®®
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From to
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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(NASDAQ Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of July 28, 2023, the registrant had
TABLE OF CONTENTS
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Item 1. |
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3 |
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Consolidated Balance Sheets (unaudited) as of June 30, 2023 and December 31, 2022 |
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4 |
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6 |
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Condensed Notes to the Consolidated Financial Statements (unaudited) |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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38 |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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43 |
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2
INOGEN, INC.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Inogen, Inc.
Consolidated Balance Sheets
(unaudited)
(amounts in thousands)
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June 30, |
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December 31, |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ |
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$ |
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Marketable securities |
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— |
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Accounts receivable, net |
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Inventories, net |
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Income tax receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Operating lease right-of-use asset |
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Other assets |
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Total assets |
$ |
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$ |
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Liabilities and stockholders' equity |
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Current liabilities |
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Accounts payable and accrued expenses |
$ |
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$ |
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Accrued payroll |
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Warranty reserve - current |
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Operating lease liability - current |
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Deferred revenue - current |
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Total current liabilities |
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Long-term liabilities |
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Warranty reserve - noncurrent |
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Operating lease liability - noncurrent |
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Deferred revenue - noncurrent |
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Total liabilities |
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Stockholders' equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income (loss) |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
$ |
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$ |
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See accompanying condensed notes to the consolidated financial statements.
3
Inogen, Inc.
Consolidated Statements of Comprehensive Loss
(unaudited)
(amounts in thousands, except share and per share amounts)
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Three months ended |
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Six months ended |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenue |
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Sales revenue |
$ |
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$ |
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$ |
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$ |
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Rental revenue |
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Total revenue |
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Cost of revenue |
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Cost of sales revenue |
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Cost of rental revenue, including depreciation of $ |
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Total cost of revenue |
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Gross profit |
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Gross profit-sales revenue |
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Gross profit-rental revenue |
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Total gross profit |
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Operating expense |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expense |
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Loss from operations |
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( | ) |
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( | ) |
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( | ) |
Other income (expense) |
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Interest income |
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Other income (expense) |
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( |
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Total other income (expense), net |
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( |
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( |
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Loss before provision for income taxes |
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Provision for income taxes |
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Net loss |
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( |
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( |
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Other comprehensive income (loss), net of tax |
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Change in foreign currency translation adjustment |
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( |
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( |
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Change in net unrealized gains (losses) on foreign currency hedging |
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( |
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( |
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Less: reclassification adjustment for net (gains) losses included in net income |
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— |
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— |
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Total net change in unrealized gains (losses) on foreign currency hedging |
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( |
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( |
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Change in net unrealized gains (losses) on marketable securities |
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( |
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Total other comprehensive income (loss), net of tax |
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( |
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( |
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Comprehensive loss |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Basic net loss per share attributable to common stockholders (Note 6) |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted net loss per share attributable to common stockholders (Note 6) |
$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average number of shares used in calculating net loss per share attributable to common stockholders: |
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Basic common shares |
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Diluted common shares |
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See accompanying condensed notes to the consolidated financial statements.
4
Inogen, Inc.
Consolidated Statements of Stockholders’ Equity
(unaudited)
(amounts in thousands, except share amounts)
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Three months ended June 30, 2023 and June 30, 2022 |
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Retained |
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Accumulated |
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Additional |
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earnings |
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other |
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Total |
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Common stock |
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paid-in |
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(accumulated |
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comprehensive |
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stockholders' |
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Shares |
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Amount |
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capital |
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deficit) |
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income (loss) |
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equity |
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Balance, March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Restricted stock awards issued, net of forfeitures |
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( |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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( |
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— |
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— |
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( |
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Shares withheld related to net restricted stock settlement |
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( |
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— |
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( |
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— |
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— |
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( |
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Stock options exercised |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance, June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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( |
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— |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Balance, June 30, 2023 |
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$ |
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$ |
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$ |
( | ) |
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$ |
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$ |
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Six months ended June 30, 2023 and June 30, 2022 |
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Retained |
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Accumulated |
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Additional |
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earnings |
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other |
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Total |
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Common stock |
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paid-in |
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(accumulated |
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comprehensive |
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stockholders' |
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Shares |
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Amount |
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capital |
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deficit) |
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income (loss) |
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equity |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Employee stock purchases |
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— |
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— |
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— |
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Restricted stock awards issued, net of forfeitures |
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( |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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( |
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— |
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— |
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( |
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Shares withheld related to net restricted stock settlement |
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( |
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— |
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( |
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— |
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— |
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( |
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Stock options exercised |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance, June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Employee stock purchases |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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( |
) |
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— |
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— |
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( |
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Shares withheld related to net restricted stock settlement |
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( |
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— |
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( |
) |
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— |
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— |
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( |
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Stock options exercised |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Balance, June 30, 2023 |
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$ |
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$ |
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$ |
( | ) |
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$ |
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$ |
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See accompanying condensed notes to the consolidated financial statements.
5
Inogen, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
|
Six months ended June 30, |
|
|||||
|
2023 |
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2022 |
|
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Cash flows from operating activities |
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Net loss |
$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Loss on rental units and other assets |
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Gain on sale of former rental assets |
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( |
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( |
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Provision for sales revenue returns and doubtful accounts |
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Provision for inventory losses |
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Stock-based compensation expense |
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Change in fair value of earnout liability |
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— |
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( |
) |
Changes in operating assets and liabilities: |
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|
|
||
Accounts receivable |
|
|
|
|
( |
) |
|
Inventories |
|
|
|
|
( |
) |
|
Income tax receivable |
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
|
|
|
||
Operating lease right-of-use asset |
|
|
|
|
|
||
Other noncurrent assets |
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
( |
) |
|
|
|
|
Accrued payroll |
|
( |
) |
|
|
( |
) |
Warranty reserve |
|
|
|
|
|
||
Deferred revenue |
|
( |
) |
|
|
( |
) |
Income tax payable |
|
— |
|
|
|
( |
) |
Operating lease liability |
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
( |
) |
|
|
( |
) |
Cash flows from investing activities |
|
|
|
|
|
||
Maturities of available-for-sale securities |
|
|
|
|
|
||
Purchases of available-for-sale securities |
|
( |
) |
|
|
— |
|
Investment in intangible assets |
|
( |
) |
|
|
— |
|
Investment in property and equipment |
|
( |
) |
|
|
( |
) |
Production and purchase of rental equipment |
|
( |
) |
|
|
( |
) |
Proceeds from sale of former assets |
|
|
|
|
|
||
Net cash provided by (used in) investing activities |
|
( |
) |
|
|
|
|
|
|
|
|
|
|
||
(continued on next page) |
|
||||||
See accompanying condensed notes to the consolidated financial statements.
6
Inogen, Inc.
Consolidated Statements of Cash Flows (continued)
(unaudited)
(amounts in thousands)
|
Six months ended June 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Cash flows from financing activities |
|
|
|
|
|
||
Proceeds from stock options exercised |
|
|
|
|
|
||
Proceeds from employee stock purchases |
|
|
|
|
|
||
Payment of employment taxes related to release of restricted stock |
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
( |
) |
|
Effect of exchange rates on cash |
|
|
|
|
|
||
Net decrease in cash and cash equivalents |
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
||
Cash and cash equivalents, end of period |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information |
|
|
|
|
|
||
Cash paid during the period for income taxes, net of refunds received |
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash transactions |
|
|
|
|
|
||
Property and equipment in accounts payable and accrued liabilities |
|
|
|
|
|
||
See accompanying condensed notes to the consolidated financial statements.
7
Inogen, Inc.
Condensed Notes to the Consolidated Financial Statements
(unaudited)
(amounts in thousands, except share and per share amounts)
1. Business overview
Inogen, Inc. (Company or Inogen) was incorporated in Delaware on November 27, 2001. The Company is a medical technology business that primarily develops, manufactures and markets innovative portable oxygen concentrators (POCs) used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions. Traditionally, these patients have relied on stationary oxygen concentrator systems for use in the home and oxygen tanks or cylinders for mobile use, which the Company refers to as the delivery model. The tanks and cylinders must be delivered regularly and have a finite amount of oxygen, which requires patients to plan activities outside of their homes around delivery schedules and a finite oxygen supply. Additionally, patients must attach long, cumbersome tubing to their stationary concentrators simply to enable mobility within their homes. The Company’s proprietary Inogen One® and Inogen Rove systems concentrate the air around the patient to offer a source of supplemental oxygen anytime, anywhere with a battery and can be plugged into an outlet when at home, in a car, or in a public place with outlets available. The Company’s Inogen One systems reduce the patient’s reliance on stationary concentrators and scheduled deliveries of tanks with a finite supply of oxygen, thereby improving patient quality of life and fostering mobility.
The Company incorporated Inogen Europe Holding B.V., a Dutch limited liability company, on
2. Basis of presentation and summary of significant accounting policies
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
The results of operations for the three and six months ended June 30, 2023 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2023. In the opinion of the Company’s management, the information contained herein reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity. Certain footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (SEC) rules and regulations relating to interim financial statements. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2023. Except as further described below, there have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K filed with the SEC on February 24, 2023.
Basis of consolidation
The consolidated financial statements include the accounts of Inogen, Inc. and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition, warranty reserves and expense, determining the stand-alone selling price (SSP) and service period of performance obligations, rental asset valuations and write-downs, accounts receivable allowances for bad debts, returns and adjustments, impairment of goodwill, impairment of long-lived assets, stock-based compensation expense, and income taxes. Actual results could differ from these estimates.
8
Restructuring charges
3. Fair value measurements
Cash, cash equivalents and marketable securities
The following table summarizes fair value measurements by level for the assets measured at fair value on a recurring basis for cash, cash equivalents and marketable securities:
|
|
As of June 30, 2023 |
|
|||||||||||||||||
|
|
|
|
|
Gross |
|
|
|
|
|
Cash |
|
|
|
|
|||||
|
|
Adjusted |
|
|
unrealized |
|
|
|
|
|
and cash |
|
|
Marketable |
|
|||||
|
|
cost |
|
|
gains |
|
|
Fair value |
|
|
equivalents |
|
|
securities |
|
|||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market accounts |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Institutional Insured Liquidity Deposit Savings |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
As of December 31, 2022 |
|
|
|
|
||||||||||||||
|
|
|
|
|
Gross |
|
|
|
|
|
Cash |
|
|
|
|
|||||
|
|
Adjusted |
|
|
unrealized |
|
|
|
|
|
and cash |
|
|
|
|
|||||
|
|
cost |
|
|
gains |
|
|
Fair value |
|
|
equivalents |
|
|
|
|
|||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market accounts |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Corporate bonds |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Institutional Insured Liquidity Deposit Savings |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|||||
Derivative instruments and hedging activities
The Company records the assets or liabilities associated with derivative instruments and hedging activities at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the consolidated balance sheet. The Company had a related receivable of $
Accumulated other comprehensive income (loss)
The components of accumulated other comprehensive income (loss) were as follows:
|
|
Foreign |
|
|
Unrealized |
|
|
Unrealized |
|
|
Accumulated |
|
||||
|
|
currency |
|
|
gains |
|
|
gains |
|
|
other |
|
||||
|
|
translation |
|
|
on marketable |
|
|
on cash |
|
|
comprehensive |
|
||||
|
|
adjustments |
|
|
securities |
|
|
flow hedges |
|
|
income (loss) |
|
||||
Balance as of December 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of June 30, 2023 |
|
$ |
( | ) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Comprehensive income (loss) is the total net earnings and all other non-owner changes in equity. Except for foreign currency translation adjustments and unrealized gains and losses on marketable securities, the Company does not have any transactions or other economic events that qualify as other comprehensive income (loss).
