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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:
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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, a 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.
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Large accelerated filer |
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☐ |
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☒ |
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Non-accelerated filer |
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☐ |
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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 November 1, 2024, the registrant had
TABLE OF CONTENTS
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Page |
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Item 1. |
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3 |
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Consolidated Balance Sheets (unaudited) as of September 30, 2024 and December 31, 2023 |
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3 |
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4 |
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5 |
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6 |
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Condensed Notes to the Consolidated Financial Statements (unaudited) |
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8 |
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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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22 |
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Item 3. |
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39 |
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Item 4. |
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40 |
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Item 1. |
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41 |
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Item 1A. |
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41 |
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Item 2. |
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41 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 5. |
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41 |
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Item 6. |
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42 |
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43 |
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2
INOGEN, INC.
PART I – FINANC IAL INFORMATION
Item 1. Financ ial Statements
Inogen, Inc.
Consol idated Balance Sheets
(unaudited)
(amounts in thousands, except share and per share amounts)
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September 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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Restricted cash |
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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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Intangible assets, net |
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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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Earnout liability |
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Deferred revenue - current |
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Income tax payable |
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— |
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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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Deferred tax liability |
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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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(
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) |
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(
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Accumulated other comprehensive income |
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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 S tatements of Comprehensive Loss
(unaudited)
(amounts in thousands, except share and per share amounts)
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Three months ended
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Nine months ended
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||||||||||
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2024 |
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2023 |
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2024 |
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2023 |
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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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Impairment charges |
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— |
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— |
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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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(
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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 income (expense) |
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||||
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Interest income, net |
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Other income (expense) |
|
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(
|
) |
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Total other income, net |
|
|
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Loss before provision (benefit) for income taxes |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Provision (benefit) for income taxes |
|
(
|
) |
|
|
|
|
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(
|
) |
|
|
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Net loss |
|
(
|
) |
|
|
(
|
) |
|
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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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(
|
) |
|
Change in net unrealized gains on foreign currency hedging |
|
— |
|
|
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|
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— |
|
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Less: reclassification adjustment for net losses included in net loss |
|
— |
|
|
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|
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|
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— |
|
|
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|
|
Total net change in unrealized gains on foreign currency hedging |
|
— |
|
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|
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— |
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|
Change in net unrealized gains on marketable securities |
|
|
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|
|
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Total other comprehensive income (loss), net of tax |
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Comprehensive loss |
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
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|
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||||
|
Basic net loss per share attributable to common stockholders (Note 7) |
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Diluted net loss per share attributable to common stockholders (Note 7) |
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
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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|
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Diluted common shares |
|
|
|
|
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|
|
See accompanying condensed notes to the consolidated financial statements.
4
Inogen, Inc.
Consolidated S tatements of Stockholders’ Equity
(unaudited)
(amounts in thousands, except share amounts)
|
|
Three months ended September 30, 2024 and September 30, 2023 |
|
|||||||||||||||||||||
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Accumulated |
|
|
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|
||||||
|
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Additional |
|
|
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other |
|
|
Total |
|
|||||||||
|
|
Common stock |
|
|
paid-in |
|
|
Accumulated |
|
|
comprehensive |
|
|
stockholders' |
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
deficit |
|
|
income (loss) |
|
|
equity |
|
||||||
|
Balance, June 30, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Employee stock purchases |
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted stock units |
|
|
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Other comprehensive loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance, September 30, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Balance, June 30, 2024 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
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Stock issued |
|
|
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|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Other comprehensive income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2024 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||
|
|
Nine months ended September 30, 2024 and September 30, 2023 |
|
|||||||||||||||||||||
|
|
|
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|
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|
|
Accumulated |
|
|
|
|
||||||
|
|
|
|
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Additional |
|
|
|
|
|
other |
|
|
Total |
|
|||||||||
|
|
Common stock |
|
|
paid-in |
|
|
Accumulated |
|
|
comprehensive |
|
|
stockholders' |
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
deficit |
|
|
income (loss) |
|
|
equity |
|
||||||
|
Balance, December 31, 2022 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Employee stock purchases |
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted stock units |
|
|
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Shares withheld related to net restricted stock settlement |
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Stock options exercised |
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Other comprehensive loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance, September 30, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Balance, December 31, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Tax withholding related to vesting of restricted stock units |
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Other comprehensive income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2024 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
See accompanying condensed notes to the consolidated financial statements.
5
Inogen, Inc.
Consolidated S tatements of Cash Flows
(unaudited)
(amounts in thousands)
|
|
Nine months ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
Cash flows from operating activities |
|
|
|
|
|
||
|
Net loss |
$ |
(
|
) |
|
$ |
(
|
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Loss on rental units and other assets |
|
|
|
|
|
|
|
|
Gain on sale of former rental assets |
|
(
|
) |
|
|
(
|
) |
|
Provision for sales revenue returns and doubtful accounts |
|
|
|
|
|
|
|
|
Provision for inventory losses |
|
(
|
) |
|
|
|
|
|
Loss on purchase commitments |
|
(
|
) |
|
|
— |
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
(
|
) |
|
|
— |
|
|
Change in fair value of earnout liability |
|
|
|
|
|
— |
|
|
Impairment charges |
|
— |
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
||
|
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 provided by (used in) operating activities |
|
|
|
|
|
(
|
) |
|
Cash flows from investing activities |
|
|
|
|
|
||
|
Purchases of available-for-sale securities |
|
(
|
) |
|
|
(
|
) |
|
Maturities 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 |
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired |
|
— |
|
|
|
(
|
) |
|
Net cash 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)
|
|
Nine months ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
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 financing activities |
|
|
|
|
|
|
|
|
Effect of exchange rates on cash |
|
(
|
) |
|
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash |
|
(
|
) |
|
|
(
|
) |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
||
|
Cash paid (received) during the period for income taxes, net of refunds received |
$ |
|
|
|
$ |
(
|
) |
|
Supplemental disclosure of non-cash transactions |
|
|
|
|
|
||
|
Accrued value of earnout related to acquisition |
|
— |
|
|
|
|
|
|
Property and equipment in accounts payable and accrued expenses |
|
|
|
|
|
|
|
See accompanying condensed notes to the consolidated financial statements.
7
Inogen, Inc.
Condens ed 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 and Inogen Rove 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
Basis of presentation
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 nine months ended September 30, 2024 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2024 . 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 March 1, 2024. 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 March 1, 2024.
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.
Accounting 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, income taxes, fair value of acquired intangible assets and goodwill, and fair value of earnout liabilities. Actual results could differ from these estimates.
8
Cash, cash equivalents, marketable securities and restricted cash
The Company considers all short-term highly liquid investments with a maturity of three months or less to be cash equivalents. Restricted cash and cash equivalents are considered to be legally restricted as to withdrawal or usage. The Company's restricted cash is a legally restricted deposit held as a compensating balance against its corporate credit card balances.
