UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 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 33-0989359 ( State or other jurisdiction of i ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 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 33-0989359 ( State or other jurisdiction of ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) Inogen is a medical technology company specializing in the development, manufacturing, and marketing of innovative portable oxygen concentrators (POCs) for patients with chronic respiratory conditions [General Overview and Market](index=4&type=section&id=General%20Overview%20and%20Market) Inogen develops and markets portable oxygen concentrators (POCs) as an alternative to traditional oxygen delivery models, employing a unique direct-to-consumer marketing and rental strategy - Inogen is a medical technology company that develops, manufactures, and markets portable oxygen concentrators (POCs) for patients with chronic respiratory conditions, offering an alternative to the traditional delivery model of stationary concentrators and oxygen tanks[20](index=20&type=chunk) - The company utilizes a direct-to-consumer marketing and rental strategy, which it believes is unique among manufacturers and has contributed to its market leadership; as of December 31, 2018, Inogen had sold or rented **over 567,000 oxygen concentrators**[21](index=21&type=chunk)[22](index=22&type=chunk) - The estimated U.S. market for long-term oxygen therapy is approximately **3 million patients**, with about **60% covered by Medicare**, and Chronic Obstructive Pulmonary Disease (COPD) is a primary driver for these needs[25](index=25&type=chunk)[26](index=26&type=chunk) [Products and Solutions](index=6&type=section&id=Products%20and%20Solutions) Inogen's core products are the lightweight Inogen One G3 and G4 POCs, featuring proprietary Intelligent Delivery Technology® for 24/7 use and supported by the Inogen Connect wireless platform Key Product Specifications | | Inogen One G4 | Inogen One G3 | | :--- | :--- | :--- | | **Capacity (ml/min)** | 630 | 1,050 | | **Weight (lbs)** | 2.8 (single battery) | 4.8 (single battery) | | | 3.3 (double battery) | 5.8 (double battery) | | **Battery run-time** | Up to 2.6 hours (single battery) | Up to 4.7 hours (single battery) | | | Up to 5 hours (double battery) | Up to 10 hours (double battery) | | **Technology effective for overnight use** | Yes | Yes | | **Sound** | 40 dBA | 39 dBA | - All Inogen One systems feature proprietary Intelligent Delivery Technology®, a pulse-dose technology that detects a patient's breath and delivers oxygen within the first 400 milliseconds of inspiration, also increasing the oxygen bolus size during sleep[35](index=35&type=chunk) - Inogen launched Inogen Connect, a wireless connectivity platform for the Inogen One G4, which includes a mobile app for users and a back-end portal for providers to monitor equipment health and perform remote troubleshooting[35](index=35&type=chunk) [Sales, Marketing, and Customer Concentration](index=8&type=section&id=Sales,%20Marketing,%20and%20Customer%20Concentration) The company generates U.S. revenue through direct-to-consumer sales, business-to-business channels, and rentals, with a significant revenue concentration from a single private label partner 2018 U.S. Revenue Breakdown | Channel | Percentage of U.S. Revenue | | :--- | :--- | | Direct-to-Consumer Sales | 50.6% | | Business-to-Business Sales | 41.5% | | Direct-to-Consumer Rentals | 7.9% | - As of December 31, 2018, the company's sales and marketing efforts were supported by a team of 492 people, including **446 inside sales representatives**[40](index=40&type=chunk) - A single private label distribution partner, OxyGo HQ Florida, represented **more than 10% of total revenue** for 2018, 2017, and 2016, and two customers represented more than 10% of net accounts receivable as of year-end 2018[48](index=48&type=chunk) [International Operations](index=10&type=section&id=International%20Operations) International sales are a growing revenue component, supported by a European distributor acquisition and contract manufacturing in the Czech Republic International Sales Revenue Growth | Year | Revenue (in millions) | | :--- | :--- | | 2018 | $77.3 | | 2017 | $55.5 | - In 2018, **21.6% of total revenue** was from outside the United States, with products sold in 46 countries through distributors or directly to large 'house' accounts[50](index=50&type=chunk) - To support European operations, the company acquired a distributor in the Netherlands in 2017 and began using contract manufacturer Foxconn in the Czech Republic to produce Inogen One G3 concentrators[52](index=52&type=chunk) [Third-Party Reimbursement](index=11&type=section&id=Third-Party%20Reimbursement) Medicare and private insurance rentals constitute a small portion of revenue and are