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What changed in TACTILE SYSTEMS TECHNOLOGY INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TACTILE SYSTEMS TECHNOLOGY INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+383 added−414 removedSource: 10-K (2024-02-20) vs 10-K (2023-02-21)

Top changes in TACTILE SYSTEMS TECHNOLOGY INC's 2023 10-K

383 paragraphs added · 414 removed · 332 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

116 edited+7 added−17 removed197 unchanged
Biggest changeOn September 8, 2021, we acquired the assets of the AffloVest airway clearance product line from International Biophysics Corporation (“IBC”), a privately-held company which developed and manufactured AffloVest. AffloVest is a portable, wearable vest that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders.
Biggest changeAffloVest is a portable, battery-powered, wearable vest that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders. The AffloVest product line generated $32.7 million, or 12%, of our revenue in 2023 and $34.5 million, or 14%, of our revenue in 2022.
Flexitouch System Our Flexitouch Plus system is a fully automated, programmable, advanced pneumatic compression device, or APCD, designed for treatment of lymphedema in the home setting. Our Flexitouch system has received 510(k) clearance for the treatment of lymphedema, phlebolymphedema, lipedema, certain types of other edema, venous insufficiencies and certain types of leg ulcers.
Flexitouch Plus System Our Flexitouch Plus system is a fully automated, programmable, advanced pneumatic compression device, or APCD, designed for treatment of lymphedema in the home setting. Our Flexitouch Plus system has received 510(k) clearance for the treatment of lymphedema, phlebolymphedema, lipedema, certain types of other edema, venous insufficiencies and certain types of leg ulcers.
Entre System We introduced our Entre system in the United States in February 2013 to offer a lightweight, portable pneumatic compression solution for patients with cognitive or dexterity issues who need a basic (simple) pump or for patients who do not yet qualify for insurance coverage of an advanced compression device such as our Flexitouch Plus system.
Entre Plus System We introduced our Entre system in the United States in February 2013 to offer a lightweight, portable pneumatic compression solution for patients with cognitive or dexterity issues who need a basic (simple) pump or for patients who do not yet qualify for insurance coverage of an advanced compression device such as our Flexitouch Plus system.
Our customers can use Kylee to track their orders for our devices and view onboarding tutorials for using the 11 Table of Contents device. Once a patient starts using the device, they can use Kylee to record their treatments and symptoms, and capture photos of their condition for sharing with their healthcare team.
Our customers can use Kylee to track their orders for our devices and view onboarding tutorials for using the device. Once a patient starts using the device, they can use Kylee to record their treatments and symptoms, 11 Table of Contents and capture photos of their condition for sharing with their healthcare team.
We receive no additional reimbursement for patient support, but provide high-quality customer service and continuity to enhance patient comfort, satisfaction, compliance and safety with our products. Our Flexitouch Plus system controller is reimbursed under HCPCS code E0652, and our Entre system controller is reimbursed under HCPCS code E0651.
We receive no additional reimbursement for patient support, but provide high-quality customer service and continuity to enhance patient comfort, satisfaction, compliance and safety with our products. Our Flexitouch Plus system controller is reimbursed under HCPCS code E0652, and our Entre Plus system controller is reimbursed under HCPCS code E0651.
FDA Regulation In the United States, the FDA regulates medical devices, including the following activities that we perform, or that are performed on our behalf with respect to our devices: product design and development, pre-clinical and clinical testing, manufacturing, labeling, storage, premarket clearance or approval, record keeping, product marketing, advertising and promotion, sales and distribution, and post-marketing surveillance.
FDA Regulation In the United States, the FDA regulates medical devices, including the following activities that we perform, or that are performed on our behalf with respect to our devices: product design and development, pre-clinical and clinical testing, manufacturing, labeling, storage, servicing, premarket clearance or approval, record keeping, product marketing, advertising and promotion, sales and distribution, and post-marketing surveillance.
We believe these investments are critical to driving payer, clinician and patient adoption of our technologies, and together with our commercial infrastructure, represent a significant competitive advantage. Health insurance coverage for our Flexitouch and Entre systems is in place with private payers, Medicare, the Veterans Administration and certain Medicaid programs.
We believe these investments are critical to driving payer, clinician and patient adoption of our technologies, and together with our commercial infrastructure, represent a significant competitive advantage. Health insurance coverage for our Flexitouch Plus and Entre Plus systems is in place with private payers, Medicare, the Veterans Administration and certain Medicaid programs.
Current Treatment and Limitations A traditional treatment for lymphedema is complete decongestive therapy consisting of manual lymphatic drainage, which is a specialized application of gentle pressure to the skin applied by a trained therapist that encourages drainage of lymph fluid, as well as decongestive exercises, skin care and compression with multilayered bandages, compression garments or pumps.
Traditional Treatment and Limitations A traditional treatment for lymphedema is complete decongestive therapy consisting of manual lymphatic drainage, which is a specialized application of gentle pressure to the skin applied by a trained therapist that encourages drainage of lymph fluid, as well as decongestive exercises, skin care and compression with multilayered bandages, compression garments or pumps.
A company that is found to have advertised its product in violation of these laws may be subject to liability, including monetary penalties. Centers for Medicare and Medicaid Services Centers for Medicare and Medicaid Services, or CMS, requires providers of products or services to attain and maintain accreditation in order to participate in federally funded healthcare programs.
A company that is found to have advertised its product in violation of these laws may be subject to liability, including monetary penalties. Centers for Medicare and Medicaid Services Centers for Medicare and Medicaid Services, or CMS, requires providers and suppliers of products or services to attain and maintain accreditation in order to participate in federally funded healthcare programs.
We intend to continue this strategic approach to further expand coverage for our solutions, as well as to meet payer-specific requirements on behalf of patients. ​ 10 Table of Contents Our Products We market Flexitouch and Entre systems as at-home therapies for the treatment of lymphedema and chronic venous insufficiency.
We intend to continue this strategic approach to further expand coverage for our solutions, as well as to meet payer-specific requirements on behalf of patients. ​ 10 Table of Contents Our Products We market Flexitouch Plus and Entre Plus systems as at-home therapies for the treatment of lymphedema and chronic venous insufficiency.
As part of the Patient Protection and Affordable Care Act, or ACA, the Federal government has created a transparency program known as Open Payments (the Physician Payments Sunshine Act) which requires manufacturers of drugs, devices, biologicals and medical supplies to report annually to the CMS, an agency within the U.S.
As part of the Patient Protection and Affordable Care Act, or ACA, the Federal government has created a transparency program known as Open Payments (the Physician Payments Sunshine Act) which requires applicable manufacturers of drugs, devices, biologicals and medical supplies to report annually to the CMS, an agency within the U.S.
Order Fulfillment and Patient Education With respect to our Flexitouch and Entre systems, once we have a complete patient order and appropriate documentation from the payer, we package and ship the system, configured to their physician's prescription, directly to the patient. We utilize third-party carriers for delivery and pick up of our devices.
Order Fulfillment and Patient Education With respect to our Flexitouch Plus and Entre Plus systems, once we have a complete patient order and appropriate documentation from the payer, we package and ship the system, configured to their physician's prescription, directly to the patient. We utilize third-party carriers for delivery and pick up of our devices.
Our proprietary Flexitouch and Entre systems are clinically proven at-home solutions for patients with vascular disorders such as lymphedema. Patients with lymphedema or chronic venous insufficiency are typically treated by vascular surgeons, vascular medicine physicians, oncology care teams, wound physicians, nurses and therapists. Our current lymphedema products are the Flexitouch and Entre systems.
Our proprietary Flexitouch and Entre systems are clinically proven at-home solutions for patients with vascular disorders such as lymphedema. Patients with lymphedema or chronic venous insufficiency are typically treated by vascular surgeons, vascular medicine physicians, oncology care teams, wound physicians, nurses and therapists. Our current lymphedema products are the Flexitouch Plus and Entre Plus systems.
The below chart reflects these models: Our direct-to-patient and -provider lymphedema business is composed of a direct sales force, patient training and support, reimbursement capabilities and medical expertise to educate, expand awareness, coordinate referrals and obtain payment for our products. The chart below describes our U.S. direct-to-patient and -provider model for our lymphedema business.
The below chart reflects these models: Our direct-to-patient and -provider lymphedema business is composed of a direct sales force, patient training and support, reimbursement capabilities and medical expertise to educate, expand awareness, coordinate referrals and obtain payment for our products. The chart below describes our U.S. direct-to-patient and -provider model for the majority of our lymphedema business.
Unless an exemption applies, each medical device we seek to distribute commercially in the United States requires marketing authorization from the FDA prior to distribution. The two primary types of FDA marketing authorization applicable to a device are premarket notification, also called 510(k) clearance, and premarket approval.
Unless an exemption applies, each medical device we seek to distribute commercially in the United States requires marketing authorization from the FDA prior to distribution. The two primary types of FDA marketing authorizations applicable to a device are premarket notification, also called a 510(k) clearance, and premarket approval.
We employ a direct-to-patient and -provider model within our lymphedema portfolio, through which we obtain patient referrals from clinicians, manage insurance claims on behalf of our patients and their clinicians, deliver our solutions directly to patients and train them on the proper use of our solutions.
We generally employ a direct-to-patient and -provider model within our lymphedema portfolio, through which we obtain patient referrals from clinicians, manage insurance claims on behalf of our patients and their clinicians, deliver our solutions directly to patients and train them on the proper use of our solutions.
The International Society of Lymphology categorizes the progression of lymphedema from Stage 0, the least severe stage, to Stage 3, the most severe stage. Chronic Venous Insufficiency and Phlebolymphedema The most common form of lymphedema in the Western world is phelobolymphedema, a mixed etiology swelling due to chronic venous insufficiency (“CVI”) and lymphatic insufficiency.
The International Society of Lymphology categorizes the progression of lymphedema from Stage 0, the least severe stage, to Stage 3, the most severe stage. Chronic Venous Insufficiency and Phlebolymphedema The most common form of lymphedema in the Western world is phlebolymphedema, a mixed etiology swelling due to chronic venous insufficiency (“CVI”) and lymphatic insufficiency.
The standards promulgated under HIPAA's regulations include those that: ● restrict the use and disclosure of individually identifiable health information, or "protected health information"; 24 Table of Contents ● establish standards for common electronic healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; ● require covered entities to implement and maintain certain security measures to safeguard certain electronic health information, including the adoption of administrative, physical and technical safeguards to protect such information; and ● require covered entitles to provide notification to affected individuals, the Department of Health and Human Services and the media in the event of a breach of unsecured protected health information.
The standards promulgated under HIPAA's regulations include those that: ● restrict the use and disclosure of individually identifiable health information, or "protected health information"; 25 Table of Contents ● establish standards for common electronic healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; ● require covered entities to implement and maintain certain security measures to safeguard certain electronic health information, including the adoption of administrative, physical and technical safeguards to protect such information; and ● require covered entitles to provide notification to affected individuals, the Department of Health and Human Services and the media in the event of a breach of unsecured protected health information.
The Ethics in Patient Referrals Act, commonly known as the "Stark Law," prohibits a physician from making referrals for certain "designated health services" payable by Medicare to an entity, including a company 22 Table of Contents that furnishes durable medical equipment, in which the physician or an immediate family member of such physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement unless an exception applies.
The Ethics in Patient Referrals Act, commonly known as the "Stark Law," prohibits a physician from making referrals for certain "designated health services" payable by Medicare to an entity, including a company 23 Table of Contents that furnishes durable medical equipment, in which the physician or an immediate family member of such physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement unless an exception applies.
We cannot assure you that we can maintain a comparable level of regulatory compliance in the future at our facilities. 21 Table of Contents FTC Regulation Device advertising and promotional activity in certain circumstances is also subject to scrutiny by the Federal Trade Commission, as well as similar state consumer protection agencies, which enforce laws related to false and deceptive trade practices.
We cannot assure you that we can maintain a comparable level of regulatory compliance in the future at our facilities. 22 Table of Contents FTC Regulation Device advertising and promotional activity in certain circumstances is also subject to scrutiny by the Federal Trade Commission, as well as similar state consumer protection agencies, which enforce laws related to false and deceptive trade practices.
Nevertheless, a determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 23 Table of Contents The U.S. Foreign Corrupt Practices Act and Other Anti-Corruption Laws. We may be subject to a variety of domestic and foreign anti-corruption laws with respect to our regulatory compliance efforts and operations.
Nevertheless, a determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 24 Table of Contents The U.S. Foreign Corrupt Practices Act and Other Anti-Corruption Laws. We may be subject to a variety of domestic and foreign anti-corruption laws with respect to our regulatory compliance efforts and operations.
Our research and development and clinical operations functions include scientists, clinical monitors and project managers with expertise in pneumatics, electronics, garment design, embedded software, mechanical design, sensors, manufacturing technologies and clinical trial management. Our current research and development efforts are focused primarily on increasing efficacy, improving design for ease-of-use, enhancing clinical functionality and reducing production costs of our solutions.
Our research and development and clinical operations functions include scientists, clinical monitors and project managers with expertise in pneumatics, electronics, garment design, embedded software, mechanical design, sensors, manufacturing technologies and clinical trial management. Our current research and development efforts are focused primarily on improving design for ease-of-use, enhancing clinical functionality and reducing production costs of our solutions.
Some of these laws and regulations require us to obtain licenses or permits to conduct our operations. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. 25 Table of Contents Foreign Government Regulation International sales of medical devices are subject to foreign governmental regulations, which vary substantially from country to country.
Some of these laws and regulations require us to obtain licenses or permits to conduct our operations. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. 26 Table of Contents Foreign Government Regulation International sales of medical devices are subject to foreign governmental regulations, which vary substantially from country to country.
Garments that cover various parts of the body are used with these systems and billed using HCPCS codes E0667, E0668 and E0669. Our head and neck garments do not currently have billing codes assigned. To date, over 1,100 payers have paid for our products.
Garments that cover various parts of the body are used with these systems and billed using HCPCS codes E0656, E0657, E0667, E0668 and E0669. Our head and neck garments do not currently have billing codes assigned. To date, over 1,100 payers have paid for our products.
In working with payers who follow Medicare criteria, we have focused on clear communications with insurers to ensure mutual understanding of criteria interpretation, which differs significantly among the plans from very restrictive to quite lenient, and we then work closely with prescribers to educate them accordingly.
In working with payers who follow Medicare criteria, we have focused on clear communications with insurers to ensure mutual understanding of criteria interpretation, which differs significantly among the plans from very restrictive to quite lenient, and we then work closely with clinicians to educate them accordingly.
We last renewed our accreditation with our accrediting body in May 2020. Maintaining our accreditation and Medicare enrollment requires that we comply with numerous business and customer support standards. If we are deemed out of compliance with accreditation standards, our enrollment status in the Medicare program could be jeopardized, up to and including termination.
We last renewed our accreditation with our accrediting body in May 2023. Maintaining our accreditation and Medicare enrollment requires that we comply with numerous business and customer support standards. If we are deemed out of compliance with accreditation standards our enrollment status in the Medicare program could be jeopardized, up to and including termination.
To attain and maintain accreditation, companies are required to institute policies and procedures that, among other things, formalize the interaction of the company with patients. Accrediting bodies that are approved (“deemed”) by CMS will perform audits of these policies and procedures every three years.
To attain and maintain accreditation, among other requirements companies are required to institute policies and procedures that formalize the interaction of the company with patients. Accrediting bodies that are approved (“deemed”) by CMS will perform audits of these policies and procedures every three years.
