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: September 30, 2022

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 ☑

20,154,703 shares of common stock, par value $0.001 per share, were outstanding as of November 4, 2022.

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	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

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," "ongoing," "plan," "potential," "predict," "project," "should," "target," "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;

● wage and component price inflation;

● 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, 2021, 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)
	September 30,		December 31,
(In thousands, except share and per share data)	2022		2021
Assets
Current assets
Cash and cash equivalents	$	23,426	$	28,229
Accounts receivable		51,814		49,478
Net investment in leases		15,052		12,482
Inventories		23,020		19,217
Prepaid expenses and other current assets		3,484		4,141
Total current assets		116,796		113,547
Non-current assets
Property and equipment, net		6,677		6,750
Right of use operating lease assets		21,975		23,984
Intangible assets, net		51,308		54,081
Goodwill		31,063		31,063
Accounts receivable, non-current		17,703		12,847
Other non-current assets		3,004		1,998
Total non-current assets		131,730		130,723
Total assets	$	248,526	$	244,270
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	11,171	$	5,023
Note payable		2,968		2,960
Earn-out, current		10,000		3,250
Accrued payroll and related taxes		13,575		12,139
Accrued expenses		6,953		5,262
Income taxes payable		11		16
Operating lease liabilities		2,486		2,506
Other current liabilities		8,497		3,305
Total current liabilities		55,661		34,461
Non-current liabilities
Revolving line of credit, non-current		24,904		24,857
Note payable, non-current		21,721		26,933
Earn-out, non-current		7,098		2,950
Accrued warranty reserve, non-current		2,892		3,108
Income taxes payable, non-current		298		348
Operating lease liabilities, non-current		21,506		23,354
Deferred income taxes		49		32
Total non-current liabilities		78,468		81,582
Total liabilities		134,129		116,043
Stockholders’ equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of September 30, 2022 and December 31, 2021		—		—
Common stock, $0.001 par value, 300,000,000 shares authorized; 20,155,704 shares issued and outstanding as of September 30, 2022; 19,877,786 shares issued and outstanding as of December 31, 2021		20		20
Additional paid-in capital		128,619		119,962
(Accumulated deficit) retained earnings		(14,242)		8,245
Total stockholders’ equity		114,397		128,227
Total liabilities and stockholders’ equity	$	248,526	$	244,270

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				Nine Months Ended
	September 30,				September 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Revenue
Sales revenue	$	55,545	$	44,460	$	147,980	$	124,215
Rental revenue		9,717		8,037		24,905		22,114
Total revenue		65,262		52,497		172,885		146,329
Cost of revenue
Cost of sales revenue		15,476		13,096		41,366		36,425
Cost of rental revenue		2,992		2,433		7,640		6,501
Total cost of revenue		18,468		15,529		49,006		42,926
Gross profit
Gross profit - sales revenue		40,069		31,364		106,614		87,790
Gross profit - rental revenue		6,725		5,604		17,265		15,613
Gross profit		46,794		36,968		123,879		103,403
Operating expenses
Sales and marketing		26,583		22,231		79,335		61,949
Research and development		1,581		1,409		4,949		3,885
Reimbursement, general and administrative		16,257		14,500		47,369		42,802
Intangible asset amortization and earn-out		3,993		195		12,834		294
Total operating expenses		48,414		38,335		144,487		108,930
Loss from operations		(1,620)		(1,367)		(20,608)		(5,527)
Other expense		(736)		(120)		(1,765)		(154)
Loss before income taxes		(2,356)		(1,487)		(22,373)		(5,681)
Income tax (benefit) expense		(77)		1,868		114		(1,365)
Net loss	$	(2,279)	$	(3,355)	$	(22,487)	$	(4,316)
Net loss per common share
Basic	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)
Diluted	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)
Weighted-average common shares used to compute net loss per common share
Basic		20,139,944		19,790,838		20,021,966		19,676,749
Diluted		20,139,944		19,790,838		20,021,966		19,676,749

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

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Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
						(Accumulated
				Additional		Deficit)
	Common Stock			Paid-In		Retained
(In thousands, except share data)	Shares	Par Value		Capital		Earnings		Total
Balances, June 30, 2022	20,132,145	$	20	$	126,059	$	(11,963)	$	114,116
Stock-based compensation	—		—		2,560		—		2,560
Exercise of common stock options and vesting of performance and restricted stock units	23,559		—		—		—		—
Net loss for the period	—		—		—		(2,279)		(2,279)
Balances, September 30, 2022	20,155,704	$	20	$	128,619	$	(14,242)	$	114,397
Balances, December 31, 2021	19,877,786	$	20	$	119,962	$	8,245	$	128,227
Stock-based compensation	—		—		7,681		—		7,681
Exercise of common stock options and vesting of performance and restricted stock units	192,644		—		152		—		152
Common shares issued for employee stock purchase plan	85,274		—		824		—		824
Net loss for the period	—		—		—		(22,487)		(22,487)
Balances, September 30, 2022	20,155,704	$	20	$	128,619	$	(14,242)	$	114,397
Balances, June 30, 2021	19,782,295	$	20	$	113,601	$	19,095	$	132,716
Stock-based compensation	—		—		2,588		—		2,588
Exercise of common stock options and vesting of performance and restricted stock units	16,366		—		199		—		199
Taxes paid for net share settlement of performance and restricted stock units	(938)		—		(42)		—		(42)
Net loss for the period	—		—		—		(3,355)		(3,355)
Balances, September 30, 2021	19,797,723	$	20	$	116,346	$	15,740	$	132,106
Balances, December 31, 2020	19,492,718	$	19	$	104,675	$	20,056	$	124,750
Stock-based compensation	—		—		7,703		—		7,703
Exercise of common stock options and vesting of performance and restricted stock units	284,829		1		3,583		—		3,584
Taxes paid for net share settlement of performance and restricted stock units	(21,918)		—		(1,157)		—		(1,157)
Common shares issued for employee stock purchase plan	42,094		—		1,542		—		1,542
Net loss for the period	—		—		—		(4,316)		(4,316)
Balances, September 30, 2021	19,797,723	$	20	$	116,346	$	15,740	$	132,106

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

6

Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
	Nine Months Ended September 30,
(In thousands)	2022		2021
Cash flows from operating activities
Net loss	$	(22,487)	$	(4,316)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		4,670		2,150
Deferred income taxes		17		(1,709)
Stock-based compensation expense		7,681		7,703
Loss on disposal of property and equipment and intangibles		20		7
Change in fair value of earn-out liability		10,898		—
Changes in assets and liabilities, net of acquisition:
Accounts receivable		(2,336)		(408)
Net investment in leases		(2,570)		(1,677)
Inventories		(3,803)		(3,641)
Income taxes		(55)		(1,181)
Prepaid expenses and other assets		(349)		(1,133)
Right of use operating lease assets		141		588
Accounts receivable, non-current		(4,856)		(2,989)
Accounts payable		6,148		1,995
Accrued payroll and related taxes		1,436		(1,266)
Accrued expenses and other liabilities		6,799		2,902
Net cash provided by (used in) operating activities		1,354		(2,975)
Cash flows from investing activities
Payments related to acquisition		—		(79,829)
Purchases of property and equipment		(1,731)		(1,221)
Intangible assets expenditures		(113)		(187)
Net cash used in investing activities		(1,844)		(81,237)
Cash flows from financing activities
Proceeds from issuance of note payable		—		30,000
Proceeds from revolving line of credit		—		25,000
Payments on note payable		(5,250)		—
Payments of deferred debt issuance costs		(39)		(211)
Taxes paid for net share settlement of performance and restricted stock units		—		(1,157)
Proceeds from exercise of common stock options		152		3,584
Proceeds from the issuance of common stock from the employee stock purchase plan		824		1,542
Net cash (used in) provided by financing activities		(4,313)		58,758
Net decrease in cash and cash equivalents		(4,803)		(25,454)
Cash and cash equivalents – beginning of period		28,229		47,855
Cash and cash equivalents – end of period	$	23,426	$	22,401
Supplemental cash flow disclosure
Cash paid for interest	$	1,433	$	—
Cash paid for taxes	$	29	$	1,541
Capital expenditures incurred but not yet paid	$	16	$	—

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

7

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”) manufactures and distributes medical devices for the treatment of patients with underserved chronic diseases at home. We provide our Flexitouch® and Entre™ systems, which help control symptoms of lymphedema, a chronic progressive medical condition, through our direct sales force for use in the home and sell or rent them through vascular, wound and lymphedema clinics throughout the United States.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance business (“AffloVest Acquisition”) from International Biophysics Corporation (“IBC”), a privately-held company which developed and manufactured AffloVest. AffloVest is a portable, wearable vest that treats patients with chronic respiratory conditions. We sell this device through home medical equipment and durable medical equipment (“DME”) providers throughout the United States. 

We were originally incorporated in Minnesota under the name Tactile Systems Technology, Inc. on January 30, 1995. During 2006, we established a merger corporation and subsequently, on July 21, 2006, merged with and into this merger corporation, resulting in our reincorporation as a Delaware corporation. The resulting corporation assumed the name Tactile Systems Technology, Inc. In September 2013, we began doing business as “Tactile Medical”.

On August 2, 2016, we closed the initial public offering of our common stock, which resulted in the sale of 4,120,000 shares of our common stock at a public offering price of $10.00 per share. We received net proceeds from the initial public offering of approximately $35.4 million, after deducting underwriting discounts and approximately $2.9 million of transaction expenses.

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 have been, and may continue to be, significantly different than historical trends 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 nine months ended September 30, 2022, are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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, 2021.

8

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 most of 2021 and during the first quarter of 2022. We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic. While we saw some level of recovery in the second and third quarters of 2022, ongoing consequences of the pandemic remain uncertain. 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 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.

Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies  

There were no material changes in our significant accounting policies during the nine months ended September 30, 2022. 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, 2021, for information regarding our significant accounting policies.

Accounting Pronouncement Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), addressing the discontinuation of LIBOR, a widely used reference rate for pricing financial products. The ASU is intended to provide optional expedients and exceptions if certain criteria are met when accounting for contracts, hedging relationships and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The application and adoption requirements of ASU 2020-04 are optional until December 31, 2022 and vary based on expedients elected. We have not elected any expedients to date and are currently evaluating any potential future impacts on the condensed consolidated financial statements.

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Note 4. Acquisitions

On September 8, 2021, we entered into an Asset Purchase Agreement (“AffloVest APA”) to acquire the AffloVest airway clearance business from IBC. Under the terms of the AffloVest APA, we agreed to pay IBC a total of up to $100.0 million for the purchase of substantially all of the assets related to its branded high frequency chest wall oscillation vest therapy business, other than specifically identified excluded assets. We acquired AffloVest to further expand our position as a leader in treating patients with underserved chronic conditions in the home. The acquired assets included inventory, tooling, intellectual property, permits and approvals, data and records, and customer and supplier information. At closing, $80.0 million of the purchase price was paid, of which a total of $0.5 million was deposited into an escrow account at closing for purposes of satisfying certain post-closing purchase price adjustments and indemnification claims. Subsequent to closing, $0.2 million was returned to us as a result of working capital adjustments. The AffloVest acquisition was funded through a combination of cash on hand and proceeds from borrowings. 

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

● Initial Earn-Out: The AffloVest APA provided for an initial earn-out equal to 1.5 times the amount by which the AffloVest U.S. revenues in the period from October 1, 2021 to September 30, 2022 (the “Initial Earn-Out Period”) exceed a specified amount; provided that in no event will the payment exceed $10.0 million.

o The APA Amendment provides that the calculated amount of the initial earn-out payment is $10.0 million, of which the Company will pay $5.0 million on or before November 28, 2022, and of which the Company will pay $5.0 million, plus an imputed interest payment of $250,000, on or before May 26, 2023.

● Second Earn-Out: The AffloVest APA provided for a second earn-out equal to 1.5 times the amount by which the AffloVest U.S. revenues in the period from October 1, 2022 to September 30, 2023 exceed the revenues recognized during the Initial Earn-Out Period; provided that in no event will the payment exceed $10.0 million.

o The APA Amendment changes the 1.5 times multiplier to 3.0 times, but still provides that in no event will the second earn-out payment exceed $10.0 million.

The fair value of the earn-out as of the acquisition date was $6.4 million. The fair value of the earn-out, reflecting management’s estimate of the likelihood of achieving these targets, was determined by employing a Monte Carlo Simulation model. This amount and the current versus non-current allocation is remeasured at the end of each reporting period until the payment requirement ends, with any adjustments reported in income from operations (see Note 15 – “Fair Value Measurements”).

On the date of AffloVest Acquisition, we allocated the assets acquired based on an estimate of their fair values. The following table summarizes the purchase price allocation:

(In millions)	Allocated Fair Value
Inventories	$	1.6
Property and equipment(1)		—
Intangible assets		53.5
Goodwill		31.1
Purchase price	$	86.2

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

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

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

(In millions)	Allocated Fair Value		Estimated Useful Life
Customer relationships	$	31.0	13 years
Developed technology		13.0	11 years
Tradenames		9.5	Indefinite
Total intangible assets	$	53.5

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

The fair market valuations associated with the assets acquired fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value. The fair value measurements were calculated using unobservable inputs, primarily using the income approach, specifically the discounted cash flow method. The amount and timing of future cash flows within our analysis was based on our due diligence models, most recent operational budgets, long-range strategic plans and other estimates.

Note 5. Inventories

Inventories consisted of the following:

(In thousands)	At September 30, 2022		At December 31, 2021
Finished goods	$	7,060	$	8,242
Component parts and work-in-process		15,960		10,975
Total inventories	$	23,020	$	19,217

Note 6. Goodwill and Intangible Assets

Goodwill

In the third quarter of fiscal 2021, we completed the AffloVest Acquisition. The purchase price of the AffloVest product line exceeded the net acquisition-date estimated fair value amounts of the identifiable assets acquired and the liabilities assumed by $31.1 million, which was assigned to goodwill. 

Intangible Assets

Our patents and other intangible assets are summarized as follows:

	Weighted-	At September 30, 2022
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	829	$	157	$	672
Defensive intangible assets	3 years		1,125		721		404
Customer accounts	1 year		125		108		17
Customer relationships	12 years		31,000		2,530		28,470
Developed technology	10 years		13,000		1,254		11,746
Subtotal			46,079		4,770		41,309
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			499		—		499
Total intangible assets		$	56,078	$	4,770	$	51,308

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	Weighted-	At December 31, 2021
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	666	$	109	$	557
Defensive intangible assets	3 years		1,125		592		533
Customer accounts	1 year		125		89		36
Customer relationships	13 years		31,000		742		30,258
Developed technology	11 years		13,000		368		12,632
Subtotal			45,916		1,900		44,016
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			565		—		565
Total intangible assets		$	55,981	$	1,900	$	54,081

Amortization expense was $1.0 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $2.9 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively. Future amortization expenses are expected as follows:

(In thousands)
2022 (October 1 - December 31)	$	958
2023		3,801
2024		3,780
2025		3,690
2026		3,626
Thereafter		25,454
Total	$	41,309

In the third quarter of 2022, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASU No. 2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events. Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying value. As a result, it was not deemed necessary to proceed to the quantitative test and no impairment was recognized.