subject to reimbursement rate reductions and a 36-month payment cap - Medicare and private insurance rentals accounted for approximately **6.2% of total revenue** in 2018, with Medicare's programs making up 78.0% of that rental revenue[55](index=55&type=chunk)[56](index=56&type=chunk) Medicare Reimbursement Rate Changes (Effective Jan 1, 2019) | HCPCS Code | Equipment Type | 2018 Average Rate | 2019 Average Rate | | :--- | :--- | :--- | :--- | | E1390 | Stationary Oxygen | $77.03/month | $72.92/month | | E1392 | Portable Oxygen | $36.06/month | $35.72/month | - As of December 31, 2018, approximately **19.1% of the company's rental patients** were in the 'capped' rental period where Medicare reimbursement is no longer provided, up from 17.0% at the end of 2017[62](index=62&type=chunk) [Manufacturing, R&D, and Competition](index=13&type=section&id=Manufacturing,%20R&D,%20and%20Competition) Inogen combines in-house and contract manufacturing, focuses R&D on product improvement and cost reduction, and operates in a highly competitive market - Key manufacturing and assembly processes are conducted in-house in Texas and California, while a contract manufacturer, Foxconn, in the Czech Republic is used for European production of the Inogen One G3[69](index=69&type=chunk)[70](index=70&type=chunk) - The company has released five products since 2004, and R&D efforts have helped **reduce overall system manufacturing costs by 58%** from 2009 to 2018[75](index=75&type=chunk)[76](index=76&type=chunk) - The company faces significant competition from manufacturers like **Respironics (Philips), Invacare, and Caire Medical**, as well as large service providers such as **Lincare and Apria Healthcare**[79](index=79&type=chunk)[80](index=80&type=chunk) [Government Regulation and Intellectual Property](index=16&type=section&id=Government%20Regulation%20and%20Intellectual%20Property) The company's operations are subject to extensive FDA and healthcare regulations, and its technology is protected by a portfolio of patents and trademarks - Inogen's products are regulated as medical devices by the FDA, have received pre-market clearance under Section 510(k), and its facilities are subject to FDA inspection for Good Manufacturing Practices[82](index=82&type=chunk)[73](index=73&type=chunk) - The company is subject to federal and state anti-fraud laws, including the **Anti-Kickback Statute and the Stark Law**, which govern relationships with healthcare providers and referral sources[94](index=94&type=chunk)[95](index=95&type=chunk) - As of December 31, 2018, Inogen held **thirty-three issued patents** and had eight pending applications relating to its oxygen concentrator technology[111](index=111&type=chunk) [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from intense competition, customer concentration, supplier dependency, healthcare reimbursement changes, extensive government regulation, and cybersecurity threats - The company faces intense competition from large, well-capitalized companies with greater resources, established distribution networks, and broader product lines[131](index=131&type=chunk)[134](index=134&type=chunk) - A significant portion of revenue is derived from a limited number of customers, and the company **depends on single-source suppliers** for critical components like batteries and motors, posing a risk of production delays[137](index=137&type=chunk)[139](index=139&type=chunk) - The business is **heavily dependent on Medicare reimbursement**, which is subject to ongoing legislative changes, competitive bidding programs, and rate reductions that could materially and adversely affect operating results[143](index=143&type=chunk)[151](index=151&type=chunk) - The company is subject to extensive regulation by the FDA and other agencies; failure to maintain regulatory clearances or a product recall could have a **significant adverse effect**[215](index=215&type=chunk)[224](index=224&type=chunk)[227](index=227&type=chunk) - Cybersecurity risks are a concern, as highlighted by a **2018 data security incident** that potentially exposed the personal information of approximately 30,000 rental customers[196](index=196&type=chunk) [Unresolved Staff Comments](index=54&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[288](index=288&type=chunk) [Properties](index=54&type=section&id=Item%202.