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

This Management's Discussion and Analysis of Financial Condition and Results of
Operations focuses on discussion of year-over-year comparisons between 2021 and
2020. Discussion of 2019 results and year-over-year comparisons between 2020 and
2019 that are not included in this Annual Report on Form 10-K can be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year
ended December 31, 2020, filed with the SEC on February 23, 2021.

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

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

Incorporating remote and flexible work arrangements for employees whenever

possible, including real-time, online training of our new sales

? representatives. In addition, we are monitoring pandemic conditions to assess

whether our in-office and remote work strategy remains both productive and

competitive.

Eliminating employee travel restrictions in alignment with the opening of

? healthcare facilities and clinics while also continuing to maintain social

distancing contact restrictions to reduce exposure.

? Utilizing a mix of employee trainers and independent healthcare practitioners

to educate patients on the proper use of our solutions virtually or in-person.

Continuing to host large virtual medical education programs, while also

? beginning to schedule smaller in-person meetings and restoring attendance at

key professional congresses.

? Supporting clinicians and patients by using rigorous infection control

practices when in-person visits are required.

Following government guidelines related to vaccinations of our staff in light

 ? of customer vaccination requirements and our focus on safe interactions with
   patients and customers.


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

Overview

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

Our current products are the Flexitouch system, Entre system and AffloVest. A
predecessor to our Flexitouch system received 510(k) clearance from the U.S.
Food and Drug Administration (the "FDA") in July 2002, and we introduced the
system to address the many limitations of self-administered home-based manual
lymphatic drainage therapy. We began selling our more advanced Flexitouch system
after receiving 510(k) clearance from the FDA in October 2006. In September
2016, we received 510(k) clearance from the FDA for the Flexitouch system in
treating lymphedema of the head and neck. In June 2017, we announced that we
received 510(k) clearance from the FDA for the Flexitouch Plus, the
third-generation version of our Flexitouch system. In December 2020, we received
510(k) clearance for two new indications for our Flexitouch Plus system:
phlebolymphedema and lipedema. We derive the vast majority of our revenue from
our Flexitouch system. Sales and rentals of our Flexitouch system represented
85% and 88% of our revenue in the years ended December 31, 2021 and 2020,
respectively.

We introduced our Entre system in the United States in February 2013. The Entre
system is sold or rented to patients who need a simple pump or who do not yet
qualify for insurance reimbursement for an advanced compression device such as
our Flexitouch system. For the years ended December 31, 2021 and 2020, sales and
rentals of our Entre system represented 13% and 12% of our revenue,
respectively.

We previously sold and rented another proprietary product, the Actitouch system.
During fiscal year 2018, we recorded a $2.5 million non-cash impairment charge
to fully impair the inventory and intangible assets related to our Actitouch
system due to the lack of market demand for the product. We formally
discontinued this product line in the first quarter of 2020. See Note 9 -
"Goodwill and Intangible Assets" to the consolidated financial statements in
this report for more information regarding this impairment charge and
discontinuation.

On September 8, 2021, we acquired the assets of the AffloVest respiratory
therapy product line from International Biophysics Corporation ("IBC"), a
privately-held company which developed and manufactures AffloVest. AffloVest is
a portable, wearable vest that provides airway clearance to treat patients with
chronic respiratory conditions such as bronchiectasis or conditions resulting
from neuromuscular disorders. For the year ended December 31, 2021, sales of
AffloVest represented 2% our revenue.

In October 2018, we licensed the intellectual property rights related to the
Airwear Gradient Compression Wrap, or the Airwear wrap, in the U.S. and Canada,
for use in all medical applications, including but not limited to swelling/edema
and ulcers (including lymphedema and chronic venous insufficiency conditions),
but excluding the use of the intellectual property in the field of prophylaxis
for deep vein thrombosis. The Airwear wrap is indicated for the management of
venous insufficiency, venous hypertension, venous ulcerations and lymphedema. We
began selling the Airwear wrap in a limited market in the fourth quarter of
2019. We subsequently made the strategic decision to discontinue the Airwear
wrap in the second quarter of 2020 and, effective July 31, 2020, Sun Scientific,
Inc. terminated the license agreement with us related to the Airwear wrap. See
Note 9 - "Goodwill and Intangible Assets" to the consolidated financial
statements in this report for more information regarding the related impairment
charge.