Note 7. Accrued Expenses

Accrued expenses consisted of the following:

(In thousands)	At September 30, 2022		At December 31, 2021
Legal and consulting	$	1,835	$	1,371
Warranty		1,732		1,851
Travel		918		661
In-transit inventory		589		416
Clinical studies		165		113
Sales and use tax		110		106
Other		1,604		744
Total	$	6,953	$	5,262

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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				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Beginning balance	$	4,818	$	5,117	$	4,959	$	4,841
Warranty provision		589		624		1,586		2,080
Processed warranty claims		(783)		(604)		(1,921)		(1,784)
Ending balance	$	4,624	$	5,137	$	4,624	$	5,137
Accrued warranty reserve, current	$	1,732	$	1,779	$	1,732	$	1,779
Accrued warranty reserve, non-current		2,892		3,358		2,892		3,358
Total accrued warranty reserve	$	4,624	$	5,137	$	4,624	$	5,137

Note 9. Credit Agreement

On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. The Restated Credit Agreement amended and restated in its entirety our prior credit agreement.

On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amends the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent. The Amendment, among other things, adds a $30.0 million incremental term loan to the $25.0 million revolving credit facility provided by the Restated Credit Agreement. The term loan is reflected on our condensed consolidated financial statements as a note payable. The term loan and the revolving credit facility mature on September 8, 2024. The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $80.0 million.

On September 8, 2021, in connection with the closing of the AffloVest Acquisition, we borrowed the $30.0 million term loan and utilized that borrowing, together with a draw of $25.0 million under the revolving credit facility and cash on hand, to fund the purchase price.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amended the Credit Agreement, including with respect to the financial covenants.

The principal of the term loan is required to be repaid in quarterly installments of $750,000 commencing January 7, 2022, through July 8, 2024, with the remaining outstanding balance due on September 8, 2024. Pursuant to the Second Amendment, we made a mandatory principal prepayment of the term loan of $3.0 million on February 22, 2022.

As of September 30, 2022, the outstanding balance of the term loan was $24.8 million and the outstanding balance under the revolving credit facility was $25.0 million. As of September 30, 2022, there was no availability under our Credit Agreement.

The term loan and amounts drawn under the revolving credit facility bear interest, at our option, at a rate equal to (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) LIBOR for an interest period of one month plus 1% (the “Base Rate”) plus an applicable margin or (b) LIBOR for an interest period of

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one, three or six months, at our option, plus the applicable margin. The applicable margin is 0.75% to 2.25% on loans bearing interest at the Base Rate and 1.75% to 3.25% on loans bearing interest at LIBOR, in each case depending on our consolidated total leverage ratio; except that, pursuant to the Second Amendment, during the period commencing on February 22, 2022 and ending on the last day of the fiscal quarter ending June 30, 2023, the applicable margin for LIBOR rate loans is 3.50%. At September 30, 2022, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 5.93%. Undrawn portions of the revolving credit facility are subject to an unused line fee at a rate per annum from 0.300% to 0.375%, depending on our consolidated total leverage ratio.

Maturities of the term loan for the next three years as of September 30, 2022, are as follows:

(In thousands)	Amount
2022 (October 1 - December 31)	$	750
2023		3,000
2024		21,000
Total	$	24,750

Our obligations under the 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 Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum consolidated EBITDA covenant, and a minimum liquidity covenant. As of September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

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 Sheets.

None of our lease agreements contain material restrictive covenants or residual value guarantees.

Buildings

We lease certain office and warehouse space at various locations in the United States where we provide services. These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded on the Condensed Consolidated Balance Sheets, 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 eight years as of September 30, 2022.

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We entered into a lease (“initial lease”) in October 2018, for approximately 80,000 square feet of office space for our new corporate headquarters in Minneapolis, Minnesota. In December 2018, we amended the initial lease to add approximately 29,000 square feet of additional office space, which is accounted for as a separate lease (“second lease”) in accordance with ASU No. 2016-02, “Leases” (Topic 842) (“ASC 842”). In December 2019, we further amended the lease which extended the expiration date of the initial lease, extended the expiration date of and added approximately 4,000 square feet to the second lease, as well as added approximately 37,000 square feet of additional office space, accounted for as a separate lease (“third lease”) in accordance with ASC 842. The portion of the space covered under the initial lease was placed in service in September 2019. The portion of the space covered under the second lease commenced in September 2020. Finally, the portion of the space covered under the third lease commenced in September 2021.

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 September 30, 2022, we had approximately nine 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 September 30, 2022, ranged from less than one year to approximately four years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities. The leases provide an option to purchase the related equipment at fair market value at the end of the lease. The leases will automatically renew as a month-to-month rental at the end of the lease if the equipment is not purchased or returned.

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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 September 30, 2022		At December 31, 2021
Right of use operating lease assets	$	21,975	$	23,984
Operating lease liabilities:
Current	$	2,486	$	2,506
Non-current		21,506		23,354
Total	$	23,992	$	25,860
Operating leases:
Weighted average remaining lease term		7.9 years		8.6 years
Weighted average discount rate		4.2%		4.2%
	Nine Months Ended September 30,
	2022		2021
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	2,703	$	2,411
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	49	$	6,146

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

(In thousands)
2022 (October 1 - December 31)	$	874
2023		3,428
2024		3,418
2025		3,518
2026		3,615
Thereafter		13,249
Total minimum lease payments		28,102
Less: Amount of lease payments representing interest		(4,110)
Present value of future minimum lease payments		23,992
Less: Current obligations under operating lease liabilities		(2,486)
Non-current obligations under operating lease liabilities	$	21,506

Operating lease costs were $0.9 million for each of the three months ended September 30, 2022 and 2021. Operating lease costs were $2.8 million and $2.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Major Vendors

We had purchases from one vendor that accounted for 24% of our total purchases for the three months ended September 30, 2022 and purchases from two vendors that accounted for 44% of our total purchases for the nine months ended September 30, 2022. We had purchases from two vendors that accounted for 36% of our total purchases for the three months ended September 30, 2021 and purchases from one vendor that accounted for 24% of our total purchases for the nine months ended September 30, 2021.

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Purchase Commitments

We issued purchase orders prior to September 30, 2022, totaling $36.3 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 $0.4 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $1.1 million and $0.9 million for the nine months ended September 30, 2022 and 2021, 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.

We and certain of our present or former officers have been 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 (the “Mart lawsuit”). 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. On March 31, 2022, the court granted in part, and denied in part, the defendants’ motion to dismiss. All claims against three individual defendants were dismissed, and most claims against four other individual defendants were dismissed. The Company remains a defendant on alleged Sections 10(b) and 20(a) claims. We are defending the action as it proceeds.

On May 24, 2022, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Company against certain present and former officers and directors and the Company (as a nominal defendant), captioned Jack Weaver v. Moen, et al., File No. 0:22-cv-01403-NEB-BRT. This complaint generally arises out of the same subject matter as the Mart lawsuit and alleges the following claims under the Exchange Act and common law: (1) that the director defendants made materially false or misleading public statements in proxy statements in violation of Section 14(a) of the Exchange Act; (2) that the director defendants’ stock and option awards should be rescinded under Section 29(b) of the Exchange Act; (3) that the officer defendants’ employment contract compensation should be rescinded under Section 29(b) of the Exchange Act; (4) that certain officer defendants are liable for contribution arising out of any liability incurred in the Mart lawsuit, under Sections 10(b) and 21D of the Exchange Act; (5) that the individual defendants breached their fiduciary duties; and (6) that the individual defendants were unjustly enriched. The lawsuit seeks unspecified damages. In August 2022, the matter was transferred to the United States District Court for the District of Delaware by order granting the Parties Stipulation to Transfer. It is now captioned Jack Weaver v. Moen, et al., File No. 1:22-cv-01063-GBW. We are defending the action as it proceeds.

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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 shares were added as available for issuance thereunder on January 1, 2021. Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022. As of September 30, 2022, 5,916,065 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.

We recorded stock-based compensation expense of $2.6 million for each of the three months ended September 30, 2022 and 2021, and $7.7 million for each of the nine months ended September 30, 2022 and 2021. This expense was allocated as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Cost of revenue	$	67	$	171	$	281	$	455
Sales and marketing expenses		1,101		1,081		3,352		2,979
Research and development expenses		54		68		175		224
Reimbursement, general and administrative expenses		1,338		1,268		3,873		4,045
Total stock-based compensation expense	$	2,560	$	2,588	$	7,681	$	7,703

Stock Options

Stock options issued to participants other than non-employees typically vest over three or four years and typically have a contractual term of seven or ten years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $0.6 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $2.0 million and $3.3 million for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there was approximately $2.2 million of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.2 years.

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Our stock option activity for the nine months ended September 30, 2022, was as follows:

		Weighted-		Weighted-
		Average		Average	Aggregate
	Options	Exercise Price		Remaining	Intrinsic
(In thousands except options and per share data)	Outstanding	Per Share (1)		Contractual Life	Value (2)
Balance at December 31, 2021	915,224	$	39.33	5.0 years	$	2,068
Granted	—	$	—
Exercised	(90,878)	$	1.68		$	916
Forfeited	(58,115)	$	46.93
Cancelled/Expired	(152,448)	$	36.62
Balance at September 30, 2022	613,783	$	44.86	4.8 years	$	44
Options exercisable at September 30, 2022	402,979	$	44.18	4.7 years	$	44

(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 508,184 as of September 30, 2021, had a weighted-average exercise price of $30.45 per share.

Time-Based Restricted Stock Units

We have granted time-based restricted stock units to certain participants under the 2016 Plan that are stock-settled with common shares. Time-based restricted stock units granted under the 2016 Plan vest over one to three years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $1.5 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively, and $4.5 million and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there was approximately $9.4 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 nine months ended September 30, 2022, was as follows:

		Weighted-
		Average Grant		Aggregate
	Units	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value (1)
Balance at December 31, 2021	259,147	$	42.32	$	4,932
Granted	496,302	$	15.64
Vested	(93,444)	$	46.84
Cancelled	(54,299)	$	29.98
Balance at September 30, 2022	607,706	$	20.94	$	4,734

(1) The aggregate intrinsic value of restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

Performance-Based Restricted Stock Units

We have granted performance-based restricted stock units (“PSUs”) to certain participants under the 2016 Plan. These PSUs have both performance-based and time-based vesting features. The PSUs granted in 2020 would have been earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2021, but none were so earned. 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 PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin

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are achieved in 2023. 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 $0.3 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.5 million and less than $0.1 million for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there was approximately $2.2 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.3 years.

Our performance-based restricted stock unit activity for the nine months ended September 30, 2022, 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, 2021	54,317	$	50.22	$	1,034
Granted	131,710	$	18.54
Vested	(1,853)	$	19.03
Cancelled	(20,147)	$	23.18
Balance at September 30, 2022	164,027	$	25.11	$	1,278

(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 shares were added as available for issuance thereunder on January 1, 2021. Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022. As of September 30, 2022, 1,623,486 shares were available for future issuance under the ESPP. We recognized stock-based compensation expense associated with the ESPP of $0.2 million for each of the three months ended September 30, 2022 and 2021, and $0.7 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Note 12. Revenue

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

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	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Revenue
Lymphedema products	$	54,214	$	51,636	$	146,502	$	145,468
Airway clearance products		11,048		861		26,383		861
Total	$	65,262	$	52,497	$	172,885	$	146,329
Percentage of total revenue
Lymphedema products		83%		98%		85%		99%
Airway clearance products		17%		2%		15%		1%
Total		100%		100%		100%		100%

Our revenue by channel, inclusive of sales and rental revenue, for the three and nine months ended September 30, 2022 and 2021, are summarized in the following table:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Private insurers and other payers	$	36,188	$	36,034	$	97,726	$	99,665
Veterans Administration		6,755		6,737		19,118		19,905
Medicare		11,271		8,865		29,658		25,898
Durable medical equipment distributors		11,048		861		26,383		861
Total	$	65,262	$	52,497	$	172,885	$	146,329

Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months. As title transfers to the patient, with whom we have the contract, upon the termination of the lease term and because collectability is probable, under ASC 842, these are recognized as sales-type leases. Each rental agreement contains two components, the controller and related garments, both of which are interdependent and recognized as one lease component.

The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Condensed Consolidated Balance 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.

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Rental revenue for the three and nine months ended September 30, 2022 and 2021, was primarily from private insurers. Sales-type lease revenue and the associated cost of revenue for the three and nine months ended September 30, 2022 and 2021, was:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Sales-type lease revenue	$	9,717	$	8,037	$	24,905	$	22,114
Cost of sales-type lease revenue		2,992		2,433		7,640		6,501
Gross profit	$	6,725	$	5,604	$	17,265	$	15,613

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 September 30, 2022, was a benefit of 3.3%, compared to an expense of 126% for the three months ended September 30, 2021. The primary driver of the change in the Company’s effective tax rate is attributable to a full valuation allowance being recorded for net deferred tax assets for the current period, whereas no valuation allowance was recorded for 2021. We recorded an income tax benefit of $77 thousand and an expense of $1.9 million for the three months ended September 30, 2022 and 2021, respectively.

The effective tax rate for the nine months ended September 30, 2022, was an expense of 0.5%, compared to a benefit of 24% for the nine months ended September 30, 2021. The primary driver of the change in the Company’s effective tax rate is attributable to a full valuation allowance being recorded for net deferred tax assets for the current period, whereas no valuation allowance was recorded for 2021. We recorded an income tax expense of $0.1 million and a benefit of $1.4 million for the nine months ended September 30, 2022 and 2021, respectively.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-not to sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company currently is not under examination in any jurisdictions.

22

Note 14. Net Loss Per Share

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Net loss	$	(2,279)	$	(3,355)	$	(22,487)	$	(4,316)
Weighted-average shares outstanding		20,139,944		19,790,838		20,021,966		19,676,749
Dilutive effect of stock-based awards		—		—		—		—
Weighted-average shares used to compute diluted net loss per share		20,139,944		19,790,838		20,021,966		19,676,749
Net loss per share - Basic	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)
Net loss per share - Diluted	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
Restricted stock units	607,706	190,261	607,706	190,261
Common stock options	613,783	977,076	613,783	977,076
Performance stock units	164,027	60,627	164,027	60,627
Employee stock purchase plan	143,526	38,325	93,592	33,931
Total	1,529,042	1,266,289	1,479,108	1,261,895

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).

