Item 5. Market for Registrant’s Common Equity
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, 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, 2019 to December 31, 2024. This graph assumes an investment of $100 on December 31, 2019 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
59
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
12/31/24
Inogen, Inc.
$
100.00
$
65.39
$
49.76
$
28.85
$
8.03
$
13.42
S&P Healthcare Equipment & Supplies (1)
100.00
132.91
136.96
104.99
98.45
103.45
Russell 2000 (2)
100.00
119.96
137.74
109.59
128.14
142.93
Nasdaq Composite (3)
$
100.00
$
143.64
$
174.36
$
116.65
$
167.30
$
215.22
(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 21, 2025, there were 8 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]
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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, or 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
• 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; and
• 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.
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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, or 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, or 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.
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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 and 2024. As a result of the Tidal Assist ® Ventilator 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.
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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 15 in this Annual Report on Form 10-K for further discussion.
Macroeconomic environment
While we have worked to improve our global supply chain, challenges and potential disruptions still exist. We have experienced, and may continue to experience, increases in cost and limited availability of certain raw materials, components, and other inputs necessary to manufacture and distribute our products due to constraints and inflation within the global supply chain, as well as increases in wage costs and the cost and time to distribute our products. Uncertainty around inflationary pressures, interest rates, monetary policy, and changes in tariffs and tax laws could potentially cause new, or exacerbate existing, economic challenges that we may face, including the impact of foreign currency fluctuations on our results of operations, or result in an economic downturn or recession, which could negatively impact our business operations and results. Existing and future potential geopolitical dynamics may create economic, supply chain, energy, and other challenges, including disruptions to business operations, which has impacted, and may in the future negatively impact our business. In particular, international conflicts could create instability, have and may further result in sanctions, tariffs, and other measures that restrict international trade and may negatively affect our business operations and results.
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 respiratory market products, including our portable oxygen therapy solutions for patients with chronic respiratory conditions as well as our Simeox product for airway clearance treatment. Our leading portfolio of innovative POCs is designed to deliver high output ratio-to-weight, meaningful sound suppression and has among the longest run times in the industry so that we can meet the needs of patients across a variety of disease states. 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 in the United States through direct patient and prescriber sales, as well as resellers and home medical equipment companies, and internationally through distributors and medical equipment companies.
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 collaborator. 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:
• Expand our domestic HME provider and reseller network. We remain focused on our domestic business-to-business partnerships, including relationships with distributors, key accounts, resellers, our private label collaborator, 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. The U.S. market represents a main opportunity for growth as we believe that the POC adoption is still in a low penetration rate.
• Increase international business-to-business adoption. We continue to 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 key customers in those markets. We additionally have an Inogen base of operations for sales and customer service in the Netherlands along with sales representatives based in focus European countries, and use a contract manufacturer, Foxconn, located in the Czech Republic to support the majority of our European sales volumes. We are also focused on expanding in the Asia-Pacific region and Latin America where we have added sales representatives to set up new distributors in promising markets.
64
• Improve our domestic direct-to-consumer sales and prescriber sales teams and increase productivity. We are continuing to focus on the patient first initiative, which involves cross-training of sales representatives to execute cash sales and insurance rental. Additionally, we expect to continue to focus on increased productivity driven by improved sales management discipline, insights-informed tools, and optimized patient lead generation with a downsized direct-to-consumer sales team.
• Optimize our rental revenues. We continue to evolve our operating model to focus the enhanced sales teams to drive increased rental revenue by establishing relationships with the prescriber through a consistent cadence of contact. We continue to evaluate our hospital pilot program, which targets hospitals and practitioners to access patients earlier in their care pathway.
• Invest in our product offerings to develop innovative products and expand clinical evidence . We incurred $21.6 million, $20.8 million and $21.9 million in 2024, 2023 and 2022, respectively, in research and development expenses, and we intend to continue to make similar investments in the foreseeable future.
We launched the Inogen ® Rove 4 , our latest portable oxygen concentrator, in the U.S. and EU markets in October 2024, as well as in the UK in December 2024. The Inogen Rove 4 weighs 2.9 pounds and produces 840 ml per minute of oxygen output with quiet operations at 39 dBA and long battery life at 3 hours for a single battery, 4 hours and 15 minutes on our new intermediate battery, and up to 5 hours and 45 minutes for a double battery, as well as improvements to provide ease-of-use and improvements to design in compliance with MDR standards. The Inogen Rove 4 is our first POC to launch with three battery options.
The Inogen Rove 4 has an 8-year expected service life. The 8-year expected service life also extends to the Inogen One G5 ® and Inogen ® Rove 6 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 is available on our Inogen Rove 4, Inogen One G4 ® , 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 continue to 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.
Our Simeox product is a technology-enabled airway clearance and mucus management device predominantly aimed at serving patients with bronchiectasis which is a condition that presents as the lung’s bronchi are damaged and widened in patients with cystic fibrosis or COPD. 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 and several other markets. In addition, we obtained 510(k) clearance for Simeox in December 2024 and plan to leverage our commercial infrastructure and capabilities to market the device in the United States, while continuing to market it in the other geographies. We intend to commercialize Simeox through the purchase of the product initially, followed by recurring sales of device disposables. We will begin efforts to obtain reimbursement coverage in the first quarter of 2025 for the Simeox product in the U.S.
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Results of operations
Comparison of years ended December 31, 2024 and 2023
Revenue
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Sales revenue
$
278,756
$
251,607
$
27,149
10.8
%
83.0
%
79.7
%
Rental revenue
56,949
64,053
(7,104
)
-11.1
%
17.0
%
20.3
%
Total revenue
$
335,705
$
315,660
$
20,045
6.4
%
100.0
%
100.0
%
Sales revenue increased $27.1 million for the year ended December 31, 2024 from the year ended December 31, 2023, an increase of 10.8% from the prior year. The increase was primarily attributable to higher international and domestic business-to-business sales. We sold approximately 157,500 oxygen systems during the year ended December 31, 2024 compared to approximately 130,500 oxygen systems sold during the year ended December 31, 2023, an increase of 20.7%.
Rental revenue decreased $7.1 million for the year ended December 31, 2024 from the year ended December 31, 2023, or a decrease of 11.1% from the prior year. The decrease in rental revenue was primarily related to a higher mix of lower private-payor reimbursement rates.
Years ended
(dollar amounts in thousands)
December 31,
Change 2024 vs. 2023
% of Revenue
Revenue by region and category
2024
2023
$
%
2024
2023
Business-to-business domestic sales
$
83,555
$
66,196
$
17,359
26.2
%
24.9
%
21.0
%
Business-to-business international sales
117,207
89,401
27,806
31.1
%
34.9
%
28.3
%
Direct-to-consumer domestic sales
77,994
96,010
(18,016
)
-18.8
%
23.2
%
30.4
%
Direct-to-consumer domestic rentals
56,949
64,053
(7,104
)
-11.1
%
17.0
%
20.3
%
Total revenue
$
335,705
$
315,660
$
20,045
6.4
%
100.0
%
100.0
%
Domestic business-to-business sales increased 26.2% for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to the result of increased demand from new customers and resellers.
International business-to-business sales increased 31.1% for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to an increase in demand from our partners in Europe and new customers. In the year ended December 31, 2024, sales in Europe as a percentage of total international sales revenue slightly decreased to 85.0% versus 85.3% in 2023.
Domestic direct-to-consumer sales decreased 18.8% for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by lower volume due to lower sales representative headcount, partially offset by increased average selling prices versus the prior year.
Domestic direct-to-consumer rentals decreased 11.1% for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily related to a higher mix of lower private-payor reimbursement rates.
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Cost of revenue and gross profit
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Cost of sales revenue
$
148,655
$
158,636
$
(9,981
)
-6.3
%
44.3
%
50.3
%
Cost of rental revenue
32,309
30,325
1,984
6.5
%
9.6
%
9.6
%
Total cost of revenue
$
180,964
$
188,961
$
(7,997
)
-4.2
%
53.9
%
59.9
%
Gross profit - sales revenue
$
130,101
$
92,971
$
37,130
39.9
%
38.8
%
29.4
%
Gross profit - rental revenue
24,640
33,728
(9,088
)
-26.9
%
7.3
%
10.7
%
Total gross profit
$
154,741
$
126,699
$
28,042
22.1
%
46.1
%
40.1
%
Gross margin percentage - sales revenue
46.7
%
37.0
%
Gross margin percentage - rental revenue
43.3
%
52.7
%
Total gross margin percentage
46.1
%
40.1
%
Cost of sales revenue decreased $10.0 million for the year ended December 31, 2024 from the year ended December 31, 2023, a decrease of 6.3%, due primarily to lower premiums paid for raw material components, partially offset by an increase in the numbers of systems sold. The year ended December 31, 2024 included $0.2 million of material cost premiums associated with open-market purchases of semiconductor chips used in our batteries and POCs compared to $14.2 million in the year ended December 31, 2023.
Cost of rental revenue increased $2.0 million for the year ended December 31, 2024 from the year ended December 31, 2023, an increase of 6.5%. The increase in cost of rental revenue was primarily attributable to an increase in service costs. Cost of rental revenue included $12.6 million of rental asset depreciation for the year ended December 31, 2024 compared to $12.9 million for the year ended December 31, 2023.
Gross margin on sales revenue increased to 46.7% for the year ended December 31, 2024 from 37.0% for the year ended December 31, 2023. The increase was primarily due to lower material cost premiums associated with open-market purchases of semiconductor chips used in our POCs and operational efficiencies, partially offset by a change in sales mix towards increased business-to-business sales. Total worldwide business-to-business sales revenue accounted for 72.0% of total sales revenue in the year ended December 31, 2024 versus 61.8% in the year ended December 31, 2023.
Gross margin on rental revenue decreased to 43.3% for the year ended December 31, 2024 from 52.7% for the year ended December 31, 2023, primarily due to a higher mix shift of private-payor reimbursement, lower net revenue per rental patient as a result of a decrease in the percentage of patients billed compared to total patients on service, and higher service costs.
Research and development expense
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Research and development expense
$
21,610
$
20,840
$
770
3.7
%
6.4
%
6.6
%
Research and development expense increased $0.8 million for the year ended December 31, 2024 from the year ended December 31, 2023, representing an increase of 3.7%. This was due primarily to a $2.3 million increase in amortization costs of intangible assets related to the Physio-Assist acquisition, partially offset by a $1.6 million decrease in product development costs.
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Sales and marketing expense
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Sales and marketing expense
$
103,069
$
107,091
$
(4,022
)
-3.8
%
30.7
%
33.9
%
Sales and marketing expense decreased $4.0 million for the year ended December 31, 2024 from the year ended December 31, 2023, a decrease of 3.8%. This was primarily due to decreases of $8.5 million in consulting fees, $1.9 million in dues, fees and licenses, and $1.6 million in credit card and financing fees, partially offset by an increase of $5.1 million in media and advertising costs, $1.5 million in personnel-related expenses, and $0.9 million in travel costs. In the year ended December 31, 2024, we spent $32.2 million in media and advertising costs versus $27.1 million in 2023.
General and administrative expense
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
General and administrative expense
$
72,578
$
75,260
$
(2,682
)
-3.6
%
21.6
%
23.8
%
General and administrative expense decreased $2.7 million for the year ended December 31, 2024, from the year ended December 31, 2023, a decrease of 3.6%, primarily due to decreases of $3.8 million in the change in fair value of the earnout liability, $3.4 million in restructuring-related costs, $2.5 million in chief executive officer transition costs and $1.6 million in acquisition-related expenses. These decreases were partially offset by increases of $6.9 million in personnel-related expenses and $1.1 million in dues, fees and licenses.
Impairment charges
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Goodwill impairment
$
—
$
32,894
$
(32,894
)
-100.0
%
0.0
%
10.4
%
There were no impairment charges for the year ended December 31, 2024. Impairment charges for the year ended December 31, 2023 resulted from a drop in our public stock price, which resulted in impairment charges to goodwill.
Other income, net
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Interest income, net
$
5,190
$
6,574
$
(1,384
)
-21.1
%
1.5
%
2.1
%
Other income, net
850
468
382
81.6
%
0.3
%
0.1
%
Total other income, net
$
6,040
$
7,042
$
(1,002
)
-14.2
%
1.8
%
2.2
%
Total other income, net decreased $1.0 million for the year ended December 31, 2024 from the year ended December 31, 2023, a decrease of 14.2%. The decrease was primarily attributable to a decrease of $1.4 million in interest income due to the lower interest rate environment.
68
Income tax expense (benefit)
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Income tax expense (benefit)
$
(588
)
$
105
$
(693
)
-660.0
%
-0.2
%
0.0
%
Effective income tax rate
1.6
%
-0.1
%
Income tax expense (benefit) decreased $0.7 million for the year ended December 31, 2024 from the year ended December 31, 2023. We continued to record a valuation allowance on the use of deferred tax assets in the current and prior periods. The decrease was attributable to foreign taxes.
Our effective tax rate for the year ended December 31, 2024 increased compared to the year ended December 31, 2023, primarily due to foreign taxes.
Net loss
Years ended December 31,
Change 2024 vs. 2023
% of Revenue
(dollar amounts in thousands)
2024
2023
$
%
2024
2023
Net loss
$
(35,888
)
$
(102,449
)
$
66,561
65.0
%
-10.7
%
-32.5
%
Net loss decreased $66.6 million for the year ended December 31, 2024 from the year ended December 31, 2023, or a decrease of 65.0%. The decrease in net loss was primarily related to lower goodwill impairment, material cost reductions and higher sales revenue.
Comparison of years ended December 31, 2023 and 2022
A discussion of changes in our results of operations during the year ended December 31, 2023 compared to the year ended December 31, 2022 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, 2023, filed with the SEC on March 1, 2024, 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, 2024, we had cash and cash equivalents of $113.8 million, which consisted of highly liquid investments with a maturity of three months or less. For the years ended December 31, 2024, 2023 and 2022, we received $0.8 million, $1.5 million and $1.7 million, respectively, in proceeds related to stock option exercises and our employee stock purchase plan.
As of December 31, 2024, we had a financing receivable of $6.5 million, which consisted of $1.8 million in current assets and $4.7 million in noncurrent assets. Our credit terms are predominately short term in nature; however, in certain circumstances, we offer extended payment terms to customers who have not met the payment terms of their original contract.
Our principal use of our funds for liquidity and capital resources in the year ended December 31, 2024 consisted of cash used in investing activities of $17.1 million for additional rental equipment, other property, plant and equipment and intangible assets, partially offset by cash provided by operating activities of $5.9 million and $2.8 million for net maturities of marketable securities.
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 12 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.”
69
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
2024
2023
2022
Cash provided by (used in) operating activities
$
5,914
$
(3,234
)
$
(37,532
)
Cash used in investing activities
(13,975
)
(59,315
)
(10,877
)
Cash provided by financing activities
265
960
380
Effect of exchange rates on cash
(281
)
67
(481
)
Net decrease in cash and cash equivalents
$
(8,077
)
$
(61,522
)
$
(48,510
)
(amounts in thousands)
December 31,
Summary of working capital
2024
2023
Total current assets
$
185,451
$
207,067
Total current liabilities
76,686
72,496
Net working capital
$
108,765
$
134,571
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 provided by operating activities for the year ended December 31, 2024 consisted primarily of non-cash adjustment items such as depreciation of equipment and leasehold improvements and amortization of intangibles of $21.0 million, provision for sales returns and doubtful accounts of $10.9 million, stock-based compensation expense of $7.4 million, net loss on disposal of rental assets and other assets of $4.5 million, and change in fair value of earnout liability of $3.0 million. These adjustment items were partially offset by our net loss of $35.9 million, and an increase in deferred tax assets of $1.2 million. The net changes in operating assets and liabilities resulted in a net use of cash of $4.4 million.
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.
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.
Investing activities
Net cash used in investing activities generally includes the production and purchase of rental assets, property, plant and equipment, acquisitions, and intangibles to support our expanding business as well as maturities (purchases) of marketable securities.
70
For the year ended December 31, 2024, we invested $32.7 million in the purchase of marketable securities, $15.0 million in the production and purchase of rental assets and other property and equipment, and $2.1 million in intangible assets, partially offset by $35.5 million we received from maturities 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.
We expend significant manufacturing and production expense in connection with the development and production of our oxygen concentrator and other respiratory care 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, 2024, net cash provided by financing activities consisted of $0.8 million from the proceeds received from purchases under our employee stock purchase program, partially offset by the payment of employment taxes related to the vesting of restricted stock units of $0.5 million.
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.
Sources of funds
Our net cash provided by operating activities in the year ended December 31, 2024 was $5.9 million compared to net cash used in operating activities of $3.2 million in the year ended December 31, 2023. As of December 31, 2024, we had cash and cash equivalents of $113.8 million.
On January 25, 2025, we entered into a securities purchase agreement with Yuwell (Hong Kong) Holdings Limited, an affiliate of Jiangsu Yuyue Medical Equipment & Supply Co., Ltd. Pursuant to the securities purchase agreement, Yuwell (Hong Kong) Holdings Limited has agreed to purchase 2,626,425 shares of the Company's common stock at a price per share of $10.36, for an aggregate purchase price of approximately $27.2 million. The transaction closed on February 21, 2025.
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.
71
Contractual obligations
The following table reflects a summary of our contractual obligations as of December 31, 2024.
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)
$
21,126
$
3,336
$
7,255
$
6,271
$
4,264
Purchase obligations (2)
58,400
58,400
—
—
—
Total
$
79,526
$
61,736
$
7,255
$
6,271
$
4,264
(1) We lease manufacturing and office space in Plano, TX, Goleta, CA, Smyrna, TN, Huntsville, AL, Aurora, CO, Beverly, MA, De Meern, Netherlands and Montpellier, France with terms that expire between 2025 and 2031 and miscellaneous office and processing equipment in Texas and California with terms expiring between 2025 and 2028. Included in these amounts are the lease payments assumed by a third party, referred to as the Assignee, based on an Assignment and Assumption of Lease 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 assumed 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.
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.
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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 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.
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
2024
2023
2022
Net loss (GAAP)
$
(35,888
)
$
(102,449
)
$
(83,772
)
Non-GAAP adjustments:
Interest income, net
(5,190
)
(6,574
)
(2,837
)
Provision (benefit) for income taxes
(588
)
105
504
Depreciation and amortization
21,004
18,152
23,514
EBITDA (non-GAAP)
(20,662
)
(90,766
)
(62,591
)
Stock-based compensation
7,397
7,427
12,283
Acquisition-related expenses
784
2,413
—
Restructuring-related and other charges
—
3,426
—
Impairment charges
—
32,894
—
Change in fair value of earnout liability
3,000
6,822
(15,386
)
Loss on disposal of intangible asset
—
—
52,161
Adjusted EBITDA (non-GAAP)
$
(9,481
)
$
(37,784
)
$
(13,533
)
73