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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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: 001-36309

 

INOGEN, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

33-0989359

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

326 Bollay Drive

Goleta, CA

93117

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (805) 562-0500

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

INGN

 

The NASDAQ Stock Market LLC

(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.     Yes      No  

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).    Yes      No  

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

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 April 30, 2020, the registrant had 22,047,608 shares of common stock, par value $0.001, outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

Part I – Financial Information

 

Page

Item 1.

 

Financial Statements

 

3

 

 

Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

 

3

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months Ended March 31, 2020 and March 31, 2019

 

5

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the Three Months Ended March 31, 2020 and March 31, 2019

 

6

 

 

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2020 and March 31, 2019

 

7

 

 

Condensed Notes to the Consolidated Financial Statements (unaudited)

 

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

49

Item 4.

 

Controls and Procedures

 

50

 

 

Part II – Other Information

 

 

Item 1.

 

Legal Proceedings

 

51

Item 1A.

 

Risk Factors

 

52

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

86

Item 3.

 

Defaults Upon Senior Securities

 

86

Item 4.

 

Mine Safety Disclosures

 

86

Item 5.

 

Other Information

 

86

Item 6.

 

Exhibits

 

87

SIGNATURES

 

88

 

 

 

 

2


 

INOGEN, INC.

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Inogen, Inc.

Consolidated Balance Sheets

(amounts in thousands)

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

208,362

 

 

$

198,037

 

Marketable securities

 

 

 

 

11,057

 

Accounts receivable, net

 

40,396

 

 

 

34,325

 

Inventories, net

 

37,600

 

 

 

35,664

 

Income tax receivable

 

2,763

 

 

 

2,976

 

Prepaid expenses and other current assets

 

13,868

 

 

 

10,160

 

Total current assets

 

302,989

 

 

 

292,219

 

Property and equipment

 

 

 

 

 

 

 

Rental equipment, net

 

38,995

 

 

 

39,308

 

Manufacturing equipment and tooling

 

10,267

 

 

 

9,704

 

Computer equipment and software

 

7,533

 

 

 

7,266

 

Furniture and equipment

 

1,730

 

 

 

1,730

 

Leasehold improvements

 

4,398

 

 

 

4,388

 

Land and building

 

125

 

 

 

125

 

Construction in process

 

2,443

 

 

 

1,773

 

Total property and equipment

 

65,491

 

 

 

64,294

 

Less accumulated depreciation

 

(45,824

)

 

 

(44,856

)

Property and equipment, net

 

19,667

 

 

 

19,438

 

Goodwill

 

32,912

 

 

 

32,954

 

Intangible assets, net

 

75,282

 

 

 

77,533

 

Operating lease right-of-use asset

 

8,117

 

 

 

5,855

 

Deferred tax asset - noncurrent

 

14,652

 

 

 

14,452

 

Other assets

 

5,502

 

 

 

4,888

 

Total assets

$

459,121

 

 

$

447,339

 

 

 

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)

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

 

 

(unaudited)

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

32,853

 

 

$

30,730

 

Accrued payroll

 

8,650

 

 

 

6,215

 

Warranty reserve - current

 

5,614

 

 

 

4,923

 

Operating lease liability - current

 

1,863

 

 

 

2,014

 

Deferred revenue - current

 

5,957

 

 

 

5,478

 

Income tax payable

 

908

 

 

 

821

 

Total current liabilities

 

55,845

 

 

 

50,181

 

Long-term liabilities

 

 

 

 

 

 

 

Warranty reserve - noncurrent

 

7,957

 

 

 

7,648

 

Operating lease liability - noncurrent

 

9,116

 

 

 

4,702

 

Earnout liability - noncurrent

 

25,607

 

 

 

26,559

 

Deferred revenue - noncurrent

 

13,211

 

 

 

13,541

 

Deferred tax liability - noncurrent

 

85

 

 

 

87

 

Total liabilities

 

111,821

 

 

 

102,718

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $0.001 par value per share; 200,000,000 authorized; 22,044,527 and 22,031,410

   shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

22

 

 

 

22

 

Additional paid-in capital

 

267,011

 

 

 

263,252

 

Retained earnings

 

79,845

 

 

 

81,434

 

Accumulated other comprehensive income (loss)

 

422

 

 

 

(87

)

Total stockholders' equity

 

347,300

 

 

 

344,621

 

Total liabilities and stockholders' equity

$

459,121

 

 

$

447,339

 

 

 

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)

 

 

Three months ended

 

 

March 31,

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

Sales revenue

$

83,140

 

 

$

84,818

 

Rental revenue

 

5,349

 

 

 

5,384

 

Total revenue

 

88,489

 

 

 

90,202

 

Cost of revenue

 

 

 

 

 

 

 

Cost of sales revenue

 

47,118

 

 

 

42,067

 

