0001558370-22-001758 | 10-K | XBRL Viewer | Tactile Systems Technology INC

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Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Current assets
Cash and cash equivalents	$ 28,229	$ 47,855
Accounts receivable	49,478	43,849
Net investment in leases	12,482	10,708
Inventories	19,217	18,563
Prepaid expenses and other current assets	4,141	2,638
Total current assets	113,547	123,613
Non-current assets
Property and equipment, net	6,750	6,957
Right of use operating lease assets	23,984	20,132
Intangible assets, net	54,081	1,680
Goodwill	31,063
Accounts receivable, non-current	12,847	9,433
Deferred income taxes		10,198
Other non-current assets	1,998	2,074
Total non-current assets	130,723	50,474
Total assets	244,270	174,087
Current liabilities
Accounts payable	5,023	4,197
Note payable	2,960
Earn-out, current	3,250
Accrued payroll and related taxes	12,139	11,588
Accrued expenses	5,262	4,423
Income taxes payable	16	2,658
Operating lease liabilities	2,506	2,006
Other current liabilities	3,305	1,842
Total current liabilities	34,461	26,714
Non-current liabilities
Revolving line of credit, non-current	24,857
Note payable, non-current	26,933
Earn-out, non-current	2,950
Accrued warranty reserve, non-current	3,108	3,235
Income taxes payable, non-current	348
Operating lease liabilities, non-current	23,354	19,388
Deferred income taxes	32
Total non-current liabilities	81,582	22,623
Total liabilities	116,043	49,337
Commitments and Contingencies (see Note 13)
Stockholders' equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of December 31, 2021 and December 31, 2020
Common stock, $0.001 par value, 300,000,000 shares authorized; 19,877,786 shares issued and outstanding as of December 31, 2021; 19,492,718 shares issued and outstanding as of December 31, 2020	20	19
Additional paid-in capital	119,962	104,675
Retained earnings	8,245	20,056
Total stockholders' equity	128,227	124,750
Total liabilities and stockholders' equity	$ 244,270	$ 174,087

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2021	Dec. 31, 2020
Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common shares authorized	300,000,000	300,000,000
Common stock, shares, issued	19,877,786	19,492,718
Common stock, shares, outstanding	19,877,786	19,492,718

Consolidated Statements of Operations - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Total revenue	$ 208,057	$ 187,130	$ 189,492
Total cost of revenue	59,844	54,320	55,256
Gross profit	148,213	132,810	134,236
Operating expenses
Sales and marketing	86,775	79,634	78,920
Research and development	5,659	5,264	5,174
Reimbursement, general and administrative	56,802	51,343	39,450
Intangible asset amortization and earn-out	739	197	194
Total operating expenses	149,975	136,438	123,738
(Loss) income from operations	(1,762)	(3,628)	10,498
Other (expense) income	(531)	1,367	631
(Loss) income before income taxes	(2,293)	(2,261)	11,129
Income tax expense (benefit)	9,518	(1,641)	158
Net (loss) income	$ (11,811)	$ (620)	$ 10,971
Net (loss) income per common share
Basic (in dollars per share)	$ (0.60)	$ (0.03)	$ 0.58
Diluted (in dollars per share)	$ (0.60)	$ (0.03)	$ 0.56
Weighted-average common shares used to compute net (loss) income per common share
Basic (in shares)	19,719,485	19,346,929	18,919,007
Diluted (in shares)	19,719,485	19,346,929	19,641,143
Sales revenue
Total revenue	$ 177,914	$ 161,497	$ 162,904
Total cost of revenue	50,222	45,309	47,034
Gross profit	127,692	116,188	115,870
Rental revenue
Total revenue	30,143	25,633	26,588
Total cost of revenue	9,622	9,011	8,222
Gross profit	$ 20,521	$ 16,622	$ 18,366

Consolidated Statements of Comprehensive (Loss) Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Consolidated Statements of Comprehensive (Loss) Income
Net (loss) income	$ (11,811)	$ (620)	$ 10,971
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		(21)	31
Income tax related to items of other comprehensive income (loss)		(5)	3
Total other comprehensive income (loss)		(26)	34
Comprehensive (loss) income	$ (11,811)	$ (646)	$ 11,005

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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+ Details

Consolidated Statement of Shareholder's Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Total
Balances at the beginning at Dec. 31, 2018	$ 19	$ 79,554	$ 9,705	$ (8)	$ 89,270
Balances at the beginning (in shares) at Dec. 31, 2018	18,631,127
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		9,824			9,824
Exercise of common stock options and vesting of performance and restricted stock units		2,834			2,834
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	512,901
Taxes paid for net share settlement of performance and restricted stock units		(3,391)			(3,391)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(62,440)
Common shares issued for employee stock purchase plan		3,053			3,053
Common shares issued for employee stock purchase plan (in shares)	71,127
Comprehensive income (loss) for the period			10,971	34	11,005
Balances at the end at Dec. 31, 2019	$ 19	91,874	20,676	26	112,595
Balances at the end (in shares) at Dec. 31, 2019	19,152,715
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		10,689			10,689
Exercise of common stock options and vesting of performance and restricted stock units		1,068			1,068
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	303,709
Taxes paid for net share settlement of performance and restricted stock units		(1,854)			(1,854)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(37,790)
Common shares issued for employee stock purchase plan		2,898			2,898
Common shares issued for employee stock purchase plan (in shares)	74,084
Comprehensive income (loss) for the period			(620)	$ (26)	(646)
Balances at the end at Dec. 31, 2020	$ 19	104,675	20,056		124,750
Balances at the end (in shares) at Dec. 31, 2020	19,492,718
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		10,173			10,173
Exercise of common stock options and vesting of performance and restricted stock units	$ 1	3,975			3,976
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	333,763
Taxes paid for net share settlement of performance and restricted stock units		(1,173)			(1,173)
Taxes paid for net share settlement of performance and restricted stock units (in shares)	(22,357)
Common shares issued for employee stock purchase plan		2,312			2,312
Common shares issued for employee stock purchase plan (in shares)	73,662
Comprehensive income (loss) for the period			(11,811)		(11,811)
Balances at the end at Dec. 31, 2021	$ 20	$ 119,962	$ 8,245		$ 128,227
Balances at the end (in shares) at Dec. 31, 2021	19,877,786

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Cash flows from operating activities
Net (loss) income	$ (11,811)	$ (620)	$ 10,971
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	3,681	2,794	3,538
Net amortization of premiums and discounts on securities available-for-sale		(91)	(307)
Deferred income taxes	10,230	(1,233)	(146)
Stock-based compensation expense	10,173	10,689	9,824
Gain on other investments and maturities of marketable securities		(11)	7
Impairment losses		4,025
Loss on termination of lease			1,148
Loss on disposal of property and equipment	20
Change in fair value of earn-out liability	(200)
Changes in assets and liabilities, net of acquisition:
Accounts receivable	(5,629)	(10,405)	(9,112)
Net investment in leases	(1,774)	(2,561)	(8,147)
Inventories	972	318	(7,870)
Income taxes	(2,294)	1,972	2,428
Prepaid expenses and other assets	(1,489)	(528)	(1,166)
Right of use operating lease assets	614	559	625
Medicare accounts receivable, non-current	(3,414)	(5,249)	(2,300)
Accounts payable	826	337	(1,389)
Accrued payroll and related taxes	551	1,490	2,677
Accrued expenses and other liabilities	2,175	1,308	1,729
Net cash provided by operating activities	2,631	2,794	2,510
Cash flows from investing activities
Proceeds from sales of securities available-for-sale			1,493
Proceeds from maturities of securities available-for-sale		22,500	25,000
Purchases of securities available-for-sale			(22,840)
Payments related to acquisition	(79,829)
Purchases of property and equipment	(2,103)	(2,059)	(5,446)
Intangible assets costs	(252)	(232)	(542)
Other investments		(30)
Net (used in) provided by investing activities	(82,184)	20,179	(2,335)
Cash flows from financing activities
Proceeds from issuance of note payable	30,000
Proceeds from revolving line of credit	25,000
Payment of deferred debt issuance costs	(188)
Taxes paid for net share settlement of performance and restricted stock units	(1,173)	(1,854)	(3,391)
Proceeds from exercise of common stock options	3,976	1,068	2,834
Proceeds from the issuance of common stock from the employee stock purchase plan	2,312	2,898	3,053
Net cash provided by financing activities	59,927	2,112	2,496
Net (decrease) increase in cash and cash equivalents	(19,626)	25,085	2,671
Cash and cash equivalents - beginning of period	47,855	22,770	20,099
Cash and cash equivalents - end of period	28,229	47,855	22,770
Supplemental cash flow disclosure
Cash paid for interest	130
Cash paid for taxes	1,593	543	344
Capital expenditures incurred but not yet paid	$ 23	$ 17	$ 122

Nature of Business and Operations

12 Months Ended

Dec. 31, 2021

Nature of Business and Operations

Nature of Business and Operations

Note 1. Nature of Business and Operations

Tactile Systems Technology, Inc. (“we,” “us,” and “our”) is the sole manufacturer and distributor of the Flexitouch and Entre systems, medical devices that help control symptoms of lymphedema, a chronic and progressive medical condition. We provide these products through our direct sales force for use in the home and sell or rent them through vascular, wound and lymphedema clinics throughout the United States.

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

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

Our business is affected by seasonality. In the first quarter of each year, when most patients have started a new insurance year and have not yet met their annual out-of-pocket payment obligations, we experience substantially reduced demand for our products. We typically experience higher revenue in the third and fourth quarters of the year when patients have met their annual insurance deductibles, thereby reducing their out-of-pocket costs for our products, and because patients desire to exhaust their flexible spending accounts at year end. This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products. Further, seasonality trends have been, and may continue to be, significantly different than historical trends as a result of the COVID-19 pandemic and related impacts.

Basis of Presentation

12 Months Ended

Dec. 31, 2021

Basis of Presentation

Basis of Presentation

Note 2. Basis of Presentation

Our accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. We have reclassified certain prior year amounts to conform to the current year’s presentation.

The results for the year ended December 31, 2021, are not necessarily indicative of results to be expected for any future year.

Principles of Consolidation

Our accompanying consolidated financial statements include the accounts of Tactile Systems Technology, Inc. and its wholly owned subsidiary, Swelling Solutions, Inc. All intercompany balances and transactions have been eliminated in consolidation.

Risks and Uncertainties

Coronavirus (COVID-19)

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients

that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during 2020 and the first quarter of 2021. While we saw some level of recovery in the second quarter of 2021, the second half of 2021 was negatively impacted by the prolonged recovery from COVID-19 and increased variant cases during the period, which extended and expanded restricted access to clinics and hospitals and disrupted the recovery in patient visits versus the pre-COVID environment. There are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have. For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time. Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients.

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Coronavirus Aid, Relief, and Economic Security Act

We may receive cash payments from the government during a public health emergency (PHE). We consider the nature and substance of the government funds received and record the cash payment in accordance with the terms and conditions of the funds. In the year ended December 31, 2020, we received a grant of $1.2 million from the Public Health and Social Services Emergency Fund (Relief Fund), which was among the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law on March 27, 2020. During the year ended December 31, 2020, we recorded $1.2 million in other income, which was associated with lost revenues from the COVID-19 PHE incurred in the period based on our interpretation of guidance issued by the Department of Health and Human Services through January 2021.

Comprehensive Income (Loss)

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

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2021

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash on hand, deposits and funds invested in available-for-sale securities with original maturities of three months or less at the time of purchase. Our cash was held primarily in checking accounts as of December 31, 2021, compared to money market and checking accounts as of December 31, 2020. At times the amount of cash on deposit may exceed the federally insured limit of the bank. Deposit accounts at each of the institutions are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). At December 31, 2021 and 2020, the Company exceeded FDIC limits at various institutions. The Company has not experienced any losses in such accounts and believes there is little to no exposure to any significant credit risk.

Marketable Securities and Equity Investments

We determine the appropriate classification of our marketable securities as available-for-sale or held-to-maturity at the time of purchase and periodically reevaluate such classification. Debt securities are classified

as held-to-maturity when we have the positive intent and ability to hold the securities to maturity. Debt securities for which we do not have the intent or ability to hold to maturity are classified as available-for-sale.

Debt securities not classified as held-to-maturity are classified as available-for-sale and are reported at fair value, with unrealized gains and losses included in the determination of comprehensive income (loss), a component of stockholders' equity. We review our available-for-sale securities for impairment to determine if the impairment is temporary or other-than-temporary. A temporary impairment charge results in an unrealized loss being recorded in other comprehensive income (loss). Other-than-temporary impairments are recorded in net income (loss) in the period the impairment is determined to be other-than-temporary. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method.

Equity investments (including equity securities) with readily determinable fair value are reported at fair value, with unrealized gains and losses included in the determination of net income (loss). For equity investments with no readily determinable fair value, we measure these investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Such observable price changes may include instances where the investee issues equity securities to new investors, thus creating a new indicator of fair value, as an example. As of each of December 31, 2021 and 2020, the total carrying value of our equity investments, with no readily determinable fair value, were $0.3 million, and are included in other non-current assets on our Consolidated Balance Sheets. On an annual basis, we perform a qualitative assessment considering impairment indicators to evaluate whether these investments are impaired and also monitor for any observable price changes. During the years ended December 31, 2021 and 2020, we did not have any impairment loss on these investments.

Accounts Receivable

The majority of our accounts receivable and revenue are from commercial insurance payers and government payers, such as Medicare, the Veterans Administration and Medicaid.

Accounts receivable are recorded based on management’s assessment of the expected consideration to be received, based on a detailed review of historical pricing adjustments and collections. Management relies on the results of the assessment, which includes payment history of the applicable payer as well as historical patient collections, as a primary source of information in estimating the collectability of our accounts receivable. We update our assessment on a quarterly basis, which to date has not resulted in any material adjustments to the valuation of our accounts receivable. We believe the assessment provides reasonable estimates of our accounts receivable valuation, and therefore we believe that substantially all accounts receivable are fully collectible.

A portion of our claims to Medicare are initially denied and enter the appeals process, where many are ultimately reviewed by an Administrative Law Judge. After final adjudication of all claims, approximately 90% of the claims submitted are approved (this is on a number of claims, not a dollars claimed, basis across all our products). The appeals process can be lengthy, lasting more than a year in most cases. Accordingly, we classify a portion of our Medicare accounts receivable as non-current based on our experience with Medicare collections.

Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or net realizable value.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of three to seven years. Leasehold improvements are depreciated over the remaining life of the respective building lease agreement.

Major expenditures for property and equipment are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accumulated depreciation accounts and the resulting gains or

losses are included in income. The value of demonstration equipment in the possession of our field sales representatives is capitalized and depreciated over the estimated useful life of the equipment.

Revenue Recognition

We derive revenue from the sales and rentals of our Flexitouch and Entre systems, and from the sales of our AffloVest.

Flexitouch and Entre

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. In general, revenue from the sale or rental of a product is recognized upon shipment, unless circumstances dictate that control has not yet passed to the customer.

We provide a warranty for these products against defects in material and workmanship for a period of one to five years on garments and one to two years on controllers. In accordance with applicable accounting guidance, we have determined these were assurance warranties and therefore not considered a performance obligation. In addition, we did not evaluate immaterial promised goods or services in the context of the contract. As a result, the sale or rental of these products represent a single performance obligation that is satisfied at a point in time and is short-term in nature. In certain cases, we receive payment from Medicare sales over a period of time that may exceed one year. Despite these extended payment terms, no significant financing component is deemed to exist as the terms are not for the benefit of the patient with whom we have the contract. Rather, the extended payment terms occur as a result of an initial claim denial, which subsequently enters the Medicare appeals process as noted below.