The Company’s marketable debt securities are classified and accounted for as available-for-sale. Cash equivalents are recorded at cost plus accrued interest, which is considered adjusted cost, and approximates fair value. Marketable debt securities are included in cash equivalents and marketable securities based on the maturity date of the security.
The Company considers investments with maturities greater than three months, but less than one year, to be marketable securities. Investments are reported at fair value with realized and unrealized gains or losses reported in other income (expense).
The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Expected credit losses are declines in fair value that are not expected to recover and are charged to other income (expense).
3. Acquisitions
On July 10, 2023, the Company entered into a share purchase agreement to acquire Physio-Assist, which is in the business of the design, production, and marketing of medical devices for bronchial decongestion (airway clearance technique) for patients suffering from obstructive respiratory diseases. On September 14, 2023, the Company completed the acquisition of all of the issued and outstanding capital stock of
Physio-Assist and its wholly-owned subsidiary PhysioAssist GmbH for a purchase price consisting of $
A potential earnout payment of either $
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 assets 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 purchase accounting for this acquisition has been finalized.
9
The following table summarizes the allocation of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of Physio-Assist:
|
Cash |
|
$ |
|
|
|
Accounts receivable |
|
|
|
|
|
Inventories |
|
|
|
|
|
Other assets |
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Operating lease right-of-use asset |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Total assets acquired |
|
$ |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
|
|
|
Bank loans |
|
|
|
|
|
Other current liabilities |
|
|
|
|
|
Operating lease liability |
|
|
|
|
|
Deferred tax liability - noncurrent |
|
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
Total identifiable net assets |
|
$ |
|
|
|
|
|
|
|
|
|
Cash consideration |
|
$ |
|
|
|
Fair value of contingent earnout consideration |
|
|
|
|
|
Total purchase price |
|
$ |
|
|
The consolidated financial and operating results reflect the Physio-Assist operations beginning September 14, 2023.
|
|
|
Three months ended |
|
|
Nine months ended |
|
||
|
|
|
September 30, 2023 |
|
|
September 30, 2023 |
|
||
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
10
4. Fair value measurements
Cash, cash equivalents, marketable securities and restricted cash
The following table summarizes fair value measurements by level for the assets measured at fair value on a recurring basis for cash, cash equivalents, marketable securities and restricted cash:
|
|
|
As of September 30, 2024 |
|
|||||||||||||||||||||
|
|
|
|
|
|
Gross |
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
||||||
|
|
|
Adjusted |
|
|
unrealized |
|
|
|
|
|
and cash |
|
|
Marketable |
|
|
Restricted |
|
||||||
|
|
|
cost |
|
|
gains |
|
|
Fair value |
|
|
equivalents |
|
|
securities |
|
|
cash |
|
||||||
|
Cash |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Money market accounts |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Institutional Insured Liquidity Deposit Savings |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
As of December 31, 2023 |
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
Gross |
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
||||||
|
|
|
Adjusted |
|
|
unrealized |
|
|
|
|
|
and cash |
|
|
Marketable |
|
|
|
|
||||||
|
|
|
cost |
|
|
gains |
|
|
Fair value |
|
|
equivalents |
|
|
securities |
|
|
|
|
||||||
|
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 related payables of $
Accumulated other comprehensive income
The components of accumulated other comprehensive income were as follows:
|
|
|
Foreign |
|
|
Unrealized |
|
|
Accumulated |
|
|||
|
|
|
currency |
|
|
gains |
|
|
other |
|
|||
|
|
|
translation |
|
|
on marketable |
|
|
comprehensive |
|
|||
|
|
|
adjustments |
|
|
securities |
|
|
income |
|
|||
|
Balance as of December 31, 2023 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2024 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Comprehensive income is the total net earnings and all other non-owner changes in equity.
Earnout liability
The Company has obligations to pay up to $
The reconciliation of the earnout liability measured and carried at fair value on a recurring basis is as follows:
|
Balance as of December 31, 2023 |
|
$ |
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2024 |
|
$ |
|
|
11
5. Balance sheet components
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 September 30, 2024 and December 31, 2023 were as follows:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
Net accounts receivable |
|
2024 |
|
|
2023 |
|
||
|
Rental (1) |
|
$ |
|
|
|
$ |
|
|
|
Business-to-business and other receivables (2) |
|
|
|
|
|
|
|
|
|
Total net accounts receivable |
|
$ |
|
|
|
$ |
|
|
The following table sets forth the accounts receivable allowances as of September 30, 2024 and December 31, 2023:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
Allowances - accounts receivable |
|
2024 |
|
|
2023 |
|
||
|
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. Medicare's service reimbursement programs represented more than 10% of the Company's total revenue for the three and nine months ended September 30, 2023.
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
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 nine months ended September 30, 2024
, the Company’s three major vendors accounted for
A portion of revenue is earned from sales outside the United States. Approximately
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
U.S. revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Non-U.S. revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12
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 to inventory for potentially excess, obsolete, slow-moving, or impaired items, and losses on firm purchase commitments as a component of cost of sales in the consolidated statements of comprehensive loss. The Company recorded noncurrent inventory related to inventories that are expected to be realized or consumed after one year of $
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
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 nine months ended September 30, 2024 and 2023, respectively.
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
Rental equipment |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other property and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of September 30, 2024 and December 31, 2023, respectively.
|
|
|
September 30, |
|
|
December 31, |
|
||
|
Property and equipment |
|
2024 |
|
|
2023 |
|
||
|
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 $
|
|
|
|
|
|
|
|
|
|
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.
