Inogen Inc

Condensed Notes to the Consolidated Financial Statements

1. Business overview

Inogen, Inc. (Company or Inogen) was incorporated in Delaware on November 27, 2001. The Company is a medical technology business 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 refers to as 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® and Inogen Rove systems concentrate the air around the patient to offer a source of supplemental oxygen anytime, anywhere with a 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. On September 14, 2023, the Company completed the acquisition of all of the issued and outstanding capital stock of Physio-Assist SAS (Physio-Assist) and its wholly-owned subsidiary PhysioAssist GmbH.

2. Basis of presentation and summary of significant accounting policies

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

The results of operations for the three months ended March 31, 2024 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2024. In the opinion of the Company’s management, the information contained herein reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s results of operations, financial position, cash flows, and stockholders’ equity. Certain footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (SEC) rules and regulations relating to interim financial statements. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2024. Except as further described below, there have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K filed with the SEC on March 1, 2024.

Basis of consolidation

The consolidated financial statements include the accounts of Inogen, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Accounting estimates

Thepreparation 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 goodwill, 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.

3. Acquisitions

On July 10, 2023, the Company entered into a share purchase agreement to acquire Physio-Assist, which is in the business of the design, production, and marketing of medical devices for bronchial decongestion (airway clearance technique) for patients suffering from obstructive respiratory diseases. On September 14, 2023, the Company completed the acquisition of all of the issued and outstanding capital stock of Physio-Assist and its wholly-owned subsidiary PhysioAssist GmbH for a purchase price consisting of $32,250 in cash consideration and the fair value of a potential earnout of $3,178 based on future regulatory clearances.

A potential earnout payment of either $13,000 (without a clinical trial requirement) or $11,000 (with a required clinical trial less related development costs) is dependent upon the achievement of one of two milestones related to U.S. Food and Drug Administration (FDA) de novo authorization or 510(k) clearance for the Simeox Airway Clearance System within four years of the date of the closing of the transaction. The fair value of the earnout liability was measured using the probability weighted expected return methodology and was discounted using a rate and probability that appropriately captures the risk associated with the obligation.

Assets and liabilities of the acquired company were recorded at their estimated fair values at the date of acquisition. 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 assets 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.

The Company's allocation of the purchase price of Physio-Assist is preliminary and any measurement period adjustments that result from the finalization of the purchase price allocation will be recorded retrospectively to the acquisition date. Changes are possible and could change the allocation of the purchase price.

The following table summarizes the preliminary allocation of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of Physio-Assist:

The consolidated financial and operating results reflect the Physio-Assist operations beginning September 14, 2023. The following unaudited pro forma information for the three months ended March 31, 2023 presents the revenues and net loss assuming the acquisition of Physio-Assist had occurred as of January 1, 2022.

4. Fair value measurements

Cash, cash equivalents, and marketable securities

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:

Derivative instruments and hedging activities

The Company records the assets or liabilities associated with derivative instruments and hedging activities at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the consolidated balance sheet. The Company had a related receivable of $64 and payable of $155 as of March 31, 2024 and December 31, 2023, respectively.

Accumulated other comprehensive income (loss)

The components of accumulated other comprehensive income (loss) were as follows:

Comprehensive income (loss) is the total net earnings and all other non-owner changes in equity.

Earnout liability

The Company has obligations to pay up to $13,000 in an earnout payment for the Physio-Assist acquisition in cash if certain future regulatory results are met. The earnout liability was valued using Level 3 inputs.

The reconciliation of the earnout liability measured and carried at fair value on a recurring basis is as follows:

5. Balance sheet components

Accounts receivable and allowance for bad debts, returns, and adjustments

Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of March 31, 2024 and December 31, 2023 were as follows:

(1)

Rental includes Medicare, Medicaid/other government, private insurance, and patient pay.

(2)

Business-to-business receivables included extended terms fortwo customers: 1) one customer had a net accounts receivable balance of$6,665 and $8,639 as of March 31, 2024 and December 31, 2023, respectively; and 2) one customer had a net accounts receivable balance of $2,758 and $4,994 as of March 31, 2024 and December 31, 2023, respectively. Each customer received extended payment terms through a direct financing plan offered.

The following table sets forth the accounts receivable allowances as of March 31, 2024 and December 31, 2023:

Concentration of customers and vendors

The Company primarily sells its products to traditional home medical equipment providers, distributors, and resellers in the United States and in foreign countries on a credit basis. The Company also sells its products direct-to-consumers primarily on a prepayment basis. Medicare's service reimbursement programs represented more than 10% of the Company's total revenue for the three months ended March 31, 2024 and March 31, 2023. One customer represented more than 10% of the Company’s net accounts receivable balance with a net accounts receivable balance of $6,665 as of March 31, 2024, andtwo customers each represented more than 10% of the Company's net accounts receivable balance with net accounts receivable balances of $8,639 and $4,994, respectively, as of December 31, 2023.