9
4. Balance sheet components
Cash, cash equivalents and marketable securities
Cash, cash equivalents and marketable securities consist of the following:
|
|
June 30, |
|
|
December 31, |
|
||
Cash and cash equivalents |
|
2023 |
|
|
2022 |
|
||
Cash |
|
$ |
|
|
$ |
|
||
Money market accounts |
|
|
|
|
|
|
||
Corporate bonds |
|
|
— |
|
|
|
|
|
U.S. Treasury securities |
|
|
|
|
|
|
||
Institutional Insured Liquidity Deposit Savings |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Marketable securities |
|
|
|
|
|
|
||
U.S. Treasury securities |
|
|
|
|
|
— |
|
|
Total marketable securities |
|
$ |
|
|
$ |
— |
|
|
Accounts receivable and allowance for bad debts, returns, and adjustments
Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of June 30, 2023 and December 31, 2022 were as follows:
|
|
June 30, |
|
|
December 31, |
|
||
Net accounts receivable |
|
2023 |
|
|
2022 |
|
||
Rental (1) |
|
$ |
|
|
$ |
|
||
Business-to-business and other receivables (2) |
|
|
|
|
|
|
||
Total net accounts receivable |
|
$ |
|
|
$ |
|
||
The following table sets forth the accounts receivable allowances as of June 30, 2023 and December 31, 2022:
|
|
June 30, |
|
|
December 31, |
|
||
Allowances - accounts receivable |
|
2023 |
|
|
2022 |
|
||
Doubtful accounts |
|
$ |
|
|
$ |
|
||
Sales returns |
|
|
|
|
|
|
||
Total allowances - accounts receivable |
|
$ |
|
|
$ |
|
||
Concentration of customers and vendors
The Company primarily sells its products to traditional home medical equipment providers, distributors, and resellers in the United States and in foreign countries on a credit basis. The Company also sells its products direct-to-consumers primarily on a prepayment basis.
The Company also rents products directly to consumers for insurance reimbursement, which resulted in a customer concentration relating to Medicare’s service reimbursement programs. Medicare’s service reimbursement programs accounted for
10
The Company currently purchases raw materials from a limited number of vendors, which resulted in a concentration of three major vendors. The three major vendors supply the Company with raw materials used to manufacture the Company’s products. For the six months ended June 30, 2023, the Company’s three major vendors accounted for
A portion of revenue is earned from sales outside the United States. Approximately
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
U.S. revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-U.S. revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Inventories
Inventories are stated at the lower of cost and net realizable value, using the first-in, first-out (FIFO) method. The Company records adjustments at least quarterly to inventory for potentially excess, obsolete, slow-moving or impaired items. The Company recorded noncurrent inventory related to inventories that are expected to be realized or consumed after one year of $
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Raw materials and work-in-progress |
|
$ |
|
|
$ |
|
||
Finished goods |
|
|
|
|
|
|
||
Less: reserves |
|
|
( | ) |
|
|
( | ) |
Inventories, net |
|
$ |
|
|
$ |
|
||
Property and equipment
Repair and maintenance expense, which includes labor, parts and freight, for rental equipment was $
Depreciation and amortization expense related to rental equipment and other property and equipment are summarized below for the three and six months ended June 30, 2023 and 2022, respectively.
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Rental equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other property and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
11
Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of June 30, 2023 and December 31, 2022, respectively.
|
|
June 30, |
|
|
December 31, |
|
||
Property and equipment |
|
2023 |
|
|
2022 |
|
||
Rental equipment, net of allowances of $ |
|
$ |
|
|
$ |
|
||
Other property and equipment |
|
|
|
|
|
|
||
Property and equipment |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
|
|
|
|
||
Rental equipment |
|
|
|
|
|
|
||
Other property and equipment |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Rental equipment, net of allowances of $2,885 and $2,255, respectively |
|
|
|
|
|
|
||
Other property and equipment |
|
|
|
|
|
|
||
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Long-lived assets
The Company accounts for the impairment and disposition of long-lived assets in accordance with Accounting Standards Codification (ASC) 360 — Property, Plant, and Equipment. In accordance with ASC 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable.
Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 2023 were as follows:
Balance as of December 31, 2022 |
|
$ |
|
|
Translation adjustment |
|
|
|
|
Balance as of June 30, 2023 |
|
$ |
|
As of June 30, 2023, the Company had
Current liabilities
Accounts payable and accrued expenses as of June 30, 2023 and December 31, 2022 consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued inventory (in-transit and unvouchered receipts) and trade payables |
|
|
|
|
|
|
||
Accrued purchasing card liability |
|
|
|
|
|
|
||
Accrued franchise, sales and use taxes |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
Accrued payroll as of June 30, 2023 and December 31, 2022 consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Accrued bonuses |
|
$ |
|
|
$ |
|
||
Accrued wages and other payroll related items |
|
|
|
|
|
|
||
Accrued vacation |
|
|
|
|
|
|
||
Accrued employee stock purchase plan deductions |
|
|
|
|
|
|
||
Accrued payroll |
|
$ |
|
|
$ |
|
||
12
5. Leases
The Company has entered into operating leases primarily for commercial buildings. These leases have terms which range from
Information related to the Company's right-of-use assets and related operating lease liabilities were as follows:
|
|
Six months ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash paid for operating lease liabilities |
|
$ |
|
|
$ |
|
||
Operating lease cost |
|
|
|
|
|
|
||
Non-cash right-of-use assets obtained in exchange for new operating lease obligations |
|
|
|
|
|
|
||
Weighted average remaining lease term |
|
|
|
|
||||
Weighted average discount rate |
|
|
% |
|
|
% |
||
Maturities of lease liabilities due in the 12-month period ending June 30, |
|
|
|
|
|
|
2024 |
|
$ |
|
|
|
|
2025 |
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
2028 |
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest |
|
|
( |
) |
|
|
Total lease liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - current |
|
$ |
|
|
|
|
Operating lease liability - noncurrent |
|
$ |
|
|
|
|
Total lease liabilities |
|
$ |
|
|
|
|
13
6. Earnings (loss) per share
Earnings (loss) per share (EPS) is computed in accordance with ASC 260—Earnings per Share and is calculated using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents (which can include dilution of outstanding stock options, restricted stock units and restricted stock awards) unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, common stock subject to repurchase by the Company, options, and other dilutive awards are considered to be common stock equivalents and are only included in the calculation of diluted earnings (loss) per share when their effect is dilutive.
The computation of EPS is as follows:
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator—basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
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Weighted average common shares - basic common stock (1) |
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Weighted average common shares - diluted common stock (2) |
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Net loss per share - basic common stock |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net loss per share - diluted common stock (2) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Denominator calculation from basic to diluted: |
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Weighted average common shares - basic common stock (1) |
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Stock options and other dilutive awards |
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Weighted average common shares - diluted common stock |
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Shares excluded from diluted weighted average shares: |
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Stock options |
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Restricted stock units and restricted stock awards |
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Shares excluded from diluted weighted average shares |
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7. Income taxes
The Company accounts for income taxes in accordance with ASC 740 — Income Taxes. Under ASC 740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in the Company’s consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of December 31, 2022, the Company recorded a full valuation allowance of $
The Company accounts for uncertainties in income taxes in accordance with ASC 740-10 — Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company recognizes interest and penalties on taxes, if any, within its income tax provision on its consolidated statements of comprehensive loss.
14
8. Stockholders’ equity
The Company has a 2012 Equity Incentive Plan (2012 Plan) under which the Company granted options to purchase shares of its common stock. As of June 30, 2023, options to purchase
The Company has a 2014 Equity Incentive Plan (2014 Plan) under which the Company granted restricted stock units, restricted stock awards, performance units, performance shares and options to purchase shares of its common stock. As of June 30, 2023, awards with respect to
The Company’s stockholders approved the adoption of the 2023 Equity Incentive Plan (2023 Plan) on May 31, 2023 that provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any parent and subsidiary corporation’s employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, restricted stock awards, stock appreciation rights, performance units and performance shares to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. The 2023 Plan became effective June 5, 2023. The 2014 Plan terminated upon effectiveness of the 2023 Plan and no further awards will be made under the 2014 Plan, but the 2014 Plan will continue to govern awards previously granted under it. The number of shares of common stock reserved for issuance under the 2023 Plan was: (i)
As of June 30, 2023,
Stock options
Options typically expire between and
The activity for stock options under the Company’s stock plans for the six months ended June 30, 2023 is as follows:
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Remaining |
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weighted- |
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Weighted- |
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average |
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Per share |
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average |
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contractual |
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average |
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Price per |
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exercise |
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terms |
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intrinsic |
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Options |
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share |
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price |
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(in years) |
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value |
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Outstanding as of December 31, 2022 |
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$ |
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$ |
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$ |
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Exercised |
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( |
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Forfeited |
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( |
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Expired |
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( |
) |
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Outstanding as of June 30, 2023 |
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Vested and exercisable as of June 30, 2023 |
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Vested and expected to vest as of June 30, 2023 |
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$ |
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$ |
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$ |
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The total intrinsic value of options exercised during the six months ended June 30, 2023 and 2022 was $
15
Stock incentive awards
The Company granted restricted stock units (RSUs) and restricted stock awards (RSAs) under the 2014 Plan (Stock Awards). The Stock Awards vest either based solely on the satisfaction of time-based service conditions or on the satisfaction of time-based service conditions combined with performance criteria. Stock Awards are subject to forfeiture if the holder’s services to the Company terminate before vesting.
Stock Awards granted with only time-based service vesting conditions generally vest over three-year and
Stock Awards activity for the six months ended June 30, 2023 is summarized below:
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Weighted- |
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average |
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grant |
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Performance |
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date fair |
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and |
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value |
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Restricted stock units |
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Time-based |
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time-based |
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Total |
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per share |
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Unvested restricted stock units as of December 31, 2022 |
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$ |
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Granted |
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Vested |
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( |
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( |
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( |
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Forfeited/canceled |
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( |
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( |
) |
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( |
) |
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Unvested restricted stock units as of June 30, 2023 (1) |
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$ |
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Unvested and expected to vest restricted stock units outstanding as of June 30, 2023 |
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$ |
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Weighted- |
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average |
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grant |
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Performance |
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date fair |
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and |
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value |
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Restricted stock awards |
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Time-based |
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time-based |
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Total |
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per share |
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Unvested restricted stock awards outstanding as of December 31, 2022 |
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— |
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$ |
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Vested |
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( |
) |
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— |
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( |
) |
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Unvested restricted stock awards outstanding as of June 30, 2023 (1) |
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— |
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— |
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— |
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$ |
— |
|
Unvested and expected to vest restricted stock awards outstanding as of June 30, 2023 |
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— |
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$ |
— |
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(1) Outstanding restricted stock units and restricted stock awards are based on the maximum payout of the targeted number of shares.
As of June 30, 2023, the unrecognized compensation cost related to unvested employee restricted stock units and restricted stock awards was $
Employee stock purchase plan
The Company’s 2014 Employee Stock Purchase Plan (ESPP) provides for the grant to all eligible employees an option to purchase stock under the ESPP, within the meaning Section 423 of the Internal Revenue Code. The ESPP permits participants to purchase common stock through payroll deductions of up to
As of June 30, 2023, a total of
16
For 2023, an additional
Stock-based compensation
Stock-based compensation expense recognized for the three and six months ended June 30, 2023 and 2022, was as follows:
|
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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||||
Stock-based compensation expense by type of award: |
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||||
Restricted stock units and restricted stock awards |
|
$ |
|
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$ |
|
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$ |
|
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$ |
|
||||
Employee stock purchase plan |
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Total stock-based compensation expense |
|
$ |
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$ |
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$ |
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$ |
|
||||
Employee stock-based compensation expense was calculated based on awards of stock options, restricted stock units and restricted stock awards ultimately expected to vest based on the Company’s historical award cancellations. ASC 718 – Compensation-Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
For the three and six months ended June 30, 2023 and 2022, respectively, stock-based compensation expense recognized under ASC 718, included in cost of revenue, research and development expense, sales and marketing expense, and general and administrative expense was as follows:
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Three months ended |
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June 30, |
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June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Cost of revenue |
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$ |
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$ |
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$ |
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$ |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total stock-based compensation expense |
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$ |
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$ |
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$ |
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$ |
|
||||
9. Commitments and contingencies
Purchase obligations
The Company had approximately $
Warranty obligation
The following table identifies the changes in the Company’s aggregate product warranty liabilities for the six and twelve-month periods ended June 30, 2023 and December 31, 2022, respectively:
|
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June 30, |
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December 31, |
|
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2023 |
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2022 |
|
||
Product warranty liability at beginning of period |
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$ |
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$ |
|
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Accruals for warranties issued |
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Adjustments related to preexisting warranties |
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Settlements made (in cash or in kind) |
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( |
) |
|
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( |
) |
Product warranty liability at end of period |
|
$ |
|
|
$ |
|
||
17
Contract liabilities
Contract liabilities primarily consist of deferred revenue related to lifetime warranties on direct-to-consumer sales revenue when cash payments are received in advance of services performed under the contract. The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchase. The decrease in deferred revenue related to lifetime warranties for the six months ended June 30, 2023 was primarily driven by $
Legislation and HIPAA
The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Compliance with government laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was enacted to ensure health insurance portability, reduce healthcare fraud and abuse, guarantee security and privacy of health information, and enforce standards for health information. The Health Information Technology for Economic and Clinical Health Act (HITECH Act), in part, imposes notification requirements of certain security breaches relating to protected health information. The Company is not aware of any pending claims against it under the HIPAA and HITECH regulations that are applicable to the Company’s business.
Legal proceedings
Civil Investigative Demand
On June 21, 2022, the Company received a civil investigative demand (CID) from the United States Attorney’s Office for the Northern District of Iowa. The CID states that it was issued in a False Claims Act investigation to determine whether there is or has been a violation of the False Claims Act and that the investigation involves concerns of inappropriate kickbacks provided by certain manufacturers of portable oxygen concentrators and related products in violation of the Anti-Kickback Statute. The CID followed informal requests from the United States Attorney’s Office for the Northern District of Iowa begun in late 2020, with which the Company voluntarily complied, to obtain information concerning the Company’s participation in (i) zero-interest or below market-rate loans through a third party lender to finance customer purchases; (ii) guaranteeing the obligation of a customer to a finance company in connection with financing of purchases of Company equipment; and (iii) entering into an agreement with a customer that included marketing, exclusivity, discount, and favorable financing terms. The Company is cooperating in the investigation. The Company is currently unable to predict the outcome of this investigation or whether qui tam or other litigation is probable. Regardless of the outcome, this inquiry has the potential to have an adverse impact on the Company due to any related defense and settlement costs, diversion of management resources, and other factors.
Other Litigation
The Company is party to various legal proceedings arising in the normal course of business. The Company carries insurance, subject to specified deductibles under the policies, to protect against losses from certain types of legal claims. At this time, the Company does not anticipate that any of these other proceedings arising in the normal course of business will have a material adverse effect on the Company’s business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
18
10. Restructuring charges
The Company incurred $
11. Foreign currency exchange contracts and hedging
As of June 30, 2023 and June 30, 2022, the Company’s total non-designated and designated derivative contracts had notional amounts totaling approximately $
The nonperformance risk of the Company and the counterparty did not have a material impact on the fair value of the derivatives. During the six months ended June 30, 2023, there were
12. Subsequent events
On
The Company entered into an assignment and assumption of lease agreement for the lease of its current corporate headquarters on July 13, 2023. The assignment of the lease will be effective upon the completion of certain conditions. The Company entered into an additional operating lease on August 2, 2023 for its new corporate headquarters that has not yet commenced, with total minimum lease payments of $
19
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis should be read together with our consolidated financial statements and the condensed notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the section entitled "Risk Factors" of our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (SEC). Forward-looking statements include, but are not limited to, statements concerning the following:
20
Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in the sections entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events, or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.
“Inogen,” “Inogen One,” “Inogen One G3,” “G4,” “G5,” “Live Life in Moments, not Minutes,” “Oxygen.Anytime.Anywhere,” “Intelligent Delivery Technology,” “Inogen At Home,” the Inogen design, “TIDAL ASSIST,” “TAV,” and “SIDEKICK” are registered trademarks with the United States Patent and Trademark Office of Inogen, Inc. We own pending applications for the mark “Rove 4” and “Rove 6” with the United States Patent and Trademark Office. We own trademark registrations for the mark “Inogen” in Argentina, Australia, Canada, Chile, China, Columbia, Ecuador, South Korea, Malaysia, Mexico, Europe (European Union Registration), the United Kingdom, Iceland, India, Israel, Japan, Kuwait, New Zealand, Norway, Paraguay, Peru, Turkey, Singapore, South Africa, Switzerland, and Uruguay. We own a trademark registration for the mark “イノジェン” in Japan. We own trademark registrations for the marks “印诺真” and “艾诺根” in China. We own trademark registrations for the mark “Inogen One” in Australia, Canada, China, South Korea, Mexico, Europe (European Union Registration), and the United Kingdom. We own a trademark registration for the mark “Satellite Conserver” in Canada. We own a trademark registration for the mark “Inogen At Home” in Europe (European Union Registration) and the United Kingdom. We own trademark registrations for the mark “G4” in Europe (European Union Registration) and the United Kingdom. We own trademark registrations for the mark “G5” in Europe (European Union Registration) and the United Kingdom. We own pending applications for the mark “Rove 4” in Canada, Europe (the European Union), and the United Kingdom. We own pending applications for the mark “Rove 6” in Canada, Europe (the European Union), and the United Kingdom. We own a trademark application for the Inogen design in Bolivia. We own a trademark registration for the Inogen design in China. We own a trademark registration for the mark “إنوجن” in Saudi Arabia. We own a pending application for the Inogen One G5 design in Brazil. Other service marks, trademarks, and trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.
In this Quarterly Report on Form 10-Q, “we,” “us” and “our” refer to Inogen, Inc. and its subsidiary.
21
The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the accompanying condensed notes to those statements included elsewhere in this document.
The purpose of Management's Discussion and Analysis (MD&A) is to provide an understanding of Inogen’s financial condition, results of operations and cash flows by focusing on changes in certain key measures from year-to-year. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and accompanying condensed notes. The MD&A is organized in the following sections:
Critical accounting policies and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. 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 U.S. GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates and such differences could be material to the financial position and results of operations.
Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and estimates include those related to:
There have been no material changes in our critical accounting policies and estimates in the preparation of our consolidated financial statements during the three and six months ended June 30, 2023 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023.
Recent accounting pronouncements
Information about recently adopted and proposed accounting pronouncements, if applicable, is included in Note 2 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report under the heading “Recent Accounting Pronouncements” and is incorporated herein by reference.
Macroeconomic environment
The global economy is experiencing increased inflationary pressures. The macroeconomic environment has had significant and potentially will continue to have unexpected adverse effects on businesses and healthcare institutions around the world and has and may continue to negatively impact our consolidated operating results. Higher interest rates and capital costs and increased shipping
22
costs are expected to impact demand for our products while the potential for continued supply chain disruptions and inflationary impact on material, labor and logistics could increase our cost of operations.
We continued to see inflated costs related to the acquisition of semiconductor chips negatively impact our cost of sales revenue in the first and second quarter of 2023, and we expect this to continue to impact our cost of sales revenue for the remainder of 2023. We incurred significant costs associated with acquiring chips on the open market and a portion of these costs increased our prepaid expense and inventory given that these components were not yet in finished products that were sold during the period. Additionally, we are seeing cost inflation for other components used in our products.
We also have experienced, along with most other companies across many industries, the macroeconomic impact of a challenging employment environment related to hiring and retaining employees and wage inflation. We expect that these hiring, retention, and wage inflation challenges, as well as challenges related to maintaining our current workforce, will continue through 2023. These challenges may negatively affect our ability to grow our business and keep our best employees or increase our cost of operations. In response we have implemented more flexible workplace requirements for certain roles, including remote workplace opportunities, but we still expect to be challenged by the macroeconomic employment environment.
For additional information on risk factors that could impact our results, please refer to the sections entitled "Risk Factors" in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K.
Overview
We are a medical technology company that primarily develops, manufactures, and markets innovative portable oxygen therapy solutions for patients with chronic respiratory conditions. Our leading portfolio of POCs is optimized to deliver high output ratio-to-weight, meaningful sound suppression and among the longest run times in the industry so that we can meet the needs of patients across a variety of disease states. As of June 30, 2023, we had twenty-four pending patent applications and seventy-two issued patents relating to the design and construction of our respiratory devices. We are positioned in the market as both a medical technology company and as a home medical equipment provider that is accredited in all 50 states in the United States with a significant patient, prescriber and provider reach. Our products are sold internationally through distributors and medical equipment companies outside of the United States and through direct patient and prescriber sales, as well as resellers and home medical equipment companies in the United States.
We derive the majority of our revenue from the sale and rental of our Inogen One systems and related accessories to patients, insurance carriers, home healthcare providers, resellers, and distributors, including our private label partner. We sell multiple configurations of our Inogen One and Inogen At Home systems with various batteries, accessories, warranties, power cords and language settings. Our goal is to design, build and market oxygen solutions that redefine how long-term oxygen therapy is delivered.
To accomplish this goal and to grow our revenue, we intend to:
23
Over time, as the U.S. and European markets mature, our growth will depend on our ability to drive POC adoption in developing or emerging markets, where limited oxygen therapy treatment and reimbursement exists today. However, growth may also be limited by regulatory and reimbursement clearances, currency fluctuations, capital expenditure constraints, ongoing restructuring challenges, and tender uncertainty.
We launched the Rove 6, our latest portable oxygen concentrator, in December 2022. We have also received U.S. Food and Drug Administration (FDA) 510(k) clearance for the Rove 4 that will be launched in 2023. The Rove 6 weighs 4.8 pounds and produces 1,260 ml per minute of oxygen output with very quiet operations at 37 dBA and long battery life at 6 hours and 15 minutes for a single battery and up to 12 hours and 45 minutes for a double battery, as well as improvements to provide ease-of-use and improvements to design in compliance to European Union medical device regulation (MDR) standards. The FDA clearance of Rove 6 is the first portable oxygen concentrator with an 8-year expected service life. The 8-year expected service life will also be extended to Inogen One G5 portable oxygen concentrators through the same regulatory processes as the Rove 6 in the United States. We launched the Inogen One G5® in 2019. The Inogen One G5 is similar to the product specifications of the Rove 6. We estimate that the Rove 6 and Inogen One G5 are each suitable for over 90% of ambulatory long-term oxygen therapy patients based on our analysis of the patients who have contacted us and their clinical needs.
Inogen Connect, our connectivity platform on our Inogen One G4® and Inogen One G5 products in the United States and Canada, is compatible with Apple and Android platforms and includes patient features such as purity status, battery life, product support functions, notification alerts, and remote software updates. We believe home oxygen providers have also found features such as remote troubleshooting, equipment health checks, and location tracking to help drive operational efficiencies when transitioning away from the oxygen tank delivery model.
We plan to also invest in clinical studies to evaluate expected improvements in clinical, economic and patient reported outcomes associated with the use of our products as part of our efforts to drive payor and prescriber advocacy for our products.
Cost Reduction Initiatives
During the first half of 2023, we implemented certain operational efficiency and cost-savings initiatives intended to align our resources with our product strategy, reduce our operating expense, and manage our cash flows. These cost efficiency initiatives include targeted workforce reductions, centralizing manufacturing activities, and outsourcing certain back-office activities. The efficiency and cost-savings initiatives are designed to reduce cost of revenue and operating expense and enable us to efficiently align our resources in areas providing the greatest benefit.
Sales revenue
Our future financial performance will be driven in part by the growth in sales of our portable oxygen concentrators, and, to a lesser extent, sales of batteries, other accessories, and our Inogen At Home stationary oxygen concentrators. We plan to grow our system sales in the coming years through multiple strategies including: improving sales force productivity, hiring additional sales representatives directly or through our contract sales organization, investing in consumer and physician awareness and advocacy through increased sales and marketing efforts, expanding our clinical evidence, expanding our sales infrastructure and efforts outside of the United States, expanding our business-to-business sales through key strategic partnerships, and enhancing our product offerings through additional product launches. While we believe HME providers are still in the process of converting their business model to a
24
non-delivery model through the purchase of POCs, growth has been challenged due to HME restructuring efforts, lack of access to available credit, provider capital expenditure constraints, and risk of potential changes in reimbursement rates.
Our direct-to-consumer sales processes involve numerous interactions with the individual patient, their physician and the physician’s staff, and includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen therapy, including procuring an oxygen prescription. The patient may consider whether to finance the product through an Inogen-approved third party or purchase the equipment. Product is not deployed until both the prescription and payment are secured. Once a full system is deployed, the patient has 30 calendar days to return the product, subject to the payment of a minimal processing and handling fee. Approximately 6-10% of consumers who purchase a system return the system during this 30-day return period.
Our business-to-business efforts are focused on selling to distributors, HME oxygen providers, our private label partner, and resellers who are based inside and outside of the United States. This process involves interactions with various key customer stakeholders including sales, purchasing, product testing, and clinical personnel. Businesses that have patient demand that can be met with our products place purchase orders to secure product deployment. This may be influenced based on outside factors, including the result of tender offerings, changes in insurance plan coverage or reimbursement rates, business restructuring activities toward a non-delivery model, capital constraints, mergers and acquisitions, and overall changes in the net oxygen therapy patient populations. As a result of these factors, product purchases can be subject to changes in demand by customers.
We sold approximately 34,100 systems in the three months ended June 30, 2023 and 42,400 systems for the same period in 2022. We sold approximately 61,000 systems in the six months ended June 30, 2023 and 72,800 for the same period in 2022. The decline in the current period was caused primarily by lower international business-to-business sales reflecting prioritization of sales in the second quarter of 2022 in advance of the EU MDD certificate expiration. Additionally, there were lower direct-to-consumer sales driven by fewer inside sales representatives, a result of activities over the first six months of the year to scale the channel efficiently and profitably. We continue to focus on optimizing profitability in our direct-to-consumer channel, driving sales productivity with an efficiently scaled sales organization.
Rental revenue
Our rental process involves numerous interactions with the individual patient, their physician and the physician’s staff. The process includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen therapy, and their medical history to confirm the appropriateness of our product for the patient’s oxygen therapy and compliance with Medicare and private payor billing requirements, which often necessitates additional physician evaluation and/or testing for oxygen. Once the product is deployed, the patient receives instruction on product use and may receive a clinical titration from our licensed staff to confirm the product meets the patient’s medical oxygen needs prior to billing. As a result, the period of time from initial contact with a patient to billing can vary significantly and be up to one month or longer. CMS adopted additional changes to the administrative requirements to dispense and bill for oxygen therapy which may have reduced the administrative burden and increased patient access to our products.
Rental revenue increased in the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to a greater number of patients on service and higher Medicare reimbursement rates. Medicare reimbursement rates for oxygen therapy have increased annually each January as they are subject to Consumer Price Index adjustments. We plan to add new rental patients on service in future periods through multiple strategies, including expanding our prescriber sales teams, expanding our direct-to-consumer marketing efforts, investing in patient and physician awareness and advocacy, expanding clinical evidence, and securing additional insurance contracts.
A portion of the rental patient population operates in a capped rental period during which no additional reimbursement is allowed unless additional criteria are met. This capped period begins after month 36 and continues until month 60. The ratio of billable patients to total patients on service is critical to maintaining rental revenue growth as patients on service increase. Medicare has noted a certain percentage of beneficiaries, approximately 25%, based on their review of Medicare claims, reach the 36th month of eligible reimbursement and enter the post-36 month capped rental period. The percentage of capped patients may fluctuate over time as new patients come on service, patients come off of service before and during the capped rental period, and existing patients enter the capped rental period.
We had approximately 48,900 and 43,800 oxygen rental patients as of June 30, 2023 and June 30, 2022, respectively. Management focuses on patients on service as a leading indicator of likely future rental revenue; however, actual rental revenue recognized is subject to a variety of other factors, including billable patients as a percentage of patients on service, reimbursement levels by payor, patient location, the number of capped patients, write-offs for uncollectable balances, and rental revenue adjustments.
25
Reimbursement
We rely significantly on reimbursement from Medicare and private payors, including Medicare Advantage plans and Medicaid, for our rental revenue. For the three months ended June 30, 2023 and 2022, approximately 70.2% and 78.0%, respectively, and for the six months ended June 30, 2023 and 2022, approximately 72.1% and 78.5%, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs. For additional discussion of our reliance on third-party reimbursement and the impact of the recent Medicare reimbursement proposals, see the discussion in the subsection entitled "Third Party Reimbursement" in Item 1 of our Annual Report on Form 10-K and the section entitled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on February 24, 2023.
Basis of presentation
The following describes the line items set forth in our consolidated statements of comprehensive loss.
Revenue
We classify our revenue in two main categories: sales revenue and rental revenue. There will be fluctuations in mix between business-to-business sales, direct-to-consumer sales and rental revenue from period-to-period. Product selling prices and gross margins may fluctuate based on revenue channel mix, as we introduce new products, our product costs change, we have changes in purchase volumes, and as currency variations occur. For example, the higher costs for semiconductor chips has had a negative impact on our gross margin, and we expect that will continue in 2023. Additionally, fluctuations in the channel mix could cause variability in our gross margins, as direct-to-consumer sales and rental revenue have higher margins than the business-to-business channels. Quarter-over-quarter results may vary due to seasonality in both the international and domestic markets, as discussed in Item 1. Seasonality and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023.
Sales revenue
Our sales revenue is primarily derived from the sale of our Rove, Inogen One, and Inogen At Home systems in addition to our related accessories to individual consumers, our private label partner, HME providers, distributors, and resellers. Sales revenue is classified into two areas: business-to-business sales and direct-to-consumer sales. Generally, our direct-to-consumer sales have higher gross margins than our business-to-business sales.
Rental revenue
Our rental revenue is primarily derived from the rental of our Inogen One and Inogen At Home systems to patients through reimbursement from Medicare, private payors and Medicaid, which typically also includes a patient responsibility component for patient co-insurance and deductibles. Rental revenue increased in the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, primarily due to higher patients on service and higher Medicare reimbursement rates. We expect our rental revenue to increase in future periods as we scale the sales teams, secure additional insurance contracts, and increase new rental setups. In addition, we expect to benefit from higher Medicare reimbursement rates through December 31, 2023. We also expect that our rental revenue will be impacted by the number of our sales representatives, reimbursement rate changes, the level of and response from potential customers to direct-to-consumer marketing spend, product launches, the number of billable patients and denial rates, and other uncontrollable factors such as changes in the market and competition.
Cost of revenue
Cost of sales revenue
Cost of sales revenue consists primarily of costs incurred in the production process, including component materials, assembly labor and overhead, warranty expense, provisions for slow-moving and obsolete inventory, rework and delivery costs for items sold. Labor and overhead expenses consist primarily of personnel-related expenses, including wages, bonuses, benefits, and stock-based compensation for manufacturing, logistics, repair, manufacturing engineering, and quality assurance employees and temporary labor. Cost of sales revenue also includes manufacturing freight in, depreciation expense, facilities costs and materials. Provisions for warranty obligations are included in cost of sales revenue and are provided for at the time of revenue recognition.
The impact of supply chain disruptions began negatively affecting our cost of sales revenue starting in the third quarter of 2021 and is expected to continue to do so through 2023. The supply chain constraints are primarily associated with semiconductor chips used in our batteries and printed circuit boards which are components of our POCs.
26
For these reasons, we expect sales gross margin percentage to fluctuate over time based on the sales channel mix, product mix, changes in average selling prices and manufacturing cost per unit.
Cost of rental revenue
Cost of rental revenue consists primarily of depreciation expense, consumable disposables, logistics costs and service costs for rental patients, including rework costs, material, labor, and freight.
Rental gross margin percentage could fluctuate due to changes in depreciation expense, cost to service and maintain the rental fleet as well as the percentage of billable patients as a percentage of patients on service.
Operating expense
Research and development
Our research and development expense consists primarily of personnel-related expenses, including wages, bonuses, benefits and stock-based compensation for research and development, engineering, and medical affairs employees. It also includes facility costs, laboratory supplies, product development materials, consulting fees, clinical studies costs, and testing costs for new product launches as well as enhancements to existing products. We have made substantial investments in research and development since our inception. Our research and development efforts have focused primarily on development and commercialization of new and existing products.
We plan to continue to invest in research and development activities to stay at the forefront of patient preference in oxygen therapy, including significant investments in clinical research. We continue to invest in our engineering and technology teams to support our new and enhanced product research and development efforts and manufacturing improvements. We will also focus research and development efforts on broadening our product portfolio.
Sales and marketing
Our sales and marketing expense primarily supports our direct-to-consumer sales and rental strategy and consists mainly of personnel-related expenses, including wages, bonuses, commissions, benefits, and stock-based compensation for sales, marketing, customer service, rental intake, and clinical service employees. It also includes expenses for media and advertising, printing, informational kits, dues and fees, credit card fees, recruiting, training, sales promotional activities, travel and entertainment expenses as well as allocated facilities costs.
Going forward, our plan is to optimize our sales capacity while focusing on increased productivity, improved sales personnel and lead distribution systems, and improved training. We expect to continue to invest in sales and marketing by focusing on increased productivity driven by improved sales management discipline, insights-informed tools, and optimized patient lead generation as well as increasing our rental patient support infrastructure as our patient and customer base increases.
General and administrative
Our general and administrative expense consists primarily of personnel-related expenses, including wages, bonuses, benefits, and stock-based compensation for employees in our compliance, finance, medical billing, order intake, regulatory, legal, human resources, and information technology departments as well as facilities costs, and board of directors’ expenses, including stock-based compensation. In addition, general and administrative expense includes professional services, such as legal, patent registration and defense costs, insurance, consulting and accounting services, including audit and tax services, and travel and entertainment expenses. General and administrative expense also includes one-time costs, such as restructuring, acquisition expenses or changes in the fair value of the New Aera earnout liability.
We expect general and administrative expense to increase in future periods as the number of administrative personnel grows and we continue to introduce new products, broaden our customer base and grow our business. General and administrative expense will increase in absolute dollars as we continue to invest in corporate infrastructure to support our growth including personnel-related expenses, professional services fees and compliance costs associated with operating as a public company.
27
Other income (expense), net
Our other income (expense), net consists primarily of interest income earned on cash equivalents and marketable securities, as well as foreign currency gains (losses).
Income taxes
We account for income taxes in accordance with Accounting Standards Codification (ASC) 740—Income Taxes. Under ASC 740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our consolidated financial statements or tax returns. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.
We account for uncertainties in income tax in accordance with ASC 740-10—Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The accounting for stock-based compensation will increase or decrease our effective tax rate based upon the difference between our stock-based compensation expense and the deductions taken on our U.S. tax return, which depends upon the stock price at the time of employee option exercise or award vesting. We recognize excess tax benefits or deficiencies on a discrete basis, and we anticipate our effective tax rate will vary from year-to-year depending on our stock price in each period.
Results of operations
Comparison of three months ended June 30, 2023 and 2022
Revenue
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Three months ended |
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June 30, |
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Change 2023 vs. 2022 |
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|
% of Revenue |
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|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Sales revenue |
|
$ |
68,343 |
|
|
$ |
89,291 |
|
|
$ |
(20,948 |
) |
|
|
-23.5 |
% |
|
|
81.7 |
% |
|
|
86.4 |
% |
Rental revenue |
|
|
15,292 |
|
|
|
14,085 |
|
|
|
1,207 |
|
|
|
8.6 |
% |
|
|
18.3 |
% |
|
|
13.6 |
% |
Total revenue |
|
$ |
83,635 |
|
|
$ |
103,376 |
|
|
$ |
(19,741 |
) |
|
|
-19.1 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Sales revenue decreased $20.9 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, a decrease of 23.5% from the comparable period. The decrease was primarily attributable to a decrease in international business-to-business sales and lower domestic direct-to-consumer sales, partially offset by higher domestic business-to-business sales. We sold approximately 34,100 oxygen systems during the three months ended June 30, 2023 compared to approximately 42,400 oxygen systems sold during the three months ended June 30, 2022, a decrease of 19.6%.
Rental revenue increased $1.2 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, or an increase of 8.6% from the comparable period. The increase in rental revenue was primarily related to higher rental patients on service and higher Medicare reimbursement rates, partially offset by increased rental revenue adjustments.
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Three months ended |
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(amounts in thousands) |
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June 30, |
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Change 2023 vs. 2022 |
|
|
% of Revenue |
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|||||||||||||||
Revenue by region and category |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Business-to-business domestic sales |
|
$ |
18,272 |
|
|
$ |
11,212 |
|
|
$ |
7,060 |
|
|
|
63.0 |
% |
|
|
21.8 |
% |
|
|
10.9 |
% |
Business-to-business international sales |
|
|
23,292 |
|
|
|
37,441 |
|
|
|
(14,149 |
) |
|
|
-37.8 |
% |
|
|
27.9 |
% |
|
|
36.2 |
% |
Direct-to-consumer domestic sales |
|
|
26,779 |
|
|
|
40,638 |
|
|
|
(13,859 |
) |
|
|
-34.1 |
% |
|
|
32.0 |
% |
|
|
39.3 |
% |
Direct-to-consumer domestic rentals |
|
|
15,292 |
|
|
|
14,085 |
|
|
|
1,207 |
|
|
|
8.6 |
% |
|
|
18.3 |
% |
|
|
13.6 |
% |
Total revenue |
|
$ |
83,635 |
|
|
$ |
103,376 |
|
|
$ |
(19,741 |
) |
|
|
-19.1 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Domestic business-to-business sales increased 63.0% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 due to our ability to meet all customer demand during the three months ended June 30, 2023 as compared to the prior period, which had limited shipments to this channel due to supply constraints.
28
International business-to-business sales decreased 37.8% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, mostly driven by the intentional focus in the comparative period in 2022 on fulfilling European orders in our international business-to-business sales channel prior to the EU MDD certificate expiration. In the three months ended June 30, 2023, sales in Europe as a percentage of total international sales revenue slightly decreased to 91.5% versus 92.1% from the comparative period in 2022.
Domestic direct-to-consumer sales decreased 34.1% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily driven by lower volume due to lower sales representative headcount and marketing spend as we continue to drive towards improved profitability for this channel.
Domestic direct-to-consumer rentals increased 8.6% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to an increase in rental patients on service and increased Medicare reimbursement rates due to the inflation adjustment effective January 1, 2023, partially offset by increased rental revenue adjustments.
Cost of revenue and gross profit
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Three months ended |
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June 30, |
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Change 2023 vs. 2022 |
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% of Revenue |
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|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
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|
2023 |
|
|
2022 |
|
||||||
Cost of sales revenue |
|
$ |
42,028 |
|
|
$ |
50,661 |
|
|
$ |
(8,633 |
) |
|
|
-17.0 |
% |
|
|
50.3 |
% |
|
|
49.0 |
% |
Cost of rental revenue |
|
|
7,563 |
|
|
|
6,457 |
|
|
|
1,106 |
|
|
|
17.1 |
% |
|
|
9.0 |
% |
|
|
6.3 |
% |
Total cost of revenue |
|
$ |
49,591 |
|
|
$ |
57,118 |
|
|
$ |
(7,527 |
) |
|
|
-13.2 |
% |
|
|
59.3 |
% |
|
|
55.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||
Gross profit - sales revenue |
|
$ |
26,315 |
|
|
$ |
38,630 |
|
|
$ |
(12,315 |
) |
|
|
-31.9 |
% |
|
|
31.5 |
% |
|
|
37.3 |
% |
Gross profit - rental revenue |
|
|
7,729 |
|
|
|
7,628 |
|
|
|
101 |
|
|
|
1.3 |
% |
|
|
9.2 |
% |
|
|
7.4 |
% |
Total gross profit |
|
$ |
34,044 |
|
|
$ |
46,258 |
|
|
$ |
(12,214 |
) |
|
|
-26.4 |
% |
|
|
40.7 |
% |
|
|
44.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||
Gross margin percentage - sales revenue |
|
|
38.5 |
% |
|
|
43.3 |
% |
|
|
|
|
|
|
|
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|
|
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|
||||
Gross margin percentage- rental revenue |
|
|
50.5 |
% |
|
|
54.2 |
% |
|
|
|
|
|
|
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|
||||
Total gross margin percentage |
|
|
40.7 |
% |
|
|
44.7 |
% |
|
|
|
|
|
|
|
|
|
|
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|
||||
Cost of sales revenue decreased $8.6 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, a decrease of 17.0% from the comparable period due primarily to lower sales volumes. The second quarter of 2023 included $3.5 million of material cost premiums associated with open-market purchases of semiconductor chips used in our batteries and POCs compared to $8.0 million in the second quarter of 2022.
Cost of rental revenue increased $1.1 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, an increase of 17.1% from the comparable period. The increase in cost of rental revenue was primarily attributable to an increase in total patients on service, which led to increased rental asset depreciation and service costs. Cost of rental revenue included $3.2 million of rental asset depreciation for the three months ended June 30, 2023 compared to $2.7 million for the three months ended June 30, 2022.
Gross margin on sales revenue decreased to 38.5% for the three months ended June 30, 2023 from 43.3% for the three months ended June 30, 2022. The decrease was primarily due to a shift in channel mix, with a higher volume of units sold through the domestic business-to-business channel versus the direct-to-consumer and international business-to-business channels as well as impact from pricing pressure in the business-to-business channels. This was partially offset by lower premiums paid for components. The increase was partially offset by higher average selling prices. Total worldwide business-to-business sales revenue accounted for 60.8% of total sales revenue in the three months ended June 30, 2023 versus 54.5% in the three months ended June 30, 2022.