Our U.S. issued patents have varying patent terms, expiring between 2023 and through at least 2040, subject to payment of required maintenance fees, annuities and other charges. U.S. patents covering various aspects of our Flexitouch system expired in 2017.
Our U.S. issued patents have varying patent terms, expiring between 2024 and through at least 2040, subject to payment of required maintenance fees, annuities and other charges. U.S. patents covering various aspects of our Flexitouch system expired in 2017.
Any failure to properly document the medical records for patients using our products could invalidate claims, impair our ability to collect submitted claims and subject us to overpayment liabilities, Federal False Claims Act liabilities and other penalties including exclusion from the Medicare, Medicaid or private insurance programs. State fraud and abuse provisions.
Any failure to properly document the medical records for patients using our products could invalidate claims, impair our ability to collect submitted claims and subject us to overpayment liabilities, Federal False Claims Act liabilities and other penalties including exclusion from the Medicare, Medicaid, other government health care programs or private insurance programs. State fraud and abuse provisions.
Foreign Corrupt Practices Act, commonly known as the FCPA, is a criminal statute that prohibits an individual or business from paying, offering, promising or authorizing the provision of money (such as a bribe or kickback) or anything else of value (such as an improper gift, hospitality, or favor), directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision in order to assist the individual or business in obtaining, retaining, or directing business or other advantages (such as favorable regulatory rulings).
Foreign Corrupt Practices Act (the “FCPA”) is a criminal statute that prohibits an individual or business from paying, offering, promising or authorizing the provision of money (such as a bribe or kickback) or anything else of value (such as an improper gift, hospitality, or favor), directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision in order to assist the individual or business in obtaining, retaining, or directing business or other advantages (such as favorable regulatory rulings).
Our Entre system is a basic pneumatic compression device used for the at-home treatment of venous disorders including lymphedema and chronic venous insufficiency, including venous leg ulcers. Our Entre system is a pump with garments covering the arm or leg with eight chambers that inflate in sequence and remain inflated for a preset time period. All chambers deflate at once.
Our Entre system is a basic pneumatic compression device used for the at-home treatment of venous disorders including lymphedema and chronic venous insufficiency, including venous leg ulcers. Our Entre system is a pump with garments covering the arm or leg with eight chambers that inflate in sequence and remain inflated for a preset time period.
Adherence to treatments and effectiveness of treatments are a significant challenge for patients with these chronic conditions. ​ AffloVest is a HFCWO therapy vest that has eight anatomically positioned oscillating motors that create individual pressure waveforms to target all lobes of the lungs to loosen, thin and mobilize lung secretions. 9 Table of Contents ​ Our Strategy Our goal is to become a leader in the at-home treatment of underserved chronic diseases.
Adherence to treatments and effectiveness of treatments are a significant challenge for patients with these chronic conditions. ​ AffloVest is a HFCWO therapy vest that has eight anatomically positioned oscillating motors that create individual pressure waveforms to target all lobes of the lungs to loosen, thin and mobilize lung secretions. ​ Our Strategy Our goal is to become the leader in the at-home treatment of select underserved chronic diseases.
Additionally, because some of these laws continue to evolve, we lack definitive guidance as to the application of certain key aspects of these laws as they relate to our arrangements with providers with respect to patient training. We cannot predict the final form that these regulations will take or the effect that the final regulations will have on us.
Additionally, because some of these laws continue to evolve, we lack definitive guidance as to the application of certain key aspects of these laws as they relate to our arrangements with providers. We cannot predict the final form that these regulations will take or the effect that the final regulations will have on us.
The Tactile Medical 27 Table of Contents trademark is registered in Australia and Japan, and the AffloVest trademark is registered in Australia, the European Union, New Zealand and the United Kingdom. Seasonality Our business is affected by seasonality.
The Tactile Medical trademark is registered in Australia and Japan, and the AffloVest trademark is registered in Australia, the European Union, New Zealand and the United Kingdom. 28 Table of Contents Seasonality Our business is affected by seasonality.
The AffloVest is reimbursed under HCPCS code E0483, high frequency chest wall oscillation for bronchiectasis, and over 40 other ICD-10 diagnosis codes.
The AffloVest is reimbursed under HCPCS code E0483, high frequency chest wall oscillation for bronchiectasis, and over 65 other ICD-10 diagnosis codes.
To pursue a direct-to-patient and -provider sales model, our manufacturing competitors would need to meet national accreditation and state-by-state licensing requirements, secure Medicare billing privileges, as well as compete directly with the home medical equipment providers that many rely on across their entire home care businesses.
To pursue a direct-to-patient and -provider 20 Table of Contents sales model, our manufacturing competitors would need to meet national accreditation and state-by-state licensing requirements, secure Medicare billing privileges, as well as compete directly with the home medical equipment providers that many rely on across their entire home care businesses.
As a result, our provider arrangements may ultimately be found to be non-compliant with applicable federal law. False statements. The federal false statements statute prohibits knowingly and willfully falsifying, concealing, or omitting a material fact or making any materially false statement in connection with the delivery of healthcare benefits, items, or services.
As a result, our provider arrangements may ultimately be found to be non-compliant with applicable federal law. False statements. The federal false statements statute, relating to health care matters, prohibits knowingly and willfully falsifying, concealing, or omitting a material fact or making any materially false statement in connection with the delivery of healthcare benefits, items, or services.
Our Flexitouch, Entre and AffloVest systems (all models) are Class II devices under the FDA classification system requiring 510(k) clearance. We obtained 510(k) clearance for our Flexitouch system in October 2006 and for a discontinued predecessor system in July 2002.
All of our past and current models of our Flexitouch, Entre and AffloVest systems are Class II devices under the FDA classification system requiring 510(k) clearance. We obtained 510(k) clearance for our Flexitouch system in October 2006 and for a discontinued predecessor system in July 2002.
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 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 5 Table of Contents we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system.
Lymph nodes are located in several areas of the body, including superficial and deep lymph nodes under each arm, at the hip, in the groin, above the collar bones in the neck, in the abdomen, tonsils and spleen, and in bone marrow.
Lymph nodes are located in several areas of the body, including superficial and deep lymph nodes under each arm, at the hip, in the groin, above the collar bones in the neck, in the abdomen, 6 Table of Contents tonsils and spleen, and in bone marrow.
The Federal Anti-Kickback Statute applies to certain arrangements with healthcare providers, product end users and other parties, including marketing arrangements and discounts and other financial incentives offered to our clinicians in connection with the sales of our products.
The Federal Anti-Kickback Statute applies to certain arrangements with healthcare providers, product end users and other parties, including marketing arrangements and discounts and other financial arrangements offered to our clinicians in connection with the sale of our products.
While this approach has had positive impact, we do not know if or when additional payers may adopt the LCD criteria nor do we know how they will choose to interpret it.
While this approach has had positive impact, we do not know if or when additional payers may adopt more restrictive criteria like the LCD nor do we know how they will choose to interpret it.
Trademarks We have registered the trademarks Tactile Medical, Flexitouch, the Flexitouch logo design, Entre, AffloVest, and AffloVest Pro with the United States Patent and Trademark Office on the Principal Register. We rely in the United States on common law rights to the Tactile Medical design trademark.
Trademarks We have registered the trademarks Tactile Medical, Flexitouch, Flexitouch Plus, the Flexitouch logo design, ComfortEase, Entre, AffloVest, AffloVest Pro, and Kylee with the United States Patent and Trademark Office on the Principal Register. We rely in the United States on common law rights to the Tactile Medical design trademark.
FDA clearance to market a first-of-its-kind system to treat patients suffering from lymphedema of the head and neck, a frequent consequence of head and neck cancer and its treatment. Patient symptoms often include significant skin changes, pain and discomfort, as well as difficulty breathing and swallowing.
We received U.S. FDA clearance to market a first-of-its-kind system to treat patients suffering from lymphedema of the head and neck, a frequent consequence of head and neck cancer and its treatment. Patient symptoms often include significant skin changes, pain and discomfort, as well as difficulty breathing and swallowing.
The respiratory DME channel also already serves the chronic respiratory community, enabling them to identify candidates who are regularly on other respiratory therapies (such as oxygen, nebulizers, non-invasive ventilators, etc.) and who might benefit from the use of our AffloVest.
The respiratory DME channel also already serves the chronic respiratory community, enabling them to identify complex respiratory candidates who are regularly on other respiratory therapies (such as oxygen, nebulizers, 16 Table of Contents non-invasive ventilators, etc.) and who might benefit from the use of our AffloVest.
Manufacturing companies compete for sales to patients primarily based on product features and service. 19 Table of Contents We believe we are the only pneumatic compression home-therapy device company with a meaningful U.S. market position supported by a direct sales force.
Manufacturing companies compete for sales to patients primarily based on product features and service. We believe we are the only pneumatic compression home-therapy device company with a meaningful U.S. market position supported by a direct sales force.
We have an in-depth understanding of specific payer coverage criteria, and our submission materials are tailored to address an individual payer's distinct requirements. Our dedicated customer service team is available to answer patient questions regarding reimbursement, account status, device operation and troubleshooting during normal business hours.
We began doing business with Medicare in 2007. We have an in-depth understanding of specific payer coverage criteria, and our submission materials are tailored to address an individual payer's distinct requirements. Our dedicated customer service team is available to answer patient questions regarding reimbursement, account status, device operation and troubleshooting during normal business hours.
These DME providers are staffed by trained respiratory therapists who are required in some states to set up patients on at-home prescription respiratory therapies like AffloVest. We 16 Table of Contents market to, and educate, DME providers and clinicians about the AffloVest advantages.
These DME providers are staffed by trained respiratory therapists who are required in some states to set up patients on at-home prescription respiratory therapies like AffloVest. We market to, and educate, DME providers and clinicians about the AffloVest advantages.
Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our systems or to obtain and use information that we regard as proprietary. Patents Our patent portfolio consists of three sets of patents, including patents relating to our Flexitouch system and other wearable compression-related technologies.
Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our systems or to obtain and use information that we regard as proprietary. Patents Our patent portfolio consists of four sets of patents, including patents relating to our Flexitouch system, our AffloVest system and other related technologies.
For people with cancer, the build-up of lymph fluid can be caused by surgery, especially when lymph nodes are removed, radiation therapy that can damage lymph nodes and vessels, infections that damage surrounding tissue or cause scarring, and other conditions. In the fourth quarter of 2016 we expanded the indications for use of the Flexitouch system. We received U.S.
For people with cancer, the build-up of lymph fluid can be caused by 7 Table of Contents surgery, especially when lymph nodes are removed, radiation therapy that can damage lymph nodes and vessels, infections that damage surrounding tissue or cause scarring, and other conditions. In the fourth quarter of 2016 we expanded the indications for use of the Flexitouch system.
As of December 31, 2022, we also employed a small group of respiratory specialists, who educate DME provider representatives, provide product demonstrations for targeted clinicians and support technical questions related to the AffloVest. The chart below describes our DME model.
As of December 31, 2023, we also employed a small group of respiratory specialists, who educate DME provider representatives, provide product demonstrations for targeted clinicians and support technical questions related to the AffloVest. 17 Table of Contents The chart below describes our DME model.
In 2021, we also received our Medical Device Single Audit Program (“MDSAP”) certification. An MDSAP allows an MDSAP-recognized Auditing Organization to conduct a single regulatory audit of a medical device manufacturer that satisfies the relevant requirements of the regulatory authorities participating in the program. Many of our manufacturers’ quality management systems also have been certified to ISO.
An MDSAP allows an MDSAP-recognized Auditing Organization to conduct a single regulatory audit of a medical device manufacturer that satisfies the relevant requirements of the regulatory authorities participating in the program. Many of our manufacturers’ quality management systems also have been certified to ISO.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: Warning Letters, fines, injunctions, civil or criminal penalties, recall or seizure of our products, operating restrictions, partial suspension or total shutdown of production, denying our request for 510(k) clearance or premarket approval of new products, rescinding previously granted 510(k) clearances or withdrawing previously granted premarket approvals.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include, but are not limited to, any of the following compliance and enforcement actions: warning letters, fines, injunctions, civil or criminal penalties, recall or seizure of our products, operating restrictions, partial suspension or total shutdown of production, denying our request for 510(k) clearance or premarket approval of new products, rescinding previously granted 510(k) clearances or withdrawing previously granted premarket approvals.
As the valves deteriorate, blood is no longer able to effectively travel in the 7 Table of Contents normal direction, leading to increased pressure in the vascular system, stretching and dilating vessels, which exacerbates the problem.
As the valves deteriorate, blood is no longer able to effectively travel in the normal direction, leading to increased pressure in the vascular system, stretching and dilating vessels, which exacerbates the problem.
Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties and exclusion from Medicare or other governmental programs.
Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties and exclusion from Medicare or other Federal health care programs.
We maintain open communication with physician key opinion leaders and with Medicare contractors to provide data as it becomes available that could potentially influence coverage decisions.
We maintain open communication with physician key opinion leaders and with Medicare contractors to provide data as it becomes available that could potentially influence coverage 27 Table of Contents decisions.
Third-party payers include private insurance plans and governmental programs. As with other medical devices, reimbursement for our products can differ significantly from payer to payer, and our products are not universally covered by third- party commercial payers. Further, third-party payers continually review existing technologies for continued coverage and can, with limited notice, deny or reverse coverage for existing products.
As with other medical devices, reimbursement for our products can differ significantly from payer to payer, and our products are not universally covered by third- party commercial payers. Further, third-party payers continually review existing technologies for continued coverage and can, with limited notice, deny or reverse coverage for existing products.
We are also subject to announced and unannounced inspections by the FDA, and these inspections may include the manufacturing facilities of our subcontractors. We were audited three times since January 2010 by the FDA and found to be in compliance with the Quality System Regulation.
We are also subject to announced and unannounced inspections by the FDA, and these inspections may include the manufacturing facilities or other sites of our subcontractors to audit any part of our quality system. We were audited three times since January 2010 by the FDA and found to be in compliance with the Quality System Regulation.
Our research and development expenses, including spending on our clinical evidence development efforts, totaled $7.1 million and $5.7 million for the years ended December 31, 2022 and 2021, respectively.
Our research and development expenses, including spending on our clinical evidence development efforts, totaled $7.8 million and $7.1 million for the years ended December 31, 2023 and 2022, respectively.
Our reimbursement function includes payer relations and reimbursement operations. Our payer relations function focuses on payer policy development and education for our entire portfolio, as well as contract negotiations for our direct business, and data analysis. Our reimbursement operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary.
Our reimbursement function includes payer relations and reimbursement operations. 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.
We provide all employees training on workplace safety and require employees to follow standards and practices supporting a safe and healthy work environment. 28 Table of Contents Talent and Retention: In 2022, we continued to focus on recruitment, hiring, and retention to ensure high quality talent and a strong fit for specific roles and the Company.
We provide all employees training on workplace safety and require employees to follow standards and practices supporting a safe and healthy work environment. Talent and Retention: In 2023, we continued to focus on recruitment, hiring, and retention to ensure high quality talent and a strong fit for specific roles within the Company.
After a device receives 510(k) clearance or a premarket approval, in general any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will 20 Table of Contents require a new clearance or approval.
After a device receives a 510(k) clearance or a premarket approval, any modification that could significantly affect its safety or effectiveness or that would constitute a major change in its intended use will generally require a new clearance or approval.
Thus, modifications to our existing devices will be evaluated to ensure ongoing compliance to the FDA requirements. Further, even after a device receives clearance or approval by the FDA and is placed on the market, numerous regulatory requirements apply.
