Q3 2019 Earnings Call
Good day and welcome to the Inogen third quarter 2018 financial results Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist like pressing the star Keith followed by zero.
After today's presentation, there will be an opportunity to ask question.
To ask a question you May Press Star then one on your Touchtone phone.
Withdraw your question. Please press Star then too.
Please note this event is being recorded.
I would now like turn the conference over to match back so with Investor Relations. Please go ahead.
Thank you for participating in today's call joining me for managing a CEO Scott will be sent in CFO and co founder Ali Bauerlein earlier today. It is released financial results for the third quarter of 29 team. This earnings release and Inogens corporate presentation are currently available in the Investor Relations section of the company's website. As a reminder, the information presented today will include forward looking statements.
Including statements about our growth prospects and strategy for 2019 and beyond expectations related to our sales headcount hiring expectations and strategy, our expectations regarding international sales and tender activity H., Jimmy strategy and expectations rental strategy changes and the timing impact of such changes expectations for all revenue channels marketing expectations the rollout.
Yep manufacturing and cost of in as you. Once you five expectations regarding competitive bidding our expectation on T.V. sales financial guidance for 2018, 2020 and expectations for 2020.
We're looking statements in this call are based on information currently available to US. These forward looking statements were only predictions and involve risks and uncertainties that are set forth in more detail in her most recent periodic reports filed with Securities Exchange Commission actual results may vary we disclaim any obligation to update these forward looking statements except as may be required by law, we have posted historical financial statements and her best.
Her presentation in the Investor Relations section of the company's website click. Please refer to these files for more detailed information during the call will also present certain financial information on a non-GAAP basis managed believes the non-GAAP .
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 items and other expenses that are not indicative of in engines core operating results management uses non-GAAP measures internally to understand manage and evaluate our business and make operating decisions reconciliations with U.S. GAAP and non-GAAP results are pretty.
At present have been tables within our earnings release for future periods. We are unable to provide a reconciliation of our non-GAAP guidance to the most directly comparable GAAP measures without unreasonable effort as discussed in more detail in our earnings release with that I'll turn the call over to engines, President and CEO Scott Wilkinson Scott.
Thanks, Matt.
Good afternoon. Thank you for joining our third quarter 29 seen conference calls.
Looking at the third quarter of 29, Tim we generated total revenue of $91.8 million, which was in line with our expectations and reflected a decline of 3.7% from the third quarter of 20 810.
Direct to consumer sales $37.8 million in the third quarter of 20 910 decreased by only 1.4% from third quarter of 28, Tim Despite an approximate 40% reduction in sales representative headcount in the third quarter of 20 910 versus the comparative period in the prior year.
We're pleased to say that the reduction in headcount was mostly offset by an increase in productivity from the remaining sales reps.
In addition, we continued to hire new sales reps in the third quarter of 20, 910, and we're seeing an increased their productivity per our expectations.
While direct consumer sales declined slightly on the third quarter of 29 team versus the same quarter in 2018, we remain optimistic and our ability to grow direct to consumer sales and 2020 based on these productivity improvements and the planned expansion of the sales and rental and take James.
Third quarter or 29 chain domestic business to business sales of $30.1 million were flat compared to third quarter of 20 810, primarily due to a decline in orders from one large national provider, who buys to our private label partner offset by increased orders from other providers.
Specifically this provider accounted for revenue of 800000 doors in the third quarter of 29 chain.
From 3.3 million into third quarter of 2018.
In spite of the challenges age for me providers are facing and adopting portable oxygen concentrators, which include ongoing restructuring efforts lack of access to available credit and capital expenditure constraints. We continued to see solid demand from these customers.
Additionally, we believe it shouldn't be providers have been more conservative with investments due to pending competitive bidding rounds, 2021, and the lack of visibility as to who will win contracts and any change in reimbursement rates.
Third quarter, 20, 910 international business to business sales of $18.5 million decreased 12.5% on an as reported basis and 10.2% on a constant currency basis, when compared to the third quarter of 20 810.
The shortfall in the third quarter was primarily driven by a slowdown of orders in great Britain and spend due to tender uncertainty capital expenditure constraints and some softness of orders in France.
We do not believe that we have lost any major customers to competition and our strategy in Europe remains unchanged.
As we've said before international sales can be lumpy quarter to quarter.
We do believe that as the tender issues are resolved demand will normalize for our products in those countries.
Third quarter of 29 chain rental revenue of $5.4 million declined 3.8% compared to the third quarter of 2018, primarily due to a 6.9% decrease of patients on service and partially offset by higher rental revenue per patient.
