Inogen Inc 10-Q

Item 1. Financial Statements Inogen, Inc. Consolidated Balance Sheets (unaudited) (amounts in thousands) March 31, December 31, 2022 2021 Assets Current assets Cash and cash equivalents $ 213,399 $ 235,524 Marketable securities 9,989 9,989 Accounts receivable, net 33,983 24,452 Inventories, net 34,078 31,873 Income tax receivable 1,435 1,343 Prepaid expenses and other current assets 25,238 26,005 Total current assets 318,122 329,186 Property and equipment Rental equipment, net 59,387 59,073 Manufacturing equipment and tooling 10,968 12,050 Computer equipment and software 8,320 8,585 Furniture and equipment 3,135 3,167 Leasehold improvements 6,045 5,956 Land and building 125 125 Construction in process 2,705 1,639 Total property and equipment 90,685 90,595 Less accumulated depreciation ( 51,356 ) ( 51,669 ) Property and equipment, net 39,329 38,926 Goodwill 32,934 32,979 Intangible assets, net 58,000 60,147 Operating lease right-of-use asset 24,080 24,912 Other assets 2,151 3,363 Total assets $ 474,616 $ 489,513 See accompanying condensed notes to the consolidated financial statements. 3 Inogen, Inc. Consolidated Balance Sheets (continued) (unaudited) (amounts in thousands, except share and per share amounts) March 31, December 31, 2022 2021 Liabilities and stockholders' equity Current liabilities Accounts payable and accrued expenses $ 32,375 $ 25,689 Accrued payroll 8,839 17,307 Warranty reserve - current 6,519 6,480 Operating lease liability - current 3,401 3,393 Deferred revenue - current 8,689 8,568 Income tax payable — 75 Total current liabilities 59,823 61,512 Long-term liabilities Warranty reserve - noncurrent 6,574 7,246 Operating lease liability - noncurrent 22,409 23,281 Earnout liability - noncurrent 16,016 15,386 Deferred revenue - noncurrent 11,509 11,861 Total liabilities 116,331 119,286 Commitments and contingencies (Note 9) Stockholders' equity Common stock, $ 0.001 par value per share; 200,000,000 authorized; 22,836,472 and 22,731,586 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively 23 23 Additional paid-in capital 302,020 299,463 Retained earnings 55,058 69,272 Accumulated other comprehensive income 1,184 1,469 Total stockholders' equity 358,285 370,227 Total liabilities and stockholders' equity $ 474,616 $ 489,513 See accompanying condensed notes to the consolidated financial statements. 4 Inogen, Inc. Consolidated Statements of Comprehensive Loss (unaudited) (amounts in thousands, except share and per share amounts) Three months ended March 31, 2022 2021 Revenue Sales revenue $ 67,402 $ 77,081 Rental revenue 12,983 9,851 Total revenue 80,385 86,932 Cost of revenue Cost of sales revenue 39,500 42,635 Cost of rental revenue, including depreciation of $ 2,638 and $ 1,888 , respectively 5,879 4,424 Total cost of revenue 45,379 47,059 Gross profit Gross profit-sales revenue 27,902 34,446 Gross profit-rental revenue 7,104 5,427 Total gross profit 35,006 39,873 Operating expense Research and development 5,364 4,015 Sales and marketing 28,039 25,491 General and administrative 15,189 12,499 Total operating expense 48,592 42,005 Loss from operations ( 13,586 ) ( 2,132 ) Other income (expense) Interest income 29 57 Other income (expense) ( 433 ) ( 310 ) Total other expense, net ( 404 ) ( 253 ) Loss before provision (benefit) for income taxes ( 13,990 ) ( 2,385 ) Provision (benefit) for income taxes 224 ( 1,653 ) Net loss ( 14,214 ) ( 732 ) Other comprehensive income (loss), net of tax Change in foreign currency translation adjustment ( 203 ) ( 457 ) Change in net unrealized gains (losses) on foreign currency hedging ( 528 ) 1,144 Less: reclassification adjustment for net (gains) losses included in net income 454 ( 241 ) Total net change in unrealized gains (losses) on foreign currency hedging ( 74 ) 903 Change in net unrealized gains (losses) on marketable securities ( 8 ) 4 Total other comprehensive income (loss), net of tax ( 285 ) 450 Comprehensive loss $ ( 14,499 ) $ ( 282 ) Basic net loss per share attributable to common stockholders (Note 6) $ ( 0.62 ) $ ( 0.03 ) Diluted net loss per share attributable to common stockholders (Note 6) $ ( 0.62 ) $ ( 0.03 ) Weighted average number of shares used in calculating net loss per share attributable to common stockholders: Basic common shares 22,754,421 22,181,394 Diluted common shares 22,754,421 22,181,394 See accompanying condensed notes to the consolidated financial statements. 5 Inogen, Inc. Consolidated Statements of Stockholders’ Equity (unaudited) (amounts in thousands, except share amounts) Three months ended March 31, 2022 and March 31, 2021 Accumulated Additional other Total Common stock paid-in Retained comprehensive stockholders' Shares Amount capital earnings income equity Balance, December 31, 2020 22,131,447 $ 22 $ 273,521 $ 75,605 $ 475 $ 349,623 Stock-based compensation — — 2,516 — — 2,516 Employee stock purchases 37,699 — 927 — — 927 Restricted stock awards issued, net of forfeitures ( 21,509 ) — — — — — Vesting of restricted stock units 34,117 — ( 275 ) — — ( 275 ) Shares withheld related to net restricted stock settlement ( 1,713 ) — ( 91 ) — — ( 91 ) Stock options exercised 205,753 — 3,866 — — 3,866 Net loss — — — ( 732 ) — ( 732 ) Other comprehensive income — — — — 450 450 Balance, March 31, 2021 22,385,794 $ 22 $ 280,464 $ 74,873 $ 925 $ 356,284 Balance, December 31, 2021 22,731,586 $ 23 $ 299,463 $ 69,272 $ 1,469 $ 370,227 Stock-based compensation — — 2,665 — — 2,665 Employee stock purchases 30,558 — 915 — — 915 Vesting of restricted stock units 73,495 — ( 958 ) — — ( 958 ) Shares withheld related to net restricted stock settlement ( 2,666 ) — ( 94 ) — — ( 94 ) Stock options exercised 3,499 — 29 — — 29 Net loss — — — ( 14,214 ) — ( 14,214 ) Other comprehensive loss — — — — ( 285 ) ( 285 ) Balance, March 31, 2022 22,836,472 $ 23 $ 302,020 $ 55,058 $ 1,184 $ 358,285 See accompanying condensed notes to the consolidated financial statements. 