What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-04 · 212 added, 182 removed, 580 unchanged (40% of the section changed)

55 unchanged sentences

We own trademark applications for the Inogen design in Bolivia and China.

We own a trademark application for the mark “إنوجن” in Saudi Arabia.

We own a trademark registration for the mark “إنوجن” in Saudi Arabia.

Other service marks, trademarks, and trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.

9 unchanged sentences

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

There have been no material changes in our critical accounting policies and estimates in the preparation of our consolidated financial statements during the three and six months ended June 30 , 2020 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 25, 2020.

There have been no material changes in our critical accounting policies and estimates in the preparation of our consolidated financial statements during the three and nine mo nths ended September 3 0 , 20 20 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 201 9 , as filed with the SEC on February 2 5 , 20 20 .

The novel coronavirus outbreak of COVID-19 has had and likely will continue to have significant adverse effects on businesses and healthcare institutions around the world.

3 unchanged sentences

We also believe stationary oxygen concentrators, and, secondarily, portable oxygen concentrators (POCs) could provide relief to global hospital systems by allowing appropriate patients to be treated in the home, such as patients early in the disease progression or those in recovery post hospital discharge, thus making room for more severe patients who need treatment in the hospital.

However, the COVID-19 PHE adversely impacted our consolidated operating results in the three months ended June 30, 2020.

We experienced lower direct-to-consumer sales starting toward the end of the first quarter of 2020 and continuing throughout the second quarter of 2020.

However, the COVID-19 PHE adversely impacted our consolidated operating results in the second and third quarters of 2020.

We experienced lower direct-to-consumer sales starting toward the end of the first quarter of 2020 and through the third quarter of 2020.

We believe the social distancing, self-quarantine and related mandates and behaviors emanating from the COVID-19 PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence reduced direct-to-consumer sales.

While there was an initial surge in demand for oxygen concentrators by our home medical equipment (HME) providers early in the COVID-19 PHE, business-to-business demand declined in the second quarter of 2020 due to physician offices limiting patient interactions for chronic obstructive pulmonary disease (COPD) patient referrals, lower retail sales, HME providers minimizing patient interactions in response to the COVID-19 PHE, which includes replacing existing oxygen patient setups with POCs, and HME providers turning their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

Also, sales in Europe declined associated with the temporary closure of certain respiratory assessment centers and continued tender delays in certain markets due to the COVID-19 pandemic.

While there was an initial surge in demand for oxygen concentrators by our home medical equipment (HME) providers early in the COVID-19 PHE, business-to-business demand declined in the second and third quarters of 2020 due to lower retail sales, lower patient travel, physician offices limiting patient interactions for chronic obstructive pulmonary disease (COPD) patient referrals, HME providers minimizing patient interactions in response to the COVID-19 PHE, which includes replacing existing oxygen patient setups with POCs, and HME providers turning their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

Also, sales in Europe declined associated with the temporary closure and reduced operating capacity of certain respiratory assessment centers and continued tender delays in certain markets due to the COVID-19 pandemic.

The COVID-19 PHE has also and could continue to lead to volatility in consumer access to our products due to government actions impacting our ability to produce and ship products or impacting consumers’ movements and access to our products.

8 unchanged sentences

We have also worked closely with local and national officials to keep our manufacturing facilities open due to the essential nature of our products.

For the six months ended June 30, 2020, we were able to broadly maintain our operations.

During the nine months ended September 30, 2020, we were able to broadly maintain our operations.

We intend to continue to work with government authorities and implement our employee safety measures to help ensure that we are able to continue manufacturing and shipping our products during the COVID-19 PHE.

20 unchanged sentences

In the second half of 2019, we restarted our sales capacity expansion efforts with a more measured approach, selectively hiring new sales representatives across all three of our facilities.

Going forward, except as otherwise limited by the impact of the COVID-19 PHE, our long-term plan is to continue to hire to expand sales capacity while focusing on increased productivity, improved sales personnel and lead distribution systems, improved training, and more emphasis on the availability of the Inogen One G5 ® , which has higher patient preference.

We also plan to expand our physician referral team to drive increased physician referrals for rental patients and direct-to-consumer sales.

1 unchanged sentence

However, our sales expansion and productivity improvements planned in 2020 have been negatively impacted due to the COVID-19 PHE.

As a result of the COVID-19 PHE, we slowed down sales representative additions in the second quarter of 2020 and plan to primarily focus on replacement of attrition for the remainder of 2020.

As a result of the COVID-19 PHE, we slowed down sales representative additions in the second and third quarters of 2020 and plan to have minimal hires for the remainder of 2020.

We believe this has reduced and may continue to reduce the number of oxygen therapy patients who purchase our products through our direct-to-consumer sales channel.

3 unchanged sentences

We expended $40.3 million in media and advertising costs in 2019 compared to $30.8 million in 2018, to drive greater patient awareness of our products and increase patient inquiries about their ability to switch from their current oxygen products to our technology.

Media and advertising costs declined to $7.2 million in the second quarter of 2020 compared to $11.6 million in the second quarter of 2019, primarily associated with reductions due to the COVID-19 PHE and increased focus on new rental setups.

Media and advertising costs declined to $7.7 million in the third quarter of 2020 compared to $9.0 million in the third quarter of 2019, primarily associated with reductions due to the COVID-19 PHE and increased focus on new rental setups.

We initially planned to continue to increase marketing spend to drive consumer and physician awareness of our products in 2020.

We also initially planned to perform a pricing trial in 2020 to optimize pricing in our direct-to-consumer sales channel as well as look for opportunities to improve the close rate of leads through product offerings, pricing, and partnerships with HME providers.

However, due to the COVID-19 PHE, we revised these plans as discussed in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, and we are continuing to reduce marketing spend during the COVID-19 PHE due to the lower return on those investments and to conserve cash.

However, due to the COVID-19 PHE, we revised these plans as discussed in our Quarterly Report on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020, and we are continuing to reduce marketing spend during the COVID-19 PHE due to the lower return on those investments and to conserve cash.

As this is a dynamic situation, we plan to continue to monitor the progression of the COVID-19 PHE in the United States and may adjust our marketing plan accordingly.

2 unchanged sentences

We offer patient-preferred, low service cost products and financing programs to help providers convert their businesses to a non-delivery POC business model.

While HME providers have been adopting our products in prior quarters, growth has been challenged due to difficulties in their ongoing efforts to restructure from the delivery business model to the non-delivery portable model, lack of access to available credit, provider capital expenditure constraints, and pending competitive bidding Round 2021 and the lack of visibility to who will win contracts and any change in reimbursement rates.

While HME providers have been adopting our products in prior quarters, growth has been challenged due to difficulties in their ongoing efforts to restructure from the delivery business model to the non-delivery portable model, lack of access to available credit, provider capital expenditure constraints, and pending any change in reimbursement rates associated with the published durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) Proposed Rule CMS-1738-P.

However, supplemental oxygen is a treatment prescribed by healthcare professionals for some patients with COVID-19.

While there was an initial surge in demand for oxygen concentrators by our HME providers early in the COVID-19 PHE, business-to-business demand declined in the second quarter of 2020 due to physician offices limiting patient interactions for COPD patient referrals, lower retail sales, HME providers minimizing patient interactions in response to the COVID-19 PHE which includes replacing existing oxygen patient setups with POCs, and HME providers turning their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

While there was an initial surge in demand for oxygen concentrators by our HME providers early in the COVID-19 PHE, business-to-business demand declined in the second and third quarters of 2020 due to lower retail sales, lower patient travel, physician offices limiting patient interactions for COPD patient referrals, HME providers minimizing patient interactions in response to the COVID-19 PHE which includes replacing existing oxygen patient setups with POCs, and HME providers turning their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

Expand our rental revenues through a dedicated rental intake team.

1 unchanged sentence

We ended 2019 with 25 patient intake representatives and administrative personnel and have scaled and plan to continue to scale the rental intake team in 2020, which we believe will lead to increased patients on service and growth in rental revenue in future periods.

Due to the COVID-19 PHE, we have also seen Medicare and commercial payors reduce the administrative burden for oxygen therapy, which we believe will increase rental setups during the COVID-19 PHE, and we have also seen increased reimbursement rates in some areas for Medicare beneficiaries, which should also increase rental revenue during the COVID-19 PHE.

Due to the COVID-19 PHE, Medicare and commercial payors have reduced some of the administrative burden for oxygen therapy, which also contributed to increased rental setups in the second and third quarters of 2020.

We believe this change will continue to contribute to increased rental setups during the remainder of the COVID-19 PHE.

We have also seen increased reimbursement rates in some areas for Medicare beneficiaries, which should also increase rental revenue during the COVID-19 PHE.

Increase international business-to-business adoption.

