
Weighted-average shares outstanding		19,691,156		19,337,644		19,618,759		19,255,612
Dilutive effect of stock-based awards		356,121		—		—		—
Weighted-average shares used to compute diluted net income (loss) per share		20,047,277		19,337,644		19,618,759		19,255,612
Net income (loss) per share - Basic	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)
Net income (loss) per share - Diluted	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)

The following common stock equivalents were excluded from the computation of diluted net income (loss) per share for the periods presented because including them would have been anti-dilutive:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2021	2020	2021	2020
Restricted stock units	17,287	217,137	192,857	217,137
Common stock options	433,447	946,936	998,630	946,936
Performance stock units	—	116,295	60,627	116,295
Employee stock purchase plan	33,743	50,027	33,888	46,706
Total	484,477	1,330,395	1,286,002	1,327,074

Note 15. 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 following provides information regarding fair value measurements for our cash equivalents as of June 30, 2021, and December 31, 2020, according to the three-level fair value hierarchy:

	At June 30, 2021
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Money market mutual funds	$	16,190	$	—	$	—	$	16,190
Total	$	16,190	$	—	$	—	$	16,190

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	At December 31, 2020
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Money market mutual funds	$	16,188	$	—	$	—	$	16,188
Total	$	16,188	$	—	$	—	$	16,188

During the three and six months ended June 30, 2021, there were no transfers within the three-level hierarchy. A significant transfer is recognized when the inputs used to value a security have been changed, which merits a transfer between the disclosed levels of the valuation hierarchy.

The fair value of our money market mutual funds is determined based on valuations provided by external investment managers who obtain them from a variety of industry standard data providers.

The carrying amounts of financial instruments such as cash equivalents, accounts receivable, other assets, accounts payable, accrued expenses and other liabilities approximate their related fair values due to the short-term maturities of these items. 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. As of June 30, 2020, we re-measured the value of our intangible assets related to the Airwear wrap product line to their fair value, which was deemed to be $0.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Coronavirus (COVID-19)

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during 2020 and the first quarter of 2021. While we saw some level of recovery in the second quarter of 2021, there are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have. For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time.

Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients. For a detailed listing of the changes to our business practices since the onset of the pandemic, refer to previous reports filed with the Securities and Exchange Commission. Continued modifications to our business include, but are not limited to:

● Incorporating remote and flexible work arrangements for employees whenever possible, including real-time, online training of our new sales representatives. In addition, we are actively developing our long-term in-office and remote work strategy with the goal of launching it in the second half of 2021.

● Eliminating employee travel restrictions in alignment with the opening of healthcare facilities and clinics while also continuing to maintain social distancing contact restrictions to reduce exposure.

● Utilizing a mix of employee trainers and independent healthcare practitioners to educate patients on the proper use of our solutions virtually or in-person.

● Continuing to host large virtual medical education programs, while also beginning to schedule smaller in-person meetings.

● Supporting clinicians and patients by using rigorous infection control practices when in-person visits are required.

We cannot assure you that these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business. We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients. Additional information related to the COVID-19 pandemic is included in the MD&A sections below.

Overview

We are a medical technology company that develops and provides innovative medical devices for the treatment of 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 chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures. Our initial area of therapeutic focus is vascular disease, with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency. 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 policy-makers 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.

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Our current products are the Flexitouch system and Entre system. A predecessor to our Flexitouch system received 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) in July 2002, and we introduced the system to address the many limitations of self-administered home-based manual lymphatic drainage therapy. We began selling our more advanced Flexitouch system after receiving 510(k) clearance from the FDA in October 2006. In September 2016, we received 510(k) clearance from the FDA for the Flexitouch system in treating lymphedema of the head and neck. In June 2017, we announced that we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system. In December  2020, we received 510(k) clearance for two new indications for our Flexitouch Plus system: phlebolymphedema and lipedema. We derive the vast majority of our revenue from our Flexitouch system. Sales and rentals of our Flexitouch system represented 88% of our revenue in each of the six months ended June 30, 2021 and 2020.

We introduced our Entre system in the United States in February 2013. The Entre 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 system. For each of the six months ended June 30, 2021 and 2020, sales and rentals of our Entre system represented 12% of our revenue.

In October 2018, we licensed, from Sun Scientific, Inc., the intellectual property rights related to the Airwear Gradient Compression Wrap, or the Airwear wrap, in the United States and Canada, for use in all medical applications, including but not limited to swelling/edema and ulcers (including lymphedema and chronic venous insufficiency conditions), but excluding the use of the intellectual property in the field of prophylaxis for deep vein thrombosis. In the second quarter of 2020, we reevaluated the Airwear wrap go-to market plan, and determined to focus our strategy on more advanced solutions within our core, long-standing Flexitouch and Entre franchises. Accordingly, we made the strategic decision to discontinue the Airwear wrap in the second quarter of 2020. Due to the planned discontinuation of the product line, we recorded a $4.0 million non-cash impairment charge to fully write-off the inventory and long-lived assets of the Airwear wrap in the quarter ended June 30, 2020. Further, effective July 31, 2020, Sun Scientific, Inc. terminated the license agreement with us related to the Airwear wrap. See Note 8 - “Intangible Assets” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information regarding this impairment charge and discontinuation.

To support the growth of our business, we invest heavily in our commercial infrastructure, consisting of our direct sales force, training resources, reimbursement capabilities and clinical expertise. We market our products in the United States using a direct-to-patient and -provider model. Our field commercial team consists of our direct sales force and a team of Field Support Specialists. Our collective field commercial team has grown to over 300 employees as of June 30, 2021, compared to 285 employees as of December 31, 2020. This model allows us to directly approach patients and clinicians, whereby we disintermediate the traditional durable medical equipment channel, allowing us to capture both the manufacturer and distributor margins.

As it relates to the impact of COVID-19 on our commercial processes in the first half of 2021, we continued to see restrictions loosen, in line with the applicable governmental regulations. As a result, we continue to expand our interactions with clinicians and patients on an in-person basis, where possible, while continuing to engage in virtual interactions as requested. We expect these virtual interactions with clinicians and patients to continue into the future until the pandemic subsides, and perhaps as a best practice in the future. To that end, we plan to continue to work towards expanding our commercial organization throughout 2021 by adding to our overall commercial team.  

We invest substantial resources 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. Since the onset of COVID-19, our reimbursement function has been actively working with Medicare and a broad base of private payers to understand the ever-changing reimbursement criteria being introduced. We have seen increased flexibility in coverage criteria with select payers in which they now allow the use of virtual patient interactions in place of the previously required in-person interactions. However, as these circumstances are

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ever-changing, the extent to which these changes will remain in place and the impact on our business in the future are not determinable at this time.

We also have a clinical team, consisting of a scientific advisory board, in-house therapists and nurses, and a Chief Medical Officer (part-time), that serves as a resource to clinicians and patients and guides the development of clinical evidence in support of our products. Most clinical studies require observation and interaction with clinicians and patients to monitor results and progress. Given the impact of COVID-19, patient recruitment for our clinical studies involving our products and clinical outcomes had previously been suspended in 2020. However, in the first half of 2021, approximately half of our clinical trial sites had resumed research activities as the healthcare provider staff are being reallocated from COVID-19 response teams or furloughs back to research activities. Study visits and new patient enrollments are gradually resuming, albeit more slowly than targeted enrollment rates.

We rely on third party contract manufacturers for the sourcing of parts, the assembly of our controllers and the manufacturing of the garments used with our systems. We conduct final assembly of the garments used with our Flexitouch system, perform quality assurance and ship our products from our facility in Minneapolis, Minnesota.

To date, our supply chain has not been materially impacted by COVID-19.  We continue to receive our product on time and believe that we have enough safety stock to meet our short and mid-term demand. However, we cannot assure you that our supply chain will not be materially impacted in the future.

For the three months ended June 30, 2021, we generated revenue of $51.1 million and had net income of $1.3 million, compared to revenue of $35.1 million and a net loss of $13.9 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, we generated revenue of $93.8 million and had a net loss of $1.0 million, compared to revenue of $78.8 million and a net loss of $15.2 million for the six months ended June 30, 2020. Our primary sources of capital since inception have been from operating income, private placements of our capital stock and capital raised in our initial public offering, which closed on August 2, 2016.

We operate in one segment for financial reporting purposes.

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

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

	Three Months Ended
	June 30,								Change
(In thousands)	2021				2020				$		%
Condensed Consolidated Statement			% of				% of
of Operations Data:			revenue				revenue
Revenue
Sales revenue	$	43,630	85	%	$	29,518	84	%	$	14,112	48	%
Rental revenue		7,430	15	%		5,602	16	%		1,828	33	%
Total revenue		51,060	100	%		35,120	100	%		15,940	45	%
Cost of revenue
Cost of sales revenue		12,638	25	%		8,388	24	%		4,250	51	%
Cost of rental revenue		2,217	4	%		1,820	5	%		397	22	%
Total cost of revenue		14,855	29	%		10,208	29	%		4,647	46	%
Gross profit
Gross profit - sales revenue		30,992	60	%		21,130	60	%		9,862	47	%
Gross profit - rental revenue		5,213	11	%		3,782	11	%		1,431	38	%
Gross profit		36,205	71	%		24,912	71	%		11,293	45	%
Operating expenses
Sales and marketing		20,933	41	%		17,398	50	%		3,535	20	%
Research and development		1,206	2	%		1,105	3	%		101	9	%
Reimbursement, general and administrative		14,142	28	%		14,372	41	%		(230)	(2)	%
Total operating expenses		36,281	71	%		32,875	94	%		3,406	10	%
Loss from operations		(76)	—	%		(7,963)	(23)	%		7,887	(99)	%
Other (expense) income		(24)	—	%		36	—	%		(60)	(167)	%
Loss before income taxes		(100)	—	%		(7,927)	(23)	%		7,827	(99)	%
Income tax (benefit) expense		(1,405)	(3)	%		5,923	17	%		(7,328)	(124)	%
Net income (loss)	$	1,305	3	%	$	(13,850)	(40)	%	$	15,155	(109)	%

