Inogen Inc 10-K

ITEM 5. 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. 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. 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, 2018 to December 31, 2023. This graph assumes an investment of $100 on December 31, 2018 in each of our common stock, the NASDAQ Composite Index, the S & P Healthcare Equipment and Supplies Index, the Russell 2000 Index and assumes reinvestment of dividends, if any. The stock price performance shown on the graph below is not necessarily indicative of future stock price performance. STOCKHOLDER RETURN PERFORMANCE GRAPH COMPARISON OF THE 5 YEAR CUMULATIVE TOTAL RETURN Among Inogen, Inc., the S & P Healthcare Equipment and Supplies Index, the Russell 2000 Index and the NASDAQ Composite Index 63 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Inogen, Inc. $ 100.00 $ 84.25 $ 54.60 $ 41.47 $ 24.47 $ 6.82 S & P Healthcare Equipment & Supplies^ (1) $ 100.00 $ 121.65 $ 161.92 $ 168.83 $ 128.29 $ 120.25 Russell 2000^ (2) $ 100.00 $ 123.40 $ 146.82 $ 166.75 $ 130.60 $ 150.31 NASDAQ Composite^ (3) $ 100.00 $ 134.82 $ 193.96 $ 237.24 $ 157.74 $ 226.24 (1) The S&P Healthcare Equipment and Supplies Index is a capitalization weighted-average index compiled of healthcare companies in the S&P 500 Index. (2) The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. (3) The NASDAQ Composite is a market-value weighted index of all common stocks listed on the NASDAQ. Stockholders As of February 23, 2024, there were 9 registered stockholders of record for our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. Dividend policy We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. In addition, future debt instruments we issue may materially restrict our ability to pay dividends on our common stock. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of then-existing debt instruments and other factors our board of directors deems relevant. Securities authorized for issuance under equity compensation plans The information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in PART III Item 12 of this Annual Report on Form 10-K. Unregistered sales of equity securities None. Issuer purchases of equity securities None. ITEM 6. [RESE RVED] 64 ITEM 7. 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 • Overview • Basis of presentation • Results of operations • Liquidity and capital resources • Sources of funds • Use 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. GAAP. 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; and • long-lived asset impairment. 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. 65 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— Leases . 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. 66 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 uncollectible, 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 a decrease in our public stock price that caused our market capitalization to fall below its carrying amount (stockholders' equity) during July 2023 and was noted by management to be more than temporary as the quarter progressed, a quantitative analysis was required to be performed during the quarter ended September 30, 2023. We used a discounted cash flow analysis based on Level 3 inputs and determined that the goodwill carrying amount exceeded its fair value and, as such, an impairment charge of $32.9 million was incurred in the quarter ended September 30, 2023. Total accumulated impairment losses were $32.9 million as of December 31, 2023. As a result of the TAV technology intangible asset disposal in 2022, a quantitative analysis was required to be performed as of December 31, 2022 and concluded that there was no impairment. 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. Long-lived asset impairment Long-lived assets are reviewed for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows, which is at the individual asset level or the asset group level. The undiscounted cash flows expected to be generated by the related assets are estimated over their useful life based on updated projections. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related assets or asset group as determined by an appropriate market appraisal or other valuation technique. Assets classified as held for sale, if any, are recorded at the lower of carrying amount or fair value less costs to sell. 67 During the year ended December 31, 2023, we determined that an impairment indicator was present related to negative cash flows and a decrease in our public stock price that caused our market capitalization to fall below its carrying amount (stockholders' equity). The relevant long-lived asset grouping was evaluated for impairment. An undiscounted cash flow analysis demonstrated sufficient undiscounted cash flows in excess of the asset group’s carrying value. Estimates and significant assumptions included in the long-lived asset impairment analysis included identification of the asset group and undiscounted cash flow projections. We concluded that our definite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed. On December 19, 2022, we determined to dispose of the technology intangible assets previously acquired from New Aera related to the Tidal Assist ® Ventilator (TAV ® ) technology by ceasing development of such assets and abandoning the