6 Inogen, Inc. Consolidated Statements of Cash Flows (unaudited) (amounts in thousands) Three months ended March 31, 2022 2021 Cash flows from operating activities Net loss $ ( 14,214 ) $ ( 732 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 5,760 5,098 Loss on rental units and other fixed assets 706 158 Gain on sale of former rental assets ( 52 ) ( 24 ) Provision for sales revenue returns and doubtful accounts 2,953 2,471 Provision for rental revenue adjustments — 1,041 Provision for inventory losses 934 518 Stock-based compensation expense 2,665 2,516 Deferred income taxes — ( 1,527 ) Change in fair value of earnout liability 630 265 Changes in operating assets and liabilities: Accounts receivable ( 12,802 ) ( 12,418 ) Inventories ( 2,515 ) ( 2,686 ) Income tax receivable ( 92 ) 64 Prepaid expenses and other current assets 764 8,171 Operating lease right-of-use asset 832 ( 8,696 ) Other noncurrent assets 66 41 Accounts payable and accrued expenses 6,539 ( 3,526 ) Accrued payroll ( 8,465 ) 2,105 Warranty reserve ( 633 ) 520 Deferred revenue ( 231 ) 518 Income tax payable ( 79 ) 80 Operating lease liability ( 864 ) 8,903 Net cash provided by (used in) operating activities ( 18,098 ) 2,860 Cash flows from investing activities Maturities of marketable securities — 6,125 Investment in intangible assets — ( 26 ) Investment in property and equipment ( 1,366 ) ( 1,516 ) Production and purchase of rental equipment ( 2,777 ) ( 3,643 ) Proceeds from sale of former assets 91 46 Net cash provided by (used in) investing activities ( 4,052 ) 986 (continued on next page) See accompanying condensed notes to the consolidated financial statements. 7 Inogen, Inc. Consolidated Statements of Cash Flows (continued) (unaudited) (amounts in thousands) Three months ended March 31, 2022 2021 Cash flows from financing activities Proceeds from stock options exercised 29 3,866 Proceeds from employee stock purchases 915 927 Payment of employment taxes related to release of restricted stock ( 1,052 ) ( 366 ) Net cash provided by (used in) financing activities ( 108 ) 4,427 Effect of exchange rates on cash 133 ( 221 ) Net increase (decrease) in cash and cash equivalents ( 22,125 ) 8,052 Cash and cash equivalents, beginning of period 235,524 211,962 Cash and cash equivalents, end of period $ 213,399 $ 220,014 Supplemental disclosures of cash flow information Cash paid during the period for income taxes, net of refunds received $ 372 $ 17 Supplemental disclosure of non-cash transactions Property and equipment in accounts payable and accrued liabilities 91 77 See accompanying condensed notes to the consolidated financial statements. 8 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (unaudited) (amounts in thousands, except share and per share amounts) 1. Business overview Inogen, Inc. (Company or Inogen) was incorporated in Delaware on November 27, 2001. The Company is a medical technology company that primarily develops, manufactures and markets innovative portable oxygen concentrators (POCs) used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions. Traditionally, these patients have relied on stationary oxygen concentrator systems for use in the home and oxygen tanks or cylinders for mobile use, which the Company calls the delivery model. The tanks and cylinders must be delivered regularly and have a finite amount of oxygen, which requires patients to plan activities outside of their homes around delivery schedules and a finite oxygen supply. Additionally, patients must attach long, cumbersome tubing to their stationary concentrators simply to enable mobility within their homes. The Company’s proprietary Inogen One ® systems concentrate the air around the patient to offer a single source of supplemental oxygen anytime, anywhere with a single battery and can be plugged into an outlet when at home, in a car, or in a public place with outlets available. The Company’s Inogen One systems reduce the patient’s reliance on stationary concentrators and scheduled deliveries of tanks with a finite supply of oxygen, thereby improving patient quality of life and fostering mobility. The Company incorporated Inogen Europe Holding B.V., a Dutch limited liability company, on April 13, 2017 . On May 4, 2017, Inogen Europe Holding B.V. acquired all issued and outstanding capital stock of MedSupport Systems B.V. (MedSupport) and began operating under the name Inogen Europe B.V. The Company merged Inogen Europe Holding B.V. and Inogen Europe B.V. on December 28, 2018. Inogen Europe B.V. is the remaining legal entity. Inogen completed the acquisition of New Aera, Inc. (New Aera) on August 9, 2019. 2. Basis of presentation and summary of significant accounting policies The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The results of operations for the three months ended March 31, 2022 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2022. In the opinion of the Company’s management, the information contained herein reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity. Certain footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (SEC) rules and regulations relating to interim financial statements. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2022. Except as further described below, there have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K filed with the SEC on February 24, 2022. Basis of consolidation The consolidated financial statements include the accounts of Inogen, Inc. and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated. Use of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition, warranty reserves and expense, determining the stand-alone selling price (SSP) and service period of performance obligations, rental asset valuations and write-downs, accounts receivable allowances for bad debts, returns and adjustments, impairment of long-lived assets, stock-based compensation expense, income taxes, fair value of acquired intangible assets and goodwill and fair value of earnout liabilities. Actual results could differ from these estimates. 9 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) Business segments The Company operates and reports in only one operating and reportable segment – development, manufacturing, marketing, sales, and rental of respiratory products. Management reports financial information on a consolidated basis to the Company’s chief operating decision maker. 