We had approximately 25600 patients on service as will be under the third quarter of 2019.
Well patient count was down slightly compared to the second quarter of 29, Tim we continue to make progress in expanding the separate rental intake team.
We believe the rental Tim will lead to increased productivity of the sales team and also increased rental setups by having a dedicated team focused on these activities.
As mentioned last quarter, we expect contributions from this initiative to increase rental revenue in 2020.
Transitioning to the Inogen one GE five we launch this product in the domestic business to business channel in the third quarter of 2019.
Greater than 40% of our total domestic shipments in the third quarter of 29, T. and were Inogen, one GE five units showing the strong demand for this product from both patients and providers.
We also applied CE, marking for the Inogen, one GE five and we have begun shipments to international customers in the fourth quarter of 2019.
We believe the Inogen one GE five further strengthens our competitive position.
We also plan to start manufacturing of the Inogen, one GE five at our contract manufacturer in the Czech Republic in the first half of 2024 European customers.
I would also like to comment on the recently released Medicare traditional fee for service market data from CMS for the full year 2018.
Well the CMS information has certain limitations when used to assemble a picture of the oxygen therapy market such as the absence of brand or manufacture information. We believe that the information can serve to approximate the long term oxygen therapy market in the United States.
Based on the dataset, we estimate that the share of portable oxygen concentrators in the Medicare long term oxygen therapy market grew from 10.8% in 2017% to 13.9% in 2018.
However, this estimate does not include patient cash sales or private insurance transactions. So we believe that this data from CMS may represent a conservative estimate of the actual portable oxygen concentrator market penetration.
If you will see is we're still the fastest growing mode to validate and oxygen therapy based on the CMS data and we still believe this category has a significant growth opportunity ahead.
We assume full penetration to be approximately 68% of long term oxygen therapy patients based on our estimate that 90% of the ambulatory long term oxygen therapy patients should be served by plc is over time.
Specifically PSC beneficiary claims increased 20% above 2017 levels.
By comparison pick pick code case 0738 for home transfer all devices and hectic cold EEZE Arrow for three one for oxton tanks declined by 11.5% and 4.4% respectively.
We're pleased to see it a continued transition to Peel sees supporting our to our vision that portable oxygen concentrators should become the standard of care for long term ambulatory oxygen therapy patients.
On the topic of competitive bidding around 2021, we submitted bids for 129 up 130 regions as expected prior to the official close of the bidding window on September 18 2019.
We expect pricing to be announced in the summer of 2020 with contract Winters announced in the fall of 2020 before contracts go into effect January Onest 2021.
Transitioning to new era as expected the acquisition closed in August 2019.
We have assumed in guidance a minimal contribution to revenue from the acquisition in both our direct to consumer and domestic business to business sales channels in 2020.
On the product development side, we continue to view 2021, as the target launch year for an advance PRC with noninvasive ventilation features.
To close out 29 team, we're maintaining our full year 29 chain total revenue guidance range of $370 million to $375 million representing growth of 3.3% to 4.7% versus 2018 full year results.
Looking to 2020, we're providing a total revenue guidance range of $410 million to $415 million representing growth of 10.1% to 11.4% versus the midpoint of our 2019 guidance.
We believe that this guidance reflects the challenges of rights for me partners to convert to Pcs and also are more measured approach to direct to consumer sales team expansion.
This guidance also does not assume that the large national provider discussed previously increases their order rate in 2020.
Given where inogen stands today and in spite of the challenges we faced in 29 chain, we remain optimistic about our future growth prospects and believe we will continue to benefit from a shift from oxygen tanks to P.L. season.
With that I will now turn the call over to our CFO Ali Bauerlein Alley.
Thanks, Good afternoon, everyone. During my prepared remarks overview, our third quarter of 20, I see financial performance and then provide more details on our 20, Nike and 2020 guide.
As Scott noted total revenue for the third quarter 2019 was 91.8 million, representing an expected decline of 3.7% from the third quarter 2018.
Turning to gross margin the third quarter of 2019 total gross margin was 47.2% compared to 51.2% and the third quarter of 2018.
Our sales gross margin was 48.2% that third quarter of 20, Nike versus 52.3% third quarter at 28.
The sales gross margin decrease is primarily due to increased <unk> lower margin domestic business business sales versus international business to business sales, partially offset by increased sales mix towards higher margin domestic direct to consumer south.
In addition, we had higher cost per unit, primarily associated with the Inogen, one gtwo side, which was still at a higher costs and the Inogen one gthree.