We commercially distribute these products directly to patients who are referred to us by physicians, therapists or nurses. In most cases, there is a third-party payer, such as a commercial insurer, Medicare or the Veterans Administration involved with the transaction. Our contractual relationship resides with the patient when the third-party payer is either a commercial insurer or Medicare and with the Veterans Administration if the patient is covered under their services. Revenue is recognized from such sales upon transfer of control of the product to the customer at a transaction price determined by collection history. As a result, the transaction price is impacted by multiple factors, including the terms and conditions contracted by various third-party payers, and therefore payments from third-party payers typically are less than our standard charge and represent an implicit price concession, resulting in variable consideration. As most contracts are with each individual sale to a patient, we have elected the portfolio approach to determine the transaction price, and ultimately the expected consideration. The portfolios used to determine transaction price are at the payer level, with pricing for each payer assessed based on the underlying similar characteristics.

For any of our products sold to patients covered by private payers, such as commercial insurance companies, revenue is recognized upon shipment. A product is not shipped until we have received a prescription from a physician for our products and, as applicable, receipt of prior authorization from payers. At shipment, we invoice the payer for the total product price, and we recognize revenue in the amount of cash consideration anticipated to be received based on the transaction price. After the insurance payer has remitted payment, we separately invoice the patient for their portion of the payment obligation, such as copayments and deductibles. The transaction price is determined based on the payment history of the applicable payer drawn from actual write-off and collections experience from the payer over a rolling 12-month period, as well as historical patient collections.

For our products sold to Medicare patients, we recognize revenue from such sales upon shipment of our products, which can occur only after we have received a prescription from a physician and all applicable patient documentation is obtained. The transaction price for our Entre systems is determined based on the payment history using the same methodology as our private insurers. A portion of our claims for our Flexitouch system are initially denied, and enter the appeals process, which can be lengthy. We assess the variable consideration for each of these claims as a percentage of the total invoice price based on ultimate approval and collection history.

For our products sold to the Veterans Administration on behalf of the patient, our contract is with the Veterans Administration rather than the patient. We enter into individual sales contracts with the Veterans Administration on behalf of each patient. These contracts determine the amount of consideration, which is typically paid in full within 2-3 days of shipment, and therefore there is no implicit price concession. In addition, the contracts provide for the right of control to transfer to the Veterans Administration upon delivery of the product to the patient, at which time revenue is recognized.

We incur incremental costs that directly relate to the sales of our products; however, as the amortization period would be less than one year, we have elected the practical expedient to expense these costs as incurred.

We sell and rent these products either directly to patients or the Veterans Administration on behalf of patients, who are referred to us by physicians, therapists or nurses. We bill private insurers and other payers, Medicare, and the Veterans Administration directly for purchases or rentals of our product on behalf of a patient and bill patients directly for their cost-sharing amounts, including any portion of an unsatisfied deductible and any copayments or co-insurance obligation.

A portion of our revenue is derived from patients who obtain our products under multiple-month rental arrangements. We bill these patients’ insurance payers monthly over the duration of the rental term. Title to these products passes to the patients at the end of the rental period. Patients may return the product before the end of the rental period, and as such these arrangements are deemed to be month-to-month cancelable leases in accordance with Accounting Standards Codification (“ASC”) 840, “Leases,” if they commenced prior to December 31, 2018. Accordingly, we recognized the related revenue for these rental arrangements monthly, on a pro rata basis, over the lesser of the duration of the rental period or the period during which the patient possesses the product. Rental agreements commencing after January 1, 2019, are recorded as sales-type leases in accordance with Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842) (“ASC 842”). Accordingly, as sales-type leases, the transaction price for the entire rental term is recognized upon transfer of control. We elected the practical expedient to not reassess the lease classification for leases in existence at December 31, 2018.

AffloVest

The AffloVest device is sold through durable medical equipment providers. Revenue is recognized when control of the promised goods or services is transferred to the distributors, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or providing services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the distributor has obtained control of the goods or services, we consider any future performance obligations. Generally, there is no post-shipment obligation on products sold other than warranty obligations in the normal and ordinary course of business. Consequently, revenue from the sale of the AffloVest product is recognized at shipment, unless circumstances dictate that control has not yet passed to the distributor.

Certain of our contracts include volume-based incentives which involve rebates that are negotiated at or prior to the time of sale with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase. Under these incentive programs, at the time of sale, we determine the most likely amount of the rebate to be paid based on forecasted sales levels. These forecasts are updated at least quarterly for applicable customers, and the transaction price is reduced for the anticipated cost of the rebate. If the forecasted sales for a customer change, the accrual for rebates is adjusted to reflect the new rebates expected to be earned by the customer.

Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in revenue in the accompanying Consolidated Statements of Operations. Shipping and handling costs incurred for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of revenue sold in the accompanying Consolidated Statements of Operations.

We provide a warranty for the AffloVest products against defects in material and workmanship for a period of five years. In accordance with applicable accounting guidance, we have determined these were assurance warranties and therefore not considered a performance obligation. In addition, we did not evaluate immaterial promised goods or services in the context of the contract. As a result, the sale of these products represents a single performance obligation that is satisfied at a point in time and is short-term in nature.

Advertising

Advertising costs are charged to operations when incurred. Advertising expense was $0.1 million for each of the years ended December 31, 2021, 2020 and 2019.

Research and Development Costs

We expense research and development costs as incurred, including expenses associated with clinical research studies and development.

Shipping and Handling Costs

Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in total revenue in the accompanying Consolidated Statements of Operations. Shipping and handling costs incurred for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of revenue in the accompanying Consolidated Statements of Operations.

Product Warranty

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. 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.

Impairment of Long-Lived Assets

We review long-lived assets, including property and equipment and patents, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. We will assess long-lived assets used in operations for impairment indicators, including when undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount (see Note 9 – “Goodwill and Intangible Assets”).

Goodwill

Goodwill represents the excess of the purchase price paid over the estimated fair value of the net assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized, but is tested for impairment at least annually or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We plan to perform our annual assessment of goodwill for impairment as of July 1st of each fiscal year. See Note 9 – “Goodwill and Intangible Assets” for additional information.

Stock-Based Compensation

Stock options are valued using the Black-Scholes option-pricing model, except that the valuation of certain “CEO” related stock options subject to a market condition involve the use of the Monte Carlo Simulation model. The Monte Carlo Simulation and the Black-Scholes valuation models require the input of highly subjective assumptions. The assumptions include the expected term of the option, the expected volatility of the price of our common stock, expected dividend yield and the risk-free interest rate. These estimates involve inherent uncertainties and the significant application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. We

recognize compensation expense for these options on a straight-line basis over the requisite service period (see Note 14 – “Stockholders’ Equity”).

Income Taxes

Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and the tax basis of assets and liabilities. If we determine in the future that it is more likely than not that we will not realize all or a portion of the deferred tax assets, we will record a valuation allowance in the period the determination is made (see Note 16 – “Income Taxes”). Changes in tax rates are reflected in the tax provision as they occur.

Net (Loss) Income Per Common Share

Basic net (loss) income per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per common share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential stock-based awards outstanding during the period using the treasury stock method. Dilutive potential stock-based awards include outstanding common stock options, time- and performance-based restricted stock units and employee stock purchase plan shares.

Business Segments

We operate and report in only one operating and reportable segment. Our chief operating decision maker does not use financial information below revenue to allocate resources.

Accounting Pronouncement Not Yet Adopted

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

Recently Adopted Accounting Pronouncements

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

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses” (“ASU 2016-13”), which introduced a new model for recognizing credit losses on financial instruments based on an estimate of the current expected credit losses. The new current expected credit losses (“CECL”) model generally calls for the immediate recognition of all expected credit losses and applies to financial instruments and other assets, including accounts receivable and other financial assets measured at amortized cost, debt securities and other financial assets. This guidance replaced the previous incurred loss model for measuring expected credit losses and requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities. We adopted ASU 2016-13 as of January 1, 2020, and it did not have an impact on the consolidated financial statements at that time. In connection with the AffloVest Acquisition, it was determined that CECL did not have a material financial impact on the receivables related to the durable medical equipment channel.

Acquisitions

12 Months Ended

Dec. 31, 2021

Acquisitions

Acquisitions

Note 4. Acquisitions

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

Two earn-out payments of up to $10.0 million each are potentially due to IBC under the AffloVest APA depending on the achievement of specified revenue targets, as follows:

●

Initial Earn-Out: Equal to 1.5 times the amount by which the AffloVest business’ U.S. revenues in the period from October 1, 2021 to September 30, 2022 (the “Initial Earn-Out Period”) exceed a specified amount; provided that in no event will the payment exceed $10.0 million; and

●

Second Earn-Out: Equal to 1.5 times the amount by which the AffloVest business’ U.S. revenues in the period from October 1, 2022 to September 30, 2023 exceed the revenues recognized during the Initial Earn-Out Period; provided that in no event will the payment exceed $10.0 million.

The fair value of the earn-out as of the acquisition date was $6.4 million. The fair value of the earn-out, reflecting management’s estimate of the likelihood of achieving these targets, was determined by employing a Monte Carlo Simulation model. This amount and the current versus non-current allocation will be remeasured at the end of each reporting period until the payment requirement ends, with any adjustments reported in income from operations (see Note 18 – “Fair Value Measurements”).

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


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

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

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

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



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

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

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

Transaction costs, such as legal and other costs, related to the acquisition aggregated approximately $0.8 million. These costs have been expensed as incurred and are included in reimbursement, general and administrative expenses in our Consolidated Statements of Operations.

The Consolidated Statements of Operations reflect the AffloVest operations beginning September 9, 2021. As the AffloVest business has been integrated with our existing operations, we are unable to determine the amount of AffloVest earnings from the acquisition date that’s included in the Consolidated Statements of Operations. The following unaudited pro forma information for the years ended December 31, 2021 and 2020 presents the revenues and net income assuming the acquisition of AffloVest had occurred as of January 1, 2020. This information has been prepared for comparative purposes only and is not indicative of what actual results would have been if the acquisition had taken place at the beginning of fiscal 2020, or of future results.


	Year Ended
	December 31,
(In thousands)	2021		2020
Total revenue	$	219,414	$	203,193
Net (loss) income	$	(7,633)	$	11,832

These pro forma results include certain adjustments, primarily due to increases in amortization expense due to fair value adjustments of intangible assets, increases in interest expense due to additional borrowings incurred to finance the acquisition and amortization of debt issuance costs incurred to finance the transaction, acquisition related costs including transaction costs such as legal, accounting, valuation and other professional services, and related tax effects.

Marketable Securities

12 Months Ended

Dec. 31, 2021

Marketable Securities

Marketable Securities

Note 5. Marketable Securities

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

There were no net pre-tax unrealized gains for marketable securities at December 31, 2021. There were no sales of marketable securities during the year ended December 31, 2021.

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

Accounts Receivable

12 Months Ended

Dec. 31, 2021

Accounts Receivable.

Accounts Receivable

Note 6. Accounts Receivable

We had accounts receivable from two insurers representing approximately 33% and 24% of accounts receivable as of December 31, 2021. We had accounts receivable from two insurers representing approximately 37% and 22% of accounts receivable as of December 31, 2020. Revenue from these insurers accounted for 17% and 12% of our total revenue for the year ended December 31, 2021, and 16% and 10% for the year ended December 31, 2020. The credit risks associated with customers which for these purposes are insurers considers aggregation for entities that are known to be under common control.

Inventories

12 Months Ended

Dec. 31, 2021

Inventories

Inventories

Note 7. Inventories

Inventories consisted of the following:


	At December 31,
(In thousands)	2021		2020
Finished goods	$	8,242	$	7,129
Component parts and work-in-process		10,975		11,434
Total inventories	$	19,217	$	18,563

Property and Equipment

12 Months Ended

Dec. 31, 2021

Property and Equipment

Property and Equipment

Note 8. Property and Equipment

Property and equipment consisted of the following:


	At December 31,
(In thousands)	2021		2020
Equipment	$	8,051	$	6,909
Tooling		2,545		2,774
Furniture and fixtures		2,104		1,958
Leasehold improvements		1,458		1,282
Construction in progress		1,003		778
Demonstration equipment		632		632
Subtotal		15,793		14,333
Less: accumulated depreciation		(9,043)		(7,376)
Property and equipment, net	$	6,750	$	6,957

Depreciation expense was $2.3 million, $2.4 million and $3.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets.

Goodwill and Intangible Assets

Note 9. Goodwill and Intangible Assets

Goodwill

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

Intangible Assets

Our patents and other intangible assets are summarized as follows:


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


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

Amortization expense was $1.4 million, $0.4 million, and $0.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Future amortization expenses are expected as follows:


(In thousands)
2022	$	3,818
2023		3,787
2024		3,766
2025		3,676
2026		3,612
Thereafter		25,357
Total	$	44,016

The weighted-average remaining amortization period for these intangible assets was 12.0 years as of December 31, 2021.

In the second quarter of 2020, we reevaluated the go-to-market strategy of one of our previous products, the Airwear wrap, and determined to focus our strategy on more advanced solutions within our core, long-standing Flexitouch and Entre franchises. Accordingly, we made the strategic decision to discontinue the Airwear wrap in the second quarter of 2020. Due to the planned discontinuation of the product line, we recorded a $4.0 million non-cash impairment charge to fully write-off the inventory and long-lived assets of the Airwear wrap in the quarter ended June 30, 2020. The majority of the impairment charge was comprised of the patent intangible assets and property and equipment, totaling $3.6 million, and was classified within the reimbursement, general and administrative expenses line of the Consolidated Statements of Operations. The inventory-related component of the impairment charge was $0.4 million and was classified within the cost of revenue line of the Consolidated Statements of Operations.

Accrued Expenses

12 Months Ended

Dec. 31, 2021

Accrued Expenses

Accrued Expenses

Note 10. Accrued Expenses

Accrued expenses consisted of the following:


	At December 31,
(In thousands)	2021		2020
Warranty	$	1,851	$	1,606
Legal and consulting		1,371		882
Travel		661		545
In-transit inventory		416		634
Clinical studies		113		67
Sales and use tax		106		193
Other		744		496
Total	$	5,262	$	4,423

Warranty Reserves

12 Months Ended

Dec. 31, 2021

Warranty Reserves

Warranty Reserves

Note 11. Warranty Reserves

The activity in the warranty reserve during and as of the end of the year presented was as follows:


	Year Ended
	December 31,
(In thousands)	2021		2020
Beginning balance	$	4,841	$	3,759
Warranty provision		2,606		2,957
Processed warranty claims		(2,488)		(1,875)
Ending balance	$	4,959	$	4,841

Accrued warranty reserve, current	$	1,851	$	1,606
Accrued warranty reserve, non-current		3,108		3,235
Total accrued warranty reserve	$	4,959	$	4,841

Credit Agreement

12 Months Ended

Dec. 31, 2021

Credit Agreement

Credit Agreement

Note 12. Credit Agreement

On August 3, 2018, we entered into a credit agreement with Wells Fargo Bank, National Association, which was amended by a First Amendment dated February 12, 2019, a Waiver and Second Amendment dated March 25, 2019, and a Third Amendment dated August 2, 2019 (collectively, the “2018 Credit Agreement”). On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. The Restated Credit Agreement amended and restated in its entirety the 2018 Credit Agreement.

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, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent. 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 is reflected as a note payable on our Consolidated Balance Sheets. The term loan and the revolving credit facility mature on September 8, 2024. The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $80.0 million.