3. Fair value measurements Accounting Standards Codification (ASC) 820 — Fair Value Measurements and Disclosures creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement is to estimate the price at which an orderly transaction to sell an asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by ASC 820, are as follows: Level input Input definition Level 1 Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. Level 2 Inputs, other than quoted prices included in Level 1, that are observable for the asset or liability through corroboration with market data at the measurement date. Level 3 Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses. The carrying values of its financial instruments approximate fair value based on their short-term nature. Cash, cash equivalents and marketable securities The Company obtained the fair value of its available-for-sale investments, which are not in active markets, from a third-party professional pricing service using quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. The Company's professional pricing service gathers observable inputs for all of its fixed income securities from a variety of industry data providers (e.g., large custodial institutions) and other third-party sources. Once the observable inputs are gathered, all data points are considered, and the fair value is determined. The Company validates the quoted market prices provided by its primary pricing service by comparing their assessment of the fair values against the fair values provided by its investment managers. The Company's investment managers use similar techniques to its professional pricing service to derive pricing as described above. As all significant inputs were observable, derived from observable information in the marketplace or supported by observable levels at which transactions are executed in the marketplace, the Company has classified its marketable securities within Level 2 of the fair value hierarchy. 10 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) The following table summarizes fair value measurements by level for the assets measured at fair value on a recurring basis for cash, cash equivalents and marketable securities: As of March 31, 2022 Gross Cash Adjusted unrealized and cash Marketable cost losses Fair value equivalents securities Cash $ 36,677 $ — $ 36,677 $ 36,677 $ — Level 1: Money market accounts 176,722 — 176,722 176,722 — Level 2: Corporate bonds 9,996 ( 7 ) 9,989 — 9,989 Total $ 223,395 $ ( 7 ) $ 223,388 $ 213,399 $ 9,989 As of December 31, 2021 Gross Cash Adjusted unrealized and cash Marketable cost gains Fair value equivalents securities Cash $ 48,817 $ — $ 48,817 $ 48,817 $ — Level 1: Money market accounts 186,707 — 186,707 186,707 — Level 2: Corporate bonds 9,988 1 9,989 — 9,989 Total $ 245,512 $ 1 $ 245,513 $ 235,524 $ 9,989 Derivative instruments and hedging activities The Company records the assets or liabilities associated with derivative instruments and hedging activities at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the consolidated balance sheet. The Company had a related receivable of $ 1,637 and $ 1,671 as of March 31, 2022 and December 31, 2021, respectively. Accumulated other comprehensive income The components of accumulated other comprehensive income (loss) were as follows: Foreign Unrealized Unrealized Accumulated currency gains (losses) gains (losses) other translation on marketable on cash comprehensive adjustments securities flow hedges income Balance as of December 31, 2021 $ 328 $ 1 $ 1,140 $ 1,469 Other comprehensive loss ( 203 ) ( 8 ) ( 74 ) ( 285 ) Balance as of March 31, 2022 $ 125 $ ( 7 ) $ 1,066 $ 1,184 Comprehensive income (loss) is the total net earnings and all other non-owner changes in equity. Except for net income (loss) and unrealized gains and losses on cash flow hedges, the Company does not have any transactions or other economic events that qualify as other comprehensive income (loss). Earnout liability The Company has obligations to pay up to $ 31,400 in earnout payments in cash if certain future financial results are met. The earnout liability was valued using Level 3 inputs. The fair value of the earnout was determined by employing a Monte Carlo simulation in a risk-neutral framework. The underlying simulated variable includes recognized revenue. The recognized revenue volatility estimate was based on a study of historical asset volatility for a set of comparable public companies. The model includes other assumptions including the market price of risk, which was calculated as the weighted average cost of capital (WACC) less the long-term risk free rate. The earnout period for recognized revenue is each calendar year beginning with calendar year 2019 and ending on the calendar year in which the earnout consideration equals the earnout cap . 11 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) The following table provides quantitative information about Level 3 inputs for fair value measurement of the earnout liability as of March 31, 2022 and December 31, 2021. Significant increases or decreases in these inputs in isolation could result in a significant impact on the fair value measurement: Simulation input March 31, 2022 December 31, 2021 Revenue volatility 15.00 % 15.00 % WACC 11.50 % 10.50 % 20-year risk free rate 2.59 % 2.02 % Market price of risk 2.30 % 2.68 % The reconciliation of the earnout liability measured and carried at fair value on a recurring basis is as follows: Three months ended March 31, 2022 Balance at beginning of period $ 16,016 Change in fair value 630 Balance at end of period $ 16,646 The Company recorded $ 630 and $ 630 of preacquisition loss recoveries that can be withheld from any earnout amounts payable as of March 31, 2022 and December 31, 2021, respectively. 4. Balance sheet components Cash, cash equivalents and marketable securities The Company considers all short-term highly liquid investments with a maturity of three months or less to be cash equivalents. The Company’s marketable debt securities are classified and accounted for as available-for-sale. Cash equivalents are recorded at cost plus accrued interest, which is considered adjusted cost, and approximates fair value. Marketable debt securities are included in cash equivalents and marketable securities based on the maturity date of the security. Short-term investments are included in marketable securities in the current period presentation. The Company considers investments with maturities greater than three months, but less than one year, to be marketable securities. Investments are reported at fair value with realized and unrealized gains or losses reported in other income (expense), net. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Credit losses and other-than-temporary impairments are declines in fair value that are not expected to recover and are charged to other income (expense), net. 12 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) Cash, cash equivalents, and marketable securities consist of the following: March 31, December 31, Cash and cash equivalents 2022 2021 Cash $ 36,677 $ 48,817 Money market accounts 176,722 186,707 Total cash and cash equivalents $ 213,399 $ 235,524 Marketable securities Corporate bonds $ 9,989 $ 9,989 Total marketable securities $ 9,989 $ 9,989 Accounts receivable and allowance for bad debts, returns, and adjustments Accounts receivable are customer obligations due under normal sales and rental terms. The Company performs credit evaluations of the customers’ financial condition and generally does not require collateral. The allowance for doubtful accounts is maintained at a level that, in management’s opinion, is adequate to absorb potential losses related to accounts receivable and is based upon the Company’s continuous evaluation of the collectability of outstanding balances. Management’s evaluation takes into consideration such factors as past bad debt experience, economic conditions and information about specific receivables. The Company’s evaluation also considers the age and composition of the outstanding amounts in determining their net realizable value. The allowance for doubtful accounts is based on estimates, and ultimate losses may vary from current estimates. As adjustments to these estimates become necessary, they are reported in general and administrative expense for sales revenue in the periods in which they become known. The allowance is increased by bad debt provisions, net of recoveries, and is reduced by direct write-offs. The Company generally does not allow returns from providers for reasons not covered under its standard warranty. Therefore, provision for returns applies primarily to direct-to-consumer sales. This reserve is calculated primarily based on actual historical return rates under the Company’s 30-day return program and is applied to the related sales revenue for the last month of the quarter reported. The Company also records an estimate for rental revenue adjustments which is recorded as a reduction of rental revenue and net rental accounts receivable balances. These adjustments result from contractual adjustments, audit adjustments, untimely claims filings, or billings not paid due to another provider performing same or similar functions for the patient in the same period, all of which prevent billed revenue from becoming realizable. The reserve is based on historical revenue adjustments as a percentage of rental revenue billed and unbilled during the related period. When recording the allowance for doubtful accounts for sales revenue, the bad debt expense account (general and administrative expense account) is charged and when recording allowance for sales returns, the sales returns account (contra sales revenue account) is charged. The Company consistently applies its allowance estimation methodology from period-to-period. The Company’s best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are included in the current period. As additional information becomes known, the Company adjusts its assumptions accordingly to change its estimate of accounts receivable. Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of March 31, 2022 and December 31, 2021 were as follows: As of As of Net accounts receivable March 31, 2022 December 31, 2021 Rental (1) $ 7,072 $ 6,011 Business-to-business and other receivables (2) 26,911 18,441 Total net accounts receivable $ 33,983 $ 24,452 (1) Rental includes Medicare, Medicaid/other government, private insurance and patient pay. 13 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) (2) Business-to-business receivables included one customer with an accounts receivable balance of $ 4,268 and $ 5,945 as of March 31, 2022 and December 31, 2021, respectively. The customer received extended payment terms through a direct financing plan offered. The Company also has a credit insurance policy in place, which allocated up to $ 10,000 in coverage as of March 31, 2022 and December 31, 2021 for this customer with a $ 400 deductible and 10 % retention. The following tables sets forth the accounts receivable allowances as of March 31, 2022 and December 31, 2021: As of As of Allowances - accounts receivable March 31, 2022 December 31, 2021 Doubtful accounts $ 53 $ 52 Sales returns 969 810 Total allowances - accounts receivable $ 1,022 $ 862 Concentration of credit risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, marketable securities and accounts receivable. At times, cash account balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation (FDIC). However, management believes the risk of loss to be minimal. The Company performs periodic evaluations of the relative credit standing of these institutions and has not experienced any losses on its cash and cash equivalents to date. The Company has also entered into hedging relationships with a single counterparty to offset the forecasted Euro-based revenues. The credit risk has been reduced due to a net settlement arrangement whereby the Company is allowed to net settle transactions with a single net amount payable by one party to the other. Concentration of customers and vendors The Company primarily sells its products to traditional home medical equipment providers, distributors, and resellers in the United States and in foreign countries on a credit basis. The Company also sells its products direct-to-consumers primarily on a prepayment basis. The Medicare service reimbursement programs represented more than 10% of the Company’s total revenue for the three months ended March 31, 2022. Medicare represented more than 10% of the Company’s total revenue for the three months ended March 31, 2022 and one single customer for the three months ended March 31, 2021. Three single customers and Medicare each represented more than 10% of the Company’s net accounts receivable balance with accounts receivable balances of $ 5,778 , $ 4,268 , $ 3,673 and $ 3,461 , respectively, as of March 31, 2022, and one single customer and Medicare of $ 5,945 and $ 2,685 , respectively, as of December 31, 2021. The Company also rents products directly to consumers for insurance reimbursement, which resulted in a customer concentration relating to Medicare’s service reimbursement programs. Medicare’s service reimbursement programs accounted for 79.0 % and 83.9 % of rental revenue in the three months ended March 31, 2022 and March 31, 2021, respectively, and based on