®
ANNUAL
REPORT
2021
Dear Inogen Investor,
It has been a bit more than a year since I joined Inogen as the Chief Executive Officer and today, I am even more excited about
Inogen’s potential as I have had the privilege to witness, firsthand, the impact our portable oxygen concentrators have on
our patient population. Since the inception of the company and through 2021, we have been able to serve approximately
1.2 million patients and our aspiration for 2022 is to build on our success and serve an even larger patient population.
Inogen remains uniquely positioned in the market as a MedTech company with HME accreditation in the United
States, giving us significant direct patient reach. In addition, we have sold our products in over 50 countries through
distribution partners. Over the last year we have made tremendous progress in our efforts to transform our
organization to enhance our commercial capabilities, operational efficiency, and overall organizational structure so
we can capitalize on our strong foundation and favorable market position. Additionally, we have upgraded our quality
management system, strengthened regulatory affairs capabilities, and collaborated with external experts and leading
clinicians in an effort to support the transition to new medical device regulations and future innovation efforts.
In 2021 the Covid-19 pandemic ebbed and flowed, presenting patients, customers, clinicians, and our company with
significant challenges, especially with respect to supply chain disruptions. As Covid-19 infections subsided, demand
began to return to normal levels, aided by the reduced administrative burden through the Public Health Emergency
protocols and improving ability of patients to access healthcare services. Due to supply chain challenges, it has been
particularly difficult to secure adequate volumes of semi-conductors required to manufacture our systems. Our commercial
team had to contend with a supply constrained environment, but we were able to make progress in mitigating the
supply chain challenges in order to meet the market demand. We were still able to meet most of the market demand.
Also in 2021, we successfully executed a price increase in all channels other than our rental business, which improved
our average selling price and helped mitigate most of the raw material and semiconductor pricing pressures.
I am particularly proud of how our associates and management persevered in the face of the various headwinds
during 2021 to deliver 16.1% total revenue growth year over year even with the COVID-19 pandemic. We saw rental
revenue increase 63.5% in 2021 versus 2020, primarily due to our focus on new rental patient setups with greater
utilization of leads for rental opportunities and initiatives to increase physician awareness. As of December 31,
2021, we had approximately 42,900 patients on service, an increase of 33.2% compared to December 31, 2020.
Based on 2020 traditional fee-for-service Medicare data, we estimate the number of patients using portable oxygen
concentrators represents approximately 21% of the total long-term oxygen therapy market (and approximately 26% of the
total ambulatory long-term oxygen therapy market) in the United States, although the traditional fee-for-service Medicare
data does not account for private insurance, Medicare Advantage, Medicaid, and cash-pay patients in the market.
Given what we believe is a significant market opportunity, our strategic imperatives are focused on strengthening our core
business and infrastructure, continuing to invest in our commercial capabilities, accelerating innovations, and diversifying
our portfolio enabled by our strong balance sheet all while being disciplined stewards of capital. Of note is the recent
focus on building a much stronger prescriber facing sales and service organization that will allow us access to patients
at the onset of care and point of diagnosis and prescription. We have also made substantial progress in transitioning
Inogen into a more clinically oriented company with the addition of significant capabilities in medical affairs and
investment in clinical trials, as well as ensuring that our innovations are clinically informed. To ensure we capitalize on the
opportunities ahead, we’ve assembled a world-class leadership team with an impressive track record in MedTech and Life
Sciences that we believe can help us work toward our plan to return to sustainable revenue growth and profitability.
We are excited about the future of the oxygen therapy industry where we believe portable oxygen concentrators
will become the standard of care for ambulatory patients. I see a tremendous opportunity to grow stakeholder
value, both delivering meaningful advancements in evidence-based chronic respiratory care, through oxygen
therapy and beyond, and leveraging our strong foundation and market position to drive overall growth.
Thank you for your continued support of Inogen and our purpose of improving lives through respiratory care.
Nabil Shabshab
Chief Executive Officer, President and Director
s
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission file number: 001-36309
INOGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
301 Coromar Drive
Goleta, California
Address of principal executive offices
33-0989359
I.R.S. Employer
Identification No.
93117
Zip Code
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code (805) 562-0500
Title of each class
Common Stock, $0.001 par value
Trading Symbol(s)
INGN
Name of each exchange on which registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
☐
☐
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting equity held by non-affiliates of the registrant, based on the closing price of the shares of common stock on the
last business day of its most recently completed second fiscal quarter, as reported on the NASDAQ Stock Market, was approximately $852.6 million.
The number of shares of the registrant’s Common Stock outstanding as of February 18, 2022 was 22,735,486.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the registrant’s 2022 Annual
Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this Form 10-K. Such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year ended December 31, 2021.
Auditor Firm Id:
34
Auditor Name:
Deloitte & Touche LLP
Auditor Location:
Los Angeles, California, USA
TABLE OF CONTENTS
Part I
Page
Business...............................................................................................................................................................................
Item 1.
Item 1A. Risk Factors.........................................................................................................................................................................
Item 1B. Unresolved Staff Comments ...............................................................................................................................................
Properties.............................................................................................................................................................................
Item 2.
Legal Proceedings ...............................................................................................................................................................
Item 3.
Mine Safety Disclosures......................................................................................................................................................
Item 4.
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.........
Item 5.
[Reserved] ...........................................................................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .............................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................................................................
Item 8.
Financial Statements and Supplementary Data...................................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................................
Item 9.
Item 9A. Controls and Procedures......................................................................................................................................................
Item 9B. Other Information................................................................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections...............................................................................
Part III
Item 10. Directors, Executive Officers and Corporate Governance ................................................................................................
Item 11. Executive Compensation.....................................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...........................
Item 13. Certain Relationships and Related Transactions, and Director Independence....................................................................
Item 14. Principal Accounting Fees and Services .............................................................................................................................
Part IV
Item 15. Exhibits, Financial Statement Schedules ............................................................................................................................
Item 16. Form 10-K Summary ..........................................................................................................................................................
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i
INOGEN, INC.
PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The
forward-looking statements are contained principally in the sections entitled “Business,” “Risk Factors,” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include, but are not limited
to, statements concerning the following:
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•
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•
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information concerning our possible or assumed future cash flows, revenue, sources of revenue and results of operations,
operating and other expenses;
our expectations of the impact of the COVID-19 pandemic and related public health emergency (PHE) on sales,
productivity, hiring, media expenditures, prescriber sales team and physician referrals, worldwide demand for oxygen
therapies, and our supply chain, including supply constraints and cost inflation related to semiconductor chips used in our
batteries and printed circuit boards which are components of our portable oxygen concentrators and the possibility of a
future impact on our manufacturing facilities in California and Texas;
our assessment and expectations regarding reimbursement rates, future rounds of competitive bidding, Centers for
Medicare and Medicaid Services (CMS) changes associated with the COVID-19 pandemic and related PHE impacting
respiratory care, CMS changes to Home Use of Oxygen national coverage determination and how those changes are
implemented, and future changes in rental revenue;
our expectations regarding regulatory approvals including the period of time during which our sales in Europe will be
suspended due to delayed European Medical Device regulation approval, and government and third-party payor coverage
and reimbursement;
our ability to develop new products, improve our existing products and increase the value of our products, including the
potential integration of TAV technology into our existing products;
our expectations regarding the timing of new products and product improvement launches, as well as product features and
specifications;
market share expectations, unit sales, business strategies, financing plans, expansion of our business, competitive position,
industry environment, and potential growth opportunities;
our expectations regarding the market size, market growth and the growth potential for our business;
our ability to grow our business and enter new markets;
our expectations regarding the average selling prices and manufacturing costs of our products, including our expectations
related to the impact of supply chain disruptions on our manufacturing costs and our ongoing efforts to reduce average
unit costs for our systems;
our expectations regarding our sales and marketing channels including expectations related to our prescriber sales team,
including the expansion of the sales team and concierge service representatives and implementation of healthcare data,
insights and tools through our partnership with Ashfield Healthcare, LLC (Ashfield) and its impact on clinician awareness
and coverage, POC penetration, and sales team productivity;
our expectations with respect to our European and U.S. facilities and our expectations with respect to our contract
manufacturer in Europe;
our expectations regarding tariffs being imposed by the U.S. on certain imported materials and products;
our ability to successfully acquire and integrate companies and assets;
our expectations regarding the impact and implementation of trade regulations on our supply chain;
our expectations regarding excess tax benefits or deficiencies from stock-based compensation and our assessments and
estimates of our effective tax rate;
our expectations of future accounting pronouncements or changes in our accounting policies;
1
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•
our internal control environment;
the effects of seasonal trends on our results of operations and estimated hiring plans;
our expectation that our existing capital resources and the cash to be generated from expected product sales and rentals
will be sufficient to meet our projected operating and investing requirements for at least the next twelve months; and
the effects of competition.
Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,”
“believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,”
“would,” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual
results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or
implied by the forward-looking statements. We discuss these risks in greater detail in Part I, Item 1A, “Risk Factors,” and elsewhere in
this Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC. Given these uncertainties, you should
not place undue reliance on these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time-to-time. It is not possible for us to predict all risks, nor can we assess the impact of all
factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future
events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and
adversely from those anticipated or implied in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the
statements are made. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the
reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information
becomes available in the future.
This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our
business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and
prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar
methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and
circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other
data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry,
medical and general publications, government data and similar sources.
“Inogen,” “Inogen One,” “Inogen One G2,” “Inogen One G3,” “G4,” “G5,” “Live Life in Moments, not Minutes,” “Never Run
Out of Oxygen,” “Oxygen Therapy on Your Terms,” “Oxygen.Anytime.Anywhere,” “Reclaim Your Independence,” “Intelligent
Delivery Technology,” “Inogen At Home,” the Inogen design, “TIDAL ASSIST,” “TAV,” and “SIDEKICK” are registered
trademarks with the United States Patent and Trademark Office of Inogen, Inc. We own a pending application for “Inogen” with the
United States Patent and Trademark Office. We own trademark registrations for the mark “Inogen” in Argentina, Australia, Canada,
Chile, China, Columbia, Ecuador, South Korea, Mexico, Europe (European Union Registration), the United Kingdom, Iceland, India,
Israel, Japan, Kuwait, New Zealand, Norway, Paraguay, Peru, Turkey, Singapore, Switzerland, and Uruguay. We own pending
applications for the mark “Inogen” in Brazil, India, Malaysia, and South Africa. We own a trademark registration for the mark “(cid:3)(cid:4)
(cid:5)(cid:6)(cid:7)” in Japan. We own trademark registrations for the marks “(cid:8)(cid:3)(cid:9)” and “(cid:10)(cid:3)(cid:11)” in China. We own trademark registrations
for the mark “Inogen One” in Australia, Canada, China, South Korea, Mexico, Europe (European Union Registration), and the United
Kingdom. We own a trademark registration for the mark “Satellite Conserver” in Canada. We own a trademark registration for the
mark “Inogen At Home” in Europe (European Union Registration) and the United Kingdom. We own trademark registrations for the
mark “G4” in Europe (European Union Registration) and the United Kingdom. We own trademark registrations for the mark “G5” in
Europe (European Union Registration) and the United Kingdom. We own a trademark application for the Inogen design in Bolivia.
We own a trademark registration for the Inogen design in China. We own a trademark registration for the mark “ﻦﺟﻮﻧﺇ” in Saudi
Arabia. Other service marks, trademarks, and trade names referred to in this Annual Report on Form 10-K are the property of their
respective owners.
In this Annual Report on Form 10-K, “we,” “us” and “our” refer to Inogen, Inc. and its subsidiary.
2
ITEM 1. BUSINESS
General
We were incorporated in Delaware on November 27, 2001. We are 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 we call 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. Our 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 a power
outlet as needed. We believe our 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.
Portable oxygen concentrators represented the fastest-growing segment of the Medicare oxygen therapy market between 2012
and 2020. Based on 2020 traditional fee-for-service Medicare data, we estimate the number of patients using portable oxygen
concentrators represents approximately 21% of the total long-term oxygen therapy market (and approximately 26% of the total
ambulatory long-term oxygen therapy market) in the United States, although the traditional fee-for-service Medicare data does not
account for private insurance, Medicare Advantage, Medicaid and cash-pay patients in the market. We believe we were the first
oxygen therapy manufacturer to employ a direct-to-consumer marketing strategy, meaning we advertise directly to patients, process
their physician paperwork, and provide clinical support as needed. While other manufacturers have also begun direct-to-consumer
marketing campaigns to drive patient sales, we believe we are the only manufacturer of portable oxygen concentrators that employs a
direct-to-consumer rental strategy in the United States, meaning we bill Medicare or insurance on their behalf. To pursue a direct-to-
consumer rental strategy, our manufacturing competitors would need to meet national accreditation and state-by-state licensing
requirements and secure Medicare billing privileges, as well as compete with the home medical equipment providers who many of our
manufacturing competitors sell to across their entire homecare business.
Since adopting our direct-to-consumer rental strategy in 2009, we have directly sold or rented more than 1,166,000 of our
Inogen oxygen concentrators as of December 31, 2021.
We 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. We merged Inogen Europe Holding B.V. and Inogen Europe B.V. on December 28,
2018. Inogen Europe B.V. is the remaining legal entity. We completed the acquisition of New Aera, Inc (New Aera) on August 9,
2019.
Our market
We consider our market to include patients that use traditional fee-for-service Medicare, commercial payors, retail sales and
Veterans Administration population. While growth rates are subject to change over time, we believe that reduced reimbursement rates
in connection with competitive bidding, and the enhanced Medicare billing requirements might have further contributed to growth
opportunities for POCs that exceed the long-term oxygen therapy market growth rate. Since utilization of long-term oxygen therapy is
strongly linked to developed nations with established government reimbursement, western Europe represents our second largest
market today behind the United States.
Long-term oxygen therapy has been shown to be a cost-efficient and clinically effective means to treat hypoxemia, a condition
in which patients have insufficient oxygen in the blood. Hypoxemic patients are unable to convert oxygen found in the air into the
bloodstream in an efficient manner, causing organ damage and poor health. Chronic obstructive pulmonary disease, or COPD, is a
leading cause of hypoxemia. Between 60% to 65% of our patient population has been diagnosed with COPD, and as COPD
progresses, patients may need long-term oxygen therapy as part of their treatment. Industry sources estimate that approximately
16 million people in the United States have been diagnosed with COPD, with millions more who are unaware they have COPD.
COPD is the third leading cause of death in the United States and one of the leading causes of death globally. There are an estimated
251 million individuals worldwide who have COPD, with an estimated 100 million individuals located in China. Smoking is the
leading cause of COPD. However, the European Respiratory Journal published a study in July 2019 that concluded ambient air
pollution was associated with lower lung function and increased COPD prevalence, based on over 300,000 individuals aged 40 to 69
years.
3
According to our analysis of 2020 traditional fee-for-service Medicare data, approximately 80% of U.S. long-term oxygen
therapy users utilized ambulatory oxygen and the remaining approximately 20% were considered stationary, and either required
oxygen twenty-four hours a day, seven days a week, or 24/7, but were not ambulatory, or did not require oxygen 24/7 and only needed
nocturnal oxygen. Clinical data has shown that ambulatory patients who use oxygen therapy 24/7, regardless of modality, have
approximately two times the survival rate and spend at least 60% fewer days annually in the hospital than non-ambulatory 24/7
oxygen therapy patients. The cost of one year of long-term oxygen therapy is less than the cost of one day in the hospital. In addition,
a report from the Centers for Medicare and Medicaid Services (CMS) in 2019 concluded that utilizers of oxygen therapy have lower
deaths, hospitalizations, and days in the hospital than those who have a health condition that would support oxygen but do not use it.
Based on 2020 traditional fee-for-service Medicare data, we estimate that approximately 63% of the ambulatory patients rely
upon the delivery model, which has the following disadvantages:
•
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limited flexibility outside the home, dictated by the finite oxygen supply provided by tanks and cylinders and dependence
on delivery schedules;
restricted mobility and inconvenience within the home, as patients must attach long, cumbersome tubing to a noisy
stationary concentrator to move within their homes;
products are not cleared for use on commercial aircraft and cannot plug into a vehicle outlet for extended use; and
high costs driven by the infrastructure necessary to establish a geographically diverse distribution network to serve
patients locally, as well as personnel, fuel and other costs, which have limited economies of scale and generally increase
over time.
Portable oxygen concentrators were developed in response to many of the limitations associated with traditional oxygen therapy
and the delivery model. Portable oxygen concentrators are designed to offer a self-replenishing, unlimited supply of oxygen that is
concentrated from the surrounding air and to operate without the need for oxygen tanks or regular oxygen deliveries, enhancing
patient freedom and independence. Additionally, because portable oxygen concentrators do not require the physical infrastructure and
service intensity of the delivery model, we believe portable oxygen concentrators can provide long-term oxygen therapy with a lower
cost structure.
We believe the following have hindered the market acceptance of portable oxygen concentrators:
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to obtain portable oxygen concentrators, patients are dependent on home medical equipment providers, which have made
significant investments in the physical distribution infrastructure to support the delivery model and which we believe are
therefore disincentivized to encourage adoption of portable oxygen concentrators;
home medical equipment providers cannot easily convert their businesses to non-delivery models in oxygen due to low
total reimbursement for oxygen therapy, capital expenditure constraints, investments that are spread across multiple
product lines, and uncertainty around reimbursement rate changes;
relatively low patient and physician awareness of the existence and benefits of portable oxygen concentrators as an
oxygen solution instead of the traditional delivery model;
lack of access to switch from oxygen tank or liquid deliveries to a portable oxygen concentrator using their insurance
benefits due to the nature of the capped reimbursement structure; and
constrained manufacturing costs of conventional portable oxygen concentrators, driven by home medical equipment
provider preference for products that have lower upfront equipment cost.
Our solution
Our Inogen One systems provide patients who require long-term oxygen therapy with a reliable, lightweight single solution
product that we believe improves quality-of-life, fosters mobility and eliminates dependence on both oxygen tanks and cylinders as
well as stationary concentrators. We believe our direct-to-consumer marketing strategy increases our ability to effectively develop,
design and market our Inogen One solutions, as it allows us to:
•
drive patient awareness of our portable oxygen concentrators through direct marketing, thereby supporting our direct-to-
consumer sales channel and creating pull through for our business-to-business channel;
4
•
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capture the manufacturer and home medical equipment provider margins on a portion of our revenue, allowing us to focus
on the total cost of the solution and to invest in the development of product features instead of being constrained by the
price required to attract representation from a distribution channel. For example, we have invested in features that improve
patient satisfaction, product durability, reliability and longevity, which increase the cost of our hardware, but reduce the
total cost of our solution by reducing our maintenance and repair cost; and
utilize patient insights to inform our research and development efforts, allowing us to innovate based on this feedback and
stay at the forefront of patient and prescriber preference.
We believe the combination of our direct-to-consumer marketing strategy with our focus on designing and developing oxygen
concentrator technology has created a best-in-class portfolio of portable oxygen concentrators. Our two most recently released
portable product offerings, the Inogen One G5 and the Inogen One G4, at 4.7 and 2.8 pounds with a single battery, respectively, are
among the lightest portable oxygen concentrators on the market and offer among the highest oxygen flow capacity per pound. We
believe our Inogen One solutions offer the following benefits:
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Single solution for home, ambulatory, travel (including on commercial aircraft) and nocturnal treatment. We market our
Inogen One solutions as single solutions, by which we mean a patient can use our Inogen One systems as their only
supplemental oxygen source with no need to also use a stationary concentrator regularly. Our compressors are specifically
designed to enable our patients to run our portable oxygen concentrators 24/7, whether powered by battery or plugged into
a power outlet at home or in a car while the battery is recharging.
Reliability. We have an integrated engineering structure to ensure design and manufacturing engineers operate as a single
team to improve product reliability throughout the product lifecycle. Additionally, with the launch of our Inogen Connect
system we can address certain types of reliability issues and provide functionality improvements through our software
update capabilities.
Effective for nocturnal use. Our Intelligent Delivery Technology® enables our portable oxygen concentrators to provide
consistent levels of oxygen during sleep despite decreased respiratory rates. As a result, patients can rely on our Inogen
One portable oxygen concentrators overnight while sleeping.
Unparalleled flow capacity. Our 2.8 pound Inogen One G4 has higher flow capacity than other sub-3 pound portable
oxygen concentrators and our Inogen One G5 has higher flow capacity than other sub-5 pound portable oxygen
concentrators.
User friendly features. Our systems are designed with multiple user-friendly features, including long battery life and low
noise levels in their respective weight categories.
Our Inogen One systems and Inogen At Home system
We market our current portable product offerings, the Inogen One G5 and the Inogen One G4, as single solutions for long-term
oxygen therapy. This means our solutions can operate on a 24/7 basis for at least 60 months without a stationary concentrator, with
minimal servicing of sieve beds, filters, and accessories. The technology in our Inogen One systems is effective for nocturnal use. Our
Inogen One portable oxygen concentrators can operate reliably and cost-effectively over the long period of time needed to service
long-term oxygen therapy patients without supplemental use of a stationary concentrator or a replacement portable oxygen
concentrator. The following table summarizes our key product features:
Capacity (ml/min) .....................................
Weight (lbs)................................................
Battery run-time........................................
Technology effective for overnight use....
Sound..........................................................
Key Product Specifications
Inogen One G5
1,260
4.7 (single battery)
5.7 (double battery)
Up to 6.5 hours
(single battery)
Up to 13 hours
(double battery)
Yes
38 dBA
Inogen One G4
630
2.8 (single battery)
3.3 (double battery)
Up to 2.6 hours
(single battery)
Up to 5 hours
(double battery)
Yes
40 dBA
5
We have focused our research and development efforts on creating solutions that we believe have overcome the reputation of
portable oxygen concentrators as being limited in durability and reliability as well as unsuitable for nighttime or 24/7 use. We
specifically designed our compressors for 24/7 use.
All of our Inogen One systems are equipped with Intelligent Delivery Technology, a form of pulse-dose technology from which
the patient receives a bolus of oxygen upon inhalation. Pulse-dose technology was developed to extend the number of hours an oxygen
tank would last and is generally used on all ambulatory long-term oxygen therapy devices. Our proprietary conserver technology
utilizes differentiated triggering sensitivity to quickly detect a breath and ensure oxygen delivery within the first 400 milliseconds of
inspiration, the interval when oxygen has the most effect on lung gas exchange. During periods of sleep, respiratory rates typically
decrease. Our Inogen One systems actively respond to this changing physiology through the use of proprietary technology that
increases bolus size. Our Intelligent Delivery Technology is designed to provide effective levels of blood oxygen saturation during
sleep and all other periods of rest and activity that are substantially equivalent to continuous flow systems.
We have also launched Inogen Connect, a wireless connectivity platform for the Inogen One G4 and Inogen One G5 consisting
of a front-end mobile application for use by long-term oxygen therapy users and a back-end database portal for use by homecare
providers. The Inogen Connect app is compatible with Apple and Android platforms and includes patient features such as oxygen
purity status, battery run time, product support functions, notification alerts, and remote software updates. We believe features of the
back-end database portal such as remote troubleshooting, equipment health checks, and a location tracker will drive operational
efficiencies for home oxygen providers and lower the total cost of servicing oxygen therapy patients.
The Inogen One G5, our latest portable oxygen concentrator released to market in April 2019, is among the lightest products on
the market and has higher oxygen production capabilities than the other sub-5 pound portable oxygen concentrators on the market.
The performance parameters around our Inogen One systems allow us to serve ambulatory long-term oxygen patients based on their
clinical needs. Our products enable us to address a patient’s particular clinical needs, as well as lifestyle and performance preferences.
The Inogen At Home stationary oxygen concentrator allows us to access the non-ambulatory long-term oxygen therapy patient
market and serves as a backup to our Inogen One system for ambulatory patients on our rental service. At approximately 18 pounds,
we believe the Inogen At Home concentrator is the lightest five liter per minute continuous flow oxygen concentrator on the market
today. Additionally, the Inogen At Home product has low power consumption with worldwide electrical compatibility, which should
reduce the cost of electricity for oxygen therapy patients and reduce environmental impact of the product, as well as reduce
manufacturing and distribution complexities. While the Inogen One product line is clinically validated for 24/7 use, the Inogen At
Home product represents a compelling solution for stationary long-term oxygen therapy patients that do not require a portable
solution, which are estimated to represent approximately 20% of total long-term oxygen therapy patients in the United States based on
2020 traditional fee-for-service Medicare data.
Our direct-to-consumer business model has enabled us to design and commercialize portable oxygen concentrators that address
the full suite of features and benefits critical to patient preference and retention. Our products prevent patients from having to choose
between lightweight size, suitability for 24/7 use, reliability, and key features such as battery life, flow and reduced noise levels.
Domestic sales and marketing
In the United States, we market and distribute our products directly to consumers through a wide variety of direct-to-consumer
sales and marketing strategies including consumer advertising, an inside sales staff, and a physician referral model. Of the $278.5
million of our 2021 revenue derived from the United States, approximately 50.6% represented direct-to-consumer sales, 32.8%
represented sales to traditional home medical equipment providers, distributors (including our private label partner) and resellers, and
16.6% represented direct-to-consumer rentals.
As of December 31, 2021, we employed a marketing team of 5 people, an in-house sales team of 326 people (including 292
inside sales representatives), a field-based prescriber sales team of 41 people (including 35 prescriber sales representatives), and a
business-to-business sales and global support team of 25 people.
Our direct-to-consumer sales and marketing efforts are focused on generating awareness and demand for our Inogen One
systems and Inogen At Home systems among patients, physicians and other clinicians, and third-party payors.
6
Patients who choose to use their Medicare or private insurance benefits typically rent our systems. Those who purchase our
product outright are typically patients who are not eligible to use their insurance benefits due to their capped rental status, prefer our
Inogen One G4 and Inogen One G5 products that are not currently available for rent, prefer to own the equipment, prefer new
equipment, or have an immediate need for our product that cannot be processed in time by their primary insurance carrier (e.g., an
upcoming trip). Our ability to rent to Medicare patients directly, bill Medicare and other third-party payors on their behalf, and service
patients in their homes requires that we hold a valid Medicare supplier number, are accredited by an independent agency approved by
Medicare, and comply with the differing licensure and process requirements in the 50 states in which we serve patients.
We use a variety of direct-to-consumer marketing strategies to generate interest in our solutions among current oxygen therapy
patients. After a patient contacts us, we guide them through product selection and insurance eligibility, and, if they choose to move
forward, process the necessary reimbursement and physician paperwork on their behalf, as well as coordinate the shipping, instruction,
and clinical setup process. In accordance with Medicare regulations, we do not initially contact patients directly and contact them only
upon an inbound inquiry or upon receipt of a physician’s order. The chart below describes our United States direct-to-consumer sales
and rental process.
We engage in a number of other initiatives to increase awareness, demand, and orders for Inogen One systems and Inogen At
Home systems. These include attendance at oxygen therapy support groups, guest speaking arrangements at trade shows, and product
demonstrations, as requested. Additionally, we are targeting private payors to become an in-network provider of oxygen therapy
solutions, which we expect will reduce patient co-insurance amounts associated with using our solution. We believe this will result in
both increased conversion of our initial leads, as well as direct referrals from insurance companies in some cases.
To supplement the direct-to-consumer marketing model, we are also utilizing a physician referral model as a complementary
sales method. Under this model, our prescriber sales organization works with physicians in the representative’s territory to help
physicians understand our products and the value these products provide for patients. We believe that by educating physicians on our
products, we can cost-effectively supplement our direct-to-consumer sales and rentals and capture a greater number of patients earlier
in the course of their oxygen therapy.
Our direct-to-consumer marketing strategies also create demand for our products among other homecare equipment providers
and business partners. In addition to generating consumer demand, we believe our products can create value for our business partners
by either creating a retail sale opportunity for them or by reducing the need for costly home deliveries associated with oxygen tanks.
We also sell to resellers and traditional homecare providers in the United States, Canada, Europe, the Asia-Pacific region, Latin
America, the Middle East and Africa that choose to deploy our products to long-term oxygen therapy patients either through insurance
reimbursement or retail. These customers market the benefits of our products to oxygen therapy patients through consumer advertising
and/or retail locations or to physicians through field-based prescriber sales representatives. We believe that in addition to the
marketing efforts employed by our business customers, our own direct-to-consumer marketing efforts in the United States result in
patient interest that our business customers field.
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Traditional homecare providers that employ the standard delivery model with oxygen tanks need to replace the oxygen tanks on
a regular basis by picking up the empty oxygen tanks and delivering full oxygen tanks for the patient. The delivery model has
historically necessitated that a homecare provider has a facility near the oxygen patients that it serves and that the provider has
invested in personnel, trucks, etc. to facilitate routine deliveries. The cost to deliver the oxygen tanks to patients is significant for
many providers in the standard delivery model. Homecare providers that have adopted Inogen products should be able to reduce the
costly deliveries associated with oxygen tanks since our products generate their own oxygen and do not need to be refilled. Our
business-to-business sales and marketing strategy for these customers is to raise awareness of our solutions and educate homecare
providers on how our products may be able to reduce their total cost of ownership of servicing oxygen patients. As a homecare
provider ourselves, we are able to help our business customers adopt a non-delivery long-term oxygen therapy model utilizing patient
preferred portable oxygen concentrators. We also private label our product with a business partner that sells to traditional homecare
providers. Our private label partner employs field sales representatives who call on homecare providers to showcase the benefits of
our products.
Concentration of Customers
We primarily sell our products to traditional home medical equipment providers, distributors, and resellers in the United States
and in foreign countries on a credit basis. We also sell our products direct-to-consumers on a primarily prepayment basis. For the year
ended December 31, 2021, Medicare’s service reimbursement programs represented more than 10% of our total revenue. For the year
ended December 31, 2020, one single customer represented more than 10% of our total revenue, OxyGo HQ Florida, our private label
distribution partner. For the year ended December 31, 2019, no single customer represented more than 10% of our total revenue. As of
December 31, 2021, one single customer and Medicare each represented more than 10% of our net accounts receivable with accounts
receivable balances of $5.9 million and $2.7 million, respectively. As of December 31, 2020, two customers each represented more
than 10% of our net accounts receivable balance with accounts receivable balances of $8.4 million and $7.0 million.
We rent 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 81.9%, 81.5% and 81.1% of
rental revenue in 2021, 2020 and 2019, respectively, and based on total revenue were 10.6%, 7.5% and 4.8% for 2021, 2020 and 2019,
respectively. Accounts receivable balances relating to Medicare’s service reimbursement programs (including held and unbilled
receivables, net of allowances) amounted to $2.7 million or 11.0% of total net accounts receivable as of December 31, 2021 and $1.9
million or 6.3% of total accounts receivable as of December 31, 2020.
International
Approximately 22.2% of our total revenue was from outside the United States in 2021. We sell through distributors, resellers,
and home medical equipment providers in certain markets within Canada, Europe, the Asia-Pacific region, Latin America, the Middle
East, and Africa. To date, we have sold our products in a total of 59 countries outside the United States through distributors or directly
to large “house” accounts, which include gas companies and home oxygen providers. In this case, we sell to and bill the distributor or
house accounts directly, leaving the patient billing, support, and clinical setup to the local provider. As of December 31, 2021, we had
13 people located in the United States who focused on selling our products and providing service and support to distributors and house
accounts worldwide and 8 in-house and contract employees and independent employees located in Europe who provided sales and
customer support services to a portion of our international customers. No single international customer and no single foreign country
represented more than 10% of our total revenue in 2021, 2020 or 2019.
We believe that the international oxygen therapy market is attractive for the following reasons:
•
•
•
more favorable reimbursement rates in certain countries, including France and the United Kingdom, where portable
oxygen concentrators receive higher reimbursement rates than in the United States;
less developed oxygen delivery infrastructure in some countries. We believe that some countries outside the United States
have less developed oxygen delivery infrastructure than in the United States. As a result, portable oxygen concentrators
enable providers to reach and service patients they cannot economically reach with the delivery model; and
an absence of reimbursement for any ambulatory long-term oxygen therapy modalities in some countries, resulting in
patients bearing all of the cost of ambulatory long-term oxygen therapy and therefore becoming more involved in the
selection of the modality. In Australia, for example, patients shoulder the burden of all costs associated with ambulatory
long-term oxygen therapy. In these cases, they tend to choose products like portable oxygen concentrators that provide a
higher level of personal freedom.
8
In 2017, we added a European customer support site in the Netherlands after acquiring a previous distributor, MedSupport, now
operating under Inogen Europe B.V. This site offers multi-lingual customer service and sales support to improve our European
customer support at lower cost. Also in support of our European operations, we produce our Inogen One G3 and Inogen One G5
concentrators and perform related repair activities using a contract manufacturer, Foxconn, located in the Czech Republic to improve
our ability to service our European customers.
Order fulfillment and customer support
Our procedures are designed to enable us to package and ship a system directly to the patient in the patient’s preferred
configuration and we aim to do so the same day the order is received in most cases. This enables us to minimize the amount of
finished goods inventory we keep on hand. Our primary logistics partner for shipments originating in the U.S. is UPS, which also
provides additional services that support our direct-to-consumer oxygen therapy program. The UPS pick up service is used to retrieve
products requiring repair and systems that are no longer needed by our rental patients. When necessary, we utilize a courier for white-
glove service whereby the courier goes into a patient’s home to remove a replacement product from the box, package the failed device
and return it to us. In this manner, we are able to operate as a remote provider while maintaining the level of customer service of a
local oxygen therapy provider.
We believe it is important to provide patients with quality customer support to achieve satisfaction with our products and
optimal outcomes. As of December 31, 2021, we had a dedicated customer service team of 61 people who were trained on our
products, a clinical support team of 23 people who were licensed nurses or respiratory therapists, a patient intake team of 36 people, a
rental billing intake team of 31 people, and a dedicated billing services team of 68 people. We provide our patients with a dedicated
24/7 hotline. Via the hotline, patients have direct access to our customer service representatives who can handle product-related
questions. Additionally, clinical staff is on call 24/7 and available to patients whenever either the patient or the customer service
representative deems appropriate. Our rental intake staff supports patients who wish to use their rental insurance benefits to receive
our products and services. Our dedicated billing services team is available to answer patient questions regarding invoicing,
reimbursement, and account status during normal business hours. We receive no additional reimbursement for patient support, but we
provide high-quality customer service to enhance patient comfort, satisfaction, compliance, and safety with our products.
Third-party reimbursement
Medicare and private insurance rentals represented 12.9% of our total revenue in 2021, up from 9.2% of our total revenue in
2020. The increased rental revenue as a percentage of total revenue was primarily due to increased rental patients on service, and
increased reimbursement rates. 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. We process and coordinate all physician
paperwork necessary for reimbursement of our solutions. A common medical criterion for long-term oxygen therapy reimbursement is
insufficient blood oxygen saturation level. Our team in sales and rental intake are trained on how to verify benefits, review medical
records and process physician paperwork. Additionally, an independent internal review is performed, and our products are not
deployed until after physician paperwork is processed and reimbursement eligibility is verified and communicated to the patient.
We rely significantly on reimbursement from Medicare and private payors, including Medicare Advantage plans, Medicaid and
patients for our rental revenue. For the year ended December 31, 2021, approximately 81.9% of our rental revenue was derived from
Medicare’s traditional fee-for-service reimbursement programs. The U.S. list price for our stationary oxygen rentals Healthcare
Common Procedure Coding System (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 former competitive
bidding areas (CBAs) in the prior five years are outlined in the table below for E1390 and E1392, which are the two primary codes
that we bill to Medicare and other payors for our oxygen product rentals. These rates are typically updated annually each January as
they are subject to Consumer Price Index (CPI), sequestration and budget neutrality adjustments but are also subject to adjustments
during the year due to legislative rulings. Competitive bidding contracts were scheduled to go into effect on January 1, 2021; however,
on October 27, 2020, CMS announced that competitive bidding contracts would not be awarded for most product categories, including
oxygen, due to the payment amounts not achieving the expected savings and the current COVID-19 pandemic and the related PHE.
Effective April 1, 2021, rates were adjusted to remove a percentage reduction that was put in place to meet the budget neutrality
requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social Security Act. See the table below for average Medicare
rates in former CBAs, using a simple average of rates in each CBA.
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Average Medicare reimbursement rates in former CBAs
As of January 1, 2022....................................................................................... $
As of April 1, 2021........................................................................................... $
As of January 1, 2021....................................................................................... $
As of January 1, 2020....................................................................................... $
As of January 1, 2019....................................................................................... $
As of January 1, 2018....................................................................................... $
E1390
E1392
85.31 $
81.25 $
73.88 $
73.98 $
72.92 $
77.03 $
41.81
39.82
36.20
36.25
35.72
36.06
Medicare payment rates are based upon whether the beneficiary resides in former or current CBAs, or in rural or non-rural non-
CBAs, or in non-contiguous states. Non-CBA payment rates are based on regional pricing, that are derived from (former) competitive
bidding payment rates. In rural areas and non-contiguous states, payment rates are higher, to account for higher servicing costs in
those areas. The Medicare reimbursement rates in rural areas is outlined in the table below, and include areas that are considered non-
contiguous (Alaska, Hawaii, Puerto Rico, and the Virgin Islands). We estimate that approximately 18% of our patients are eligible to
receive the higher reimbursement rates based on the geographic locations of our current patient population. These rates are typically
updated annually each January as they are subject to the CPI, sequestration and budget neutrality adjustments, but are also subject to
adjustments during the year due to legislative rulings. Effective April 1, 2021, rates were adjusted to remove a percentage reduction
that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social
Security Act. Therefore, Medicare payment rates are no longer affected by a budget neutrality adjustment, as of April 1, 2021. See the
table below for average Medicare rates in rural areas, using a simple average of rates in each state.
Average Medicare reimbursement rates in rural areas
As of January 1, 2022....................................................................................... $
As of April 1, 2021........................................................................................... $
As of January 1, 2021....................................................................................... $
As of January 1, 2020....................................................................................... $
As of January 1, 2019....................................................................................... $
As of January 1, 2018....................................................................................... $
E1390
E1392
151.15 $
143.48 $
136.84 $
136.71 $
134.71 $
76.31 $
48.39
47.13
44.99
44.93
44.32
41.91
Rates in non-former CBAs that are not defined as rural are set based on the rates in former CBAs. See the table below for
average Medicare rates in these non-former CBAs, non-rural areas, using a simple average of rates in each state. These rates are
typically updated annually each January as they are subject to the CPI, sequestration and budget neutrality adjustments but are also
subject to adjustments during the year due to legislative rulings. Effective April 1, 2021, rates were adjusted to remove a percentage
reduction that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the
Social Security Act. Note that the 2022 rates listed below include Coronavirus Aid, Relief, and Economic Security (CARES Act)
increased rates due to the COVID-19 PHE, which may not be in place for all of 2022. If the COVID-19 PHE is declared over, the rates
in these non-former CBAs, non-rural areas are expected to adjust down to the former CBA rates listed in the table above.
Average Medicare reimbursement rates in non-former CBAs, non-
rural areas
As of January 1, 2022....................................................................................... $
As of April 1, 2021........................................................................................... $
As of January 1, 2021 (retroactively revised March 1, 2021).......................... $
As of January 1, 2020....................................................................................... $
As of January 1, 2019....................................................................................... $
As of January 1, 2018....................................................................................... $
E1390
E1392
115.14 $
109.39 $
104.07 $
74.84 $
72.32 $
69.31 $
43.69
42.12
40.06
36.87
35.64
38.10
There have been significant U.S. reimbursement and policy changes that impact oxygen therapy associated with the COVID-19
PHE declared by the U.S. Department of Health and Human Services (HHS) on January 31, 2020. The CARES Act allows HHS to
waive certain Medicare telehealth payment requirements during the COVID-19 PHE to allow beneficiaries in all areas to receive
telehealth services, including at their home, starting March 6, 2020. The Coronavirus Preparedness and Response Supplemental
Appropriations Act (H.R. 6074) also granted HHS the authority to waive certain requirements with respect to telehealth services.
Under this authority, CMS clarified that HHS would not conduct audits to determine whether there was a prior physician-patient
relationship for telehealth claims submitted during the COVID-19 PHE. The CARES Act included the extension of the 50/50 blended
rate for home medical equipment (HME) in rural and non-contiguous, non-competitively bid areas and established a new 75/25
blended rate for all other non-competitively bid areas through the duration of the COVID-19 PHE. The 75/25 blended rate was
retroactive to March 6, 2020. While the duration of the current emergency is impossible to predict, the Zika virus PHE lasted
approximately 360 days, and the H1N1 flu PHE lasted approximately 450 days.
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The 2% Medicare sequestration benefit that has been in place since May 2020 due to the COVID-19 PHE that was set to expire
December 31, 2021 has been extended by Congress until March 31, 2022. The sequestration then resumes with a 1% reduction to rates
from April 1, 2022 until June 30, 2022, with the full 2% Medicare sequestration resuming starting July 1, 2022 and continuing through
September 30, 2030.
On April 6, 2020, CMS published an Interim Final Rule (IFR) in the Federal Register for policy and regulatory revisions in
response to the COVID-19 PHE. 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, are waived. In addition, the Administration has
issued a number of regulatory waivers to increase the flexibility in DMEPOS suppliers’ ability to service patients quickly and without
the normal requirements. For example, the patient’s signature for proof of delivery has been waived when signatures cannot be
collected during the COVID-19 PHE. In addition, CMS increased Medicare contractors’ ability to waive replacement product
requirements, paused the national prior authorization program for certain DMEPOS, automatically extended expiring accreditations,
granted contractors the flexibility to grant appeals extensions, and medical review suspension. Both the IFR and temporary regulatory
changes show significant flexibility from CMS to improve access for oxygen and other DMEPOS items during this COVID-19 PHE.
These changes were retroactive to early March 2020. In August 2020, CMS resumed medical review of claims and the prior
authorization program for certain DMEPOS.
CMS also issued a final rule in December 2021 (CMS-1738-P) to establish payment amounts that will be effective after the
COVID-19 PHE 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 any net change for inflation and sequestration adjustments, as outlined above.
CMS established three different fee schedule adjustment methodologies for non-CBAs after the termination of the COVID-19
PHE: (1) for non-contiguous non-CBAs; (2) for contiguous non-CBAs defined as rural areas; and (3) for non-rural non-CBAs within
the contiguous United States. The final payment methodology sets the fee schedule amounts to 100% of the Medicare (competitive bid
derived) rates in all non-rural areas. This will 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 payment rate. The final payment
methodology establishes the fee schedule amounts to a 50/50 blended payment rate, which is the same rate that is currently applicable
in these areas.
In January 2021, CMS announced what the pivotal bid amounts would have been for the competitive bidding round 2021. As a
reminder, the bids for oxygen were based on the HCPCS code E1390, which is for stationary oxygen, and there were 130 regions bid.
The simple average of the 2018 single payment amounts for these regions for this code was $73.98. The simple average of the pivotal
bid amounts for these regions for this code was $122.61, or an average increase of 65.7%. If CMS would have implemented these rate
changes, the simple average payment amounts in these regions for POCs (codes E1390 and E1392) would have been $157.60, which
is significantly higher than the simple average payment amounts of $110.07 and $121.07 per month being paid as of January 1, 2021
and April 1, 2021 for these regions.
CMS is required to propose future rounds of competitive bidding, which could change reimbursement rates, negatively impact
the premium for POCs over other oxygen modalities, or limit beneficiary access to our technologies. At this point, CMS has not yet
announced when a new round of competitive bidding will occur. 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. As of January 1, 2017
(when the last round of competitive bidding was in effect), we believe we had access to over 90% of the Medicare oxygen therapy
market based on our analysis of the 103 CBAs that we won out of the 130 total CBAs. These 130 CBAs represented approximately
36% of the Medicare market with the remaining approximately 64% of the market not subject to competitive bidding per Medicare’s
data on 2018 traditional Medicare fee-for-service beneficiaries in CBAs compared to the total Medicare fee-for-service beneficiaries.
As of January 1, 2019, we can choose to accept Medicare oxygen patients throughout the United States. As of July 2018, we are
operating in all 50 states in the U.S. We did not sell or rent to patients in Hawaii due to the licensure requirements from inception to
June 2018.
We cannot guarantee that we will be offered contracts in any subsequent rounds of competitive bidding. 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.
In September 2021, CMS published a Decision Memo which revised the Home Use of Oxygen national coverage determination
and removed the national coverage determination for Home Oxygen Use to Treat Cluster Headaches. This allows the Medicare
Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster
headaches. CMS also expanded patient access to oxygen and oxygen equipment in the home by allowing oxygen use for acute or
short-term needs instead of limiting coverage to chronic hypoxemia, removed the requirement for alternative treatment measures
before dispensing of oxygen therapy, and removed the limited list of conditions for which oxygen may be covered to respiratory-
related diseases, to allow the physician flexibility to make that determination. In addition, CMS defined exercise more broadly to
include functional performance of the patient and allow more flexibility on pulse oximetry readings to account for differences in skin
11
pigmentation. Lastly, CMS reduced provider burden by removing the oxygen certificate of medical necessity requirement. We believe
these changes will expand coverage for patients who would benefit from oxygen therapy, reduce administrative burdens, and give
more decision-making authority on proper patient care to the physicians. CMS issued guidance on February 10, 2022 to the Medicare
Administrative Contractors detailing that the implementation date of the revised national coverage policy will be June 14, 2022.
However, we do not yet have visibility on the details of how the Medicare Administrative Contractors will change their coverage
determinations or the effective date of the new national coverage determinations.
Medicare revenue, including patient co-insurance and deductible obligations, represented 10.6% of our total revenue in the year
ended December 31, 2021 and 7.5% in the year ended December 31, 2020.
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. The supplier that billed Medicare for the 36th month of service
continues to be responsible for the patient’s oxygen therapy needs for months 37 through 60, and there is generally no additional
reimbursement for OGPE for these later months. Medicare does not separately reimburse suppliers for oxygen tubing, cannulas and
supplies that may be required for the patient. The supplier is required to keep the equipment provided in working order and in some
cases, Medicare will reimburse for repair costs. At the end of the five-year useful life of the equipment, the patient may request
replacement equipment and, if he or she can be re-qualified for the Medicare benefit, a new maximum 36-month payment cycle out of
the next 60 months of service would begin. 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 years ended December 31, 2021 and December 31, 2020. Our capped patients as a percentage of total patients on service was
approximately 8.0% as of December 31, 2021 and 11.7% as of December 31, 2020. The decrease in percentage of capped patients in
the comparative periods was primarily due to the significant increase in new patients coming on service, which substantially exceeded
the number of patients that entered the capped period. The percentage of capped patients may fluctuate over time as new patients come
on service, patients come off of service before and during the capped rental period, and existing patients enter the capped rental
period.
Our obligations to service Medicare patients over the rental period include supplying working equipment that meets each
patient’s oxygen needs pursuant to his/her doctor’s prescription and supplying all disposables required for the patient to operate the
equipment, including cannulas, filters, replacement batteries, carts and carry bags, as needed. If the equipment malfunctions, we must
repair or replace the equipment. We determine what equipment the patient receives, and we can deploy used assets in working order as
long as the prescription requirements are met. We must also procure a renewal from the patient’s doctor to confirm the patient’s need
for continued oxygen therapy one year after the patient first receives oxygen therapy and one year after each new 36-month
reimbursement period begins. 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.
We have contracts with Medicaid, Medicare Advantage, government and private payors that qualify us as an in-network
provider for these payors. As a result, patients can rent or purchase our systems at the same patient obligation as other in-network
oxygen suppliers. We had 92 contracts as of December 31, 2021. Private payors typically provide reimbursement at a rate similar to
Medicare allowables for in-network plans. We anticipate that private payor reimbursement levels will generally be reset in accordance
with Medicare payment amounts.
We believe that we are well positioned to respond to the changing reimbursement environment because our product offerings
are innovative, patient-focused and cost-effective. We have historically been able to reduce our costs through scalable manufacturing,
better sourcing, continuous innovation, and reliability improvements, as well as innovations that reduce our product service costs by
minimizing exchanges. As a result of design changes, supplier negotiations, bringing manufacturing and assembly largely in-house
and our commitment to driving efficient manufacturing processes, we have historically reduced our overall POC system cost and
intend to continue to seek ways to reduce our cost of revenue through manufacturing and design improvements.
For additional discussion of the impact of the recent Medicare reimbursement proposals, see “Risk Factors” herein.
Manufacturing and raw materials
We have been developing and refining the manufacturing of our Inogen One systems since 2004. While nearly all of our
manufacturing and assembly processes were originally outsourced, assembly of the compressors, sieve beds, concentrators and certain
manifolds were brought in-house in order to improve quality control and reduce cost. In support of our European sales, we use a
contract manufacturer located in the Czech Republic to manufacture high volume products and perform product repairs to improve
delivery to our European accounts. We expect to maintain our assembly operations for our products at our facilities in Texas and
California. In 2022, we are focused on securing supply for components to make our products in spite of the higher costs of
semiconductor chips, reducing the cost of our Inogen One G5 product (excluding the impact of the semiconductor chip price
increases), and increasing the robustness of our supply chain as part of our efforts to reduce potential component constraints as we
grow our business.
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We also use lean manufacturing practices to maximize manufacturing efficiency. We rely on third-party manufacturers to
supply several components of our products. We typically enter into master service agreements for these components that specify
quantity and quality requirements and delivery terms. In certain cases, these agreements can be terminated by either party upon
relatively short notice. We have elected to source certain key components from single sources of supply, including our batteries,
motors, valves, TAV-compatible stationary concentrators, columns, and some molded plastic components. In some cases, maintaining
a single source of supply can allow us to control production costs and inventory levels and to manage component quality, but also may
lead to supply availability risks and means our ability to maintain production is dependent on these single source suppliers, which may
put us at an increased risk of supply disruption, as we have seen from the production halt we implemented in early January 2022
through early February 2022. In order to help mitigate against the risks related to a single source of supply, for certain components we
qualify alternative suppliers and develop contingency plans for responding to disruptions. However, a continued reduction or halt in
supply from one of these single-source suppliers any dual-sourced suppliers or any other limited-source suppliers with similar sub-
component suppliers could limit or prevent our ability to manufacture our products or devices until one or more sufficient replacement
suppliers is found and qualified. For additional discussion of potential risks related to our manufacturing and raw materials, please see
the risk factor entitled “We obtain some of the components, subassemblies and completed products included in our products from a
single source or a limited group of manufacturers or suppliers, and in some cases those components are available in only limited
supplies from limited manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers
could cause significant production delays or stoppages, an inability to meet customer demand, substantial loss in revenue, and an
adverse effect on our financial condition and results of operations.”
We currently manufacture in two leased buildings in Plano, Texas and Goleta, California, that we have registered with the Food
and Drug Administration (FDA), and maintain a Quality Management system for which we have obtained International Standards
Organization (ISO) 13485 certification.