Thus, modifications or changes in use of our existing devices will be evaluated to ensure ongoing compliance to the FDA requirements. 21 Table of Contents Further, even after a device receives clearance or approval by the FDA and is placed on the market, numerous regulatory requirements apply.
Kylee In 2022, we introduced Kylee™, a free mobile application to help patients learn about lymphedema, track their symptoms and treatment, and share their progress with their doctor. The purpose behind Kylee is to help support and encourage patients to embrace self-care and become more educated about their condition.
In 2023, our second-generation system, Entre Plus, was introduced. Kylee In 2022, we introduced Kylee™, a free mobile application to help patients learn about lymphedema, track their symptoms and treatment, and share their progress with their doctor. The purpose behind Kylee is to help support and encourage patients to embrace self-care and become more educated about their condition.
The user can set and store their personalized default treatment settings. Our AffloVest system has received 510(k) clearance as a HFCWO device and is intended for promoting airway clearance and improvement of bronchial drainage by enhancing mobilization of bronchial secretions where manipulation of the thorax is the physician’s choice of treatment.
Our AffloVest system has received 510(k) clearance as a HFCWO device and is intended for promoting airway clearance and improvement of bronchial drainage by enhancing mobilization of bronchial secretions where manipulation of the thorax is the physician’s choice of treatment.
We believe the strength of our employees is the cornerstone to achieving these goals. As of December 31, 2022, we had 982 employees. We have 566 employees who are based throughout the United States, as well as 416 employees who are primarily based in our corporate/manufacturing locations in the Minneapolis metropolitan area.
We believe the strength of our employees is the cornerstone to achieving these goals. As of December 31, 2023, we had 992 employees. We have 592 employees who are based throughout the United States, as well as 400 employees who are primarily based in our corporate/manufacturing locations in the Minneapolis metropolitan area.
Our Medicare business was 19% of revenue in 2022 compared to 17% in 2021. 26 Table of Contents Because Medicare criteria is extensive, we have a team dedicated to educating prescribers to help them understand how Medicare policy affects their patients and the medical record documentation needed to meet Medicare requirements.
Our Medicare business was 24% of revenue in 2023 compared to 19% in 2022. Because Medicare criteria is extensive, we have a team dedicated to educating clinicians to help them understand how Medicare policy affects their patients and the medical record documentation needed to meet Medicare requirements.
AffloVest also benefits from a relatively mature reimbursement landscape. Health insurance coverage is in place for High Frequency Chest Wall Oscillation (“HFCWO”) vest therapy with Medicare and most private insurers. Respiratory DME partners serve the role of receiving prescriptions, verifying coverage criteria, shipping, billing and training the patient.
Health insurance coverage is in place for High Frequency Chest Wall Oscillation (“HFCWO”) vest therapy with Medicare and most private insurers. Respiratory DME partners serve the role of receiving prescriptions, verifying coverage criteria, shipping, billing and training the patient.
In addition, the federal government may also seek exclusion from participation in all federal health care programs. In addition, we bill Medicare Part B and other insurers directly for each sale to patients.
In addition, the federal government may also seek exclusion from participation in all federal health care programs. In addition, we bill Medicare Part B, Medicaid, the Veterans Administration and other insurers directly for lymphedema products provided to patients.
These benefits include but are not limited to retirement savings, an employee stock purchase plan, a variety of health insurance options, including dental and vision, discounts on healthy foods and fitness memberships, disability insurance, paid maternity/paternity leave, and a company volunteer program implemented in 2022 providing employees paid time to give back to the community.
These benefits include but are not limited to retirement savings, an employee stock purchase plan, a variety of health insurance options, including dental and vision, discounts on healthy foods and fitness memberships, disability insurance, paid maternity/paternity leave, and a company volunteer program providing employees paid time to give back to the community. ​ Diversity, Equity, and Inclusion : We consider diversity, equity, inclusion, and employee engagement as cornerstones to the future growth of the business.
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 5 Table of Contents 2013.
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 and the second generation, Entre Plus, in March 2023.
Our Flexitouch head and neck system is the only pneumatic compression device with an indication to treat patients suffering from debilitating head and neck lymphedema.
Our Flexitouch head and neck system is the only pneumatic compression device with an indication to treat patients suffering from debilitating head and neck lymphedema and our therapy is protected with several patents issued in 2022.
We have enjoyed a consistent commercial payer approval rate of greater than 80% for the last six years, and a greater than 90% Medicare claims submitted approval rate for the last six years (post-arbitration and based on the number of claims, not dollar amount of claims, submitted across all our products). We began doing business with Medicare in 2007.
We have enjoyed a consistent commercial payer 18 Table of Contents approval rate of greater than 80% for the last seven years, and a greater than 90% Medicare claims submitted approval rate for the last seven years (post-arbitration and based on the number of claims, not dollar amount of claims, submitted across all our products).
Reimbursement, Payer Relations and Customer Support Process Private insurers and other payers represented approximately 57% and 68% of our revenue in 2022 and 2021, respectively, while Medicare represented approximately 19% and 17% of our revenue in 2022 and 2021, respectively, Veterans Administration hospitals represented approximately 10% and 13% of our revenue in 2022 and 2021, respectively, and DME distributors represented approximately 14% and 2% of our revenue in 2022 and 2021, respectively.
Reimbursement, Payer Relations and Customer Support Process Private insurers and other payers represented approximately 54% and 57% of our revenue in 2023 and 2022, respectively, while Medicare represented approximately 24% and 19% of our revenue in 2023 and 2022, respectively, Veterans Administration hospitals represented approximately 10% of our revenue in each of 2023 and 2022, and DME distributors represented approximately 12% and 14% of our revenue in 2023 and 2022, respectively.
As of December 31, 2022, we employed a field staff of 287 Tactile employees, made up of sales representatives, as well as managers, who provide support throughout the United States for our lymphedema and respiratory therapies. Our marketing team leads our efforts in brand development, product messaging, tradeshow attendance, medical educational forums, website development, social media and advertising.
As of December 31, 2023, we employed 270 field sales representatives who provide support throughout the United States for our lymphedema and respiratory therapies compared to 251 field sales representatives as of December 31, 2022. Our marketing team leads our efforts in brand development, product messaging, tradeshow attendance, medical educational forums, website development, social media and advertising.
Failure to submit timely, accurate and complete information may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1.0 million per year for "knowing failures to report." Certain states require implementation of commercial compliance programs and compliance with the device industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices, and/or prohibition and tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.
Failure to submit timely, accurate and complete information may result in significant civil monetary penalties for "knowing failures to report." Certain states have their own versions of the Physician Payments Sunshine Act, and may also require implementation of commercial compliance programs and compliance with the device industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices, and/or prohibition and tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.
For AffloVest, we utilize the respiratory DME channel as our go-to-market method. Our utilization of DME representatives gives us access to a larger channel than competitors that market and sell directly.
The direct channel allows us to focus on two of our primary call points, vascular and oncology. For AffloVest, we utilize the respiratory DME channel as our go-to-market method. Our utilization of DME representatives gives us access to a larger channel than competitors that market and sell directly.
As of December 31, 2022, we owned about 188 issued patents globally, of which 62 were issued U.S. patents. As of December 31, 2022, we owned about 30 pending patent applications pending globally, of which 9 were pending patent applications in the United States.
As of December 31, 2023, we owned about 171 issued patents globally, of which 63 were issued U.S. patents. As of December 31, 2023, we owned about 24 pending patent applications pending globally, of which 9 were pending patent applications in the United States.
Quality control, risk management, efficiency and the ability to respond quickly to changing requirements are the primary goals of our manufacturing operations. We believe our manufacturing model permits us to operate with low capital expenditure requirements.
Quality control, risk management, efficiency and the ability to respond quickly to changing requirements are the primary goals of our manufacturing operations. We believe our manufacturing model permits us to operate with low capital expenditure requirements. We carefully manage our supply chain in an effort to take costs out of the manufacturing process.
They gather and submit documentation for payer reimbursement, train patients on use of the device, and provide ongoing patient support. For the year ended December 31, 2022, we generated revenue of $246.8 million and had a net loss of $17.9 million. Our revenue increased 19% during the year ended December 31, 2022, compared to the year ended December 31, 2021.
They gather and submit documentation for payer reimbursement, train patients on use of the device, and provide ongoing patient support. For the year ended December 31, 2023, we generated revenue of $274.4 million and had net income of $28.5 million. Our revenue increased 11% during the year ended December 31, 2023, compared to the year ended December 31, 2022.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf the FDA disagrees with our determination and requires us to submit new 510(k) notifications or premarket approval for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. 47 Table of Contents Furthermore, the FDA's ongoing review of the 510(k) program may make it more difficult for us to make modifications to our previously cleared products, either by imposing more strict requirements on when a manufacturer must submit a new 510(k) for a modification to a previously cleared product, or by applying more onerous review criteria to such submissions.
Biggest changeIf the FDA disagrees with our determination and requires us to submit new 510(k) notifications or premarket approval for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.
The following examples are illustrative: ● others may be able to make products that are similar to our products but that are not covered by the claims of the patents that we own or license from others; ● others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing our intellectual property rights; ● we might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license; ● we might not have been the first to file patent applications covering certain subject matter of the patents or patent applications that we own or for which we have obtained a license, or will own or for which we will obtain a license; ● it is possible that our pending patent applications will not result in issued patents; ● issued patents that we own may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; ● our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use 63 Table of Contents the information learned from such activities to develop competitive products for sale in our major commercial markets; ● ownership of our patents or patent applications may be challenged by third parties; and ● the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.
The following examples are illustrative: ● others may be able to make products that are similar to our products but that are not covered by the claims of the patents that we own or license from others; ● others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing our intellectual property rights; ● we might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license; ● we might not have been the first to file patent applications covering certain subject matter of the patents or patent applications that we own or for which we have obtained a license, or will own or for which we will obtain a license; ● it is possible that our pending patent applications will not result in issued patents; ● issued patents that we own may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; 63 Table of Contents ● our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; ● ownership of our patents or patent applications may be challenged by third parties; and ● the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.
Healthcare fraud and abuse and health information privacy and security laws potentially applicable to our operations include: ● the federal Anti-Kickback Statute, which applies to our marketing practices, educational programs, pricing policies and relationships with healthcare providers, by prohibiting, among other things, soliciting, receiving, offering or providing remuneration, whether directly or indirectly and overtly or covertly, intended to induce the referral of an individual for (i) the furnishing or the arranging for the furnishing of items or services reimbursable under a federal healthcare program, such as Medicare or Medicaid; or (ii) the purchase, lease or order of, or the arrangement or recommendation of the purchasing, leasing or ordering of, of an item or service reimbursable under a federal healthcare program.
Healthcare fraud and abuse and health information privacy and security laws potentially applicable to our operations include: ● the federal Anti-Kickback Statute, which applies to our marketing practices, educational programs, pricing policies and any relationships with healthcare providers, by prohibiting, among other things, soliciting, receiving, offering or providing remuneration, whether directly or indirectly and overtly or covertly, intended to induce the referral of an individual for (i) the furnishing or the arranging for the furnishing of items or services reimbursable under a federal healthcare program, such as Medicare or Medicaid; or (ii) the purchase, lease or order of, or the arrangement or recommendation of the purchasing, leasing or ordering of, of an item or service reimbursable under a federal healthcare program.
Our level of debt under our credit facility could, among other things: ● require us to dedicate a large portion of our cash flow from operations to the servicing and repayment of our debt, thereby reducing funds available for working capital, capital expenditures, research and development expenditures and other general corporate requirements; 56 Table of Contents ● limit our ability to obtain additional financing to fund future working capital, capital expenditures, research and development expenditures and other general corporate requirements; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● restrict our ability to make strategic acquisitions or dispositions or to exploit business opportunities; ● place us at a competitive disadvantage compared to our competitors that have less debt; and ● adversely affect the market price of our common stock. ​ Further, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
Our level of debt under our credit facility could, among other things: ● require us to dedicate a large portion of our cash flow from operations to the servicing and repayment of our debt, thereby reducing funds available for working capital, capital expenditures, research and development expenditures and other general corporate requirements; ● limit our ability to obtain additional financing to fund future working capital, capital expenditures, research and development expenditures and other general corporate requirements; 57 Table of Contents ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● restrict our ability to make strategic acquisitions or dispositions or to exploit business opportunities; ● place us at a competitive disadvantage compared to our competitors that have less debt; and ● adversely affect the market price of our common stock. ​ Further, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
If we expand internationally, we would be subject to additional risks related to entering into international markets, including: ● difficulty obtaining approvals under foreign regulatory requirements, such as more stringent requirements for regulatory clearance of products; ● difficulty successfully training patients and physicians on using our products; ● difficulty hiring a qualified direct-sales force or finding and entering into commercially acceptable agreements with suitable third-parties to market our products; ● reduced protection for intellectual property rights; ● increased or different tariffs, trade barriers and regulatory requirements; ● economic weakness, including inflation, or political instability in particular foreign economies and markets; ● compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ● foreign taxes, including withholding of payroll taxes; ● foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; ● workforce uncertainty in countries where labor unrest is more common than in the United States; ● complex data privacy requirements; ● international regulators and third-party payers may require additional clinical studies prior to approving or allowing reimbursement for our products; ● disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the U.S.
If we expand internationally, we would be subject to additional risks related to entering into international markets, including: ● difficulty obtaining approvals under foreign regulatory requirements, such as more stringent requirements for regulatory clearance of products; ● difficulty successfully training patients and physicians on using our products; ● difficulty hiring a qualified direct-sales force or finding and entering into commercially acceptable agreements with suitable third-parties to market our products; 41 Table of Contents ● reduced protection for intellectual property rights; ● increased or different tariffs, trade barriers and regulatory requirements; ● economic weakness, including inflation, or political instability in particular foreign economies and markets; ● compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ● foreign taxes, including withholding of payroll taxes; ● foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; ● workforce uncertainty in countries where labor unrest is more common than in the United States; ● complex data privacy requirements; ● international regulators and third-party payers may require additional clinical studies prior to approving or allowing reimbursement for our products; ● disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the U.S.
The Federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, whether directly or indirectly and overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federal financed healthcare programs.
The Federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, whether directly or indirectly and overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs.
Misconduct by employees, distributors and other third parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, or laws that require the reporting of financial information or data accurately.
Misconduct by employees, distributors and other third parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities that violate FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, or laws that require the reporting of financial information or data accurately.
Unless an exemption applies, each medical device we seek to distribute commercially in the United States requires marketing authorization from the FDA prior to distribution. The two primary types of FDA marketing authorization applicable to a device are premarket notification, also called 510(k) clearance, and premarket approval.
Unless an exemption applies, each medical device we seek to distribute commercially in the United States requires marketing authorization from the FDA prior to distribution. The two primary types of FDA marketing authorizations applicable to a medical device are premarket notification, also called a 510(k) clearance, and premarket approval.
We will likely need to conduct additional clinical studies in the future to support new indications for our products or for clearances of new product lines, or for the approval of the use of our products in some foreign countries. Clinical testing can take many years, can be expensive and carries uncertain outcomes.
We will likely need to conduct additional clinical studies in the future to support new indications for our products or for clearances or approvals of new product lines, or for the approval of the use of our products in some foreign countries. Clinical testing can take many years, can be expensive and carries uncertain outcomes.
In the event of this possibility, the sponsor can request a risk-based classification determination for the device in accordance with the de novo process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
In the event of this possibility, the sponsor can request a risk-based classification determination for the device in accordance with the FDA’s De Novo classification request process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
We utilize third-party, single-source suppliers for some components and materials used in our products, and the loss of any of these suppliers could have an adverse impact on our business. We rely on third-party manufacturers and suppliers to supply all components and materials used in our Flexitouch, Entre and AffloVest systems.