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To support the growth of our business, we invest heavily in our commercial
infrastructure, consisting of our direct sales force, training resources,
reimbursement capabilities and clinical expertise. We market our Flexitouch and
Entre products in the United States using a direct-to-patient and -provider
model. Our field commercial team consists of our direct sales force and a team
of Field Support Specialists. The AffloVest device is sold through respiratory
durable medical equipment providers throughout the United States. Our collective
field commercial team, including our respiratory sales force, has grown to over
346 employees as of December 31, 2021, compared to 285 employees as of December
31, 2020.

As it relates to the impact of COVID-19 on our commercial processes, in the
first half of 2021, we continued to see restrictions loosen, in line with the
applicable governmental regulations. Conversely, in the second half of 2021, we
were adversely impacted by the resurgence due to variants, resulting in renewed
patient cancellations, absenteeism of staff and access limitations implemented
by clinics and health systems. As a result, we continue to engage in virtual
interactions if possible. We expect these virtual interactions with clinicians
and patients to continue into the future until the pandemic subsides, and
perhaps as a best practice in the future.

Additionally, with respect to sales force staffing, our results in the second
half of 2021 were negatively impacted by the challenging labor market, which, in
combination with some reluctance around our vaccination policy among both
existing representatives and potential new hires, impacted recruiting and
retention.

We invest substantial resources in our reimbursement function to improve
operational efficiencies and enhance individual payer expertise, while
continuing our strategic focus of payer development. Our payer relations
function focuses on payer policy development, education, contract negotiations,
and data analysis. Our reimbursement operations function is responsible for
verifying patient insurance benefits, individual patient case development, prior
authorization submissions, case follow-up, and appeals when necessary. Since the
onset of COVID-19, our reimbursement function has been actively working with
Medicare and a broad base of private payers to understand the ever-changing
reimbursement criteria being introduced. We have seen increased flexibility in
coverage criteria with select payers in which they now allow the use of virtual
patient interactions in place of the previously required in-person interactions.
However, as these circumstances are ever-changing, the extent to which these
changes will remain in place and the impact on our business in the future are
not determinable at this time.

We also have a clinical team, consisting of a scientific advisory board,
in-house therapists and nurses, and a Chief Medical Officer, that serves as a
resource to clinicians and patients and guides the development of clinical
evidence in support of our products. Most clinical studies require observation
and interaction with clinicians and patients to monitor results and progress.
Given the impact of COVID-19, patient recruitment for our clinical studies
involving our products and clinical outcomes had previously been suspended in
2020. In 2021, all of our clinical trials have resumed research activities,
including study visits and new patient enrollments, albeit more slowly than the
targeted enrollment rates.

We rely on third party contract manufacturers for the sourcing of parts, the
assembly of our controllers and the manufacturing of the garments used with our
Flexitouch and Entre systems. We conduct final assembly of the garments used
with our Flexitouch system, perform quality assurance and ship our Flexitouch
and Entre products from our facility in Minneapolis, Minnesota. The AffloVest
device is currently manufactured by a third party, IBC, pursuant to a Transition
Services Agreement. We plan for IBC to continue to manufacture the product on
our behalf through the first half of 2022.

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

For the year ended December 31, 2021, we generated revenue of $208.1 million and
had a net loss of $11.8 million, compared to revenue of $187.1 million and a net
loss of $0.6 million for the year ended December 31, 2020, and revenue of
$189.5 million and net income of $11.0 million for the year ended December 31,
2019.

Our primary sources of capital since our initial public offering in 2016 have
been from operating income and bank financing.

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We operate in one segment for financial reporting purposes.

Components of our Results of Operations

Revenue

We derive our revenue from sales and rentals of our Flexitouch and Entre
systems, to patients in the United States. Revenue growth has been driven by
increased clinician, patient and payer awareness of lymphedema and the clinical
efficacy of our Flexitouch system, and the launch of our Entre system in 2013.
We have expanded our direct sales force, which helps us drive and support our
revenue growth and intend to continue this expansion. However, any reversal in
these recent trends could have a negative impact on our future revenue.

We sell or rent our Flexitouch and Entre systems either directly to patients or
to the Veterans Administration on behalf of patients, who are referred to us by
physicians, therapists or nurses. We bill payers, such as private insurers,
Medicare, or Medicaid, on behalf of our patients and bill patients directly for
their cost-sharing amounts, including any portion of an unsatisfied deductible
and any copayments or co-insurance. We bill the Veterans Administration directly
for the purchase or lease of our product on behalf of the patient. Approximately
13% of our revenue in each of 2021 and 2020 came from the Veterans
Administration. Approximately 17% of our revenue in 2021 and 16% of our revenue
in 2020 came from Medicare patients. Changes to the level of Medicare coverage
for our products could reduce the number of Medicare patients who have access to
our products. Our products currently are not subject to the competitive bidding
process for supplying covered items to Medicare recipients.