Cost of rental revenue, including depreciation of $1,299 and $1,705, respectively

 

3,005

 

 

 

3,726

 

Total cost of revenue

 

50,123

 

 

 

45,793

 

Gross profit

 

 

 

 

 

 

 

Gross profit-sales revenue

 

36,022

 

 

 

42,751

 

Gross profit-rental revenue

 

2,344

 

 

 

1,658

 

Total gross profit

 

38,366

 

 

 

44,409

 

Operating expense

 

 

 

 

 

 

 

Research and development

 

3,605

 

 

 

1,669

 

Sales and marketing

 

27,163

 

 

 

28,201

 

General and administrative

 

9,777

 

 

 

9,681

 

Total operating expense

 

40,545

 

 

 

39,551

 

Income (loss) from operations

 

(2,179

)

 

 

4,858

 

Other income (expense)

 

 

 

 

 

 

 

Interest income

 

552

 

 

 

1,334

 

Other income (expense)

 

(60

)

 

 

(120

)

Total other income, net

 

492

 

 

 

1,214

 

Income (loss) before provision (benefit) for income taxes

 

(1,687

)

 

 

6,072

 

Provision (benefit) for income taxes

 

(98

)

 

 

770

 

Net income (loss)

 

(1,589

)

 

 

5,302

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

(158

)

 

 

(137

)

Change in net unrealized gains (losses) on foreign currency hedging

 

661

 

 

 

84

 

Less: reclassification adjustment for net (gains) losses included in net income

 

12

 

 

 

176

 

Total net change in unrealized gains (losses) on foreign currency hedging

 

673

 

 

 

260

 

Change in net unrealized gains (losses) on marketable securities

 

(6

)

 

 

13

 

Total other comprehensive income, net of tax

 

509

 

 

 

136

 

Comprehensive income (loss)

$

(1,080

)

 

$

5,438

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share attributable to common stockholders (Note 7)

$

(0.07

)

 

$

0.24

 

Diluted net income (loss) per share attributable to common stockholders (Note 7)

$

(0.07

)

 

$

0.24

 

Weighted-average number of shares used in calculating net income (loss) per

  share attributable to common stockholders:

 

 

 

 

 

 

 

Basic common shares

 

21,916,365

 

 

 

21,750,305

 

Diluted common shares

 

21,916,365

 

 

 

22,534,885

 

 

 

See accompanying condensed notes to the consolidated financial statements.

 

 

5


 

Inogen, Inc.

Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share amounts)

 

 

Three months ended March 31, 2020 and March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

stockholders'

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

equity

 

Balance, December 31, 2018

 

21,778,632

 

 

$

22

 

 

$

249,194

 

 

$

60,484

 

 

$

724

 

 

$

310,424

 

Stock-based compensation

 

 

 

 

 

 

 

3,586

 

 

 

 

 

 

 

 

 

3,586

 

Employee stock purchases

 

16,767

 

 

 

 

 

 

1,525

 

 

 

 

 

 

 

 

 

1,525

 

Restricted stock awards issued

 

66,944

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

11,265

 

 

 

 

 

 

(59

)

 

 

 

 

 

 

 

 

(59

)

Shares withheld related to net restricted stock settlement

 

(12,045

)

 

 

 

 

 

(655

)

 

 

 

 

 

 

 

 

(655

)

Stock options exercised

 

69,779

 

 

 

 

 

 

1,635

 

 

 

 

 

 

 

 

 

1,635

 

Net income

 

 

 

 

 

 

 

 

 

 

5,302

 

 

 

 

 

 

5,302

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

136

 

 

 

136

 

Balance, March 31, 2019 (unaudited)

 

21,931,342

 

 

$

22

 

 

$

255,226

 

 

$

65,786

 

 

$

860

 

 

$

321,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

22,031,410

 

 

$

22

 

 

$

263,252

 

 

$

81,434

 

 

$

(87

)

 

$

344,621

 

Stock-based compensation

 

 

 

 

 

 

 

2,784

 

 

 

 

 

 

 

 

 

2,784

 

Employee stock purchases

 

27,954

 

 

 

 

 

 

1,088

 

 

 

 

 

 

 

 

 

1,088

 

Restricted stock awards issued, net of forfeitures

 

(27,729

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

10,167

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

(7

)

Shares withheld related to net restricted stock settlement

 

(3,609

)

 

 

 

 

 

(166

)

 

 

 

 

 

 

 

 

(166

)

Stock options exercised

 

6,334

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

60

 

Net loss

 

 

 

 

 

 

 

 

 

 

(1,589

)

 

 

 

 

 

(1,589

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

509

 

 

 

509

 

Balance, March 31, 2020 (unaudited)

 

22,044,527

 

 

$

22

 

 

$

267,011

 

 

$

79,845

 

 

$

422

 

 

$

347,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying condensed notes to the consolidated financial statements.