We utilize third-party, single-source suppliers for some components and materials used in our products, and the loss of any of these suppliers could have an adverse impact on our business. We rely on third-party manufacturers and suppliers to supply all components and materials used in our Flexitouch Plus, Entre Plus and AffloVest systems.
If we are unable to obtain or maintain international registrations or approvals, or if distributors experience delays in receiving, or fail to receive, necessary registrations or approvals to market our products outside the United States, we may be unable to market our products or enhancements in certain international markets effectively, or at all. 55 Table of Contents Our operations involve the use of hazardous and toxic materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and could have an adverse impact on our business.
If we are unable to obtain or maintain international registrations or approvals, or if distributors experience delays in receiving, or fail to receive, necessary registrations or approvals to market our products outside the United States, we may be unable to market our products or enhancements in certain international markets effectively, or at all. 56 Table of Contents Our operations involve the use of hazardous and toxic materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and could have an adverse impact on our business.
To ensure compliance with Medicare, Medicaid and other regulations, government agencies or their contractors often conduct routine audits and request customer records and other documents to support our claims submitted for payment of services rendered.
To ensure compliance with Medicare, Medicaid and other regulations, government agencies or their contractors often conduct routine audits and request customer records and other documents to support claims submitted for payment of services rendered.
The government may assert that a claim, including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes; ● HIPAA and its implementing regulations, which created federal criminal laws that prohibit, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; 51 Table of Contents ● HIPAA, as amended by HITECH, also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information; ● federal Open Payments (the Physician Payments Sunshine Act) requirements imposed by the ACA on device manufacturers regarding certain "transfers of value" made or distributed to physicians, certain other healthcare providers, and teaching hospitals.
The government may assert that a claim, including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes; ● HIPAA and its implementing regulations, which created federal criminal laws that prohibit, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; ● HIPAA, as amended by HITECH, also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information; ● federal Open Payments (the Physician Payments Sunshine Act) requirements imposed by the ACA on device manufacturers regarding certain "transfers of value" made or distributed to physicians, certain other healthcare providers, and teaching hospitals.
Our ability to develop and commercialize additional products or enhancements to existing products will depend on several factors, including our ability to: ● properly identify and anticipate physician and patient needs; ● develop and introduce new products or product enhancements in a timely manner; ● avoid infringing upon the intellectual property rights of third parties; ● demonstrate the safety and efficacy of new products with data from clinical studies; ● obtain the necessary regulatory clearances or approvals for new products or product enhancements; 36 Table of Contents ● be fully FDA-compliant with the development, manufacturing and marketing of new devices or modified products; ● provide adequate training to potential users of our products; ● secure adequate coverage and reimbursement for our products; and ● develop and maintain an effective and dedicated sales and marketing team, as well as relationships with distributors.
Our ability to develop and commercialize additional products or enhancements to existing products will depend on several factors, including our ability to: ● properly identify and anticipate physician and patient needs; ● develop and introduce new products or product enhancements in a timely manner; ● avoid infringing upon the intellectual property rights of third parties; ● demonstrate the safety and efficacy of new products with data from clinical studies; ● obtain the necessary regulatory clearances or approvals for new products or product enhancements; ● be fully FDA-compliant with the development, manufacturing and marketing of new devices or modified products; ● provide adequate training to potential users of our products; ● secure adequate coverage and reimbursement for our products; and ● develop and maintain an effective and dedicated sales and marketing team, as well as relationships with distributors.
Any future funding requirements will depend on many factors, including: ● market acceptance of our products; ● the scope, rate of progress and cost of our clinical studies; ● the cost of our research and development activities; ● the cost of filing and prosecuting patent applications and defending and enforcing our patent or other intellectual property rights; ● the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights; ● the cost and timing of additional regulatory clearances or approvals; ● the cost and timing of establishing additional sales, marketing and distribution capabilities; ● costs associated with any product recall that may occur; ● the effect of competing technological and market developments; ● the extent to which we acquire or invest in products, technologies and businesses; and ● the costs of operating as a public company.
Any future funding requirements will depend on many factors, including: ● market acceptance of our products; ● the scope, rate of progress and cost of our clinical studies; ● the cost of our research and development activities; ● the cost of filing and prosecuting patent applications and defending and enforcing our patent or other intellectual property rights; ● the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights; 58 Table of Contents ● the cost and timing of additional regulatory clearances or approvals; ● the cost and timing of establishing additional sales, marketing and distribution capabilities; ● costs associated with any product recall that may occur; ● the effect of competing technological and market developments; ● the extent to which we acquire or invest in products, technologies and businesses; and ● the costs of operating as a public company.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including: ● for non-premarket approval devices, failure of the applicant to demonstrate to the FDA's satisfaction that its products meet the definition of "substantial equivalence" or meet the standard for the FDA to grant a petition for de novo classification; ● failure of the applicant to demonstrate that there is reasonable assurance that the medical device is safe or effective under the conditions of use prescribed, recommended or suggested in the proposed labeling; ● insufficient data from the pre-clinical studies and clinical trials; or ● the manufacturing processes, methods, controls or facilities used for the manufacture, processing, packing or installation of the device do not meet applicable requirements.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including: ● for non-premarket approval devices, failure of the applicant to demonstrate to the FDA's satisfaction that its products meet the definition of "substantial equivalence" or meet the standard for the FDA to grant a petition for De Novo classification; 44 Table of Contents ● failure of the applicant to demonstrate that there is reasonable assurance that the medical device is safe or effective under the conditions of use prescribed, recommended or suggested in the proposed labeling; ● insufficient data from the pre-clinical studies and clinical trials; and/or ● the manufacturing processes, methods, controls or facilities used for the manufacture, processing, packing or installation of the device do not meet applicable requirements.
These laws and regulations may be more restrictive and not preempted by U.S. federal laws. For example, several U.S. territories and all 50 states now 53 Table of Contents have data breach laws that require timely notification to individual victims, and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive personal data.
These laws and regulations may be more restrictive and not preempted by U.S. federal laws. For example, several U.S. territories and all 50 states now 54 Table of Contents have data breach laws that require timely notification to individual victims, and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive personal data.
In addition, FDA and other regulations and guidance are often revised or reinterpreted in ways that may significantly affect our business and our products, and new regulations or guidance documents may be promulgated.
In addition, FDA and other applicable regulations and guidance are often revised or reinterpreted in ways that may significantly affect our business and our products, and new regulations or guidance documents may be promulgated.
The FDA intends these reform actions to improve the efficiency and transparency of the clearance process, as well as bolster patient safety. This new guidance could impose additional regulatory requirements upon us which could delay our ability to obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current clearances.
The FDA intends these reform actions to improve the efficiency and transparency of the clearance process, as well as bolster patient safety. Any new guidance could impose additional regulatory requirements upon us which could delay our ability to obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current clearances.
In addition, payers often conduct routine audits and request customer records and other documents to support our claims submitted for payment.
In addition, payers often conduct routine audits and request customer records and other documents to support claims submitted for payment.
The FDA and other U.S. and foreign governmental agencies regulate, among other things, with respect to medical devices: ● design, development and manufacturing; ● establishment registration and product listing; ● testing, labeling, content and language of instructions for use and storage; ● clinical trials; ● product safety; ● marketing, sales and distribution; ● unique device identifiers; ● premarket clearance and approval; ● record keeping procedures; ● advertising and promotion; ● recalls and field safety corrective actions; ● post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; 42 Table of Contents ● post-market approval studies; and ● product import and export.
The FDA and other U.S. and foreign governmental agencies regulate, among other things, with respect to medical devices: ● design, development and manufacturing; ● establishment registration and product listing; ● testing, labeling, content and language of instructions for use, storage and servicing; ● clinical trials; ● product safety; ● marketing, sales and distribution; ● unique device identifiers; ● premarket clearance and approval; ● record keeping procedures; ● advertising and promotion; ● recalls and field safety corrective actions; ● post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; ● post-market approval studies; and ● product import and export.
This 2% reduction based on the sequestration was suspended in 2020 due to the public health emergency, and Congress extended the sequestration moratorium through March 31, 2021. From April 1, 2021 through June 30, 2021, the reduction went back into effect at a 1% reduction level, and beginning July 1, 2021, the reduction returned to a 2% reduction level.
This 2% reduction based on the sequestration was suspended in 2020 due to the public health emergency, and Congress extended the sequestration moratorium through March 31, 2022. From April 1, 2022 through June 30, 2022, the reduction went back into effect at a 1% reduction level, and beginning July 1, 2022, the reduction returned to a 2% reduction level.
We can provide no assurance that we will be successful in initiating appropriate market recall or market withdrawal efforts that may 54 Table of Contents be required in the future or that these efforts will have the intended effect of preventing product malfunctions and the accompanying product liability that may result.
We can provide no assurance that we will be successful in initiating appropriate market recall or market withdrawal efforts that may 55 Table of Contents be required in the future or that these efforts will have the intended effect of preventing product malfunctions and the accompanying product liability that may result.
Also, insurance benefit levels vary substantially by health plan, meaning that some patients have high annual out-of-pocket medical costs, which may make it difficult for those patients to afford our products. 29 Table of Contents Third-party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs.
Also, insurance benefit levels vary substantially by health plan, meaning that some patients have high annual out-of-pocket medical costs, which may make it difficult for those patients to afford our products. Third-party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs.
Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control. 45 Table of Contents If we fail to comply with state and federal fraud and abuse laws, including anti-kickback, false claims and anti-inducement laws, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control. If we fail to comply with state and federal fraud and abuse laws, including anti-kickback, false claims and anti-inducement laws, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
A premarket approval application must be submitted to the FDA if the device cannot be cleared through the 510(k) process. The premarket approval application process is much more demanding than the 510(k) premarket notification process and requires the payment of significant user fees.
A premarket approval application must be submitted to the FDA if the device cannot be cleared through the 510(k) process. The premarket approval application process is much more demanding and in-depth than the 510(k) premarket notification process and requires the payment of significant user fees.
In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, pay royalties, redesign our infringing products and processes or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, pay royalties, 62 Table of Contents redesign our infringing products and processes or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
In the event of a natural disaster, including a major earthquake, blizzard or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations for a period of time in the affected area, which could have an adverse effect on our future operating results.
In the event of a natural disaster, including a major earthquake, blizzard or hurricane, or a catastrophic event such as a fire, 40 Table of Contents power loss, or telecommunications failure, we may be unable to continue our operations for a period of time in the affected area, which could have an adverse effect on our future operating results.
Such a device is commonly known as a ‘‘predicate device.’’ In 2019, the FDA released an optional Safety and Performance Based Pathway for 510(k) clearance, which allows a submitter to demonstrate that an eligible new device of a well-understood type meets FDA-identified performance criteria to demonstrate that the device is as safe and effective as a legally marketed device.
Such a device is commonly known as a ‘‘predicate device.’’ In 2019, the FDA released an optional Safety and 43 Table of Contents Performance Based Pathway for 510(k) clearance, which allows a submitter to demonstrate that an eligible new device of a well-understood type meets FDA-identified performance criteria to demonstrate that the device is as safe and effective as a legally marketed device.
Acquisitions could include significant goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings. 40 Table of Contents If we commercialize any products outside of the United States, a variety of risks associated with international operations could impact our strategy and adversely affect our future growth.
Acquisitions could include significant goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings. If we commercialize any products outside of the United States, a variety of risks associated with international operations could impact our strategy and adversely affect our future growth.
Litigation may be necessary to defend against these and other claims challenging our right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose our rights therein. Such an outcome could have a material adverse effect on our business.
Litigation may be necessary to defend against these and other claims challenging our right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose our rights therein. Such an outcome could have a material adverse effect on our 64 Table of Contents business.
Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Federal false claims laws prohibit, in part, any person from knowingly presenting or causing to be presented a false claim for payment to the federal government, or knowingly making or causing to be made a false statement to obtain payment.
Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. 46 Table of Contents Federal false claims laws prohibit, in part, any person from knowingly presenting or causing to be presented a false claim for payment to the federal government, or knowingly making or causing to be made a false statement to obtain payment.
If we fail to comply with our reporting obligations, the FDA could take action including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearances, seizure of our products, or delay in clearance of future products. 48 Table of Contents Our products may in the future be subject to product recalls.
If we fail to comply with our reporting obligations, the FDA could take action including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearances, seizure of our products, or delay in clearance of future products. Our products may in the future be subject to product recalls.
At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. Further, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trade names that incorporate variations of our trademarks or trade names.
At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. Further, there could be potential trade name or trademark infringement claims brought by 65 Table of Contents owners of other trademarks or trade names that incorporate variations of our trademarks or trade names.
We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues.
We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling 49 Table of Contents defects or other deficiencies and issues.
In the United States, our currently commercialized products are marketed pursuant to premarket clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or FDCA.
In the United States, our currently commercialized products are marketed pursuant to 510(k) premarket clearances under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or FDCA.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our 44 Table of Contents products under development or impact our ability to modify our currently approved or cleared products on a timely basis.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently approved or cleared products on a timely basis.
Notably, whereas HIPAA previously directly regulated only these covered entities, the HITECH Act, which was signed into law as part of the stimulus package in February 2009, makes certain 52 Table of Contents of HIPAA's privacy and security standards also directly applicable to covered entities' business associates.
Notably, whereas HIPAA previously directly regulated only these covered entities, the HITECH Act, which was signed into law as part of the stimulus package in February 2009, makes certain of HIPAA's privacy and security standards also directly applicable to covered entities' business associates.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. For example, many foreign countries have compulsory licensing laws, under which a patent owner must grant licenses to third 59 Table of Contents parties.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. For example, many foreign countries have compulsory licensing laws, under which a patent owner must grant licenses to third parties.
Many of the companies developing or marketing competing products enjoy several competitive advantages, including: ● significantly greater name recognition; ● established relations with healthcare professionals, customers and third-party payers; ● established distribution networks; ● additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts or other incentives to gain a competitive advantage; ● greater history in conducting research and development, manufacturing, marketing and obtaining regulatory approval for homecare devices; and ● greater financial and human resources for product development, sales and marketing, patent litigation and customer financing.
Some of the companies developing or marketing competing products enjoy several competitive advantages, including: ● significantly greater name recognition; 36 Table of Contents ● established relations with healthcare professionals, customers and third-party payers; ● established distribution networks; ● additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts or other incentives to gain a competitive advantage; ● greater history in conducting research and development, manufacturing, marketing and obtaining regulatory approval for homecare devices; and ● greater financial and human resources for product development, sales and marketing, patent litigation and customer financing.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. 67 Table of Contents In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements with our directors and officers provide that we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law; Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal proceeding, had no reasonable cause to believe such person's conduct was unlawful and that we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements with our directors and officers provide that we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law; Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal proceeding, had no reasonable cause to believe such person's conduct was unlawful and that we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations in some areas.
In addition, the FDA may determine that future products will require the more costly, 43 Table of Contents lengthy and uncertain premarket approval process. Although we do not currently market any devices under a premarket approval, the FDA may demand that we obtain a premarket approval prior to marketing certain of our future products.
In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain premarket approval process. Although we do not currently market any devices under a premarket approval the FDA may demand that we obtain a premarket approval prior to marketing certain of our future products.
We may incorrectly determine that our products are not covered by a third-party patent. Many patents may cover a marketed product, including but not limited to patents covering the product or portions thereof, methods of use or methods relating to the product, and production processes of or for the product.