13
Goodwill and other identifiable intangible assets
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2024 were as follows:
|
Balance as of December 31, 2023 (1) |
|
$ |
|
|
|
Translation adjustment |
|
|
|
|
|
Balance as of September 30, 2024 (1) |
|
$ |
|
|
(1) Includes $
Intangible assets
The following tables represent the changes in net carrying values of intangible assets as of the respective dates:
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|||
|
|
|
estimated |
|
Gross |
|
|
|
|
|
|
|
|||
|
|
|
useful lives |
|
carrying |
|
|
Accumulated |
|
|
|
|
|||
|
September 30, 2024 |
|
(in years) |
|
amount |
|
|
amortization |
|
|
Net amount |
|
|||
|
Developed technology |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Licenses |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Patents and websites |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally developed software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|||
|
|
|
estimated |
|
Gross |
|
|
|
|
|
|
|
|||
|
|
|
useful lives |
|
carrying |
|
|
Accumulated |
|
|
|
|
|||
|
December 31, 2023 |
|
(in years) |
|
amount |
|
|
amortization |
|
|
Net amount |
|
|||
|
Developed technology |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Licenses |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Patents and websites |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Annual estimated amortization expense for each of the succeeding fiscal years is as follows:
|
|
|
September 30, |
|
|
|
|
|
2024 |
|
|
|
Remaining 3 months of 2024 |
|
$ |
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
2029 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
14
Current liabilities
Accounts payable and accrued expenses as of September 30, 2024 and December 31, 2023 consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Accrued inventory (in-transit and unvouchered receipts) and trade payables |
|
|
|
|
|
|
|
|
|
Accrued purchasing card liability |
|
|
— |
|
|
|
|
|
|
Accrued loss on purchase commitments |
|
|
|
|
|
|
|
|
|
Accrued franchise, sales and use taxes |
|
|
|
|
|
|
|
|
|
Other accrued expenses |
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
Accrued payroll as of September 30, 2024 and December 31, 2023 consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
Accrued bonuses |
|
$ |
|
|
|
$ |
|
|
|
Accrued wages and other payroll related items |
|
|
|
|
|
|
|
|
|
Accrued vacation |
|
|
|
|
|
|
|
|
|
Accrued severance |
|
|
|
|
|
|
|
|
|
Accrued employee stock purchase plan deductions |
|
|
|
|
|
|
|
|
|
Total accrued payroll |
|
$ |
|
|
|
$ |
|
|
6. Leases
The Company has entered into operating leases primarily for commercial buildings. These leases have terms that range from
In July 2023, the Company entered into an Assignment and Assumption of Lease Agreement in which a third party (Assignee) assumed the rights, title, and interest in the lease, including assumption of lease payments. Notwithstanding the Assignee's assumption of lease payments, Inogen remains the primary obligor under the lease to the landlord.
|
Payments due in the 12-month period ending September 30, |
|
|
|
|
|
2025 |
|
$ |
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
2029 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
15
Information related to the Company's right-of-use assets and related operating lease liabilities were as follows:
|
|
|
Nine months ended |
|
|||||
|
|
|
September 30, |
|
|||||
|
|
|
2024 |
|
|
2023 |
|
||
|
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 September 30, |
|
|
|
|
|
|
|
2025 |
|
$ |
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
|
2028 |
|
|
|
|
|
|
|
2029 |
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest |
|
|
(
|
) |
|
|
|
Total lease liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - current |
|
$ |
|
|
|
|
|
Operating lease liability - noncurrent |
|
|
|
|
|
|
|
Total lease liabilities |
|
$ |
|
|
|
|
7. Loss per share
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 loss per share when their effect is dilutive.
Basic loss per share is calculated using the Company's weighted-average outstanding common shares. Diluted loss per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.
16
The computation of EPS is as follows:
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
Numerator—basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares - basic common stock (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss per share - basic common stock |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Net loss per share - diluted common stock (2) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Denominator calculation from basic to diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares - basic common stock (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and other dilutive awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Shares excluded from diluted weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Stock options |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Restricted stock units and restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares excluded from diluted weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. 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, 2023, the Company recorded a full valuation allowance of $
The Company accounts 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 Company recognizes interest and penalties on taxes, if any, within its income tax provision on its consolidated statements of comprehensive loss.
17
9. Stockholders’ equity
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 September 30, 2024, awards with respect to
The Company’s stockholders approved the adoption of the Amended and Restated 2023 Equity Incentive Plan (2023 Plan) on June 5, 2024 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 7, 2024. The number of shares of common stock reserved for issuance under the 2023 Plan was: (i)
As of September 30, 2024, awards with respect to
Pursuant to the Nasdaq inducement grant exception, during the nine months ended September 30, 2024
, the Company issued
Stock options
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
weighted- |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
average |
|
|
Per share |
|
|||||
|
|
|
|
|
|
|
|
|
average |
|
|
contractual |
|
|
average |
|
|||||
|
|
|
|
|
|
Price per |
|
|
exercise |
|
|
terms |
|
|
intrinsic |
|
|||||
|
|
|
Options |
|
|
share |
|
|
price |
|
|
(in years) |
|
|
value |
|
|||||
|
Outstanding as of December 31, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
— |
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Expired |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Outstanding as of September 30, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Vested and exercisable as of September 30, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Vested and expected to vest as of September 30, 2024 |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
The total intrinsic value of options exercised during the nine months ended September 30, 2024 and 2023
was $
Stock incentive awards
The Company grants restricted stock units (RSUs) under the 2014 and 2023 Plans (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 market 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
18
Stock Awards activity for the nine months ended September 30, 2024 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
average |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
grant |
|
||||
|
|
|
|
|
|
Performance |
|
|
|
|
|
date fair |
|
||||
|
|
|
|
|
|
and |
|
|
|
|
|
value |
|
||||
|
Restricted stock units |
|
Time-based |
|
|
time-based |
|
|
Total |
|
|
per share |
|
||||
|
Unvested restricted stock units as of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
Forfeited/canceled |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
Unvested restricted stock units as of September 30, 2024 (1) |
|
|
|
|
|
|
|
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$ |
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Unvested and expected to vest restricted stock units outstanding as of September 30, 2024 |
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(1) Outstanding restricted stock units are based on the maximum payout of the targeted number of shares.
As of September 30, 2024
, the unrecognized compensation cost related to unvested employee restricted stock units 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 September 30, 2024
, a total of
For 2024
, an additional
Stock-based compensation
Stock-based compensation expense recognized for the three and nine months ended September 30, 2024 and 2023, was as follows:
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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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$ |
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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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$ |
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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.
19
For the three and nine months ended September 30, 2024 and 2023, 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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September 30, |
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2023 |
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2024 |
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2023 |
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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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(
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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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$ |
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10. 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 nine-month and twelve-month periods ended September 30, 2024 and December 31, 2023, respectively:
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September 30, |
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December 31, |
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2024 |
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2023 |
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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 (including changes in estimates) |
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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 |
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$ |
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$ |
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|
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 nine months ended September 30, 2024
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.
20
Legal proceedings
The Company is party to various legal proceedings and investigations 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.
