Inogen, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts below are in millions of dollars except per-share data and percentages. Inogen develops, manufactures, and markets portable oxygen concentrators and also earns revenue from equipment rentals.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $83.6 | $103.4 | $155.8 | $183.8 |
| Sales revenue | $68.3 | $89.3 | $124.2 | $156.7 |
| Rental revenue | $15.3 | $14.1 | $31.6 | $27.1 |
| Gross profit | $34.0 | $46.3 | $64.8 | $81.3 |
| Gross margin | 40.7% | 44.7% | 41.6% | 44.2% |
| Operating loss | $(11.8) | $(2.9) | $(33.7) | $(16.5) |
| Net loss | $(9.8) | $(3.4) | $(30.2) | $(17.7) |
| Basic and diluted loss per share | $(0.42) | $(0.15) | $(1.31) | $(0.77) |
| Adjusted EBITDA (non-GAAP) | $(3.2) | $3.2 | $(15.0) | $(1.7) |
Sales gross margin was 38.5% in Q2 and 38.8% for the first half, versus 43.3% and 42.5%, respectively, in 2022. Rental gross margin was 50.5% and 52.4%, versus 54.2% and 54.4%. The filing reports no interest-bearing debt. At June 30, cash and cash equivalents were $167.7 million, marketable securities were $2.5 million, and operating lease liabilities totaled $21.9 million. Current assets were $269.2 million, current liabilities $59.4 million, and working capital $209.9 million.
Six-month operating cash use was $2.3 million, compared with $12.6 million in 2022. Investing cash use was $17.7 million, including purchases of rental equipment and property, equipment, and intangible assets, as well as net purchases of securities. Cash declined by $19.3 million from year-end 2022 to $167.7 million.
Changes versus prior comparable periods
- Q2 revenue fell 19.1%; first-half revenue fell 15.2%. Sales-system volumes declined 19.6% in Q2 and 16.2% in the first half.
- Sales revenue declined as international business-to-business shipments normalized after customers accelerated European orders ahead of EU medical-device certification expiry in 2022, and domestic direct-to-consumer sales weakened amid lower sales staffing and marketing spend. Domestic business-to-business sales rose, partly reflecting improved ability to meet demand after prior supply constraints.
- Rental revenue increased 8.6% in Q2 and 16.6% in the first half, attributed primarily to more patients on service and higher Medicare reimbursement rates. The company reported approximately 48,900 rental patients at June 30, 2023, versus 43,800 a year earlier.
- Gross profit fell 26.4% in Q2 and 20.3% in the first half. Management cited channel mix and business-to-business pricing pressure, along with higher rental servicing costs and rental revenue adjustments. Semiconductor premiums declined year over year but remained a cost: $3.5 million in Q2 and $8.0 million in the first half of 2023.
- Net losses widened, mainly due to lower sales revenue and gross profit. Higher interest income and foreign-currency gains partly offset operating losses.
Outlook, commentary, and risks
- Management said available cash, securities, and expected cash generation should meet projected operating and investing needs for at least the next 12 months, while cautioning that liquidity assumptions could prove incorrect. No specific revenue or earnings guidance was provided.
- Management expects rental revenue to grow as it expands prescriber sales, rental setups, and insurance contracts, and expects to benefit from higher Medicare reimbursement rates through December 31, 2023. It also expects semiconductor-related cost pressure to continue through 2023.
- Cost-reduction initiatives include targeted workforce reductions, manufacturing centralization, and outsourcing. Restructuring charges were $2.0 million for the first half of 2023.
- On July 10, 2023, after quarter-end, Inogen agreed to acquire Physio-Assist SAS for approximately $32 million cash at closing, plus up to $13 million in potential regulatory-clearance earn-out payments. Closing remained subject to customary conditions.
- A U.S. Attorney’s Office civil investigative demand concerns a False Claims Act investigation into possible improper kickbacks in the portable oxygen concentrator industry, including financing arrangements and customer agreements. Inogen is cooperating and cannot predict the outcome or whether related litigation is probable.
- Outstanding supplier purchase orders were approximately $124.4 million, generally due within one year. Three vendors represented 30.1%, 14.5%, and 11.0% of first-half raw-material purchases; two customers each represented more than 10% of receivables at June 30.
- Other stated risks include inflation, interest and capital costs, supply-chain and component availability, competition, reimbursement and regulatory changes, customer credit constraints, and foreign-currency exposure. Management reported disclosure controls were effective as of June 30, 2023.
Important facts for investors to verify
- Whether sales volumes and direct-to-consumer performance recover, and whether rental growth can offset weaker equipment sales.
- Whether sales and rental margins stabilize as channel mix, chip costs, pricing, and rental servicing costs change.
- Cash use, rental-equipment investment, and the ability to meet the $124.4 million supplier-order commitments while funding the proposed acquisition.
- The outcome and potential cost of the government investigation, and the acquisition’s closing, earn-out terms, and integration risks.
- Trends in Medicare reimbursement, capped rental patients, rental adjustments, and customer and supplier concentration.