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 58.4% and 73.8% of rental revenue in thethree months ended March 31, 2024 and 2023, respectively, and based on total revenue were 11.2% and 16.6% for thethree months ended March 31, 2024 and 2023, respectively. Accounts receivable balances relating to Medicare’s service reimbursement programs (including held and unbilled, net of allowances) amounted to $1,427 or 3.5% of total net accounts receivable as of March 31, 2024 compared to $2,059 or 4.9% of total net accounts receivable as of December 31, 2023.

The Company currently purchases raw materials from a limited number of vendors, which resulted in a concentration of three major vendors. The three major vendors supply the Company with raw materials used to manufacture the Company’s products. For the three months ended March 31, 2024, the Company’s three major vendors accounted for 24.6%,17.2%, and 10.0%, respectively, of total raw material purchases. For thethree months ended March 31, 2023, the Company’s three major vendors accounted for 34.1%,13.1%, and 7.3%, respectively, of total raw material purchases.

A portion of revenue is earned from sales outside the United States. Approximately 79.9% and 77.0% of the non-U.S. revenue for thethree months ended March 31, 2024 and 2023, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the three months ended March 31, 2024 and 2023, respectively, is as follows:

Inventories

Inventories are stated at the lower of cost and net realizable value, using the first-in, first-out (FIFO) method. The Company records adjustments to inventory for potentially excess, obsolete, slow-moving, or impaired items, and losses on firm purchase commitments as a component of cost of sales in our consolidated statements of comprehensive loss. The Company recorded noncurrent inventory related to inventories that are expected to be realized or consumed after one year of $1,377 and $1,225 as of March 31, 2024 and December 31, 2023, 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. During the three months ended March 31, 2024 and 2023, $331 and $1,013, 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:

Property and equipment

Repair and maintenance expense, which includes labor, parts, and freight, for rental equipment was $1,759 and $1,311 for thethree months ended March 31, 2024 and 2023, respectively.

Depreciation and amortization expense related to rental equipment and other property and equipment are summarized below for thethree months ended March 31, 2024 and 2023, respectively.

Property and equipment and rental equipment with associated accumulated depreciation is summarized below as of March 31, 2024 and December 31, 2023, respectively.

Long-lived assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with Accounting Standards Codification (ASC) 360— Property, Plant, and Equipment. In accordance with ASC 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. No impairments were recorded for the three months ended March 31, 2024 and March 31, 2023.

Goodwill and other identifiable intangible assets

Goodwill

The changes in the carrying amount of goodwill for thethree months ended March 31, 2024 were as follows:

(1) Includes $32,894 of accumulated impairment losses as of March 31, 2024 and December 31, 2023.

Intangible assets

The following tables represent the changes in net carrying values of intangible assets as of the respective dates:

Annual estimated amortization expense for each of the succeeding fiscal years is as follows:

Current liabilities

Accounts payable and accrued expenses as of March 31, 2024 and December 31, 2023 consisted of the following:

Accrued payroll as of March 31, 2024 and December 31, 2023 consisted of the following:

6. Leases

The Company has entered into operating leases primarily for commercial buildings. These leases have terms that range from 3 years to 11 years, some of which include options toextend the leases for up to 5 years. Rent expense, including short-term lease cost, was $1,073 and $972 for thethree months ended March 31, 2024 and 2023, respectively.

In July 2023, the Company entered into an Assignment and Assumption of Lease Agreement in which a third party (Assignee) assumed the rights, title, and interest in the lease, including assumption of lease payments. Notwithstanding the Assignee's assumption of lease payments, Inogen remains the primary obligor under the lease to the landlord. Lease payments assumed by the Assignee are:

Information related to the Company's right-of-use assets and related operating lease liabilities were as follows:

7. Loss per share

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 loss per share when their effect is dilutive.

Basic loss per share is calculated using the Company's weighted-average outstanding common shares. Diluted loss per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.

The computation of EPS is as follows:

(1)

Unvested restricted stock units and restricted stock awards are not included as shares outstanding in the calculation of basic earnings per share. Vested restricted stock units and restricted stock awards are included in basic earnings per share if all vesting and performance criteria have been met. Performance-based restricted stock units and restricted stock awards are included in the number of shares used to calculate diluted earnings per share as long as all applicable performance criteria are met, and their effect is dilutive. Restricted stock awards are eligible to receive all dividends declared on the Company’s common shares during the vesting period; however, such dividends are not paid until the restrictions lapse.

(2)

Due to net losses for the three months ended March 31, 2024 and March 31, 2023, diluted loss per share is the same as basic.

8. Income taxes

The Company accounts for income taxes in accordance with ASC 740— Income Taxes. Under ASC 740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in the Company’s consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of December 31, 2023, the Company recorded a full valuation allowance of $59,968. As of March 31, 2024, the Company continued to record a valuation allowance against its domestic deferred tax assets.

The Company accounts 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 Company recognizes interest and penalties on taxes, if any, within its income tax provision on its consolidated statements of comprehensive loss.

9. Stockholders’ equity

The Company has a 2014 Equity Incentive Plan (2014 Plan) under which the Company granted restricted stock units, restricted stock awards, performance units, performance shares, and options to purchase shares of its common stock. As of March 31, 2024, awards with respect to 771,689 shares of the Company’s common stock were outstanding.

The Company has a 2023 Equity Incentive Plan (2023 Plan) that provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any parent and subsidiary corporation’s employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, restricted stock awards, stock appreciation rights, performance units and performance shares to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants.

As of March 31, 2024, awards with respect to 1,053,427 shares of the Company's common stock were outstanding, and 1,244,094 shares of common stock remained available for issuance under the 2023 Plan. The shares available for issuance under the 2023 Plan will be increased by any shares returned to the 2014 Plan as a result of 1) expiration or termination of awards and 2) tendered to or withheld by us for payment of an exercise or purchase price or for tax withholding obligations.

Pursuant to the Nasdaq inducement grant exception, during the quarter ended March 31, 2024, the Company issued 225,000 shares of common stock to a certain new hire issuable upon (i) the vesting of a maximum of 75,000 time-based restricted stock units granted, and (ii) the vesting of a maximum of 150,000 shares of performance-based restricted stock units granted to induce the employee to accept employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

Stock options

Options expireten years from the date of grant and vest overone-year terms. The activity for stock options under the Company’s stock plans for thethree months ended March 31, 2024 is as follows:

The total intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was $0 and $735, respectively. As of March 31, 2024, all stock-based compensation expense for options granted under the Plans was recognized.

Stock incentive awards

The Company grants restricted stock units (RSUs) under the 2014 and 2023 Plans (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 three-year andfour-year service periods, 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 athree-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 more or less than the targeted number of shares subject to the Stock Award depending on whether the performance criteria are met.

Stock Awards activity for thethree months ended March 31, 2024 is summarized below:

(1) Outstanding restricted stock units are based on the maximum payout of the targeted number of shares.

As of March 31, 2024, the unrecognized compensation cost related to unvested employee restricted stock units was $13,639, excluding estimated forfeitures. This amount is expected to be recognized over a weighted average period of 2.0 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 March 31, 2024, a total of 658,823 shares of common stock were available for sale pursuant to the ESPP.

The number of shares available for sale under the ESPP is increased annually on the first day of each fiscal year by an amount equal to the least of:

•

179,069 shares;

•

1.5% of the outstanding shares of the Company’s common stock on the last day of the Company’s immediately preceding fiscal year; or

•

such other amount as may be determined by the administrator.

For 2024, an additional 179,069 shares were added to the ESPP share reserve pursuant to the provision described above.

Stock-based compensation

Stock-based compensation expense recognized for thethree months ended March 31, 2024 and 2023, was as follows:

Employee stock-based compensation expense was calculated based on awards of stock options, restricted stock units and restricted stock awards ultimately expected to vest based on the Company’s historical award cancellations. ASC 718 –Compensation-Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

For thethree months ended March 31, 2024 and 2023, 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:

10. Commitments and contingencies

Purchase obligations

The Company had approximately $75,500 of outstanding purchase orders due within one year with its outside vendors and suppliers as of March 31, 2024. The Company has $1,941 and $2,057 accrued within accounts payable and other accrued expenses in the consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively, related to estimated losses for firm commitment contractual obligations under these agreements. Losses on these firm commitment contractual obligations are recognized based upon the terms of the respective agreement and similar factors considered for the write-down of inventory, including expected sales requirements as determined by internal sales forecasts.

Warranty obligation

The following table identifies the changes in the Company’s aggregate product warranty liabilities for the three-month and twelve-month periods ended March 31, 2024 and December 31, 2023, respectively:

Contract liabilities

Contract liabilities primarily consist of deferred revenue related to lifetime warranties on direct-to-consumer sales revenue when cash payments are received in advance of services performed under the contract. The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchase. The decrease in deferred revenue related to lifetime warranties for the three months ended March 31, 2024 was primarily driven by $1,448 of revenue recognized that were included in the deferred revenue balances as of December 31, 2023, partially offset by $535 of payments received in advance of satisfying performance obligations. Deferred revenue related to lifetime warranties was $12,402 and $13,315 as of March 31, 2024 and December 31, 2023, respectively, and is classified within deferred revenue - current and deferred revenue - noncurrent in the consolidated balance sheet.

Legislation and HIPAA

The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Compliance with government 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 is not aware of any pending claims against it under the HIPAA and HITECH regulations that are applicable to the Company’s business.

Legal proceedings

The Company is party to various legal proceedings and investigations 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.

11. Foreign currency exchange contracts and hedging

As of March 31, 2024 and March 31, 2023, the Company’s total non-designated and designated derivative contracts had notional amounts totaling approximately $37,425 and $0, respectively, and $8,041 and $2,445, respectively. These contracts were comprised of offsetting contracts with the same counterparty, each expires withinone month. During thethree months ended March 31, 2024 and 2023, these contracts had, net of tax, an unrealized gain (loss) of $0.

The nonperformance risk of the Company and the counterparty did not have a material impact on the fair value of the derivatives. During the three months ended March 31, 2024, there wereno ineffective portions relating to these hedges and the hedges remained effective through their respective settlement dates. During thethree months ended March 31, 2023, there wereno ineffective portions related to these hedges. As of March 31, 2024, the Company hadno designated hedges andfour non-designated hedges. As of March 31, 2023, the Company hadno designated hedges andone non-designated hedge.