 

 

6


 

Inogen, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(amounts in thousands)

 

 

Three months ended March 31,

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income (loss)

$

(1,589

)

 

$

5,302

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

4,462

 

 

 

2,794

 

Loss on rental units and other fixed assets

 

130

 

 

 

171

 

Gain on sale of former rental assets

 

(37

)

 

 

(21

)

Provision for sales revenue returns and doubtful accounts

 

3,608

 

 

 

4,428

 

Provision for rental revenue adjustments

 

808

 

 

 

590

 

Provision for inventory losses

 

347

 

 

 

456

 

Stock-based compensation expense

 

2,784

 

 

 

3,586

 

Deferred income taxes

 

(200

)

 

 

834

 

Change in fair value of earnout liability

 

(952

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(10,511

)

 

 

(9,517

)

Inventories

 

(3,721

)

 

 

(2,897

)

Income tax receivable

 

213

 

 

 

100

 

Prepaid expenses and other current assets

 

(3,710

)

 

 

(2,143

)

Operating lease right-of-use asset

 

(2,262

)

 

 

(5,936

)

Other noncurrent assets

 

460

 

 

 

(491

)

Accounts payable and accrued expenses

 

2,759

 

 

 

(1,974

)

Accrued payroll

 

2,436

 

 

 

(3,572

)

Warranty reserve

 

1,000

 

 

 

227

 

Deferred revenue

 

149

 

 

 

367

 

Income tax payable

 

103

 

 

 

(277

)

Operating lease liability

 

4,263

 

 

 

6,981

 

Other noncurrent liabilities

 

 

 

 

(832

)

Net cash provided by (used in) operating activities

 

540

 

 

 

(1,824

)

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

 

 

(19,033

)

Maturities of marketable securities

 

11,051

 

 

 

13,750

 

Investment in property and equipment

 

(1,479

)

 

 

(933

)

Production and purchase of rental equipment

 

(735

)

 

 

(781

)

Proceeds from sale of former assets

 

62

 

 

 

49

 

Net cash provided by (used in) investing activities

 

8,899

 

 

 

(6,948

)

 

 

 

 

 

 

 

 

(continued on next page)

 

 

 

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,

 

 

2020

 

 

2019

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from stock options exercised

 

60

 

 

 

1,635

 

Proceeds from employee stock purchases

 

1,088

 

 

 

1,525

 

Payment of employment taxes related to release of restricted stock

 

(173

)

 

 

(714

)

Net cash provided by financing activities

 

975

 

 

 

2,446

 

Effect of exchange rates on cash

 

(89

)

 

 

(72

)

Net increase (decrease) in cash and cash equivalents

 

10,325

 

 

 

(6,398

)

Cash and cash equivalents, beginning of period

 

198,037

 

 

 

196,634

 

Cash and cash equivalents, end of period

$

208,362

 

 

$

190,236

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

Cash paid during the period for income taxes, net of refunds received

$

 

 

$

214

 

Supplemental disclosure of non-cash transactions

 

 

 

 

 

 

 

Property and equipment in accounts payable and accrued liabilities

 

38

 

 

 

194

 

 

 

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 829,000 of its Inogen oxygen concentrators as of March 31, 2020.

The Company incorporated Inogen Europe Holding B.V., a Dutch limited liability company, on April 13, 2017. On May 4, 2017, Inogen Europe Holding B.V. acquired all issued and outstanding capital stock of MedSupport Systems B.V. (MedSupport) and began operating under the name Inogen Europe B.V. The Company merged Inogen Europe Holding B.V. and Inogen Europe B.V. on December 28, 2018. Inogen Europe B.V. is the remaining legal entity. Inogen completed the acquisition of New Aera, Inc. (New Aera) on August 9, 2019.

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.

9


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 one operating and reportable segment – development, manufacturing, marketing, sales, and rental of respiratory products. Management reports financial information on a consolidated basis to the Company’s chief operating decision maker.

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 $101,923 in cash in the aggregate (inclusive of payments to Silverbow) comprised of $70,523 of cash paid at closing and up to $31,400 in earnout payments if certain performance targets are achieved. Goodwill associated with this acquisition is not expected to be deductible for income tax purposes.

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.

10


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:

 

Cash

 

$

122

 

Inventories

 

 

140

 

Other current assets

 

 

8

 

Property and equipment

 

 

224

 

Goodwill

 

 

30,742

 

Intangible assets

 

 

77,700

 

Total assets acquired

 

$

108,936

 

 

 

 

 

 

Deferred tax liability - noncurrent

 

$

12,664

 

Earnout liability - noncurrent

 

 

25,749

 

Total liabilities assumed

 

 

38,413

 

Total purchase price

 

$

70,523

 

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.

 

 

 

 

 

 

 

 

Three months ended

 

 

 

March 31, 2019

 

Total revenue