total revenue were 12.8 % and 9.5 % for the three months ended March 31, 2022 and March 31, 2021, respectively. Accounts receivable balances relating to Medicare’s service reimbursement programs (including held and unbilled, net of allowances) amounted to $ 3,461 or 10.2 % of total net accounts receivable as of March 31, 2022 as compared to $ 2,685 or 11.0 % of total net accounts receivable as of December 31, 2021. The Company currently purchases raw materials from a limited number of vendors, which resulted in a concentration of three major vendors. The three major vendors supply the Company with raw materials used to manufacture the Company’s products. For the three months ended March 31, 2022, the Company’s three major vendors accounted for 25.2 %, 19.9 % and 8.4 %, respectively, of total raw material purchases. For the three months ended March 31, 2021, the Company’s three major vendors accounted for 19.9 %, 10.8 % and 9.6 %, respectively, of total raw material purchases. 14 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) A portion of revenue is earned from sales outside the United States. Approximately 73.2 % and 79.3 % of the non-U.S. revenue for the three months ended March 31, 2022 and March 31, 2021, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the three months ended March 31, 2022 and March 31, 2021, respectively, is as follows: Three months ended March 31, 2022 2021 U.S. revenue $ 52,444 $ 71,212 Non-U.S. revenue 27,941 15,720 Total revenue $ 80,385 $ 86,932 Inventories Inventories are stated at the lower of cost and net realizable value, using the first-in, first-out (FIFO) method. The Company records adjustments at least quarterly to inventory for potentially excess, obsolete, slow-moving or impaired items. The Company recorded noncurrent inventory related to inventories that are expected to be realized or consumed after one year of $ 797 and $ 1,943 as of March 31, 2022 and December 31, 2021, respectively. Noncurrent inventories are primarily related to raw materials purchased in bulk to support long-term expected repairs to reduce costs and are classified in other assets. The Company prepaid for raw materials of $ 10,968 and $ 15,426 as of March 31, 2022 and December 31, 2021, respectively, that were classified in prepaid expenses and other current assets. During the three months ended March 31, 2022 and March 31, 2021, $ 533 and $ 607 , respectively, of inventory was transferred to rental equipment and was considered a noncash transaction in the production and purchase of rental equipment on the consolidated statements of cash flows. Inventories that are considered current consist of the following: March 31, December 31, 2022 2021 Raw materials and work-in-progress $ 22,550 $ 21,909 Finished goods 13,313 12,116 Less: reserves ( 1,785 ) ( 2,152 ) Inventories, net $ 34,078 $ 31,873 Property and equipment Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the assets’ estimated useful lives as follows: Rental equipment 1.5- 5 years Manufacturing equipment and tooling 3 - 5 years Computer equipment and software 2 - 3 years Furniture and equipment 3 - 5 years Leasehold improvements Lesser of estimated useful life or remaining lease term Expenditures for additions, improvements and replacements are capitalized and depreciated to a salvage value of $ 0 . Repair and maintenance costs on rental equipment are included in cost of rental revenue on the consolidated statements of comprehensive loss. Repair and maintenance expense, which includes labor, parts and freight, for rental equipment was $ 1,030 and $ 935 for the three months ended March 31, 2022 and March 31, 2021, respectively. Included within property and equipment is construction in process, primarily related to the design and engineering of tooling, jigs and other machinery. In addition, this item also includes computer software or development costs that have been purchased but have not completed the final configuration process for implementation into the Company’s systems. These items have not been placed in service; therefore, no depreciation or amortization was recognized for these items in the respective periods. 15 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) Depreciation and amortization expense related to rental equipment and other property and equipment are summarized below for the three months ended March 31, 2022 and March 31, 2021, respectively. Three months ended March 31, 2022 2021 Rental equipment $ 2,638 $ 1,888 Other property and equipment 975 946 Total depreciation and amortization $ 3,613 $ 2,834 Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of March 31, 2022 and December 31, 2021, respectively. March 31, December 31, Property and equipment 2022 2021 Rental equipment, net of allowances of $ 1,450 and $ 1,290 , respectively $ 59,387 $ 59,073 Other property and equipment 31,298 31,522 Property and equipment 90,685 90,595 Accumulated depreciation Rental equipment 33,668 33,355 Other property and equipment 17,688 18,314 Accumulated depreciation 51,356 51,669 Property and equipment, net Rental equipment, net of allowances of $1,450 and $1,290, respectively 25,719 25,718 Other property and equipment 13,610 13,208 Property and equipment, net $ 39,329 $ 38,926 Long-lived assets The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360 — Property, Plant, and Equipment . In accordance with ASC 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. No impairments were recorded as of March 31, 2022 and March 31, 2021. Goodwill and other identifiable intangible assets Goodwill The changes in the carrying amount of goodwill for the three months ended March 31, 2022 were as follows: Balance as of December 31, 2021 $ 32,979 Translation adjustment ( 45 ) Balance as of March 31, 2022 $ 32,934 As of March 31, 2022, the Company had no accumulated impairment losses related to goodwill. Intangible assets There were no accumulated impairment losses related to the Company’s intangible assets as of March 31, 2022 and December 31, 2021. 