0001558370-23-008563 | 10-Q | XBRL Viewer | Tactile Systems Technology INC

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Current assets
Cash and cash equivalents	$ 55,011	$ 21,929
Accounts receivable	51,020	54,826
Net investment in leases	13,781	16,130
Inventories	20,014	23,124
Income taxes receivable	731
Prepaid expenses and other current assets	4,876	3,754
Total current assets	145,433	119,763
Non-current assets
Property and equipment, net	5,655	6,077
Right of use operating lease assets	20,633	21,322
Intangible assets, net	49,465	50,375
Goodwill	31,063	31,063
Accounts receivable, non-current	19,983	23,061
Other non-current assets	3,269	3,335
Total non-current assets	130,068	135,233
Total assets	275,501	254,996
Current liabilities
Accounts payable	9,590	9,984
Note payable	2,968	2,968
Earn-out, current	13,710	13,050
Accrued payroll and related taxes	11,464	17,100
Accrued expenses	6,601	9,240
Income taxes payable		2,336
Operating lease liabilities	2,509	2,500
Other current liabilities	4,562	7,152
Total current liabilities	51,404	64,330
Non-current liabilities
Revolving line of credit, non-current	24,929	24,916
Note payable, non-current	20,237	20,979
Accrued warranty reserve, non-current	2,084	2,207
Income taxes payable, non-current	446	298
Operating lease liabilities, non-current	20,239	20,866
Total non-current liabilities	67,935	69,266
Total liabilities	119,339	133,596
Commitments and Contingencies (see Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding as of March 31, 2023 and December 31, 2022
Common stock, $0.001 par value, 300,000,000 shares authorized; 23,235,065 shares issued and outstanding as of March 31, 2023; 20,252,677 shares issued and outstanding as of December 31, 2022	23	20
Additional paid-in capital	167,646	131,001
Accumulated deficit	(11,507)	(9,621)
Total stockholders' equity	156,162	121,400
Total liabilities and stockholders' equity	$ 275,501	$ 254,996

Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies

Summary of lease-related assets and liabilities


(In thousands)	At March 31, 2023		At December 31, 2022
Right of use operating lease assets	$	20,633	$	21,322

Operating lease liabilities:
Current	$	2,509	$	2,500
Non-current		20,239		20,866
Total	$	22,748	$	23,366

Operating leases:
Weighted average remaining lease term		7.5 years		7.7 years
Weighted average discount rate		4.2%		4.2%

	Three Months Ended March 31,
	2023		2022
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	860	$	918
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	—	$	41

Summary of undiscounted cash flows


(In thousands)
2023 (April 1 - December 31)	$	2,566
2024		3,418
2025		3,518
2026		3,615
2027		3,167
Thereafter		10,082
Total minimum lease payments		26,366
Less: Amount of lease payments representing interest		(3,618)
Present value of future minimum lease payments		22,748
Less: Current obligations under operating lease liabilities		(2,509)
Non-current obligations under operating lease liabilities	$	20,239

Acquisitions - Allocation of Purchase Price (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Acquisitions
Finite lived intangible assets, Allocated Fair Value	$ 39,466	$ 40,420
Indefinite lived intangible assets excluding goodwill, Allocated fair value	56,152	56,103
Total intangible assets (Net)	49,465	50,375
Customer relationships
Acquisitions
Finite lived intangible assets, Allocated Fair Value	27,278	27,873
Developed technology
Acquisitions
Finite lived intangible assets, Allocated Fair Value	$ 11,155	$ 11,450

Commitments and Contingencies - Lease Obligations (Details)	3 Months Ended
	Mar. 31, 2023 item	Dec. 31, 2019 ft²	Dec. 31, 2018 ft²	Oct. 31, 2018 ft²
Minimum
Commitments and Contingencies
Remaining lease terms	12 months
Building \| Minimum
Commitments and Contingencies
Remaining lease terms	1 year
Building \| Maximum
Commitments and Contingencies
Remaining lease terms	8 years
Vehicles
Commitments and Contingencies
Remaining lease terms	367 days
Number of vehicles with agreements within the initial, noncancelable lease term \| item	0
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	3 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

Credit Agreement - Maturities of Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Sep. 08, 2021
Maturities of notes payable
Total	$ 48,300
Term Loan
Maturities of notes payable
2023 (April 1 - December 31)	2,250
2024	21,000
Total	$ 23,250	$ 30,000

- Definition

Amount, excluding unamortized premium (discount) and debt issuance cost, of long-term debt. Excludes lease obligation.

+ References + Details

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2023	May 04, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
Document Transition Report	false
Entity File Number	001-37799
Entity Registrant Name	Tactile Systems Technology, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	41-1801204
Entity Address, Address Line One	3701 Wayzata Blvd, Suite 300
Entity Address, City or Town	Minneapolis
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55416
City Area Code	612
Local Phone Number	355-5100
Title of 12(b) Security	Common Stock, Par Value $0.001 Per Share
Trading Symbol	TCMD
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		23,236,044
Entity Central Index Key	0001027838
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Total revenue	$ 58,846	$ 47,978
Total cost of revenue	17,378	14,116
Gross profit	41,468	33,862
Operating expenses
Sales and marketing	26,302	23,930
Research and development	2,233	1,520
Reimbursement, general and administrative	15,434	16,217
Intangible asset amortization and earn-out	1,305	7,096
Total operating expenses	45,274	48,763
Loss from operations	(3,806)	(14,901)
Other expense	(993)	(456)
Loss before income taxes	(4,799)	(15,357)
Income tax (benefit) expense	(2,913)	211
Net loss	$ (1,886)	$ (15,568)
Net loss per common share
Basic (in dollars per share)	$ (0.09)	$ (0.78)
Diluted (in dollars per share)	$ (0.09)	$ (0.78)
Weighted-average common shares used to compute net loss per common share
Basic (in shares)	21,283,752	19,898,502
Diluted (in shares)	21,283,752	19,898,502
Sales revenue
Total revenue	$ 52,791	$ 41,170
Total cost of revenue	14,642	12,080
Gross profit	38,149	29,090
Rental revenue
Total revenue	6,055	6,808
Total cost of revenue	2,736	2,036
Gross profit	$ 3,319	$ 4,772