We have obligations to pay up to $20.0 million in earn-out payments in cash if certain future U.S. revenues of the AffloVest are met. The earn-out liability was valued by employing a Monte Carlo Simulation model in a risk-neutral framework, which is a Level 3 input. The underlying simulated variable includes recognized revenue. The recognized revenue volatility estimate was based on a study of historical asset volatility for a set of comparable public companies. The model includes other assumptions including the market price of risk, which was calculated as the weighted average cost of capital less the long-term risk-free rate. The earn-out liability is adjusted to fair value at each reporting date until settled. Changes in fair value are included in intangible asset amortization and earn-out expenses in our Condensed Consolidated Statements of Operations.

23

Changes in the earn-out liability measured at fair value using Level 3 inputs were as follows:

(In thousands)
Earn-out liability at December 31, 2021	$	6,200
Addition for acquisition		—
Fair value adjustments		10,898
Earn-out liability at September 30, 2022	$	17,098

As of September 30, 2022, the earn-out liability totaled $17.1 million, $7.1 million of which was non-current and $10.0 million of which had been earned and is a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of September 30, 2022, and December 31, 2021, according to the three-level fair value hierarchy:

	At September 30, 2022
	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:
Earn-out liability	$	—		—	$	7,098	$	7,098
Total	$	—	$	—	$	7,098	$	7,098

	At December 31, 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:
Earn-out liability	$	—	$	—	$	6,200	$	6,200
Total	$	—	$	—	$	6,200	$	6,200

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.

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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 most of 2021 and during the first quarter of 2022. We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic. While we saw some level of recovery in the second and third quarters of 2022, ongoing consequences of the pandemic remain uncertain. 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. However, we cannot assure you 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.

Overview

We are a medical technology company that develops and provides innovative medical devices for the treatment of underserved chronic diseases. Our mission is to help people suffering from chronic diseases live better and care for themselves at home. We focus our efforts on advancing the standard of care in treating underserved chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures. Our areas of therapeutic focus are (1) vascular disease, with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency, (2) oncology, where lymphedema is a common consequence among cancer survivors and (3) providing airway clearance therapy for those suffering from chronic respiratory conditions. We possess a unique, scalable platform to deliver at-home healthcare solutions throughout the United States. This evolving home care delivery model is recognized by policymakers and insurance payers as a key for controlling rising healthcare costs. Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases.

Our current lymphedema products are the Flexitouch and Entre systems and our airway clearance product is the AffloVest. A predecessor to our Flexitouch system received 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) in July 2002, and we introduced the system to address the many limitations of self-administered home-based manual lymphatic drainage therapy. We began selling our more advanced Flexitouch system after receiving 510(k) clearance from the FDA in October 2006. 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 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. Sales and rentals of our lymphedema products represented 85% and 99% of our revenue in the nine months ended September 30, 2022 and 2021, respectively.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance product line from IBC, a privately-held company which developed and manufactured AffloVest. AffloVest is a portable, wearable vest

25

that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders. For the nine months ended September 30, 2022 and 2021 sales of AffloVest represented 15% and 1% of our revenue, respectively.

To support the growth of our business, we continue to invest in our commercial infrastructure, consisting of our direct sales force, training resources, reimbursement capabilities and clinical expertise. We market our lymphedema products in the United States using a direct-to-patient and -provider model. The AffloVest device is sold through respiratory durable medical equipment providers throughout the United States that service patients and bill third-party payers for the product. We also employ a small group of respiratory specialists, who educate DME representatives, provide product demonstrations for targeted clinicians and support technical questions related to the AffloVest. As of September 30, 2022, we employed a field staff of 297 Tactile employees, made up of sales representatives, as well as managers, who provide support throughout the United States for our lymphedema and respiratory therapies. This compares to 249 as of September 30, 2021.

We invest in our reimbursement function to improve operational efficiencies and enhance individual payer expertise, while continuing our strategic focus of payer development. Our payer relations function focuses on payer policy development, education, contract negotiations, and data analysis. Our reimbursement operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary. 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. While the U.S. government’s declaration of a public health emergency (PHE) related to the COVID-19 pandemic has relaxed some Medicare criteria for respiratory patients, these circumstances are ever-changing, and 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, 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. In 2021, all of our clinical trials resumed research activities, including study visits and new patient enrollments, albeit more slowly than the 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 products, perform quality assurance and ship our products from our facility in Minnesota. The AffloVest device continued to be manufactured and shipped by IBC on our behalf pursuant to a Transition Services Agreement through April 30, 2022. On May 1, 2022, we began manufacturing and shipping the AffloVest device from our Minnesota-based facility.

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 or that we will be able to meet any increased demand.

In July 2022, we launched Kylee™ a free mobile app that makes it easier for patients to manage their conditions by tracking treatments and symptoms, as well as having direct access to educational resources. 

For the three months ended September 30, 2022, we generated revenue of $65.3 million and had a net loss of $2.3 million, compared to revenue of $52.5 million and a net loss of $3.4 million for the three months ended September 30, 2021. For the nine months ended September 30, 2022, we generated revenue of $172.9 million and had a net loss of $22.5 million, compared to revenue of $146.3 million and a net loss of $4.3 million for the nine months ended September 30, 2021. Our primary sources of capital since our initial public offering in 2016 have been from operating income and bank financing.

We operate in one segment for financial reporting purposes.

26

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

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

	Three Months Ended
	September 30,								Change
(In thousands)	2022				2021				$		%
Condensed Consolidated Statement			% of				% of
of Operations Data:			revenue				revenue
Revenue
Sales revenue	$	55,545	85	%	$	44,460	85	%	$	11,085	25	%
Rental revenue		9,717	15	%		8,037	15	%		1,680	21	%
Total revenue		65,262	100	%		52,497	100	%		12,765	24	%
Cost of revenue
Cost of sales revenue		15,476	24	%		13,096	25	%		2,380	18	%
Cost of rental revenue		2,992	4	%		2,433	5	%		559	23	%
Total cost of revenue		18,468	28	%		15,529	30	%		2,939	19	%
Gross profit
Gross profit - sales revenue		40,069	61	%		31,364	60	%		8,705	28	%
Gross profit - rental revenue		6,725	11	%		5,604	10	%		1,121	20	%
Gross profit		46,794	72	%		36,968	70	%		9,826	27	%
Operating expenses
Sales and marketing		26,583	41	%		22,231	42	%		4,352	20	%
Research and development		1,581	2	%		1,409	3	%		172	12	%
Reimbursement, general and administrative		16,257	25	%		14,500	28	%		1,757	12	%
Intangible asset amortization and earn-out		3,993	6	%		195	—	%		3,798	N.M.	%
Total operating expenses		48,414	74	%		38,335	73	%		10,079	26	%
Loss from operations		(1,620)	(2)	%		(1,367)	(3)	%		(253)	19	%
Other expense		(736)	(2)	%		(120)	—	%		(616)	N.M.	%
Loss before income taxes		(2,356)	(4)	%		(1,487)	(3)	%		(869)	58	%
Income tax (benefit) expense		(77)	—	%		1,868	3	%		(1,945)	(104)	%
Net loss	$	(2,279)	(4)	%	$	(3,355)	(6)	%	$	1,076	(32)	%

“N.M.” Not Meaningful

27

	Nine Months Ended
	September 30,								Change
(In thousands)	2022				2021				$		%
Consolidated Statement			% of				% of
of Operations Data:			revenue				revenue
Revenue
Sales revenue	$	147,980	86	%	$	124,215	85	%	$	23,765	19	%
Rental revenue		24,905	14	%		22,114	15	%		2,791	13	%
Total revenue		172,885	100	%		146,329	100	%		26,556	18	%
Cost of revenue
Cost of sales revenue		41,366	24	%		36,425	25	%		4,941	14	%
Cost of rental revenue		7,640	4	%		6,501	4	%		1,139	18	%
Total cost of revenue		49,006	28	%		42,926	29	%		6,080	14	%
Gross profit
Gross profit - sales revenue		106,614	62	%		87,790	60	%		18,824	21	%
Gross profit - rental revenue		17,265	10	%		15,613	11	%		1,652	11	%
Gross profit		123,879	72	%		103,403	71	%		20,476	20	%
Operating expenses
Sales and marketing		79,335	46	%		61,949	42	%		17,386	28	%
Research and development		4,949	3	%		3,885	3	%		1,064	27	%
Reimbursement, general and administrative		47,369	27	%		42,802	30	%		4,567	11	%
Intangible asset amortization and earn-out		12,834	8	%		294	—	%		12,540	N.M.	%
Total operating expenses		144,487	84	%		108,930	75	%		35,557	33	%
Loss from operations		(20,608)	(12)	%		(5,527)	(4)	%		(15,081)	N.M.	%
Other expense		(1,765)	(1)	%		(154)	—	%		(1,611)	N.M.	%
Loss before income taxes		(22,373)	(13)	%		(5,681)	(4)	%		(16,692)	N.M.	%
Income tax expense (benefit)		114	—	%		(1,365)	(1)	%		1,479	(108)	%
Net loss	$	(22,487)	(13)	%	$	(4,316)	(3)	%	$	(18,171)	N.M.	%

“N.M.” Not Meaningful

28

Revenue

Revenue increased $12.8 million, or 24%, to $65.3 million in the three months ended September 30, 2022, compared to $52.5 million in the three months ended September 30, 2021. The increase in total revenue was attributable to an increase of $10.2 million in sales of the airway clearance product line, which includes the AffloVest product acquired on September 8, 2021, and an increase of $2.6 million, or 5%, in sales and rentals of the lymphedema product line in the quarter ended September 30, 2022, compared to the 2021 third quarter.

Revenue increased $26.6 million, or 18%, to $172.9 million in the nine months ended September 30, 2022, compared to $146.3 million in the nine months ended September 30, 2021. The increase in total revenue was attributable to an increase of $25.5 million in sales of the airway clearance product line, which includes the AffloVest product acquired on September 8, 2021, and an increase of $1.0 million, or 1%, in sales and rentals of the lymphedema product line for the nine months ended September 30, 2022. The first nine months of 2022 revenue from the lymphedema product line was adversely affected by the fact that first quarter 2022 revenue was negatively impacted by the prolonged recovery from COVID-19, including the resurgence due to the Omicron variant during the period, which resulted in restricted access to clinics and hospitals and disrupted the recovery in patient visits versus the pre-COVID environment. In addition, the challenging labor market continued to impact our ability to recruit and retain quality candidates for our direct sales force, particularly during the first quarter of 2022.

Revenue from the Veterans Administration represented 10% and 13% of total revenue in the three months ended September 30, 2022 and 2021, respectively. Revenue from the Veterans Administration represented 11% and 14% of total revenue in the nine months ended September 30, 2022 and 2021, respectively. Revenue from Medicare represented 17% of total revenue in each of the three months ended September 30, 2022 and 2021. Revenue from Medicare represented 17% and 18% of total revenue in the nine months ended September 30, 2022 and 2021, respectively. 

The following table summarizes our revenue by product line for the three and nine months ended September 30, 2022 and 2021, both in dollars and percentage of total revenue:

	Three Months Ended
	September 30,				Change
(In thousands)	2022		2021		$		%
Revenue
Lymphedema products	$	54,214	$	51,636	$	2,578	5%
Airway clearance products		11,048		861		10,187	N.M.
Total	$	65,262	$	52,497	$	12,765	24%
Percentage of total revenue
Lymphedema products		83%		98%
Airway clearance products		17%		2%
Total		100%		100%

“N.M.” Not Meaningful

29

	Nine Months Ended
	September 30,				Change
(In thousands)	2022		2021		$		%
Revenue
Lymphedema products	$	146,502	$	145,468	$	1,034	1%
Airway clearance products		26,383		861		25,522	N.M.
Total	$	172,885	$	146,329	$	26,556	18%
Percentage of total revenues
Lymphedema products		85%		99%
Airway clearance products		15%		1%
Total		100%		100%

“N.M.” Not Meaningful

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 have been, and may continue to be, significantly different than historical trends as a result of the COVID-19 pandemic and related impacts.

Cost of Revenue and Gross Margin

Cost of revenue increased $3.0 million, or 19%, to $18.5 million in the three months ended September 30, 2022, compared to $15.5 million in the three months ended September 30, 2021. Cost of revenue increased $6.1 million, or 14%, to $49.0 million in the nine months ended September 30, 2022, compared to $42.9 million in the nine months ended September 30, 2021. The increase in cost of revenue in both periods was primarily attributable to the additional contribution of AffloVest sales and an increase in inbound freight costs.

The total gross margin was 72% and 70% of revenue in the three months ended September 30, 2022 and 2021, respectively, and 72% and 71% of revenue in the nine months ended September 30, 2022 and 2021, respectively.

Sales and Marketing Expenses

Sales and marketing expenses increased $4.4 million, or 20%, to $26.6 million in the three months ended September 30, 2022, compared to $22.2 million in the three months ended September 30, 2021. The increase was primarily attributable to a:

● $4.3 million increase in personnel-related compensation expense as a result of the increased headcount in the collective field commercial team;

● $0.5 million increase in travel and entertainment expense; and

● $0.1 million increase related to sales meetings and tradeshows.

These increases were partially offset by a $0.5 million decrease in expenses for new product introduction.

30

Sales and marketing expenses increased $17.4 million, or 28%, to $79.3 million in the nine months ended September 30, 2022, compared to $61.9 million in the nine months ended September 30, 2021. The increase was primarily attributable to a:

● $12.7 million increase in personnel-related compensation expense as a result of the increased headcount in the collective field commercial team;

● $2.6 million increase in travel and entertainment expense;

● $1.2 million increase related to our annual national sales training meeting;

● $0.5 million increase related to sales meetings and tradeshows; and

● $0.4 million increase in expenses for new product introduction.

Research and Development Expenses

Research and development (“R&D”) expenses increased $0.2 million, or 12%, to $1.6 million in the three months ended September 30, 2022, compared to $1.4 million in the three months ended September 30, 2021, which was primarily attributable to an increase in personnel-related compensation expense and R&D supplies.

R&D expenses increased $1.1 million, or 27%, to $5.0 million in the nine months ended September 30, 2022, compared to $3.9 million in the nine months ended September 30, 2021, which was primarily attributable to an increase in personnel-related compensation expense, R&D supplies, and professional services.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses increased $1.8 million, or 12%, to $16.3 million in the three months ended September 30, 2022, compared to $14.5 million in the three months ended September 30, 2021. This increase was primarily attributable to a:

● $1.3 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions; and

● $1.3 million increase in occupancy costs, depreciation expense, and legal and professional fees.

These increases were partially offset by a $0.8 million decrease in acquisition costs.

Reimbursement, general and administrative expenses increased $4.6 million, or 11%, to $47.4 million in the nine months ended September 30, 2022, compared to $42.8 million in the nine months ended September 30, 2021. This increase was primarily attributable to a:

● $2.7 million increase in occupancy costs, depreciation expense, and legal and professional fees;

● $2.6 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions; and

● $0.1 million increase in travel and entertainment expenses.

