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Item 5. Market for Registrant’s Common Equity

2023-02-24 compared with 2022-02-24 · 568 added, 3 removed, 27 unchanged (95% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGIST RANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market information and holders

Our common stock has been publicly traded on the NASDAQ Global Select Market under the symbol “INGN” since February 14, 2014.

Our common stock has been publicly traded on the NASDAQ Global Select Market under the symbol “INGN”

since February 14, 2014.

Prior to that time, there was no public market for our common stock.

Stock performance graph

This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of ours under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

This performance graph shall not be deemed “soliciting material”

or to be “filed”

with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of ours under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

The following graph compares the performance of our common stock for the periods indicated with the performance of the S&P Healthcare and Supplies Index, the Russell 2000 Index, and the NASDAQ Composite Index from December 31, 2017 to December 31, 2022.

22 unchanged sentences

Issuer purchases of equity securities

MANAGEME NT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those discussed below.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors”

included elsewhere in this Annual Report on Form 10-K.

The purpose of Management's Discussion and Analysis (MD&A) is to provide an understanding of Inogen’s financial condition, results of operations and cash flows by focusing on changes in certain key measures from year-to-year.

The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and accompanying notes.

The MD&A is organized in the following sections:

Critical accounting policies and estimates

Recent accounting pronouncements

Macroeconomic environment and COVID-19 pandemic

Basis of presentation

Results of operations

Liquidity and capital resources

Sources of funds

Non-GAAP financial measures

Critical accounting policies and estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements.

Generally, we base our estimates on historical experience and on various other assumptions in accordance with U.S.

GAAP that we believe to be reasonable under the circumstances.

Actual results may differ from these estimates and such differences could be material to the financial position and results of operations.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our critical accounting policies and estimates include those related to:

revenue recognition;

acquisitions and related acquired intangible assets and goodwill.

Revenue recognition

We generate revenue primarily from sales and rentals of our products.

Our products consist of our proprietary line of oxygen concentrators and related accessories.

Other revenue primarily comes from service contracts, replacement parts and freight revenue for product shipments.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

Revenue from product sales is generally recognized upon shipment of the product but is deferred for certain transactions when control has not yet transferred to the customer.

Our product is generally sold with a right of return and we may provide other incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize.

Returns and incentives are estimated at the time sales revenue is recognized.

The provisions for estimated returns are made based on known claims and estimates of additional returns based on historical data and future expectations.

Sales revenue incentives within our contracts are estimated based on the most likely amounts expected on the related sales transaction and recorded as a reduction to revenue at the time of sale in accordance with the terms of the contract.

Accordingly, revenue is recognized net of allowances for estimated returns and incentives.

For a fixed price, we also offer a lifetime warranty for direct-to-consumer sales for our oxygen concentrators.

The revenue is allocated to the distinct lifetime warranty performance obligation based on a relative stand-alone selling price (SSP) method.

We have vendor-specific objective evidence of the selling price for our equipment.

To determine the selling price of the lifetime warranty, we use the best estimate of the SSP for the distinct performance obligation as the lifetime warranty is neither separately priced nor is the selling price available through third-party evidence.

To estimate the selling price associated with the lifetime warranties, management considers the profit margins of service revenue, the average estimated cost of lifetime warranties and the price of extended warranties.

Revenue from the distinct lifetime warranty is deferred after the delivery of the equipment and recognized based on an estimated mortality rate over five years, which is the estimated performance period of the contract based on the average patient life expectancy.

Revenue from the sale of our repair services is recognized when the performance obligations are satisfied, and collection of the receivables is probable.

Other revenue from the sale of replacement parts is generally recognized when product is shipped to customers.

Freight revenue consists of fees associated with the deployment of products internationally and domestically when expedited freight options are requested or when minimum order quantities are not met.

Freight revenue is generally recognized upon shipment of the product but is deferred if control has not yet transferred to the customer.

Shipping and handling costs for sold products and rental assets shipped to our customers are included on the consolidated statement of comprehensive income as part of cost of sales revenue and cost of rental revenue, respectively.

The payment terms and conditions of customer contracts vary by customer type and the products and services offered.

For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

The timing of sales revenue recognition, billing and cash collection results in billed accounts receivable and deferred revenue in the consolidated balance sheet.

Contract liabilities primarily consist of deferred revenue related to lifetime warranties on direct-to-consumer sales revenue when cash payments are received in advance of services performed under the contract.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchase.

We elected to apply the practical expedient in accordance with Accounting Standards Codification (ASC) 606—

Revenue Recognition and did not evaluate contracts of one year or less for the existence of a significant financing component.

We do not expect any revenue to be recognized over a multi-year period with the exception of revenue related to lifetime warranties.

We recognize equipment rental revenue over the non-cancelable lease term, which is one month, less estimated adjustments, per ASC 842—

We have separate contracts with each patient that are not subject to a master lease agreement with any payor.

We evaluate the individual lease contracts at lease inception and the start of each monthly renewal period to determine if there is reasonable assurance that the bargain renewal option associated with the potential capped free rental period would be exercised.

Historically, the exercise of such bargain renewal option is not reasonably assured at lease inception and most subsequent monthly lease renewal periods.

If we determine that the reasonable assurance threshold for an individual patient is met at lease inception or at a monthly lease renewal period, such determination would impact the bargain renewal period for an individual lease.

We would first consider the lease classification (sales-type lease or operating lease) and then appropriately recognize or defer rental revenue over the lease term, which may include a portion of the capped rental period.

To date, we have not deferred any amounts associated with the capped rental period.

Amounts related to the capped rental period have not been material in the periods presented.

The lease term begins on the date products are shipped to patients and are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private payors, and Medicaid.

Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue and accounts receivable at their net realizable values.

Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available.

Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review.

Accounts receivables are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received, although product was delivered and revenue was earned.

Upon determination that an account is uncollectable, it is

written-off and charged to the allowance.

Amounts billed but not earned due to the timing of the billing cycle are deferred and recognized in revenue on a straight-line basis over the monthly billing period.

For example, if the first day of the billing period does not fall on the first of the month, then a portion of the monthly billing period will fall in the subsequent month and the related revenue and cost would be deferred based on the service days in the following month.

Rental revenue is recognized as earned, less estimated adjustments.

Revenue not billed at the end of the period is reviewed for the likelihood of collections and accrued.

The rental revenue stream is not guaranteed, and payment will cease if the patient no longer needs oxygen or returns the equipment.

Revenue recognized is at full estimated allowable reimbursement rates.

Rental revenue is earned for that month if the patient is on service on the first day of the 30-day period commencing on the recurring date of service for a particular claim regardless of whether there is a change in condition or death after that date.

In the event that a third-party payor does not accept the claim for payment, the consumer is ultimately responsible for payment for the products and services.

We have determined that the balances are collectable at the time of revenue recognition because the patient signs a notice of financial responsibility outlining their obligations.

Included in rental revenue are unbilled amounts that were earned but not able to be billed for various reasons.