Stockholders' Equity - Stock Options and Restricted Stock (Details) $ / shares in Units, $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023 USD ($) item $ / shares shares	Mar. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares
Stock-based compensation, general disclosures.
Stock-based compensation expense \| $	$ 2,023	$ 2,228
Common stock options
Stock-based compensation, general disclosures.
Stock-based compensation expense \| $	300	$ 700
Total unrecognized pre-tax compensation expense related to nonvested stock option awards \| $	$ 1,000
Weighted-average period over which unrecognized compensation cost is expected to be recognized	1 year 1 month 6 days
Options Outstanding
Outstanding at beginning of period \| shares	615,307
Exercised \| shares	(316)
Forfeited \| shares	(12,065)
Cancelled/Expired \| shares	(16,714)
Outstanding at end of period \| shares	586,212		615,307
Weighted Average Exercise Price Per Share
Outstanding at beginning of period \| $ / shares	$ 43.25
Exercised \| $ / shares	1.11
Forfeited \| $ / shares	44.78
Cancelled/Expired \| $ / shares	48.81
Outstanding at end of period \| $ / shares	$ 43.09		$ 43.25
Other information
Options exercisable number of shares exercisable \| shares	479,622	576,134
Options exercisable, weighted-average exercise price \| $ / shares	$ 44.60	$ 36.57
Weighted average remaining contractual life (in years)	4 years 4 months 24 days		4 years 8 months 12 days
Options exercisable, weighted-average remaining contractual life	4 years 2 months 12 days
Aggregate Intrinsic Value, Options outstanding \| $	$ 358		$ 164
Aggregate Intrinsic Value, Exercised \| $	4
Aggregate Intrinsic Value, Options exercisable \| $	$ 162
Common stock options \| Minimum
Stock-based compensation, general disclosures.
Vesting period (in years)	3 years
Term (in years)	7 years
Common stock options \| Maximum
Stock-based compensation, general disclosures.
Vesting period (in years)	4 years
Term (in years)	10 years
2016 Plan \| Time-Based Restricted Stock Units
Stock-based compensation, general disclosures.
Stock-based compensation expense \| $	$ 1,300	$ 1,400
Total unrecognized pre-tax compensation expense related to awards \| $	$ 9,800
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) \| shares	590,542
Granted (in shares) \| shares	269,461
Vested (in shares) \| shares	(102,651)
Cancelled (in shares) \| shares	(18,613)
Restricted stock unit awards outstanding at the end of the period (in shares) \| shares	738,739		590,542
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share) \| $ / shares	$ 19.42
Granted (in dollars per share) \| $ / shares	14.35
Vested (in dollars per share) \| $ / shares	26.44
Cancelled (in dollars per share) \| $ / shares	25.14
Restricted stock unit awards outstanding at the end of the period (in dollars per share) \| $ / shares	$ 16.45		$ 19.42
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value \| $	$ 12,130		$ 6,779
2016 Plan \| Time-Based Restricted Stock Units \| Minimum
Stock-based compensation, general disclosures.
Vesting period (in years)	1 year
2016 Plan \| Time-Based Restricted Stock Units \| Maximum
Stock-based compensation, general disclosures.
Vesting period (in years)	3 years
2016 Plan \| Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Stock-based compensation expense \| $	$ 200	$ 100
Total unrecognized pre-tax compensation expense related to awards \| $	$ 2,600
Weighted-average period over which unrecognized compensation cost is expected to be recognized	2 years 4 months 24 days
Number of performance awards under share-based payment arrangement \| item	3
Units Outstanding
Restricted stock unit awards outstanding at the beginning of the period (in shares) \| shares	155,618
Granted (in shares) \| shares	106,183
Vested (in shares) \| shares	(9,915)
Cancelled (in shares) \| shares	(7,762)
Restricted stock unit awards outstanding at the end of the period (in shares) \| shares	244,124		155,618
Weighted Average Grant Date Fair Value Per Unit
Restricted stock unit awards outstanding at the beginning of the period (in dollars per share) \| $ / shares	$ 25.05
Granted (in dollars per share) \| $ / shares	14.35
Vested (in dollars per share) \| $ / shares	51.89
Cancelled (in dollars per share) \| $ / shares	26.33
Restricted stock unit awards outstanding at the end of the period (in dollars per share) \| $ / shares	$ 19.27		$ 25.05
Aggregate Intrinsic Value
Restricted stock unit awards, Average Intrinsic Value \| $	$ 4,009		$ 1,786
2016 Plan \| Performance-based stock-settled restricted stock units \| Minimum
Stock-based compensation, general disclosures.
Performance goals revenue change and adjusted EBITDA margin	25.00%
Units Outstanding
Percentage to earn or vest the performance-based stock-settled restricted stock units	50.00%
2016 Plan \| Performance-based stock-settled restricted stock units \| Maximum
Stock-based compensation, general disclosures.
Performance goals revenue change and adjusted EBITDA margin	175.00%
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.
Award vesting percentage	33.33%
2016 Plan \| Tranche two \| Performance-based stock-settled restricted stock units
Stock-based compensation, general disclosures.
Award vesting percentage	33.33%

Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2023

Schedule of allocation of total stock-based compensation expense


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Cost of revenue	$	103	$	102
Sales and marketing expenses		752		1,027
Research and development expenses		49		83
Reimbursement, general and administrative expenses		1,119		1,016
Total stock-based compensation expense	$	2,023	$	2,228

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, 2022	615,307	$	43.25	4.7 years	$	164
Granted	—	$	—
Exercised	(316)	$	1.11		$	4
Forfeited	(12,065)	$	44.78
Cancelled/Expired	(16,714)	$	48.81
Balance at March 31, 2023	586,212	$	43.09	4.4 years	$	358

Options exercisable at March 31, 2023	479,622	$	44.60	4.2 years	$	162

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

(2)

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

Time-Based Restricted Stock Units

Schedule of stock-settled restricted stock unit activity


		Weighted-
		Average Grant		Aggregate
	Units	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value ⁽¹⁾
Balance at December 31, 2022	590,542	$	19.42	$	6,779
Granted	269,461	$	14.35
Vested	(102,651)	$	26.44
Cancelled	(18,613)	$	25.14
Balance at March 31, 2023	738,739	$	16.45	$	12,130

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

Performance-based stock-settled restricted stock units

Schedule of stock-settled restricted stock unit activity


		Weighted-
		Average Grant		Aggregate
	PSUs	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value ⁽¹⁾
Balance at December 31, 2022	155,618	$	25.05	$	1,786
Granted	106,183	$	14.35
Vested	(9,915)	$	51.89
Cancelled	(7,762)	$	26.33
Balance at March 31, 2023	244,124	$	19.27	$	4,009

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

Stockholders' Equity - Series A & B Preferred Stock (Details) - IPO	Aug. 02, 2016 $ / shares shares
Preferred stock
Number of shares of common stock sold \| shares	4,120,000
Share price (in dollars per share) \| $ / shares	$ 10.00

Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022
Accrued Expenses
Warranty	$ 1,916	$ 2,005	$ 1,998
Travel	1,188	1,121
Legal and consulting	803	730
In-transit inventory	485	3,228
Clinical studies	230	276
Sales and use tax	114	147
Other	1,865	1,733
Total	$ 6,601	$ 9,240

Credit Agreement

3 Months Ended

Mar. 31, 2023

Credit Agreement

Credit Agreement

Note 9. Credit Agreement

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

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

aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $80.0 million.

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

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

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

As of March 31, 2023, we had outstanding borrowings of $48.3 million under the Credit Agreement, comprised of $23.3 million under the term loan and $25.0 million under the revolving credit facility.

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 March 31, 2023, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 8.28%. 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 two years as of March 31, 2023, are as follows:


(In thousands)	Amount
2023 (April 1 - December 31)		2,250
2024		21,000
Total	$	23,250

Our obligations under the Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets and are also guaranteed by our subsidiaries. The Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum consolidated EBITDA covenant. As of March 31, 2023, we were in compliance with all financial covenants under the Credit Agreement.

- 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

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+ Details

Net Loss Per Share - Antidilutive Securities Excluded From Computation of Earnings Per Share (Details) - shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	1,682,727	1,597,884
Common stock options
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	586,212	852,406
Performance stock units
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	233,798	164,027
Restricted stock units
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	736,942	496,643
Employee stock purchase plan
Net Loss Per Share
Antidilutive securities excluded from computation of earnings per share	125,775	84,808

Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2023

Goodwill and Intangible Assets.

