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Section 1: 10-Q (10-Q)

ingn-10q_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              to             

Commission file number: 001-36309

 

INOGEN, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

33-0989359

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

326 Bollay Drive
Goleta, California

 

93117

(Address of principal executive offices)

 

(Zip Code)

(805) 562-0500

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No 

As of October 31, 2018, the registrant had 21,522,602 shares of common stock, par value $0.001, outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

Part I – Financial Information

 

Page

Item 1.

 

Financial Statements

 

3

 

 

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017

 

3

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2018 and September 30, 2017

 

5

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2018 and September 30, 2017

 

6

 

 

Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2018 and September 30, 2017

 

7

 

 

Condensed Notes to the Consolidated Financial Statements (unaudited)

 

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

55

Item 4.

 

Controls and Procedures

 

56

 

 

Part II – Other Information

 

 

Item 1.

 

Legal Proceedings

 

57

Item 1A.

 

Risk Factors

 

57

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

87

Item 3.

 

Defaults Upon Senior Securities

 

87

Item 4.

 

Mine Safety Disclosures

 

87

Item 5.

 

Other Information

 

87

Item 6.

 

Exhibits

 

88

SIGNATURES

 

89

 

 

 

 

2


 

INOGEN, INC.

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Inogen, Inc.

Consolidated Balance Sheets

(amounts in thousands)

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

176,282

 

 

$

142,953

 

Marketable securities

 

47,574

 

 

 

30,991

 

Accounts receivable, net

 

34,250

 

 

 

31,444

 

Inventories, net

 

30,621

 

 

 

18,842

 

Deferred cost of revenue

 

401

 

 

 

361

 

Income tax receivable

 

2,356

 

 

 

1,313

 

Prepaid expenses and other current assets

 

8,066

 

 

 

2,584

 

Total current assets

 

299,550

 

 

 

228,488

 

Property and equipment

 

 

 

 

 

 

 

Rental equipment, net

 

44,515

 

 

 

49,349

 

Manufacturing equipment and tooling

 

7,669

 

 

 

6,858

 

Computer equipment and software

 

6,434

 

 

 

5,484

 

Furniture and equipment

 

1,385

 

 

 

746

 

Leasehold improvements

 

2,888

 

 

 

1,598

 

Land and building

 

125

 

 

 

125

 

Construction in process

 

3,660

 

 

 

408

 

Total property and equipment

 

66,676

 

 

 

64,568

 

Less accumulated depreciation

 

(43,661

)

 

 

(44,465

)

Property and equipment, net

 

23,015

 

 

 

20,103

 

Goodwill

 

2,288

 

 

 

2,363

 

Intangible assets, net

 

4,103

 

 

 

4,717

 

Deferred tax asset - noncurrent

 

26,282

 

 

 

18,636

 

Other assets

 

1,874

 

 

 

765

 

Total assets

$

357,112

 

 

$

275,072

 

 

 

See accompanying condensed notes to the consolidated financial statements.

 

 

 

3


 

Inogen, Inc.

Consolidated Balance Sheets (continued)

(amounts in thousands, except share and per share amounts)

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

 

(unaudited)

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

26,769

 

 

$

20,626

 

Accrued payroll

 

11,904

 

 

 

6,877

 

Warranty reserve - current

 

3,539

 

 

 

2,505

 

Deferred revenue - current

 

3,549

 

 

 

3,533

 

Income tax payable

 

369

 

 

 

345

 

Total current liabilities

 

46,130

 

 

 

33,886

 

Long-term liabilities

 

 

 

 

 

 

 

Warranty reserve - noncurrent

 

5,703

 

 

 

3,666

 

Deferred revenue - noncurrent

 

12,781

 

 

 

9,402

 

Deferred tax liability - noncurrent

 

338

 

 

 

348

 

Other noncurrent liabilities

 

896

 

 

 

729

 

Total liabilities

 

65,848

 

 

 

48,031

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $0.001 par value per share; 200,000,000 authorized; 21,503,012 and 20,976,350

   shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

21

 

 

 

21

 

Additional paid-in capital

 

240,101

 

 

 

218,109

 

Retained earnings

 

50,439

 

 

 

8,639

 

Accumulated other comprehensive income

 

703

 

 

 

272

 

Total stockholders' equity

 

291,264

 

 

 

227,041

 

Total liabilities and stockholders' equity

$

357,112

 

 

$

275,072

 

 

 

See accompanying condensed notes to the consolidated financial statements.