%20Properties) Inogen leases its primary corporate, manufacturing, and office facilities in California, Texas, and Ohio, and owns property in Wisconsin - The company leases its primary facilities, including its corporate headquarters in Goleta, CA (46,000 sq ft), manufacturing and office space in Richardson, TX (approx 91,000 sq ft total), and office space in Cleveland, OH (72,000 sq ft)[289](index=289&type=chunk) [Legal Proceedings](index=55&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings in the normal course of business but does not anticipate any to have a material adverse effect on its business - The company is involved in various legal proceedings from time to time but does not expect them to have a material adverse effect on the business[290](index=290&type=chunk) [Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[291](index=291&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=56&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Inogen's common stock trades on NASDAQ under "INGN," and the company intends to retain future earnings for growth rather than pay dividends - The company's common stock has been publicly traded on the NASDAQ Global Select Market under the symbol **"INGN"** since February 14, 2014[294](index=294&type=chunk) - The company has **never paid cash dividends** and does not intend to in the foreseeable future, planning to retain earnings to fund business development and growth[302](index=302&type=chunk) [Selected Financial Data](index=58&type=section&id=Item%206.%20Selected%20Financial%20Data) The company shows consistent growth in total revenue and net income over the past five years, alongside a significant expansion of its total assets Selected Financial Data (2014-2018) | (in thousands) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total revenue** | $358,111 | $249,438 | $202,829 | $159,005 | $112,537 | | **Gross profit** | $178,580 | $121,237 | $97,310 | $76,258 | $55,517 | | **Income from operations** | $37,892 | $27,590 | $22,864 | $15,051 | $10,511 | | **Net income** | $51,845 | $21,002 | $20,519 | $11,585 | $6,826 | | **Total assets** | $375,898 | $275,072 | $214,049 | $161,314 | $140,085 | | **Total stockholders' equity** | $310,424 | $227,041 | $182,088 | $134,018 | $118,150 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=60&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, revenue grew 43.6% driven by strong direct-to-consumer sales, while net income surged 146.9% due to a significantly lower tax rate, and the company maintained a strong, debt-free liquidity position [Results of Operations (2018 vs. 2017)](index=66&type=section&id=Results%20of%20Operations%20(2018%20vs.%202017)) In 2018, total revenue increased 43.6% driven by a 49.0% rise in sales revenue, while net income grew 146.9% due to a substantial income tax benefit Revenue Performance (2018 vs. 2017) | Revenue Category | 2018 (in thousands) | 2017 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales Revenue | $336,015 | $225,492 | $110,523 | 49.0% | | Rental Revenue | $22,096 | $23,946 | ($1,850) | -7.7% | | **Total Revenue** | **$358,111** | **$249,438** | **$108,673** | **43.6%** | - The number of oxygen systems sold **increased by 55.2%**, from approximately 128,000 units in 2017 to 198,600 units in 2018[351](index=351&type=chunk) - Sales and marketing expense **increased by 88.4%** to $95.6 million, primarily due to a $20.8 million increase in personnel-related costs and an $18.2 million increase in media spending[361](index=361&type=chunk) - The company recorded an **income tax benefit of $11.4 million** in 2018, compared to an expense of $8.7 million in 2017, primarily due to a $21.2 million tax benefit from stock-based compensation and the TCJA[365](index=365&type=chunk)[366](index=366&type=chunk) [Results of Operations (2017 vs. 2016)](index=71&type=section&id=Results%20of%20Operations%20(2017%20vs.%202016)) In 2017, total revenue grew 23.0% driven by a 34.1% increase in sales, but net income growth was limited to 2.4% due to a significant one-time tax charge from the TCJA Revenue Performance (2017 vs. 2016) | Revenue Category | 2017 (in thousands) | 2016 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales Revenue | $225,492 | $168,170 | $57,322 | 34.1% | | Rental Revenue | $23,946 | $34,659 | ($10,713) | -30.9% | | **Total Revenue** | **$249,438** | **$202,829** | **$46,609** | **23.0%** | - The number of oxygen systems sold **increased by 39.1%**, from approximately 92,000 units in 2016 to 128,000 units in 2017[372](index=372&type=chunk) - Income tax expense **increased 292.3% to $8.7 million**, primarily due to a non-cash charge of $7.6 million related to the remeasurement of deferred tax assets under the Tax Cuts and Jobs Act (TCJA)[386](index=386&type=chunk)[387](index=387&type=chunk) [Liquidity and Capital Resources](index=75&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong, debt-free liquidity position with significant cash and marketable securities, sufficient to meet its operational needs for the next year Key Liquidity Metrics (as of Dec 31, 2018) | Metric | Amount (in thousands) | | :--- | :--- | | Cash and cash equivalents | $196,634 | | Marketable securities | $43,715 | | Working capital | $267,998 | | Total indebtedness | $0 | Summary of Cash Flows (Year ended Dec 31, 2018) | Cash Flow Category | Amount (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $59,977 | | Net cash used in investing activities | ($24,965) | | Net cash provided by financing activities | $18,296 | [Critical Accounting Policies](index=80&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies involve significant estimates in revenue recognition, inventory valuation, and income tax accounting - Revenue from product sales is recognized upon transfer of control, net of estimated allowances for returns, and revenue for lifetime warranties is deferred and recognized over an estimated **five-year performance period**[431](index=431&type=chunk)[434](index=434&type=chunk) - Rental revenue is recognized monthly, less estimated adjustments for contractual allowances and claim denials from third-party payors like Medicare, based on historical trends[440](index=440&type=chunk)[441](index=441&type=chunk) - The company accounted for the 2017 Tax Cuts and Jobs Act (TCJA), which resulted in a **provisional net charge of $7.6 million** in Q4 2017, and recorded no valuation allowance against deferred tax assets as of December 31, 2018[449](index=449&type=chunk)[623](index=623&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks from interest rate and foreign currency fluctuations are considered minimal due to its short-term investment portfolio and use of hedging instruments - The company is exposed to interest rate risk on its **$196.6 million in cash** and **$43.7 million in marketable securities**, but believes the risk is not material due to the short-term nature of these investments[457](index=457&type=chunk) - Foreign currency exchange risk exists from Euro-denominated sales, which the company mitigates using **foreign exchange forward contracts** as cash flow hedges[459](index=459&type=chunk)[460](index=460&type=chunk) [Financial Statements and Supplementary Data](index=84&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section indicates that the company's audited consolidated financial statements and supplementary data are included in Part IV, Item 15 of the Form 10-K - The financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Report[461](index=461&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=85&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[462](index=462&type=chunk) [Controls and Procedures](index=85&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that its disclosure controls and internal control over financial reporting were effective as of year-end 2018, an assessment audited and affirmed by its independent accounting firm - Management concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2018[463](index=463&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2018, an assessment audited by Deloitte & Touche LLP, which issued an unqualified opinion[464](index=464&type=chunk)[465](index=465&type=chunk) [Other Information](index=87&type=section&id=Item%209B.%20Other%20Information) The Compensation Committee approved 2019 base salary increases for named executive officers, and the board opted not to increase share reserves under its equity incentive plans Executive Officer Base Salary Increases (Fiscal 2019) | Name | Position | Fiscal 2018 Salary | Fiscal 2019 Salary | | :--- | :--- | :--- | :--- | | Scott Wilkinson | CEO and President | $499,000 | $525,000 | | Alison Bauerlein | EVP, Finance & CFO | $355,000 | $367,000 | | Brenton Taylor | EVP, Engineering | $310,000 | $322,000 | - The board of directors opted not to exercise the "evergreen" provisions to increase the share reserves for the 2014 Equity Incentive Plan and the 2014 Employee Stock Purchase Plan for 2019[480](index=480&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=88&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information required for this item is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the company's Proxy Statement[482](index=482&type=chunk) [Executive Compensation](index=88&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the company's Proxy Statement[484](index=484&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=88&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the company's Proxy Statement[485](index=485&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=88&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the company's Proxy Statement[486](index=486&type=chunk) [Principal Accounting Fees and Services](index=88&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Stockholders - Information is incorporated by reference from the company's Proxy Statement[487](index=487&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=89&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the Form 10-K, including financial statements, schedules, and an index of all exhibits - This section contains the index to the consolidated financial statements, financial statement schedules, and all exhibits filed with the Annual Report[490](index=490&type=chunk)[492](index=492&type=chunk)