We derive revenue from sales of our AffloVest product to accredited DME
providers. These respiratory DME providers provide a full range of solutions for
these patients with complex diseases, and represent a large, developed channel.
Respiratory DME partners serve the role of receiving prescriptions, verifying
coverage criteria, shipping, billing and training the patient. We intend to
expand and support our respiratory DME partners, in an effort to help
demonstrate HFCWO as a staple among the host of treatments they bring to chronic
respiratory patients, thereby allowing us to continue to grow revenue from this
product offering.

Our revenue has fluctuated, and we expect our revenue to continue to fluctuate,
from quarter to quarter due to a variety of factors, including seasonality. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Seasonality" for a further discussion of factors contributing to
our seasonality. Further, our revenue is impacted by fluctuations in the mix of
products being sold and rented during each period and changes in the mix of our
payers and contract pricing.

Furthermore, we expect our revenue to continue to increase in the future as a
result of increased awareness of our solutions, expansion of our direct sales
force, our DME partners, enhanced marketing and customer support efforts,
continued focus on developing clinical and economic outcomes data, efforts
related to expanded third-party reimbursement and longer term, potential
introduction of our solutions outside the United States. We also anticipate
pricing pressure from private insurers, which will result in continued downward
pressure on our revenue growth rate.

Cost of Revenue and Gross Margin

Cost of revenue consists primarily of component costs, direct labor, overhead
costs, product warranties, provisions for slow-moving and obsolete inventory,
delivery costs for items sold or rented, and amortization related to the
intangible assets related to our products. A significant portion of our cost of
revenue consists of manufacturing overhead costs. These overhead costs include
the cost of quality assurance, material procurement, inventory control,
facilities, equipment and operations supervision and management. Cost of revenue
also includes depreciation expense for product tooling and equipment as well as
shipping costs. We expect overhead costs as a percentage of revenue to decrease
as a result of expected increases in production volume and yields. We expect
cost of revenue to increase in absolute dollars primarily if, and to the extent,
our revenue grows.

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We provide a warranty for our products against defects in material and
workmanship for a period of one to five years. We record a liability for future
warranty claims at the time of sale for the warranty period offered to a
customer in cost of revenue. If the assumptions used in calculating the
provision were to materially change, such as incurring higher than anticipated
warranty claims, an additional provision may be required.

We calculate gross margin as gross profit divided by revenue. Our gross margin
has been and will continue to be affected by a variety of factors, including
product and payer mix, production volumes, manufacturing costs and
cost-reduction strategies. We continue to work to reduce product manufacturing
costs through enhanced product design efforts as well as supply chain
initiatives in an effort to offset anticipated price erosion. Our gross margin
will likely fluctuate from quarter to quarter.

Sales and Marketing Expenses

Our sales and marketing expenses consist primarily of personnel-related
expenses, including salaries, bonuses, commissions and benefits for employees.
They also include expenses for patient training, social media and advertising,
informational kits, public relations and other promotional and marketing
activities, field sales travel and entertainment expenses, trade shows and
conferences, stock-based compensation, as well as customer service. We expect
sales and marketing expenses to continue to increase in absolute dollars as we
expand our commercial infrastructure to drive and support our planned revenue
growth. To the extent our revenue grows, we expect sales and marketing expenses
to decrease as a percentage of revenue over time.

Research and Development Expenses

Research and development, or R&D, expenses consist primarily of
personnel-related expenses, third-party product development costs, laboratory
supplies, consulting fees and related costs, clinical research expenses,
expenses related to clinical and regulatory affairs, patent amortization costs,
stock-based compensation and patent legal fees, including defense costs, and
testing costs for new product launches. Clinical research expenses include
clinical trial management and monitoring, payment to clinical investigators,
consulting fees, data management, stock-based compensation, travel expenses and
the cost of manufacturing products for clinical trials. We have made substantial
investments in R&D since our inception. Our R&D efforts have focused primarily
on activities designed to enhance our technologies and to support development
and commercialization of new and existing products. We expect R&D expenses to
increase for the foreseeable future as we continue to develop, enhance and
commercialize new products and expand clinical trial efforts. We expect R&D
expenses as a percentage of our revenue to vary over time depending on the level
and timing of initiating new product development efforts, as well as our
clinical trial activities.

Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses consist primarily of
compensation, including salaries, bonuses and benefits for employees in our
patient services and advocacy, billing and collections, case management, payer
relations and governmental affairs and reimbursement operations departments, as
well as finance, human resources and administration, information technology,
business development and general management functions, and facilities costs.
Reimbursement expenses also include consulting, travel to payer case manager
seminars, professional development and training, and certification expenses.
General and administrative expenses also include professional services such as
legal, consulting and accounting services, stock-based compensation, travel
expenses, insurance and acquisition costs.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income related to
investment income earned on our invested capital portfolio and interest expense
related to our debt obligations.

Income Tax Expense (Benefit)

Our income tax expense (benefit) consists primarily of permanent differences
related to share-based compensation activity, as well as deferred income taxes
resulting from temporary differences between the reporting of amounts for
financial statement purposes and income tax purposes.

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Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States, or GAAP. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets and liabilities, and
related disclosure of contingent assets and liabilities, revenue and expenses at
the date of the financial statements. Generally, we base our estimates on
historical experience and on various other assumptions in accordance with GAAP
that we believe to be reasonable under the circumstances. Actual results may
differ from these estimates and such differences could be material to our
financial position and results of operations. Critical accounting estimates are
those that involve a significant level of estimation uncertainty and have had or
are reasonably likely to have a material impact on our financial condition and
results of operations.

While our significant accounting policies are more fully described in Note 3 to
our consolidated financial statements included elsewhere in this report, we
believe the following discussion addresses our most critical accounting
estimates, which involve significant subjectivity and judgment, and changes to
such estimates or assumptions could have a material impact on our financial
condition or operating results. Therefore, we consider an understanding of the
variability and judgment required in making these estimates and assumptions to
be critical in fully understanding and evaluating our reported financial
results.

Revenue Recognition

We derive revenue from the sales and rentals of our proprietary line of
Flexitouch and Entre systems, and from our sales of our recently acquired
AffloVest product. We recognize revenue when control of the product has been
transferred to our customer, in the amount of the expected consideration to be
received for the product. Expected consideration is estimated as follows:

Flexitouch and Entre systems. Expected consideration to be received is

estimated based on a detailed review of historical pricing adjustments and

? collections. Specifically, payment history of the applicable payer, as well as

historical patient collections serve as a primary source of information in

estimating expected consideration.

AffloVest products. Management’s assessment of the expected consideration to be

? received is based on agreed upon contractual pricing, assessment of the

likelihood of available volume-based rebates being achieved and payment history

of the applicable DME partner.

We update our assessment of collectability on a quarterly basis, with any
adjustments for Flexitouch and Entre systems being reflected as sales and rental
revenue and AffloVest products being reflected as bad debt expense within
reimbursement, general and administrative expenses in the Consolidated
Statements of Operations in the period of adjustment.

If in the future we determine that another method is more reasonable, or if
another method for calculating these input assumptions is prescribed by
authoritative guidance, the expected consideration associated with the sales and
rentals of our products could change significantly. Changes in contractual
pricing, payment trends and rebate structures would impact, either positively or
negatively, our sales and rental revenue.

Stock-Based Compensation

The fair value of stock options is estimated at the date of grant, using the
Black-Scholes option-pricing model, except for the valuation of certain "CEO"
related stock options subject to a market condition which uses the Monte Carlo
Simulation model. We recognize the fair value of each award as an expense on a
straight-line basis over the requisite service period, which is generally the
vesting period of the equity grant.

The Monte Carlo Simulation and Black-Scholes valuation models require the input
of highly subjective assumptions, including the expected term of the option, the
expected volatility of the price of our common stock,

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the risk-free interest rate and the expected dividend yield. These estimates
involve inherent uncertainties and the significant application of management's
judgment. If factors change and different assumptions are used, our stock-based
compensation expense could be materially different in the future. We determined
weighted-average valuation assumptions as follows:

? Expected term. We use the “simplified method” to determine the expected term

of the stock option.

Expected volatility. Expected volatility for grants issued in and prior to the

first fiscal quarter of 2021 was estimated using the average historical

volatility of public companies of similar size and industry over a similar

? period as the expected term assumption used for our options. Beginning in the

second fiscal quarter of 2021, we had sufficient historical data to transition

to utilizing our average historical volatility over a similar period as the

expected term assumption used for our options as the expected volatility.