We may incorrectly determine that our products are not covered by a third-party patent. Many patents may cover a marketed product, including but not limited to patents covering the product or portions thereof, methods of use or methods relating to the product, and production processes of or for the 60 Table of Contents product.
Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. 64 Table of Contents We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
Such litigation can result in substantial costs and diversion of management attention and resources, which could significantly harm 66 Table of Contents our profitability and reputation and could expose us to liability or impact negatively our business, financial condition, operating results, and prospects.
Such litigation can result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation and could expose us to liability or impact negatively our business, financial condition, operating results, and prospects.
In addition, the stock market has recently experienced significant volatility with respect to medical device and other life sciences company stocks. The volatility of medical device and other medical technology company stocks often does not relate to the operating performance of the companies represented by the stock.
In addition, the stock market has recently experienced significant volatility with respect to medical device and other life sciences company stocks. The volatility of medical device and other medical technology 66 Table of Contents company stocks often does not relate to the operating performance of the companies represented by the stock.
In addition, the uncertainties associated with 62 Table of Contents litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development collaborations that would help us bring our products to market.
In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development collaborations that would help us bring our products to market.
There is also a concern that the imposition of additional tariffs by the United States could result in the adoption of tariffs by other countries. The resulting trade war could have a significant adverse effect on world 34 Table of Contents trade and the world economy.
There is also a concern that the imposition of additional tariffs by the United States could result in the adoption of tariffs by other countries. The resulting trade war could have a significant adverse effect on world trade and the world economy.
For any products that we sell outside the United States, those products and our operations would also be required to comply with standards set by foreign law, treaties and industrial standards bodies, such as the 49 Table of Contents International Organization for Standardization, or ISO, and domestic regulatory authorities within foreign countries.
For any products that we sell outside the United States, those products and our operations would also be required to comply with standards set by foreign law, treaties and industrial standards bodies, such as the International Organization for Standardization, or ISO, and domestic regulatory authorities within foreign countries.
During an audit, insurers typically expect to find explicit documentation in the medical record to support a claim. Physicians and other clinicians, who are responsible for prescribing our products for patients, are expected to create and maintain the medical records that form the basis for the claims we submit to Medicare and other insurers.
During an audit, insurers typically expect to find explicit documentation in the medical record to support a claim. Physicians and other clinicians, who are responsible for prescribing our products for patients, are expected to create and maintain the medical records that form the basis for the claims we submit to 38 Table of Contents Medicare and other insurers.
The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements.
The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a manufacturer may violate one or more of the requirements.
As the medical device industry expands and more patents are issued, the risk increases 61 Table of Contents that our products may be subject to claims of infringement of the patent rights of third parties.
As the medical device industry expands and more patents are issued, the risk increases that our products may be subject to claims of infringement of the patent rights of third parties.
We face significant competition, and we expect the intensity of competition will increase over time. Our primary competitors are Bio Compression Systems, Inc., Lympha Press USA, Hill-Rom, Philips Medical and Electromed. Other competitors include Airos Medical, Inc. and NormaTec Industries.
We face significant competition, and we expect the intensity of competition will increase over time. Our primary competitors are Bio Compression Systems, Inc., Lympha Press USA, Baxter (formerly Hill-Rom), Philips Medical and Electromed. Other competitors include Medi, Airos Medical, Inc., NormaTec Industries and Koya Medical.
We may also be subject to liability claims, be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate profits. Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA.
We may also be subject to liability claims, be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate profits. Companies are required to maintain certain records of recalls and corrections, even if the recall or correction itself is not reportable to the FDA.
The medical device industry is highly competitive. Our success depends, in part, upon our ability to maintain a competitive position in the development of technologies and solutions for the at-home treatment of lymphedema, chronic venous insufficiency and chronic respiratory conditions or for market adjacencies. Any product we develop will have to compete for market acceptance and market share.
Our success depends, in part, upon our ability to maintain a competitive position in the development of technologies and solutions for the at-home treatment of lymphedema, chronic venous insufficiency and chronic respiratory conditions or for market adjacencies. Any product we develop will have to compete for market acceptance and market share.
Over the long term, if we 65 Table of Contents are unable to successfully register our trademarks and trade names and/or establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.
Over the long term, if we are unable to successfully register our trademarks and trade names and/or establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.
If we are unsuccessful in developing and commercializing new products, our ability to increase our revenue may be impaired. It is difficult to forecast future performance and our financial results may vary from forecasts and may fluctuate from quarter to quarter.
If we are unsuccessful in developing and commercializing new products, our ability to increase our revenue may be impaired. 37 Table of Contents It is difficult to forecast future performance and our financial results may vary from forecasts and may fluctuate from quarter to quarter.
Our Flexitouch and Entre systems are eligible for reimbursement by the Department of Veterans Affairs and included on the Federal Supply Schedule pricing program, established by Section 603 of the Veterans Health Care Act of 1992. To be eligible for this program, we must comply with additional laws and requirements applicable to our operations and manufacturing processes.
Our Flexitouch Plus system is eligible for reimbursement by the Department of Veterans Affairs and included on the Federal Supply Schedule pricing program, established by Section 603 of the Veterans Health Care Act of 1992. To be eligible for this program, we must comply with additional laws and requirements applicable to our operations and manufacturing processes.
At December 31, 2022, we classified $23.1 million of our Medicare accounts receivable related to Flexitouch system sales as long-term assets on our balance sheet due to the estimated amount of receivables that will be paid more than one year from December 31, 2022, as a result of delays with the Administrative Law Judge appeal process.
At December 31, 2023, we classified $10.9 million of our Medicare accounts receivable related to Flexitouch Plus system sales as long-term assets on our balance sheet due to the estimated amount of receivables that will be paid more than one year from December 31, 2023, as a result of delays with the Administrative Law Judge appeal process.
However, we have based these estimates on assumptions that may prove to be 57 Table of Contents incorrect, and we could spend our available financial resources much faster than we currently expect.
However, we have based these estimates on assumptions that may prove to be incorrect, and we could spend our available financial resources much faster than we currently expect.
Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are developing and may develop our products.
Numerous U.S. and foreign issued patents and 61 Table of Contents pending patent applications owned by third parties exist in the fields in which we are developing and may develop our products.
Although Medicare and certain private payers index their reimbursement rate off of a subset of cost of living, the Veterans Administration, certain Medicaid programs and other private payers are more likely to remain constant or slightly decrease their reimbursement rates.
Reimbursement rates are established by fee schedules mandated by private payers, Medicare, the Veterans Administration, and certain Medicaid programs. Although Medicare and certain private payers index their reimbursement rate off of a subset of cost of living, the Veterans Administration, certain Medicaid programs and other private payers are more likely to remain constant or slightly decrease their reimbursement rates.
For example, in response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA published new guidance on the 510(k) regulatory pathway in 2014, which altered the manner in which the 510(k) regulatory pathway is administered and interpreted.
For example, in response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA published new guidance on the 510(k) regulatory pathway in 2014, and again in 2023 through draft guidance, which altered and clarified the manner in which the 510(k) regulatory pathway is administered and interpreted.
At December 31, 2022, we had approximately $33.2 million of accounts receivable for sales of our Flexitouch system to patients covered by Medicare. A portion of the related claims to Medicare are initially denied and enter the appeals process, where many are ultimately reviewed by an Administrative Law Judge.
At December 31, 2023, we had approximately $17.1 million of accounts receivable for sales of our Flexitouch Plus system to patients covered by Medicare. A portion of the related claims to Medicare are initially denied and enter the appeals process, where many are ultimately reviewed by an Administrative Law Judge.
If we fail to maintain or protect our information systems and data integrity effectively, we could: ● lose existing customers; ● have difficulty attracting new customers; ● have problems in determining product cost estimates and establishing appropriate pricing; ● suffer outages or disruptions in our operations or supply chain; ● have difficulty preventing, detecting, and controlling fraud; ● have disputes with customers, physicians, and other healthcare professionals; ● have regulatory sanctions or penalties imposed; ● incur increased operating expenses; 31 Table of Contents ● be subject to issues with product functionality that may result in a loss of data, risk to patient safety, field actions and/or product recalls; ● incur expenses or lose revenue as a result of a data privacy breach; or ● suffer other adverse consequences.
If we fail to maintain or protect our information systems and data integrity effectively, we could: ● lose existing customers; ● have difficulty attracting new customers; ● have problems in determining product cost estimates and establishing appropriate pricing; ● suffer outages or disruptions in our operations or supply chain; ● have difficulty preventing, detecting, and controlling fraud; ● have disputes with customers, physicians, and other healthcare professionals; ● have regulatory sanctions or penalties imposed; ● incur increased operating expenses; ● be subject to issues with product functionality that may result in a loss of data, risk to patient safety, field actions and/or product recalls; ● incur expenses or lose revenue as a result of a data privacy breach; or ● suffer other adverse consequences. 32 Table of Contents We cannot assure you that cyber-attacks or data breaches will not occur or that systems issues will not arise in the future.
The market price for our common stock may be influenced by many factors, including: ● the passage of legislation or other regulatory developments in the United States or foreign countries; ● actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; ● changes in the structure of healthcare payment systems, especially in light of current or proposed reforms to the U.S. healthcare system; ● our ability to develop and commercialize additional products; ● announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments; ● market conditions in medical device sectors and issuance of securities analysts' research reports or recommendations; ● sales of our stock by us, our insiders and our other stockholders; ● the trading volume of our common stock; ● speculation in the press or investment community; ● general economic, industry and market conditions, or other events or factors, many of which are beyond our control; ● additions or departures of key personnel; and ● intellectual property, product liability or other litigation against us.
The market price for our common stock may be influenced by many factors, including: ● the passage of legislation or other regulatory developments in the United States or foreign countries; ● actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; ● changes in the structure of healthcare payment systems, especially in light of current or proposed reforms to the U.S. healthcare system; ● our ability to develop and commercialize additional products; ● announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments; ● market conditions in medical device sectors and issuance of securities analysts' research reports or recommendations; ● sales of our stock by us, our insiders and our other stockholders; ● the trading volume of our common stock; ● speculation in the press or investment community; ● perceived impacts on our business, patient population and/or addressable market due to effect of changes to the causes or risk factors for diseases that our products treat, such as the impact of GLP-1 drugs on obesity; ● general economic, industry and market conditions, or other events or factors, many of which are beyond our control; ● additions or departures of key personnel; and ● intellectual property, product liability or other litigation against us.
Given the expiration of these patents, third parties may be permitted to incorporate aspects of our Flexitouch system into their products or create substantially similar or generic versions of our Flexitouch system. This could subject us to increased competition from products attempting to replicate our technology.
U.S. patents covering various aspects of our Flexitouch system expired in 2017. Given the expiration of these patents, third parties may be permitted to incorporate aspects of our Flexitouch system into their products or create substantially similar or generic versions of our Flexitouch system. This could subject us to increased competition from products attempting to replicate our technology.
If our third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers 30 Table of Contents capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of our products, the supply of our products to customers and the development of any future products would be delayed, limited or prevented, which could have an adverse impact on our business.
If our third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of our products, the supply of our products to customers and the development of any future products would be delayed, limited or prevented, which could have an adverse impact on our business. 31 Table of Contents Our revenue is primarily generated from our lymphedema products and we are therefore highly dependent on these products.
Further, the extent to which the COVID-19 pandemic, including any resurgence or variant strains of the virus, will impact our business, financial condition and results of operations in the future will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on our clinician customers and their patients, our suppliers and our payers, the remedial actions, any vaccine mandates and stimulus measures adopted by governmental authorities, and to what extent normal economic and operating conditions can resume.
Further, the extent to which the COVID-19 pandemic, including any resurgence or variant strains of the virus, or other health epidemics and disease outbreaks, will impact our business, financial condition and results of operations in the future will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration, spread, severity, and impact the effects on our clinician customers and their patients, our suppliers and our payers, and the remedial actions, any vaccine mandates and stimulus measures adopted by governmental authorities.
If we are found to be in noncompliance, we could be subject 46 Table of Contents to civil money penalties of up to $20,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs.
If we are found to be in noncompliance, we could be subject to significant civil money penalties for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs.
The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies have the potential to adversely impact demand for our products, our costs, our customers, our suppliers and the United States economy, which in turn could adversely impact our business, financial condition and results of operations.
The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies have the potential to adversely impact demand for our products, our costs, our customers, our suppliers and the United States economy, which in turn could adversely impact our business, financial condition and results of operations. 35 Table of Contents Increases in our operating costs could have an adverse effect on our financial condition and results of operations.
Our failure to anticipate and minimize the impact of these costs could adversely affect our business and results of operations. 35 Table of Contents We compete and may compete in the future against other companies, some of which have longer operating histories, more established products or greater resources than we do, which may harm our business.
Our failure to anticipate and minimize the impact of these costs could adversely affect our business and results of operations. We compete and may compete in the future against other companies, some of which have longer operating histories, more established products or greater resources than we do, which may harm our business. The medical device industry is highly competitive.
Risks Related to Our Intellectual Property We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on products in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States.
Filing, prosecuting and defending patents on products in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States.
Medicare has engaged a variety of contractors to audit claims submitted to the government, including Medicare Administrative Contractors, Recovery Audit Contractors, Supplemental Medical Review Contractors and Unified Program Integrity Contractors. Recovery Audit Contractors are compensated based on a percentage of overpayments recovered from providers.
Medicare has engaged a variety of contractors to audit claims submitted to the government, including Medicare Administrative Contractors, Recovery Audit Contractors, Supplemental Medical Review Contractors and Unified Program Integrity Contractors. Recovery Audit Contractors are compensated based on a percentage of overpayments they find or collect.
Obtaining and enforcing patents in the medical device industry involves both technological and legal complexity, and therefore is costly, time-consuming and inherently uncertain. In addition, the United States has enacted and is currently implementing wide-ranging patent reform legislation.
Obtaining and enforcing patents in the medical device industry involves both technological and legal complexity, and therefore is costly, time-consuming and inherently uncertain. In addition, the United States has enacted patent reform legislation and generally has patent related legislation in process.
Clinicians may not adopt our solutions as the standard of care for lymphedema, chronic venous insufficiency and chronic respiratory conditions or may not prescribe our products for a number of reasons, including: ● our inability to educate a sufficient number of clinicians on these diseases or our products; ● the unavailability or inadequacy of insurance coverage or reimbursement for our products; 32 Table of Contents ● failure of evidence supporting clinical benefits or cost-effectiveness of our products over existing alternatives to convince clinicians to change their treatment methods; and ● resistance from clinicians to replace traditional treatments with our solutions.
Clinicians may not adopt our solutions as the standard of care for lymphedema, chronic venous insufficiency and chronic respiratory conditions or may not prescribe our products for a number of reasons, including: ● our inability to educate a sufficient number of clinicians on these diseases or our products; ● the unavailability or inadequacy of insurance coverage or reimbursement for our products; ● failure of evidence supporting clinical benefits or cost-effectiveness of our products over existing alternatives to convince clinicians to change their treatment methods; and ● resistance from clinicians to replace traditional treatments with our solutions. 33 Table of Contents We believe recommendations and support of our products by key opinion leaders can influence market acceptance and adoption.
Other factors that may cause fluctuation in our quarterly results or variations from our forecasts include: ● physician adoption of our products; ● timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors; ● unanticipated pricing pressure; ● the hiring, retention and continued productivity of our sales representatives; ● our ability to expand the geographic reach of our distribution, sales and marketing efforts; ● our ability to obtain regulatory clearance or approval for our products in development or for our current products outside the United States; ● the impact of results from clinical research and trials on our existing products and products in development; ● delays in receipt of anticipated purchase orders; ● delays in, or failure of, component deliveries from our suppliers; and ● positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry. 37 Table of Contents In the event our actual revenue and operating results do not meet our forecasts or the forecasts or estimates of the research analysts that cover us for a particular period, the market price of our common stock may decline substantially.