These increases were partially offset by a $0.8 million decrease in acquisition costs.

Intangible Asset Amortization and Earn-out Expense

Intangible asset amortization and earn-out expense increased $3.8 million to $4.0 million in the three months ended September 30, 2022, compared to $0.2 million in the three months ended September 30, 2021. The increase in intangible asset amortization and earn-out expense was partially attributable to the increase in the estimated fair value of our earn-out liability and partially attributable to a full quarter of amortization in the 2022 period versus a half month of amortization in the 2021 period.

31

Intangible asset amortization and earn-out expense increased $12.5 million to $12.8 million in the nine months ended September 30, 2022, compared to $0.3 million in the nine months ended September 30, 2021. The increase in intangible asset amortization and earn-out expense was primarily attributable to the increase in the estimated fair value of our earn-out liability.

Other Expense, Net

Other expense, net was $0.7 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and was $1.8 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in both periods was primarily attributable to an increase in interest expense.

Income Taxes

We recorded an income tax benefit of $77 thousand and an income tax expense of $1.9 million for the three months ended September 30, 2022 and 2021, respectively. We recorded an income tax expense of $0.1 million and an income tax benefit of $1.4 million for the nine months ended September 30, 2022 and 2021, respectively. The differences relate to a full valuation allowance being recorded for net deferred tax assets for the current year periods, whereas no valuation allowance was recorded for the 2021 periods.

Liquidity and Capital Resources

Cash Flows

At September 30, 2022, our principal sources of liquidity were cash and cash equivalents of $23.4 million and net accounts receivable of $69.5 million. This compares to cash and cash equivalents of $22.4 million and net accounts receivable of $44.3 million at September 30, 2021.

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

	Nine Months Ended
	September 30,
(In thousands)	2022		2021
Net cash provided by (used in):
Operating activities	$	1,354	$	(2,975)
Investing activities		(1,844)		(81,237)
Financing activities		(4,313)		58,758
Net decrease in cash and cash equivalents	$	(4,803)	$	(25,454)

Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2022 was $1.4 million, primarily resulting from non-cash net (loss) income adjustments of $23.3 million and a net increase in operating assets and liabilities of $0.6 million, partially offset by a net loss of $22.5 million. The non-cash net (loss) income adjustments consisted primarily of $10.9 million related to a change in fair value of earn-out liability, $7.7 million of stock-based compensation expense and $4.7 million of depreciation and amortization expense. The uses of cash related to changes in operating assets primarily consisted of increases in net investment in leases of $2.6 million, accounts receivable of $2.3 million, inventories of $3.8 million, and prepaid expenses and other assets of $0.3 million. The changes in operating liabilities consisted of increases in accrued expenses and other liabilities of $6.8 million, accounts payable of $6.1 million, and accrued payroll and related taxes of $1.4 million.

Net cash used in operating activities during the nine months ended September 30, 2021, was $3.0 million, resulting from a net loss of $4.3 million and a net decrease in operating assets and liabilities, net of acquisition, of $6.8 million, which was partially offset by non-cash net income (loss) adjustments of $8.1 million. The non-cash net income (loss) adjustments consisted primarily of $7.7 million of stock-based compensation

32

expense, $2.1 million of depreciation and amortization expense and a $1.7 million increase in deferred taxes. The uses of cash related to changes in operating assets primarily consisted of increases in inventories of $3.6 million, in accounts receivable of $3.4 million, in net investment in leases of $1.7 million, in income taxes of $1.2 million, and in prepaid expenses and other assets of $1.1 million. The changes in operating liabilities consisted of increases in accrued expenses and other liabilities of $2.9 million and accounts payable of $2.0 million, partially offset by a decrease in accrued payroll and related taxes of $1.3 million.

Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2022, was $1.8 million, consisting of purchases of property and equipment, and patent costs.

Net cash used in investing activities during the nine months ended September 30, 2021, was $81.2 million, primarily consisting of acquisition-related payments of $79.8 million associated with the purchase of the AffloVest business and $1.4 million in purchases of property and equipment, and patent costs.

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2022, was $4.3 million, primarily consisting of payments of $5.3 million made on our term loan, slightly offset by $1.0 million in proceeds from exercise of common stock options and the issuance of common stock under the ESPP.

Net cash provided by financing activities during the nine months ended September 30, 2021, was $58.8 million, primarily consisting of borrowings of $54.8 million net of debt issuance costs incurred and $5.1 million in proceeds from the exercise of common stock options and the issuance of common stock under the ESPP, partially offset by $1.2 million in taxes paid for the net share settlement of performance and restricted stock units.

Credit Agreement

On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. The Restated Credit Agreement amended and restated in its entirety our prior credit agreement.

On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amends the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent. The Amendment, among other things, adds a $30.0 million incremental term loan to the $25.0 million revolving credit facility provided by the Restated Credit Agreement. The term loan is reflected on our condensed consolidated financial statements as a note payable. The term loan and the revolving credit facility mature on September 8, 2024. The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $80.0 million.

On September 8, 2021, in connection with the closing of the AffloVest Acquisition, we borrowed the $30.0 million term loan and utilized that borrowing, together with a draw of $25.0 million under the revolving credit facility and cash on hand, to fund the purchase price.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amends the Credit Agreement, including with respect to the financial covenants.

The principal of the term loan is required to be repaid in quarterly installments of $750,000 commencing January 7, 2022, through July 8, 2024, with the remaining outstanding balance due on September

33

8, 2024. Pursuant to the Second Amendment, we made a mandatory principal prepayment of the term loan of $3.0 million on February 22, 2022.

As of September 30, 2022, the outstanding balance of the term loan was $24.8 million and the outstanding balance under the revolving credit facility was $25.0 million. As of September 30, 2022, there was no availability under our Credit Agreement.

Our obligations under the 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 Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum consolidated EBITDA covenant and a minimum liquidity covenant. As of September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

For additional information regarding the Credit Agreement, including interest rates, fees and maturities, see Note 9 – “Credit Agreement” of the condensed consolidated financial statements contained in this report.

Future Cash Requirements

For a discussion of our material estimated future cash requirements under our contractual obligations and commercial commitments, in total and disaggregated into current and long-term, see “Future Cash Requirements” 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, 2021. There have been no material changes since December 31, 2021.

As discussed in Note 4 – “Acquisitions” of the condensed consolidated financial statements contained in this report, the initial earn-out payment under the AffloVest Acquisition is $10.0 million, of which we will pay $5.0 million on or before November 28, 2022, and of which we will pay $5.0 million, plus an imputed interest payment of $250,000, on or before May 26, 2023.

Adequacy of Resources

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

● the impact and duration 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;

● increases in interest rates;

● labor shortages and wage inflation;

● component price inflation;

● costs to develop and implement new products; and

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

34

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 and other factors such as inflation and rising interest rates are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, debt repayment and related interest, and other cash requirements for at least the next twelve months.

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 Estimates

Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. For additional information, please see the discussion of our most critical accounting estimates under “Critical Accounting 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, 2021.

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, 2021. There have been no material changes since December 31, 2021.

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 September 30, 2022. 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 September 30, 2022, 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 September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

35

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, 2021, 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

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.

36

EXHIBIT INDEX

		Incorporated by Reference
Exhibit				Exhibit	Filed
Number	Description of Exhibit	Form	Date of Filing	Number	Herewith
2.1	Amendment to Asset Purchase Agreement, dated as of November 4, 2022, by and between Tactile Systems Technology, Inc. and Movair, Inc. (f/k/a International Biophysics Corporation)				X
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
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 September 30, 2022, formatted in Inline XBRL: (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Stockholders’ Equity, (iv) Statements of Cash Flows, and (v) 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

37

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: November 7, 2022	By:	/s/ Brent A. Moen
		Brent A. Moen
		Chief Financial Officer
		(Principal financial and accounting officer)

38

EX-2.1

Exhibit 2.1

Execution Version

AMENDMENT TO

ASSET PURCHASE AGREEMENT

This AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Amendment") is entered into as of November 4, 2022 by and between Tactile Systems Technology, Inc., a Delaware corporation ("Buyer"), and Movair, Inc. (formerly known as International Biophysics Corporation), a Texas corporation ("Seller"), and amends that certain Asset Purchase Agreement, dated as of September 8, 2021 (the "Purchase Agreement"), among Buyer, Seller, and, solely with respect to Sections 5.5 and 5.7 of the Purchase Agreement, H. David Shockley, Jr. (the "Shareholder"). Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given to such terms in the Purchase Agreement.

RECITALS

A.Section 9.1 of the Purchase Agreement states that the Purchase Agreement may be amended, modified or supplemented only by written agreement of Buyer and Seller.

B.Buyer and Seller desire to amend certain provisions of the Purchase Agreement, as set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:

1.Amendment to Purchase Agreement — Earn-Out.

(a)Section 1.9(b) of the Purchase Agreement is hereby amended by adding the following after the second sentence thereof:

"Buyer and Seller acknowledge and agree that the Initial Earn-Out Payment is equal to $10,000,000. Buyer shall pay to Seller $5,000,000 of the Initial Earn-Out Payment on or before November 28, 2022. Buyer shall pay the remaining portion of the Initial Earn-Out Payment of $5,000,000, plus an imputed interest payment of $250,000, for a total payment of $5,250,000, on or before May 26, 2023."

(b)The definition of Second Earn-Out Payment in Section 1.9(n)(ix) is amended and restated in its entirety as follows:

"Second Earn-Out Payment" means an amount equal to (A) 3.0 multiplied by (B) the amount by which the Business's Revenues in the Second Earn-out Period exceed Initial Period Revenues; provided that in no event will the Second Earn-Out Payment exceed $10,000,000."

(a)

(b)

(c)There is hereby added to Section 1.9 a new paragraph (o), to read as follows:

"(o)Given the Parties' agreement in Section 9.7(o), any portion of any Earn-Out Payment not paid on the date due in accordance with this Section 1.9 shall bear interest from the date due until the date paid in full at a rate equal to the lesser of (i) the highest rate permissible under any Applicable Law or (ii) the LIBOR Rate (as defined in the Credit Agreement) or, if the LIBOR Rate is no longer available or used under the Credit Agreement, any Benchmark Replacement (as defined in the Credit Agreement) plus 5.50%."

(d)There is hereby added to Section 9.7 the following definition:

"Credit Agreement" means the Amended and Restated Credit Agreement, dated as of April 30, 2021 among Buyer, Wells Fargo Bank, National Association, as administrative agent for the Lenders, and the Lenders signatory thereto, together with all amendments, restatements, supplements and modifications thereto, including the First Amendment Agreement dated as of September 8, 2021 and Second Amendment Agreement dated as of February 22, 2022."

2.Representations and Warranties. In order to induce the other Party to enter into this Amendment, each Party represents and warrants to the other Party that (a) such Party has the corporate power and authority to execute and deliver this Amendment and to perform its obligations hereunder; (b) the execution and delivery of this Amendment by such Party has been duly authorized by all necessary corporate action on the part of such Party; (c) this Amendment has been duly and validly executed and delivered by such Party and constitutes the legal, valid and binding agreement of such Party, enforceable against it in accordance with its terms, except as the enforceability hereof and thereof may be limited by the Enforcement Exceptions; (d) the execution and delivery by such Party of this Amendment will not violate, conflict with, or result in the breach of any of the terms of any provision of any material contract to which such Party is a party (including, in the case of Buyer, the Credit Agreement); and (e) as of the date hereof, such Party does not have Knowledge of any claim by it for Damages under Article 7 of the Purchase Agreement.

3.Full Force and Effect. The Purchase Agreement is amended only as expressly provided in this Amendment and shall otherwise continue in full force and effect.

4.Terms Incorporated. The provisions of Section 9.1 through Section 9.19 of the Purchase Agreement are incorporated herein by reference and shall apply to this Amendment mutatis mutandis.

5.Governing Law. This Amendment will be governed by and construed in accordance with the laws of the State of Delaware, to the exclusion of the law of any other forum and notwithstanding any jurisdiction's choice-of-law rules to the contrary.

6.Counterparts. This Amendment may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Such counterparts may be executed and delivered by facsimile or other

electronic means by any of the Parties (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com), and the receiving Party may rely on the receipt of such document so executed and delivered as if the original had been received.

[Signature Page Follows]

In witness whereof, Buyer and Seller have caused this Amendment to be executed as of the date first written above.

BUYER:

TACTILE SYSTEMS TECHNOLOGY, INC.

By: /s/ Daniel L. Reuvers

Name: Daniel L. Reuvers

Title: Chief Executive Officer

SELLER:

MOVAIR, INC.

By: /s/ H. David Shockley, Jr.

Name: H. David Shockley, Jr.