 

 

 

4


 

Inogen, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)

(amounts in thousands, except share and per share amounts)

 

 

Three months ended

 

 

Nine months ended

 

 

September 30,

 

 

September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales revenue

$

89,712

 

 

$

63,137

 

 

$

255,283

 

 

$

167,141

 

Rental revenue

 

5,579

 

 

 

5,893

 

 

 

16,297

 

 

 

18,510

 

Total revenue

 

95,291

 

 

 

69,030

 

 

 

271,580

 

 

 

185,651

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales revenue

 

42,810

 

 

 

31,401

 

 

 

124,726

 

 

 

81,307

 

Cost of rental revenue, including depreciation of $1,689 and $2,366 for the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

three months ended and $5,820 and $7,577 for the nine months ended,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

respectively

 

3,668

 

 

 

4,459

 

 

 

11,844

 

 

 

13,863

 

Total cost of revenue

 

46,478

 

 

 

35,860

 

 

 

136,570

 

 

 

95,170

 

Gross profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit-sales revenue

 

46,902

 

 

 

31,736

 

 

 

130,557

 

 

 

85,834

 

Gross profit-rental revenue

 

1,911

 

 

 

1,434

 

 

 

4,453

 

 

 

4,647

 

Total gross profit

 

48,813

 

 

 

33,170

 

 

 

135,010

 

 

 

90,481

 

Operating expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

2,096

 

 

 

1,375

 

 

 

5,287

 

 

 

3,944

 

Sales and marketing

 

26,339

 

 

 

13,095

 

 

 

67,376

 

 

 

35,569

 

General and administrative

 

9,982

 

 

 

10,368

 

 

 

29,230

 

 

 

28,568

 

Total operating expense

 

38,417

 

 

 

24,838

 

 

 

101,893

 

 

 

68,081

 

Income from operations

 

10,396

 

 

 

8,332

 

 

 

33,117

 

 

 

22,400

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

895

 

 

 

221

 

 

 

2,111

 

 

 

468

 

Other income (expense)

 

8

 

 

 

264

 

 

 

(596

)

 

 

994

 

Total other income, net

 

903

 

 

 

485

 

 

 

1,515

 

 

 

1,462

 

Income before provision (benefit) for income taxes

 

11,299

 

 

 

8,817

 

 

 

34,632

 

 

 

23,862

 

Provision (benefit) for income taxes

 

(5,133

)

 

 

1,479

 

 

 

(7,168

)

 

 

2,254

 

Net income

 

16,432

 

 

 

7,338

 

 

 

41,800

 

 

 

21,608

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

(47

)

 

 

115

 

 

 

137

 

 

 

312

 

Change in net unrealized gains (losses) on foreign currency hedging

 

102

 

 

 

(196

)

 

 

577

 

 

 

(442

)

Less: reclassification adjustment for net (gains) losses included in net income

 

(354

)

 

 

305

 

 

 

(286

)

 

 

297

 

Total net change in unrealized gains (losses) on foreign currency hedging

 

(252

)

 

 

109

 

 

 

291

 

 

 

(145

)

Change in net unrealized gains (losses) on available-for-sale investments

 

3

 

 

 

13

 

 

 

3

 

 

 

71

 

Total other comprehensive income (loss), net of tax

 

(296

)

 

 

237

 

 

 

431

 

 

 

238

 

Comprehensive income

$

16,136

 

 