Other factors that may cause fluctuation in our quarterly results or variations from our forecasts include: ● physician adoption of our products; ● timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors; ● unanticipated pricing pressure; ● the hiring, retention and continued productivity of our sales representatives; ● our ability to expand the geographic reach of our distribution, sales and marketing efforts; ● our ability to obtain regulatory clearance or approval for our products in development or for our current products outside the United States; ● the impact of results from clinical research and trials on our existing products and products in development; ● delays in receipt of anticipated purchase orders; ● delays in, or failure of, component deliveries from our suppliers; and ● positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry.
If we were found to be noncompliant, we could lose our licensure in that state. Losing our licensure could subject us to financial penalties and/or prohibit us from selling our current or future products to patients in such state and our business, financial condition and results of operations could be adversely affected as a result of any such prohibition.
Losing any license could subject us to financial penalties and/or prohibit us from selling our current or future products to patients in a particular state and our business, financial condition and results of operations could be adversely affected as a result of any such prohibition.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. Information pertaining to certain legal proceedings in which we are involved can be found in Note 12 – “Commitments and Contingencies” to our consolidated financial statements included in Part II, Item 8 of this report and is incorporated herein by reference. Item 4. Mine Safety Disclosures. Not Applicable. ​ 68 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings. Information pertaining to certain legal proceedings in which we are involved can be found in Note 12 – “Commitments and Contingencies” to our consolidated financial statements included in Part II, Item 8 of this report and is incorporated herein by reference.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. ​ Mine Safety Disclosures ​ 68 ​ ​ ​ ​ ​ ​ ​ PART II ​ ​ ​ ​ ​ ​ ​ Item 5. ​ Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 69
Biggest changeItem 4. Mine Safety Disclosures. Not Applicable. 69 Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock has been listed on The Nasdaq Stock Market LLC under the symbol "TCMD" since July 28, 2016.
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Holders As of February 16, 2024, there were approximately 26 holders of record of our common stock. The actual number of holders of common stock is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and nominees.
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The number of holders of record also does not include stockholders whose shares may be held in trust by other entities. Dividends We have not declared or paid cash dividends on our common stock.
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We currently intend to retain our future earnings, if any, to finance the operation and expansion of our business, and, therefore, we do not expect to pay cash dividends on our common stock in the foreseeable future.
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Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None.
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Equity Compensation Plan Information The information required by this Item concerning equity compensation plans is incorporated herein by reference from Part III, Item 12 of this report. ​ 70 Table of Contents Stock Performance Graph The graph below compares the cumulative total stockholder return on our common stock with the cumulative total stockholder returns on the Nasdaq Composite Index, Russell 2000 Index and S&P Healthcare Equipment Select Industry Index for the periods indicated.
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The graph assumes that $100 was invested on December 31, 2018, in our common stock and each of the indices and that all dividends, if any, were reinvested. No cash dividends have been declared on our common stock.
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Stockholder returns over the indicated periods should not be considered indicative of future stockholder returns. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Index ​ ​ ​ ​ 12/31/2018 ​ ​ 12/31/2019 ​ ​ 12/31/2020 ​ ​ 12/31/2021 ​ ​ 12/31/2022 ​ ​ 12/31/2023 Tactile Systems Technology, Inc. ​ $ 100 $ 148 ​ $ 99 $ 42 ​ $ 25 ​ $ 31 Nasdaq Composite Index ​ ​ ​ ​ 100 ​ ​ 135 ​ ​ 194 ​ ​ 236 ​ ​ 158 ​ ​ 226 Russell 2000 Index ​ ​ ​ ​ 100 ​ ​ 124 ​ ​ 146 ​ ​ 166 ​ ​ 131 ​ ​ 150 S&P Healthcare Equipment Select Industry Index ​ ​ ​ ​ 100 ​ ​ 122 ​ ​ 163 ​ ​ 168 ​ ​ 128 ​ ​ 121 ​ ​ ​ 71 Table of Contents Item 6. [Reserved .] ​

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. ​ Selected Financial Data ​ 71 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 71 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 83 Item 8. ​ Financial Statements and Supplementary Data ​ 85
Biggest changeItem 6. ​ Selected Financial Data ​ 72 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 72 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 84 Item 8. ​ Financial Statements and Supplementary Data ​ 86

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeRevenue from Medicare represented 19% and 17% of total revenue for the years ended December 31, 2022 and 2021, respectively. ​ 77 Table of Contents The following table summarizes our revenue by product for the years ended December 31, 2022 and 2021, both in dollars and percentage of total revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ Change (In thousands) ​ 2022 ​ 2021 ​ $ ​ % Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ $ 212,266 ​ $ 202,913 ​ $ 9,353 ​ 5% Airway clearance products ​ ​ 34,519 ​ ​ 5,144 ​ ​ 29,375 ​ N.M.
Biggest changeRevenue from Medicare represented 24% and 19% of total revenue for the years ended December 31, 2023 and 2022, respectively. 78 Table of Contents ​ The following table summarizes our revenue by product line for the years ended December 31, 2023 and 2022, both in dollars and percentage of total revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ Change (In thousands) 2023 ​ 2022 ​ $ ​ % Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ $ 241,721 ​ $ 212,266 ​ $ 29,455 ​ 14% Airway clearance products ​ ​ 32,702 ​ ​ 34,519 ​ ​ (1,817) ​ (5)% Total ​ $ 274,423 ​ $ 246,785 ​ $ 27,638 ​ 11% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of total revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lymphedema products ​ 88% ​ 86% ​ ​ ​ ​ Airway clearance products ​ ​ 12% ​ ​ 14% ​ ​ ​ ​ ​ Total ​ 100% ​ 100% ​ ​ ​ ​ ​ Cost of Revenue and Gross Margin Cost of revenue increased $8.5 million, or 12%, to $79.3 million during the year ended December 31, 2023, compared to $70.8 million during the year ended December 31, 2022.
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.
Our current lymphedema products are the Flexitouch Plus and Entre Plus 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.
However, any reversal in these recent trends could have a negative impact on our future revenue. We sell or rent our Flexitouch and Entre systems either directly to patients or to the Veterans Administration on behalf of patients, who are referred to us by physicians, therapists or nurses.
However, any reversal in these recent trends could have a negative impact on our future revenue. We sell or rent our Flexitouch Plus and Entre Plus systems either directly to patients or to the Veterans Administration on behalf of patients, who are referred to us by physicians, therapists or nurses.
We update our assessment of collectability on a quarterly basis, with any adjustments for Flexitouch and Entre systems being reflected as sales and rental revenue and AffloVest products being reflected as bad debt expense within reimbursement, general and administrative expenses in the Consolidated Statements of Operations in the period of adjustment.
We update our assessment of collectability on a quarterly basis, with any adjustments for Flexitouch Plus and Entre Plus systems being reflected as sales and rental revenue and AffloVest products being reflected as bad debt expense within reimbursement, general and administrative expenses in the Consolidated Statements of Operations in the period of adjustment.
Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results. Revenue Recognition We derive revenue from the sales and rentals of our proprietary line of Flexitouch and Entre systems, and from sales of our AffloVest product.
Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results. Revenue Recognition We derive revenue from the sales and rentals of our proprietary line of Flexitouch Plus and Entre Plus systems, and from sales of our AffloVest product.
We recognize revenue when control of the product has been transferred to our customer, in the amount of the expected consideration to be received for the product. Expected consideration is estimated as follows: ● Flexitouch and Entre systems. Expected consideration to be received is estimated based on a detailed review of historical pricing adjustments and collections.
We recognize revenue when control of the product has been transferred to our customer, in the amount of the expected consideration to be received for the product. Expected consideration is estimated as follows: ● Flexitouch Plus and Entre Plus systems. Expected consideration to be received is estimated based on a detailed review of historical pricing adjustments and collections.
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 the prior credit agreement.
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.
If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements. The effect of forfeiture adjustments was insignificant for the years ended December 31, 2022, 2021 and 2020.
If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements. The effect of forfeiture adjustments was insignificant for the years ended December 31, 2023, 2022 and 2021.
Inflation and changing prices did not have a material effect on our business during the year ended December 31, 2022, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.
Inflation and changing prices did not have a material effect on our business during the year ended December 31, 2023, and we do not expect that inflation or changing prices will materially affect our business for at least the next twelve months.
Reimbursement, General and Administrative Expenses Reimbursement, general and administrative expenses consist primarily of compensation, including salaries, bonuses and benefits for employees in our patient services and advocacy, billing and collections, case management, payer relations and governmental affairs and reimbursement operations departments, as well as finance, human resources and administration, information technology, business development and general 74 Table of Contents management functions, and facilities costs.
Reimbursement, General and Administrative Expenses Reimbursement, general and administrative expenses consist primarily of compensation, including salaries, bonuses and benefits for employees in our patient services and advocacy, billing and collections, case management, payer relations and governmental affairs and reimbursement operations departments, as well as finance, human resources and administration, information technology, business development and general management functions, and facilities costs.
If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. We determined weighted-average valuation assumptions as follows: ● Expected term . We use the "simplified method" to determine the expected term of the stock option. ● Expected volatility .
If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. We determined weighted-average valuation assumptions as follows: ● Expected term . We use the "simplified method" to determine the expected term of the stock option. 76 Table of Contents ● Expected volatility .
Discussion of 2020 results and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 23, 2022.
Discussion of 2021 results and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 21, 2023.
Revenue growth has been driven by increased clinician, patient and payer awareness of lymphedema and the clinical efficacy of our Flexitouch system, and the launch of our Entre system in 2013. We have expanded our direct sales force, which helps us drive and support our revenue growth and intend to continue this expansion.
Revenue growth has been driven by increased clinician, patient and payer awareness of lymphedema and the clinical efficacy of our Flexitouch Plus system, and the launch of our Entre Plus system in March 2023. We have expanded our direct sales force, which helps us drive and support our revenue growth and intend to continue this expansion.
Our primary sources of capital since our initial public offering in 2016 have been from operating income and bank financing.
Our primary sources of capital since our initial public offering in 2016 have been from operating income, bank financing and our public offering in February 2023.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, and related disclosure of contingent 75 Table of Contents assets and liabilities, revenue and expenses at the date of the financial statements.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on discussion of year-over-year comparisons between 2022 and 2021.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on discussion of year-over-year comparisons between 2023 and 2022.
Net Cash (Used in) Provided by Financing Activities Net cash used in financing activities during the year ended December 31, 2022, was $9.6 million, primarily consisting of payments of $6.0 million on notes payable and a payment of $5.0 million on the AffloVest earn-out, partially offset by $1.4 million in proceeds from exercises of common stock options and the issuance of common stock under the ESPP.
Net cash used in financing activities during the year ended December 31, 2022, was $9.6 million, primarily consisting of payments of $6.0 million on our term loan and a payment of $5.0 million on the AffloVest earn-out, partially offset by $1.4 million in proceeds from exercises of common stock options and the issuance of common stock under the ESPP.
Adequacy of Resources Our future cash requirements may vary significantly from those now planned and will depend on many factors, including: ● the impact of the COVID-19 pandemic on our business; ● sales and marketing resources needed to further penetrate our market; ● expansion of our operations; ● response of competitors to our solutions and applications; ● costs associated with clinical research activities; ● increases in interest rates; ● labor shortages and wage inflation; 82 Table of Contents ● costs to develop and implement new products; and ● use of capital for acquisitions or licenses, if any.
Adequacy of Resources Our future cash requirements may vary significantly from those now planned and will depend on many factors, including: ● the impact of inflation, rising interest rates or a recession on our business; ● sales and marketing resources needed to further penetrate our market; ● expansion of our operations; ● response of competitors to our solutions and applications; ● costs associated with clinical research activities; ● increases in interest rates; 83 Table of Contents ● 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.
We intend to expand and support our respiratory DME partners, in an effort to help demonstrate HFCWO as a staple among the host of treatments they bring to chronic respiratory patients, thereby allowing us to continue to grow revenue from this product offering.
We intend to expand and support our respiratory DME partners, in an effort to help demonstrate High Frequency Chest Wall Oscillation (“HFCWO”) as a staple among the host of treatments they bring to chronic respiratory patients, thereby allowing us to continue to grow revenue from this product offering.
On September 8, 2021, we entered into a First Amendment Agreement (the “First Amendment”), which amends the Restated Credit Agreement (as amended by the First Amendment and the Second Amendment (as defined below), the “Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent.
On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amended the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent.
The Monte Carlo Simulation and Black-Scholes valuation models require the input of highly subjective assumptions, including the expected term of the option, the expected volatility of the price of our common stock, the risk-free interest rate and the expected dividend yield. These estimates involve inherent uncertainties and the significant application of management's judgment.
The Black-Scholes valuation model requires the input of highly subjective assumptions, including the expected term of the option, the expected volatility of the price of our common stock, the risk-free interest rate and the expected dividend yield. These estimates involve inherent uncertainties and the significant application of management's judgment.
We bill payers, such as private insurers, Medicare, or Medicaid, on behalf of our patients and bill patients directly for their cost-sharing amounts, including any portion of an unsatisfied deductible and any copayments or co-insurance. We bill the Veterans Administration directly for the purchase or lease of our product on behalf of the patient.
We bill payers, such as private insurers, Medicare, or Medicaid, on behalf of our patients and bill patients directly for their cost-sharing amounts, including any portion of an unsatisfied deductible and any copayments or co-insurance.
In July 2022, we launched Kylee™, a free mobile application that allows for patients to manage their conditions by tracking treatments and symptoms, as well as having direct access to educational resources. ​ For the year ended December 31, 2022, we generated revenue of $246.8 million and had a net loss of $17.9 million, compared to revenue of $208.1 million and a net loss of $11.8 million for the year ended 72 Table of Contents December 31, 2021, and revenue of $187.1 million and a net loss of $0.6 million for the year ended December 31, 2020.
In July 2022, we launched Kylee™, a free mobile application that allows for patients to manage their conditions by tracking treatments and symptoms, as well as having direct access to educational resources. ​ For the year ended December 31, 2023, we generated revenue of $274.4 million and had net income of $28.5 million, compared to revenue of $246.8 million and a net loss of $17.9 million for the year ended December 31, 2022, and revenue of $208.1 million and a net loss of $11.8 million for the year ended December 31, 2021.
Indefinite-lived intangible assets, such as goodwill and tradenames, are not amortized; we test for impairment on these assets annually. The fair value of the earn-out, which is payable if certain future U.S. revenues of AffloVest are met, is recorded as a liability. On a quarterly basis the earn-out is revalued to fair value.
Indefinite-lived intangible assets, such as goodwill and tradenames, are not amortized; we test for impairment on these assets annually. The fair value of the earn-out, which was payable based on certain U.S. revenues of AffloVest being met, was recorded as a liability.
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 71 Table of Contents new indications for our Flexitouch Plus system: phlebolymphedema and lipedema. We introduced our Entre system in the United States in February 2013.
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.
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.
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.
Net Cash (Used in) Investing Activities Net cash used in investing activities during the year ended December 31, 2022, was $1.9 million, primarily consisting of $1.8 million in purchases of property and equipment primarily related to office equipment, production tooling and tenant improvements and $0.1 million related to the acquisition of patents and other intangible assets.