Title:President/CEO

[Signature page to Amendment to Asset Purchase Agreement]

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: November 7, 2022

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: November 7, 2022

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 September 30, 2022, 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: November 7, 2022

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 September 30, 2022, 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: November 7, 2022

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Nov. 04, 2022
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
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		20,154,703
Entity Central Index Key	0001027838
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current assets
Cash and cash equivalents	$ 23,426	$ 28,229
Accounts receivable	51,814	49,478
Net investment in leases	15,052	12,482
Inventories	23,020	19,217
Prepaid expenses and other current assets	3,484	4,141
Total current assets	116,796	113,547
Non-current assets
Property and equipment, net	6,677	6,750
Right of use operating lease assets	21,975	23,984
Intangible assets, net	51,308	54,081
Goodwill	31,063	31,063
Accounts receivable, non-current	17,703	12,847
Other non-current assets	3,004	1,998
Total non-current assets	131,730	130,723
Total assets	248,526	244,270
Current liabilities
Accounts payable	11,171	5,023
Note payable	2,968	2,960
Earn-out, current	10,000	3,250
Accrued payroll and related taxes	13,575	12,139
Accrued expenses	6,953	5,262
Income taxes payable	11	16
Operating lease liabilities	2,486	2,506
Other current liabilities	8,497	3,305
Total current liabilities	55,661	34,461
Non-current liabilities
Revolving line of credit, non-current	24,904	24,857
Note payable, non-current	21,721	26,933
Earn-out, non-current	7,098	2,950
Accrued warranty reserve, non-current	2,892	3,108
Income taxes payable, non-current	298	348
Operating lease liabilities, non-current	21,506	23,354
Deferred income taxes	49	32
Total non-current liabilities	78,468	81,582
Total liabilities	134,129	116,043
Stockholders' equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of September 30, 2022 and December 31, 2021
Common stock, $0.001 par value, 300,000,000 shares authorized; 20,155,704 shares issued and outstanding as of September 30, 2022; 19,877,786 shares issued and outstanding as of December 31, 2021	20	20
Additional paid-in capital	128,619	119,962
(Accumulated deficit) retained earnings	(14,242)	8,245
Total stockholders' equity	114,397	128,227
Total liabilities and stockholders' equity	$ 248,526	$ 244,270

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2022	Dec. 31, 2021
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	20,155,704	19,877,786
Common stock, shares, outstanding	20,155,704	19,877,786

XML

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Total revenue	$ 65,262	$ 52,497	$ 172,885	$ 146,329
Total cost of revenue	18,468	15,529	49,006	42,926
Gross profit	46,794	36,968	123,879	103,403
Operating expenses
Sales and marketing	26,583	22,231	79,335	61,949
Research and development	1,581	1,409	4,949	3,885
Reimbursement, general and administrative	16,257	14,500	47,369	42,802
Intangible asset amortization and earn-out	3,993	195	12,834	294
Total operating expenses	48,414	38,335	144,487	108,930
Loss from operations	(1,620)	(1,367)	(20,608)	(5,527)
Other expense	(736)	(120)	(1,765)	(154)
Loss before income taxes	(2,356)	(1,487)	(22,373)	(5,681)
Income tax (benefit) expense	(77)	1,868	114	(1,365)
Net loss	$ (2,279)	$ (3,355)	$ (22,487)	$ (4,316)
Net loss per common share
Basic (in dollars per share)	$ (0.11)	$ (0.17)	$ (1.12)	$ (0.22)
Diluted (in dollars per share)	$ (0.11)	$ (0.17)	$ (1.12)	$ (0.22)
Weighted-average common shares used to compute net loss per common share
Basic (in shares)	20,139,944	19,790,838	20,021,966	19,676,749
Diluted (in shares)	20,139,944	19,790,838	20,021,966	19,676,749
Sales revenue
Total revenue	$ 55,545	$ 44,460	$ 147,980	$ 124,215
Total cost of revenue	15,476	13,096	41,366	36,425
Gross profit	40,069	31,364	106,614	87,790
Rental revenue
Total revenue	9,717	8,037	24,905	22,114
Total cost of revenue	2,992	2,433	7,640	6,501
Gross profit	$ 6,725	$ 5,604	$ 17,265	$ 15,613

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Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	(Accumulated Deficit) Retained Earnings	Total
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		7,703		7,703
Exercise of common stock options and vesting of performance and restricted stock units	$ 1	3,583		3,584
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	284,829
Taxes paid for net share settlement of performance and restricted stock units		(1,157)		(1,157)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(21,918)
Common shares issued for employee stock purchase plan		1,542		1,542
Common shares issued for employee stock purchase plan (in shares)	42,094
Net loss for the period			(4,316)	(4,316)
Balances at the end at Sep. 30, 2021	$ 20	116,346	15,740	132,106
Balances at the end (in shares) at Sep. 30, 2021	19,797,723
Balances at the beginning at Jun. 30, 2021	$ 20	113,601	19,095	132,716
Balances at the beginning (in shares) at Jun. 30, 2021	19,782,295
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		2,588		2,588
Exercise of common stock options and vesting of performance and restricted stock units		199		199
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	16,366
Taxes paid for net share settlement of performance and restricted stock units		(42)		(42)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(938)
Net loss for the period			(3,355)	(3,355)
Balances at the end at Sep. 30, 2021	$ 20	116,346	15,740	132,106
Balances at the end (in shares) at Sep. 30, 2021	19,797,723
Balances at the beginning at Dec. 31, 2021	$ 20	119,962	8,245	128,227
Balances at the beginning (in shares) at Dec. 31, 2021	19,877,786
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		7,681		7,681
Exercise of common stock options and vesting of performance and restricted stock units		152		152
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	192,644
Common shares issued for employee stock purchase plan		824		824
Common shares issued for employee stock purchase plan (in shares)	85,274
Net loss for the period			(22,487)	(22,487)
Balances at the end at Sep. 30, 2022	$ 20	128,619	(14,242)	114,397
Balances at the end (in shares) at Sep. 30, 2022	20,155,704
Balances at the beginning at Jun. 30, 2022	$ 20	126,059	(11,963)	114,116
Balances at the beginning (in shares) at Jun. 30, 2022	20,132,145
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		2,560		2,560
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	23,559
Net loss for the period			(2,279)	(2,279)
Balances at the end at Sep. 30, 2022	$ 20	$ 128,619	$ (14,242)	$ 114,397
Balances at the end (in shares) at Sep. 30, 2022	20,155,704

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash flows from operating activities
Net loss	$ (22,487)	$ (4,316)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	4,670	2,150
Deferred income taxes	17	(1,709)
Stock-based compensation expense	7,681	7,703
Loss on disposal of property and equipment and intangibles	20	7
Change in fair value of earn-out liability	10,898
Changes in assets and liabilities, net of acquisition:
Accounts receivable	(2,336)	(408)
Net investment in leases	(2,570)	(1,677)
Inventories	(3,803)	(3,641)
Income taxes	(55)	(1,181)
Prepaid expenses and other assets	(349)	(1,133)
Right of use operating lease assets	141	588
Accounts receivable, non-current	(4,856)	(2,989)
Accounts payable	6,148	1,995
Accrued payroll and related taxes	1,436	(1,266)
Accrued expenses and other liabilities	6,799	2,902
Net cash provided by (used in) operating activities	1,354	(2,975)
Cash flows from investing activities
Payments related to acquisition		(79,829)
Purchases of property and equipment	(1,731)	(1,221)
Intangible assets expenditures	(113)	(187)
Net cash used in investing activities	(1,844)	(81,237)
Cash flows from financing activities
Proceeds from issuance of note payable		30,000
Proceeds from revolving line of credit		25,000
Payments on note payable	(5,250)
Payments of deferred debt issuance costs	(39)	(211)
Taxes paid for net share settlement of performance and restricted stock units		(1,157)
Proceeds from exercise of common stock options	152	3,584
Proceeds from the issuance of common stock from the employee stock purchase plan	824	1,542
Net cash (used in) provided by financing activities	(4,313)	58,758
Net decrease in cash and cash equivalents	(4,803)	(25,454)
Cash and cash equivalents - beginning of period	28,229	47,855
Cash and cash equivalents - end of period	23,426	22,401
Supplemental cash flow disclosure
Cash paid for interest	1,433
Cash paid for taxes	29	$ 1,541
Capital expenditures incurred but not yet paid	$ 16

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Nature of Business and Operations

9 Months Ended

Sep. 30, 2022

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”) manufactures and distributes medical devices for the treatment of patients with underserved chronic diseases at home. We provide our Flexitouch® and Entre™ systems, which help control symptoms of lymphedema, a chronic progressive medical condition, through our direct sales force for use in the home and sell or rent them through vascular, wound and lymphedema clinics throughout the United States.

On September 8, 2021, we acquired the assets of the AffloVest airway clearance business (“AffloVest Acquisition”) from International Biophysics Corporation (“IBC”), a privately-held company which developed and manufactured AffloVest. AffloVest is a portable, wearable vest that treats patients with chronic respiratory conditions. We sell this device through home medical equipment and durable medical equipment (“DME”) providers throughout the United States. 

We were originally incorporated in Minnesota under the name Tactile Systems Technology, Inc. on January 30, 1995. During 2006, we established a merger corporation and subsequently, on July 21, 2006, merged with and into this merger corporation, resulting in our reincorporation as a Delaware corporation. The resulting corporation assumed the name Tactile Systems Technology, Inc. In September 2013, we began doing business as “Tactile Medical”.

On August 2, 2016, we closed the initial public offering of our common stock, which resulted in the sale of 4,120,000 shares of our common stock at a public offering price of $10.00 per share. We received net proceeds from the initial public offering of approximately $35.4 million, after deducting underwriting discounts and approximately $2.9 million of transaction expenses.

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 have been, and may continue to be, significantly different than historical trends as a result of the COVID-19 pandemic and related impacts.

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Basis of Presentation

9 Months Ended

Sep. 30, 2022

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 nine months ended September 30, 2022, are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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, 2021.

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 most of 2021 and during the first quarter of 2022. We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic. While we saw some level of recovery in the second and third quarters of 2022, ongoing consequences of the pandemic remain uncertain. 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 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.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

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 nine months ended September 30, 2022. 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, 2021, for information regarding our significant accounting policies.

Accounting Pronouncement Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), addressing the discontinuation of LIBOR, a widely used reference rate for pricing financial products. The ASU is intended to provide optional expedients and exceptions if certain criteria are met when accounting for contracts, hedging relationships and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The application and adoption requirements of ASU 2020-04 are optional until December 31, 2022 and vary based on expedients elected. We have not elected any expedients to date and are currently evaluating any potential future impacts on the condensed consolidated financial statements.

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Acquisitions

9 Months Ended

Sep. 30, 2022

Acquisitions

Acquisitions

Note 4. Acquisitions

On September 8, 2021, we entered into an Asset Purchase Agreement (“AffloVest APA”) to acquire the AffloVest airway clearance business from IBC. Under the terms of the AffloVest APA, we agreed to pay IBC a total of up to $100.0 million for the purchase of substantially all of the assets related to its branded high frequency chest wall oscillation vest therapy business, other than specifically identified excluded assets. We acquired AffloVest to further expand our position as a leader in treating patients with underserved chronic conditions in the home. The acquired assets included inventory, tooling, intellectual property, permits and approvals, data and records, and customer and supplier information. At closing, $80.0 million of the purchase price was paid, of which a total of $0.5 million was deposited into an escrow account at closing for purposes of satisfying certain post-closing purchase price adjustments and indemnification claims. Subsequent to closing, $0.2 million was returned to us as a result of working capital adjustments. The AffloVest acquisition was funded through a combination of cash on hand and proceeds from borrowings. 

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

● Initial Earn-Out: The AffloVest APA provided for an initial earn-out equal to 1.5 times the amount by which the AffloVest U.S. revenues in the period from October 1, 2021 to September 30, 2022 (the “Initial Earn-Out Period”) exceed a specified amount; provided that in no event will the payment exceed $10.0 million.

o The APA Amendment provides that the calculated amount of the initial earn-out payment is $10.0 million, of which the Company will pay $5.0 million on or before November 28, 2022, and of which the Company will pay $5.0 million, plus an imputed interest payment of $250,000, on or before May 26, 2023.

● Second Earn-Out: The AffloVest APA provided for a second earn-out equal to 1.5 times the amount by which the AffloVest U.S. revenues in the period from October 1, 2022 to September 30, 2023 exceed the revenues recognized during the Initial Earn-Out Period; provided that in no event will the payment exceed $10.0 million.

o The APA Amendment changes the 1.5 times multiplier to 3.0 times, but still provides that in no event will the second earn-out payment exceed $10.0 million.

The fair value of the earn-out as of the acquisition date was $6.4 million. The fair value of the earn-out, reflecting management’s estimate of the likelihood of achieving these targets, was determined by employing a Monte Carlo Simulation model. This amount and the current versus non-current allocation is remeasured at the end of each reporting period until the payment requirement ends, with any adjustments reported in income from operations (see Note 15 – “Fair Value Measurements”).

On the date of AffloVest Acquisition, we allocated the assets acquired based on an estimate of their fair values. The following table summarizes the purchase price allocation:

(In millions)	Allocated Fair Value
Inventories	$	1.6
Property and equipment(1)		—
Intangible assets		53.5
Goodwill		31.1
Purchase price	$	86.2

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

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

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

(In millions)	Allocated Fair Value		Estimated Useful Life
Customer relationships	$	31.0	13 years
Developed technology		13.0	11 years
Tradenames		9.5	Indefinite
Total intangible assets	$	53.5

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

The fair market valuations associated with the assets acquired fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value. The fair value measurements were calculated using unobservable inputs, primarily using the income approach, specifically the discounted cash flow method. The amount and timing of future cash flows within our analysis was based on our due diligence models, most recent operational budgets, long-range strategic plans and other estimates.

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Inventories

9 Months Ended

Sep. 30, 2022

Inventories

Inventories

Note 5. Inventories

Inventories consisted of the following:

(In thousands)	At September 30, 2022		At December 31, 2021
Finished goods	$	7,060	$	8,242
Component parts and work-in-process		15,960		10,975
Total inventories	$	23,020	$	19,217

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets.

Goodwill and Intangible Assets

Note 6. Goodwill and Intangible Assets

Goodwill

In the third quarter of fiscal 2021, we completed the AffloVest Acquisition. The purchase price of the AffloVest product line exceeded the net acquisition-date estimated fair value amounts of the identifiable assets acquired and the liabilities assumed by $31.1 million, which was assigned to goodwill. 

Intangible Assets

Our patents and other intangible assets are summarized as follows:

	Weighted-	At September 30, 2022
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	829	$	157	$	672
Defensive intangible assets	3 years		1,125		721		404
Customer accounts	1 year		125		108		17
Customer relationships	12 years		31,000		2,530		28,470
Developed technology	10 years		13,000		1,254		11,746
Subtotal			46,079		4,770		41,309
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			499		—		499
Total intangible assets		$	56,078	$	4,770	$	51,308

	Weighted-	At December 31, 2021
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	666	$	109	$	557
Defensive intangible assets	3 years		1,125		592		533
Customer accounts	1 year		125		89		36
Customer relationships	13 years		31,000		742		30,258
Developed technology	11 years		13,000		368		12,632
Subtotal			45,916		1,900		44,016
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			565		—		565
Total intangible assets		$	55,981	$	1,900	$	54,081

Amortization expense was $1.0 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $2.9 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively. Future amortization expenses are expected as follows:

(In thousands)
2022 (October 1 - December 31)	$	958
2023		3,801
2024		3,780
2025		3,690
2026		3,626
Thereafter		25,454
Total	$	41,309

In the third quarter of 2022, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASU No. 2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events. Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying value. As a result, it was not deemed necessary to proceed to the quantitative test and no impairment was recognized.

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Accrued Expenses

9 Months Ended

Sep. 30, 2022

Accrued Expenses

Accrued Expenses

Note 7. Accrued Expenses

Accrued expenses consisted of the following:

(In thousands)	At September 30, 2022		At December 31, 2021
Legal and consulting	$	1,835	$	1,371
Warranty		1,732		1,851
Travel		918		661
In-transit inventory		589		416
Clinical studies		165		113
Sales and use tax		110		106
Other		1,604		744
Total	$	6,953	$	5,262

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Warranty Reserves

9 Months Ended

Sep. 30, 2022

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				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Beginning balance	$	4,818	$	5,117	$	4,959	$	4,841
Warranty provision		589		624		1,586		2,080
Processed warranty claims		(783)		(604)		(1,921)		(1,784)
Ending balance	$	4,624	$	5,137	$	4,624	$	5,137
Accrued warranty reserve, current	$	1,732	$	1,779	$	1,732	$	1,779
Accrued warranty reserve, non-current		2,892		3,358		2,892		3,358
Total accrued warranty reserve	$	4,624	$	5,137	$	4,624	$	5,137

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Credit Agreement

9 Months Ended

Sep. 30, 2022

Credit Agreement

Credit Agreement

Note 9. Credit Agreement

On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. The Restated Credit Agreement amended and restated in its entirety our prior credit agreement.