TAV program (the Disposal Determination). Prior to December 19, 2022, the TAV intangible asset was held and used, including ongoing research and development and no significant revenue. We made the Disposal Determination based on our assessment that continued development of the assets would not be economically feasible. The assessment considered many factors, including 1) the lack of compatibility and functionality of the technology intangible asset within our existing product portfolio, 2) the lack of commercial potential of such products that were not approved for ventilation Medicare reimbursement and a negative litigation outcome that occurred subsequent to the approved coding process, and 3) the substantial additional investment that would be required in order to attempt to achieve any commercial potential with substantial risk that no benefit would ever be achievable. There had been no significant revenue associated with the sale of products developed from the technology intangible asset acquired from New Aera to date and we do not expect any revenue from such products going forward. Upon abandonment, we recognized a loss on disposal of $52.2 million in our consolidated statements of comprehensive loss for the year ended December 31, 2022 related to intangible assets, inventories, fixed assets, and construction in process associated with the TAV technology. As a result of no future sales, the change in fair value of the earnout liability related to the acquisition of the TAV technology resulted in a benefit of $13.7 million to general and administrative expense during the fourth quarter of 2022. During the year ended December 31, 2021, we determined that an impairment indicator was present related to TAV developments as a result of the court order to dismiss our preliminary injunction related to the Department of Health and Human Services and the Centers for Medicare and Medicaid Services lawsuit. The relevant long-lived asset grouping was evaluated for impairment. An undiscounted cash flow analysis demonstrated sufficient undiscounted cash flows in excess of the asset group’s carrying value. Estimates and significant assumptions included in the long-lived asset impairment analysis included identification of the asset group and undiscounted cash flow projections. We concluded that our definite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed. Recent accounting pronouncements Refer to Note 2 – Summary of significant accounting policies in the notes to the consolidated financial statements included in Part IV, Item 16, "Form 10-K Summary" in this Annual Report on Form 10-K for further discussion. Macroeconomic environment The global economy is experiencing increased inflationary pressures. 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. We continued to see inflated costs related to the acquisition of semiconductor chips negatively impact our cost of sales revenue throughout 2023, and we expect this to continue to impact our cost of sales revenue into the first half of 2024 due to lower than expected sales versus the comparative period in 2023. We incurred significant costs associated with acquiring chips on the open market and a portion of these costs increased our 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. We also have experienced, along with most other companies across many industries, the macroeconomic 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 2024. These challenges may negatively affect our ability to grow our business and keep our best employees or 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 macroeconomic employment environment. 68 For additional information on risk factors that could impact our results, please refer to the sections entitled "Risk Factors" in this Annual Report on Form 10-K. Overview 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, 2023, we had thirty-three pending patent applications and eighty-seven 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 are sold internationally 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 and Rove 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, Rove 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, we intend to: • Optimize our domestic direct-to-consumer sales and prescriber sales teams and increase productivity. We have a continued focus on the prescriber sales force initiative, which markets directly to physicians, gaining the prescription at initiation and maximizing the number of months of billing for long-term oxygen treatment. 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 rental revenues. We are evolving our operating model to focus the enhanced prescriber and direct-to-consumer sales teams to drive increased rental revenue by establishing relationships with the prescriber through a consistent cadence of contact. • Expand our domestic HME provider and reseller network. We have continued focus on our domestic business-to-business partnerships, including relationships with distributors, key accounts, resellers, our private label partner, and 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. • 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. • Invest in our oxygen product offerings to develop innovative products and expand clinical evidence . We incurred $20.8 million, $21.9 million and $16.6 million