Inogen, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Inogen develops, manufactures, sells, and rents portable oxygen concentrators and related respiratory products. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $93.1 | $74.3 | $281.6 | $234.5 |
| Gross profit | $47.7 | $33.0 | $137.9 | $104.1 |
| Operating income (loss) | $6.4 | $(2.0) | $15.9 | $(6.5) |
| Net income (loss) | $12.2 | $(1.7) | $16.5 | $(0.7) |
| Diluted EPS | $0.53 | $(0.08) | $0.73 | $(0.03) |
| Operating cash flow | Not separately presented | Not separately presented | $17.1 | $20.8 |
- Q3 total gross margin was 51.2%, compared with 44.4%; sales margin was 50.1% versus 43.5%, and rental margin 58.9% versus 52.0%.
- Nine-month total gross margin was 49.0%, compared with 44.4%; sales margin was 47.8% versus 43.9%, and rental margin 57.7% versus 50.0%.
- Q3 sales revenue rose 21.2% to $81.0 million; rental revenue rose 61.3% to $12.1 million. Nine-month sales revenue rose 15.2% to $248.4 million, while rental revenue increased 75.4% to $33.2 million.
- Q3 system sales were approximately 44,600, up 5.7%; nine-month system sales were approximately 146,400, up 6.0%. Rental patients on service reached approximately 40,400, versus 29,500 a year earlier.
- Operating cash flow declined 17.7% year over year to $17.1 million for the first nine months, with working-capital uses—including higher receivables and inventory—contributing to the decrease. Investing cash outflow was $2.3 million, and financing cash inflow was $15.0 million, including stock-option exercise proceeds.
Balance sheet and liquidity
- At September 30, 2021, cash and cash equivalents were $241.6 million and marketable securities were $3.6 million. Current assets were $335.8 million and current liabilities $59.9 million; reported working capital was $275.9 million.
- Total assets were $512.9 million and total liabilities $121.9 million. The balance sheet lists no borrowings; liabilities include $27.6 million in operating lease obligations and a $17.1 million noncurrent earnout liability.
- Inventory was $31.8 million, up from $24.8 million at year-end 2020. The company also reported $12.1 million in prepaid raw materials.
- Management said existing cash and expected sales and rental receipts should cover projected operating and investing needs for at least the next 12 months.
Changes, outlook, and notable items
- Management attributed revenue growth to stronger direct-to-consumer and international business-to-business sales, reduced effects of the pandemic compared with 2020, and rental growth. Domestic business-to-business sales were flat-to-down in Q3, which management attributed primarily to product availability constraints.
- Semiconductor shortages affected batteries and printed circuit boards, constrained production and sales, and drove higher component costs. Management expected shortages and cost pressure to continue through at least the first half of 2022, with potential for further production slowdowns and unmet demand. It reported $0.9 million of higher semiconductor-related material costs in Q3.
- Inogen increased product prices by 10% effective September 1, 2021 to partly offset rising costs. Management expected the supply constraints to weigh on revenue and costs in the near term. No specific full-year revenue or earnings guidance is stated in the provided filing text.
- Q3 net income included a $6.2 million income tax benefit; the company used the discrete tax method because it could not reliably estimate its annual effective tax rate amid uncertainty, including around semiconductor supply and costs. The nine-month results also included a $9.9 million noncash reduction in the fair value of the New Aera earnout liability, which benefited earnings and operating cash flow reconciliation.
- COVID-19 effects remained mixed: demand improved from the prior-year period, but the Delta variant, changing consumer behavior, supply disruption, and hiring challenges remained risks. Management also cited difficulty hiring and retaining sales staff and anticipated a federal-contractor vaccine mandate could affect staffing.
- The court dismissed Inogen’s securities class action in its entirety in September 2021. Derivative litigation remained stayed or under discussion in California; a Delaware derivative action was dismissed without prejudice in November 2021. The company’s challenge to CMS’s TAV reimbursement coding decision was dismissed; Inogen said it would not appeal or pursue other coding alternatives.
- Medicare reimbursement changes and the end of COVID-19 emergency measures could affect rental economics. CMS revised its home-oxygen coverage determination in September 2021, but management said the impact of Medicare contractors’ implementation was not yet clear.
- The company reported one customer represented more than 10% of nine-month revenue. Three major suppliers accounted for 17.0%, 12.6%, and 10.8% of raw-material purchases in the first nine months.
Key facts for investors to verify
- Whether semiconductor availability, production capacity, and component pricing develop as management expected, and how they affect sales, margins, and customer orders.
- Whether the 10% price increase offsets cost inflation without materially reducing demand, and whether gross-margin gains persist.
- Whether rental-patient growth and reimbursement rates remain supportive as COVID-19 relief provisions change; monitor Medicare rules and the capped-rental patient mix.
- How much reported earnings depend on the discrete tax benefit and earnout fair-value changes versus underlying operating performance.
- Customer and supplier concentration, receivable collection, inventory growth, and the effect of working-capital investment on operating cash flow.
- Developments in remaining derivative litigation, TAV commercialization and reimbursement, and the company’s ability to recruit and retain employees.