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	Six Months Ended
	June 30,								Change
(In thousands)	2021				2020				$		%
Condensed Consolidated Statement			% of				% of
of Operations Data:			revenue				revenue
Revenue
Sales revenue	$	79,755	85	%	$	67,141	85	%	$	12,614	19	%
Rental revenue		14,077	15	%		11,654	15	%		2,423	21	%
Total revenue		93,832	100	%		78,795	100	%		15,037	19	%
Cost of revenue
Cost of sales revenue		23,329	25	%		19,310	25	%		4,019	21	%
Cost of rental revenue		4,068	4	%		3,500	4	%		568	16	%
Total cost of revenue		27,397	29	%		22,810	29	%		4,587	20	%
Gross profit
Gross profit - sales revenue		56,426	60	%		47,831	60	%		8,595	18	%
Gross profit - rental revenue		10,009	11	%		8,154	11	%		1,855	23	%
Gross profit		66,435	71	%		55,985	71	%		10,450	19	%
Operating expenses
Sales and marketing		39,718	42	%		40,368	51	%		(650)	(2)	%
Research and development		2,476	3	%		2,789	4	%		(313)	(11)	%
Reimbursement, general and administrative		28,401	30	%		25,242	32	%		3,159	13	%
Total operating expenses		70,595	75	%		68,399	87	%		2,196	3	%
Loss from operations		(4,160)	(4)	%		(12,414)	(16)	%		8,254	(66)	%
Other (expense) income		(34)	—	%		302	—	%		(336)	(111)	%
Loss before income taxes		(4,194)	(4)	%		(12,112)	(16)	%		7,918	(65)	%
Income tax (benefit) expense		(3,233)	(3)	%		3,045	4	%		(6,278)	N.M.	%
Net loss	$	(961)	(1)	%	$	(15,157)	(20)	%	$	14,196	(94)	%

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Revenue

Revenue increased $15.9 million, or 45%, to $51.1 million in the three months ended June 30, 2021, compared to $35.1 million in the three months ended June 30, 2020. The increase in total revenue was attributable to an increase of $14.0 million, or 45%, in sales and rentals of the Flexitouch system and an increase of $2.0 million, or 49%, in sales and rentals of the Entre system in the quarter ended June 30, 2021. Second quarter 2021 revenue benefited from the initial stages of recovery from the COVID-19 pandemic, with a portion of healthcare facilities and clinics relaxing restrictions and increasing patient throughput. The increase in second quarter revenue was further driven by improvements in salesforce productivity and effective virtual education events yielding an expanded prescriber base and an increase in Medicare patients served.

Revenue increased $15.0 million, or 19%, to $93.8 million in the six months ended June 30, 2021, compared to $78.8 million in the six months ended June 30, 2020. The increase was primarily attributable to an increase of $12.8 million, or 18%, in sales and rentals of our Flexitouch system and an increase of $2.2 million, or 24%, in sales and rentals of the Entre system for the six months ended June 30, 2021. Revenue for the six months ended June 30, 2021, benefited from the initial stages of recovery from the COVID-19 pandemic, with a portion of healthcare facilities and clinics relaxing restrictions and increasing patient throughput, as well as an expanded prescriber base.

Revenue from the Veterans Administration represented 14% and 12% of total revenue in the three months ended June 30, 2021 and 2020, respectively. Revenue from the Veterans Administration represented 14% of total revenue in each of the six months ended June 30, 2021 and 2020. Revenue from Medicare represented 16% and 15% of total revenue in the three months ended June 30, 2021 and 2020, respectively. Revenue from Medicare represented 18% and 15% of total revenue in the six months ended June 30, 2021 and 2020, respectively.

The following table summarizes our revenue by product for the three and six months ended June 30, 2021 and 2020, both in dollars and percentage of total revenue:

	Three Months Ended
	June 30,				Change
(In thousands)	2021		2020		$		%
Revenue
Flexitouch system	$	45,093	$	31,127	$	13,966	45%
Other products(1)		5,967		3,993		1,974	49%
Total	$	51,060	$	35,120	$	15,940	45%
Percentage of total revenue
Flexitouch system		88%		89%
Other products(1)		12%		11%
Total		100%		100%

(1) The “other products” line primarily includes revenue from our Entre system. The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for each of the three months ended June 30, 2021 and 2020.

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	Six Months Ended
	June 30,				Change
(In thousands)	2021		2020		$		%
Revenue
Flexitouch system	$	82,530	$	69,713	$	12,817	18%
Other products(1)		11,302		9,082		2,220	24%
Total	$	93,832	$	78,795	$	15,037	19%
Percentage of total revenues
Flexitouch system		88%		88%
Other products(1)		12%		12%
Total		100%		100%

(1) The “other products” line primarily includes revenue from our Entre system. The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for each of the six months ended June 30, 2021 and 2020.

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. Further, seasonality trends in 2021 may be significantly different than in prior years as a result of the COVID-19 pandemic and related impacts.

Cost of Revenue and Gross Margin

Cost of revenue increased $4.6 million, or 46%, to $14.9 million in the three months ended June 30, 2021, compared to $10.2 million in the three months ended June 30, 2020. Cost of revenue increased $4.6 million, or 20%, to $27.4 million in the six months ended June 30, 2021, compared to $22.8 million in the six months ended June 30, 2020. The increase in cost of revenue in both periods was primarily attributable to an increase in the number of Flexitouch and Entre systems sold and rented.

The total gross margin rate was 71% of sales in each of the three and six months ended June 30, 2021 and June 30, 2020.

Sales and Marketing Expenses

Sales and marketing expenses increased $3.5 million, or 20%, to $20.9 million in the three months ended June 30, 2021, compared to $17.4 million in the three months ended June 30, 2020. The increase was primarily attributable to a $2.1 million increase in personnel-related compensation expense as a result of the increased headcount in the commercial team, a $0.7 million increase in our external patient training expense as a result of increased in-person trainings and a $0.7 million increase in travel and entertainment expense due to eased restrictions on travel.

Sales and marketing expenses decreased $0.6 million, or 2%, to $39.7 million in the six months ended June 30, 2021, compared to $40.4 million in the six months ended June 30, 2020. The decrease was primarily attributable to a $2.0 million decrease from reduced sales meetings, tradeshows and professional services and a $0.6 reduction in external patient training expense, partially offset by a $2.0 million increase in personnel-related compensation expense as a result of the increased headcount in the commercial team.

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Research and Development Expenses

Research and development (“R&D”) expenses increased $0.1 million, or 9%, to $1.2 million in the three months ended June 30, 2021, compared to $1.1 million in the three months ended June 30, 2020, which was primarily attributable to an increase in clinical studies activity.

R&D expenses decreased $0.3 million, or 11%, to $2.5 million in the six months ended June 30, 2021, compared to $2.8 million in the six months ended June 30, 2020, which was primarily attributable to a $0.2 million decrease in professional services and a $0.1 million decrease in personnel-related compensation expense.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses decreased $0.2 million, or 2%, to $14.1 million in the three months ended June 30, 2021, compared to $14.4 million in the three months ended June 30, 2020. This decrease was primarily attributable to a $3.6 million impairment charge related to the write-off of our Airwear wrap-related long-lived assets recorded in the second quarter of 2020, partially offset by a $1.9 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions and a combined $1.4 million increase in occupancy costs, depreciation expense and legal fees, in each case in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Reimbursement, general and administrative expenses increased $3.2 million, or 13%, to $28.4 million in the six months ended June 30, 2021, compared to $25.2 million in the six months ended June 30, 2020. The increase was primarily attributable to a combined $3.5 million increase in occupancy costs, depreciation expense, legal and professional fees and a $3.3 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions, partially offset by a $3.6 million impairment charge related to the write-off of our Airwear wrap-related long-lived assets recorded in the second quarter of 2020.

Other Income (Expense), Net

Other income (expense), net was an expense of $24,000 and income of $36,000 for the three months ended June 30, 2021 and 2020, respectively, and was an expense of $34,000 and income of $0.3 million for the six months ended June 30, 2021 and 2020, respectively. Other income (expense) was primarily impacted by interest income realized on marketable securities and the gain and loss on cost method investments.

Income Taxes

We recorded an income tax benefit of $1.4 million and expense of $5.9 million for the three months ended June 30, 2021 and 2020, respectively. We recorded an income tax benefit of $3.2 million and expense of $3.0 million for the six months ended June 30, 2021 and 2020, respectively. The primary driver of these changes was a tax benefit related to a research and development credit recognized in the second quarter of 2021.

Liquidity and Capital Resources

Cash Flows

At June 30, 2021, our principal sources of liquidity were cash and cash equivalents of $49.0 million and net accounts receivable of $42.6 million, as well as the borrowing capacity available under our Restated Credit Agreement.

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

	Six Months Ended
	June 30,
(In thousands)	2021		2020
Net cash (used in) provided by:
Operating activities	$	(1,917)	$	(7,980)
Investing activities		(743)		15,731
Financing activities		3,812		820
Net increase in cash and cash equivalents	$	1,152	$	8,571

Operating Activities

Net cash used in operating activities during the six months ended June 30, 2021, was $1.9 million, resulting from a net loss of $1.0 million and a net decrease in operating assets and liabilities of $3.7 million, which was partially offset by non-cash net income (loss) adjustments of $2.8 million. The non-cash net income (loss) adjustments consisted primarily of $5.1 million of stock-based compensation expense, $3.6 million in deferred taxes and $1.3 million of depreciation and amortization expense. The uses of cash related to changes in operating assets primarily consisted of increases in inventories of $2.6 million, accounts receivable of $1.2 million, net investment in leases of $1.0 million and income taxes of $0.8 million, partially offset by a decrease in prepaid expenses and other assets of $0.5 million. The changes in operating liabilities consisted of  increases in accrued expenses of $1.7 million and accounts payable of $0.9 million, partially offset by a decrease in accrued payroll and related taxes of $1.2 million.

Net cash used in operating activities during the six months ended June 30, 2020, was $8.0 million, resulting from a net loss of $15.2 million and net decrease in operating assets and liabilities of $7.7 million, which were offset by non-cash net income adjustments of $14.8 million. The non-cash net income adjustments consisted primarily of $5.1 million of stock-based compensation expense, a $4.3 million decrease in deferred taxes, a $4.0 million impairment loss charge related to the write-off of our Airwear wrap product line, and $1.4 million of depreciation and amortization expense. The uses of cash related to changes in operating assets primarily consisted of increases in inventories of $5.9 million, income taxes of $1.6 million, net investment in leases of $0.5 million and prepaid expenses and other assets of $0.3 million, partially offset by a decrease in accounts receivable of $1.2 million. The changes in operating liabilities consisted of increases in accounts payable of $1.6 million and accrued expenses of $1.0 million, offset by a decrease in accrued payroll and related taxes of $3.1 million.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2021, was $0.7 million, consisting of purchases of property and equipment, and patent costs.

Net cash provided by investing activities during the six months ended June 30, 2020, was $15.7 million, primarily consisting of $16.5 million in proceeds from maturities of marketable securities, partially offset by $0.8 million in purchases of property and equipment and patent costs.

Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2021, was $3.8 million, consisting of $4.9 million in proceeds from exercise of common stock options and the issuance of common stock under the ESPP, partially offset by $1.1 million in taxes paid for the net share settlement of performance and restricted stock units.

Net cash provided by financing activities during the six months ended June 30, 2020, was $0.8 million, consisting of $2.4 million in proceeds from exercise of common stock options and the issuance of common stock under the ESPP, partially offset by $1.6 million in taxes paid for the net share settlement of restricted stock units.

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Credit Agreement

On August 3, 2018, we entered into a credit agreement with Wells Fargo Bank, National Association, which was amended by a First Amendment dated February 12, 2019, a Waiver and Second Amendment dated March 25, 2019, and a Third Amendment dated August 2, 2019 (collectively, the “2018 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, which expires on April 30, 2024. The Restated Credit Agreement amends and restates in its entirety the 2018 Credit Agreement.  As of June 30, 2021, and the date on which we filed this report, we did not have any outstanding borrowings under the Restated Credit Agreement.  

The Restated Credit Agreement provides for a $25 million revolving credit facility, with the ability to increase the amount of the revolving loans available and/or add one or more term loan facilities not to exceed an incremental $30 million in the aggregate, subject to satisfaction of certain conditions.

Our obligations under the Restated Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets and are also guaranteed by our subsidiaries. The Restated Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio and a minimum liquidity covenant. As of June 30, 2021, we were in compliance with all financial covenants under the Restated Credit Agreement.

Adequacy of Capital Resources

Our future capital requirements may vary significantly from those now planned and will depend on many factors, including:

● the impact of the COVID-19 pandemic on our business;

● sales and marketing resources needed to further penetrate our market;

● expansion of our operations domestically and/or internationally;

● response of competitors to our solutions and applications;

● costs associated with clinical research activities;

● costs to develop and implement new products; and

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

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

Although the impact of the COVID-19 pandemic is difficult to predict, we believe our cash, cash equivalents and cash flows from operations together with the Restated Credit Agreement will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business during the six months ended June 30, 2021, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.

In August 2017, we filed a shelf registration statement on Form S-3 with the SEC. Under the shelf registration statement, we may offer and sell from time to time up to $200 million of common stock, preferred stock, debt securities, warrants, rights or units. The shelf registration statement also registered for resale from time to time up to 5,703,534 shares of our common stock held by the selling stockholders named therein. In

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September 2017, certain of the selling stockholders completed a secondary offering of 3,795,000 shares of our common stock at a public offering price of $33.00 per share. We did not receive any proceeds from the sale of the shares by the selling stockholders.

Coronavirus Aid, Relief, and Economic Security (CARES) Act

On March 27, 2020 the CARES Act was signed into law. The CARES Act is a tax-and-spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several tax provisions that, among other things, allow businesses to carry back net operating losses (“NOLs”) arising in 2018, 2019, and 2020 to the prior five tax years. In the third quarter of 2020, we collected $2.9 million related to the carry back of our NOLs arising from these prior tax years.

In addition, the CARES Act provided $100 billion in relief funds to hospitals and other healthcare providers on the front lines of the COVID-19 pandemic. An initial $30 billion of the funds were released for immediate infusion and were distributed to all facilities and providers that received Medicare fee-for-service (“FFS”) reimbursements in 2019. On April 10, 2020, we received $1.2 million of the initial allotment to all facilities and providers which was determined to be our proportionate share. Within 45 days of each reporting period end, we are required to comply with reporting requirements confirming funds were utilized in a manner described within the terms and conditions outlined by the U.S. Department of Health & Human Services. As of December 31, 2020, we recognized all of the funds received in the initial allotment as other income.

Contractual and Commercial Commitments Summary

For a discussion on our contractual and commercial commitments, see “Contractual and Commercial Commitments Summary,” included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes since December 31, 2020.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.

Recent Accounting Pronouncements

Refer to Note 3 – “Summary of Significant Accounting Policies” of the condensed consolidated financial statements contained in this report for a description of recently issued accounting pronouncements that are applicable to our business.

Critical Accounting Policies and Estimates

A “critical accounting policy” is one that is both important to the portrayal of our financial condition and results and requires management’s most subjective or complex judgments, often as a result of the need to make estimates about the effect of items that are inherently uncertain. For additional information, please see the discussion of our significant accounting policies under “Critical Accounting Policies and Significant Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020.

33

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion on our market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our Annual Report on Form 10-K for the year ended December 31, 2020.  There have been no material changes since December 31, 2020.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the quarter ended June 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Information pertaining to certain legal proceedings in which we are involved can be found in Note 10 – “Commitments and Contingencies” to our condensed consolidated financial statements included in Part I, Item 1 of this report and is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those disclosed in that report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

(a) Issuances of Preferred Stock

None.

(b) Issuances of Common Stock

34

None.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index below.

35

EXHIBIT INDEX

		Incorporated by Reference
Exhibit				Exhibit	Filed
Number	Description of Exhibit	Form	Date of Filing	Number	Herewith
3.1	Amended and Restated Certificate of Incorporation, as amended through May 9, 2019	8-K	05/09/2019	3.2
3.2	Amended and Restated By-laws, effective March 10, 2021	8-K	03/12/2021	3.1
10.1	Amended and Restated Credit Agreement, dated as of April 30, 2021, by and among Tactile Systems Technology, Inc., the lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent	10-Q	05/03/2021	10.1
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934, as amended				X
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934, as amended				X
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
101.1	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL: (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Comprehensive Income (Loss), (iv) Statements of Stockholders’ Equity, (v) Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements				X
104.1	Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)				X

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Tactile Systems Technology, Inc.
Date: August 2, 2021	By:	/s/ Brent A. Moen
		Brent A. Moen
		Chief Financial Officer
		(Principal financial and accounting officer)

37

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,Daniel L. Reuvers, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Tactile Systems Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Daniel L. Reuvers

Daniel L. Reuvers

Chief Executive Officer

Date: August 2, 2021

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,Brent A. Moen,certifythat:

1. I have reviewed this Quarterly Report on Form 10-Q of Tactile Systems Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Brent A. Moen

Brent A. Moen

Chief Financial Officer

Date: August 2, 2021

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Tactile Systems Technology, Inc. (the “Company”) for the period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Daniel L. Reuvers, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Daniel L. Reuvers

Daniel L. Reuvers

Chief Executive Officer

Date: August 2, 2021

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Tactile Systems Technology, Inc. (the “Company”) for the period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Brent A. Moen, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Brent A. Moen

Brent A. Moen

Chief Financial Officer

Date: August 2, 2021

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2021	Jul. 29, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2021
Document Transition Report	false
Entity File Number	001-37799
Entity Registrant Name	Tactile Systems Technology, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	41-1801204
Entity Address, Address Line One	3701 Wayzata Blvd, Suite 300
Entity Address, City or Town	Minneapolis
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55416
City Area Code	612
Local Phone Number	355-5100
Title of 12(b) Security	Common Stock
Trading Symbol	TCMD
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		19,782,295
Entity Central Index Key	0001027838
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets
Cash and cash equivalents	$ 49,007	$ 47,855
Accounts receivable	42,629	43,849
Net investment in leases	11,741	10,708
Inventories	21,153	18,563
Prepaid expenses and other current assets	2,092	2,638
Total current assets	126,622	123,613
Non-current assets
Property and equipment, net	6,399	6,957
Right of use operating lease assets	19,138	20,132
Intangible assets, net	1,702	1,680
Accounts receivable, non-current	11,874	9,433
Deferred income taxes	13,779	10,198
Other non-current assets	2,118	2,074
Total non-current assets	55,010	50,474
Total assets	181,632	174,087
Current liabilities
Accounts payable	5,060	4,197
Accrued payroll and related taxes	10,303	11,588
Accrued expenses	4,010	4,423
Income taxes payable	1,530	2,658
Operating lease liabilities	2,024	2,006
Other current liabilities	3,716	1,842
Total current liabilities	26,643	26,714
Non-current liabilities
Accrued warranty reserve, non-current	3,450	3,235
Income taxes payable, non-current	348
Operating lease liabilities, non-current	18,475	19,388
Total non-current liabilities	22,273	22,623
Total liabilities	48,916	49,337
Commitments and Contingencies (see Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of June 30, 2021 and December 31, 2020
Common stock, $0.001 par value, 300,000,000 shares authorized; 19,782,295 shares issued and outstanding as of June 30, 2021; 19,492,718 shares issued and outstanding as of December 31, 2020	20	19
Additional paid-in capital	113,601	104,675
Retained earnings	19,095	20,056
Total stockholders' equity	132,716	124,750
Total liabilities and stockholders' equity	$ 181,632	$ 174,087

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2021	Dec. 31, 2020
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common shares authorized	300,000,000	300,000,000
Common stock, shares, issued	19,782,295	19,492,718
Common stock, shares, outstanding	19,782,295	19,492,718

XML

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Total revenue	$ 51,060	$ 35,120	$ 93,832	$ 78,795
Total cost of revenue	14,855	10,208	27,397	22,810
Gross profit	36,205	24,912	66,435	55,985
Operating expenses
Sales and marketing	20,933	17,398	39,718	40,368
Research and development	1,206	1,105	2,476	2,789
Reimbursement, general and administrative	14,142	14,372	28,401	25,242
Total operating expenses	36,281	32,875	70,595	68,399
Loss from operations	(76)	(7,963)	(4,160)	(12,414)
Other (expense) income	(24)	36	(34)	302
Loss before income taxes	(100)	(7,927)	(4,194)	(12,112)
Income tax (benefit) expense	(1,405)	5,923	(3,233)	3,045
Net income (loss)	$ 1,305	$ (13,850)	$ (961)	$ (15,157)
Net income (loss) per common share
Basic (in dollars per share)	$ 0.07	$ (0.72)	$ (0.05)	$ (0.79)
Diluted (in dollars per share)	$ 0.07	$ (0.72)	$ (0.05)	$ (0.79)
Weighted-average common shares used to compute net income (loss) per common share
Basic (in shares)	19,691,156	19,337,644	19,618,759	19,255,612
Diluted (in shares)	20,047,277	19,337,644	19,618,759	19,255,612
Sales revenue
Total revenue	$ 43,630	$ 29,518	$ 79,755	$ 67,141
Total cost of revenue	12,638	8,388	23,329	19,310
Gross profit	30,992	21,130	56,426	47,831
Rental revenue
Total revenue	7,430	5,602	14,077	11,654
Total cost of revenue	2,217	1,820	4,068	3,500
Gross profit	$ 5,213	$ 3,782	$ 10,009	$ 8,154