Schedule of finite lived intangible assets


	Weighted-	At March 31, 2023
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	903	$	192	$	711
Defensive intangible assets	2 years		1,125		807		318
Customer accounts	< 1 year		125		121		4
Customer relationships	11 years		31,000		3,722		27,278
Developed technology	9 years		13,000		1,845		11,155
Subtotal			46,153		6,687		39,466
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			499		—		499
Total intangible assets		$	56,152	$	6,687	$	49,465


	Weighted-	At December 31, 2022
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	897	$	173	$	724
Defensive intangible assets	2 years		1,126		764		362
Customer accounts	< 1 year		125		114		11
Customer relationships	12 years		31,000		3,127		27,873
Developed technology	10 years		13,000		1,550		11,450
Subtotal			46,148		5,728		40,420
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			455		—		455
Total intangible assets		$	56,103	$	5,728	$	50,375

Schedule of future amortization expense


(In thousands)
2023 (April 1 - December 31)	$	2,849
2024		3,787
2025		3,698
2026		3,633
2027		3,623
Thereafter		21,876
Total	$	39,466

Inventories (Tables)

3 Months Ended

Mar. 31, 2023

Inventories

Schedule of inventories


(In thousands)	At March 31, 2023		At December 31, 2022
Finished goods	$	5,930	$	5,100
Component parts and work-in-process		14,084		18,024
Total inventories	$	20,014	$	23,124

Credit Agreement (Details) - USD ($)			3 Months Ended
Credit Agreement (Details) - USD ($)	Feb. 22, 2022	Sep. 08, 2021	Mar. 31, 2023	Dec. 31, 2022
Credit Agreement
Credit facility outstanding amount		$ 25,000,000.0	$ 24,929,000	$ 24,916,000
Line of credit, threshold contingent increase in borrowing capacity		25,000,000.0
Credit agreement, total aggregate principal amount		80,000,000.0
Long-term debt			$ 48,300,000
LIBOR
Credit Agreement
Basis spread (as a percent)			3.50%
Revolving credit facility
Credit Agreement
Line of credit		25,000,000.0
Credit facility outstanding amount			$ 25,000,000.0
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)			8.28%
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	$ 23,250,000
Debt instrument periodic payment			$ 750,000
Debt instrument frequency of periodic payment			quarterly
Principal prepayment of term loan	$ 3,000,000.0

Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
Revenue (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Mar. 31, 2022
Revenue
Revenue	$ 58,846	$ 47,978
Percentage of total revenue (in percent)	100.00%	100.00%
Revenue from sale type lease
Sales-type lease revenue	$ 6,055	$ 6,808
Cost of sales-type lease revenue	2,736	2,036
Gross profit	$ 3,319	4,772
Minimum
Revenue from sale type lease
Rental period of rent-to-purchase arrangements	3 months
Maximum
Revenue from sale type lease
Rental period of rent-to-purchase arrangements	10 months
Private insurers and other payers
Revenue
Revenue	$ 25,425	26,566
Veterans Administration
Revenue
Revenue	5,823	5,635
Medicare
Revenue
Revenue	18,504	8,453
Durable medical equipment distributors
Revenue
Revenue	9,094	7,324
Lymphedema products
Revenue
Revenue	$ 49,752	$ 40,654
Percentage of total revenue (in percent)	85.00%	85.00%
Airway clearance products
Revenue
Revenue	$ 9,094	$ 7,324
Percentage of total revenue (in percent)	15.00%	15.00%

Stockholders' Equity

3 Months Ended

Mar. 31, 2023

Stockholders' Equity

Stockholders' Equity

Note 11. Stockholders' Equity

Stock-Based Compensation

Our 2016 Equity Incentive Plan (the “2016 Plan”) authorizes us to grant stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards to employees, non-employee directors and certain consultants and advisors. There were up to 4,800,000 shares of our common stock initially reserved for issuance pursuant to the 2016 Plan. The 2016 Plan provides that the number of shares reserved and available for issuance under the 2016 Plan will automatically increase annually on January 1 of each calendar year, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the lesser of: (a) 5% of the number of common shares of stock outstanding as of December 31 of the immediately preceding calendar year, or (b) 2,500,000 shares; provided, however, that our Board of Directors may determine that any annual increase be a lesser number. In addition, all awards granted under our 2007 Omnibus Stock Plan and our 2003 Stock Option Plan that were outstanding when the 2016 Plan became effective and that are forfeited, expired, cancelled, settled for cash or otherwise not issued, will become available for issuance under the 2016 Plan. Our Board of Directors exercised its prerogative to forego the automatic increase on each of January 1, 2023 and 2022. As of March 31, 2023, 5,614,397 shares were available for future grant pursuant to the 2016 Plan.

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

We recorded stock-based compensation expense of $2.0 million and $2.2 million for the three months ended March 31, 2023 and 2022, respectively. This expense was allocated as follows:


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Cost of revenue	$	103	$	102
Sales and marketing expenses		752		1,027
Research and development expenses		49		83
Reimbursement, general and administrative expenses		1,119		1,016
Total stock-based compensation expense	$	2,023	$	2,228

Stock Options

Stock options issued to participants other than non-employees typically vest over three or four years and typically have a contractual term of seven or ten years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $0.3 million and $0.7 million for the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, there was approximately $1.0 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 1.1 years.

Our stock option activity for the three months ended March 31, 2023, 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, 2022	615,307	$	43.25	4.7 years	$	164
Granted	—	$	—
Exercised	(316)	$	1.11		$	4
Forfeited	(12,065)	$	44.78
Cancelled/Expired	(16,714)	$	48.81
Balance at March 31, 2023	586,212	$	43.09	4.4 years	$	358

Options exercisable at March 31, 2023	479,622	$	44.60	4.2 years	$	162

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

(2)

Options exercisable of 576,134 as of March 31, 2022, had a weighted-average exercise price of $36.57 per share.

Time-Based Restricted Stock Units

We have granted time-based restricted stock units to certain participants under the 2016 Plan that are stock-settled with common shares. Time-based restricted stock units granted under the 2016 Plan vest over one to three years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $1.3 million and $1.4 million for the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, there was approximately $9.8 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 2.2 years.

Our time-based restricted stock unit activity for the three months ended March 31, 2023, 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, 2022	590,542	$	19.42	$	6,779
Granted	269,461	$	14.35
Vested	(102,651)	$	26.44
Cancelled	(18,613)	$	25.14
Balance at March 31, 2023	738,739	$	16.45	$	12,130

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

Performance-Based Restricted Stock Units

We have granted performance-based restricted stock units (“PSUs”) to certain participants under the 2016 Plan. These PSUs have both performance-based and time-based vesting features. The PSUs granted in 2021 were earned based on the extent to which performance goals based on revenue and adjusted EBITDA were achieved in 2022. The PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in 2023. The number of PSUs earned will depend on the level at which the performance targets are achieved and can range from 50% of target if the minimum performance threshold is achieved and up to 150% of target if maximum performance is achieved. The PSUs granted in 2023 have three separate performance periods, and one-third of each grant will be earned

if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in each of 2023 and 2024 (ranging from 25% to 175% of target), and one-third will be earned if and to the extent performance goals to be established are achieved in 2025. All earned and vested PSUs will be settled in shares of common stock.

Stock-based compensation expense recognized for PSUs was $0.2 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, there was approximately $2.6 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.4 years.

Our PSU activity for the three months ended March 31, 2023, was as follows:


		Weighted-
		Average Grant		Aggregate
	PSUs	Date Fair Value		Intrinsic
(In thousands except unit and per unit data)	Outstanding	Per Unit		Value ⁽¹⁾
Balance at December 31, 2022	155,618	$	25.05	$	1,786
Granted	106,183	$	14.35
Vested	(9,915)	$	51.89
Cancelled	(7,762)	$	26.33
Balance at March 31, 2023	244,124	$	19.27	$	4,009

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

Employee Stock Purchase Plan

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

A total of 1,600,000 shares of common stock was initially reserved for issuance under the ESPP. This share reserve will automatically be supplemented each January 1, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the least of (a) 1% of the shares of our common stock outstanding on the immediately preceding December 31, (b) 500,000 shares or (c) such lesser amount as our Board of Directors may determine. Our Board of Directors exercised its prerogative to forego the automatic increase on each of January 1, 2023 and 2022. As of March 31, 2023, 1,559,151 shares were available for future issuance under the ESPP. We recognized stock-based compensation expense associated with the ESPP of $0.2 million for each of the three months ended March 31, 2023 and 2022.