16 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) The following tables represent the changes in net carrying values of intangible assets as of the respective dates: Average estimated Gross useful lives carrying Accumulated March 31, 2022 (in years) amount amortization Net amount Technology 10 $ 77,700 $ 20,396 $ 57,304 Licenses 10 185 181 4 Patents and websites 5 4,519 3,927 592 Customer relationships 4 1,333 1,333 — Commercials 2-3 348 248 100 Total $ 84,085 $ 26,085 $ 58,000 Average estimated Gross useful lives carrying Accumulated December 31, 2021 (in years) amount amortization Net amount Technology 10 $ 77,700 $ 18,454 $ 59,246 Licenses 10 185 180 5 Patents and websites 5 4,519 3,746 773 Customer relationships 4 1,361 1,361 — Commercials 2-3 799 676 123 Total $ 84,564 $ 24,417 $ 60,147 Annual estimated amortization expense for each of the succeeding fiscal years is as follows: March 31, 2022 Remaining 9 months of 2022 $ 6,365 2023 7,854 2024 7,821 2025 7,790 2026 7,774 Thereafter 20,396 $ 58,000 Current liabilities Accounts payable and accrued expenses as of March 31, 2022 and December 31, 2021 consisted of the following: March 31, December 31, 2022 2021 Accounts payable $ 18,109 $ 10,258 Accrued inventory (in-transit and unvouchered receipts) and trade payables 10,340 12,488 Accrued purchasing card liability 2,508 1,488 Accrued franchise, sales and use taxes 492 486 Other accrued expenses 926 969 Accounts payable and accrued expenses $ 32,375 $ 25,689 17 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) Accrued payroll as of March 31, 2022 and December 31, 2021 consisted of the following: March 31, December 31, 2022 2021 Accrued bonuses $ 1,292 $ 8,274 Accrued wages and other payroll related items 4,221 5,469 Accrued vacation 3,012 2,894 Accrued employee stock purchase plan deductions 314 670 Accrued payroll $ 8,839 $ 17,307 5. Leases The Company has entered into operating leases primarily for commercial buildings. These leases have terms which range from 2 years to 11 years, some of which include options to extend the leases for up to 5 years. There are no economic penalties for the Company to extend the lease, and it is not reasonably certain that the Company will exercise the extension options. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. The operating leases do not contain material residual value guarantees or material restrictive covenants. Rent expense, including short-term lease cost, was $ 971 and $ 987 for the three months ended March 31, 2022 and March 31, 2021. Information related to the Company's right-of-use assets and related operating lease liabilities were as follows: Three months ended March 31, 2022 2021 Cash paid for operating lease liabilities $ 1,008 $ 554 Operating lease cost 975 763 Non-cash right-of-use assets obtained in exchange for new operating lease obligations — 9,340 Weighted average remaining lease term 2.7 years 3.0 years Weighted average discount rate 2.9 % 3.2 % Maturities of lease liabilities due in the 12-month period ending March 31, 2023 $ 3,945 2024 3,965 2025 3,362 2026 2,702 2027 2,716 Thereafter 11,416 28,106 Less imputed interest ( 2,296 ) Total lease liabilities $ 25,810 Operating lease liability - current $ 3,401 Operating lease liability - noncurrent $ 22,409 Total lease liabilities $ 25,810 6. Earnings (loss) per share Earnings (loss) per share (EPS) is computed in accordance with ASC 260 —Earnings per Share and is calculated using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents (which can include dilution of outstanding stock options, restricted stock units and restricted stock awards) unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, common stock subject to repurchase by the Company, options, and other dilutive awards are considered to be common stock equivalents and are only included in the calculation of diluted earnings (loss) per share when their effect is dilutive. 18 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) Basic earnings (loss) p er share is calculated using the Company’s weighted average outstanding common shares. Diluted earnings (loss) per share is calculated using the Company’s weighted average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. The computation of EPS is as follows: Three months ended March 31, 2022 2021 Numerator—basic and diluted: Net loss $ ( 14,214 ) $ ( 732 ) Denominator: Weighted average common shares - basic common stock (1) 22,754,421 22,181,394 Weighted average common shares - diluted common stock 22,754,421 22,181,394 Net income (loss) per share - basic common stock $ ( 0.62 ) $ ( 0.03 ) Net income (loss) per share - diluted common stock (2) $ ( 0.62 ) $ ( 0.03 ) Denominator calculation from basic to diluted: Weighted average common shares - basic common stock (1) 22,754,421 22,181,394 Stock options and other dilutive awards 88,193 341,716 Weighted average common shares - diluted common stock 22,842,614 22,523,110 Shares excluded from diluted weighted average shares: Stock options 380,890 64,498 Restricted stock units and restricted stock awards 577,242 308,787 Shares excluded from diluted weighted average shares 958,132 373,285 (1) Unvested restricted stock units and restricted stock awards are not included as shares outstanding in the calculation of basic earnings per share. Vested restricted stock units and restricted stock awards are included in basic earnings per share if all vesting and performance criteria have been met. Performance-based restricted stock units and restricted stock awards are included in the number of shares used to calculate diluted earnings per share as long as all applicable performance criteria are met, and their effect is dilutive. Restricted stock awards are eligible to receive all dividends declared on the Company’s common shares during the vesting period; however, such dividends are not paid until the restrictions lapse. (2) Due to net losses for the three months ended March 31, 2022 and March 31, 2021, diluted loss per share is the same as basic. 7. Income taxes The Company accounts for income taxes in accordance with ASC 740 — Income Taxes . Under ASC 740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in the Company’s consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of March 31, 2022, the Company continued to record a valuation allowance against its deferred tax assets. The Company accounts for uncertainties in income taxes in accordance with ASC 740-10 — Accounting for Uncertainty in Income Taxes . ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes interest and penalties on taxes, if any, within its income tax provision on its consolidated statements of comprehensive income. 