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Condensed Consolidated Statements of Comprehensive Income (Loss)
Net income (loss)	$ 1,305	$ (13,850)	$ (961)	$ (15,157)
Other comprehensive income (loss):
Unrealized loss on marketable securities		(36)		(7)
Income tax related to items of other comprehensive loss		27		10
Total other comprehensive income (loss)		(9)		3
Comprehensive income (loss)	$ 1,305	$ (13,859)	$ (961)	$ (15,154)

XML

Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Total
Balances at the beginning at Dec. 31, 2019	$ 19	$ 91,874	$ 20,676	$ 26	$ 112,595
Balances at the beginning (in shares) at Dec. 31, 2019	19,152,715
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		5,124			5,124
Exercise of common stock options and vesting of performance and restricted stock units		548			548
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	245,084
Taxes paid for net share settlement of performance and restricted stock units		(1,553)			(1,553)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(30,048)
Common shares issued for employee stock purchase plan		1,825			1,825
Common shares issued for employee stock purchase plan (in shares)	43,653
Comprehensive loss for the period			(15,157)	3	(15,154)
Balances at the end at Jun. 30, 2020	$ 19	97,818	5,519	29	103,385
Balances at the end (in shares) at Jun. 30, 2020	19,411,404
Balances at the beginning at Mar. 31, 2020	$ 19	93,614	19,369	38	113,040
Balances at the beginning (in shares) at Mar. 31, 2020	19,226,665
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		2,396			2,396
Exercise of common stock options and vesting of performance and restricted stock units		376			376
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	148,898
Taxes paid for net share settlement of performance and restricted stock units		(393)			(393)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(7,812)
Common shares issued for employee stock purchase plan		1,825			1,825
Common shares issued for employee stock purchase plan (in shares)	43,653
Comprehensive loss for the period			(13,850)	(9)	(13,859)
Balances at the end at Jun. 30, 2020	$ 19	97,818	5,519	$ 29	103,385
Balances at the end (in shares) at Jun. 30, 2020	19,411,404
Balances at the beginning at Dec. 31, 2020	$ 19	104,675	20,056		124,750
Balances at the beginning (in shares) at Dec. 31, 2020	19,492,718
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		5,115			5,115
Exercise of common stock options and vesting of performance and restricted stock units	$ 1	3,384			3,385
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	268,463
Taxes paid for net share settlement of performance and restricted stock units		(1,115)			(1,115)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(20,980)
Common shares issued for employee stock purchase plan		1,542			1,542
Common shares issued for employee stock purchase plan (in shares)	42,094
Comprehensive loss for the period			(961)		(961)
Balances at the end at Jun. 30, 2021	$ 20	113,601	19,095		132,716
Balances at the end (in shares) at Jun. 30, 2021	19,782,295
Balances at the beginning at Mar. 31, 2021	$ 20	107,312	17,790		125,122
Balances at the beginning (in shares) at Mar. 31, 2021	19,639,113
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		2,658			2,658
Exercise of common stock options and vesting of performance and restricted stock units		2,089			2,089
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	101,088
Common shares issued for employee stock purchase plan		1,542			1,542
Common shares issued for employee stock purchase plan (in shares)	42,094
Comprehensive loss for the period			1,305		1,305
Balances at the end at Jun. 30, 2021	$ 20	$ 113,601	$ 19,095		$ 132,716
Balances at the end (in shares) at Jun. 30, 2021	19,782,295

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities
Net loss	$ (961)	$ (15,157)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,287	1,450
Net amortization of premiums and discounts on securities available-for-sale		(89)
Deferred income taxes	(3,581)	4,282
Stock-based compensation expense	5,115	5,124
Gain on other investments and maturities of marketable securities		40
Impairment losses		4,025
Changes in assets and liabilities:
Accounts receivable	1,220	2,892
Net investment in leases	(1,033)	(542)
Inventories	(2,590)	(5,945)
Income taxes	(780)	(1,646)
Prepaid expenses and other assets	502	(317)
Right of use operating lease assets	99	135
Medicare accounts receivable, non-current	(2,441)	(1,697)
Accounts payable	855	1,602
Accrued payroll and related taxes	(1,285)	(3,127)
Accrued expenses and other liabilities	1,676	990
Net cash used in operating activities	(1,917)	(7,980)
Cash flows from investing activities
Proceeds from maturities of securities available-for-sale		16,500
Purchases of property and equipment	(603)	(660)
Intangible assets costs	(140)	(109)
Net cash (used in) provided by investing activities	(743)	15,731
Cash flows from financing activities
Taxes paid for net share settlement of performance and restricted stock units	(1,115)	(1,553)
Proceeds from exercise of common stock options	3,385	548
Proceeds from the issuance of common stock from the employee stock purchase plan	1,542	1,825
Net cash provided by financing activities	3,812	820
Net increase in cash and cash equivalents	1,152	8,571
Cash and cash equivalents - beginning of period	47,855	22,770
Cash and cash equivalents - end of period	49,007	31,341
Supplemental cash flow disclosure
Cash paid for taxes	1,141	475
Capital expenditures incurred but not yet paid	$ 8	$ 241

XML

Nature of Business and Operations

6 Months Ended

Jun. 30, 2021

Nature of Business and Operations

Nature of Business and Operations

Note 1. Nature of Business and Operations

Tactile Systems Technology, Inc. (“we,” “us,” and “our”) is the sole manufacturer and distributor of the Flexitouch® and Entre™ systems, medical devices that help control symptoms of lymphedema, a chronic and progressive medical condition. We provide our products for use in the home and sell or rent them through vascular, wound and lymphedema clinics 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. In connection with the closing of the initial public offering, all of our outstanding redeemable convertible preferred stock automatically converted to common stock on August 2, 2016.

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. Further, seasonality trends in 2021 may be significantly different than in prior years as a result of the COVID-19 pandemic and related impacts.

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Basis of Presentation

6 Months Ended

Jun. 30, 2021

Basis of Presentation

Basis of Presentation

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 six months ended June 30, 2021, are not necessarily indicative of results to be expected for the year ending December 31, 2021, 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 statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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.

Risks and Uncertainties

Coronavirus (COVID-19)

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during 2020 and the first quarter of 2021. While we saw some level of recovery in the second quarter of 2021, there are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have.  For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time. Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients.

We cannot assure you that these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business. We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.

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.

Comprehensive Income (Loss)

Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income (loss) represents net income (loss) adjusted for unrealized gains and losses on available-for-sale marketable securities and the related taxes.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies

There were no material changes in our significant accounting policies during the six months ended June 30, 2021. 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, 2020, for information regarding our significant accounting policies.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects of the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted ASU 2019-12 as of January 1, 2021, and it did not have an impact on the condensed consolidated financial statements.

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Marketable Securities

6 Months Ended

Jun. 30, 2021

Marketable Securities

Marketable Securities

Note 4. Marketable Securities

There were no investments in marketable securities at June 30, 2021 and December 31, 2020.

There were no net pre-tax unrealized gains for marketable securities at June 30, 2021. There were no sales of marketable securities during the six months ended June 30, 2021.

There were no marketable securities in an unrealized loss position at June 30, 2021 and December 31, 2020.

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Inventories

6 Months Ended

Jun. 30, 2021

Inventories

Inventories

Note 5. Inventories

Inventories consisted of the following:

(In thousands)	At June 30, 2021		At December 31, 2020
Finished goods	$	9,582	$	7,129
Component parts and work-in-process		11,571		11,434
Total inventories	$	21,153	$	18,563

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Intangible Assets

6 Months Ended

Jun. 30, 2021

Intangible Assets

Intangible Assets

Note 6. Intangible Assets

Our patents and other intangible assets are summarized as follows:

	Weighted-	At June 30, 2021
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Patents	11 years	$	489	$	85	$	404
Defensive intangible assets	4 years		1,125		506		619
Customer accounts	2 years		125		76		49
Total amortizable intangible assets			1,739		667		1,072
Patents pending			630		—		630
Total intangible assets		$	2,369	$	667	$	1,702

	Weighted-	At December 31, 2020
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Patents	11 years	$	413	$	65	$	348
Defensive intangible assets	4 years		1,125		421		704
Customer accounts	2 years		125		63		62
Total amortizable intangible assets			1,663		549		1,114
Patents pending			566		—		566
Total intangible assets		$	2,229	$	549	$	1,680

Amortization expense was $0.1 million for each of the three months ended June 30, 2021 and 2020, and $0.1 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively. Future amortization expenses are expected as follows:

(In thousands)
2021 (July 1 - December 31)	$	120
2022		240
2023		209
2024		188
2025		98
Thereafter		217
Total	$	1,072

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Accrued Expenses

6 Months Ended

Jun. 30, 2021

Accrued Expenses

Accrued Expenses

Note 7. Accrued Expenses

Accrued expenses consisted of the following:

(In thousands)	At June 30, 2021		At December 31, 2020
Warranty	$	1,667	$	1,606
Legal and consulting		676		882
In-transit inventory		686		634
Travel		459		545
Sales and use tax		122		193
Clinical studies		72		67
Other		328		496
Total	$	4,010	$	4,423

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Warranty Reserves

6 Months Ended

Jun. 30, 2021

Warranty Reserves

Warranty Reserves

Note 8. 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				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Beginning balance	$	4,869	$	4,242	$	4,841	$	3,759
Warranty provision		844		372		1,456		1,277
Processed warranty claims		(596)		(406)		(1,180)		(828)
Ending balance	$	5,117	$	4,208	$	5,117	$	4,208
Accrued warranty reserve, current	$	1,667	$	1,347	$	1,667	$	1,347
Accrued warranty reserve, non-current		3,450		2,861		3,450		2,861
Total accrued warranty reserve	$	5,117	$	4,208	$	5,117	$	4,208

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Credit Agreement

6 Months Ended

Jun. 30, 2021

Credit Agreement

Credit Agreement

Note 9. Credit Agreement

On August 3, 2018, we entered into a credit agreement with Wells Fargo Bank, National Association, which was amended by a First Amendment dated February 12, 2019, a Waiver and Second Amendment dated March 25, 2019, and a Third Amendment dated August 2, 2019 (collectively, the “2018 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, which expires on April 30, 2024. The Restated Credit Agreement amended and restated in its entirety the 2018 Credit Agreement.

The Restated Credit Agreement provides for a $25 million revolving credit facility, with the ability to increase the amount of the revolving loans available and/or add one or more term loan facilities not to exceed an incremental $30 million in the aggregate, subject to satisfaction of certain conditions. As of June 30, 2021, and the date on which we filed this report, we did not have any outstanding borrowings under the Restated Credit Agreement.  