<unk> volume, we expect the Inogen, one she bought the or less cost product manufacturer.
Which we expect to occur by the third quarter of 20 Twond.
We also had a one time small contribution of higher costs, primarily associated with inventory reserves area.
Rental gross margin was 31.5% and the third quarter of 2018 versus 34.3% another quarter of 2018.
The decrease in rental gross margin was primarily due to higher service costs, partially offset by increased rental revenue per patient on service and lower depreciation expense.
As for operating expense total operating expense decreased to 35.2 million net third quarter, 20, I see or 38.4% of revenue.
Versus 38.4 million or 40.3% of revenue in the third quarter at 28 key primarily due to lower personnel related expenses.
Research and development expense increased to 2.6 million in the third quarter 2018, compared to 2.1 million recorded in the third quarter of 2018, primarily associated with $1 million in new era intangible amortization expense incurred in the third quarter 20 Nike.
Sales and marketing expense decreased to 24 million and the third quarter 2019 versus 26.3 million and the comparative period in 2018, primarily due to decreased personnel related expenses associated with the 40% decline in sales rep headcount versus the comparative period in 2018.
And the third quarter of 2019, we spent 9 million an advertising as compared to 8.8 million in Q3 2018.
General and administrative expense decreased 8.5 million in the third quarter 2019 versus 10 million in a third quarter of 2018.
Primarily due to decreased personnel related expenses, partially offset by new era transaction cost <unk> point Threemillion.
Operating income for the third quarter 2019 was 8.1 million, which represented an 8.8% return on it.
Adjusted EBITDA for the third quarter of 2019 was 12.8 million, which represented a 14% return on revenue.
Adjusted EBITDA declined 21.4% and the third quarter of 2019 versus the third quarter of 2018, where adjusted EBITDA was 16.3 million or 17.1% return on revenue.
The reduction in third quarter 2019, adjusted EBITDA margin compared to third quarter 2018 was primarily due to lower gross profit, partially offset by lower operating expenses.
And the third quarter of 2019, we reported income tax expense of 1.9 billion compared to a 5.1 million income tax benefit in the third quarter of 2018.
Income tax expense and the third quarter, a plenty I team included 64000 excess tax efficiencies recognized from stock based compensation compared to an $8.1 million benefit and the third quarter at 2018.
Excluding the impact of excess tax benefits or deficiencies from stock based compensation, our non-GAAP effective tax rate was 20.9% another quarter of 2019 versus 26.4%.
For 2018.
And the third quarter 2019, we reported net income of 6.9 million compared to net income of 16.4 million and then third quarter of 2018.
Earnings per diluted common share was 31 cents and the third quarter of 2019 versus 73 cents and a third quarter of 2018.
Now turning to guidance as Scott mentioned, we're maintaining our full year 2019 total revenue guidance range of 370 to 375 million representing growth of 3.3% to 4.7% versus 2018 full year results.
For the full year 2019, we expect direct to consumer sales to be our fastest growing channel.
By international business to business that.
We're also maintaining our full year 2019, net income guidance range of 23 to 25 million. Our operating income guidance range 26 to 28 million and adjusted EBITDA range of 49 to 51.
Moving to 2020 as Scott mentioned, we expect revenue to be in the range of 410 to 415 million representing growth of 10.1% to 11.4% for the 2019 guidance midpoint.
We expect direct to consumer sales for our fastest growing channel and we expect domestic business the business and international business to business channel have a solid growth rate.
We expect rental revenue to increase modestly compared to 2019.
Overall, we expect tougher comparables in the first half of 2020 versus the remainder of the here.
We expect sales of the Inogen title assist mental later to begin in 2020 with minimal contribution to revenue in both the domestic business the business and direct to consumer Jack.
We're also providing a full year 2020 net income estimate of 25 to 27 million.
Representing growth of 4.2% to 12.5% growth over the 2019 guidance midpoint of 24 million.
Please note that net income assumes an estimated 7.8 million a new era intangible amortization expenses recorded in research and development in 2020 versus an estimated 2.9 billion in 20 nicely.
Net income guidance also assumes an effective tax rate of approximately 25% in 2020.
We are providing guidance range for the full year 2020, adjusted EBITDA of 56 to 58 million, representing 12% to 16% growth above 2019, guy midpoint of 50 million.
We expect net positive cash flow for 2020 with no additional capital required to meet our current operating.
With that.
And I'll be happy to say your question.
We will now begin the question and answer session.
Good question you May Press Star then one on your Touchtone phone. If you are using speakerphone. Please pick up your handset before pressing the keys.
Please press Star then.
At this time.
Similar roster.
[noise]. Our first question comes from Danielle Antalffy <unk>.
Hi, Good afternoon, guys. Thanks for taking the question and congrats on a on a solid quarter looks like the business stabilized that so that's good to see Ali. It's got was hoping to dig a little bit more into the 2020 guidance double digit growth as you guys talked about last potentially getting back to last quarter I appreciate.
The the color that you did give on the direct to consumer sales being the fastest growing pieces of business, but wondering if you could talk about some of the puts and takes there when we should start to look at new era generating revenue. How much contribution are you I know you said minimal, but wondering if you put a finer point on that.
And.
How you're thinking about the b to B domestic business as we look ahead to 2020.
Yeah, I can take that Danielle thanks for the questions. So you're getting a little bit more granular on 2020, well obviously as you said, we do feel like Weve stabilized the business in the third quarter and Oh are pretty proud of our domestic results there both on the direct to consumer side and the business to business.
Side on the direct to consumer side as I said, Oh now, it's getting back to hiring at a more moderate pace across all three facilities I too have been necessary capacity to continue to expand that business. So that's the primary focus now on making sure that we're doing that and in a pro.
<unk> manner, obviously with at 40% down in headcount year over year on average in Q3, there's a lot of room for us to continue to expand the sales force there but.
It also is a significant headwind for us in the first half of 2020 versus the second half of 2020, and particularly in Q1, where where we did have a lot of Ah that headcount, while they weren't producing a full level. They were producing some level of sales. So I think that is important to understand.
We do expect continued productivity gains on the direct to consumer side, but those should get smaller because as were looking at it you know we've gotten a lot of the benefits of the reps coming up the learning curve and getting rid of the reps who weren't performing and now it's more moving too.
You know more reasonable productivity increases year over year that we've seen historically have a few percentage points on the domestic beat a beep Brad I'm looking at 2020.
We no longer will have the headwind associated with a large national provider that we've been talking about this year.
It really has been a challenge to to overcome it from a growth perspective up now outside of that given the timing of competitive bidding 2021, and the fact that oh the rates and the winners what wont be announced until the second half of 2020, we do think that that well.
I have some impact on growth rate in the first half the year because there is uncertainty. So we have factored that into guidance and we know these sales can be lumpy and these these customers have challenges and restructuring their business. So we have factored that into guidance and reflected that now.
New era, a we haven't started selling that product yet so at this point, we're pretty cautious from a guidance perspective, because we don't have any experience yet on either the D to C or or the b to b side of the interest stop all while Weve started to work on designing those programs and talking to customers.
About this until you start selling I'd say, we're pretty cautious on the guidance side, there and we do expect that to be heavily weighted more towards the back half of 2020 versus the first half where we will trial. Obviously, we've talked about on the D to C side as well run pricing trials and those types of things.
All will be part of getting ready to odd to sell that product and really scale, but volume up it.
Okay that was great color and then if I could just drill a little bit deeper into <unk> domestic so I did the math right. It looks like acts the headwind from the major provider about nine ish percent growth last quarter, you had 17% growth given I think if I'm remembering correctly ex the headwind. So given this uncertainty that you're talking about it.
In the first half a 2020 is the nine ish percent. We're right then the 17% can you help us a little bit as we think about the model there.
Yes, I do think that closer to that you know, 9% low double digit level. That's the more appropriate growth rate until we have more clarity on the on how competitive bidding well come out. Obviously this business overall is just lumpier in general, but I think that's a reasonable assumption.
Perfect. Thank you so much.
Our next question comes from Margaret Castle with William Blair.
Hi, good afternoon, guys. Thanks for taking the questions.
Hoping to switch a little bit <unk> international from the domestic side, maybe initially yeah, yeah, maybe walk us through.
What caused some of the tundra uncertainty.
This period around and as you look at guidance both for 2019 2020, it sounds like you're maybe assuming that are rational doesn't factor that grow again.
So maybe you can walk us through those dynamics and your visibility into a into demand in those regions.
Yeah Margaret Thanks for the question Mr., Scott now I'll take that one and walk you through it.
So.
As we said in the past international sales are lumpy certainly quarter to quarter. We've continued to emphasize that if you look at it you know year to year, we've done really well consistently in international. It's you know we've had solid growth consistently for the last multiple years, but when you start drilling down quarter to quarter, it's probably more lumpy there.
Anywhere else. If you were to look at the second quarter of this year, you know that was probably a little stronger than average a little stronger than our expectations and then third quarter was a little weaker it kinda demonstrates that that Lumpiness now that's that's kind of a general comment now let me Peel back the onion and kind of share what we know some key drivers of of the.
Softness in the third quarter.
First of all I mentioned, some tender uncertainty and we've talked about tender uncertainty in the past. We don't include tenders in guidance or expectations because of the volatility there, but generally when you Miss out on the tender you Miss out on upsides, what we've seen.
Recently in the UK is it's a little bit more than missing out on upside it's actually stalled some purchases from some major multinational accounts until some things get resolved.
In Great Britain, there's a 11 areas that were under tender or in the third quarter hour. A bidding program. These were seven year contracts with an opportunity to extend the contracts up to 10 years. So.
So it's kind of a high stakes bidding game, you know a lot of tenders that we talked about in the past tend to be two or three years. These are you know major market in Europe . The UK seven years at risk in each region.
What we've found is that four of the regions.
After the bidding was completed and winners were determined four of those regions are now under dispute.
So what that's caused is.
Everybody's pretty much halted and you have to understand that the bidders in these big UK tenders, they're not small mom and pop players. These are the large homecare companies that are generally a large gas companies in Europe that are multinational organizations and so they're all trying to figure out together you know.
Who is going to win each region, who is going on because with a winner there was a loser and so there was kind of a an upside on the one side whoever wins, but whoever lose this has to retrench and take some product out of the home and then you know they'll redeploy that what that's caused without uncertainty is everybody just slowed their purchases so rather than not capitalizing on the upside.
Everybody slowed down now the good news for US is this is a short term phenomena, we expected that there'll be some clarity and it'll be resolved at least whoever who's got a win and who's going to lose by the end of the fourth quarter now as far as how that impacts purchases you know generally there's a lag on you know once something.
It is resolved and people start executing their plan. So I would say the return to normalcy that we mentioned is probably early next year. If we get this resolved in fourth quarter.
Theres also a tender that's continued to be disputed in Spain. That's one region. It has a smaller effect, but yet you know some effect.
And then I've mentioned, some softness in France again, we country by country, we see some lumpiness, we had a really strong second quarter in France. It was a little lighter in the third quarter over the year. These things tend to average out and we you know net out with a with a strong growth rate like we've seen in the past so the good news.
Again for US is as we've kinda probe just to understand what's going on.
We've confirmed that from the major you know a companies in Europe that we're still the primary provider of Pfcs, we haven't lost out to any competition. That's why I mentioned that in my prepared remarks, there's no real change to our strategy, but sometimes the market just just stalls and you have to riders.
Got it understood.
And then you know maybe switching back to the domestic as well.
A follow up on what Danielle had asked and I think you answered you gave was kind of at high single digit growth and B to B. The master control, we know kind of the outlook for competitive bidding so that maybe diving into that is that the indication you're getting from your topical does it assume any kind of further causing purchasing until then yeah, and then kind of big picture strategic.
Over the next two to three years, Yes, you guys do within that channel to further stimulate growth.
Yeah, one way or the other and whether that's that's price whether that's features or some kind of you yet other advanced product outside of just the ventilation products.
Thanks.
Yeah, I'll I'll start and I'll see if valley has some to habits more granular on numbers, but from a qualitative standpoint.
And the domestic business or B to B market providers are continuing to try and convert their business to Pcs I mean, they see it. It's obviously patient preferred patients are asking for it but when you look at reimbursement you know, it's really a challenge and we've said that the rates for delivering time, it's just it's really not sustainable.
So on the positive side, you know, that's where we see the growth in the pushes people are trying to change their business and their their purchase NPL season, we continued to be the leader.
But there are challenges and we've talked about those in the past the competitive bidding issue is one more challenge that they have that's probably I'll say more.
More psychological than anything else you know if you don't know if youre going to win or lose then you're going to be more cautious and even if you're a larger player. We said in the past the large multi.
National companies, they're not going to get screened out of the bidding program, even if they lose a region you know they'll they'll scoop up a mom and pop through acquisition and by the way back in so I don't think they really worry about being out but I think they do get concerned about well, what's the rate going to be and that's that's more uncertainty that they want to see how that shakes out you've got to sprinkle that in with the other hurt.
Holes that they have to make that non delivery model work. We've talked about you have to eliminate the delivery infrastructure and if you don't do that then you just pay a little bit more for assets and you really don't save anything. So that's an ongoing challenges that they still face they continue to face capex constraints and credit constraints and.
Well like so these are things that you know while you've got some things in our favor of demand for peak season, a desire to change there's still some hurdles.
But that kind of you know ramps into is that we are being a little more conservative you know next year looking ahead, realizing that the same issues are there.
The infrastructure challenges in Capex constraints, and now we're going to sprinkle in a little competitive bidding uncertainty that probably caused us things to be a little slower until that gets resolved now as far as what we can do we've got to continue to work with the provider community to try and solve those problems whether it be us help with financing.
Our other programs that can help break down those barriers, we're probably not their best partner when it comes to restructuring their business, but you know we've launched a financing programs that have helped to smaller players we have.
Custom developed finance programs for larger players and we'll continue to do that and that's that's part of what our contribution is to break down those barriers now I said all of that without any any numbers or anything so I'll, let alley comment on anything else she'd like that.
Yeah, I mean, what I would really point to is still how early we are in the market penetration of PEO sees at 13.9% with our estimates that that should go to about 68%. So that conversion is really still what we're primarily focused on helping the providers with I do.
I think we have been I'm pleasantly surprised with the rate of GE five adoption I know, we said in the prepared remarks that about 40% of the domestic volume in the third quarter with GE five Ed we really started rolling it out domestic b to b during the third quarter.
Sure. So we've seen really strong adoption there both from patients and providers. So I do think that that will help us stay at a competitive advantage over the other PEO sees it seems like.
It is.
Widely accepted as a bad the best product on the market and we're happy to see it that the interest in that product. So I think that that also will help with that adoption of the b to b accounts.
But in terms of you know that the numbers and the guidance, obviously where are being more cautious, particularly in the first half 2020, given that the uncertainty but in terms of our own internal process and what we're hearing from customers you know as part of our guidance setting process, we went and talk to all of the major account.
And you know our guidance is based off of the the forecast that they give us and the information that they're seeing on what their plans are for 2020.
Great. Thank you.
Our next question comes from Robert markets with JP Morgan.
Hi, Thanks for taking the question Ali I was hoping first we start the piano question gross margin came in at that lower than expected was hoping you could just walk us through the puts and takes there.
Yes, sure so the biggest impact for us and I know we've said this many times over but gross margin is heavily mix dependent for us and when you look at the quarter, we had a much higher percent of domestic b to b and a lower per cent of international B to b as well.
Most people assume that gross margin is similar given that they're both b to b a business as they actually our international business to business gross margin is higher than our domestic business to business, primarily because the reimbursement pressure is much much larger in the U.S. So.
Because of that because of the decline in international sales that had a large impact on our sales gross margin.
He also said and as we said in the prepared remarks, the Inogen one GE five it's still coming up to scale and while it was a large portion of our domestic volume it none of our international volume and so it's still running at a higher cost and our Inogen one gtwo three product and so that also was.
I driver of our gross margin shortfall in the core on top of that we also had a small contributor of higher inventory reserves in the quarter, but that was a much smaller contributor versus bother to so most of it is mix related whether it's a customer.
Or cost related we also had because of the the FX impact that also drove lower ASP is on the international side on a year over year basis as well.
In the U.S. was there any A.S.P. change year over year in DTC your b to B.
I didn't see actually was slightly up year over year on an S.P. side because of that GE five products coming in and if you recall the GE five has 100 dollar premium right now up both the domestic b to B and the international B to B a revenue per unit.
But were both down on a year over year basis in the mid single digit thoughtful.
Okay and DTC.
I'd need to see was up color around the mid single digit up.
Got it Okay, and then just turning to guidance for 2020.
Response, you were saying you're comfortable with the U.S. beat in the high single digit plus range until we get a better sense a competitive bidding.
They don't language for guidance and international B to B was similar to that I know you're always most conservative on that given your further away.
From the end user or should we be thinking about.
Sales, then and something like that mid teens her 2020, I'm kinda back into your guidance here.
Yes kind of.
Color you could give us to build up to you know the supporting the details would be great. Thanks.
Because of the Dot com challenges that we have particularly in Q1 in Q2 that should be very different than Q3 in Q4 from a year over year growth perspective. So I would have a you know the D to C side in that mid to high single digits in the first half.
And then increasing proportionally to that the high teens on the back half of 2020.
Our next question comes from Mike Matson Needham <unk> co.
Hi, Thanks for taking my questions I guess I, just want to start with competitive bidding given the lead item pricing.
Yeah, what is your expectation and those kind of relative news so.
Reimbursement for Pcs for since tax.
Calculator. It seems like PSC is good it kind of just proportionately hard relative to tax, but I don't know maybe I'm misreading that.
Yes, so when you look at the bid calculator you are right fit how the bid calculator works is that any item that's not the lead item get hit disproportionately harder because the rates are based off the 2015 fee schedule and the lead item.
And I basically every case had gotten hit harder in declines versus the other non lead items. So you're correct that both PEO sees and tanks would see an outsized reduction versus the 13 90 lead item, which is the stationary concentrate or a four.
Yeah for the competitive bid reagents and Pcs would be hit harder syntax now obviously, we don't know where the rates will shake out well know that the middle of next year, but we hope that providers have taken that into account when they did there.
Bids I think that bid calculator was well distributed within the industry and.
This is the case for all of the various items all of the DMC items. So I do think providers understood that going in that they need to take into account that that's not long lead items will be hit harder than the lead items and they need to factor in their costs for the non lead items.
But we won't know dot for certain until we actually see where pricing turns out now on the positive side. They have said that they're moving from a median pricing strategy to a maximum pricing strategy. So that may offset some of the potential headwinds from.
The up the decline in rates on the non lead item portion of but also remember that the mass majority of the reimbursement that we receive for our PEO C is still based on the lead item E. 13, 90, because our product is dual coded for both E 13, 90, and eat 13 92.
Okay.
And then I guess, just you know it's great to see the 2020 guidance.
Where it is coming in where it is but I guess just given everything that's happened in 2019 year, while I guess, the 2020 guidance now why not just wait till the fourth quarter. When you have more visibility into 2020.
Yeah. So we have as normal. This is the time every year that we have typically given our 2020 or the next year guidance. On this is also when we've completed our budgeting cycle and frankly, given the challenges that we've seen and.
Many 19, I think investors want to understand where we see 2020 and understand the puts and takes earlier rather than later so we're trying to make sure people understand the drivers of the business and are surprised by what what we're seeing and what we're expecting going into 22.
Hi.
Okay. Thanks, and that just just one more start bidding question on on the noninvasive ventilation with new era.
I can't remember if he said that's on the last call, but did you guys or new era place bids for that category.
In 2021.
Yes, we we as Enogen bed for an Ivy in round 2021.
Okay. Thank you and 129 regions that we bad for us.
Okay. Thanks, that's all.
Our next question comes from Matthew Me, Sean with Keybanc.
Great. Thank you asked for taking the question.
First off it's really nice to see the kind of leveraging the p. now you're you're expecting 2020, where you you have an increase in sales and double digits and with a you know kind of low to mid teens, increasing in an EBITDA can you talk about how that that double digit growth compares to.
Kind of sales count in advertising expense into in 2020.
Yeah, we don't give specific guidance on sales and marketing spend obviously, we are focused on trying to show leverage in the business and that the sales and marketing spend in general ties much closer to our D to C sales than our overall sales theres minimal a sale.
Sales and marketing costs associated with our business to business sales worldwide. So that's a small contributor so it tends to follow what's happening on that the DTC side, usually what you know a little bit applied for training as you're you're investing there, but we do expect to show leverage on.
Sales and marketing spend in 2020.
And then could you can you talk.
Through to walk is back to the the size of the classes, you're now bring through compared to what you did make like.
99, six to nine months ago, and kind of how that how that how that's doctors into like a measured approach to salesforce expansion.
Yeah, I'll take that one that and we don't share the exact size, but I'll give you you know some color around that one of the key things to remember is going forward we're hiring in.
All three of our major locations now, whereas before we were hiring primarily in Ohio. So what that does is it allows us to shrink the class sizes have more classes in multiple locations kinda spread the worked out.
You know recruit and different locations instead of all one location when you onboard a class. It. So it's a much smaller class I'll say the size of classes now.
Our in a magnitude of you know if the classes last year at our peak were acts you know than classes now are say, 20% of x.. So a much much smaller class, but we're still able to drive growth by focusing at all three locations.
Excellent and last question a new era.
What does what does it get 2020 roll out look is it isn't an incremental salesforce same salesforce same same kind of.
Page three states forced to your peak you know customers or you are you potentially going earlier station that isn't as it a bigger market.
Yeah, It's a it's a good question Matt it's it's all of our existing sales channel. So you know will sell it through our direct to consumer Salesforce.
As a retail sale, we've I think proven ourselves on on the retail sale. So we're really excited about about what we could do with this product on a retail basis.
We'll also sell it through a b to B community, that's still the homecare providers and they'll have multiple options to use this in their business and like Trc is there could be a retail opportunity for the b to b players as well. We've also if you recall and got a relatively small.
Oh field sales force of our own that calls on physicians. So certainly they will have it as part of.
Our offering or service offering and those are essentially the same call points of Pulmonologists that R&D I'm focused on.
As their first call point, so everything there is pretty much.
The same.
Now the second part of your question.
No it was around it.
I don't think addressable <expletive> you sounded he'd be addressed the addressable market up yeah. Yeah. So we actually see multiple opportunities with the new era about technology as we've talked about we plan to build it into our PRC. That's a 2021 launch we think that strengthens our competitive position and our patient preference.
On the plc side and that would primarily address the current ambulatory oxygen therapy market, but again, we see downstream and upstream opportunities you know downstream you've got the more traditional and Ivy patients that are.
I'll say generally a us sicker.
Patient than your traditional oxygen therapy patients we can participate in that arena and then if you go upstream and look at general a CR P.D., we see applications, there, which obviously the CR P.D. market is a much larger market than just traditional oxygen therapy. You know two therapies the subset of the C O PD market more or less so this.
One of these kind of in adjacent markets from our core oxygen therapy play.
Thank you.
Our next question comes from J.P. Mckim with Piper Jaffray.
Hi, guys. This is.
Thank you for taking the question Ben it's quarter here.
On the de side I guess, you continue to say that the new Rep adds there are ramping more similarly today, it's dark leverage and obviously your commentary that you expect you to be the largest grind pigment 2020. It is clearly pretty bullish on my question I got you know just so we can get a little more comfortable adult Lucky here is kind of how you quantify that wrap in house.
Is it you know dollars per rep leads converted et cetera, and then kind of what point in time, you know approximately how many months.
You typically evaluate those repetitions on I I guess the point I'm trying to get I did you add reps here in the back half of 19, when you start seeing them perform in line with what your historical errors.
Yeah. That's a good question. So let me let me talk through you know, how we assess productivity and why we have a comfort level.
Of what the reps are delivering now that that we brought in relatively new to the business we've always tracks.
A rep output in month, one month to month, three month for Weve compared that to and historical curve and so you know frankly, when we ran into trouble in and say you know second half of 2018, what we saw as the reps that we were bringing in when we look what they delivered in month, one two and three it was.
Well below what reps before them had delivered in month, one two and three and so that was our first.
Flagged pay something is it isn't going according.
It's a plan or according to historical and we have the dive in and make some changes and we've talked about those changes in the past.
When we make the comment now that we're pleased with the productivity of the new reps. It's basically looking at that curve again and month one month to month. Three you know we that we have the advantage now of looking at that over multiple classes in multiple locations.
Across multiple months, so you get a pretty good feel that you know when you've got some positive.
Metrics that it's not a one hit wonder you know it's been consistent across the board. So we're confident that the changes that we've made both to intake criteria to make sure we get the right. The right sales rep as well as our training and Onboarding programs and we've made some management changes as well that all.
All of those things are paying off consistently across the board.
That's what gives us that that confidence.
To continue to higher and to.
Drive growth in that matter now as far as you know when a rep contributes well they contribute some in month. One you know they they may not be at a break even point, but in month. One we expect reps to sell you know X number of units and we don't we don't disclose those numbers, but they've worked through a ramp and there's some contribution at the beginning.
And we've said that it's generally a four to six month curve to get them up to what we would call a steady state or seasons performing Rep. And then we expect them to deliver at the same level. There's somebody that's been here for six months plus that came before them. So that's our that's our general curve and how we are we kind of.
Measure that progress going forward.
Very helpful. Thank you and then you had previously mentioned a pretty large trade show, which I I believe just wrapped up in recent weeks. So I guess the question is anything you want to highlight there or did you see anything new on the competitive Fred Thank you.
Yeah, we haven't really seen anything materially new on the competitive fraud I I think.
If you don't mind me to my own horrible for a second I mean, the best new product that I've seen out there as the GE five and that's ours. So we're pretty pleased with the uptake on that as I always said and I actually said it as well that in the in the third quarter, 40% of our domestic shipments were GE five that's.
That exceeded our expectations and we're very pleased with the reception, we're anxious to get that scaled up in international markets Weve already samples over to the major customers. So that they could test them in advance of our launch which is going on right now.
So I would say you know we're pleased that we have.
The newest most significant new PRC on the market.
Thank you.
As we have no further questions. This concludes our question and answer session I would like to turn the conference back over to Scott Wilkinson for any closing remarks.
Thank you.
We look forward to continue to execute on our vision to make PSC is the standard of care for ambulatory oxygen therapy patients worldwide and also expand into noninvasive ventilation markets in 2020.
Thank you again for your time today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.