Our entire organization is responsible for quality management. Our Quality Assurance and Regulatory Affairs departments
oversee this by tracking component, device and organization performance and by training team members outside the Quality
Assurance and Regulatory Affairs departments to become competent users of our Quality Management system. By measuring
component performance, communicating daily with the production group and our suppliers, and reviewing customer complaints, our
Quality Assurance department, through the use of our corrective action program, drives and documents continuous performance
improvement of our suppliers and internal departments. Our Regulatory Affairs department also trains internal quality auditors to audit
our adherence to the Quality Management system. Our Quality Management system has been certified to ISO 13485:2016 by BSI, a
Notified Body.
In 2019, 2020 and 2021, our contract manufacturer produced the vast majority of the Inogen One G3 concentrators required to
support our European demand and we expect this to continue in 2022. Our contract manufacturer also began manufacturing the Inogen
One G5 in January 2020 and produced the vast majority of the Inogen One G5 concentrators required to support our European demand
in 2021, which we expect to continue in 2022. Lastly, our contract manufacturer began repair services for the Inogen One product line
in 2020 and repaired the majority of the Inogen One concentrators for our European customers. This has allowed us to continue to
expand our manufacturing and repair capacity and redirect our U.S. manufacturing activities to focus on growth in the U.S. and on our
largest volume products, the Inogen One G5 and the Inogen One G4.
As of December 31, 2021, we had 280 employees in operations, manufacturing, quality assurance, manufacturing engineering
and repair in the United States.
Research and development
We are committed to ongoing research and development to stay at the forefront of patient preference in the oxygen concentrator
and non-invasive ventilation field. As of December 31, 2021, our research and development staff included 28 engineers and scientists
with expertise in air separation, compressors, pneumatics, electronics, embedded software, mechanical design, sensor, automation,
connectivity, non-invasive ventilation and manufacturing automation. Our current research and development efforts are focused
primarily on increasing functionality, improving design for ease-of-use, and reducing production costs of our Inogen One systems and
Inogen At Home systems, as well as developing our next-generation oxygen concentrators and non-invasive ventilators. We have
leveraged our sixty-six issued patents while also have historically reduced our overall POC system cost and intend to continue to seek
ways to reduce our cost of revenue through manufacturing and design improvements.
We have released six products since 2004, including our Inogen One G1 in October 2004, our Inogen One G2 in March 2010,
our Inogen One G3 in September 2012, our Inogen At Home system in October 2014, our Inogen One G4 in May 2016, and our
Inogen One G5 in April 2019. We also launched the Inogen Connect platform in December 2018 in our direct-to-consumer channel
and in February 2019 in our domestic business-to-business channel. We launched our TAV in December 2019. Our dedication to
continuous improvement has also resulted in five mid-cycle product updates and numerous incremental improvements. Development
projects utilize a combination of rapid prototyping and accelerated life testing methods to ensure products are taken from concept to
commercialization in a fast and capital efficient manner. We leverage our direct patient expertise to rapidly gain insight from end
users and to identify areas of innovation that we believe will lead to higher-quality products and lower total cost of ownership for our
products.
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We continue to focus our efforts on design and functionality improvements that enhance patient quality of life and reduce
service costs.
Competition
The long-term oxygen therapy market is a highly competitive industry. We compete with a number of manufacturers and
distributors of portable oxygen concentrators, as well as providers of other long-term oxygen therapy solutions such as home delivery
of oxygen tanks or cylinders, stationary concentrators, transfilling concentrators, and liquid oxygen.
Our significant manufacturing competitors are Respironics (a subsidiary of Koninklijke Philips N.V.), Invacare Corporation,
Caire Medical (subsidiary of NGK Spark Plug), DeVilbiss Healthcare (a subsidiary of Drive Medical), O2 Concepts, Precision
Medical, Resmed, Gas Control Equipment (subsidiary of Colfax), Nidek Medical, 3B Medical, SysMed, and Belluscura. Given the
relatively straightforward regulatory path in the oxygen therapy device manufacturing market, we expect that the industry will become
increasingly competitive in the future. For example, some major competitors have implemented direct-to-consumer sales models,
which may increase their competitiveness and sales to patients, and we have recently seen the cost per generated lead trend higher than
historical averages that may in part be due to increased competition. However, the strategies of these major competitors are currently
limited to direct-to-consumer sales and do not include direct-to-consumer rentals where they would be responsible to meet national
accreditation and state-by-state licensing requirements and secure Medicare billing privileges. Manufacturing companies compete for
sales to providers primarily on the basis of price, quality/reliability, financing, bundling, product features, and service.
For many years, Lincare, Inc. (a subsidiary of the Linde Group), Apria Healthcare, Inc., AdaptHealth Corp., Rotech Healthcare,
Inc., and Viemed Healthcare, Inc. have been among the market leaders in providing respiratory therapy products, while the remaining
market is serviced by local providers. Because of reimbursement reductions, we expect more industry consolidation and volatility in
ordering patterns based on how providers are restructuring their businesses and their access to capital. In addition, providers may
reduce or eliminate purchases from us due to our increased focus on building out a prescriber sales team and pursuing rentals directly,
which could be in competition with our providers in the United States. Respiratory therapy providers compete primarily on the basis
of product features and service, rather than price, since reimbursement levels are established by Medicare and Medicaid, or by the
individual determinations of private payors.
Some of our competitors are large, well-capitalized companies with greater resources than we have. Consequently, they are able
to spend more aggressively on product development, marketing, sales and other product initiatives than we can. Some of these
competitors have:
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significantly greater name recognition;
established relationships with healthcare professionals, customers and third-party payors;
established distribution networks;
additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts, lower pricing,
longer warranties, financing or extended terms, other incentives to gain a competitive advantage;
greater history in conducting research and development, manufacturing, marketing and obtaining regulatory approval for
respiratory device products; and
greater financial and human resources for product development, sales and marketing, and patent litigation.
As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities,
technologies, standard regulatory and reimbursement development and customer requirements or changing or uncertain business
conditions or macroeconomic trends. In light of these advantages that our competitors maintain, even if our technology and direct-to-
consumer distribution strategy is more effective than the technology and distribution strategy of our competitors, including those who
have adopted or may in the future adopt direct-to-consumer sales models, current or potential customers might accept competitor
products and services in lieu of purchasing our products. We anticipate that we will face increased competition in the future as existing
companies and competitors develop new or improved products and distribution strategies and as new companies enter the market with
new technologies and distribution strategies. We may not be able to compete effectively against these organizations. Our ability to
compete successfully and to increase our market share is dependent upon our reputation for providing responsive, professional and
high-quality products and services and achieving strong customer satisfaction. Increased competition in the future could adversely
affect our revenue, revenue growth rate, margins and market share.
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Government regulation
Inogen One systems, Inogen At Home systems, TAV systems, and related accessories are medical devices subject to extensive
and ongoing regulation by the FDA, as well as other federal and state regulatory bodies in the United States and comparable
authorities in other countries. The FDA regulations govern the following activities that we perform, or that are performed on our
behalf, to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended
uses: product design and development, pre-clinical and clinical testing, manufacturing, labeling, storage, pre-market clearance or
approval, record keeping, product marketing, advertising and promotion, sales and distribution, and post-marketing surveillance.
FDA’s pre-market clearance and approval requirements
Unless an exemption applies, each medical device we seek to commercially distribute in the United States will require either a
prior Section 510(k) of the Food, Drug and Cosmetic Act, or 510(k) clearance, a De Novo authorization, or a pre-market approval
from the FDA. Medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk
associated with each medical device and the extent of control needed to ensure safety and effectiveness. Devices deemed to pose
lower risks are placed in either Class I or II, which requires the manufacturer to submit to the FDA a premarket notification requesting
permission to commercially distribute the device. This process is generally known as 510(k) clearance. Some low-risk devices are
exempted from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or
implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in Class III,
requiring premarket approval unless they may be marketed under a De Novo authorization from the FDA.
510(k) clearance pathway
When a 510(k) clearance is required, we must submit a premarket notification to the FDA demonstrating that our proposed
device is substantially equivalent to a “predicate device” which can be a previously cleared and legally marketed 510(k) device or a
device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of a pre-
market approval application. The performance goal for FDA to make a decision is within 90 FDA Days (calculated as the number of
calendar days between the date the 510(k) was “accepted” by the FDA for substantive review and date of a decision, excluding the
days the submission was on hold for an Additional Information request). As a practical matter, clearance often takes significantly
longer. The FDA must “accept” the submission for substantive review and may require further information, including clinical data, to
make a determination regarding substantial equivalence. If the FDA determines that the device, or its intended use, is not substantially
equivalent to a previously-cleared device or use, the FDA will either allow the submission of a De Novo application, or place the
device, or the particular use, into Class III. We obtained 510(k) clearance for the original Inogen One system on May 13, 2004. We
market the Inogen One G3, Inogen One G4, and Inogen One G5 systems pursuant to the original Inogen One 510(k) clearance. We
obtained 510(k) clearance for the Inogen At Home system on June 20, 2014. New Aera obtained 510(k) clearance for the TAV on
December 2, 2016.
De Novo authorization pathway
The De Novo authorization pathway is a request to the FDA to classify novel devices of low to moderate risk that had
automatically been placed in Class III either by virtue of receiving a “not substantially equivalent” (NSE) determination in response to
a 510(k) notification or because there is no available predicate to which to claim substantial equivalence. These types of applications
are referred to as “Evaluation of Automatic Class III Designation” or “De Novo.” FDA review of a De Novo application may lead the
FDA to authorize marketing of the device and classify it as either a Class I or II device, the latter of which can serve as a predicate
device for other 510(k) premarket notification submissions.
Pre-market approval pathway
A pre-market approval application must be submitted to the FDA if the device cannot be cleared through the 510(k) or De Novo
process. The pre-market approval application process is much more demanding than the 510(k) premarket notification process. A pre-
market approval application must be supported by extensive data, including but not limited to technical, preclinical, clinical trials,
manufacturing and labeling to demonstrate to the FDA’s satisfaction reasonable evidence of safety and effectiveness of the device.
After a pre-market approval application is submitted and the FDA determines that the application is sufficiently complete to
permit a substantive review, the FDA will accept the application for review. The FDA has 180 days to review an “accepted” pre-
market approval application, although the review of an application generally occurs over a significantly longer period of time and can
take up to several years. During this review period, the FDA may request additional information or clarification of the information
already provided. Also, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application
and provide recommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a preapproval
inspection of the manufacturing facility to ensure compliance with quality system regulations.
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Clinical trials
Clinical trials are almost always required to support pre-market approval and are sometimes required for 510(k) clearance. In the
United States, these trials generally require submission of an application for an Investigational Device Exemption, or IDE, to the FDA.
The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing it is safe to test the
device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specific
number of patients unless the product is deemed a non-significant risk device eligible for more abbreviated IDE requirements. Clinical
trials for significant risk devices may not begin until the IDE application is approved by the FDA and the appropriate institutional
review boards, or IRBs, at the clinical trial sites. We, the FDA or the IRB at each site at which a clinical trial is being performed may
suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits. Even if
a trial is completed, the results of clinical testing may not demonstrate the safety and efficacy of the device, may be equivocal or may
otherwise not be sufficient to obtain approval or clearance of the product.
Pervasive and ongoing regulation by the FDA and foreign agencies
Even after a device receives clearance or approval and is placed on the market, numerous regulatory requirements apply. These
include:
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establishment registration and device listing;
quality system regulation, which requires manufacturers, including third-party manufacturers, to follow stringent design,
testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;
labeling regulations and the FDA prohibitions against the promotion of products for un-cleared, unapproved or “off-label”
uses, and other requirements related to promotional activities;
medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or
serious injury if the malfunction were to recur;
corrections and removals reporting regulations, which require that manufacturers report to the FDA field corrections and
product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the
Federal Food, Drug and Cosmetic Act that may present a risk to health; and
post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional
safety and effectiveness data for the device.
After a device receives 510(k) clearance, de novo clearance or a pre-market approval, any modification that could significantly
affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new clearance or approval.
The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree
with a manufacturer’s determination. We have modified various aspects of our Inogen One systems since receiving regulatory
clearance, but we believe that new 510(k) clearances are not required for these modifications. If the FDA disagrees with our
determination not to seek a new 510(k) clearance, the FDA may retroactively require us to seek 510(k) clearance or pre-market
approval. The FDA could also require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance
or pre-market approval is obtained. Also, in these circumstances, we may be subject to significant regulatory fines and penalties.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any
of the following sanctions: warning letters, fines, injunctions, civil or criminal penalties, recall or seizure of our products, operating
restrictions, partial suspension or total shutdown of production, refusing our request for 510(k) clearance or pre-market approval of
new products, rescinding previously granted 510(k) clearances or withdrawing previously granted pre-market approvals.
As a medical device manufacturer, our manufacturing facilities are subject to periodic inspection by the FDA and certain
corresponding regulatory agencies and authorities. We have been periodically audited by the FDA and found to be in substantial
compliance with Good Manufacturing Practices (GMP). We have also completed surveillance and recertification audits by our
notified body and found to be in substantial compliance with GMP.
International sales of medical devices are subject to foreign government regulations and registration, which may vary
substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that
required for FDA approval/clearance, and the requirements may differ. There is a trend towards harmonization of quality system
standards among the European Union, United States, Canada and various other industrialized countries.
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Licensure, registrations, and accreditation
In April 2009, we became an accredited Durable Medical Equipment, Prosthetics, Orthotics, and Supplies Medicare supplier by
the Accreditation Commission for Health Care for our Goleta, California facility for Home/Durable Medical Equipment Services for
oxygen equipment and supplies. Our Medicare accreditation must be renewed every three years by passing an on-site inspection. Our
current accreditation with Medicare is due to expire in May 2024. Several states require that durable medical equipment providers be
licensed in order to sell products to patients in that state. Certain of these states require that durable medical equipment providers
maintain an in-state location. Most of our state licenses are renewed on an annual or bi-annual basis. Although we believe we are in
compliance with all applicable state regulations regarding licensure requirements, if we were found to be non-compliant, we could
lose our licensure in that state, which could prohibit us from selling our current or future products to patients in that state. Loss of any
state licensure or operating without a required state license may also impact our Medicare enrollment, which requires us to be properly
licensed in every state where we bill for Medicare reimbursement. Loss or suspension of our Medicare enrollment may also affect any
Medicare competitive bidding program contracts we may apply for in the future. In addition, we are subject to certain state laws
regarding professional licensure. We believe that our certified clinicians are in compliance with all applicable state laws. If our
clinicians were to be found non-compliant in a given state, we would need to modify our approach to providing education, clinical
support and customer service in such state until compliance is achieved.
Federal anti-kickback and self-referral laws
The Federal Anti-Kickback Statute prohibits, among other things, the knowing and willful offer, payment, solicitation or receipt
of any form of remuneration overtly or covertly, in cash or in kind, in return for, or to induce the:
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referral of an individual to a person for the furnishing or arranging for the furnishing of items or services reimbursable
under Medicare, Medicaid or other federal healthcare programs; or
purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any good,
facility, item or service reimbursable under Medicare, Medicaid or other federal healthcare programs.
The Federal Anti-Kickback Statute applies to our arrangements with our United States sales representatives, customers and
healthcare providers. Although we believe that we have structured such arrangements to comply with the Anti-Kickback Statute and
other applicable laws, regulatory authorities may determine otherwise. Non-compliance with the Federal Anti-Kickback Statute can
result in cancellation of our provider numbers and exclusion from Medicare, Medicaid or other federal healthcare programs,
restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse
effect on our business and results of operations.
Federal law also includes the Physician Self-Referral Law, commonly known as the “Stark Law,” which prohibits a physician
from referring a patient to an entity with which the physician (or an immediate family member of the physician) has a financial
relationship, for the furnishing of certain designated health services for which payment may be made by Medicare or Medicaid, unless
an exception applies. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a
non-compliant arrangement, civil penalties and fees, and exclusion from Medicare, Medicaid or other federal healthcare programs.
Although we believe that we have structured our provider arrangements to comply with current Stark Law requirements, regulatory
authorities may determine otherwise.
Additionally, regulations issued for the Federal Anti-Kickback Statute and the Stark Law have undergone significant revisions,
and it is reasonable to assume that revisions will occur in the future. While we have attempted to operate in compliance with these
laws and regulations, our arrangements may ultimately be found to be not in compliance with applicable federal law.
Federal False Claims Act
The Federal False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it
believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment to the federal government, or
who has made a false statement or used a false record to get a claim approved. In addition, amendments in 1986 to the Federal False
Claims Act have made it easier for private parties to bring “qui tam” or whistleblower lawsuits against companies. Although we
believe that we are in compliance with the federal government’s laws and regulations, if we are found in violation of these laws,
penalties of up to $0.024 million for each false claim, plus three times the amount of damages that the federal government sustained
because of the act, can be assessed.
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Civil monetary penalties law
The Federal Civil Monetary Penalties Law grants authority to the U.S. Department of Health & Human Services Office of
Inspector General (OIG) to seek civil monetary penalties (CMPs) against an individual or entity based on a wide variety of conduct
including violations of the Anti-Kickback Statute, Stark Law, and False Claims Act. An entity that offers to or transfers remuneration
to any individual eligible for benefits under Medicare or Medicaid that such entity knows or should know is likely to influence such
individual to order or receive from a particular provider, practitioner, or supplier any Medicare or Medicaid payable item or service
may be liable for CMPs. We sometimes offer customers various discounts and other financial incentives in connection with the sales
of our products. While it is our intent to comply with all applicable laws, the federal government may find that our marketing activities
violate the law. If we are found to be in non-compliance, we could be subject to CMPs of up to $0.022 million for each wrongful act,
assessment of three times the amount claimed for each item or service and exclusion from Medicare, Medicaid and other federal
healthcare programs. In addition, to the extent we are found to not be in compliance, we may be required to curtail or restructure our
operations. Any penalties, damages, fines, exclusions, curtailment or restructuring of our operations could adversely affect our ability
to operate our business and our financial results.
State fraud and abuse provisions
Many states have also adopted some form of anti-kickback and self-referral laws and false claims act that may apply to
DMEPOS suppliers regardless of the payor source. We believe that we are in compliance with such laws. Nevertheless, a
determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these
jurisdictions.
HIPAA
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, established uniform standards governing the
conduct of certain electronic healthcare transactions and protecting the security and privacy of individually identifiable health
information maintained or transmitted by healthcare providers, health plans and healthcare clearinghouses, which are referred to as
“covered entities.” Three standards have been promulgated under HIPAA’s regulations: the Standards for Privacy of Individually
Identifiable Health Information, which restrict the use and disclosure of certain individually identifiable health information, the
Standards for Electronic Transactions, which establish standards for common healthcare transactions, such as claims information, plan
eligibility, payment information and the use of electronic signatures, and the Security Standards, which require covered entities to
implement and maintain certain security measures to safeguard certain electronic health information, including the adoption of
administrative, physical and technical safeguards to protect such information.
In 2009, Congress passed the American Recovery and Reinvestment Act of 2009, or ARRA, which included sweeping changes
to HIPAA, including an expansion of HIPAA’s privacy and security standards. ARRA includes the Health Information Technology
for Economic and Clinical Health, or HITECH, which, among other things, made HIPAA’s privacy and security standards directly
applicable to business associates of covered entities effective February 17, 2010. A business associate is a person or entity that
performs certain functions or activities on behalf of a covered entity that involve the use or disclosure of protected health information
in connection with recognized healthcare operations activities. As a result, business associates are now subject to significant civil and
criminal penalties for failure to comply with applicable standards. Moreover, HITECH created a requirement to report certain
breaches of unsecured, individually identifiable health information and imposes penalties on entities that fail to do so. HITECH also
increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons
and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal
HIPAA laws and seek attorney fees and costs associated with pursuing federal civil actions. The 2013 final HITECH omnibus rule
modifies the breach reporting standard in a manner that will likely make more data security incidents qualify as reportable breaches.
In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or regulations
that, in some cases, are more stringent than those issued under HIPAA. In those cases, it may be necessary to modify our planned
operations and procedures to comply with the more stringent state laws. If we fail to comply with applicable state laws and
regulations, we could be subject to additional sanctions. Any liability from failure to comply with the requirements of HIPAA,
HITECH or state privacy and security statutes or regulations could adversely affect our financial condition. The costs of complying
with privacy and security related legal and regulatory requirements are burdensome and could have a material adverse effect on our
results or operations.
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Patient Protection and Affordable Care Act
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other
healthcare providers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act, among other things, imposed public reporting requirements on medical device manufacturers for payments or other transfers of
value made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their
immediate family members. The Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and
Communities Act enacted in 2018, extends the reporting and transparency requirements under the Physician Payments Sunshine Act
to physician assistants, nurse practitioners and other mid-level practitioners, with reporting requirements going into effect in 2022 for
payments made in 2021. Failure to submit required ownership and investment interest information may result in civil monetary
penalties of up to an aggregate of $0.18 million per year (or up to an aggregate of $1.191 million per year for “knowing failures”), for
all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an
annual submission. Certain states also mandate implementation of compliance programs, impose restrictions on device manufacturer
marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians and other
healthcare professionals.
The Patient Protection and Affordable Care Act also requires healthcare providers to voluntarily report and return an identified
Medicare or Medicaid overpayment within 60 days after identifying the overpayment. Failure to repay the overpayment within 60
days will result in the claim being considered a “false claim” and the healthcare provider will be subject to False Claims Act liability,
and additional CMPs of $0.021 million for each item or service that is not reported and returned.
International regulation
International sales of medical devices are subject to foreign governmental regulations, which vary substantially from country to
country. The time required to obtain clearance or approval by a foreign country may be longer or shorter than that required for FDA
clearance or approval, and the requirements may be different.
The primary regulatory body in Europe is the European Commission, which has adopted numerous directives and has
promulgated standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices.
Devices that comply with the requirements of a relevant directive will be entitled to bear the European Conformity Marking, or CE
Mark, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, can be
commercially distributed throughout the member states of the European Union, and other countries that comply with or mirror these
directives. The method of assessing conformity varies depending on the type and class of the product, but normally involves a
combination of self-assessment by the manufacturer and a third-party assessment by a notified body, an independent and neutral
institution appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the
manufacturer’s quality system, review of technical documentation, and specific testing of the manufacturer’s device. Such an
assessment may be required in order for a manufacturer to commercially distribute the product throughout these countries. ISO 13485
certification is a voluntary standard. Quality systems that implement relevant harmonized standards establish the presumption of
conformity with the essential requirements for a CE Mark. We have the authorization to affix the CE Mark to our oxygen therapy
products and to commercialize our devices in the European Union. Our ISO 13485 certification was issued on April 21, 2005 and our
EC-Certificate was issued on March 16, 2007. The final form of the European Medical Device Regulation, which will replace
Europe’s Medical Device Directive, entered into force on May 25, 2017 and its full application is expected to be on May 26, 2021.
The Medical Device Regulation will apply in parallel with the Medical Device Directive for a transition period of three years.
Inogen has sold products in Canada since 2006 when we obtained our Medical Device License after obtaining appropriate
licensure, accreditation, and meeting ISO Standard 13485. As of January 1, 2019, Health Canada implemented the Medical Device
Single Audit Program (MDSAP) as the sole mechanism for manufacturers to demonstrate compliance with the quality management
system requirements of the Medical Device Regulations, replacing the Canadian Medical Devices Conformity Assessment System
(CMDCAS) program. Inogen has been in compliance with the MDSAP since its implementation on January 1, 2019 and believes it is
still in compliance with these regulations.
In Australia, we must appoint an agent sponsor who will interact on our behalf with the Therapeutics Goods Administration
(TGA). We must also prepare a technical file and declaration of conformity to essential requirements under Australian law, provide
evidence of CE Marking of the device and submit this information via our agent sponsor to the TGA in a Medical Device Application.
On June 4, 2007, we received our Certificate for Inclusion of a Medical Device in Australia.
U.S. Foreign Corrupt Practices Act
Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their
intermediaries from making improper payments to foreign officials. We cannot assure you that our internal control policies and
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procedures will protect us from reckless or negligent acts committed by our employees, manufacturers, distributors, partners,
collaborators or agents. Violations of these laws, or allegations of such violations, could result in legal fees, fines, penalties or
prosecution and have a negative impact on our business, results of operations and reputation.
Intellectual property
We believe that to maintain a competitive advantage, we must develop and preserve the proprietary aspect of our technologies.
We rely on a combination of patent, trademark, trade secret and other intellectual property laws, non-disclosure agreements and other
measures to protect our proprietary rights. Currently, we require our employees, public accountants, consultants and advisors to
execute non-disclosure agreements in connection with their employment, consulting or advisory relationships with us, where
appropriate. We also require our employees, consultants and advisors with whom we expect to work on our current or future products
to agree to disclose and assign to us all inventions conceived during the workday, developed using our property or related to our
business. Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our
Inogen One, Inogen At Home, or non-invasive ventilation systems, sell counterfeit versions of our products, or obtain and use
information that we regard as proprietary.
Patents
As of December 31, 2021, we had twenty-seven pending patent applications and sixty-six issued patents relating to the design
and construction of our respiratory devices. We anticipate it could take several years for the most recent of these patent applications to
result in issued patents, if successful.
The 2019 acquisition of New Aera added a significant number of issued and pending patent applications to Inogen’s portfolio.
The additional patents and patent filings include U.S. and international pending and issued patents. The combined portfolio of Inogen
and New Aera include several categories.
Our patent portfolio contains four principal categories of patents and patent applications. One such category includes patents and
patent applications directed to system and component designs that may be incorporated into Inogen’s oxygen therapy product line
which includes the Inogen One G3, Inogen One G4, Inogen One G5, and the Inogen At Home oxygen concentrators. For example,
U.S. patents 9,592,360 and 10,786,644 are directed to the Inogen One G3 design, U.S. patent 10,695,520 is directed to the design of
the Inogen One G4, and U.S. patents 9,283,346, 10,004,869 and 10,869,986 are directed towards the Inogen at Home stationary
oxygen concentrator. This category of patents expires in 2031 or later and may serve to deter competitors from reverse engineering or
copying our design elements.
The second category of patents and patent applications within our portfolio pertains to operating features and design techniques.
For example, U.S. patents 8,702,841; 9,220,864; and 9,283,346 are directed towards design features of the Inogen One G3, Inogen
One G4, and Inogen at Home products. This category of patents expires in 2031 or later (without taking into account any patent term
adjustments). These features and designs are developed to facilitate the design, manufacturing, and usefulness of our products. These
patents may prevent competitors from achieving the same levels of optimization as found in our products.
A third category of patents and patent applications relates to system designs that may be directed to products in both oxygen and
ventilation product categories. One example of a patent in this category is U.S. patent 9,907,926, which is directed to an oxygen
concentrator for mechanical ventilation. This category of patents expires in 2023 or later (without taking into account any patent term
adjustments). Patents and patent applications in this category and others may facilitate the design and development of future
respiratory products that can serve patients in need of supplemental oxygen and or mechanical ventilation therapies.
The fourth category of patents and patent applications is directed to the TAV and related products. For example, U.S. patent
10,384,028 is directed to the nasal interface of the TAV. Another example of a patent in this category is U.S. patent D851,767 which
is directed to the design of the TAV. This category of patents expires in 2034 or later.
20
Trademarks
“Inogen,” “Inogen One,” “Inogen One G2,” “Inogen One G3,” “G4,” “G5,” “Live Life in Moments, not Minutes,” “Never Run
Out of Oxygen,” “Oxygen Therapy on Your Terms,” “Oxygen.Anytime.Anywhere,” “Reclaim Your Independence,” “Intelligent
Delivery Technology,” “Inogen At Home,” the Inogen design, “TIDAL ASSIST,” “TAV,” and “SIDEKICK” are registered
trademarks with the United States Patent and Trademark Office of Inogen, Inc. We own a pending application for “Inogen” with the
United States Patent and Trademark Office. We own trademark registrations for the mark “Inogen” in Argentina, Australia, Canada,
Chile, China, Columbia, Ecuador, South Korea, Mexico, Europe (European Union registration), the United Kingdom, Iceland, India,
Israel, Japan, Kuwait, New Zealand, Norway, Paraguay, Peru, Turkey, Singapore, Switzerland, and Uruguay. We own pending
applications for the mark “Inogen” in Brazil, India, Malaysia, and South Africa. We own a trademark registration for the mark “(cid:3)(cid:4)
(cid:5)(cid:6)(cid:7)” in Japan. We own trademark registrations for the marks “(cid:8)(cid:3)(cid:9)” and “(cid:10)(cid:3)(cid:11)” in China. We own trademark registrations
for the mark “Inogen One” in Australia, Canada, China, South Korea, Mexico, Europe (European Union registration), and the United
Kingdom. We own a trademark registration for the mark “Satellite Conserver” in Canada. We own a trademark registration for the
mark “Inogen At Home” in Europe (European Union Registration) and the United Kingdom. We own trademark registrations for the
mark “G4” in Europe (European Union registration) and the United Kingdom. We own trademark registrations for the mark “G5” in
Europe (European Union Registration) and the United Kingdom. We own a trademark application for the Inogen design in Bolivia.
We own a trademark registration for the Inogen design in China. We own a trademark registration for the mark “ﻦﺟﻮﻧﺇ” in Saudi
Arabia. Other service marks, trademarks, and trade names referred to in this Annual Report on Form 10-K are the property of their
respective owners.
Human capital
At Inogen, we believe our employees are critical to our success and our ability to focus on product quality, continuous
improvement, and outstanding customer satisfaction. The unique demands of our industry, together with the challenges of running an
enterprise focused on the development, manufacture and commercialization of innovative products, require talent that is highly
educated and/or has significant industry experience. Additionally, for certain key functions, we require specific expertise to oversee
and conduct research and development activities and complex manufacturing requirements for our products. We seek the best people
we can find and support them to be productive and engaged. We strive to ensure our measures of safety, remuneration and employee
engagement are competitive with those of leading companies in our industry.
Employees
As of December 31, 2021, we had 1,021 full and part-time employees worldwide, consisting of 517 employees in sales,
marketing, clinical and client services, 280 employees in operations, manufacturing, quality assurance, manufacturing engineering,
and repair, 196 employees in general administration and 28 employees in research and development. In addition, we had 97 temporary
workers as of December 31, 2021, primarily in operations, to support spikes in demand. None of our employees are represented by a
collective bargaining agreement and we believe that our employee relations are good.
Employee culture
Inogen strives to instill a culture that values honesty and ethics, which is why integrity is one of Inogen’s five core values. We
expect our employees to honor commitments and take ownership of mistakes and we expect our employees to always do the right
thing not the easy thing. In addition, Inogen values self-responsibility, open communication, continuous improvement and service,
which are all important components of our culture. All of our directors, officers, and employees are guided by our Code of Ethics and
Conduct, which is published on the Investor Relations section of Inogen's website at: http://investor.inogen.com/. The Code of Ethics
and Conduct summarizes the compliance and ethical standards we expect of our employees and directors, the procedures for a
suspected breach, and the consequences of any substantiated breach. The Code of Ethics and Conduct also constitutes Inogen’s Code
of Ethics and Conduct under US law and the NASDAQ exchange’s listing standards. It deals with conflicts of interest, confidential
information, fair dealing with customers, suppliers, competitors, and healthcare professionals, and compliance with financial
reporting, insider trading, and other financial market regulation. In addition, we believe our commitment to environmental, social, and
governance (ESG) initiatives is important to our customers, patients, employees, suppliers, and investors, and shows our commitment
towards improved global health. Our ESG strategy is grounded in business sustainability, our Code of Ethics and Conduct, and our
core values.
Talent acquisition and development
Inogen employees have specific career and development pathways, which are designed in consultation with the employee’s
operational management and human resources. We encourage employees to take advantage of learning opportunities and we provide
financial support through a tuition reimbursement program to help employees complete their college education and be prepared for
higher level positions. As part of our commitment to career development and learning, we perform an annual affirmative action review
by job role, and we have a policy to address identified pay or promotion discrepancies that are not based on experience or skill.
21
Diversity, equity and inclusion
Diversity, equity and inclusion are essential elements of Inogen’s business practices. We are committed to creating and
maintaining a workplace in which all employees have an opportunity to participate and contribute to the success of the business and
are valued for their skills, experience, and unique perspectives. The collective sum of the individual differences, life experiences,
knowledge, inventiveness, innovation, self-expression, unique capabilities and talent that employees invest in their work represents a
significant part of our culture as well as our reputation and achievements. We embrace employees’ diversity of background,
experience, culture, and other characteristics that make employees unique. All employees are expected to exhibit conduct that reflects
inclusion during work, at work functions on or off the work site, and at all other company-sponsored and participative events.
Inogen is committed to compliance with all applicable federal and state laws prohibiting discrimination in employment and,
therefore, does not discriminate against its employees or applicants based on any legally-recognized “protected class”. Consistent with
the Americans with Disabilities Act and similar state and local laws, we work with qualified employees and applicants with
disabilities in order to identify and provide reasonable accommodations that can enable them to perform their jobs. Inogen’s equal
employment opportunity philosophy applies to all aspects of employment with Inogen including recruiting, hiring, job assignment,
training, promotion, job benefits, compensation, discipline, and dismissal. Inogen has implemented policies, procedures, and trainings
to ensure that any reports of potential discrimination or harassment are appropriately investigated and corrected.
Health and safety
Our approach to health and safety uses both our management systems and our quality culture to minimize workplace incidents
and maximize the care taken for employees who suffer from a workplace incident, per our health and safety policy. Inogen also has a
corporate wellness program to promote improved physical and emotional wellbeing. In response to the COVID-19 pandemic and
related PHE and as part of our commitment to work to ensure the safety and well-being of our employees, our employees who are able
and choose to work from home have done so since mid-March 2020. For employees returning to the workplace and the field, we have
also taken additional safety measures, including implementing occupancy limits, restricting business travel, providing and requiring
the use of personal protective equipment, temperature screening and COVID-19 testing or vaccination records to access our
workplaces.
Environmental matters
Our research and development and manufacturing processes involve the controlled use of hazardous materials, including
flammables, toxics, and corrosives. Our research and manufacturing operations produce hazardous chemical waste products. We seek
to comply with applicable laws regarding the handling and disposal of such materials. Given the small volume of such materials used
or generated at our facilities, we do not expect our compliance efforts to have a material effect on our capital expenditures, earnings,
and competitive position. However, we cannot eliminate the risk of accidental contamination or discharge and any resultant injury
from these materials. We do not currently maintain separate environmental liability coverage and any such contamination or discharge
could result in significant cost to us in penalties, damages, and suspension of our operations.
Climate change
As a global respiratory therapy and medical device company, Inogen recognizes that greenhouse gas (GHG) emissions affect
our climate and pose a serious challenge to the environment—and ultimately to the global economy. We believe that everyone shares
responsibility to improve energy efficiency and to reduce GHG emissions in the atmosphere. Inogen supports global and national
efforts to mitigate the impact of climate change. Inogen is committed to complying with all applicable laws and regulations that help
reduce GHG and encouraging market adoption of low GHG emission technologies. Our position on climate change policy is guided
by five principles:
1. We believe that any global or national strategy to address climate change must be environmentally sustainable and
economically viable.
2. We believe that any climate change policy should be technology-neutral and designed to encourage private sector
innovation and investment so that emissions reductions can be achieved in the most efficient manner possible.
3. We believe that any global or national strategy to address climate change must be developed with input from
stakeholder communication, including the public and private sectors, non-governmental organizations, academia, and
investors.
4. We believe that any policy to regulate GHG emissions should provide a clear, stable framework that enables the private
sector to invest accordingly, and that minimizes the market imbalances that can result from policies applied unequally
within or among nations.
5. We believe that any policy to regulate GHG emissions should fairly account for companies that have already taken
voluntary steps to reduce their GHG emissions.
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Inogen is a responsible corporate citizen that has done business in 59 countries and territories around the world. Our business
success and our environmental stewardship both depend on the efficiency of our global distribution network. Our long-term GHG
reduction strategy is to optimize the processes that consume non-renewable resources within this network. We also recognize that, as a
critical component of our customers’ supply chains, Inogen plays an important role in helping them operate in a more environmentally
sustainable way.
Backlog
We run our operations on a just-in-time basis; however, the volatility of order intake may result in periods when incoming
orders exceed our capacity. We do not currently have a backlog of orders that could not be fulfilled in our ordinary course of business.
Further, our customers can change or cancel orders with limited or no penalty and limited advance notice prior to shipment.
Geographic information
During the years ended December 31, 2021, 2020, and 2019, substantially all of our long-lived assets were located within the
United States. See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
additional information related to our U.S. and non-U.S. revenue.
Seasonality
We believe our sales may be impacted by seasonal factors. For example, we typically experience higher total sales in the second
and third quarters, as a result of consumers traveling and vacationing during warmer weather in the spring and summer months, but
this may vary year-over-year. In particular, due to the COVID-19 pandemic and related PHE, we have seen and expect to continue to
see a disruption in our normal seasonal trends due to the mandates and behaviors emanating from the COVID-19 pandemic and related
PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, and we did not see the typical seasonal
increases in direct-to-consumer sales in 2020 that we have seen in prior years, although a partial return to normal seasonal trends was
seen in 2021. Additionally, as more home medical equipment (HME) providers adopt portable oxygen concentrators in their
businesses, we expect our historical seasonality in the domestic business-to-business channel could change as well, which was
previously influenced mainly by consumer buying patterns. Direct-to-consumer sales seasonality may also be impacted by the number
of sales representatives and the amount of marketing spend in each quarter. For the years ended December 31, 2021, 2020, and 2019,
the sales revenue in the second quarter accounted for 29.0%, 23.4% and 28.1%, respectively, and the sales revenue in the third quarter
accounted for 26.0%, 23.8% and 25.4%, respectively, of our total sales revenue.
Corporate and available information
We were incorporated in Delaware in November 2001. Our principal executive offices are located at 301 Coromar Drive,
Goleta, California 93117. Our telephone number is (805) 562-0500. Our website address is www.inogen.com. We make available on
our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission, or SEC. Our SEC reports can be accessed through the investor relations page of our website
located at http://investor.inogen.com. The SEC also maintains a website that contains our SEC filings. The address of the site is
www.sec.gov.
We webcast our earnings calls and certain events we participate in or host with members of the investment community on our
investor relations page of our website. In addition, we use our website http://investor.inogen.com as a means of disclosing information
about our company, our products, our planned financial and other announcements, our attendance at upcoming investor conferences,
and other matters. It is possible that the information we post on our website could be deemed material information. We may use our
website to comply with our disclosure obligations under Regulation FD. Therefore, investors should monitor our website in addition to
following our press releases, SEC filings, public conference calls, and webcasts. Corporate governance information, including our
board committee charters, code of ethics, and corporate governance principles, is also available on our investor relations page of our
website located at http://investor.inogen.com. The contents of our website are not incorporated by reference into this Annual Report
on Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive
textual references only.
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Information about our executive officers
The following table identifies certain information about our executive officers as of February 18, 2022.
Name
Nabil Shabshab ...............................................................
Michael Sergesketter ......................................................
Bart Sanford....................................................................
Stanislav Glezer ..............................................................
George Parr.....................................................................
Jason Somer ....................................................................
Age
56
62
56
49
51
54
Position
Chief Executive Officer, President, and Director
Executive Vice President, Finance, Chief Financial Officer,
and Corporate Treasurer
Executive Vice President, Operations
Executive Vice President, Chief Technology Officer
Executive Vice President, Chief Commercial Officer
Executive Vice President, General Counsel and Corporate
Secretary
Nabil Shabshab has served as our President, Chief Executive Officer, and as a director since February 2021. Previously,
Mr. Shabshab served as Worldwide President of Diabetes Care and Digital Health at Becton Dickinson and Company from August
2017 until January 2021 and served as its Chief Marketing Officer and Executive Vice President of Strategic Planning from August
2011 until May 2017. Previously, from 2006 to 2010, Mr. Shabshab served as EVP, Global Portfolio, Chief Marketing Officer and
Head of RD&E of Diversey, Inc., a cleaning and sanitation solutions company. Prior to that, from 2004 to 2006, Mr. Shabshab served
as Principal of The Zyman Group, a marketing consulting firm. From 2002 to 2004, Mr. Shabshab served as Vice President, Client
Solutions and Consulting, of Symphony IRI, a consumer marketing firm. Prior to that, Mr. Shabshab served in various sales and
marketing roles in consumer goods companies. Mr. Shabshab holds an MBA from Northwestern University Kellogg School of
Management and a B.S. in Computer Sciences from American Lebanese University. The board of directors believes that Mr.
Shabshab’s extensive industry experience qualifies him to serve on our board of directors.
Michael Sergesketter has served as our Executive Vice President, Chief Financial Officer since December 2021. Mr.
Sergesketter most recently served as CFO of Kimball Electronics, Inc. Mr. Sergesketter brings over forty years of finance experience
in the manufacturing services industry. He brings expertise working across business functions, including with the CEO and Board of
Directors, Audit Committee and Compensation and Governance Committee. As part of his role as the CFO of Kimball Electronics,
Inc. following its spin-off in 2014 and through June 2021, Mr. Sergesketter led the transformation of the finance and reporting
functions to support the newly formed public company, helping to formulate and execute on the strategy that led to global expansion.
During his tenure at Kimball Electronics and its predecessors, Mr. Sergesketter had the responsibility for a number of critical finance
functions, including SEC reporting, Treasury, Investor Relations, Tax, Financial Planning & Analysis, Internal Audit while playing a
leading role in various M&A transactions in the U.S. and abroad.
Bart Sanford has served as our Executive Vice President, Operations since September 2018. From April 2017 to September
2018, Mr. Sanford was Senior Vice President, Operations, at Cepheid Inc., a molecular diagnostics company. From October 2010 to
March 2017, Mr. Sanford was Vice President, Global Operations, at Molecular Devices, LLC, a life sciences company. From January
2009 to September 2010, Mr. Sanford was a Corporate Director at Danaher Corporation, a medical device company. From March
2000 to December 2008, Mr. Sanford held various positions at Fluke Corporation, an industrial test product company, including plant
manager, manufacturing manager and materials manager. Mr. Sanford received an MBA from Central Michigan University and a
Bachelor of Arts degree in Logistics, Materials and Supply Chain Management from Michigan State University.
Dr. Stanislav Glezer has served as our Executive Vice President, Chief Technology Officer since October 2021, responsible for
R&D and Engineering, Medical Affairs, and Regulatory Affairs. Dr. Glezer has also served as our Executive Vice President and Chief
Medical Officer from June 2021 to October 2021. Previously, Dr. Glezer was with Becton, Dickinson and Company, a global medical
technology company where he served as the Worldwide Vice President of Medical Affairs for Diabetes Care since September 2018
with Business Development responsibilities added under him since January 2021. Prior to joining Becton Dickinson, Dr. Glezer
served as the Chief Medical Officer at Adocia S.A. a biotechnology company, from 2017 to 2018. From 2016 to 2017, Dr. Glezer
served as Vice President of Global Medical Affairs at Novo Nordisk, Inc., a healthcare company. Earlier, Dr. Glezer served in a
number of roles of progressively increasing seniority, including, Global Project Head for the largest late-stage pipeline asset, Vice
President of Evidence and Value & Access, Vice President of Medical Affairs, and Senior Director of Medical Strategy & Operations,
for Sanofi S.A., a multinational pharmaceutical company, from 2001 to 2015. Dr Glezer holds a doctor of medicine from Moscow
State University of Medicine and Dentistry and a MBA from California Coast University.
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George Parr has served as our Executive Vice President and Chief Commercial Officer since April 2021. Most recently, Mr.
Parr served as Executive Vice President & Chief Marketing Officer at Becton Dickinson and Company, a leading medical technology
company, from November 2017 through January 2020. Previously, from 2014 to 2017, Mr. Parr served as Senior Vice President &
Chief Marketing Officer at SIRVA Worldwide Relocation & Moving, a moving industry company. Prior to that, from 2006 to 2013,
Mr. Parr served at Diversey, Inc., a cleaning and hygiene solutions company, as Senior Vice President & Chief Marketing Officer
from 2010 to 2013 and Worldwide General Manager, Kitchen Hygiene & Fabric Care from 2006 to 2010. Prior to that, Mr. Parr
served in various managing roles in consumer goods companies. Mr. Parr holds a MBA from DePaul University and a B.S. in
Accounting from LaSalle University.
Jason Somer has served as our Executive Vice President and General Counsel and Secretary since July 2021. Most recently,
Mr. Somer served as head Legal Counsel at Invoca, Inc., a SaaS analytics company. Prior to his time at Invoca, Mr. Somer served as
Associate General Counsel at Sunniva, Inc., and as General Counsel and Corporate Secretary for Innova Gaming Group, a gaming
company. Prior to joining Innova, Mr. Somer served as the Senior Vice President of Business Development and General Counsel at
Sunora Energy Solutions, a solar energy development company. Mr. Somer also previously served as the Vice President of Special
Projects and the Senior Global Counsel at Suntech Power, a Shanghai-based solar energy technology company. Prior to joining
Suntech Power, Mr. Somer served as Director of Legal Affairs & Business Development at Ironport Systems, Inc. and as Associate
General Counsel and a Business Development Director of Neoforma, Inc. Mr. Somer joined Neoforma from Morrison & Foerster
where he was a corporate/securities associate based in New York. Mr. Somer holds a L.L.M. from Boston University, a L.L.B from
the University of British Columbia School of Law, and a B.Sc. from the University of Western Ontario in Biology/Pharmacology.
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ITEM 1A. RISK FACTORS
We operate in a rapidly changing environment that involves numerous uncertainties and risks. In addition to the other
information included in this Annual Report on Form 10-K, the following risks and uncertainties may have a material and adverse
effect on our business, financial condition, results of operations, or stock price. You should consider these risks and uncertainties
carefully, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K. The
risks and uncertainties described below may not be the only ones we face. If any of the risks or uncertainties we face were to occur,
the trading price of our securities could decline, and you may lose all or part of your investment. This Annual Report on Form 10-K
also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
Risk factors include, but are not limited to, statements concerning the following:
Risks related to our business and strategy:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the intense international, national, regional and local competition we face in our industry;
our dependence on a limited number of customers for a significant portion of our sales revenue;
our reliance on a single source or a limited group of manufacturers or suppliers;
the lack of long-term supply contracts with many of our third-party suppliers;
the possibility our manufacturing facilities could become unavailable or inoperable and other potential manufacturing
problems or delays;
our reliance upon a third-party contract manufacturer for certain manufacturing and repair operations;
the need to continue to enhance our existing products and develop and market new products;
risks associated with public health threats and epidemics, including the COVID-19 pandemic and related public health
emergency (PHE);
the competitive bidding process or other reimbursement policy changes under Medicare or other third-party payors,
including recently enacted and potential future changes in the reimbursement rates or payment methodologies under
Medicare, Medicaid and other government programs;
healthcare reform measures;
the complex and lengthy reimbursement process we depend upon for a significant portion of our revenue;
potential failure to maintain or obtain new private payor contracts and future reductions in reimbursement rates from
private payors;
our ability to hire and retain highly qualified individuals;
our ability to manage our anticipated growth effectively;
potential acquisitions of, or investments in, other companies;
•
our international sales and manufacturing activities;
• warranty or product liability claims or other litigation;
•
increases in our operating costs;
•
•
•
our dependence on the services of our senior executives and other key technical personnel;
variance in our financial condition and results of operations; and
the market opportunities for our products.
Risks related to the regulatory environment:
•
•
•
extensive federal, state, and international regulations related to our business by numerous government agencies,
including the U.S. Food and Drug Administration, or FDA and the European Medical Devices regulation;
the potential need to seek additional clearances or approvals for our products; and
potential FDA, state, or international regulatory enforcement action.
26
Risks related to our intellectual property:
•
•
•
our ability to secure and maintain patent or other intellectual property protection for the intellectual property used in our
products;
the possibility that any of our patents may be challenged, invalidated, circumvented or rendered unenforceable; and
patent and other intellectual property litigation if our products infringe or appear to infringe the intellectual property
rights of others.
Risks related to being a public company:
•
•
increased costs as a result of operating as a public company and the substantial time our management will be required to
devote to compliance initiatives and corporate governance practices; and
our ability to maintain effective internal controls.
Risks related to our common stock:
•
•
•
•
•
the volatility of the trading price of our common stock;
the publication of research reports by securities or industry analysts;
potential sales of a large number of shares of our common stock;
anti-takeover provisions in our charter documents and under Delaware law; and
our intention not to pay dividends for the foreseeable future.
Risks related to our business and strategy
We face intense international, national, regional and local competition and if we are unable to compete successfully, it could have
an adverse effect on our revenue, revenue growth rate, if any, and market share.
The long-term oxygen therapy market is a highly competitive industry. We compete with a number of manufacturers and
distributors of portable oxygen concentrators (POCs), as well as providers of other long-term oxygen therapy solutions such as home
delivery of oxygen tanks or cylinders, stationary concentrators, transfilling concentrators, and liquid oxygen.
Our significant manufacturing competitors are Respironics (a subsidiary of Koninklijke Philips N.V.), Invacare Corporation,
Caire Medical (subsidiary of NGK Spark Plug), DeVilbiss Healthcare (a subsidiary of Drive Medical), O2 Concepts, Precision
Medical, Resmed, Gas Control Equipment (subsidiary of Colfax), Nidek Medical, 3B Medical, SysMed, and Belluscura. Given the
relatively straightforward regulatory path in the oxygen therapy device manufacturing market, we expect that the industry will become
increasingly competitive in the future. For example, some major competitors have implemented direct-to-consumer sales models,
which may increase their competitiveness and sales to patients, and we have recently seen the cost per generated lead trend higher than
historical averages that may in part be due to increased competition. However, the strategies of these major competitors are currently
limited to direct-to-consumer sales and do not include direct-to-consumer rentals where they would be responsible to meet national
accreditation and state-by-state licensing requirements and secure Medicare billing privileges. Manufacturing companies compete for
sales to providers primarily on the basis of price, quality/reliability, financing, bundling, product features, and service.
For many years, Lincare, Inc. (a subsidiary of the Linde Group), Apria Healthcare, Inc., AdaptHealth Corp., Rotech Healthcare,
Inc., and Viemed Healthcare, Inc. have been among the market leaders in providing respiratory therapy products, while the remaining
market is serviced by local providers. Because of reimbursement reductions, we expect more industry consolidation and volatility in
ordering patterns based on how providers are restructuring their businesses and their access to capital. In addition, providers may
reduce or eliminate purchases from us due to our increased focus on building out a prescriber sales team and pursuing rentals directly,
which could be in competition with our providers in the United States. Respiratory therapy providers compete primarily on the basis
of product features and service, rather than price, since reimbursement levels are established by Medicare and Medicaid, or by the
individual determinations of private payors.
Some of our competitors are large, well-capitalized companies with greater resources than we have. Consequently, they are able
to spend more aggressively on product development, marketing, sales and other product initiatives than we can. Some of these
competitors have:
•
•
•
significantly greater name recognition;
established relationships with healthcare professionals, customers and third-party payors;
established distribution networks;
27
•
•
•
additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts, lower pricing,
longer warranties, financing or extended terms, other incentives to gain a competitive advantage;
greater history in conducting research and development, manufacturing, marketing and obtaining regulatory approval for
respiratory device products; and
greater financial and human resources for product development, sales and marketing, and patent litigation.