On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amends the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent. The Amendment, among other things, adds a $30.0 million incremental term loan to the $25.0 million revolving credit facility provided by the Restated Credit Agreement. The term loan is reflected on our condensed consolidated financial statements as a note payable. The term loan and the revolving credit facility mature on September 8, 2024. The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $80.0 million.

On September 8, 2021, in connection with the closing of the AffloVest Acquisition, we borrowed the $30.0 million term loan and utilized that borrowing, together with a draw of $25.0 million under the revolving credit facility and cash on hand, to fund the purchase price.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amended the Credit Agreement, including with respect to the financial covenants.

The principal of the term loan is required to be repaid in quarterly installments of $750,000 commencing January 7, 2022, through July 8, 2024, with the remaining outstanding balance due on September 8, 2024. Pursuant to the Second Amendment, we made a mandatory principal prepayment of the term loan of $3.0 million on February 22, 2022.

As of September 30, 2022, the outstanding balance of the term loan was $24.8 million and the outstanding balance under the revolving credit facility was $25.0 million. As of September 30, 2022, there was no availability under our Credit Agreement.

The term loan and amounts drawn under the revolving credit facility bear interest, at our option, at a rate equal to (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) LIBOR for an interest period of one month plus 1% (the “Base Rate”) plus an applicable margin or (b) LIBOR for an interest period of

one, three or six months, at our option, plus the applicable margin. The applicable margin is 0.75% to 2.25% on loans bearing interest at the Base Rate and 1.75% to 3.25% on loans bearing interest at LIBOR, in each case depending on our consolidated total leverage ratio; except that, pursuant to the Second Amendment, during the period commencing on February 22, 2022 and ending on the last day of the fiscal quarter ending June 30, 2023, the applicable margin for LIBOR rate loans is 3.50%. At September 30, 2022, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 5.93%. Undrawn portions of the revolving credit facility are subject to an unused line fee at a rate per annum from 0.300% to 0.375%, depending on our consolidated total leverage ratio.

Maturities of the term loan for the next three years as of September 30, 2022, are as follows:

(In thousands)	Amount
2022 (October 1 - December 31)	$	750
2023		3,000
2024		21,000
Total	$	24,750

Our obligations under the 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 Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum consolidated EBITDA covenant, and a minimum liquidity covenant. As of September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

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 Sheets.

None of our lease agreements contain material restrictive covenants or residual value guarantees.

Buildings

We lease certain office and warehouse space at various locations in the United States where we provide services. These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded on the Condensed Consolidated Balance Sheets, 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 eight years as of September 30, 2022.

We entered into a lease (“initial lease”) in October 2018, for approximately 80,000 square feet of office space for our new corporate headquarters in Minneapolis, Minnesota. In December 2018, we amended the initial lease to add approximately 29,000 square feet of additional office space, which is accounted for as a separate lease (“second lease”) in accordance with ASU No. 2016-02, “Leases” (Topic 842) (“ASC 842”). In December 2019, we further amended the lease which extended the expiration date of the initial lease, extended the expiration date of and added approximately 4,000 square feet to the second lease, as well as added approximately 37,000 square feet of additional office space, accounted for as a separate lease (“third lease”) in accordance with ASC 842. The portion of the space covered under the initial lease was placed in service in September 2019. The portion of the space covered under the second lease commenced in September 2020. Finally, the portion of the space covered under the third lease commenced in September 2021.

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 September 30, 2022, we had approximately nine 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 September 30, 2022, ranged from less than one year to approximately four years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities. The leases provide an option to purchase the related equipment at fair market value at the end of the lease. The leases will automatically renew as a month-to-month rental at the end of the lease if the equipment is not purchased or returned.

Lease Position, Undiscounted Cash Flow and Supplemental Information

The table below presents information related to our ROU operating lease assets and operating lease liabilities that we have recorded:

(In thousands)	At September 30, 2022		At December 31, 2021
Right of use operating lease assets	$	21,975	$	23,984
Operating lease liabilities:
Current	$	2,486	$	2,506
Non-current		21,506		23,354
Total	$	23,992	$	25,860
Operating leases:
Weighted average remaining lease term		7.9 years		8.6 years
Weighted average discount rate		4.2%		4.2%
	Nine Months Ended September 30,
	2022		2021
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	2,703	$	2,411
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	49	$	6,146

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

(In thousands)
2022 (October 1 - December 31)	$	874
2023		3,428
2024		3,418
2025		3,518
2026		3,615
Thereafter		13,249
Total minimum lease payments		28,102
Less: Amount of lease payments representing interest		(4,110)
Present value of future minimum lease payments		23,992
Less: Current obligations under operating lease liabilities		(2,486)
Non-current obligations under operating lease liabilities	$	21,506

Operating lease costs were $0.9 million for each of the three months ended September 30, 2022 and 2021. Operating lease costs were $2.8 million and $2.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Major Vendors

We had purchases from one vendor that accounted for 24% of our total purchases for the three months ended September 30, 2022 and purchases from two vendors that accounted for 44% of our total purchases for the nine months ended September 30, 2022. We had purchases from two vendors that accounted for 36% of our total purchases for the three months ended September 30, 2021 and purchases from one vendor that accounted for 24% of our total purchases for the nine months ended September 30, 2021.

Purchase Commitments

We issued purchase orders prior to September 30, 2022, totaling $36.3 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 $0.4 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $1.1 million and $0.9 million for the nine months ended September 30, 2022 and 2021, 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.

We and certain of our present or former officers have been 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 (the “Mart lawsuit”). 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. On March 31, 2022, the court granted in part, and denied in part, the defendants’ motion to dismiss. All claims against three individual defendants were dismissed, and most claims against four other individual defendants were dismissed. The Company remains a defendant on alleged Sections 10(b) and 20(a) claims. We are defending the action as it proceeds.

On May 24, 2022, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Company against certain present and former officers and directors and the Company (as a nominal defendant), captioned Jack Weaver v. Moen, et al., File No. 0:22-cv-01403-NEB-BRT. This complaint generally arises out of the same subject matter as the Mart lawsuit and alleges the following claims under the Exchange Act and common law: (1) that the director defendants made materially false or misleading public statements in proxy statements in violation of Section 14(a) of the Exchange Act; (2) that the director defendants’ stock and option awards should be rescinded under Section 29(b) of the Exchange Act; (3) that the officer defendants’ employment contract compensation should be rescinded under Section 29(b) of the Exchange Act; (4) that certain officer defendants are liable for contribution arising out of any liability incurred in the Mart lawsuit, under Sections 10(b) and 21D of the Exchange Act; (5) that the individual defendants breached their fiduciary duties; and (6) that the individual defendants were unjustly enriched. The lawsuit seeks unspecified damages. In August 2022, the matter was transferred to the United States District Court for the District of Delaware by order granting the Parties Stipulation to Transfer. It is now captioned Jack Weaver v. Moen, et al., File No. 1:22-cv-01063-GBW. We are defending the action as it proceeds.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2022

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 shares were added as available for issuance thereunder on January 1, 2021. Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022. As of September 30, 2022, 5,916,065 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.

We recorded stock-based compensation expense of $2.6 million for each of the three months ended September 30, 2022 and 2021, and $7.7 million for each of the nine months ended September 30, 2022 and 2021. This expense was allocated as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Cost of revenue	$	67	$	171	$	281	$	455
Sales and marketing expenses		1,101		1,081		3,352		2,979
Research and development expenses		54		68		175		224
Reimbursement, general and administrative expenses		1,338		1,268		3,873		4,045
Total stock-based compensation expense	$	2,560	$	2,588	$	7,681	$	7,703

Stock Options

Stock options issued to participants other than non-employees typically vest over three or four years and typically have a contractual term of seven or ten years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $0.6 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $2.0 million and $3.3 million for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there was approximately $2.2 million of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.2 years.

Our stock option activity for the nine months ended September 30, 2022, was as follows:

		Weighted-		Weighted-
		Average		Average	Aggregate
	Options	Exercise Price		Remaining	Intrinsic
(In thousands except options and per share data)	Outstanding	Per Share (1)		Contractual Life	Value (2)
Balance at December 31, 2021	915,224	$	39.33	5.0 years	$	2,068
Granted	—	$	—
Exercised	(90,878)	$	1.68		$	916
Forfeited	(58,115)	$	46.93
Cancelled/Expired	(152,448)	$	36.62
Balance at September 30, 2022	613,783	$	44.86	4.8 years	$	44
Options exercisable at September 30, 2022	402,979	$	44.18	4.7 years	$	44

(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 508,184 as of September 30, 2021, had a weighted-average exercise price of $30.45 per share.

Time-Based Restricted Stock Units

We have granted time-based restricted stock units to certain participants under the 2016 Plan that are stock-settled with common shares. Time-based restricted stock units granted under the 2016 Plan vest over one to three years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $1.5 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively, and $4.5 million and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there was approximately $9.4 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 nine months ended September 30, 2022, was as follows:

		Weighted-
		Average Grant		Aggregate
	Units	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value (1)
Balance at December 31, 2021	259,147	$	42.32	$	4,932
Granted	496,302	$	15.64
Vested	(93,444)	$	46.84
Cancelled	(54,299)	$	29.98
Balance at September 30, 2022	607,706	$	20.94	$	4,734

(1) The aggregate intrinsic value of restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

Performance-Based Restricted Stock Units

We have granted performance-based restricted stock units (“PSUs”) to certain participants under the 2016 Plan. These PSUs have both performance-based and time-based vesting features. The PSUs granted in 2020 would have been earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2021, but none were so earned. 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 PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin

are achieved in 2023. The number of PSUs earned 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 $0.3 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.5 million and less than $0.1 million for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there was approximately $2.2 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.3 years.

Our performance-based restricted stock unit activity for the nine months ended September 30, 2022, 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, 2021	54,317	$	50.22	$	1,034
Granted	131,710	$	18.54
Vested	(1,853)	$	19.03
Cancelled	(20,147)	$	23.18
Balance at September 30, 2022	164,027	$	25.11	$	1,278

(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 shares were added as available for issuance thereunder on January 1, 2021. Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022. As of September 30, 2022, 1,623,486 shares were available for future issuance under the ESPP. We recognized stock-based compensation expense associated with the ESPP of $0.2 million for each of the three months ended September 30, 2022 and 2021, and $0.7 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

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Revenue

9 Months Ended

Sep. 30, 2022

Revenue.

Revenue

Note 12. Revenue

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Revenue
Lymphedema products	$	54,214	$	51,636	$	146,502	$	145,468
Airway clearance products		11,048		861		26,383		861
Total	$	65,262	$	52,497	$	172,885	$	146,329
Percentage of total revenue
Lymphedema products		83%		98%		85%		99%
Airway clearance products		17%		2%		15%		1%
Total		100%		100%		100%		100%

Our revenue by channel, inclusive of sales and rental revenue, for the three and nine months ended September 30, 2022 and 2021, are summarized in the following table:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Private insurers and other payers	$	36,188	$	36,034	$	97,726	$	99,665
Veterans Administration		6,755		6,737		19,118		19,905
Medicare		11,271		8,865		29,658		25,898
Durable medical equipment distributors		11,048		861		26,383		861
Total	$	65,262	$	52,497	$	172,885	$	146,329

Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months. As title transfers to the patient, with whom we have the contract, upon the termination of the lease term and because collectability is probable, under ASC 842, these are recognized as sales-type leases. Each rental agreement contains two components, the controller and related garments, both of which are interdependent and recognized as one lease component.

The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Condensed Consolidated Balance 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 nine months ended September 30, 2022 and 2021, was primarily from private insurers. Sales-type lease revenue and the associated cost of revenue for the three and nine months ended September 30, 2022 and 2021, was:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Sales-type lease revenue	$	9,717	$	8,037	$	24,905	$	22,114
Cost of sales-type lease revenue		2,992		2,433		7,640		6,501
Gross profit	$	6,725	$	5,604	$	17,265	$	15,613

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Income Taxes

9 Months Ended

Sep. 30, 2022

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 September 30, 2022, was a benefit of 3.3%, compared to an expense of 126% for the three months ended September 30, 2021. The primary driver of the change in the Company’s effective tax rate is attributable to a full valuation allowance being recorded for net deferred tax assets for the current period, whereas no valuation allowance was recorded for 2021. We recorded an income tax benefit of $77 thousand and an expense of $1.9 million for the three months ended September 30, 2022 and 2021, respectively.

The effective tax rate for the nine months ended September 30, 2022, was an expense of 0.5%, compared to a benefit of 24% for the nine months ended September 30, 2021. The primary driver of the change in the Company’s effective tax rate is attributable to a full valuation allowance being recorded for net deferred tax assets for the current period, whereas no valuation allowance was recorded for 2021. We recorded an income tax expense of $0.1 million and a benefit of $1.4 million for the nine months ended September 30, 2022 and 2021, respectively.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-not to sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company currently is not under examination in any jurisdictions.

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Net Loss Per Share

9 Months Ended

Sep. 30, 2022

Net Loss Per Share

Net Loss Per Share

Note 14. Net Loss Per Share

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Net loss	$	(2,279)	$	(3,355)	$	(22,487)	$	(4,316)
Weighted-average shares outstanding		20,139,944		19,790,838		20,021,966		19,676,749
Dilutive effect of stock-based awards		—		—		—		—
Weighted-average shares used to compute diluted net loss per share		20,139,944		19,790,838		20,021,966		19,676,749
Net loss per share - Basic	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)
Net loss per share - Diluted	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
Restricted stock units	607,706	190,261	607,706	190,261
Common stock options	613,783	977,076	613,783	977,076
Performance stock units	164,027	60,627	164,027	60,627
Employee stock purchase plan	143,526	38,325	93,592	33,931
Total	1,529,042	1,266,289	1,479,108	1,261,895

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Fair Value Measurements

9 Months Ended

Sep. 30, 2022

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).

We have obligations to pay up to $20.0 million in earn-out payments in cash if certain future U.S. revenues of the AffloVest are met. The earn-out liability was valued by employing a Monte Carlo Simulation model in a risk-neutral framework, which is a Level 3 input. The underlying simulated variable includes recognized revenue. The recognized revenue volatility estimate was based on a study of historical asset volatility for a set of comparable public companies. The model includes other assumptions including the market price of risk, which was calculated as the weighted average cost of capital less the long-term risk-free rate. The earn-out liability is adjusted to fair value at each reporting date until settled. Changes in fair value are included in intangible asset amortization and earn-out expenses in our Condensed Consolidated Statements of Operations.