19 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) 8. Stockholders’ equity The Company has a 2012 Equity Incentive Plan (2012 Plan) under which the Company granted options to purchase shares of its common stock. As of March 31, 2022, options to purchase 67,953 shares of common stock remained outstanding under the 2012 Plan. The 2012 Plan was terminated in connection with the Company’s initial public offering in February 2014, and accordingly, no new options are available for issuance under this plan. The 2012 Plan continues to govern outstanding awards granted thereunder. The Company has a 2014 Equity Incentive Plan (2014 Plan) that provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any parent and subsidiary corporation’s employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, restricted stock awards, stock appreciation rights, performance units and performance shares to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. As of March 31, 2022, awards with respect to 1,033,824 shares of the Company’s common stock were outstanding, and 1,111,771 shares of common stock remained available for issuance under the 2014 Plan. The shares available for issuance under the 2014 Plan will be increased by any shares returned to the 2012 Plan and 2014 Plan as a result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to such previously granted awards under the 2012 Plan is 2,328,569 shares). The number of shares available for issuance under the 2014 Plan also is increased annually on the first day of each fiscal year by an amount equal to the least of: • 895,346 shares; • 4 % of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year; or • such other amount as the Company’s board of directors may determine. For 2022, no additional shares were added to the 2014 Plan share reserve pursuant to the provision described above. Stock options Options typically expire between seven and ten years from the date of grant and vest over one to four year terms. Options have been granted to employees, directors and consultants of the Company, as determined by the board of directors, at the deemed fair market value of the shares underlying the options at the date of grant. The activity for stock options under the Company’s stock plans for the three months ended March 31, 2022 is as follows: Remaining weighted- Weighted- average Per share average contractual average Price per exercise terms intrinsic Options share price (in years) value Outstanding as of December 31, 2021 459,441 $1.17-$83.30 $ 42.18 1.36 $ 4.31 Exercised ( 3,499 ) 8.37 8.37 Forfeited ( 7,500 ) 38.54-44.19 42.31 Outstanding as of March 31, 2022 448,442 1.17-83.30 42.44 1.04 3.97 Vested and exercisable as of March 31, 2022 448,442 1.17-83.30 42.44 1.04 3.97 Vested and expected to vest as of March 31, 2022 448,442 $1.17-$83.30 $ 42.44 1.04 $ 3.97 The total intrinsic value of options exercised during the three months ended March 31, 2022 and March 31, 2021 was $ 84 and $ 6,504 , respectively. As of March 31, 2022, all stock-based compensation expense for options granted under the Plans was recognized. Stock incentive awards The Company grants restricted stock units (RSUs) and restricted stock awards (RSAs) under the 2014 Plan (Stock Awards). The Stock Awards vest either based solely on the satisfaction of time-based service conditions or on the satisfaction of time-based service conditions combined with performance criteria. Stock Awards are subject to forfeiture if the holder’s services to the Company terminate before vesting. 20 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) Stock Awards granted with only time-based service vesting conditions generally vest over a four-year service period, as defined in the terms of each award. Stock Awards that vest based on the satisfaction of time-based service conditions combined with performance criteria generally vest over a three-year service and performance period, based on performance criteria established at the time of the award. The portion of the Stock Award that is earned may equal or be less than the targeted number of shares subject to the Stock Award depending on whether the performance criteria are met. Stock Awards activity for the three months ended March 31, 2022 is summarized below: Weighted- average grant Performance date fair and value Restricted stock units Time-based time-based Total per share Unvested restricted stock units as of December 31, 2021 289,166 99,112 388,278 $ 54.81 Granted 304,975 164,722 469,697 35.32 Vested ( 63,388 ) ( 37,677 ) ( 101,065 ) 53.98 Forfeited/canceled ( 9,042 ) — ( 9,042 ) 47.16 Unvested restricted stock units as of March 31, 2022 (1) 521,711 226,157 747,868 $ 43.27 Unvested and expected to vest restricted stock units outstanding as of March 31, 2022 568,034 $ 43.27 Weighted- average grant Performance date fair and value Restricted stock awards Time-based time-based Total per share Unvested restricted stock awards outstanding as of December 31, 2021 10,416 5,629 16,045 $ 87.12 Vested ( 2,111 ) ( 5,629 ) ( 7,740 ) 103.09 Unvested restricted stock awards outstanding as of March 31, 2022 (1) 8,305 — 8,305 $ 76.71 Unvested and expected to vest restricted stock awards outstanding as of March 31, 2022 7,922 $ 77.34 (1) Outstanding restricted stock units and restricted stock awards are based on the maximum payout of the targeted number of shares. As of March 31, 2022, the unrecognized compensation cost related to unvested employee restricted stock units and restricted stock awards was $ 22,969 , excluding estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.7 years. Employee stock purchase plan The Company’s 2014 Employee Stock Purchase Plan (ESPP) provides for the grant to all eligible employees an option to purchase stock under the ESPP, within the meaning Section 423 of the Internal Revenue Code. The ESPP permits participants to purchase common stock through payroll deductions of up to 15 % of their eligible compensation, which includes a participant’s base straight time gross earnings, incentive compensation, bonuses, overtime and shift premium, but exclusive of payments for equity compensation and other similar compensation. A participant may purchase a maximum of 1,500 shares during a purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of the Company’s common stock at the end of each six-month period. The purchase price of the shares will be 85 % of the lower of the fair market value of the Company’s common stock on the first trading day of each offering period or on the exercise date. The offering periods are currently approximately six months in length beginning on the first business day on or after March 1 and September 1 of each year and ending on the first business day on or after September 1 and March 1 approximately six months later. 