Inogen, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Summary of Significant Accounting Policies (Tables)

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2019

Sales Revenue Disaggregated by Sales Channel and Geographic Region

The following table sets forth the Company’s sales revenue disaggregated by sales channel and geographic region:

(amounts in thousands)	Years ended December 31,
Revenue by region and category	2019		2018		2017
Business-to-business domestic sales	$	106,428	$	116,581	$	83,390
Business-to-business international sales		77,960		77,333		55,519
Direct-to-consumer domestic sales		156,158		142,101		86,583
Total sales revenue	$	340,546	$	336,015	$	225,492

Summary of Fair Value Assets Measured on Recurring Basis for 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 December 31, 2019
			Gross					Cash
	Adjusted		unrealized					and cash		Marketable
(amounts in thousands)	cost		gains			Fair value		equivalents		securities
Cash	$	51,560	$	—		$	51,560	$	51,560	$	—
Level 1:
Money market accounts		146,477		—			146,477		146,477		—

Level 2:
Corporate bonds		2,011		2			2,013		—		2,013
U.S. Treasury securities		9,038		6			9,044		—		9,044
Total	$	209,086	$	8		$	209,094	$	198,037	$	11,057

	As of December 31, 2018
			Gross					Cash
	Adjusted		unrealized					and cash		Marketable
(amounts in thousands)	cost		gains (losses)			Fair value		equivalents		securities
Cash	$	33,671	$	—		$	33,671	$	33,671	$	—
Level 1:
Money market accounts		158,438		—			158,438		158,438		—

Level 2:
Corporate bonds		13,629		(16	)		13,613		—		13,613
U.S. Treasury securities		34,620		7			34,627		4,525		30,102
Total	$	240,358	$	(9	)	$	240,349	$	196,634	$	43,715

Summary of Estimated Fair Value of Company's Investments in Marketable Securities Classified by Contractual Maturity Date

The following table summarizes the estimated fair value of the Company’s investments in marketable securities, classified by the contractual maturity date of the securities:

	December 31,
(amounts in thousands)	2019
Due within one year	$	11,057
Due in one year through five years		—
Total	$	11,057

Summary of Components of Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) were as follows:

	As of December 31, 2019
	Foreign			Unrealized			Unrealized			Accumulated
	currency			gains on			gains (losses)			other
	translation			marketable			on cash			comprehensive
(amounts in thousands)	adjustments			securities			flow hedges			income (loss)
Balance as of December 31, 2018	$	394		$	—		$	330		$	724
Other comprehensive income (loss)		(123	)		6			(694	)		(811	)
Balance as of December 31, 2019	$	271		$	6		$	(364	)	$	(87	)

	As of December 31, 2018
	Foreign			Unrealized			Unrealized			Accumulated
	currency			gains (losses) on			gains (losses)			other
	translation			marketable			on cash			comprehensive
(amounts in thousands)	adjustments			securities			flow hedges			income
Balance as of December 31, 2017	$	363		$	(17	)	$	(74	)	$	272
Other comprehensive income		31			17			404			452
Balance as of December 31, 2018	$	394		$	—		$	330		$	724

Summary of Quantitative Information about Level 3 Inputs for Fair Value Measurement of Earnout Liability

The following table provides quantitative information about Level 3 inputs for fair value measurement of the earnout liability as of the acquisition date and December 31, 2019. Significant increases or decreases in these inputs in isolation could result in a significant impact on our fair value measurement:

	At acquisition			As of
Simulation input	August 9, 2019			December 31, 2019
Revenue volatility		35.00	%		35.00	%
WACC		12.50	%		13.00	%
20-year risk free rate		2.03	%		2.25	%
Market price of risk		9.00	%		10.00	%

Summary of Reconciliation of Earnout Liability Measured and Carried Fair Value on a Recurring Basis

The reconciliation of the earnout liability measured and carried at fair value on a recurring basis is as follows:

	Twelve months ended
(amounts in thousands)	December 31, 2019
Balance at beginning of period	$	—
Addition for acquisition		25,749
Change in fair value		810
Balance at end of period	$	26,559

Summary of Cash, Cash Equivalents and Short-term Investments

. Cash, cash equivalents, and marketable securities consist of the following:

(amounts in thousands)	December 31,
Cash and cash equivalents	2019		2018
Cash	$	51,560	$	33,671
Money market accounts		146,477		158,438
U.S. Treasury securities		—		4,525
Total cash and cash equivalents	$	198,037	$	196,634
Marketable securities
Corporate bonds		2,013		13,613
U. S. Treasury securities		9,044		30,102
Total marketable securities	$	11,057	$	43,715

Schedule of Gross Accounts Receivable Balance Concentrations by Major Category

Gross accounts receivable balance concentrations by major category as of December 31, 2019 and December 31, 2018 were as follows:

	As of					As of
(amounts in thousands)	December 31, 2019					December 31, 2018
Gross accounts receivable	$		%			$		%
Rental ⁽¹⁾	$	3,003		8.3	%	$	3,406		8.7	%
Business-to-business and other receivables⁽²⁾		33,101		91.7	%		35,656		91.3	%
Total gross accounts receivable	$	36,104		100.0	%	$	39,062		100.0	%

Schedule of Net Accounts Receivable Balance Concentrations by Major Category

Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of December 31, 2019 and December 31, 2018 were as follows:

	As of					As of
(amounts in thousands)	December 31, 2019					December 31, 2018
Net accounts receivable	$		%			$		%
Rental ⁽¹⁾	$	2,464		7.2	%	$	2,413		6.5	%
Business-to-business and other receivables ⁽²⁾		31,861		92.8	%		34,628		93.5	%
Total net accounts receivable	$	34,325		100.0	%	$	37,041		100.0	%

(1)	Rental includes Medicare, Medicaid/other government, private insurance and patient pay.

(2)

Business-to business receivables included one customer with a gross accounts receivable balance of $10,695 and $16,198 as of December 31, 2019 and December 31, 2018, respectively. This customer received extended payment terms through a direct financing plan offered. The Company also has a credit insurance policy in place, which allocated up to $20,000 in coverage as of December 31, 2019 and allocated up to $18,000 in coverage as of December 31, 2018 for this customer with a $400 deductible and 10% retention.

Schedule of Percentage Breakdown of Net Accounts Receivable by Aging Category by Invoice Due Date

The following table sets forth the percentage breakdown of the Company’s net accounts receivable (gross accounts receivable net of allowances) by aging category by invoice due date as of December 31, 2019 and December 31, 2018.

	As of					As of
(amounts in thousands)	December 31, 2019					December 31, 2018
Net accounts receivable by aging category	$		%			$		%
Held and Unbilled	$	294		0.8	%	$	80		0.2	%
Aged 0-90 days		33,427		97.4	%		36,245		97.9	%
Aged 91-180 days		343		1.0	%		425		1.1	%
Aged 181-365 days		261		0.8	%		234		0.6	%
Aged over 365 days		—		0.0	%		57		0.2	%
Total net accounts receivable	$	34,325		100.0	%	$	37,041		100.0	%

Schedule of Allowances for Accounts Receivable

The following table sets forth the accounts receivable allowances as of December 31, 2019 and December 31, 2018:

	As of					As of
(amounts in thousands)	December 31, 2019					December 31, 2018
Allowances - accounts receivable	$		%			$		%
Doubtful accounts ⁽¹⁾	$	205		0.6	%	$	693		1.8	%
Rental revenue adjustments ⁽¹⁾		411		1.1	%		438		1.1	%
Sales returns		1,163		3.2	%		890		2.3	%
Total allowances - accounts receivable	$	1,779		4.9	%	$	2,021		5.2	%

Breakdown of Company's Revenue from U.S. and Non-U.S. Sources

A portion of revenue is earned from sales outside the United States. Approximately 70.2% and 74.8% of the non-U.S. revenue for the years ended December 31, 2019 and 2018, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the years ended December 31, 2019, 2018 and 2017, respectively, is as follows:

	Years ended December 31,
(amounts in thousands)	2019		2018		2017
U.S. revenue	$	283,983	$	280,778	$	193,919
Non-U.S. revenue		77,960		77,333		55,519
Total revenue	$	361,943	$	358,111	$	249,438

Schedule of Inventories

Inventories that are considered current consist of the following:

	December 31,
(amounts in thousands)	2019			2018
Raw materials and work-in-progress	$	31,676		$	24,980
Finished goods		5,174			2,756
Less: reserves		(1,186	)		(665	)
Inventories, net	$	35,664		$	27,071

Computation of Depreciation and Amortization using Straight Line Method Over Estimated Useful Lives of Assets

Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the assets’ estimated useful lives as follows:

Rental equipment	1.5-5 years
Manufacturing equipment and tooling	3-5 years
Computer equipment and software	2-3 years
Furniture and equipment	3-5 years
Leasehold improvements	Lesser of estimated useful life or remaining lease term

Summary of Depreciation and Amortization Expense of Rental Equipment and Other Property and Equipment

Depreciation and amortization expense related to rental equipment and other property and equipment are summarized below for the years ended December 31, 2019, 2018 and 2017, respectively.

	Years ended December 31,
(amounts in thousands)	2019		2018		2017
Rental equipment	$	6,253	$	7,567	$	9,835
Other property and equipment		3,421		2,463		1,960
Total depreciation and amortization	$	9,674	$	10,030	$	11,795

Summary of Property Plant and Equipment and Rental Equipment with Associated Accumulated Depreciation

Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of December 31, 2019 and 2018, respectively.

(amounts in thousands)	December 31,
Property and equipment	2019		2018
Rental equipment, net of allowances of $395 and $594, respectively	$	39,308	$	43,038
Other property and equipment		24,986		21,596
Property and equipment		64,294		64,634

Accumulated depreciation
Rental equipment		30,984		31,813
Other property and equipment		13,872		10,480
Accumulated depreciation		44,856		42,293

Property and equipment, net
Rental equipment, net of allowances of $395 and $594, respectively		8,324		11,225
Other property and equipment		11,114		11,116
Property and equipment, net	$	19,438	$	22,341

Computation of Earnings Per Share

The computation of EPS is as follows:

	Years ended December 31,
(amounts in thousands, except share and per share amounts)	2019		2018		2017
Numerator—basic and diluted:
Net income	$	20,950	$	51,845	$	21,002

Denominator:
Weighted-average common shares - basic common stock ⁽¹⁾		21,821,104		21,266,696		20,683,807
Weighted-average common shares - diluted common stock		22,241,064		22,514,513		21,897,988

Net income per share - basic common stock	$	0.96	$	2.44	$	1.02
Net income per share - diluted common stock	$	0.94	$	2.30	$	0.96

Denominator calculation from basic to diluted:
Weighted-average common shares - basic common stock ⁽¹⁾		21,821,104		21,266,696		20,683,807
Stock options and other dilutive awards		419,960		1,247,817		1,214,181
Weighted-average common shares - diluted common stock		22,241,064		22,514,513		21,897,988
Shares excluded from diluted weighted-average shares:
Stock options		53,888		—		37,249
Restricted stock units and restricted stock awards		169,305		39,330		26,064
Shares excluded from diluted weighted-average shares		223,193		39,330		63,313

(1)

Unvested restricted stock units and restricted stock awards are not included as shares outstanding in the calculation of basic earnings per share. Vested restricted stock units and restricted stock awards are included in basic earnings per share if all vesting and performance criteria have been met. Performance-based restricted stock units and restricted stock awards are included in the number of shares used to calculate diluted earnings per share as long as all applicable performance criteria are met, and their effect is dilutive. Restricted stock awards are eligible to receive all dividends declared on the Company’s common shares during the vesting period; however, such dividends are not paid until the restrictions lapse.