Our obligations under the Restated Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets and are also guaranteed by our subsidiaries. The Restated Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio and a minimum liquidity covenant. As of June 30, 2021, we were in compliance with all financial covenants under the Restated Credit Agreement.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies

Commitments and Contingencies

Note 10. 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 Condensed Consolidated Balance Sheet.

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 Condensed Consolidated Balance Sheet, with rent expense to be recognized on a straight-line basis over the term of the lease. The remaining lease terms vary from approximately one to ten years as of June 30, 2021.

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. This portion was recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets. The portion of the space covered under the second lease commenced on September 1, 2020. Finally, the portion of the space covered under the third lease is expected to be occupied and commence in the second half of 2021.

Vehicles

We lease vehicles for certain members of our field sales organization under a vehicle fleet program whereby the initial, noncancelable lease is for a term of 367 days, thus more than one year. Subsequent to the initial term, the lease becomes a month-to-month, cancelable lease. As of June 30, 2021, we had approximately 55 vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities. In addition to monthly rental fees specific to the vehicle, there are fixed monthly nonlease components that have been included in the ROU operating lease assets and operating lease liabilities. The nonlease components are not significant.

Computer and Office Equipment

We also have operating lease agreements for certain computer and office equipment. The remaining lease terms as of June 30, 2021, ranged from less than one year to approximately five 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 June 30, 2021		At December 31, 2020
Right of use operating lease assets	$	19,138	$	20,132
Operating lease liabilities:
Current	$	2,024	$	2,006
Non-current		18,475		19,388
Total	$	20,499	$	21,394
Operating leases:
Weighted average remaining lease term		8.9 years		9.4 years
Weighted average discount rate		4.4%		4.4%
	Six Months Ended June 30,
	2021		2020
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	1,567	$	1,148
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	304	$	686

The table below reconciles the undiscounted cash flows under the operating lease liabilities recorded on the Condensed Consolidated Balance Sheet for the periods presented:

(In thousands)
2021 (July 1 - December 31)	$	1,507
2022		2,661
2023		2,615
2024		2,582
2025		2,660
Thereafter		12,692
Total minimum lease payments		24,717
Less: Amount of lease payments representing interest		(4,218)
Present value of future minimum lease payments		20,499
Less: Current obligations under operating lease liabilities		(2,024)
Non-current obligations under operating lease liabilities	$	18,475

As of June 30, 2021, we have additional lease commitments of $7.6 million related to amendments to existing building leases that have not yet commenced. As the lessee we are involved in providing guidance to the lessor for related improvements, however these improvements are managed and owned by the lessor.

Operating lease costs were $0.8 million and $0.7 million for the three months ended June 30, 2021 and 2020, respectively. Operating lease costs were $1.7 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively.

Major Vendors

We had purchases from two vendors that accounted for 33% of our total purchases for each of the three and six months ended June 30, 2021. We had purchases from two vendors that accounted for 33% and 32% of our total purchases for the three and six months ended June 30, 2020, respectively.

Purchase Commitments

We issued purchase orders prior to June 30, 2021, totaling $19.8 million for goods that we expect to receive within the next year.

Retirement Plan

We maintain a 401(k) retirement plan for our employees 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 $0.3 million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $0.6 million and $0.1 million for the six months ended June 30, 2021 and 2020, 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 February 13, 2019, we were served with a sealed amended complaint venued in the United States District Court for the Southern District of Texas, Houston Division, captioned United States ex rel Veterans First Medical Supply, LLC vs. Tactile Medical Systems Technology, Inc., Case No. 18-2871, which had been filed on January 23, 2019. The complaint is a qui tam action on behalf of the United States brought by one of our competitors. The United States has declined to intervene in this action. The complaint alleges that we violated the Federal Anti-Kickback Statute and the Federal False Claims Act, claiming that we submitted false claims and made false statements in connection with the Medicare and Medicaid programs, and that we engaged in unlawful retaliation in violation of the Federal False Claims Act. The complaint seeks damages, statutory penalties, attorneys’ fees, treble damages and costs. We filed a motion to dismiss on April 5, 2019. This motion was denied on February 21, 2020. On March 6, 2020, we filed our answer to the complaint and asserted counterclaims. On May 7, 2020, the plaintiff filed a motion to dismiss our counterclaims. On September 8, 2020, we filed a motion for Partial Summary Judgment. On January 2, 2021, the plaintiff filed a motion for Partial Summary Judgment. These motions were decided on March 29, 2021, wherein the court denied plaintiff’s motion to dismiss our counterclaims; granted our motion for Partial Summary Judgment and dismissed Counts I (standalone/direct violation of the Federal Anti-Kickback Statute) and III (violation of the retaliation provision of the Federal False Claims Act) of the complaint; and denied plaintiff’s motion for Partial Summary Judgment.  As a result, the remaining allegations consist of those in Count II (violations of the Federal False Claims Act) of the complaint. We believe the plaintiff’s remaining allegations are without merit and we intend to continue to vigorously defend against the lawsuit.

We and certain of our present or former officers were sued in a purported securities class action lawsuit that was filed in the United States District Court for the District of Minnesota on September 29, 2020, and that is pending under the caption Brian Mart v. Tactile Systems Technology, Inc., et al., File No. 0:20-cv-02074-NEB-BRT. On April 19, 2021, the plaintiff filed an Amended Complaint against us and eight of our present and former officers and directors. Plaintiff seeks to represent a class consisting of investors who purchased our common stock in the market during the time period from May 7, 2018 through June 8, 2020 (“alleged class period”). The Amended Complaint alleges the following claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”): (1) that we and certain officer defendants made materially false or misleading public statements about our business, operational and compliance policies, and results during the alleged class period in violation of Section 10(b) of the Exchange Act; (2) that we and the individual defendants engaged in a scheme to defraud investors  in order to allow the individual defendants to sell our stock in violation of Section 10(b) of the Exchange Act; (3) that the individual defendants engaged in improper insider trading of our stock in violation of Section 20A of the Exchange Act; and (4) that we and the individual defendants are liable under

Section 20(a) of the Exchange Act because each defendant is a controlling person. On June 18, 2021, we and the individual defendants filed a motion to dismiss the Amended Complaint. The motion has not been decided yet.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2021

Stockholders' Equity

Stockholders' Equity

Note 11. Stockholders' Equity

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, 972,591 and 952,697 shares were added as available for issuance thereunder on January 1, 2021 and 2020, respectively. As of June 30, 2021, 6,358,084 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.

In the second fiscal quarter of 2020, our Board of Directors appointed a new President and Chief Executive Officer (“CEO”), effective June 8, 2020. In conjunction with the acceptance of the written offer, our CEO received both restricted stock units and stock option awards under our 2016 Plan during the third fiscal quarter of 2020 and the stock options have a seven year term. A portion of the awards vested on June 30, 2021, with the remaining portion of the awards vesting over a period of three years from the date of grant. Further, the stock options were valued at the date of grant using the Monte Carlo Simulation model due to a market condition that required that our stock price exceed $40.15 for 20 consecutive trading days during the term of the option in order to vest. This condition was satisfied in the first quarter of 2021.

We recorded stock-based compensation expense of $2.7 million and $2.4 million for the three months ended June 30, 2021 and 2020, respectively, and $5.1 million for each of the six months ended June 30, 2021 and 2020. This expense was allocated as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Cost of revenue	$	173	$	105	$	284	$	187
Sales and marketing expenses		920		1,233		1,898		2,479
Research and development expenses		59		94		156		182
Reimbursement, general and administrative expenses		1,506		964		2,777		2,276
Total stock-based compensation expense	$	2,658	$	2,396	$	5,115	$	5,124

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 $1.1 million and $1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $2.3 million and $1.8 million for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021, there was approximately $7.3 million

of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 2.0 years.

Our stock option activity for the six months ended June 30, 2021, 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, 2020	1,039,709	$	36.43	5.6 years	$	13,381
Granted	149,366	$	51.88
Exercised	(130,390)	$	25.95		$	3,694
Forfeited	(52,693)	$	48.97
Cancelled/Expired	(7,362)	$	49.14
Balance at June 30, 2021	998,630	$	39.36	5.4 years	$	14,399
Options exercisable at June 30, 2021	509,575	$	31.20	4.6 years	$	11,814

(1) The exercise price of each option granted during the period 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 438,283 as of June 30, 2020, had a weighted-average exercise price of $21.86 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 $1.2 million and $1.4 million for the three months ended June 30, 2021 and 2020, respectively, and $2.5 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021, there was approximately $7.5 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 2.0 years.

Our time-based restricted stock unit activity for the six months ended June 30, 2021, 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, 2020	211,469	$	48.29	$	9,503
Granted	82,657	$	52.22
Vested	(86,347)	$	48.00
Cancelled	(21,391)	$	52.17
Balance at June 30, 2021	186,388	$	49.72	$	9,692
Deferred and unissued at June 30, 2021(2)	6,469	$	38.94	$	336

(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.

(2) For the six months ended June 30, 2021, there were no restricted stock units granted to non-employee directors in lieu of their quarterly cash retainer payments. As of June 30, 2021, there were 6,469 outstanding restricted stock units that had been previously granted to non-employee directors in lieu of their quarterly cash retainer payments.

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 2018 were earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2019. The PSUs granted in 2019 would have been earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2020, but none were so earned. The PSUs granted in 2020 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2021. The PSUs granted in 2021 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2022. The number of PSUs earned will depend on the level at which the performance targets are achieved and can range from 50% of target if the minimum performance threshold 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.

Stock-based compensation expense recognized for PSUs was an expense of $0.2 million and a benefit of $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and a benefit of $0.1 million and an expense of $0.1 million for the six months ended June 30, 2021 and 2020, respectively. The stock-based compensation benefit for the six months ended June 30, 2021 reflected a $0.5 million benefit due to a change in the estimated payout associated with PSUs granted in 2020 being below the minimum performance target threshold level, as defined, partially offset by an expense of $0.4 million related to the PSUs granted in 2018 and 2021. At June 30, 2021, there was approximately $1.7 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.7 years.

Our performance-based restricted stock unit activity for the six months ended June 30, 2021, was as follows:

	Performance-	Weighted-
	Based	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, 2020	79,303	$	47.83	$	3,564
Granted	39,419	$	51.82
Vested	(34,159)	$	33.98
Cancelled	(23,936)	$	65.43
Balance at June 30, 2021	60,627	$	51.28	$	3,153

(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 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, 194,518 and

190,539 shares were added as available for issuance thereunder on January 1, 2021 and 2020, respectively. As of June 30, 2021, 1,740,328 shares were available for future issuance under the ESPP. We recognized stock-based compensation expense associated with the ESPP of $0.2 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and $0.4 million and $0.6 million for the six months ended June 30, 2021 and 2020, respectively.