Commitments and Contingencies

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies

Commitments and Contingencies

Note 10. Commitments and Contingencies

Lease Obligations

We lease property and equipment under operating leases, typically with terms greater than 12 months, and determine if an arrangement contains a lease at inception. In general, an arrangement contains a lease if there is an identified asset and we have the right to direct the use of and obtain substantially all of the economic benefit from the use of the identified asset. We record an operating lease liability at the present value of lease payments over the lease term on the commencement date. The related right of use (“ROU”) operating lease asset reflects rental escalation clauses, as well as renewal options and/or termination options. The exercise of lease renewal and/or termination options are at our discretion and are included in the determination of the lease term and lease payment obligations when it is deemed reasonably certain that the option will be exercised. When available, we use the rate implicit in the lease to discount lease payments to present value; however,

certain leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

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

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

Buildings

We lease certain office and warehouse space at various locations in the United States where we provide services. These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded on the Condensed Consolidated Balance Sheets, with rent expense to be recognized on a straight-line basis over the term of the lease. The remaining lease terms vary from approximately one to eight years as of March 31, 2023.

We entered into a lease (“initial lease”) in October 2018, for approximately 80,000 square feet of office space for our new corporate headquarters in Minneapolis, Minnesota. In December 2018, we amended the initial lease to add approximately 29,000 square feet of additional office space, which is accounted for as a separate lease (“second lease”) in accordance with ASU No. 2016-02, “Leases” (Topic 842) (“ASC 842”). In December 2019, we further amended the lease which extended the expiration date of the initial lease, extended the expiration date of and added approximately 4,000 square feet to the second lease, as well as added approximately 37,000 square feet of additional office space, accounted for as a separate lease (“third lease”) in accordance with ASC 842. The portion of the space covered under the initial lease was placed in service in September 2019. This portion was recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets. The portion of the space covered under the second lease commenced 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. 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. As of March 31, 2023, we no longer have any vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities.

Computer and Office Equipment

We also have operating lease agreements for certain computer and office equipment. The remaining lease terms as of March 31, 2023, ranged from less than one year to approximately three 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 March 31, 2023		At December 31, 2022
Right of use operating lease assets	$	20,633	$	21,322

Operating lease liabilities:
Current	$	2,509	$	2,500
Non-current		20,239		20,866
Total	$	22,748	$	23,366

Operating leases:
Weighted average remaining lease term		7.5 years		7.7 years
Weighted average discount rate		4.2%		4.2%

	Three Months Ended March 31,
	2023		2022
Supplemental cash flow information for our operating leases:
Cash paid for operating lease liabilities	$	860	$	918
Non-cash right of use assets obtained in exchange for new operating lease obligations	$	—	$	41

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


(In thousands)
2023 (April 1 - December 31)	$	2,566
2024		3,418
2025		3,518
2026		3,615
2027		3,167
Thereafter		10,082
Total minimum lease payments		26,366
Less: Amount of lease payments representing interest		(3,618)
Present value of future minimum lease payments		22,748
Less: Current obligations under operating lease liabilities		(2,509)
Non-current obligations under operating lease liabilities	$	20,239

Operating lease costs were $0.9 million and $1.0 million for the three months ended March 31, 2023 and 2022, respectively.

Major Vendors

We had purchases from one vendor that accounted for 29% of our total purchases for the three months ended March 31, 2023, and purchases from two vendors that accounted for 29% of our total purchases for the three months ended March 31, 2022.

Purchase Commitments

We issued purchase orders prior to March 31, 2023, totaling $37.4 million for goods that we expect to receive within the next year.

Retirement Plan

We maintain a 401(k) retirement plan for our employees in which eligible employees can contribute a percentage of their pre-tax compensation. We recorded an expense related to our discretionary contributions to the 401(k) plan of $0.4 million for each of the three months ended March 31, 2023 and 2022.

Legal Proceedings

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

We and certain of our present or former officers have been sued in a purported securities class action lawsuit that was filed in the United States District Court for the District of Minnesota on September 29, 2020, and that is pending under the caption Brian Mart v. Tactile Systems Technology, Inc., et al., File No. 0:20-cv-02074-NEB-BRT (the “Mart Lawsuit”). On April 19, 2021, the plaintiff filed an Amended Complaint against us and eight of our present and former officers and directors. Plaintiff seeks to represent a class consisting of investors who purchased our common stock in the market during the time period from May 7, 2018 through June 8, 2020 (“alleged class period”). The Amended Complaint alleges the following claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”): (1) that we and certain officer defendants made materially false or misleading public statements about our business, operational and compliance policies, and results during the alleged class period in violation of Section 10(b) of the Exchange Act; (2) that we and the individual defendants engaged in a scheme to defraud investors in order to allow the individual defendants to sell our stock in violation of Section 10(b) of the Exchange Act; (3) that the individual defendants engaged in improper insider trading of our stock in violation of Section 20A of the Exchange Act; and (4) that we and the individual defendants are liable under Section 20(a) of the Exchange Act because each defendant is a controlling person. On June 18, 2021, we and the individual defendants filed a motion to dismiss the Amended Complaint. On March 31, 2022, the court granted in part, and denied in part, the defendants’ motion to dismiss. All claims against three individual defendants were dismissed, and most claims against four other individual defendants were dismissed. On November 21, 2022, the Company announced that it entered into a Memorandum of Understanding to settle this matter. The Company does not expect to fund any portion of cash payments made in connection with the $5 million settlement amount. The settlement does not constitute an admission of liability or wrongdoing by the Company. The settlement is subject to court approval. On February 28, 2023, the parties executed a stipulation of settlement and the plaintiff filed an unopposed motion for preliminary approval of the class settlement with the court. On April 26, 2023, the court issued a minute order indicating the motion would be approved and on May 4, 2023, issued the written order granting the motion for preliminary approval of the settlement. A hearing for final approval of the settlement will be held on August 23, 2023.

On May 24, 2022, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Company against certain of our present and former officers and directors and the Company (as a nominal defendant), captioned Jack Weaver v. Moen, et al., File No. 0:22-cv-01403-NEB-BRT. This complaint generally arises out of the same subject matter as the Mart Lawsuit and alleges the following claims under the Exchange Act and common law: (1) that the director defendants made materially false or misleading public statements in proxy statements in violation of Section 14(a) of the Exchange Act; (2) that the director defendants’ stock and option awards should be rescinded under Section 29(b) of the Exchange Act; (3) that the officer defendants’ employment contract compensation should be rescinded under Section 29(b) of the Exchange Act; (4) that certain officer defendants are liable for contribution arising out of any liability incurred in the Mart Lawsuit, under Sections 10(b) and 21D of the Exchange Act; (5) that the individual defendants breached their fiduciary duties; and (6) that the individual defendants were unjustly enriched. The lawsuit seeks unspecified damages. In August 2022, the matter was transferred to the United States District Court for the District of Delaware by order granting the Parties Stipulation to Transfer. On February 10, 2023, we filed a motion to dismiss the action. The plaintiff filed an Amended Complaint on March 3, 2023. On March 31, 2023, we filed a motion to dismiss the Amended Complaint. We are defending the action as it proceeds.

Nature of Business and Operations

3 Months Ended

Mar. 31, 2023

Nature of Business and Operations

Nature of Business and Operations

Note 1. Nature of Business and Operations

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

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

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

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

On February 27, 2023, we closed on a public offering of 2,875,000 shares of our common stock at a public offering price of $13.00 per share. We received net proceeds from this offering of $34.6 million after deducting underwriting discounts, commissions, and offering expenses.

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

Revenue (Tables)

3 Months Ended

Mar. 31, 2023

Revenue.

Summary of revenue disaggregated by product


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Revenue
Lymphedema products	$	49,752	$	40,654
Airway clearance products		9,094		7,324
Total	$	58,846	$	47,978

Percentage of total revenue
Lymphedema products		85%		85%
Airway clearance products		15%		15%
Total		100%		100%

Summary of revenue by channel


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Private insurers and other payers	$	25,425	$	26,566
Veterans Administration		5,823		5,635
Medicare		18,504		8,453
Durable medical equipment distributors		9,094		7,324
Total	$	58,846	$	47,978

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


	Three Months Ended March 31,
(In thousands)	2023		2022
Sales-type lease revenue	$	6,055	$	6,808
Cost of sales-type lease revenue		2,736		2,036
Gross profit	$	3,319	$	4,772

Fair Value Measurements (Details) - Maximum $ in Millions	Mar. 31, 2023 USD ($)
Fair Value Measurements
Earn-out liability	$ 5.0
Additional earn out payment	$ 10.0

Nature of Business and Operations (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended
	Feb. 27, 2023	Aug. 02, 2016	Mar. 31, 2023
Subsidiary, Sale of Stock
Net proceeds received after deducting underwriting discounts, commissions, and offering expenses			$ 34,625
IPO
Subsidiary, Sale of Stock
Number of shares of common stock sold		4,120,000
IPO price per share (in dollars per share)		$ 10.00
Net proceeds from the initial public offering		$ 35,400
Expense Relating To Initial Public Offering		$ 2,900
Follow-On Public Offering
Subsidiary, Sale of Stock
Number of shares of common stock sold	2,875,000
Stock price	$ 13.00
Net proceeds received after deducting underwriting discounts, commissions, and offering expenses	$ 34,600

Acquisitions - Purchase Price Allocation (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Sep. 30, 2021
Purchase price allocation
Inventories	$ 20,014	$ 23,124
Property, plant and equipment	5,655	6,077
Intangible assets	49,465	50,375
Goodwill	$ 31,063	$ 31,063
AffloVest APA
Purchase price allocation
Goodwill			$ 31,100

- Definition

Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

+ References + Details

Acquisitions

3 Months Ended

Mar. 31, 2023

Acquisitions

Acquisitions

Note 4. Acquisitions

On September 8, 2021, we entered into an Asset Purchase Agreement (“AffloVest APA”) to acquire the AffloVest airway clearance business from IBC. Under the terms of the AffloVest APA, we agreed to pay IBC a total of up to $100.0 million for the purchase of substantially all of the assets related to its branded high frequency chest wall oscillation vest therapy business, other than specifically identified excluded assets. We acquired AffloVest to further expand our position as a leader in treating patients with underserved chronic conditions in the home. The acquired assets included inventory, tooling, intellectual property, permits and approvals, data and records, and customer and supplier information. At closing, $80.0 million of the purchase price was paid, of which a total of $0.5 million was deposited into an escrow account at closing for purposes of satisfying certain post-closing purchase price adjustments and indemnification claims. Subsequent to closing, $0.2 million was returned to us as a result of working capital adjustments and the remaining $0.3 million was released to IBC. The AffloVest Acquisition was funded through a combination of cash on hand and proceeds from borrowings.

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

●

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

o

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

●

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

o

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

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

Commitments and Contingencies - Retirement Plan (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
401(k)
Retirement Plan
Discretionary contributions	$ 0.4	$ 0.4

Stockholders' Equity - Employee Stock Purchase Plan (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Apr. 27, 2016
Stockholders' Equity
Stock-based compensation expense	$ 2,023	$ 2,228
2016 Plan
Stockholders' Equity
Shares reserved	5,614,397
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	1,559,151		1,600,000
Incremental share increase (as a percent)	1.00%
Incremental share increase (in shares)	500,000
Stock-based compensation expense	$ 200	$ 200

Commitments and Contingencies - Lease commitments and operating lease cost (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Commitments and Contingencies
Operating lease cost	$ 0.9	$ 1.0

Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	(Accumulated Deficit) Retained Earnings	Total
Balances at the beginning at Dec. 31, 2021	$ 20	$ 119,962	$ 8,245	$ 128,227
Balances at the beginning (in shares) at Dec. 31, 2021	19,877,786
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		2,228		2,228
Exercise of common stock options and vesting of performance and restricted stock units		91		91
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	62,057
Net loss for the period			(15,568)	(15,568)
Balances at the end at Mar. 31, 2022	$ 20	122,281	(7,323)	114,978
Balances at the end (in shares) at Mar. 31, 2022	19,939,843
Balances at the beginning at Dec. 31, 2022	$ 20	131,001	(9,621)	121,400
Balances at the beginning (in shares) at Dec. 31, 2022	20,252,677
Increase (Decrease) in Stockholders' Equity
Stock-based compensation		2,023		2,023
Exercise of common stock options and vesting of performance and restricted stock units (in shares)	107,388
Sale of common stock from follow-on public offering, net of offering expenses	$ 3	34,622		34,625
Sale of common stock from follow-on public offering, net of offering expenses (in shares)	2,875,000
Net loss for the period			(1,886)	(1,886)
Balances at the end at Mar. 31, 2023	$ 23	$ 167,646	$ (11,507)	$ 156,162
Balances at the end (in shares) at Mar. 31, 2023	23,235,065

- Definition

Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.

+ References

Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(g)(1)(ii))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 2: http://www.xbrl.org/2003/role/exampleRef
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-Name Accounting Standards Codification
-Topic 852
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-Section 55
-Paragraph 10
-URI https://asc.fasb.org/extlink&oid=84165509&loc=d3e56426-112766

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-Topic 310
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SAB Topic 4.E)
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Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 6: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 7: http://www.xbrl.org/2009/role/commonPracticeRef
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Reference 8: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 323
-SubTopic 10
-Section 50
-Paragraph 3
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=114001798&loc=d3e33918-111571

+ Details

Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Fair Value Measurements

Fair Value Measurements

Note 15. Fair Value Measurements

We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3).

As of March 31, 2023, we had obligations to pay a $5.0 million agreed-upon earn-out payment in cash and up to an additional $10.0 million earn-out payment in cash if certain future U.S. revenues of the AffloVest are met. The earn-out liability was valued by employing a Monte Carlo Simulation model in a risk-neutral framework, which is a Level 3 input. The underlying simulated variable includes recognized revenue. The recognized revenue volatility estimate was based on a study of historical asset volatility for a set of comparable public companies. The model includes other assumptions including the market price of risk, which was calculated as the weighted average cost of capital less the long-term risk-free rate. The earn-out liability is adjusted to fair value at each reporting date until settled. Changes in fair value are included in intangible asset amortization and earn-out expenses in our Condensed Consolidated Statements of Operations.

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


(In thousands)
Earn-out liability at December 31, 2022	$	13,050
Fair value adjustments		660
Earn-out liability at March 31, 2023	$	13,710


(In thousands)
Earn-out liability at December 31, 2021	$	6,200
Fair value adjustments		6,450
Earn-out liability at March 31, 2022	$	12,650

As of March 31, 2023, the fair value of the earn-out liability accrued but not yet earned totaled $8.7 million and was classified as a current liability. The remaining $5.0 million of the earn-out liability had been earned, is to be paid by May 26, 2023 and was classified as a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of March 31, 2023, and December 31, 2022, according to the three-level fair value hierarchy:


	At March 31, 2023
	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	$	—		—	$	8,710	$	8,710
Total	$	—	$	—	$	8,710	$	8,710


	At December 31, 2022
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Earn-out liability	$	—	$	—	$	8,050	$	8,050
Total	$	—	$	—	$	8,050	$	8,050

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.