$

7,575

 

 

$

42,231

 

 

$

21,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share attributable to common stockholders (Note 5)

$

0.77

 

 

$

0.35

 

 

$

1.97

 

 

$

1.05

 

Diluted net income per share attributable to common stockholders (Note 5)

$

0.73

 

 

$

0.33

 

 

$

1.86

 

 

$

0.99

 

Weighted-average number of shares used in calculating net income per

  share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic common shares

 

21,324,256

 

 

 

20,753,789

 

 

 

21,175,286

 

 

 

20,622,848

 

Diluted common shares

 

22,659,052

 

 

 

21,998,660

 

 

 

22,512,125

 

 

 

21,832,544

 

 

 

See accompanying condensed notes to the consolidated financial statements.

 

 

 

5


 

Inogen, Inc.

Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share amounts)

 

 

Three months ended September 30, 2018 and September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

stockholders'

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

equity

 

Balance, June 30, 2017

 

20,709,797

 

 

$

21

 

 

$

205,883

 

 

$

1,907

 

 

$

(34

)

 

$

207,777

 

Stock-based compensation

 

41,574

 

 

 

 

 

 

2,523

 

 

 

 

 

 

 

 

 

2,523

 

Employee stock purchases

 

12,718

 

 

 

 

 

 

798

 

 

 

 

 

 

 

 

 

798

 

Stock options exercised

 

87,607

 

 

 

 

 

 

2,613

 

 

 

 

 

 

 

 

 

2,613

 

Net income

 

 

 

 

 

 

 

 

 

 

7,338

 

 

 

 

 

 

7,338

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

237

 

 

 

237

 

Balance, September 30, 2017 (unaudited)

 

20,851,696

 

 

$

21

 

 

$

211,817

 

 

$

9,245

 

 

$

203

 

 

$

221,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

 

21,321,543

 

 

$

21

 

 

$

231,879

 

 

$

34,007

 

 

$

999

 

 

$

266,906

 

Stock-based compensation

 

 

 

 

 

 

 

3,216

 

 

 

 

 

 

 

 

 

3,216

 

Employee stock purchases

 

13,519

 

 

 

 

 

 

1,360

 

 

 

 

 

 

 

 

 

1,360

 

Restricted stock awards issued

 

3,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

8,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld related to net restricted stock settlement

 

(3,022

)

 

 

 

 

 

(801

)

 

 

 

 

 

 

 

 

(801

)

Stock options exercised

 

158,708

 

 

 

 

 

 

4,447

 

 

 

 

 

 

 

 

 

4,447

 

Net income

 

 

 

 

 

 

 

 

 

 

16,432

 

 

 

 

 

 

16,432

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

(296

)

 

 

(296

)

Balance, September 30, 2018 (unaudited)

 

21,503,012

 

 

$

21

 

 

$

240,101

 

 

$

50,439

 

 

$

703

 

 

$

291,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2018 and September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

earnings

 

 

other

 

 

Total

 

 

Common stock

 

 

paid-in

 

 

(accumulated

 

 

comprehensive

 

 

stockholders'

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit)

 

 

income (loss)

 

 

equity

 

Balance, December 31, 2016

 

20,389,860

 

 

$

20

 

 

$

194,466

 

 

$

(12,363

)

 

$

(35

)

 

$

182,088

 

Stock-based compensation

 

41,574

 

 

 

 

 

 

6,630

 

 

 

 

 

 

 

 

 

6,630

 

Employee stock purchases

 

24,523

 

 

 

 

 

 

1,379

 

 

 

 

 

 

 

 

 

1,379

 

Stock options exercised

 

395,739

 

 

 

1

 

 

 

9,342

 

 

 

 

 

 

 

 

 

9,343

 

Net income

 

 

 

 

 

 

 

 

 

 

21,608

 

 

 

 

 

 

21,608

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

238

 

 

 

238

 

Balance, September 30, 2017 (unaudited)

 

