Inogen, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Inogen develops, manufactures, sells and rents portable oxygen concentrators and related respiratory products. Financial amounts below are in U.S. dollars; millions are used unless otherwise stated.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $86.9m | $88.5m | Down 1.8% |
| Gross profit / gross margin | $39.9m / 45.9% | $38.4m / 43.4% | Profit up 3.9% |
| Operating loss | $(2.1)m | $(2.2)m | Slight improvement |
| Net loss | $(0.7)m | $(1.6)m | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $5.4m | $4.1m | Up |
| Cash provided by operating activities | $2.9m | $0.5m | Up |
- Sales revenue was $77.1m, down 7.3%; rental revenue was $9.9m, up 84.2%. Sales gross margin was 44.7% versus 43.3%; rental gross margin was 55.1% versus 43.8%.
- R&D expense was $4.0m, sales and marketing $25.5m, and general and administrative expense $12.5m. G&A increased 27.8%, including CEO transition costs and New Aera earnout-related expense.
- The $1.7m income tax benefit contributed to the lower net loss; the filing attributes the higher benefit primarily to excess tax benefits from stock-based compensation.
- Cash and cash equivalents were $220.0m and marketable securities $13.1m at March 31. Current assets were $309.7m, current liabilities $55.5m and working capital $254.2m. The company reported no borrowings; liabilities included $18.9m of operating lease liabilities and a $27.9m earnout liability.
- Investing cash flow was positive $1.0m, reflecting $6.1m of marketable-security maturities and investment in rental equipment and other property, equipment and intangible assets. The filing reports $5.2m of these investments in its liquidity discussion.
Material changes versus Q1 2020
- System sales fell to approximately 49,400 from 53,400. Domestic direct-to-consumer sales declined 13.8%, and international business-to-business sales declined 21.7%; domestic business-to-business sales increased 11.6%.
- Rental revenue growth reflected more patients on service, a higher billable share of those patients and higher Medicare reimbursement rates. Oxygen rental patients rose 41.1% to approximately 34,700. Medicare and private insurance rentals increased to 11.3% of total revenue from 6.0%.
- Total gross margin improved despite lower sales, supported by lower manufacturing cost per unit and improved rental economics. Operating expenses rose overall, notably G&A, partly offsetting gross-profit growth.
- International revenue decreased to $15.7m from $20.1m. U.S. revenue increased to $71.2m from $68.4m.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management expects existing cash and cash generated from sales and rentals to fund projected operating and investing needs for at least 12 months, while cautioning that assumptions may prove incorrect.
- Management reported improving consumer interest in Q1 2021 compared with the prior three quarters of 2020, which it associated with vaccination rates, greater mobility, stimulus payments and consumer confidence. It cautioned that the improvement had been observed over a short period. Sales hiring, physician access, travel and marketing remained affected by COVID-19.
- Management expected rental revenue to benefit during the COVID-19 public health emergency from increased patient additions and elevated reimbursement rates. The duration of the emergency and reimbursement arrangements, and potential post-emergency payment changes, remain uncertain. CMS delayed relevant rulemaking until May 2022.
- Key risks include dependence on Medicare reimbursement, future competitive bidding or reimbursement changes, supplier concentration and supply-chain disruption, customer concentration, international demand and currency exposure, and COVID-19-related demand or operating disruption. Three suppliers represented 19.9%, 10.8% and 9.6% of Q1 raw-material purchases. One customer represented more than 10% of revenue.
- The Tidal Assist Ventilator’s reimbursement coding remains disputed; Inogen’s lawsuit seeking to restore favorable coding was ongoing. Without revised coding, adoption and rental opportunities may be limited. The company also disclosed a pending securities class action and stayed shareholder derivative actions. It stated that the Breathe Technologies litigation was settled in January 2021.
- At quarter-end, purchase orders with suppliers totaled approximately $64.4m due within one year. The New Aera earnout may require up to $31.4m in cash if specified results are met. The company also disclosed an uncommenced headquarters lease with $11.4m of minimum payments.
Important facts for investors to verify
- Whether sales and unit volumes recover, particularly in direct-to-consumer and international channels, and whether Q1 demand improvement persists.
- Whether rental growth and margins continue, and how patient billability, capped rentals and Medicare reimbursement changes affect revenue.
- Whether CMS rulemaking or future competitive bidding changes post-emergency reimbursement rates.
- Progress and potential financial exposure in the TAV coding dispute and securities litigation; also review the earnout terms and supplier commitments.
- Cash generation relative to working-capital needs and rental-equipment investment; consider non-GAAP Adjusted EBITDA alongside GAAP results and cash flows.