The criteria for recognizing revenue had been met as of period-end, but there were specific reasons why we were unable to bill Medicare and private insurance for these amounts.

As a result, we create an unbilled rental revenue accrual based on these earned revenues not billed based on a percentage of unbilled amounts and historical trends and estimates of future collectability.

Acquisitions and related acquired intangible assets and goodwill

The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill.

We may adjust the preliminary purchase price allocation, as necessary, for up to one year after the acquisition closing date if we obtain more information regarding asset valuations and liabilities assumed.

Goodwill is tested for impairment on an annual basis as of October 1.

Interim testing of goodwill for impairment is also required whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or asset below its carrying amount.

As a result of the TAV technology intangible asset disposal, a quantitative analysis was required to be performed as of December 31, 2022 and concluded that there was no impairment.

A quantitative analysis was not required to be performed as of December 31, 2021.

Finite-lived intangible assets are amortized over their useful lives and are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Technology and customer relationship intangibles are amortized using the straight-line method.

Recent accounting pronouncements

Refer to Note 2 –

Summary of significant accounting policies of the audited consolidated notes included in Part IV, Item 16, "Form 10-K Summary" in this Annual Report on Form 10-K for further discussion.

Macroeconomic environment and COVID-19 pandemic

The global economy is experiencing increased inflationary pressures in part due to global supply chain disruptions, labor shortages and other impacts of the COVID-19 pandemic and current macroeconomic environment.

The macroeconomic environment has had significant and potentially will continue to have unexpected adverse effects on businesses and healthcare institutions around the world and has and may continue to negatively impact our consolidated operating results.

Higher interest rates and capital costs and increased shipping costs are expected to impact demand for our products while the potential for continued supply chain disruptions and inflationary impact on material, labor and logistics could increase our cost of operations.

Despite the COVID-19 pandemic and related PHE adverse impacts to direct-to-consumer sales, we experienced increased rental setups in the second quarter of 2020 through the third quarter of 2022, which we believe was partially due to Medicare and commercial payors reducing some of the administrative burden for oxygen therapy as well as our focus on the prescriber initiative in the rental channel of the business.

We believe these factors will continue to contribute to increased rental setups during the remainder of the COVID-19 pandemic and related PHE.

We have also seen increased reimbursement rates in some areas for Medicare beneficiaries, which have contributed to the increased rental revenue during the COVID-19 pandemic and related PHE and are expected to continue to do so for the remainder of the COVID-19 pandemic and related PHE.

During 2020 and 2021, we were able to broadly maintain our operations, but in the first quarter of 2022 we were forced to temporarily suspend production for a period of approximately six weeks due to the semiconductor chip shortages discussed below.

As seen in this temporary production halt, the COVID-19 pandemic and related PHE have caused and could continue to cause disruption to our supply chain that could impact our operations, limit our growth, and increase our cost of goods sold per unit.

We have seen reduced semiconductor chip availability in 2021 and 2022, which has impacted our ability to produce and sell systems and batteries.

While we have seen improvement in the supply of semiconductors, we expect availability issues to continue into 2023.

In addition, the uncertainty related to COVID-19 extended lockdowns in China could further impact our operations in 2023 as it relates to manufacturing and finishing of semiconductors.

We have attempted to mitigate the impact through forward buying of critical components on the open market, but it has and could continue to negatively impact our ability to manufacture product, and we could be forced to slowdown or temporarily halt production again.

We are continuing to focus our mitigation efforts on product redesign, seeking increased commitments on supply and shipment dates from our regular suppliers, sourcing from the open semiconductor channel, and using appropriate pricing actions such as price increases, to help offset some of the increased cost.

We saw inflated costs related to the acquisition of semiconductor chips begin to negatively impact our cost of goods sold in the second half of 2021 and into 2022, and we expect this to continue to impact our cost of goods sold into 2023.

We incurred significant costs in the second half of 2021 and 2022 associated with acquiring chips on the open market and a portion of these costs increased our prepaid expense and inventory given that these components were not yet in finished products that were sold during the period.

Additionally, we are seeing cost inflation for other components used in our products.

Due to semiconductor chip shortages, we temporarily suspended manufacturing operations at our Texas and California locations as well as Foxconn, our Czech Republic-based OEM, beginning January 3, 2022 until early February 2022 when we resumed production and restarted our manufacturing operations at all three locations.

While we have been able to restart manufacturing operations at all locations, we are still seeing challenges in terms of available supply and we believe the supply shortages continue to represent an increased risk to the business into 2023.

Additionally, we have experienced, along with companies across many industries, the macro-economic impact of a challenging employment environment related to hiring and retaining employees and wage inflation.

We expect that these hiring, retention, and wage inflation challenges, as well as challenges related to maintaining our current workforce, will continue through 2023.

These challenges may negatively affect our ability to grow our business and keep our best employees or could increase our cost of operations.

In response, we have implemented more flexible workplace requirements for certain roles, including remote workplace opportunities, but we still expect to be challenged by the macro-economic employment environment.

We are a medical technology company that primarily develops, manufactures, and markets innovative portable oxygen therapy solutions for patients with chronic respiratory conditions.

Our leading portfolio of innovative portable oxygen concentrators (POCs) is optimized to deliver high output ratio-to-weight, meaningful sound suppression and among the longest run times in the industry so that we can meet the needs of patients across a variety of disease states.

As of December 31, 2022, we had twenty-four pending patent applications and seventy-two issued patents relating to the design and construction of our respiratory devices.

We are positioned in the market as both a medical technology company and as a home medical equipment provider that is accredited in all 50 states in the United States with a significant patient, prescriber and provider reach.

Our products have been sold in 59 countries around the world through distributors and medical equipment companies outside of the United States and through direct patient and prescriber sales, as well as resellers and home medical equipment companies in the United States.

We derive the majority of our revenue from the sale and rental of our Inogen One systems and related accessories to patients, insurance carriers, home healthcare providers, resellers, and distributors, including our private label partner.

We sell multiple configurations of our Inogen One and Inogen At Home systems with various batteries, accessories, warranties, power cords and language settings.

Our goal is to design, build and market oxygen solutions that redefine how long-term oxygen therapy is delivered.

To accomplish this goal and to grow our revenue, we intend to:

Optimize our domestic direct-to-consumer sales and prescriber sales teams and increase productivity.

We launched a prescriber sales force initiative in February 2022 to market directly to physicians, gaining the prescription at initiation and maximizing the number of months of billing for long-term oxygen treatment (LTOT).

Also, as part of our growth plans, we expect to continue to expand sales capacity by focusing on increased productivity driven by improved sales management discipline, insights-informed tools, and optimized patient lead generation.

Expand our domestic direct-to-consumer marketing efficiently and optimize pricing.

We have maintained our marketing efforts to continue to drive patient awareness of our products and patient inquiries about their ability to switch from their

current oxygen products to our technology as the patient becomes dissatisfied with their current modality.