Risk-free interest rate. The risk-free interest rate is based on the yields of

? U.S. Treasury securities with maturities similar to the expected term of the

options for each option group.

Expected dividend yield. We have never declared or paid any cash dividends on

? our common stock and do not presently plan to pay cash dividends on our common

stock in the foreseeable future. Consequently, we use an expected dividend

yield of zero.

If in the future we determine that another method is more reasonable, or if
another method for calculating these input assumptions is prescribed by
authoritative guidance, the fair value calculated for our stock options could
change significantly. Higher volatility and longer expected lives would result
in an increase to stock-based compensation expense determined at the date of
grant. Stock-based compensation expense affects our cost of revenue, sales and
marketing expenses, research and development expenses, and reimbursement,
general and administrative expenses.

We estimate our forfeiture rate based on an analysis of our actual forfeitures
and will continue to evaluate the appropriateness of the forfeiture rate based
on actual forfeiture experience, analysis of employee turnover behavior and
other factors. Quarterly changes in the estimated forfeiture rate can have a
significant effect on reported stock-based compensation expense, as the
cumulative effect of adjusting the rate for all expense amortization is
recognized in the period the forfeiture estimate is changed. If a revised
forfeiture rate is higher than the previously estimated forfeiture rate, an
adjustment is made that will result in a decrease to the stock-based
compensation expense recognized in the consolidated financial statements. If a
revised forfeiture rate is lower than the previously estimated forfeiture rate,
an adjustment is made that will result in an increase to the stock-based
compensation expense recognized in the consolidated financial statements. The
effect of forfeiture adjustments was insignificant for the years ended
December 31, 2021, 2020 and 2019. We will continue to use significant judgment
in evaluating the expected term, volatility and forfeiture rate related to

our
stock-based compensation.

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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

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

                                                   Year Ended
                                                  December 31,                          Change
(In thousands)                            2021                    2020               $           %
Consolidated Statement                           % of                   % of
of Operations Data:                            revenue                revenue
Revenue
Sales revenue                     $  177,914       86 %   $ 161,497       86 %   $   16,417      10 %
Rental revenue                        30,143       14 %      25,633       14 %        4,510      18 %
Total revenue                        208,057      100 %     187,130      100 %       20,927      11 %
Cost of revenue
Cost of sales revenue                 50,222       24 %      45,309       24 %        4,913      11 %
Cost of rental revenue                 9,622        5 %       9,011        5 %          611       7 %
Total cost of revenue                 59,844       29 %      54,320       29 %        5,524      10 %
Gross profit
Gross profit - sales revenue         127,692       62 %     116,188       62 %       11,504      10 %
Gross profit - rental revenue         20,521        9 %      16,622        9 %        3,899      23 %
Gross profit                         148,213       71 %     132,810       71 %       15,403      12 %
Operating expenses
Sales and marketing                   86,775       42 %      79,634       43 %        7,141       9 %
Research and development               5,659        3 %       5,264        3 %          395       8 %
Reimbursement, general and
administrative                        56,802       27 %      51,343       27 %        5,459      11 %
Intangible asset amortization
and earn-out                             739        - %         197        - %          542    N.M. %
Total operating expenses             149,975       72 %     136,438       73 %       13,537      10 %
Loss from operations                 (1,762)      (1) %     (3,628)      (2) %        1,866    (51) %
Other (expense) income                 (531)        - %       1,367        1 %      (1,898)   (139) %
Loss before income taxes             (2,293)      (1) %     (2,261)      (1) %         (32)       1 %
Income tax expense (benefit)           9,518        5 %     (1,641)      (1) %       11,159    N.M. %
Net loss                          $ (11,811)      (5) %   $   (620)        - %   $ (11,191)    N.M. %