1 unchanged sentence

In order to take advantage of these international markets, we have built out an infrastructure over the past few years, which includes sales in 46 international countries and a contract manufacturing partner, Foxconn, located in the Czech Republic to support European sales volumes.

As in the United States, while there was an initial surge in demand for oxygen concentrators by our international HME customers early in the COVID-19 pandemic, international demand declined in the second quarter of 2020 due to the temporary closure of certain European respiratory assessment centers due to the COVID-19 pandemic and continued tender delays in certain European markets.

As in the United States, while there was an initial surge in demand for oxygen concentrators by our international HME customers early in the COVID-19 pandemic, international demand declined in the second and third quarters of 2020 primarily due to the temporary closures and reduced operating capacity of certain European respiratory assessment centers due to the COVID-19 pandemic, continued tender delays in certain European markets, and decreased sales in other markets, primarily Canada and Australia.

In addition, as in the United States, providers turned their focus to supplying stationary oxygen concentrators with higher flow characteristics in response to the COVID-19 pandemic.

5 unchanged sentences

Invest in our oxygen product offerings to develop innovative products .

We incurred $3.3 million and $1.5 million for the three months ended June 30, 2020 and June 30, 2019, respectively, and $6.9 million and $3.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively, in research and development expenses, and we intend to continue to make such investments in the foreseeable future.

We incurred $3.5 million and $2.6 million for the three months ended September 30, 2020 and September 30, 2019, respectively, and $10.4 million and $5.8 million for the nine months ended September 30, 2020 and September 30, 2019, respectively, in research and development expenses, and we intend to continue to make such investments in the foreseeable future.

We launched our fifth-generation POC, the Inogen One G5, in our direct-to-consumer channel during the second quarter of 2019, in our domestic business-to-business channel during the third quarter of 2019, and in certain markets in our international business-to-business channel in the fourth quarter of 2019.

3 unchanged sentences

We expect the Inogen One G5 to obsolete the Inogen One G3 ® over the intermediate term.

We expect manufacturing cost for our Inogen One G5 to be at parity with our Inogen One G3 in the third quarter of 2020, and we still expect the Inogen One G5 to be our lowest cost to manufacture over time.

The Inogen One G5 represented more than 66% of total domestic POC units sold in the six months ended June 30, 2020, showing the strong demand for this product from both patients and providers.

Manufacturing cost for our Inogen One G5 was at parity with our Inogen One G3 in the third quarter of 2020, and we still expect the Inogen One G5 to be our lowest cost to manufacture over time.

The Inogen One G5 represented more than 68% of total domestic POC units sold in the nine months ended September 30, 2020, showing the strong demand for this product from both patients and providers.

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

6 unchanged sentences

We plan to only sell this product across our domestic direct-to-consumer channel and in our domestic business-to-business channel in the remainder of 2020, although we expect limited contributions to revenue in 2020.

The COVID-19 PHE also had an impact on sales of this product in the second quarter of 2020, primarily due to lower retail demand.

The COVID-19 PHE also had an impact on sales of this product in the second and third quarters of 2020, primarily due to lower retail demand.

We plan to incorporate the TAV technology directly into our Inogen One POCs and make the TAV product compatible with our Inogen At Home stationary concentrators to continue to advance patient preference and maintain our technology leadership position in the long-term oxygen therapy market.

8 unchanged sentences

In September 2019, we appealed to the CMS, and in January 2020 our appeal was denied.

We are currently pursuing additional appeal opportunities.

On September 21, 2020, we filed a lawsuit against defendants, Alex M.

Azar, Secretary of the Department of Health and Human Services (HHS), in his official capacity, Seema Verma, Administrator of the Centers for Medicare and Medicaid Services (CMS), in her official capacity and Palmetto GBA, LLC.

The lawsuit seeks to invalidate the defendants’ arbitrary and capricious decision to retract a valid HCPCS code to our Tidal Assist Ventilator, thereby eliminating reimbursements for the ventilator, in violation of the Administrative Procedures Act.

Further, CMS’s failure to provide notice and the opportunity to comment on a change in HCPCS code verification for the Sidekick Tidal Assist Ventilator and similar devices constitutes a violation of the procedural right provided under the Medicare Act, and our due process rights.

If we do not receive revised coding, it could limit this product’s adoption by HME providers and also our direct rentals until revisions are made to the product to meet the coding requirements.

2 unchanged sentences

This request could signal forthcoming changes in Medicare coverage of these items, and possibly changes in HCPCS codes, which could impact our NIV business and growth initiatives.

For a discussion of certain significant risks relating to the TAV reimbursement, see the risk factor entitled “ The competitive bidding process under Medicare could negatively affect our business and financial condition .”

For a discussion of certain significant risks relating to the TAV reimbursement, see the risk factor entitled “ The competitive bidding process or other reimbursement policy changes under Medicare could negatively affect our business and financial condition .”

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

1 unchanged sentence

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 expect to maintain our assembly operations for our products at our facilities in Richardson, Texas and Goleta, California.

In 2020, we are focused on reducing the cost of our Inogen One G5 product, expanding manufacturing of the TAV product and our oxygen concentrator products, and increasing the robustness of our supply chain to reduce potential component constraints as we grow our business.

We expect to maintain our assembly operations for our products at our facilities in Texas and California.

We also use lean manufacturing practices to maximize manufacturing efficiency.

5 unchanged sentences

In order to 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, any reduction or halt in supply from one of these single-source

suppliers could limit our ability to manufacture our products or devices until a replacement supplier is found and qualified.

However, any reduction or halt in supply from one of these single-source suppliers could limit our ability to manufacture our products or devices until a replacement supplier 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 the partial or complete loss of one or more of these manufacturers or suppliers could cause significant production delays, 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 three months ended June 30, 2020 and June 30, 2019, approximately 19.3% and 22.3%, respectively, and 21.2% and 22.2% for the six months ended June 30, 2020 and June 30, 2019, respectively, of our total revenue was from sales to customers outside the United States, primarily in Europe.

In the three months ended September 30, 2020 and September 30, 2019, approximately 19.6% and 20.2%, respectively, and 20.7% and 21.5% for the nine months ended September 30, 2020 and September 30, 2019, respectively, of our total revenue was from sales to customers outside the United States, primarily in Europe.

Approximately 83.4% and 70.3% of the non-U.S.

revenue for the three months ended June 30, 2020 and June 30, 2019, respectively, and 72.2% and 71.6% for the six months ended June 30, 2020 and June 30, 2019, respectively, was invoiced in Euros with the remainder invoiced in United States dollars.

revenue for the three months ended September 30, 2020 and September 30, 2019, respectively, and 75.6% and 71.2% for the nine months ended September 30, 2020 and September 30, 2019, respectively, was invoiced in Euros with the remainder invoiced in United States dollars.

We sell our products in 46 countries outside the United States through our wholly-owned subsidiary, distributors or directly to large “house” accounts, which include gas companies, HME oxygen providers, and resellers.

In those instances, we sell to and bill the distributor or “house” accounts directly, leaving responsibility for the patient billing, support and clinical setup to the local provider.

Our total revenue was $71.7 million and $101.1 million for the three months ended June 30, 2020 and June 30, 2019, respectively, and $160.2 million and $191.3 million for the six months ended June 30, 2020 and June 30, 2019, respectively.

The decrease in total revenue in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to a decline in direct-to-consumer sales and domestic and international business-to-business sales, primarily associated with the COVID-19 PHE.

Similarly, the decrease in total revenue in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, was primarily due to a decline in direct-to-consumer sales and domestic and international business-to-business sales, primarily associated with the COVID-19 PHE.

We generated net income of $2.6 million and $10.2 million for the three months ended June 30, 2020 and June 30, 2019, respectively, and $1.0 million and $15.5 million for the six months ended June 30, 2020 and June 30, 2019, respectively.

We generated Adjusted EBITDA of $10.0 million and $16.8 million in the three months ended June 30, 2020 and June 30, 2019, respectively, and $14.1 million and $27.9 million for the six months ended June 30, 2020 and June 30, 2019, respectively, (see “Non-GAAP financial measures” for reconciliations between U.S.

Our total revenue was $74.3 million and $91.8 million for the three months ended September 30, 2020 and September 30, 2019, respectively, and $234.5 million and $283.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.

The decrease in total revenue in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to a decline in direct-to-consumer sales and domestic and international business-to-business sales, primarily associated with the COVID-19 PHE.

Similarly, the decrease in total revenue in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily due to a decline in direct-to-consumer sales and domestic and international business-to-business sales, primarily associated with the COVID-19 PHE.

We generated net income (loss) of $(1.7) million and $6.9 million for the three months ended September 30, 2020 and September 30, 2019, respectively, and $(0.7) million and $22.3 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.