We plan to optimize marketing spend to drive consumer and physician awareness of our products in 2023.

We raised prices as of September 1, 2021 and March 1, 2022 to partially offset rising product costs.

Expand our rental revenues.

We are evolving our operating model to focus the enhanced prescriber sales team on rental opportunities with our direct-to-consumer sales team focusing mainly on sales.

We believe the new specialized operating model will drive higher rental setups as we expand prescriber and payor awareness of our products and services.

Expand our domestic HME provider and reseller sales.

We are also focused on building our domestic business-to-business partnerships, including relationships with distributors, key accounts, resellers, our private label partner, traditional HME providers.

We offer patient-preferred, low total cost of ownership products to help providers convert their businesses to a non-delivery POC business model.

Supplemental oxygen is a treatment prescribed by healthcare professionals for some patients with hypoxemia, which in some cases may be caused or exacerbated by COVID-19.

However, in spite of the increased demand associated with the use of supplemental oxygen to treat COVID-19, starting in the third quarter of 2021 through the second quarter of 2022, we have seen supply constraints associated with the semiconductor chip shortage that led to a significant decline in this channel, specifically in the first quarter of 2022 as we were forced to temporarily halt production from early January 2022 to early February 2022 due to these supply constraints.

We were able to fulfill a large portion of the demand backlog beginning in the third quarter of 2022 and into the fourth quarter of 2022 and expect a return to normalized demand in the first half of 2023.

Increase international business-to-business adoption.

Although our main growth opportunity remains POC adoption in the United States given what we still believe is a relatively low penetration rate, we believe there is a sizable international market opportunity, particularly in Europe where there is existing oxygen reimbursement for respiratory conditions.

In order to take advantage of these international markets, we have partnered with distributors who serve those markets and key customers in them.

We additionally have an Inogen base of operations for sales and customer service in the Netherlands, and use a contract manufacturer, Foxconn, located in the Czech Republic to support the majority of our European sales volumes.

We have sold our products in a total of 59 international countries and overseas regions.

Inogen products were commercialized in the European Union and United Kingdom under Medical Device Directive (MDD) certificates, which expired on May 18, 2022.

Due to the expected reduced availability in the second half of 2022 due to the delay in obtaining certification under the MDR, we placed intentional focus on fulfilling European orders in our international business-to-business sales channel until May 18, 2022 when the MDD certificates expired until we obtained the necessary certificate(s) under the MDR.

Derogation requests were also filed in a number of EU countries as a precautionary measure in anticipation of a possible delay in the event the supply of the G4 and G5 devices became limited after May 18, 2022.

France granted permission in June 2022 for continuous commercialization of G4 and G5 POCs under MDR Articles 94/97 until the end of October 2022, which was extended to March 31, 2023.

Permission under Articles 94/97 MDR was also granted by Portugal.

Austria and Denmark granted derogations under Article 59 MDR.

The conformity assessment certification under the EU Medical Devices Regulation was issued by our notified body for our Inogen One G4 and Rove 6, the updated version of its Inogen One G5 portable oxygen concentrators, on December 12, 2022.

We have authorization to affix the CE Mark to our oxygen therapy products and to commercialize our devices in the EU and EEA.

Inogen obtained its United Kingdom Conformity Assessed (UKCA) certificate covering the G4, G5 and Inogen at Home oxygen concentrators on April 27, 2022, which allowed Inogen to affix a UKCA mark to these devices and market them in Great Britain.

Over time, as the U.S.

and European markets mature, our growth will depend on our ability to drive POC adoption in developing or emerging markets, where limited oxygen therapy treatment and reimbursement exists today.

However, growth may also be limited by regulatory and reimbursement clearances, currency fluctuations, capital expenditure constraints, ongoing restructuring challenges, and tender uncertainty.

Invest in our oxygen product offerings to develop innovative products and expand clinical evidence .

We incurred $21.9 million, $16.6 million and $14.1 million in 2022, 2021 and 2020, respectively, in research and development costs, and we intend to continue to make such investments in the foreseeable future.

With EU MDR certification in December 2022, we launched Rove 6, our latest portable oxygen concentrator.

We have also announced U.S.

Food and Drug Administration 510(K) clearance for Rove 4 that will be launched in 2023.

We launched the Inogen One G5 in 2019.

The Inogen One G5 weighs 4.7 pounds and produces 1,260 ml per minute of oxygen output, with very quiet operation at 38 dBA and our longest battery life at 6.5 hours for a single battery and up to 13 hours for a double battery.

We estimate that the Inogen One G5 is suitable for over 90% of ambulatory long-term oxygen therapy patients based on our analysis of the patients who have contacted us and their clinical needs.

One G5 represented more than 84% of total domestic POC units sold in the twelve months ended December 31, 2022, showing the strong demand for this product from both patients and providers.

Inogen Connect, our connectivity platform on our Inogen One G4 ® and Inogen One G5 products in the United States and Canada, is compatible with Apple and Android platforms and includes patient features such as purity status, battery life, product support functions, notification alerts, and remote software updates.

We believe home oxygen providers will also find features such as remote troubleshooting, equipment health checks, and location tracking to help drive operational efficiencies when transitioning away from the oxygen tank delivery model.

We plan to also invest in clinical studies to evaluate expected improvements in clinical, economic and patient reported outcomes associated with the use of our products as part of our efforts to drive payor and prescriber advocacy for our products.

Expand our product offerings.

We are primarily focused on expanding new products that drive benefits to patients, prescribers and our customers with a clinically-relevant pipeline.

These products would include innovations that strengthen our offerings in COPD, as well as future innovations that differentiate beyond devices to allow patients and clinicians to better manage respiratory disease with advanced portable oxygen concentrations with digital health value added services, broader use for hypercapnia and shortness-of-breath, and expansion to other related disease indications.

We are also committed to pursuing complementary acquisition opportunities to strengthen our technology, product offerings, and channel access.

We have been developing and refining the manufacturing of our Inogen One systems since 2004.

While nearly all of our manufacturing and assembly processes were originally outsourced, assembly of the compressors, sieve beds, concentrators and certain manifolds were brought in-house in order to improve quality control and reduce cost.

In support of our European sales, we use a contract manufacturer located in the Czech Republic to manufacture high volume products and perform product repairs to improve delivery to our European accounts.

In 2022, we focused on securing supply for components to make our products in spite of the higher costs of semiconductor chips, reducing the cost of our Inogen One G5 product (excluding semiconductor chips), and increasing the robustness of our supply chain to reduce potential component constraints as we made efforts to grow our business.

We also use lean manufacturing practices to maximize manufacturing efficiency.

We rely on third-party manufacturers to supply several components of our products.

We have elected to source certain key components from single sources of supply, including our batteries, motors, valves, columns, and some molded plastic components.

In some cases, maintaining a single source of supply can allow us to control production costs and inventory levels and to manage component quality, but also may lead to supply availability risks, and means our ability to maintain production is dependent on these single source suppliers, which may put us at an increased risk of supply disruption, as we have seen from the production halt we implemented in early January 2022 through early February 2022.