Net Cash Used in Investing Activities Net cash used in investing activities during the year ended December 31, 2023, was $2.5 million, primarily consisting of $2.3 million in purchases of property and equipment primarily related to production tooling and office equipment and $0.2 million related to the acquisition of patents and other intangible assets.
We entered into a fleet vehicle program for certain members of our field sales organization in 2016. At December 31, 2022, we had two vehicles under this program with current lease commitments. Furthermore, we lease office equipment from time-to-time based on our needs and these commitments are classified as operating leases. (3) Reflects principal payment obligations under our term loan.
We entered into a fleet vehicle program for certain members of our field sales organization in 2016. At December 31, 2023, we did not have any vehicles under this program with current lease commitments. Furthermore, we lease office equipment from time-to-time based on our needs and these commitments are classified as operating leases.
Net cash provided by operating activities during the year ended December 31, 2021, was $2.6 million, resulting from a net loss of $11.8 million and non-cash net income adjustments of $23.9 million, which were offset by an increase in net operating assets and liabilities of $9.5 million.
Net cash provided by operating activities during the year ended December 31, 2022, was $5.2 million, resulting from a net loss of $17.9 million and non-cash net income adjustments of $27.7 million, which were offset by a change in net operating assets and liabilities of $4.6 million.
We expect sales and marketing expenses to continue to increase in absolute dollars as we expand our commercial infrastructure to drive and support our planned revenue growth. To the extent our revenue grows, we expect sales and marketing expenses to decrease as a percentage of revenue over time.
We expect sales and marketing expenses to continue to increase in absolute dollars as we expand our commercial infrastructure to drive and support our planned revenue growth.
Research and Development Expenses Research and development (“R&D”) expenses increased $1.4 million, or 25%, to $7.1 million during the year ended December 31, 2022, compared to $5.7 million during the year ended December 31, 2021, which was primarily attributable to an increase in personnel-related expense and R&D supplies. ​ 78 Table of Contents Reimbursement, General and Administrative Expenses Reimbursement, general and administrative expenses increased $4.0 million, or 7%, to $60.8 million during the year ended December 31, 2022, compared to $56.8 million during the year ended December 31, 2021.
Research and Development Expenses Research and development (“R&D”) expenses increased $0.7 million, or 10%, to $7.8 million during the year ended December 31, 2023, compared to $7.1 million during the year ended December 31, 2022, which was primarily attributable to an increase in personnel-related expenses. ​ 79 Table of Contents Reimbursement, General and Administrative Expenses Reimbursement, general and administrative expenses increased $1.3 million, or 2%, to $62.1 million during the year ended December 31, 2023, compared to $60.8 million during the year ended December 31, 2022.
The increase was primarily attributable to a: ● $4.0 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions; ● $0.7 million increase in occupancy costs, depreciation expense, and legal and professional fees; and ● $0.1 million increase in travel and entertainment.
The increase was primarily attributable to a: ● $1.6 million increase in personnel-related compensation expense as a result of increased headcount in our reimbursement operations, payer relations and corporate functions; ● $0.9 million increase in IT related expenses; and ● $0.2 million increase in travel and entertainment expenses.
Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. Cost of revenue also includes depreciation expense for product tooling and equipment as well as shipping costs.
Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. Cost of revenue also includes depreciation expense for product tooling and equipment as well as shipping costs. We expect overhead costs as a percentage of revenue to decrease as a result of expected increases in production volume and yields.
These increases were partially offset by a $0.8 million decrease in acquisition costs. Intangible Asset Amortization and Earn-out Intangible asset amortization and earn-out expenses increased $13.7 million to $14.4 million during the year ended December 31, 2022, compared to $0.7 million during the year ended December 31, 2021.
These increases were partially offset by a $1.4 million decrease in occupancy costs, depreciation expense and professional fees. Intangible Asset Amortization and Earn-out Intangible asset amortization and earn-out expenses decreased $14.4 million to $0.1 million during the year ended December 31, 2023, compared to $14.4 million during the year ended December 31, 2022.
Research and Development Expenses Research and development, or R&D, expenses consist primarily of personnel-related expenses, third-party product development costs, laboratory supplies, consulting fees and related costs, clinical research expenses, expenses related to clinical and regulatory affairs, patent amortization costs, stock-based compensation and patent legal fees, including defense costs, and testing costs for new product launches.
To the extent our revenue grows, we expect sales and marketing expenses to decrease as a percentage of revenue over time. 74 Table of Contents Research and Development Expenses Research and development, or R&D, expenses consist primarily of personnel-related expenses, third-party product development costs, laboratory supplies, consulting fees and related costs, clinical research expenses, expenses related to clinical and regulatory affairs, patent amortization costs, stock-based compensation and patent legal fees, including defense costs, and testing costs for new product launches.
The Second Amendment modifies the maximum leverage ratio, the minimum fixed charge coverage ratio and the minimum consolidated EBITDA covenants under the Credit Agreement, and adds a minimum liquidity covenant.
The Second Amendment modified the maximum leverage ratio, the minimum fixed charge coverage ratio and the minimum consolidated EBITDA covenants under the Credit Agreement, and added a minimum liquidity covenant, through the quarter ended June 30, 2023.
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.
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.
Cash Flows The following table summarizes our cash flows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2022 2021 2020 Net cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating activities $ 5,209 ​ $ 2,631 ​ $ 2,794 Investing activities ​ ​ (1,909) ​ ​ (82,184) ​ ​ 20,179 Financing activities ​ ​ (9,600) ​ ​ 59,927 ​ ​ 2,112 Net (decrease) increase in cash and cash equivalents $ (6,300) ​ $ (19,626) ​ $ 25,085 ​ Net Cash Provided by Operating Activities Net cash provided by operating activities during the year ended December 31, 2022, was $5.2 million, resulting from a net loss of $17.9 million and non-cash net income adjustments of $27.7 million, which were offset by a change in net operating assets and liabilities of $4.6 million.
Cash Flows The following table summarizes our cash flows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2023 2022 Net cash provided by (used in): ​ ​ ​ ​ ​ ​ Operating activities $ 35,855 ​ $ 5,209 Investing activities ​ ​ (2,481) ​ ​ (1,909) Financing activities ​ ​ 5,730 ​ ​ (9,600) Net increase (decrease) in cash and cash equivalents $ 39,104 ​ $ (6,300) ​ Net Cash Provided by Operating Activities Net cash provided by operating activities during the year ended December 31, 2023, was $35.9 million, resulting from net income of $28.5 million and a change in operating assets and liabilities of $15.1 million, which were partially offset by non-cash net income adjustments of $7.8 million.
Sales and Marketing Expenses Sales and marketing expenses increased $19.6 million, or 23%, to $106.4 million during the year ended December 31, 2022, compared to $86.8 million during the year ended December 31, 2021.
Sales and Marketing Expenses Sales and marketing expenses increased $0.7 million, or 1%, to $107.1 million during the year ended December 31, 2023, compared to $106.4 million during the year ended December 31, 2022.
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. Components of our Results of Operations Revenue We derive revenue from sales and rentals of our Flexitouch and Entre systems to patients in the United States.
Our primary sources of capital since our initial public offering in 2016 have been from operating income, bank financing and our public offering in February 2023. We operate in one segment for financial reporting purposes.
Specifically, payment history of the applicable payer, as well as historical patient collections, serve as primary sources of information in estimating expected consideration.
Specifically, payment history of the applicable payer, as well as historical patient collections, serve as primary sources of information in estimating expected consideration. ● AffloVest product. Expected consideration to be received is based on agreements in place with DME providers.
Future Cash Requirements Our material estimated future cash requirements under our contractual obligations and commercial commitments as of December 31, 2022, in total and disaggregated into current (payable in 2023) and long-term (payable after 2023) obligations, are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due By Period ​ ​ Less Than ​ ​ More Than (In thousands) Total 1 Year 1-3 Years 3-5 Years 5 Years Purchase commitments (1) ​ $ 33,478 ​ $ 33,478 ​ $ — ​ $ — ​ $ — Operating lease obligations (2) ​ ​ 27,227 ​ ​ 3,427 ​ ​ 6,936 ​ ​ 6,782 ​ ​ 10,082 Note payable payments (3) ​ ​ 24,000 ​ ​ 3,000 ​ ​ 21,000 ​ ​ — ​ ​ — Revolving line of credit payments (4) ​ ​ 25,000 ​ ​ — ​ ​ 25,000 ​ ​ — ​ ​ — Interest payments (5) ​ ​ 5,778 ​ ​ 3,539 ​ ​ 2,239 ​ ​ — ​ ​ — Earn-out obligation (6) ​ ​ 13,050 ​ ​ 13,050 ​ ​ — ​ ​ — ​ ​ — Total ​ $ 128,533 ​ $ 56,494 ​ $ 55,175 ​ $ 6,782 ​ $ 10,082 (1) We issued purchase orders in 2022 totaling $33.5 million for goods that we expect to receive and pay for in 2023.
Future Cash Requirements Our material estimated future cash requirements under our contractual obligations and commercial commitments as of December 31, 2023, in total and disaggregated into current (payable in 2024) and long-term (payable after 2024) obligations, are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due By Period ​ ​ Less Than ​ ​ More Than (In thousands) Total 1 Year 1-3 Years 3-5 Years 5 Years Purchase commitments (1) ​ $ 24,291 ​ $ 24,291 ​ $ — ​ $ — ​ $ — Operating lease obligations (2) ​ ​ 24,232 ​ ​ 3,539 ​ ​ 7,359 ​ ​ 6,395 ​ ​ 6,939 Note payable payments (3) ​ ​ 29,250 ​ ​ 3,000 ​ ​ 26,250 ​ ​ — ​ ​ — Interest payments (4) ​ ​ 5,160 ​ ​ 2,189 ​ ​ 2,971 ​ ​ — ​ ​ — Total ​ $ 82,933 ​ $ 33,019 ​ $ 36,580 ​ $ 6,395 ​ $ 6,939 (1) We issued purchase orders in 2023 totaling $24.3 million for goods that we expect to receive and pay for in 2024.
The increase in cost of revenue was primarily attributable to the additional cost of revenue related to AffloVest. Gross margin was 71% for both of the years ended December 31, 2022 and 2021.
The increase in cost of revenue was primarily attributable to the increase in sales and rentals of the lymphedema product line. Gross margin was 71% in each of the years ended December 31, 2023 and 2022.
Our gross margin has been and will continue to be affected by a variety of factors, including product and payer mix, production volumes, manufacturing costs and cost-reduction strategies. We continue to work to reduce product manufacturing costs through enhanced product design efforts as well as supply chain initiatives in an effort to offset anticipated price erosion.
We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including product and payer mix, production volumes, manufacturing costs and cost-reduction strategies.
If the assumptions used in calculating the provision were to materially change, such as incurring higher than anticipated warranty claims, an additional provision may be required. We calculate gross margin as gross profit divided by revenue.
We record a liability for future warranty claims at the time of sale for the warranty period offered to a customer in cost of revenue. If the assumptions used in calculating the provision were to materially change, such as incurring higher than anticipated warranty claims, an additional provision may be required.
We provide a warranty for our products against defects in material and workmanship for a period of one to five years. We record a liability for future warranty claims at the time of sale for the warranty period offered to a customer in cost of revenue.
We expect cost of revenue to increase in absolute dollars primarily if, and to the extent, our revenue grows. We provide a warranty for our products against defects in material and workmanship for a period of one to five years.
The First 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 and the revolving credit facility mature on September 8, 2024.
The Amendment, among other things, added a $30.0 million incremental term loan to the $25.0 million revolving credit facility provided by the Restated Credit Agreement. The term loan is reflected on our consolidated financial statements as a note payable.
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.
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 72 Table of Contents questions related to the AffloVest.
We will continue to use significant judgment in evaluating the expected term, volatility and forfeiture rate related to our stock-based compensation. 76 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The following table presents our results of operations for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ Change (In thousands) ​ 2022 ​ 2021 ​ $ ​ % Consolidated Statement ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ ​ ​ of Operations Data: ​ ​ ​ ​ revenue ​ ​ ​ ​ revenue ​ ​ ​ ​ ​ ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales revenue ​ $ 211,345 ​ 86 % ​ $ 177,914 ​ 86 % ​ $ 33,431 ​ 19 % Rental revenue ​ ​ 35,440 ​ 14 % ​ ​ 30,143 ​ 14 % ​ ​ 5,297 ​ 18 % Total revenue ​ ​ 246,785 ​ 100 % ​ ​ 208,057 ​ 100 % ​ ​ 38,728 ​ 19 % Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales revenue ​ ​ 59,619 ​ 24 % ​ ​ 50,222 ​ 24 % ​ ​ 9,397 ​ 19 % Cost of rental revenue ​ ​ 11,190 ​ 5 % ​ ​ 9,622 ​ 5 % ​ ​ 1,568 ​ 16 % Total cost of revenue ​ ​ 70,809 ​ 29 % ​ ​ 59,844 ​ 29 % ​ ​ 10,965 ​ 18 % Gross profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit - sales revenue ​ ​ 151,726 ​ 61 % ​ ​ 127,692 ​ 62 % ​ ​ 24,034 ​ 19 % Gross profit - rental revenue ​ ​ 24,250 ​ 10 % ​ ​ 20,521 ​ 9 % ​ ​ 3,729 ​ 18 % Gross profit ​ ​ 175,976 ​ 71 % ​ ​ 148,213 ​ 71 % ​ ​ 27,763 ​ 19 % Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales and marketing ​ ​ 106,418 ​ 43 % ​ ​ 86,775 ​ 42 % ​ ​ 19,643 ​ 23 % Research and development ​ ​ 7,088 ​ 3 % ​ ​ 5,659 ​ 3 % ​ ​ 1,429 ​ 25 % Reimbursement, general and administrative ​ ​ 60,796 ​ 25 % ​ ​ 56,802 ​ 27 % ​ ​ 3,994 ​ 7 % Intangible asset amortization and earn-out ​ ​ 14,432 ​ 5 % ​ ​ 739 ​ — % ​ ​ 13,693 ​ N.M. % Total operating expenses ​ ​ 188,734 ​ 76 % ​ ​ 149,975 ​ 72 % ​ ​ 38,759 ​ 26 % Loss from operations ​ ​ (12,758) ​ (5) % ​ ​ (1,762) ​ (1) % ​ ​ (10,996) ​ N.M. % Other expense ​ ​ (2,715) ​ (1) % ​ ​ (531) ​ — % ​ ​ (2,184) ​ N.M. % Loss before income taxes ​ ​ (15,473) ​ (6) % ​ ​ (2,293) ​ (1) % ​ ​ (13,180) ​ N.M. % Income tax expense ​ ​ 2,393 ​ 1 % ​ ​ 9,518 ​ 5 % ​ ​ (7,125) ​ (75) % Net loss ​ $ (17,866) ​ (7) % ​ $ (11,811) ​ (5) % ​ $ (6,055) ​ 51 % ​ “N.M.” Not Meaningful ​ Revenue Revenue increased $38.7 million, or 19%, to $246.8 million in the year ended December 31, 2022, compared to $208.1 million in the year ended December 31, 2021.