On September 8, 2021, in connection with the closing of the AffloVest Acquisition, we borrowed the $30.0 million term loan and utilized that borrowing, together with a draw of $25.0 million under the revolving credit facility and cash on hand, to fund the purchase price. As of December 31, 2021, there was no availability under our Credit Agreement.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amends the Credit Agreement.

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

The term loan and amounts drawn under the revolving credit facility bear interest, at our option, at a rate equal to (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) LIBOR for an interest period of one month plus 1% (the “Base Rate”) plus an applicable margin or (b) LIBOR for an interest period of one, three or six months, at our option, plus the applicable margin. The applicable margin is 0.75% to 2.25% on loans bearing interest at the Base Rate and 1.75% to 3.25% on loans bearing interest at LIBOR, in each case depending on our consolidated total leverage ratio; except that, pursuant to the Second Amendment,

during the period commencing on February 22, 2022 and ending on the last day of the fiscal quarter ending June 30, 2023, the applicable margin for LIBOR rate loans is 3.50%. At December 31, 2021, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 2.87%. Undrawn portions of the revolving credit facility are subject to an unused line fee at a rate per annum from 0.300% to 0.375%, depending on our consolidated total leverage ratio.

Maturities of the term loan for the next three years as of December 31, 2021, were as follows:


(In thousands)	Amount
2022	$	3,000
2023		3,000
2024		24,000
Total	$	30,000

These maturities as of December 31, 2021 do not take into account the $3.0 million principal repayment on the term loan that we made on February 22, 2022 in connection with the Second Amendment. Such repayment had the effect of increasing the principal amount to be repaid in 2022, and decreasing the principal amount to repaid in 2024, by $3.0 million in each year.

Our obligations under the Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets and are also guaranteed by our subsidiaries. The Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio, minimum fixed charge coverage ratio and a minimum consolidated EBITDA covenant. As of December 31, 2021, we were in compliance with all financial covenants under the Credit Agreement.

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.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
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-Publisher FASB
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
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-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
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Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

+ Details

Commitments and Contingencies

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies

Commitments and Contingencies

Note 13. Commitments and Contingencies

Lease Obligations

We lease property and equipment under operating leases, typically with terms greater than 12 months, and determine if an arrangement contains a lease at inception. In general, an arrangement contains a lease if there is an identified asset and we have the right to direct the use of and obtain substantially all of the economic benefit from the use of the identified asset. We record an operating lease liability at the present value of lease payments over the lease term on the commencement date. The related right of use (“ROU”) operating lease asset reflects rental escalation clauses, as well as renewal options and/or termination options. The exercise of lease renewal and/or termination options are at our discretion and are included in the determination of the lease term and lease payment obligations when it is deemed reasonably certain that the option will be exercised. When available, we use the rate implicit in the lease to discount lease payments to present value; however, certain leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

We classify our leases as buildings, vehicles or computer and office equipment and do not separate lease and nonlease components of contracts for any of the aforementioned classifications. In accordance with applicable guidance, we do not record leases with terms that are less than one year on the Consolidated Balance Sheets.

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

Buildings

We lease certain office and warehouse space at various locations in the United States where we provide services. These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded

on the Consolidated Balance Sheets, with rent expense recognized on a straight-line basis over the term of the lease. The remaining lease terms vary from approximately two to ten years as of December 31, 2021.

In March 2008, we entered into a noncancelable operating lease agreement for building space for our previous corporate headquarters that provided for monthly rent, real estate taxes and operating expenses that was subsequently extended to July 31, 2021. Due to the move to our new headquarters in September 2019, we entered into a termination agreement for our former corporate headquarters on December 31, 2019. We agreed to pay $1.2 million in order to terminate all future rights and obligations of the lease. The lease was removed from our ROU operating lease assets and operating lease liabilities and the total net loss on termination of $1.1 million was recorded in the reimbursement, general and administrative line of our Consolidated Statements of Operations.

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

Vehicles

We lease vehicles for certain members of our field sales organization under a vehicle fleet program whereby the initial, noncancelable lease is for a term of 367 days, thus more than one year. Subsequent to the initial term, the lease becomes a month-to-month, cancelable lease. As of December 31, 2021, we had approximately 39 vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities. In addition to monthly rental fees specific to the vehicle, there are fixed monthly nonlease components that have been included in the ROU operating lease assets and operating lease liabilities. The nonlease components are not significant.

Computer and Office Equipment

We also have operating lease agreements for certain computer and office equipment. The remaining lease terms as of December 31, 2021, ranged from less than one year to approximately four years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities. The leases provide an option to purchase the related equipment at fair market value at the end of the lease. The leases will automatically renew as a month-to-month rental at the end of the lease if the equipment is not purchased or returned.

Lease Position, Undiscounted Cash Flow and Supplemental Information

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


(In thousands)	At December 31, 2021		At December 31, 2020
Right of use operating lease assets	$	23,984	$	20,132

Operating lease liabilities:
Current	$	2,506	$	2,006
Non-current		23,354		19,388
Total	$	25,860	$	21,394

Operating leases:
Weighted average remaining lease term		8.6 years		9.4 years
Weighted average discount rate		4.2%		4.4%

	Year Ended December 31,
	2021		2020
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	3,379	$	2,646
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	6,920	$	6,789

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


(In thousands)
2022	$	3,549
2023		3,420
2024		3,414
2025		3,516
2026		3,615
Thereafter		13,249
Total minimum lease payments		30,763
Less: Amount of lease payments representing interest		(4,903)
Present value of future minimum lease payments		25,860
Less: Current obligations under operating lease liabilities		(2,506)
Non-current obligations under operating lease liabilities	$	23,354

Operating lease costs were $3.6 million, $3.0 million and $2.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Major Vendors

We had purchases from two vendors that accounted for 32% of total purchases for each of the years ended December 31, 2021 and 2020.

Purchase Commitment

We issued purchase orders in 2021 totaling $15.1 million for goods that we expect to receive within the next year.

Retirement Plan

We maintain a 401(k) retirement plan for our employees to which eligible employees can contribute a percentage of their pre-tax compensation. We recorded an expense related to our discretionary contributions to the 401(k) plan of $1.2 million for the year ended December 31, 2021 and $0.3 million for each of the years ended December 31, 2020 and 2019.

Legal Proceedings

From time to time, we are subject to various claims and legal proceedings arising in the ordinary course of business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

On February 13, 2019, we were served with a sealed amended complaint venued in the United States District Court in the Southern District of Texas, Houston Division, captioned United States ex rel Veterans First Medical Supply, LLC vs. Tactile Medical Systems Technology, Inc., Case No. 18-2871, which had been filed on January 23, 2019. The complaint was a qui tam action on behalf of the United States brought by one of our competitors. The United States declined to intervene in this action. The complaint alleged that we violated the Federal Anti-Kickback Statute claiming that we submitted false claims and made false statements in connection with the Medicare and Medicaid programs, and that we engaged in unlawful retaliation in violation of the Federal False Claims Act. The complaint sought damages, statutory penalties, attorneys’ fees, treble damages and costs. On February 18, 2022, the plaintiff filed a motion to dismiss, with prejudice, which the court granted that same day. On that same date, we filed a motion to dismiss our counterclaims, which was also granted by the court that day. We did not pay any damages, penalties or attorneys’ fees to the plaintiff.

We and certain of our present or former officers were sued in a purported securities class action lawsuit that was filed in the United States District Court for the District of Minnesota on September 29, 2020, and that is pending under the caption Brian Mart v. Tactile Systems Technology, Inc., et al., File No. 0:20-cv-02074-NEB-BRT. On April 19, 2021, the plaintiff filed an Amended Complaint against us and eight of our present and former officers and directors. Plaintiff seeks to represent a class consisting of investors who purchased our common stock in the market during the time period from May 7, 2018 through June 8, 2020 (“alleged class period”). The Amended Complaint alleges the following claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”): (1) that we and certain officer defendants made materially false or misleading public statements about our business, operational and compliance policies, and results during the alleged class period in violation of Section 10(b) of the Exchange Act; (2) that we and the individual defendants engaged in a scheme to defraud investors in order to allow the individual defendants to sell our stock in violation of Section 10(b) of the Exchange Act; (3) that the individual defendants engaged in improper insider trading of our stock in violation of Section 20A of the Exchange Act; and (4) that we and the individual defendants are liable under Section 20(a) of the Exchange Act because each defendant is a controlling person. On June 18, 2021, we and the individual defendants filed a motion to dismiss the Amended Complaint. The motion has not been decided yet.

Stockholders' Equity

12 Months Ended

Dec. 31, 2021

Stockholders' Equity

Stockholders' Equity

Note 14. Stockholders' Equity

We completed an initial public offering of our common stock on August 2, 2016, in which we sold 4,120,000 shares of our common stock at a public offering price of $10.00 per share. Immediately prior to the completion of the initial public offering, all then-outstanding shares of our Series A and Series B preferred stock were converted into 5,924,453 shares of our common stock. Our Series A preferred stock converted to common stock at a ratio of 1-for-1.03 and our Series B preferred stock converted to common stock at a ratio of 1-for-1. In addition, immediately prior to the completion of the initial public offering, we issued 2,354,323 additional shares of our common stock that our Series A and Series B preferred stockholders were entitled to receive in connection with the conversion of the preferred stock, and we issued 956,842 shares of our common stock to pay accrued dividends on our Series B preferred stock. We also paid $8.2 million in cumulative accrued dividends to our Series A convertible preferred stockholders in connection with the initial public offering, including $0.1 million of dividends paid to the holders of the common restricted shares.

Stock-Based Compensation

Our 2016 Equity Incentive Plan (the “2016 Plan”) authorizes us to grant stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards to employees, non-employee directors and certain consultants and advisors. There were up to 4,800,000 shares of our common stock initially reserved for issuance pursuant to the 2016 Plan. The 2016 Plan provides that the number of shares reserved and available for issuance under the 2016 Plan will automatically increase annually on January 1 of each calendar year, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the lesser of: (a) 5% of the number of common shares of stock outstanding as of December 31 of the immediately preceding calendar year, or (b) 2,500,000 shares; provided, however, that our Board of Directors may determine that any annual increase be a lesser number. In addition, all awards granted under our 2007 Omnibus Stock Plan and our 2003 Stock Option Plan that were outstanding when the 2016 Plan became effective and that are forfeited, expire, are cancelled, are settled for cash or otherwise not issued, will become available for issuance under the 2016 Plan. Pursuant to the automatic increase feature of the 2016 Plan, 972,591 and 952,697 shares were added as available for issuance thereunder on January 1, 2021 and 2020, respectively. Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022. As of December 31, 2021, 6,314,849 shares were available for future grant pursuant to the 2016 Plan.

Upon adoption and approval of the 2016 Plan, all of our previous equity incentive compensation plans were terminated. However, existing awards under those plans continue to vest in accordance with the original vesting schedules and will expire at the end of their original terms.

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


		2020
Expected term		4.5 years
Expected volatility		45.39%
Risk-free interest rate		0.4%
Expected dividend yield		0%
Fair value on the date of grant		$13.60 - $14.70

We recorded total stock-based compensation expense of $10.2 million, $10.7 million and $9.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. This expense was allocated as follows:


	Year Ended
	December 31,
(In thousands)	2021		2020		2019
Cost of revenue	$	433	$	539	$	329
Sales and marketing expenses		4,069		5,058		4,331
Research and development expenses		314		360		372
Reimbursement, general and administrative expenses		5,357		4,732		4,792
Total stock-based compensation expense	$	10,173	$	10,689	$	9,824

Total stock-based compensation expense includes a modification of share-based awards held by a former executive resulting in a charge of $0.2 million for the year ended December 31, 2019. At December 31, 2019, there was no remaining unrecognized pre-tax compensation expense related to this modification.

Stock Options

Stock options issued to participants other than non-employees typically vest over three or four years and typically have a contractual term of seven or ten years. Stock-based compensation expense included in our Consolidated Statements of Operations for stock options was $4.3 million, $4.0 million and $2.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. The total grant date fair value of options vested during the year was $4.3 million, $3.0 million and $2.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

At December 31, 2021, there was approximately $5.2 million of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.7 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, other than options that have a market-based vesting condition, which are valued using the Monte Carlo Simulation model. Annually, we make predictive assumptions regarding future stock price volatility, dividend yield, expected term and forfeiture rate. The dividend yield assumption is based on expected annual dividend yield on the grant date. To date, no dividend on common stock has been paid by us. Expected volatility for grants issued in and prior to the first fiscal quarter of 2021 was estimated using the average historical volatility of public companies of similar size and industry over a similar period as the expected term assumption used for our options. Beginning in the second fiscal quarter of 2021, we had sufficient historical data to transition to utilizing our average historical volatility over a similar period as the expected term assumption used for our options as the expected volatility. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group. We use the “simplified method” to determine the expected term of the stock option grants. We utilize this method because we do not have sufficient public company exercise data in which to make a reasonable estimate.

The following table sets forth the estimated fair values of our stock options granted in each of the years indicated, and the assumptions on which the fair values were determined:


	2021	2020	2019
Expected term	4.5 years	4.5 years	4 - 6 years
Expected volatility	45.0 - 52.3%	44.1 - 46.4%	43.2 - 44.6%
Risk-free interest rate	0.6 - 1.1%	0.2 - 0.9%	1.6 - 2.6%
Expected dividend yield	0%	0%	0%
Fair value on the date of grant	$13.04 - $22.90	$13.45 - $18.64	$19.57 - $33.12

Our stock option activity for the three years ended December 31, 2021, 2020 and 2019, was as follows:


		Weighted-		Weighted-
		Average		Average	Aggregate
	Options	Exercise Price		Remaining	Intrinsic
(In thousands except options and per share data)	Outstanding	Per Share ⁽¹⁾		Contractual Life	Value ⁽²⁾
Balance at December 31, 2018	1,076,535	$	17.94	6.5 years	$	31,172
Granted	189,076	$	59.52
Exercised	(321,806)	$	8.81		$	16,026
Forfeited	(76,322)	$	36.50
Cancelled/Expired	(528)	$	19.64
Balance at December 31, 2019	866,955	$	28.76	6.3 years	$	33,957
Granted	378,695	$	44.84
Exercised	(147,741)	$	7.24		$	6,540
Forfeited	(54,824)	$	50.25
Cancelled/Expired	(3,376)	$	63.61
Balance at December 31, 2020	1,039,709	$	36.43	5.6 years	$	13,381
Granted	188,748	$	49.33
Exercised	(175,516)	$	22.65		$	4,901
Forfeited	(92,773)	$	49.77
Cancelled/Expired	(44,944)	$	57.78
Balance at December 31, 2021	915,224	$	39.33	5.0 years	$	2,068

Options exercisable at December 31, 2021	517,316	$	32.60	4.4 years	$	2,068

(1)	The exercise price of each option granted during the periods shown was equal to the market price of the underlying stock on the date of grant.

(2)

The aggregate intrinsic value of options exercised represents the difference between the exercise price of the option and the closing stock price of our common stock on the date of exercise. The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of our common stock on the last trading day of the period.

Options exercisable of 489,866 at December 31, 2020, and 473,222 at December 31, 2019 had weighted average exercise prices of $25.39 and $14.14, respectively.

The following summarizes additional information about our stock options:


	Year Ended
	December 31,
Number of:	2021		2020
Non-vested options, beginning of the year		549,843		393,733
Non-vested options, end of the year		397,908		549,843
Vested options, end of the year		517,316		489,866


	Year Ended
	December 31,
Weighted-average grant date fair value of:	2021		2020
Non-vested options, beginning of the year	$	18.03	$	19.55
Non-vested options, end of the year		18.02		18.03
Vested options, end of the year		13.27		10.67
Forfeited options, during the year		19.26		20.54

Time-Based Restricted Stock Units

We have granted time-based restricted stock units to certain participants under the 2016 Plan that are stock-settled with common shares. Time-based restricted stock units granted under the 2016 Plan vest over

one to three years. Stock-based compensation expense included in our Consolidated Statements of Operations for time-based restricted stock units was $4.9 million, $5.2 million and $4.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, there was approximately $7.8 million of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.0 years.