In order to help mitigate against the risks related to a single source of supply, for certain components we qualify alternative suppliers and develop contingency plans for responding to disruptions.

However, a continued reduction or halt in supply from one of these single-source suppliers, any dual-sourced suppliers or any other limited source suppliers with similar sub-component suppliers could limit or prevent our ability to manufacture our products or devices until one or more sufficient replacement suppliers is found and qualified.

For additional discussion of potential risks related to our manufacturing and raw materials, please see the risk factor entitled “

We obtain some of the components, subassemblies and completed products included in our products from a single source or a limited group of manufacturers or suppliers, and in some cases those components are available in only limited supplies from limited manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers could cause significant production delays or stoppages, an inability to meet customer demand, substantial loss in revenue, and an adverse effect on our financial condition and results of operations.

Historically, we have generated a majority of our revenue from sales and rentals to customers in the United States.

In the years ended December 31, 2022, 2021 and 2020, approximately 26.8%, 22.2% and 20.1%, respectively, of our total revenue was from sales to customers outside the United States, primarily in Europe.

Approximately 70.9%, 74.1% and 73.6% of the non-U.S.

revenue for the years ended December 31, 2022, 2021 and 2020, respectively, were invoiced in Euros with the remainder invoiced in United States dollars.

We have sold our products in a total of 59 international countries and overseas regions outside the United States through our wholly-owned subsidiary, distributors or directly to large “house”

accounts, which include gas companies, HME oxygen providers, and resellers.

In those instances, we sell to and bill the distributor or “house”

accounts directly, leaving responsibility for the patient billing, support and clinical setup to the local provider.

Sales revenue

Our future financial performance will be driven in part by the growth in sales of our portable oxygen concentrators, and, to a lesser extent, sales of batteries, other accessories, and our Inogen At Home stationary oxygen concentrators.

We plan to grow our system sales in the coming years through multiple strategies including:

improving sales force productivity, hiring additional sales representatives directly or through our contract sales organization, investing in consumer and physician awareness and advocacy through increased sales and marketing efforts, expanding our clinical evidence, expanding our sales infrastructure and efforts outside of the United States, expanding our business-to-business sales through key strategic partnerships, and enhancing our product offerings through additional product launches.

While we believe HME providers are still in the process of converting their business model to a non-delivery model through the purchase of POCs, growth has been challenged due to the COVID-19 pandemic and related PHE, HME restructuring efforts, lack of access to available credit, provider capital expenditure constraints, and risk of potential changes in reimbursement rates.

Our direct-to-consumer sales processes involve numerous interactions with the individual patient, their physician and the physician’s staff, and includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen therapy, including procuring an oxygen prescription.

The patient may consider whether to finance the product through an Inogen-approved third party or purchase the equipment.

Product is not deployed until both the prescription and payment are secured.

Once a full system is deployed, the patient has 30 calendar days to return the product, subject to the payment of a minimal processing and handling fee.

Approximately 6-10% of consumers who purchase a system return the system during this 30-day return period.

Our business-to-business efforts are focused on selling to distributors, HME oxygen providers, our private label partner, and resellers who are based inside and outside of the United States.

This process involves interactions with various key customer stakeholders including sales, purchasing, product testing, and clinical personnel.

Businesses that have patient demand that can be met with our products place purchase orders to secure product deployment.

This may be influenced based on outside factors, including the result of tender offerings, changes in insurance plan coverage or reimbursement rates, business restructuring activities toward a non-delivery model, capital constraints, and overall changes in the net oxygen therapy patient populations, and is presently being impacted by the COVID-19 pandemic and related PHE.

As a result of these factors, product purchases can be subject to changes in demand by customers.

We sold approximately 170,500 systems in 2022, 175,800 systems in 2021 and 178,900 systems in 2020.

The decline over the past two years was primarily caused by supply chain constraints, the delay in EU MDR approval, and the temporary suspension of manufacturing at all three locations in the first quarter of 2022.

Rental revenue

Our rental process involves numerous interactions with the individual patient, their physician and the physician’s staff.

The process includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen therapy, and their medical history to confirm the appropriateness of our product for the patient’s oxygen therapy and compliance with Medicare and private payor billing requirements, which often necessitates additional physician evaluation and/or testing for oxygen.

Once the product is deployed, the patient receives instruction on product use and may receive a clinical titration from our licensed staff to confirm the product meets the patient’s medical oxygen needs prior to billing.

As a result, the period of time from initial contact with a patient to billing can vary significantly and be up to one month or longer.

However, during the COVID-19 PHE, CMS has reduced the paperwork requirements for Medicare oxygen therapy patients, as discussed in more detail in the Reimbursement section below.

CMS has also adopted additional changes to the administrative requirements to dispense and bill for oxygen therapy, which is discussed in more detail in the Reimbursement section below, which may reduce the administrative burden and increase patient access to our products.

Rental revenue increased in 2022 compared to 2021, primarily due to a greater number of patients on service and higher Medicare reimbursement rates.

Medicare reimbursement rates for oxygen therapy have increased, as detailed in the risk factor entitled “

The competitive bidding process or other reimbursement policy changes under Medicare or other third-party payors could negatively affect our business and financial condition.

We plan to add new rental patients on service in future periods through multiple

strategies, including expanding our prescriber sales teams, expanding our direct-to-consumer marketing efforts, investing in patient and physician awareness and advocacy, expanding clinical evidence, and securing additional insurance contracts.

A portion of rental patient population includes a capped rental period during which no additional reimbursement is allowed unless additional criteria are met.

This capped period begins after month 36 and continues until month 60.

The ratio of billable patients to total patients on service is critical to maintaining rental revenue growth as patients on service increase.

Medicare has noted a certain percentage of beneficiaries, approximately 25%, based on their review of Medicare claims, reach the 36 th month of eligible reimbursement and enter the post-36 month capped rental period.

The percentage of capped patients may fluctuate over time as new patients come on service, patients come off of service before and during the capped rental period, and existing patients enter the capped rental period.

We had approximately 45,600, 42,900 and 32,200 oxygen rental patients as of December 31, 2022, 2021 and 2020, respectively.

Management focuses on patients on service as a leading indicator of likely future rental revenue;

however, actual rental revenue recognized is subject to a variety of other factors, including billable patients as a percentage of patients on service, reimbursement levels by payor, patient location, the number of capped patients, write-offs for uncollectable balances, and rental revenue adjustments.

Reimbursement

We rely significantly on reimbursement from Medicare and private payors, including Medicare Advantage plans and Medicaid, for our rental revenue.

A discussion of third-party reimbursement is contained in Item 1, Third-party reimbursement in this Annual Report on Form 10-K.

For the years ended December 31, 2022, 2021 and 2020, approximately 77.0%, 81.9% and 81.5%, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.

We believe our sales may be impacted by seasonal factors.