As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities,
technologies, standard regulatory and reimbursement development and customer requirements or changing or uncertain business
conditions or macroeconomic trends, including supply chain challenges. In light of these advantages that our competitors maintain,
even if our technology and direct-to-consumer distribution strategy is more effective than the technology and distribution strategy of
our competitors, including those who have adopted or may in the future adopt direct-to-consumer sales models, current or potential
customers might accept competitor products and services in lieu of purchasing our products. We anticipate that we will face increased
competition in the future as existing companies and competitors develop new or improved products and distribution strategies and as
new companies enter the market with new technologies and distribution strategies. We may not be able to compete effectively against
these organizations. Our ability to compete successfully and to increase our market share is dependent upon our reputation for
providing responsive, professional and high-quality products and services and achieving strong customer satisfaction. Increased
competition in the future could adversely affect our revenue, revenue growth rate, margins and market share.
We depend on a limited number of customers for a significant portion of our sales revenue and the loss of, or a significant
shortfall in demand from, these customers could have a material adverse effect on our financial condition and operating results.
We receive a significant amount of our sales revenue from a limited number of customers, including distributors, HME
providers, our private label partner, resellers, and charitable organizations. For the years ended December 31, 2021, 2020, and 2019,
sales revenue to our top 10 customers accounted for approximately 27.4%, 29.0% and 33.5%, respectively, of our total revenue. The
Medicare service reimbursement programs represented more than 10% of our total revenue for the year ended December 31, 2021.
One single customer represented more than 10% of our total revenue for the year ended December 31, 2020 and no single customer
represented more than 10% of our total revenue for year ended December 31, 2019. We expect that sales to relatively few customers
will continue to account for a significant percentage of our total revenue in future periods. Our future success will significantly depend
upon the timing and volume of business from our largest customers and the financial and operational success of these customers.
However, we can provide no assurance that any of these customers or any of our other customers will continue to purchase our
products at current levels, pricing, or at all, and our revenue could fluctuate significantly due to changes in customer order levels,
economic conditions, the adoption of competitive products, or the loss of, reduction of business with, or less favorable terms with any
of our largest customers. For example, we have previously experienced a decline in sales to one large national homecare provider who
purchased through our private label partner. We have also experienced a decline in sales from other home medical equipment
providers and these providers have communicated to us that they continue to be subject to capital constraints. Moreover, in the second
quarter of 2020 and continuing through the first quarter of 2021, we experienced a decline in total sales to business-to-business
customers worldwide, which we believe was primarily due to the COVID-19 pandemic and related PHE. If we were to lose one of our
key customers or have a key customer significantly reduce its volume of business with us, such as we previously experienced with the
large national homecare provider, our revenue may be materially reduced and there would be an adverse effect on our business,
financial condition and results of operations.
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We obtain some of the components, subassemblies and completed products included in our products from a single source or a
limited group of manufacturers or suppliers, and in some cases those components are available in only limited supplies from
limited manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers could
cause significant production delays or stoppages, an inability to meet customer demand, substantial loss in revenue, and an
adverse effect on our financial condition and results of operations.
We utilize single-source suppliers for some of the components and subassemblies we use in our Inogen One systems, our Inogen
At Home systems, and our Tidal Assist® Ventilator (TAV®). For example, we have elected to source certain key components from
single sources of supply, including our batteries, motors, valves, TAV-compatible stationary concentrators, columns, and some
molded plastic components. Many of our products also utilize components that are available from a limited number of suppliers. Our
dependence on single-source or limited-source suppliers of components may expose us to several risks, including, among other things:
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our suppliers or their component sub-suppliers may be unable to meet demands due to global supply chain disruptions;
we may experience delays in delivery by our suppliers due to customs clearing delays, shipping delays, scarcity of raw
materials and components or changes in demand from us or their other customers;
our suppliers may be unable to meet demands due to the effect of exposure to infectious diseases, epidemics or other
public health emergencies, including the COVID-19 pandemic and related PHE;
we may not be able to find new or alternative components, even at elevated prices, or reconfigure our system and
manufacturing processes in a timely manner if the necessary components become unavailable, which could lead to a
production slowdown or temporary stoppage;
our suppliers may encounter financial hardships as a result of unfavorable economic and market conditions unrelated to
our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;
suppliers may fail to comply with regulatory requirements, be subject to lengthy compliance, validation or qualification
periods, or make errors in manufacturing components that could negatively affect the performance or safety of our
products, cause delays in supplying of our products to our customers, or result in regulatory enforcement against us or our
suppliers;
newly identified suppliers may not qualify under the stringent quality regulatory standards to which our business is
subject, which could inhibit their ability to fulfill our orders and meet our requirements;
we or our suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match
forecasts, we or our suppliers may have excess or inadequate inventory of materials and components;
we may be subject to price fluctuations due to a lack of long-term supply arrangements for key components or changes in
import tariffs, trade restrictions or barriers or other government actions that impact our ability to obtain such components;
we or our suppliers may lose access to critical services, tools, moldings, and components, resulting in an interruption in
the manufacture, assembly and shipment of our systems;
our suppliers may be subject to allegations by other parties of misappropriation of proprietary information in connection
with their supply of products to us, which could inhibit their ability to fulfill our orders and meet our requirements;
fluctuations in demand for products that our suppliers manufacture for others may affect their ability or willingness to
deliver components to us in a timely manner; and
our suppliers may wish to discontinue supplying components or services to us.
We have experienced supply problems with one or more of our suppliers and may again experience problems in the future. For
example, we have seen supply chain disruptions in 2021 and the first quarter of 2022 and expect to continue to see these disruptions
through 2022, primarily associated with semiconductor chips used in our batteries and printed circuit boards, which are components of
our portable oxygen concentrators. This semiconductor chip shortage is being experienced across many industries, placing additional
pressure on existing supplies. While we have taken steps to attempt to mitigate the impact of this supply shortage, it has had and will
likely continue to have an increased negative impact on our ability to manufacture products (including with respect to the production
halt discussed below) as these chips are used across all of our portable oxygen concentrators in our batteries and printed circuit boards.
We are continuing to focus our mitigation efforts on product redesign, seeking increased commitments on shipment dates from our
regular suppliers, canvassing the open market for supplies, and using the price increase we implemented on September 1, 2021 to help
offset some of the increased costs, but in spite of these efforts we have been supply constrained and with these components facing
extremely high demand, we expect continued challenges in terms of supply constraint and pricing inflation moving forward.
The inflated costs related to the supply shortage negatively impacted our cost of goods sold in the third and fourth quarter of
2021, and we expect this to have an increased impact on our material costs in 2022. Even though we paid significant costs in the third
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and fourth quarters of 2021 associated with these chips, most of these costs increased our prepaid expense and inventory given that
these components were either not yet delivered or not yet sold in finished products during the period. We believe based on our
assessment and industry feedback that these supply shortages may continue through 2022. In addition to the semiconductor chip
limitations, we are continuing to see supply chain constraints for other components used in our products. As a result of the
semiconductor chip shortages, we temporarily suspended manufacturing operations at our Texas and California locations from January
3, 2022 to February 7, 2022 and Foxconn, our Czech Republic-based OEM, suspended manufacturing due to the same supply
constraints from January 3, 2022 to February 9, 2022. While we were able to resume manufacturing operations, we are still seeing
challenges in terms of availability of supply and we believe the supply shortage continues to represent an increased risk to the business
in 2022, and we may suspend manufacturing again in the future due to these shortages.
In addition, we have seen supply chain challenges tied to the COVID-19 pandemic and related PHE in printed circuit boards,
corrugated boxes, aluminum machined parts, plastic molded parts, and batteries. While we have been able to coordinate with our
suppliers to minimize disruption to our business related to these components, we may not be able to do so in the future and may be
required to further slowdown or temporarily halt production. We may also face similar situations in the future and we may not be able
to quickly establish additional or replacement suppliers, particularly for our single source components or subassemblies, and may
experience similar delays in manufacturing. Any interruption or delay in the supply of components or subassemblies, or our inability
to obtain components or subassemblies from alternate sources at acceptable prices in a timely manner, could impair our ability to meet
the demand of our customers and cause them to cancel orders or switch to competitive products.
Recently, the FDA released guidance that requires manufacturers of certain medical devices, including ventilation-related
products under product code CAW, among others, to notify FDA of a permanent discontinuance or interruption in manufacturing of
an applicable device under Section 506J of the Federal Food, Drug, and Cosmetic Act during the COVID-19 PHE. To the extent we
experience an interruption in our manufacturing during the COVID-19 PHE that falls within the scope of this guidance, we would be
required to notify FDA. This and other regulatory requirements could increase the cost of our operations and compliance.
In addition, we may be deemed to manufacture or contract to manufacture products that contain certain minerals that have been
designated as “conflict minerals” under the Dodd-Frank Wall Street Reform and Consumer Protection Act. As a result, we may be
required to perform due diligence to determine the origin of such minerals and disclose and report whether or not such minerals
originated in the Democratic Republic of the Congo or adjoining countries. The implementation of these requirements could adversely
affect the sourcing, availability, and pricing of minerals used in the manufacture of our products. In addition, we have incurred
additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant
minerals and metals used in our products. If any of these risks materialize, costs could significantly increase and our ability to meet
demand for our products could be impacted. If we fail to comply with the applicable regulations, we could be required to pay civil
penalties, face criminal prosecution and, in some cases, be prohibited from distributing our products in commerce until the products or
component substances are brought into compliance. If we are unable to satisfy commercial demand for our products in a timely
manner, our ability to generate revenue would be impaired, market acceptance of our products could be adversely affected, and
customers may instead purchase or use alternative products. In addition, we could be forced to secure new or alternative components
and subassemblies through a replacement supplier. Finding alternative sources for these components and subassemblies could be
difficult in certain cases and may entail a significant amount of time and disruption. In some cases, we would need to change the
components or subassemblies if we sourced them from an alternative supplier. This, in turn, could constitute a material modification
or require a redesign of our products and, potentially, require additional FDA clearance or approval before we could use any
materially modified or redesigned product with new components or subassemblies, thereby causing further costs and delays that could
adversely affect our business, financial condition and results of operations.
If we are unable to continue to enhance our existing products, develop or acquire and market our products that respond to
customer needs and preferences and achieve market acceptance, we may experience a decrease in demand for our products and
our business could suffer.
We may not be able to compete as effectively with our competitors and ultimately satisfy the needs and preferences of our
customers unless we can continue to enhance existing products, acquire companies with new or different products, sell our existing
products, and develop new innovative products ourselves. Product development requires significant financial, technological and other
resources. While we expended $16.6 million, $14.1 million and $9.4 million for the years ended December 31, 2021, 2020, and 2019,
respectively, in research and development efforts, we cannot assure that this level of investment will be sufficient to maintain a
competitive advantage in product innovation, which could cause our business to suffer. We also plan to incorporate the TAV
technology acquired from the New Aera acquisition directly into our oxygen concentrators, with minimal expected sales of the TAV
product in its current configuration.
Product improvements and new product introductions also require significant planning, design, development, patent protection,
and testing at the technological, product, and manufacturing process levels and we may not be able to timely develop product
improvements or new products or obtain necessary patent protection and regulatory clearances or approvals for such product
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improvements or new products in a timely manner, or at all. Our competitors’ new products may enter the market before our new
products reach the market, be more effective with more features, obtain better market acceptance, or render our products obsolete.
Any new products that we develop or acquire may not receive market acceptance or otherwise generate any meaningful sales or profits
for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and
commitments to fund advertising, marketing, promotional programs and research and development. In addition, if we are unable to
seek and obtain regulatory approval or adequate coverage and reimbursement for any new products that we develop or introduce, in a
timely manner or at all, we may realize lower revenue than expected or even no revenue at all from these products. As a result, our
business, financial condition and results of operations could be materially harmed.
We are subject to risks associated with public health threats and epidemics, including the COVID-19 pandemic and related PHE.
Public health outbreaks, epidemics, pandemics of contagious or infectious diseases, such as COVID-19, may significantly
disrupt our business. Such outbreaks pose the risk that we or our employees, contractors, suppliers, or other partners may be prevented
from conducting business activities for an indefinite period of time due to spread of the disease, or due to shutdowns that may be
requested or mandated by federal, state and local governmental authorities. Business disruptions could include disruptions or
restrictions on our ability to travel, as well as temporary closures of our facilities or the facilities of our contractors, suppliers, and
other partners. For example, total business-to-business demand declined in the second quarter of 2020 continuing through the first
quarter of 2021 due to physician offices limiting patient interactions for COPD patient referrals, HME providers minimizing patient
interactions in response to the COVID-19 pandemic and related PHE which includes replacing existing oxygen patient setups with
POCs and temporary reduced operating capacity of certain respiratory assessment centers and continued delays in certain European
markets due to the COVID-19 pandemic and related PHE. While it is not possible at this time to estimate the overall impact that the
COVID-19 pandemic and related PHE could have on our business, the continued spread of COVID-19, both across the United States
and through much of the world, and the measures taken by the governments and local authorities of affected regions has adversely
affected our operating results and could cause or contribute to, among other things: significant volatility or reductions in demand for
our products; delays in our product development pipeline; delays in obtaining regulatory clearances or approvals to market our
products in certain jurisdictions; failure of third parties on which we rely to meet their obligations to us, or significant disruptions in
their ability to do so; and our inability to meet our customers’ needs due to disruptions to our operations or the operations of our
contractors, suppliers, other partners or customers including disruptions to production, development, manufacturing, administrative
and supply operations and arrangements. In addition, new variants of COVID-19 could prove to be deadlier or more transmittable, or
the developed vaccines may be ineffective versus these new variants, which could negatively impact our business and financial results.
In addition, we have strived to follow recommended actions of government and health authorities to protect the health and safety
of our employees and community, while working to ensure the sustainability of our business operations as this unprecedented situation
continues to evolve. Employees whose tasks can be done offsite have been allowed to work from home and most of our total
personnel continue to work from home. While we have worked closely with local and national officials and have thus far been able to
keep our manufacturing facilities open due to the essential nature of our products, there can be no assurance that we will be able to
keep such facilities open indefinitely during the COVID-19 pandemic and related PHE. We have thus far been able to keep our
contract manufacturer capability and capacity available but there can be no assurance that we will be able to keep such facilities open
indefinitely during COVID-19 pandemic and related PHE. We continue to evaluate the impact COVID-19 may have on our ability to
effectively conduct our business operations as planned to mitigate risk to our employees and customers while taking into account
regulatory, institutional, and government guidance and policies, but there can be no assurance that we will be able to avoid part or all
of any impact from the spread of COVID-19 or its consequences.
The COVID-19 pandemic and related PHE continues to rapidly evolve. The COVID-19 pandemic and related PHE has already
adversely affected our financial results and the extent to which COVID-19 ultimately impacts our business will depend on future
developments, which are highly uncertain and cannot be predicted, such as the ultimate geographic spread of the disease, the duration
of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business
disruptions, the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its
impact, including on financial markets or otherwise, and how quickly and to what extent normal economic and operating conditions
can resume if and when the COVID-19 pandemic and related PHE subsides. While the extent of the impact of the COVID-19
pandemic and related PHE on our business and financial results is uncertain, we have already been negatively impacted and a
continued and prolonged public health crisis could have a further material negative impact on our business, financial condition and
results of operations. Even after the COVID-19 pandemic and related PHE has subsided, we may continue to experience materially
adverse impacts on our financial condition and our results of operations and many of our known risks described in this Annual Report
on Form 10-K may be heightened.
While we have received funding from programs enacted under the CARES Act, due to the enactment of the CARES Act and
related legislation, there is still a high degree of uncertainty surrounding their implementation, and the COVID-19 pandemic and
related PHE continues to evolve. HHS is still issuing additional guidance to providers and suppliers regarding the terms and conditions
associated with the implementation of the CARES Act Provider Relief Fund. The federal government may consider additional
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stimulus and relief efforts, but we are unable to predict whether additional stimulus measures will be enacted or their impact. There
can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act or future
legislation, if any, and it is difficult to predict the impact of such legislation on our operations. Further, there can be no assurance that
the terms of provider relief funding or other programs will not change in ways that affect our funding or eligibility to participate. We
will continue to assess the potential impact of the COVID-19 pandemic and related PHE and government responses to the pandemic
on our business, results of operations, financial condition and cash flows.
We do not have long-term supply contracts with many of our third-party suppliers.
We purchase components and subassemblies from third-party suppliers, including some of our single-source suppliers, through
purchase orders and do not have long-term supply contracts with many of these third-party suppliers. Many of our third-party
suppliers, therefore, are not obligated to perform services or supply products to us for any specific period, in any specific quantity or at
any specific price, except as may be provided in a particular purchase order. We do not maintain large volumes of inventory from
most of these suppliers. For example, our batteries are sourced from a single source supplier, and sub-components of the battery are
also sourced from single source suppliers. While our printed circuit boards are sourced from dual sources, the sub-components of
these boards are sourced from single source suppliers. We are experiencing limited availability of certain semiconductor chip
components for our Inogen One portable oxygen concentrators in both its batteries and printed circuit boards, and we do not have
long-term supply contracts that would guarantee our supply during these periods of higher demand and lower availability of these sub-
components. This has led to orders not being filled in a timely manner and a temporary production halt in the first quarter of 2022 and
is expected to lead to increased costs for components and limited supply availability through 2022. Therefore, we expect to be unable
to fully meet customer demand for our products during the first quarter of 2022 and we expect these supply constraints to continue
through 2022. For additional discussion of potential risks related to our inability to source components of our products, please see the
risk factor entitled “We obtain some of the components, subassemblies and completed products included in our products from a single
source or a limited group of manufacturers or suppliers, and in some cases those components are available in only limited supplies
from limited manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers could
cause significant production delays or stoppages, an inability to meet customer demand, substantial loss in revenue, and an adverse
effect on our financial condition and results of operations.”
We may also be affected by other supply limitations during the COVID-19 pandemic and related PHE that could affect our
ability to fulfill orders. If we inaccurately forecast demand or fail to place orders timely enough relative to fluctuating lead time
requirements for components or subassemblies, our ability to manufacture and commercialize our products could be delayed and our
competitive position and reputation could be harmed. In addition, if we fail to effectively manage our relationships with these
suppliers or if our suppliers, in the near term or the long term, are not able to supply sufficient quantities of components or
subassemblies needed for our products due to the COVID-19 pandemic and related PHE, we may be required to change suppliers or, if
we are unable to find alternative suppliers in a timely manner, we may be required to further slowdown or temporarily halt production
which would adversely impact our business, financial condition and results of operations.
A significant majority of our rental patients who use our product have health coverage under the Medicare program, and recently
enacted and future changes in the reimbursement rates or payment methodologies under Medicare, Medicaid and other
government programs have affected and could continue to materially and adversely affect our business and operating results.
As a provider of oxygen equipment rentals, we depend heavily on Medicare reimbursement as a result of the higher proportion
of elderly persons suffering from chronic long-term respiratory conditions. Medicare Part B, or Supplementary Medical Insurance
Benefits, provides coverage to eligible beneficiaries that include items of durable medical equipment for use in the home, such as
oxygen equipment and other respiratory devices. There are increasing pressures on Medicare to control healthcare costs and to reduce
or limit reimbursement rates for home medical products.
Legislation, including the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Deficit Reduction Act
of 2005, the Medicare Improvements for Patients and Providers Act of 2008, and the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act, contain provisions that directly impact reimbursement for the durable
medical equipment products provided by us:
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The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 significantly reduced reimbursement for
inhalation drug therapies beginning in 2005, reduced payment amounts for certain durable medical equipment, including
oxygen, beginning in 2005, froze payment amounts for other covered HME items through 2008, established a competitive
bidding program for home medical equipment and implemented quality standards and accreditation requirements for
durable medical equipment suppliers.
The Deficit Reduction Act of 2005 limited the total number of continuous rental months for which Medicare will pay for
oxygen equipment to 36 months, after which time there is generally no additional reimbursement to the supplier (other
than for periodic, in-home maintenance and servicing). The Deficit Reduction Act of 2005 also provided that title of the
equipment would transfer to the beneficiary, which was later repealed by the Medicare Improvements for Patients and
Providers Act of 2008. For purposes of the rental cap, the Deficit Reduction Act of 2005 provided for a new 36-month
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rental period that began January 1, 2006 for all oxygen equipment. After the 36th continuous month during which
payment is made for the oxygen equipment, the supplier is generally required to continue to furnish the equipment during
the period of medical need for the remainder of the useful lifetime of the equipment, provided there are no breaks in
service due to medical necessity that exceed 60 days. The reasonable useful lifetime for our portable oxygen equipment is
60 months. After 60 months, if the patient requests, and the patient meets Medicare coverage criteria, the rental cycle
starts over and a new 36-month rental period begins. There are no limits on the number of 60-month cycles over which a
Medicare patient may receive benefits and an oxygen therapy provider may receive reimbursement, so long as such
equipment continues to be medically necessary for the patient. We anticipate that the Deficit Reduction Act of 2005
oxygen payment rules will continue to negatively affect our net revenue on an ongoing basis, as each month additional
customers reach the capped rental period in month thirty-seven, resulting in potentially two or more years without rental
income from these customers while we continue to incur customer service and maintenance costs. Our capped patients as
a percentage of total patients on service was approximately 8.0% as of December 31, 2021 and 11.7% as of December 31,
2020. 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 cannot predict
the potential impact to rental revenues in future periods associated with patients in the capped rental period.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,
includes, among other things, face-to-face physician encounter requirements for certain durable medical equipment and
home health services, and a requirement that by 2016, the competitive bidding process must be nationalized or prices in
non-competitive bidding areas must be adjusted to match competitive bidding prices.
There have been significant U.S. reimbursement and policy changes associated with the COVID-19 PHE that impact
oxygen therapy and other durable medical equipment. The CARES Act allows HHS to waive certain Medicare telehealth
payment requirements during the COVID-19 PHE declared by HHS on January 31, 2020 to allow beneficiaries in all areas
to receive telehealth services, including at their home, starting March 6, 2020. The Coronavirus Preparedness and
Response Supplemental Appropriations Act (H.R. 6074) also granted HHS the authority to waive certain requirements
with respect to telehealth services. Under this authority, CMS clarified that HHS would not conduct audits to determine
whether there was a prior physician-patient relationship for telehealth claims submitted during the COVID-19 PHE. The
CARES Act, passed on March 27, 2020 included the extension of the 50/50 blended rate for HME in rural and non-
contiguous, non-competitively bid areas and established a new 75/25 blended rate for all other non-competitively bid
areas through the duration of the COVID-19 PHE. The 75/25 blended rate was retroactive to March 6, 2020. While the
duration of the current emergency is impossible to predict, the Zika virus PHE lasted approximately 360 days, and the
H1N1 flu PHE lasted approximately 450 days.
In May 2020, Congress eliminated the 2% Medicare sequestration payment reduction that applies to all Medicare
providers and suppliers, due to the COVID-19 PHE, and Congress has extended it until March 31, 2022. The
sequestration payment reduction resumes with a 1% reduction to rates from April 1, 2022 until June 30, 2022, with the
full 2% Medicare sequestration resuming on July 1, 2022.
In addition, the CARES Act established a provider relief fund of $100 billion for Medicare providers and suppliers to
prevent, prepare for, and respond to the COVID-19 PHE, and as a Medicare supplier we also received funds of $6.2
million in the second quarter of 2020. The Paycheck Protection Program and Heath Care Enhancement Act was also
signed into law on April 24, 2020 and provides additional funding of $484 billion to programs enacted under the CARES
Act. Of the $484 billion, $75 billion is additional funding for healthcare providers to reimburse healthcare related
expenses and lost revenues attributable to COVID-19 PHE, which is in addition to the $100 billion approved in the
CARES Act.
On April 6, 2020, CMS issued an Interim Final Rule (IFR) in the Federal Register for policy and regulatory revisions in
response to the COVID-19 PHE. 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.
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The Trump administration also issued a number of regulatory waivers to increase the flexibility in durable medical
equipment, prosthetics, orthotics and supplies (DMEPOS) suppliers’ ability to service patients quickly and without the
normal requirements. For example, the patient signature for proof of delivery for DMEPOS is waived when signatures
cannot be collected during the COVID-19 PHE for dates of services within the PHE. In addition, CMS increased
Medicare contractors’ ability to waive replacement product requirements, paused the national prior authorization program
for certain DMEPOS, automatically extended expiring accreditations, granted contractors the flexibility to grant appeals
extensions, and suspended medical review of claims. Both the IFR and temporary regulatory changes show significant
flexibility from CMS to improve access for oxygen and other DMEPOS items during this COVID-19 PHE. These changes
were retroactive to early March 2020. In August 2020, CMS resumed medical review of claims and the prior authorization
program for certain DMEPOS.
CMS also issued a final rule in December 2021 (CMS-1738-P) to establish payment amounts that will be effective after
the COVID-19 PHE 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 any net change for inflation and sequestration, as outlined above.
CMS established three different fee schedule adjustment methodologies for non-CBAs after the termination of the
COVID-19 PHE: (1) for non-contiguous non-CBAs; (2) for contiguous non-CBAs defined as rural areas; and (3) for non-
rural non-CBAs within the contiguous United States. Payment methodologies (1) and (2) contemplate utilizing the 50/50
blended rates as a permanent construct, but payment methodology (3) contemplates setting the fee schedule amounts to
100% of the Medicare rates that are based upon (former) competitive bid rates. This will 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.
In January 2021, CMS announced, for informational purposes only, the payment amounts that would have been effective
for the competitive bidding round 2021 as part of its effort to increase transparency into the DMEPOS Competitive
Bidding Program. As a reminder, the bids for oxygen were based on the HCPCS code E1390, which is for stationary
oxygen, and there were 130 regions bid. The simple average of the 2018 payment amounts for these regions for this code
was $73.98. The simple average of the payment amounts for these regions for this code was $122.61, or an average
increase of 65.7%. If CMS were to have implemented these rate changes, the simple average payment amounts in these
regions for POCs (codes E1390 and E1392) would have been $157.60, which is significantly higher than the simple
average payment amounts of $110.07 and $121.07 per month being paid as of January 1, 2021 and April 1, 2021 for these
regions.
In September 2021, CMS published a Decision Memo which revised the Home Use of Oxygen national coverage
determination and removed the national coverage determination for Home Oxygen Use to Treat Cluster Headaches. This
will allow the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen
and oxygen equipment for cluster headaches. CMS also expanded patient access to oxygen and oxygen equipment in the
home by allowing oxygen use for acute or short-term needs instead of limiting coverage to chronic hypoxemia, removed
the requirements for alternative treatment measures before dispensing of oxygen therapy, and removed the limited list of
conditions for which oxygen may be covered to respiratory-related diseases, to allow the physician flexibility to make that
determination. In addition, CMS defined exercise more broadly to include functional performance of the patient and allow
more flexibility on pulse oximetry readings to account for differences in skin pigmentation. Lastly, CMS reduced provider
burden by removing the oxygen certificate of medical necessity requirement. We believe these changes will expand
coverage for patients who would benefit from oxygen therapy, reduce administrative burdens, and give more decision-
making authority on proper patient care to the physicians. CMS has announced that the implementation date for the
revised national coverage determination will be June 14, 2022. However, we do not yet have visibility on the details of
how the Medicare Administrative Contractors will change their coverage determinations.
These legislative provisions have had and may continue to have a material and/or adverse effect on our business, financial condition
and results of operations.
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The HHS Office of Inspector General (OIG) has recommended that states review Medicaid reimbursement for durable medical
equipment (DME) and supplies. The OIG cites an earlier report estimating that four states (California, Minnesota, New York, and
Ohio) could have saved more than $18.1 million on selected DME items if their Medicaid prices were comparable to those under
round one of the Medicare competitive bidding program. Since issuing those reports, the OIG identified $12 million in additional
savings that the four states could have obtained on the selected items by using pricing similar to the Medicare round two competitive
bidding and national mail-order programs. In light of varying Medicaid provider rates for DME and the potential for lower spending,
the OIG recommends that CMS (1) seek legislative authority to limit state Medicaid DME reimbursement rates to Medicare program
rates, and (2) encourage further reduction of Medicaid reimbursement rates through competitive bidding or manufacturer rebates (the
OIG did not determine the cost of implementing a rebate or competitive bidding program in each state). This was effective beginning
January 1, 2018.
Due to budgetary shortfalls, many states are considering, or have enacted, cuts to their Medicaid programs. In addition, many
private payors reimburse at a percentage of the Medicare rates. Medicare, Medicaid and private payor reimbursement rate cuts have
included, or may include elimination or reduction of coverage for our products, amounts eligible for payment under co-insurance
arrangements, or payment rates for covered items. Continued state budgetary pressures could lead to further reductions in funding for
the reimbursement for our products which, in turn, would adversely affect our business, financial condition and results of operations.
The competitive bidding process or other reimbursement policy changes under Medicare or other third-party payors could
negatively affect our business and financial condition.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires the Secretary of HHS to establish and
implement programs under which competitive acquisition areas are established throughout the United States for purposes of awarding
contracts for the furnishing of competitively priced items of durable medical equipment, including oxygen equipment.
We rely significantly on reimbursement from Medicare and private payors, including Medicare Advantage plans, Medicaid and
patients for our rental revenue. For the year ended December 31, 2021, approximately 81.9% of our rental revenue was derived from
Medicare’s traditional fee-for-service reimbursement programs.
The U.S. list price for our stationary oxygen rentals Healthcare Common Procedure Coding System (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 former competitive bidding areas (CBAs) in the prior five years are outlined in the table
below for E1390 and E1392, which are the two primary codes that we bill to Medicare and other payors for our oxygen product
rentals. These rates are typically updated annually each January as they are subject to Consumer Price Index (CPI) and sequestration
adjustments, but can also be subject to adjustments during the year due to legislative rulings. Competitive bidding contracts were
scheduled to go into effect on January 1, 2021; however, on October 27, 2020, CMS announced that competitive bidding contracts
would not be awarded for most product categories, including oxygen, due to the payment amounts not achieving the expected savings
and the current COVID-19 pandemic and related PHE. Effective April 1, 2021, rates were adjusted to remove a percentage reduction
that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social
Security Act. See the table below for average Medicare rates in former CBAs, using a simple average of rates in each CBA.
Average Medicare reimbursement rates in former CBAs
As of January 1, 2022....................................................................................... $
As of April 1, 2021........................................................................................... $
As of January 1, 2021....................................................................................... $
As of January 1, 2020....................................................................................... $
As of January 1, 2019....................................................................................... $
As of January 1, 2018....................................................................................... $
E1390
E1392
85.31 $
81.25 $
73.88 $
73.98 $
72.92 $
77.03 $
41.81
39.82
36.20
36.25
35.72
36.06
CMS also issued a final rule in December 2021 (CMS-1738-P) to establish payment methodologies that will be effective after
the COVID-19 PHE for DMEPOS products and services covered under Medicare. We believe that Medicare rates will not change for
the length of the PHE, except for inflation and sequestration adjustments that typically occur annually each January but have not yet
been announced.
CMS established three different fee schedule adjustment methodologies for non-CBAs after the termination of the COVID-19
PHE: (1) for non-contiguous non-CBAs; (2) for contiguous non-CBAs defined as rural areas; and (3) for non-rural non-CBAs within
the contiguous United States. The final payment methodology sets the fee schedule amounts to 100% of the Medicare rates in all non-
rural areas. This will 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.
35
In January 2021, CMS announced what would have been the payment amounts for the competitive bidding round 2021. As a
reminder, the bids for oxygen were based on the HCPCS code E1390, which is for stationary oxygen, and there were 130 regions bid.
The simple average of the 2018 single payment amounts for these regions for this code was $73.98. The simple average of the
payment amounts for these regions for this code was $122.61, or an average increase of 65.7%. If CMS were to have implemented
these rate changes, the average payment amounts in these regions for POCS (codes E1390 and E1392) would have been $157.60,
which is significantly higher than the $110.07 per month being paid as of January 1, 2021.
Medicare payment rates are based upon whether the beneficiary resides in a (former) CBA, or in a rural or non-rural non-CBA,
or in non-contiguous states. Non-CBA payment rates are based on regional pricing, that are derived from former competitive bidding
payment rates. In rural areas and non-contiguous states, payment rates are based on a higher 50-50 blended rate, to account for higher
servicing costs in those areas. We estimate that approximately 18% of our patients are eligible to receive the higher reimbursement
rates based on the geographic locations of our current patient population. Effective March 1, 2021, CMS announced that the rates as of
January 1, 2021 were incorrectly calculated, and retroactively adjusted the rates, which are reflected in the table below. The Medicare
rates announced previously were a simple average of $136.24 for HCPCS code E1390 and $44.69 for HCPCS code E1392, which
were increased to $136.84 and $44.99, respectively. Effective April 1, 2021, rates were adjusted to remove a percentage reduction that
was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social Security
Act. See the table below for average Medicare rates in rural areas, using a simple average of rates in each state.
Average Medicare reimbursement rates in rural areas
As of January 1, 2022....................................................................................... $
As of April 1, 2021........................................................................................... $
As of January 1, 2021....................................................................................... $
As of January 1, 2020....................................................................................... $
As of January 1, 2019....................................................................................... $
As of January 1, 2018....................................................................................... $
E1390
E1392
151.15 $
143.48 $
136.84 $
136.71 $
134.71 $
76.31 $
48.39
47.13
44.99
44.93
44.32
41.91
Rates in non-former CBAs that are not defined as rural are set based on the rates in former CBAs. See the table below for
average Medicare rates in these non-former CBAs, non-rural areas, using a simple average of rates in each state. These rates are
typically updated annually each January as they are subject to the Consumer Price Index (CPI) and sequestration adjustments, but are
also subject to adjustments during the year due to legislative rulings. Effective April 1, 2021, rates were adjusted to remove a
percentage reduction that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii)
of the Social Security Act. Note that the 2021 rates listed below include CARES Act increased rates due to the COVID-19 PHE,
which may not be in place for all of 2022. Once the Administration ends the COVID-19 PHE, the rates in these non-former CBAs,
non-rural areas are expected to adjust down to the former CBA rates listed in the table above.
Average Medicare reimbursement rates in non-former CBAs, non-
rural areas
As of January 1, 2022....................................................................................... $
As of April 1, 2021........................................................................................... $
As of January 1, 2021 (retroactively revised March 1, 2021).......................... $
As of January 1, 2020....................................................................................... $
As of January 1, 2019....................................................................................... $
As of January 1, 2018....................................................................................... $
E1390
E1392
115.14 $
109.39 $
104.07 $
74.84 $
72.32 $
69.31 $
43.69
42.12
40.06
36.87
35.64
38.10
CMS is required to conduct 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. Effective January 1, 2017, we believe we had access to over 90% of the Medicare oxygen therapy market based on our
analysis of the 103 CBAs that we won out of the 130 total CBAs. These 130 CBAs represented approximately 36% of the Medicare
market with the remaining approximately 64% of the market not subject to competitive bidding. As of January 1, 2019, we can choose
to accept Medicare oxygen patients throughout the United States. As of July 2018, we currently operate in all 50 states in the U.S. We
did not sell or rent to patients in Hawaii due to the licensure requirements from inception to June 2018.
We cannot guarantee that we will be offered contracts in subsequent rounds of competitive bidding. 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 10.6% of our total revenue in the year
ended December 31, 2021 and 7.5% in the year ended December 31, 2020.
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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. The supplier that billed Medicare for the 36th month of service
continues to be responsible for the patient’s oxygen therapy needs for months 37 through 60, and there is generally no additional
reimbursement for oxygen generating portable equipment for these later months. CMS does not separately reimburse suppliers for
oxygen tubing, cannulas and supplies that may be required for the patient. The supplier is required to keep the equipment provided in
working order and in some cases, CMS will reimburse for repair costs. At the end of the five-year useful life of the equipment, the
patient may request replacement equipment and, if he or she can be re-qualified for the Medicare benefit, a new maximum 36-month
payment cycle out of the next 60 months of service would begin. 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 as of December 31, 2021 and December 31, 2020. Our capped patients as a percentage of total patients on service
was approximately 8.0% as of December 31, 2021 and 11.7% as of December 31, 2020. 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.
Our obligations to service Medicare patients over the rental period include supplying working equipment that meets each
patient’s oxygen needs pursuant to his/her doctor’s prescription and supplying all disposables required for the patient to operate the
equipment, including cannulas, filters, replacement batteries, carts and carry bags, as needed. If the equipment malfunctions, we must
repair or replace the equipment. We determine what equipment the patient receives, and we can deploy used assets in working order as
long as the prescription requirements are met. We must also procure a renewal from the patient’s doctor to confirm the patient’s need
for oxygen therapy one year after the patient first receives oxygen therapy and one year after each new 36-month reimbursement
period begins. 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.
Although we continue to monitor developments regarding the implementation of the competitive bidding program, we cannot
predict the outcome of the competitive bidding program on our business when fully implemented, nor the Medicare reimbursement
rates that will be in effect in future years for the items subject to competitive bidding, including our products. We expect that the
stationary oxygen and non-delivery ambulatory oxygen reimbursement rates will continue to fluctuate, and a large negative payment
adjustment would adversely affect our business, financial condition and results of operations.
Healthcare reform measures may have a material adverse effect on our business and results of operations.
In the United States, the legislative landscape, particularly as it relates to healthcare regulation and reimbursement coverage,
continues to evolve. In March 2010, the Patient Protection and Affordable Care Act was passed, which has substantially changed
healthcare financing by both governmental and private insurers, and significantly impacts the U.S. medical device industry.
In addition, other legislative changes have been proposed and adopted in the United States since the Patient Protection and
Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 created, among other things, measures for
spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit
reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the
legislation’s automatic sequestration reduction to several government programs. This includes aggregate reductions of Medicare
reimbursements to providers up to 2% per fiscal year, which went into effect on April 1, 2013, and will remain in effect through 2030
unless additional Congressional action is taken. For example, a provision in the CARES Act and subsequent federal laws have paused
the 2% Medicare sequestration reduction for claims dated from May 1, 2020 through March 31, 2022. Starting April 1, 2022, and
through June 30, 2022, there will be a 1% sequestration reduction, and the full 2% sequestration reduction will resume on July 1,
2022. We expect that additional state and federal healthcare policy measures will be adopted in the future, any of which could limit the
amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for
our products or additional pricing pressures.
In addition to the legislative changes discussed above, the Patient Protection and Affordable Care Act requires healthcare
providers to voluntarily report and return an identified overpayment within 60 days after identifying the overpayment. Failure to repay
the overpayment within 60 days will result in the claim being considered a “false claim” and the healthcare provider will be subject to
False Claims Act liability.
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State legislative bodies also have the right to enact legislation that would impact requirements of home medical equipment
providers, including oxygen therapy providers. Some states have already enacted legislation that require in-state facilities. We are
monitoring all state requirements to maintain compliance with state-specific legislation and access to service patients in these states.
To the extent such legislation is enacted, it could result in increased administrative costs or otherwise exclude us from doing business
in a particular state, which would adversely impact our business, financial condition and results of operations.
We face uncertainties that might result from modification or repeal of any of the provisions of the Patient Protection and
Affordable Care Act, including as a result of current and future executive orders, legislative actions and judicial decisions. The impact
of those changes on us and potential effect on the durable medical equipment industry as a whole is currently unknown. But any
changes to the Patient Protection and Affordable Care Act are likely to have an impact on our results of operations and may have a
material adverse effect on our results of operations. We cannot predict what other healthcare programs and regulations will ultimately
be implemented at the federal or state level or the effect of any future legislation or regulation in the United States may have on our
business.
We depend upon reimbursement from Medicare, private payors, Medicaid and payments from patients for a significant portion of
our revenue, and if we fail to manage the complex and lengthy reimbursement process, our business and operating results could be
adversely affected.
A significant portion of our rental revenue is derived from reimbursement by third-party payors. We accept assignment of
insurance benefits from customers and, in a majority of cases, invoice and collect payments directly from Medicare, private payors
and Medicaid, as well as direct from patients under co-insurance provisions. For the years ended December 31, 2021, 2020 and 2019,
approximately 12.9%, 9.2% and 5.9%, respectively, of our total revenue was derived from Medicare, private payors, Medicaid, and
individual patients who directly receive reimbursement from third-party payors and this percentage could increase as a percent of total
revenue if we increase net patient additions faster than our sales revenue growth.
Our financial condition and results of operations may be affected by the healthcare industry’s reimbursement process, which is
complex and can involve lengthy delays between the time that a product is delivered to the consumer and the time that the
reimbursement amounts are settled. Depending on the payor, we may be required to obtain certain payor-specific documentation from
physicians and other healthcare providers before submitting claims for reimbursement. Certain payors have filing deadlines and they
will not pay claims submitted after such time. We are also subject to extensive pre-payment and post-payment audits by governmental
and private payors that could result in material delays, refunds of monies received or denials of claims submitted for payment under
such third-party payor programs and contracts. We cannot ensure that we will be able to continue to effectively manage the process
which would adversely affect our business, financial condition and results of operations.
If our manufacturing facilities become unavailable or inoperable, we could be unable to continue manufacturing our products
and, as a result, our business, financial condition and results of operations could be adversely affected until we are able to secure a
new facility.
We assemble our products at our facilities in Plano, Texas and Goleta, California and through our contract manufacturer in the
Czech Republic. No other manufacturing facilities are currently available to us, particularly facilities of the size and scope of our
Texas facility. Our facilities and the equipment we use to manufacture our products would be costly to replace and could require
substantial lead time to procure, repair or replace. Our facilities may be harmed or rendered inoperable by natural or man-made
disasters, including, but not limited to, the COVID-19 pandemic and related PHE related facility shutdowns, fire, flood, earthquakes
and power outages, which may render it difficult or impossible for us to manufacture our products for some period of time. Although
we and our contract manufacturer have been able to keep our manufacturing facilities open thus far during the COVID-19 pandemic
and related PHE, we cannot assure that we will be able to continue to do so indefinitely.
If any of our facilities become unavailable to us, we cannot provide assurances that we will be able to secure and equip a new
manufacturing facility on acceptable terms in a timely manner. The inability to manufacture our products, combined with delays in
replacing parts inventory and manufacturing supplies and equipment, may result in the loss of customers and/or harm our reputation,
and we may be unable to reestablish relationships with those customers in the future. Although we have insurance coverage for certain
types of disasters and business interruptions which may help us recover some of the costs of damage to our property, costs of recovery
and lost income from the disruption of our business, insurance coverage of certain perils may be limited or unavailable at cost
effective rates and may therefore not be sufficient to cover any or all of our potential losses and may not continue to be available to us
on acceptable terms, or at all. If our manufacturing capabilities are impaired, we could not be able to manufacture, store, and ship our
products in sufficient quantity or a cost effective or timely manner, which would adversely affect our business, financial condition and
results of operations.
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We rely upon a third-party contract manufacturer for certain manufacturing operations and our business and results of operations
may be adversely affected by risks associated with their business, financial condition and the geography in which they operate.
We utilize a third-party contract manufacturer located in the Czech Republic for production of a portion of our Inogen One G3
and Inogen One G5 concentrators and for repair services for these products. Since 2018, our contract manufacturer has produced the
vast majority of the concentrators required to support our European demand and we expect this to continue in 2022 and 2023. There
are a number of risks associated with our dependence on a contract manufacturer, including:
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reduced control over delivery schedules and planning;
reliance on the quality assurance procedures of a third party;
risks associated with our contract manufacturer failing to manufacture our products according to our specifications,
quality regulations, including the FDA’s Quality System regulations, or otherwise manufacturing products that we or
regulatory authorities deem to be unsuitable for commercial use;
risks associated with our contract manufacturer’s ability to successfully undergo FDA and other regulatory authority
quality inspections;
potential uncertainty regarding manufacturing yields and costs;
availability of manufacturing capability and capacity, particularly during periods of high demand and the COVID-19
pandemic and related PHE;
risks and uncertainties associated with the location or country where our products are manufactured, including potential
manufacturing disruptions caused by social, geopolitical or environmental factors;
changes in U.S. law or policy governing foreign trade, manufacturing, development and investment in the countries where
we manufacture our products, including the World Trade Organization Information Technology Agreement or other free
trade agreements;
delays in delivery by suppliers due to customs clearing delays, shipping delays, scarcity of raw materials and changes in
demand from us or their other customers;
limited warranties provided to us; and
potential misappropriation of our intellectual property.
These and other risks could impair our ability to fulfill orders, harm our sales and impact our reputation with customers. If
our contract manufacturer is unable or unwilling to manufacture our products or components of our products, or if our contract
manufacturer discontinues operations, we may be required to identify and qualify alternative manufacturers, which could cause us to
be unable to meet our supply requirements to our customers and result in the breach of our customer agreements. The process of
qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming, and if we are required
to change or qualify a new contract manufacturer, we would likely lose sales revenue and damage our existing customer relationships.
Failure to maintain or obtain new private payor contracts and future reductions in reimbursement rates from private payors could
have a material adverse effect on our financial condition and results of operations.
A portion of our rental revenue is derived from private payors. Based on our patient population, we estimate approximately 33%
of potential customers have non-Medicare insurance coverage (including Medicare Advantage plans). Failing to maintain and obtain
private payor contracts from private insurance companies and employers and secure in-network provider status could have a material
adverse effect on our financial condition and results of operations. In addition, private payors are under pressure to increase
profitability and reduce costs. In response, certain private payors are limiting coverage or reducing reimbursement rates for the
products we provide. We believe that private payor reimbursement levels will generally be reset in accordance with the Medicare
reimbursement amounts determined by competitive bidding. We cannot predict the extent to which reimbursement for our products
will be affected by competitive bidding or by initiatives to reduce costs for private payors. Failure to maintain or obtain new private
payor contracts or the unavailability of third-party coverage or inadequacy of reimbursement for our products would adversely affect
our business, financial condition and results of operations.
If we are unable to manage our anticipated growth effectively, our business could be harmed.
We have previously experienced periods of rapid growth in short periods of time. These periods of rapid growth of our business
have placed a significant strain on our managerial and operational resources and systems. For example, as our business has grown, we
have seen the cost per generated lead trend higher than historical averages. In addition, many of the sales representatives we hired in
2018 were unable to meet sales targets and were thus transitioned out. To continue to grow our business, we must attract and retain
capable personnel and manage and train them effectively, particularly related to sales representatives and supporting sales personnel.
We must also upgrade our internal business processes and capabilities to create the scalability that a growing business demands.
39
Going forward, we plan to hire additional inside sales representatives at a more controlled pace across all three facilities to
expand sales capacity, but our inside sales representative headcount was down significantly at year-end 2019 compared to year-end
2018 and, due to the impact of the COVID-19 pandemic and related PHE, it was also down at year-end 2020 compared to year-end
2019. Headcount was also down slightly at year-end 2021 compared to December 31, 2020. In 2022, we expect hiring will continue to
be challenging due to the continued impacts of the COVID-19 pandemic and related PHE, so we do not expect to increase our inside
sales force and instead expect to offset attrition with replacement hiring. While we believe we are making the necessary changes to
improve sales management infrastructure to support sales representative training and onboarding, it will take more time to evaluate
whether these changes are effective in the long term, particularly given the impact of the COVID-19 pandemic and related PHE, and
to the extent they are not effective it may negatively affect our financial condition and results of operations.
In addition, we plan to hire additional sales representatives in our prescriber sales organization, primarily through Ashfield, our
contract sales organization, to enhance our go-to-market capabilities in the U.S. The employment market is very challenging and there
is no guarantee that they, or we, will be able to hire all of the required employees to our prescriber sales organization in the future or
retain existing staff. Additionally, Ashfield will provide access to its best-in-class data-driven sales management disciplines,
proprietary prescriber insights, and analytics to support our growth strategy and drive performance in the clinician sales channel.
While we believe that our investments in the prescriber sales organization will enhance our growth in direct-to-consumer sales and
rental revenue, it will take time for these sales representatives to be fully trained and ramped up to full productivity, and it will take
time for the sales tools to be implemented across our existing prescriber sales representatives. To the extent that the sales tools being
implemented, or the sales representatives hired either through us or Ashfield, are not effective, or the number of sales representatives
does not reach the number anticipated, it may negatively affect our future growth and results of operations.
In addition, our sales expansion and productivity improvements for 2022 may continue to be negatively impacted due to the
COVID-19 pandemic and related PHE. In connection with the COVID-19 pandemic and related PHE, we expect minimal inside sales
representative headcount additions in 2022, and we expect the COVID-19 pandemic and related PHE may continue to reduce the
number of oxygen therapy patients who purchase our products directly through our direct-to-consumer sales channel, and the number
of sales generated from physician offices or make it more difficult to get paperwork and testing from physician offices. The reduction
in nonessential travel may also continue to harm our business, particularly for our prescriber sales representatives and business-to-
business partners who rely on physician office and hospital visits to drive business, and patients who rely on physicians to prescribe
them oxygen therapy after in-office testing.
We also have experienced increased demand for our products in various markets associated with rising rates of COVID-19,
since physicians may prescribe supplemental oxygen as a treatment for COVID-19. As a result, in these periods we saw increased
demand for our products for applicable patients who may be treated in the home instead of an acute hospital setting. This demand is
mostly being filled through our HME provider partners, who work closely with hospitals to discharge patients into a home treatment
program. If this demand increase resumes and we cannot meet this demand, we may lose market share to competitors or lose
customers, which may negatively affect our financial conditions and results of operations. In addition, even if we are able to meet any
such increased demand, such an increase in business-to-business sales mix may negatively impact our gross margin as HME provider
purchases have a significantly lower average selling price than direct-to-consumer purchases.
During 2019, we signed leases to expand our facilities located in Plano, Texas and Goleta, California, which commenced in
2021. Domestic expansion, combined with our use of a contract manufacturer in Europe to produce a portion of our Inogen One G3
and Inogen One G5 concentrators and perform product repairs, is expected to be sufficient to meet our manufacturing needs provided
that these facilities remain operational. However, our anticipated growth may place additional strain on our supply chain and
manufacturing facilities, resulting in an increased need for us to carefully monitor parts inventory, capable staffing and quality
assurance. Any failure by us to manage the scalability of our process or other aspects of our growth effectively could have an adverse
effect on our ability to achieve our development and commercialization goals and negatively affect our financial condition and results
of operations.
We may expand through acquisitions of, or investments in, other companies, each of which may divert our management’s
attention, result in additional dilution to our stockholders, increase expenses, disrupt our operations, and harm our results of
operations.