20,851,696

 

 

$

21

 

 

$

211,817

 

 

$

9,245

 

 

$

203

 

 

$

221,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

20,976,350

 

 

$

21

 

 

$

218,109

 

 

$

8,639

 

 

$

272

 

 

$

227,041

 

Stock-based compensation

 

 

 

 

 

 

 

9,783

 

 

 

 

 

 

 

 

 

9,783

 

Employee stock purchases

 

25,532

 

 

 

 

 

 

2,348

 

 

 

 

 

 

 

 

 

2,348

 

Restricted stock awards issued

 

56,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

15,372

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld related to net restricted stock settlement

 

(5,575

)

 

 

 

 

 

(1,103

)

 

 

 

 

 

 

 

 

(1,103

)

Stock options exercised

 

434,724

 

 

 

 

 

 

10,964

 

 

 

 

 

 

 

 

 

10,964

 

Net income

 

 

 

 

 

 

 

 

 

 

41,800

 

 

 

 

 

 

41,800

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

431

 

 

 

431

 

Balance, September 30, 2018 (unaudited)

 

21,503,012

 

 

$

21

 

 

$

240,101

 

 

$

50,439

 

 

$

703

 

 

$

291,264

 

 

 

See accompanying condensed notes to the consolidated financial statements.

 

 

 

6


 

Inogen, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(amounts in thousands)

 

 

Nine months ended September 30,

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

41,800

 

 

$

21,608

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

8,521

 

 

 

9,257

 

Loss on rental units and other fixed assets

 

848

 

 

 

934

 

Gain on sale of former rental assets

 

(409

)

 

 

(62

)

Provision for sales returns and doubtful accounts

 

14,089

 

 

 

10,319

 

Provision for rental revenue adjustments

 

2,157

 

 

 

3,828

 

Provision for inventory obsolescence and other inventory losses

 

319

 

 

 

222

 

Stock-based compensation expense

 

9,783

 

 

 

6,630

 

Deferred income taxes

 

(7,646

)

 

 

2,035

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(19,233

)

 

 

(16,826

)

Inventories

 

(12,828

)

 

 

(3,481

)

Deferred cost of revenue

 

(40

)

 

 

40

 

Income tax receivable

 

(1,047

)

 

 

(1,155

)

Prepaid expenses and other current assets

 

(5,483

)

 

 

(1,421

)

Other noncurrent assets

 

(1,082

)

 

 

 

Accounts payable and accrued expenses

 

6,191

 

 

 

9,103

 

Accrued payroll

 

5,033

 

 

 

717

 

Warranty reserve

 

3,071

 

 

 

2,085

 

Deferred revenue

 

3,395

 

 

 

2,987

 

Income tax payable

 

34

 

 

 

131

 

Other noncurrent liabilities

 

167

 

 

 

535

 

Net cash provided by operating activities

 

47,640

 

 

 

47,486

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of available-for-sale investments

 

(50,285

)

 

 

(35,367

)

Maturities of available-for-sale investments

 

33,705

 

 

 

23,076

 

Investment in intangible assets

 

(350

)

 

 

(15

)

Investment in property and equipment

 

(7,240

)

 

 

(2,083

)

Production and purchase of rental equipment

 

(3,475

)

 

 

(2,682

)

Proceeds from sale of former assets

 

680

 

 

 

129

 

Payment for acquisition, net of cash acquired

 

 

 

 

(4,447

)

Net cash used in investing activities

 

(26,965

)

 

 

(21,389

)

 

 

 

 

 

 

 

 

(continued on next page)

 

 

 

See accompanying condensed notes to the consolidated financial statements.

 

7


 

Inogen, Inc.

Consolidated Statements of Cash Flows (continued)

(unaudited)

(amounts in thousands)

 

 

Nine months ended September 30,

 

 

2018

 

 

2017

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from stock options exercised

 

10,964

 

 

 

9,343

 

Proceeds from employee stock purchases

 

2,348