For example, we typically experience higher total sales in the second and third quarters, as a result of consumers traveling and vacationing during warmer weather in the spring and summer months, but this may vary year-over-year.

In particular, due to the COVID-19 pandemic and related PHE, we have seen and expect to continue to see a disruption in our normal seasonal trends due to the mandates and behaviors emanating from the COVID-19 pandemic and related PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, and we did not see the typical seasonal increases in direct-to-consumer sales in 2020 that we have seen in prior years, although a partial return to normal seasonal trends was seen in 2021 and 2022.

Additionally, as more home medical equipment (HME) providers adopt portable oxygen concentrators in their businesses, we expect our historical seasonality in the domestic business-to-business channel could change as well, which was previously influenced mainly by consumer buying patterns.

Direct-to-consumer sales seasonality may also be impacted by the number of sales representatives and the amount of marketing spend in each quarter.

For the years ended December 31, 2022, 2021, and 2020, the sales revenue in the second quarter accounted for 27.9%, 29.0% and 23.4%, respectively, and the sales revenue in the third quarter accounted for 28.3%, 26.0% and 23.8%, respectively, of our total sales revenue.

In particular, due to the COVID-19 pandemic and related PHE, we have seen a disruption in our normal seasonal trends, as, due to the mandates and behaviors emanating from the COVID-19 pandemic and related PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, we did not see the typical seasonal increases in direct-to-consumer sales in 2020, 2021 and 2022 that we have seen in prior years.

As more home medical equipment (HME) providers adopt portable oxygen concentrators in their businesses, we expect our historical seasonality in the domestic business-to-business channel could change as well, which was previously influenced mainly by consumer buying patterns.

Basis of presentation

The following describes the line items set forth in our consolidated statements of comprehensive loss.

We classify our revenue in two main categories:

sales revenue and rental revenue.

There will be fluctuations in mix between business-to-business sales, direct-to-consumer sales and rental revenue from period-to-period.

Product selling prices and gross margins may fluctuate based on revenue channel mix, as we introduce new products, our product costs change, we have changes in purchase volumes, and as currency variations occur.

For example, the higher costs for semiconductor chips has had a negative impact on our gross margin, and we expect that will continue in 2023.

Additionally, fluctuations in the channel mix could cause variability in our gross margins, as direct-to-consumer sales and rental revenue have higher margins than the business-to-business channels.

Quarter-over-quarter results may vary due to seasonality in both the international and domestic markets, as discussed in Item 1.

Seasonality and elsewhere in this Annual Report on Form 10-K.

Sales revenue

Our sales revenue is primarily derived from the sale of our Inogen One systems, Inogen At Home systems, and related accessories to individual consumers, our private label partner, HME providers, distributors, resellers, and charitable organizations worldwide.

Sales revenue is classified into two areas:

business-to-business sales and direct-to-consumer sales.

Generally, our direct-to-consumer sales have higher gross margins than our business-to-business sales.

Rental revenue

Our rental revenue is primarily derived from the rental of our Inogen One and Inogen At Home systems to patients through reimbursement from Medicare, private payors and Medicaid, which typically also includes a patient responsibility component for patient co-insurance and deductibles.

Rental revenue increased in 2022, primarily due to higher patients on service and higher Medicare reimbursement rates.

We expect our rental revenue to increase in future periods as we scale the prescriber sales team, secure additional insurance contracts, and increase new rental setups.

In addition, for the duration of the COVID-19 PHE, we expect to benefit from higher Medicare reimbursement rates and reduced administrative requirements for oxygen therapy enacted due to the COVID-19 PHE.

We also expect that our rental revenue will be impacted by the number of our sales representatives, reimbursement rate changes, including the impact of COVID-19 PHE changes, the level of and response from potential customers to direct-to-consumer marketing spend, product launches, the number of billable patients and denial rates, and other uncontrollable factors such as changes in the market and competition.

Cost of revenue

Cost of sales revenue

Cost of sales revenue consists primarily of costs incurred in the production process, including component materials, assembly labor and overhead, warranty expense, provisions for slow-moving and obsolete inventory, rework and delivery costs for items sold.

Labor and overhead expenses consist primarily of personnel-related expenses, including wages, bonuses, benefits, and stock-based compensation for manufacturing, logistics, repair, manufacturing engineering, and quality assurance employees and temporary labor.

Cost of sales revenue also includes manufacturing freight in, depreciation expense, facilities costs and materials.

Provisions for warranty obligations are included in cost of sales revenue and are provided for at the time of revenue recognition.

Supply chain disruptions began negatively impacting our cost of sales revenue starting in the third quarter of 2021 and are expected to continue to do so through 2023.

The supply chain constraints are primarily associated with semiconductor chips used in our batteries and printed circuit boards which are components of our POCs.

In addition to the semiconductor chip limitations, we are continuing to see supply chain constraints for other components used in our products.

We expect this to have an increased impact on our material costs into 2023 until supply and demand get closer to equilibrium.

Recent United States policies related to global trade and tariffs may also increase our average unit cost.

The current economic environment has introduced greater uncertainty with respect to potential trade regulations, including changes to United States policies related to global trade and tariffs.

We continue to monitor the Section 301 tariffs being imposed by the United States on certain imported Chinese materials and products in addition to potential retaliatory responses from other nations.

In 2021 and 2022, the impact of the China tariffs on our financial results was minimal as we have received some exemptions, negotiated cost sharing and price reductions with suppliers, and re-allocated purchases.

Assuming the Chinese tariffs stay at the current levels, we currently expect the overall financial impact to our business to be minimal to the average unit cost for 2023.

For these reasons, we expect sales gross margin percentage to fluctuate over time based on the sales channel mix, product mix, and changes in average selling prices and manufacturing cost per unit.

Cost of rental revenue

Cost of rental revenue consists primarily of depreciation expense, consumable disposables, logistics costs and service costs for rental patients, including rework costs, material, labor, and freight.

Rental gross margin percentage could fluctuate due to changes in depreciation expense, cost to service and maintain the rental fleet as well as the percentage of patients on service in the capped period.

Operating expense

Research and development

Our research and development expense consists primarily of personnel-related expenses, including wages, bonuses, benefits and stock-based compensation for research and development, engineering, and medical affairs employees.

It also includes facility costs, laboratory supplies, product development materials, consulting fees, clinical studies costs, and testing costs for new product launches as well as enhancements to existing products.

We have made substantial investments in research and development since our inception.

Our research and development efforts have focused primarily on development and commercialization of new and existing products.

We plan to continue to invest in research and development activities to stay at the forefront of patient preference in oxygen therapy, including significant investments in clinical research.

We also expect research and development expense to increase in absolute dollars in future periods as we continue to invest in our engineering and technology teams to support our new and enhanced product research and development efforts and manufacturing improvements.

We expect increased research and development costs associated with broadening our product portfolio.

Sales and marketing

Our sales and marketing expense primarily supports our direct-to-consumer sales and rental strategy and consists mainly of personnel-related expenses, including wages, bonuses, commissions, benefits, and stock-based compensation for sales, marketing, customer service, rental intake, and clinical service employees.