Changes in the earn-out liability measured at fair value using Level 3 inputs were as follows:

(In thousands)
Earn-out liability at December 31, 2021	$	6,200
Addition for acquisition		—
Fair value adjustments		10,898
Earn-out liability at September 30, 2022	$	17,098

As of September 30, 2022, the earn-out liability totaled $17.1 million, $7.1 million of which was non-current and $10.0 million of which had been earned and is a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of September 30, 2022, and December 31, 2021, according to the three-level fair value hierarchy:

	At September 30, 2022
	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:
Earn-out liability	$	—		—	$	7,098	$	7,098
Total	$	—	$	—	$	7,098	$	7,098

	At December 31, 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:
Earn-out liability	$	—	$	—	$	6,200	$	6,200
Total	$	—	$	—	$	6,200	$	6,200

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.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

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 nine months ended September 30, 2022, are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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, 2021.

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 most of 2021 and during the first quarter of 2022. We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic. While we saw some level of recovery in the second and third quarters of 2022, ongoing consequences of the pandemic remain uncertain. 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 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.

Accounting Pronouncement Not Yet Adopted

Accounting Pronouncement Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), addressing the discontinuation of LIBOR, a widely used reference rate for pricing financial products. The ASU is intended to provide optional expedients and exceptions if certain criteria are met when accounting for contracts, hedging relationships and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The application and adoption requirements of ASU 2020-04 are optional until December 31, 2022 and vary based on expedients elected. We have not elected any expedients to date and are currently evaluating any potential future impacts on the condensed consolidated financial statements.

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Acquisitions (Tables)

9 Months Ended

Sep. 30, 2022

Acquisitions

Summary of purchase price allocation

The following table summarizes the purchase price allocation:

(In millions)	Allocated Fair Value
Inventories	$	1.6
Property and equipment(1)		—
Intangible assets		53.5
Goodwill		31.1
Purchase price	$	86.2

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

Schedule of allocation of the purchase price

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

(In millions)	Allocated Fair Value		Estimated Useful Life
Customer relationships	$	31.0	13 years
Developed technology		13.0	11 years
Tradenames		9.5	Indefinite
Total intangible assets	$	53.5

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Inventories (Tables)

9 Months Ended

Sep. 30, 2022

Inventories

Schedule of inventories

(In thousands)	At September 30, 2022		At December 31, 2021
Finished goods	$	7,060	$	8,242
Component parts and work-in-process		15,960		10,975
Total inventories	$	23,020	$	19,217

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets.

Schedule of finite lived intangible assets

	Weighted-	At September 30, 2022
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	829	$	157	$	672
Defensive intangible assets	3 years		1,125		721		404
Customer accounts	1 year		125		108		17
Customer relationships	12 years		31,000		2,530		28,470
Developed technology	10 years		13,000		1,254		11,746
Subtotal			46,079		4,770		41,309
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			499		—		499
Total intangible assets		$	56,078	$	4,770	$	51,308

	Weighted-	At December 31, 2021
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	666	$	109	$	557
Defensive intangible assets	3 years		1,125		592		533
Customer accounts	1 year		125		89		36
Customer relationships	13 years		31,000		742		30,258
Developed technology	11 years		13,000		368		12,632
Subtotal			45,916		1,900		44,016
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			565		—		565
Total intangible assets		$	55,981	$	1,900	$	54,081

Schedule of future amortization expense

(In thousands)
2022 (October 1 - December 31)	$	958
2023		3,801
2024		3,780
2025		3,690
2026		3,626
Thereafter		25,454
Total	$	41,309

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Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2022

Accrued Expenses

Schedule of Accrued Expenses

(In thousands)	At September 30, 2022		At December 31, 2021
Legal and consulting	$	1,835	$	1,371
Warranty		1,732		1,851
Travel		918		661
In-transit inventory		589		416
Clinical studies		165		113
Sales and use tax		110		106
Other		1,604		744
Total	$	6,953	$	5,262

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Warranty Reserves (Tables)

9 Months Ended

Sep. 30, 2022

Warranty Reserves

Schedule of warranty reserves

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Beginning balance	$	4,818	$	5,117	$	4,959	$	4,841
Warranty provision		589		624		1,586		2,080
Processed warranty claims		(783)		(604)		(1,921)		(1,784)
Ending balance	$	4,624	$	5,137	$	4,624	$	5,137
Accrued warranty reserve, current	$	1,732	$	1,779	$	1,732	$	1,779
Accrued warranty reserve, non-current		2,892		3,358		2,892		3,358
Total accrued warranty reserve	$	4,624	$	5,137	$	4,624	$	5,137

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Credit Agreement (Tables)

9 Months Ended

Sep. 30, 2022

Credit Agreement

Schedule of maturities of the term note payable

(In thousands)	Amount
2022 (October 1 - December 31)	$	750
2023		3,000
2024		21,000
Total	$	24,750

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies

Summary of lease-related assets and liabilities

(In thousands)	At September 30, 2022		At December 31, 2021
Right of use operating lease assets	$	21,975	$	23,984
Operating lease liabilities:
Current	$	2,486	$	2,506
Non-current		21,506		23,354
Total	$	23,992	$	25,860
Operating leases:
Weighted average remaining lease term		7.9 years		8.6 years
Weighted average discount rate		4.2%		4.2%
	Nine Months Ended September 30,
	2022		2021
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	2,703	$	2,411
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	49	$	6,146

Summary of undiscounted cash flows

(In thousands)
2022 (October 1 - December 31)	$	874
2023		3,428
2024		3,418
2025		3,518
2026		3,615
Thereafter		13,249
Total minimum lease payments		28,102
Less: Amount of lease payments representing interest		(4,110)
Present value of future minimum lease payments		23,992
Less: Current obligations under operating lease liabilities		(2,486)
Non-current obligations under operating lease liabilities	$	21,506

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2022

Schedule of allocation of total stock-based compensation expense

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Cost of revenue	$	67	$	171	$	281	$	455
Sales and marketing expenses		1,101		1,081		3,352		2,979
Research and development expenses		54		68		175		224
Reimbursement, general and administrative expenses		1,338		1,268		3,873		4,045
Total stock-based compensation expense	$	2,560	$	2,588	$	7,681	$	7,703

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, 2021	915,224	$	39.33	5.0 years	$	2,068
Granted	—	$	—
Exercised	(90,878)	$	1.68		$	916
Forfeited	(58,115)	$	46.93
Cancelled/Expired	(152,448)	$	36.62
Balance at September 30, 2022	613,783	$	44.86	4.8 years	$	44
Options exercisable at September 30, 2022	402,979	$	44.18	4.7 years	$	44

(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, 2021	259,147	$	42.32	$	4,932
Granted	496,302	$	15.64
Vested	(93,444)	$	46.84
Cancelled	(54,299)	$	29.98
Balance at September 30, 2022	607,706	$	20.94	$	4,734

(1) The aggregate intrinsic value of restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

Performance-based 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, 2021	54,317	$	50.22	$	1,034
Granted	131,710	$	18.54
Vested	(1,853)	$	19.03
Cancelled	(20,147)	$	23.18
Balance at September 30, 2022	164,027	$	25.11	$	1,278

(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)

9 Months Ended

Sep. 30, 2022

Revenue.

Summary of revenue disaggregated by product

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Revenue
Lymphedema products	$	54,214	$	51,636	$	146,502	$	145,468
Airway clearance products		11,048		861		26,383		861
Total	$	65,262	$	52,497	$	172,885	$	146,329
Percentage of total revenue
Lymphedema products		83%		98%		85%		99%
Airway clearance products		17%		2%		15%		1%
Total		100%		100%		100%		100%

Summary of revenue by channel

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Private insurers and other payers	$	36,188	$	36,034	$	97,726	$	99,665
Veterans Administration		6,755		6,737		19,118		19,905
Medicare		11,271		8,865		29,658		25,898
Durable medical equipment distributors		11,048		861		26,383		861
Total	$	65,262	$	52,497	$	172,885	$	146,329

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Sales-type lease revenue	$	9,717	$	8,037	$	24,905	$	22,114
Cost of sales-type lease revenue		2,992		2,433		7,640		6,501
Gross profit	$	6,725	$	5,604	$	17,265	$	15,613

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Net Loss Per Share (Tables)

9 Months Ended

Sep. 30, 2022

Net Loss Per Share

Schedule of computation of the basic and diluted net loss per share

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Net loss	$	(2,279)	$	(3,355)	$	(22,487)	$	(4,316)
Weighted-average shares outstanding		20,139,944		19,790,838		20,021,966		19,676,749
Dilutive effect of stock-based awards		—		—		—		—
Weighted-average shares used to compute diluted net loss per share		20,139,944		19,790,838		20,021,966		19,676,749
Net loss per share - Basic	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)
Net loss per share - Diluted	$	(0.11)	$	(0.17)	$	(1.12)	$	(0.22)

Schedule of potentially dilutive securities outstanding

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
Restricted stock units	607,706	190,261	607,706	190,261
Common stock options	613,783	977,076	613,783	977,076
Performance stock units	164,027	60,627	164,027	60,627
Employee stock purchase plan	143,526	38,325	93,592	33,931
Total	1,529,042	1,266,289	1,479,108	1,261,895

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Schedule of changes in the earn-out liability

(In thousands)
Earn-out liability at December 31, 2021	$	6,200
Addition for acquisition		—
Fair value adjustments		10,898
Earn-out liability at September 30, 2022	$	17,098

Schedule of fair value measurements for our earn-out liability, cash equivalents and marketable securities

	At September 30, 2022
	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:
Earn-out liability	$	—		—	$	7,098	$	7,098
Total	$	—	$	—	$	7,098	$	7,098

	At December 31, 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:
Earn-out liability	$	—	$	—	$	6,200	$	6,200
Total	$	—	$	—	$	6,200	$	6,200

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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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Acquisitions (Details)	Nov. 04, 2022 USD ($)	Sep. 08, 2021 USD ($)	Sep. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)
Acquisitions
Earn-out liability			$ 17,098,000	$ 6,200,000
AffloVest APA
Acquisitions
Business revenue to exceed base revenue, Multiplier	1.5
Earn-out liability, asset acquisition	$ 10,000,000.0
AffloVest APA | Earn-out period on or before November 28,2022
Acquisitions
Earn-out liability, asset acquisition	5,000,000.0
AffloVest APA | Earn-out period on or before May 26, 2023
Acquisitions
Earn-out liability, asset acquisition	5,000,000.0
Imputed interest payment	$ 250,000
AffloVest APA | Second earn-out amendment
Acquisitions
Business revenue to exceed base revenue, Multiplier	3.0
Earn-out liability, asset acquisition	$ 10,000,000.0
AffloVest APA
Acquisitions
Purchase price		$ 80,000,000.0
Escrow account		500,000
Working capital adjustments		200,000
Earn-out liability		$ 6,400,000
AffloVest APA | Earn-out period exceed Base Revenues from October 1, 2021 to September 30, 2022
Acquisitions
Business revenue to exceed base revenue, Multiplier		1.5
AffloVest APA | Earn-out period exceed Base Revenues from October 1, 2022 to September 30, 2023
Acquisitions
Business revenue to exceed base revenue, Multiplier		1.5
AffloVest APA | Maximum
Acquisitions
Total consideration transferred		$ 100,000,000.0
AffloVest APA | Maximum | Earn-out period exceed Base Revenues from October 1, 2021 to September 30, 2022
Acquisitions
Earn-out liability		10,000,000.0
AffloVest APA | Maximum | Earn-out period exceed Base Revenues from October 1, 2022 to September 30, 2023
Acquisitions
Earn-out liability, asset acquisition		$ 10,000,000.0

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Acquisitions - Purchase Price Allocation (Details) - USD ($) $ in Thousands	Sep. 08, 2021	Sep. 30, 2022	Dec. 31, 2021
Purchase price allocation
Inventories		$ 23,020	$ 19,217
Property, plant and equipment		6,677	6,750
Intangible assets	$ 53,500	51,308	54,081
Goodwill		31,063	$ 31,063
Amortization period for tax purposes	15 years
AffloVest APA
Purchase price allocation
Inventories	$ 1,600
Intangible assets	53,500
Goodwill	31,100	$ 31,100
Purchase price	86,200
AffloVest APA | Maximum
Purchase price allocation
Property, plant and equipment	$ 100

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Acquisitions - Allocation of Purchase Price (Details) - USD ($) $ in Thousands	Sep. 08, 2021	Sep. 30, 2022	Dec. 31, 2021
Acquisitions
Finite lived intangible assets, Allocated Fair Value		$ 41,309	$ 44,016
Indefinite lived intangible assets excluding goodwill, Allocated fair value		56,078	55,981
Total intangible assets (Net)	$ 53,500	51,308	54,081
Weighted average amortization period	12 years 3 months 18 days
AffloVest APA
Acquisitions
Total intangible assets (Net)	$ 53,500
Customer relationships
Acquisitions
Finite lived intangible assets, Allocated Fair Value	$ 31,000	28,470	30,258
Estimated Useful Life	13 years
Developed technology
Acquisitions
Finite lived intangible assets, Allocated Fair Value	$ 13,000	$ 11,746	$ 12,632
Estimated Useful Life	11 years
Tradenames
Acquisitions
Indefinite lived intangible assets excluding goodwill, Allocated fair value	$ 9,500

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Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Inventories
Finished goods	$ 7,060	$ 8,242
Component parts and work-in-process	15,960	10,975
Total inventories	$ 23,020	$ 19,217

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Goodwill And Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021	Sep. 08, 2021
Patents and Intangibles
Goodwill	$ 31,063		$ 31,063		$ 31,063
Impairment recognized	0
Definite-lived intangible assets:
Gross Carrying Amount	46,079		46,079		45,916
Accumulated Amortization	4,770		4,770		1,900
Total	41,309		41,309		44,016
Unamortized intangible assets:
Total intangible assets (Gross)	56,078		56,078		55,981
Total intangible assets (Net)	51,308		51,308		54,081	$ 53,500
Amortization expense	1,000	$ 300	2,900	$ 400
Future Amortization
2022 (October 1 - December 31)	958		958
2023	3,801		3,801
2024	3,780		3,780
2025	3,690		3,690
2026	3,626		3,626
Thereafter	25,454		25,454
Total	41,309		41,309		44,016
Tradenames
Unamortized intangible assets:
Gross Carrying Amount, Indefinite	9,500		9,500		9,500
Patents
Unamortized intangible assets:
Gross Carrying Amount, Indefinite	499		$ 499		$ 565
Patents
Definite-lived intangible assets:
Weighted Average Amortization Period			12 years		12 years
Gross Carrying Amount	829		$ 829		$ 666
Accumulated Amortization	157		157		109
Total	672		672		557
Future Amortization
Total	672		$ 672		$ 557
Defensive intangible assets
Definite-lived intangible assets:
Weighted Average Amortization Period			3 years		3 years
Gross Carrying Amount	1,125		$ 1,125		$ 1,125
Accumulated Amortization	721		721		592
Total	404		404		533
Future Amortization
Total	404		$ 404		$ 533
Customer accounts
Definite-lived intangible assets:
Weighted Average Amortization Period			1 year		1 year
Gross Carrying Amount	125		$ 125		$ 125
Accumulated Amortization	108		108		89
Total	17		17		36
Future Amortization
Total	17		$ 17		$ 36
Customer relationships
Definite-lived intangible assets:
Weighted Average Amortization Period			12 years		13 years
Gross Carrying Amount	31,000		$ 31,000		$ 31,000
Accumulated Amortization	2,530		2,530		742
Total	28,470		28,470		30,258	31,000
Future Amortization
Total	28,470		$ 28,470		$ 30,258	31,000
Developed technology
Definite-lived intangible assets:
Weighted Average Amortization Period			10 years		11 years
Gross Carrying Amount	13,000		$ 13,000		$ 13,000
Accumulated Amortization	1,254		1,254		368
Total	11,746		11,746		12,632	13,000
Future Amortization
Total	11,746		11,746		$ 12,632	13,000
AffloVest APA
Patents and Intangibles
Goodwill	$ 31,100		$ 31,100			31,100
Unamortized intangible assets:
Total intangible assets (Net)						$ 53,500