- 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

Accrued Expenses

3 Months Ended

Mar. 31, 2023

Accrued Expenses

Accrued Expenses

Note 7. Accrued Expenses

Accrued expenses consisted of the following:


(In thousands)	At March 31, 2023		At December 31, 2022
Warranty	$	1,916	$	2,005
Travel		1,188		1,121
Legal and consulting		803		730
In-transit inventory		485		3,228
Clinical studies		230		276
Sales and use tax		114		147
Other		1,865		1,733
Total	$	6,601	$	9,240

Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2023

Accrued Expenses

Schedule of Accrued Expenses


(In thousands)	At March 31, 2023		At December 31, 2022
Warranty	$	1,916	$	2,005
Travel		1,188		1,121
Legal and consulting		803		730
In-transit inventory		485		3,228
Clinical studies		230		276
Sales and use tax		114		147
Other		1,865		1,733
Total	$	6,601	$	9,240

Commitments and Contingencies - Major Vendors (Details) - item	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Vendor One
Commitments and Contingencies
Number of vendors	1
Vendor Two
Commitments and Contingencies
Number of vendors		2
Purchases \| Vendor \| Vendor One
Commitments and Contingencies
Total purchases (in percentage)	29.00%
Purchases \| Vendor \| Vendor Two
Commitments and Contingencies
Total purchases (in percentage)		29.00%

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash flows from operating activities
Net loss	$ (1,886)	$ (15,568)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,629	1,507
Deferred income taxes		115
Stock-based compensation expense	2,023	2,228
Loss on disposal of property and equipment and intangibles	3
Change in fair value of earn-out liability	660	6,450
Changes in assets and liabilities, net of acquisition:
Accounts receivable	3,806	3,551
Net investment in leases	2,349	175
Inventories	3,110	(262)
Income taxes	(2,919)	(40)
Prepaid expenses and other assets	(1,056)	(556)
Right of use operating lease assets	71	55
Accounts receivable, non-current	3,078	(730)
Accounts payable	(403)	1,177
Accrued payroll and related taxes	(5,636)	(2,658)
Accrued expenses and other liabilities	(5,331)	1,350
Net cash used in operating activities	(502)	(3,206)
Cash flows from investing activities
Purchases of property and equipment	(241)	(131)
Intangible assets expenditures	(50)	(44)
Net cash used in investing activities	(291)	(175)
Cash flows from financing activities
Payments on note payable	(750)	(3,750)
Payments of deferred debt issuance costs		(39)
Proceeds from exercise of common stock options		91
Proceeds from issuance of common stock at market	34,625
Net cash provided by (used in) financing activities	33,875	(3,698)
Net increase (decrease) in cash and cash equivalents	33,082	(7,079)
Cash and cash equivalents - beginning of period	21,929	28,229
Cash and cash equivalents - end of period	55,011	21,150
Supplemental cash flow disclosure
Cash paid for interest	927	413
Cash paid for taxes	6	12
Capital expenditures incurred but not yet paid	$ 10	$ 8

Commitments and Contingencies - Purchase Commitments (Details) $ in Millions	Mar. 31, 2023 USD ($)
Purchase commitments
Purchase orders issued	$ 37.4

Basis of Presentation

3 Months Ended

Mar. 31, 2023

Basis of Presentation

Basis of Presentation

Note 2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.

The results for the three months ended March 31, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, or for any other interim period or for any future year. The condensed consolidated interim financial statements should be read in conjunction with the audited financial

statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Principles of Consolidation

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

Risks and Uncertainties

Coronavirus (COVID-19)

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during most of 2021 and during the first quarter of 2022. We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic. While we saw some level of recovery in 2022 and the first quarter of 2023, ongoing consequences of the pandemic remain uncertain. There are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have. For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time.

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

Use of Estimates

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

Warranty Reserves

3 Months Ended

Mar. 31, 2023

Warranty Reserves

Warranty Reserves

Note 8. Warranty Reserves

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


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Beginning balance	$	4,212	$	4,959
Warranty provision		874		643
Processed warranty claims		(1,086)		(607)
Ending balance	$	4,000	$	4,995

Accrued warranty reserve, current	$	1,916	$	1,998
Accrued warranty reserve, non-current		2,084		2,997
Total accrued warranty reserve	$	4,000	$	4,995

Fair Value Measurements - Fair Value Hierarchy (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
Significant Unobservable Inputs (Level 3)
Fair Value Measurements
Earn-out liability	$ 13,710	$ 13,050	$ 12,650	$ 6,200
Recurring
Fair Value Measurements
Earn-out liability	8,710	8,050
Available for sale debt securities	8,710	8,050
Recurring \| Significant Unobservable Inputs (Level 3)
Fair Value Measurements
Earn-out liability	8,710	8,050
Available for sale debt securities	$ 8,710	$ 8,050

Revenue

3 Months Ended

Mar. 31, 2023

Revenue.

Revenue

Note 12. Revenue

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


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Revenue
Lymphedema products	$	49,752	$	40,654
Airway clearance products		9,094		7,324
Total	$	58,846	$	47,978

Percentage of total revenue
Lymphedema products		85%		85%
Airway clearance products		15%		15%
Total		100%		100%

Our revenue by channel, inclusive of sales and rental revenue, for the three months ended March 31, 2023 and 2022, are summarized in the following table:


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Private insurers and other payers	$	25,425	$	26,566
Veterans Administration		5,823		5,635
Medicare		18,504		8,453
Durable medical equipment distributors		9,094		7,324
Total	$	58,846	$	47,978

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

The revenue and associated cost of revenue of sales-type leases are recognized on the lease commencement date and a net investment in leases is recorded on the Condensed Consolidated Balance Sheet. We bill the patients’ insurance payers monthly over the duration of the rental term. We record the net investment in leases and recognize revenue upon commencement of the lease in the amount of the expected consideration to be received through the monthly payments. Similar to our sales revenue, the transaction price is impacted by multiple factors, including the terms and conditions contracted by third-party payers. As the rental contract resides with the patients, we have elected the portfolio approach, at the payer level, to determine the expected consideration, which considers the impact of early terminations. While the contract is with the patient, in certain circumstances, the third-party payer elects an initial rental period with an option to extend. We assess the likelihood of extending the lease at the onset of the lease to determine if the option is reasonably certain to be exercised. As the lease is short-term in nature, we anticipate collection of substantially all of the net investment within the first year of the lease agreement. Completion of these payments represents the fair market value of the equipment, and as such, interest income is not applicable.