Revenue

Revenue increased $20.9 million, or 11%, to $208.1 million in the year ended
December 31, 2021, compared to $187.1 million in the year ended
December 31, 2020. The increase in revenue was attributable to an increase of
approximately $12.3 million, or 8%, in sales and rentals of our Flexitouch
system, an increase of approximately $3.5 million, or 15%, in sales and rentals
of our Entre system and $5.1 million in sales of the recently-acquired AffloVest
product in the year ended December 31, 2021, compared to the year ended December
31, 2020. Beginning in March 2020 and continuing through 2020, revenue was
negatively impacted by the COVID-19 pandemic, which limited our ability to
access our clinician customers and their patients. Specifically, we saw
healthcare facilities and clinics restricting access to their clinicians,
reducing patient consultations, or closing temporarily due to COVID-19.
Revenue for the first half of 2021 benefited from the initial stages of recovery
from the COVID-19 pandemic, with a portion of healthcare facilities and clinics
relaxing restrictions and increasing patient throughput, as well as an expanded
prescriber base. Fiscal 2021 revenue also benefited from effective virtual
education events and an increase in Medicare patients served. However, revenue
in the second half of 2021 was negatively impacted by the prolonged recovery
from COVID-19 and the resurgence due to variants, which extended and expanded
restricted access to clinics and hospitals and disrupted the recovery in patient
visits versus the pre-COVID environment. In addition, the challenging labor

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market coupled with our vaccine policy impacted our ability to recruit and
retain quality candidates for our direct sales force.

The following table summarizes our revenue by product for the years ended
December 31, 2021 and 2020, both in dollars and percentage of total revenue:

                                  Year Ended
                                 December 31,          Change
(In thousands)                 2021       2020        $       %
Revenue
Flexitouch system            $ 176,228  $ 163,914  $ 12,314    8%
Entre system                    26,685     23,216     3,469   15%
AffloVest                        5,144          -     5,144  N.M.
Total                        $ 208,057  $ 187,130  $ 20,927   11%

Percentage of total revenue
Flexitouch system                  85%        88%
Entre system                       13%        12%
AffloVest                           2%        - %
Total                             100%       100%

Cost of Revenue and Gross Margin

Cost of revenue increased $5.5 million, or 10%, to $59.8 million during the year
ended December 31, 2021, compared to $54.3 million during the year ended
December 31, 2020. The increase in cost of revenue was primarily attributable to
an increase in the number of Flexitouch and Entre systems sold and rented, the
additional contribution of AffloVest, and an increase in inbound freight costs.

Gross margin was 71% for both of the years ended December 31, 2021 and 2020.

Sales and Marketing Expenses

Sales and marketing expenses increased $7.1 million, or 9%, to $86.8 million
during the year ended December 31, 2021, compared to $79.6 million during the
year ended December 31, 2020. The increase was primarily attributable to a:

? $7.4 million increase in personnel-related compensation expense as a result of

the increased headcount in the collective field commercial team;

? $2.9 million increase in travel and entertainment expense due to eased

restrictions on travel; and

? $0.7 million increase in demonstration equipment expense.

These increases were partially offset by a:

? $2.4 million decrease in expenses due to reduced sales meetings, tradeshows and

professional services; and

? $1.5 million decrease in external patient training expense as a result of

transitioning to employee trainers.

Research and Development Expenses

Research and development ("R&D") expenses increased $0.4 million, or 8%, to $5.7
million during the year ended December 31, 2021, compared to $5.3 million during
the year ended December 31, 2020, which was primarily attributable to an
increase in professional services.

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Reimbursement, General and Administrative Expenses

Reimbursement, general and administrative expenses increased $5.5 million, or
11%, to $56.8 million during the year ended December 31, 2021, compared to $51.3
million during the year ended December 31, 2020. The increase was primarily
attributable to a:

? $5.0 million increase in occupancy costs, depreciation expense, and legal and

professional fees;

$3.3 million increase in personnel-related compensation expense as a result of

? increased headcount in our reimbursement operations, payer relations and

corporate functions; and

? $0.8 million increase in transaction-related costs related to the acquisition

of AffloVest.

These increases were partially offset by a:

? $3.6 million impairment charge related to the write-off of our Airwear

wrap-related long-lived assets recorded in the second quarter of 2020.

Intangible Asset Amortization and Earn-out

Intangible asset amortization and earn-out expenses increased $0.5 million to
$0.7 million during the year ended December 31, 2021, compared to $0.2 million
during the year ended December 31, 2020. The increase in intangible asset
amortization and earn-out expense was primarily attributable to the increase in
amortization related to the assets acquired in the AffloVest acquisition,
partially offset by a reduction in the estimated fair value of our earn-out
liability.