Our time-based restricted stock unit activity for the years ended December 31, 2021, 2020 and 2019 was as follows:


		Weighted-
		Average Grant		Aggregate
	Units	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value ⁽¹⁾
Balance at December 31, 2018	309,632	$	23.69	$	14,104
Granted	73,920	$	64.82
Vested	(193,339)	$	20.21
Cancelled	(18,526)	$	38.36
Balance at December 31, 2019	171,687	$	43.74	$	11,591
Granted	175,582	$	46.42
Modification	2,288	$	21.85
Vested	(118,014)	$	37.57
Cancelled	(20,074)	$	53.03
Balance at December 31, 2020	211,469	$	48.29	$	9,503
Granted	189,762	$	40.31
Vested	(106,521)	$	47.43
Cancelled	(35,563)	$	51.76
Balance at December 31, 2021	259,147	$	42.32	$	4,932

Deferred and unissued at December 31, 2021⁽²⁾	6,469	$	38.94	$	123

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

(2)

For the year ended December 31, 2021, there were no restricted stock units granted to non-employee directors in lieu of their quarterly cash retainer payments. As of December 31, 2021, there were 6,469 outstanding restricted stock units that had been previously granted to non-employee directors in lieu of their quarterly director retainer payments. These restricted stock units were fully vested upon grant and represent the right to receive one share of common stock, per unit, upon the earlier of the director’s termination of service as a director of ours or the occurrence of a change of control of us. These restricted stock units granted in the years ended December 31, 2020 and December 31, 2019 are included in the “Granted” lines in the table above and are also included in the “Vested” lines in the table above in those years, due to their being fully vested upon grant. These restricted stock units are not included in any of the “Balance” lines in the table above because they are fully vested.

Performance-Based Restricted Stock Units

We have granted performance-based restricted stock units (“PSUs”) to certain participants under the 2016 Plan. These PSUs have both performance-based and time-based vesting features. The PSUs granted in 2018 were earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2019. The PSUs granted in 2019 were earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2020. The PSUs granted in 2020 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2021. The PSUs granted in 2021 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2022. The number of PSUs earned will depend on the level at which the performance targets are achieved and can range from 50% of target if threshold performance is achieved and up to 150% of target if maximum performance is achieved. One-third of the earned PSUs will vest on the date the Compensation and Organization Committee certifies the number of PSUs earned, and the remaining two-thirds of the earned PSUs will vest on the first anniversary of that certification date. All earned and vested PSUs will be settled in shares of common stock.

Stock-based compensation expense included in our Consolidated Statements of Operations for PSUs was $0.2 million, $0.5 million, and $2.3 million for the years ended December 31, 2021, 2020 and 2019,

respectively. The stock-based compensation expense for the year ended December 31, 2021 reflects a $0.5 million benefit due to a change in the estimated payout associated with PSUs granted in 2020 being below the minimum performance target threshold level, as defined, partially offset by an expense of $0.7 million related to the PSUs granted in 2018 and 2021. The stock-based compensation expense for the year ended December 31, 2020 reflects a $1.0 million benefit due to a change in the estimated payout associated with PSUs granted in 2019 being below the minimum performance target threshold level, as defined. As of December 31, 2021, there was approximately $1.2 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.2 years.

Our performance-based restricted stock unit activity at the estimated payout of 100% of target for the years ended December 31, 2021, 2020 and 2019, was as follows:


	Performance-	Weighted-
	Based	Average Grant		Aggregate
	Units	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value ⁽¹⁾
Balance at December 31, 2018	65,427	$	33.62	$	2,980
Granted	25,724	$	72.64
Vested	—	$	—
Cancelled	—	$	—
Balance at December 31, 2019	91,151	$	44.63	$	6,154
Granted	31,731	$	50.41
Vested	(26,204)	$	33.58
Cancelled	(17,375)	$	52.87
Balance at December 31, 2020	79,303	$	47.83	$	3,564
Granted	39,419	$	51.82
Vested	(34,159)	$	33.98
Cancelled	(30,246)	$	64.39
Balance at December 31, 2021	54,317	$	50.22	$	1,034

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

Employee Stock Purchase Plan

Our employee stock purchase plan (“ESPP”), which was approved by our Board of Directors on April 27, 2016, and by our stockholders on June 20, 2016, allows participating employees to purchase shares of our common stock at a discount through payroll deductions. The ESPP is available to all of our employees and employees of participating subsidiaries. Participating employees may purchase common stock, on a voluntary after-tax basis, at a price equal to 85% of the lower of the closing market price per share of our common stock on the first or last trading day of each stock purchase period. The ESPP provides for six-month purchase periods, beginning on May 16 and November 16 of each calendar year.

A total of 1,600,000 shares of common stock was initially reserved for issuance under the ESPP. This share reserve will automatically be supplemented each January 1, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the least of (a) 1% of the shares of our common stock outstanding on the immediately preceding December 31, (b) 500,000 shares or (c) such lesser amount as our Board of Directors may determine. Pursuant to the automatic increase feature of the ESPP, 194,518 and 190,539 shares were added as available for issuance thereunder on January 1, 2021 and 2020, respectively. Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022. As of December 31, 2021, 1,708,760 shares were available for future issuance under the ESPP. We recognized $0.8 million, $0.9 million and $0.9 million in stock-based compensation expense related to the ESPP for the years ended December 31, 2021, 2020 and 2019, respectively.

Revenue

12 Months Ended

Dec. 31, 2021

Revenue.

Revenue

Note 15. Revenue

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


	Year Ended
	December 31,
(In thousands)	2021		2020		2019
Revenue
Flexitouch system	$	176,228	$	163,914	$	171,323
Entre system		26,685		23,216		18,169
AffloVest		5,144		—		—
Total	$	208,057	$	187,130	$	189,492

Percentage of total revenue
Flexitouch system		85%		88%		90%
Entre system		13%		12%		10%
AffloVest		2%		— %		N.M.
Total		100%		100%		100%

Our revenue by channel, inclusive of sales and rental revenue, for the years ended December 31, 2021, 2020 and 2019 are summarized in the following table:


	Year Ended
	December 31,
(In thousands)	2021		2020		2019
Private insurers and other payers	$	141,377	$	132,789	$	136,397
Veterans Administration		25,654		24,485		31,275
Medicare		35,882		29,856		21,820
Durable medical equipment distributors		5,144		—		—
Total	$	208,057	$	187,130	$	189,492

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

Rental agreements initiated subsequent to January 1, 2019, are recorded as sales-type leases in accordance with ASC 842, whereby rental revenue and cost of rental revenue are recognized upon the lease commencement date. In 2019, in accordance with applicable guidance, we continued to recognize rental agreements commencing prior to December 31, 2018, on a month-to-month basis as an operating lease until they were completed. These rental agreements do not have an impact on the revenue results in 2021 and 2020. Total rental revenue for the year ended December 31, 2019, includes both operating and sales-type lease revenue. Operating lease revenue was $5.0 million for the year ended December 31, 2019.

The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Consolidated Balance Sheet. We bill the patients’ insurance payers monthly over the duration of the rental term. We record the net investment in leases and recognize revenue upon commencement of the lease in the amount of the expected consideration to be received through the monthly payments. Similar to our sales revenue, the transaction price is impacted by multiple factors, including the terms and conditions contracted by various third party payers. As the rental contract resides with the patients, we have elected the portfolio approach, at the payer level, to determine the expected consideration, which considers the impact of early terminations. While the contract is with the patient, in certain circumstances, the third party payer elects an initial rental period with an option to extend. We assess

the likelihood of extending the lease at the onset of the lease to determine if the option is reasonably certain to be exercised. As the lease is short-term in nature, we anticipate collection of substantially all of the net investment within the first year of the lease agreement. Completion of these payments represents the fair market value of the equipment, and as such, interest income is not applicable.

Rental revenue for the years ended December 31, 2021, 2020 and 2019, was primarily related to private insurers. Sales-type lease revenue and the associated cost of revenue for the years ended December 31, 2021, 2020 and 2019, was:


	Year Ended December 31,
(In thousands)	2021		2020		2019
Sales-type lease revenue	$	30,143	$	25,633	$	21,570
Cost of sales-type lease revenue		9,622		9,011		7,510
Gross profit	$	20,521	$	16,622	$	14,060

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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+ Details

Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

Note 16. Income Taxes

The provision (benefit) for income tax expense consisted of the following:


	Year Ended December 31,
(In thousands)	2021		2020		2019
Current income taxes, Federal	$	(1,274)	$	(653)	$	205
Current income taxes, State		214		294		100
		(1,060)		(359)		305

Deferred income taxes, Federal		7,874		(833)		(303)
Deferred income taxes, State		2,356		(395)		153
		10,230		(1,228)		(150)

Unrecognized tax benefit, Federal		348		—		—
Unrecognized tax benefit, State		—		(54)		3
		348		(54)		3

Total provision (benefit) for income taxes	$	9,518	$	(1,641)	$	158

The components of our deferred tax assets and liabilities were as follows:


	At December 31,
(In thousands)	2021		2020
Deferred tax assets:
Operating lease liability	$	6,490	$	5,329
Net operating loss carryforwards		671		312
Accounts receivable and inventory reserves		4,658		3,887
Stock-based compensation		3,777		3,558
Accrued liabilities		1,104		1,489
Warranty reserves		1,245		1,206
Intangible assets		579		612
Business credits		682		—
Other		199		107
Total deferred tax assets		19,405		16,500

Deferred tax liabilities:
Right-of-use asset		(6,019)		(5,016)
Fixed assets		(914)		(1,286)
Prepaid expenses		(378)		—
Other		(87)		—
Total deferred tax liabilities		(7,398)		(6,302)

Valuation allowance		(12,039)		—

Net deferred tax assets	$	(32)	$	10,198

A reconciliation of income tax (benefit) expense to the statutory federal tax rate is as follows:


	Year Ended December 31,
	2021		2020		2019
Tax expense at statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	(1.1)		(7.9)		7.3
Executive compensation	(14.2)		(5.5)		9.1
Meals and entertainment	—		(10.6)		2.6
Incentive stock options	—		(0.4)		0.2
Employee Stock Purchase Plan	(7.5)		(8.6)		1.7
Federal business credits	10.9		—		—
Valuation allowance	(525.0)		8.0		1.7
Return to provision	(6.5)		3.6		(0.4)
Research and development credits	60.2		—		—
IRS exam	—		2.5		—
Deferred reprice - state	3.3		—		(0.1)
Federal carryback claim deferred rate differential	—		38.5		—
Unrecognized tax benefits	(2.2)		2.3		—
Excess benefit on non-qualified stock options and RSUs	47.2		28.0		(41.5)
Interest and penalties	(0.7)		1.9		(0.2)
Other	(0.5)		(0.2)		—
Net effective rate	(415.1)	%	72.6	%	1.4	%

A reconciliation of unrecognized tax benefits (“UTB”) is as follows:


	December 31,
(In thousands)	2021		2020		2019
Balance beginning of the year	$	—	$	54	$	51
Gross change — tax positions in prior year		522		(54)		3
Balance end of the year	$	522	$	—	$	54

Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods used for income tax purposes including depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable, and inventory reserves.

As of December 31, 2021, the Company had approximately $0.7 million of state net operating loss ("NOL") carryforwards. The state NOL carryforward amounts expire beginning in tax years 2026 if not utilized.

The Company is subject to income tax examinations in the U.S. federal jurisdiction as well as in various state jurisdictions. U.S. federal and state tax years prior to 2018 are closed to examination. We are currently under examination by the New York State Department of Taxation and Finance for tax years 2017-2019. This examination may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense on our Consolidated Statement of Operations.

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

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. Based on this evaluation, as of December 31, 2021, a valuation allowance of $12.0 million was recorded to recognize only the residual portion of the existing deferred tax asset that is more likely than not to be realized and which comprises the assets that will not be offset by the reversal of deferred tax liabilities. The amount of the deferred tax asset considered realizable which will be offset by reversing deferred tax liabilities, however, could be adjusted in the future if estimates of taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
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-URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

+ Details

Net (Loss) Income Per Common Share

12 Months Ended

Dec. 31, 2021

Net (Loss) Income Per Common Share.

Net (Loss) Income Per Common Share

Note 17. Net (Loss) Income Per Common Share

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


	Year Ended
	December 31,
(In thousands, except share and per share data)	2021		2020		2019
Net (loss) income	$	(11,811)	$	(620)	$	10,971
Weighted-average shares outstanding		19,719,485		19,346,929		18,919,007
Dilutive effect of stock-based awards		—		—		722,136
Weighted-average shares used to compute diluted net (loss) income per share		19,719,485		19,346,929		19,641,143
Net (loss) income per share - Basic	$	(0.60)	$	(0.03)	$	0.58
Net (loss) income per share - Diluted	$	(0.60)	$	(0.03)	$	0.56

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


	Year Ended
	December 31,
	2021	2020	2019
Restricted stock units	265,616	218,686	38,103
Common stock options	915,224	1,039,709	278,363
Performance stock units	54,317	96,383	25,724
Employee stock purchase plan	34,809	53,205	45,182
Total	1,269,966	1,407,983	387,372

Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Measurements

Fair Value Measurements

Note 18. Fair Value Measurements

We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3). As of December 31, 2021, we no longer had any money market mutual funds.

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


	At December 31, 2021
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Earn-out liability	$	—		—	$	6,200	$	6,200
Total	$	—	$	—	$	6,200	$	6,200

The following provides information regarding fair value measurements for our cash equivalents as of December 31, 2020, according to the three-level fair value hierarchy:


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

There were no transfers within the three-level hierarchy during either of the years ended December 31, 2021 and 2020. A significant transfer is recognized when the inputs used to value a security have been changed, which merits a transfer between the disclosed levels of the valuation hierarchy.

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

The carrying amounts of financial instruments such as cash equivalents, accounts receivable, other assets, accounts payable, accrued expenses and other liabilities approximate their related fair values due to the short-term maturities of these items. Non-financial assets, such as equipment and leasehold improvements, and intangible assets are subject to non-recurring fair value measurements if they are deemed impaired. As of June 30, 2020, we remeasured the value of our intangible assets related to the Airwear wrap product line to their fair value, which was deemed to be $0.