11. Foreign currency exchange contracts and hedging
As of September 30, 2024 and September 30, 2023
, 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 nine months ended September 30, 2024
, there were
21
Item 2: Manage ment’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:
22
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, our Annual Report on Form 10-K filed with the SEC on March 1, 2024, and our Quarterly Report on Form 10-Q for the calendar quarter ended March 31, 2024. 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,” “Oxygen.Anytime.Anywhere,” “Intelligent Delivery Technology,” “Inogen At Home,” and the Inogen design are registered trademarks with the United States Patent and Trademark Office of Inogen, Inc. We own pending applications for the marks “Rove,” “Inogen Rove,” “Inogen Rove 4” and “Inogen 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, Dominican Republic, Peru, Turkey, Singapore, South Africa, Switzerland, and Uruguay. We own pending application for the mark "Inogen" in Bermuda, Indonesia, Taiwan, Thailand, the UAE, and Vietnam. 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 trademark registrations 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 marks “Inogen Rove 4” and “Inogen Rove 6” in Europe (European Union Registrations) 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 marks “Inogen Rove 4” and “Inogen Rove 6” in Canada. We own trademark registrations for the Inogen design in Bolivia and 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. “PHYSIO-ASSIST,” “PHYSIOASSIST,” the Physio-Assist logo, “SIMEOX,” “SIMEOX PRO,” “SIMESOFT,” “PHYSIOWEB,” “PHYSIODATA,” “PHYSIOSERVICES,” and the Pissenlit logo are registered trademarks of Inogen’s wholly-owned subsidiary Physio-Assist. Physio-Assist owns trademark registrations for the mark “PHYSIOASSIST” in European Union, France, Japan, United Kingdom, and USA. Physio-Assist owns trademark registrations for the Physio-Assist logo in China, European Union, France, Japan, South Korea, United Kingdom, and USA. Physio-Assist owns trademark registrations for the mark SIMEOX in European Union, France, Japan, Russia, United Kingdom, and USA. Physio-Assist owns trademark registrations in France for the marks “PHYSIOASSIST,” “SIMESOFT,” “SIMEOX PRO,” “PHYSIOWEB,” “PHYSIODATA,” “PHYSIOSERVICES,” and the Pissenlit logo.
In this Quarterly Report on Form 10-Q, “we,” “us,” and “our” refer to Inogen, Inc. and its subsidiaries.
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.
23
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 nine months ended September 30, 2024 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 1, 2024.
Recent accounting pronouncements
Information about recently adopted and proposed accounting pronouncements, if applicable, is included in Note 2 to our 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.
We expect minimal inflated costs related to the acquisition of semiconductor chips to impact our cost of sales revenue throughout 2024. We incurred significant costs associated with acquiring chips on the open market and a portion of these costs increased our inventory given that these components were not yet in finished products that were sold during the period.
24
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 2024. 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, our Annual Report on Form 10-K, and our Quarterly Report on Form 10-Q for the calendar quarter ended March 31, 2024.
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 innovative 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. 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 and Rove 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, Rove 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, we intend to:
We launched the Inogen ® Rove 6 TM , in December 2022 in the EU and UK. We have also received U.S. Food and Drug Administration (FDA) 510(k) clearance for the Inogen ® Rove 4 TM , which we launched in October of this year. Inogen 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 Inogen Rove 6 was received June 30, 2023 and launched in the U.S. market in July 2023. Inogen Rove 4 weighs less than 3 pounds and delivers up to 840ml per minute of oxygen, in a lightweight user-friendly design. The product has three battery configurations providing up to 5 hours and 45 minutes of operation.
25
The Inogen Rove 6 is the first POC with an 8-year expected service life. The 8-year expected service life also extends to the Inogen Rove 4 and the Inogen One G5 ® systems. In 2019, we launched the Inogen One G5, which is similar to the product specifications of the Inogen Rove 6. We estimate that the Inogen 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 ® , Inogen One G5, Inogen Rove 4 and Inogen Rove 6 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 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.
Sales revenue
Our future financial performance will be driven primarily by the growth in sales of our POCs and our Simeox airway clearance, 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, 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 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. Approximately 8-11% 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 43,900 systems in the three months ended September 30, 2024 and 35,400 systems for the same period in 2023. We sold approximately 119,100 systems in the nine months ended September 30, 2024 and 96,400 for the same period in 2023. The increase in the current period was primarily due to the result of increased demand from resellers. We continue to focus on optimizing profitability in our direct-to-consumer channel by driving sales productivity.
26
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.
Rental revenue decreased in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due lower average reimbursement rates per patient resulting from the change in mix of payors toward private insurance from Medicare. 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 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 36 th 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 service before and during the capped rental period, and existing patients enter the capped rental period.
We had approximately 51,400 and 51,900 oxygen rental patients as of September 30, 2024 and September 30, 2023, 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 uncollectible balances, and rental revenue adjustments.
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 September 30, 2024 and 2023, approximately 55.6% and 65.0%, respectively, and for the nine months ended September 30, 2024 and 2023, approximately 57.0% and 69.7%, 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 March 1, 2024.
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. 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, 2023, as filed with the SEC on March 1, 2024.
Sales revenue
Our sales revenue is primarily derived from the sale of our Inogen 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.
27
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. We 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 impacting our cost of sales revenue starting in the third quarter of 2021 and is expected to have minimal impact throughout 2024. The supply chain constraints are primarily associated with semiconductor chips used in our batteries and printed circuit boards which are components of our POCs.
We expect sales gross margin percentage to fluctuate over time based on the sales channel mix, product mix, and 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 our rental equipment, 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 and respiratory 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/financing fees, recruiting, training, sales promotional activities, travel and entertainment expenses as well as allocated facilities costs.
28
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, and changes in the fair value of the earnout liability.
We expect general and administrative expense may 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.
Income taxes
We account 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 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 September 30, 2024 and 2023
Revenue
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Sales revenue |
|
$ |
74,929 |
|
|
$ |
67,973 |
|
|
$ |
6,956 |
|
|
|
10.2 |
% |
|
|
84.3 |
% |
|
|
81.0 |
% |
|
Rental revenue |
|
|
13,905 |
|
|
|
15,994 |
|
|
|
(2,089 |
) |
|
|
-13.1 |
% |
|
|
15.7 |
% |
|
|
19.0 |
% |
|
Total revenue |
|
$ |
88,834 |
|
|
$ |
83,967 |
|
|
$ |
4,867 |
|
|
|
5.8 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Sales revenue increased $7.0 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, an increase of 10.2% from the comparable period. The increase was primarily attributable to higher demand and new customers in domestic and international business-to-business sales. We sold approximately 43,900 oxygen systems during the three months ended September 30, 2024 compared to approximately 35,400 oxygen systems sold during the three months ended September 30, 2023, an increase of 24.0%.
Rental revenue decreased $2.1 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, or a decrease of 13.1% from the comparable period. The decrease in rental revenue was primarily related to higher mix of lower private-payor reimbursement rates.
29
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
(amounts in thousands) |
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
Revenue by region and category |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Business-to-business domestic sales |
|
$ |
23,352 |
|
|
$ |
17,288 |
|
|
$ |
6,064 |
|
|
|
35.1 |
% |
|
|
26.3 |
% |
|
|
20.6 |
% |
|
Business-to-business international sales |
|
|
32,328 |
|
|
|
25,613 |
|
|
|
6,715 |
|
|
|
26.2 |
% |
|
|
36.4 |
% |
|
|
30.5 |
% |
|
Direct-to-consumer domestic sales |
|
|
19,249 |
|
|
|
25,072 |
|
|
|
(5,823 |
) |
|
|
-23.2 |
% |
|
|
21.6 |
% |
|
|
29.9 |
% |
|
Direct-to-consumer domestic rentals |
|
|
13,905 |
|
|
|
15,994 |
|
|
|
(2,089 |
) |
|
|
-13.1 |
% |
|
|
15.7 |
% |
|
|
19.0 |
% |
|
Total revenue |
|
$ |
88,834 |
|
|
$ |
83,967 |
|
|
$ |
4,867 |
|
|
|
5.8 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Domestic business-to-business sales increased 35.1% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the result of increased demand from new customers and resellers.