We generated Adjusted EBITDA of $4.6 million and $12.8 million in the three months ended September 30, 2020 and September 30, 2019, respectively, and $18.7 million and $40.8 million for the nine months ended September 30, 2020 and September 30, 2019, respectively, (see “Non-GAAP financial measures” for reconciliations between U.S.

GAAP and non-GAAP results).

As of June 30, 2020, our retained earnings were $82.4 million.

As of September 30, 2020, our retained earnings were $80.7 million.

Sales revenue

1 unchanged sentence

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

hiring additional sales representatives, productivity improvements, investing in consumer awareness through increased marketing efforts, expanding our sales infrastructure and efforts outside of the United States, expanding our business-to-business sales through key partnerships, and enhancing our product offerings through additional product launches, although, as mentioned above, these plans have been and may continue to be impacted by the COVID-19 PHE.

While we believe most HME providers are still in the process of converting their business model to a non-delivery model and purchase POCs, growth has been challenged and we expect it could continue to be challenged due to the COVID-19 PHE, their ongoing restructuring efforts, lack of access to available credit, provider capital expenditure constraints, and pending competitive bidding Round 2021 with the lack of visibility to who will win contracts and any change in reimbursement rates.

hiring additional sales representatives, improving productivity, investing in consumer and physician awareness through increased sales and marketing efforts, expanding our sales infrastructure and efforts outside of the United States, expanding our business-to-business sales through key partnerships, and enhancing our product offerings through additional product launches, although, as mentioned above, these plans have been and may continue to be impacted by the COVID-19 PHE.

While we believe most HME providers are still in the process of converting their business model to a non-delivery model and purchase POCs, growth has been challenged and we expect it could continue to be challenged due to the COVID-19 PHE, their ongoing restructuring efforts, lack of access to available credit, provider capital expenditure constraints, and pending changes in reimbursement rates associated with the published DMEPOS Proposed Rule CMS-1738-P.

As our product offerings grow, we solicit feedback from our customers and focus our research and development efforts on continuing to improve patient preference and reduce the total cost of the product in order to further drive sales of our products.

7 unchanged sentences

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, business restructuring activities toward a non-delivery model, capital constraints, and overall changes in the net oxygen and NIV therapy patient populations , and is presently being impacted by the COVID-19 PHE .

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

Products are shipped freight on board (FOB) Inogen dock domestically, and based on financial history and profile, businesses may either prepay or receive extended payment terms.

2 unchanged sentences

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

We sold approximately 42,500 systems in the three months ended June 30, 2020 and 56,500 systems for the same period in 2019.

We sold approximately 95,900 systems in the six months ended June 30, 2020 compared to 106,900 systems for the same period in 2019.

We sold approximately 42,200 systems in the three months ended September 30, 2020 and 51,600 systems for the same period in 2019.

We sold approximately 138,100 systems in the nine months ended September 30, 2020 compared to 158,500 systems for the same period in 2019.

Management focuses on system sales as an indicator of current business success.

5 unchanged sentences

However, due to the COVID-19 PHE, CMS has reduced the paperwork requirements for Medicare oxygen therapy patients, as discussed in more detail in the Reimbursement section below, effective in early March 2020.

Rental revenue increased in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, primarily due to a greater number of patients on service and higher Medicare reimbursement rates.

Rental revenue increased in the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily due to a greater number of patients on service, higher Medicare reimbursement rates, higher billable patients as a percent of total patients on service, and lower adjustments.

Medicare reimbursement rates for oxygen therapy increased 1.5% to 3.5%, effective January 1, 2020.

6 unchanged sentences

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

We had approximately 26,400 and 25,900 oxygen rental patients as of June 30, 2020 and June 30, 2019, respectively.

We had approximately 29,500 and 25,600 oxygen rental patients as of September 30, 2020 and September 30, 2019, respectively.

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

1 unchanged sentence

Reimbursement

Medicare and private insurance rentals represented 8.5% and 5.1% of our total revenue in the three months ended June 30, 2020 and June 30, 2019, respectively, and 7.1% and 5.5% in the six months ended June 30, 2020 and June 30, 2019, respectively.

Medicare and private insurance rentals represented 10.1% and 5.9% of our total revenue in the three months ended September 30, 2020 and September 30, 2019, respectively, and 8.1% and 5.6% in the nine months ended September 30, 2020 and September 30, 2019, respectively.

In cases where we rent our long-term oxygen therapy solutions directly to patients, we bill third-party payors, such as Medicare or private insurance, for monthly rentals on behalf of our patients.

4 unchanged sentences

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

For the three and six months ended June 3 0 , 20 20 , approximately 80.0 % and 79.2 %, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.

For the three and nine months ended September 3 0 , 20 20 , approximately 82.8 % and 80.6 %, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.

list price for our stationary oxygen rentals (HCPCS E1390) is $260 per month and the U.S.

list price for our oxygen generating portable equipment (OGPE) rentals (HCPCS E1392) is $70 per month.

The average Medicare reimbursement rates in competitive bidding areas (CBAs) in 2018 were $77.03 a month for E1390 and $36.06 a month for E1392.

The average Medicare reimbursement rates in former competitive bidding areas (CBAs) in 2018 were $77.03 a month for E1390 and $36.06 a month for E1392.

These are the two primary codes that we bill to Medicare and other payors for our oxygen product rentals.

9 unchanged sentences

The CARES Act also included a temporary elimination of the 2% percent Medicare sequestration reduction that went into effect in 2013.

This relief is effective May 1, 2020 through December 31, 2020, and extends the end date of the sequester by one year, through 2030, in order to offset the 2020 suspension.

This relief is effective May 1, 2020 through December 31, 2020, and the CARES Act also extends the end date of the Medicare sequestration reduction by one year, through 2030, in order to offset the 2020 suspension.

On April 6, 2020, an Interim Final Rule (IFR) was published in the Federal Register for policy and regulatory revisions in response to the COVID-19 PHE.

There was a comment period until June 1, 2020.

This IFR included that for the duration of the COVID-19 PHE, the face-to-face requirements and clinical indications of coverage for home oxygen, among other respiratory products, will be waived.

4 unchanged sentences

These changes were retroactive to early March 2020.

However, in July 2020, CMS released a COVID-19 Product Burden Relief FAQs that included updates to this IFR, including that the pausing of the national prior authorization program for certain DMEPOS and medical review suspension will likely end, effective August 3, 2020.

Effective January 1, 2019, Medicare beneficiaries may receive durable medical equipment from any Medicare-enrolled supplier until new contracts are in effect under competitive bidding Round 2021, which is expected to begin on January 1, 2021.

However, in July 2020, CMS released a COVID-19 Product Burden Relief FAQs document that included updates to this IFR, including that the pausing of the national prior authorization program for certain DMEPOS and medical review suspension which ended effective August 3, 2020.

Effective January 1, 2019, Medicare beneficiaries may receive durable medical equipment from any Medicare-enrolled supplier until new contracts are in effect under competitive bidding.

Reimbursement rates between January 1, 2019 and December 31, 2020 are set at the current pricing level throughout the United States for all Medicare patients, subject to Consumer Price Index (CPI) and budget neutrality adjustments.

Pricing in CBAs is subject to annual CPI adjustments beginning in 2019 until Round 2021 begins.

Pricing in former CBAs is subject to annual CPI adjustments beginning in 2019.

However, CMS also changed the calculation on budget neutrality to apply the offset to all oxygen and oxygen equipment classes beginning January 1, 2019 instead of previously only applying these adjustments to stationary oxygen equipment and oxygen contents.

3 unchanged sentences

In addition, the average Medicare reimbursement rates in non-rural, non-former CBAs increased by 3.5% to $74.84 a month for E1390 and $36.87 a month for E1392.

In Round 2021 of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) competitive bidding program, there have been some revisions to the bidding methodology including bid surety bond requirements, lead item pricing, and setting reimbursement rates at the maximum winning bid rate instead of the median winning bid rate.

In the prior round of competitive bidding, our products were categorized in the product category of respiratory equipment and related supplies and accessories, which included oxygen equipment, continuous positive airway pressure (CPAP) devices and respiratory assist devices (RADs) and related supplies and accessories.

In Round 2021 of the competitive bidding program, oxygen and oxygen equipment is its own product category and the lead item has been established as E1390.

However, due to the lead item pricing methodology based on the 2015 standard Medicare fee schedule, E1392 reimbursement rates could be reduced significantly (we estimate approximately 42%) even if E1390 reimbursement rates do not change.

This would lead to combined E1390 plus E1392 reimbursement rates to decrease by approximately 15%.

The bidding window closed on September 18, 2019, and we bid in 129 of the 130 total CBAs.

It is unclear how pricing will be impacted due to these new bids.

We expect contracts and pricing to be announced in 2020.