Our business strategy may, from time-to-time, include acquiring or investing in complementary services, technologies or
businesses, such as our acquisition of New Aera in 2019. We do not have an extensive history of acquiring other companies and
cannot assure you that we will successfully identify suitable acquisition candidates, integrate or manage disparate technologies, lines
of business, personnel and corporate cultures, realize our business strategy or the expected return on our investment, or manage a
geographically dispersed company. Any such acquisition or investment could materially and adversely affect our financial condition
and results of operations. We may issue equity securities which could dilute current stockholders’ ownership, incur debt, assume
contingent or other liabilities and expend cash in acquisitions, which could negatively impact our financial condition, stockholder
equity, and stock price. The acquisition and integration process is complex, expensive and time-consuming, and may cause an
interruption of, or loss of momentum in, product development and sales activities and operations of both companies, and we may incur
substantial cost and expense, as well as divert the attention of management.
40
Acquisitions and other strategic investments involve significant risks and uncertainties, including:
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the potential failure to achieve the expected benefits of the combination or acquisition;
the potential failure to successfully develop or commercialize the acquired products or technology;
unanticipated costs and liabilities;
difficulties in integrating new products, businesses, operations, and technology infrastructure in an efficient and effective
manner;
difficulties in maintaining customer relations;
the potential loss of key employees of the acquired businesses;
the diversion of the attention of our senior management from the operation of our daily business;
the potential adverse effect on our cash position to the extent that we use cash for the purchase price;
the potential incurrence of interest expense and debt service requirements if we incur debt to pay for an acquisition;
the potential issuance of securities that would dilute our stockholders’ percentage ownership;
the potential to incur large and immediate write-offs and restructuring and other related expenses;
the potential of amortization expenses related to intangible assets;
the potential failure to achieve anticipated reimbursement classifications for acquired products;
the potential to become involved in intellectual property litigation related to such acquisitions or strategic investments;
and
the inability to maintain uniform standards, controls, policies, and procedures.
Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure you that we will realize the
anticipated benefits of any acquisition or investment. In addition, our inability to successfully operate and integrate newly acquired
businesses appropriately, effectively, and in a timely manner could impair our ability to take advantage of future growth opportunities
and other advances in technology, as well as on our revenues, gross margins, and expenses.
As part of our ongoing efforts to advance patient preference and maintain our technology leadership position, we acquired New
Aera in 2019 and completed our integration process. We made certain assumptions relating to the New Aera acquisition, which
assumptions may have been inaccurate, including the failure to realize the expected benefits of the acquisition, failure to realize
expected revenue, higher than expected operating costs, and general economic and business conditions that adversely affect the
combined company following the acquisition. After integration of New Aera, and partially as a result of the negative litigation
outcome in our case against the Department of Health and Human Services, we believe that our assumptions regarding New Aera will
not be fully realized. We believe that there are still many risks associated with the TAV product, including whether we will be able to
successfully incorporate TAV into our existing products, what sort of competition there may be for the TAV product, if and when
implemented, and the other risks identified in this Annual Report on Form 10-K.
We are exposed to the credit and non-payment risk of our HME providers, distributors, private label partners and resellers,
especially during times of economic uncertainty and tight credit markets, which could result in material losses.
We sell our products to certain HME providers, distributors, private label partner and resellers on unsecured credit, with terms
that vary depending upon the customer’s credit history, solvency, cash flow, credit limits and sales history, as well as prevailing terms
with similarly situated customers and whether sufficient credit insurance can be obtained. In particular, one single customer and
Medicare each represented more than 10% of our net accounts receivable balance with accounts receivable balances of $5.9 million
and $2.7 million, respectively, as of December 31, 2021, and two customers each with an accounts receivable balance of $8.4 million
and $7.0 million, respectively, as of December 31, 2020. Challenging economic conditions, including those associated with the
COVID-19 pandemic and related PHE, may impair the ability of our customers to pay for products they have purchased, and as a
result, our reserve for doubtful accounts could increase and, even if increased, may turn out to be insufficient. Moreover, even in cases
where we have insolvency risk insurance to protect against a customer’s bankruptcy, insolvency or liquidation, this insurance typically
contains a significant deductible and co-payment obligation and does not cover all instances of non-payment. Our exposure to credit
risks of our business partners may increase if our business partners and their end customers are adversely affected by global or
regional economic conditions, including those associated with the COVID-19 pandemic and related PHE. One or more of these
business partners could delay payments or default on credit extended to them, either of which could adversely affect our business,
financial condition and results of operations.
41
We generate a substantial portion of our revenue internationally and are subject to various risks relating to such international
activities, which could adversely affect our operating results. In addition, any disruption or delay in the shipping of our products,
whether domestically or internationally, may have an adverse effect on our financial condition and results of operations.
During the years ended December 31, 2021, 2020 and 2019, approximately 22.2%, 20.1% and 21.5%, respectively, of our total
revenue was generated from customers located outside of the United States. We believe that a significant percentage of our future
revenue will continue to come from international sources as we expand our international operations and develop opportunities in other
countries. Engaging in international business inherently involves a number of difficulties and risks, including:
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required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, data
privacy regulations, such as the European Union General Data Protection Regulation (GDPR), labor laws, and anti-
competition regulations;
export or import delays and restrictions;
obtaining and maintaining regulatory clearances, approvals and certifications;
laws and business practices favoring local companies;
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
unstable economic, political, and regulatory conditions;
supply chain complexities;
fluctuations in currency exchange rates;
fluctuations in demand due to country-specific tenders and tender uncertainty and capital expenditure constraints;
potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements, and other trade barriers;
any other government actions, by the United States, China or other countries, that impose barriers or restrictions that
would impact our ability to sell or ship products to customers; and
difficulties protecting or procuring intellectual property rights.
If one or more of these risks occurs, it could require us to dedicate significant resources to remedy, and if we are unsuccessful in
finding a solution, our financial condition and results of operations will suffer.
In addition, on June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the
European Union, commonly referred to as “Brexit.” This decision created an uncertain political and economic environment in the
U.K. and other European Union countries, and the formal process for leaving the European Union has taken years to complete. The
U.K. formally left the European Union on January 31, 2020 and began a transition period which expired on December 31, 2020.
In December 2020, the U.K. and the European Union agreed on a trade and cooperation agreement, under which the U.K. and
the European Union will now form two separate markets governed by two distinct regulatory and legal regimes. The trade and
cooperation agreement covers the general objectives and framework of the relationship between the U.K. and the European Union,
including as it relates to trade, transport and visas. Notably, under the trade and cooperation agreement, U.K. service suppliers no
longer benefit from automatic access to the entire European Union single market, U.K. goods no longer benefit from the free
movement of goods and there is no longer the free movement of people between the U.K. and the European Union. Depending on the
application of the terms of the trade and cooperation agreement, we could face new regulatory costs and challenges.
Adverse consequences concerning Brexit or the future of the European Union could include deterioration in global economic
conditions, instability in global financial markets, political uncertainty, volatility in currency exchange rates or adverse changes in the
cross-border agreements currently in place, any of which could have an adverse impact on our financial results in the future.
A portion of our international product sales are currently denominated in U.S. dollars and fluctuations in the value of the U.S.
dollar relative to foreign currencies could decrease demand for our products and adversely impact our financial performance. For
example, if the value of the U.S. dollar increases relative to foreign currencies, our products could become more costly to the
international consumer and therefore less competitive in international markets. Our results of operations and cash flows are, therefore,
subject to fluctuations due to changes in foreign currency exchange rates. The volatility of exchange rates depends on many factors
that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income or
loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are
denominated in currencies other than the functional currency of the entities in which they are recorded.
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For example, for the year ended December 31, 2021 we experienced a net foreign currency loss of $0.7 million, for the year
ended December 31, 2020 we experienced a net foreign currency gain of $0.6 million, and for the year ended December 31, 2019 we
experienced a net foreign currency loss of $0.2 million. Fluctuations in currency exchange rates could have an adverse impact on our
financial results in the future. While we have a hedging program for Euros that attempts to manage currency exchange rate risks to an
acceptable level based on management's judgment of the appropriate trade-off between risk, opportunity, and cost, this hedging
program does not completely eliminate the effects of currency exchange rate fluctuations. In addition, currency hedging may result in
a reduction or increase in revenue should the currency strengthen or decline during the contract period. A discussion of the hedging
program is contained in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for
the year ended December 31, 2021. Additional information on our hedging arrangements is also contained in Note 3 – Fair value
measurements and Item 3 – Quantitative and Qualitative Disclosures About Market Risk in the notes in our consolidated financial
statements in this Annual Report on Form 10-K.
We rely on shipping providers to deliver products to our customers globally. Labor, tariff, or World Trade Organization-related
disputes, piracy, physical damage to shipping facilities or equipment caused by severe weather or terrorist incidents, congestion at
shipping facilities, inadequate equipment to load, dock, and offload our products, energy-related tie-ups, shipping delays associated
with the COVID-19 pandemic and related PHE, or other factors could disrupt or delay shipping or offloading of our products
domestically and internationally. Such disruptions or delays may have an adverse effect on our financial condition and results of
operations.
Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or the FCPA, and similar laws associated with our activities outside of the United States could
subject us to penalties and other adverse consequences.
We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA
PATRIOT Act, the United Kingdom Bribery Act of 2010 and possibly other anti-corruption, anti-bribery and anti-money laundering
laws in the more than fifty-nine countries around the world where we conduct activities and sell our products. We face significant
risks and liability if we fail to comply with the FCPA and other anti-corruption and anti-bribery laws that prohibit companies and their
employees and third-party business partners, such as distributors or resellers, from authorizing, offering or providing, directly or
indirectly, improper payments or benefits to foreign government officials, political parties or candidates, employees of public
international organizations including healthcare professionals, or private-sector recipients for the corrupt purpose of obtaining or
retaining business, directing business to any person, or securing any advantage.
We leverage various third parties to sell our products and conduct our business abroad. We, our distributors and channel
partners, and our other third-party intermediaries and manufacturer may have direct or indirect interactions with officials and
employees of government agencies or state-owned or affiliated entities (such as in the context of obtaining government approvals,
registrations, or licenses) and may be held liable for the corrupt or other illegal activities of these third-party business partners and
intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.
In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in
practices that are prohibited by the FCPA or other applicable laws and regulations. We provide training to all employees, including
management, to ensure compliance with the FCPA. As such, we intend to continue to implement an FCPA/anti-corruption compliance
program to ensure compliance with such laws, but we face the risk that individual actions of our employees and agents, as well as
those companies to which we outsource certain of our business operations, will not take actions in violation of our policies and
applicable law, for which we have to defend ourselves and may be ultimately held responsible.
Any violation of the FCPA, other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in
whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in
the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on
our reputation, business, operating results and prospects. In addition, responding to any enforcement action or related investigation
may result in a materially significant diversion of management’s attention and resources and significant defense costs and other
professional fees.
If we fail to comply with U.S. export control and economic sanctions or fail to expand and maintain an effective sales force or
successfully develop our international distribution network, our business, financial condition and results of operations may be
adversely affected.
We currently derive the majority of our revenue from rentals or sales generated from our own direct sales force. Failure to
maintain or expand our direct sales force could adversely affect our financial condition and results of operations. Additionally, we use
international distributors to augment our sales efforts, certain of which are exclusive distributors in certain foreign countries. We
cannot assure you that we will be able to successfully retain or develop our relationships with third-party distributors internationally.
In addition, we are subject to United States export control and economic sanctions laws relating to the sale of our products, the
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violation of which could result in substantial penalties being imposed against us. In particular, we have secured annual export licenses
from the U.S. Treasury Department’s Office of Foreign Assets Control to sell our products to a distributor and hospital and clinic end-
users in Iran. The use of this license requires us to observe strict conditions with respect to products sold, end-user limitations and
payment requirements. Although we believe we have maintained compliance with license requirements, there can be no assurance that
the license will not be revoked, be renewed in the future or that we will remain in compliance. More broadly, if we fail to comply with
export control laws or successfully develop our relationship with international distributors, our sales could fail to grow or could
decline, and our ability to grow our business could be adversely affected. Distributors that are in the business of selling other medical
products may not devote a sufficient level of resources and support required to generate awareness of our products and grow or
maintain product sales. If our distributors are unwilling or unable to market and sell our products, or if they do not perform to our
expectations, we could experience delayed or reduced market acceptance and sales of our products resulting in adverse results of
operations.
We may be subject to substantial warranty or product liability claims or other litigation in the ordinary course of business that may
adversely affect our business, financial condition and results of operations.
As manufacturers of medical devices, we may be subject to substantial warranty or product liability claims or other litigation in
the ordinary course of business that may require us to make significant expenditures to defend these claims or pay damage awards. For
example, our Inogen One systems contain lithium ion batteries, which, under certain circumstances, can be a fire hazard. We, as well
as our key suppliers, maintain product liability insurance, but this insurance is limited in amount and subject to significant deductibles.
There is no guarantee that insurance will be available or adequate to protect against all claims. Our insurance policies are subject to
annual renewal and we may not be able to obtain liability or product insurance in the future on acceptable terms or at all. In addition,
our insurance premiums could be subject to increases in the future, which may be material. If the coverage limits are inadequate to
cover our liabilities or our insurance costs continue to increase as a result of warranty or product liability claims or other litigation,
then our business, financial condition and results of operations may be adversely affected.
We may also be subject to other types of claims arising from our normal business activities. These may include claims, suits,
and proceedings involving labor and employment, wage and hour, commercial, alleged securities laws violations or other investor
claims, patent defense and other matters. The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims
and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management
attention and resources, and lead to attempts on the part of other parties to pursue similar claims. Any adverse determination related to
litigation could require us to change our technology or our business practices, pay monetary damages or enter into royalty or licensing
arrangements, which could adversely affect our business, financial condition and results of operations.
Increases in our operating costs could have a material adverse effect on our business, financial condition and results of
operations.
Reimbursement rates are established by fee schedules mandated by Medicare, private payors and Medicaid, and are likely to be
set, in part, to federal and state government budgetary constraints. As a result, with respect to Medicare and Medicaid related revenue,
we may not be able to offset the effects of general inflation on our operating costs through increases in prices for our products, as
these inflation adjustments are subject to annual approval outside of our control. In particular, labor and related costs account for a
significant portion of our operating costs and we compete with other healthcare providers to attract and retain qualified or skilled
personnel and with various industries for administrative and service employees. This competitive environment could result in
increased labor costs, which we have seen in 2021 as the labor market has tightened and there is increased competition for certain
roles. As a result, increases in our operating costs including personnel-related costs could adversely affect our financial condition and
results of operations.
We depend on the services of our senior executives and other key technical personnel, the loss of whom could negatively affect our
business.
Our success depends upon the skills, experience and efforts of our senior executives and other key technical personnel,
including certain members of our engineering, accounting and compliance staff as well as our sales and marketing personnel. Our
President and Chief Executive Officer, Nabil Shabshab, joined us in February 2021, our Executive Vice President, Chief Commercial
Officer, George Parr, joined us in April 2021, our Executive Vice President, Chief Technology Officer, Stanislav Glezer, joined us in
June 2021, our Executive Vice President, General Counsel, Jason Somer, joined us in July 2021, and our Executive Vice President,
Finance and Chief Financial Officer, Michael Sergesketter, joined us in December 2021 in an interim capacity while a search for a
permanent candidate is underway.
If experienced employees leave, we could experience inefficiencies or a lack of business continuity due to loss of historical
knowledge and a lack of familiarity of the new employees with business processes, operating requirements, policies and procedures. It
is important to our success that these key employees quickly adapt to and excel in their new roles. If they are unable to do so, our
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business and financial results could be materially adversely affected. In addition, much of our corporate expertise is concentrated in
relatively few employees, the loss of which for any reason could negatively affect our business. Competition for our highly skilled
employees is intense and we cannot prevent the resignation of any employee. We have experienced increased turnover at all levels
since the start of the COVID-19 pandemic and general labor shortages in various areas of our business, all of which could have a
material adverse impact on our business. We may need to increase employee wages and benefits in order to attract and retain the
personnel necessary to achieve our goals, and our business, operations, and financial results may suffer if we are unable to do so. We
do not maintain “key man” life insurance on any of our senior executives. None of our senior executive team is bound by written
employment contracts to remain with us for a specified period. In addition, we have not entered into non-compete agreements with
members of our executive management team. The loss of any member of our executive management team could harm our ability to
implement our business strategy and respond to the market conditions in which we operate.
We and our vendors and service providers rely on information technology networks and systems, and if we are unable to protect
against service interruptions, data corruption, cybersecurity risks, data security incidents and/or network security breaches, our
operations could be disrupted and our business could be negatively affected.
We rely on information technology networks and systems to process, transmit and store electronic, customer, operational,
compliance, and financial information; to coordinate our business; and to communicate within our company and with customers,
suppliers, partners and other third parties. These information technology networks and systems may be susceptible to damage,
disruptions or shutdowns, hardware or software failures, power outages, computer viruses, cybersecurity risks, data security incidents,
telecommunication failures, user errors or catastrophic events. Like other companies, we have experienced data security incidents
before.
For example, on April 13, 2018, we announced that messages within an employee email account were accessed by unknown
persons outside of our company without authorization. Some of the messages and attached files in that email account contained
personal information belonging to our rental customers. We immediately took steps to secure customer information and hired a
leading forensics firm to investigate the incident and to bolster our security. The unauthorized access of the potentially impacted email
account appears to have occurred between January 2, 2018 and March 14, 2018. We notified approximately 30,000 current and former
rental customers of this incident as well as the applicable regulatory authorities. We also provided resources, including credit
monitoring and an insurance reimbursement policy, to assist all potentially affected individuals. We have incurred remedial, legal and
other costs in connection with this incident. We have insurance coverage in place for certain potential liabilities and costs relating to
service interruptions, data corruption, cybersecurity risks, data security incidents and/or network security breaches, but this insurance
is limited in amount, subject to a deductible, and may not be adequate to cover us for all costs arising from these incidents.
If our information technology networks and systems suffer unauthorized access, severe damage, disruption or shutdown, and our
business does not effectively identify or resolve the issues in a timely manner, our operations could be disrupted, we could be subject
to regulatory and consumer lawsuits and our business could be negatively affected. In addition, cybersecurity risks and data security
incidents could lead to potential unauthorized access to or acquisition of confidential information (including protected health
information), and data loss and corruption. There is no assurance that we will not experience service interruptions, security breaches,
cybersecurity risks and data security incidents, or other information technology failures in the future.
Due to the COVID-19 pandemic and related PHE, we have an increased number of employees working remotely. As a result,
we may have increased cybersecurity or data security risks, due to increased use of home wi-fi networks and virtual private networks,
as well as increased disbursement of physical machines. While we implement IT controls to reduce the risk of a cybersecurity and data
security breach, there is no guarantee that these measures will be adequate to safeguard all systems with an increased number of
employees working remotely.
The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and
may be difficult to anticipate or to detect for long periods of time. As a result of these types of risks and attacks, we have implemented
and periodically review and update systems, processes, and procedures to protect against unauthorized access to or use of data and to
prevent data loss. For example, we have increased the security of our systems by requiring all email users to change their passwords
following our recent data security incident and sooner than they would have otherwise been required to. We also implemented multi-
factor authentication for remote email access and have taken additional steps to further limit access to our systems. However, the ever-
evolving threats mean we and our third-party service providers and vendors must continually evaluate and adapt our respective
systems and processes and overall security environment. There is no guarantee that these measures will be adequate to safeguard
against all data security breaches, system compromises or misuses of data.
The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’,
employees’ or business partners’ information or failure to comply with regulatory or contractual obligations with respect to such
information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal
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information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business. The
costs to remediate breaches and similar system compromises that do occur could adversely affect our results of operations.
Any new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws,
regulations or other standards may require us to incur additional costs and restrict our business operations. For example, many
jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal
data. These mandatory disclosures regarding a security breach could result in negative publicity to us, which may cause our customers
to lose confidence in the effectiveness of our data security measures which could adversely affect our business, financial condition and
results of operations.
Increasing data privacy regulations could impact our business and expose us to increased liability.
We must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in
the U.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (GDPR), which
became effective on May 25, 2018. The GDPR imposes additional obligations on companies regarding the processing of personal data
and provides certain individual privacy rights to natural persons whose data is stored. Compliance with existing, proposed and recently
enacted laws (including implementation of the privacy and process enhancements called for under the GDPR) and regulations can be
costly and any failure to comply with these regulatory standards could subject us to legal and reputational risks. In addition, we are
required under the GDPR to respond to customers' Subject Access Reports (SARs) within a certain time period, which entails
determining what personal data is being processed, the purpose of any such data processing, to whom such personal data has been
disclosed and whether personal data is being disclosed for the purpose of making automated decisions relating to that customer. We
may dedicate significant resources to responding to our customers' SARs, which could adversely affect our business, financial
condition and results of operations. Misuse of or failure to secure or properly process personal information could also result in
violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our reputation and
credibility and could have a negative impact on revenues and profits. As the regulatory environment related to information security,
data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our
business, compliance with those requirements could continue to result in significant costs.
Following the GDPR, a number of states in the U.S. have introduced bills, which, if passed, would impose operational
requirements on U.S. companies similar to the requirements reflected in the GDPR. In 2018, California passed the California
Consumer Privacy Act (CCPA) and in 2021, Virginia passed the Consumer Data Protection Act (CDPA), which gives consumers
significant rights over the use of their personal information, including the right to object to the “sale” of their personal information.
These rights may restrict our ability to use personal information in connection with our business operations. The CCPA and CDPA
also provides a private right of action for security breaches. Washington and Massachusetts have introduced significant privacy bills
and Congress is debating federal privacy legislation, which if passed, may restrict our business operations and require us to incur
additional costs for compliance.
Any new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws,
regulations or other standards may require us to incur additional costs and restrict our business operations.
Our financial condition and results of operations may vary significantly from quarter-to-quarter due to a number of factors, which
may lead to volatility in our stock price.
Our quarterly revenue and results of operations have varied in the past and may continue to vary significantly from quarter-to-
quarter. This variability may lead to volatility in our stock price as research analysts and investors respond to these quarterly
fluctuations. These fluctuations are due to numerous factors, including: fluctuations in consumer demand for our products; seasonal
cycles in consumer spending; HME providers’ ability to adopt and finance POC purchases and restructure their businesses to remove
delivery expenses; our ability to design, manufacture and deliver products to our consumers in a timely and cost-effective manner;
quality control problems in our manufacturing operations; our ability to timely obtain adequate quantities of the components used in
our products; new product introductions and enhancements by us and our competitors; unanticipated increases in costs or expenses;
declines in sales personnel productivity; increased marketing cost per generated lead; unanticipated regulatory reimbursement changes
that could result in positive or negative impacts to our earnings; changes or updates to generally accepted accounting principles;
additional legal costs associated with pending legal matters; and fluctuations in foreign currency exchange rates.
In particular, due to the COVID-19 pandemic and related PHE, we have seen and expect to continue to see a disruption in our
normal seasonal trends, as, due to the mandates and behaviors emanating from the COVID-19 pandemic and related PHE, including
shelter-in-place orders, reduced travel, and lower consumer confidence, we did not see the typical seasonal increases in direct-to-
consumer sales in 2020 that we have seen in prior years. As more HME providers adopt POCs in their businesses, we expect that this
could change our historical seasonality in the domestic business-to-business channel as well, which was previously influenced mainly
by consumer buying patterns. The foregoing factors are difficult to forecast, and these, as well as other factors, could materially and
adversely affect our quarterly and annual results of operations. We have experienced significant revenue growth in the past, but we
may not achieve similar growth rates, profit margins and/or net income (loss) in future periods.
You should not rely on our operating results for any prior quarterly or annual period as an indication of our future operating
performance. If we are unable to maintain adequate revenue growth and cost control, our operating results could suffer, and our stock
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price could decline, primarily because a significant amount of our expenses are fixed and would take additional time to reduce. Any
failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of such revenue
shortfall on our results of operations. Our results of operations may not meet the expectations of research analysts or investors, in
which case the price of our common stock could decrease significantly.
If the market opportunities for our products are smaller than we believe they are, our revenues may be adversely affected and our
business may suffer.
Our projections regarding (i) the size of the oxygen therapy market, both in the United States and internationally, (ii) the size
and percentage of the long-term oxygen therapy market that is subject to competitive bidding in the United States, (iii) the number of
oxygen therapy patients, (iv) the number of patients requiring ambulatory and stationary oxygen, (v) the number of patients who rely
on the delivery model, (vi) the percentage of the long-term oxygen therapy market serviced by Medicare, Medicare Advantage, and
other third party-payors, (vii) the size of the retail long-term oxygen therapy market and how the opportunity may change as POC
penetration increases, (viii) the share of POCs as a percentage of the total oxygen therapy spend, and (ix) the impact of the COVID-19
pandemic and related PHE on our business and our markets generally are based on estimates that we believe are reliable. These
estimates may prove to be incorrect, new data or studies may change the estimated incidence or prevalence of patients requiring long-
term oxygen therapy, or the type of long-term oxygen therapy patients. The COVID-19 pandemic and related PHE may also reduce
the number of oxygen therapy patients worldwide due to the higher risk of mortality of elderly patients with existing respiratory
diseases if they are exposed to the virus. The number of patients in the United States and internationally may turn out to be lower than
expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult
to identify or gain access to, all of which would adversely affect our results of operations and our business.
An adverse outcome of a sales and use tax audit or change in U.S. tax laws could have a material adverse effect on our results of
operations and financial condition.
We operate in multiple taxing jurisdictions and certain revenue streams may be subject to sales and use tax. Any changes,
ambiguity, or uncertainty in taxing jurisdictions’ administrative interpretations, decisions, policies and positions, including the
position of taxing authorities with respect to taxability of our revenue also materially impact our sales and use tax liabilities. The
California State Board of Equalization conducted a sales and use tax audit of our operations in California in 2008. As a result of the
audit, the California State Board of Equalization confirmed that our sales are not subject to California sales and use tax. We believe
that our sales of concentrators and accessories may be subject to sales and use tax in certain other states, but that there are exemptions
from sales and use tax in most states. There can be no assurance, however, that other states may agree with our position and we may
be subject to an audit that may not be resolved in our favor. Such an audit could be expensive and time-consuming and result in
substantial management distraction. If the matter were to be resolved in a manner adverse to us, it could have a material adverse effect
on our results of operations and financial condition.
Changes in accounting principles, or interpretations thereof, could have a significant effect on our financial condition and results
of operations.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP). These principles are subject to interpretation by the Securities and Exchange Commission (SEC) and
various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant
effect on our reported results and may even retroactively affect previously reported transactions. Additionally, the adoption of new or
revised accounting principles may require that we make significant changes to our systems, processes and controls.
For example, the U.S.-based Financial Accounting Standards Board (FASB) is currently working together with the International
Accounting Standards Board (IASB) on several projects to further align accounting principles and facilitate more comparable financial
reporting between companies who are required to follow U.S. GAAP under SEC regulations and those who are required to follow
International Financial Reporting Standards outside of the United States. These efforts by the FASB and IASB may result in different
accounting principles under U.S. GAAP that may result in materially different financial results for us in areas including, but not
limited to, principles for recognizing revenue and lease accounting. Additionally, significant changes to U.S. GAAP resulting from the
FASB’s and IASB’s efforts may require that we change how we process, analyze and report financial information and that we change
financial reporting controls.
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It is not clear if or when these potential changes in accounting principles may become effective, whether we have the proper
systems and controls in place to accommodate such changes and the impact that any such changes may have on our financial condition
and results of operations.
Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income.
We recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than
not of being realized; otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred
tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future
taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the
extent that future cash flows and taxable income differ significantly from estimates, our ability to realize the deferred tax assets could
be impacted. In the future, our estimates could change requiring a valuation allowance or impairment of our deferred tax assets.
Additionally, future changes in tax laws could limit our ability to obtain the future tax benefits represented by our deferred tax assets.
See Note 6 – Income taxes in the notes of our consolidated financial statements in this Annual Report on Form 10-K for additional
information and factors that could impact the Company’s ability to realize the deferred tax assets.
The adoption and interpretation of new tax legislation, tax rulings, or exposure to additional tax liabilities, could materially affect
our financial condition, results of operations, and cash flows.
We are subject to income and other taxes in the U.S. and other foreign jurisdictions in which we do business. As a result, our
provision for income taxes is derived from a combination of applicable tax rates in the various places we operate. Significant
judgment is required for calculating our income tax provision.
Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any
jurisdiction subject to significant change. Changes in tax law or tax rulings, or changes in interpretations of existing law, could
adversely affect our financial condition and results of operations. For example, changes to the U.S. tax laws enacted in December
2017 had a significant impact on our deferred tax assets, income tax provision and effective tax rate for the year ended December 31,
2017. The new Administration and Congress could make changes to existing tax law, including an increase in the corporate tax rate or
the tax rate on foreign earnings. In addition, many countries in Europe, as well as a number of other countries and organizations, have
recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax
obligations in many countries where we do business or require us to change the manner in which we operate our business. Changes to
existing tax law in the U.S. or other foreign jurisdictions could adversely affect our financial condition and results of operations.
The Medicare Fee-For-Service (FFS) sequestration reduction has and may continue to negatively affect our revenue and profits.
Medicare FFS claims with dates of service on or after April 1, 2013 are subject to a 2% sequestration reduction in Medicare
payments, including claims for DMEPOS, including in competitive bidding areas. The claims payment adjustment is applied to all
claims after determining co-insurance, any applicable deductible, and any applicable Medicare secondary payment adjustments. These
reductions are included in rental revenue adjustments. This sequestration reduction was scheduled to continue until further notice.
However, a provision in the CARES Act temporarily paused the 2% Medicare sequestration reduction for claims dated from 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. The Consolidated Appropriations Act of 2021 was signed into law on December
27, 2020 and extended the suspension period to March 31, 2021. U.S. House of Representatives bill H.R. 1868 was signed into law on
April 14, 2021 and extended the suspension period to December 31, 2021, but increased the fiscal year 2030 sequestration cuts. In
December 2021 through the Protecting Medicare and American Farmers from Sequester Cuts Act, the 2% Medicare sequestration
benefit that was set to expire December 31, 2021 has been extended until March 31, 2022. The sequestration then resumes with a 1%
reduction to rates from April 1, 2022 until June 30, 2022, with the full 2% Medicare sequestration resuming starting July 1, 2022.
Once the sequestration reduction is reinstated, this could adversely affect our financial condition and results of operations.
The implementation of prior authorization rules for DMEPOS under Medicare could negatively affect our business and financial
condition.
CMS has issued a final rule to require Medicare prior authorization (PA) for certain DMEPOS that the agency characterizes as
“frequently subject to unnecessary utilization” and that have an average purchase fee of $1,000 or greater, or an average rental fee
schedule of $100 or greater. The final rule was published on December 30, 2015 and specified an initial master list of 135 items that
could potentially be subject to PA. Initially stationary oxygen (code E1390) was included on the master list, but was later removed. On
April 22, 2019, stationary oxygen (E1390) was again added to the list of potential codes that could be subject to PA. On November 8,
2019, CMS revised the criteria for inclusion on the master list and added 212 DMEPOS items, including portable oxygen
concentrators (E1392), to the master list. The master list is updated annually and published in the Federal Register. The presence of an
item on the master list does not automatically mean that a PA is required. CMS selects a subset of these master list items for its
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“Required Prior Authorization List.” There will be a notice period of at least 60 days prior to implementation. The ruling does not
create any new clinical documentation requirements, instead the same information necessary to support Medicare payment will be
required prior to the item being furnished to the beneficiary. CMS has proposed that reasonable efforts are made to provide a PA
decision within 10 days of receipt of all applicable information, unless this timeline could seriously jeopardize the life or health of the
beneficiary or the beneficiary’s ability to regain maximum function, in which case the proposed PA decision would be 2 business
days. CMS will issue additional sub-regulatory guidance on these timelines in the future. If our products are subject to prior
authorization, it could reduce the number of patients qualified to come on service using their Medicare benefits, it could delay the start
of those patients while we wait for the prior authorization to be received, and/or it could decrease sales productivity. As a result, this
could adversely affect our business, financial conditions and results of operations.
Risks related to the regulatory environment
We are subject to extensive federal and state regulation, and if we fail to comply with applicable regulations, we could suffer severe
criminal or civil sanctions and be required to make significant changes to our operations that could adversely affect our business,
financial condition and results of operations.
The federal government and all states in which we currently operate regulate various aspects of our business. In particular, our
operations are subject to state laws governing, among other things, distribution of medical equipment and certain types of home health
activities, and we are required to obtain and maintain licenses in many states to act as a durable medical equipment supplier. Certain of
our employees are subject to state laws and regulations governing the professional practice of respiratory therapy.
As a healthcare provider participating in governmental healthcare programs, we are subject to laws directed at preventing fraud
and abuse, which subject our marketing, billing, documentation and other practices to strict government scrutiny. To ensure
compliance with Medicare, Medicaid and other regulations, government agencies or their contractors often conduct routine audits and
request customer records and other documents to support our claims submitted for payment of services rendered. Government
agencies or their contractors also periodically open investigations and audits and obtain information from healthcare providers.
Violations of federal and state laws or regulations can result in severe criminal, civil and administrative fines, penalties and sanctions,
including debarment, suspension or exclusion from Medicare, Medicaid and other government reimbursement programs, any of which
would have a material adverse effect on our business.
Changes in healthcare laws and regulations and new interpretations of existing laws and regulations may affect permissible
activities, the relative costs associated with doing business, and reimbursement amounts paid by federal, state and other third-party
payors. There have been and will continue to be regulatory initiatives affecting our business and we cannot predict the extent to which
future legislation and regulatory changes could have a material adverse effect on our business.
We are subject to significant regulation by numerous government agencies, including the U.S. Food and Drug Administration, or
FDA. We cannot market or commercially distribute our products without obtaining and maintaining necessary regulatory
clearances or approvals and such approvals may be revoked or revised if an agency like the FDA believes it necessary.
Our products are medical devices subject to extensive regulation in the United States and in the foreign markets where we
distribute our products. The FDA and other U.S. and foreign governmental agencies regulate, among other things, with respect to
medical devices:
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design, development and manufacturing;
testing, labeling, content and language of instructions for use and storage;
clinical trials;
product safety;
marketing, sales and distribution;
pre-market clearance and approval;
record keeping;
advertising and promotion;
recalls and field safety corrective actions;
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post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur,
could lead to death or serious injury;
post-market approval studies; and
product import and export.
Before we can market or sell a medical device in the United States, we must obtain either 510(k) clearance, clearance under the
de novo process or approval of a pre-market approval application from the FDA, unless an exemption applies. In the 510(k) clearance
process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the market, known as a
“predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for
marketing.
Our commercial products have received 510(k) clearance by the FDA. If the FDA requires us to go through a lengthier, more
rigorous examination for future products or modifications to existing products than we had expected, our product introductions or
modifications could be delayed or canceled, which, depending on the specific action, could cause the majority of our sales to decline
or cease altogether. In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain pre-
market approval process. Although we do not currently market any devices subject to pre-market approval, the FDA may demand that
we obtain a pre-market approval prior to marketing certain future products. In addition, if the FDA disagrees with our determination
that a product we currently market is subject to an exemption from pre-market review, the FDA may require us to submit a 510(k), de
novo application or pre-market approval application in order to continue marketing the product. Further, even with respect to those
future products where a pre-market approval is not required, we cannot assure you that we will be able to obtain the 510(k) clearances
with respect to those products or do so in a timely fashion.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:
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we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended
uses;
the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where
required; and
the manufacturing process or facilities we use may not meet applicable Quality System Regulations.
Medical devices may only be promoted and sold for the indications for which they are approved or cleared. In addition, even if
the FDA has approved or cleared a product, it can take action affecting such product approvals or clearances if serious safety or other
problems develop in the marketplace. Delays in obtaining clearances or approvals could adversely affect our ability to introduce new
products or modifications to our existing products in a timely manner, which would delay or prevent commercial sales of our products.
Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other
increased scrutiny on us, could affect the perceived safety and performance of our products and dissuade our customers from using our
products.
If we modify our FDA cleared devices, we may need to seek additional clearances or approvals, which, if not granted, would
prevent us from selling such modified products.
Any modification we make to our products that could significantly affect their safety or effectiveness, or would constitute a
material change in intended use, manufacture, design, materials, labeling, or technology requires the submission and clearance of a
new 510(k) pre-market notification, a de novo application or, possibly, pre-market approval. The FDA requires every manufacturer to
make this determination in the first instance, but the FDA may review and disagree with any manufacturer’s decision. The FDA may
not agree with our decisions regarding whether new clearances or approvals are necessary. We have modified some of our 510(k)
cleared products and have determined that in certain instances new 510(k) clearances or pre-market approval are not required. We plan
to make similar determinations regarding modifications to our 510(k) products, which may include the redesign of the G5 System
motherboard pending validation testing. If the FDA disagrees with our determinations and requires us to submit new 510(k)
notifications or pre-market approval for modifications to our previously cleared products for which we have concluded that new
clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain
clearance or approval, and we may be subject to significant regulatory penalties or fines.
The FDA issued a new Final Guidance titled Enforcement Policy for Ventilators and Accessories and Other Respiratory Devices
During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency (PHE) in March 2020. The intent of the guidance is to
help address the urgent COVID-19 PHE. It may expand the availability of devices that support patients with respiratory insufficiency
due to COVID-19. The guidance allows certain modifications to applicable FDA-cleared respiratory devices without requiring
compliance with the pre-market requirements such as submitting a new 510(k). Manufacturers must ensure the device is safe and
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effective prior to placing the modified device on the market. This guidance and any future guidance or enforcement policy be the FDA
may introduce new competitive products that could compete with our products with an easier regulatory pathway which could harm
our business, financial condition and results of operations. If Inogen uses this guidance to commercialize devices that do not have the
FDA clearance, these products will have to go through FDA 510(k) clearance in the future, and may not be granted such clearance,
which would mean we would have to withdraw these products from the market when the FDA terminates or revokes such guidance or
enforcement policy, which could harm our business, financial condition and results of operations.
If we fail to comply with FDA or state regulatory requirements, we can be subject to enforcement action.
Even after we have obtained regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA
regulations. The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory
requirements could result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:
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adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties;
recalls, termination of distribution, or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
delays in the introduction of products into the market;
refusal to grant our requests for future 510(k) clearances or approvals of new products, new intended uses, or
modifications to exiting products;
withdrawals or suspensions of current 510(k) clearances or approvals, resulting in prohibitions on sales of our products; and
criminal prosecution.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse
effect on our reputation, business, results of operations and financial condition.
A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of
serious safety issues with our products that leads to corrective actions, could have a significant adverse effect on us.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the
event of material deficiencies or defects in design, labeling or manufacture of a product or in the event that a product poses an
unacceptable risk to health. Manufacturers may also, under their own initiative, recall a product if any material deficiency in a device
is found or withdraw a product to improve device performance or for other reasons. Similar regulatory agencies in other countries
have similar authority to recall devices because of material deficiencies or defects in design or manufacture that could endanger
health. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable risk to
health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Any recall would divert
management attention and financial resources, could cause the price of our stock to decline and expose us to product liability or other
claims and harm our reputation with customers. A recall involving our Inogen concentrators could be particularly harmful to our
business, financial condition and results of operations.
We are required to timely report to the FDA any incident in which our product may have caused or contributed to a death or
serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or
serious injury. Repeated product malfunctions may result in a voluntary or involuntary product recall. Depending on the corrective
action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new
approvals or clearances for the device before we may market or distribute the corrected device. Seeking such approvals or clearances
may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems
associated with our devices, we may face additional regulatory enforcement action, including adverse publicity, FDA warning letters,
product seizure, injunctions, administrative penalties, or civil or criminal fines. We may also be required to bear other costs or take
other actions that may have a negative impact on our sales as well as face significant adverse publicity or regulatory consequences,
which could harm our business, including our ability to market our products in the future.
Any adverse event involving our products, whether in the United States or abroad, could result in future voluntary corrective
actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or other enforcement action.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our
time and capital, distract management from operating our business and may harm our reputation and results of operations.
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If we, our contract manufacturer, or our component manufacturers fail to comply with the FDA’s Quality System Regulation, our
manufacturing operations could be interrupted, and our product sales and operating results could suffer.
We, our contract manufacturer, and our component manufacturers are required to comply with the FDA’s Quality System
Regulation, or QSR, which covers the procedures and documentation of the design, calibration, testing, production, control, quality
assurance, labeling, packaging, storage and shipping of our devices. The FDA audits compliance with the QSR through periodic
announced and unannounced inspections of manufacturing and other facilities. We and our component manufacturers have been, and
anticipate in the future being, subject to such inspections. Although we believe our manufacturing facilities and those of our
component manufacturers are in compliance with the QSR, we cannot provide assurance that any future inspection will not result in
adverse findings. If we fail to implement timely and appropriate corrective actions that are acceptable to the FDA or if our other
manufacturing facilities or those of any of our component manufacturers, contract manufacturers, or suppliers are found to be in
violation of applicable laws and regulations, or we or our manufacturers or suppliers fail to take prompt and satisfactory corrective
action in response to an adverse inspection, the FDA could take enforcement action, including any of the following sanctions:
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adverse publicity, untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying our requests for 510(k) clearance or pre-market approval of new products or modified products;
withdrawing 510(k) clearances or pre-market approvals that have already been granted;
refusal to grant export approval for our products; or
criminal prosecution.
Any of these sanctions could adversely affect our business, financial condition and results of operations.
Outside the United States, our products and operations are also often required to comply with standards set by industrial
standards bodies, such as the International Organization for Standardization, or ISO. Foreign regulatory bodies may evaluate our
products or the testing that our products undergo against these standards. The specific standards, types of evaluation and scope of
review differ among foreign regulatory bodies. If we fail to adequately comply with any of these standards, a foreign regulatory body
may take adverse actions similar to those within the power of the FDA. Any such action may harm our reputation and could have an
adverse effect on our business, results of operations and financial condition.
The primary regulatory body in Europe is the European Commission, which includes most of the major countries in Europe. The
European Commission has adopted numerous directives and standards regulating the design, manufacture, clinical trial, labeling and
adverse event reporting for medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear
the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives and,
accordingly, can be commercially distributed throughout Europe. The method of assessing conformity varies depending on the class of
the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a “Notified
Body.” An assessment by a Notified Body of one country within the European Union is required in order for a manufacturer to
commercially distribute the product throughout the European Union.
If we fail to obtain and maintain regulatory approval in foreign jurisdictions, our market opportunities will be limited.
Approximately 22.2%, 20.1% and 21.5% of our total revenue was from sales outside of the United States for the years ended
December 31, 2021, 2020, and 2019, respectively. We have sold our products in a total of 59 international countries or overseas
regions outside of the United States through our wholly owned subsidiary, distributors or directly to large “house” accounts. In order
to market our products in the European Union or other foreign jurisdictions, we must obtain and maintain separate regulatory
approvals and comply with numerous and varying regulatory requirements. The approval procedure varies from country to country
and can involve additional product testing. The time required to obtain approval abroad may be longer than the time required to obtain
FDA clearance.
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For example, the European Union requires that manufacturers of medical devices obtain the right to bear the “CE” conformity
marking which designates compliance with existing directives and standards regulating the design, manufacture and distribution of
medical devices in member countries of the European Union. In 2017, the European Union adopted the European Medical Device
Regulation (Council Regulations 2017/745) which imposes stricter requirements for the marketing and sale of medical devices,
including new clinical evaluation, quality system, and post-market surveillance requirements. The regulation had a three-year
implementation period, with full application of the regulation occurring in May 2021 and replacing the pre-existing directives on
medical devices in the European Union. Since May 2021, medical devices marketed in the European Union will require certification
according to these new requirements, except that devices with valid CE certificates, issued pursuant to the Medical Device Directive
before May 2021, including our oxygen therapy products with CE Marks issued under the Medical Device Directive, may be placed
on the market until May 2024. Only medical devices that comply with certain conformity requirements of the Medical Device
Directive are currently allowed to be marketed within the European Union and our products will be required to comply with the
European Medical Device Regulation (MDR). New products that failed to be certified with the MDR by May 2021 may not be
marketed or sold in the European Union. Similarly, existing products with CE Marks issued under the Medical Device Directive
(MDD) may not be placed on the market in the European Union after May 2024. The extension of the existing certificates under the
MDD or obtaining a new certificate under the MDR is required for continued marketing in the European Union after May 18, 2022.
We are preparing the filing of the MDR submissions in the earlier part of 2022.
The foreign regulatory approval process, including with respect to MDR, includes many of the risks associated with obtaining
FDA clearance and we may not obtain foreign regulatory approvals on a timely basis, if at all. FDA clearance does not ensure
approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by
regulatory authorities in other foreign countries. However, the failure to obtain clearance or approval in one jurisdiction may have a
negative impact on our ability to obtain clearance or approval elsewhere. If we do not obtain or maintain necessary approvals to
commercialize our products in markets outside the United States, we may be required to discontinue sales in those countries which
would negatively affect our overall market penetration, revenues, results of operations and financial condition.
If the FDA disagrees with us that certain of our data collection and analysis methods do not constitute clinical trials, our business
may be harmed.
We gather and analyze certain de-identified retrospective patient data as part of our product development and improvement. We
believe that these data collection methods do not constitute clinical trials and, therefore, typically do not pursue or obtain regulatory
permission from the FDA or institutional review boards (IRBs) before collecting or analyzing such data. If the FDA disagrees with our
interpretation, we may be subject to regulatory enforcement including warning letters, fines, injunctions, consent decrees and civil
penalties. In addition, we may be required to collect these types of data under the clinical trial regulatory framework.
Clinical development is a long, expensive, and uncertain process and is subject to delays and the risk that products may
ultimately prove unsafe or ineffective in treating the indications for which they are designed. Completion of clinical trials may take
several years or more. We may experience numerous unforeseen events in relation to a clinical trial process that could delay or prevent
us from receiving regulatory clearance or approval for new products or modifications of existing products, including new indications
for existing products, including:
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delays or failure in obtaining approval of our clinical trial protocols from the FDA, other regulatory authorities, or IRBs;
we, the applicable IRBs, the Data Safety Monitoring Board for such trial, or the FDA or other applicable regulatory
authorities may require that we or our investigators suspend or terminate our data collection for various reasons,
including, among others (i) failure to conduct the clinical trial in accordance with regulatory requirements, including the
FDA’s current Good Clinical Practice (GCP), regulations, or our clinical protocols, (ii) by the FDA or other applicable
regulatory authority resulting in the imposition of a clinical hold, or (iii) lack of adequate patient informed consent; and
delays if the FDA concludes that our financial relationships with our data collection partners result in a perceived or actual
conflict of interest that may have affected the interpretation or integrity of the data collected. If these relationships and any
related compensation to or ownership interest by our data collection partners carrying out the study result in perceived or
actual conflicts of interest, or if the FDA concludes that the financial relationship may have affected interpretation of the
data, the integrity of the data collected or analyzed may be questioned and the utility of the data itself may be jeopardized,
which could result in the delay or rejection by the FDA. Any such delay or rejection could prevent us from
commercializing any of our products currently in development.
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Any delays in completing our data collection and analysis will increase our costs, slow down our product development and
regulatory authorization process and jeopardize our ability to commence sales and generate associated revenue with respect to the
applicable product. Any of these occurrences may significantly harm our business, financial condition, results of operations and
prospects.
We are subject to complex billing and record-keeping requirements in order to substantiate our claims for payment under federal,
state and commercial healthcare reimbursement programs, and our failure to comply with existing requirements, or changes in
those requirements or interpretations thereof, could adversely affect our business, financial condition and results of operations.
We are subject to complex billing and record-keeping requirements in order to substantiate our claims for payment under
federal, state and commercial healthcare reimbursement programs. Our records also are subject to routine and other reviews by third-
party payors, which can result in delays in payments or refunds of paid claims. We could experience a significant increase in pre-
payment reviews of our claims by the Durable Medical Equipment Medicare Administrative Contractors, which could cause
substantial delays in the collection of our Medicare accounts receivable as well as related amounts due under supplemental insurance
plans.
Current law provides for a significant expansion of the government’s auditing and oversight of suppliers who care for patients
covered by various government healthcare programs. Examples of this expansion include audit programs being implemented by the
Durable Medical Equipment Medicare Administrative Contractors, the Unified Program Integrity Contractors, the Recovery Audit
Contractors, and the Comprehensive Error Rate Testing contractors, operating under the direction of CMS, and the various state
Medicaid Fraud Control Units.
We have been informed by these auditors that healthcare providers and suppliers of certain durable medical equipment product
categories are expected to experience further increased scrutiny from these audit programs. When a government auditor ascribes a
high billing error rate to one or more of our locations, it generally results in protracted pre-payment claims review, payment delays,
refunds and other payments to the government and/or our need to request more documentation from providers than has historically
been required. It may also result in additional audit activity in other company locations or Durable Medical Equipment Medicare
Administrative Contractors jurisdiction. We cannot currently predict the adverse impact that these audits, methodologies and
interpretations might have on our business, financial condition or results of operations, but such impact could be material.
We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved
or “off-label” uses, resulting in damage to our reputation and business.
Our promotional materials and training methods must comply with the FDA and other applicable laws and regulations,
including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by the FDA. Physicians
may use our products off-label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of
medicine. If the FDA determines that our promotional materials or training constitutes promotion of an off-label use that is either false
or misleading, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions,
which could have an adverse effect on our reputation and results of operations.
Failure to comply with the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Health
Information Technology for Economic and Clinical Health Act, or HITECH Act, and implementing regulations could result in
significant penalties.
Numerous federal and state laws and regulations, including HIPAA and the HITECH Act, govern the collection, dissemination,
security, use and confidentiality of patient-identifiable health information. HIPAA and the HITECH Act require us to comply with
standards for the use and disclosure of protected health information within our company and with third parties. The Privacy Standards
and Security Standards under HIPAA establish a set of basic national privacy and security standards for the protection of individually
identifiable health information by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered
entities, and the business associates with whom such covered entities contract for services. Notably, whereas HIPAA previously
directly regulated only these covered entities, the HITECH Act, which was signed into law as part of the stimulus package in February
2009, makes certain of HIPAA’s privacy and security standards also directly applicable to covered entities’ business associates. As a
result, both covered entities and business associates are now subject to significant civil and criminal penalties for failure to comply
with Privacy Standards and Security Standards.
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HIPAA requires healthcare providers like us to develop and maintain policies and procedures with respect to protected health
information that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such
information from unauthorized disclosure. The HITECH Act expands the notification requirement for breaches of patient-identifiable
health information, restricts certain disclosures and sales of patient-identifiable health information and provides a tiered system for
civil monetary penalties for HIPAA violations. The HITECH Act also increased the civil and criminal penalties that may be imposed
against covered entities, business associates and possibly other persons and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney fees and costs associated
with pursuing federal civil actions. Additionally, certain states have adopted comparable privacy and security laws and regulations,
some of which may be more stringent than HIPAA.
If we are determined to be out of compliance with existing or new laws and regulations related to patient health information, we
could be subject to criminal or civil sanctions. New health information standards, whether implemented pursuant to HIPAA, the
HITECH Act, congressional action or otherwise, could have a significant effect on the manner in which we handle healthcare related
data and communicate with payors, and the cost of complying with these standards could be significant.
The 2013 final HITECH omnibus rule modified the breach reporting standard in a manner that made more data security
incidents qualify as reportable breaches. Any liability from a failure to comply with the requirements of HIPAA or the HITECH Act
could adversely affect our results of operations and financial condition. The costs of complying with privacy and security related legal
and regulatory requirements are burdensome and could have a material adverse effect on our results of operations.
Regulations requiring the use of “standard transactions” for healthcare services issued under HIPAA may negatively affect our
profitability and cash flows.
Pursuant to HIPAA, final regulations have been implemented to improve the efficiency and effectiveness of the healthcare
system by facilitating the electronic exchange of information in certain financial and administrative transactions while protecting the
privacy and security of the information exchanged.
The HIPAA transaction standards are complex, and subject to differences in interpretation by third-party payors. For instance,
some third-party payors may interpret the standards to require us to provide certain types of information, including demographic
information not usually provided to us by physicians. As a result of inconsistent application of transaction standards by third-party
payors or our inability to obtain certain billing information not usually provided to us by physicians, we could face increased costs and
complexity, a temporary disruption in accounts receivable and ongoing reductions in reimbursements and net revenue. Changes and
updates to HIPAA transaction standards could prove technically difficult, time-consuming or expensive to implement, all of which
could harm our business.
If we fail to comply with state and federal fraud and abuse laws, including anti-kickback, Physician Self-Referral Law, false claims
and anti-inducement laws, we could face substantial penalties and our business, results of operations and financial condition
could be adversely affected.
The Federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or
receiving remuneration to induce the referral of an individual to a person for the furnishing of, or in return for purchasing, leasing,
ordering, or arranging for or recommending the purchase, lease or order of any healthcare item or service reimbursable under
Medicare, Medicaid, or other federal healthcare programs. Although there are a number of statutory exceptions and regulatory safe
harbors protecting certain common financial arrangements from prosecution, the exceptions and safe harbors are drawn narrowly, and
any remuneration to or from a prescriber or purchaser of healthcare products or services may be subject to scrutiny if it does not
qualify for an exception or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-
kickback liability. Failure to meet all requirements of a safe harbor is not determinative of a kickback issue but could subject the
practice to increased scrutiny by the government.
The Physician Self-Referral Law, commonly known as the “Stark Law,” prohibits a physician from referring a patient to an
entity with which the physician (or an immediate family member of the physician) has a financial relationship, for the furnishing of
certain designated health services (DHS) for which payment may be made by Medicare or Medicaid, unless an exception applies.
Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a non-compliant
arrangement, civil penalties, and exclusion from Medicare, Medicaid or other federal healthcare programs. Although we believe that
we have structured our provider arrangements to comply with current Stark Law requirements, regulatory authorities may determine
otherwise.
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The Federal False Claims Act prohibits any person from knowingly presenting or causing to be presented a false claim for
payment to the federal government, or knowingly making or causing to be made a false statement to get a false claim paid. The
Federal False Claims Act allows any person to bring suit in the name of the government alleging false and fraudulent claims presented
to or paid by the government (or other violations of the statute) and to share in any amounts paid by the entity to the government in
fines or settlement. Such suits, known as qui tam actions, have increased significantly in the healthcare industry in recent years.
Sanctions under this federal law may include civil monetary penalties, exclusion from federal and state healthcare programs, criminal
fines and imprisonment. In addition, the Patient Protection and Affordable Care Act, among other things, amends the intent
requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it. In addition, the Patient Protection and Affordable Care Act provides that the
government may assert that a claim that items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the false claims statutes. Because of the breadth of these laws and the narrowness of the safe
harbors and exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
Such a challenge, regardless of the outcome, could have a material adverse effect on our business, business relationships, reputation,
financial condition and results of operations. The majority of states also have statutes or regulations similar to the federal anti-
kickback, physician self-referral, and false claims laws, which apply to items or services, reimbursed under Medicaid and other state
programs, or in several states, apply regardless of payor. Penalties under these state laws can be comparable to those under their
federal equivalents.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, also created
the federal Physician Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologicals, and medical
supplies covered under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS, information
related to payments or other transfers of value made to physicians, as defined, and teaching hospitals, as well as ownership and
investment interests in such manufacturer held by physicians and their immediate family members. Additionally, the Substance Use-
Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act enacted in 2018, extends the
reporting and transparency requirements for physicians under the Physician Payments Sunshine Act to physician assistants, nurse
practitioners and other mid-level practitioners, with reporting requirements going into effect in 2022 for payments made in 2021.
Failure to submit the required information under the federal Physician Payment Sunshine Act may result in civil monetary penalties of
up to an aggregate of $0.18 million per year (and up to an aggregate of $1.177 million per year for “knowing failures”), subject to an
annual adjustment for inflation.
In addition, there has been a recent trend of increased federal and state regulation of payments and other transfers of value made
to applicable recipients, including physicians. Certain states mandate implementation of compliance programs and/or the tracking and
annual reporting of gifts, compensation and other remuneration to physicians and other applicable recipients. The shifting compliance
environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting
requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements.
The Federal Civil Monetary Penalties Law grants authority to the HHS Office of Inspector General (OIG) to seek civil monetary
penalties (CMPs) against an individual or entity based on a wide variety of conduct including violations of the Anti-Kickback Statute,
Stark Law, and False Claims Act. An entity that offers to or transfers remuneration to any individual eligible for benefits under
Medicare or Medicaid that such entity knows or should know is likely to influence such individual to order or receive from a particular
provider, practitioner, or supplier any Medicare or Medicaid payable item or service may be liable for CMPs. This is commonly
known as a beneficiary inducement. We sometimes offer customers various discounts and other financial incentives in connection
with the sales of our products. While it is our intent to comply with all applicable laws, including the safe harbor regulation for
discounts, the federal government may find that our marketing activities violate the law. If we are found to be in non-compliance, we
could be subject to CMPs of up to $0.022 million (subject to annual adjustment for inflation) for each wrongful act, assessment of
three times the amount claimed for each item or service and exclusion from the federal or state healthcare programs.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of
healthcare reform, especially in light of the lack of applicable precedent and regulations. If our operations are found to be in violation
of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including
civil and criminal penalties, damages, fines and the curtailment or restriction of our operations or exclusion from participation in the
federal healthcare programs. Any penalties, damages, fines, curtailment or restructuring or our operations could harm our ability to
operate our business and our results of operations. Any action against us for violation of these laws, even if we successfully defend
against it, could cause us to incur significant legal expenses and divert our management’s attention from operation of our business.
Moreover, achieving and sustaining compliance with applicable federal and state fraud laws may prove costly. HHS makes annual
inflation-related increases to the civil monetary penalties in its regulations pursuant to the Federal Civil Penalties Inflation Adjustment
Act Improvements Act of 2015. The HHS Annual Civil Monetary Penalties Inflation Adjustment Final Rule issued on November 15,
2021 sets forth adjusted civil monetary penalty amounts that apply to penalties assessed on or after November 15, 2021, if the
violation occurred on or after November 2, 2015.
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We are also exposed to the risks of fraud, misconduct, or other illegal activity by our employees and third parties who act for us
or on our behalf, such as our independent contractors, consultants, commercial partners, and vendors. It is not always possible to
identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not
be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions
or lawsuits stemming from a failure to be in compliance with federal and state healthcare fraud and abuse laws. If any such actions are
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business, including the imposition of significant fines or other sanctions.
Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.
We have sold our products in a total of 59 international countries or overseas regions outside the United States through our
wholly owned subsidiary, distributors or directly to large “house” accounts. In some foreign countries, particularly in the European
Union, the pricing of medical devices is subject to governmental control. In these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing
approval in some countries, we may be required to supply data that compares the cost-effectiveness of our products versus other
available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory
levels, it may not be profitable to sell our products in certain foreign countries, which would negatively affect the long-term growth of
our business.
Our business activities involve the use of hazardous materials, which require compliance with environmental and occupational
safety laws regulating the use of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other
adverse consequences.
Our research and development programs as well as our manufacturing operations involve the controlled use of hazardous
materials. Accordingly, we are subject to international, federal, state and local laws governing the use, handling and disposal of these
materials. Although we believe that our safety procedures for handling and disposing of these materials comply in all material respects
with the standards prescribed by state and federal regulations of each country in which we conduct business, we cannot completely
eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or failure to comply with
environmental laws, we could be held liable for resulting damages, and any such liability could exceed our insurance coverage and
adversely affect our financial condition and results of operations.
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Regulatory requirements under Proposition 65 could adversely affect our business.
We are subject to California’s Proposition 65, or Prop 65, which requires a specific warning on any product that contains a
substance listed by the State of California as having been found to cause cancer or birth defects, unless the level of such substance in
the product is below a safe harbor level. Prop 65 required that all businesses must be in compliance by August 30, 2018 with new
regulations that require modifications to product warnings and for businesses to coordinate with upstream vendors or downstream
customers for the 800+ regulated chemicals in consumer products and assess whether new occupational exposure warnings need to be
posited in California facilities. We have taken steps to add warning labels to our products packaged in California and manufactured
after August 30, 2018. Although we cannot predict the ultimate impact of these requirements, they could reduce overall consumption
of our products or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness
needs, all of which could adversely affect our business, financial condition and results of operations.
Risks related to our intellectual property
If we are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our
products, we will lose a significant competitive advantage, which may adversely affect our future profitability.
Our commercial success depends, in part, on obtaining, defending, and maintaining patent and other intellectual property
protection for the technologies used in our products. The patent positions of medical device companies, including ours, can be highly
uncertain and involve complex and evolving legal and factual questions. Furthermore, we might in the future opt to license intellectual
property from other parties. If we, or the other parties from whom we would license intellectual property, fail to obtain, defend, and
maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any protection is
reduced or eliminated, others could use the intellectual property used in our products, resulting in harm to our competitive business
position. In addition, patent and other intellectual property protection may not:
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prevent our competitors from duplicating our products;
prevent our competitors from gaining access to our proprietary information and technology;
prevent our competitors from producing counterfeit products;
prevent our competitors or other parties from suing us for alleged infringement; or
permit us to gain or maintain a competitive advantage.
Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. We cannot provide assurance that we
will be successful should one or more of our patents be challenged for any reason. If our patent claims are rendered invalid or
unenforceable, or narrowed in scope, the patent coverage afforded our products could be impaired, which could make our
products less competitive.
As of December 31, 2021, we have twenty-seven pending U.S. and international patent applications, forty-seven issued U.S.
patents, and nineteen issued foreign patents relating to the design and construction of our oxygen concentrators, our intelligent
delivery technology and our TAV product, including its proprietary nasal interface. We cannot specify which of these patents
individually or as a group will permit us to gain or maintain a competitive advantage. Patents may be subject to reexamination, inter
partes review, post-grant review, and derivation proceedings in the U.S. Patent and Trademark Office or comparable proceedings in
other patent offices worldwide, or challenges to inventorship in court. Foreign patents may be subject to opposition or comparable
proceedings in the corresponding foreign patent offices and courts. Any of these proceedings could result in loss of the patent or denial
of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. Changes in
either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the scope of
our protection. Interference, reexamination, inter partes review, post grant review, defense, opposition, inventorship, and derivation
proceedings may be costly and time consuming, and we, or the other parties from whom we might potentially license intellectual
property, may be unsuccessful in defending against such proceedings. Thus, any patents that we own or might license may provide
limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may have
claims narrowed during prosecution or may not result in patents being issued. Even if any of our pending or future applications are
issued, they may not provide us with any competitive advantage or adequate protection from allegations of infringement, whether
valid or frivolous, which may result in the incurrence of material defense costs. Our patents and patent applications are directed to
particular aspects of our products. Other parties may develop and obtain patent protection for more effective technologies, designs or
methods for oxygen therapy. If these developments were to occur, it would likely have an adverse effect on our sales. Our ability to
develop additional patentable technology is also uncertain.
Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of
patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing
laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the
enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent
owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign
countries do not protect intellectual property rights to the same extent as do the laws of the United States, particularly in the field of
medical products and procedures.
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Our products could infringe or appear to infringe the intellectual property rights of others, which may lead to patent and other
intellectual property litigation that could itself be costly, could result in the payment of substantial damages or royalties, prevent us
from using technology that is essential to our products, and/or force us to discontinue selling our products.
The medical device industry in general has been characterized by extensive litigation and administrative proceedings regarding
patents and other intellectual property rights. Our competitors hold a significant number of patents relating to respiratory therapy
devices and products. Third parties have in the past asserted and may in the future assert that we are employing their proprietary
technology without authorization. For example, Breathe Technologies, Inc. (Breathe), a subsidiary of Hill-Rom Holdings, filed a
lawsuit against us, New Aera, Inc., Silverbow Development LLC, and one of our employees on November 21, 2019 in the United
States District Court for the Northern District of California. The lawsuit alleged, among other things, willful infringement of a patent
assigned to Breathe, that inventorship was incorrectly assigned and that Breathe has rights to certain patents filed by New Aera, Inc.
and Silverbow Development LLC, breach of contract, inducing breach of contract, interference with contract, and violation of
California Business and Professional Code section 17200. While we settled our lawsuit with Breathe in January 2021, if we fail in
defending against lawsuits or claims brought against us in the future, we could be subject to substantial monetary damages, injunctive
relief, and loss of valuable intellectual property rights, and we cannot predict the outcome of any lawsuit. An adverse determination or
protracted defense costs of such lawsuits could have a material effect on our business and operating results.
From time to time, we have also commenced litigation to enforce our intellectual property rights. For example, we previously
pursued litigation against Inova Labs, Inc. (a subsidiary of ResMed Corp.) for infringement of two of our patents seeking damages,
injunctive relief, costs, and attorneys’ fees. While we settled our lawsuit with Inova Labs in June 2016, an adverse decision in any
other legal action could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise
negatively affect our business, financial condition and results of operations.
Monitoring unauthorized use of our intellectual property is difficult and costly. Unauthorized use of our intellectual property
may have occurred or may occur in the future. Although we have taken steps to minimize the risk of this occurring, any such failure to
identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business. Moreover, if
we are required to commence litigation, whether as a plaintiff or defendant, not only will this be time-consuming, but we will also be
forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and
higher expenses.
We cannot provide assurance that our products or methods do not infringe or appear to not infringe the patents or other
intellectual property rights of third parties and if our business is successful, the possibility may increase that others will assert
infringement claims against us whether valid or frivolous.
Determining whether a product infringes a patent involves complex legal and factual issues, defense costs and the outcome of a
patent litigation action are often uncertain. We have not conducted an extensive search of patents issued or assigned to other parties,
including our competitors, and no assurance can be given that patents containing claims covering or appearing to cover our products,
parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Because of the number of
patents issued and patent applications filed in our technical areas, our competitors or other parties may assert that our products and the
methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent
applications can take many years to issue and because publication schedules for pending applications may vary by jurisdiction and
some patent applications may not be published in the U.S., there may be applications now pending of which we are unaware and
which may result in issued patents that our current or future products infringe or appear to infringe. Also, because the claims of
published patent applications can change between publication and patent grant, there may be published patent applications that may
ultimately issue with claims that we infringe. There could also be existing patents that one or more of our products or parts may
infringe and of which we are unaware. As the number of competitors in the market for respiratory products and the number of patents
issued in this area grows, the possibility of patent infringement claims against us increases. In certain situations, we may determine
that it is in our best interests to voluntarily challenge a party’s patents in litigation or other proceedings, including declaratory
judgment actions, patent reexaminations, post grant reviews, or inter partes reviews. As a result, we may become involved in
unwanted protracted litigation that could be costly, result in diversion of management’s attention, require us to pay damages and/or
licensing royalties and force us to discontinue selling our products.
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Infringement and other intellectual property claims and proceedings brought against us, whether successful or not, could result
in substantial costs and harm to our reputation. Such claims and proceedings can also distract and divert management and key
personnel from other tasks important to the success of the business. We cannot be certain that we will successfully defend against
allegations of infringement of patents or other intellectual property rights. In the event that we become subject to a patent infringement
or other intellectual property related lawsuit and if the asserted patents or other intellectual property were upheld as valid and
enforceable and we were found to infringe the asserted patents or other intellectual property, or violate the terms of a license to which
we are a party, we could be required to do one or more of the following:
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cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect
our revenue;
pay damages for past use of the asserted intellectual property, which may be substantial;
obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable
royalty terms, if at all, and which could reduce profitability; and
redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of
third parties, which may not be possible and could be costly and time-consuming if it is possible to do so.
If we are unable to prevent unauthorized use or disclosure of trade secrets, unpatented know-how and other proprietary
information, our ability to compete will be harmed.
We rely on a combination of trade secrets, copyrights, trademarks, confidentiality agreements and other contractual provisions
and technical security measures to protect certain aspects of our technology, especially where we do not believe that patent protection
is appropriate or obtainable. We require our employees and consultants to execute confidentiality agreements in connection with their
employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us all
inventions conceived during the term of their employment or engagement while using our property or that relate to our business. We
also require our corporate partners, outside scientific collaborators and sponsored researchers, advisors and others with access to our
confidential information to sign confidentiality agreements. We also have taken precautions to initiate reasonable safeguards to protect
our information technology systems. However, these measures may not be adequate to safeguard our proprietary intellectual property
and conflicts may, nonetheless, arise regarding ownership of inventions and other intellectual property. Such conflicts may lead to the
loss or impairment of our intellectual property or to expensive litigation to defend our rights against competitors who may be better
funded and have superior resources. Our employees, consultants, contractors, outside clinical collaborators and other advisors may
unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be
unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party
illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable. Moreover, our
competitors may independently develop equivalent knowledge, methods and know-how. Unauthorized parties may also attempt to
copy or reverse engineer certain aspects of our products that we consider proprietary, and in such cases we could not assert any trade
secret rights against such party. As a result, other parties may be able to use our proprietary technology or information, and our ability
to compete in the market would be harmed.
“Inogen,” “Inogen One,” “Inogen One G2,” “Inogen One G3,” “G4,” “G5,” “Live Life in Moments, not Minutes,” “Never Run
Out of Oxygen,” “Oxygen Therapy on Your Terms,” “Oxygen.Anytime.Anywhere,” “Reclaim Your Independence,” “Intelligent
Delivery Technology,” “Inogen At Home,” the Inogen design, “TIDAL ASSIST,” “TAV,” and “SIDEKICK” are registered
trademarks with the United States Patent and Trademark Office of Inogen, Inc. We own a pending application for “Inogen” with the
United States Patent and Trademark Office. We own trademark registrations for the mark “Inogen” in Argentina, Australia, Canada,
Chile, China, Columbia, Ecuador, South Korea, Mexico, Europe (European Union registration), the United Kingdom, Iceland, India,
Israel, Japan, Kuwait, New Zealand, Norway, Paraguay, Peru, Turkey, Singapore, Switzerland, and Uruguay. We own pending
applications for the mark “Inogen” in Brazil, India, Malaysia, and South Africa. We own a trademark registration for the mark “(cid:3)(cid:4)
(cid:5)(cid:6)(cid:7)” in Japan. We own trademark registrations for the marks “(cid:8)(cid:3)(cid:9)” and “(cid:10)(cid:3)(cid:11)” in China. We own trademark registrations
for the mark “Inogen One” in Australia, Canada, China, South Korea, Mexico, Europe (European Union registration), and the United
Kingdom. We own a trademark registration for the mark “Satellite Conserver” in Canada. We own a trademark registration for the
mark “Inogen At Home” in Europe (European Union Registration) and the United Kingdom. We own trademark registrations for the
mark “G4” in Europe (European Union registration) and the United Kingdom. We own trademark registrations for the mark “G5” in
Europe (European Union Registration) and the United Kingdom. We own a trademark application for the Inogen design in Bolivia.
We own a trademark registration for the Inogen design in China. We own a trademark registration for the mark “ﻦﺟﻮﻧﺇ” in Saudi
Arabia. Other service marks, trademarks, and trade names referred to in this Annual Report on Form 10-K are the property of their
respective owners.
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We may be subject to damages resulting from claims that our employees, agents or we have wrongfully used or disclosed alleged
trade secrets of other companies.
Some of our employees and consultants, including employees who joined us following our acquisition of New Aera, were
previously employed by or contracted with other medical device companies focused on the development of oxygen therapy products,
including our competitors. We may be subject to claims that these employees or agents have inadvertently or otherwise used or
disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these
claims. For example, Breathe Technologies, Inc. (Breathe), a subsidiary of Hill-Rom Holdings, filed a lawsuit against us, New Aera,
Inc., Silverbow Development, LLC, and one of our employees on November 21, 2019 in the United States District Court for the
Northern District of California. The lawsuit alleged, among other things, willful infringement on certain patents, declared that
inventorship was incorrectly assigned and their rights to certain patents filed by New Aera, Inc. and Silverbow Development, LLC,
breach of contract, inducing breach of contract, interference with contract, and violation of California Business and Professional Code
section 17200. While we settled our lawsuit with Breathe, if we fail in defending against such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights and may be enjoined from using valuable technology in our products. Even
if we are successful in defending against these claims, litigation could result in substantial costs, damage to our reputation and be a
distraction to management.
Risks related to being a public company
We will incur increased costs as a result of operating as a public company and our management will be required to devote
substantial time to compliance initiatives and corporate governance practices.
As a public company, especially now that we are no longer an “emerging growth company,” we will continue to incur
significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of
2002 and rules enforced by the Public Companies Oversight Board (PCAOB) subsequently implemented by the SEC and the
NASDAQ Global Select Market impose numerous requirements on public companies, including establishment and maintenance of
effective disclosure and financial controls and corporate governance practices. Also, the Securities Exchange Act of 1934, as
amended, or the Exchange Act, requires, among other things, that we file annual, quarterly and current reports with respect to our
business and operating results. Our management and other personnel will need to devote a substantial amount of time to compliance
with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting, external audit
and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For
example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These rules and
regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our
board committees or as executive officers.
Overall, we estimate that our incremental costs resulting from operating as a public company, including compliance with these
rules and regulations, may be between $3.0 million and $5.0 million per year. However, these rules and regulations are often subject to
varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing bodies and public accounting firms are subject to PCAOB compliance
audits. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to
disclosure and governance practices.
The Sarbanes-Oxley Act requires, among other things, that we assess and document the effectiveness of our internal control
over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular,
Section 404(a) of the Sarbanes-Oxley Act, or Section 404(a), requires us to perform system and process evaluation and testing of our
internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial
reporting. Section 404(b) of Sarbanes-Oxley Act, or Section 404(b), also requires our independent registered public accounting firm to
attest to the effectiveness of our internal control over financial reporting. Now that we are no longer an “emerging growth company,”
our independent registered public accounting firm is required to undertake an assessment of our internal control over financial
reporting, and the cost of our compliance with Section 404(b) is higher. Our compliance with applicable provisions of Section 404 will
require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we
implement additional corporate governance practices and comply with reporting requirements.
Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the
market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting
could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these
requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an
adverse opinion on our internal controls from our independent registered public accounting firm.
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Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market
price of our common stock. If our internal controls are not effective, we may not be able to accurately report our financial results
or prevent fraud.
Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we maintain internal control over financial reporting that
meets applicable standards. We may err in the design, operation or documentation of our controls, and all internal control systems, no
matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met.
Because there are inherent limitations in all control systems, there can be no absolute assurance that all control issues have been or
will be detected. If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies,
investors could lose confidence in our reported financial information and operating results, which could result in a negative market
reaction.
We are required to disclose significant changes made in our internal controls and procedures on a quarterly basis. Now that we
are no longer an “emerging growth company,” our independent registered public accounting firm is also required to attest to the
effectiveness of our internal control over financial reporting pursuant to Section 404. Our independent registered public accounting
firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or
operating. Our remediation efforts may not enable us to avoid a material weakness in the future. Additionally, to comply with the
requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and
procedures and hiring accounting or internal audit staff or consultants, which may adversely affect our results of operations and
financial condition.
Although prior material weaknesses have been remediated, we cannot assure you that our internal controls will continue to
operate properly or that our financial statements will be free from error. There may be undetected material weaknesses in our internal
control over financial reporting, as a result of which we may not detect financial statement errors on a timely basis. Moreover, in the
future we may implement new offerings and engage in business transactions, such as acquisitions, reorganizations or implementation
of new information systems that could require us to develop and implement new controls and could negatively affect our internal
control over financial reporting and result in material weaknesses.
If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the
requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are
effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal
control over financial reporting, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy
and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such
failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other
regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial
condition or divert financial and management resources from our core business.
Risks related to our common stock
We expect that our stock price will fluctuate significantly, you may have difficulty selling your shares, and you could lose all or
part of your investment.
Our stock is currently traded on NASDAQ, but we can provide no assurance that we will be able to maintain an active trading
market on NASDAQ or any other exchange in the future. If an active trading market does not develop, you may have difficulty selling
any of our shares of common stock that you buy. In addition, the trading price of our common stock may be highly volatile and could
be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:
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actual or anticipated quarterly variation in our results of operations or the results of our competitors;
announcements of secondary offerings;
announcements by us or our competitors of new commercial products, significant contracts, commercial relationships or
capital commitments;
issuance of new or changed securities analysts’ reports or recommendations for our stock;
developments or disputes concerning our intellectual property or other proprietary rights;
commencement of, or our involvement in, litigation;
market conditions in the oxygen therapy market;
reimbursement or legislative changes in the oxygen therapy market;
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failure to complete significant sales;
manufacturing disruptions that could occur if we were unable to successfully expand our production in our current or an
alternative facility or due to any other reason;
any future sales of our common stock or other securities;
any major change to the composition of our board of directors or management;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital
commitments;
the other factors described in this “Risk Factors” section; and
general economic conditions and slow or negative growth of our markets.
The stock market in general and market prices for the securities of technology-based companies like ours in particular, have
from time-to-time experienced volatility that often has been unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating
performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted
securities class action litigation against the company that issued the stock.
Stockholder litigation has been filed against us in the past, and a class action securities lawsuit and related derivatives
complaints against us are currently pending, as discussed in the “Legal Proceedings” section of this Annual Report on Form 10-K.
While we are continuing to defend such actions vigorously, the defense of such actions can be costly, divert the time and attention of
our management and harm our operating results, and any judgment against us or any future stockholder litigation could result in
substantial costs.
If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and
trading volume could decline.
The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about
us and our business. We will not have any control of the analysts or the content and opinions included in their reports. The price of our
stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If
one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock
could decrease, which in turn could cause our stock price or trading volume to decline.
Future sales of shares could cause our stock price to decline.
Our stock price could decline as a result of sales of a large number of shares of our common stock or the perception that these
sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate.
We have also registered the offer and sale of all shares of common stock that we may issue under our equity compensation
plans. In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into
common stock in connection with a financing, acquisition, litigation settlement, and employee arrangements or otherwise. Any such
issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.
Our directors, executive officers and principal stockholders will continue to have substantial control over us and could limit your
ability to influence the outcome of key transactions, including changes of control.
As of December 31, 2021, our executive officers, directors and stockholders who owned more than 5% of our outstanding
common stock and their respective affiliates beneficially owned or controlled approximately 53.6% of the outstanding shares of our
common stock. Accordingly, these executive officers, directors and stockholders who owned more than 5% of our outstanding
common stock and their respective affiliates, acting as a group, have substantial influence over the outcome of corporate actions
requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our
assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of us, even if
such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect
the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.
63
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be
beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current
management and limit the market price of our common stock.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or
changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include
provisions that:
•
•
•
•
•
•
•
•
•
authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of
undesignated preferred stock;
require that any action to be taken by our stockholders be affected at a duly called annual or special meeting and not by
written consent;
specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of the board
of directors, or the Chief Executive Officer;
establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our
stockholders, including proposed nominations of persons for election to our board of directors;
establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving
staggered three-year terms;
provide that our directors may be removed only for cause;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though
less than a quorum;
specify that no stockholder is permitted to cumulate votes at any election of directors; and
require a super-majority of votes to amend certain of the above-mentioned provisions.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the
members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203
of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting
stock to merge or combine with us.
We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have paid no cash dividends on any of our classes of capital stock to date and currently intend to retain our future earnings
to fund the development and growth of our business. In addition, we may become subject to covenants under future debt arrangements
that place restrictions on our ability to pay dividends. As a result, capital appreciation, if any, of our common stock is expected to be
your sole source of gain for the foreseeable future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2021, we lease approximately 51,000 square feet of manufacturing and office space at our corporate
headquarters in Goleta, California under a lease that expires in March 2030; approximately 154,000 square feet of manufacturing and
office space in Plano, Texas under a lease that expires in April 2031; and approximately 94,000 square feet of office space in
Cleveland, Ohio under a lease that expires in September 2024. In addition, we lease approximately 4,000 square feet of office space in
Smyrna, Tennessee; Huntsville, Alabama; Aurora, Colorado; and Breukelen in the Netherlands with lease terms of 3 years. We also
own land and office space in Manitowoc, Wisconsin. We believe that our existing facilities are adequate to meet our current business
requirements and that if additional space is required, it will be available on commercially reasonable terms. In addition, we believe
that our properties are in good condition and are adequate and suitable for their intended purposes.
64
ITEM 3. LEGAL PROCEEDINGS
Securities class action and derivative lawsuits
On March 6, 2019, plaintiff William Fabbri filed a lawsuit against Inogen, Scott Wilkinson, and Alison Bauerlein, in the United
States District Court for the Central District of California on behalf of a purported class of purchasers of the Company’s securities. On
March 21, 2019, plaintiff Steven Friedland filed a substantially similar lawsuit against the same defendants in the same court. On May
20, 2019, the court issued an order consolidating the two lawsuits under the name In re Inogen, Inc. Sec. Litig., No. 2:19-cv-01643-
FMO-AGR, appointing Dr. John Vasil and Paragon Fund Management as lead plaintiffs, and appointing Robbins Geller Rudman &
Dowd LLP and Glancy Prongay & Murray LLP as lead plaintiffs’ counsel. On July 10, 2019, the lead plaintiffs filed a consolidated
amended complaint on behalf of a purported class of purchasers of the Company’s common stock between November 8, 2017 and
May 7, 2019. The complaint generally alleges that the defendants failed to disclose that: (i) Inogen had overstated the true size of the
total addressable market for its portable oxygen concentrators and had misstated the basis for its calculation of the total addressable
market; (ii) Inogen had falsely attributed its sales growth to the strong sales acumen of its sales force, rather than to deceptive sales
practices; (iii) the growth in Inogen’s domestic business-to-business sales to home medical equipment providers was inflated,
unsustainable and was eroding direct-to-consumer sales; and (iv) Inogen’s decision to focus on sales over rentals of portable oxygen
concentrators harmed its ability to serve the Medicare market, in violation of sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended. The complaint seeks compensatory damages in an unspecified amount, costs and expenses, including attorneys’
fees and expert fees, prejudgment and post-judgment interest and such other relief as the court deems proper. On January 2, 2020, the
court dismissed the consolidated amended complaint with leave to amend. On January 9, 2020, the plaintiffs filed a second amended
complaint generally alleging substantially similar claims as those in the previous complaint. On January 23, 2020, the defendants filed
a motion to dismiss the second amended complaint. On September 2, 2020, the court denied the defendants’ motion to dismiss without
prejudice and instructed defendants to file another motion to dismiss if the parties are unable to resolve the issues relating to the
second amended complaint. The Company filed its motion to dismiss on October 28, 2020. On August 13, 2021, the court granted
Defendants’ motion to dismiss, and on September 27, 2021, the court entered judgment dismissing the action in its entirety.
On June 26, 2019, plaintiff Twana Brown filed a shareholder derivative lawsuit against Inogen, Scott Wilkinson, Alison
Bauerlein, Benjamin Anderson-Ray, Scott Beardsley, R. Scott Greer, Raymond Huggenberger, Heath Lukatch, Loren McFarland, and
Heather Rider in the United States District Court for the Central District of California. The complaint purports to bring claims on
behalf of Inogen against the individual defendants for breaches of their fiduciary duties as directors and/or officers of Inogen, unjust
enrichment, waste of corporate assets and violations of section 14(a) of the Securities Exchange Act of 1934, as amended. The
complaint generally alleges similar claims to the securities class action. The complaint seeks compensatory damages and restitution in
an unspecified amount, changes to the Company’s corporate governance and internal procedures, costs and expenses, including
attorneys’ fees and expert fees, and such other relief as the court deems proper. On August 5, 2019, the court issued an order staying
the derivative action pending the resolution of the motion to dismiss stage in In re Inogen, Inc. Sec. Litig. Between October 7, 2019
and October 31, 2019, three additional shareholder derivative complaints were filed in the United States District Court for the Central
District of California based on similar factual allegations. These lawsuits purport to bring claims on behalf of Inogen for breach of
fiduciary duty, unjust enrichment, waste of corporate assets, insider trading and misappropriation of information, and violations of
section 14(a) of the Securities Exchange Act of 1934, as amended. On January 13, 2020, the court consolidated the four derivative
lawsuits before it under the name In re Inogen, Inc. S’holder Deriv. Litig., Lead Case No. 2:19-cv-5568-FMO-AGR and ordered that
the consolidated action be stayed pending the resolution of the motion to dismiss stage in In re Inogen, Inc., Sec. Litig. On November
10, 2021, the plaintiffs filed a Notice of Voluntary Dismissal Without Prejudice. On February 8, 2022, the court dismissed the
California derivative action without prejudice.
On September 13, 2019, plaintiff Dustin Weller filed a shareholder derivative lawsuit against Inogen, Scott Wilkinson, Alison
Bauerlein, Benjamin Anderson-Ray, Scott Beardsley, R. Scott Greer, Raymond Huggenberger, Heath Lukatch, Loren McFarland, and
Heather Rider in the United States District Court for the District of Delaware captioned Weller v. Wilkinson, et al., No. 1:19-cv-
01723-MN. On October 17, 2019, plaintiff Sharokh Soltanipour filed a shareholder derivative lawsuit against the same defendants in
the same court, captioned Soltanipour v. Wilkinson, et al., No. 1:19-cv-1968-MN. The complaints generally allege similar claims to
those in In re Inogen, Inc., S’holder Deriv. Litig. The complaints purport to bring claims on behalf of Inogen for breach of fiduciary
duty, unjust enrichment, waste of corporate assets, abuse of control, gross mismanagement, insider selling and misappropriation of
information, violations of section 14(a) of the Securities Exchange Act of 1934, as amended, and for contribution from certain of the
individual defendants. The complaints seek compensatory damages in unspecified amounts, changes to the Company’s corporate
governance and internal procedures, return of compensation, disgorgement of profits from sale of stock, costs and expenses, including
attorneys’ fees and expert fees, and such other relief as the court deems proper. On May 15, 2020, the court consolidated the two
derivative lawsuits before it under the name In re Inogen, Inc. S’holder Deriv. Litig., Lead Case No. 1:19-cv-01723-MN-JLH. On July
8, 2020, the court ordered that the consolidated action be stayed pending the resolution of the motion to dismiss in the securities class
action, In re Inogen, Inc., Sec. Litig. On November 3, 2021, the court approved the parties’ stipulation to voluntarily dismiss the
Delaware derivative action without prejudice.
65
Other litigation
In addition to the lawsuits discussed above, 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.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market information and holders
Our common stock has been publicly traded on the NASDAQ Global Select Market under the symbol “INGN” since
February 14, 2014. Prior to that time, there was no public market for our common stock.
Stock performance graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into
any filing of ours under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such
filing.
The following graph compares the performance of our common stock for the periods indicated with the performance of the S &
P Healthcare and Supplies Index, the Russell 2000 Index, and the NASDAQ Composite Index from December 31, 2016 to December
31, 2021. This graph assumes an investment of $100 on December 31, 2016 in each of our common stock, the NASDAQ Composite
Index, the S & P Healthcare Equipment and Supplies Index, the Russell 2000 Index and assumes reinvestment of dividends, if any.
The stock price performance shown on the graph below is not necessarily indicative of future stock price performance.
STOCKHOLDER RETURN PERFORMANCE GRAPH
COMPARISON OF THE 5 YEAR CUMULATIVE TOTAL RETURN
Among Inogen, Inc., the S & P Healthcare Equipment and Supplies Index, the Russell 2000 Index and the NASDAQ Composite Index
Inogen, Inc............................................................$
S & P Healthcare Equipment & Supplies^(1)........
Russell 2000^(2) ....................................................
NASDAQ Composite^(3) ......................................
100.00 $
100.00
100.00
100.00
81.49 $
129.50
113.14
128.24
83.40 $
140.90
99.37
123.26
45.57 $
171.41
122.62
166.19
29.53 $
228.15
145.90
239.08
22.43
237.88
165.70
292.42
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
(1) The S&P Healthcare Equipment and Supplies Index is a capitalization weighted-average index compiled of healthcare companies
in the S&P 500 Index.
67
(2) The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index.
(3) The NASDAQ Composite is a market-value weighted index of all common stocks listed on the NASDAQ.
Stockholders
As of February 18, 2022, there were 21 registered stockholders of record for our common stock. The actual number of
stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are
held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares
may be held in trust by other entities.
Dividend policy
We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will
retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash
dividends in the foreseeable future. In addition, future debt instruments we issue may materially restrict our ability to pay dividends on
our common stock. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into
account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of
then-existing debt instruments and other factors our board of directors deems relevant.
Securities authorized for issuance under equity compensation plans
The information required by this Item regarding equity compensation plans is incorporated by reference to the information set
forth in PART III Item 12 of this Annual Report on Form 10-K.
Unregistered sales of equity securities
None.
Issuer purchases of equity securities
None.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction
with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion
contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and
those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
The purpose of Management's Discussion and Analysis (MD&A) is to provide an understanding of Inogen’s financial condition,
results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A is provided as a
supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying Notes. The MD&A
is organized in the following sections:
COVID-19 pandemic and related PHE
Basis of presentation
Results of operations
Liquidity and capital resources
Sources of funds
•
• Overview
•
•
•
•
• Uses of funds
• Non-GAAP financial measures
•
Critical accounting policies and estimates
COVID-19 pandemic and related PHE
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. While it is not possible at this time to estimate the overall impact that the COVID-19
pandemic and related public health emergency (PHE) could have on our business, the continued spread of COVID-19, both across the
United States and throughout the world, and the measures taken by the governments of countries and local authorities affected has
adversely impacted and could likely continue to adversely impact patient mobility, care accessibility, diagnosis rates, demand for our
products, our business operations, including manufacturing, due to supply chain constraints, hiring and continued employment of our
employees and contractors, shipment, cost of our products, and our financial condition and operating results.
Our priorities during the COVID-19 pandemic and related PHE include protecting the health and safety of our employees and
supporting our patients and customers. Given the COVID-19 impact to the respiratory system, we anticipate that it is possible that the
demand for long-term oxygen therapy will increase due to new cases of chronic respiratory failure or exacerbation or progression of
preexisting respiratory conditions will sustain or increase, although this is not based on clinical data. We also believe stationary
oxygen concentrators, and, secondarily, portable oxygen concentrators (POCs) could help meet the needs of global healthcare systems
by allowing appropriate patients to use oxygen therapy at home to treat respiratory symptoms.
However, the COVID-19 pandemic and related PHE adversely impacted our consolidated operating results starting in the
second quarter of 2020. We experienced lower direct-to-consumer sales starting toward the end of the first quarter of 2020, which we
believe was primarily associated with shelter-in-place orders, self-quarantine, reduced mobility and travel, and reduced access to
clinicians for diagnosis and follow-up for chronic obstructive pulmonary disease (COPD) patients related to the mandates and
behaviors emanating from the COVID-19 pandemic and PHE. In periods with lower COVID-19 spread, we saw improved consumer
demand for our products, which we believe was due to increasing vaccination rates and other effective containment measures, higher
consumer confidence, mobility and interest in travel, versus lower demand in periods with higher COVID-19 spread. Those impacts
were in addition to our traditional seasonality in consumer buying patterns. We continue to believe that potential future shelter-in-
place orders, reduced travel, lower consumer confidence, or the impacts of new variants could reduce consumer demand in future
periods.
Despite the COVID-19 pandemic and related PHE adverse impacts to direct-to-consumer sales, we experienced increased rental
setups in the second quarter of 2020 through 2021, which we believe was due to Medicare and commercial payors reducing some of
the administrative burden for oxygen therapy and our focus on the rental channel of the business. We believe this change will continue
to contribute to increased rental setups during the remainder of the COVID-19 pandemic and related PHE. We have also seen
increased reimbursement rates in some areas for Medicare beneficiaries, which have increased rental revenue during the COVID-19
pandemic and related PHE and are expected to continue to do so for the remainder of the COVID-19 pandemic and related PHE.
69
In the business-to-business channel, there have been certain surges in demand for oxygen concentrators by our home medical
equipment (HME) providers worldwide during the COVID-19 pandemic and related PHE in specific markets with significant COVID-
19 case rates due to the tendency of hospitals to discharge COVID-19 impacted patients for treatment at home during rehabilitation
due to space and labor shortages in hospitals. However, overall business-to-business demand has been lower because of the COVID-
19 pandemic and related PHE due to lower patient travel, physician offices limiting patient interactions for COPD patient referrals,
HME providers minimizing patient interactions in response to the COVID-19 pandemic and related 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 due to 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. Similar to our direct-
to-consumer sales channel, business-to-business sales improved in periods with lower COVID-19 spread, higher consumer
confidence, interest in travel, and availability of effective vaccines. In addition, this channel is impacted by COPD patient referral
volumes in our core markets of the United States and Europe, which tends to improve in periods with lower COVID-19 spread due to
a patient’s willingness to see their physician. However, supply constraints, primarily due to limited semiconductor chip availability,
negatively impacted sales in 2021 mainly in the domestic business-to-business channel, as discussed in more detail below.
During 2020 and 2021, we were able to broadly maintain our operations, but in the first quarter of 2022 we were forced to
temporarily suspend production due to the semiconductor chip shortages discussed below. As seen in this temporary production halt,
the COVID-19 pandemic and related PHE have caused and could continue to cause disruption to our supply chain that could impact
our operations, limit our growth, and increase our cost of goods sold.
For example, we have seen higher semiconductor chip demand and reduced semiconductor chip availability in 2021 and the first
quarter of 2022, which has impacted our ability to produce and sell systems and batteries. We expect availability issues to continue
through 2022, which has impacted and will continue to impact our ability to produce and sell systems and batteries until supply
stabilizes. The semiconductor chip shortage is being experienced across many industries, placing additional pressure on existing
supplies. We have attempted to mitigate the impact of this increased supply shortage, but it has and will likely continue to negatively
impact our ability to manufacture product, including with respect to the temporary production halt discussed below, as these chips are
used across all of our portable oxygen concentrators, in both our batteries and printed circuit boards on our systems and, if we are not
able to obtain sufficient components going forward, we could be forced to slowdown or temporarily halt production again. We are
continuing to focus our mitigation efforts on product redesign, seeking increased commitments on supply and shipment dates from our
regular suppliers, sourcing from the open semiconductor channel, and using appropriate pricing actions such as the price increase we
implemented on September 1, 2021 to help offset some of the increased cost, but we expect increasing challenges in terms of supply
constraint and inflationary pressure moving forward.
We saw inflated costs related to the acquisition of semiconductor chips begin to negatively impact our cost of goods sold in the
second half of 2021, and we expect this to have an increased impact on our cost of goods sold throughout 2022. Even though we paid
significant costs in the second half of 2021 associated with acquiring chips on the open market, most of these costs increased our
prepaid expense and inventory given that these components were not yet in finished products that were sold during the period. We
believe based on our assessment and industry feedback that these supply shortages and increased costs are likely to continue through
2022. In addition to the semiconductor chip limitations, we are continuing to see supply chain constraints and cost inflation for other
components used in our products albeit to a lower degree. Due to semiconductor chip shortages as of late December 2021, we
temporarily suspended manufacturing operations beginning January 3, 2022, at our Texas and California locations as well as at
Foxconn, our contract manufacturer in the Czech Republic. We have since secured the required semiconductor supplies to resume
production and restarted our manufacturing operations at all three locations in early February. While we have been able to restart
manufacturing operations at all locations, we are still seeing challenges in terms of available supply and we believe the supply
shortages continue to represent an increased risk to the business for 2022.
Additionally, we have experienced, along with most other companies across many industries, the macro-economic impact of a
challenging employment environment related to hiring and retaining employees and wage inflation. We expect that these hiring,
retention, and wage inflation challenges, as well as challenges related to maintaining our current workforce, will continue into 2022.
These hiring, retention, and cost challenges may negatively affect our ability to grow our business and keep our best employees or
increase our cost of operations. In response to these challenges, we have implemented more flexible workplace requirements
depending on the role, such as increasing ability for remote work, but we still expect to be challenged by the macro-economic
employment environment.
The COVID-19 pandemic and related 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. The COVID-19 pandemic and related PHE has caused demand to fluctuate for our products across all channels due to the
global economic environment and changes to physician visits, interactions, testing requirements and diagnosis. Additionally, while we
planned for sales and marketing expansion in 2021, we saw lower hiring and increased attrition in our direct-to-consumer sales force
primarily due to increased competition for sales professionals in 2021. The labor shortage trend for qualified sales professionals may
continue in 2022, limiting our ability to grow in future periods.
70
The health and safety of our people and their families continues to be our primary focus. Our ability to continue to operate
without any significant negative operational impacts will in part depend on our ability to protect our employees. As the COVID-19
pandemic and related PHE has developed, we have taken numerous steps to help ensure the health and safety of our employees and
their families. We follow recommended actions of government and health authorities to protect our employees, with particular
measures in place for those working in our manufacturing facilities, and those with patient, prescriber, or customer face-to-face
interactions. Employees whose tasks can be done offsite have been allowed to work from home and most of our personnel continue to
work from home. 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 additional information on risk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A of this
Annual Report on Form 10-K.
Overview
We are a medical technology company that primarily develops, manufactures and markets innovative POCs used to deliver
supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions. Long-term oxygen therapy is
defined as the provision of oxygen therapy for use at home in patients who have chronic low blood oxygen levels (hypoxemia).
Traditionally, these patients have relied on stationary oxygen concentrator for use in the home and oxygen tanks or cylinders for
mobile use, which we call 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. Our proprietary Inogen One® systems concentrate the air around the patient to offer a single source of supplemental oxygen
anytime, anywhere with a portable device weighing as little as approximately 2.8 pounds with a single battery. Our Inogen One
systems range from 2.6 to 6.5 hours of battery life with a single battery and can be plugged into an outlet as needed. We believe our
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.
We employ a direct-to-consumer market and rental strategy that we believe contributes to our leadership position in the POC
market. Our direct-to-consumer market and rental strategy means that we (i) advertise directly to consumers, process their physician
paperwork, and provide clinical support as needed and (ii) bill Medicare or insurance on the patient’s behalf in the United States. We
believe that we are the only POC manufacturer offering patients both a purchase and a rental option to acquire an oxygen therapy
device.
We derive the majority of our revenue from the sale and rental of our Inogen One systems and related accessories to patients,
insurance carriers, home healthcare providers, resellers, charitable organizations, and distributors, including our private label partner.
We sell multiple configurations of our Inogen One and Inogen At Home systems with various batteries, accessories, warranties, power
cords and language settings. Our goal is to design, build and market oxygen solutions that redefine how long-term oxygen therapy is
delivered.
To accomplish this goal and to grow our revenue, we intend to:
•
Expand our domestic direct-to-consumer sales and prescriber sales teams and increase productivity. We expect minimal
net new inside direct-to-consumer sales hires in the near term due to the size and quality of the candidate pool and
expected attrition, but as part of our growth plans, we are increasing our focus on improving performance and productivity
of our existing sales force. Going forward, except as otherwise limited by the impact of the COVID-19 pandemic and
related PHE, our plan is to continue to expand sales capacity while focusing on increased productivity driven by improved
sales management discipline, insights-informed tools, and optimized patient lead generation.
During the year ended December 31, 2021, the number of inside direct-to-consumer sales representatives decreased to 292
from 300 as of December 31, 2020. In 2021, hiring was challenging due to the continued impacts of the COVID-19
pandemic and related PHE. We hope to offset attrition with replacement hiring in 2022 while we opportunistically
increase the total inside direct-to-consumer sales representatives if and when required while maintaining our hiring
standards and being mindful of the supply constraints.
We also plan to expand our prescriber sales team to drive increased physician referrals for patient rentals. This specialized
sales team consisted of 35 sales representatives and 6 support personnel as of December 31, 2021. In addition, we are
using a third-party contract sales organization, Ashfield, that will only represent Inogen in the field, to enhance our go-to-
market capabilities in the U.S. As of January 2022, we had approximately 47 dedicated sales representatives, 10 sales
representations with accepted offers that will be in the field early March 2022, and 12 concierge service representatives to
our prescriber sales team. Additionally, Ashfield will provide access to its best-in-class data-driven sales management
disciplines, proprietary prescriber insights, and analytics to support our growth strategy and drive performance in the
clinician sales channel. The combined sales organization, Inogen and Ashfield, will benefit from access to Ashfield’s
comprehensive offering of analytics tools, sales operations support, and personalized concierge services that will help
drive productivity and efficiency.
71
•
•
•
•
Expand our domestic direct-to-consumer marketing efficiently and, optimize pricing. We slightly increased marketing
efforts in 2021 to continue to drive patient awareness of our products and patient inquiries about their ability to switch
from their current oxygen products to our technology as patient interest increased, so media and advertising costs
increased to $35.2 million in 2021 compared to $34.2 million in 2020. We plan to increase and optimize marketing spend
to drive consumer and physician awareness of our products in 2022 and beyond. We raised prices as of September 1, 2021
to partially offset rising product costs. We plan to continue to monitor the progression of the COVID-19 pandemic and
related PHE in the United States and may adjust our marketing plan accordingly.
Expand our rental revenues. We are evolving our operating model to focus the enhanced prescriber sales team on rental
opportunities with our direct-to-consumer sales team focusing mainly on cash sales. We believe the new specialized
operating model will drive higher rental setups as we expand prescriber and payor awareness of our products and services.
Due to the COVID-19 pandemic and related 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 quarter of 2020
through 2021. We believe this change will continue to contribute to increased rental setups during the remainder of the
COVID-19 pandemic and related PHE. We have also seen increased reimbursement rates in some areas for Medicare
beneficiaries, which have increased rental revenue during the COVID-19 pandemic and related PHE and are expected to
continue to do so for the remainder of the COVID-19 pandemic and related PHE. CMS has finalized additional changes to
the administrative requirements to dispense and bill for oxygen therapy, which is discussed in more detail in the Third-
party reimbursement section of Item 1 above. These changes may reduce the administrative burden and increase patient
access to our products; however, we still need additional clarity on how it will be implemented.
Expand our domestic HME provider and reseller sales. We are also focused on building our domestic business-to-
business partnerships, including relationships with distributors, key accounts, resellers, our private label partner,
traditional HME providers, and charitable organizations. We offer patient-preferred, low service cost products and
services to help providers convert their businesses to a non-delivery POC business model.
Supplemental oxygen is a treatment prescribed by healthcare professionals for patients with hypoxemia, which in some
cases may be caused or exacerbated by COVID-19. While there have been surges in demand for oxygen concentrators by
our HME providers during the COVID-19 pandemic and related PHE in specific markets with significant COVID-19 case
rates, domestic business-to-business demand in 2020 was lower because of the COVID-19 pandemic and related PHE 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 pandemic and related 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 HME provider demand increased in the fourth quarter of
2020 and in the year ended December 31, 2021, primarily due to increased demand for POCs as hospital systems and
stationary oxygen concentrator supply were strained to keep up with the increase in COVID-19 cases and increased
patient ambulation and consumer confidence.
However, in spite of the increased demand, in the third and fourth quarters of 2021 we saw supply constraints associated
with the semiconductor chip shortage that limited growth in this channel, and we expect this to continue in the near-term
in 2022, specifically in the first quarter as we were forced to temporarily halt production from early January 2022 to early
February 2022 due to these supply constraints.
Increase international business-to-business adoption. Although our main growth opportunity remains POC adoption in
the United States given what we still believe is a relatively low penetration rate, we believe there is a sizable international
market opportunity, particularly in Europe where there is existing oxygen reimbursement for respiratory conditions. In
order to take advantage of these international markets, we have partnered with distributors who serve those markets and
key customers in them. We additionally have an Inogen base of operations for sales and customer service in the
Netherlands and use Foxconn to support the majority of our European sales volumes. We have sold our products in a total
of 59 international countries and overseas regions.
Current Inogen products are commercialized in the European Union under Medical Device Directive (MDD) certificates,
expiring on May 18, 2022. The extension of the existing certificates under the MDD or obtaining a new certificate under
the European Medical Devices Regulation (MDR) is required for continued marketing in the European Union after May
18, 2022. We are preparing the filing of the MDR submissions in the earlier part of 2022 and have verified our ability to
meet most of the demand in terms of existing orders up to the MDD certificate expiration. Additionally, we are in the
process of applying for select European country level exemptions if supply is constrained and prevents us placing
adequate supply into the EU supply chain before May 18, 2022. We are also securing the necessary certification from the
United Kingdom and Switzerland which we believe would be completed in Q1 2022.
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As in the United States, there have been surges in demand for oxygen concentrators by our international HME customers
during the COVID-19 pandemic in specific markets with significant COVID-19 case rates. However, international
demand declined in the second quarter of 2020 continuing through the first quarter of 2021, 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. 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. We experienced increased demand during 2021,
which we believe was due to improving COVID-19 vaccination rates and increased ambulation of patients in Europe,
increased operational capacity of certain European respiratory assessment centers, and increased sales in certain markets
associated with spikes in COVID-19 cases in such instances. To grow our international sales markets, we are also in the
process of developing regulatory and sales pathways to capture opportunities in new and emerging markets.
Over time, as the U.S. and European markets mature, our growth will depend on our ability to drive POC adoption in
developing or emerging markets, where limited oxygen therapy treatment and reimbursement exists today. However,
growth may also be limited by regulatory and reimbursement clearances, currency fluctuations, capital expenditure
constraints, ongoing restructuring challenges, and tender uncertainty.
Invest in our oxygen product offerings to develop innovative products and expand clinical evidence. We incurred $16.6
million, $14.1 million and $9.4 million in 2021, 2020 and 2019, respectively, in research and development costs, and we
intend to continue to make such investments in the foreseeable future.
We launched our fifth-generation POC, the Inogen One G5 in 2019. The Inogen One G5 weighs 4.7 pounds and produces
1,260 ml per minute of oxygen output, with very quiet operation at 38 dBA and our longest battery life at 6.5 hours for a
single battery and up to 13 hours for a double battery. We estimate that the Inogen One G5 is suitable for over 90% of
ambulatory long-term oxygen therapy patients based on our analysis of the patients who have contacted us and their
clinical needs. We expect the Inogen One G5 to obsolete the Inogen One G3® over the short-term. The Inogen One G5
represented more than 80% of total domestic POC units sold in 2021, showing the strong demand for this product from
both patients and providers.
Inogen Connect, our connectivity platform on our Inogen One G4® and Inogen One G5 products in the United States and
Canada is compatible with Apple and Android platforms and includes patient features such as purity status, battery life,
product support functions, notification alerts, and remote software updates. We believe home oxygen providers will also
find features such as remote troubleshooting, equipment health checks, and location tracking to help drive operational
efficiencies when transitioning away from the oxygen tank delivery model.
We plan to also invest in clinical studies to evaluate expected improvements in clinical, economic and patient reported
outcomes associated with the use of our products as part of our efforts to drive payor and prescriber advocacy for our
products.
Expand our product offerings. We are primarily focused on creating innovative, evidence-based chronic respiratory care
solutions to strengthen and build preference and advocacy for our respiratory therapies and brand across patients,
prescribers, and payors. We plan to do this with an expanded, high quality, connected, and innovative product portfolio
that strengthens our differentiation. We are also committed to pursuing complementary acquisition opportunities to
strengthen our technology, product offerings, and channel access.
In August 2019, we acquired New Aera. New Aera’s patented and Food and Drug Administration (FDA)-cleared Tidal
Assist® Ventilator (TAV®) system is designed to deliver increased air flow and pressure from an approximately 4-ounce
pocket-size unit, features a state-of-the-art nasal pillow interface, and is compatible with certain oxygen concentrators,
oxygen cylinders, wall gas, and certain medical air sources. TAV therapy with oxygen has been clinically demonstrated
during periods of exercise to reduce breathlessness, increase exercise endurance, and improve oxygen saturation for
patients suffering from certain chronic lung disease compared to oxygen therapy alone. We plan to only sell this product
across our domestic direct-to-consumer channel and in our domestic business-to-business channel in 2022, and we expect
limited contributions to revenue in its existing configuration.
•
•
We have been developing and refining the manufacturing of our Inogen One systems since 2004. While nearly all of our
manufacturing and assembly processes were originally outsourced, assembly of the compressors, sieve beds, concentrators and certain
manifolds were brought in-house in order to improve quality control and reduce cost. In support of our European sales, we use a
contract manufacturer located in the Czech Republic to manufacture high volume products and perform product repairs to improve
delivery to our European accounts. We expect to maintain our assembly operations for our products at our facilities in Texas and
California. In 2022, we are focused on securing supply for components to make our products in spite of the higher costs of
semiconductor chips, reducing the cost of our Inogen One G5 product (excluding semiconductor chips), and increasing the robustness
of our supply chain to reduce potential component constraints as we grow our business.
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We also use lean manufacturing practices to maximize manufacturing efficiency. We rely on third-party manufacturers to
supply several components of our products. We typically enter into master service agreements for these components that specify
quantity and quality requirements and delivery terms. In certain cases, these agreements can be terminated by either party upon
relatively short notice. We have elected to source certain key components from single sources of supply, including our batteries,
motors, valves, TAV-compatible stationary concentrators, columns, and some molded plastic components. In some cases, maintaining
a single source of supply can allow us to control production costs and inventory levels and to manage component quality, but also may
lead to supply availability risks, and means our ability to maintain production is dependent on these single source suppliers, which
may put us at an increased risk of supply disruption, as we have seen from the production halt we implemented in early January 2022
through early February 2022. In order to help mitigate against the risks related to a single source of supply, for certain components we
qualify alternative suppliers and develop contingency plans for responding to disruptions. However, a continued reduction or halt in
supply from one of these single-source suppliers, any dual-sourced suppliers or any other limited source suppliers with similar sub-
component suppliers could limit or prevent our ability to manufacture our products or devices until one or more sufficient replacement
suppliers is found and qualified. For additional discussion of potential risks related to our manufacturing and raw materials, please see
the risk factor entitled “We obtain some of the components, subassemblies and completed products included in our products from a
single source or a limited group of manufacturers or suppliers, and in some cases those components are available in only limited
supplies from limited manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers
could cause significant production delays or stoppages, an inability to meet customer demand, substantial loss in revenue, and an
adverse effect on our financial condition and results of operations.”
Historically, we have generated a majority of our revenue from sales and rentals to customers in the United States. In the years
ended December 31, 2021, 2020 and 2019, approximately 22.2%, 20.1% and 21.5%, respectively, of our total revenue was from sales
to customers outside the United States, primarily in Europe. Approximately 74.1%, 73.6% and 70.2% of the non-U.S. revenue for the
years ended December 31, 2021, 2020 and 2019, respectively, was invoiced in Euros with the remainder invoiced in United States
dollars. We have sold our products in a total of 59 international countries and overseas regions outside the United States through our
wholly-owned subsidiary, distributors or directly to large “house” accounts, which include gas companies, HME oxygen providers,
and resellers. In those instances, we sell to and bill the distributor or “house” accounts directly, leaving responsibility for the patient
billing, support and clinical setup to the local provider.
Our total revenue was $358.0 million, $308.5 million and $361.9 million for the years ended December 31, 2021, 2020 and
2019, respectively. The increase in total revenue in the year ended December 31, 2021 compared to the prior year was primarily due to
an increase in direct-to-consumer sales and international business-to-business sales, primarily associated with reduced impact of the
COVID-19 pandemic and related PHE, and an increase in rental revenue. We generated net income (loss) of $(6.3) million, $(5.8)
million and $21.0 million in the years ended December 31, 2021, 2020 and 2019, respectively. We generated Adjusted EBITDA of
$29.5 million, $21.6 million and $43.3 million in the years ended December 31, 2021, 2020 and 2019, respectively (see “Non-GAAP
financial measures” for reconciliations between U.S. GAAP and non-GAAP results). As of December 31, 2021, our retained earnings
were $69.3 million.
Sales revenue
Our future financial performance will be driven in part by the growth in sales of our Inogen One POCs, and, to a lesser extent,
sales of batteries, other accessories, our Inogen At Home stationary oxygen concentrators and our TAV products. We plan to grow our
system sales in the coming years through multiple strategies including: hiring additional sales representatives directly or through our
contract sales organization, improving productivity, investing in consumer and physician awareness and advocacy through increased
sales and marketing efforts, expanding our clinical evidence, expanding our sales infrastructure and efforts outside of the United
States, expanding our business-to-business sales through key strategic partnerships, and enhancing our product offerings through
additional product launches, although, as mentioned above, these plans have been and may continue to be impacted by the COVID-19
pandemic and related 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 pandemic and related PHE, their ongoing restructuring efforts, lack of access to available credit, provider capital expenditure
constraints, and potential changes in reimbursement rates.
Our direct-to-consumer and prescriber sales processes involve numerous interactions with the individual patient, their physician
and the physician’s staff, and includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen
therapy, including procuring an oxygen prescription, although, as discussed above, this process has been disrupted due to the COVID-
19 pandemic and related PHE and we expect that such disruption will continue for the duration of the COVID-19 pandemic and
related PHE. The patient may consider whether to finance the product through an Inogen-approved third party or purchase the
equipment. Product is not deployed until both the prescription and payment are received. Once a full system is deployed, the patient
has 30 calendar days to return the product, subject to the payment of a minimal processing and handling fee. Approximately 6-10% of
consumers who purchase a system return the system during this 30-day return period.
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Our business-to-business efforts are focused on selling to distributors, HME oxygen providers, our private label partner,
resellers, and charitable organizations who are based inside and outside of the United States. This process involves interactions with
various key customer stakeholders including sales, purchasing, product testing, and clinical personnel. Businesses that have patient
demand that can be met with our products place purchase orders to secure product deployment. This may be influenced based on
outside factors, including the result of tender offerings, changes in insurance plan coverage or reimbursement rates, business
restructuring activities toward a non-delivery model, capital constraints, and overall changes in the net oxygen therapy patient
populations, and is presently being impacted by the COVID-19 pandemic and related PHE. 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. Products are shipped both FOB Inogen dock and Delivery Duty Paid (DDP) for certain international shipments
depending on the shipper used. DDP shipments are Inogen’s property until title has transferred which is upon duty being paid and
delivered to the customer. As a result of these factors, product purchases can be subject to changes in demand by customers.
We sold approximately 175,800 systems in 2021, 178,900 systems in 2020 and 201,100 systems in 2019. Management focuses
on system sales as an indicator of current business success.
Rental revenue
Our rental process involves numerous interactions with the individual patient, their physician and the physician’s staff. The
process includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen therapy, and their
medical history to confirm the appropriateness of our product for the patient’s oxygen therapy and compliance with Medicare and
private payor billing requirements, which often necessitates additional physician evaluation and/or testing for oxygen. Once the
product is deployed, the patient receives instruction on product use and may receive a clinical titration from our licensed staff to
confirm the product meets the patient’s medical oxygen needs prior to billing. As a result, the period of time from initial contact with a
patient to billing can vary significantly and be up to one month or longer. However, during the COVID-19 PHE, CMS has reduced the
paperwork requirements for Medicare oxygen therapy patients, as discussed in more detail in the Reimbursement section below. CMS
has also adopted additional changes to the administrative requirements to dispense and bill for oxygen therapy, which is discussed in
more detail in the Reimbursement section below, which may reduce the administrative burden and increase patient access to our
products.
Rental revenue increased in 2021 compared to 2020, primarily due to a greater number of patients on service, higher Medicare
reimbursement rates, and higher billable patients as a percent of total patients on service. Medicare reimbursement rates for oxygen
therapy have increased, as detailed in the Reimbursement section below. In addition, as part of the various stimulus bills in 2020 (also
discussed in more detail in the Reimbursement section below), the 2% Medicare sequestration reduction was temporarily paused, and
Medicare reimbursement rates for non-rural, non-competitive bid areas through the duration of the COVID-19 PHE were increased to
a 75/25 blended rate retroactive to March 6, 2020, which increased the rates in 2021 while the COVID-19 PHE continued. The 50/50
blended rate for HME providers in rural and non-contiguous, non-competitive bid areas was extended permanently as part of the final
rule published in December 2021. We plan to add new rental patients on service in future periods through multiple strategies,
including expanding our prescriber sales team, expanding our direct-to-consumer marketing efforts, investing in patient and physician
awareness and advocacy, expanding clinical evidence, and securing additional insurance contracts.
A portion of rentals include a capped rental period during which no additional reimbursement is allowed unless additional
criteria are met. In this scenario, the ratio of billable patients to total patients on service is critical to maintaining rental revenue growth
as patients on service increases. Medicare has noted a certain percentage of beneficiaries, approximately 25%, based on their review of
Medicare claims, reach the 36th month of eligible reimbursement and enter the capped rental period. The percentage of capped patients
may fluctuate over time as new patients come on service, patients come off of service before and during the capped rental period, and
existing patients enter the capped rental period.
We had approximately 42,900, 32,200 and 25,300 oxygen rental patients as of December 31, 2021, 2020 and 2019, respectively.
Management focuses on patients on service as a leading indicator of likely future rental revenue; however, actual rental revenue
recognized is subject to a variety of other factors, including reimbursement levels by payor, patient location, the number of capped
patients, write-offs for uncollectable balances, and rental revenue adjustments.
Reimbursement
We rely significantly on reimbursement from Medicare and private payors, including Medicare Advantage plans, Medicaid and
patients for our rental revenue. A discussion of third-party reimbursement is contained in Item 1, Third-party reimbursement in this
Annual Report on Form 10-K. For the years ended December 31, 2021, 2020 and 2019, approximately 81.9%, 81.5% and 81.1%,
respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.
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Basis of presentation
The following describes the line items set forth in our consolidated statements of comprehensive income (loss).
Revenue
We classify our revenue in two main categories: sales revenue and rental revenue. There will be fluctuations in mix between
business-to-business sales, direct-to-consumer sales and rental revenue from period-to-period. Product selling prices and gross
margins may fluctuate as we introduce new products, our product costs change, we have changes in purchase volumes, and as
currency variations occur. For example, the higher costs for semiconductor chips has had a negative impact on our gross margin, and
we expect that will continue in 2022. Thus, to the extent that these higher costs continue, our overall gross margin should decline. In
addition, the gross margin of the sales to direct-to-consumer sales and rental customers are generally higher than business-to-business
accounts, so to the extend our sales of direct-to-consumers sales and rental customers are higher than sales to our business-to-business
customers, our overall gross margins should improve, and, conversely, to the extent our sales are higher to our business-to-business
customers than our sales to direct-to-consumer sales and rental customers, our overall gross margins should decline. Quarter-over-
quarter results may vary due to seasonality in both the international and domestic markets, as discussed in Item 1. Seasonality and
elsewhere in this Annual Report on Form 10-K.
Sales revenue
Our sales revenue is primarily derived from the sale of our Inogen One systems, Inogen At Home systems, TAV systems, and
related accessories to individual consumers, our private label partner, HME providers, distributors, resellers, and charitable
organizations worldwide. Sales revenue is classified into two areas: business-to-business sales and direct-to-consumer sales.
Generally, our direct-to-consumer sales have higher gross margins than our business-to-business sales.
Rental revenue
Our rental revenue is primarily derived from the rental of our Inogen One and Inogen At Home systems to patients through
reimbursement from Medicare, private payors and Medicaid, which typically also includes a patient responsibility component for
patient co-insurance and deductibles. Rental revenue increased in 2021, primarily due to higher patients on service, higher billable
patients as a percent of total patients on service, and higher Medicare reimbursement rates. We expect our rental revenue to increase in
future periods as we scale the rental intake and sales teams and increase new rental setups. In addition, for the duration of the COVID-
19 PHE, we expect to benefit from higher Medicare reimbursement rates and reduced administrative requirements for oxygen therapy
enacted due to the COVID-19 PHE. We also expect that our rental revenue will be impacted by the number of our sales and rental
intake representatives, reimbursement rate changes, including the impact of COVID-19 PHE changes, the level of and response from
potential customers to direct-to-consumer marketing spend, product launches, the number of billable patients and denial rates, and
other uncontrollable factors such as changes in the market and competition.
Cost of revenue
Cost of sales revenue
Cost of sales revenue consists primarily of costs incurred in the production process, including component materials, assembly
labor and overhead, warranty expense, provisions for slow-moving and obsolete inventory, rework and delivery costs for items sold.
Labor and overhead expenses consist primarily of personnel-related expenses, including wages, bonuses, benefits, and stock-based
compensation for manufacturing, logistics, repair, manufacturing engineering, and quality assurance employees and temporary labor.
Cost of sales revenue also includes manufacturing freight in, depreciation expense, facilities costs and materials. Provisions for
warranty obligations are included in cost of sales revenue and are provided for at the time of revenue recognition.
We continue to make progress towards reducing the average unit costs of our products (excluding the impact of the
semiconductor chip cost increases) as a result of our ongoing efforts to develop lower-cost systems, negotiate with our suppliers,
improve our manufacturing processes, and increase production volume and yields. However, we have experienced and expect to
continue experiencing supply chain disruptions through 2022, primarily associated with semiconductor chips used in our batteries and
printed circuit boards which are components of our portable oxygen concentrators, which drove up the cost of our products in 2021
and which we expect will continue to drive up the cost of our products in 2022.
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As a result, we saw these inflated costs negatively impact our cost of goods sold in the third and fourth quarters of 2021, and we
expect this to have an increased impact on our material costs in 2022 until supply and demand get closer to equilibrium. Even though
we paid significant costs in the third and fourth quarters of 2021 associated with these chips, most of these costs increased our prepaid
expense and inventory given that these components were not yet sold in finished products during the period. We believe based on our
assessment and industry feedback that these supply shortages and are likely to continue through first half of 2022. In addition to the
semiconductor chip limitations, we are continuing to see supply chain constraints for other components used in our products. As a
result of the semiconductor chip shortages, we temporarily suspended manufacturing operations at our Texas and California locations
from January 3, 2022 to February 7, 2022 and Foxconn, our Czech Republic-based OEM, suspended manufacturing due to the same
supply constraints from January 3, 2022 to February 9, 2022. While we were able to resume manufacturing operations, we are still
seeing challenges in terms of available supply, and we believe this is an increased risk to the business in 2022. As a result, in the
interim we expect to be supply constrained and unable to meet all customer demand for our products.
Recent United States policies related to global trade and tariffs may also increase our average unit cost. The current economic
environment has introduced greater uncertainty with respect to potential trade regulations, including changes to United States policies
related to global trade and tariffs. We continue to monitor the Section 301 tariffs being imposed by the United States on certain
imported Chinese materials and products in addition to potential retaliatory responses from other nations. In 2021 and 2020, the
impact of the China tariffs on our financial results was minimal as we have received some exemptions, negotiated cost sharing and
price reductions with suppliers, and re-allocated purchases. Assuming the Chinese tariffs stay at the current levels, we currently expect
the overall financial impact to our business to be minimal to the average unit cost for 2022.
For these reasons, we expect sales gross margin percentage to fluctuate over time based on the sales channel mix, product mix,
and changes in average selling prices and cost per unit.
Cost of rental revenue
Cost of rental revenue consists primarily of depreciation expense; service costs for rental patients, including rework costs,
material, labor, freight, and consumable disposables; and logistics costs.
We expect rental gross margin percentage to increase over time, primarily associated with higher rental revenue per patient on
service and lower costs per patient on service. We expect the average cost of rental revenue per patient on service to decline in future
periods as a result of our ongoing efforts to reduce average unit cost of our systems as well as reductions in depreciation, service costs,
and logistics costs.
Operating expense
Research and development
Our research and development expense consists primarily of personnel-related expenses, including wages, bonuses, benefits and
stock-based compensation for research and development and engineering employees, facility costs, laboratory supplies, product
development materials, consulting fees and related costs, clinical study costs, and testing costs for new product launches as well as
enhancements to existing products. We have made substantial investments in research and development since our inception. Our
research and development efforts have focused primarily on the tasks required to enhance our technologies and to support
development and commercialization of new and existing products.
We plan to continue to invest in research and development activities to stay at the forefront of patient preference in oxygen
therapy. We expect research and development expense to increase in absolute dollars in future periods as we continue to invest in our
engineering and technology teams to support our new and enhanced product research and development efforts and manufacturing
improvements. We expect increased research and development costs associated with broadening our product portfolio including
incorporating the TAV technology into our oxygen concentrator.
Sales and marketing
Our sales and marketing expense primarily supports our direct-to-consumer sales and rental strategy and consists mainly of
personnel-related expenses, including wages, bonuses, commissions, benefits, and stock-based compensation for sales, marketing,
customer service, rental intake, and clinical service employees. It also includes expenses for media and advertising, printing,
informational kits, dues and fees, credit card fees, recruiting, training, sales promotional activities, travel and entertainment expenses
as well as allocated facilities costs.
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Sales and marketing expense increased in 2021 compared to 2020, primarily associated with higher personnel-related expense,
consulting costs, credit card/financing fees, and advertising expense. Our average direct-to-consumer sales representative headcount
was down approximately 12% in the twelve months ended December 31, 2021 from the comparative period in the prior year as
attrition outpaced hiring, primarily due to increased competition for sales professionals in 2021. We continue to look to add new sales
representatives, while maintaining our hiring standards and being mindful of the supply constraints. Headcount was down slightly as
of December 31, 2021 compared to December 31, 2020. We expect minimal net new hires in the near term due to the size and quality
of the candidate pool and expected attrition, but as part of our growth plans, we are increasing our focus on improving productivity of
our existing sales force. Going forward, except as otherwise limited by the impact of the COVID-19 pandemic and related PHE, our
plan is to continue to expand sales capacity while focusing on increased productivity, improved sales personnel and lead distribution
systems, and improved training. We 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 which includes our prescriber sales team, increasing our rental
infrastructure, increasing media spend to drive consumer awareness, and rising patient support costs as our patient and customer base
increases.
General and administrative
Our general and administrative expense consists primarily of personnel-related expenses, including wages, bonuses, benefits,
and stock-based compensation for employees in our compliance, finance, medical billing, order intake, regulatory and clinical affairs,
legal, human resources, and information technology (IT) departments as well as facilities costs, sales bad debt expense, and board of
directors’ expenses, including stock-based compensation. In addition, general and administrative expense includes professional
services, such as legal, patent registration and defense costs, insurance, consulting and accounting services, including audit and tax
services, and travel and entertainment expenses. In addition, general and administrative expense includes changes in the fair value of
the New Aera earnout liability, as discussed below.
We expect general and administrative expense to increase in future periods as the number of administrative personnel grows and
we continue to introduce new products, broaden our customer base and grow our business. 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 regulatory and clinical affairs, legal, 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
Our other income (expense), net consists primarily of interest income earned on cash equivalents and marketable securities as
well as foreign currency gains and (losses).
Income taxes
We account for income taxes in accordance with Accounting Standards Codification (ASC) 740—Income Taxes. Under ASC
740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and
assets are recognized for the future tax consequences of transactions that have been recognized in our consolidated financial
statements or tax returns. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred
tax asset will not be realized.
We account for uncertainties in income tax in accordance with ASC 740-10—Accounting for Uncertainty in Income Taxes. ASC
740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition.
The accounting for stock-based compensation will increase or decrease our effective tax rate based upon the difference between
our stock-based compensation expense and the deductions taken on our U.S. tax return, which depends upon the stock price at the time
of employee option exercise or award vesting. We recognize excess tax benefits or deficiencies on a discrete basis, and we anticipate
our effective tax rate will vary from year-to-year depending on our stock price in each period.
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Results of operations
Comparison of years ended December 31, 2021 and 2020
Revenue
Years ended December 31,
(amounts in thousands)
Sales revenue ................................................ $
Rental revenue ..............................................
Total revenue ................................................ $
2021
2020
311,730 $
46,273
358,003 $
280,189 $
28,298
308,487 $
$
31,541
17,975
49,516
11.3%
63.5%
16.1%
87.1%
12.9%
100.0%
90.8%
9.2%
100.0%
Change 2021 vs. 2020
%
% of Revenue
2021
2020
Sales revenue increased $31.5 million for the year ended December 31, 2021 from the year ended December 31, 2020, or an
increase of 11.3% from the comparable year. The increase was primarily attributable to increased direct-to-consumer sales and
international business-to-business sales, primarily due to increased average selling prices and increased consumer demand, and the
reduced impact of the COVID-19 pandemic and related PHE, partially offset by supply chain constraints limiting product availability.
We sold approximately 175,800 oxygen systems during the year ended December 31, 2021 compared to approximately 178,900
oxygen systems sold during the year ended December 31, 2020, or a decrease of 1.7%. The decrease in the number of systems sold
resulted mainly from a decrease in sales in the domestic business-to-business channels, primarily due to supply chain constraints.
Rental revenue increased $18.0 million for the year ended December 31, 2021 from the year ended December 31, 2020, or an
increase of 63.5% from the comparable year. The increase in rental revenue was primarily related to higher rental patients on service,
higher Medicare reimbursement rates, and higher billable patients as a percent of total patients on service.
Years ended December 31,
2021
2020
Change 2021 vs. 2020
%
% of Revenue
2021
2020
(amounts in thousands)
Revenue by region and category
Business-to-business domestic sales............. $
Business-to-business international sales.......
Direct-to-consumer domestic sales...............
Direct-to-consumer domestic rentals............
Total revenue ................................................ $
91,371 $
79,460
140,899
46,273
358,003 $
96,423 $
62,147
121,619
28,298
308,487 $
$
(5,052)
17,313
19,280
17,975
49,516
-5.2%
27.9%
15.9%
63.5%
16.1%
25.5%
22.2%
39.4%
12.9%
100.0%
31.3%
20.1%
39.4%
9.2%
100.0%
Domestic business-to-business sales decreased 5.2% for the year ended December 31, 2021 compared to the year ended
December 31, 2020. The decrease was primarily due to supply chain constraints that limited sales primarily in the second half of 2021.
International business-to-business sales increased 27.9% for the year ended December 31, 2021 compared to the year ended
December 31, 2020, mostly driven by the reduced impact of the COVID-19 pandemic with increased vaccination rates and increased
operating capacity of certain European respiratory assessment centers, and in response to the COVID-19 pandemic and related PHE
due to greater demand for POCs for COVID-19 patients at hospital discharge in certain markets with high case rates of COVID-19. In
the year ended December 31, 2021, sales in Europe as a percentage of total international sales revenue increased slightly to 86.8%
versus 85.8% in the comparative period in 2020.
Domestic direct-to-consumer sales increased 15.9% for the year ended December 31, 2021 compared to the year ended
December 31, 2020, primarily due to increased average selling prices and increased demand for POCs which we believe was primarily
due to higher vaccination rates within our patient population and increased ambulation, additional stimulus payments, and improved
consumer confidence. This led to improved sales representative productivity and increased average revenue per order in the
comparative periods. This was partially offset by lower average inside sales representative headcount, which was down approximately
12% from the comparative period in 2020.
Domestic direct-to-consumer rentals increased 63.5% for the year ended December 31, 2021 compared to the year ended
December 31, 2020, primarily due to an increase in patients on service, increased Medicare reimbursement rates, and higher billable
patients as a percent of total patients on service.
79
Cost of revenue and gross profit
Years ended December 31,
(amounts in thousands)
Cost of sales revenue .................................... $
Cost of rental revenue...................................
Total cost of revenue .................................... $
2021
161,824
19,696
181,520
Gross profit - sales revenue .......................... $
Gross profit - rental revenue .........................
Total gross profit........................................... $
149,906
26,577
176,483
2020
156,764
13,543
170,307
123,425
14,755
138,180
$
$
$
$
$
$
$
$
Change 2021 vs. 2020
%
% of Revenue
2021
2020
$
5,060
6,153
11,213
3.2%
45.4%
6.6%
45.2%
5.5%
50.7%
26,481
11,822
38,303
21.5%
80.1%
27.7%
41.9%
7.4%
49.3%
50.8%
4.5%
55.2%
40.0%
4.8%
44.8%
Gross margin percentage - sales revenue......
Gross margin percentage - rental revenue ....
Total gross margin percentage......................
48.1%
57.4%
49.3%
44.1%
52.1%
44.8%
Cost of sales revenue increased $5.1 million for the year ended December 31, 2021 from the year ended December 31, 2020, or
an increase of 3.2% from the comparable year. The increase in cost of sales revenue was primarily attributable to higher bill of
material costs as well as higher material cost per unit and labor and overhead per unit. The year ended December 31, 2021 included
$3.2 million of higher material costs associated with open-market purchases of semiconductor chips used in its batteries and POCs.
Cost of rental revenue increased $6.2 million for the year ended December 31, 2021 from the year ended December 31, 2020, or
an increase of 45.4% from the comparable year. The increase in cost of rental revenue was primarily due to an increase in total
patients on service, which led to increased rental asset depreciation expense and servicing costs. Cost of rental revenue included $8.9
million of rental asset depreciation for the year ended December 31, 2021 compared to $5.7 million for the year ended December 31,
2020.
Sales revenue gross margin percentage increased to 48.1% for the year ended December 31, 2021 from 44.1% for the year
ended December 31, 2020. The increase was primarily related to higher average selling prices and decreased mix of domestic
business-to-business sales, which have a lower gross margin than direct-to-consumer and international sales, partially offset by higher
labor and overhead per unit and material cost per unit due to higher component cost versus the comparative year. Total worldwide
business-to-business sales revenue accounted for 54.8% of total sales revenue in the year ended December 31, 2021 versus 56.6% in
the year ended December 31, 2020.
Rental revenue gross margin percentage increased to 57.4% for the year ended December 31, 2021 from 52.1% for the year
ended December 31, 2020, primarily due to higher billable patients as a percent of total patients on service and higher Medicare
reimbursement rates, partially offset by higher servicing costs and depreciation expense per patient on service.
Research and development expense
Years ended December 31,
(amounts in thousands)
Research and development expense ............. $
2021
2020
16,576 $
14,080 $
$
2,496
Change 2021 vs. 2020
%
% of Revenue
2021
2020
17.7%
4.6%
4.6%
Research and development expense increased $2.5 million for the year ended December 31, 2021 from the year ended
December 31, 2020, or an increase of 17.7% over the comparable period, primarily due to a $1.7 million increase in personnel-related
expenses and $0.6 million in product development expenses.
Sales and marketing expense
Years ended December 31,
(amounts in thousands)
Sales and marketing expense ........................ $
Change 2021 vs. 2020
%
% of Revenue
2021
2020
15.7%
31.5%
31.6%
$
15,295
2021
2020
112,815 $
97,520 $
80
Sales and marketing expense increased $15.3 million for the year ended December 31, 2021 from the year ended December 31,
2020, or an increase of 15.7% from the comparable period, primarily attributable to an increase of $9.0 million of personnel-related
expenses, $2.4 million of consulting fees, $2.1 million in credit card and financing fees, $1.0 million in media and advertising costs,
and $0.4 million in travel and entertainment expenses. In the year ended December 31, 2021, we spent $35.2 million in media and
advertising costs versus $34.2 million in the comparative period in 2020.
General and administrative expense
Years ended December 31,
(amounts in thousands)
General and administrative expense ............. $
2021
2020
Change 2021 vs. 2020
%
$
% of Revenue
2021
2020
37,852 $
38,605 $
(753)
-2.0%
10.6%
12.5%
General and administrative expense decreased $0.8 million for the year ended December 31, 2021 from the year ended
December 31, 2020, or a decrease of 2.0% from the comparable period. The decrease was primarily attributable to a $12.6 million
decrease in the change in fair value of the New Aera earnout liability and $1.1 million in lower consulting fees, partially offset by
increases of $6.5 million in personnel-related expenses, $2.1 million in CEO transition costs, $1.2 million in legal and accounting fees,
$1.1 million in officer transition costs, $0.9 million reimbursement from the CARES Act Provider Relief Fund due to the COVID-19
PHE received in the comparable period, $0.5 million in insurance expense, and $0.3 million in facilities costs.
Other income (expense)
Years ended December 31,
(amounts in thousands)
Interest income.............................................. $
Other income (expense)................................
Total other income (expense), net ........... $
2021
2020
Change 2021 vs. 2020
%
$
% of Revenue
2021
2020
129 $
(710)
(581) $
909 $
5,836
6,745 $
(780)
(6,546)
(7,326)
-85.8%
-112.2%
-108.6%
0.0%
-0.2%
-0.2%
0.3%
1.9%
2.2%
Total other income (expense), net decreased $7.3 million for the year ended December 31, 2021 from the year ended December
31, 2020, or a decrease of 108.6% from the comparable period. The decrease 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 received in the comparable period
and not received the current year, a $1.3 million increase in net foreign currency losses, and a decrease of $0.8 million in interest
income on marketable securities due to the lower interest rate environment and lower invested balances in marketable securities in the
2021 compared to 2020.
Income tax expense
Years ended December 31,
(amounts in thousands)
Income tax expense....................................... $
Effective income tax rate ..............................
2021
2020
$
14,992
173.1%
549
$
-10.4%
$
14,443
Change 2021 vs. 2020
%
% of Revenue
2021
2020
2630.8%
4.2%
0.2%
Income tax expense increased $14.4 million for the year ended December 31, 2021 from the year ended December 31, 2020,
primarily resulting from the recording of a valuation allowance on the use of deferred tax assets, the reduction in the fair value of the
New Aera earnout liability, partially offset by an increase in excess tax benefits recognized from stock-based compensation.
Our effective tax rate in the year ended December 31, 2021 increased compared to the year ended December 31, 2020, primarily
due to the recording of a valuation allowance on the use of deferred tax assets, the reduction in the fair value of the New Aera earnout
liability, partially offset by an increase in excess tax benefits recognized from stock-based compensation.
Net loss
Years ended December 31,
(amounts in thousands)
Net loss ......................................................... $
2021
2020
Change 2021 vs. 2020
%
$
% of Revenue
2021
2020
(6,333) $
(5,829) $
(504)
-8.6%
-1.8%
-1.9%
81
Net loss increased $0.5 million for the year ended December 31, 2021 from the year ended December 31, 2020, or an increase of
8.6% from the comparable period. The increase in net loss was primarily related to the recording of a valuation allowance on the use
of deferred tax assets and higher operating expense, partially offset by an increase in gross profit and the reduction in the fair value of
the New Aera earnout liability.
Seasonality
We believe our sales may be impacted by seasonal factors. For example, we typically experience higher total sales in the second
and third quarters, as a result of consumers traveling and vacationing during warmer weather in the spring and summer months, but
this may vary year-over-year. In particular, due to the COVID-19 pandemic and related PHE, we have seen and expect to continue to
see a disruption in our normal seasonal trends due to the mandates and behaviors emanating from the COVID-19 pandemic and related
PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, and we did not see the typical seasonal
increases in direct-to-consumer sales in 2020 that we have seen in prior years, but have seen seasonality in our direct-to-consumer
sales in 2021 to be similar to historical periods excluding 2020, although this may not continue in future periods. We also expect the
semiconductor chip shortage to negatively impact our total revenue for 2022. Additionally, as more home medical equipment (HME)
providers adopt portable oxygen concentrators in their businesses, we expect our historical seasonality in the domestic business-to-
business channel could change as well, which was previously influenced mainly by consumer buying patterns.
Comparison of years ended December 31, 2020 and 2019
A discussion of changes in our results of operations during the year ended December 31, 2020 compared to the year ended
December 31, 2019 has been omitted from this Annual Report on Form 10-K but may be found in “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31,
2020, filed with the SEC on February 24, 2021, which discussion is incorporated herein by reference and which is available free of
charge on the SECs website at www.sec.gov.
Liquidity and capital resources
As of December 31, 2021, we had cash and cash equivalents of $235.5 million, which consisted of highly liquid investments
with a maturity of three months or less. In addition, we held marketable securities of $10.0 million in available-for-sale corporate
bonds which had maturities greater than three months. For the years ended December 31, 2021, 2020 and 2019, we received $15.6
million, $2.4 million and $5.9 million, respectively, in proceeds related to stock option exercises and our employee stock purchase
plan.
Our principal uses of cash for liquidity and capital resources in the year ended December 31, 2021 consisted of capital
expenditures of $24.1 million including additional rental equipment, other property, plant and equipment, and intangible assets.
The COVID-19 pandemic and related PHE has not materially impacted 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. We believe that
our current cash, cash equivalents and the cash to be generated from expected product sales and rentals will be sufficient to meet our
projected operating and investing requirements for at least the next twelve months. However, our liquidity assumptions may prove to
be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future funding requirements
will depend on many factors, including market acceptance of our products; the cost of our research and development activities;
payments from customers; the cost, timing, and outcome of litigation or disputes involving intellectual property rights, our products,
employee relations, cyber security incidents, or otherwise; the cost and timing of acquisitions; the cost and timing of regulatory
clearances or approvals; the cost and timing of establishing additional sales, marketing, and distribution capabilities; and the effect of
competing technological and market developments. In the future, we may acquire businesses or technologies from third parties, and
we may decide to raise additional capital through debt or equity financing to the extent we believe this is necessary to successfully
complete these acquisitions. Our future capital requirements will also depend on many additional factors, including those set forth in
the section of this Annual Report on Form 10-K entitled “Risk Factors.”
If we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all. In the future,
we may also attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing
arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will
be diluted. If we raise additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment
obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other
operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in
terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital, which
82
would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next twelve
months is below our expectations, our liquidity and ability to operate our business could be adversely affected.
The following tables show a summary of our cash flows and working capital for the periods and as of the dates indicated:
(amounts in thousands)
Summary of consolidated cash flows
Cash provided by operating activities ...................................................... $
Cash used in investing activities ..............................................................
Cash provided by financing activities ......................................................
Effect of exchange rates on cash ..............................................................
Net increase in cash and cash equivalents................................................ $
2021
Years ended December 31,
2020
2019
23,633 $
(14,645)
15,000
(426)
23,562 $
37,013 $
(25,640)
2,066
486
13,925 $
40,593
(44,057)
4,929
(62)
1,403
(amounts in thousands)
Summary of working capital
Total current assets................................................................................................................. $
Total current liabilities ...........................................................................................................
Net working capital ................................................................................................................ $
December 31,
2021
2020
329,186 $
61,512
267,674 $
305,697
56,710
248,987
Operating activities
We derive operating cash flows from cash collected from the sales and rental of our products and services. These cash flows
received are partially offset by our use of cash for operating expenses to support the growth of our business.
Net cash provided by operating activities for the year ended December 31, 2021 consisted primarily of our non-cash expense
items such as depreciation of equipment and leasehold improvements and amortization of our intangibles of $21.6 million, a decrease
in deferred tax assets of $14.4 million, provision for sales returns and doubtful accounts of $11.1 million, stock-based compensation
expense of $10.9 million, provision for inventory obsolescence and other inventory losses of $2.1 million, and net loss on disposal of
rental equipment and other fixed assets of $1.5 million; partially offset by the change in fair value of earnout liability of $11.6 million
and our net loss of $6.3 million. The net changes in operating assets and liabilities resulted in a net use of cash of $20.1 million.
Net cash provided by operating activities for the year ended December 31, 2020 consisted primarily of our non-cash expense
items such as depreciation of equipment and leasehold improvements and amortization of our intangibles of $18.6 million, provision
for sales returns and doubtful accounts of $10.5 million, stock-based compensation expense of $8.2 million, provision for rental
revenue adjustments of $2.6 million, provision for inventory obsolescence and other inventory losses of $1.3 million, change in fair
value of earnout liability of $1.1 million, net loss on disposal of rental equipment and other fixed assets of $0.9 million and our net
loss of $5.8 million. The net changes in operating assets and liabilities resulted in no effect on cash flows from operating activities.
Net cash provided by operating activities for the year ended December 31, 2019 consisted primarily of our net income of $21.0
million as well as non-cash expense items such as provision for sales returns and doubtful accounts of $17.2 million, depreciation of
equipment and leasehold improvements and amortization of our intangibles of $13.8 million, stock-based compensation expense of
$9.1 million, deferred tax assets of $2.9 million, provision for rental revenue adjustments of $2.2 million, provision for inventory
obsolescence and other inventory losses of $1.0 million, change in fair value of earnout liability of $0.8 million and net loss on
disposal of rental equipment and other fixed assets of $0.6 million. The net changes in operating assets and liabilities resulted in a net
use of cash of $27.9 million.
Investing activities
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 equipment and tooling, computer equipment and software, leasehold improvements and
other property, plant and equipment to support our expanding business, partially offset by net maturities of marketable securities.
For the year ended December 31, 2021, we invested $23.9 million in the production and purchase of rental assets and other
property, equipment, and intangible assets as well as $10.0 million in corporate bonds with maturities greater than three months that
were classified as marketable securities, partially offset by $19.3 million in maturities of marketable securities.
83
For the year ended December 31, 2020, we invested $22.8 million in corporate bonds, U.S. Treasury securities and agency
mortgage-backed securities with maturities greater than three months that were classified as marketable securities, partially offset by
$14.5 million in maturities of available-for-sale investments. In addition, we invested $17.6 million in the production and purchase of
rental assets and other property, equipment, and intangible assets.
For the year ended December 31, 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 $91.4 million in maturities of marketable securities. In addition, we invested $6.5 million in the
production and purchase of rental assets and other property, equipment, leasehold improvements and intangible assets.
We expect to continue investing in property, equipment and leasehold improvements as we expand our operations. Our business
is inherently capital intensive. For example, we expend significant manufacturing and production expense in connection with the
development and production of our oxygen concentrator products and, in connection with our rental business, we incur expense in the
deployment of rental equipment to our patients. Investments will continue to be required in order to grow our sales and rental revenue
and continue to supply and replace rental equipment to our rental patients on service.
Financing activities
Historically, we have funded our operations through our sales and rental revenue, the issuance of preferred and common stock,
and the incurrence of indebtedness.
For the year ended December 31, 2021, net cash provided by financing activities consisted of $15.6 million from the proceeds
received from stock options that were exercised and purchases under our employee stock purchase program, partially offset by the
payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.6 million.
For the year ended December 31, 2020, net cash provided by financing activities consisted of $2.4 million from purchases under
our employee stock purchase program and the proceeds received from stock options that were exercised, partially offset by the
payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.4 million.
For the year ended December 31, 2019, net cash provided by financing activities consisted of $5.9 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 $0.9 million.
Sources of funds
Our cash provided by operating activities in the year ended December 31, 2021 was $23.6 million compared to $37.0 million in
the year ended December 31, 2020. As of December 31, 2021, we had cash and cash equivalents of $235.5 million.
Use of funds
Our principal uses of cash are funding our new rental asset deployments and other capital purchases, operations, and other
working capital requirements and, from time-to-time, the acquisition of businesses. Over the past several years our cash flows from
customer collections have remained consistent and our annual cash provided by operating activities has generally been a significant
source of capital to the business, which we expect to continue in the future.
We may need to raise additional funds to support our investing operations, and such funding may not be available to us on
acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business
strategy could be adversely affected. We may seek to raise additional funds through equity, equity-linked or debt financings. If we
raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our
equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our
stockholders.
Non-GAAP financial measures
EBITDA and Adjusted EBITDA are financial measures that are not calculated in accordance with U.S. GAAP. We define
EBITDA as net 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 (loss), the most directly comparable financial measure calculated and presented in
accordance with U.S. GAAP. EBITDA and Adjusted EBITDA should not be considered alternatives to net income (loss) or any other
measure of financial performance calculated and presented in accordance with U.S. GAAP. Our EBITDA and Adjusted EBITDA may
not be comparable to similarly titled measures of other organizations because other organizations may not calculate EBITDA and
Adjusted EBITDA in the same manner as we calculate these measures.
84
We include EBITDA and Adjusted EBITDA in this Annual Report on Form 10-K because they are important measures upon
which our management assesses our operating performance. We use EBITDA and Adjusted EBITDA as key performance measures
because we believe they facilitate operating performance comparisons from period-to-period by excluding potential differences
primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed
assets and intangible assets, the impact of stock-based compensation expense and the impact of the change in fair value of the earnout
liability. Because EBITDA and Adjusted EBITDA facilitate internal comparisons of our historical operating performance on a more
consistent basis, we also use EBITDA and Adjusted EBITDA for business planning purposes, to incentivize and compensate our
management personnel, and in evaluating acquisition opportunities. In addition, we believe EBITDA and Adjusted EBITDA and
similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our
industry as a measure of financial performance and debt-service capabilities.
Our uses of EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as
a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
•
•
•
•
•
EBITDA and Adjusted EBITDA do not reflect our cash expenditures for capital equipment or other contractual
commitments;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be
replaced in the future, and EBITDA and Adjusted EBITDA do not reflect capital expenditure requirements for such
replacements;
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not include changes in fair value of earnout liability related to our acquisitions; and
other companies, including companies in our industry, may calculate EBITDA and Adjusted EBITDA measures
differently, which reduces their usefulness as a comparative measure.
In evaluating EBITDA and Adjusted EBITDA, we anticipate that in the future we will incur expenses within these categories
similar to this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our
future results will be unaffected by certain expenses. When evaluating our performance, EBITDA and Adjusted EBITDA should be
considered alongside other financial performance measures, including U.S. GAAP results.
The following tables present 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:
(amounts in thousands)
Non-GAAP EBITDA and Adjusted EBITDA
Net income (loss) ......................................................................................................... $
2021
Years ended December 31,
2020
2019
(6,333) $
(5,829) $
20,950
Non-GAAP adjustments:
Interest income.......................................................................................................
Provision for income taxes.....................................................................................
Depreciation and amortization ...............................................................................
EBITDA (non-GAAP) ...............................................................................
Stock-based compensation.....................................................................................
Change in fair value of earnout liability ................................................................
Adjusted EBITDA (non-GAAP) ............................................................... $
(129)
14,992
21,628
30,158
10,943
(11,596)
29,505 $
(909)
549
18,581
12,392
8,203
1,053
21,648 $
(4,712)
3,322
13,834
33,394
9,129
810
43,333
85
Contractual obligations
The following table reflects a summary of our contractual obligations as of December 31, 2021.
(amounts in thousands)
Contractual Obligations
Operating leases - properties and other (1).............. $
Purchase obligations (2)...........................................
Total.................................................................. $
Less than
1 year
Payments due by period
1-3
years
3-5
years
Total
More than
5 years
$
29,114
111,100
140,214 $
3,960 $
111,100
115,060 $
10,346 $
—
10,346 $
8,239 $
—
8,239 $
6,569
—
6,569
(1) We lease manufacturing and office space in Richardson, TX, Plano, TX, Goleta, CA, Smyrna, TN, Huntsville, AL, Aurora, CO,
Cleveland, OH and Breukelen, Netherlands with terms that expire between 2022 and 2031 and miscellaneous office and
processing equipment in Texas, California and Ohio with terms expiring between 2022 and 2031.
(2) We obtain individual components for our products from a wide variety of individual suppliers. Consistent with industry practice,
we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand
information. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the
respective supplier.
For additional description of contractual obligations and commitments, see the section titled “Commitments and Contingencies”
in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Contingent consideration
In connection with our acquisition of New Aera, we have contingent obligations to pay up to $31.4 million in earnout payments
in cash if certain future financial results are met. See the section titled “Fair Value of Earnout Liability” in the Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K for further discussion.
Critical accounting policies and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements which have been prepared in accordance with generally accepted accounting principles in the United States of America, or
U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the
financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with
U.S. GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates and such
differences could be material to the financial position and results of operations.
Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial
condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and estimates include
those related to:
(cid:3)
(cid:3)
revenue recognition; and
acquisitions and related acquired intangible assets and goodwill.
Revenue recognition
We generate revenue primarily from sales and rentals of our products. Our products consist of our proprietary line of oxygen
concentrators and related accessories. Other revenue primarily comes from service contracts, replacement parts and freight revenue for
product shipments.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the
consideration we expect to receive in exchange for those products or services. Revenue from product sales is generally recognized
upon shipment of the product but is deferred for certain transactions when control has not yet transferred to the customer.
Our product is generally sold with a right of return and we may provide other incentives, which are accounted for as variable
consideration when estimating the amount of revenue to recognize. Returns and incentives are estimated at the time sales revenue is
recognized. The provisions for estimated returns are made based on known claims and estimates of additional returns based on
historical data and future expectations. Sales revenue incentives within our contracts are estimated based on the most likely amounts
expected on the related sales transaction and recorded as a reduction to revenue at the time of sale in accordance with the terms of the
contract. Accordingly, revenue is recognized net of allowances for estimated returns and incentives.
86
For a fixed price, we also offer a lifetime warranty for direct-to-consumer sales for our oxygen concentrators. The revenue is
allocated to the distinct lifetime warranty performance obligation based on a relative stand-alone selling price (SSP) method. We have
vendor-specific objective evidence of the selling price for our equipment. To determine the selling price of the lifetime warranty, we
use the best estimate of the SSP for the distinct performance obligation as the lifetime warranty is neither separately priced nor is the
selling price available through third-party evidence. To estimate the selling price associated with the lifetime warranties, management
considers the profit margins of service revenue, the average estimated cost of lifetime warranties and the price of extended warranties.
Revenue from the distinct lifetime warranty is deferred after the delivery of the equipment and recognized based on an estimated
mortality rate over five years, which is the estimated performance period of the contract based on the average patient life expectancy.
Revenue from the sale of our repair services is recognized when the performance obligations are satisfied, and collection of the
receivables is probable. Other revenue from the sale of replacement parts is generally recognized when product is shipped to
customers.
Freight revenue consists of fees associated with the deployment of products internationally and domestically when expedited
freight options are requested or when minimum order quantities are not met. Freight revenue is generally recognized upon shipment of
the product but is deferred if control has not yet transferred to the customer. Shipping and handling costs for sold products and rental
assets shipped to our customers are included on the consolidated statement of comprehensive income as part of cost of sales revenue
and cost of rental revenue, respectively.
The payment terms and conditions of customer contracts vary by customer type and the products and services offered. For
certain products or services and customer types, we require payment before the products or services are delivered to the customer. The
timing of sales revenue recognition, billing and cash collection results in billed accounts receivable and deferred revenue in the
consolidated balance sheet.
Contract liabilities primarily consist of deferred revenue related to lifetime warranties on direct-to-consumer sales revenue when
cash payments are received in advance of services performed under the contract. The contract with the customer states the final terms
of the sale, including the description, quantity, and price of each product or service purchase.
We elected to apply the practical expedient in accordance with ASC 606—Revenue Recognition and did not evaluate contracts
of one year or less for the existence of a significant financing component. We do not expect any revenue to be recognized over a
multi-year period with the exception of revenue related to lifetime warranties.
We recognize equipment rental revenue over the non-cancelable lease term, which is one month, less estimated adjustments, per
ASC 842—Leases. We have separate contracts with each patient that are not subject to a master lease agreement with any payor. We
evaluate the individual lease contracts at lease inception and the start of each monthly renewal period to determine if there is
reasonable assurance that the bargain renewal option associated with the potential capped free rental period would be exercised.
Historically, the exercise of such bargain renewal option is not reasonably assured at lease inception and most subsequent monthly
lease renewal periods. If we determine that the reasonable assurance threshold for an individual patient is met at lease inception or at a
monthly lease renewal period, such determination would impact the bargain renewal period for an individual lease. We would first
consider the lease classification (sales-type lease or operating lease) and then appropriately recognize or defer rental revenue over the
lease term, which may include a portion of the capped rental period. To date, we have not deferred any amounts associated with the
capped rental period. Amounts related to the capped rental period have not been material in the periods presented.
The lease term begins on the date products are shipped to patients and are recorded at amounts estimated to be received under
reimbursement arrangements with third-party payors, including Medicare, private payors, and Medicaid. Due to the nature of the
industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue and accounts
receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional
information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of
reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such
adjustments are typically identified and recorded at the point of cash application, claim denial or account review. Accounts receivable
are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be
received, although product was delivered and revenue was earned. Upon determination that an account is uncollectable, it is written-
off and charged to the allowance. Amounts billed but not earned due to the timing of the billing cycle are deferred and recognized in
revenue on a straight-line basis over the monthly billing period. For example, if the first day of the billing period does not fall on the
first of the month, then a portion of the monthly billing period will fall in the subsequent month and the related revenue and cost
would be deferred based on the service days in the following month.
Rental revenue is recognized as earned, less estimated adjustments. Revenue not billed at the end of the period is reviewed for
the likelihood of collections and accrued. The rental revenue stream is not guaranteed, and payment will cease if the patient no longer
needs oxygen or returns the equipment. Revenue recognized is at full estimated allowable reimbursement rates. Rental revenue is
earned for that month if the patient is on service on the first day of the 30-day period commencing on the recurring date of service for
a particular claim regardless of whether there is a change in condition or death after that date. In the event that a third-party payor does
not accept the claim for payment, the consumer is ultimately responsible for payment for the products and services. We have
determined that the balances are collectable at the time of revenue recognition because the patient signs a notice of financial
responsibility outlining their obligations.
87
Included in rental revenue are unbilled amounts that were earned but not able to be billed for various reasons. The criteria for
recognizing revenue had been met as of period-end, but there were specific reasons why we were unable to bill Medicare and private
insurance for these amounts. As a result, we create an unbilled rental revenue accrual based on these earned revenues not billed based
on a percentage of unbilled amounts and historical trends and estimates of future collectability.
Acquisitions and related acquired intangible assets and goodwill
The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their
estimated fair values at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible
and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. We may adjust the preliminary purchase
price allocation, as necessary, for up to one year after the acquisition closing date if we obtain more information regarding asset
valuations and liabilities assumed.
We acquired New Aera on August 9, 2019 for $101.9 million. The excess purchase price over the fair value of net tangible
assets and identifiable intangible assets acquired has been allocated to goodwill. Goodwill represents the expected synergies with the
existing business, the acquired assembled workforce, and future cash flows after the acquisition. The fair value assigned to the
identifiable intangible asset was determined primarily by using the excess earnings method. The key assumptions included in the
excess earnings method included revenue recognized, cost of revenue and the discount rate.
Goodwill is tested for impairment on an annual basis as of October 1. Interim testing of goodwill for impairment is also required
whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or asset
below its carrying amount. No impairments were recorded as of December 31, 2021 and December 31, 2020.
Finite-lived intangible assets are amortized over their useful lives and are tested for recoverability whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. Technology and customer relationship intangibles are
amortized using the straight-line method.
Recent accounting pronouncements
Refer to Note 1 – Summary of significant accounting policies of the audited consolidated notes included in Part II, Item 8,
"Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for further discussion.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including fluctuation in foreign currency exchange rates and interest rates. Market risk
is the potential loss arising from adverse changes in market rates and prices. We do not hold or issue financial instruments for trading
purposes.
Foreign currency exchange risk
The principal market risk we face is foreign currency exchange risk. The majority of our revenue is denominated in U.S. dollars
while the majority of our European sales are denominated in Euros. In addition, we acquired MedSupport in the second quarter of
2017 with net assets denominated in Euros. Our results of operations, certain balance sheet balances and cash flows are, therefore,
subject to fluctuations due to changes in foreign currency exchange rates. The volatility of exchange rates depends on many factors
that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income or
loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are
denominated in currencies other than the functional currency in which they are recorded. The effect of a 10% adverse change in
exchange rates on foreign denominated cash, receivables and payables as of December 31, 2021 would not have had a material effect
on our financial position, results of operations or cash flows. As our operations in countries outside of the United States grow, our
results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could
harm our business in the future.
We began entering into foreign exchange forward contracts in December 2015 to protect our forecasted U.S. dollar-equivalent
earnings from adverse changes in foreign currency exchange rates. These hedging contracts reduce, but will not entirely eliminate, the
impact of adverse currency exchange rate movements on revenue. We performed a sensitivity analysis assuming a hypothetical 10%
adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of December
31, 2021, the analysis indicated that these hypothetical market movements would not have a material effect on our financial position,
results of operations or cash flows. We estimate prior to any hedging activity that a 10% adverse change in exchange rates on our
88
foreign denominated sales would have resulted in a $5.9 million decline in revenue for the year ended December 31, 2021. We
designate these forward contracts as cash flow hedges for accounting purposes. The fair value of the forward contract is separated into
intrinsic and time values. The fair value of forward currency-exchange contracts is sensitive to changes in currency exchange rates.
Changes in the time value are coded in other income (expense), net. Changes in the intrinsic value are recorded as a component of
accumulated other comprehensive income (loss) and subsequently reclassified into revenue to offset the hedged exposures as they
occur.
Interest rate fluctuation risk
We had cash and cash equivalents of $235.5 million as of December 31, 2021, which consisted of highly liquid investments
with a maturity of three months or less, and $10.0 million of marketable securities with maturity dates of greater than three months.
The primary goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or
speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of
changes in interest rates due to the short-term nature of our cash and cash equivalents. Declines in interest rates, however, would
reduce future investment income. We considered the historical volatility of short-term interest rates and determined that it was
reasonably possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1.00% (100
basis points) increase in interest rates would not have materially impacted the fair value of our marketable securities as of December
31, 2021 and December 31, 2020. If overall interest rates had increased or decreased by 1.00% (100 basis points), neither our interest
expense nor our interest income would have been materially affected during the years ended December 31, 2021 or December 31,
2020.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The Company maintains a system of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are designed to provide reasonable assurance that
information required to be disclosed in the reports that the Company files or submits under the Exchange Act, is recorded, processed,
summarized and reported accurately and completely within the time periods specified in the SEC’s rules and forms. These disclosure
controls and procedures include, among other processes, controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions over time, or that the degree of compliance with the policies and procedures may deteriorate. Accordingly, even
effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Our
management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2021. Based upon the evaluation described above, our Chief Executive Officer
and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective at the
reasonable assurance level.
Changes in internal controls over financial reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation required
by paragraph (d) of Rule 13a-15 or 15d-15 that occurred during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
89
Limitations on effectiveness of controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is
required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or
fraud may occur and not be detected.
Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, including our Chief Executive Officer and Chief Financial
Officer, conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (COSO). Based on our evaluation under the COSO framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2021 to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with U.S. GAAP.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by our independent
registered public accounting firm, Deloitte & Touche LLP, as stated in their report, which appears herein.
90
Report of independent registered public accounting firm
To the stockholders and the Board of Directors of Inogen, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Inogen, Inc. and subsidiary (the “Company”) as of December 31,
2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021 of the Company and our report dated
February 24, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 24, 2022
91
ITEM 9B. OTHER INFORMATION
Annual Meeting
Our annual meeting of stockholders will be held at 10:00 a.m. Pacific Time on Wednesday, June 8, 2022, as a virtual meeting.
Holders of record at the close of business on Monday, April 11, 2022, will be entitled to vote at the meeting.
2014 Equity Incentive Plan and 2014 Employee Stock Purchase Plan “Evergreen” Determination
For 2022, our board of directors exercised its authority to not increase the shares available for issuance pursuant to the
“evergreen” provisions under our 2014 Equity Incentive Plan and our 2014 Employee Stock Purchase Plan in 2020. Refer to Note 7 –
Stockholders’ Equity of the Notes included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report
on Form 10-K for further discussion of the annual share increase provisions of our 2014 Equity Incentive Plan and our 2014 Employee
Stock Purchase Plan.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
92
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this item will be set forth in our Proxy Statement for the Annual Meeting of Stockholders to be
filed with the SEC within 120 days of the fiscal year ended December 31, 2021 (the “Proxy Statement”) and is incorporated herein by
reference.
Our board of directors has adopted a Code of Ethics and Conduct that applies to all of our employees, officers and directors,
including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our
Code of Ethics and Conduct is posted on the investor relations page on our website which is located at http://investor.inogen.com. We
will post any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be disclosed in the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS MATTERS
The information required by this item will be disclosed in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be disclosed in the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be disclosed in the Proxy Statement and is incorporated herein by reference.
93
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
1.
Financial Statements
The consolidated financial statements listed in the accompanying index (page F-1) to the consolidated financial statements
are filed as part of this Annual Report on Form 10-K.
2.
Financial Statement Schedules
See Schedule II – Valuation and Qualifying Accounts and Reserves included herein.
All other schedules have been omitted because the information either has been shown in the financial statements or notes
thereto or is not applicable or required under this section.
(b) Exhibits
Exhibits are filed as part of this Annual Report on Form 10-K and are hereby incorporated by reference. Refer to Exhibit Index
included herein.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
94
Inogen, Inc.
Index to Financial Statements
and Financial Statement Schedule
Report of Independent Registered Public Accounting Firm ..........................................................................................................
F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 2021 and 2020.................................................................................................
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019 ..............
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 ..............................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 .............................................
Notes to the Consolidated Financial Statements ............................................................................................................................
Financial Statement Schedule
Valuation and Qualifying Accounts for the Years Ended December 31, 2021, 2020 and 2019....................................................
F-4
F-6
F-7
F-8
F-10
F-36
F-1
Report of independent registered public accounting firm
To the stockholders and the Board of Directors of Inogen, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Inogen, Inc. and subsidiary (the "Company") as of December 31,
2021 and 2020, the related consolidated statements of comprehensive income (loss), stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 24, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Sales Revenue (Amounts Deferred for Lifetime Warranty) – Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company offers a lifetime warranty for direct-to-consumer sales of its oxygen concentrators. For a fixed price, the Company
agrees to provide a fully functional oxygen concentrator for the remaining life of the patient. Lifetime warranties are only offered to
patients upon the initial sale of oxygen concentrators directly from the Company and are non-transferable. Lifetime warranties are
considered to be a distinct performance obligation that are accounted for separately from its sale of oxygen concentrators with a
standard warranty of three years.
The revenue is allocated to the distinct lifetime warranty performance obligation based on a relative stand-alone selling price (SSP)
method. The Company has vendor-specific objective evidence of the selling price for its equipment. To determine the selling price of
the lifetime warranty, the Company uses its best estimate of the SSP for the distinct performance obligation as the lifetime warranty is
neither separately priced nor is the selling price available through third-party evidence. To estimate the selling price associated with
the lifetime warranties, management considers the profit margins of service revenue, the average estimated cost of lifetime warranties
and the price of extended warranties. Revenue from the distinct lifetime warranty is deferred after the delivery of the equipment and
recognized based on an estimated mortality rate over five years, which is the estimated performance period of the contract based on
the average patient life expectancy. Total deferred revenue related to the lifetime warranty performance obligation totaled $18.0
million at December 31, 2021.
F-2
Determining the estimated SSP requires significant judgment by management, which is informed by considering Company specific
and external data. The service period used to amortize the deferred revenue also requires significant management judgment as the
Company has limited historical experience and the determination of patient life expectancy is subjective in nature. Given the lack of
stand-alone transactions together with the limited amount of historical data available for such offering, performing audit procedures to
evaluate the estimated SSP and the service period for lifetime warranty required high degree of auditor judgment and an increased
extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s judgments regarding the stand-alone selling price and deferred revenue service period
included the following, among others:
• We tested the effectiveness of controls over deferred revenue for the lifetime warranty, including controls over the underlying
data utilized and the selection of the stand-alone selling price and the deferred revenue service period.
• We evaluated the methodology used by management to develop the stand-alone selling price and independently estimated the
stand-alone selling price selected by management. In performing these procedures, we compared the stand-alone selling price
selected by management to the independent estimate, which utilized external evidence of similar term extended warranties for
oxygen concentrators and the Company’s profit margins.
• We evaluated the reasonableness of the deferred revenue service period by comparing to patient average life expectancy in
medical and other industry publications. We further evaluated the realization of deferred revenue by evaluating the
appropriateness of the underlying mortality data.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 24, 2022
We have served as the Company’s auditor since 2015.
F-3
Inogen, Inc.
Consolidated Balance Sheets
(amounts in thousands)
Assets
Current assets
Cash and cash equivalents ............................................................................................................. $
Marketable securities .....................................................................................................................
Accounts receivable, net................................................................................................................
Inventories, net ..............................................................................................................................
Income tax receivable ....................................................................................................................
Prepaid expenses and other current assets .....................................................................................
Total current assets..............................................................................................................................
Property and equipment
Rental equipment, net ....................................................................................................................
Manufacturing equipment and tooling ..........................................................................................
Computer equipment and software................................................................................................
Furniture and equipment................................................................................................................
Leasehold improvements...............................................................................................................
Land and building..........................................................................................................................
Construction in process .................................................................................................................
Total property and equipment .............................................................................................................
Less accumulated depreciation ...........................................................................................................
Property and equipment, net ...........................................................................................................
Goodwill .............................................................................................................................................
Intangible assets, net .........................................................................................................................
Operating lease right-of-use asset....................................................................................................
Deferred tax asset - noncurrent .......................................................................................................
Other assets........................................................................................................................................
Total assets......................................................................................................................................... $
See accompanying notes to the consolidated financial statements.
December 31,
2021
2020
$
235,524
9,989
24,452
31,873
1,343
26,005
329,186
59,073
12,050
8,585
3,167
5,956
125
1,639
90,595
(51,669)
38,926
32,979
60,147
24,912
—
3,363
489,513
$
211,962
19,257
29,717
24,815
2,048
17,898
305,697
46,953
10,361
7,356
2,293
4,592
125
2,344
74,024
(45,794)
28,230
33,165
68,797
8,827
14,467
2,669
461,852
F-4
Inogen, Inc.
Consolidated Balance Sheets (continued)
(amounts in thousands, except share and per share amounts)
December 31,
2021
2020
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses......................................................................................... $
Accrued payroll ...............................................................................................................................
Warranty reserve - current...............................................................................................................
Operating lease liability - current....................................................................................................
Deferred revenue - current ..............................................................................................................
Income tax payable..........................................................................................................................
Total current liabilities..........................................................................................................................
Long-term liabilities
Warranty reserve - noncurrent.........................................................................................................
Operating lease liability - noncurrent..............................................................................................
Earnout liability - noncurrent ..........................................................................................................
Deferred revenue - noncurrent ........................................................................................................
Deferred tax liability - noncurrent...................................................................................................
Total liabilities.....................................................................................................................................
Commitments and contingencies (Note 8)
Stockholders' equity
Common stock, $0.001 par value per share; 200,000,000 shares authorized; 22,731,586 and
22,131,447 shares issued and outstanding as of December 31, 2021 and 2020, respectively .....
Additional paid-in capital................................................................................................................
Retained earnings ...............................................................................................................................
Accumulated other comprehensive income......................................................................................
Total stockholders' equity..................................................................................................................
Total liabilities and stockholders' equity.......................................................................................... $
25,689 $
17,307
6,480
3,393
8,568
75
61,512
7,246
23,281
15,386
11,861
—
119,286
23
299,463
69,272
1,469
370,227
489,513 $
33,712
7,091
5,740
1,931
6,994
1,242
56,710
8,654
8,078
26,940
11,822
25
112,229
22
273,521
75,605
475
349,623
461,852
See accompanying notes to the consolidated financial statements.
F-5
Inogen, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(amounts in thousands, except share and per share amounts)
Years Ended December 31,
2020
2019
2021
Revenue
Sales revenue ........................................................................................................... $
Rental revenue .........................................................................................................
Total revenue ...............................................................................................................
Cost of revenue ............................................................................................................
Cost of sales revenue ...............................................................................................
Cost of rental revenue, including depreciation of $8,860, $5,695 and
$6,253, respectively..............................................................................................
Total cost of revenue ...................................................................................................
Gross profit ..................................................................................................................
Gross profit-sales revenue .......................................................................................
Gross profit-rental revenue ......................................................................................
Total gross profit .........................................................................................................
Operating expense.......................................................................................................
Research and development ......................................................................................
Sales and marketing.................................................................................................
General and administrative ......................................................................................
Total operating expense..............................................................................................
Income (loss) from operations....................................................................................
Other income (expense)
Interest income ........................................................................................................
Other income (expense)...........................................................................................
Total other income (expense), net ..............................................................................
Income (loss) before provision for income taxes ......................................................
Provision for income taxes .........................................................................................
Net income (loss)..........................................................................................................
Other comprehensive income (loss), net of tax
Change in foreign currency translation adjustment .................................................
Change in net unrealized gains (losses) on foreign currency hedging ....................
Less: reclassification adjustment for net (gains) losses included in net income .....
Total net change in unrealized gains (losses) on foreign currency hedging .........
Change in net unrealized gains (losses) on marketable securities...........................
Total other comprehensive income (loss), net of tax................................................
Comprehensive income (loss) ..................................................................................... $
Basic net income (loss) per share attributable to common stockholders
(Note 2) ...................................................................................................................... $
Diluted net income (loss) per share attributable to common stockholders
(Note 2) ...................................................................................................................... $
Weighted-average number of shares used in calculating net income (loss) per
share attributable to common stockholders:
311,730 $
46,273
358,003
280,189 $
28,298
308,487
340,546
21,397
361,943
161,824
156,764
175,974
19,696
181,520
13,543
170,307
14,108
190,082
149,906
26,577
176,483
16,576
112,815
37,852
167,243
9,240
129
(710)
(581)
8,659
14,992
(6,333)
(800)
1,746
47
1,793
1
994
(5,339) $
123,425
14,755
138,180
14,080
97,520
38,605
150,205
(12,025)
909
5,836
6,745
(5,280)
549
(5,829)
857
(82)
(207)
(289)
(6)
562
(5,267) $
(0.28) $
(0.27) $
(0.28) $
(0.27) $
164,572
7,289
171,861
9,401
105,550
37,121
152,072
19,789
4,712
(229)
4,483
24,272
3,322
20,950
(123)
(1,566)
872
(694)
6
(811)
20,139
0.96
0.94
Basic common shares ..............................................................................................
Diluted common shares ...........................................................................................
21,821,104
21,980,326
22,490,027
22,490,027 21,980,326 22,241,064
See accompanying notes to the consolidated financial statements.
F-6
Inogen, Inc.
Consolidated Statements of Stockholders’ Equity
(amounts in thousands, except share amounts)
Common stock
Shares
21,778,632 $
Amount
—
47,816
82,677
28,115
(15,121)
109,291
—
—
22,031,410 $
—
68,467
(27,729)
49,117
(8,444)
18,626
—
—
22,131,447 $
—
60,299
(43,658)
101,811
(4,351)
486,038
—
—
22,731,586 $
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
stockholders'
equity
22 $
—
—
—
—
—
—
—
—
22 $
—
—
—
—
—
—
—
—
22 $
—
—
—
—
—
1
—
—
23 $
249,194 $
9,129
2,748
60,484 $
—
—
—
(82)
(846)
3,109
—
—
263,252 $
8,203
2,084
—
(19)
(331)
332
—
—
273,521 $
10,943
1,948
—
(412)
(235)
13,698
—
—
299,463 $
—
—
—
—
20,950
—
81,434 $
—
—
—
—
—
—
(5,829)
—
75,605 $
—
—
—
—
—
—
(6,333)
—
69,272 $
724 $
—
—
—
—
—
—
—
(811)
(87) $
—
—
—
—
—
—
—
562
475 $
—
—
—
—
—
—
—
994
1,469 $
310,424
9,129
2,748
—
(82)
(846)
3,109
20,950
(811)
344,621
8,203
2,084
—
(19)
(331)
332
(5,829)
562
349,623
10,943
1,948
—
(412)
(235)
13,699
(6,333)
994
370,227
Balance, December 31, 2018...........
Stock-based compensation................
Employee stock purchases ................
Restricted stock awards issued,
net of forfeitures.............................
Vesting of restricted stock units........
Shares withheld related to net
restricted stock settlement..............
Stock options exercised.....................
Net income ........................................
Other comprehensive loss .................
Balance, December 31, 2019...........
Stock-based compensation................
Employee stock purchases ................
Restricted stock awards issued,
net of forfeitures.............................
Vesting of restricted stock units........
Shares withheld related to net
restricted stock settlement..............
Stock options exercised.....................
Net loss..............................................
Other comprehensive income ...........
Balance, December 31, 2020...........
Stock-based compensation................
Employee stock purchases ................
Restricted stock awards issued,
net of forfeitures.............................
Vesting of restricted stock units........
Shares withheld related to net
restricted stock settlement..............
Stock options exercised.....................
Net loss..............................................
Other comprehensive income ...........
Balance, December 31, 2021...........
See accompanying notes to the consolidated financial statements.
F-7
Inogen, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Years Ended December 31,
2020
2019
2021
Cash flows from operating activities
Net income (loss) .................................................................................................... $
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization...........................................................................
Loss on rental assets and other fixed assets.......................................................
Gain on sale of former rental assets...................................................................
Provision for sales revenue returns and doubtful accounts ...............................
Provision for rental revenue adjustments ..........................................................
Provision for inventory losses ...........................................................................
Stock-based compensation expense...................................................................
Deferred income taxes .......................................................................................
Change in fair value of earnout liability ............................................................
Changes in operating assets and liabilities:
Accounts receivable .....................................................................................
Inventories....................................................................................................
Income tax receivable...................................................................................
Prepaid expenses and other current assets....................................................
Operating lease right-of-use asset ................................................................
Other noncurrent assets ................................................................................
Accounts payable and accrued expenses......................................................
Accrued payroll ............................................................................................
Warranty reserve ..........................................................................................
Deferred revenue ..........................................................................................
Income tax payable.......................................................................................
Operating lease liability ...............................................................................
Other noncurrent liabilities...........................................................................
Net cash provided by operating activities.....................................................................
Cash flows from investing activities
Purchases of marketable securities..........................................................................
Maturities of marketable securities .........................................................................
Investment in intangible assets................................................................................
Investment in property and equipment....................................................................
Production and purchase of rental equipment .........................................................
Proceeds from sale of former assets........................................................................
Payment for acquisition, net of cash acquired.........................................................
Net cash used in investing activities.............................................................................
See accompanying notes to the consolidated financial statements.
(6,333) $
(5,829) $
20,950
21,628
1,521
(65)
11,094
—
2,062
10,943
14,444
(11,596)
(6,127)
(10,775)
705
(8,104)
(16,087)
96
(6,476)
10,231
(668)
1,613
(1,141)
16,668
—
23,633
(9,987)
19,256
(132)
(5,482)
(18,453)
153
—
(14,645)
18,581
864
(94)
10,486
2,579
1,283
8,203
(82)
1,053
(8,177)
7,591
928
31
(2,970)
2,296
(5,830)
870
1,823
(203)
319
3,291
—
37,013
(22,751)
14,545
(255)
(4,385)
(12,957)
163
—
(25,640)
13,834
568
(68)
17,177
2,233
972
9,129
2,873
810
(16,707)
(10,336)
(321)
(2,693)
(5,856)
(2,064)
3,202
(5,188)
3,041
2,724
429
6,716
(832)
40,593
(58,686)
91,350
(254)
(3,143)
(3,117)
194
(70,401)
(44,057)
F-8
Inogen, Inc.
Consolidated Statements of Cash Flows (continued)
(amounts in thousands)
Years Ended December 31,
2020
2019
2021
Cash flows from financing activities
Proceeds from stock options exercised ........................................................................
Proceeds from employee stock purchases ....................................................................
Payment of employment taxes related to release of restricted stock............................
Net cash provided by financing activities..........................................................................
Effect of exchange rates on cash........................................................................................
Net increase in cash and cash equivalents .....................................................................
Cash and cash equivalents, beginning of period ...........................................................
Cash and cash equivalents, end of period...................................................................... $
13,699
1,948
(647)
15,000
(426)
23,562
211,962
235,524 $
332
2,084
(350)
2,066
486
13,925
198,037
211,962 $
3,109
2,748
(928)
4,929
(62)
1,403
196,634
198,037
Supplemental disclosures of cash flow information
Cash paid (received) during the period for income taxes, net of refunds received ...... $
Supplemental disclosure of non-cash transactions
Accrued value of earnout related to acquisition ...........................................................
Property and equipment in account payable and accrued liabilities.............................
1,544 $
(713) $
239
—
353
—
55
25,749
66
See accompanying notes to the consolidated financial statements.
F-9
Inogen, Inc.
Notes to the Consolidated Financial Statements
(amounts in thousands, except share and per share amounts)
1. Nature of business
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. Summary of significant accounting policies
Basis of presentation
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).
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.
Accounting 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.
Revenue
The Company generates revenue primarily from sales and rentals of its products. The Company’s products consist of its proprietary
line of oxygen concentrators, non-invasive ventilators, and related accessories. Other revenue, which is included in sales revenue on
the statements of comprehensive income (loss), primarily comes from service contracts, replacement parts and freight revenue for
product shipments.
F-10
Sales revenue
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the
consideration the Company expects to receive in exchange for those products or services. Revenue from product sales is generally
recognized upon shipment of the product but is deferred for certain transactions when control has not yet transferred to the customer.
The Company’s product is generally sold with a right of return and the Company may provide other incentives, which are accounted
for as variable consideration when estimating the amount of revenue to recognize. Returns and incentives are estimated at the time
sales revenue is recognized. The provision for estimated returns is calculated based on historical data and future expectations. Sales
revenue incentives within the Company’s contracts are estimated based on the most likely amounts expected on the related sales
transactions and recorded as a reduction to revenue at the time of sale in accordance with the terms of the contract. Accordingly,
revenue is recognized net of allowances for estimated returns and incentives.
For a fixed price, the Company also offers a lifetime warranty for direct-to-consumer sales for its oxygen concentrators. Lifetime
warranties are only offered to patients upon the initial sale of oxygen concentrators directly from the Company and are non-
transferable. Lifetime warranties are considered to be a distinct performance obligation that are accounted for separately from its sale
of oxygen concentrators with a standard warranty of three years.
The revenue is allocated to the distinct lifetime warranty performance obligation based on a relative SSP method. The Company has
vendor-specific objective evidence of the selling price for its equipment. To determine the selling price of the lifetime warranty, the
Company uses its best estimate of the SSP for the distinct performance obligation as the lifetime warranty is neither separately priced
nor is the selling price available through third-party evidence. To calculate the selling price associated with the lifetime warranties,
management considers the profit margins of service revenue, the average estimated cost of lifetime warranties and the price of
extended warranties. Revenue from the distinct lifetime warranty is deferred after the delivery of the equipment and recognized based
on an estimated mortality rate over five years, which is the estimated performance period of the contract based on the average patient
life expectancy.
Revenue from the sale of the Company’s repair services is recognized when the performance obligations are satisfied and collection of
the receivables is probable. Other revenue from the sale of replacement parts is generally recognized when product is shipped to
customers.
Freight revenue consists of fees associated with the deployment of products internationally and domestically when expedited freight
options are requested or when minimum order quantities are not met. Freight revenue is generally recognized upon shipment of the
product but is deferred if control has not yet transferred to the customer. Shipping and handling costs for sold products and rental
assets shipped to the Company’s customers are included on the consolidated statements of comprehensive income (loss) as part of cost
of sales revenue and cost of rental revenue, respectively.
The payment terms and conditions of customer contracts vary by customer type and the products and services offered. For certain
products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
The timing of sales revenue recognition, billing and cash collection results in billed accounts receivable and deferred revenue in the
consolidated balance sheet.
Contract liabilities primarily consist of deferred revenue related to lifetime warranties on direct-to-consumer sales revenue when cash
payments are received in advance of services performed under the contract. The contract with the customer states the final terms of the
sale, including the description, quantity, and price of each product or service purchase. The increase in deferred revenue related to
lifetime warranties for the years ended December 31, 2021 and December 31, 2020 was primarily driven by $6,764 and $5,258,
respectively, of payments received in advance of satisfying performance obligations, partially offset by $5,866 and $5,908 of revenues
recognized that were included in the deferred revenue balances as of December 31, 2020 and December 31, 2019, respectively.
Deferred revenue related to lifetime warranties was $17,976 and $17,078 as of December 31, 2021 and December 31, 2020,
respectively, and is classified within deferred revenue – current and noncurrent deferred revenue in the consolidated balance sheets.
The Company elected to apply the practical expedient in accordance with Accounting Standards Codification (ASC) 606—Revenue
Recognition and did not evaluate contracts of one year or less for the existence of a significant financing component. The Company
does not expect any revenue to be recognized over a multi-year period with the exception of revenue related to lifetime warranties.
F-11
The Company’s sales revenue is primarily derived from the sale of its oxygen concentrator products to individual consumers, home
medical equipment providers, distributors, the Company’s private label partner and resellers worldwide. Sales revenue is classified
into two areas: business-to-business sales and direct-to-consumer sales. The following table sets forth the Company’s sales revenue
disaggregated by sales channel and geographic region:
(amounts in thousands)
Revenue by region and category
Business-to-business domestic sales............................................................................ $
Business-to-business international sales ......................................................................
Direct-to-consumer domestic sales ..............................................................................
Total sales revenue....................................................................................................... $
Years ended December 31,
2020
2021
91,371 $
79,460
140,899
311,730 $
96,423 $
62,147
121,619
280,189 $
2019
106,428
77,960
156,158
340,546
Rental revenue
The Company recognizes equipment rental revenue over the non-cancelable lease term, which is one month, less estimated
adjustments, in accordance with Accounting Standards Codification (ASC) 842—Leases. The Company has separate contracts with
each patient that are not subject to a master lease agreement with any third-party payor. The Company evaluates the individual lease
contracts at lease inception and the start of each monthly renewal period to determine if it is reasonably certain that the monthly
renewal option and the bargain renewal option associated with the potential capped free rental period would be exercised. Historically,
the exercise of the monthly renewal and bargain renewal option is not reasonably certain at lease inception and at most subsequent
monthly lease renewal periods. If the Company determines that the reasonably certain threshold for an individual patient is met at
lease inception or at a monthly lease renewal period, such determination would impact the bargain renewal period for an individual
lease. The Company would first consider the lease classification issue (sales-type lease or operating lease) and then appropriately
recognize or defer rental revenue over the lease term, which may include a portion of the capped rental period. The Company deferred
$0 associated with the capped rental period as of December 31, 2021 and December 31, 2020.
The lease term begins on the date products are shipped to patients and are recorded at amounts estimated to be received under
reimbursement arrangements with third-party payors, including Medicare, private payors, and Medicaid. Due to the nature of the
industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and
accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as
additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of
reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such
adjustments are typically identified and recorded at the point of cash application, claim denial or account review. The Company
adjusts revenue for historical trends on revenue adjustments due to timely filings, deaths, hospice, and other types of analyzable
adjustments on a monthly basis to record rental revenue at the expected collectible amounts. Accounts receivable is reduced by an
allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received although
product was delivered and revenue was earned. The determination that an account is uncollectable, and the ultimate write-off of that
account occurs once collection is considered to be highly unlikely, and it is written-off and charged to the allowance at that time.
Amounts billed but not earned due to the timing of the billing cycle are deferred and recognized in revenue on a straight-line basis
over the monthly billing period. For example, if the first day of the billing period does not fall on the first of the month, then a portion
of the monthly billing period will fall in the subsequent month and the related revenue and cost would be deferred based on the service
days in the following month.
The lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for
supplies. The Company elected the practical expedient to treat the lease and non-lease components as a single lease component.
Rental revenue is recognized as earned, less estimated adjustments. Revenue not billed at the end of the period is reviewed for the
likelihood of collections and accrued. The rental revenue stream is not guaranteed, and payment will cease if the patient no longer
needs oxygen or returns the equipment. Revenue recognized is at full estimated allowable amounts; transfers to secondary insurances
or patient responsibility have no net effect on revenue. Rental revenue is earned for that entire month if the patient is on service on the
first day of the 30-day period commencing on the recurring date of service for a particular claim, regardless of whether there is a
change in condition or death after that date.
Included in rental revenue are unbilled amounts for which the revenue recognition criteria had been met as of period-end but were not
yet billed to the payor. The estimate of net unbilled rental revenue recognized is based on historical trends and estimates of future
collectability. In addition, the Company estimates potential future adjustments and write-offs of these unbilled amounts and includes
these estimates in the allowance for adjustments and write-offs of rental revenue which is netted against gross receivables.
F-12
Product Warranty
The Company generally provides a warranty against defects in material and workmanship. The Company provides a 3-year, 5-year or
lifetime warranty on Inogen One systems sold and a 3-year and lifetime warranty on Inogen At Home systems sold. The Tidal Assist®
Ventilator (TAV®) system has a 1-year and a 3-year warranty. The Company also offers a lifetime warranty for direct-to-consumer
sales of its oxygen concentrators. For a fixed price, the Company agrees to provide a fully functional oxygen concentrator for the
remaining life of the patient. Lifetime warranties are only offered to patients upon the initial sale of oxygen concentrators directly
from the Company and are non-transferable. The Company’s products are subject to regulatory and quality standards. The Company
establishes an accrued liability for the estimated warranty costs at the time of revenue recognition, with a corresponding provision to
cost of goods sold. The Company evaluates the liability quarterly. Warranty costs are primarily estimated based on product return
rates, historical warranty repair costs incurred and historical failure rates. The Company may make further adjustments to the warranty
reserve when deemed appropriate, giving additional consideration to length of time the product version has been sold and future
expectations of performance based on new features and capabilities. Actual warranty costs could differ materially from the estimated
amounts.
Fair value accounting
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
Level 3
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.
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.
Fair value of financial instruments
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.
F-13
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:
(amounts in thousands)
Cash........................................................ $
Level 1:
Money market accounts .........................
Level 2:
Corporate bonds .....................................
Total ....................................................... $
(amounts in thousands)
Cash........................................................ $
Level 1:
Money market accounts .........................
As of December 31, 2021
Adjusted
cost
Gross
unrealized
gains
Fair value
Cash
and cash
equivalents
Marketable
securities
48,817 $
— $
48,817 $
48,817 $
186,707
—
186,707
186,707
—
—
9,988
245,512 $
1
1 $
9,989
245,513 $
—
235,524 $
9,989
9,989
As of December 31, 2020
Adjusted
cost
Gross
unrealized
gains (losses)
Fair value
Cash
and cash
equivalents
Marketable
securities
52,812 $
— $
52,812 $
52,812 $
159,150
—
159,150
159,150
—
—
Level 2:
Corporate bonds .....................................
U.S. Treasury securities .........................
Agency mortgage-backed securities.......
Total ....................................................... $
11,549
4,107
3,601
231,219 $
(1)
—
1
— $
11,548
4,107
3,602
231,219 $
—
—
—
211,962 $
11,548
4,107
3,602
19,257
The following table summarizes the estimated fair value of the Company’s investments in marketable securities, classified by the
contractual maturity date of the securities:
(amounts in thousands)
Due within one year .................................................................................................................................................... $
Due in one year through five years .............................................................................................................................
Total ............................................................................................................................................................................ $
2021
9,989
—
9,989
December 31,
Fair value of derivative instruments and hedging activities
The Company transacts business in foreign currencies and has international sales and expenses denominated in foreign currencies,
subjecting the Company to foreign currency risk. The Company has entered into foreign currency forward contracts, generally with
maturities of twelve months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in
certain foreign currencies. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates.
Forward contracts are used to hedge forecasted sales over specific months. Changes in the fair value of these forward contracts
designed as cash flow hedges are recorded as a component of accumulated other comprehensive income within stockholders’ equity
and are recognized in the consolidated statements of comprehensive income (loss) during the period which approximates the time the
corresponding sales occur. The Company may also enter into foreign exchange contracts that are not designated as hedging
instruments for financial accounting purposes. These contracts are generally entered into to offset the gains and losses on certain asset
and liability balances until the expected time of repayment. Accordingly, any gains or losses resulting from changes in the fair value
of the non-designated contracts are reported in other expense, net in the consolidated statements of comprehensive income (loss). The
gains and losses on these contracts generally offset the gains and losses associated with the underlying foreign currency-denominated
balances, which are also reported in other income (expense), net.
F-14
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 $1,671 and a related payable of $863 as of December 31, 2021 and 2020, respectively.
The Company documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the
hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in
offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure
ineffectiveness. The Company assesses hedge effectiveness and ineffectiveness at a minimum quarterly but may assess it monthly. For
derivative instruments that are designed and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss
on the derivative is reported in other comprehensive income (loss) and reclassified into earnings in the same periods during which the
hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components
excluded from the assessment of effectiveness are recognized in current period earnings.
The Company will discontinue hedge accounting prospectively when it determines that the derivative is no longer effective in
offsetting cash flows attributable to the hedge risk. The cash flow hedge is de-designated because a forecasted transaction is not
probable of occurring, or management determines to remove the designation of the cash flow hedge. In all situations in which hedge
accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on
the balance sheet and recognizes any subsequent changes in the fair value in earnings. When it is probable that a forecasted transaction
will not occur, the Company will discontinue hedge accounting and recognize immediately in earnings gains and losses that were
accumulated in other comprehensive income (loss) related to the hedging relationship.
Fair value of accumulated other comprehensive income (loss)
The components of accumulated other comprehensive income (loss) were as follows:
(amounts in thousands)
Balance as of December 31, 2020 ................... $
Other comprehensive income (loss) ................
Balance as of December 31, 2021 ................... $
As of December 31, 2021
Foreign
currency
translation
adjustments
Unrealized
gains
on marketable
securities
Unrealized
gains (losses)
on cash
flow hedges
Accumulated
other
comprehensive
income
1,128 $
(800)
328 $
— $
1
1 $
(653) $
1,793
1,140 $
475
994
1,469
(amounts in thousands)
Balance as of December 31, 2019 ................... $
Other comprehensive income (loss) ................
Balance as of December 31, 2020 ................... $
271 $
857
1,128 $
6 $
(6)
— $
Foreign
currency
translation
adjustments
As of December 31, 2020
Unrealized
gains (losses)
on marketable
securities
Unrealized
losses
on cash
flow hedges
Accumulated
other
comprehensive
income (loss)
(87)
562
475
(364) $
(289)
(653) $
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
comprehensive income (loss).
Fair value of earnout liability
The earnout liability will be adjusted to fair value at each reporting date until settled. At the end of each reporting period after the
acquisition date, the arrangement is remeasured at its fair value, with changes in fair value recorded in general and administrative
expense.
F-15
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.
The following table provides quantitative information about Level 3 inputs for fair value measurement of the earnout liability as of
December 31, 2021 and December 31, 2020. Significant increases or decreases in these inputs in isolation could result in a significant
impact on our fair value measurement:
As of
December 31, 2021
As of
December 31, 2020
Simulation input
Revenue volatility ............................................................................................
WACC..............................................................................................................
20-year risk free rate ........................................................................................
Market price of risk..........................................................................................
15.00%
10.50%
2.02%
2.68%
The reconciliation of the earnout liability measured and carried at fair value on a recurring basis is as follows:
(amounts in thousands)
Balance as of December 31, 2019 ........................................................................................................
Change in fair value .............................................................................................................................
Balance as of December 31, 2020 ........................................................................................................
Change in fair value .............................................................................................................................
Balance as of December 31, 2021 ........................................................................................................
$
$
$
35.00%
12.00%
1.45%
8.00%
26,559
1,053
27,612
(11,596)
16,016
The Company recorded $630 and $672 of preacquisition loss recoveries that can be withheld from any earnout amounts payable as of
December 31, 2021 and December 31, 2020, respectively.
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.
F-16
Cash, cash equivalents, and marketable securities consist of the following:
(amounts in thousands)
Cash and cash equivalents
December 31,
2021
2020
Cash ..................................................................................................................................... $
Money market accounts.......................................................................................................
Total cash and cash equivalents ............................................................................................. $
Marketable securities
Corporate bonds................................................................................................................... $
U. S. Treasury securities......................................................................................................
Agency mortgage-backed securities....................................................................................
Total marketable securities..................................................................................................... $
48,817 $
186,707
235,524 $
9,989 $
—
—
9,989 $
52,812
159,150
211,962
11,548
4,107
3,602
19,257
Accounts receivable
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. For the years ended December 31, 2021 and December 31, 2020, the Company had increases of $877 and $575,
respectively, in the net rental revenue related to prior years.
Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of December 31,
2021 and December 31, 2020 were as follows:
(amounts in thousands)
Net accounts receivable
Rental (1) ............................................................................................ $
Business-to-business and other receivables (2) ..................................
Total net accounts receivable ...................................................... $
As of
December 31, 2021
%
$
As of
December 31, 2020
%
$
6,011
18,441
24,452
24.6% $
75.4%
100.0% $
3,794
25,923
29,717
12.8%
87.2%
100.0%
(1) Rental includes Medicare, Medicaid/other government, private insurance and patient pay.
F-17
(2) Business-to business receivables included one customer with an accounts receivable balance of $5,945 and $7,044 as of
December 31, 2021 and December 31, 2020, 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
December 31, 2021 and December 31, 2020 for this customer with a $400 deductible and 10% retention.
The following table sets forth the percentage breakdown of the Company’s net accounts receivable by aging category by invoice due
date as of December 31, 2021 and December 31, 2020.
(amounts in thousands)
Net accounts receivable by aging category
Held and Unbilled ............................................................................. $
Aged 0-90 days .................................................................................
Aged 91-180 days .............................................................................
Aged 181-365 days ...........................................................................
Aged over 365 days...........................................................................
Total net accounts receivable ...................................................... $
As of
December 31, 2021
%
$
As of
December 31, 2020
%
$
848
22,194
888
450
72
24,452
3.5% $
90.8%
3.6%
1.8%
0.3%
100.0% $
298
28,604
560
230
25
29,717
1.0%
96.2%
1.9%
0.8%
0.1%
100.0%
The following table sets forth the accounts receivable allowances as of December 31, 2021 and December 31, 2020:
(amounts in thousands)
Allowances - accounts receivable
Doubtful accounts ............................................................................. $
Rental revenue adjustments ..............................................................
Sales returns ......................................................................................
Total allowances - accounts receivable ....................................... $
As of
December 31, 2021
%
$
As of
December 31, 2020
%
$
52
—
810
862
0.2% $
0.0%
3.1%
3.3% $
52
396
742
1,190
0.2%
1.3%
2.4%
3.9%
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. 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 on a primarily prepayment
basis. The Medicare service reimbursement programs represented more than 10% of the Company’s total revenue for the year ended
December 31, 2021. One single customer represented more than 10% of the Company’s total revenue for the year ended December
31, 2020. No single customer represented more than 10% of the Company’s total revenue for the year ended December 31, 2019. One
single customer and Medicare each represented more than 10% of the Company’s net accounts receivable balance with accounts
receivable balances of $5,945 and $2,685, respectively, as of December 31, 2021, and two customers each represented more than 10%
of the Company’s net accounts receivable balance with accounts receivable balances of $8,417 and $7,044, respectively, as of
December 31, 2020.
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 81.9%, 81.5% and
81.1% of rental revenue in 2021, 2020 and 2019, respectively, and based on total revenue were 10.6%, 7.5% and 4.8% for 2021, 2020
and 2019, respectively. Accounts receivable balances relating to Medicare’s service reimbursement programs (including held and
unbilled, net of allowances) amounted to $2,685 or 11.0% of total net accounts receivable as of December 31, 2021 as compared to
$1,882 or 6.3% of total net accounts receivable as of December 31, 2020.
F-18
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 year
ended December 31, 2021, the Company’s three major vendors accounted for 16.3%, 12.1% and 9.9%, respectively, of total raw
material purchases. For the year ended December 31, 2020, the Company’s three major vendors accounted for 20.7%, 11.7% and
9.3%, respectively, of total raw material purchases.
A portion of revenue is earned from sales outside the United States. Approximately 74.1%, 73.6% and 70.2% of the non-U.S. revenue
for the years ended December 31, 2021, 2020 and 2019, respectively, were invoiced in Euros. A breakdown of the Company’s
revenue from U.S. and non-U.S. sources for the years ended December 31, 2021, 2020 and 2019, respectively, is as follows:
(amounts in thousands)
U.S. revenue....................................................................................... $
Non-U.S. revenue...............................................................................
Total revenue ..................................................................................... $
2021
Years ended December 31,
2020
2019
278,543
79,460
358,003
$
$
246,340
62,147
308,487
$
$
283,983
77,960
361,943
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using a standard cost method, including
material, labor and manufacturing overhead, whereby the standard costs are updated at least quarterly to reflect approximate actual
costs using the first-in, first-out 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 $1,943 and $1,153 as of December 31, 2021 and 2020, 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 $15,426 as of December 31, 2021 that were classified in prepaid expenses and other
current assets. During the years ended December 31, 2021, 2020 and 2019, $906, $1,970 and $1,043, 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:
(amounts in thousands)
Raw materials and work-in-progress ............................................................................ $
Finished goods ..............................................................................................................
Less: reserves................................................................................................................
Inventories, net ............................................................................................................. $
December 31,
2021
2020
21,909
12,116
(2,152)
31,873
$
$
22,318
3,743
(1,246)
24,815
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 income
(loss). Repair and maintenance expense, which includes labor, parts and freight, for rental equipment was $3,387, $2,527 and $2,854
for the years ended December 31, 2021, 2020 and 2019, 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.
F-19
Depreciation and amortization expense related to rental equipment and other property and equipment are summarized below for the
years ended December 31, 2021, 2020 and 2019, respectively.
(amounts in thousands)
Rental equipment ...................................................................................................... $
Other property and equipment ..................................................................................
Total depreciation and amortization ......................................................................... $
Years ended December 31,
2020
2021
2019
8,860 $
3,993
12,853 $
5,695 $
3,882
9,577 $
6,253
3,421
9,674
Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of December 31,
2021 and 2020, respectively.
(amounts in thousands)
Property and equipment
Rental equipment, net of allowances of $1,290 and $575, respectively .................................... $
Other property and equipment....................................................................................................
Property and equipment .............................................................................................................
Accumulated depreciation
Rental equipment........................................................................................................................
Other property and equipment....................................................................................................
Accumulated depreciation..........................................................................................................
Property and equipment, net
Rental equipment, net of allowances of $1,290 and $575, respectively ....................................
Other property and equipment....................................................................................................
Property and equipment, net....................................................................................................... $
December 31,
2021
2020
59,073 $
31,522
90,595
33,355
18,314
51,669
25,718
13,208
38,926 $
46,953
27,071
74,024
30,283
15,511
45,794
16,670
11,560
28,230
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. During the twelve months ended December 31, 2021, the Company
determined that an impairment indicator was present as a result of the court order to dismiss the Company’s preliminary injunction
related to the Department of Health and Human Services and the Centers for Medicare and Medicaid Services lawsuit. The relevant
long-lived asset grouping was evaluated for impairment. An undiscounted cash flow analysis demonstrated sufficient undiscounted
cash flows in excess of the asset group’s carrying value. Estimates and significant assumptions included in the long-lived asset
impairment analysis included identification of the asset group and undiscounted cash flow projections. The Company concluded that
its definite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed.
No impairments were recorded as of December 31, 2021 or 2020.
Goodwill and intangible assets
Goodwill is tested for impairment on an annual basis as of October 1. Interim testing of goodwill for impairment is also required
whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or asset
below its carrying amount. The Company periodically reviews the carrying value of long-lived assets to determine whether or not
impairment to such value has occurred. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment
charge to current operations is recorded to reduce the carrying value to the implied estimated fair value. There were no accumulated
impairment losses as of December 31, 2021 or 2020.
The Company will first assess qualitative factors to determine whether it is more likely than not that the fair value is less than its
carrying amount. If, based on a review of qualitative factors, it is more likely than not that the fair value is less than its carrying
amount, the Company will use a quantitative approach, and calculate the fair value and compare it to its carrying amount. If the fair
value exceeds the carrying amount, there is no indication of impairment. If the carrying amount exceeds the fair value, an impairment
loss is recorded equal to the difference.
F-20
The Company performed an assessment of qualitative factors and determined that no events or circumstances existed that would lead
to a determination that it is more likely than not that the fair value of indefinite-lived assets were less than the carrying amount. As
such, a quantitative analysis was not required to be performed as of December 31, 2021 or December 31, 2020.
Finite-lived intangible assets are amortized over their useful lives and are tested for recoverability whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Technology and customer relationships are amortized using
the straight-line method.
Business combinations
The results of operations of the businesses acquired by the Company are included as of the acquisition date. The purchase price of an
acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of
acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and
liabilities assumed, such excess is allocated to goodwill. The Company may adjust the preliminary purchase price allocation, as
necessary, for up to one year after the acquisition closing date if it obtains more information regarding asset valuations and liabilities
assumed. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use
(ROU) assets, operating lease liability – current, and operating lease liability – noncurrent on the consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement
date based on the present value of lease payments over the lease term. The Company uses an incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments as the rate implicit in each lease is
generally not readily determinable. The operating lease ROU asset also includes any lease payments made to the lessor at or before the
commencement date and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is
reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis
over the lease term.