Other (Expense) Income, Net

Other (expense) income, net was an expense of $0.5 million for the year ended
December 31, 2021, compared to income of $1.4 million for the year ended
December 31, 2020. The decrease in other income was primarily due to $1.2
million received in 2020 under the CARES Act Provider Relief Fund to compensate
us for lost revenues from the COVID-19 public health emergency (PHE) which was
recognized in the period based on our interpretation of guidance issued by the
Department of Health and Human Services through January 2021.

Income Tax Expense (Benefit)

We recorded an income tax expense of $9.5 million and an income tax benefit of
$1.6 million for the years ended December 31, 2021 and 2020, respectively. The
current year tax expense was driven by the recording of a full valuation
allowance against our deferred tax assets based on an assessment of existing
positive and negative evidence which indicated these deferred tax assets would
not be realizable.

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

Seasonality

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

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

Liquidity and Capital Resources

Overview

As of December 31, 2021, we had cash and cash equivalents of $28.2 million and
net accounts receivable of $62.3 million compared to cash and cash equivalents
of $47.9 million and net accounts receivable of $53.3 million as of December 31,
2020. Our primary sources of capital since our initial public offering in 2016
have been from operating income and bank financing.

Cash Flows

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

                                                          Year Ended
                                                         December 31,
(In thousands)                               2021            2020          

2019

Net cash provided by (used in):
Operating activities                     $      2,631    $      2,794    $      2,510
Investing activities                         (82,184)          20,179         (2,335)
Financing activities                           59,927           2,112           2,496
Net (decrease) increase in cash and
cash equivalents                         $   (19,626)    $     25,085    $ 

2,671

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the year ended December 31,
2021, was $2.6 million, resulting from a net loss of $11.8 million and non-cash
net income adjustments of $23.9 million, which were offset by an increase in net
operating assets of $8.5 million. The non-cash net income adjustments primarily
consisted of $10.2 million of stock-based compensation expense, $10.2 million of
deferred income tax expense and $3.7 million of depreciation and amortization
expense. Changes in operating assets and liabilities, net of the acquisition in
the current year, reflected stronger cash flow as compared to the prior year due
primarily to improved collections in 2021, which were offset, in part, by
continued investment in inventory designed to meet future projected demand, as
well as payment of income tax obligations.

Net cash provided by operating activities during the year ended December 31,
2020, was $2.8 million, resulting from net loss of $0.6 million and non-cash net
income adjustments of $16.2 million, which were offset by an increase in net
operating assets of $12.8 million. The non-cash net income adjustments primarily
consisted of $10.7 million of stock-based compensation expense, a $4.0 million
non-cash adjustment for impairment losses and $2.8 million of depreciation and
amortization expense. Changes in operating assets and liabilities in 2020,
reflected stronger cash flow as compared to the prior year, due primarily to
improved collections in 2020, offset in part by continued investment in
inventory designed to return the Company to standard stocking levels.

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Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities during the year ended December 31, 2021,
was $82.2 million, primarily consisting of acquisition-related payments of $79.8
million associated with the acquisition of the AffloVest business and $2.1
million in purchases of property and equipment primarily related to office
equipment, production tooling and tenant improvements and $0.3 million related
to the acquisition of patents and other intangible assets.

Net cash provided by investing activities during the year ended December 31,
2020, was $20.2 million, consisting primarily of $22.5 million in net proceeds
from maturities of securities available-for-sale, offset by $2.1 million in
purchases of property and equipment primarily related to IT infrastructure,
production tooling and office equipment and $0.2 million related to the
acquisition of patents and other intangible assets.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the year ended December 31,
2021, was $59.9 million, primarily consisting of borrowings of $54.8 million net
of debt issuance costs incurred and $6.3 million in proceeds from exercises of
common stock options and the issuance of common stock under the ESPP, partially
offset by $1.2 million in taxes paid for the net share settlement of performance
and restricted stock units.

Net cash provided by financing activities during the year ended December 31,
2020, was $2.1 million, consisting of proceeds from the issuance of common stock
under the ESPP of $2.9 million and proceeds from exercises of common stock
options of $1.1 million, partially offset by $1.9 million in taxes paid for the
net share settlement of performance and restricted stock units.

Credit Agreement

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

On September 8, 2021, we entered into a First Amendment Agreement (the "First
Amendment"), which amends the Restated Credit Agreement (as amended by the First
Amendment and the Second Amendment (as defined below), the "Credit Agreement")
with the lenders from time to time party thereto, and Wells Fargo Bank, National
Association, as administrative agent. The First Amendment, among other things,
adds a $30.0 million incremental term loan to the $25.0 million revolving credit
facility provided by the Restated Credit Agreement. The term loan and the
revolving credit facility mature on September 8, 2024. The 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.