International business-to-business sales increased 26.2% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to higher demand. In the three months ended September 30, 2024, sales in Europe as a percentage of total international sales revenue increased to 85.7% versus 82.0% from the comparative period in 2023.
Domestic direct-to-consumer sales decreased 23.2% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by lower volume due to lower sales representative headcount versus the comparative period in 2023.
Domestic direct-to-consumer rentals decreased 13.1% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily related to higher mix of lower private-payor reimbursement rates.
Cost of revenue and gross profit
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Cost of sales revenue |
|
$ |
39,592 |
|
|
$ |
42,708 |
|
|
$ |
(3,116 |
) |
|
|
-7.3 |
% |
|
|
44.6 |
% |
|
|
50.9 |
% |
|
Cost of rental revenue |
|
|
7,898 |
|
|
|
7,495 |
|
|
|
403 |
|
|
|
5.4 |
% |
|
|
8.9 |
% |
|
|
8.9 |
% |
|
Total cost of revenue |
|
$ |
47,490 |
|
|
$ |
50,203 |
|
|
$ |
(2,713 |
) |
|
|
-5.4 |
% |
|
|
53.5 |
% |
|
|
59.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Gross profit - sales revenue |
|
$ |
35,337 |
|
|
$ |
25,265 |
|
|
$ |
10,072 |
|
|
|
39.9 |
% |
|
|
39.7 |
% |
|
|
30.1 |
% |
|
Gross profit - rental revenue |
|
|
6,007 |
|
|
|
8,499 |
|
|
|
(2,492 |
) |
|
|
-29.3 |
% |
|
|
6.8 |
% |
|
|
10.1 |
% |
|
Total gross profit |
|
$ |
41,344 |
|
|
$ |
33,764 |
|
|
$ |
7,580 |
|
|
|
22.4 |
% |
|
|
46.5 |
% |
|
|
40.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Gross margin percentage - sales revenue |
|
|
47.2 |
% |
|
|
37.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross margin percentage- rental revenue |
|
|
43.2 |
% |
|
|
53.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total gross margin percentage |
|
|
46.5 |
% |
|
|
40.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales revenue decreased $3.1 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, a decrease of 7.3% from the comparable period, due primarily to lower premiums paid for raw material components. The third quarter of 2024 did not include premiums associated with open-market purchases of semiconductor chips used in our POCs compared to $3.3 million in the third quarter of 2023.
Cost of rental revenue increased $0.4 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, an increase of 5.4% from the comparable period. The increase in cost of rental revenue was primarily attributable to an increase in service costs. Cost of rental revenue included $3.2 million of rental asset depreciation for the three months ended September 30, 2024 compared to $3.4 million for the three months ended September 30, 2023.
Gross margin on sales revenue increased to 47.2% for the three months ended September 30, 2024 from 37.2% for the three months ended September 30, 2023. The increase was primarily due to lower material cost premiums associated with open-market purchases of semiconductor chips used in our POCs and adjustments in reserves, partially offset by a change in sales mix towards increased business-to-business sales. Total worldwide business-to-business sales revenue accounted for 74.3% of total sales revenue in the three months ended September 30, 2024 versus 63.1% in the three months ended September 30, 2023.
Gross margin on rental revenue decreased to 43.2% for the three months ended September 30, 2024 from 53.1% for the three months ended September 30, 2023, primarily due to a higher mix shift of private-payor reimbursement, lower net revenue per rental patient as a result of a decrease in the percentage of patients billed compared to total patients on service, and higher service costs.
30
Research and development expense
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Research and development expense |
|
$ |
3,518 |
|
|
$ |
4,489 |
|
|
$ |
(971 |
) |
|
|
-21.6 |
% |
|
|
4.0 |
% |
|
|
5.3 |
% |
Research and development expense decreased $1.0 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, a decrease of 21.6% from the comparable period. This decrease was due primarily to a $1.5 million decrease in product development costs and partially offset by a $0.7 million increase in amortization of intangible assets.
Sales and marketing expense
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Sales and marketing expense |
|
$ |
26,361 |
|
|
$ |
26,091 |
|
|
$ |
270 |
|
|
|
1.0 |
% |
|
|
29.7 |
% |
|
|
31.1 |
% |
Sales and marketing expense increased $0.3 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, an increase of 1.0% from the comparable period. This was primarily due to increases of $1.8 million in personnel-related expenses and $1.6 million in media and advertising costs, partially offset by a decrease of $2.6 million in consulting fees and $0.8 million in dues, fees and licenses. In the three months ended September 30, 2024, we spent $8.2 million in media and advertising costs versus $6.6 million in the comparative period in 2023.
General and administrative expense
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
General and administrative expense |
|
$ |
19,257 |
|
|
$ |
17,011 |
|
|
$ |
2,246 |
|
|
|
13.2 |
% |
|
|
21.7 |
% |
|
|
20.3 |
% |
General and administrative expense increased $2.2 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, an increase of 13.2% from the comparable period, primarily due to an increase of $1.6 million in personnel-related expenses, $1.3 million in bad debt expense and $0.7 million in the change in fair value of the earnout liability, partially offset by a decrease of $1.4 million in restructuring-related costs and $0.8 million in acquisition-related expenses.
Impairment charges
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Goodwill impairment |
|
$ |
— |
|
|
$ |
32,894 |
|
|
$ |
(32,894 |
) |
|
|
-100.0 |
% |
|
|
0.0 |
% |
|
|
39.2 |
% |
Impairment charges for the three months ended September 30, 2023 was a result from a drop in our public stock price, which resulted in impairment charges to goodwill.
Other income, net
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Interest income, net |
|
$ |
1,041 |
|
|
$ |
1,801 |
|
|
$ |
(760 |
) |
|
|
-42.2 |
% |
|
|
1.1 |
% |
|
|
2.2 |
% |
|
Other income (expense), net |
|
|
687 |
|
|
|
(398 |
) |
|
|
1,085 |
|
|
|
272.6 |
% |
|
|
0.8 |
% |
|
|
-0.5 |
% |
|
Total other income, net |
|
$ |
1,728 |
|
|
$ |
1,403 |
|
|
$ |
325 |
|
|
|
23.2 |
% |
|
|
1.9 |
% |
|
|
1.7 |
% |
Total other income, net increased $0.3 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, an increase of 23.2% from the comparable period.