Rental revenue for the three months ended March 31, 2023 and 2022, was primarily from private insurers. Sales-type lease revenue and the associated cost of revenue for the three months ended March 31, 2023 and 2022, was:


	Three Months Ended March 31,
(In thousands)	2023		2022
Sales-type lease revenue	$	6,055	$	6,808
Cost of sales-type lease revenue		2,736		2,036
Gross profit	$	3,319	$	4,772

- 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

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+ Details

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common shares authorized	300,000,000	300,000,000
Common stock, shares, issued	23,235,065	20,252,677
Common stock, shares, outstanding	23,235,065	20,252,677

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2023

Fair Value Measurements

Schedule of changes in the earn-out liability


(In thousands)
Earn-out liability at December 31, 2022	$	13,050
Fair value adjustments		660
Earn-out liability at March 31, 2023	$	13,710


(In thousands)
Earn-out liability at December 31, 2021	$	6,200
Fair value adjustments		6,450
Earn-out liability at March 31, 2022	$	12,650

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


	At March 31, 2023
	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	$	—		—	$	8,710	$	8,710
Total	$	—	$	—	$	8,710	$	8,710


	At December 31, 2022
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Fair Value Measurements:
Earn-out liability	$	—	$	—	$	8,050	$	8,050
Total	$	—	$	—	$	8,050	$	8,050

Warranty Reserves (Details) - USD ($) $ in Thousands	3 Months Ended
Warranty Reserves (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 4,212	$ 4,959
Warranty provision	874	643
Processed warranty claims	(1,086)	(607)
Ending balance	4,000	4,995
Accrued warranty reserve, current	1,916	1,998	$ 2,005
Accrued warranty reserve, non-current	2,084	2,997	$ 2,207
Total accrued warranty reserve	$ 4,000	$ 4,995

Commitments and Contingencies - Lease related assets and liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
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	$ 20,633		$ 21,322
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Operating lease liabilities, Current		Operating lease liabilities, Current
Operating lease liabilities, Current	$ 2,509		$ 2,500
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	$ 20,239		$ 20,866
Present value of future minimum lease payments	$ 22,748		$ 23,366
Weighted average remaining lease term	7 years 6 months		7 years 8 months 12 days
Weighted average discount rate	4.20%		4.20%
Cash paid for operating lease liabilities	$ 860	$ 918
Non-cash right of use assets obtained in exchange for new operating lease obligations		$ 41

Warranty Reserves (Tables)

3 Months Ended

Mar. 31, 2023

Warranty Reserves

Schedule of warranty reserves


	Three Months Ended
	March 31,
(In thousands)	2023		2022
Beginning balance	$	4,212	$	4,959
Warranty provision		874		643
Processed warranty claims		(1,086)		(607)
Ending balance	$	4,000	$	4,995

Accrued warranty reserve, current	$	1,916	$	1,998
Accrued warranty reserve, non-current		2,084		2,997
Total accrued warranty reserve	$	4,000	$	4,995

Net Loss Per Share - Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Net Loss Per Share
Net loss	$ (1,886)	$ (15,568)
Weighted-average shares outstanding	21,283,752	19,898,502
Weighted-average shares used to compute diluted net loss per share	21,283,752	19,898,502
Net loss per share - Basic	$ (0.09)	$ (0.78)
Net loss per share - Diluted	$ (0.09)	$ (0.78)

- 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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- 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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Income Taxes

3 Months Ended

Mar. 31, 2023

Income Taxes

Income Taxes

Note 13. Income Taxes

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income (loss) and adjusting for discrete tax items recorded in the period. Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods used for income tax reporting purposes, including for depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable and inventory reserves. Our provision for income taxes included current federal and state income tax expense, as well as deferred federal and state income tax expense.

The effective tax rate for the three months ended March 31, 2023, was a benefit of 60.7%, compared to an expense of 1.4% for the three months ended March 31, 2022. The primary driver of the change in our effective tax rate is attributable to our expectation that we will have current taxes payable for 2023, despite having a full valuation allowance. Additionally, there are significant permanent adjustments for nondeductible meals expense which were not relevant to the prior year period. We recorded an income tax benefit of $2.9 million and an expense of $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

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

The Company currently is not under examination in any jurisdictions.

- 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.

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+ Details

Inventories

3 Months Ended

Mar. 31, 2023

Inventories

Inventories

Note 5. Inventories

Inventories consisted of the following:


(In thousands)	At March 31, 2023		At December 31, 2022
Finished goods	$	5,930	$	5,100
Component parts and work-in-process		14,084		18,024
Total inventories	$	20,014	$	23,124

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Mar. 31, 2022
Income Taxes
Net effective rate	(60.70%)	1.40%
Income tax (benefit) expense	$ (2,913)	$ 211

- Definition

Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.

+ References + Details

Summary of Significant Accounting Policies (Policies)	3 Months Ended
Summary of Significant Accounting Policies (Policies)	Mar. 31, 2023
Summary of Significant Accounting Policies
Basis of Presentation	The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. The results for the three months ended March 31, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, or for any other interim period or for any future year. The condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Principles of Consolidation	Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of Tactile Systems Technology, Inc. and its wholly owned subsidiary, Swelling Solutions, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Risks and Uncertainties	Risks and Uncertainties Coronavirus (COVID-19) The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic. We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols, particularly during most of 2021 and during the first quarter of 2022. We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic. While we saw some level of recovery in 2022 and the first quarter of 2023, ongoing consequences of the pandemic remain uncertain. There are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have. For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time. Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to the needs of our employees, clinicians and patients. We cannot assure you these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business. We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.
Use of Estimates	Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncement Not Yet Adopted	Accounting Pronouncement Not Yet Adopted In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-06, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2022-06”), which provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The ASU is effective as of December 31, 2022 through December 31, 2024. We continue to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. We have not elected any expedients to date and are currently evaluating any potential future impacts on the consolidated financial statements.

Net Loss Per Share (Tables)

3 Months Ended

Mar. 31, 2023

Net Loss Per Share

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


	Three Months Ended
	March 31,
(In thousands, except share and per share data)	2023		2022
Net loss	$	(1,886)	$	(15,568)
Weighted-average shares outstanding		21,283,752		19,898,502
Weighted-average shares used to compute diluted net loss per share		21,283,752		19,898,502
Net loss per share - Basic	$	(0.09)	$	(0.78)
Net loss per share - Diluted	$	(0.09)	$	(0.78)

Schedule of potentially dilutive securities outstanding


	Three Months Ended
	March 31,
	2023	2022
Restricted stock units	736,942	496,643
Common stock options	586,212	852,406
Performance stock units	233,798	164,027
Employee stock purchase plan	125,775	84,808
Total	1,682,727	1,597,884

Acquisitions (Details)	Nov. 04, 2022 USD ($)	Sep. 08, 2021 USD ($)	Mar. 31, 2023 USD ($)
Maximum
Acquisitions
Earn-out liability			$ 5,000,000.0
AffloVest APA
Acquisitions
Business revenue to exceed base revenue, Multiplier	1.5
Earn-out liability, asset acquisition	$ 10,000,000.0
AffloVest APA \| Earn-out period on or before November 28,2022
Acquisitions
Earn-out liability, asset acquisition	5,000,000.0
AffloVest APA \| Earn-out period on or before May 26, 2023
Acquisitions
Earn-out liability, asset acquisition	5,000,000.0
Imputed interest payment	$ 250,000
AffloVest APA \| Second earn-out amendment
Acquisitions
Business revenue to exceed base revenue, Multiplier	3.0
Earn-out liability, asset acquisition	$ 10,000,000.0
AffloVest APA
Acquisitions
Purchase price		$ 80,000,000.0
Escrow account		500,000
Working capital adjustments		200,000
Amount released to IBC		300,000
Earn-out liability		$ 6,400,000
AffloVest APA \| Earn-out period exceed Base Revenues from October 1, 2021 to September 30, 2022
Acquisitions
Business revenue to exceed base revenue, Multiplier		1.5
AffloVest APA \| Earn-out period exceed Base Revenues from October 1, 2022 to September 30, 2023
Acquisitions
Business revenue to exceed base revenue, Multiplier		1.5
AffloVest APA \| Maximum
Acquisitions
Total consideration transferred		$ 100,000,000.0
AffloVest APA \| Maximum \| Earn-out period exceed Base Revenues from October 1, 2021 to September 30, 2022
Acquisitions
Earn-out liability		10,000,000.0
AffloVest APA \| Maximum \| Earn-out period exceed Base Revenues from October 1, 2022 to September 30, 2023
Acquisitions
Earn-out liability, asset acquisition		$ 10,000,000.0

Commitments and Contingencies - Legal Proceedings (Details) $ in Millions	Nov. 21, 2022 USD ($)
Commitments and Contingencies
Settlement amount	$ 5

Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Inventories
Finished goods	$ 5,930	$ 5,100
Component parts and work-in-process	14,084	18,024
Total inventories	$ 20,014	$ 23,124

Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2023

Goodwill and Intangible Assets.

