Inogen, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; year-over-year comparisons are with Q1 2022. Inogen develops, manufactures and markets portable oxygen concentrators and generates revenue from product sales and equipment rentals. Financial amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $72.2 | $80.4; down 10.2% |
| Sales revenue | $55.9 | $67.4; down 17.1% |
| Rental revenue | $16.3 | $13.0; up 25.4% |
| Gross profit / margin | $30.7 / 42.6% | $35.0 / 43.5% |
| Operating expenses | $52.6 | $48.6 |
| Operating loss | $(21.9) | $(13.6) |
| Net loss / diluted loss per share | $(20.3) / $(0.88) | $(14.2) / $(0.62) |
| Adjusted EBITDA (non-GAAP) | $(11.8) | $(5.0) |
| Operating cash flow | $(6.3) | $(18.1) |
- Sales gross margin fell to 39.2% from 41.4%, principally due to a greater share of lower-margin business-to-business sales and elevated component costs. Rental gross margin was 54.1%, versus 54.7%.
- Cash and cash equivalents were $164.1 at March 31, with $10.4 in marketable securities; cash and equivalents declined $22.9 during the quarter. Investing cash outflow was $17.1, including $10.4 of securities purchases and $6.8 for rental equipment and other property and equipment.
- Working capital was $219.8. The company reported no conventional borrowings in the supplied balance sheet; operating lease liabilities totaled $22.7, including $3.6 current. Cash, equivalents and securities totaled $174.6.
Material changes and operating drivers
- Systems sold declined to approximately 26,900 from 30,400. Management attributed lower sales mainly to reduced domestic direct-to-consumer sales while the sales team was being transformed, and lower international business-to-business sales.
- Domestic business-to-business sales rose 146.7%, partly reflecting improved ability to meet customer demand compared with prior-year supply constraints. International business-to-business sales fell 32.1%; domestic direct-to-consumer sales fell 29.2%.
- Rental revenue growth reflected more patients on service and higher Medicare reimbursement rates. Rental patients were approximately 45,800, compared with 43,200 a year earlier. Medicare traditional fee-for-service represented 73.8% of rental revenue, down from 79.0%.
- Q1 included $4.5 of higher material costs associated with open-market semiconductor purchases. G&A expense rose 24.2%, including $1.8 of restructuring costs, higher personnel costs and acquisition-related expenses. Interest income rose to $1.5 from $0.03.
Outlook, risks and unusual items
- No numerical full-year revenue or earnings guidance is provided. Management expects rental revenue to increase as sales capacity, insurance coverage and rental setups expand, and expects higher Medicare reimbursement rates to benefit rental revenue through December 31, 2023.
- Management expects elevated semiconductor and other component costs to continue affecting sales costs through 2023, alongside hiring, retention and wage-inflation challenges. It said available resources and expected cash generation should cover projected operating and investing needs for at least 12 months, while cautioning that assumptions may prove incorrect.
- The company reported $1.8 of Q1 restructuring costs, primarily severance and termination benefits. A May 3 announcement also estimated $1.8 of restructuring costs, with most related cash payments expected in Q1 and Q2; the filing does not clearly establish whether this estimate is additional to, or the same as, the Q1 charges.
- A U.S. Attorney’s Office civil investigative demand concerns a False Claims Act investigation into alleged improper kickbacks in the portable oxygen concentrator industry, including financing arrangements and a customer agreement. Inogen is cooperating and cannot predict the outcome or whether litigation is probable; potential defense or settlement costs and management distraction are noted.
- Other risks include reliance on Medicare and private-payor reimbursement, customer and supplier concentration, foreign currency exposure, economic uncertainty and potential supply-chain disruption. Outstanding vendor purchase orders due within one year were approximately $111.4. Management reported disclosure controls effective as of March 31, 2023.
Important facts for investors to verify
- Whether direct-to-consumer sales and system volumes recover as the sales-team transformation and productivity initiatives progress.
- Whether rental-patient growth and reimbursement rates sustain rental revenue growth, including the effects of capped-rental patients and payor denials.
- Whether semiconductor and other component costs, sales-channel mix and restructuring measures improve or further pressure gross margins and operating losses.
- The cash impact and scope of the May 3 restructuring announcement, and progress against management’s 12-month liquidity assessment.
- Developments, potential costs and any resulting claims or litigation associated with the False Claims Act investigation.