It also includes expenses for media and advertising, printing, informational kits, dues and fees, credit card fees, recruiting, training, sales promotional activities, travel and entertainment expenses as well as allocated facilities costs.

We continue to recruit to add new sales representatives, while maintaining our hiring standards.

Going forward, our plan is to optimize our sales capacity while focusing on increased productivity, improved sales personnel and lead distribution systems, and improved training.

We expect to continue to invest in sales and marketing expense in future periods, including our sales and sales support team which includes our prescriber sales team, increasing our rental infrastructure, and rising patient support costs as our patient and customer base increases.

General and administrative

Our general and administrative expense consists primarily of personnel-related expenses, including wages, bonuses, benefits, and stock-based compensation for employees in our compliance, finance, medical billing, order intake, regulatory, legal, human resources, and information technology departments as well as facilities costs, and board of directors’

expenses, including stock-based compensation.

In addition, general and administrative expense includes professional services, such as legal, patent registration and defense costs, insurance, consulting and accounting services, including audit and tax services, and travel and entertainment expenses.

General and administrative expense also includes changes in the fair value of the New Aera earnout liability.

We expect general and administrative expense to increase in future periods as the number of administrative personnel grows and we continue to introduce new products, broaden our customer base and grow our business.

General and administrative expense will increase in absolute dollars as we continue to invest in corporate infrastructure to support our growth including personnel-related expenses, professional services fees and compliance costs associated with operating as a public company.

Loss on disposal of intangible asset

Our loss on disposal of intangible asset consists of the disposal of intangible assets, fixed assets, construction in process and inventories in accordance with ASC 360-10 —

Long-lived assets.

Other income (expense), net

Our other income (expense), net consists primarily of foreign currency gains and (losses), as well as interest income earned on cash equivalents and marketable securities.

We account for income taxes in accordance with ASC 740—

Income Taxes .

Under ASC 740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our consolidated financial statements or tax returns.

A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

We account for uncertainties in income tax in accordance with ASC 740-10—

Accounting for Uncertainty in Income Taxes .

ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The accounting for stock-based compensation will increase or decrease our effective tax rate based upon the difference between our stock-based compensation expense and the deductions taken on our U.S.

tax return, which depends upon the stock price at the time of employee option exercise or award vesting.

We recognize excess tax benefits or deficiencies on a discrete basis, and we anticipate our effective tax rate will vary from year-to-year depending on our stock price in each period.

Results of operations

Comparison of years ended December 31, 2022 and 2021

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Sales revenue

Rental revenue

Total revenue

Sales revenue increased $8.8 million for the year ended December 31, 2022 from the year ended December 31, 2021, or an increase of 2.8% from the comparable year.

The increase was primarily attributable to an increase in international business-to-business sales, partially offset by lower domestic business-to-business and direct-to-consumer sales.

We sold approximately 170,500 oxygen systems during the year ended December 31, 2022 compared to approximately 175,800 oxygen systems sold during the year ended December 31, 2021, a decrease of 3.0%.

The decrease in the number of systems sold resulted primarily due to supply chain constraints.

Rental revenue increased $10.4 million for the year ended December 31, 2022 from the year ended December 31, 2021, or an increase of 22.5% from the comparable year.

The increase in rental revenue was primarily related to higher rental patients on service, higher percentage of billable patients and higher Medicare reimbursement rates.

(amounts in thousands)

Years ended December 31,

Change 2022 vs.

Revenue by region and category

Business-to-business domestic sales

Business-to-business international sales

Direct-to-consumer domestic sales

Direct-to-consumer domestic rentals

Total revenue

Domestic business-to-business sales decreased 5.8% for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to the supply chain constraints that limited our ability to meet all customer demand during the first half of 2022, partially offset by improved average selling prices.

International business-to-business sales increased 27.3% for the year ended December 31, 2022 compared to the year ended December 31, 2021, mostly driven by increased average selling prices and improved demand primarily in Europe as we placed intentional focus on fulfilling European orders in our international business-to-business sales channel prior to the EU MDD certificate expiration.

In the year ended December 31, 2022, sales in Europe as a percentage of total international sales revenue increased slightly to 86.9% versus 86.8% in the comparative period in 2021.

Domestic direct-to-consumer sales decreased 5.4% for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to lower sales representative headcount and an increased percentage of non-tenured sales representatives, partially offset by increased average selling prices versus the comparative period in the prior year.

Domestic direct-to-consumer rentals increased 22.5% for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to an increase in patients on service and increased Medicare reimbursement rates due to the inflation adjustment effective January 1, 2022.

Cost of revenue and gross profit

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Cost of sales revenue

Cost of rental revenue

Total cost of revenue

Gross profit - sales revenue

Gross profit - rental revenue

Total gross profit

Gross margin percentage - sales revenue

Gross margin percentage - rental revenue

Total gross margin percentage

Cost of sales revenue increased $36.0 million for the year ended December 31, 2022 from the year ended December 31, 2021, an increase of 22.2% from the comparable year.

The largest driver of increased cost was premiums paid for components used to manufacture our batteries and motherboards used in our POCs.

The year ended December 31, 2022 included $23.8 million of higher material costs associated with open-market purchases of semiconductor chips used in our batteries and POCs.

Additionally, we experienced higher material and warranty cost per unit and increased labor and overhead costs per unit caused by lower labor and overhead absorption, partially due to the temporary manufacturing shutdown in early 2022.

Cost of rental revenue increased $6.2 million for the year ended December 31, 2022 from the year ended December 31, 2021, an increase of 31.5% from the comparable year.

The increase in cost of rental revenue was primarily attributable to an increase in total patients on service, which led to increased rental asset depreciation expense, loss on rental units, and servicing costs per patient on service.

Cost of rental revenue included $11.1 million of rental asset depreciation for the year ended December 31, 2022 compared to $8.9 million for the year ended December 31, 2021.

Gross margin on sales revenue decreased to 38.3% for the year ended December 31, 2022 from 48.1% for the year ended December 31, 2021.

The decrease was primarily due to higher material, warranty, labor and overhead costs as discussed above.

Additionally, unfavorable channel mix contributed to the margin compression.

Total worldwide business-to-business sales revenue accounted for 58.4% of total sales revenue in the year ended December 31, 2022 versus 54.8% in the year ended December 31, 2021.

The decrease was partially offset by higher average selling prices.

Rental revenue gross margin percentage decreased to 54.3% for the year ended December 31, 2022 from 57.4% for the year ended December 31, 2021, primarily due to higher depreciation expense, loss on rental units, and higher servicing costs per patient on service, partially offset by higher Medicare reimbursement rates.

Research and development expense

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Research and development expense

Research and development expense increased $5.4 million for the year ended December 31, 2022 from the year ended December 31, 2021, an increase of 32.4% over the comparable period, primarily due to a $4.0 million increase in product development expenses and a $1.1 million increase in personnel-related expenses.

Sales and marketing expense

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Sales and marketing expense

Sales and marketing expense increased $8.0 million for the year ended December 31, 2022 from the year ended December 31, 2021, an increase of 7.0% from the comparable period, due to an increase of $8.3 million of consulting fees, mainly for the deployment of the prescriber sales team, $3.8 million in professional fees and licenses, partially offset by a decrease in personnel-related expenses of $2.2 million and $1.9 million of media and advertising costs.

In the year ended December 31, 2022, we spent $33.3 million in media and advertising costs versus $35.2 million in the comparative period in 2021.

General and administrative expense

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

General and administrative expense

General and administrative expense increased $6.1 million for the year ended December 31, 2022 from the year ended December 31, 2021, an increase of 16.0% from the comparable period.

The increase was primarily attributable to a $6.4 million increase in personnel-related expenses, $0.9 million in consulting fees, $0.9 million in legal fees, and $0.8 million in dues, fees and licenses.

These increases were partially offset by a $3.8 million increase in the benefit from the change in the fair value of the New Aera earnout liability and a $0.6 million decrease in officer transition costs.

Loss on disposal of intangible asset

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Loss on disposal of intangible asset

Loss on disposal of intangible asset increased $52.2 million for the year ended December 31, 2022 from the year ended December 31, 2021, an increase of 100.0% from the comparable period.

On December 19, 2022, we disposed of the technology intangible asset previously acquired from New Aera related to the TAV technology by ceasing development of such asset and abandoning the asset.

Other income (expense)

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Interest income

Other expense

Total other income (expense), net

Total other income (expense), net increased $2.6 million for the year ended December 31, 2022 from the year ended December 31, 2021, an increase of 439.9% from the comparable period, primarily attributable to an increase of $2.7 million in interest income due to the higher interest rate environment, partially offset by an increase of $0.2 million in net foreign currency losses.

Income tax expense

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Income tax expense

Effective income tax rate

Income tax expense decreased $14.5 million for the year ended December 31, 2022 from the year ended December 31, 2021, primarily resulting from the recording of a valuation allowance on the use of deferred tax assets in the prior period.

Income taxes for the year ended December 31, 2022, were attributable to foreign taxes and minimum state taxes.

Our effective tax rate for the year ended December 31, 2022 decreased compared to the year ended December 31, 2021, primarily due to the recording of a valuation allowance on the use of deferred tax assets in the prior period.

Years ended December 31,

Change 2022 vs.

(amounts in thousands)

Net loss increased $77.4 million for the year ended December 31, 2022 from the year ended December 31, 2021, or an increase of 1222.8% from the comparable period.

The increase in net loss was primarily related to a $52.2 million loss on disposal of intangible asset and a $23.0 million reduction in gross profit and higher operating expense, partially offset by an increase in the benefit from the change in fair value of the New Aera earnout liability.

Comparison of years ended December 31, 2021 and 2020

A discussion of changes in our results of operations during the year ended December 31, 2021 compared to the year ended December 31, 2020 has been omitted from this Annual Report on Form 10-K but may be found in “Item 7.

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

in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022, which discussion is incorporated herein by reference and which is available free of charge on the SECs website at www.sec.gov .

Liquidity and capital resources

As of December 31, 2022, we had cash and cash equivalents of $187.0 million, which consisted of highly liquid investments with a maturity of three months or less.

For the years ended December 31, 2022, 2021 and 2020, we received $1.7 million, $15.6 million and $2.4 million, respectively, in proceeds related to stock option exercises and our employee stock purchase plan.

Our principal uses of cash for liquidity and capital resources in the year ended December 31, 2022 consisted of net cash used in operating activities of $37.5 million and capital expenditures of $21.2 million including additional rental equipment and other property, plant and equipment.

We believe that our current cash, cash equivalents and the cash to be generated from expected product sales and rentals will be sufficient to meet our projected operating and investing requirements for at least the next twelve months.

However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.

Our future funding requirements will depend on many factors, including market acceptance of our products;

the cost of our research and development activities;

payments from customers;

the cost, timing, and outcome of litigation or disputes involving intellectual property rights, our products, employee relations, cyber security incidents, or otherwise;

the cost and timing of acquisitions;

the cost and timing of regulatory clearances or approvals;

the cost and timing of establishing additional sales, marketing, and distribution capabilities;

and the effect of competing technological and market developments.

In the future, we may acquire businesses or technologies from third parties, and we may decide to raise additional capital through debt or equity financing to the extent we believe this is necessary to successfully complete these acquisitions.

Our future capital requirements will also depend on many additional factors, including those set forth in the section of this Annual Report on Form 10-K entitled “Risk Factors.”

If we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all.

In the future, we may also attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements.

If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted.

If we raise additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business.

Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

There can be no assurances that we will be able to raise additional capital, which would adversely affect our ability to achieve our business objectives.

In addition, if our operating performance during the next twelve months is below our expectations, our liquidity and ability to operate our business could be adversely affected.

The following tables show a summary of our cash flows and working capital for the periods and as of the dates indicated:

(amounts in thousands)

Years ended December 31,

Summary of consolidated cash flows

Cash provided by (used in) operating activities

Cash used in investing activities

Cash provided by financing activities

Effect of exchange rates on cash

Net increase (decrease) in cash and cash equivalents

(amounts in thousands)

Summary of working capital

Total current assets

Total current liabilities

Net working capital

Operating activities

Historically, we derive operating cash flows from cash collected from the sales and rental of our products and services.

These cash flows received are partially offset by our use of cash for operating expenses to support the growth of our business.

Net cash used in operating activities for the year ended December 31, 2022 consisted primarily of our net loss of $83.8 million and the non-cash add back for change in fair value of the earnout liability of $15.4 million, partially offset by non-cash adjustment items such as loss on disposal of intangible asset of $52.2 million, depreciation of equipment and leasehold improvements and amortization of intangibles of $23.5 million, provision for sales returns and doubtful accounts of $13.0 million, stock-based compensation expense of $12.3 million, net loss on disposal of rental equipment and other fixed assets of $3.1 million, and provision for inventory obsolescence and other inventory losses of $2.4 million.

The net changes in operating assets and liabilities resulted in a net use of cash of $44.7 million.

Net cash provided by operating activities for the year ended December 31, 2021 consisted primarily of our non-cash expense items such as depreciation of equipment and leasehold improvements and amortization of our intangibles of $21.6 million, a decrease in deferred tax assets of $14.4 million, provision for sales returns and doubtful accounts of $11.1 million, stock-based compensation expense of $10.9 million, provision for inventory obsolescence and other inventory losses of $2.1 million, and net loss on disposal of rental equipment and other fixed assets of $1.5 million;

partially offset by the change in fair value of earnout liability of $11.6 million and our net loss of $6.3 million.

The net changes in operating assets and liabilities resulted in a net use of cash of $20.1 million.