The Company has lease agreements with lease and non-lease components. The Company elected the practical expedient to treat the
lease and non-lease components as a single lease component. Additionally, the Company elected the practical expedient to not record
leases with an initial term of twelve months or less on the consolidated balance sheets.
Loss contingencies
The Company is involved in various lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business. The
Company records a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably
estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews at least
quarterly and adjusts accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated
information.
Research and development
Research and development costs are expensed as incurred.
Advertising costs
Advertising costs, which approximated $35,183, $34,180 and $40,251 during the years ended December 31, 2021, 2020 and 2019,
respectively, are expensed as incurred, excluding the production costs of direct response advertising. Advertising costs are included in
sales and marketing expense in the accompanying consolidated statements of comprehensive income (loss).
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.
F-21
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 (loss).
Accounting for stock-based compensation
The Company accounts for its stock-based compensation in accordance with ASC 718 — Compensation—Stock Compensation, which
establishes accounting for share-based awards, exchanged for employee services and requires companies to expense the estimated fair
value of these awards over the requisite employee service period. Stock–based compensation cost for stock options and employee
stock purchase plan are determined at the grant date using the Black-Scholes option pricing model. Stock-based compensation cost for
stock incentive awards is based on the number of shares ultimately expected to vest, estimated at each reporting date based on
management’s expectations regarding the relevant performance criteria. The value of the award that is ultimately expected to vest is
recognized as expense on a straight-line basis over the employee’s requisite service period.
As part of the provisions of ASC 718, the Company is required to estimate potential forfeitures of stock grants and adjust
compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that
actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a
cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be
recognized in future periods.
Foreign currency
The functional currency of the Company’s international subsidiary is the local currency. The financial statements of the subsidiary are
translated to U.S. dollars using month-end exchange rates for assets and liabilities and average exchange rates for revenue, cost of
revenue, operating expense and provision for income taxes. Translation gains and losses are recorded in accumulated other
comprehensive income (loss) as a component of stockholders’ equity. Foreign exchange transaction gains and losses resulting from
the conversion of the transaction currency to functional currency are reflected as a component of foreign currency exchange gains or
losses in other income (expense) in the consolidated statements of comprehensive income (loss).
Government grants
The Company may receive cash payments from government grants during a public health emergency (PHE). The Company considers
the nature and substance of the government grant and records the cash payment in accordance with the terms and conditions of the
grant. Income is deferred until all considerations required for receiving the grant are met and is recognized in the consolidated
statements of comprehensive income (loss) based on the nature of the terms and conditions of the grant. In 2020, the Company
received a grant of $6,200 from the Public Health and Social Services Emergency Fund (Relief Fund), which was among the
provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act signed into law on March 27, 2020. During
2020, the Company recorded $5,300 in other income, which was associated with lost revenues from the COVID-19 PHE, and a $900
benefit in general and administrative expense due to COVID-19 PHE related costs incurred in the period.
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.
Basic earnings (loss) per 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.
F-22
The computation of EPS is as follows:
(amounts in thousands, except share and per share amounts)
Numerator—basic and diluted:
Net income (loss)................................................................................................... $
Years ended December 31,
2020
2021
2019
(6,333) $
(5,829) $
20,950
Denominator:
Weighted-average common shares - basic common stock (1)................................
Weighted-average common shares - diluted common stock .................................
22,490,027
22,490,027
21,980,326
21,980,326
21,821,104
22,241,064
Net income (loss) per share - basic common stock ............................................... $
Net income (loss) per share - diluted common stock (2) ........................................ $
(0.28) $
(0.28) $
(0.27) $
(0.27) $
0.96
0.94
Denominator calculation from basic to diluted:
Weighted-average common shares - basic common stock (1) .............................
Stock options and other dilutive awards .............................................................
Weighted-average common shares - diluted common stock ...........................
Shares excluded from diluted weighted-average shares:
Stock options .........................................................................................................
Restricted stock units and restricted stock awards ................................................
Shares excluded from diluted weighted-average shares........................................
22,490,027
166,258
22,656,285
21,980,326
64,471
22,044,797
21,821,104
419,960
22,241,064
151,344
167,237
318,581
467,378
292,795
760,173
53,888
169,305
223,193
(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 years ended December 31, 2021 and December 31, 2020, diluted loss per share is the same as basic.
The computations of diluted net income (loss) attributable to common stockholders excluded common stock options, restricted stock
units, and restricted stock awards, which were anti-dilutive for the year December 31, 2019.
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.
Recently adopted accounting pronouncements
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income
taxes by removing certain exceptions to the general principles in Topic 740. The new guidance also improves consistent application of
and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The Company adopted this
standard on January 1, 2021, and adoption of this standard did not have a material impact on the Company’s consolidated financial
statement presentation or results.
F-23
3. Goodwill and other identifiable intangible assets
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 were as follows:
(amounts in thousands)
Balance as of December 31, 2019 ................................................................................................................................. $
Translation adjustment ..................................................................................................................................................
Balance as of December 31, 2020 ................................................................................................................................. $
Translation adjustment ..................................................................................................................................................
Balance as of December 31, 2021 ................................................................................................................................. $
32,954
211
33,165
(186)
32,979
As of December 31, 2021, 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 December 31, 2021 and 2020.
Amortization expense for intangible assets for the years ended December 31, 2021, 2020 and 2019 was as follows:
(amounts in thousands)
Research and development expense........................................................... $
Sales and marketing expense .....................................................................
General and administrative expense ..........................................................
Total ........................................................................................................... $
Years ended December 31,
2020
2019
2021
7,813 $
181
781
8,775 $
7,800 $
204
1,000
9,004 $
2,914
175
1,071
4,160
The following tables represent the changes in net carrying values of the intangibles as of the respective dates:
(amounts in thousands)
December 31, 2021
Technology......................................................................
Licenses...........................................................................
Patents and websites........................................................
Customer relationships....................................................
Commercials ...................................................................
Total ................................................................................
(amounts in thousands)
December 31, 2020
Technology......................................................................
Licenses...........................................................................
Patents and websites........................................................
Customer relationships....................................................
Commercials ...................................................................
Total ................................................................................
Gross
carrying
amount
Accumulated
amortization
Net amount
77,700 $
185
4,519
1,361
799
84,564 $
18,454 $
180
3,746
1,361
676
24,417 $
59,246
5
773
—
123
60,147
Gross
carrying
amount
Accumulated
amortization
Net amount
77,700 $
185
4,488
1,474
733
84,580 $
10,684 $
174
3,015
1,351
559
15,783 $
67,016
11
1,473
123
174
68,797
Average
estimated
useful lives
(in years)
10
10
5
4
2-3
Average
estimated
useful lives
(in years)
10
10
5
4
2-3
$
$
$
$
F-24
Annual estimated amortization expense for each of the succeeding fiscal years is as follows:
(amounts in thousands)
2022 ............................................................................................................................................................... $
2023 ...............................................................................................................................................................
2024 ...............................................................................................................................................................
2025 ...............................................................................................................................................................
2026 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................
Total............................................................................................................................................................... $
December 31,
2021
8,484
7,881
7,833
7,783
7,770
20,396
60,147
4. Current liabilities
Accounts payable and accrued expenses as of December 31, 2021 and 2020 consisted of the following:
(amounts in thousands)
Accounts payable .................................................................................................................................... $
Accrued inventory (in-transit and unvouchered receipts) and trade payables ........................................
Accrued litigation settlement ..................................................................................................................
Accrued purchasing card liability ...........................................................................................................
Accrued franchise, sales and use taxes ...................................................................................................
Other accrued expenses...........................................................................................................................
Accounts payable and accrued expenses................................................................................................. $
Accrued payroll as of December 31, 2021 and 2020 consisted of the following:
(amounts in thousands)
Accrued bonuses ..................................................................................................................................... $
Accrued wages and other payroll related items ......................................................................................
Accrued vacation.....................................................................................................................................
Accrued employee stock purchase plan deductions................................................................................
Accrued payroll....................................................................................................................................... $
December 31,
2021
2020
10,258 $
12,488
—
1,488
486
969
25,689 $
12,520
9,023
8,000
2,468
449
1,252
33,712
December 31,
2021
2020
8,274 $
5,469
2,894
670
17,307 $
4
3,796
2,642
649
7,091
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 $4,095, $2,864, and $2,288 for the years ended December 31, 2021, 2020 and
2019, respectively.
F-25
Information related to the Company’s right-of-use assets and related operating lease liabilities were as follows:
(amounts in thousands)
Cash paid for operating lease liabilities .......................................................................... $
Operating lease cost ........................................................................................................
Non-cash right-of-use assets obtained in exchange for new operating lease
obligations .......................................................................................................................
Weighted-average remaining lease term.........................................................................
Weighted-average discount rate......................................................................................
Year ended
December 31, 2021
3,319
3,854
Year ended
December 31, 2020
2,342
2,622
$
19,417
2.8 years
2.9%
5,237
2.8 years
3.3%
Maturities of lease liabilities due in the 12-month period ending December 31,
2022 ................................................................................................................................. $
2023 .................................................................................................................................
2024 .................................................................................................................................
2025 .................................................................................................................................
2026 .................................................................................................................................
Thereafter ........................................................................................................................
Less imputed interest.......................................................................................................
Total lease liabilities........................................................................................................ $
Operating lease liability - current .................................................................................... $
Operating lease liability - noncurrent ..............................................................................
Total lease liabilities........................................................................................................ $
3,960
3,962
3,667
2,717
2,708
12,100
29,114
(2,440)
26,674
3,393
23,281
26,674
6. Income taxes
The components of the Company’s income (loss) before provision for income taxes are as follows:
(amounts in thousands)
Years ended December 31,
2020
2019
2021
United States .................................................................................................. $
Foreign ...........................................................................................................
Income (loss) before provision for income taxes ............................................. $
7,621 $
1,038
8,659 $
(6,464) $
1,184
(5,280) $
22,553
1,719
24,272
The provision for income taxes consists of the following:
(amounts in thousands)
Current tax expense (benefit)
Years ended December 31,
2020
2019
2021
Federal............................................................................................................ $
State................................................................................................................
Foreign ...........................................................................................................
Total current tax expense..................................................................................
Deferred tax expense (benefit)
Federal............................................................................................................
State................................................................................................................
Foreign ...........................................................................................................
Total deferred tax expense................................................................................
Interest and penalties ........................................................................................
Provision for income taxes ............................................................................... $
— $
271
266
537
10,263
4,194
(22)
14,435
20
14,992 $
(74) $
198
381
505
309
(193)
(72)
44
—
549 $
(330)
136
560
366
3,497
(396)
(145)
2,956
—
3,322
F-26
The components of deferred tax assets and liabilities consist of the following:
(amounts in thousands)
Deferred tax assets (liabilities)
Accrued expenses.................................................................................................................. $
Net operating loss and credit carryforward...........................................................................
Allowance, reserves and other ..............................................................................................
Stock-based compensation ....................................................................................................
Lease liability ........................................................................................................................
Deferred tax assets ................................................................................................................
Property, plant, and equipment .............................................................................................
Intangible amortization .........................................................................................................
Right-of-use asset..................................................................................................................
Deferred tax liabilities...........................................................................................................
Valuation allowance..............................................................................................................
Total.................................................................................................................................... $
As of December 31,
2021
2020
10,575 $
21,138
2,668
2,665
6,507
43,553
(7,664)
(12,389)
(6,077)
(26,130)
(17,423)
— $
8,346
20,145
1,381
3,379
2,427
35,678
(4,805)
(14,292)
(2,139)
(21,236)
—
14,442
Reconciliation of the federal statutory income tax rate to the effective income tax rate for the years ended December 31, 2021, 2020
and 2019 is as follows:
Years ended December 31,
2020
2019
2021
U.S. Statutory rate ........................................................................................
State income taxes, net of federal benefit ....................................................
Stock-based compensation ...........................................................................
R&D credit, net of reserve ...........................................................................
Change in fair value .....................................................................................
Nondeductible compensation .......................................................................
Valuation allowance .....................................................................................
Other.............................................................................................................
Effective income tax rate...........................................................................
21.00%
-1.39%
-21.72%
-5.95%
-28.19%
7.04%
201.69%
0.63%
173.11%
21.00%
-3.86%
-16.80%
-8.11%
-4.19%
—
—
1.57%
-10.39%
21.00%
3.70%
-0.81%
-8.97%
0.70%
—
—
-1.94%
13.68%
The Company operates in several taxing jurisdictions, including U.S. federal, multiple U.S. states and the Netherlands. The statute of
limitations has expired for all tax years prior to 2018 for federal and prior to 2016 for various state tax purposes. However, the net
operating loss generated on the Company’s federal and state tax returns in prior years may be subject to adjustments by the federal and
state tax authorities.
As of December 31, 2021, the Company had $60,239 and $26,193 of federal and state net operating loss carryforwards, respectively,
and $52,443 of the total federal net operating loss carryforwards have an indefinite life while the remaining federal and state net
operating loss carryforwards begin to expire in 2033 and 2028, respectively, if not utilized. As of December 31, 2021, the Company
had federal and California research and development credit carryforward of $4,365 and $4,327, respectively. The federal credit will
begin to expire in 2022; the California credit has indefinite carryforward.
Utilization of the Company’s net operating loss and tax credit carryforwards may be subject to annual limitations arising from
ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result
in the expiration of the net operating loss and tax credit carryforwards before their utilization.
F-27
The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making
such a determination, the Company considers all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The amount
of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced.
As of December 31, 2021, the Company determined that net deferred tax assets are not more likely than not realizable based on
projected future taxable losses primarily due to planned strategic investments in future periods and the impact of the COVID-19
pandemic, including related supply chain impacts on parts availability and cost inflation. Accordingly, the Company recorded a
valuation allowance of $17,423 as of December 31, 2021. The Company’s valuation allowance may increase or decrease during the
next 12 months based on future operating results.
The Company recognizes interest and penalties on taxes, within its income tax provision on its consolidated statements of
comprehensive income (loss).
Included in the balance of unrecognized tax benefits as of December 31, 2021, 2020 and 2019, were $2,078, $1,932 and $1,889,
respectively, of tax benefits that, if recognized, would affect the effective tax rate. The Company believes that there will be no
significant increases or decreases to unrecognized tax benefits within the next 12 months.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
(amounts in thousands)
Reconciliation of liability for unrecognized tax benefits
Balance at beginning of period .......................................................................... $
Additions based on tax positions related to current year ...................................
Reductions based on tax positions related to prior year ....................................
Additions based on tax positions related to prior year.......................................
Balance at end of period.................................................................................. $
2021
December 31,
2020
2019
1,932 $
146
—
—
2,078 $
1,889 $
70
(181)
154
1,932 $
1,294
595
—
—
1,889
7. Stockholders’ equity
Common stock
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever
funds are legally available and when declared by the board of directors, subject to the prior rights of holders of other classes of stock
outstanding.
Preferred stock
Pursuant to the amended and restated certificate of incorporation filed by the Company in connection with the completion of its initial
public offering, the Company’s board of directors is authorized to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include
dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock.
The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the
effect of delaying, deferring or preventing change in the Company’s control or other corporate action. As of December 31, 2021 and
2020, no shares of preferred stock were issued or outstanding, and the board of directors has not authorized or designated any rights,
preferences, privileges and restrictions for any class of preferred stock.
Dividends
There were no dividends declared during the years ended December 31, 2021, 2020 and 2019.
Stock incentive plans
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 December 31, 2021, options to purchase 71,452 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.
F-28
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 December 31, 2021, awards with respect to 757,401 shares of the Company’s common stock were outstanding, and 1,481,328
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 the 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 2021, 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 years ended December 31, 2021, 2020 and 2019 is as follows:
Outstanding as of December 31, 2018 ..............................
Exercised.........................................................................
Forfeited..........................................................................
Outstanding as of December 31, 2019 ..............................
Vested and exercisable as of December 31, 2019 ................
Vested and expected to vest as of December 31, 2019 ........
Outstanding as of December 31, 2019 ..............................
Exercised.........................................................................
Forfeited..........................................................................
Outstanding as of December 31, 2020 ..............................
Vested and exercisable as of December 31, 2020 ................
Vested and expected to vest as of December 31, 2020 ........
Outstanding as of December 31, 2020 ..............................
Exercised.........................................................................
Forfeited..........................................................................
Outstanding as of December 31, 2021 ..............................
Vested and exercisable as of December 31, 2021 ................
Vested and expected to vest as of December 31, 2021 ........
Options
1,127,336
(109,291)
(37,161)
980,884
929,825
977,589
Price per
share
$0.75-$83.30 $
0.75-58.95
38.54-58.95
0.75-83.30
0.75-83.30
0.75-83.30
0.75-83.30
1.17-44.19
44.19-56.72
0.75-83.30
0.75-83.30
0.75-83.30
0.75-83.30
0.75-46.66
83.30
1.17-83.30
1.17-83.30
$1.17-$83.30 $
980,884
(18,626)
(6,779)
955,479
955,479
955,479
955,479
(486,038)
(10,000)
459,441
459,441
459,441
F-29
Weighted-
Remaining
weighted-
Per share
average
average contractual average
intrinsic
terms
exercise
value
(in years)
price
34.89
28.45
44.58
35.24
34.73
35.21
35.24
17.81
48.23
35.49
35.49
35.49
35.49
28.19
83.30
42.18
42.18
42.18
3.84 $
89.28
2.84
2.81
2.84
34.07
34.64
34.11
2.84
34.07
1.85
1.85
1.85
11.81
11.81
11.81
1.85
11.81
1.36
1.36
1.36 $
4.31
4.31
4.31
The total intrinsic value of options exercised during the years ended December 31, 2021, 2020, and 2019 was $14,524, $494, and
$7,910, respectively. As of December 31, 2021, 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.
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.
F-30
Stock Awards activity for the years ended December 31, 2021, 2020 and 2019 is summarized below:
Restricted stock units
Unvested restricted stock units as of December 31, 2018 (1) ..................................
Granted..............................................................................................................
Vested................................................................................................................
Forfeited/canceled .............................................................................................
Unvested restricted stock units as of December 31, 2019 (1)...................................
Unvested and expected to vest restricted stock units outstanding as of
December 31, 2019 ..............................................................................................
Unvested restricted stock units as of December 31, 2019.......................................
Granted..............................................................................................................
Vested................................................................................................................
Forfeited/canceled .............................................................................................
Unvested restricted stock units as of December 31, 2020 (1) ..................................
Unvested and expected to vest restricted stock units outstanding as of
December 31, 2020 ..............................................................................................
Unvested restricted stock units as of December 31, 2020.......................................
Granted..............................................................................................................
Vested................................................................................................................
Forfeited/canceled .............................................................................................
Unvested restricted stock units as of December 31, 2021 (1) ..................................
Unvested and expected to vest restricted stock units outstanding as of
December 31, 2021 ..............................................................................................
Restricted stock awards
Unvested restricted stock awards outstanding as of December 31, 2018 (1)............
Granted ..............................................................................................................
Vested ................................................................................................................
Forfeited/canceled .............................................................................................
Unvested restricted stock awards outstanding as of December 31, 2019 (1)............
Unvested and expected to vest restricted stock awards outstanding as of
December 31, 2019...............................................................................................
Unvested restricted stock awards outstanding as of December 31, 2019................
Vested ................................................................................................................
Forfeited/canceled .............................................................................................
Unvested restricted stock awards outstanding as of December 31, 2020 (1)............
Unvested and expected to vest restricted stock awards outstanding as of
December 31, 2020...............................................................................................
Unvested restricted stock awards outstanding as of December 31, 2020................
Vested ................................................................................................................
Forfeited/canceled .............................................................................................
Unvested restricted stock awards outstanding as of December 31, 2021 (1)............
Unvested and expected to vest restricted stock awards outstanding as of
December 31, 2021...............................................................................................
Performance
and
Time-based
time-based
Total
Weighted-
average
grant
date fair
value
per share
58,589 $
87,902
(24,680)
(12,835)
108,976
8,739
—
(4,366)
(1,239)
3,134
67,328 $
87,902
(29,046)
(14,074)
112,110 $
115.16
75.56
123.53
102.89
83.48
108,976
210,622
(49,636)
(24,500)
245,462
245,462
240,044
(109,504)
(86,836)
289,166
103,087 $
83.22
3,134
88,458
—
(3,134)
88,458
112,110 $
299,080
(49,636)
(27,634)
333,920 $
83.48
43.52
83.31
70.60
49.29
246,420 $
49.82
88,458
88,902
—
(78,248)
99,112
333,920 $
328,946
(109,504)
(165,084)
388,278 $
49.29
56.01
52.79
46.88
54.81
Performance
and
Time-based
time-based
331,358 $
54.98
Weighted-
average
grant
date fair
value
per share
115.80
86.10
115.37
109.11
95.74
Total
84,758 $
95,019
(29,359)
(16,720)
133,698 $
47,821
40,166
(15,732)
(9,627)
62,628
79,473 $
90.31
62,628
—
(29,273)
33,355
133,698 $
(28,994)
(29,273)
75,431 $
95.74
89.37
110.27
93.96
44,159 $
85.90
33,355
—
(27,726)
5,629
75,431 $
(15,728)
(43,658)
16,045 $
93.96
91.17
98.05
87.12
15,532 $
90.08
36,937
54,853
(13,627)
(7,093)
71,070
71,070
(28,994)
—
42,076
42,076
(15,728)
(15,932)
10,416
(1) Outstanding restricted stock units and restricted stock awards are based on the maximum payout of the targeted number of shares.
F-31
As of December 31, 2021, the unrecognized compensation cost related to unvested employee restricted stock units and restricted stock
awards was $13,685, excluding estimated forfeitures. This amount is expected to be recognized over a weighted-average period of 2.5
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.
As of December 31, 2021, a total of 569,866 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 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 2021, 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 years ended December 31, 2021, 2020 and 2019, was as follows:
(amounts in thousands)
Stock-based compensation expense by type of award:
Stock option plan awards ....................................................... $
Restricted stock units and restricted stock awards .................
Employee stock purchase plan ...............................................
Total stock-based compensation expense .................................... $
2021
Years ended December 31,
2020
2019
— $
10,229
714
10,943 $
709 $
6,717
777
8,203 $
2,977
5,413
739
9,129
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. The employee stock-based
compensation expense recognized for the years ended December 31, 2020 and 2019 has been reduced for estimated forfeitures of
stock option plan awards at a rate of 7.3% and 7.3%, respectively. The employee stock-based compensation expense recognized for
the years ended December 31, 2021, 2020 and 2019 has been reduced for estimated forfeitures of restricted stock at a rate of 4.1%,
4.7% and 4.4%, respectively. 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.
F-32
For the years ended December 31, 2021, 2020 and 2019, 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:
(amounts in thousands)
Cost of revenue ............................................................................ $
Research and development ..........................................................
Sales and marketing .....................................................................
General and administrative ..........................................................
Total stock-based compensation expense............................... $
2021
Years ended December 31,
2020
2019
1,106 $
1,276
2,388
6,173
10,943 $
698 $
969
2,208
4,328
8,203 $
890
1,100
1,755
5,384
9,129
Valuation assumptions
The employee stock-based compensation expense is recognized under ASC 718. Stock-based compensation cost for stock awards is
based on the number of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations
regarding the relevant performance criteria. The value of the award that is ultimately expected to vest is recognized as expense on a
straight-line basis over the employee’s requisite service period for stock awards with a time-based service condition and on a graded
vesting basis over the employee’s requisite service period for stock awards with performance and time-based service conditions.
Stock-based compensation cost for stock options and employee stock purchase plan are determined at the grant date using the Black-
Scholes option pricing model. During the years ended December 31, 2021, 2020 and 2019, the Company did not grant any stock
option awards.
The following table displays the assumptions that have been applied to estimate the fair value of the Company’s shares to be issued
under the ESPP using the Black-Scholes option pricing model.
Expected term (years) .................................................
Risk free interest rate ..................................................
Expected dividend yield..............................................
Volatility .....................................................................
2021
0.50
0.07-0.12%
None
44.59-83.92%
2020
0.50
0.12-1.75%
None
47.00-83.92%
2019
0.50
1.75-2.53%
None
44.00-47.00%
401(k) retirement savings plan
The Company maintains a 401(k) retirement savings plan for the benefit of eligible employees. Under the terms of this plan, eligible
employees are able to make contributions to the plan on a tax-deferred basis. The Company matched employees’ contributions from
January 1, 2017 through June 30, 2020. The Company suspended its 401(k) match, effective July 1, 2020; however, matching
contributions were reinstated on June 21, 2021. The Company contributed $479, $455, and $871, net of forfeitures, to the 401(k) plan
for the years ended December 31, 2021, 2020 and 2019, respectively.
8. Commitments and contingencies
Purchase obligations
The Company had approximately $111,100 of outstanding purchase orders due within one year with its outside vendors and suppliers
as of December 31, 2021.
F-33
Warranty obligation
The following table identifies the changes in the Company’s aggregate product warranty liabilities for the years ended December 31,
2021, 2020 and 2019, respectively:
(amounts in thousands)
Product warranty liability at beginning of period................................................................. $
Accruals for warranties issued..............................................................................................
Adjustments related to preexisting warranties (including changes in estimates) .................
Settlements made (in cash or in kind)...................................................................................
Product warranty liability at end of period ........................................................................... $
2021
December 31,
2020
2019
14,394 $
9,168
(597)
(9,239)
13,726 $
9,530
12,571 $
8,131
9,462
1,433
(754)
(6,885)
(6,523)
14,394 $ 12,571
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.
Legal proceedings
Securities class action and derivative lawsuits
On March 6, 2019, plaintiff William Fabbri filed a lawsuit against Inogen, Scott Wilkinson, and Alison Bauerlein, in the United States
District Court for the Central District of California on behalf of a purported class of purchasers of the Company’s securities. On March
21, 2019, plaintiff Steven Friedland filed a substantially similar lawsuit against the same defendants in the same court. On May 20,
2019, the court issued an order consolidating the two lawsuits under the name In re Inogen, Inc. Sec. Litig., No. 2:19-cv-01643-FMO-
AGR, appointing Dr. John Vasil and Paragon Fund Management as lead plaintiffs, and appointing Robbins Geller Rudman & Dowd
LLP and Glancy Prongay & Murray LLP as lead plaintiffs’ counsel. On July 10, 2019, the lead plaintiffs filed a consolidated amended
complaint on behalf of a purported class of purchasers of the Company’s common stock between November 8, 2017 and May 7, 2019.
The complaint generally alleges that the defendants failed to disclose that: (i) Inogen had overstated the true size of the total
addressable market for its portable oxygen concentrators and had misstated the basis for its calculation of the total addressable market;
(ii) Inogen had falsely attributed its sales growth to the strong sales acumen of its sales force, rather than to deceptive sales
practices; (iii) the growth in Inogen’s domestic business-to-business sales to home medical equipment providers was inflated,
unsustainable and was eroding direct-to-consumer sales; and (iv) Inogen’s decision to focus on sales over rentals of portable oxygen
concentrators harmed its ability to serve the Medicare market, in violation of sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended. The complaint seeks compensatory damages in an unspecified amount, costs and expenses, including attorneys’
fees and expert fees, prejudgment and post-judgment interest and such other relief as the court deems proper. On January 2, 2020, the
court dismissed the consolidated amended complaint with leave to amend. On January 9, 2020, the plaintiffs filed a second amended
complaint generally alleging substantially similar claims as those in the previous complaint. On January 23, 2020, the defendants filed
a motion to dismiss the second amended complaint. On September 2, 2020, the court denied the defendants’ motion to dismiss without
prejudice and instructed defendants to file another motion to dismiss if the parties are unable to resolve the issues relating to the
second amended complaint. The Company filed its motion to dismiss on October 28, 2020. On August 13, 2021, the court granted
Defendants’ motion to dismiss, and on September 27, 2021, the court entered judgment dismissing the action in its entirety.
F-34
On June 26, 2019, plaintiff Twana Brown filed a shareholder derivative lawsuit against Inogen, Scott Wilkinson, Alison Bauerlein,
Benjamin Anderson-Ray, Scott Beardsley, R. Scott Greer, Raymond Huggenberger, Heath Lukatch, Loren McFarland, and Heather
Rider in the United States District Court for the Central District of California. The complaint purports to bring claims on behalf of
Inogen against the individual defendants for breaches of their fiduciary duties as directors and/or officers of Inogen, unjust
enrichment, waste of corporate assets and violations of section 14(a) of the Securities Exchange Act of 1934, as amended. The
complaint generally alleges similar claims to the securities class action. The complaint seeks compensatory damages and restitution in
an unspecified amount, changes to the Company’s corporate governance and internal procedures, costs and expenses, including
attorneys’ fees and expert fees, and such other relief as the court deems proper. On August 5, 2019, the court issued an order staying
the derivative action pending the resolution of the motion to dismiss stage in In re Inogen, Inc. Sec. Litig. Between October 7, 2019
and October 31, 2019, three additional shareholder derivative complaints were filed in the United States District Court for the Central
District of California based on similar factual allegations. These lawsuits purport to bring claims on behalf of Inogen for breach of
fiduciary duty, unjust enrichment, waste of corporate assets, insider trading and misappropriation of information, and violations of
section 14(a) of the Securities Exchange Act of 1934, as amended. On January 13, 2020, the court consolidated the four derivative
lawsuits before it under the name In re Inogen, Inc. S’holder Deriv. Litig., Lead Case No. 2:19-cv-5568-FMO-AGR and ordered that
the consolidated action be stayed pending the resolution of the motion to dismiss stage in In re Inogen, Inc., Sec. Litig. On November
10, 2021, the plaintiffs filed a Notice of Voluntary Dismissal Without Prejudice. On February 8, 2022, the court dismissed the
California derivative action without prejudice.
On September 13, 2019, plaintiff Dustin Weller filed a shareholder derivative lawsuit against Inogen, Scott Wilkinson, Alison
Bauerlein, Benjamin Anderson-Ray, Scott Beardsley, R. Scott Greer, Raymond Huggenberger, Heath Lukatch, Loren McFarland, and
Heather Rider in the United States District Court for the District of Delaware captioned Weller v. Wilkinson, et al., No. 1:19-cv-
01723-MN. On October 17, 2019, plaintiff Sharokh Soltanipour filed a shareholder derivative lawsuit against the same defendants in
the same court, captioned Soltanipour v. Wilkinson, et al., No. 1:19-cv-1968-MN. The complaints generally allege similar claims to
those in In re Inogen, Inc., S’holder Deriv. Litig. The complaints purport to bring claims on behalf of Inogen for breach of fiduciary
duty, unjust enrichment, waste of corporate assets, abuse of control, gross mismanagement, insider selling and misappropriation of
information, violations of section 14(a) of the Securities Exchange Act of 1934, as amended, and for contribution from certain of the
individual defendants. The complaints seek compensatory damages in unspecified amounts, changes to the Company’s corporate
governance and internal procedures, return of compensation, disgorgement of profits from sale of stock, costs and expenses, including
attorneys’ fees and expert fees, and such other relief as the court deems proper. On May 15, 2020, the court consolidated the two
derivative lawsuits before it under the name In re Inogen, Inc. S’holder Deriv. Litig., Lead Case No. 1:19-cv-01723-MN-JLH. On July
8, 2020, the court ordered that the consolidated action be stayed pending the resolution of the motion to dismiss in the securities class
action, In re Inogen, Inc., Sec. Litig. On November 3, 2021, the court approved the parties’ stipulation to voluntarily dismiss the
Delaware derivative action without prejudice.
Other litigation
In addition to the lawsuits discussed above, 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.
9. Foreign currency exchange contracts and hedging
As of December 31, 2021 and December 31, 2020, the Company’s total non-designated and designated derivative contracts had
notional amounts totaling approximately $2,318 and $23,253, respectively, and $0 and $16,303, respectively. These contracts were
comprised of offsetting contracts with the same counterparty, each expires within one to twelve months. During the years ended
December 31, 2021, 2020, and 2019, these contracts had, net of tax, unrealized gains of $1,793, and unrealized losses of $289 and
$694, 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 years ended December 31, 2021, 2020 and 2019, there were no ineffective portions relating to these hedges and the hedges
remained effective through their respective settlement dates. As of December 31, 2021, the Company had thirteen designated hedges
and two non-designated hedges. As of December 31, 2020, the Company had seventeen designated hedges and no non-designated
hedges.
F-35
Schedule II: Valuation and Qualifying Accounts
(amounts in thousands)
Year ended December 31, 2021
Allowance for doubtful accounts (1)...................................... $
Allowance for sales returns (2) ..............................................
Allowance for rental asset loss (3) .........................................
Year ended December 31, 2020
Allowance for doubtful accounts (1)...................................... $
Allowance for sales returns (2)...............................................
Allowance for rental revenue adjustments (4) .......................
Allowance for rental asset loss (3) .........................................
Year ended December 31, 2019
Allowance for doubtful accounts (1) ...................................... $
Allowance for sales returns (2) ..............................................
Allowance for rental revenue adjustments (4) .......................
Allowance for rental asset loss (3) .........................................
Balance at
Beginning
of Year
Additions
Deletions
Balance at
End of Year
52 $
742
575
205 $
1,163
411
395
693 $
890
438
594
60 $
11,034
1,153
60 $
10,966
438
187 $
340 $
10,299
2,579
559
612 $
17,036
1,762
188
10,720
2,594
379
1,100 $
16,763
1,789
387
52
810
1,290
52
742
396
575
205
1,163
411
395
(1) The additions to the allowance for doubtful accounts represent the estimates of bad debt expense based upon factors for which the
company evaluates the collectability of accounts receivable, with actual recoveries netted into additions. Deductions are the actual
write-offs of the receivables.
(2) The additions to the allowance for sales returns represent estimates of returns based upon historical returns experience, primarily
for the direct-to-consumer sales channel. Deductions are the actual returns of products.
(3) The additions to the allowance for rental asset loss represent estimated losses of the Company’s rental assets that will potentially
be unrecoverable from the patient. Deductions are the actual write-offs of the rental assets.
(4) The additions to the allowance for rental revenue adjustments represent estimates of revenue adjustments that will need to be
recorded for billing adjustments on rental revenue, net of recoveries. Deductions are the actual adjustments and write-offs of the
rental receivables for such revenue adjustments.
F-36
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
4.3
4.4
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7A+
10.7B+
10.7C+
10.7D+
10.7E+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
EXHIBIT INDEX
Description
Agreement and Plan of Merger dated August 6, 2019, by and among
Inogen, Inc., Move Merger Sub, Inc., New Aera, Inc. and Gregory J.
Kapust, as the entitled holders’ agent.
Thirteenth Amended and Restated Certificate of Incorporation of the
Registrant.
Amended and Restated Bylaws of the Registrant.
Specimen Common Stock Certificate of the Registrant.
Ninth Amended and Restated Investors’ Rights Agreement, dated March
12, 2012, by and among the Registrant and the investors named therein, as
amended.
Amendment No. 2 to Ninth Amended and Restated Investor Rights
Agreement, dated December 10, 2018.
Description of Securities.
Form of Director and Executive Officer Indemnification Agreement.
2002 Stock Plan, as amended.
Form of Notice of Stock Option Grant and Stock Option Agreement under
the 2002 Stock Plan, as amended.
2012 Equity Incentive Plan, as amended.
Form of Stock Option Agreement under the 2012 Equity Incentive Plan.
2014 Equity Incentive Plan.
Form of Stock Option Agreement under the 2014 Equity Incentive Plan.
Form of Restricted Stock Unit Agreement – Time-Based under the 2014
Equity Incentive Plan.
Form of Restricted Stock Unit Agreement – Performance-Based under the
2014 Equity Incentive Plan.
Form of Restricted Stock Award Agreement – Time-Based under the 2014
Equity Incentive Plan.
Form of Restricted Stock Award Agreement – Performance-Based under
the 2014 Equity Incentive Plan.
2014 Employee Stock Purchase Plan.
Executive Incentive Compensation Plan.
Amended and Restated Employment and Severance Agreement, effective
March 1, 2017, between the Registrant and Scott Wilkinson.
Employment Agreement, dated October 1, 2013, between the Registrant
and Alison Bauerlein.
Employment Agreement, dated October 1, 2013, between the Registrant
and Matt Scribner.
Employment Agreement, dated October 1, 2013, between the Registrant
and Brenton Taylor.
94
Incorporated
by Reference
From Form
Incorporated
by Reference
From Exhibit
Number
Date
Filed
8-K
2.1
08/07/19
10-K
10-K
S-1/A
S-1/A
10-K
10-K
S-1
S-1
S-1
S-1
S-1
S-1/A
10-Q
10-Q
10-Q
10-Q
10-Q
S-1/A
S-1
10-K
3.1
3.2
4.1
4.2
02/25/20
02/25/20
01/16/14
01/16/14
4.3
02/26/19
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.1
10.2
10.3
10.4
10.5
10.8
10.9
10.11
02/25/20
11/27/13
11/27/13
11/27/13
11/27/13
11/27/13
01/28/14
11/07/17
11/07/17
11/07/17
11/07/17
11/07/17
01/28/14
11/27/13
02/28/17
S-1/A
10.12
12/23/13
S-1/A
10.13
12/23/13
S-1/A
10.14
12/23/13
Exhibit
Number
Description
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22+
10.23
10.24*
10.25*
10.26*
10.27*
10.28
10.29
10.30
10.31
10.32
Multi-Purpose Commercial Building Lease, dated February 1, 2010,
between the Registrant and Rockbridge Investments, L.P., as amended.
Lease Agreement, dated May 3, 2012, between the Registrant and
Bayview (TX) Holding LLC.
License Agreement, dated July 23, 2007, between the Registrant and Air
Products and Chemicals, Inc.
Amendment to License Agreement, dated October 23, 2009, between the
Registrant and Air Products and Chemicals, Inc.
Amendment No. 2 to License Agreement, dated October 4, 2010, between
the Registrant and Air Products and Chemicals, Inc.
Amendment No. 3 to License Agreement, dated March 22, 2011, between
the Registrant and Air Products and Chemicals, Inc.
Lease Agreement, dated December 4, 2014, between the Registrant and
TCIT Dallas Industrial, Inc.
Second Amendment to lease, dated January 20, 2015, between Registrant
and Rockbridge Investments, L.P.
Amended and Restated Employment and Severance Agreement, effective
January 1, 2017, between the Registrant and Byron Myers.
First Amendment and Expansion of Premises entered into as of
November 9, 2015, by and between Registrant and ATLAS 35-75
INDUSTRIAL, LP.
Private Label Distribution Agreement, effective as of November 12, 2014,
between the Registrant and Applied Home Healthcare Equipment LLC, as
amended.
Addendum to Private Label Distribution Agreement between the Company
and Applied Home Healthcare Equipment LLC, as amended.
First Amendment to Private Label Distribution Agreement by and between
the Company and Applied Home Healthcare Equipment, LLC, dated as of
February 21, 2018.
Second Amendment to Private Label Distribution Agreement by and
between the Company and OxyGo HQ, LLC, formerly known as Applied
Home Healthcare Equipment, LLC, dated as of March 1, 2019.
Lease Agreement by and between the Company, Cleveland American,
LLC and Holdings Cleveland American, LLC, dated as of May 31, 2017.
First Amendment to Lease Agreement between the Company, Cleveland
American, LLC and Holdings Cleveland American, LLC, dated as of
January 10, 2018.
Second Amendment to Lease Agreement between the Company,
Cleveland American, LLC and Holdings Cleveland American, LLC, dated
as of May 1, 2018.
Lease Agreement, dated June 19, 2019, by and between the Company, and
RAF Pacifica Group – Real Estate Fund IV, LLC, APG Hollywood
Center, LLC, and APG Airport Freeway Center, LLC.
Incorporated
by Reference
From Form
Incorporated
by Reference
From Exhibit
Number
Date
Filed
S-1
S-1
10.17
11/27/13
10.18
11/27/13
S-1/A
10.19
12/23/13
S-1
S-1
S-1
10-K
10-Q
10-K
8-K
10.20
11/27/13
10.21
11/27/13
10.22
11/27/13
10.23
04/27/15
10.1
05/12/15
10.28
02/28/17
10.1
11/10/15
10-Q
10.1
11/03/16
10-Q
10-Q
10.1
10.1
05/09/17
04/30/18
10-Q
10.1
05/07/19
10-Q
10-Q
10.1
10.2
08/07/18
08/07/18
10-Q
10.3
08/07/18
10-Q
10.1
08/07/19
Lease Agreement, dated August 29, 2019, by and between the Company,
and TCG Industrial Shiloh LLC.
10-Q
10.1
11/05/19
95
Incorporated
by Reference
From Form
Incorporated
by Reference
From Exhibit
Number
Exhibit
Number
10.33
10.34+
10.35+
10.36
10.37+
10.38+
10.39+
10.40
10.41+
10.42+
10.43+
10.44+
10.45+
10.46
10.47*
10.48+
10.49+
10.50+
10.51+
10.52+
23.1
24.1
Description
Lease Agreement Amendment No. 1, dated November 1, 2019, by and
between the Company, and TCG Industrial Shiloh LLC.
Transition Agreement and Release by and between the Company and
Matthew Scribner, dated September 14, 2018.
Employment and Severance Agreement, dated August 17, 2018, between
the Registrant and Bart Sanford.
Third Amendment to lease, dated July 14, 2020, between Registrant and
Rockbridge Investments, L.P.
Employment and Severance Agreement, dated August 17, 2020, between
the Company and Arron Retterer.
Employment and Severance Agreement between the Company and Nabil
Shabshab, dated January 22, 2021.
Transition Agreement and Release by and between the Company and Scott
Wilkinson, dated January 22, 2021.
First Amendment to Agreement and Plan of Merger, dated August 6, 2019
between the Company and New Aera, dated January 18, 2021.
Transition Agreement and Release between the Company and Arron
Retterer, dated April 5, 2021.
Transition Agreement and Release between the Company and Byron
Myers, dated April 5, 2021.
Employment and Severance Agreement between the Company and George
Parr, dated April 12, 2021.
Employment and Severance Agreement, between the Company and
Stanislav Glezer, dated June 21, 2021.
Employment and Severance Agreement, between the Company and Jason
M. Somer, dated July 12, 2021.
First Amendment to Lease dated as of June 17, 2021, by and between the
Company and RAF Pacifica Group – Real Estate Fund IV, LLC, APG
Hollywood Center, LLC and APG Airport Freeway Center, LLC.
Private Label Distribution Agreement, by and between the Company and
OxyGo HQ Florida, LLC, dated as of September 23, 2021.
Transition Agreement and Release, dated September 30, 2021, between the
Company and Brenton Taylor.
Amended and Restated Employment and Severance Agreement, dated
October 11, 2021, between the Company and Stanislav Glezer.
Offer Letter by and between the Company and Michael K. Sergesketter,
dated December 10, 2021.
Transition Agreement and Release between the Company and Alison
Bauerlein, dated December 10, 2021.
Consulting Agreement by and between the Company and Raymond
Huggenberger, effective December 29, 2021.
Consent of Deloitte & Touche LLP, Independent Registered Public
Accounting Firm.
Powers of Attorney (contained in the signature page to this Annual Report
on Form 10-K).
96
10-Q
8-K
10-Q
10-Q
10-Q
8-K
10-K
10-K
8-K
8-K
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
8-K
8-K
8-K
Filed
Herewith
Filed
Herewith
Date
Filed
11/05/19
09/17/18
11/06/18
08/04/20
11/04/20
01/25/21
10.2
10.1
10.2
10.1
10.1
10.1
10.39
02/24/21
10.40
02/24/21
10.1
10.2
10.6
10.1
10.2
10.1
10.2
10.3
10.4
10.1
10.2
10.1
04/07/21
04/07/21
05/04/21
08/04/21
08/04/21
11/04/21
11/04/21
11/04/21
11/04/21
12/13/21
12/13/21
12/30/21
Exhibit
Number
31.1
31.2
32.1~
Description
Incorporated
by Reference
From Form
Incorporated
by Reference
From Exhibit
Number
Date
Filed
Certification of Chief Executive Officer pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Filed
Herewith
Filed
Herewith
Filed
Herewith
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Document
104
+
*
~
The cover page of this Annual Report on Form 10-K, formatted in inline
XBRL.
Indicates a management contract or compensatory plan.
Portions of the exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The Company agrees to furnish to the
Securities and Exchange Commission a copy of any omitted portions of the exhibit upon request.
The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K, are deemed furnished and not filed
with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Inogen, Inc. under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of
this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
97
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
INOGEN, INC.
(Registrant)
By:
/s/ Nabil Shabshab
Nabil Shabshab
Chief Executive Officer
President
Director
(Principal Executive Officer)
Dated: February 24, 2022
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Nabil Shabshab and Michael Sergesketter, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Nabil Shabshab
Nabil Shabshab
Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ Michael Sergesketter
Michael Sergesketter
Chief Financial Officer
(Principal Accounting and Financial Officer)
Date
February 24, 2022
February 24, 2022
/s/ Elizabeth Mora
Elizabeth Mora
/s/ Heath Lukatch, Ph.D.
Heath Lukatch, Ph.D.
/s/ Benjamin Anderson-Ray
Benjamin Anderson-Ray
/s/ Heather Rider
Heather Rider
/s/ Loren McFarland
Loren McFarland
/s/ Kristen Miranda
Kristen Miranda
Chairperson of the Board
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
Director
Director
Director
Director
Director
98
BOARD OF DIRECTORS
Nabil Shabshab
Chief Executive Officer, President
and Director
Elizabeth Mora
Former Chief Administrative Officer,
Charles Stark Laboratory
Glenn Boehnlein
Vice President, Chief Financial Officer,
Stryker Corporation
Kevin King
Former Chief Executive Officer, President,
iRythm Technologies, Inc.
Mary Katherine Ladone
Former Senior Vice President, Corporate
Development, Strategy and Investor
Relations, Hill-Rom Holdings, Inc.
Heather Rider
Former Vice President, Global Human
Resources, Cymer, Inc.
Kristen Miranda
West Region President, Aetna
CORPORATE EXECUTIVE OFFICERS
Nabil Shabshab
Chief Executive Officer, President and Director
Kristin Caltrider
Executive Vice President, Chief Financial
Officer and Corporate Treasurer
George Parr
Executive Vice President,
Chief Commercial Officer
Stanislav Glezer
Executive Vice President,
Chief Technology Officer
Bart Sanford
Executive Vice President, Operations
Jason Somer
Executive Vice President, General Counsel and
Corporate Secretary
ANNUAL REPORT ON FORM 10-K
Stockholders may receive a copy of our
annual report on Form 10-K, including
the financial statements and the financial
statement schedules, free of charge upon
the written request of any such person.
All such requests shall be sent to Inogen,
Inc., Investor Relations Department, 301
Coromar Drive, Goleta, California 93117.
CORPORATE HEADQUARTERS
Inogen, Inc.
301 Coromar Drive
Goleta, California 93117
T: (805) 562-0500
www.inogen.com
COMMON STOCK LISTING
NASDAQ Global Select Market
Ticker Symbol: INGN
ANNUAL MEETING OF STOCKHOLDERS
June 8, 2022 at 10:00 a.m. (Pacific Time)
Stockholders can attend the virtual
Annual Meeting by accessing www.
virtualshareholdermeeting.com/INGN2022
REGISTRAR AND TRANSFER AGENT
For questions regarding your account,
changes of address or the consolidation
of accounts, please contact Inogen’s
transfer agent:
Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233
T: (877) 373 6374 (U.S.)
T: (781) 575-3120 (International)
www.computershare.com/investor
LEGAL COUNSEL
Wilson Sonsini Goodrich & Rosati
Professional Corporation
San Diego, California
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Los Angeles, California
INVESTOR RELATIONS
Inogen, Inc.
Investor Relations Department
301 Coromar Drive
Goleta, California 93117
INTERNET ADDRESS INFORMATION
Visit us online at www.inogen.com for more
information about Inogen. The 2021 Annual
Report is available online by visiting
http://investor.inogen.com
Special Note Regarding Forward-Looking
Statements
This 2021 Annual Report contains forward-
looking statements that are based on our
management’s beliefs and assumptions
and on information currently available to
our management. The forward-looking
statements are contained principally in
the sections entitled “Business,” “Risk
Factors,” and “Management’s Discussion
and Analysis of Financial Condition and
Results of Operations.” Forward-looking
statements include information concerning
our possible or assumed future results of
operations, business strategies, financing
plans, competitive position, industry
environment, potential growth opportunities
and market growth expectations, hiring
plans, productivity improvements, new
product launches, and the effects of
competition. Forward-looking statements
include statements that are not historical
facts and can be identified by terms such
as “anticipates,” “believes,” “could,” “seeks,”
“estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects,”
“should,” “will,” “would” or similar
expressions and the negatives of those terms.
Forward-looking statements involve known
and unknown risks, uncertainties and
other factors that may cause our actual
results, performance, or achievements to be
materially different from any future results,
performance, or achievements expressed or
implied by the forward-looking statements.
Given these uncertainties, you should
not place undue reliance on any forward-
looking statements. In particular, Inogen,
Inc. (“Inogen”) cannot predict its future
revenues or operating results or its future
rates of revenue growth, if any. Inogen’s
business, revenues, and operating results
as well as its rate of revenue growth, if
any, will be subject to numerous risks and
uncertainties, including (among others) risks
arising from the possibility that Inogen will
not realize anticipated revenue; the impact
of reduced reimbursement rates, including in
connection with competitive bidding and the
Centers for Medicare and Medicaid Services
(CMS) rules; risks related to reimbursement
coding of our products; the possible loss
of key employees, customers, or suppliers
and intellectual property risks if Inogen is
unable to secure and maintain patent or
other intellectual property protection for the
intellectual property used in its products.
In addition, Inogen’s business is subject to
numerous additional risks and uncertainties,
including, among others, risks relating
to market acceptance of its products; its
ability to successfully launch new products
and applications; competition; its sales,
marketing and distribution capabilities;
its planned sales, marketing, and research
and development activities; interruptions
or delays in the supply of components
or materials for, or manufacturing of, its
products; seasonal variations in customer
operations; unanticipated increases in costs
or expenses; cyber-based attacks or network
security breaches; and risks associated
with international operations. In addition,
investors in Inogen should review the more
detailed discussions of risks and uncertainties
affecting our business described under the
caption “Risk factors” in our Annual Report
on Form 10-K filed with the Securities and
Exchange Commission on February 24,
2022 and supplemented in our subsequent
Quarterly Reports on Form 10-Q.
Except as required by law, we assume no
obligation to update these forward-looking
statements publicly, or to update the reasons
actual results could differ materially from
those anticipated in these forward-looking
statements, even if new information becomes
available in the future.
Inogen, Inc.
301 Coromar Drive
Goleta, California 93117
www.inogen.com