Inogen Inc (INGN) 2024 Q1 法說會逐字稿

Welcome to Inogen's first quarter 2024 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded today, May 7, 2024.

I would now like to turn the call over to Ryan Peterson, Investor Relations. Please go ahead.

Thank you, all for participating in today's call. Joining me are President and CEO, Kevin Smith, and CFO, Mike Bourque.

Earlier today, Inogen released financial results for the first quarter of 2024. This earnings release is available in the Investor Relations section of the company's website along with a supplemental financial package. As a reminder, the information presented today will include forward-looking statements including, without limitation, statements about our growth prospects and strategy for 2024 and beyond.

Expectations related to our financial results for Q2 2024 progress of our strategic initiatives including innovation, our expectations regarding the market for our products on our business and supply and demand for our products in both the short term and long term. The forward-looking statements in this call are based on information currently available to us as of today's date, May 7, 2024.

These forward-looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic reports filed with the Securities and Exchange Commission. Actual results may vary, and we disclaim any obligation to update these forward-looking statements except as may be required by law. We have posted historical financial statements and our Investor Presentations in the Investor Relations section of the company's website. Please refer to these files for more detailed information.

During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with US GAAP financial measures provide useful information for both management and investors by excluding certain non-cash items and other expenses that are not indicative of Inogen's core operating results.

Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Reconciliations between US GAAP and non-GAAP results are presented in tables within our earnings release.

With that, I will turn the call over to Inogen's President and CEO, Kevin Smith.

Good afternoon, and thank you for joining our first quarter 2024 conference call. I'm excited to be joined for the first time by Inogen's new CFO, Mike Bourque. We are thrilled to have Mike on the team, bringing with him over two decades of financial leadership experience. During today's call, I will provide updates on our progress against our three strategic priorities, driving top-line growth, advancing our path to profitability and expanding in our innovation pipeline.

First, we endeavor to position for sustainable top line growth by evaluating and improving our sales and rental strategies, while strengthening our relationships with distributors and stakeholders. We had many positive discussions with our business-to-business partners in the first quarter, some of which led to the completion of new sales agreements.

We will continue to focus on developing fruitful relationships and building awareness of our market leading portable oxygen concentrators with partners across the globe. As part of this initiative, we are closely monitoring US market trends and are prepared to fill any gaps that may arise from our recent competitor's temporary exit from the US home respiratory market. At this time, we have seen very modest tailwinds as a result of that exit, and we will remain ready to capitalize the potential outstanding customer demands as the year goes on.

We continue our efforts to reduce friction, increased synergies and efficiencies across our sales channels. We have seen encouraging results by promoting communication between our sales personnel and launching specific pilot projects to drive this cross partnership. These initiatives, including training our team to execute both direct-to-consumer and rental sales, partnership programs within our B2B customers and new targets within our rental channel. These initiatives while in early stages are showing promising results.

Secondly, we remain focused on establishing and advancing our path to profitability. As part of our efforts to better manage our cost and margin profile, we recently made the calculated decision to target hospitals in addition to individual practitioners through our rental business. By expanding our scale, efficiency and throughput in the rental channel, we anticipate driving higher profitability over time.

In addition, we are seeing cost benefits in the form of lower sales and marketing expenses due to the recent exit of our third-party relationship in the rental channel, which we spoke to on our last quarterly call. We are also rolling out pilot programs to drive a return to growth in our high margin direct-to-consumer business.

As a reminder, we have materially downsized our DTC team on a year-over-year basis, and we have now achieved a healthy organization size and are beginning to see improving productivity per rep. As always, we are carefully considering the return potential of every dollar we invest into the business, and we'll maintain this philosophy going forward.

Regarding our efforts to expand our innovation pipeline. We remain diligently focused on bringing new innovative products to market and supplementing our current market-leading POCs with necessary software and accessories to ensure a best-in-class provider and patient experience. I would also like to touch on our plans to expand Physio-Assist availability in the US.

We remain excited about the addition of Physio-Assist to our portfolio, and we are pleased to share that we have engaged in healthy discussions with the FDA. We look forward to bringing this product to the US market in the future. We have an exciting pipeline in store, and we look forward to updating investors on specific launches later this year.

I would like to briefly highlight our first-quarter 2024 results before turning the line to Mike for a full review of our financials and outlook. We achieved $78 million in total first quarter revenue, reflecting 8% year-over-year growth and 3% from our fourth quarter 2023. Our results are a reflection of really execution against our strategic goal.

Now I'd like to turn the call over to Mike for a more detailed review of the financial results. Mike?

Thank you, Kevin, and good afternoon, everyone. Unless otherwise noted, all financial comparisons are to the prior year comparable period. Total revenue for the first quarter of 2024 was $78 million, an increase of 8.1% versus the prior year period.

The increase was primarily driven by higher international and domestic business-to-business sales as a result of increased volumes from existing and new customers during the quarter. For the first quarter, foreign exchange had a positive 50 basis points impact on total revenue and a positive 180 basis points impact on international revenue.

Looking at first quarter revenue, on a more detailed basis, direct-to-consumer sales decreased 15.6% to $20.5 million from $24.3 million in the prior period, driven primarily by lower representative head count, partially offset by increased average selling prices and increased unit volume per rep. Domestic business-to-business revenue increased 31.3% to $16.5 million compared with $12.6 million in the comparable period, driven by new customer business and increased demand from resellers.

International business-to-business revenue increased 37.2% to $26 million compared to $19 million in the prior period. Our year-over-year growth in this channel was primarily driven by higher sales volumes to existing customers. Rental revenue decreased 8.3% to $14.9 million from $16.3 million in the prior period, primarily driven by a higher mix of lower private payer reimbursement rates and higher rental revenue adjustments.

Now I want to discuss our gross margins. Total gross margin was 44.1%, increasing 150 basis points from the same period in the prior year, primarily driven by lower average cost of components in this quarter relative to a year ago. The benefit of lower component costs was partially offset by channel mix shift with a greater proportion of total Q1 2024, sales from our lower-margin B2B channel relative to total Q1 2023, sales. Sales revenue gross margin was 44.1%, an increase of 490 basis points, driven primarily by lower component premiums.

Rental revenue gross margin was 43.7%, a decline of 1,040 basis points, primarily due to lower net revenue per patient as a result of a decrease in the percentage of patients billed versus total patients on service in mix shift from Medicare versus private payers and higher rental revenue adjustments.

Moving on to operating expense, in the first quarter total operating expense decreased to $50.6 million compared to $52.6 million in the prior period, representing a decrease of 3.8%. The decrease was primarily due to restructuring costs of $1.8 million incurred in the prior-year period, as well as lower sales and marketing expenses, primarily resulting from last quarter's exit from a third-party sales partnership.

In the first quarter of 2024, we reported a GAAP net loss of $14.6 million and loss per diluted share of $0.62. On an adjusted basis, we reported a net loss of $10.4 million and adjusted loss per diluted share of $0.45. Adjusted EBITDA was a loss of $7.6 million compared to a loss of $11.8 million in the prior year period. We are pleased to be driving improvement in our adjusted EBITDA metrics as we continue to manage the business carefully with profitability is a key objective.

Moving on to our balance sheet. As of March 31, 2024, we had cash, cash equivalents and marketable securities of $119.8 million with no debt outstanding.

Before I turn the line back to Kevin, I would like to share our revenue expectations for the second quarter. We are continuing to make progress on our strategic priorities through the second quarter, including our on going work to evaluate and optimize some dynamics in our sales and rental channels. Based on trends in our business today, we expect total sales to be $81 million to $84 million in the second quarter. We anticipate providing guidance for the back half of 2024, on our second quarter earnings call.

And with that, I will pass the call back to Kevin for closing remarks.

I'm pleased that our organization, make meaningful steps in the right direction during the first quarter. Our resilience and progress are a testament to the strength of our team at Inogen. We recognize there's much work to be done, but we will continue to execute against our strategic goals and remain excited about the future.

With that, I will open it up for questions. Operator?

(Operator Instructions)

Mathew Blackman, Stifel.

Hi, this is Colin on for Matt. Congrats on the great quarter. I guess I wanted to start on the US B2B business. A couple of dynamics there. You saw a little bit of a tailwind from a competitor exiting the market. But I'm also curious about any improvement in the capital environment for HMEs. Has anything changed to how we should think about these dynamics going forward? And how do you think about that when laying out the guide for the second quarter?

Thanks, Colin, and this is Kevin. I'll go ahead and steal that one, Mike. So we don't -- we're not seeing any real headwinds that are sitting in front of us here as far as the capital markets, it hasn't been interfering with our business. The feedback that we have from B2B is strong. We are -- we've been forecasting building bottoms up within this on the month to month and quarter to quarter basis. And we feel pretty good about our ability to why we feel over the next quarters, we're providing guidance to be able to continue to want to build changes. So as to ensure we're not seeing any constraints from Capital Markets.

Okay, great. And I just had a two-parter on the rentals business. Was there any impact during the quarter due to the exit of the third-party support contract for the prescriber channel? And how should we think about gross margin in that business going forward, given the revised down profile during the first quarter versus last year?

Let me start with a (multiple speakers). So I'll start at the beginning part of that. So from the impact from the third-party we saw, yes, we had characterized that before we exited the third-party relationship. We've brought -- we brought the select members of that team has already had the highest performing members of that team in-house direct being part of the Inogen team and integrated that team into a family here.

So we saw a little bit of a yeah, I'll say a transition period there where as we're integrating the team into why Inogen, because a little bit of idea of just some lost steps and so forth, but that is behind us. That is working well now moving forward. And we like what we're seeing out of that team and the collaboration that we have more broadly. But Mike, I want you to chime in on gross margin.

Thanks Kevin. Yeah, Colin, this is Mike. Just a little bit on your question on the gross margin. So we're not providing specific guidance in terms of gross margins going forward. But I can tell you kind of what the impacts were and kind of where they came from in that rental business for Q1. So kind of we'll start with rental revenue.

Couple of things impacting us there unfavorably. We did have lower Medicare rate that kind of went into effect on January of this year. So that's part of the impact. We're also seeing a unfavorable mix with a higher percentage of patients coming from the private payer or a payer as opposed to Medicare.

So those two things are really directly impacting gross margin. In addition to that, rental gross margins were also impacted by some higher service costs in that channel during the quarter. We do have some visibility into the patient pay plans and the patient mix going forward. But we're not able to share concrete rental gross margin outlook at this time, and we'll revisit that at the Q2 call.

Great. Thank you, Kevin and Mike, for taking my questions.

Margaret Kaczor, William Blair.

Hey, good afternoon. Thanks for taking the questions. I'm going to trying to dive a little bit into the second quarter guidance, if I may, but by business line. And I apologize in advance for the series of questions. But number one, usually Q2 would see DTC and B2B domestic just seasonally increased at a double-digit pace sequentially. So is that the assumption here? And why or why not?

Two, are you assuming any benefit from Philips paying off on the margin, the second quarter benefit or headwind frankly?

And three, relative to our number, we saw a lot of upside coming from B2B international or was there something specific to that number and how repeatable is that $26 million as we go along both into Q2 and the rest of the year?

So Margaret, this is Mike. I'll take the first part of that question. So in terms of kind of what we're guiding to, so we're not providing guidance at the channel level, but I would just say that our guidance is reflective of the trends that we're seeing in the business today. I will take into account a lot of different things, the evolution of our channel, a channel mix, the new leadership team that's in place here.

And in terms of the question of what do you see, I think it's important also that we consider 2024 to be a rebase year or do you see given the new size of our team. But we have seen early signs of higher productivity, which is very encouraging. Just in terms maybe a little bit more in terms of that guidance at the revenue guidance, just kind of maybe will be helpful to see how we approach that.

We look at the pipeline and we look at what is most likely to occur, what is unlikely to occur, and it's more of a bottoms-up forecasting that we're instituting in the business that gets us to that low end, the low end of the range that we provided to get to the higher end, we really have to see higher percentage of upside in some larger B2B orders coming in.

And then I'll just add on to that a little bit. I see a market there for, one on the assumptions of the benefit from from Philips. We've seen a very modest tailwind coming from Philip so far. And as we characterized previously, we see that there's opportunity out there. We're going to position ourselves. We have been positioning ourselves to take advantage of it, but it's something that we've not been seeing coming in and more than that dribs and drabs, let's say, opportunities that present themselves that we could particularly contribute back to that.

But that may come more down the road. And we're positioning ourselves to be able to take advantage of every opportunity that comes our way, and on the international B2B on being able to see that continue. We're not forecasting anything right now past Q2, and we haven't broken down the channel by channel mix, but we've seen good results coming from the B2B in general, and we do anticipate those opportunities continue to be there and us taking advantage wherever we can.

Okay. And then as we think about the hospital channel, which is maybe a newer comment in your intro, my understanding in the past is hospital wasn't really something that quite as focused on by the company because the flow rates maybe weren't aligned with what the hospital need. So walk me through that hospital strategy, you know, how big is that as an end market for you guys? And how aggressively are you going to be pursuing that.

So it's a good dialogue there. So one of the -- when we look at the hospital opportunity, so the large percentage of patients are diagnosed in India, in a hospital from an event that triggers a visit to the emergency room or at least the inpatient care. And then when the patient goes home, they have to have a oxygen upon discharge from the hospital.

So there's an opportunity for us to go even further upstream and be able to gain a few months at the very least by some number of months in billing prior to patient hitting capitated period there. So in those patients, of course, at follow-up by prescribers surveys to another connected relationship back to the prescriber.

We see this as an opportunity for us to continue to explore. We've been engaging and now we like what we're seeing so far. It's early stages to see how well we roll this out further, but it looks promising at this point.

Okay. And just last question for me is, as we think about COGS and I appreciate not wanting to go too far into gross margins, but we can back into the COGS per unit number. And it seemed like it naturally did quite well. So you've talked historically about getting a high cost consumables off the books, that directionally point to continued gross margin improvement further from here. But maybe you can provide some color around that and kind of any long term profitability comments that may have changed from the last quarter? Thank you.

Thanks, Margaret. So just in terms of the improvement in COGS -- improvement in COGS, and related gross margin really was largely driven by continued depletion of those premium price components that we had been incurring in the previous year.

In terms of kind of where we're looking at going forward with that, we we still do have some premium costs on our balance sheet, and we will be seeing some of that we kind of like make its way through the P&L over the course of the remainder of the year, but certainly to no degree than we've seen in 2022 and 2023 to a much lower level, but we still have a little bit to get through.

Thank you, guys.

Mike Matson, Needham & Company. Mike, you might still have yourself on mute.

Yeah, sorry about that. The DTC sales team, did the headcount change at all there and what kind of drove the decline in sales in that business.

Sorry, Mike. I think maybe the first part of that might have been cut off. But I think I asked I think I heard you asking where we are right now with the headcount on the DTC business?

Yeah, the salespeople -- inside salespeople.

Yeah, so it's -- yes, right now, we have a sales team that's in line in the range of 150 to 170 sales reps in the in the DTC channel entity. We're going to probably not provide any additional updates on that going forward unless there's any deviation from it. But that is a -- that's a head count that we feel comfortable with right now.

We have initiatives that are running through that we've talked about with reducing the friction and certainly enabling any patient who reaches into the DTC channel Inogen to help them all get at a Inogen of POC, whether that be for a cash sale, whether that be somebody just cover buyer via rental plant, being able to leverage that sales organization and the contact point to allow that to happen.

We then see positive results coming from that. That still is in pilot phases right now, but like we've had, it has had some trending and we're very comfortable and happy with the size of that organization. We're going to continue to focus on going to profit before.

Okay. That just stood. I missed some of the prepared remarks. I apologize you might have touched on this, but just the decline there in that business I mean, what was the reason for that?

Yeah. So, yes, the DTC channel is one thing to keep in mind there, too is that organization -- the size that organization year on year from same month -- same time prior year has been considerably reduced. And we're focused on growing that piece of the business profitably. So quarter on quarter, we've been happy with what we're seeing coming out of that. We're happy with what we see in the going forward with that channel, but not just growing it at all costs, but growing it profitably.

Okay. I understand. And then what about just in terms of pricing. So on the B2B side in particular, I mean, you did see really strong growth there with Respironics -- Philips Respironics having exited the market on. Is there a bit of potentially a shortage of POCs? And is that an opportunity to raise it gives you some pricing power there.

So we feel that it was a couple of points in there, I think to raise in order to talk to you. One, the characterization of that business potentially being part of an exit from a competitor. We're not seeing that has been a meaningful contributor to the growth that we're seeing there with the business that we have coming out of this past quarter.

And we've seen a very limited impact from that. We are going to continue to monitor and position ourselves to take advantage. But we are positioning ourselves strongly against low-price competitors in the marketplace. We see price pressure that is coming and what we have in POC with an eight year useful life on it, which is three years longer than the next closest competitor.

And those are meaningful years that the HME that B2B partner could continue to deploy a POC and bill for it. We have a very strong brand name recognition. We know from our experiences working with our B2B partners working with prescriber channels and also having a patient's region to us through our DTC channel.

And more often than not patients are asking for Inogen rather than asking for a POC is that brand name recognition that linked to the quality of Inogen is all gives us a distinct advantage. And right now we feel like we are sitting alone at the top as a premium player in the marketplace. So we're going to continue to have to fight off price pressure, but we feel we have a good message to sell.

Okay. Got it. Thank you.

Thank you. There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.