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Revenue

6 Months Ended

Jun. 30, 2021

Revenue

Revenue

Note 12. Revenue

We derive our revenue from the sale and rental of our compression products to our customers in the United States. The following table presents our revenue, inclusive of sales and rental revenue, disaggregated by product categories:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Revenue
Flexitouch system	$	45,093	$	31,127	$	82,530	$	69,713
Other products(1)		5,967		3,993		11,302		9,082
Total	$	51,060	$	35,120	$	93,832	$	78,795
Percentage of total revenue
Flexitouch system		88%		89%		88%		88%
Other products(1)		12%		11%		12%		12%
Total		100%		100%		100%		100%

(1) The “other products” line primarily includes revenue from our Entre system. The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for each of the three and six months ended June 30, 2021 and 2020.

Our revenue from third-party payers, inclusive of sales and rental revenue, for the three and six months ended June 30, 2021 and 2020, are summarized in the following table:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Private insurers and other payers	$	35,348	$	25,668	$	63,631	$	55,905
Veterans Administration		7,322		4,322		13,168		11,380
Medicare		8,390		5,130		17,033		11,510
Total	$	51,060	$	35,120	$	93,832	$	78,795

Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months. Under ASC 840 (the previous guidance for lease accounting), our rental revenue was recognized as month-to-month, cancelable leases; however, because 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 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 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.

Rental revenue for the three and six months ended June 30, 2021 and 2020, was primarily from private insurers. Sales-type lease revenue and the associated cost of revenue for the three and six months ended June 30, 2021 and 2020, was:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Sales-type lease revenue	$	7,430	$	5,602	$	14,077	$	11,654
Cost of sales-type lease revenue		2,217		1,820		4,068		3,500
Gross profit	$	5,213	$	3,782	$	10,009	$	8,154

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Income Taxes

6 Months Ended

Jun. 30, 2021

Income Taxes

Income Taxes

Note 13. 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 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 included 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 June 30, 2021, was a benefit of 1,405%, compared to an expense of 75% for the three months ended June 30, 2020. The primary driver of the change in our effective tax rate is attributable to recording a benefit in the three months ended June 30, 2021, to recognize a tax credit for a research and development credit study conducted for tax years 2017-2020. We recorded an income tax benefit of $1.4 million and an expense of $5.9 million for the three months ended June 30, 2021 and 2020, respectively.

The effective tax rate for the six months ended June 30, 2021, was a benefit of 77%, compared to an expense of 25% for the six months ended June 30, 2020. The primary driver of the change in our effective tax rate is attributable to recording a benefit in the six months ended June 30, 2021, to recognize a tax credit for a research and development credit study conducted for tax years 2017-2020. We recorded an income tax benefit of $3.2 million and an expense of $3.0 million for the six months ended June 30, 2021 and 2020, 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. As of June 30, 2021, tax contingencies related to federal and state credits recorded within the Condensed Consolidated Balance Sheets were $0.5 million. Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies. The timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued.

We are currently under examination by the New York Department of Taxation and Finance for tax years 2017, 2018, and 2019. The examination may lead to proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods. 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 statement of operations.

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Net Income (Loss) Per Share

6 Months Ended

Jun. 30, 2021

Net Income (Loss) Per Share

Net Income (Loss) Per Share

Note 14. Net Income (Loss) Per Share

The following table sets forth the computation of our basic and diluted net income (loss) per share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except share and per share data)	2021		2020		2021		2020
Net income (loss)	$	1,305	$	(13,850)	$	(961)	$	(15,157)
Weighted-average shares outstanding		19,691,156		19,337,644		19,618,759		19,255,612
Dilutive effect of stock-based awards		356,121		—		—		—
Weighted-average shares used to compute diluted net income (loss) per share		20,047,277		19,337,644		19,618,759		19,255,612
Net income (loss) per share - Basic	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)
Net income (loss) per share - Diluted	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)

The following common stock equivalents were excluded from the computation of diluted net income (loss) per share for the periods presented because including them would have been anti-dilutive:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2021	2020	2021	2020
Restricted stock units	17,287	217,137	192,857	217,137
Common stock options	433,447	946,936	998,630	946,936
Performance stock units	—	116,295	60,627	116,295
Employee stock purchase plan	33,743	50,027	33,888	46,706
Total	484,477	1,330,395	1,286,002	1,327,074

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Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair Value Measurements

Fair Value Measurements

Note 15. 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 following provides information regarding fair value measurements for our cash equivalents as of June 30, 2021, and December 31, 2020, according to the three-level fair value hierarchy:

	At June 30, 2021
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Money market mutual funds	$	16,190	$	—	$	—	$	16,190
Total	$	16,190	$	—	$	—	$	16,190

	At December 31, 2020
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Money market mutual funds	$	16,188	$	—	$	—	$	16,188
Total	$	16,188	$	—	$	—	$	16,188

During the three and six months ended June 30, 2021, there were no transfers within the three-level hierarchy. A significant transfer is recognized when the inputs used to value a security have been changed, which merits a transfer between the disclosed levels of the valuation hierarchy.

The fair value of our money market mutual funds is determined based on valuations provided by external investment managers who obtain them from a variety of industry standard data providers.

The carrying amounts of financial instruments such as cash equivalents, accounts receivable, other assets, accounts payable, accrued expenses and other liabilities approximate their related fair values due to the short-term maturities of these items. 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. As of June 30, 2020, we re-measured the value of our intangible assets related to the Airwear wrap product line to their fair value, which was deemed to be $0.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

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 six months ended June 30, 2021, are not necessarily indicative of results to be expected for the year ending December 31, 2021, 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 statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Principles of Consolidation

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.

Risks and Uncertainties

Risks and Uncertainties

Coronavirus (COVID-19)

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during 2020 and the first quarter of 2021. While we saw some level of recovery in the second quarter of 2021, there are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have.  For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time. Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients.

We cannot assure you that these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business. We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.

Use of Estimates

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.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income (loss) represents net income (loss) adjusted for unrealized gains and losses on available-for-sale marketable securities and the related taxes.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects of the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted ASU 2019-12 as of January 1, 2021, and it did not have an impact on the condensed consolidated financial statements.

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Inventories (Tables)

6 Months Ended

Jun. 30, 2021

Inventories

Schedule of inventories

(In thousands)	At June 30, 2021		At December 31, 2020
Finished goods	$	9,582	$	7,129
Component parts and work-in-process		11,571		11,434
Total inventories	$	21,153	$	18,563

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2021

Intangible Assets

Schedule of finite lived intangible assets

	Weighted-	At June 30, 2021
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Patents	11 years	$	489	$	85	$	404
Defensive intangible assets	4 years		1,125		506		619
Customer accounts	2 years		125		76		49
Total amortizable intangible assets			1,739		667		1,072
Patents pending			630		—		630
Total intangible assets		$	2,369	$	667	$	1,702

	Weighted-	At December 31, 2020
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Patents	11 years	$	413	$	65	$	348
Defensive intangible assets	4 years		1,125		421		704
Customer accounts	2 years		125		63		62
Total amortizable intangible assets			1,663		549		1,114
Patents pending			566		—		566
Total intangible assets		$	2,229	$	549	$	1,680

Schedule of future amortization expense

(In thousands)
2021 (July 1 - December 31)	$	120
2022		240
2023		209
2024		188
2025		98
Thereafter		217
Total	$	1,072

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Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2021

Accrued Expenses

Schedule of Accrued Expenses

(In thousands)	At June 30, 2021		At December 31, 2020
Warranty	$	1,667	$	1,606
Legal and consulting		676		882
In-transit inventory		686		634
Travel		459		545
Sales and use tax		122		193
Clinical studies		72		67
Other		328		496
Total	$	4,010	$	4,423

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Warranty Reserves (Tables)

6 Months Ended

Jun. 30, 2021

Warranty Reserves

Schedule of warranty reserves

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Beginning balance	$	4,869	$	4,242	$	4,841	$	3,759
Warranty provision		844		372		1,456		1,277
Processed warranty claims		(596)		(406)		(1,180)		(828)
Ending balance	$	5,117	$	4,208	$	5,117	$	4,208
Accrued warranty reserve, current	$	1,667	$	1,347	$	1,667	$	1,347
Accrued warranty reserve, non-current		3,450		2,861		3,450		2,861
Total accrued warranty reserve	$	5,117	$	4,208	$	5,117	$	4,208

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies

Summary of lease-related assets and liabilities

(In thousands)	At June 30, 2021		At December 31, 2020
Right of use operating lease assets	$	19,138	$	20,132
Operating lease liabilities:
Current	$	2,024	$	2,006
Non-current		18,475		19,388
Total	$	20,499	$	21,394
Operating leases:
Weighted average remaining lease term		8.9 years		9.4 years
Weighted average discount rate		4.4%		4.4%
	Six Months Ended June 30,
	2021		2020
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	1,567	$	1,148
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	304	$	686

Summary of undiscounted cash flows

(In thousands)
2021 (July 1 - December 31)	$	1,507
2022		2,661
2023		2,615
2024		2,582
2025		2,660
Thereafter		12,692
Total minimum lease payments		24,717
Less: Amount of lease payments representing interest		(4,218)
Present value of future minimum lease payments		20,499
Less: Current obligations under operating lease liabilities		(2,024)
Non-current obligations under operating lease liabilities	$	18,475

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2021

Schedule of allocation of total stock-based compensation expense

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Cost of revenue	$	173	$	105	$	284	$	187
Sales and marketing expenses		920		1,233		1,898		2,479
Research and development expenses		59		94		156		182
Reimbursement, general and administrative expenses		1,506		964		2,777		2,276
Total stock-based compensation expense	$	2,658	$	2,396	$	5,115	$	5,124

Schedule of stock option activity

		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, 2020	1,039,709	$	36.43	5.6 years	$	13,381
Granted	149,366	$	51.88
Exercised	(130,390)	$	25.95		$	3,694
Forfeited	(52,693)	$	48.97
Cancelled/Expired	(7,362)	$	49.14
Balance at June 30, 2021	998,630	$	39.36	5.4 years	$	14,399
Options exercisable at June 30, 2021	509,575	$	31.20	4.6 years	$	11,814

(1) The exercise price of each option granted during the period 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.