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Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Sep. 30, 2021
Accrued Expenses
Legal and consulting	$ 1,835	$ 1,371
Warranty	1,732	1,851	$ 1,779
Travel	918	661
In-transit inventory	589	416
Clinical studies	165	113
Sales and use tax	110	106
Other	1,604	744
Total	$ 6,953	$ 5,262

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Warranty Reserves (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 4,818	$ 5,117	$ 4,959	$ 4,841
Warranty provision	589	624	1,586	2,080
Processed warranty claims	(783)	(604)	(1,921)	(1,784)
Ending balance	4,624	5,137	4,624	5,137
Accrued warranty reserve, current	1,732	1,779	1,732	1,779	$ 1,851
Accrued warranty reserve, non-current	2,892	3,358	2,892	3,358	$ 3,108
Total accrued warranty reserve	$ 4,624	$ 5,137	$ 4,624	$ 5,137

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Credit Agreement (Details) - USD ($)			9 Months Ended
	Feb. 22, 2022	Sep. 08, 2021	Sep. 30, 2022	Dec. 31, 2021
Credit Agreement
Credit facility outstanding amount		$ 25,000,000.0	$ 24,904,000	$ 24,857,000
Line of credit, threshold contingent increase in borrowing capacity		25,000,000.0
Credit agreement, total aggregate principal amount		80,000,000.0
LIBOR
Credit Agreement
Basis spread (as a percent)			3.50%
Revolving credit facility
Credit Agreement
Line of credit		25,000,000.0
Credit facility outstanding amount			$ 25,000,000.0
Line of credit, remaining borrowing capacity			$ 0
Revolving credit facility | Federal Funds
Credit Agreement
Basis spread (as a percent)			0.50%
Revolving credit facility | Base Rate
Credit Agreement
Basis spread (as a percent)			1.00%
Revolving credit facility | LIBOR
Credit Agreement
Basis spread (as a percent)			5.93%
Revolving credit facility | Maximum
Credit Agreement
Unused line fee (as a percent)			0.375%
Revolving credit facility | Maximum | Base Rate
Credit Agreement
Basis spread (as a percent)			2.25%
Revolving credit facility | Maximum | LIBOR
Credit Agreement
Basis spread (as a percent)			3.25%
Revolving credit facility | Minimum
Credit Agreement
Unused line fee (as a percent)			0.30%
Revolving credit facility | Minimum | Base Rate
Credit Agreement
Basis spread (as a percent)			0.75%
Revolving credit facility | Minimum | LIBOR
Credit Agreement
Basis spread (as a percent)			1.75%
Term Loan
Credit Agreement
Debt instrument face amount		30,000,000.0
Long-term debt		$ 30,000,000.0	$ 24,750,000
Debt instrument periodic payment			$ 750,000
Debt instrument frequency of periodic payment			quarterly
Principal prepayment of term loan	$ 3,000,000.0

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Credit Agreement - Maturities of Debt (Details) - Term Loan - USD ($) $ in Thousands	Sep. 30, 2022	Sep. 08, 2021
Maturities of notes payable
2022 (October 1 - December 31)	$ 750
2023	3,000
2024	21,000
Total	$ 24,750	$ 30,000

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Commitments and Contingencies - Lease Obligations (Details)	9 Months Ended
	Sep. 30, 2022 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	8 years
Vehicles
Commitments and Contingencies
Remaining lease terms	367 days
Number of vehicles with agreements within the initial, noncancelable lease term | item	9
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	4 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	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Lease-related assets and liabilities
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	Right of use operating lease assets		Right of use operating lease assets
Right of use operating lease assets	$ 21,975		$ 23,984
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Operating lease liabilities, Current		Operating lease liabilities, Current
Operating lease liabilities, Current	$ 2,486		$ 2,506
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	Operating lease liabilities, non-current		Operating lease liabilities, non-current
Operating lease liabilities, non-current	$ 21,506		$ 23,354
Present value of future minimum lease payments	$ 23,992		$ 25,860
Weighted average remaining lease term	7 years 10 months 24 days		8 years 7 months 6 days
Weighted average discount rate	4.20%		4.20%
Cash paid for operating lease liabilities	$ 2,703	$ 2,411
Non-cash right of use assets obtained in exchange for new operating lease obligations	$ 49	$ 6,146

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Commitments and Contingencies - Undiscounted cash flows (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Undiscounted cash flows
2022 (October 1 - December 31)	$ 874
2023	3,428
2024	3,418
2025	3,518
2026	3,615
Thereafter	13,249
Total minimum lease payments	28,102
Less: Amount of lease payments representing interest	(4,110)
Present value of future minimum lease payments	23,992	$ 25,860
Less: Current obligations under operating lease liabilities	(2,486)	(2,506)
Non-current obligations under operating lease liabilities	$ 21,506	$ 23,354

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Commitments and Contingencies - Lease commitments and operating lease cost (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Commitments and Contingencies
Operating lease cost	$ 0.9	$ 0.9	$ 2.8	$ 2.6

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Commitments and Contingencies - Major Vendors (Details) - item	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Vendor One
Commitments and Contingencies
Number of vendors	1	1	1	1
Vendor Two
Commitments and Contingencies
Number of vendors	2	2	2	2
Purchases | Vendor | Vendor One
Commitments and Contingencies
Total purchases (in percentage)	24.00%			24.00%
Purchases | Vendor | Vendor Two
Commitments and Contingencies
Total purchases (in percentage)		36.00%	44.00%

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Commitments and Contingencies - Purchase Commitments (Details) $ in Millions	Sep. 30, 2022 USD ($)
Purchase commitments
Purchase orders issued	$ 36.3

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Commitments and Contingencies - Retirement Plan (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
401(k)
Retirement Plan
Discretionary contributions	$ 0.4	$ 0.3	$ 1.1	$ 0.9

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Stockholders' Equity - Stock-Based Compensation (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jan. 01, 2021	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Stock-based compensation
Compensation expense		$ 2,560	$ 2,588	$ 7,681	$ 7,703
Cost of revenue.
Stock-based compensation
Compensation expense		67	171	281	455
Sales and marketing expenses
Stock-based compensation
Compensation expense		1,101	1,081	3,352	2,979
Research and development expenses
Stock-based compensation
Compensation expense		54	68	175	224
Reimbursement, general and administrative expenses
Stock-based compensation
Compensation expense		$ 1,338	$ 1,268	$ 3,873	$ 4,045
2016 Plan
Stock-based compensation
Number of shares authorized		4,800,000		4,800,000
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
Number of shares of common stock sold	972,591
Shares available for future issuance		5,916,065		5,916,065

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Stockholders' Equity - Stock Options and Restricted Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Stock-based compensation, general disclosures.
Stock-based compensation expense	$ 2,560	$ 2,588	$ 7,681	$ 7,703
Common stock options
Stock-based compensation, general disclosures.
Stock-based compensation expense	600	$ 1,000	2,000	$ 3,300
Total unrecognized pre-tax compensation expense related to nonvested stock option awards	$ 2,200		$ 2,200
Weighted-average period over which unrecognized compensation cost is expected to be recognized			1 year 2 months 12 days
Options Outstanding
Outstanding at beginning of period			915,224
Exercised			(90,878)
Forfeited			(58,115)
Cancelled/Expired			(152,448)
Outstanding at end of period	613,783		613,783		915,224
Weighted Average Exercise Price Per Share
Outstanding at beginning of period			$ 39.33
Exercised			1.68
Forfeited			46.93
Cancelled/Expired			36.62
Outstanding at end of period	$ 44.86		$ 44.86		$ 39.33
Other information
Options exercisable number of shares exercisable	402,979	508,184	402,979	508,184
Options exercisable, weighted-average exercise price	$ 44.18	$ 30.45	$ 44.18	$ 30.45
Weighted average remaining contractual life (in years)			4 years 9 months 18 days		5 years
Options exercisable, weighted-average remaining contractual life			4 years 8 months 12 days
Aggregate Intrinsic Value, Options outstanding	$ 44		$ 44		$ 2,068
Aggregate Intrinsic Value, Exercised			916
Aggregate Intrinsic Value, Options exercisable	44		$ 44
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
2016 Plan | Time-Based Restricted Stock Units
Stock-based compensation, general disclosures.
Stock-based compensation expense	1,500	$ 1,200	$ 4,500	$ 3,700
Total unrecognized pre-tax compensation expense related to awards	$ 9,400		$ 9,400
Weighted-average period over which unrecognized compensation cost is expected to be recognized			2 years
Units Outstanding
Restricted stock unit awards outstanding at the beginning of the period (in shares)			259,147
Granted (in shares)			496,302
Vested (in shares)			(93,444)
Cancelled (in shares)			(54,299)
Restricted stock unit awards outstanding at the end of the period (in shares)	607,706		607,706		259,147
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share)			$ 42.32
Granted (in dollars per share)			15.64
Vested (in dollars per share)			46.84
Cancelled (in dollars per share)			29.98
Restricted stock unit awards outstanding at the end of the period (in dollars per share)	$ 20.94		$ 20.94		$ 42.32
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value	$ 4,734		$ 4,734		$ 4,932
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.
Stock-based compensation expense	300	$ 200	$ 500
Total unrecognized pre-tax compensation expense related to awards	$ 2,200		$ 2,200
Weighted-average period over which unrecognized compensation cost is expected to be recognized			2 years 3 months 18 days
Units Outstanding
Restricted stock unit awards outstanding at the beginning of the period (in shares)			54,317
Granted (in shares)			131,710
Vested (in shares)			(1,853)
Cancelled (in shares)			(20,147)
Restricted stock unit awards outstanding at the end of the period (in shares)	164,027		164,027		54,317
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share)			$ 50.22
Granted (in dollars per share)			18.54
Vested (in dollars per share)			19.03
Cancelled (in dollars per share)			23.18
Restricted stock unit awards outstanding at the end of the period (in dollars per share)	$ 25.11		$ 25.11		$ 50.22
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value	$ 1,278		$ 1,278		$ 1,034
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
Stock-based compensation, general disclosures.
Stock-based compensation expense				$ 100
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		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Apr. 27, 2017
Stockholders' Equity
Stock-based compensation expense	$ 2,560	$ 2,588	$ 7,681	$ 7,703
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	1,623,486		1,623,486		1,600,000
Incremental share increase (as a percent)			1.00%
Incremental share increase (in shares)			500,000
Increase in number of shares reserved and available for issuance			194,518
Stock-based compensation expense	$ 200	$ 200	$ 700	$ 600

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Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Revenue
Revenue	$ 65,262	$ 52,497	$ 172,885	$ 146,329
Percentage of total revenue (in percent)	100.00%	100.00%	100.00%	100.00%
Revenue from sale type lease
Sales-type lease revenue	$ 9,717	$ 8,037	$ 24,905	$ 22,114
Cost of sales-type lease revenue	2,992	2,433	7,640	6,501
Gross profit	6,725	5,604	$ 17,265	15,613
Minimum
Revenue from sale type lease
Rental period of rent-to-purchase arrangements			3 months
Maximum
Revenue from sale type lease
Rental period of rent-to-purchase arrangements			10 months
Private insurers and other payers
Revenue
Revenue	36,188	36,034	$ 97,726	99,665
Veterans Administration
Revenue
Revenue	6,755	6,737	19,118	19,905
Medicare
Revenue
Revenue	11,271	8,865	29,658	25,898
Durable medical equipment distributors
Revenue
Revenue	11,048	861	26,383	861
Lymphedema products
Revenue
Revenue	$ 54,214	$ 51,636	$ 146,502	$ 145,468
Percentage of total revenue (in percent)	83.00%	98.00%	85.00%	99.00%
Airway clearance products
Revenue
Revenue	$ 11,048	$ 861	$ 26,383	$ 861
Percentage of total revenue (in percent)	17.00%	2.00%	15.00%	1.00%

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Income Taxes
Net effective rate	3.30%	(126.00%)	(0.50%)	24.00%
Income tax (benefit) expense	$ (77)	$ 1,868	$ 114	$ (1,365)

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Net Loss Per Share - Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Net Loss Per Share
Net loss	$ (2,279)	$ (3,355)	$ (22,487)	$ (4,316)
Weighted-average shares outstanding	20,139,944	19,790,838	20,021,966	19,676,749
Weighted-average shares used to compute diluted net loss per share	20,139,944	19,790,838	20,021,966	19,676,749
Net loss per share - Basic	$ (0.11)	$ (0.17)	$ (1.12)	$ (0.22)
Net loss per share - Diluted	$ (0.11)	$ (0.17)	$ (1.12)	$ (0.22)

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Net Loss Per Share - Antidilutive Securities Excluded From Computation of Earnings Per Share (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	1,529,042	1,266,289	1,479,108	1,261,895
Common stock options
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	613,783	977,076	613,783	977,076
Performance stock units
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	164,027	60,627	164,027	60,627
Restricted Stock Units
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	607,706	190,261	607,706	190,261
Employee stock purchase plan
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	143,526	38,325	93,592	33,931

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Fair Value Measurements (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value Measurements
Earn-out liability	$ 17,098	$ 6,200
AffloVest | Maximum
Fair Value Measurements
Earn-out liability	$ 20,000

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Fair Value Measurements - Earn out liability (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Earn-out liability, beginning balance	$ 6,200
Fair value adjustments	10,898
Earn-out liability, ending balance	17,098
Fair value measure, earn out liability non current	7,100
Fair value measure, earn out liability current	$ 10,000

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Fair Value Measurements - Fair Value Hierarchy (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value Measurements
Earn-out liability	$ 17,098	$ 6,200
Recurring
Fair Value Measurements
Earn-out liability	7,098	6,200
Available for sale debt securities	7,098	6,200
Recurring | Significant Unobservable Inputs (Level 3)
Fair Value Measurements
Earn-out liability	7,098	6,200
Available for sale debt securities	$ 7,098	$ 6,200