We will continue to use significant judgment in evaluating the expected term, volatility and forfeiture rate related to our stock-based compensation. 77 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table presents our results of operations for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ Change (In thousands) ​ 2023 ​ 2022 ​ $ ​ % Consolidated Statement ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ ​ ​ of Operations Data: ​ ​ ​ ​ revenue ​ ​ ​ ​ revenue ​ ​ ​ ​ ​ ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales revenue ​ $ 239,493 ​ 87 % ​ $ 211,345 ​ 86 % ​ $ 28,148 ​ 13 % Rental revenue ​ ​ 34,930 ​ 13 % ​ ​ 35,440 ​ 14 % ​ ​ (510) ​ (1) % Total revenue ​ ​ 274,423 ​ 100 % ​ ​ 246,785 ​ 100 % ​ ​ 27,638 ​ 11 % Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales revenue ​ ​ 66,713 ​ 24 % ​ ​ 59,619 ​ 24 % ​ ​ 7,094 ​ 12 % Cost of rental revenue ​ ​ 12,577 ​ 5 % ​ ​ 11,190 ​ 5 % ​ ​ 1,387 ​ 12 % Total cost of revenue ​ ​ 79,290 ​ 29 % ​ ​ 70,809 ​ 29 % ​ ​ 8,481 ​ 12 % Gross profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit - sales revenue ​ ​ 172,780 ​ 63 % ​ ​ 151,726 ​ 62 % ​ ​ 21,054 ​ 14 % Gross profit - rental revenue ​ ​ 22,353 ​ 8 % ​ ​ 24,250 ​ 9 % ​ ​ (1,897) ​ (8) % Gross profit ​ ​ 195,133 ​ 71 % ​ ​ 175,976 ​ 71 % ​ ​ 19,157 ​ 11 % Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales and marketing ​ ​ 107,119 ​ 39 % ​ ​ 106,418 ​ 43 % ​ ​ 701 ​ 1 % Research and development ​ ​ 7,823 ​ 3 % ​ ​ 7,088 ​ 3 % ​ ​ 735 ​ 10 % Reimbursement, general and administrative ​ ​ 62,074 ​ 22 % ​ ​ 60,796 ​ 25 % ​ ​ 1,278 ​ 2 % Intangible asset amortization and earn-out ​ ​ 76 ​ — % ​ ​ 14,432 ​ 5 % ​ ​ (14,356) ​ (99) % Total operating expenses ​ ​ 177,092 ​ 64 % ​ ​ 188,734 ​ 76 % ​ ​ (11,642) ​ (6) % Income (loss) from operations ​ ​ 18,041 ​ 7 % ​ ​ (12,758) ​ (5) % ​ ​ 30,799 ​ 241 % Other expense ​ ​ (2,271) ​ (1) % ​ ​ (2,715) ​ (1) % ​ ​ 444 ​ (16) % Income (loss) before income taxes ​ ​ 15,770 ​ 6 % ​ ​ (15,473) ​ (6) % ​ ​ 31,243 ​ 202 % Income tax (benefit) expense ​ ​ (12,745) ​ (5) % ​ ​ 2,393 ​ 1 % ​ ​ (15,138) ​ N.M. % Net income (loss) ​ $ 28,515 ​ 11 % ​ $ (17,866) ​ (7) % ​ $ 46,381 ​ 260 % ​ “N.M.” Not Meaningful ​ Revenue Revenue increased $27.6 million, or 11%, to $274.4 million in the year ended December 31, 2023, compared to $246.8 million in the year ended December 31, 2022.
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 86% and 98% of our revenue in the years ended December 31, 2022 and 2021, respectively.
We introduced our Entre system in the United States in February 2013 and our Entre Plus system in March 2023. The Entre Plus system is sold or rented to patients who need a simple pump or who do not yet qualify for insurance reimbursement for an advanced compression device such as our Flexitouch Plus system.
Department of Health & Human Services. As of December 31, 2020, we recognized all of the funds received in the initial allotment as other income. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicable regulations.
Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicable regulations.
Our products currently are not subject to the competitive bidding process for supplying covered items to Medicare recipients. We derive revenue from sales of our AffloVest product to accredited DME providers. These respiratory DME providers provide a full range of solutions for these patients with complex diseases, and represent a large, developed channel.
Changes to the level of Medicare coverage for our products could reduce the number of Medicare patients who have access to our products. Our products currently are not subject to the competitive bidding process for supplying covered items to Medicare recipients. We also derive revenue from sales of our AffloVest product to accredited DME providers.
Refer to Note 11 ‘‘Credit Agreement’’ to our consolidated financial statements included in this report for additional information regarding the maturities of debt principal. (4) Reflects re payment of the principal of outstanding borrowings under our revolving line of credit based on the scheduled maturity date.
(3) Reflects principal payment obligations under our term loan. Refer to Note 11 ‘‘Credit Agreement’’ to our consolidated financial statements included in this report for additional information regarding the maturities of debt principal. (4) Interest payment amounts on long-term debt are calculated using outstanding balances and interest rates in effect on December 31, 2023.
Our gross margin will likely fluctuate from quarter to quarter. Sales and Marketing Expenses Our sales and marketing expenses consist primarily of personnel-related expenses, including salaries, bonuses, commissions and benefits for employees.
We continue to work to reduce product manufacturing costs through enhanced product design efforts as well as supply chain initiatives in an effort to offset anticipated price erosion. Our gross margin will likely fluctuate from quarter to quarter. Sales and Marketing Expenses Our sales and marketing expenses consist primarily of personnel-related expenses, including salaries, bonuses, commissions and benefits for employees.
Respiratory DME partners serve the role of receiving prescriptions, verifying coverage criteria, shipping, billing and training the patient.
These respiratory DME providers provide a full range of solutions for these patients with complex diseases, and represent a large, developed channel. Respiratory DME partners serve the role of receiving prescriptions, verifying coverage criteria, shipping, billing and training the patient.
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. 79 Table of Contents Further, seasonality trends have been, and may continue to be, different than historical trends as a result of the COVID-19 pandemic and related impacts.
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. 80 Table of Contents Liquidity and Capital Resources Overview As of December 31, 2023, we had cash and cash equivalents of $61.0 million and net accounts receivable of $54.1 million compared to cash and cash equivalents of $21.9 million and net accounts receivable of $77.9 million as of December 31, 2022.
For the years ended December 31, 2022 and 2021, sales of AffloVest represented 14% and 2% 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.
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.
Changes in contractual pricing, 75 Table of Contents payment trends and rebate structures would impact, either positively or negatively, our sales and rental revenue.
Changes in contractual pricing, payment trends and rebate structures would impact, either positively or negatively, our sales and rental revenue. Stock-Based Compensation The fair value of stock options is estimated at the date of grant, using the Black-Scholes option-pricing model.
Net cash used in investing activities during the year ended December 31, 2021, was $82.2 million, primarily consisting of acquisition-related payments of $79.8 million associated with the acquisition of the AffloVest business and $2.1 million in purchases of property and equipment primarily related to office 80 Table of Contents equipment, production tooling and tenant improvements and $0.3 million related to the acquisition of patents and other intangible assets.
Net cash used in investing activities during the year ended December 31, 2022, was $1.9 million, primarily consisting of $1.8 million in purchases of property and equipment primarily related to office equipment, production tooling and tenant improvements and $0.1 million related to the acquisition of patents and other intangible assets. 81 Table of Contents Net Cash Provided by (Used in) Financing Activities Net cash provided by financing activities during the year ended December 31, 2023, was $5.7 million, primarily consisting of net proceeds from the offering of our common stock of $34.6 million, $8.3 million in borrowings under our term loan, and $1.5 million in proceeds from the issuance of common stock under the ESPP, partially offset by payments of $25.0 million on the revolving credit facility, $10.6 million on the AffloVest earn-out, and $3.0 million on our term loan.
On September 8, 2021, in connection with the closing of the acquisition of the AffloVest business, 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.
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 acquisition of the AffloVest business, 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.
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.
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.
The increase was primarily attributable to an increase in interest expense. Income Tax Expense We recorded an income tax expense of $2.4 million and $9.5 million for the years ended December 31, 2022 and 2021, respectively.
Income Tax Expense We recorded an income tax benefit of $12.7 million and an income tax expense of $2.4 million for the years ended December 31, 2023 and 2022, respectively. The current year tax benefit was primarily driven by the release of the valuation allowance related to the future realization of deferred tax assets.
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 that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders.
AffloVest is a portable, wearable vest that provides airway clearance to treat patients with chronic respiratory conditions such as bronchiectasis or conditions resulting from neuromuscular disorders. For the years ended December 31, 2023 and 2022, sales of AffloVest represented 12% and 14% of our revenue, respectively.
The increase in revenue was attributable to an increase of approximately $29.4 million in sales of our airway clearance product line, which consists of the AffloVest product we acquired on September 8, 2021, and an increase of $9.4 million, or 5%, in sales and rentals of the lymphedema product line compared to the year ended December 31, 2021.
The increase in revenue was attributable to an increase of $29.5 million, or 14%, in sales and rentals of the lymphedema product line, partially offset by a decrease of $1.8 million, or 5%, in sales of the airway clearance product line in the year ended December 31, 2023, compared to the year ended December 31, 2022. ​ The increase in the lymphedema product line revenue in the year ended December 31, 2023, was attributable to increasing productivity of our field sales team and enhancing our portfolio through the development and introduction of new products.
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 related to the AffloVest acquisition. Other Expense, Net Other expense, net was $2.7 million for the year ended December 31, 2022, compared to $0.5 million for the year ended December 31, 2021.
This compares to an earn-out expense of $11.9 million for the twelve months ended December 31, 2022. Other Expense, Net Other expense, net was $2.3 million for the year ended December 31, 2023, compared to $2.7 million for the year ended December 31, 2022. The decrease was primarily attributable to an increase in interest income.
These increases were partially offset by a $0.7 million decrease in professional services.
These increases were partially offset by a $0.3 million decrease in travel and entertainment expenses and a $0.3 million decrease related to sales meetings and tradeshows.
The non-cash net income adjustments primarily consisted of $10.2 million of stock-based compensation expense, $10.2 million of deferred income tax expense and $3.7 million of depreciation and amortization expense. Changes in operating assets and liabilities were unfavorably impacted by increasing accounts receivable, net investment in leases and income taxes payable, partially offset by an increase in current liabilities.
The negative non-cash net income adjustments consisted primarily of $19.4 million of deferred income taxes and a $2.5 million change in the fair value of earn-out liability, partially offset by $7.5 million of stock-based compensation expense and $6.5 million of depreciation and amortization expense.
The increase was primarily attributable to a: ● $15.8 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 expenses; ● $1.2 million increase related to our annual national sales training meeting; ● $0.6 million increase related to sales meetings and tradeshows; and ● $0.1 million increase in expenses for new product introductions.
The increase was primarily attributable to a: ● $0.5 million increase in IT & service fees; ● $0.4 million increase in expenses for new product introductions; ● $0.2 million increase in personnel-related compensation expense; and ● $0.2 million increase in educational grants.
Any gain or loss related to this revaluation is recorded through the income statement.
On a quarterly basis the earn-out was revalued to fair value until the end of the earn-out period, which was September 30, 2023. Any gain or loss related to the revaluation was recorded through the income statement.
As of December 31, 2022, we employed a field staff of 287 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 a field staff of 262 as of December 31, 2021.
As of December 31, 2023, we employed 254 field sales representatives for our lymphedema products and a team of 16 supporting our airway clearance products. This compares to 241 field sales representatives (excluding 9 key account managers) for our lymphedema products and a team of 10 specialists supporting our airway clearance products as of December 31, 2022.
Approximately 10% of our revenue in 2022 and 13% of our revenue in 2021 came from the Veterans Administration. Approximately 19% of our revenue in 2022 and 17% of our revenue in 2021 came from Medicare patients. Changes to the level of Medicare coverage for our products could reduce the number of Medicare patients who have access to our products.
We bill the Veterans Administration directly for the purchase or lease of our product on behalf of the patient. 73 Table of Contents Approximately 10% of our revenue in each of 2023 and 2022 came from the Veterans Administration. Approximately 24% of our revenue in 2023 and 19% of our revenue in 2022 came from Medicare patients.
Removed
Coronavirus (COVID-19) The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic.
Added
Sales and rentals of our lymphedema products represented 88% and 86% of our revenue in the years ended December 31, 2023 and 2022, respectively. On September 8, 2021, we acquired the assets of the AffloVest airway clearance product line from International Biophysics Corporation (“IBC”), a privately-held company which developed and manufactured AffloVest.
Removed
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.
Added
Current Economic Conditions General global economic downturns and macroeconomic trends, including heightened inflation, capital market volatility, interest rate fluctuations, increased unemployment and economic slowdown or recession, may result in unfavorable conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.
Removed
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 2022 after the first quarter, ongoing consequences of the pandemic remain uncertain.
Added
Components of our Results of Operations Revenue We derive revenue from sales and rentals of our Flexitouch Plus and Entre Plus systems to patients in the United States.
Removed
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.
Added
The decrease in the airway clearance product line revenue in the year ended December 31, 2023, was attributable to one large DME provider experiencing slowed placements of our AffloVest system due to the expiration of the COVID-19 Public Health Emergency (PHE) waiver and a return to “pre-public health emergency” eligibility requirements. ​ Revenue from the Veterans Administration represented 10% of total revenue for each of the years ended December 31, 2023 and 2022.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAlthough we do not believe that inflation has had a material impact on our financial condition or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin, and on our sales and marketing and reimbursement expenses as a percentage of our revenue if the prices for our products do not increase as much or more than these increased costs.
Biggest changeAlthough we do not believe that inflation has had a material impact on our financial condition or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin, and on our sales and marketing and reimbursement expenses as a percentage of our revenue if the prices for our products do not increase as much or more than these increased costs. 84 Table of Contents Credit Risk As of December 31, 2023 and 2022, our cash and cash equivalents were maintained with one financial institution in the United States.
As we begin building relationships to commercialize our products internationally, our results of operations and cash flows may become increasingly subject to changes in foreign exchange rates. 84 Table of Contents
As we begin building relationships to commercialize our products internationally, our results of operations and cash flows may become increasingly subject to changes in foreign exchange rates. 85 Table of Contents
We had accounts receivable from two insurers representing approximately 33% and 24% of accounts receivable as of December 31, 2021. The credit risks associated with customers which for these purposes are insurers considers aggregation for entities that are known to be under common control. Foreign Currency Risk Our business is conducted in U.S. dollars and international transactions have been nominal.
We had accounts receivable from two insurers representing approximately 45% and 21% of accounts receivable as of December 31, 2022. The credit risks associated with customers which for these purposes are insurers considers aggregation for entities that are known to be under common control. Foreign Currency Risk Our business is conducted in U.S. dollars and international transactions have been nominal.
We also 83 Table of Contents have exposure to variable interest rates through our credit facility, as the interest expense related to any borrowings will fluctuate with changes in LIBOR and other benchmark rates. Therefore, increases in interest rates may impact our net income or loss by increasing the cost of carrying debt.
We also have exposure to variable interest rates through our credit facility, as the interest expense related to any borrowings will fluctuate with changes in SOFR and other benchmark rates. Therefore, increases in interest rates may impact our net income or loss by increasing the cost of carrying debt.
Our accounts receivable primarily relate to revenue from the sale of our products to patients in the United States. As of December 31, 2022 and 2021, our accounts receivable were $77.9 million and $62.3 million, respectively. We had accounts receivable from two insurers representing approximately 45% and 21% of accounts receivable as of December 31, 2022.
Our accounts receivable primarily relate to revenue from the sale of our products to patients in the United States. As of December 31, 2023 and 2022, our accounts receivable were $54.1 million and $77.9 million, respectively. We had accounts receivable from two insurers representing approximately 36% and 15% of accounts receivable as of December 31, 2023.
Removed
Credit Risk As of December 31, 2022 and 2021, our cash and cash equivalents were maintained with one financial institution in the United States.

Other TCMD 10-K year-over-year comparisons