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

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


(In thousands)
Earn-out liability at December 31, 2020	$	—
Addition for acquisition		6,400
Fair value adjustments		(200)
Earn-out liability at December 31, 2021	$	6,200

As of December 31, 2021, the fair value of the earn-out liability totaled $6.2 million, of which $3.0 million was non-current.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Summary of Significant Accounting Policies (Policies)	12 Months Ended
Summary of Significant Accounting Policies (Policies)	Dec. 31, 2021
Summary of Significant Accounting Policies
Basis of Presentation	Our accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. We have reclassified certain prior year amounts to conform to the current year’s presentation. The results for the year ended December 31, 2021, are not necessarily indicative of results to be expected for any future year.
Principles of Consolidation	Principles of Consolidation Our accompanying consolidated financial statements include the accounts of Tactile Systems Technology, Inc. and its wholly owned subsidiary, Swelling Solutions, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Risks and Uncertainties	Risks and Uncertainties Coronavirus (COVID-19) The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during 2020 and the first quarter of 2021. While we saw some level of recovery in the second quarter of 2021, the second half of 2021 was negatively impacted by the prolonged recovery from COVID-19 and increased variant cases during the period, which extended and expanded restricted access to clinics and hospitals and disrupted the recovery in patient visits versus the pre-COVID environment. There are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have. For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time. Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients. We cannot assure you that these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business. We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.
Use of Estimates	Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Coronavirus Aid, Relief, and Economic Security Act	Coronavirus Aid, Relief, and Economic Security Act We may receive cash payments from the government during a public health emergency (PHE). We consider the nature and substance of the government funds received and record the cash payment in accordance with the terms and conditions of the funds. In the year ended December 31, 2020, we received a grant of $1.2 million from the Public Health and Social Services Emergency Fund (Relief Fund), which was among the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law on March 27, 2020. During the year ended December 31, 2020, we recorded $1.2 million in other income, which was associated with lost revenues from the COVID-19 PHE incurred in the period based on our interpretation of guidance issued by the Department of Health and Human Services through January 2021.
Comprehensive Income (Loss)	Comprehensive Income (Loss) Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income (loss) represents net income (loss) adjusted for unrealized gains and losses on available-for-sale marketable securities and the related taxes.
Cash and Cash Equivalents	Cash and Cash Equivalents Cash and cash equivalents consist of all cash on hand, deposits and funds invested in available-for-sale securities with original maturities of three months or less at the time of purchase. Our cash was held primarily in checking accounts as of December 31, 2021, compared to money market and checking accounts as of December 31, 2020. At times the amount of cash on deposit may exceed the federally insured limit of the bank. Deposit accounts at each of the institutions are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). At December 31, 2021 and 2020, the Company exceeded FDIC limits at various institutions. The Company has not experienced any losses in such accounts and believes there is little to no exposure to any significant credit risk.
Marketable Securities and Equity Investments	Marketable Securities and Equity Investments We determine the appropriate classification of our marketable securities as available-for-sale or held-to-maturity at the time of purchase and periodically reevaluate such classification. Debt securities are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity. Debt securities for which we do not have the intent or ability to hold to maturity are classified as available-for-sale. Debt securities not classified as held-to-maturity are classified as available-for-sale and are reported at fair value, with unrealized gains and losses included in the determination of comprehensive income (loss), a component of stockholders' equity. We review our available-for-sale securities for impairment to determine if the impairment is temporary or other-than-temporary. A temporary impairment charge results in an unrealized loss being recorded in other comprehensive income (loss). Other-than-temporary impairments are recorded in net income (loss) in the period the impairment is determined to be other-than-temporary. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method. Equity investments (including equity securities) with readily determinable fair value are reported at fair value, with unrealized gains and losses included in the determination of net income (loss). For equity investments with no readily determinable fair value, we measure these investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Such observable price changes may include instances where the investee issues equity securities to new investors, thus creating a new indicator of fair value, as an example. As of each of December 31, 2021 and 2020, the total carrying value of our equity investments, with no readily determinable fair value, were $0.3 million, and are included in other non-current assets on our Consolidated Balance Sheets. On an annual basis, we perform a qualitative assessment considering impairment indicators to evaluate whether these investments are impaired and also monitor for any observable price changes. During the years ended December 31, 2021 and 2020, we did not have any impairment loss on these investments.
Accounts Receivable	Accounts Receivable The majority of our accounts receivable and revenue are from commercial insurance payers and government payers, such as Medicare, the Veterans Administration and Medicaid. Accounts receivable are recorded based on management’s assessment of the expected consideration to be received, based on a detailed review of historical pricing adjustments and collections. Management relies on the results of the assessment, which includes payment history of the applicable payer as well as historical patient collections, as a primary source of information in estimating the collectability of our accounts receivable. We update our assessment on a quarterly basis, which to date has not resulted in any material adjustments to the valuation of our accounts receivable. We believe the assessment provides reasonable estimates of our accounts receivable valuation, and therefore we believe that substantially all accounts receivable are fully collectible. A portion of our claims to Medicare are initially denied and enter the appeals process, where many are ultimately reviewed by an Administrative Law Judge. After final adjudication of all claims, approximately 90% of the claims submitted are approved (this is on a number of claims, not a dollars claimed, basis across all our products). The appeals process can be lengthy, lasting more than a year in most cases. Accordingly, we classify a portion of our Medicare accounts receivable as non-current based on our experience with Medicare collections.
Inventories	Inventories Inventories are valued at the lower of cost (first-in, first-out method) or net realizable value.
Property and Equipment	Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of three to seven years. Leasehold improvements are depreciated over the remaining life of the respective building lease agreement. Major expenditures for property and equipment are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accumulated depreciation accounts and the resulting gains or losses are included in income. The value of demonstration equipment in the possession of our field sales representatives is capitalized and depreciated over the estimated useful life of the equipment.
Revenue Recognition	Revenue Recognition We derive revenue from the sales and rentals of our Flexitouch and Entre systems, and from the sales of our AffloVest. Flexitouch and Entre 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. In general, revenue from the sale or rental of a product is recognized upon shipment, unless circumstances dictate that control has not yet passed to the customer. We provide a warranty for these products against defects in material and workmanship for a period of one to five years on garments and one to two years on controllers. In accordance with applicable accounting guidance, we have determined these were assurance warranties and therefore not considered a performance obligation. In addition, we did not evaluate immaterial promised goods or services in the context of the contract. As a result, the sale or rental of these products represent a single performance obligation that is satisfied at a point in time and is short-term in nature. In certain cases, we receive payment from Medicare sales over a period of time that may exceed one year. Despite these extended payment terms, no significant financing component is deemed to exist as the terms are not for the benefit of the patient with whom we have the contract. Rather, the extended payment terms occur as a result of an initial claim denial, which subsequently enters the Medicare appeals process as noted below. We commercially distribute these products directly to patients who are referred to us by physicians, therapists or nurses. In most cases, there is a third-party payer, such as a commercial insurer, Medicare or the Veterans Administration involved with the transaction. Our contractual relationship resides with the patient when the third-party payer is either a commercial insurer or Medicare and with the Veterans Administration if the patient is covered under their services. Revenue is recognized from such sales upon transfer of control of the product to the customer at a transaction price determined by collection history. As a result, the transaction price is impacted by multiple factors, including the terms and conditions contracted by various third-party payers, and therefore payments from third-party payers typically are less than our standard charge and represent an implicit price concession, resulting in variable consideration. As most contracts are with each individual sale to a patient, we have elected the portfolio approach to determine the transaction price, and ultimately the expected consideration. The portfolios used to determine transaction price are at the payer level, with pricing for each payer assessed based on the underlying similar characteristics. For any of our products sold to patients covered by private payers, such as commercial insurance companies, revenue is recognized upon shipment. A product is not shipped until we have received a prescription from a physician for our products and, as applicable, receipt of prior authorization from payers. At shipment, we invoice the payer for the total product price, and we recognize revenue in the amount of cash consideration anticipated to be received based on the transaction price. After the insurance payer has remitted payment, we separately invoice the patient for their portion of the payment obligation, such as copayments and deductibles. The transaction price is determined based on the payment history of the applicable payer drawn from actual write-off and collections experience from the payer over a rolling 12-month period, as well as historical patient collections. For our products sold to Medicare patients, we recognize revenue from such sales upon shipment of our products, which can occur only after we have received a prescription from a physician and all applicable patient documentation is obtained. The transaction price for our Entre systems is determined based on the payment history using the same methodology as our private insurers. A portion of our claims for our Flexitouch system are initially denied, and enter the appeals process, which can be lengthy. We assess the variable consideration for each of these claims as a percentage of the total invoice price based on ultimate approval and collection history. For our products sold to the Veterans Administration on behalf of the patient, our contract is with the Veterans Administration rather than the patient. We enter into individual sales contracts with the Veterans Administration on behalf of each patient. These contracts determine the amount of consideration, which is typically paid in full within 2-3 days of shipment, and therefore there is no implicit price concession. In addition, the contracts provide for the right of control to transfer to the Veterans Administration upon delivery of the product to the patient, at which time revenue is recognized. We incur incremental costs that directly relate to the sales of our products; however, as the amortization period would be less than one year, we have elected the practical expedient to expense these costs as incurred. We sell and rent these products either directly to patients or the Veterans Administration on behalf of patients, who are referred to us by physicians, therapists or nurses. We bill private insurers and other payers, Medicare, and the Veterans Administration directly for purchases or rentals of our product on behalf of a patient and bill patients directly for their cost-sharing amounts, including any portion of an unsatisfied deductible and any copayments or co-insurance obligation. A portion of our revenue is derived from patients who obtain our products under multiple-month rental arrangements. We bill these patients’ insurance payers monthly over the duration of the rental term. Title to these products passes to the patients at the end of the rental period. Patients may return the product before the end of the rental period, and as such these arrangements are deemed to be month-to-month cancelable leases in accordance with Accounting Standards Codification (“ASC”) 840, “Leases,” if they commenced prior to December 31, 2018. Accordingly, we recognized the related revenue for these rental arrangements monthly, on a pro rata basis, over the lesser of the duration of the rental period or the period during which the patient possesses the product. Rental agreements commencing after January 1, 2019, are recorded as sales-type leases in accordance with Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842) (“ASC 842”). Accordingly, as sales-type leases, the transaction price for the entire rental term is recognized upon transfer of control. We elected the practical expedient to not reassess the lease classification for leases in existence at December 31, 2018. AffloVest The AffloVest device is sold through durable medical equipment providers. Revenue is recognized when control of the promised goods or services is transferred to the distributors, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or providing services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the distributor has obtained control of the goods or services, we consider any future performance obligations. Generally, there is no post-shipment obligation on products sold other than warranty obligations in the normal and ordinary course of business. Consequently, revenue from the sale of the AffloVest product is recognized at shipment, unless circumstances dictate that control has not yet passed to the distributor. Certain of our contracts include volume-based incentives which involve rebates that are negotiated at or prior to the time of sale with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase. Under these incentive programs, at the time of sale, we determine the most likely amount of the rebate to be paid based on forecasted sales levels. These forecasts are updated at least quarterly for applicable customers, and the transaction price is reduced for the anticipated cost of the rebate. If the forecasted sales for a customer change, the accrual for rebates is adjusted to reflect the new rebates expected to be earned by the customer. Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in revenue in the accompanying Consolidated Statements of Operations. Shipping and handling costs incurred for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of revenue sold in the accompanying Consolidated Statements of Operations. We provide a warranty for the AffloVest products against defects in material and workmanship for a period of five years. In accordance with applicable accounting guidance, we have determined these were assurance warranties and therefore not considered a performance obligation. In addition, we did not evaluate immaterial promised goods or services in the context of the contract. As a result, the sale of these products represents a single performance obligation that is satisfied at a point in time and is short-term in nature.
Advertising	Advertising Advertising costs are charged to operations when incurred. Advertising expense was $0.1 million for each of the years ended December 31, 2021, 2020 and 2019.
Research and Development Costs	Research and Development Costs We expense research and development costs as incurred, including expenses associated with clinical research studies and development.
Shipping and Handling Costs	Shipping and Handling Costs Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in total revenue in the accompanying Consolidated Statements of Operations. Shipping and handling costs incurred for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of revenue in the accompanying Consolidated Statements of Operations.
Product Warranty	Product Warranty 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. 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.
Impairment of Long-Lived Assets	Impairment of Long-Lived Assets We review long-lived assets, including property and equipment and patents, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. We will assess long-lived assets used in operations for impairment indicators, including when undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount (see Note 9 – “Goodwill and Intangible Assets”).
Goodwill	Goodwill Goodwill represents the excess of the purchase price paid over the estimated fair value of the net assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized, but is tested for impairment at least annually or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We plan to perform our annual assessment of goodwill for impairment as of July 1st of each fiscal year. See Note 9 – “Goodwill and Intangible Assets” for additional information.
Stock-Based Compensation	Stock-Based Compensation Stock options are valued using the Black-Scholes option-pricing model, except that the valuation of certain “CEO” related stock options subject to a market condition involve the use of the Monte Carlo Simulation model. The Monte Carlo Simulation and the Black-Scholes valuation models require the input of highly subjective assumptions. The assumptions include the expected term of the option, the expected volatility of the price of our common stock, expected dividend yield and the risk-free interest rate. These estimates involve inherent uncertainties and the significant application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. We recognize compensation expense for these options on a straight-line basis over the requisite service period (see Note 14 – “Stockholders’ Equity”).
Income Taxes	Income Taxes Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and the tax basis of assets and liabilities. If we determine in the future that it is more likely than not that we will not realize all or a portion of the deferred tax assets, we will record a valuation allowance in the period the determination is made (see Note 16 – “Income Taxes”). Changes in tax rates are reflected in the tax provision as they occur.
Net Income (Loss) Per Common Share	Net (Loss) Income Per Common Share Basic net (loss) income per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per common share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential stock-based awards outstanding during the period using the treasury stock method. Dilutive potential stock-based awards include outstanding common stock options, time- and performance-based restricted stock units and employee stock purchase plan shares.
Business Segments	Business Segments We operate and report in only one operating and reportable segment. Our chief operating decision maker does not use financial information below revenue to allocate resources.
Accounting Pronouncement Not Yet Adopted	Accounting Pronouncement Not Yet Adopted In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), addressing the discontinuation of LIBOR, a widely used reference rate for pricing financial products. The ASU is intended to provide optional expedients and exceptions if certain criteria are met when accounting for contracts, hedging relationships and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The application and adoption requirements of ASU 2020-04 are optional until December 31, 2022 and vary based on expedients elected. We have not elected any expedients to date and are currently evaluating any potential future impacts on the consolidated financial statements.
Recently Adopted Accounting Pronouncements	Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects of the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted ASU 2019-12 as of January 1, 2021, and it did not have an impact on the consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses” (“ASU 2016-13”), which introduced a new model for recognizing credit losses on financial instruments based on an estimate of the current expected credit losses. The new current expected credit losses (“CECL”) model generally calls for the immediate recognition of all expected credit losses and applies to financial instruments and other assets, including accounts receivable and other financial assets measured at amortized cost, debt securities and other financial assets. This guidance replaced the previous incurred loss model for measuring expected credit losses and requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities. We adopted ASU 2016-13 as of January 1, 2020, and it did not have an impact on the consolidated financial statements at that time. In connection with the AffloVest Acquisition, it was determined that CECL did not have a material financial impact on the receivables related to the durable medical equipment channel.

Acquisitions (Tables)

12 Months Ended

Dec. 31, 2021

Acquisitions

Summary of purchase price allocation


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

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

Schedule of allocation of purchase price

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



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

Schedule of condensed consolidated statements of operations reflect AffoVest operations


	Year Ended
	December 31,
(In thousands)	2021		2020
Total revenue	$	219,414	$	203,193
Net (loss) income	$	(7,633)	$	11,832

Inventories (Tables)

12 Months Ended

Dec. 31, 2021

Inventories

Schedule of inventories


	At December 31,
(In thousands)	2021		2020
Finished goods	$	8,242	$	7,129
Component parts and work-in-process		10,975		11,434
Total inventories	$	19,217	$	18,563

Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2021

Property and Equipment

Schedule of components of property and equipment


	At December 31,
(In thousands)	2021		2020
Equipment	$	8,051	$	6,909
Tooling		2,545		2,774
Furniture and fixtures		2,104		1,958
Leasehold improvements		1,458		1,282
Construction in progress		1,003		778
Demonstration equipment		632		632
Subtotal		15,793		14,333
Less: accumulated depreciation		(9,043)		(7,376)
Property and equipment, net	$	6,750	$	6,957

Goodwill and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets.