in 2023, 2022 and 2021, respectively, in research and development expenses, and we intend to continue to make such investments in the foreseeable future. We launched the Inogen ® Rove 6 TM , our latest portable oxygen concentrator, in December 2022 in the EU and UK. We have also received U.S. Food and Drug Administration (FDA) 510(k) clearance for the Inogen ® Rove 4 TM that will be launched in 2024. The Inogen Rove 6 weighs 4.8 pounds and produces 1,260 ml per minute of oxygen output with very quiet operations at 37 dBA and long battery life at 6 hours and 15 minutes for a single battery and up to 12 hours and 45 minutes for a double battery, as well as improvements to provide ease-of-use and improvements to design in compliance to European Union medical device regulation (MDR) standards. The FDA clearance of Inogen Rove 6 was received June 30, 2023 and launched in the U.S. market in July 2023. 69 The Inogen Rove 6 is the first portable oxygen concentrator with an 8-year expected service life. The 8-year expected service life also extends to the Inogen One G5 ® portable oxygen concentrators. We launched the Inogen One G5 in 2019. The Inogen One G5 is similar to the product specifications of the Inogen Rove 6. We estimate that the Inogen Rove 6 and Inogen One G5 are each 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. Inogen Connect, our connectivity platform on our Inogen One G4 ® and Inogen One G5, and Inogen Rove 6 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 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 and indications for use. We are 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 concentrators with digital health value added services, expansion of use to hypercapnia, shortness-of-breath, and to other related disease indications. On September 14, 2023, we completed the acquisition of all of the issued and outstanding capital stock of Physio-Assist SAS (Physio-Assist) and its wholly-owned subsidiary PhysioAssist GmbH. Simeox, from Physio-Assist, is a technology-enabled airway clearance and mucus management device predominantly aimed at treating bronchiectasis which is a condition that presents as the lung’s bronchi are damaged and widened, in patients with cystic fibrosis or chronic obstructive pulmonary disease. Simeox is used in pulmonary rehabilitation centers as well as at home. Simeox has been cleared under CE mark in the EU and is currently being sold in Europe, Asia, and the Middle East. Inogen will leverage its commercial infrastructure and capabilities to continue marketing the device in these geographies while pursuing U.S. regulatory approvals. 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. 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, 2023, 2022 and 2021, approximately 28.3%, 26.8% and 22.2%, respectively, of our total revenue was from sales to customers outside the United States, primarily in Europe. Approximately 77.7%, 70.9% and 74.1% of the non-U.S. revenue for the years ended December 31, 2023, 2022 and 2021, respectively, were invoiced in Euros with the remainder invoiced in United States dollars. We have sold our products in a total of 62 international countries and overseas regions outside the United States through our wholly-owned subsidiaries, 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. 70 Cost reduction initiatives During 2023, we implemented certain operational efficiency and cost-savings initiatives intended to align our resources with our product strategy, reduce our operating expense, and manage our cash flows. These cost efficiency initiatives include targeted workforce reductions, centralizing manufacturing activities, and outsourcing certain back-office activities. The efficiency and cost-savings initiatives were designed to reduce cost of revenue and operating expense and enable us to efficiently align our resources in areas providing the greatest benefit. Sales revenue Our future financial performance will be driven in part by the growth in sales of our portable oxygen concentrators, Simeox airway clearance, 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, 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 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 processing and handling fee. Approximately 6-11% 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, mergers and acquisitions, and overall changes in the net oxygen therapy patient populations. As a result of these factors, product purchases can be subject to changes in demand by customers. We sold approximately 130,500 systems in 2023, 170,500 systems in 2022 and 175,800 systems in 2021. The decline in the current period was caused primarily by lower direct-to-consumer sales driven by fewer inside sales representatives as well as lower sales in the domestic and international business-to-business channels. We continue to focus on optimizing profitability in our direct-to-consumer channel, driving sales productivity with an efficiently scaled sales organization. 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. CMS adopted additional changes to the administrative requirements to dispense and bill for oxygen therapy which may have reduced the administrative burden and increased patient access to our products. Rental revenue increased in 2023 compared to 2022, primarily due to a greater number of patients on service and higher Medicare reimbursement rates. Medicare reimbursement rates for oxygen therapy have increased annually each January as they are subject to Consumer Price Index adjustments. 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. 71 A portion of rental patient population operates in 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 service before and during the capped rental period, and existing patients enter the capped rental period. We had approximately 51,900, 45,600 and 42,900 oxygen rental patients as of December 31, 2023, 2022 and 2021, 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 uncollectible 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. For the years ended December 31, 2023, 2022 and 2021, approximately 67.7%, 77.0% and 81.9%, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs. A discussion of third-party reimbursement is contained in Item 1, Third-party reimbursement in this Annual Report on Form 10-K. Seasonality 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. 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. Basis of presentation The following describes the line items set forth in our consolidated statements of comprehensive loss. Revenue 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 had a negative impact on our gross margin, and we expect that will continue through the first half of 2024. 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 Rove, Inogen One, and Inogen At Home systems in addition to our related accessories to individual consumers, our private label partner, HME providers, distributors, and resellers. 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. 72 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 2023, primarily due to higher patients on service and higher Medicare reimbursement rates. We expect that our rental revenue will be impacted by the number of our sales representatives, reimbursement rate 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. The impact of supply chain disruptions began negatively impacting our cost of sales revenue starting in the third quarter of 2021 and is expected to continue to do so through the first half of 2024. The supply chain constraints are primarily associated with semiconductor chips used in our batteries and printed circuit boards which are components of our POCs. 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 billable patients as a percentage of patients on service. 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 continue to invest in our engineering and technology teams to support our new and enhanced product research and development efforts and manufacturing improvements. We will also focus research and development efforts on 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. 73 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 by focusing on increased productivity driven by improved sales management discipline, insights-informed tools, and optimized patient lead generation as well as increasing our rental patient support infrastructure 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 one-time costs, such as restructuring, acquisition expenses, or changes in the fair value of the 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. Impairment charges Our long-lived assets, including intangible assets and goodwill are required to be tested for impairment if an event occurs or circumstances change that indicate that the fair value of the entity may be below its carrying amount (a triggering event). We consider relevant events and circumstances that affect its fair value or carrying amount. Other income (expense), net Our other income (expense), net consists primarily of foreign currency gains and (losses), sublease income, and interest income earned on cash equivalents and marketable securities. Income taxes 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. 74 Results of operations Comparison of years ended December 31, 2023 and 2022 Revenue Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Sales revenue $ 251,607 $ 320,549 $ (68,942 ) -21.5 % 79.7 % 85.0 % Rental revenue 64,053 56,692 7,361 13.0 % 20.3 % 15.0 % Total revenue $ 315,660 $ 377,241 $ (61,581 ) -16.3 % 100.0 % 100.0 % Sales revenue decreased $68.9 million for the year ended December 31, 2023 from the year ended December 31, 2022, a decrease of 21.5% from the comparable year. The decrease was primarily attributable to a decrease in domestic direct-to-consumer sales as well as lower domestic and international business-to-business sales. We sold approximately 130,500 oxygen systems during the year ended December 31, 2023 compared to approximately 170,500 oxygen systems sold during the year ended December 31, 2022, a decrease of 23.5%. Rental revenue increased $7.4 million for the year ended December 31, 2023 from the year ended December 31, 2022, or an increase of 13.0% from the comparable year. The increase in rental revenue was primarily related to higher rental patients on service and higher Medicare reimbursement rates, partially offset by increased rental revenue adjustments. (amounts in thousands) Years ended December 31, Change 2023 vs. 2022 % of Revenue Revenue by region and category 2023 2022 $ % 2023 2022 Business-to-business domestic sales $ 66,196 $ 86,049 $ (19,853 ) -23.1 % 21.0 % 22.8 % Business-to-business international sales 89,401 101,163 (11,762 ) -11.6 % 28.3 % 26.8 % Direct-to-consumer domestic sales 96,010 133,337 (37,327 ) -28.0 % 30.4 % 35.4 % Direct-to-consumer domestic rentals 64,053 56,692 7,361 13.0 % 20.3 % 15.0 % Total revenue $ 315,660 $ 377,241 $ (61,581 ) -16.3 % 100.0 % 100.0 % Domestic business-to-business sales decreased 23.1% for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to our key customers facing challenges related to capital deployment and cost of borrowing as well as competitive pricing activities. International business-to-business sales decreased 11.6% for the year ended December 31, 2023 compared to the year ended December 31, 2022, mostly driven by intentional focus in the comparative period in 2022 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, 2023, sales in Europe as a percentage of total international sales revenue decreased to 85.3% versus 86.9% in the comparative period in 2022. Domestic direct-to-consumer sales decreased 28.0% for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by lower volume due to lower sales representative headcount and lower marketing spend, partially offset by increased average selling prices versus the comparative period in the prior year. Domestic direct-to-consumer rentals increased 13.0% for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase in rental patients on service and increased Medicare reimbursement rates due to the inflation adjustment effective January 1, 2023, partially offset by increased rental revenue adjustments. 75 Cost of revenue and gross profit Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Cost of sales revenue $ 158,636 $ 197,805 $ (39,169 ) -19.8 % 50.3 % 52.5 % Cost of rental revenue 30,325 25,903 4,422 17.1 % 9.6 % 6.8 % Total cost of revenue $ 188,961 $ 223,708 $ (34,747 ) -15.5 % 59.9 % 59.3 % Gross profit - sales revenue $ 92,971 $ 122,744 $ (29,773 ) -24.3 % 29.4 % 32.5 % Gross profit - rental revenue 33,728 30,789 2,939 9.5 % 10.7 % 8.2 % Total gross profit $ 126,699 $ 153,533 $ (26,834 ) -17.5 % 40.1 % 40.7 % Gross margin percentage - sales revenue 37.0 % 38.3 % Gross margin percentage - rental revenue 52.7 % 54.3 % Total gross margin percentage 40.1 % 40.7 % Cost of sales revenue decreased $39.2 million for the year ended December 31, 2023 from the year ended December 31, 2022, a decrease of 19.8% from the comparable year, due primarily to lower sales volumes, lower premiums paid for components and lower labor and overhead costs. The year ended December 31, 2023 included $14.2 million of material cost premiums associated with open-market purchases of semiconductor chips used in our batteries and POCs compared to $23.8 million in the year ended December 31, 2022. Cost of rental revenue increased $4.4 million for the year ended December 31, 2023 from the year ended December 31, 2022, an increase of 17.1% 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 and service costs. Cost of rental revenue included $12.9 million of rental asset depreciation for the year ended December 31, 2023 compared to $11.1 million for the year ended December 31, 2022. Gross margin on sales revenue decreased to 37.0% for the year ended December 31, 2023 from 38.3% for the year ended December 31, 2022. The decrease was primarily due to a shift in channel mix, with a higher percentage of units sold through the business-to-business channels versus the direct-to-consumer channel. The decrease was partially offset by lower premiums paid for components and labor and overhead costs. Total worldwide business-to-business sales revenue accounted for 61.8% of total sales revenue in the year ended December 31, 2023 versus 58.4% in the year ended December 31, 2022. Gross margin on rental revenue decreased to 52.7% for the year ended December 31, 2023 from 54.3% for the year ended December 31, 2022, primarily due to higher rental asset depreciation expense and servicing costs per patient on service, partially offset by higher Medicare reimbursement rates. Research and development expense Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Research and development expense $ 20,840 $ 21,943 $ (1,103 ) -5.0 % 6.6 % 5.8 % Research and development expense decreased $1.1 million for the year ended December 31, 2023 from the year ended December 31, 2022, representing a decrease of 5.0% from the comparable period. This was due primarily to a $6.8 million decrease in amortization costs of intangible assets, partially offset by an increase of $3.5 million in product development expenses and $1.4 million of personnel-related expenses. 76 Sales and marketing expense Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Sales and marketing expense $ 107,091 $ 120,767 $ (13,676 ) -11.3 % 33.9 % 32.0 % Sales and marketing expense decreased $13.7 million for the year ended December 31, 2023 from the year ended December 31, 2022, a decrease of 11.3% from the comparable period. This was primarily due to decreases of $9.5 million in personnel-related expenses, $6.1 million in media and advertising costs, and $2.1 million in credit card and financing fees, partially offset by an increase of $3.4 million in consulting fees. In the year ended December 31, 2023, we spent $27.1 million in media and advertising costs versus $33.3 million in the comparative period in 2022. General and administrative expense Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 General and administrative expense $ 75,260 $ 43,905 $ 31,355 71.4 % 23.8 % 11.6 % General and administrative expense increased $31.4 million for the year ended December 31, 2023 from the year ended December 31, 2022, an increase of 71.4% from the comparable period. The increase was primarily attributable to increases of $22.2 million related to the change in fair value of the earnout liabilities, $3.4 million in restructuring and severance costs, $3.4 million for CEO transition costs, $2.9 million of consulting fees, $2.2 million in bad debt expense, $1.7 million in acquisition-related expenses incurred as part of business development activities, and $1.1 million in dues, fees and licenses. This was partially offset by a decrease of $4.1 million in personnel-related expenses. In the year ended December 31, 2023, we had an expense of $6.8 million from the change in fair value of the earnout liability versus a benefit of $15.4 million in the comparative period in 2022. Loss on disposal of intangible asset Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Loss on disposal of intangible asset $ — $ 52,161 $ (52,161 ) -100.0 % 0.0 % 13.8 % Loss on disposal of intangible asset decreased $52.2 million for the year ended December 31, 2023 from the year ended December 31, 2022, a decrease 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. Impairment charges Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Goodwill impairment $ 32,894 $ — $ 32,894 100.0 % 10.4 % 0.0 % Impairment charges for the year ended December 31, 2023 resulted from a drop in our public stock price and resulted in impairment charges to goodwill. 77 Other income (expense) Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Interest income $ 6,574 $ 2,837 $ 3,737 131.7 % 2.1 % 0.7 % Other income (expense) 468 (862 ) 1,330 154.3 % 0.1 % -0.2 % Total other income, net $ 7,042 $ 1,975 $ 5,067 256.6 % 2.2 % 0.5 % Total other income, net increased $5.1 million for the year ended December 31, 2023 from the year ended December 31, 2022, an increase of 256.6% from the comparable period. The increase was primarily attributable to an increase of $3.7 million in interest income due to the higher interest rate environment and an increase of $1.0 million in net foreign currency impact. Income tax expense Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Income tax expense $ 105 $ 504 $ (399 ) -79.2 % 0.0 % 0.1 % Effective income tax rate -0.1% -0.6% Income tax expense decreased $0.4 million for the year ended December 31, 2023 from the year ended December 31, 2022. We continued to record a valuation allowance on the use of deferred tax assets in the current and prior periods. Income taxes in the current and prior period were attributable to foreign taxes and minimum state taxes. Our effective tax rate for the year ended December 31, 2023 increased compared to the year ended December 31, 2022, primarily due to lower foreign taxes and minimum state taxes. Net loss Years ended December 31, Change 2023 vs. 2022 % of Revenue (amounts in thousands) 2023 2022 $ % 2023 2022 Net loss $ (102,449 ) $ (83,772 ) $ (18,677 ) -22.3 % -32.5 % -22.2 % Net loss increased $18.7 million for the year ended December 31, 2023 from the year ended December 31, 2022, or an increase of 22.3% from the comparable period. The increase in net loss was primarily related to the goodwill impairment, a reduction in sales revenue and gross profit, and the change in fair value of the earnout liabilities, partially offset by the $52.2 million loss on disposal of an intangible asset in 2022. Comparison of years ended December 31, 2022 and 2021 A discussion of changes in our results of operations during the year ended December 31, 2022 compared to the year ended December 31, 2021 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, 2022, filed with the SEC on February 24, 2023, 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, 2023, we had cash and cash equivalents of $125.5 million, which consisted of highly liquid investments with a maturity of three months or less. In addition, we held marketable securities of $3.0 million, which had maturities of greater than three months. For the years ended December 31, 2023, 2022 and 2021, we received $1.5 million and $1.7 million and $15.6 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, 2023 consisted of operating activities of $3.2 million as well as cash used in investing activities of $29.6 million for the Physio-Assist acquisition, net of cash acquired, capital expenditures of $27.0 million for additional rental equipment, other property, plant and equipment, intangible assets, and $2.9 million for net purchases of marketable securities. 78 We believe that our current cash, cash equivalents and marketable securities 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 and integration thereof; 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 2023 2022 2021 Cash provided by (used in) operating activities $ (3,234 ) $ (37,532 ) $ 23,633 Cash used in investing activities (59,315 ) (10,877 ) (14,645 ) Cash provided by financing activities 960 380 15,000 Effect of exchange rates on cash 67 (481 ) (426 ) Net increase (decrease) in cash and cash equivalents $ (61,522 ) $ (48,510 ) $ 23,562 (amounts in thousands) December 31, Summary of working capital 2023 2022 Total current assets $ 207,067 $ 304,645 Total current liabilities 72,496 65,349 Net working capital $ 134,571 $ 239,296 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, 2023 consisted primarily of our net loss of $102.4 million, partially offset by non-cash adjustment items such as impairment charges of $32.9 million, depreciation of equipment and leasehold improvements and amortization of intangibles of $18.2 million, provision for sales returns and doubtful accounts of $10.7 million, stock-based compensation expense of $7.4 million, change in fair value of earnout liability of $6.8 million, net loss on disposal of rental assets and other assets of $4.5 million, provision for inventory obsolescence and other inventory losses of $2.7 million, and loss on purchase commitments of $2.1 million. The net changes in operating assets and liabilities resulted in net cash provided of $14.3 million. 79 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. 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, 2023, we invested $29.6 million in the Physio-Assist acquisition, net of cash acquired, $26.9 million in purchase of marketable securities, $26.5 million in the production and purchase of rental assets and other property and equipment, and $0.5 million in intangible assets, partially offset by $24.0 million we received in maturities 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. 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, 2023, net cash provided by financing activities consisted of $1.5 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 $0.5 million. 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. Sources of funds Our net cash used in operating activities in the year ended December 31, 2023 was $3.2 million compared to net cash used in operating activities of $37.5 million in the year ended December 31, 2022. As of December 31, 2023, we had cash and cash equivalents of $125.5 million and marketable securities of $3.0 million. 80 Use of funds 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. GAAP. We define EBITDA as net 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, acquisition-related expenses, and restructuring-related and other charges. 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. GAAP. 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. GAAP. 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, the impact of acquisition-related expenses, the impact of restructuring-related costs, and impairment charges. 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. GAAP. 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; • Adjusted EBITDA does not include acquisition-related expenses, whether the acquisition was consummated or not pursued; • Adjusted EBITDA does not include charges represent the costs associated with workforce reductions and associated costs and other restructuring-related activities; • goodwill impairment; and • other companies, including companies in our industry, may calculate EBITDA and Adjusted EBITDA measures differently, which reduces their usefulness as a comparative measure. 81 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 2023 2022 2021 Net loss (GAAP) $ (102,449 ) $ (83,772 ) $ (6,333 ) Non-GAAP adjustments: Interest income, net (6,574 ) (2,837 ) (129 ) Provision for income taxes 105 504 14,992 Depreciation and amortization 18,152 23,514 21,628 EBITDA (non-GAAP) (90,766 ) (62,591 ) 30,158 Stock-based compensation 7,427 12,283 10,943 Acquisition-related expenses 2,413 — — Restructuring-related and other charges 3,426 — — Impairment charges 32,894 — — Change in fair value of earnout liability 6,822 (15,386 ) (11,596 ) Loss on disposal of intangible asset — 52,161 — Adjusted EBITDA (non-GAAP) $ (37,784 ) $ (13,533 ) $ 29,505 82 Contractual obligations The following table reflects a summary of our contractual obligations as of December 31, 2023. Payments due by period (amounts in thousands) Less than 1-3 3-5 More than Contractual Obligations Total 1 year years years 5 years Operating leases - properties and other (1) $ 23,812 $ 4,162 $ 6,561 $ 6,266 $ 6,823 Purchase obligations (2) 83,000 83,000 — — — Total $ 106,812 $ 87,162 $ 6,561 $ 6,266 $ 6,823 (1) We lease manufacturing and office space in Plano, TX, Goleta, CA, Smyrna, TN, Huntsville, AL, Aurora, CO, Cleveland, OH, De Meern, Netherlands and Montpellier, France with terms that expire between 2024 and 2031 and miscellaneous office and processing equipment in Texas, California and Ohio with terms expiring between 2024 and 2028. Included in these amounts are the lease payments assumed by a third party (Assignee) based on an Assignment and Assumption of Lease Agreement (Agreement) in which the Assignee assumed the rights, title, and interest in the lease. Commencing February 1, 2024 and ending May 31, 2031, the Assignee assumes responsibility for the monthly lease payments, and we remain the primary obligor under the lease to the landlord. (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 and Physio-Assist, we have contingent obligations to pay up to $31.4 million and $13.0 million, respectively, in earnout payments in cash if certain future financial results are met. 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.