31
Income tax expense (benefit)
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Income tax expense (benefit) |
|
$ |
(101 |
) |
|
$ |
401 |
|
|
$ |
(502 |
) |
|
|
-125.2 |
% |
|
|
-0.1 |
% |
|
|
0.5 |
% |
|
Effective income tax rate |
|
|
1.7 |
% |
|
|
-0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense (benefit) decreased $0.5 million for the three months ended September 30, 2024 from the three months ended September 30, 2023. We continued to record a valuation allowance on the use of deferred tax assets in the current and prior periods. The decrease was attributable to foreign taxes.
Our effective tax rate for the three months ended September 30, 2024 increased compared to the three months ended September 30, 2023, primarily due to foreign taxes.
Net loss
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Net loss |
|
$ |
(5,963 |
) |
|
$ |
(45,719 |
) |
|
$ |
39,756 |
|
|
|
87.0 |
% |
|
|
-6.7 |
% |
|
|
-54.4 |
% |
Net loss decreased $39.8 million for the three months ended September 30, 2024 from the three months ended September 30, 2023, or a decrease of 87.0% from the comparable period. The decrease in net loss was primarily related to lower goodwill impairment and material cost premiums, partially offset by an increase in sales revenue.
Comparison of nine months ended September 30, 2024 and 2023
Revenue
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Sales revenue |
|
$ |
212,449 |
|
|
$ |
192,203 |
|
|
$ |
20,246 |
|
|
|
10.5 |
% |
|
|
83.1 |
% |
|
|
80.2 |
% |
|
Rental revenue |
|
|
43,175 |
|
|
|
47,561 |
|
|
|
(4,386 |
) |
|
|
-9.2 |
% |
|
|
16.9 |
% |
|
|
19.8 |
% |
|
Total revenue |
|
$ |
255,624 |
|
|
$ |
239,764 |
|
|
$ |
15,860 |
|
|
|
6.6 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Sales revenue increased $20.2 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, an increase of 10.5% from the comparable period. The increase was primarily attributable to higher international and domestic business-to-business sales. We sold approximately 119,100 oxygen systems during the nine months ended September 30, 2024 compared to approximately 96,400 oxygen systems sold during the nine months ended September 30, 2023, an increase of 23.5%.
Rental revenue decreased $4.4 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, or a decrease of 9.2% from the comparable period. The decrease in rental revenue was primarily related to higher mix of lower private-payor reimbursement rates.
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
(amounts in thousands) |
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
Revenue by region and category |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Business-to-business domestic sales |
|
$ |
61,158 |
|
|
$ |
48,145 |
|
|
$ |
13,013 |
|
|
|
27.0 |
% |
|
|
23.9 |
% |
|
|
20.1 |
% |
|
Business-to-business international sales |
|
|
88,894 |
|
|
|
67,877 |
|
|
|
21,017 |
|
|
|
31.0 |
% |
|
|
34.8 |
% |
|
|
28.3 |
% |
|
Direct-to-consumer domestic sales |
|
|
62,397 |
|
|
|
76,181 |
|
|
|
(13,784 |
) |
|
|
-18.1 |
% |
|
|
24.4 |
% |
|
|
31.8 |
% |
|
Direct-to-consumer domestic rentals |
|
|
43,175 |
|
|
|
47,561 |
|
|
|
(4,386 |
) |
|
|
-9.2 |
% |
|
|
16.9 |
% |
|
|
19.8 |
% |
|
Total revenue |
|
$ |
255,624 |
|
|
$ |
239,764 |
|
|
$ |
15,860 |
|
|
|
6.6 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Domestic business-to-business sales increased 27.0% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the result of increased demand from new customers and resellers.
International business-to-business sales increased 31.0% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in demand from our partners in Europe and new customers. In the nine months ended September 30, 2024, sales in Europe as a percentage of total international sales revenue slightly increased to 86.8% versus 85.2% from the comparative period in 2023.
32
Domestic direct-to-consumer sales decreased 18.1% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by lower volume due to lower sales representative headcount, partially offset by increased average selling prices versus the comparative period in 2023.
Domestic direct-to-consumer rentals decreased 9.2% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily related to a higher mix of lower private-payor reimbursement rates.
Cost of revenue and gross profit
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Cost of sales revenue |
|
$ |
113,156 |
|
|
$ |
118,700 |
|
|
$ |
(5,544 |
) |
|
|
-4.7 |
% |
|
|
44.3 |
% |
|
|
49.5 |
% |
|
Cost of rental revenue |
|
|
24,016 |
|
|
|
22,523 |
|
|
|
1,493 |
|
|
|
6.6 |
% |
|
|
9.4 |
% |
|
|
9.4 |
% |
|
Total cost of revenue |
|
$ |
137,172 |
|
|
$ |
141,223 |
|
|
$ |
(4,051 |
) |
|
|
-2.9 |
% |
|
|
53.7 |
% |
|
|
58.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Gross profit - sales revenue |
|
$ |
99,293 |
|
|
$ |
73,503 |
|
|
$ |
25,790 |
|
|
|
35.1 |
% |
|
|
38.8 |
% |
|
|
30.7 |
% |
|
Gross profit - rental revenue |
|
|
19,159 |
|
|
|
25,038 |
|
|
|
(5,879 |
) |
|
|
-23.5 |
% |
|
|
7.5 |
% |
|
|
10.4 |
% |
|
Total gross profit |
|
$ |
118,452 |
|
|
$ |
98,541 |
|
|
$ |
19,911 |
|
|
|
20.2 |
% |
|
|
46.3 |
% |
|
|
41.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Gross margin percentage - sales revenue |
|
|
46.7 |
% |
|
|
38.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross margin percentage- rental revenue |
|
|
44.4 |
% |
|
|
52.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total gross margin percentage |
|
|
46.3 |
% |
|
|
41.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales revenue decreased $5.5 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, a decrease of 4.7% from the comparable period, due primarily to lower premiums paid for raw material components, partially offset by an increase in the number of systems sold. The first nine months of 2024 included less than $0.1 million of material cost premiums associated with open-market purchases of semiconductor chips used in our batteries and POCs compared to $11.3 million in the first nine months of 2023.
Cost of rental revenue increased $1.5 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, an increase of 6.6% from the comparable period. The increase in cost of rental revenue was primarily attributable to an increase in service costs. Cost of rental revenue included $9.6 million of rental asset depreciation for the nine months ended September 30, 2024 compared to $9.7 million for the nine months ended September 30, 2023.
Gross margin on sales revenue increased to 46.7% for the nine months ended September 30, 2024 from 38.2% for the nine months ended September 30, 2023. The increase was primarily due to lower material cost premiums associated with open-market purchases of semiconductor chips used in our POCs, partially offset by a change in sales mix towards increased business-to-business sales. Total worldwide business-to-business sales revenue accounted for 70.6% of total sales revenue in the nine months ended September 30, 2024 versus 60.4% in the nine months ended September 30, 2023.
