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Inogen Announces Record Second Quarter 2018 Financial Results and Increases 2018 Guidance

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- Q2 2018 Sales Revenue up 58.5% Over the Same Period in 2017 -

Inogen,
Inc.
(NASDAQ: INGN),
a medical technology company offering innovative respiratory products
for use in the homecare setting, today reported financial results for
the three-month period ended June 30, 2018.

Second Quarter 2018 Highlights

  • Record total revenue of $97.2 million, up 51.6% over the same period
    in 2017
    • Record sales revenue of $92.0 million, up 58.5% over the same
      period in 2017
    • Rental revenue of $5.3 million, down 13.7% from the same period in
      2017
  • Increase in planned hiring in Cleveland by year-end 2020 to 500
    employees, approximately two-thirds of which are expected to be sales
    representatives, up from the original target of 240 employees
  • GAAP net income of $14.6 million, reflecting a 75.2% increase over the
    same period in 2017 and a 15.0% return on revenue
  • Adjusted EBITDA of $19.0 million, representing 32.2% growth over the
    same period in 2017 and a 19.5% return on revenue (see accompanying
    table for reconciliation of GAAP and non-GAAP measures)
  • Total units sold were 54,700, an increase of 22,300, or 68.8%, over
    the same period in 2017

"The second quarter of 2018 was a notably strong quarter for us as we
generated record revenue across all three sales channels, while also
reporting record operating income," said Chief Executive Officer, Scott
Wilkinson. "We are continuing to execute on our strategy to hire
additional sales representatives and invest in advertising activities to
increase consumer awareness as we believe this is still our most
effective means to drive high revenue growth and portable oxygen
concentrator adoption."

Second Quarter 2018 Financial Results

Total revenue for the three months ended June 30, 2018 rose 51.6% to
$97.2 million from $64.1 million in the same period in 2017.
Direct-to-consumer sales rose 74.3% over the same period in 2017, ahead
of expectations, primarily due to increased sales representative
headcount and additional consumer advertising. Domestic
business-to-business sales also exceeded expectations and grew 55.7%
over the same period in 2017, primarily driven by continued strong
demand from the Company's private label partner and traditional home
medical equipment providers. International business-to-business sales in
the second quarter of 2018 increased 39.1% over the comparative period
in 2017, primarily due to continued adoption from our European partners
and favorable currency rates. Sales in Europe represented 88.3% of
international sales in the second quarter of 2018, up slightly from
87.6% in the second quarter of 2017. Rental revenue in the second
quarter of 2018 was $5.3 million compared to $6.1 million in the second
quarter of 2017, representing a decline of 13.7% from the same period in
the prior year. The decrease in rental revenue was primarily due to a
decline in net rental patients on service of 11.8% compared to the
second quarter of 2017. Rental revenue accounted for 5.4% of total
revenue in the second quarter of 2018, down from 9.5% of total revenue
in the second quarter of 2017.

Total gross margin was 49.8% in the second quarter of 2018 versus 49.2%
in the comparative period in 2017. The increase in total gross margin
was primarily due to a continued shift towards sales revenue versus
rental revenue. Sales gross margin was 51.1% in the second quarter of
2018 versus 51.8% in the second quarter of 2017. The sales gross
margin percentage declined primarily due to lower average selling prices
in both business-to-business channels due to increased volumes and in
the direct-to-consumer channel due to a pricing trial and subsequent
reduction of direct-to-consumer pricing nationwide. This was partially
offset by increased mix towards direct-to-consumer sales and lower
average cost of goods sold per unit. Rental gross margin was 27.6% in
the second quarter of 2018 versus 25.0% in the second quarter of 2017.
The increase in rental gross margin was primarily due to lower
depreciation expense.

Total operating expense increased to $34.4 million, or 35.4% of revenue,
in the second quarter of 2018 versus $23.1 million, or 36.0% of revenue,
in the second quarter of 2017.

Operating expense included research and development expense of $1.8
million in the second quarter of 2018, which was up from $1.3 million in
the comparative period in 2017, primarily due to increased
personnel-related expenses. Sales and marketing expense increased to
$23.0 million in the second quarter of 2018 versus $11.9 million in the
comparative period in 2017, primarily due to personnel-related expenses
as we continued to hire inside sales representatives at our Cleveland
facility and increased advertising expenditures. General and
administrative expense decreased to $9.7 million in the second quarter
of 2018 versus $9.9 million in the comparative period in 2017, primarily
due to decreased bad debt expense and patent litigation costs, partially
offset by increased personnel-related expenses.

The Company reported an income tax benefit of $1.0 million in the second
quarter of 2018, compared to an income tax expense of $0.8 million
reported in the second quarter of 2017. The Company's income tax benefit
in the second quarter of 2018 included a $3.9 million decrease in
provision for income taxes related to excess tax benefits recognized
from stock-based compensation compared to $2.5 million in the second
quarter of 2017. Excluding the stock-based compensation benefit, the
Company's non-GAAP effective tax rate in the second quarter of 2018 was
21.2% versus 36.2% in the second quarter of 2017, primarily due to the
impacts of the U.S. federal tax reform.

In the second quarter of 2018, the Company reported net income of $14.6
million, compared to net income of $8.3 million in the second quarter of
2017. Earnings per diluted common share was $0.65 in the second quarter
of 2018 versus $0.38 in the second quarter of 2017, an increase of 71.1%.

Adjusted EBITDA for the three months ended June 30, 2018 rose 32.2% to
$19.0 million, or 19.5% of revenue, from $14.4 million, or 22.4% of
revenue, in the second quarter of 2017.

Cash, cash equivalents, and marketable securities were $208.4 million as
of June 30, 2018 compared to $188.3 million as of March 31, 2018, an
increase of $20.1 million in the second quarter of 2018.

Financial Outlook for 2018

Inogen is increasing its full year 2018 total revenue guidance range to
$340 to $350 million, up from $310 to $320 million, representing growth
of 36.3% to 40.3% versus 2017 full year results. The Company continues
to expect direct-to-consumer sales to be its fastest growing channel,
domestic business-to-business sales to have a significant growth rate,
and international business-to-business sales to have a solid growth
rate, where the 2018 strategy will continue to be heavily focused on the
European markets. Inogen still expects rental revenue to be down
approximately 10% in 2018 compared to 2017 as the Company continues to
focus on sales.

Further, the Company is also increasing its full year 2018 GAAP net
income and non-GAAP net income guidance range to $45 to $48 million, up
from $38 to $41 million, representing growth of 114.3% to 128.5%
compared to 2017 GAAP net income of $21.0 million and growth of 57.5% to
67.9% compared to 2017 non-GAAP net income of $28.6 million. The Company
estimates that the decrease in provision for income taxes related to
excess tax benefits recognized from stock-based compensation will lead
to a reduction in provision for income taxes of approximately $12
million in 2018, up from $8 million, based on forecasted stock activity,
which would lower its effective tax rate as compared to the U.S.
statutory rate. The Company expects its effective tax rate including
stock-based compensation deductions to vary quarter-to-quarter depending
on the amount of pre-tax net income, share price, and on the timing and
size of stock option exercises. Excluding the estimated $12 million
decrease in provision for income taxes expected in 2018, the Company
still expects a non-GAAP effective tax rate of approximately 25%.

Inogen is also increasing its guidance range for full year 2018 Adjusted
EBITDA to $65 to $69 million, up from $62 to $67 million, representing
27.9% to 35.7% growth compared to 2017 results.

Inogen also still expects net positive cash flow for 2018 with no
additional capital required to meet its current operating plan.

Conference Call

Individuals interested in listening to the conference call today at
1:30pm PT/4:30pm ET may do so by dialing (855) 238-8123 for domestic
callers or (412) 317-5217 for international callers. Please reference
Inogen (INGN) to join the call. To listen to a live webcast, please
visit the Investor Relations section of Inogen's website at: http://investor.inogen.com/.

A replay of the call will be available beginning August 7, 2018 at
3:30pm PT/6:30pm ET through 3:30pm PT/6:30pm ET on August 14, 2018. To
access the replay, dial (877) 344-7529 or (412) 317-0088 and reference
Access Code: 10121605. The webcast will also be available on Inogen's
website for one year following the completion of the call.

Inogen has used, and intends to continue to use, its Investor Relations
website, http://investor.inogen.com/,
as a means of disclosing material non-public information and for
complying with its disclosure obligations under Regulation FD. For more
information, visit http://investor.inogen.com/.

About Inogen

Inogen is innovation in oxygen therapy. We are a medical technology
company that develops, manufactures and markets innovative oxygen
concentrators used to deliver supplemental long-term oxygen therapy to
patients suffering from chronic respiratory conditions.

For more information, please visit www.inogen.com.

Cautionary Note Concerning Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, among others, statements regarding anticipated growth
opportunities; hiring and marketing expectations; expectations for all
revenue channels for full year 2018; the expected impact of the decrease
in provision for income taxes related to excess tax benefits recognized
from stock-based compensation for full year 2018; and financial guidance
for 2018, including revenue, GAAP net income, Adjusted EBITDA, non-GAAP
net income, net cash flow, effective tax rates, and the need for
additional capital. Forward-looking statements are subject to numerous
risks and uncertainties that could cause actual results to differ
materially from currently anticipated results, including but not limited
to, risks arising from the possibility that Inogen will not realize
anticipated revenue; 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; 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; risks related to the
recent data security incident, remediation measures, and potential
claims; seasonal variations; unanticipated increases in costs or
expenses; and risks associated with international operations.
Information on these and additional risks, uncertainties, and other
information affecting Inogen's business operating results are contained
in its Annual Report on Form 10-K for the year ended December 31, 2017
and in its other filings with the Securities and Exchange Commission.
Additional information will also be set forth in Inogen's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2018 to be filed with
the Securities and Exchange Commission. These forward-looking statements
speak only as of the date hereof. Inogen disclaims any obligation to
update these forward-looking statements except as may be required by law.

Use of Non-GAAP Financial Measures

Inogen has presented certain financial information in accordance with
U.S. GAAP and also on a non-GAAP basis for the three and six months
ended June 30, 2018 and June 30, 2017. Management believes that non-GAAP
financial measures, taken in conjunction with U.S. GAAP financial
measures, provide useful information for both management and investors
by excluding certain non-cash and other expenses that are not indicative
of Inogen's core operating results. Management uses non-GAAP measures to
compare Inogen's performance relative to forecasts and strategic plans,
to benchmark Inogen's performance externally against competitors, and
for certain compensation decisions. Non-GAAP information is not prepared
under a comprehensive set of accounting rules and should only be used to
supplement an understanding of Inogen's operating results as reported
under U.S. GAAP. Inogen encourages investors to carefully consider its
results under U.S. GAAP, as well as its supplemental non-GAAP
information and the reconciliation between these presentations, to more
fully understand its business. Reconciliations between U.S. GAAP and
non-GAAP results are presented in the accompanying table of this
release. For future periods, Inogen is unable to provide a
reconciliation of non-GAAP measures without unreasonable effort as a
result of the uncertainty regarding, and the potential variability of,
the amounts of interest income, interest expense, depreciation and
amortization, stock-based compensation, provision (benefit) for income
taxes, and certain other infrequently occurring items, such as
acquisition related costs, that may be incurred in the future.

 
Consolidated Balance Sheets
(amounts in thousands)
     
 
June 30, December 31,
2018 2017
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 166,344 $ 142,953
Marketable securities 42,068 30,991
Accounts receivable, net 37,472 31,444
Inventories, net 27,407 18,842
Deferred cost of revenue 381 361
Income tax receivable 2,655 1,313
Prepaid expenses and other current assets   6,667   2,584
Total current assets 282,994 228,488
Property and equipment, net 21,972 20,103
Goodwill 2,304 2,363
Intangible assets, net 4,093 4,717
Deferred tax asset - noncurrent 20,736 18,636
Other assets   537   765
Total assets $ 332,636 $ 275,072
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $ 31,174 $ 20,626
Accrued payroll 9,108 6,877
Warranty reserve - current 3,223 2,505
Deferred revenue - current 3,383 3,533
Income tax payable   344   345
Total current liabilities 47,232 33,886
Warranty reserve - noncurrent 5,507 3,666
Deferred revenue - noncurrent 11,713 9,402
Deferred tax liability - noncurrent 340 348
Other noncurrent liabilities   938   729
Total liabilities   65,730   48,031
Stockholders' equity
Common stock 21 21
Additional paid-in capital 231,879 218,109
Retained earnings 34,007 8,639
Accumulated other comprehensive income   999   272
Total stockholders' equity   266,906   227,041
Total liabilities and stockholders' equity $ 332,636 $ 275,072
 
 
Consolidated Statements of Comprehensive Income
(unaudited)
(amounts in thousands, except share and per share amounts)
         
Three months ended Six months ended
June 30, June 30,
2018 2017 2018 2017
Revenue
Sales revenue $ 91,987 $ 58,038 $ 165,571 $ 104,004
Rental revenue   5,251   6,083   10,718   12,617
Total revenue 97,238 64,121 176,289 116,621
Cost of revenue
Cost of sales revenue 44,968 27,993 81,916 49,906
Cost of rental revenue, including depreciation of $1,966 and $2,522
for the three months ended and $4,131 and $5,211 for the six
months ended, respectively   3,800   4,561   8,176   9,404
Total cost of revenue   48,768   32,554   90,092   59,310
Gross profit   48,470   31,567   86,197   57,311
Operating expense
Research and development 1,775 1,260 3,191 2,569
Sales and marketing 22,999 11,945 41,037 22,474
General and administrative   9,675   9,865   19,248   18,200
Total operating expense   34,449   23,070   63,476   43,243
Income from operations   14,021   8,497   22,721   14,068
Other income (expense)
Interest income 673 146 1,216 247
Other income (expense)   (1,048 )   523   (604 )   730
Total other income (expense), net   (375 )   669   612   977
Income before provision (benefit) for income taxes 13,646 9,166 23,333 15,045
Provision (benefit) for income taxes   (964 )   828   (2,035 )   775
Net income $ 14,610 $ 8,338 $ 25,368 $ 14,270
Other comprehensive income (loss), net of tax
Change in foreign currency translation adjustment 76 197 184 197
Change in net unrealized gains (losses) on foreign currency hedging 723 (300 ) 474 (246 )
Less: reclassification adjustment for net (gains) losses included in
net income
  (103 )   49   69   (8 )
Total net change in unrealized gains (losses) on foreign currency
hedging
620 (251 ) 543 (254 )
Change in net unrealized gains (losses) on available-for-sale
investments
  19   (6 )     58
Total other comprehensive income (loss), net of tax   715   (60 )   727   1
Comprehensive income $ 15,325 $ 8,278 $ 26,095 $ 14,271
 
Basic net income per share attributable to common stockholders
(1)
$ 0.69 $ 0.40 $ 1.20 $ 0.69
Diluted net income per share attributable to common stockholders
(1)
$ 0.65 $ 0.38 $ 1.13 $ 0.66
Weighted-average number of shares used in calculating net income

per share attributable to common stockholders:

Basic common shares 21,172,170 20,622,320 21,099,566 20,556,293
Diluted common shares 22,503,749 21,848,359 22,409,011 21,731,592
 

(1) Reconciliations of net income attributable to common
stockholders basic and diluted can be found in Inogen's Quarterly Report
on Form 10-Q to be filed with the Securities and Exchange Commission.

 
Supplemental Financial Information
(unaudited)
(in thousands, except units and patients)
             
Three months ended Six months ended
June 30, June 30,
  2018 2017 2018 2017
Revenue by region and category
Business-to-business domestic sales $ 32,943 $ 21,154 $ 60,959 $ 38,615
Business-to-business international sales 20,759 14,919 37,665 26,342
Direct-to-consumer domestic sales 38,285 21,965 66,947 39,047
Direct-to-consumer domestic rentals   5,251   6,083   10,718   12,617
Total revenue $ 97,238 $ 64,121 $ 176,289 $ 116,621
Additional financial measures
Units sold 54,700 32,400 100,100 58,000
Net rental patients as of period-end 28,500 32,300 28,500 32,300
 
 
Reconciliation of U.S. GAAP to Other Non-GAAP Financial Measures
(unaudited)
(in thousands)
       
Three months ended Six months ended
June 30, June 30,
Non-GAAP EBITDA and Adjusted EBITDA 2018 2017 2018 2017
Net income $ 14,610 $ 8,338 $ 25,368 $ 14,270
Non-GAAP adjustments:
Interest income (673 ) (146 ) (1,216 ) (247 )
Provision (benefit) for income taxes (964 ) 828 (2,035 ) 775
Depreciation and amortization   2,816   3,117   5,809   6,321
EBITDA (non-GAAP) 15,789 12,137 27,926 21,119
Stock-based compensation   3,186   2,216   6,567   4,107
Adjusted EBITDA (non-GAAP) $ 18,975 $ 14,353 $ 34,493 $ 25,226
 
Three months ended Six months ended
June 30, June 30,
Non-GAAP net income 2018 2017 2018 2017
Net income $ 14,610 $ 8,338 $ 25,368 $ 14,270
Non-GAAP adjustments:
2017 U.S. tax reform(1)        
Non-GAAP net income $ 14,610 $ 8,338 $ 25,368 $ 14,270
 
Three months ended Six months ended
June 30, June 30,
Non-GAAP provision (benefit) for income taxes and effective tax
rate
2018 2017 2018 2017
Income before provision (benefit) for income taxes $ 13,646 $ 9,166 $ 23,333 $ 15,045
Provision (benefit) for income taxes (964 ) 828 (2,035 ) 775
Effective tax rate -7.1 % 9.0 % -8.7 % 5.2 %
 
Provision (benefit) for income taxes $ (964 ) $ 828 $ (2,035 ) $ 775
Non-GAAP adjustments:
Excess tax benefits from stock-based compensation 3,853 2,489 7,105 4,702
2017 U.S. tax reform (1)        
Provision for income taxes (non-GAAP) $ 2,889 $ 3,317 $ 5,070 $ 5,477
 
Income before provision for income taxes $ 13,646 $ 9,166 $ 23,333 $ 15,045
Provision for income taxes (non-GAAP) 2,889 3,317 5,070 5,477
Effective tax rate (non-GAAP) 21.2 % 36.2 % 21.7 % 36.4 %
 

(1) On December 22, 2017, the Tax Cuts and Jobs Act (TCJA)
was enacted into law, which significantly changes existing U.S. tax law
and includes numerous provisions that affect the Company. During the
fourth quarter of 2017, the Company recorded an estimated one-time net
charge due to the impact of changes in the tax rate, primarily on
deferred tax assets. There were no related charges during the second
quarter or the first six months of 2018.

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