Net cash provided by operating activities for the year ended December 31, 2020 consisted primarily of our non-cash expense items such as depreciation of equipment and leasehold improvements and amortization of our intangibles of $18.6 million, provision for sales returns and doubtful accounts of $10.5 million, stock-based compensation expense of $8.2 million, provision for rental revenue adjustments of $2.6 million, provision for inventory obsolescence and other inventory losses of $1.3 million, change in fair value of earnout liability of $1.1 million, net loss on disposal of rental equipment and other fixed assets of $0.9 million and our net loss of $5.8 million.

The net changes in operating assets and liabilities resulted in no effect on cash flows from operating activities.

Investing activities

Net cash used in investing activities generally includes the production and purchase of rental assets, property, plant and equipment, and intangibles to support our expanding business as well as maturities or purchases of marketable securities.

For the year ended December 31, 2022, we invested $21.2 million in the production and purchase of rental assets and other property and equipment, partially offset by $10.0 million we received in maturities of marketable securities.

For the year ended December 31, 2021, we invested $23.9 million in the production and purchase of rental assets and other property, equipment, and intangible assets as well as $10.0 million in corporate bonds with maturities greater than three months that were classified as marketable securities, partially offset by $19.3 million in maturities of marketable securities.

For the year ended December 31, 2020, we invested $22.8 million in corporate bonds, U.S.

Treasury securities and agency mortgage-backed securities with maturities greater than three months that were classified as marketable securities, partially offset by $14.5 million in maturities of available-for-sale investments.

In addition, we invested $17.6 million in the production and purchase of rental assets and other property, equipment, and intangible assets.

We expect to continue investing in property, equipment and leasehold improvements as we expand our operations.

Our business is inherently capital intensive.

We expend significant manufacturing and production expense in connection with the development and production of our oxygen concentrator products and, in connection with our rental business, we incur expense in the deployment and maintenance of rental equipment to our patients.

Investments will continue to be required in order to grow our sales and rental revenue and continue to supply and replace rental equipment to our rental patients on service.

Financing activities

Historically, we have funded our operations through our sales and rental revenue and the issuance of preferred and common stock.

For the year ended December 31, 2022, net cash provided by financing activities consisted of $1.7 million from the proceeds received from stock options that were exercised and purchases under our employee stock purchase program, partially offset by the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $1.4 million.

For the year ended December 31, 2021, net cash provided by financing activities consisted of $15.6 million from the proceeds received from stock options that were exercised and purchases under our employee stock purchase program, partially offset by the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.6 million.

For the year ended December 31, 2020, net cash provided by financing activities consisted of $2.4 million from purchases under our employee stock purchase program and the proceeds received from stock options that were exercised, partially offset by the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.4 million.

Sources of funds

Our net cash used in operating activities in the year ended December 31, 2022 was $37.5 million compared to net cash provided by operating activities of $23.6 million in the year ended December 31, 2021.

As of December 31, 2022, we had cash and cash equivalents of $187.0 million.

Our principal uses of cash are funding our new rental asset deployments and other capital purchases, operations, and other working capital requirements and, from time-to-time, the acquisition of businesses.

Over the past several years our cash flows from customer collections have remained consistent and our annual cash provided by operating activities has generally been a significant source of capital to the business, which we expect to continue in the future.

We may need to raise additional funds to support our investing operations, and such funding may not be available to us on acceptable terms, or at all.

If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected.

We may seek to raise additional funds through equity, equity-linked or debt financings.

If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations.

Any additional equity financing may be dilutive to our stockholders.

Non-GAAP financial measures

EBITDA and Adjusted EBITDA are financial measures that are not calculated in accordance with U.S.

We define EBITDA as net income (loss) excluding interest income, interest expense, taxes and depreciation and amortization.

Adjusted EBITDA also excludes stock-based compensation, change in fair value of earnout liability, and loss on disposal of intangible asset.

Below, we have provided a reconciliation of EBITDA and Adjusted EBITDA to our net loss, the most directly comparable financial measure calculated and presented in accordance with U.S.

EBITDA and Adjusted EBITDA should not be considered alternatives to net loss, or any other measure of financial performance calculated and presented in accordance with U.S.

Our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate EBITDA and Adjusted EBITDA in the same manner as we calculate these measures.

We include EBITDA and Adjusted EBITDA in this Annual Report on Form 10-K because they are important measures upon which our management assesses our operating performance.

We use EBITDA and Adjusted EBITDA as key performance measures because we believe they facilitate operating performance comparisons from period-to-period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed assets and intangible assets, the impact of stock-based compensation expense, the impact of the change in fair value of the earnout liability and the impact of the loss on disposal of intangible asset.

Because EBITDA and Adjusted EBITDA facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA and Adjusted EBITDA for business planning purposes, to incentivize and compensate our management personnel, and in evaluating acquisition opportunities.

In addition, we believe EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.

Our uses of EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S.

Some of these limitations are:

EBITDA and Adjusted EBITDA do not reflect our cash expenditures for capital equipment or other contractual commitments;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect capital expenditure requirements for such replacements;

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not include changes in fair value of earnout liability related to our acquisitions;

other companies, including companies in our industry, may calculate EBITDA and Adjusted EBITDA measures differently, which reduces their usefulness as a comparative measure.

In evaluating EBITDA and Adjusted EBITDA, we anticipate that in the future we will incur expenses within these categories similar to this presentation.

Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by certain expenses.

When evaluating our financial results, EBITDA and Adjusted EBITDA should be considered alongside other financial performance measures, including U.S.

GAAP results.

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net loss, the most comparable U.S.

GAAP measure, for each of the periods indicated:

(amounts in thousands)

Years ended December 31,

Non-GAAP EBITDA and Adjusted EBITDA

Non-GAAP adjustments:

Interest income

Provision for income taxes

Depreciation and amortization

EBITDA (non-GAAP)

Stock-based compensation

Change in fair value of earnout liability

Loss on disposal of intangible asset

Adjusted EBITDA (non-GAAP)

Contractual obligations

The following table reflects a summary of our contractual obligations as of December 31, 2022.

Payments due by period

(amounts in thousands)

Contractual Obligations

Operating leases - properties and other (1)

Purchase obligations (2)

(1) We lease manufacturing and office space in Plano, TX, Goleta, CA, Smyrna, TN, Huntsville, AL, Aurora, CO, Cleveland, OH and Breukelen, Netherlands with terms that expire between 2023 and 2031 and miscellaneous office and processing equipment in Texas, California and Ohio with terms expiring between 2023 and 2031.

(2) We obtain individual components for our products from a wide variety of individual suppliers.

Consistent with industry practice, we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.

Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier.

For additional description of contractual obligations and commitments, see the section titled “Commitments and Contingencies”

in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Contingent consideration

In connection with our acquisition of New Aera, we have contingent obligations to pay up to $31.4 million in earnout payments in cash if certain future financial results are met.

As a result of the earnout requirements not expected to be met as of December 31, 2022, we do not expect to make the earnout payments.

See the section titled “Fair Value of Earnout Liability”

in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity