UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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)
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( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(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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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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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
As of April 30, 2020, the registrant had
TABLE OF CONTENTS
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Item 1. |
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3 |
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Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019 |
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5 |
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6 |
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7 |
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Condensed Notes to the Consolidated Financial Statements (unaudited) |
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9 |
Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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29 |
Item 3. |
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49 |
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Item 4. |
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Item 1. |
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51 |
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Item 1A. |
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52 |
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Item 2. |
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86 |
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Item 3. |
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86 |
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Item 4. |
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86 |
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Item 5. |
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86 |
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Item 6. |
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87 |
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88 |
2
INOGEN, INC.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Inogen, Inc.
Consolidated Balance Sheets
(amounts in thousands)
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March 31, |
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December 31, |
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2020 |
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2019 |
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(unaudited) |
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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 |
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Rental equipment, net |
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Manufacturing equipment and tooling |
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Computer equipment and software |
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Furniture and equipment |
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Leasehold improvements |
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Land and building |
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Construction in process |
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Total property and equipment |
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Less accumulated depreciation |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Operating lease right-of-use asset |
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Deferred tax asset - noncurrent |
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Other assets |
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Total assets |
$ |
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$ |
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See accompanying condensed notes to the consolidated financial statements.
3
Inogen, Inc.
Consolidated Balance Sheets (continued)
(amounts in thousands, except share and per share amounts)
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March 31, |
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December 31, |
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2020 |
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2019 |
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(unaudited) |
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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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Income tax payable |
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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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Earnout liability - noncurrent |
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Deferred revenue - noncurrent |
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Deferred tax liability - noncurrent |
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Total liabilities |
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Commitments and contingencies (Note 10) |
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Stockholders' equity |
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Common stock, $ shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
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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.
4
Inogen, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(amounts in thousands, except share and per share amounts)
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Three months ended |
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March 31, |
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2020 |
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2019 |
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Revenue |
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Sales revenue |
$ |
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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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Income (loss) from operations |
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Other income (expense) |
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Interest income |
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Other income (expense) |
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Total other income, net |
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Income (loss) before provision (benefit) for income taxes |
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Provision (benefit) for income taxes |
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Net income (loss) |
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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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Change in net unrealized gains (losses) on foreign currency hedging |
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Less: reclassification adjustment for net (gains) losses included in net income |
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Total net change in unrealized gains (losses) on foreign currency hedging |
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Change in net unrealized gains (losses) on marketable securities |
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Total other comprehensive income, net of tax |
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Comprehensive income (loss) |
$ |
( |
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$ |
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Basic net income (loss) per share attributable to common stockholders (Note 7) |
$ |
( |
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$ |
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Diluted net income (loss) per share attributable to common stockholders (Note 7) |
$ |
( |
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$ |
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Weighted-average number of shares used in calculating net income (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.
5
Inogen, Inc.
Consolidated Statements of Stockholders’ Equity
(amounts in thousands, except share amounts)
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Three months ended March 31, 2020 and March 31, 2019 |
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Accumulated |
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Additional |
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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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Retained |
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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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earnings |
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income (loss) |
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equity |
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Balance, December 31, 2018 |
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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 |
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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 income |
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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, March 31, 2019 (unaudited) |
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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, 2019 |
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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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Other comprehensive income |
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— |
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— |
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— |
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— |
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Balance, March 31, 2020 (unaudited) |
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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.
6
Inogen, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
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Three months ended March 31, |
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2020 |
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2019 |
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Cash flows from operating activities |
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Net income (loss) |
$ |
( |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Loss on rental units and other fixed assets |
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Gain on sale of former rental assets |
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( |
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Provision for sales revenue returns and doubtful accounts |
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Provision for rental revenue adjustments |
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Provision for inventory losses |
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Stock-based compensation expense |
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Deferred income taxes |
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( |
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Change in fair value of earnout liability |
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( |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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( |
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Income tax receivable |
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Prepaid expenses and other current assets |
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( |
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( |
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Operating lease right-of-use asset |
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( |
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( |
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Other noncurrent assets |
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( |
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Accounts payable and accrued expenses |
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( |
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Accrued payroll |
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( |
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Warranty reserve |
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Deferred revenue |
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Income tax payable |
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( |
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Operating lease liability |
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Other noncurrent liabilities |
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— |
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( |
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Net cash provided by (used in) operating activities |
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( |
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Cash flows from investing activities |
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Purchases of marketable securities |
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— |
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( |
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Maturities of marketable securities |
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Investment in property and equipment |
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( |
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( |
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Production and purchase of rental equipment |
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( |
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Proceeds from sale of former assets |
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Net cash provided by (used in) investing activities |
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( |
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(continued on next page) |
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See accompanying condensed notes to the consolidated financial statements.
7
Inogen, Inc.
Consolidated Statements of Cash Flows (continued)
(unaudited)
(amounts in thousands)
|
Three months ended March 31, |
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2020 |
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2019 |
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Cash flows from financing activities |
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Proceeds from stock options exercised |
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Proceeds from employee stock purchases |
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Payment of employment taxes related to release of restricted stock |
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( |
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( |
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Net cash provided by financing activities |
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Effect of exchange rates on cash |
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( |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
$ |
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$ |
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Supplemental disclosures of cash flow information |
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Cash paid during the period for income taxes, net of refunds received |
$ |
— |
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$ |
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Supplemental disclosure of non-cash transactions |
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Property and equipment in accounts payable and accrued liabilities |
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See accompanying condensed notes to the consolidated financial statements.
8
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 company that primarily develops, manufactures and markets innovative portable oxygen concentrators 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 calls 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® systems concentrate the air around the patient to offer a single source of supplemental oxygen anytime, anywhere with a single 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.
Since adopting the Company’s direct-to-consumer rental strategy in 2009, the Company has directly sold or rented more than
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 months ended March 31, 2020 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2020. 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 25, 2020. 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 25, 2020.
Basis of consolidation
The consolidated financial statements include the accounts of Inogen, Inc. and its wholly owned subsidiaries. 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 and determining the stand-alone selling price (SSP) of performance obligations, inventory and rental asset valuations and write-downs, accounts receivable allowances for bad debts, returns and adjustments, warranty expense, stock compensation expense, depreciation and amortization, income tax provision and uncertain tax positions, fair value of financial instruments, fair value of acquired intangible assets and goodwill and fair value of earnout liabilities. Actual results could differ from these estimates.
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Inogen, Inc.
Condensed Notes to the Consolidated Financial Statements (continued)
(unaudited)
(amounts in thousands, except share and per share amounts)
Recently issued accounting pronouncements not yet adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The new guidance also improves consistent application of and simplifies US GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the effect of the new guidance.
Recently adopted accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326). The new standard requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The Company adopted this standard on January 1, 2020, and adoption of this standard did not have a material impact on the Company’s consolidated financial statement presentation or results.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The new guidance eliminates step two of the goodwill impairment test. Under the new guidance, an entity should recognize an impairment charge for the amount by which a reporting unit’s carrying value exceeds its fair value. The Company adopted this standard on January 1, 2020, and adoption of this standard did not have a material impact on the Company’s consolidated financial statement presentation or results.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance modifies the disclosure requirements on fair value measurements. The Company adopted this standard on January 1, 2020, and adoption of this standard did not have a material impact on the Company’s consolidated financial statement presentation or results.
Business segments
The Company operates and reports in only
3. Acquisitions
On August 6, 2019, the Company entered into an Agreement and Plan of Merger (Merger Agreement) by and among the Company, New Aera, Inc., a Delaware corporation, Move Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, and Gregory J. Kapust, as stockholder representative. On August 9, 2019, the Company completed the acquisition of New Aera pursuant to and on the terms set forth in the Merger Agreement. In connection with the Merger Agreement, the Company also separately acquired certain intellectual property assets from Silverbow Development, LLC, an affiliate of New Aera (Silverbow). New Aera is an innovative developer and manufacturer of portable non-invasive ventilators for people suffering from various chronic lung diseases. Under the terms of the Merger Agreement, all outstanding shares of capital stock of New Aera were cancelled and converted into the right to receive merger consideration with a value equal to up to $
Assets and liabilities of the acquired company were recorded at their estimated fair values at the date of acquisition. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired has been allocated to goodwill. Goodwill represents the expected synergies with the existing business, the acquired assembled workforce, and future cash flows after the acquisition. The fair value assigned to the identifiable intangible asset was determined primarily by using the excess earnings method. The key assumptions included in the excess earnings method included revenue recognized, cost of revenue and the discount rate. The fair value of the earnout liability was measured using a Monte Carlo simulation and was discounted using a rate that appropriately captures the risk associated with the obligation. The key assumption included in the simulation included revenue recognized.
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Inogen, Inc.
Condensed Notes to the Consolidated Financial Statements (continued)
(unaudited)
(amounts in thousands, except share and per share amounts)
Preliminary fair values of assets acquired and liabilities assumed have been updated for deferred taxes. The purchase accounting for this acquisition has been finalized.
The following table summarizes the purchase price allocation for the acquisition of New Aera:
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Total assets acquired |
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Deferred tax liability - noncurrent |
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Total purchase price |
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The consolidated financial and operating results reflect the New Aera operations beginning August 9, 2019. The following unaudited pro forma information for the three months ended March 31, 2019 presents the revenue and net income assuming the acquisition of New Aera had occurred as of January 1, 2018.
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Three months ended |
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March 31, 2019 |
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