On October 27, 2020, CMS announced that competitive bidding contracts that were scheduled to go into effect on January 1, 2021 will not be awarded for most product categories, including oxygen, due to the payment amounts not achieving the expected savings and the current COVID-19 PHE.

CMS also issued a proposed rule (CMS-1738-P) to establish payment amounts going forward for DMEPOS products and services covered under Medicare.

We believe that Medicare rates will not change for the length of the COVID-19 PHE, except for the 2% Medicare sequestration that will go back into effect on January 1, 2021, and any net change for inflation and budget neutrality adjustments that typically occur annually each January but have not yet been announced.

CMS is proposing to set Medicare rates after the COVID-19 PHE at the 50/50 blended rates in the non-contiguous and rural areas as a permanent construct, but Medicare rates in all other areas would be set at the adjusted payment amount.

This would reduce Medicare rates after the PHE is over in the current areas that are considered non-rural but not covered by a former CBA, as those areas are currently receiving a 75/25 blended reimbursement rate.

There is a 60-day comment period on this proposed rule, so we expect this rule to be finalized in the first quarter of 2021.

In addition to regional pricing, CMS imposed different pricing on “frontier states” and rural areas.

6 unchanged sentences

We estimate that approximately 15% of our patients are eligible to receive the higher reimbursement rates based on the geographic locations of our current patient population.

CMS could propose future rounds of competitive bidding, which could reduce reimbursement rates, negatively impact the premium for POCs over other oxygen modalities, or limit beneficiary access to our technologies.

Cumulatively in previous rounds of competitive bidding, we were offered contracts for a substantial majority of the CBAs and product categories for which we submitted bids.

5 unchanged sentences

In all five rounds of competitive bidding in which we have participated, we have gained access to certain CBAs and been excluded from other CBAs.

Medicare revenue, including patient co-insurance and deductible obligations, represented 6.8% and 5.6% of our total revenue in the three and six months ended June 30, 2020, respectively.

Medicare revenue, including patient co-insurance and deductible obligations, represented 8.4% and 6.5% of our total revenue in the three and nine months ended September 30, 2020, respectively.

Medicare reimbursement for oxygen rental equipment is limited to a maximum of 36 months within a 60-month service period, and the equipment remains the property of the home oxygen supplier.

4 unchanged sentences

The supplier may not arbitrarily issue new equipment.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period for the three and six months ended June 30, 2020 and June 30, 2019, respectively.

Our capped patients as a percentage of total patients on service was approximately 17.2% as of June 30, 2020 and 20.2% as of June 30, 2019.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period for the three and nine months ended September 30, 2020 and September 30, 2019, respectively.

Our capped patients as a percentage of total patients on service was approximately 13.8% as of September 30, 2020 and 20.2% as of September 30, 2019.

4 unchanged sentences

The patient can choose to receive oxygen supplies and services from another supplier at any time, but the supplier may only transition the patient to another supplier in certain circumstances.

Average Medicare reimbursement rates for NIV HCPCS code E0466 were a monthly, non-capped rental with rates of $1,042.26 a month in 2019, and increased 0.9% effective January 1, 2020 to $1,051.64 a month, excluding Puerto Rico where the monthly Medicare reimbursement rate for E0466 was $1,827.24 per month in 2019 and increased to $1,843.69 a month effective January 1, 2020.

Average Medicare reimbu rsement rates for NIV HCPCS code E0466 were a monthly, non-capped rental with rates of $1,042.26 a month in 2019, and increased 0.9% effective January 1, 2020 to $1,051.64 a month, excluding Puerto Rico where the monthly Medicare reimbursement rate for E0466 was $1,827.24 per month in 2019 and increased to $1,843.69 a month effective January 1, 2020.

It is uncertain if the current TAV product acquired from New Aera, will be reimbursable in its current configuration under HCPCS code E0466.

3 unchanged sentences

In September 2019, we appealed to CMS, and in January 2020 our appeal was denied.

We are currently pursuing additional appeal opportunities.

In September 2020, we filed a lawsuit against Palmetto GBA, LLC and Alex Azar and Seema Verma in their official capacities at the Department of Health and Human Services and the Centers for Medicare and Medicaid Services, respectively.

The lawsuit seeks to invalidate the retraction of a valid HCPCS code to Inogen’s TAV system and claims a violation of our procedural rights provided under the Medicare Act, the Administrative Procedure Act, and our due process rights due to CMS’ failure to provide notice and the opportunity to comment on a change in HCPCS code verification for the TAV product.

If we do not receive revised coding, it could limit this product’s adoption by HME providers and also our direct rentals.

In addition, the M EDCAC recently had a meeting on July 22, 2020 to discuss home use of non-invasive positive pressure ventilation in patients with chronic respiratory failure consequent to COPD.

In addition, the MEDCAC recently had a meeting on July 22, 2020 to discuss home use of non-invasive positive pressure ventilation in patients with chronic respiratory failure consequent to COPD.

CMS is seeking MEDCAC’s recommendations regarding the characteristics that define patient selection and usage criteria for these items.

This request could signal forthcoming changes in Medicare coverage of these items, and possibly changes in HCPCS codes, which could impact our NIV business and growth initiatives.

For a discussion of certain significant risks relating to the TAV reimbursement and the upcoming round of competitive bidding, see the risk factor entitled “ The competitive bidding process under Medicare could negatively affect our business and financial condition.”

As of June 30, 2020, we had 90 contracts with Medicaid, Medicare Advantage, government and private payors.

For a discussion of certain significant risks relating to the TAV reimbursement and the upcoming round of competitive bidding, see the risk factor entitled “ The competitive bidding process or other reimbursement policy changes under Medicare could negatively affect our business and financial condition.”

As of September 30, 2020, we had 90 contracts with Medicaid, Medicare Advantage, government and private payors.

These contracts qualify us as an in-network provider for these payors.

19 unchanged sentences

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.

Particularly, due to the mandates and behaviors emanating from the COVID-19 PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, we did not see the typical seasonal increases in direct-to-consumer sales in the second quarter of 2020 that we have seen in prior years.

As more HME providers adopt POCs 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.

7 unchanged sentences

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 the three and six months ended June 30, 2020, primarily due to higher patients on service and higher Medicare reimbursement rates.

We expect our rental revenue to increase in future periods as we scale the rental intake team, increase new rental setups, and benefit from the higher Medicare reimbursement rates for oxygen therapy.

Rental revenue increased in the three and nine months ended September 30, 2020, primarily due to higher Medicare reimbursement rates, higher patients on service, higher billable patients as a percent of total patients on service and lower revenue adjustments.

We expect our rental revenue to increase in future periods as we scale the rental intake and sales teams, increase new rental setups, and, for the duration of the COVID-19 PHE, benefit from the higher Medicare reimbursement rates for oxygen therapy enacted due to the COVID-19 PHE.

We also expect that our rental revenue will be impacted by the number of our sales and rental intake representatives, reimbursement rate changes including the impact of COVID-19 PHE changes, Round 2021 competitive bidding, the level of and response from potential customers to direct-to-consumer marketing spend, product launches, and other uncontrollable factors such as changes in the market and competition.

12 unchanged sentences

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

In 2019 and the six months ended June 30, 2020, the impact of the Chinese tariffs on our financial results was minimal as we have received some exemptions, negotiated cost sharing and price reductions with suppliers, and re-allocated purchases.

In 2019 and the nine months ended September 30, 2020, the impact of the Chinese tariffs on our financial results was minimal as we have received some exemptions, negotiated cost sharing and price reductions with suppliers, and re-allocated purchases.

Assuming the Chinese tariffs stay at the current levels, we currently expect the overall financial impact to our business to be minimal to the average unit cost for 2020.

19 unchanged sentences

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.

Sales and marketing expense decreased in the three months ended June 30, 2020 as compared to June 30, 2019, primarily due to reduced advertising spend.

Our average sales representative headcount in the second quarter of 2020 was relatively flat compared to the second quarter of 2019, and our plan was to hire additional sales representatives at a more controlled pace across all of our facilities to expand sales capacity for the remainder of 2020.

However, due to the COVID-19 PHE, we have reduced and expect to continue to reduce marketing spend and reduce sales representative headcount additions and primarily focus on replacement of attrition of existing sales representatives for the remainder of 2020.

However, we still expect a further increase in sales and marketing expense in future periods as we continue to invest in our business, including expanding our sales and sales support team, increasing media spend to drive consumer awareness, and rising patient support costs as our patient and customer base increases.

We also expect increased sales and marketing costs in 2020 associated with the expanded launch of the TAV product following the limited launch in December 2019.

Sales and marketing expense decreased slightly in the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Our average sales representative headcount in the third quarter of 2020 was up approximately 8% compared to the third quarter of 2019, but it was down sequentially from the second quarter of 2020 as attrition outpaced hiring in the period.