Time-Based Restricted Stock Units

Schedule of stock-settled restricted stock unit activity

		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, 2020	211,469	$	48.29	$	9,503
Granted	82,657	$	52.22
Vested	(86,347)	$	48.00
Cancelled	(21,391)	$	52.17
Balance at June 30, 2021	186,388	$	49.72	$	9,692
Deferred and unissued at June 30, 2021(2)	6,469	$	38.94	$	336

(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.

(2) For the six months ended June 30, 2021, there were no restricted stock units granted to non-employee directors in lieu of their quarterly cash retainer payments. As of June 30, 2021, there were 6,469 outstanding restricted stock units that had been previously granted to non-employee directors in lieu of their quarterly cash retainer payments.

Performance-based stock-settled restricted stock units

Schedule of stock-settled restricted stock unit activity

	Performance-	Weighted-
	Based	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, 2020	79,303	$	47.83	$	3,564
Granted	39,419	$	51.82
Vested	(34,159)	$	33.98
Cancelled	(23,936)	$	65.43
Balance at June 30, 2021	60,627	$	51.28	$	3,153

(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.

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Revenue (Tables)

6 Months Ended

Jun. 30, 2021

Revenue

Summary of revenue disaggregated by product

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Revenue
Flexitouch system	$	45,093	$	31,127	$	82,530	$	69,713
Other products(1)		5,967		3,993		11,302		9,082
Total	$	51,060	$	35,120	$	93,832	$	78,795
Percentage of total revenue
Flexitouch system		88%		89%		88%		88%
Other products(1)		12%		11%		12%		12%
Total		100%		100%		100%		100%

(1) The “other products” line primarily includes revenue from our Entre system. The Actitouch system and the Airwear wrap contributed immaterial amounts of revenue for each of the three and six months ended June 30, 2021 and 2020.

Summary of revenue from third-party payers

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Private insurers and other payers	$	35,348	$	25,668	$	63,631	$	55,905
Veterans Administration		7,322		4,322		13,168		11,380
Medicare		8,390		5,130		17,033		11,510
Total	$	51,060	$	35,120	$	93,832	$	78,795

Sales-type lease revenue and the associated cost of goods sold

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Sales-type lease revenue	$	7,430	$	5,602	$	14,077	$	11,654
Cost of sales-type lease revenue		2,217		1,820		4,068		3,500
Gross profit	$	5,213	$	3,782	$	10,009	$	8,154

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Net Income (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2021

Net Income (Loss) Per Share

Schedule of computation of the basic and diluted net income (loss) per share

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except share and per share data)	2021		2020		2021		2020
Net income (loss)	$	1,305	$	(13,850)	$	(961)	$	(15,157)
Weighted-average shares outstanding		19,691,156		19,337,644		19,618,759		19,255,612
Dilutive effect of stock-based awards		356,121		—		—		—
Weighted-average shares used to compute diluted net income (loss) per share		20,047,277		19,337,644		19,618,759		19,255,612
Net income (loss) per share - Basic	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)
Net income (loss) per share - Diluted	$	0.07	$	(0.72)	$	(0.05)	$	(0.79)

Schedule of potentially dilutive securities outstanding

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2021	2020	2021	2020
Restricted stock units	17,287	217,137	192,857	217,137
Common stock options	433,447	946,936	998,630	946,936
Performance stock units	—	116,295	60,627	116,295
Employee stock purchase plan	33,743	50,027	33,888	46,706
Total	484,477	1,330,395	1,286,002	1,327,074

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2021

Fair Value Measurements

Schedule of fair value measurements for our cash equivalents and marketable securities

	At June 30, 2021
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Money market mutual funds	$	16,190	$	—	$	—	$	16,190
Total	$	16,190	$	—	$	—	$	16,190

	At December 31, 2020
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Money market mutual funds	$	16,188	$	—	$	—	$	16,188
Total	$	16,188	$	—	$	—	$	16,188

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Nature of Business and Operations (Details) - IPO $ / shares in Units, $ in Millions	Aug. 02, 2016 USD ($) $ / shares shares
Subsidiary, Sale of Stock
Number of shares of common stock sold | shares	4,120,000
IPO price per share (in dollars per share) | $ / shares	$ 10.00
Proceeds from IPO	$ 35.4
Expense Relating To Initial Public Offering	$ 2.9

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Marketable Securities (Details)	6 Months Ended
	Jun. 30, 2021 USD ($) item	Dec. 31, 2020 USD ($) item
Marketable Securities
Marketable securities	$ 0	$ 0
Net pre-tax unrealized gains for marketable securities	0
Marketable securities sold	$ 0
Number of marketable securities in an unrealized loss position | item	0	0

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Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Inventories
Finished goods	$ 9,582	$ 7,129
Component parts and work-in-process	11,571	11,434
Total inventories	$ 21,153	$ 18,563

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Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Patents and Intangibles
Gross Carrying Amount	$ 1,739		$ 1,739		$ 1,663
Accumulated Amortization	667		667		549
Total	1,072		1,072		1,114
Total intangible assets (Gross)	2,369		2,369		2,229
Total intangible assets (Net)	1,702		1,702		1,680
Amortization expense	100	$ 100	100	$ 300
Future Amortization
2021 (July 1 - December 31)	120		120
2022	240		240
2023	209		209
2024	188		188
2025	98		98
Thereafter	217		217
Total	1,072		1,072		1,114
Patents
Patents and Intangibles
Patents pending	630		$ 630		$ 566
Patents
Patents and Intangibles
Weighted Average Amortization Period			11 years		11 years
Gross Carrying Amount	489		$ 489		$ 413
Accumulated Amortization	85		85		65
Total	404		404		348
Future Amortization
Total	404		$ 404		$ 348
Defensive intangible assets
Patents and Intangibles
Weighted Average Amortization Period			4 years		4 years
Gross Carrying Amount	1,125		$ 1,125		$ 1,125
Accumulated Amortization	506		506		421
Total	619		619		704
Future Amortization
Total	619		$ 619		$ 704
Customer accounts
Patents and Intangibles
Weighted Average Amortization Period			2 years		2 years
Gross Carrying Amount	125		$ 125		$ 125
Accumulated Amortization	76		76		63
Total	49		49		62
Future Amortization
Total	$ 49		$ 49		$ 62

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Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020
Accrued Expenses
Warranty	$ 1,667	$ 1,606	$ 1,347
Legal and consulting	676	882
In-transit inventory	686	634
Travel and business	459	545
Sales and use tax	122	193
Clinical studies	72	67
Other	328	496
Total	$ 4,010	$ 4,423

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Warranty Reserves (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 4,869	$ 4,242	$ 4,841	$ 3,759
Warranty provision	844	372	1,456	1,277
Processed warranty claims	(596)	(406)	(1,180)	(828)
Ending balance	5,117	4,208	5,117	4,208
Accrued warranty reserve, current	1,667	1,347	1,667	1,347	$ 1,606
Accrued warranty reserve, non-current	3,450	2,861	3,450	2,861	$ 3,235
Total accrued warranty reserve	$ 5,117	$ 4,208	$ 5,117	$ 4,208

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Credit Agreement (Details) - USD ($) $ in Millions	Apr. 30, 2021	Jun. 30, 2021
Credit Agreement
Credit facility outstanding amount		$ 0
Revolving credit facility | Wells Fargo Bank
Credit Agreement
Line of credit	$ 25
Aggregate Borrowings	$ 30

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Commitments and Contingencies - Lease Obligations (Details)	6 Months Ended
	Jun. 30, 2021 item	Dec. 31, 2019 ft²	Dec. 31, 2018 ft²	Oct. 31, 2018 ft²
Minimum
Commitments and Contingencies
Remaining lease terms	12 months
Building | Minimum
Commitments and Contingencies
Remaining lease terms	1 year
Building | Maximum
Commitments and Contingencies
Remaining lease terms	10 years
Vehicles
Commitments and Contingencies
Remaining lease terms	367 days
Number of vehicles with agreements within the initial, noncancelable lease term | item	55
Equipment
Commitments and Contingencies
Option to renew	true
Equipment | Minimum
Commitments and Contingencies
Remaining lease terms	1 year
Equipment | Maximum
Commitments and Contingencies
Remaining lease terms	5 years
Initial lease
Commitments and Contingencies
Area of office space				80,000
Second lease
Commitments and Contingencies
Area of office space			29,000
Additional office space added to the lease		4,000
Third lease
Commitments and Contingencies
Additional office space added to the lease		37,000

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Commitments and Contingencies - Lease related assets and liabilities (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Lease-related assets and liabilities
Right of use operating lease assets	$ 19,138		$ 20,132
Operating lease liabilities, Current	2,024		2,006
Operating lease liabilities, non-current	18,475		19,388
Present value of future minimum lease payments	$ 20,499		$ 21,394
Weighted average remaining lease term	8 years 10 months 24 days		9 years 4 months 24 days
Weighted average discount rate	4.40%		4.40%
Cash paid for operating lease liabilities	$ 1,567	$ 1,148
Non-cash right of use assets obtained in exchange for new operating lease obligations	$ 304	$ 686

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Commitments and Contingencies - Undiscounted cash flows (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Undiscounted cash flows
2021 (July 1 - December 31)	$ 1,507
2022	2,661
2023	2,615
2024	2,582
2025	2,660
Thereafter	12,692
Total minimum lease payments	24,717
Less: Amount of lease payments representing interest	(4,218)
Present value of future minimum lease payments	20,499	$ 21,394
Less: Current obligations under operating lease liabilities	(2,024)	(2,006)
Non-current obligations under operating lease liabilities	$ 18,475	$ 19,388

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Commitments and Contingencies - Lease commitments and operating lease cost (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Commitments and Contingencies
Additional lease commitments	$ 7.6		$ 7.6
Operating lease cost	$ 0.8	$ 0.7	$ 1.7	$ 1.4

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Commitments and Contingencies - Major Vendors (Details) - item	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Commitments and Contingencies
Number of vendors	2		2
Purchases | Vendor | Vendor Two
Commitments and Contingencies
Total purchases (in percentage)	33.00%	33.00%	33.00%	32.00%

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Commitments and Contingencies - Purchase Commitments (Details) $ in Millions	Jun. 30, 2021 USD ($)
Purchase commitments
Purchase orders issued	$ 19.8

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Commitments and Contingencies - Retirement Plan (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
401(k)
Retirement Plan
Discretionary contributions	$ 0.3	$ 0.1	$ 0.6	$ 0.1

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Stockholders' Equity - Stock-Based Compensation General Information (Details)	Jun. 30, 2021 shares
2016 Plan
Stockholders' Equity
Number of shares authorized	4,800,000

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Stockholders' Equity - Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands			3 Months Ended		6 Months Ended
	Jan. 01, 2021	Jan. 01, 2020	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Stock-based compensation
Compensation expense			$ 2,658	$ 2,396	$ 5,115	$ 5,124
Cost of revenue.
Stock-based compensation
Compensation expense			173	105	284	187
Sales and marketing
Stock-based compensation
Compensation expense			920	1,233	1,898	2,479
Research and development
Stock-based compensation
Compensation expense			59	94	156	182
Reimbursement, general and administrative
Stock-based compensation
Compensation expense			$ 1,506	964	$ 2,777	2,276
2016 Plan
Stock-based compensation
Shares available for future issuance			6,358,084		6,358,084
Automatic annual increase to the number of shares reserved and available for issuance as a percentage of outstanding common stock (as a percent)			5.00%		5.00%
Automatic annual increase to the number of shares reserved and available for issuance			2,500,000		2,500,000
Increase in number of shares reserved and available for issuance	972,591	952,697
Common stock options
Stock-based compensation
Compensation expense			$ 1,100	$ 1,000	$ 2,300	$ 1,800
Unrecognized stock-based compensation
Unrecognized stock-based compensation expense, period for recognition					2 years

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Stockholders' Equity - Stock Options and Restricted Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Stock-based compensation, general disclosures.
Stock-based compensation expense	$ 2,658	$ 2,396	$ 5,115	$ 5,124
Common stock options
Stock-based compensation, general disclosures.
Stock-based compensation expense	1,100	$ 1,000	2,300	$ 1,800
Total unrecognized pre-tax compensation expense related to nonvested stock option awards	$ 7,300		$ 7,300
Weighted-average period over which unrecognized compensation cost is expected to be recognized			2 years
Options Outstanding
Outstanding at beginning of period			1,039,709
Granted			149,366
Exercised			(130,390)
Forfeited			(52,693)
Cancelled/Expired			(7,362)
Outstanding at end of period	998,630		998,630		1,039,709
Weighted Average Exercise Price Per Share
Outstanding at beginning of period			$ 36.43
Granted			51.88
Exercised			25.95
Forfeited			48.97
Cancelled/Expired			49.14
Outstanding at end of period	$ 39.36		$ 39.36		$ 36.43
Other information
Options exercisable number of shares exercisable	509,575	438,283	509,575	438,283
Options exercisable, weighted-average exercise price	$ 31.20	$ 21.86	$ 31.20	$ 21.86
Weighted average remaining contractual life (in years)			5 years 4 months 24 days		5 years 7 months 6 days
Options exercisable, weighted-average remaining contractual life			4 years 7 months 6 days
Aggregate Intrinsic Value, Options outstanding	$ 14,399		$ 14,399		$ 13,381
Aggregate Intrinsic Value, Exercised			3,694
Aggregate Intrinsic Value, Options exercisable	$ 11,814		$ 11,814
Common stock options | Minimum
Stock-based compensation, general disclosures.
Vesting period (in years)			3 years
Term (in years)			7 years
Common stock options | Maximum
Stock-based compensation, general disclosures.
Vesting period (in years)			4 years
Term (in years)			10 years
Common stock options | Chief Executive Officer [Member]
Stock-based compensation, general disclosures.
Share-based payment award, term			7 years
Vesting period (in years)			3 years
Number of consecutive trading days			20 days
Common stock options | Chief Executive Officer [Member] | Minimum
Stock-based compensation, general disclosures.
Stock price	$ 40.15		$ 40.15
Time-Based Restricted Stock Units
Stock-based compensation, general disclosures.
Stock-based compensation expense			$ 2,500	$ 2,600
Time-Based Restricted Stock Units | Non-employee Directors
Units Outstanding
Granted (in shares)			0
Number of granted and vested restricted stock units	6,469		6,469
2018 and 2021 PSUs
Stock-based compensation, general disclosures.
Stock-based compensation expense			$ 400
2016 Plan | Time-Based Restricted Stock Units
Stock-based compensation, general disclosures.
Stock-based compensation expense	$ 1,200	$ 1,400
Total unrecognized pre-tax compensation expense related to awards	$ 7,500		$ 7,500
Weighted-average period over which unrecognized compensation cost is expected to be recognized			2 months
Units Outstanding
Restricted stock unit awards outstanding at the beginning of the period (in shares)			211,469
Granted (in shares)			82,657
Vested (in shares)			86,347
Cancelled (in shares)			(21,391)
Restricted stock unit awards outstanding at the end of the period (in shares)	186,388		186,388		211,469
Deferred and unissued (in shares)	6,469		6,469
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share)			$ 48.29
Granted (in dollars per share)			52.22
Vested (in dollars per share)			48.00
Cancelled (in dollars per share)			52.17
Restricted stock unit awards outstanding at the end of the period (in dollars per share)	$ 49.72		49.72		$ 48.29
Deferred and unissued (in dollars per share)	$ 38.94		$ 38.94
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value	$ 9,692		$ 9,692		$ 9,503
Restricted stock unit awards deferred and unissued, Average Intrinsic Value	336		$ 336
2016 Plan | Time-Based Restricted Stock Units | Minimum
Stock-based compensation, general disclosures.
Vesting period (in years)			1 year
2016 Plan | Time-Based Restricted Stock Units | Maximum
Stock-based compensation, general disclosures.
Vesting period (in years)			3 years
2016 Plan | Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Estimated payout			$ 500
Stock-based compensation expense	200	$ 300	100	$ 100
Total unrecognized pre-tax compensation expense related to awards	$ 1,700		$ 1,700
Weighted-average period over which unrecognized compensation cost is expected to be recognized			2 years 8 months 12 days
Units Outstanding
Restricted stock unit awards outstanding at the beginning of the period (in shares)			79,303
Granted (in shares)			39,419
Vested (in shares)			34,159
Cancelled (in shares)			(23,936)
Restricted stock unit awards outstanding at the end of the period (in shares)	60,627		60,627		79,303
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share)			$ 47.83
Granted (in dollars per share)			51.82
Vested (in dollars per share)			33.98
Cancelled (in dollars per share)			65.43
Restricted stock unit awards outstanding at the end of the period (in dollars per share)	$ 51.28		$ 51.28		$ 47.83
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value	$ 3,153		$ 3,153		$ 3,564
2016 Plan | Performance-based stock-settled restricted stock units | Minimum
Units Outstanding
Percentage to earn or vest the performance-based stock-settled restricted stock units			50.00%
2016 Plan | Performance-based stock-settled restricted stock units | Maximum
Units Outstanding
Percentage to earn or vest the performance-based stock-settled restricted stock units			150.00%
2016 Plan | Tranche one | Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Compensation arrangement			33.33%
2016 Plan | Tranche two | Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Compensation arrangement			66.67%

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Stockholders' Equity - Employee Stock Purchase Plan (Details) - USD ($) $ in Thousands			3 Months Ended		6 Months Ended
	Jan. 01, 2021	Jan. 01, 2020	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Apr. 27, 2017
Stockholders' Equity
Stock-based compensation expense			$ 2,658	$ 2,396	$ 5,115	$ 5,124
Employee Stock Purchase Plan
Stockholders' Equity
Purchase price of common stock under plan (as a percent)					85.00%
Offering period (in months)					6 months
Shares reserved			1,740,328		1,740,328		1,600,000
Incremental share increase (in shares)					500,000
Incremental share increase (as a percent)					1.00%
Increase in number of shares reserved and available for issuance	194,518	190,539
Stock-based compensation expense			$ 200	$ 300	$ 400	$ 600

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Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenue
Revenue	$ 51,060	$ 35,120	$ 93,832	$ 78,795
Percentage of total revenue (in percent)	100.00%	100.00%	100.00%	100.00%
Revenue from sale type lease
Sales-type lease revenue	$ 7,430	$ 5,602	$ 14,077	$ 11,654
Cost of sales-type lease revenue	2,217	1,820	4,068	3,500
Gross profit	5,213	3,782	10,009	8,154
Private insurers and other payers
Revenue
Revenue	35,348	25,668	63,631	55,905
Veterans Administration
Revenue
Revenue	7,322	4,322	13,168	11,380
Medicare
Revenue
Revenue	8,390	5,130	17,033	11,510
Flexitouch system
Revenue
Revenue	$ 45,093	$ 31,127	$ 82,530	$ 69,713
Percentage of total revenue (in percent)	88.00%	89.00%	88.00%	88.00%
Other products
Revenue
Revenue	$ 5,967	$ 3,993	$ 11,302	$ 9,082
Percentage of total revenue (in percent)	12.00%	11.00%	12.00%	12.00%

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Income Taxes
Net effective rate	(1405.00%)	75.00%	(77.00%)	25.00%
Income tax (benefit) expense	$ (1,405)	$ 5,923	$ (3,233)	$ 3,045
Tax contingencies			$ 500

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Net Income (Loss) Per Share - Basic and Diluted Net Income (Loss) Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Net Income (Loss) Per Share
Net income (loss)	$ 1,305	$ (13,850)	$ (961)	$ (15,157)
Weighted-average shares outstanding	19,691,156	19,337,644	19,618,759	19,255,612
Dilutive effect of stock-based awards	356,121
Weighted-average shares used to compute diluted net income (loss) per share	20,047,277	19,337,644	19,618,759	19,255,612
Net income (loss) per share - Basic	$ 0.07	$ (0.72)	$ (0.05)	$ (0.79)
Net income (loss) per share - Diluted	$ 0.07	$ (0.72)	$ (0.05)	$ (0.79)

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Net Income (Loss) Per Share - Antidilutive Securities Excluded From Computation of Earnings Per Share (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	484,477	1,330,395	1,286,002	1,327,074
Common stock options
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	433,447	946,936	998,630	946,936
Performance stock units
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share		116,295	60,627	116,295
Restricted Stock Units
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	17,287	217,137	192,857	217,137
Employee stock purchase plan
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	33,743	50,027	33,888	46,706

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Fair Value Measurements (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020
Fair Value Measurements
Amount of transfers of marketable securities within the three level hierarchy	$ 0
Intangible assets	1,702	$ 1,680
Recurring
Fair Value Measurements
Available for sale debt securities	16,190	16,188
Recurring | Money market mutual funds
Fair Value Measurements
Money market mutual funds	16,190	16,188
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value Measurements
Available for sale debt securities	16,190	16,188
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market mutual funds
Fair Value Measurements
Money market mutual funds	$ 16,190	$ 16,188
Non-recurring | Significant Unobservable Inputs (Level 3) | Airwear Product
Fair Value Measurements
Intangible assets			$ 0