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

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

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As of December 31, 2021, we had outstanding borrowings of $55.0 million under
the Credit Agreement, comprised of $30.0 million under the term loan and $25.0
million under the revolving credit facility.

On February 22, 2022, we entered into a Second Amendment Agreement (the "Second
Amendment"), which further amends the Credit Agreement. The Second Amendment
modifies the maximum leverage ratio, the minimum fixed charge coverage ratio and
the minimum consolidated EBITDA covenants under the Credit Agreement, and adds a
minimum liquidity covenant. The Second Amendment also increases the applicable
margin for LIBOR rate loans under the Credit Agreement during the period
commencing on the date of the Second Amendment and ending on the last day of the
fiscal quarter ending June 30, 2023.

Pursuant to the Second Amendment, on February 22, 2022, we made a mandatory
principal prepayment of the term loan under the Credit Agreement of $3.0
million. Following such payment, as of February 22, 2022, we had outstanding
borrowings of $51.3 million under the Credit Agreement, comprised of $26.3
million under the term loan and $25.0 million under the revolving credit
facility.

For additional information regarding the Credit Agreement, including interest
rates, fees and maturities, see Note 12 - "Credit Agreement" of the consolidated
financial statements contained in this report.

Future Cash Requirements

Our material estimated future cash requirements under our contractual
obligations and commercial commitments as of December 31, 2021, in total and
disaggregated into current (payable in 2022) and long-term (payable after 2022)
obligations, are summarized as follows:

                                                     Payments Due By Period
                                            Less Than                                    More Than
(In thousands)                  Total        1 Year        1-3 Years      3-5 Years       5 Years
Purchase commitments (1)      $  15,139    $    15,139    $         -    $         -    $         -
Operating lease
obligations (2)                  30,763          3,549          6,834          7,131         13,249
Note payable payments (3)        30,000          3,000         27,000              -              -
Revolving line of credit
payments (4)                     25,000              -         25,000              -              -
Interest payments (5)             4,309          1,540          2,769              -              -
Earn-out obligation (6)          20,000         10,000         10,000              -              -
Total                         $ 125,211    $    33,228    $    71,603    $     7,131    $    13,249

(1) We issued purchase orders in 2021 totaling $15.1 million for goods that we

expect to receive and pay for in 2022.

We currently lease approximately 150,000 square feet of office space for our

corporate headquarters in Minneapolis, Minnesota, under a lease that expires

in February 2031 and approximately 63,000 square feet of office, assembly and

warehouse space at another facility in Minneapolis, Minnesota, under a lease
(2) that expires in March 2027. We entered into a fleet vehicle program for

certain members of our field sales organization in 2016. At December 31,

2021, we had 39 vehicles under this program with current lease commitments.

Furthermore, we lease office equipment from time-to-time based on our needs

and these commitments are classified as operating leases.

Reflects principal payment obligations under our term loan. Refer to Note 12
(3) ”Credit Agreement” to our consolidated financial statements included in

this report for additional information regarding the maturities of debt

principal.

(4) Reflects repayment of the principal of outstanding borrowings under our

revolving line of credit based on the scheduled maturity date.

(5) Interest payment amounts on long-term debt are calculated using outstanding

balances and interest rates in effect on December 31, 2021.

In connection with the acquisition of AffloVest, we are liable for earn-out

payments, aggregating up to $20.0 million in cash if certain future financial
(6) results of the AffloVest business are met. The fair value of this obligation

at December 31, 2021 was $6.2 million, which is reflected on our Consolidated

    Balance Sheets.


Adequacy of Resources

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

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

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

? expansion of our operations domestically and/or internationally;

? response of competitors to our solutions and applications;

? costs associated with clinical research activities;

? increases in interest rates;

? labor shortages and wage inflation;

? costs to develop and implement new products; and

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

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

Although the impact of the COVID-19 pandemic and other factors such as inflation
and rising interest rates are difficult to predict, we believe our cash, cash
equivalents and cash flows from operations will be sufficient to meet our
working capital, capital expenditure, debt repayment and related interest, and
other cash requirements for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business
during the year ended December 31, 2021, and we do not expect that inflation or
changing prices will materially affect our business for at least the next twelve
months.

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

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

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

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under the applicable regulations.

Recent Accounting Pronouncements

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

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