Goodwill and Intangible Assets

Note 6. Goodwill and Intangible Assets

Goodwill

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

Intangible Assets

Our patents and other intangible assets are summarized as follows:


	Weighted-	At March 31, 2023
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	903	$	192	$	711
Defensive intangible assets	2 years		1,125		807		318
Customer accounts	< 1 year		125		121		4
Customer relationships	11 years		31,000		3,722		27,278
Developed technology	9 years		13,000		1,845		11,155
Subtotal			46,153		6,687		39,466
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			499		—		499
Total intangible assets		$	56,152	$	6,687	$	49,465


	Weighted-	At December 31, 2022
	Average	Gross
	Amortization	Carrying		Accumulated		Net
(In thousands)	Period	Amount		Amortization		Amount
Definite-lived intangible assets:
Patents	12 years	$	897	$	173	$	724
Defensive intangible assets	2 years		1,126		764		362
Customer accounts	< 1 year		125		114		11
Customer relationships	12 years		31,000		3,127		27,873
Developed technology	10 years		13,000		1,550		11,450
Subtotal			46,148		5,728		40,420
Unamortized intangible assets:
Tradenames			9,500		—		9,500
Patents pending			455		—		455
Total intangible assets		$	56,103	$	5,728	$	50,375

Amortization expense was $1.0 million for each of the three months ended March 31, 2023 and 2022. Future amortization expenses are expected as follows:


(In thousands)
2023 (April 1 - December 31)	$	2,849
2024		3,787
2025		3,698
2026		3,633
2027		3,623
Thereafter		21,876
Total	$	39,466

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

Goodwill And Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022	Sep. 30, 2021
Patents and Intangibles
Goodwill	$ 31,063		$ 31,063
Impairment recognized	0
Definite-lived intangible assets:
Gross Carrying Amount	46,153		46,148
Accumulated Amortization	6,687		5,728
Total	39,466		40,420
Unamortized intangible assets:
Total intangible assets (Gross)	56,152		56,103
Total intangible assets (Net)	49,465		50,375
Amortization expense	1,000	$ 1,000
Future Amortization
2023 (April 1 - December 31)	2,849
2024	3,787
2025	3,698
2026	3,633
2027	3,623
Thereafter	21,876
Total	39,466		40,420
Tradenames
Unamortized intangible assets:
Gross Carrying Amount, Indefinite	9,500		9,500
Patents
Unamortized intangible assets:
Gross Carrying Amount, Indefinite	$ 499		$ 455
Patents
Definite-lived intangible assets:
Weighted Average Amortization Period	12 years		12 years
Gross Carrying Amount	$ 903		$ 897
Accumulated Amortization	192		173
Total	711		724
Future Amortization
Total	$ 711		$ 724
Defensive intangible assets
Definite-lived intangible assets:
Weighted Average Amortization Period	2 years		2 years
Gross Carrying Amount	$ 1,125		$ 1,126
Accumulated Amortization	807		764
Total	318		362
Future Amortization
Total	318		362
Customer accounts
Definite-lived intangible assets:
Gross Carrying Amount	125		125
Accumulated Amortization	121		114
Total	4		11
Future Amortization
Total	$ 4		$ 11
Customer relationships
Definite-lived intangible assets:
Weighted Average Amortization Period	11 years		12 years
Gross Carrying Amount	$ 31,000		$ 31,000
Accumulated Amortization	3,722		3,127
Total	27,278		27,873
Future Amortization
Total	$ 27,278		$ 27,873
Developed technology
Definite-lived intangible assets:
Weighted Average Amortization Period	9 years		10 years
Gross Carrying Amount	$ 13,000		$ 13,000
Accumulated Amortization	1,845		1,550
Total	11,155		11,450
Future Amortization
Total	$ 11,155		$ 11,450
Maximum
Definite-lived intangible assets:
Weighted Average Amortization Period	1 year		1 year
AffloVest APA
Patents and Intangibles
Goodwill				$ 31,100

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies

There were no material changes in our significant accounting policies during the three months ended March 31, 2023. See Note 3 – “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, for information regarding our significant accounting policies.

Accounting Pronouncement Not Yet Adopted

In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-06, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2022-06”), which provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The ASU is effective as of December 31, 2022 through December 31, 2024. We continue

to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. We have not elected any expedients to date and are currently evaluating any potential future impacts on the consolidated financial statements.

Credit Agreement (Tables)

3 Months Ended

Mar. 31, 2023

Credit Agreement

Schedule of maturities of the term note payable


(In thousands)	Amount
2023 (April 1 - December 31)		2,250
2024		21,000
Total	$	23,250

Commitments and Contingencies - Undiscounted cash flows (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Undiscounted cash flows
2023 (April 1 - December 31)	$ 2,566
2024	3,418
2025	3,518
2026	3,615
2027	3,167
Thereafter	10,082
Total minimum lease payments	26,366
Less: Amount of lease payments representing interest	(3,618)
Present value of future minimum lease payments	22,748	$ 23,366
Less: Current obligations under operating lease liabilities	(2,509)	(2,500)
Non-current obligations under operating lease liabilities	$ 20,239	$ 20,866

Net Loss Per Share

3 Months Ended

Mar. 31, 2023

Net Loss Per Share

Net Loss Per Share

Note 14. Net Loss Per Share

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


	Three Months Ended
	March 31,
(In thousands, except share and per share data)	2023		2022
Net loss	$	(1,886)	$	(15,568)
Weighted-average shares outstanding		21,283,752		19,898,502
Weighted-average shares used to compute diluted net loss per share		21,283,752		19,898,502
Net loss per share - Basic	$	(0.09)	$	(0.78)
Net loss per share - Diluted	$	(0.09)	$	(0.78)

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


	Three Months Ended
	March 31,
	2023	2022
Restricted stock units	736,942	496,643
Common stock options	586,212	852,406
Performance stock units	233,798	164,027
Employee stock purchase plan	125,775	84,808
Total	1,682,727	1,597,884

Fair Value Measurements - Earn out liability (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value measure, earn out liability current	$ 8,700
Payment on earn-out	5,000
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Earn-out liability, beginning balance	13,050	$ 6,200
Fair value adjustments	660	6,450
Earn-out liability, ending balance	$ 13,710	$ 12,650

Stockholders' Equity - Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Stock-based compensation
Compensation expense	$ 2,023	$ 2,228
Cost of revenue.
Stock-based compensation
Compensation expense	103	102
Sales and marketing expenses
Stock-based compensation
Compensation expense	752	1,027
Research and development expenses
Stock-based compensation
Compensation expense	49	83
Reimbursement, general and administrative expenses
Stock-based compensation
Compensation expense	$ 1,119	$ 1,016
2016 Plan
Stock-based compensation
Number of shares authorized	4,800,000
Automatic annual increase to the number of shares reserved and available for issuance as a percentage of outstanding common stock (as a percent)	5.00%
Automatic annual increase to the number of shares reserved and available for issuance	2,500,000
Shares available for future issuance	5,614,397