Inogen, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Inogen develops, manufactures, sells and rents portable oxygen concentrators and related respiratory products. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $80.4 million | $86.9 million; down 7.5% |
| Sales revenue | $67.4 million | $77.1 million; down 12.6% |
| Rental revenue | $13.0 million | $9.9 million; up 31.8% |
| Gross profit / margin | $35.0 million / 43.5% | $39.9 million / 45.9% |
| Sales gross margin | 41.4% | 44.7% |
| Rental gross margin | 54.7% | 55.1% |
| Operating loss | $(13.6) million | $(2.1) million |
| Net loss / diluted loss per share | $(14.2) million / $(0.62) | $(0.7) million / $(0.03) |
| Adjusted EBITDA (non-GAAP) | $(5.0) million | $5.4 million |
| Cash from operating activities | $(18.1) million | $2.9 million |
| Cash and cash equivalents; marketable securities | $213.4 million; $10.0 million | Cash was $235.5 million at Dec. 31, 2021 |
Operating expenses were $48.6 million, up from $42.0 million. At March 31, 2022, current assets were $318.1 million and current liabilities $59.8 million; net working capital was $258.3 million. The filing reports no conventional borrowings. It reports operating lease liabilities of $25.8 million and an earnout liability; the balance sheet lists $16.0 million, while the fair-value note’s roll-forward ends at $16.6 million. Total liabilities were $116.3 million.
Changes and drivers
- System sales fell to approximately 30,400 from 49,400, principally because semiconductor shortages constrained production and domestic business-to-business shipments. Domestic B2B sales declined 83.4%; international B2B sales increased 77.7%, and domestic direct-to-consumer sales increased 12.2%.
- Manufacturing at the company’s California and Texas sites and its Czech Republic contract manufacturer was temporarily suspended in January and resumed in February 2022. Management cited lower production, higher material and labor costs, and reduced overhead absorption as factors in weaker sales margins. Open-market semiconductor purchases added $3.7 million to Q1 material costs.
- Rental growth reflected more patients on service and higher Medicare reimbursement rates. Rental patients were approximately 43,200, versus 34,700 a year earlier.
- Research and development expense rose 33.6% to $5.4 million; sales and marketing increased 10.0% to $28.0 million; general and administrative increased 21.5% to $15.2 million. Management attributed increases to product development, physician-sales-team consulting, personnel costs, recruiting and severance, and the earnout fair-value change.
- Cash declined $22.1 million during the quarter. Operating cash use included net loss and working-capital needs; investing cash use was $4.1 million, principally rental equipment and other capital expenditures.
Outlook, risks and contingencies
- No specific full-year revenue or earnings guidance is provided. Management expects cash, cash equivalents and cash generated from expected sales and rentals to cover projected operating and investing needs for at least the next 12 months, while cautioning that assumptions could prove incorrect.
- Management expects semiconductor constraints and elevated component costs to continue through the remainder of 2022 and potentially into 2023. It warned that production could be slowed or suspended again and that the company may not meet all customer demand. Supply disruption, the war in Ukraine, China lockdowns, inflation and labor-market challenges add uncertainty.
- European product availability faces regulatory uncertainty: EU/UK MDD certificates were stated to expire May 18, 2022; the EU MDR submission was under review, with other applications and derogation requests pending. Management anticipated reduced European product availability and prioritized orders before expiry.
- Medicare policy is material to rentals. Traditional Medicare represented 79.0% of rental revenue. The temporary COVID-19 public health emergency reimbursement and administrative provisions may change; management noted that non-rural rates in some areas could decline after the PHE and that sequestration reductions were scheduled to resume in stages in 2022.
- Other key exposures include dependence on a limited number of suppliers and customers, reimbursement and competitive-bidding changes, regulatory approvals, foreign exchange, product warranty and liability, and healthcare billing compliance. Three suppliers accounted for 25.2%, 19.9% and 8.4% of Q1 raw-material purchases. Outstanding vendor purchase obligations were approximately $122.9 million, generally due within one year.
- The company reported ordinary-course legal proceedings and did not expect them to have a material adverse effect at the time of filing. It also described healthcare regulatory, HIPAA and fraud-and-abuse compliance risks. Management concluded disclosure controls were effective as of March 31, 2022.
Most important facts for investors to verify
- Whether component availability and production recover, and the resulting effects on shipment volume, margins, inventory and cash burn.
- Progress and outcomes of EU MDR certification, extensions or derogations, and the impact on European sales after the stated May 18, 2022 certificate date.
- Medicare reimbursement after the COVID-19 PHE, the return of sequestration reductions, and the effect on rental revenue and patient economics.
- Whether rental growth and higher selling prices can offset lower unit sales, rising costs and increased operating expenses.
- Reconcile the earnout liability: the balance sheet reports $16.0 million, while the fair-value note’s quarter-end roll-forward reports $16.6 million.
- Monitor liquidity against operating cash use, the $122.9 million purchase commitments, rental-equipment investment needs and management’s stated 12-month liquidity expectation.