Gross margin on rental revenue decreased to 50.5% for the three months ended June 30, 2023 from 54.2% for the three months ended June 30, 2022, primarily due to increased rental revenue adjustments and higher servicing costs per patient on service, partially offset by higher Medicare reimbursement rates.
Research and development expense
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Three months ended |
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June 30, |
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Change 2023 vs. 2022 |
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% of Revenue |
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(amounts in thousands) |
|
2023 |
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2022 |
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$ |
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% |
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2023 |
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2022 |
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||||||
Research and development expense |
|
$ |
4,293 |
|
|
$ |
6,064 |
|
|
$ |
(1,771 |
) |
|
|
-29.2 |
% |
|
|
5.1 |
% |
|
|
5.9 |
% |
29
Research and development expense decreased $1.8 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, a decrease of 29.2% from the comparable period, primarily due to a $1.9 million decrease in amortization costs of intangible assets.
Sales and marketing expense
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Three months ended |
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June 30, |
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Change 2023 vs. 2022 |
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% of Revenue |
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|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Sales and marketing expense |
|
$ |
26,906 |
|
|
$ |
30,388 |
|
|
$ |
(3,482 |
) |
|
|
-11.5 |
% |
|
|
32.2 |
% |
|
|
29.4 |
% |
Sales and marketing expense decreased $3.5 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, a decrease of 11.5% from the comparable period, primarily due to a decrease of $2.7 million in personnel-related expenses and $1.7 million of media and advertising costs, partially offset by an increase of $1.8 million of consulting fees. In the three months ended June 30, 2023, we spent $6.7 million in media and advertising costs versus $8.4 million in the comparative period in 2022.
General and administrative expense
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
General and administrative expense |
|
$ |
14,613 |
|
|
$ |
12,682 |
|
|
$ |
1,931 |
|
|
|
15.2 |
% |
|
|
17.5 |
% |
|
|
12.3 |
% |
General and administrative expense increased $1.9 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, an increase of 15.2% from the comparable period. The increase was primarily attributable to a $2.0 million increase due to the prior year favorable change in the fair value of the New Aera earnout liability, partially offset by a decrease of $0.7 million in personnel-related expenses.
Other income (expense)
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Interest income |
|
$ |
1,646 |
|
|
$ |
225 |
|
|
$ |
1,421 |
|
|
|
631.6 |
% |
|
|
2.0 |
% |
|
|
0.2 |
% |
Other income (expense) |
|
|
337 |
|
|
|
(722 |
) |
|
|
1,059 |
|
|
|
146.7 |
% |
|
|
0.4 |
% |
|
|
-0.7 |
% |
Total other income (expense), net |
|
$ |
1,983 |
|
|
$ |
(497 |
) |
|
$ |
2,480 |
|
|
|
499.0 |
% |
|
|
2.4 |
% |
|
|
-0.5 |
% |
Total other income (expense), net increased $2.5 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, an increase of 499.0% from the comparable period, primarily attributable due to an increase of $1.4 million in interest income due to the higher interest rate environment and an increase of $1.1 million in net foreign currency gains.
Income tax expense
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Income tax expense |
|
$ |
41 |
|
|
$ |
69 |
|
|
$ |
(28 |
) |
|
|
-40.6 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
Effective income tax rate |
|
|
-0.4 |
% |
|
|
-2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense decreased slightly for the three months ended June 30, 2023 from the three months ended June 30, 2022. We continued to record a valuation allowance on the use of deferred tax assets in the current and prior periods. Income taxes in the current and prior periods were attributable to foreign taxes and minimum state taxes.
Our effective tax rate for the three months ended June 30, 2023 increased compared to the three months ended June 30, 2022, primarily due to lower foreign taxes and minimum state taxes.
30
Net loss
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Net loss |
|
$ |
(9,826 |
) |
|
$ |
(3,442 |
) |
|
$ |
(6,384 |
) |
|
|
185.5 |
% |
|
|
-11.7 |
% |
|
|
-3.3 |
% |
Net loss increased $6.4 million for the three months ended June 30, 2023 from the three months ended June 30, 2022, or an increase of 185.5% from the comparable period. The increase in net loss was primarily related to a reduction in sales revenue and gross profit.
Comparison of six months ended June 30, 2023 and 2022
Revenue
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Sales revenue |
|
$ |
124,230 |
|
|
$ |
156,693 |
|
|
$ |
(32,463 |
) |
|
|
-20.7 |
% |
|
|
79.7 |
% |
|
|
85.3 |
% |
Rental revenue |
|
|
31,567 |
|
|
|
27,068 |
|
|
|
4,499 |
|
|
|
16.6 |
% |
|
|
20.3 |
% |
|
|
14.7 |
% |
Total revenue |
|
$ |
155,797 |
|
|
$ |
183,761 |
|
|
$ |
(27,964 |
) |
|
|
-15.2 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Sales revenue decreased $32.5 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, a decrease of 20.7% from the comparable period. The decrease was primarily attributable to a decrease in domestic direct-to-consumer sales and lower international business-to-business sales, partially offset by higher domestic business-to-business sales. We sold approximately 61,000 oxygen systems during the six months ended June 30, 2023 compared to approximately 72,800 oxygen systems sold during the six months ended June 30, 2022, a decrease of 16.2%.
Rental revenue increased $4.5 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, or an increase of 16.6% from the comparable period. The increase in rental revenue was primarily related to higher rental patients on service and higher Medicare reimbursement rates, partially offset by increased rental revenue adjustments.
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
(amounts in thousands) |
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
Revenue by region and category |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Business-to-business domestic sales |
|
$ |
30,857 |
|
|
$ |
16,313 |
|
|
$ |
14,544 |
|
|
|
89.2 |
% |
|
|
19.8 |
% |
|
|
8.9 |
% |
Business-to-business international sales |
|
|
42,264 |
|
|
|
65,382 |
|
|
|
(23,118 |
) |
|
|
-35.4 |
% |
|
|
27.1 |
% |
|
|
35.6 |
% |
Direct-to-consumer domestic sales |
|
|
51,109 |
|
|
|
74,998 |
|
|
|
(23,889 |
) |
|
|
-31.9 |
% |
|
|
32.8 |
% |
|
|
40.8 |
% |
Direct-to-consumer domestic rentals |
|
|
31,567 |
|
|
|
27,068 |
|
|
|
4,499 |
|
|
|
16.6 |
% |
|
|
20.3 |
% |
|
|
14.7 |
% |
Total revenue |
|
$ |
155,797 |
|
|
$ |
183,761 |
|
|
$ |
(27,964 |
) |
|
|
-15.2 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Domestic business-to-business sales increased 89.2% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to our ability to meet all customer demand during the first six months of 2023 as compared to the prior period, which had supply constraints and limited shipments.
International business-to-business sales decreased 35.4% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, mostly driven by intentional focus in the comparative period in 2022 on fulfilling European orders in our international business-to-business sales channel prior to the EU MDD certificate expiration. In the six months ended June 30, 2023, sales in Europe as a percentage of total international sales revenue decreased to 87.2% versus 94.7% in the comparative period in 2022.
Domestic direct-to-consumer sales decreased 31.9% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by lower volume due to lower sales representative headcount and lower marketing spend during the transformation of this team, partially offset by increased average selling prices versus the comparative period in the prior year.
Domestic direct-to-consumer rentals increased 16.6% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to an increase in rental patients on service and increased Medicare reimbursement rates due to the inflation adjustment effective January 1, 2023, partially offset by increased rental revenue adjustments.
31
Cost of revenue and gross profit
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Cost of sales revenue |
|
$ |
75,992 |
|
|
$ |
90,161 |
|
|
$ |
(14,169 |
) |
|
|
-15.7 |
% |
|
|
48.8 |
% |
|
|
49.1 |
% |
Cost of rental revenue |
|
|
15,028 |
|
|
|
12,336 |
|
|
|
2,692 |
|
|
|
21.8 |
% |
|
|
9.6 |
% |
|
|
6.7 |
% |
Total cost of revenue |
|
$ |
91,020 |
|
|
$ |
102,497 |
|
|
$ |
(11,477 |
) |
|
|
-11.2 |
% |
|
|
58.4 |
% |
|
|
55.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross profit - sales revenue |
|
$ |
48,238 |
|
|
$ |
66,532 |
|
|
$ |
(18,294 |
) |
|
|
-27.5 |
% |
|
|
31.0 |
% |
|
|
36.2 |
% |
Gross profit - rental revenue |
|
|
16,539 |
|
|
|
14,732 |
|
|
|
1,807 |
|
|
|
12.3 |
% |
|
|
10.6 |
% |
|
|
8.0 |
% |
Total gross profit |
|
$ |
64,777 |
|
|
$ |
81,264 |
|
|
$ |
(16,487 |
) |
|
|
-20.3 |
% |
|
|
41.6 |
% |
|
|
44.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross margin percentage - sales revenue |
|
|
38.8 |
% |
|
|
42.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross margin percentage- rental revenue |
|
|
52.4 |
% |
|
|
54.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total gross margin percentage |
|
|
41.6 |
% |
|
|
44.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales revenue decreased $14.2 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, a decrease of 15.7% from the comparable period due primarily to lower sales volumes, lower premiums paid for components and lower labor and overhead costs. The first half of 2023 included $8.0 million of material cost premiums associated with open-market purchases of semiconductor chips used in our batteries and POCs compared to $11.5 million in the first half of 2022.
Cost of rental revenue increased $2.7 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, an increase of 21.8% from the comparable period. The increase in cost of rental revenue was primarily attributable to an increase in total patients on service, which led to increased rental asset depreciation and service costs. Cost of rental revenue included $6.3 million of rental asset depreciation for the six months ended June 30, 2023 compared to $5.4 million for the six months ended June 30, 2022.
Gross margin on sales revenue decreased to 38.8% for the six months ended June 30, 2023 from 42.5% for the six months ended June 30, 2022. The decrease was primarily due to a shift in channel mix, with a higher volume of units sold through the domestic business-to-business channel versus the international business-to-business and direct-to-consumer channels. The decrease was partially offset by lower premiums paid for components and labor and overhead costs. Total worldwide business-to-business sales revenue accounted for 58.9% of total sales revenue in the six months ended June 30, 2023 versus 52.1% in the six months ended June 30, 2022.
Gross margin on rental revenue decreased to 52.4% for the six months ended June 30, 2023 from 54.4% for the six months ended June 30, 2022, primarily due to higher servicing costs per patient on service, partially offset by higher Medicare reimbursement rates.