Gross margin on rental revenue decreased to 44.4% for the nine months ended September 30, 2024 from 52.6% for the nine months ended September 30, 2023, primarily due to a higher mix shift of private-payor reimbursement, lower net revenue per rental patient as a result of a decrease in the percentage of patients billed compared to total patients on service, and higher service costs.
Research and development expense
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Research and development expense |
|
$ |
15,712 |
|
|
$ |
14,126 |
|
|
$ |
1,586 |
|
|
|
11.2 |
% |
|
|
6.1 |
% |
|
|
5.9 |
% |
Research and development expense increased $1.6 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, an increase of 11.2% from the comparable period. This was due primarily to a $2.3 million increase in amortization of intangible assets related to the Physio-Assist acquisition, partially offset by a $0.9 million decrease in product development costs.
33
Sales and marketing expense
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Sales and marketing expense |
|
$ |
78,914 |
|
|
$ |
81,438 |
|
|
$ |
(2,524 |
) |
|
|
-3.1 |
% |
|
|
30.9 |
% |
|
|
34.0 |
% |
Sales and marketing expense decreased $2.5 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, a decrease of 3.1% from the comparable period. This was primarily due to decreases of $6.2 million in consulting fees, $2.3 million in dues, fees and licenses, and $1.3 million in credit card and financing fees, partially offset by an increase of $5.5 million in media and advertising costs, $0.7 million in travel costs, and $0.5 million in personnel-related expenses. In the nine months ended September 30, 2024, we spent $25.2 million in media and advertising costs versus $19.7 million in the comparative period in 2023.
General and administrative expense
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
General and administrative expense |
|
$ |
54,956 |
|
|
$ |
50,487 |
|
|
$ |
4,469 |
|
|
|
8.9 |
% |
|
|
21.5 |
% |
|
|
21.1 |
% |
General and administrative expense increased $4.5 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, an increase of 8.9% from the comparable period, primarily due to $3.0 million in personnel-related expenses, $2.2 million in bad debt expense, $1.8 million in the change in fair value of the earnout liability, and $1.0 million in dues, fees and licenses. These increases were partially offset by decreases of $3.4 million in restructuring-related costs and $1.2 million in acquisition-related expenses.
Impairment charges
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Goodwill impairment |
|
$ |
— |
|
|
$ |
32,894 |
|
|
$ |
(32,894 |
) |
|
|
-100.0 |
% |
|
|
0.0 |
% |
|
|
13.7 |
% |
Impairment charges for the nine months ended September 30, 2023 was a result from a drop in our public stock price, which resulted in impairment charges to goodwill.
Other income, net
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Interest income, net |
|
$ |
3,777 |
|
|
$ |
4,972 |
|
|
$ |
(1,195 |
) |
|
|
-24.0 |
% |
|
|
1.5 |
% |
|
|
2.1 |
% |
|
Other income, net |
|
|
964 |
|
|
|
176 |
|
|
|
788 |
|
|
|
447.7 |
% |
|
|
0.4 |
% |
|
|
0.0 |
% |
|
Total other income, net |
|
$ |
4,741 |
|
|
$ |
5,148 |
|
|
$ |
(407 |
) |
|
|
-7.9 |
% |
|
|
1.9 |
% |
|
|
2.1 |
% |
Total other income, net decreased $0.4 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, a decrease of 7.9% from the comparable period.
Income tax expense (benefit)
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Income tax expense (benefit) |
|
$ |
(258 |
) |
|
$ |
638 |
|
|
$ |
(896 |
) |
|
|
-140.4 |
% |
|
|
-0.1 |
% |
|
|
0.3 |
% |
|
Effective income tax rate |
|
|
1.0 |
% |
|
|
-0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense (benefit) decreased $0.9 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023. We continued to record a valuation allowance on the use of deferred tax assets in the current and prior periods. The decrease was attributable to foreign taxes.
Our effective tax rate for the nine months ended September 30, 2024 increased compared to the nine months ended September 30, 2023, primarily due to foreign taxes.
34
Net loss
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
|
% of Revenue |
|
|||||||||||||||
|
(amounts in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
Net loss |
|
$ |
(26,131 |
) |
|
$ |
(75,894 |
) |
|
$ |
49,763 |
|
|
|
65.6 |
% |
|
|
-10.2 |
% |
|
|
-31.7 |
% |
Net loss decreased $49.8 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023, or a decrease of 65.6% from the comparable period. The decrease in net loss was primarily related to lower goodwill impairment and material cost premiums, partially offset by an increase in sales revenue.
Liquidity and capital resources
As of September 30, 2024, we had cash and cash equivalents of $105.7 million, which consisted of highly liquid investments with a maturity of three months or less. In addition, we held marketable securities of $15.0 million, which had maturities of greater than three months. For the nine months ended September 30, 2024 and 2023, we received $0.8 million and $1.5 million, respectively, in proceeds related to stock option exercises and our employee stock purchase plan.
Our principal use of our funds for liquidity and capital resources in the nine months ended September 30, 2024 consisted of cash used in investing activities of $14.0 million for additional rental equipment, other property, plant and equipment and intangible assets and $11.8 million for net purchases of marketable securities, partially offset by cash provided by operating activities of $8.9 million.
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 and integration thereof; 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.
The following tables show a summary of our cash flows and working capital for the periods and as of the dates indicated:
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
|
(amounts in thousands) |
|
September 30, |
|
|
Change 2024 vs. 2023 |
|
||||||||||
|
Summary of consolidated cash flows |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
Cash provided by (used in) operating activities |
|
$ |
8,932 |
|
|
$ |
(86 |
) |
|
$ |
9,018 |
|
|
|
10486.0 |
% |
|
Cash used in investing activities |
|
|
(25,515 |
) |
|
|
(63,443 |
) |
|
|
37,928 |
|
|
|
59.8 |
% |
|
Cash provided by financing activities |
|
|
525 |
|
|
|
974 |
|
|
|
(449 |
) |
|
|
-46.1 |
% |
|
Effect of exchange rates on cash |
|
|
(153 |
) |
|
|
149 |
|
|
|
(302 |
) |
|
|
-202.7 |
% |
|
Net decrease in cash and cash equivalents |
|
$ |
(16,211 |
) |
|
$ |
(62,406 |
) |
|
$ |
46,195 |
|
|
|
-74.0 |
% |
|
(amounts in thousands) |
|
September 30, |
|
|
December 31, |
|
||
|
Summary of working capital |
|
2024 |
|
|
2023 |
|
||
|
Total current assets |
|
$ |
192,554 |
|
|
$ |
207,067 |
|
|
Total current liabilities |
|
|
72,396 |
|
|
|
72,496 |
|
|
Net working capital |
|
$ |
120,158 |
|
|
$ |
134,571 |
|
35
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 provided by operating activities for the nine months ended September 30, 2024 consisted primarily of non-cash adjustment items such as depreciation of equipment and leasehold improvements and amortization of intangibles of $15.9 million, provision for sales returns and doubtful accounts of $9.4 million, stock-based compensation expense of $5.7 million, net loss on disposal of rental assets and other assets of $3.1 million, and change in fair value of earnout liability of $1.8 million, partially offset by our net loss of $26.1 million. The net changes in operating assets and liabilities resulted in net cash provided of $0.1 million.