21 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) As of March 31, 20 2 2 , a total of 539,308 shares of common stock were available for sale pursuant to the ESPP. The number of shares available for sale under the ESPP is increased annually on the first day of each fiscal year by an amount equal to the least of: • 179,069 shares; • 1.5 % of the outstanding shares of the Company’s common stock on the last day of the Company’s immediately preceding fiscal year; or • such other amount as may be determined by the administrator. For 2022, no additional shares were added to the ESPP share reserve pursuant to the provision described above. Stock-based compensation Stock-based compensation expense recognized for the three months ended March 31, 2022 and March 31, 2021, was as follows: Three months ended March 31, 2022 2021 Stock-based compensation expense by type of award: Restricted stock units and restricted stock awards 2,468 $ 2,330 Employee stock purchase plan 197 186 Total stock-based compensation expense $ 2,665 $ 2,516 Employee stock-based compensation expense was calculated based on awards of stock options, restricted stock units and restricted stock awards ultimately expected to vest based on the Company’s historical award cancellations. ASC 718 – Compensation-Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the three months ended March 31, 2022 and March 31, 2021, respectively, stock-based compensation expense recognized under ASC 718, included in cost of revenue, research and development expense, sales and marketing expense, and general and administrative expense was as follows: Three months ended March 31, 2022 2021 Cost of revenue $ 233 $ 238 Research and development 384 298 Sales and marketing 591 612 General and administrative 1,457 1,368 Total stock-based compensation expense $ 2,665 $ 2,516 22 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) 9. Commitments and contingencies Purchase obligations The Company had approximately $ 122,900 of outstanding purchase orders due within one year with its outside vendors and suppliers as of March 31, 2022. Warranty obligation The following table identifies the changes in the Company’s aggregate product warranty liabilities for the three and twelve-month periods ended March 31, 2022 and December 31, 2021, respectively: March 31, December 31, 2022 2021 Product warranty liability at beginning of period $ 13,726 $ 14,394 Accruals for warranties issued 1,330 9,168 Adjustments related to preexisting warranties 873 ( 597 ) Settlements made (in cash or in kind) ( 2,836 ) ( 9,239 ) Product warranty liability at end of period $ 13,093 $ 13,726 Contract liabilities Contract liabilities primarily consist of deferred revenue related to lifetime warranties on direct-to-consumer sales revenue when cash payments are received in advance of services performed under the contract. The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchase. The decrease in deferred revenue related to lifetime warranties for the three months ended March 31, 2022 was primarily driven by $ 1,595 of revenue recognized that was included in the deferred revenue balances as of December 31, 2021, partially offset by $ 1,342 of payments received in advance of satisfying performance obligations. Deferred revenue related to lifetime warranties was $ 17,723 and $ 17,976 as of March 31, 2022 and December 31, 2021, respectively, and is classified within deferred revenue – current and noncurrent deferred revenue in the consolidated balance sheet. Legislation and HIPAA The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has continued with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in exclusion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. The Company believes that it is in compliance in all material respects with applicable fraud and abuse regulations and other applicable government laws and regulations. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was enacted to ensure health insurance portability, reduce healthcare fraud and abuse, guarantee security and privacy of health information, and enforce standards for health information. The Health Information Technology for Economic and Clinical Health Act (HITECH Act), in part, imposes notification requirements of certain security breaches relating to protected health information. The Company believes that it complies in all material respects with the provisions of those regulations that are applicable to the Company’s business. 23 Inogen, Inc. Condensed Notes to the Consolidated Financial Statements (continued) (unaudited) (amounts in thousands, except share and per share amounts) Legal proceedings The Company is party to various legal proceedings arising in the normal course of business. The Company carries insurance, subject to specified deductibles under the policies, to protect against losses from certain types of legal claims. At this time, the Company does not anticipate that any of these other proceedings arising in the normal course of business will have a material adverse effect on the Company’s business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. 10. Foreign currency exchange contracts and hedging As of March 31, 2022 and March 31, 2021, the Company’s total non-designated and designated derivative contracts had notional amounts totaling approximately $ 2,445 and $ 15,680 , respectively, and $ 1,704 and $ 20,491 , respectively. These contracts were comprised of offsetting contracts with the same counterparty, each expires within one to nine months . During the three months ended March 31, 2022 and March 31, 2021, these contracts had, net of tax, an unrealized loss of $ 74 and an unrealized gain of $ 903 , respectively. The nonperformance risk of the Company and the counterparty did not have a material impact on the fair value of the derivatives. During the three months ended March 31, 2022 and March 31, 2021, there were no ineffective portions relating to these hedges and the hedges remained effective through their respective settlement dates. As of March 31, 2022, the Company had eight designated hedges and one non-designated hedge. As of March 31, 2021, the Company had twenty-two designated hedges and two non-designated hedges. 24