Research and development expense
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Research and development expense |
|
$ |
9,637 |
|
|
$ |
11,428 |
|
|
$ |
(1,791 |
) |
|
|
-15.7 |
% |
|
|
6.2 |
% |
|
|
6.2 |
% |
Research and development expense decreased $1.8 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, representing a decrease of 15.7% from the comparable period. This was due primarily to a $3.9 million decrease in amortization costs of intangible assets, partially offset by an increase of $1.2 million in product development expenses and $0.6 million of personnel-related expenses.
32
Sales and marketing expense
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Sales and marketing expense |
|
$ |
55,347 |
|
|
$ |
58,427 |
|
|
$ |
(3,080 |
) |
|
|
-5.3 |
% |
|
|
35.5 |
% |
|
|
31.8 |
% |
Sales and marketing expense decreased $3.1 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, a decrease of 5.3% from the comparable period, primarily due to a decrease of $3.2 million of media and advertising costs, a decrease of $3.1 million in personnel-related expenses and a $0.9 million reduction in credit card and financing fees, partially offset by an increase of $2.7 million of consulting fees and an increase of $1.2 million in dues, fees and licenses. In the six months ended June 30, 2023, we spent $13.1 million in media and advertising costs versus $16.3 million in the comparative period in 2022.
General and administrative expense
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
General and administrative expense |
|
$ |
33,476 |
|
|
$ |
27,871 |
|
|
$ |
5,605 |
|
|
|
20.1 |
% |
|
|
21.5 |
% |
|
|
15.2 |
% |
General and administrative expense increased $5.6 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, an increase of 20.1% from the comparable period. The increase was primarily attributable to an increase of $2.0 million in restructuring and severance costs, $1.4 million related to the prior period benefit from the change in the earnout liability, $1.0 million of consulting and $0.8 million in acquisition-related expenses incurred as part of business development activities.
Other income (expense)
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Interest income |
|
$ |
3,171 |
|
|
$ |
254 |
|
|
$ |
2,917 |
|
|
|
1148.4 |
% |
|
|
2.0 |
% |
|
|
0.1 |
% |
Other income (expense) |
|
|
574 |
|
|
|
(1,155 |
) |
|
|
1,729 |
|
|
|
149.7 |
% |
|
|
0.4 |
% |
|
|
-0.6 |
% |
Total other income (expense), net |
|
$ |
3,745 |
|
|
$ |
(901 |
) |
|
$ |
4,646 |
|
|
|
515.6 |
% |
|
|
2.4 |
% |
|
|
-0.5 |
% |
Total other income (expense), net increased $4.6 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, an increase of 515.6% from the comparable period, primarily attributable due to an increase of $2.9 million in interest income due to the higher interest rate environment and an increase of $1.7 million in net foreign currency gains.
Income tax expense
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Income tax expense |
|
$ |
237 |
|
|
$ |
293 |
|
|
$ |
(56 |
) |
|
|
-19.1 |
% |
|
|
0.2 |
% |
|
|
0.2 |
% |
Effective income tax rate |
|
|
-0.8 |
% |
|
|
-1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense decreased slightly for the six months ended June 30, 2023 from the six months ended June 30, 2022. We continued to record a valuation allowance on the use of deferred tax assets in the current and prior periods. Income taxes in the current and prior periods were attributable to foreign taxes and minimum state taxes.
Our effective tax rate for the six months ended June 30, 2023 increased compared to the six months ended June 30, 2022, primarily due to lower foreign taxes and minimum state taxes.
33
Net loss
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
|
% of Revenue |
|
|||||||||||||||
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
Net loss |
|
$ |
(30,175 |
) |
|
$ |
(17,656 |
) |
|
$ |
(12,519 |
) |
|
|
70.9 |
% |
|
|
-19.4 |
% |
|
|
-9.6 |
% |
Net loss increased $12.5 million for the six months ended June 30, 2023 from the six months ended June 30, 2022, or an increase of 70.9% from the comparable period. The increase in net loss was primarily related to a reduction in sales revenue and gross profit.
Contractual obligations
We obtain individual components for our products from a wide variety of individual suppliers. Consistent with industry practice, we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. As of June 30, 2023, we had purchase obligations with outside vendors and suppliers of approximately $124.4 million of which the timing varies depending on demand, current supply on hand and other factors. The obligations normally do not extend beyond twelve-month time frames.
Except as indicated above, there have been no other material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in our Annual Report on Form 10-K filed with the SEC on February 24, 2023.
Liquidity and capital resources
As of June 30, 2023, we had cash and cash equivalents of $167.7 million, which consisted of highly liquid investments with a maturity of three months or less. In addition, we held marketable securities of $2.5 million, which had maturities of greater than three months. For the six months ended June 30, 2023 and 2022, we received $1.0 million and $1.0 million, respectively, in proceeds related to stock option exercises and our employee stock purchase plan.
Our principal uses of cash for liquidity and capital resources in the six months ended June 30, 2023 consisted of net cash used in operating activities of $2.3 million as well as net cash used in investing activities of capital expenditures of $15.4 million for additional rental equipment, other property, plant and equipment, intangible assets, and $2.3 million for net purchases of marketable securities.
We believe that our current cash, cash equivalents, and marketable securities and the cash to be generated from expected product sales and rentals will be sufficient to meet our projected operating and investing requirements for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future funding requirements will depend on many factors, including market acceptance of our products; the cost of our research and development activities; payments from customers; the cost, timing, and outcome of litigation or disputes involving intellectual property rights, our products, employee relations, cyber security incidents, or otherwise; the cost and timing of acquisitions; the cost and timing of regulatory clearances or approvals; the cost and timing of establishing additional sales, marketing, and distribution capabilities; and the effect of competing technological and market developments. In the future, we may acquire businesses or technologies from third parties, and we may decide to raise additional capital through debt or equity financing to the extent we believe this is necessary to successfully complete these acquisitions. Our future capital requirements will also depend on many additional factors, including those set forth in the risk factors included in Item 1A. "Risk Factors" in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q filed with the SEC.
If we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all. In the future, we may also attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital, which would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next twelve months is below our expectations, our liquidity and ability to operate our business could be adversely affected.
34
The following tables show a summary of our cash flows and working capital for the periods and as of the dates indicated:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(amounts in thousands) |
|
June 30, |
|
|
Change 2023 vs. 2022 |
|
||||||||||
Summary of consolidated cash flows |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Cash used in operating activities |
|
$ |
(2,271 |
) |
|
$ |
(12,567 |
) |
|
$ |
10,296 |
|
|
|
-81.9 |
% |
Cash provided by (used in) investing activities |
|
|
(17,650 |
) |
|
|
822 |
|
|
|
(18,472 |
) |
|
|
-2247.2 |
% |
Cash provided by (used in) financing activities |
|
|
526 |
|
|
|
(209 |
) |
|
|
735 |
|
|
|
-351.7 |
% |
Effect of exchange rates on cash |
|
|
68 |
|
|
|
51 |
|
|
|
17 |
|
|
|
33.3 |
% |
Net decrease in cash and cash equivalents |
|
$ |
(19,327 |
) |
|
$ |
(11,903 |
) |
|
$ |
(7,424 |
) |
|
|
62.4 |
% |
(amounts in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Summary of working capital |
|
2023 |
|
|
2022 |
|
||
Total current assets |
|
$ |
269,223 |
|
|
$ |
304,645 |
|
Total current liabilities |
|
|
59,367 |
|
|
|
65,349 |
|
Net working capital |
|
$ |
209,856 |
|
|
$ |
239,296 |
|
Operating activities
Historically, we derive operating cash flows from cash collected from the sales and rental of our products and services. These cash flows received are partially offset by our use of cash for operating expenses to support the growth of our business.
Net cash used in operating activities for the six months ended June 30, 2023 consisted primarily of our net loss of $30.2 million, partially offset by non-cash adjustment items such as depreciation of equipment and leasehold improvements and amortization of intangibles of $8.4 million, stock-based compensation expense of $6.7 million, provision for sales returns and doubtful accounts of $4.5 million, net loss on disposal of rental assets and other assets of $2.1 million, and provision for inventory obsolescence and other inventory losses of $1.0 million. The net changes in operating assets and liabilities resulted in a net cash provided by of $5.2 million.
Net cash used in operating activities for the six months ended June 30, 2022 consisted primarily of our net loss of $17.7 million and the change in fair value of the earnout liability of $1.4 million, partially offset by non-cash expense items such as depreciation of equipment and leasehold improvements and amortization of intangibles of $11.6 million, provision for sales returns and doubtful accounts of $6.2 million, stock-based compensation expense of $5.7 million, provision for inventory obsolescence and other inventory losses of $1.6 million, and net loss on disposal of rental equipment and other fixed assets of $1.5 million. The net changes in operating assets and liabilities resulted in a net use of cash of $19.9 million.
Investing activities
Net cash provided by (used in) investing activities generally includes the production and purchase of rental assets, property, plant and equipment, and intangibles to support our expanding business as well as maturities (purchases) of marketable securities.
For the six months ended June 30, 2023, we invested $14.9 million in the production and purchase of rental assets and other property and equipment, $12.8 million in the purchase of marketable securities and $0.5 million in intangible assets, partially offset by $10.5 million in maturities of marketable securities.
For the six months ended June 30, 2022, we received $10.0 million in maturities of marketable securities, partially offset by $9.3 million invested in the production and purchase of rental assets and other property and equipment.
We expend significant manufacturing and production expense in connection with the development and production of our oxygen concentrator products and, in connection with our rental business, we incur expense in the deployment and maintenance of rental equipment to our patients. Investments will continue to be required in order to grow our sales and rental revenue and continue to supply and replace rental equipment to our rental patients on service.
Financing activities
Historically, we have funded our operations through our sales and rental revenue and the issuance of preferred and common stock.
35
For the six months ended June 30, 2023, net cash provided by financing activities consisted of $1.0 million from the proceeds received from stock options that were exercised and purchases under our employee stock purchase program, partially offset by the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.5 million.
For the six months ended June 30, 2022, net cash used in financing activities consisted of the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $1.2 million, partially offset by $1.0 million from the proceeds received from stock options that were exercised and purchases under our employee stock purchase program.
Sources of funds
Our net cash used in operating activities in the six months ended June 30, 2023 was $2.3 million compared to $12.6 million in the six months ended June 30, 2022. As of June 30, 2023, we had cash and cash equivalents of $167.7 million.
Use of funds
Our principal uses of cash are funding our new rental asset deployments and other capital purchases, operations, and other working capital requirements and, from time-to-time, the acquisition of businesses. Over the past several years, our cash flows from customer collections have remained consistent and our annual cash provided by operating activities has generally been a significant source of capital to the business, which we expect to continue in the future.
We may need to raise additional funds to support our investing operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.
Non-GAAP financial measures
EBITDA and Adjusted EBITDA are financial measures that are not calculated in accordance with U.S. GAAP. We define EBITDA as net loss excluding interest income, interest expense, taxes and depreciation and amortization. Adjusted EBITDA also excludes stock-based compensation, change in fair value of earnout liability, acquisition-related expenses, and restructuring-related and other charges. Below, we have provided a reconciliation of EBITDA and Adjusted EBITDA to our net loss, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA should not be considered alternatives to net loss or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. Our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate EBITDA and Adjusted EBITDA in the same manner as we calculate these measures.
We include EBITDA and Adjusted EBITDA in this Quarterly Report on Form 10-Q because they are important measures upon which our management assesses our operating performance. We use EBITDA and Adjusted EBITDA as key performance measures because we believe they facilitate operating performance comparisons from period-to-period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed assets and intangible assets, the impact of stock-based compensation expense, the impact of the change in fair value of the earnout liability, the impact of acquisition-related expenses, and the impact of restructuring-related costs. Because EBITDA and Adjusted EBITDA facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA and Adjusted EBITDA for business planning purposes, to incentivize and compensate our management personnel, and in evaluating acquisition opportunities. In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.
Our uses of EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
36
In evaluating EBITDA and Adjusted EBITDA, we anticipate that in the future we will incur expenses within these categories similar to this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by certain expenses. When evaluating our financial results, EBITDA and Adjusted EBITDA should be considered alongside other financial performance measures, including U.S. GAAP results.
The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net loss, the most comparable U.S. GAAP measure, for each of the periods indicated:
(amounts in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
Non-GAAP EBITDA and Adjusted EBITDA |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net loss (GAAP) |
|
$ |
(9,826 |
) |
|
$ |
(3,442 |
) |
|
$ |
(30,175 |
) |
|
$ |
(17,656 |
) |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
(1,646 |
) |
|
|
(225 |
) |
|
|
(3,171 |
) |
|
|
(254 |
) |
Provision for income taxes |
|
|
41 |
|
|
|
69 |
|
|
|
237 |
|
|
|
293 |
|
Depreciation and amortization |
|
|
4,308 |
|
|
|
5,848 |
|
|
|
8,394 |
|
|
|
11,608 |
|
EBITDA (non-GAAP) |
|
|
(7,123 |
) |
|
|
2,250 |
|
|
|
(24,715 |
) |
|
|
(6,009 |
) |
Stock-based compensation |
|
|
3,263 |
|
|
|
3,020 |
|
|
|
6,705 |
|
|
|
5,685 |
|
Acquisition-related expenses |
|
|
467 |
|
|
|
— |
|
|
|
1,021 |
|
|
|
— |
|
Restructuring-related and other charges |
|
|
201 |
|
|
|
— |
|
|
|
2,010 |
|
|
|
— |
|
Change in fair value of earnout liability |
|
|
— |
|
|
|
(2,041 |
) |
|
|
— |
|
|
|
(1,411 |
) |
Adjusted EBITDA (non-GAAP) |
|
$ |
(3,192 |
) |
|
$ |
3,229 |
|
|
$ |
(14,979 |
) |
|
$ |
(1,735 |
) |
37
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including fluctuation in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices. We do not hold or issue financial instruments for trading purposes.
Foreign currency exchange risk
The principal market risk we face is foreign currency exchange risk. The majority of our revenue is denominated in U.S. dollars while the majority of our European sales are denominated in Euros. Our results of operations, certain balance sheet balances and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income or loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency in which they are recorded. The effect of a 10% adverse change in exchange rates on foreign denominated cash, receivables and payables as of June 30, 2023 would not have had a material effect on our financial position, results of operations or cash flows. As our operations in countries outside of the United States grow, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future.
We enter into foreign exchange forward contracts to protect our forecasted U.S. dollar-equivalent earnings from adverse changes in foreign currency exchange rates. These hedging contracts reduce, but will not entirely eliminate, the impact of adverse currency exchange rate movements on revenue, cash, receivables and payables. We performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of June 30, 2023, the analysis indicated that these hypothetical market movements would not have a material effect on our financial position, results of operations or cash flows. We estimate prior to any hedging activity that a 10% adverse change in exchange rates on our foreign denominated sales would have resulted in a $3.3 million decline in revenue for the six months ended June 30, 2023. We designate these forward contracts as cash flow hedges for accounting purposes. The fair value of the forward contract is separated into intrinsic and time values. The fair value of forward currency-exchange contracts is sensitive to changes in currency exchange rates. Changes in the time value are coded in other income (expense), net. Changes in the intrinsic value are recorded as a component of accumulated other comprehensive loss and subsequently reclassified into revenue to offset the hedged exposures as they occur.
Interest rate fluctuation risk
We had cash and cash equivalents of $167.7 million as of June 30, 2023, which consisted of highly liquid investments with a maturity of three months or less, and $2.5 million of marketable securities with maturity dates of greater than three months. The primary goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents. Declines in interest rates, however, would reduce future investment income. We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1.00% (100 basis points) increase in interest rates would not have materially impacted the fair value of our marketable securities as of June 30, 2023 and June 30, 2022. If overall interest rates had increased or decreased by 1.00% (100 basis points), our interest income would not have been materially affected during the three or six months ended June 30, 2023 or June 30, 2022.
38
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
The Company maintains a system of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported accurately and completely within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, among other processes, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions over time, or that the degree of compliance with the policies and procedures may deteriorate. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. Based upon the evaluation described above, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on effectiveness of controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
39
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Civil Investigative Demand
On June 21, 2022, we received a civil investigative demand (“CID”) from the United States Attorney’s Office for the Northern District of Iowa. The CID states that it was issued in a False Claims Act investigation to determine whether there is or has been a violation of the False Claims Act and that the investigation involves concerns of inappropriate kickbacks provided by certain manufacturers of portable oxygen concentrators and related products in violation of the Anti-Kickback Statute. The CID followed informal requests from the United States Attorney’s Office for the Northern District of Iowa begun in late 2020, with which we voluntarily complied, to obtain information concerning our participation in (i) zero-interest or below market-rate loans through a third party lender to finance customer purchases; (ii) guaranteeing the obligation of a customer to a finance company in connection with financing of purchases of our equipment; and (iii) entering into an agreement with a customer that included marketing, exclusivity, discount, and favorable financing terms. We are cooperating in the investigation. We are currently unable to predict the outcome of this investigation or whether qui tam or other litigation is probable. Regardless of the outcome, this inquiry has the potential to have an adverse impact on us due to any related defense and settlement costs, diversion of management resources, and other factors.
Other Litigation
We are party to various legal proceedings arising in the normal course of business. We carry insurance, subject to specified deductibles under the policies, to protect against losses from certain types of legal claims. At this time, we do not anticipate that any of these other proceedings arising in the normal course of business will have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
40
Item 1A. Risk Factors
The significant factors known to us that could materially adversely affect our business, financial condition, or operating results are described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023 and below. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors previously disclosed in our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023, which are incorporated by reference herein, except as disclosed below.
An economic recession, downturn, period of inflation, or economic uncertainty in our key markets may adversely affect customer and consumer spending as well as demand for our products.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The global credit and financial markets have experienced severe volatility and disruptions in the past several years, including as a result of the impacts of COVID-19, increasing inflation, geopolitical conflict and uncertainties, and the recent events in the U.S. banking sector, including the collapse of Silicon Valley Bank and other financial institutions in March 2023. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, higher inflation, bank failures or continued unpredictable and unstable market conditions. Unfavorable economic conditions may lead customers and consumers to delay or reduce purchases of our products and/or strain our suppliers. Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets and our customers could be delayed in making payments for our products. Our sensitivity to economic cycles and any related fluctuation in customer and consumer demand could have a material adverse effect on our business, financial condition, and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
We did not repurchase any shares of our common stock during the three months ended June 30, 2023.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On August 2, 2023, the Company entered into a commercial building lease (the “Lease”), by and between the Company and Townsgate Business Park 2, LLC, a Delaware limited liability company and Majestic Luna 2, LLC, a Delaware limited liability company, as tenants-in-common, for approximately 18,000 rentable square feet located at 859 Ward Drive, Goleta, California 93111 (collectively, the “New Headquarters”). The Lease will replace the lease for the Company’s existing Goleta headquarters, which will be assigned to a third party pursuant to the terms of a previously executed Assignment and Assumption of Lease Agreement. The Company expects to take possession of the New Headquarters on September 1, 2023, at which time the Company expects to move to the New Headquarters. The initial term of the Lease expires on January 31, 2028. The Lease also grants to the Company one option to renew the Lease for an additional four (4) years, commencing when the initial term expires, at the fair market rental rate (as defined in the Lease) and otherwise pursuant to the terms and conditions of the Lease. The minimum monthly base rent under the Lease will initially be $26,892 per month.
41
The foregoing summary of the Lease does not purport to be complete and is qualified in its entirety by reference to the full text of the Lease, which is filed as Exhibit 10.5 to this report.
42
Item 6. Exhibits
|
|
|
|
|
|
Incorporated |
|
|
|
|
|
|
Incorporated |
|
by Reference |
|
|
Exhibit |
|
|
|
by Reference |
|
From Exhibit |
|
Date |
Number |
|
Description |
|
From Form |
|
Number |
|
Filed |
|
|
|
|
|
|
|
|
|
10.1 |
|
|
8-K |
|
10.1 |
|
06/06/23 |
|
|
|
|
|
|
|
|
|
|
10.2 |
|
Form of Stock Option Agreement under the 2023 Equity Incentive Plan |
|
8-K |
|
10.2 |
|
06/06/23 |
|
|
|
|
|
|
|
|
|
10.3 |
|
Form of Restricted Stock Unit Agreement (Time-Based) under the 2023 Equity Incentive Plan |
|
8-K |
|
10.3 |
|
06/06/23 |
|
|
|
|
|
|
|
|
|
10.4 |
|
Form of Restricted Stock Unit Agreement (Performance-Based) under the 2023 Equity Incentive Plan |
|
8-K |
|
10.4 |
|
06/06/23 |
|
|
|
|
|
|
|
|
|
10.5 |
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1(1) |
|
|
|
|
|
|
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|
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|
|
|
|
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|
|
32.2(1) |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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|
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|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
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|
|
|
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|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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|
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|
|
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|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Document |
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|
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The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL. |
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43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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inogen, inc. |
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Dated: |
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August 8, 2023 |
By: |
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/s/ Nabil Shabshab |
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Nabil Shabshab |
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Chief Executive Officer President Director (Principal Executive Officer) |
Dated: |
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August 8, 2023 |
By: |
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/s/ Kristin Caltrider |
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Kristin Caltrider |
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Executive Vice President, Chief Financial Officer Treasurer (Principal Financial and Accounting Officer) |
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