Schedule of finite lived intangible assets


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


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

Schedule of future amortization expense


(In thousands)
2022	$	3,818
2023		3,787
2024		3,766
2025		3,676
2026		3,612
Thereafter		25,357
Total	$	44,016

Accrued Expenses (Tables)

12 Months Ended

Dec. 31, 2021

Accrued Expenses

Schedule of Accrued Expenses


	At December 31,
(In thousands)	2021		2020
Warranty	$	1,851	$	1,606
Legal and consulting		1,371		882
Travel		661		545
In-transit inventory		416		634
Clinical studies		113		67
Sales and use tax		106		193
Other		744		496
Total	$	5,262	$	4,423

Warranty Reserves (Tables)

12 Months Ended

Dec. 31, 2021

Warranty Reserves

Schedule of warranty reserves


	Year Ended
	December 31,
(In thousands)	2021		2020
Beginning balance	$	4,841	$	3,759
Warranty provision		2,606		2,957
Processed warranty claims		(2,488)		(1,875)
Ending balance	$	4,959	$	4,841

Accrued warranty reserve, current	$	1,851	$	1,606
Accrued warranty reserve, non-current		3,108		3,235
Total accrued warranty reserve	$	4,959	$	4,841

Credit Agreement (Tables)

12 Months Ended

Dec. 31, 2021

Credit Agreement

Schedule of maturities of the term note payable


(In thousands)	Amount
2022	$	3,000
2023		3,000
2024		24,000
Total	$	30,000

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies

Summary of lease-related assets and liabilities


(In thousands)	At December 31, 2021		At December 31, 2020
Right of use operating lease assets	$	23,984	$	20,132

Operating lease liabilities:
Current	$	2,506	$	2,006
Non-current		23,354		19,388
Total	$	25,860	$	21,394

Operating leases:
Weighted average remaining lease term		8.6 years		9.4 years
Weighted average discount rate		4.2%		4.4%

	Year Ended December 31,
	2021		2020
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	3,379	$	2,646
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	6,920	$	6,789

Summary of undiscounted cash flows


(In thousands)
2022	$	3,549
2023		3,420
2024		3,414
2025		3,516
2026		3,615
Thereafter		13,249
Total minimum lease payments		30,763
Less: Amount of lease payments representing interest		(4,903)
Present value of future minimum lease payments		25,860
Less: Current obligations under operating lease liabilities		(2,506)
Non-current obligations under operating lease liabilities	$	23,354

Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of allocation of total stock-based compensation expense


	Year Ended
	December 31,
(In thousands)	2021		2020		2019
Cost of revenue	$	433	$	539	$	329
Sales and marketing expenses		4,069		5,058		4,331
Research and development expenses		314		360		372
Reimbursement, general and administrative expenses		5,357		4,732		4,792
Total stock-based compensation expense	$	10,173	$	10,689	$	9,824

Schedule of estimated fair values and assumptions for stock options granted


		2020
Expected term		4.5 years
Expected volatility		45.39%
Risk-free interest rate		0.4%
Expected dividend yield		0%
Fair value on the date of grant		$13.60 - $14.70


	2021	2020	2019
Expected term	4.5 years	4.5 years	4 - 6 years
Expected volatility	45.0 - 52.3%	44.1 - 46.4%	43.2 - 44.6%
Risk-free interest rate	0.6 - 1.1%	0.2 - 0.9%	1.6 - 2.6%
Expected dividend yield	0%	0%	0%
Fair value on the date of grant	$13.04 - $22.90	$13.45 - $18.64	$19.57 - $33.12

Schedule of stock option activity


		Weighted-		Weighted-
		Average		Average	Aggregate
	Options	Exercise Price		Remaining	Intrinsic
(In thousands except options and per share data)	Outstanding	Per Share ⁽¹⁾		Contractual Life	Value ⁽²⁾
Balance at December 31, 2018	1,076,535	$	17.94	6.5 years	$	31,172
Granted	189,076	$	59.52
Exercised	(321,806)	$	8.81		$	16,026
Forfeited	(76,322)	$	36.50
Cancelled/Expired	(528)	$	19.64
Balance at December 31, 2019	866,955	$	28.76	6.3 years	$	33,957
Granted	378,695	$	44.84
Exercised	(147,741)	$	7.24		$	6,540
Forfeited	(54,824)	$	50.25
Cancelled/Expired	(3,376)	$	63.61
Balance at December 31, 2020	1,039,709	$	36.43	5.6 years	$	13,381
Granted	188,748	$	49.33
Exercised	(175,516)	$	22.65		$	4,901
Forfeited	(92,773)	$	49.77
Cancelled/Expired	(44,944)	$	57.78
Balance at December 31, 2021	915,224	$	39.33	5.0 years	$	2,068

Options exercisable at December 31, 2021	517,316	$	32.60	4.4 years	$	2,068

(1)	The exercise price of each option granted during the periods shown was equal to the market price of the underlying stock on the date of grant.

(2)

Schedule of Nonvested Share Activity


	Year Ended
	December 31,
Number of:	2021		2020
Non-vested options, beginning of the year		549,843		393,733
Non-vested options, end of the year		397,908		549,843
Vested options, end of the year		517,316		489,866


	Year Ended
	December 31,
Weighted-average grant date fair value of:	2021		2020
Non-vested options, beginning of the year	$	18.03	$	19.55
Non-vested options, end of the year		18.02		18.03
Vested options, end of the year		13.27		10.67
Forfeited options, during the year		19.26		20.54

Time-Based Restricted Stock Units

Schedule of stock-settled restricted stock unit activity


		Weighted-
		Average Grant		Aggregate
	Units	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value ⁽¹⁾
Balance at December 31, 2018	309,632	$	23.69	$	14,104
Granted	73,920	$	64.82
Vested	(193,339)	$	20.21
Cancelled	(18,526)	$	38.36
Balance at December 31, 2019	171,687	$	43.74	$	11,591
Granted	175,582	$	46.42
Modification	2,288	$	21.85
Vested	(118,014)	$	37.57
Cancelled	(20,074)	$	53.03
Balance at December 31, 2020	211,469	$	48.29	$	9,503
Granted	189,762	$	40.31
Vested	(106,521)	$	47.43
Cancelled	(35,563)	$	51.76
Balance at December 31, 2021	259,147	$	42.32	$	4,932

Deferred and unissued at December 31, 2021⁽²⁾	6,469	$	38.94	$	123

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

(2)

Performance-based stock-settled restricted stock units

Schedule of stock-settled restricted stock unit activity


	Performance-	Weighted-
	Based	Average Grant		Aggregate
	Units	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value ⁽¹⁾
Balance at December 31, 2018	65,427	$	33.62	$	2,980
Granted	25,724	$	72.64
Vested	—	$	—
Cancelled	—	$	—
Balance at December 31, 2019	91,151	$	44.63	$	6,154
Granted	31,731	$	50.41
Vested	(26,204)	$	33.58
Cancelled	(17,375)	$	52.87
Balance at December 31, 2020	79,303	$	47.83	$	3,564
Granted	39,419	$	51.82
Vested	(34,159)	$	33.98
Cancelled	(30,246)	$	64.39
Balance at December 31, 2021	54,317	$	50.22	$	1,034

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

Revenue (Tables)

12 Months Ended

Dec. 31, 2021

Revenue.

Summary of revenue disaggregated by product


	Year Ended
	December 31,
(In thousands)	2021		2020		2019
Revenue
Flexitouch system	$	176,228	$	163,914	$	171,323
Entre system		26,685		23,216		18,169
AffloVest		5,144		—		—
Total	$	208,057	$	187,130	$	189,492

Percentage of total revenue
Flexitouch system		85%		88%		90%
Entre system		13%		12%		10%
AffloVest		2%		— %		N.M.
Total		100%		100%		100%

Summary of revenue by channel


	Year Ended
	December 31,
(In thousands)	2021		2020		2019
Private insurers and other payers	$	141,377	$	132,789	$	136,397
Veterans Administration		25,654		24,485		31,275
Medicare		35,882		29,856		21,820
Durable medical equipment distributors		5,144		—		—
Total	$	208,057	$	187,130	$	189,492

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


	Year Ended December 31,
(In thousands)	2021		2020		2019
Sales-type lease revenue	$	30,143	$	25,633	$	21,570
Cost of sales-type lease revenue		9,622		9,011		7,510
Gross profit	$	20,521	$	16,622	$	14,060

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2021

Income Taxes

Schedule of provision (benefit) for income tax expense


	Year Ended December 31,
(In thousands)	2021		2020		2019
Current income taxes, Federal	$	(1,274)	$	(653)	$	205
Current income taxes, State		214		294		100
		(1,060)		(359)		305

Deferred income taxes, Federal		7,874		(833)		(303)
Deferred income taxes, State		2,356		(395)		153
		10,230		(1,228)		(150)

Unrecognized tax benefit, Federal		348		—		—
Unrecognized tax benefit, State		—		(54)		3
		348		(54)		3

Total provision (benefit) for income taxes	$	9,518	$	(1,641)	$	158

Schedule of components of the Company's deferred tax assets


	At December 31,
(In thousands)	2021		2020
Deferred tax assets:
Operating lease liability	$	6,490	$	5,329
Net operating loss carryforwards		671		312
Accounts receivable and inventory reserves		4,658		3,887
Stock-based compensation		3,777		3,558
Accrued liabilities		1,104		1,489
Warranty reserves		1,245		1,206
Intangible assets		579		612
Business credits		682		—
Other		199		107
Total deferred tax assets		19,405		16,500

Deferred tax liabilities:
Right-of-use asset		(6,019)		(5,016)
Fixed assets		(914)		(1,286)
Prepaid expenses		(378)		—
Other		(87)		—
Total deferred tax liabilities		(7,398)		(6,302)

Valuation allowance		(12,039)		—

Net deferred tax assets	$	(32)	$	10,198

Schedule of reconciliation of income tax expense (benefit)


	Year Ended December 31,
	2021		2020		2019
Tax expense at statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	(1.1)		(7.9)		7.3
Executive compensation	(14.2)		(5.5)		9.1
Meals and entertainment	—		(10.6)		2.6
Incentive stock options	—		(0.4)		0.2
Employee Stock Purchase Plan	(7.5)		(8.6)		1.7
Federal business credits	10.9		—		—
Valuation allowance	(525.0)		8.0		1.7
Return to provision	(6.5)		3.6		(0.4)
Research and development credits	60.2		—		—
IRS exam	—		2.5		—
Deferred reprice - state	3.3		—		(0.1)
Federal carryback claim deferred rate differential	—		38.5		—
Unrecognized tax benefits	(2.2)		2.3		—
Excess benefit on non-qualified stock options and RSUs	47.2		28.0		(41.5)
Interest and penalties	(0.7)		1.9		(0.2)
Other	(0.5)		(0.2)		—
Net effective rate	(415.1)	%	72.6	%	1.4	%

Schedule of unrecognized tax benefits ("UTB")


	December 31,
(In thousands)	2021		2020		2019
Balance beginning of the year	$	—	$	54	$	51
Gross change — tax positions in prior year		522		(54)		3
Balance end of the year	$	522	$	—	$	54

Net (Loss) Income Per Common Share (Tables)

12 Months Ended

Dec. 31, 2021

Net (Loss) Income Per Common Share.

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


	Year Ended
	December 31,
(In thousands, except share and per share data)	2021		2020		2019
Net (loss) income	$	(11,811)	$	(620)	$	10,971
Weighted-average shares outstanding		19,719,485		19,346,929		18,919,007
Dilutive effect of stock-based awards		—		—		722,136
Weighted-average shares used to compute diluted net (loss) income per share		19,719,485		19,346,929		19,641,143
Net (loss) income per share - Basic	$	(0.60)	$	(0.03)	$	0.58
Net (loss) income per share - Diluted	$	(0.60)	$	(0.03)	$	0.56

Schedule of potentially dilutive securities outstanding


	Year Ended
	December 31,
	2021	2020	2019
Restricted stock units	265,616	218,686	38,103
Common stock options	915,224	1,039,709	278,363
Performance stock units	54,317	96,383	25,724
Employee stock purchase plan	34,809	53,205	45,182
Total	1,269,966	1,407,983	387,372

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2021

Fair Value Measurements

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


	At December 31, 2021
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Earn-out liability	$	—		—	$	6,200	$	6,200
Total	$	—	$	—	$	6,200	$	6,200

The following provides information regarding fair value measurements for our cash equivalents as of December 31, 2020, according to the three-level fair value hierarchy:


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

Schedule of changes in the earn-out liability


(In thousands)
Earn-out liability at December 31, 2020	$	—
Addition for acquisition		6,400
Fair value adjustments		(200)
Earn-out liability at December 31, 2021	$	6,200

Basis of presentation (Details) $ in Millions	12 Months Ended
Basis of presentation (Details) $ in Millions	Dec. 31, 2020 USD ($)
Proceeds from grant from relief fund	$ 1.2
Other income
Grant income from relief funds	$ 1.2

Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Equity Securities
Equity security without readily determinable fair value	$ 300
Accounts Receivable
Percentage of claims	90.00%
Revenue Recognition
Medicare receivables period of time	1 year
Revenue for practical expedient	true
Advertising
Advertising Expense	$ 100	$ 100	$ 100
Recent Accounting Pronouncements
Lease practical expedients package	true
Right of Use assets	$ 23,984	20,132
Lease liabilities	$ 25,860	$ 21,394
Minimum
Property and Equipment
Useful life	3 years
Revenue Recognition
Period for consideration payment after shipment date	2 days
Maximum
Property and Equipment
Useful life	7 years
Revenue Recognition
Period for consideration payment after shipment date	3 days
Garments \| Minimum
Product Warranty
Product Warranty	1 year
Garments \| Maximum
Product Warranty
Product Warranty	5 years
Controllers \| Minimum
Product Warranty
Product Warranty	1 year
Controllers \| Maximum
Product Warranty
Product Warranty	2 years
AffloVest
Product Warranty
Product Warranty	5 years

Summary of Significant Accounting Policies - Segment (Details)	12 Months Ended
	Dec. 31, 2021 segment
Summary of Significant Accounting Policies
Number of operating segment	1
Number of reportable segment	1

Acquisitions (Details) $ in Thousands		12 Months Ended
Acquisitions (Details) $ in Thousands	Sep. 08, 2021 USD ($) payment	Dec. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Acquisitions
Earn-out liability fair value	$ 6,400	$ 6,400
Property, plant and equipment		$ 6,750	$ 6,957
Reimbursement, general and administrative
Acquisitions
Transaction costs	800
AffloVest APA
Acquisitions
Purchase price	80,000
Escrow account	500
Working capital adjustments	$ 200
Number of earnout payments \| payment	2
Threshold earnout payments	$ 10,000
AffloVest APA \| Earn-out period exceed Base Revenues from October 1, 2021 to September 30, 2022
Acquisitions
Threshold earnout payments	$ 10,000
Business revenue to exceed base revenue, Multiplier	1.5
AffloVest APA \| Earn-out period exceed Base Revenues from October 1, 2022 to September 30, 2023
Acquisitions
Threshold earnout payments	$ 10,000
Business revenue to exceed base revenue, Multiplier	1.5
AffloVest APA \| Maximum
Acquisitions
Total consideration transferred	$ 100,000
Property, plant and equipment	$ 100

Acquisitions - Purchase Price Allocation (Details) - USD ($) $ in Thousands	Sep. 08, 2021	Dec. 31, 2021	Sep. 30, 2021	Dec. 31, 2020
Purchase price allocation
Inventories		$ 19,217		$ 18,563
Property, plant and equipment		6,750		6,957
Intangible assets	$ 53,500	54,081		1,680
Goodwill		31,063
Property and equipment, net		$ 6,750		$ 6,957
Amortization period for tax purposes	15 years
AffloVest APA
Purchase price allocation
Inventories	$ 1,600
Intangible assets	53,500
Goodwill	31,100		$ 31,100
Purchase price	86,200
AffloVest APA \| Maximum
Purchase price allocation
Property, plant and equipment	100
Property and equipment, net	$ 100

Acquisitions - Allocation of Purchase Price (Details) - USD ($) $ in Thousands	Sep. 08, 2021	Dec. 31, 2021	Dec. 31, 2020
Acquisitions
Finite lived intangible assets, Allocated Fair Value		$ 44,016	$ 1,114
Indefinite lived intangible assets excluding goodwill, Allocated fair value		55,981	2,229
Total intangible assets (Net)	$ 53,500	54,081	$ 1,680
Weighted average amortization period	12 years 3 months 18 days
AffloVest APA
Acquisitions
Total intangible assets (Net)	$ 53,500
Customer relationships
Acquisitions
Finite lived intangible assets, Allocated Fair Value	$ 31,000	30,258
Estimated Useful Life	13 years
Developed technology
Acquisitions
Finite lived intangible assets, Allocated Fair Value	$ 13,000	$ 12,632
Estimated Useful Life	11 years
Tradenames
Acquisitions
Indefinite lived intangible assets excluding goodwill, Allocated fair value	$ 9,500

Acquisitions - Consolidated Statements of Operations Reflect AffloVest Operations (Details) - AffloVest APA - USD ($) $ in Thousands	9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Asset Acquisition [Line Items]
Total revenue	$ 219,414	$ 203,193
Net (loss) income	$ (7,633)	$ 11,832

Marketable Securities (Details) $ in Thousands	12 Months Ended
Marketable Securities (Details) $ in Thousands	Dec. 31, 2021 USD ($) item	Dec. 31, 2020 USD ($) item
Marketable Securities
Marketable securities	$ 0	$ 0
Net pre-tax unrealized gains for marketable securities	0
Marketable securities sold	$ 0
Number of marketable securities in an unrealized loss position \| item	0	0

Accounts Receivable (Details) - item	12 Months Ended
Accounts Receivable (Details) - item	Dec. 31, 2021	Dec. 31, 2020
Accounts Receivable
Number of insurers	2	2
Insurer One \| Customer Concentration Risk \| Accounts Receivable
Accounts Receivable
Percentage of concentration	33.00%	37.00%
Insurer One \| Customer Concentration Risk \| Revenue
Accounts Receivable
Percentage of concentration	17.00%	16.00%
Insurer Two \| Customer Concentration Risk \| Accounts Receivable
Accounts Receivable
Percentage of concentration	24.00%	22.00%
Insurer Two \| Customer Concentration Risk \| Revenue
Accounts Receivable
Percentage of concentration	12.00%	10.00%

Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Inventories
Finished goods	$ 8,242	$ 7,129
Component parts and work-in-process	10,975	11,434
Total inventories	$ 19,217	$ 18,563

Property and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
Property and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Property and Equipment
Subtotal	$ 15,793	$ 14,333
Less: accumulated depreciation	(9,043)	(7,376)
Property and equipment, net	6,750	6,957
Depreciation expense	2,300	2,400	$ 3,000
Equipment
Property and Equipment
Subtotal	8,051	6,909
Tooling
Property and Equipment
Subtotal	2,545	2,774
Furniture and Fixtures
Property and Equipment
Subtotal	2,104	1,958
Leasehold improvements
Property and Equipment
Subtotal	1,458	1,282
Construction in progress
Property and Equipment
Subtotal	1,003	778
Demonstration equipment
Property and Equipment
Subtotal	$ 632	$ 632

Goodwill And Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2021	Sep. 08, 2021
Patents and Intangibles
Goodwill		$ 31,063
Asset impairment charges			$ 4,025
Definite-lived intangible assets:
Weighted Average Amortization Period		12 years
Gross Carrying Amount		$ 45,916	1,663
Accumulated Amortization		1,900	549
Total		44,016	1,114
Unamortized intangible assets:
Total intangible assets (Gross)		55,981	2,229
Total intangible assets (Net)		54,081	1,680			$ 53,500
Amortization expense		1,400	400	$ 500
Future Amortization
2022		3,818
2023		3,787
2024		3,766
2025		3,676
2026		3,612
Thereafter		25,357
Total		44,016	1,114
Tradenames
Unamortized intangible assets:
Gross Carrying Amount, Indefinite		9,500
Patents
Unamortized intangible assets:
Gross Carrying Amount, Indefinite		$ 565	$ 566
Patents
Definite-lived intangible assets:
Weighted Average Amortization Period		12 years	11 years
Gross Carrying Amount		$ 666	$ 413
Accumulated Amortization		109	65
Total		557	348
Future Amortization
Total		$ 557	$ 348
Defensive intangible assets
Definite-lived intangible assets:
Weighted Average Amortization Period		3 years	4 years
Gross Carrying Amount		$ 1,125	$ 1,125
Accumulated Amortization		592	421
Total		533	704
Future Amortization
Total		$ 533	$ 704
Customer accounts
Definite-lived intangible assets:
Weighted Average Amortization Period		1 year	2 years
Gross Carrying Amount		$ 125	$ 125
Accumulated Amortization		89	63
Total		36	62
Future Amortization
Total		$ 36	$ 62
Customer relationships
Definite-lived intangible assets:
Weighted Average Amortization Period		13 years
Gross Carrying Amount		$ 31,000
Accumulated Amortization		742
Total		30,258				31,000
Future Amortization
Total		$ 30,258				31,000
Developed technology
Definite-lived intangible assets:
Weighted Average Amortization Period		11 years
Gross Carrying Amount		$ 13,000
Accumulated Amortization		368
Total		12,632				13,000
Future Amortization
Total		$ 12,632				13,000
Airwear Product
Patents and Intangibles
Asset impairment charges	$ 4,000
Airwear Product \| Reimbursement, general and administrative
Patents and Intangibles
Intangible assets wrote off	3,600
Airwear Product \| Cost of revenue.
Patents and Intangibles
Inventory wrote off	$ 400
AffloVest APA
Patents and Intangibles
Goodwill					$ 31,100	31,100
Unamortized intangible assets:
Total intangible assets (Net)						$ 53,500

Accrued Expenses (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Accrued Expenses
Warranty	$ 1,851	$ 1,606
Legal and consulting	1,371	882
Travel	661	545
In-transit inventory	416	634
Clinical studies	113	67
Sales and use tax	106	193
Other	744	496
Total	$ 5,262	$ 4,423

Warranty Reserves (Details) - USD ($) $ in Thousands	12 Months Ended
Warranty Reserves (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 4,841	$ 3,759
Warranty provision	2,606	2,957
Processed warranty claims	(2,488)	(1,875)
Ending balance	4,959	4,841
Accrued warranty reserve, current	1,851	1,606
Accrued warranty reserve, non-current	3,108	3,235
Total accrued warranty reserve	$ 4,959	$ 4,841

Credit Agreement (Details) - USD ($)		12 Months Ended
Credit Agreement (Details) - USD ($)	Sep. 08, 2021	Dec. 31, 2021
Credit Agreement
Credit facility outstanding amount	$ 25,000,000.0	$ 24,857,000
Line of credit, threshold contingent increase in borrowing capacity	25,000,000.0
Credit agreement, total aggregate principal amount	80,000,000.0
LIBOR
Credit Agreement
Basis spread (as a percent)		3.50%
Revolving credit facility
Credit Agreement
Line of credit	25,000,000.0
Revolving credit facility \| Federal Funds
Credit Agreement
Basis spread (as a percent)		0.50%
Revolving credit facility \| Base Rate
Credit Agreement
Basis spread (as a percent)		1.00%
Revolving credit facility \| LIBOR
Credit Agreement
Basis spread (as a percent)		2.87%
Revolving credit facility \| Maximum
Credit Agreement
Unused line fee (as a percent)		0.375%
Revolving credit facility \| Maximum \| Base Rate
Credit Agreement
Basis spread (as a percent)		2.25%
Revolving credit facility \| Maximum \| LIBOR
Credit Agreement
Basis spread (as a percent)		3.25%
Revolving credit facility \| Minimum
Credit Agreement
Unused line fee (as a percent)		0.30%
Revolving credit facility \| Minimum \| Base Rate
Credit Agreement
Basis spread (as a percent)		0.75%
Revolving credit facility \| Minimum \| LIBOR
Credit Agreement
Basis spread (as a percent)		1.75%
Term Loan
Credit Agreement
Debt instrument face amount	30,000,000.0
Long-term debt	$ 30,000,000.0	$ 30,000,000
Debt instrument periodic payment		$ 750,000
Debt instrument frequency of periodic payment		quarterly
Principal prepayment of term loan		$ 3,000,000.0

Credit Agreement - Maturities of Debt (Details) - Term Loan - USD ($) $ in Thousands		12 Months Ended
	Feb. 22, 2022	Dec. 31, 2021	Sep. 08, 2021
Maturities of notes payable
2022		$ 3,000
2023		3,000
2024		24,000
Total		30,000	$ 30,000
The amount of repayment increase or decrease taking effect from the subsequent repayment		$ 3,000
Subsequent Event
Maturities of notes payable
Repayment of debt	$ 3,000

- Definition

Amount, after unamortized (discount) premium and debt issuance costs, of long-term debt. Includes, but not limited to, notes payable, bonds payable, debentures, mortgage loans and commercial paper. Excludes capital lease obligations.

+ References + Details

Commitments and Contingencies - Lease Obligations (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2021 item	Dec. 31, 2019 USD ($) ft²	Dec. 31, 2018 ft²	Oct. 31, 2018 ft²
Commitments and Contingencies
Lease Termination Fee \| $		$ 1,200
Total net loss on termination of lease \| $		$ 1,148
Minimum
Commitments and Contingencies
Remaining lease terms	12 months
Building \| Minimum
Commitments and Contingencies
Remaining lease terms	2 years
Building \| Maximum
Commitments and Contingencies
Remaining lease terms	10 years
Vehicles
Commitments and Contingencies
Remaining lease terms	367 days
Number of vehicles with agreements within the initial, noncancelable lease term \| item	39
Equipment
Commitments and Contingencies
Option to renew	true
Equipment \| Minimum
Commitments and Contingencies
Remaining lease terms	1 year
Equipment \| Maximum
Commitments and Contingencies
Remaining lease terms	4 years
Initial lease
Commitments and Contingencies
Area of office space				80,000
Second lease
Commitments and Contingencies
Area of office space			29,000
Additional office space added to the lease		4,000
Third lease
Commitments and Contingencies
Additional office space added to the lease		37,000

Commitments and Contingencies - Lease related assets and liabilities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Lease-related assets and liabilities
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	Right of use operating lease assets	Right of use operating lease assets
Right of use operating lease assets	$ 23,984	$ 20,132
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Operating lease liabilities, Current	Operating lease liabilities, Current
Operating lease liabilities, Current	$ 2,506	$ 2,006
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	Operating lease liabilities, non-current	Operating lease liabilities, non-current
Operating lease liabilities, non-current	$ 23,354	$ 19,388
Present value of future minimum lease payments	$ 25,860	$ 21,394
Weighted average remaining lease term	8 years 7 months 6 days	9 years 4 months 24 days
Weighted average discount rate	4.20%	4.40%
Cash paid for operating lease liabilities	$ 3,379	$ 2,646
Non-cash right of use assets obtained in exchange for new operating lease obligations	$ 6,920	$ 6,789

Commitments and Contingencies - Undiscounted cash flows (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Undiscounted cash flows
2022	$ 3,549
2023	3,420
2024	3,414
2025	3,516
2026	3,615
Thereafter	13,249
Total minimum lease payments	30,763
Less: Amount of lease payments representing interest	(4,903)
Present value of future minimum lease payments	25,860	$ 21,394
Less: Current obligations under operating lease liabilities	(2,506)	(2,006)
Non-current obligations under operating lease liabilities	$ 23,354	$ 19,388

Commitments and Contingencies - Lease commitments and operating lease cost (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Commitments and Contingencies
Operating lease cost	$ 3.6	$ 3.0	$ 2.1

Commitments and Contingencies - Major Vendors (Details) - item	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Commitments and Contingencies
Number of vendors	2	2
Purchases \| Vendor \| Vendor Two
Commitments and Contingencies
Total purchases (in percentage)	32.00%	32.00%

Commitments and Contingencies - Purchase Commitments (Details) $ in Millions	Dec. 31, 2021 USD ($)
Purchase commitments
Purchase orders issued	$ 15.1

Commitments and Contingencies - Retirement Plan (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
401(k)
Retirement Plan
Discretionary contributions	$ 1.2	$ 0.3	$ 0.3

Stockholders' Equity - Series A & B Preferred Stock (Details) $ / shares in Units, $ in Millions	Aug. 02, 2016 USD ($) $ / shares shares
Preferred stock
Conversion of preferred stock to common stock (in shares)	5,924,453
Number of new stock issued relating to the IPO that Series A and Series B preferred stockholders are entitled to receive	2,354,323
IPO
Preferred stock
Number of shares of common stock sold	4,120,000
Share price (in dollars per share) \| $ / shares	$ 10.00
Series B Preferred Stock
Preferred stock
Preferred stock to common stock conversion ratio	1
Number of new stock issued to pay accrued stock dividends relating to initial offering price	956,842
Series A Preferred Stock
Preferred stock
Preferred stock to common stock conversion ratio	1.03
Accrued Cumulative Dividends \| $	$ 8.2
Payment of dividends \| $	$ 0.1

Stockholders' Equity - Stock-Based Compensation General Information (Details)	Dec. 31, 2021 shares
2016 Plan
Stockholders' Equity
Number of shares authorized	4,800,000

Stockholders' Equity - Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands			12 Months Ended
	Jan. 01, 2021	Jan. 01, 2020	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Stock-based compensation
Compensation expense			$ 10,173	$ 10,689	$ 9,824
Unrecognized stock-based compensation
Unrecognized stock-based compensation expense					0
Former executive
Stock-based compensation
Compensation expense					200
Cost of revenue.
Stock-based compensation
Compensation expense			433	539	329
Sales and marketing
Stock-based compensation
Compensation expense			4,069	5,058	4,331
Research and development
Stock-based compensation
Compensation expense			314	360	372
Reimbursement, general and administrative
Stock-based compensation
Compensation expense			$ 5,357	4,732	4,792
2016 Plan
Stock-based compensation
Shares available for future issuance			6,314,849
Automatic annual increase to the number of shares reserved and available for issuance as a percentage of outstanding common stock (as a percent)			5.00%
Automatic annual increase to the number of shares reserved and available for issuance			2,500,000
Increase in number of shares reserved and available for issuance	972,591	952,697
Common stock options
Stock-based compensation
Compensation expense			$ 4,300	$ 4,000	$ 2,700
Unrecognized stock-based compensation
Unrecognized stock-based compensation expense, period for recognition			1 year 8 months 12 days

Stockholders' Equity - Stock Options and Restricted Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Stock-based compensation, general disclosures.
Stock-based compensation expense	$ 10,173	$ 10,689	$ 9,824
Dividends paid to date	0
Estimated fair values and assumptions for stock options granted
Expected term		4 years 6 months
Expected volatility (as a percent)		45.39%
Risk-free interest rate (as a percent)		0.40%
Expected dividend yield (as a percent)		0.00%
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value			11,591	$ 14,104
Minimum
Estimated fair values and assumptions for stock options granted
Fair value per share of options on the date of grant (in dollars per share)		$ 13.60
Other information
Fair value per share of options on the date of grant (in dollars per share)		13.60
Maximum
Estimated fair values and assumptions for stock options granted
Fair value per share of options on the date of grant (in dollars per share)		14.70
Other information
Fair value per share of options on the date of grant (in dollars per share)		$ 14.70
Common stock options
Stock-based compensation, general disclosures.
Stock-based compensation expense	4,300	$ 4,000	2,700
Total unrecognized pre-tax compensation expense related to nonvested stock option awards	$ 5,200
Weighted-average period over which unrecognized compensation cost is expected to be recognized	1 year 8 months 12 days
Total grant date fair value of options vested during the period	$ 4,300	$ 3,000	$ 2,300
Estimated fair values and assumptions for stock options granted
Expected term	4 years 6 months	4 years 6 months
Expected dividend yield (as a percent)	0.00%	0.00%	0.00%
Options Outstanding
Outstanding at beginning of period	1,039,709	866,955	1,076,535
Granted	188,748	378,695	189,076
Exercised	(175,516)	(147,741)	(321,806)
Forfeited	(92,773)	(54,824)	(76,322)
Cancelled/Expired	(44,944)	(3,376)	(528)
Outstanding at end of period	915,224	1,039,709	866,955	1,076,535
Weighted Average Exercise Price Per Share
Outstanding at beginning of period	$ 36.43	$ 28.76	$ 17.94
Granted	49.33	44.84	59.52
Exercised	22.65	7.24	8.81
Forfeited	49.77	50.25	36.50
Cancelled/Expired	57.78	63.61	19.64
Outstanding at end of period	$ 39.33	$ 36.43	$ 28.76	$ 17.94
Other information
Options exercisable number of shares exercisable	517,316	489,866	473,222
Options exercisable, weighted-average exercise price	$ 32.60	$ 25.39	$ 14.14
Weighted average remaining contractual life (in years)	5 years	5 years 7 months 6 days	6 years 3 months 18 days	6 years 6 months
Options exercisable, weighted-average remaining contractual life	4 years 4 months 24 days
Aggregate Intrinsic Value, Options outstanding	$ 2,068	$ 13,381		$ 31,172
Aggregate Intrinsic Value, Exercised	4,901	$ 6,540	$ 16,026
Aggregate Intrinsic Value, Options exercisable	$ 2,068		$ 33,957
Number of:
Non vested options beginning of the year	549,843	393,733
Non-vested options end of the year	397,908	549,843	393,733
Vested options end of the year	517,316	489,866
Weighted-average grant date fair value of:
Non-vested options beginning of the year	$ 18.03	$ 19.55
Non-vested options end of the year	18.02	18.03	$ 19.55
Vested options end of the year	13.27	10.67
Forfeited options during the year	$ 19.26	$ 20.54
Common stock options \| Minimum
Stock-based compensation, general disclosures.
Vesting period (in years)	3 years
Term (in years)	7 years
Estimated fair values and assumptions for stock options granted
Expected term			4 years
Expected volatility (as a percent)	45.00%	44.10%	43.20%
Risk-free interest rate (as a percent)	0.60%	0.20%	1.60%
Fair value per share of options on the date of grant (in dollars per share)	$ 13.04	$ 13.45	$ 19.57
Other information
Fair value per share of options on the date of grant (in dollars per share)	$ 13.04	$ 13.45	$ 19.57
Common stock options \| Maximum
Stock-based compensation, general disclosures.
Vesting period (in years)	4 years
Term (in years)	10 years
Estimated fair values and assumptions for stock options granted
Expected term			6 years
Expected volatility (as a percent)	52.30%	46.40%	44.60%
Risk-free interest rate (as a percent)	1.10%	0.90%	2.60%
Fair value per share of options on the date of grant (in dollars per share)	$ 22.90	$ 18.64	$ 33.12
Other information
Fair value per share of options on the date of grant (in dollars per share)	$ 22.90	$ 18.64	$ 33.12
Common stock options \| Chief Executive Officer
Stock-based compensation, general disclosures.
Share-based payment award, term	7 years
Vesting period (in years)	3 years
Number of consecutive trading days	20 days
Common stock options \| Chief Executive Officer \| Minimum
Stock-based compensation, general disclosures.
Stock price	$ 40.15
Time-Based Restricted Stock Units \| Non-employee Directors
Units Outstanding
Granted (in shares)	0
Number of share of common stock that restricted stock unit has the right to convert to	1
Number of granted and vested restricted stock units	6,469
2018 and 2021 PSUs
Stock-based compensation, general disclosures.
Stock-based compensation expense	$ 700
2016 Plan \| Time-Based Restricted Stock Units
Stock-based compensation, general disclosures.
Stock-based compensation expense	4,900	$ 5,200	$ 4,000
Total unrecognized pre-tax compensation expense related to nonvested stock option awards	$ 7,800
Weighted-average period over which unrecognized compensation cost is expected to be recognized	2 years
Units Outstanding
Restricted stock unit awards outstanding at the beginning of the period (in shares)	211,469	171,687	309,632
Granted (in shares)	189,762	175,582	73,920
Modification (in shares)		2,288
Vested (in shares)	106,521	118,014	193,339
Cancelled (in shares)	(35,563)	(20,074)	(18,526)
Restricted stock unit awards outstanding at the end of the period (in shares)	259,147	211,469	171,687	309,632
Deferred and unissued (in shares)	6,469
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share)	$ 48.29	$ 43.74	$ 23.69
Granted (in dollars per share)	40.31	46.42	64.82
Modification (in dollars per share)		21.85
Vested (in dollars per share)	47.43	37.57	20.21
Cancelled (in dollars per share)	51.76	53.03	38.36
Restricted stock unit awards outstanding at the end of the period (in dollars per share)	42.32	$ 48.29	$ 43.74	$ 23.69
Deferred and unissued (in dollars per share)	$ 38.94
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value	$ 4,932	$ 9,503
Restricted stock unit awards deferred and unissued, Average Intrinsic Value	$ 123
2016 Plan \| Time-Based Restricted Stock Units \| Minimum
Stock-based compensation, general disclosures.
Vesting period (in years)	1 year
2016 Plan \| Time-Based Restricted Stock Units \| Maximum
Stock-based compensation, general disclosures.
Vesting period (in years)	3 years
2016 Plan \| Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Estimated payout	$ 500	1,000
Stock-based compensation expense	200	$ 500	$ 2,300
Total unrecognized pre-tax compensation expense related to awards	$ 1,200
Weighted-average period over which unrecognized compensation cost is expected to be recognized	2 years 2 months 12 days
Units Outstanding
Restricted stock unit awards outstanding at the beginning of the period (in shares)	79,303	91,151	65,427
Granted (in shares)	39,419	31,731	25,724
Vested (in shares)	34,159	26,204
Cancelled (in shares)	(30,246)	(17,375)
Restricted stock unit awards outstanding at the end of the period (in shares)	54,317	79,303	91,151	65,427
Payout percentage	100.00%	100.00%	100.00%
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share)	$ 47.83	$ 44.63	$ 33.62
Granted (in dollars per share)	51.82	50.41	72.64
Vested (in dollars per share)	33.98	33.58
Cancelled (in dollars per share)	64.39	52.87
Restricted stock unit awards outstanding at the end of the period (in dollars per share)	$ 50.22	$ 47.83	$ 44.63	$ 33.62
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value	$ 1,034	$ 3,564		$ 2,980
Restricted stock unit awards deferred and unissued, Average Intrinsic Value			$ 6,154
2016 Plan \| Performance-based stock-settled restricted stock units \| Minimum
Units Outstanding
Percentage to earn or vest the performance-based stock-settled restricted stock units	50.00%
2016 Plan \| Performance-based stock-settled restricted stock units \| Maximum
Units Outstanding
Percentage to earn or vest the performance-based stock-settled restricted stock units	150.00%
2016 Plan \| Tranche one \| Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Compensation arrangement	33.33%
2016 Plan \| Tranche two \| Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Compensation arrangement	66.67%

Stockholders' Equity - Employee Stock Purchase Plan (Details) - USD ($) $ in Thousands			12 Months Ended
	Jan. 01, 2021	Jan. 01, 2020	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019	Apr. 27, 2017
Stockholders' Equity
Stock-based compensation expense			$ 10,173	$ 10,689	$ 9,824
Employee Stock Purchase Plan
Stockholders' Equity
Purchase price of common stock under plan (as a percent)			85.00%
Offering period (in months)			6 months
Shares reserved			1,708,760			1,600,000
Incremental share increase (in shares)			500,000
Incremental share increase (as a percent)			1.00%
Increase in number of shares reserved and available for issuance	194,518	190,539
Stock-based compensation expense			$ 800	$ 900	$ 900

Revenue (Details) - USD ($) $ in Thousands	12 Months Ended
Revenue (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Revenue
Revenue	$ 208,057	$ 187,130	$ 189,492
Percentage of total revenue (in percent)	100.00%	100.00%	100.00%
Operating lease revenue			$ 5,000
Revenue from sale type lease
Sales-type lease revenue	$ 30,143	$ 25,633	21,570
Cost of sales-type lease revenue	9,622	9,011	7,510
Gross profit	20,521	16,622	14,060
Private insurers and other payers
Revenue
Revenue	141,377	132,789	136,397
Veterans Administration
Revenue
Revenue	25,654	24,485	31,275
Medicare
Revenue
Revenue	35,882	29,856	21,820
Durable medical equipment distributors
Revenue
Revenue	5,144
Flexitouch system
Revenue
Revenue	$ 176,228	$ 163,914	$ 171,323
Percentage of total revenue (in percent)	85.00%	88.00%	90.00%
Entre system
Revenue
Revenue	$ 26,685	$ 23,216	$ 18,169
Percentage of total revenue (in percent)	13.00%	12.00%	10.00%
AffloVest
Revenue
Revenue	$ 5,144
Percentage of total revenue (in percent)	2.00%

Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Income Taxes
Current income taxes, Federal	$ (1,274)	$ (653)	$ 205
Current income taxes, State	214	294	100
Current income taxes	(1,060)	(359)	305
Deferred income taxes, Federal	7,874	(833)	(303)
Deferred income taxes, State	2,356	(395)	153
Deferred income taxes	10,230	(1,228)	(150)
Unrecognized tax benefit	$ 348	$ (54)	$ 3
Net effective rate	(415.10%)	72.60%	1.40%
Total provision (benefit) for income taxes	$ 9,518	$ (1,641)	$ 158
Components of Deferred Tax Assets
Operating lease liability	6,490	5,329
Net operating loss carryforwards	671	312
Accounts receivable and inventory reserves	4,658	3,887
Stock-based compensation	3,777	3,558
Accrued liabilities	1,104	1,489
Warranty reserves	1,245	1,206
Intangible assets	579	612
Business credits	682
Other	199	107
Total deferred tax assets	19,405	16,500
Deferred tax liabilities:
Right-of-use asset	(6,019)	(5,016)
Fixed assets	(914)	(1,286)
Prepaid expenses	(378)
Other	(87)
Total deferred tax liabilities	(7,398)	(6,302)
Net deferred tax assets		$ 10,198
Valuation allowance	(12,039)
Net deferred tax liabilities	$ (32)
Effective Income Tax Rate Reconciliation, Percent
Tax expense at statutory rate	21.00%	21.00%	21.00%
State income taxes, net of federal benefit	(1.10%)	(7.90%)	7.30%
Executive compensation	(14.20%)	(5.50%)	9.10%
Meals and entertainment		(10.60%)	2.60%
Incentive stock options		(0.40%)	0.20%
Employee Stock Purchase Plan	(7.50%)	(8.60%)	1.70%
Federal business credits	10.90%
Valuation allowance	(525.00%)	8.00%	1.70%
Return to provision	(6.50%)	3.60%	(0.40%)
Research and development credits	60.20%
IRS exam		2.50%
Deferred reprice - state	3.30%		(0.10%)
Federal carryback claim deferred rate differential		38.50%
Unrecognized tax benefits	(2.20%)	2.30%
Excess benefit on non-qualified stock options and RSUs	47.20%	28.00%	(41.50%)
Interest and penalties	(0.70%)	1.90%	(0.20%)
Other	(0.50%)	(0.20%)
Reconciliation of unrecognized tax benefits
Balance beginning of the year		$ 54	$ 51
Gross change - tax positions in prior year	$ 522	(54)	3
Balance end of the year	522		54
Valuation allowance	12,039
U.S. federal
Income Taxes
Unrecognized tax benefit	348
State
Income Taxes
Unrecognized tax benefit		$ (54)	$ 3
Components of Deferred Tax Assets
Net operating loss carryforwards	$ 700

Net (Loss) Income Per Common Share - Basic and Diluted Net (Loss) Income Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Net (Loss) Income Per Common Share.
Net (loss) income	$ (11,811)	$ (620)	$ 10,971
Weighted-average shares outstanding	19,719,485	19,346,929	18,919,007
Dilutive effect of stock-based awards			722,136
Weighted-average shares used to compute diluted net (loss) income per share	19,719,485	19,346,929	19,641,143
Net (loss) income per share - Basic	$ (0.60)	$ (0.03)	$ 0.58
Net (loss) income per share - Diluted	$ (0.60)	$ (0.03)	$ 0.56

- Definition

The amount of net income (loss) for the period per each share of common stock or unit outstanding during the reporting period.

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+ Details

- Definition

The amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.

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- Definition

Amount, after deduction of tax, noncontrolling interests, dividends on preferred stock and participating securities; of income (loss) available to common shareholders.

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+ Details

Net (Loss) Income Per Common Share - Antidilutive Securities Excluded From Computation of Earnings Per Share (Details) - shares	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	1,269,966	1,407,983	387,372
Common stock options
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	915,224	1,039,709	278,363
Performance stock units
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	54,317	96,383	25,724
Restricted Stock Units
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	265,616	218,686	38,103
Employee stock purchase plan
Net Income (Loss) Per Share
Antidilutive securities excluded from computation of earnings per share	34,809	53,205	45,182

Fair Value Measurements (Details) - USD ($) $ in Thousands		12 Months Ended
Fair Value Measurements (Details) - USD ($) $ in Thousands	Sep. 08, 2021	Dec. 31, 2021	Dec. 31, 2020	Jun. 30, 2020
Fair Value Measurements
Earn-out liability		$ 6,200
Amount of transfers of marketable securities within the three level hierarchy			$ 0
Intangible assets	$ 53,500	54,081	1,680
Earn-out liability fair value	$ 6,400	6,400
AffloVest
Fair Value Measurements
Earn-out liability fair value		20,000
Recurring
Fair Value Measurements
Earn-out liability		6,200
Available for sale debt securities		6,200	16,188
Recurring \| Money market mutual funds
Fair Value Measurements
Money market mutual funds			16,188
Recurring \| Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value Measurements
Available for sale debt securities			16,188
Recurring \| Quoted Prices in Active Markets for Identical Assets (Level 1) \| Money market mutual funds
Fair Value Measurements
Money market mutual funds			$ 16,188
Recurring \| Significant Unobservable Inputs (Level 3)
Fair Value Measurements
Earn-out liability		6,200
Available for sale debt securities		$ 6,200
Non-recurring \| Significant Unobservable Inputs (Level 3) \| Airwear Product
Fair Value Measurements
Intangible assets				$ 0

Fair Value Measurements - Earn out liability (Details) - USD ($) $ in Thousands		12 Months Ended
	Sep. 08, 2021	Dec. 31, 2021
Fair Value Measurements
Addition for acquisition	$ 6,400	$ 6,400
Change in fair value of earn-out liability		(200)
Earn-out liability, ending balance		6,200
Fair value measure, earn out liability non current		$ 3,000