We expect minimal direct-to-consumer sales representative hiring in the fourth quarter of 2020 and plan to focus on sales representative efficiencies, including improved sales representative productivity and lead utilization, while we continue to monitor the impact of the COVID-19 PHE.

Due to the COVID-19 PHE, we have also reduced and expect to continue to reduce marketing spend.

However, we still expect an increase in sales and marketing expense in future periods as we continue to invest in our business, including expanding our sales and sales support team, increasing our rental infrastructure, increasing media spend to drive consumer awareness, and rising patient support costs as our patient and customer base increases.

We also expect increased sales and marketing costs in 2020 and 2021 associated with the expanded launch of the TAV product following the limited launch in December 2019.

General and administrative

3 unchanged sentences

We expect general and administrative expense to 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.

Those costs include increases in our accounting, human resources, and IT personnel, as well as increases in additional consulting, legal and accounting fees, facilities costs, insurance costs, and board of directors’ compensation.

Those costs include increases in our accounting, medical billing, human resources, and IT personnel, as well as increases in additional consulting, legal and accounting fees, facilities costs, insurance costs, and board of directors’ compensation.

Other income (expense), net

10 unchanged sentences

Results of operations

Comparison of three months ended June 30, 2020 and June 30, 2019

Comparison of three months ended September 30, 2020 and September 30, 2019

Three months ended

September 30,

Change 2020 vs.

3 unchanged sentences

Total revenue

Sales revenue decreased $30.3 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or a decrease of 31.6% from the comparable period.

Sales revenue decreased $19.6 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, or a decrease of 22.7% from the comparable period.

The decrease was primarily attributable to reduced direct-to-consumer sales and reduced domestic and international business-to-business sales, primarily associated with the impacts of the COVID-19 PHE.

We sold approximately 42,500 oxygen systems during the three months ended June 30, 2020 compared to approximately 56,500 oxygen systems sold during the three months ended June 30, 2019, or a decrease of 24.8%.

We sold approximately 42,200 oxygen systems during the three months ended September 30, 2020 compared to approximately 51,600 oxygen systems sold during the three months ended September 30, 2019, or a decrease of 18.2%.

The decrease in the number of systems sold resulted mainly from a decrease in sales across all channels, primarily due to the COVID-19 PHE.

Rental revenue increased $0.9 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, or an increase of 16.9% from the comparable period.

The increase in rental revenue was primarily related to a 1.9% increase in rental patients on service, higher Medicare reimbursement rates, and increased billable patients from the comparative period.

Rental revenue increased $2.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, or an increase of 40.1% from the comparable period.

The increase in rental revenue was primarily related to higher Medicare reimbursement rates, a 15.2% increase in rental patients on service, higher billable patients as a percent of total patients on service, and lower revenue adjustments.

Three months ended

(amounts in thousands)

September 30,

Change 2020 vs.

5 unchanged sentences

Total revenue

Domestic business-to-business sales decreased 27.3% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

The decrease was primarily the result of decreased demand from our HME partners for oxygen concentrators in response to the COVID-19 PHE due to physician offices limiting patient interactions that traditionally have led to new oxygen patient referrals, lower retail sales, HME providers minimizing patient interactions in response to the COVID-19 PHE which includes replacing existing oxygen patient setups with POCs, and HME providers turning their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

International b usiness-to-business sales decre ased 38.5 % for the three months ended June 3 0 , 20 20 compared to the three months ended June 3 0 , 201 9 , mostly due to decreased demand from our HME partners for oxygen concentrators due to the temporary closure of certain European respiratory assessment centers due to the COVID-19 pandemic and continued tender delays in certain European markets.

In addition, like in the United States, HME provider s turned their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients .

In the three months ended June 3 0 , 20 20 , sales in Europe as a percentage of total international sales revenue decreased to 87.2 % versus 88.2 % in the comparative period in 201 9 , primarily because of the reduced sales in Europe.

Domestic direct-to-consumer sales decreased 30.9% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to the impact of the COVID-19 PHE with government mandated shelter-in-place initiatives, reduced consumer travel, and lower consumer confidence, which decreased demand and associated close rates in the second quarter of 2020 compared to the same period in the prior year.

Average sales representative headcount was relatively flat in the comparative periods.

Domestic business-to-business sales de creased 23.5% for the three months ended September 3 0 , 20 20 compared to the three months ended September 3 0 , 201 9 .

The de crease was primarily the result of de creased demand from our resellers and HME partners for oxygen concentrators .

We believe this decreased demand was primarily due to competitive bidding uncertainty and the continued impact of the COVID-19 PHE, including lower retail sales, reduced patient travel, physician offices limiting patient interactions that traditionally have led to new oxygen patient referrals, HME providers minimiz ing patient interactions in response to the COVID-19 PHE which includes replacing existing oxygen patient setups with POCs, and HME provider s turn ing their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

International business-to-business sales decreased 21.1% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, mostly due to decreased demand from our HME partners for oxygen concentrators due to the temporary reduced operating capacity of certain European respiratory assessment centers due to the COVID-19 pandemic, continued tender delays in certain European markets, and decreased sales in other markets, primarily Canada and Australia.

In addition, like in the United States, HME providers turned their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

In the three months ended September 30, 2020, sales in Europe as a percentage of total international sales revenue increased to 90.2% versus 84.2% in the comparative period in 2019, primarily because of larger relative declines seen in other international markets outside of Europe, primarily Canada and Australia.

Domestic direct-to-consumer sales decreased 22.7% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to the impact of the COVID-19 PHE with government mandated shelter-in-place initiatives, reduced consumer travel, and lower consumer confidence, which decreased demand and associated sales representative productivity in the third quarter of 2020 compared to the same period in the prior year.

Average sales representative headcount was up approximately 8% compared to the third quarter of 2019.

Domestic direct-to-consumer rentals increased 40.1% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to increased reimbursement rates, an increase in patients on service, higher billable patients as a percent of total patients on service, and lower revenue adjustments.

Cost of revenue and gross profit

Three months ended

September 30,

Change 2020 vs.

9 unchanged sentences

Total gross margin percentage

Cost of sales revenue decreased $11.1 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or a decrease of 23.6% from the comparable period.

The decrease in cost of sales revenue was primarily attributable to lower sales and related bill of material costs and lower total labor and overhead expense, partially offset by higher cost per unit associated with the Inogen One G5 during the period.

Cost of rental revenue decreased $0.8 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or a decrease of 21.0% from the comparable period.

The decrease in cost of rental revenue was primarily attributable to reduced rental asset depreciation expense and servicing costs.

Cost of rental revenue included $1.2 million of rental asset depreciation for the three months ended June 30, 2020 compared to $1.6 million for the three months ended June 30, 2019.

Sales revenue gross margin percentage decreased to 45.0% for the three months ended June 30, 2020 from 50.7% for the three months ended June 30, 2019.

The decrease was primarily related to increased mix toward domestic business-to-business sales, which have a lower gross margin than our international business-to-business and direct-to-consumer sales, lower mix of accessory sales, and increased overhead costs per unit due to lower sales volumes.

In addition, average selling prices were down in the second quarter of 2020 versus the same period in the prior year across all sales channels.

Domestic business-to-business sales revenue accounted for 32.9% of total sales revenue in the three months ended June 30, 2020 versus 30.9% in the three months ended June 30, 2019.

Rental revenue gross margin percentage increased to 53.0% for the three months ended June 30, 2020 from 30.4% for the three months ended June 30, 2019, primarily due to higher rental revenue per patient on service and lower depreciation and servicing costs per patient on service.

Cost of sales revenue decreased $7.1 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, or a decrease of 15.8% from the comparable period.

The decrease in cost of sales revenue was primarily attributable to lower sales and related bill of material costs and warranty costs, partially offset by higher material and overhead costs per unit, partially offset by lower warranty costs per unit.

Cost of rental revenue decreased $0.1 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, or a decrease of 1.8% from the comparable period.

The decrease in cost of rental revenue was primarily attributable to reduced servicing costs.

Cost of rental revenue included $1.5 million of rental asset depreciation for the three months ended September 30, 2020 and for the three months ended September 30, 2019.

Sales revenue gross margin percentage decreased to 43.5 % for the three months ended September 3 0 , 20 20 from 48.2 % for the three months ended September 3 0 , 201 9 .

The decrease was primarily related to lower average selling prices , particularly in our direct-to-consumer channel where consumers bought product configurations with lower margin bundles, and increased material and overhead costs per unit, partially offset by lower warranty expense per unit.

Rental revenue gross margin percentage increased to 52.0% for the three months ended September 30, 2020 from 31.5% for the three months ended September 30, 2019, primarily due to higher Medicare reimbursement rates, higher billable patients as a percent of total patients on service, lower revenue adjustments and lower depreciation and servicing costs per patient on service.

Research and development expense

Three months ended

September 30,

Change 2020 vs.