Net cash used in operating activities for the nine months ended September 30, 2023 consisted primarily of our net loss of $75.9 million, partially offset by non-cash adjustment items such as impairment charges of $32.9 million, depreciation of equipment and leasehold improvements and amortization of intangibles of $13.0 million, stock-based compensation expense of $8.5 million, provision for sales returns and doubtful accounts of $7.1 million, net loss on disposal of rental assets and other assets of $3.4 million, and provision for inventory obsolescence and other inventory losses of $2.3 million. The net changes in operating assets and liabilities resulted in net cash provided of $8.7 million.
Investing activities
Net cash used in investing activities generally includes the production and purchase of rental assets, property, plant and equipment, acquisitions, and intangibles to support our expanding business as well as maturities (purchases) of marketable securities.
For the nine months ended September 30, 2024, we invested $32.3 million in the purchase of marketable securities, $11.9 million in the production and purchase of rental assets and other property and equipment, and $2.1 million in intangible assets, partially offset by $20.5 million we received from maturities of marketable securities.
For the nine months ended September 30, 2023, we invested $29.6 million in the Physio-Assist acquisition, net of cash acquired, $23.8 million in the purchase of marketable securities, $20.2 million in the production and purchase of rental assets and other property and equipment, and $0.5 million in intangible assets, partially offset by $10.5 million we received in maturities of marketable securities.
We expend significant manufacturing and production expense in connection with the development and production of our oxygen concentrator and other respiratory care 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.
For the nine months ended September 30, 2024, net cash provided by financing activities consisted of $0.8 million from the proceeds received from purchases under our employee stock purchase program, partially offset by the payment of employment taxes related to the vesting of restricted stock units of $0.3 million.
For the nine months ended September 30, 2023, net cash provided by financing activities consisted of $1.5 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.
Sources of funds
Our net cash provided by operating activities in the nine months ended September 30, 2024 was $8.9 million compared to net cash used in operating activities of $0.1 million in the nine months ended September 30, 2023. As of September 30, 2024, we had cash and cash equivalents of $105.7 million and marketable securities of $15.0 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.
36
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 a 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, the impact of restructuring-related costs, and impairment charges. 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:
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.
37
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
|
|
|
Nine months ended
|
|
||||||||||
|
Non-GAAP EBITDA and Adjusted EBITDA |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
Net loss (GAAP) |
|
$ |
(5,963 |
) |
|
$ |
(45,719 |
) |
|
$ |
(26,131 |
) |
|
$ |
(75,894 |
) |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest income, net |
|
|
(1,041 |
) |
|
|
(1,801 |
) |
|
|
(3,777 |
) |
|
|
(4,972 |
) |
|
Provision (benefit) for income taxes |
|
|
(101 |
) |
|
|
401 |
|
|
|
(258 |
) |
|
|
638 |
|
|
Depreciation and amortization |
|
|
5,314 |
|
|
|
4,614 |
|
|
|
15,924 |
|
|
|
13,008 |
|
|
EBITDA (non-GAAP) |
|
|
(1,791 |
) |
|
|
(42,505 |
) |
|
|
(14,242 |
) |
|
|
(67,220 |
) |
|
Stock-based compensation |
|
|
1,474 |
|
|
|
1,779 |
|
|
|
5,704 |
|
|
|
8,484 |
|
|
Acquisition-related expenses |
|
|
127 |
|
|
|
960 |
|
|
|
784 |
|
|
|
1,981 |
|
|
Restructuring-related and other charges |
|
|
— |
|
|
|
1,416 |
|
|
|
— |
|
|
|
3,426 |
|
|
Impairment charges |
|
|
— |
|
|
|
32,894 |
|
|
|
— |
|
|
|
32,894 |
|
|
Change in fair value of earnout liability |
|
|
650 |
|
|
|
— |
|
|
|
1,830 |
|
|
|
— |
|
|
Adjusted EBITDA (non-GAAP) |
|
$ |
460 |
|
|
$ |
(5,456 |
) |
|
$ |
(5,924 |
) |
|
$ |
(20,435 |
) |
38
Item 3. Quantitative and Qualitat ive 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 September 30, 2024 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 began entering 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 September 30, 2024, 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 $7.0 million decline in revenue for the nine months ended September 30, 2024. 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, 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, cash equivalents and restricted cash of $105.7 million as of September 30, 2024, which consisted of highly liquid investments with a maturity of three months or less, and $15.0 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 September 30, 2024 and September 30, 2023. 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 nine months ended September 30, 2024 or September 30, 2023.
39
I tem 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 September 30, 2024. Based upon the evaluation described above, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, 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.
40
P art II. OTHER INFORMATION
I tem 1. Legal Proceedings
We are party to various legal proceedings and investigations 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.
I tem 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, 2023, as filed with the SEC on March 1, 2024 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as filed with the SEC on May 8, 2024. 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 2023 Annual Report on Form 10-K filed with the SEC on March 1, 2024 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 8, 2024, which are incorporated by reference herein.
Item 2. Unregis tered 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 September 30, 2024.
Item 3. Defaults U pon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Othe r Information
41
I tem 6. Exhibits
|
|
|
|
|
|
|
Incorporated |
|
|
|
|
|
|
|
Incorporated |
|
by Reference |
|
|
|
Exhibit |
|
|
|
by Reference |
|
From Exhibit |
|
Date |
|
Number |
|
Description |
|
From Form |
|
Number |
|
Filed |
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
Transition Agreement and Release by and between the Company and Jason M. Somer, dated July 26, 2024 |
|
8-K |
|
10.1 |
|
07/31/24 |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 With Embedded Linkbase Documents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL. |
|
|
|
|
|
|
42
SIGN ATURES
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.
|
|
|
|
inogen, inc. |
||
|
|
|
|
|
|
|
|
Dated: |
|
November 8, 2024 |
By: |
|
/s/ Kevin R.M. Smith |
|
|
|
|
|
|
Kevin R.M. Smith |
|
|
|
|
|
|
Chief Executive Officer President Director (Principal Executive Officer) |
|
Dated: |
|
November 8, 2024 |
By: |
|
/s/ Michael Bourque |
|
|
|
|
|
|
Michael Bourque |
|
|
|
|
|
|
Executive Vice President Chief Financial Officer Treasurer (Principal Financial and Accounting Officer) |
43