1 unchanged sentence

Research and development expense

Research and development expense increased $1.8 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or an increase of 124.1% over the comparable period, primarily due to $1.9 million in intangible amortization costs related to the New Aera acquisition.

Research and development expense increased $0.9 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, or an increase of 33.2% over the comparable period, primarily due to an increase of $1.0 million in intangible amortization costs, which were mainly related to the New Aera acquisition.

Sales and marketing expense

Three months ended

September 30,

Change 2020 vs.

1 unchanged sentence

Sales and marketing expense

Sales and marketing expense decreased $5.7 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or a decrease of 20.4% from the comparable period, primarily attributable to decreases of $4.4 million of lower advertising expense, $0.7 million of lower personnel-related expenses and $0.4 million in credit card processing fees.

In the three months ended June 30, 2020, we spent $7.2 million in media and advertising costs versus $11.6 million in the comparative period in 2019.

Sales and marketing expense decreased $1.2 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, or a decrease of 4.8% from the comparable period, primarily attributable to decreases of $1.3 million of lower advertising expense, partially offset by $0.9 million of higher personnel-related expenses.

In the three months ended September 30, 2020, we spent $7.7 million in media and advertising costs versus $9.0 million in the comparative period in 2019.

General and administrative expense

Three months ended

September 30,

Change 2020 vs.

1 unchanged sentence

General and administrative expense

General and administrative expense increased $0.9 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or an increase of 10.0% from the comparable period.

The increase was primarily related to $1.1 million in consulting fees and $0.9 million for the change in fair value of the New Aera earnout liability, partially offset by the $0.6 million reimbursement from the CARES Act Provider Relief Fund due to the COVID-19 PHE, $0.5 million in lower legal fees, and $0.5 million in lower personnel-related expenses.

General and administrative expense increased $0.1 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, or an increase of 0.7% from the comparable period.

The increase was primarily related to $0.8 million in higher personnel-related expenses, partially offset by $0.5 million in lower legal fees and a $0.3 million benefit to general and administrative expense as a reduction to lost revenues classified in other income.

Other income (expense)

Three months ended

September 30,

Change 2020 vs.

1 unchanged sentence

Interest income

Other income (expense)

Total other income, net

Total other income, net increased $4.3 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or an increase of 281.8% from the comparable period.

The increase was primarily attributable to $5.6 million in other income from the CARES Act Provider Relief Fund due to lost revenues from the COVID-19 PHE, partially offset by a decrease of $1.2 million in interest income on marketable securities due to the lower interest rate environment.

Income tax expense

Total other income, net de creased $ 0.6 million for the three months ended September 3 0 , 20 20 from the three months ended September 3 0 , 2019, or a de crease of 90.7 % from the comparable period.

The de crease was primarily attributable to $1.0 million in interest income on marketable securities due to the lower interest rate environment and $0.3 million in other income as a reduction to lost revenues from the CARES Act Provider Relief Fund that was reclassified to general and administrative expense , partially offset by an increase of $0.7 million in other income primarily related to net foreign currency gains .

Income tax expense (benefit)

Three months ended

September 30,

Change 2020 vs.

(amounts in thousands)

Income tax expense

Income tax expense (benefit)

Effective income tax rate

Income tax expense decreased $2.6 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, primarily attributable to a 74.2% decrease in income before income tax expense.

Our effective tax rate in the three months ended June 3 0 , 20 20 in creased compared to the three months en ded June 3 0 , 201 9 , primarily due to changes in income before income tax expense.

In the three months ended June 3 0 , 20 20 , excess tax deficiencies recognized from stock-based compensation in creased our income tax expense by $ 0.3 million and our effective tax rate by 7.3 %, as compared to the tax rate without such deficiencies .

For comparison, in the three months ended June 3 0 , 201 9 , excess tax deficiencies recognized from stock-based compensation in c reased our income tax expense by $ 0.

2 million and our effective tax rate by 1.4 %, as compared to the tax rate without such deficiencies .

Income tax expense (benefit) decreased $2.1 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, primarily attributable to a 121.9% decrease in income before income tax expense (benefit).

Our effective tax rate in the three months ended September 30, 2020 decreased compared to the three months ended September 30, 2019, primarily due to changes in income before income tax expense.

In the three months ended September 30, 2020, excess tax deficiencies recognized from stock-based compensation increased our income tax expense by $0.2 million and our effective tax rate by 9.6%, as compared to the tax rate without such deficiencies.

For comparison, in the three months ended September 30, 2019, excess tax deficiencies recognized from stock-based compensation increased our income tax expense by $0.1 million and our effective tax rate by 0.7%, as compared to the tax rate without such deficiencies.

Net income (loss)

Three months ended

September 30,

Change 2020 vs.

(amounts in thousands)

Net income decreased $7.6 million for the three months ended June 30, 2020 from the three months ended June 30, 2019, or a decrease of 74.6% from the comparable period.

The decrease in net income was primarily related to lower sales revenue and gross margin as well as a higher effective tax rate, partially offset by lower operating expenses.

Comparison of six months ended June 30, 2020 and June 30, 2019

Six months ended

Net income (loss)

Net income (loss) decreased $8.6 million for the three months ended September 30, 2020 from the three months ended September 30, 2019, or a decrease of 124.8% from the comparable period.

The decrease in net income (loss) was primarily related to lower sales revenue and gross margin as well as lower interest income.

Comparison of nine months ended September 30, 2020 and September 30, 2019

Nine months ended

September 30,

Change 2020 vs.

3 unchanged sentences

Total revenue

Sales revenue decreased $31.9 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, or a decrease of 17.7% from the comparable period.

Sales revenue decreased $51.5 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, or a decrease of 19.3% from the comparable period.

The decrease was primarily attributable to reduced direct-to-consumer sales and reduced domestic and international business-to-business sales, primarily due to the impact of the COVID-19 PHE and Inogen One G5 supply constraints in the first quarter of 2020.

We sold approximately 95,900 oxygen systems during the six months ended June 30, 2020 compared to approximately 106,900 oxygen systems sold during the six months ended June 30, 2019, or a decrease of 10.3%.

We sold approximately 138,100 oxygen systems during the nine months ended September 30, 2020 compared to approximately 158,500 oxygen systems sold during the nine months ended September 30, 2019, or a decrease of 12.9%.

The decrease in the number of systems sold resulted mainly from a decrease in sales across all channels primarily due to the COVID-19 PHE and the Inogen One G5 supply constraints in the first quarter of 2020.

Rental revenue increased $0.8 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, or an increase of 8.0% from the comparable period.

The increase in rental revenue was primarily related to higher Medicare reimbursement rates, higher billable patients, and a 1.9% increase in rental patients on service from the comparative period in the prior year.

Six months ended

Rental revenue increased $ 3.0 million for the nine months ended September 3 0 , 20 20 compared to the nine months ended September 3 0 , 201 9 , or a n in crease of 18.8 % from the comparable period.

The in crease in rental revenue was primarily related to higher Medicare reimbursement rates, an increase in rental patients on service , higher billable patients as a percent of total patients on service, and lower revenue adjustments.

Nine months ended

(amounts in thousands)

September 30,

Change 2020 vs.

5 unchanged sentences

Total revenue

Domestic business-to-business sales decreased 11.8% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

The decrease was primarily due to decreased demand from our HME partners for oxygen concentrators in response to the COVID-19 PHE due to physician offices limiting patient interactions that traditionally have led to new oxygen patient referrals, lower retail sales, HME providers minimizing patient interactions in response to the COVID-19 PHE which includes replacing existing oxygen patient setups with POCs, and HME providers turning their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

Domestic business-to-business sales decreased 15.9% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The decrease was primarily due to decreased demand from our HME partners for oxygen concentrators in response to the COVID-19 PHE due to lower retail sales, lower patient travel, physician offices limiting patient interactions that traditionally have led to new oxygen patient referrals, HME providers minimizing patient interactions in response to the COVID-19 PHE which includes replacing existing oxygen patient setups with POCs, and HME providers turning their purchasing focus to stationary oxygen concentrators to treat COVID-19 patients.

In addition, lower Inogen One G5 availability early in the period and uncertainty around competitive bidding Round 2021 contributed to lower sales in the period.

International b usiness-to-business sales de creased 19.9 % for the six months ended June 3 0 , 2020 compared to the six months ended June 3 0 , 2019, mostly driven by the temporary closure of certain European respiratory assessment centers due to the COVID-19 pandemic and continued tender delays in certain European markets.

International business-to-business sales decreased 20.2% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, mostly driven by the temporary closures and reduced operating capacity of certain European respiratory assessment centers due to the COVID-19 pandemic and continued tender delays in certain European markets.

In addition, like in the United States, HME providers turned their focus to supplying stationary oxygen concentrators with higher flow characteristics in responses to the COVID-19 pandemic.

In the six months ended June 3 0 , 2020, sales in Europe as a percentage of total international sales revenue decreased to 85.6 % versus 8 7 .

4 % in the comparative period in 2019, primarily because of r educed sales in Europe.

Domestic direct-to-consumer sales decreased 20.5% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the impact of the COVID-19 PHE with government mandated shelter-in-place initiatives, reduced consumer travel, and lower consumer confidence, which decreased demand and associated close rates in the period compared to the same period in the prior year.

In the nine months ended September 30, 2020, sales in Europe as a percentage of total international sales revenue increased to 87.0% versus 86.4% in the comparative period in 2019.

Domestic direct-to-consumer sales decreased 21.2% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to the impact of the COVID-19 PHE on reduced consumer travel and mobility as well as lower consumer confidence, which decreased demand and associated sales representative productivity in the period compared to the same period in the prior year.

In addition, sales declined associated with a decline in average sales representative headcount.

Domestic direct-to-consumer rentals increased 18.8% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to an increase in patients on service, increased reimbursement rates, higher billable patients as a percent of total patients on service, and lower revenue adjustments.

Cost of revenue and gross profit

Six months ended

Nine months ended

September 30,

Change 2020 vs.

9 unchanged sentences

Total gross margin percentage

Cost of sales revenue decreased $6.1 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, or a decrease of 6.8% from the comparable period.

Cost of rental revenue decreased $1.5 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, or a decrease of 20.1% from the comparable period.

Cost of sales revenue decreased $13.2 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, or a decrease of 9.8% from the comparable period.

The decrease in cost of sales revenue was primarily attributable to lower sales and related bill of material costs, partially offset by higher material and overhead cost per unit.

Cost of rental revenue decreased $ 1.5 million for the nine months ended September 3 0 , 2020 from the nine months ended September 3 0 , 2019, or a decrease of 14.0 % from the comparable period.

The decrease in cost of rental revenue was primarily attributable to reduced rental asset depreciation expense and servicing costs.

Cost of rental revenue included $2.5 million of rental asset depreciation for the six months ended June 30, 2020 compared to $3.3 million for the six months ended June 30, 2019.

Sales revenue gross margin percentage decreased to 44.1% for the six months ended June 30, 2020 from 50.6% for the six months ended June 30, 2019.

The decrease was primarily related to increased domestic business-to-business sales mix which has a lower gross margin, higher cost of goods sold associated with certain manufacturing inefficiencies in the period that contributed to higher labor and overhead costs per unit, and lower average selling prices.

Total domestic business-to-business sales revenue accounted for 33.0% of total sales revenue in the six months ended June 30, 2020 versus 30.8% in the six months ended June 30, 2019.

Rental revenue gross margin percentage increased to 48.7% for the six months ended June 30, 2020 from 30.6% for the six months ended June 30, 2019, primarily due to higher rental revenue per patient on service and lower depreciation and servicing costs per patient on service.

Cost of rental revenue included $ 4.0 million of rental asset depreciation for the nine months ended September 3 0 , 2020 compared to $ 4.8 million for the nine months ended September 3 0 , 2019.

Sales revenue gross margin percentage decreased to 43.9% for the nine months ended September 30, 2020 from 49.8% for the nine months ended September 30, 2019.

The decrease was primarily related to lower average selling prices, increased domestic business-to-business sales mix which has a lower gross margin, and higher cost of goods sold associated with certain manufacturing inefficiencies in the period that contributed to higher material and labor and overhead costs per unit.

Total domestic business-to-business sales revenue accounted for 33.5% of total sales revenue in the nine months ended September 30, 2020 versus 32.1% in the nine months ended September 30, 2019.

Rental revenue gross margin percentage increased to 50.0% for the nine months ended September 30, 2020 from 30.9% for the nine months ended September 30, 2019, primarily due to higher Medicare reimbursement rates, higher billable patients as a percent of total patients on service, lower revenue adjustments and lower depreciation and servicing costs per patient on service.

Research and development expense

Six months ended

Nine months ended

September 30,

Change 2020 vs.

1 unchanged sentence

Research and development expense

Research and development expense increased $ 3.8 million for the six months ended June 3 0 , 20 20 from the six months ended June 3 0 , 201 9 , or an increase of 119.8 % over the comparable period, primarily due to $ 3.9 million in intangible amortization costs related to the New Aera acquisition.

Research and development expense increased $4.6 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, or an increase of 80.3% over the comparable period, primarily due to $4.9 million in intangible amortization costs primarily related to the New Aera acquisition, partially offset by a $0.4 million decrease in product development expenses.

Sales and marketing expense

Six months ended

Nine months ended

September 30,

Change 2020 vs.

1 unchanged sentence

Sales and marketing expense

Sales and marketing expense decreased $6.7 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, or a decrease of 12.0% from the comparable period, primarily attributable to decreases of $4.6 million of advertising costs, $2.1 million of personnel-related expenses partially associated with the decline in average sales representative headcount, and $0.5 million in credit card processing fees, partially offset by an increase of $0.6 million in dues, fees and license costs.

In the six months ended June 30, 2020, we spent $17.2 million in media and advertising costs versus $21.8 million in the comparative period in 2019.

Sales and marketing expense decreased $7.9 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, or a decrease of 9.8% from the comparable period, primarily attributable to decreases of $5.9 million of advertising costs, $1.4 million of personnel-related expenses mainly associated with lower commission expense, and $0.7 million in credit card processing fees, partially offset by an increase of $0.7 million in dues, fees and license costs.

In the nine months ended September 30, 2020, we spent $24.9 million in media and advertising costs versus $30.8 million in the comparative period in 2019.

General and administrative expense

Six months ended

Nine months ended

September 30,

Change 2020 vs.

1 unchanged sentence

General and administrative expense

General and administrative expense increased $1.0 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, or an increase of 5.3% from the comparable period.

The increase was primarily attributable to $1.8 million in professional and consulting fees as well as $0.3 million in facilities costs, partially offset by $0.6 million in lower personnel-related costs, $0.6 million reimbursement from the CARES Act Provider Relief Fund due to the COVID-19 PHE, and $0.3 million in lower legal fees.

General and administrative expense increased $1.0 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, or an increase of 3.8% from the comparable period.

The increase was primarily attributable to $1.7 million in consulting fees, $0.4 million in facilities costs and $0.3 million in personnel-related expenses, partially offset by a $0.9 million reimbursement from the CARES Act Provider Relief Fund from the COVID-19 PHE and $0.8 million in lower legal fees.

Other income (expense)

Six months ended

Nine months ended

September 30,

Change 2020 vs.

1 unchanged sentence

Interest income

Other income (expense)

Total other income, net

Total other income, net increased $3.6 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, or an increase of 131.3% from the comparable period.

The increase was primarily attributable to $5.6 million in other income from the CARES Act Provider Relief Fund due to lost revenues from the COVID-19 PHE, partially offset by a decrease of $2.0 million in interest income on marketable securities due to the lower interest rate environment.

Total other income, net increased $3.0 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, or an increase of 89.1% from the comparable period.

The increase was primarily attributable to $5.3 million in other income from the CARES Act Provider Relief Fund due to lost revenues from the COVID-19 PHE and a $0.7 million increase in net foreign currency gains, partially offset by a decrease of $3.0 million in interest income on marketable securities due to the lower interest rate environment.

Income tax expense

Six months ended

Nine months ended

September 30,

Change 2020 vs.

2 unchanged sentences

Effective income tax rate

Income tax expense decreased $3.4 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, primarily attributable to a 90.7% decrease in income before income tax expense for the year.

Our effective tax rate in the six months ended June 30, 2020 increased compared to the six months ended June 30, 2019, primarily due to the decrease in excess tax benefits recognized from stock-based compensation, partially offset by the changes in

income before income tax expense , increase in favorable permanent differences and research and development credits.

In the six months ended June 3 0 , 20 20 , excess tax deficiencies recognized from stock-based compensation in creased our income tax expense by $ 0.5 million and our effective tax rate by 26.9 %, as compared to the tax rate without such deficiencies .

For comparison, in the six months ended June 3 0 , 201 9 , excess tax benefits recognized from stock-based compensation decreased our income tax expense by $ 0.

4 million and our effective tax rate by 2.3 %, as compared to the tax rate without such benefits.

Six months ended

Income tax expense decreased $5.6 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, primarily attributable to a decrease in income before income tax expense for the year.

Our effective tax rate in the nine months ended September 30, 2020 decreased compared to the nine months ended September 30, 2019, primarily due to the increase in excess tax deficiencies recognized from stock-based compensation, partially offset by the changes in income before income tax expense.

In the nine months ended September 30, 2020, excess tax deficiencies recognized from stock-based compensation increased our income tax expense by $0.7 million and decreased our effective tax rate by 904.0%, as compared to the tax rate without such deficiencies.

For comparison, in the nine months ended September 30, 2019, excess tax benefits recognized from stock-based compensation decreased our income tax expense by $0.4 million and our effective tax rate by 1.3%, as compared to the tax rate without such benefits.

Net income (loss)

Nine months ended

September 30,

Change 2020 vs.

(amounts in thousands)

Net income decreased $14.5 million for the six months ended June 30, 2020 from the six months ended June 30, 2019, or a decrease of 93.6% from the comparable period.

The decrease in net income was primarily related to lower sales revenue and gross margin as well as a higher effective tax rate, partially offset by lower operating expenses.

Net income (loss)

Net income (loss) decreased $23.0 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019, or a decrease of 103.2% from the comparable period.

The decrease in net income (loss) was primarily related to lower sales revenue and gross margin, partially offset by lower operating expenses and other income from the CARES Act Provider Relief Fund.

Contractual obligations

2 unchanged sentences

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

As of June 30, 2020, we had purchase obligations with outside vendors and suppliers of approximately $68.2 million of which the timing varies depending on demand, current supply on hand and other factors.

As of September 30, 2020, we had purchase obligations with outside vendors and suppliers of approximately $56.5 million of which the timing varies depending on demand, current supply on hand and other factors.

The obligations normally do not extend beyond twelve-month time frames.

6 unchanged sentences

Liquidity and capital resources

As of June 30, 2020, we had cash and cash equivalents of $214.1 million, which consisted of highly-liquid investments with a maturity of three months or less.

As of September 30, 2020, we had cash and cash equivalents of $214.0 million, which consisted of highly-liquid investments with a maturity of three months or less.

Since inception, we have received net proceeds of $91.7 million from the issuance of redeemable convertible preferred stock and convertible preferred stock and $52.5 million ($49.7 million net proceeds) in connection with the sale of common stock in our initial public offering.

Since 2013, we have received $53.4 million from proceeds related to stock option exercises and our employee stock purchase plan.

For the six months ended June 30, 2020 and June 30, 2019, we received $1.3 million and $3.4 million, respectively, in proceeds related to these stock programs.

Our principal uses of cash for liquidity and capital resources in the six months ended June 30, 2020 consisted of capital expenditures of $5.6 million including additional rental equipment and other property, plant and equipment.

For the nine months ended September 30, 2020 and September 30, 2019, we received $2.3 million and $4.8 million, respectively, in proceeds related to these stock programs.

Our principal uses of cash for liquidity and capital resources in the nine months ended September 30, 2020 consisted of capital expenditures of $11.8 million including additional rental equipment, other property, plant and equipment, and intangible assets.

The COVID-19 PHE did not yet materially impact our liquidity position to date, and we believe our current cash and cash equivalents provide us with a certain degree of stability and liquidity during this time of uncertainty.

3 unchanged sentences

the cost of our research and development activities;

from customers;

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;

13 unchanged sentences

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

Six months ended

Nine months ended

(amounts in thousands)

September 30,

Change 2020 vs.

1 unchanged sentence

Cash provided by operating activities

Cash provided by (used in) investing activities

Cash used in investing activities

Cash provided by financing activities

Effect of exchange rates on cash

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

(amounts in thousands)

September 30,

Working capital

17 unchanged sentences

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 six months ended June 30, 2020 consisted primarily of our net income of $1.0 million as well as non-cash expense items such as depreciation of equipment and leasehold improvements and amortization of our intangibles of $8.9 million, provision for sales returns and doubtful accounts of $5.7 million, stock-based compensation expense of $4.1 million, provision for rental revenue adjustments of $1.5 million, decrease in deferred tax assets of $0.7 million, and provision for

inventory obsolescence and other inventory losses of $0.6 million .

T he net changes in operating assets and liabilities resulted in a net use of cash of $ 8.7 million .

Net cash provided by operating activities for the six months ended June 30, 2019 consisted primarily of our net income of $15.5 million as well as non-cash expense items such as provision for sales returns and doubtful accounts of $8.9 million, depreciation of equipment and leasehold improvements and amortization of our intangibles of $5.6 million, stock-based compensation expense of $5.4 million, a decrease in deferred tax assets of $4.1 million, provision for rental revenue adjustments of $1.2 million, and provision for inventory obsolescence and other inventory losses of $0.4 million.

Net cash provided by operating activities for the nine months ended September 30, 2020 consisted primarily of our non-cash expense items such as depreciation of equipment and leasehold improvements and amortization of our intangibles of $13.7 million, provision for sales returns and doubtful accounts of $8.3 million, stock-based compensation expense of $6.1 million, provision for rental revenue adjustments of $2.1 million, provision for inventory obsolescence and other inventory losses of $0.7 million, decrease in deferred tax assets of $0.4 million, net loss on disposal of rental equipment and other fixed assets of $0.4 million, and our net loss of $0.7 million.

The net changes in operating assets and liabilities resulted in a net use of cash of $10.0 million.

Net cash provided by operating activities for the nine months ended September 30, 2019 consisted primarily of our net income of $22.3 million as well as non-cash expense items such as provision for sales returns and doubtful accounts of $13.2 million, depreciation of equipment and leasehold improvements and amortization of our intangibles of $9.2 million, stock-based compensation expense of $6.9 million, deferred tax assets of $5.9 million, provision for rental revenue adjustments of $1.7 million, provision for inventory obsolescence and other inventory losses of $0.6 million, and net loss on disposal of rental equipment and other fixed assets of $0.4 million.

The net changes in operating assets and liabilities resulted in a net use of cash of $29.1 million.

Investing activities

Net cash provided by (used in) investing activities for each of the periods presented included cash used for acquisitions and in the production and purchase of rental assets, manufacturing tooling, and computer equipment and software to support our expanding business as well as net (purchases) maturities of marketable securities.

For the six months ended June 30, 2020, we received $11.1 million in maturities of marketable securities, partially offset by $4.6 million in purchases of marketable securities.

Net cash used in investing activities for each of the periods presented included cash used for acquisitions and in the production and purchase of rental assets, manufacturing tooling, and computer equipment and software to support our expanding business as well as net (purchases) maturities of marketable securities.

For the nine months ended September 30, 2020, we received $11.1 million in maturities of marketable securities, partially offset by $6.5 million in purchases of marketable securities.

In addition, we invested $11.8 million in the production and purchase of rental assets and other property, equipment, and intangible assets.

For the six months ended June 30, 2019, we invested $38.6 million in corporate bonds and U.S.

For the nine months ended September 30, 2019, we acquired New Aera for a net cash payment of $70.4 million and invested $ 58.7 million in corporate bonds and U.S.

Treasury securities with maturities greater than three months that were classified as marketable securities, partially offset by $ 57.9 million in maturities of marketable securities.

In addition, we invested $3.4 million in the production and purchase of rental assets and other property, equipment, and leasehold improvements.

In addition, we invested $ 4 .

5 million in the production and purchase of rental assets and other property, equipment, and leasehold improvements , partially offset by gross proceeds received from the sale of former assets of $0.2 million.

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

4 unchanged sentences

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

For the six months ended June 30, 2020, net cash provided by financing activities consisted of $1.3 million from purchases under our employee stock purchase program and the proceeds received from stock options that were exercised, partially offset by the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.2 million.

For the six months ended June 30, 2019, net cash provided by financing activities consisted of $3.4 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 $0.8 million.

For the nine months ended September 30, 2020, net cash provided by financing activities consisted of $2.3 million from purchases under our employee stock purchase program and the proceeds received from stock options that were exercised, partially offset by the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.3 million.

For the nine months ended September 30, 2019, net cash provided by financing activities consisted of $4.8 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 $0.8 million.

Sources of funds

Our cash provided by operating activities in the six months ended June 30, 2020 was $14.1 million compared to $16.6 million in the six months ended June 30, 2019.

As of June 30, 2020, we had cash and cash equivalents of $214.1 million.

Our cash provided by operating activities in the nine months ended September 30, 2020 was $20.8 million compared to $31.2 million in the nine months ended September 30, 2019.

As of September 30, 2020, we had cash and cash equivalents of $214.0 million.

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

4 unchanged sentences

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

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.

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.

1 unchanged sentence

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

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

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

Adjusted EBITDA also excludes stock-based compensation and change in fair value of earnout liability.

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

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

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

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

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

14 unchanged sentences

GAAP results.

The following table present s a reconciliation of EBITDA and Adjusted EBITDA to our net income , the most comparable U.S.

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

GAAP measure, for each of the periods indicated:

1 unchanged sentence

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Non-GAAP EBITDA and Adjusted EBITDA

Net income (loss)

Non-GAAP adjustments:

Interest income

Provision for income taxes

Provision (benefit) for income taxes

Depreciation and amortization

4 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis