Q1 2020 Earnings Call
Greetings and welcome to Inogen first quarter 2020 financial results Conference call.
This time, all participants <unk>, a question and answer session with one of the formal presentation.
What's your require operator systems don't It conference. Please press stars they will on your telephone keypad.
As a reminder, this conference being recorded.
I'd like to turn a conference of it. So you hope today that back so please supposed to eat Sir.
Thank you for participating in today's call joining me from an engineer cel, Scott Wilkinson and see if though and co founder <unk>.
In his you really Spanish results for the first quarter of 2020 its earnings release any neogens quarter presentation are currently available on the Investor Relations section of the company's website as a reminder of the information presented today won't put forward looking statements.
Looting without limitation statements about our growth prospects and strategy for 2020 expectations regarding international sales and tender activity the impact of Kobe 19, public health emergency R.P.H.D. on our business in demand for our products and expectations regarding related reimbursement and regulatory changes for looking same isn't this color based on information currently available to us.
As of today's date use for looking statements are only prediction that involve risks and uncertainties that are set forth in more detail are most recent periodic reports filed securities Exchange Commission actual results may vary.
And we disclaim any obligation.
To update these were looking Stevens, except that may be required by law, you have posted historical financial statements and our investor presentation in the Investor Relations section of the company's website his or her to these files from our detailed information during the car. We will also present certain financial information on a non gap basis management believes that non gap an interim measures taken in conjunction with U.S. gap.
Financial measures provide useful information for both management and investors by excluding certain noncash items and other expenses that are not indicative of engines core operating results. Even use is nine got measures internally to understand mentioned evaluate our business and make operational decisions reconciliation between us gap and non gap results are presented in tables within our earnings release for future periods.
You're not unable to provide a reconciliation of our nongaap guidance to the most directly comparable gap measures without unreasonable effort as discussed in more detail and our earnings release, but that alternate color to indigenous president and C.F. Scott Scott.
Thanks, Matt.
Good afternoon, and thank you for joining our first quarter 2020 conference call.
Before moving into a review of our quarter results I'd like to take a moment to update everyone on how the covert 19 public health emergency or P.H.G.
Impacted our company and how we have responded to what is truly been a terrible crisis for our country and everyone around the world.
Additionally, I will provide an update on medicare's response to the covert 19 P.H.A.
Expectations of its potential impact on our company.
Is everyone is aware of covert 19 virus was first identified in China, 2019, and quickly spread across the globe.
The resulting pandemic led governments to order residents to shelter in place and practice social distancing to reduce further transmission.
Symptoms of covert 19 ranged from very mild, including some with no reported symptoms just severe including illness, resulting in death with higher mortality rates among older adults and those with certain chronic medical conditions.
Given the impact to the respiratory system oxygen therapy is prescribed by health care professionals for treatment for certain patients with corporate by 10.
We also believe stationary and portable oxygen concentrate or could be prescribed by health care professionals.
For it to provide relief to global hospital systems.
Calling appropriate patience to be treated in the home such as patients early in the disease progression or those in recovery post hospital discharge, that's making room for more severe patients who need treatment in the hospital.
As the pandemic started the impact Europe, and the United States in the first quarter of 2020.
It's heightened interest in demand for our oxygen concentrate or late in the quarter, particularly within the domestic business to business sales channel.
Sales increase in our business to business sales channels, what's partially offset by lower direct to consumer sales toward the end of the first quarter.
We believe the mandate some behaviors emanating from the covert 19 pandemic, including shelter in place orders reduce travel and lower consumer confidence reduced direct to consumer sales.
Next I would like to provide an update on the recently announced expansion of Medicare coverage related to respiratory illnesses as a response to the covert 19 P.H.G.
Cares Act stimulus Bill signed on March 27th extended the 50 50 blended rate for H.M.U. providers in rural and Don can said just non competitive bid areas.
It also established a newer 70 525 blended rate for all other non competitive bid areas through the duration of the covert 19, P.H.D. and it's retroactive to March 620 20.
While the duration of the covert 19, P.H.G. is impossible to predict as a reference the public health emergencies for <unk> laughter lasted approximately 360 days and the H one N. One flu outbreak lasted approximately 450 days.
Furthermore, the 2% Medicare Sequestrations reduction that went into effect in 2013 will be removed may 1st 2020.
Number 31st 2020.
When consolidating these reimbursement changes, we estimate modest Medicare rate increases for the duration of the covert 19, PHG compared to what was in place before.
<unk> also established a provider really fond of $100 billion of which $30 billion was distributed on April 10th 2020 for Medicare providers on suppliers to prevent prepare for and respond to the covert 19 P.H.G.
As a Medicare supplier, we receive funds of $1.1 billion related to this distribution.
On April 22nd 2020, health and human services announced new funding allocations to distribute the remaining $70 billion and provider relief funds of which $20 billion will be based on 2018 that patient rubbing there's across all pairs.
These additional distributions started on April 24th 2020.
In addition, there's an interim final rule that was published in the Federal Register on April 620, 20, what a comment period until June 1st 2020.
This proposal would allow clinicians additional flexibility in determining Medicare patient needs for respiratory devices to allow patients to manage their treatments at home.
During the covert 19, P.H.D. retroactive to March 1st 2020, Medicare is proposing to cover auction concentrate or other respiratory products based solely on explanations assessment of the patients need for such products.
We believe this could reduce the paperwork burden on the system and allow for quicker patient setups.
Given this increased flexibility. We believe these changes could facilitate indigence ongoing conversion of patients portable oxygen concentrate or through our rental business.
Also it was announced on April 9th, but C.M.S. remove the noninvasive ventilator product category from the round 2021 competitive bidding program due to the covert 19 P.H.G.
C.M.S. is not announced the delay and competitive bidding round 2021 for oxygen as a result, we still expect competitive bidding pricing to be announced in the summer of 2020.
Given all of these changes we are encouraged by Medicare's rapid response to increase access the respiratory products during the covert 19, P.H.D. as well as provide much needed financial assistance to allow H.M.U. providers to service respiratory patients with minimal disruption.
We believe these changes will aid in patients receiving the proper and necessary treatment in a timely manner during the covert 19 P.H.G.
In addition, this will allow our company greater flexibility to serve our patients needs and meet their demand for our products.
However, while we were encouraged by Medicare's actions, we recognize there was no certainty as to how long these changes while remain in place.
With that I will now provide details around our first quarter 2020 revenue by channel.
Regenerated total revenue of $88.5 million, reflecting a decline up 1.9% from the first quarter of 2019.
That's previously disclosed we experience some manufacturing challenges due to a component parts shortage on the energy in one g. five the impacted the fourth quarter of 2019, and the first quarter of 2020.
As we announced in our last earnings call.
We were able to return to normal production levels of the image of one g. five midway through the first quarter of 2020.
Domestic business to business sales in the first quarter of 2020 increased 5.7% to $27.6 million compared to $26.1 million in the first quarter of 2019.
The increase was primarily driven by increased demand from our home medical equipment provider partners for oxygen concentrate hers in response to the covert 19 P.H.G.
Partially offset by lower energy in one g. five availability early in the corridor.
Impact on demand due to the uncertainty around competitive bidding route 2021.
While there wasn't initial surging demand for oxygen concentrate or <unk>, our home medical equipment provider partners early in the covert 19, PHG, we believe that demand could be limited or decline while physician offices continue limiting patient interactions that traditionally have led to new auction patient referrals.
International business to business sales in the first quarter of 2020 increased 1.4% on an as reported basis and 3.6% on a constant currency basis.
$20.1 million compared to $19.8 million in the first quarter of 2019.
The increase was primarily driven by higher demand in Canada and Australia.
Sales were slightly down in Europe, primarily associated with the continued tender uncertainty and certain European markets, partially offset by increased demand associated with the covert 19 P.H.D. in the corridor.
Pending tenders in the United Kingdom are on hold due to the covert 19 P.H.G.
Direct to consumer sales decreased 8.9 per cent $35.5 million in the first quarter of 2020 from $39 billion in the first quarter of 2019.
The decrease was primarily driven by an approximate 15% reduction in average sales representative headcount for the first quarter of 2020 versus the comparative period in the prior year.
Reduction and head count.
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Partially offset by increasing productivity from the remaining sales reps.
We believe the government mandated shelter and placed initiatives that rolled across the United States reduce travel plans and mobility among our patient population.
This lack of mobility combined with a decline and consumer confidence, resulting from an economic slowdown reduce the sales of our portable oxygen concentrate or is to consumers, particularly in March which tends to be the beginning of a seasonal increase in demand.
In April direct to consumer order volumes dropped by approximately 25% compared to the first quarter of 2020, when we typically see increased order volumes due to seasonality in our business.
We did hire new sales representatives to our expectations in the first quarter of 2020.
However, due to the reduced direct to consumer close rates and challenges of remote hiring training and coaching we plan to reduce new sales representative hiring for the remainder of 2020.
HM revenue in the first quarter of 2020 decreased to $5.3 million a reduction of 0.7% compared to the first quarter of 2019, primarily due to a 6.1% decrease impatience on service, but partially offset by higher Medicare reimbursement rates.
We had approximately 24600 patients on service as of the end of the first quarter of 2020.
Oh patient count was down 2.8% compared to the fourth quarter of 2019, we've made progress and expanding our rental intake came which should lead to increased rental set ups as well as increase productivity of our inside sales team.
Lastly, given where antigen stands today and in spite of the challenges, we and the global economy face in the coming months, we believe our strong cash cash equivalents $208.4 million with no debt outstanding provides us with a certain level of stability and liquidity to operate and be adaptable.
During this unprecedented time.
But you still see P.O.C.'s as the future for oxygen therapy patients worldwide is it provides increased freedom and independence for patients also decreasing service and delivery costs to providers.
With that I will now turn the call over to our C.F. Oh, we bauerlein.
<unk>.
Thank God that afternoon, everyone. During my prepared remarks.
You are first quarter 2020.
Yeah, I'm disgusted detail surrounding our decisions withdrawn 2020 guys.
I just got noted total revenue for the first quarter of 2020.
88.5 million, representing you the kind of 1.9 for side from the first quarter 29th.
Turning to gross margin the first quarter of 2020 total gross margin was 43.4%.
49.2% in the first quarter of the 29th.
Our sales gross margin was 43.3% and the first quarter of 2020 versus 50.4% and the first quarter at 2019.
Decreasing sales gross margin, it's primarily due to higher cost per unit.
Certain manufacturing inefficiencies in the period.
The higher laboring overhead expenses.
In addition, we experienced an increase in product sales next towards the end agent one g. five which remained at a higher.
And the energy in one g. three during the period.
Widely avid falling prices were down in the first quarter 2021st.
<unk>.
Increased next to business to business out, which has a lower across margin also reduced total salisbury, marking the first quarter of 2020.
Yeah.
Oh gross margin increased the 43.8% and the first quarter of 2020.
13.8% the first quarter at 2019.
Primarily due to higher Medicare reimbursement rate.
Or servicing and appreciation.
That's for operating expense.
Operating expense increase to 40.5 million in the first quarter of 2020 versus 39.6 million in the first quarter of 29.
Primarily due to new era intangible amortization expense at 1.9.
Partially offset by a 1 million dollar benefit from the change in third value.
Research and development expense.
3.6 million the first quarter of 2020 compared to 1.7 million in the first quarter at 29.
Madly associated with the 1.9 billion new era intangible amortization.
So the marketing expense decreased to 27.2 million the first quarter of 2020 versus 28.2 million inherited period of 2019.
Due to decrease personnel related expenses associated with the 15% decline average sales representative.
This is the comparative period and 2019.
The first quarter of 2020.
Advertising as compared to 10.2 million and the first quarter of the 29th.
I know and administrative expenses.
Point 8 million in the first quarter of 2020 versus 9.7 million and the first quarter of 2019.
Primarily due to increased consulting in legal.
This is partially offset by 1 million dollar benefit from the changes.
The new era.
Which was primarily associated with a reduction in Costa data assumption.
Interest rate environment.
The first quarter of 2020, we generated operating loss 2.2 million and adjusted keep adopt 4.1 now yeah.
In the first quarter of 2020 reported in income tax benefit.
Point $1 million compared to an income tax then point 8 million in the first quarter at 2019.
Our income tax benefit in the first quarter of 2020, including point 2 million excess tax deficiencies recognize from stock based compensation compared to a point 6 million dollar benefit.
Quarter at 2019.
And the first quarter of 2020, we reported in that 1.6 million compared to nothing 5.3 million and the first quarter at 2019.
Lost for diluted common share with seven cents and the first quarter of 2020 versus earnings per diluted common share of 24, seven and the first quarter 2019.
Alternate the guidance.
Most of the unprecedented market uncertainties, we're withdrawing or previously and full year 2020.
Yeah, but I'm certain scope and duration of the total bid 19, P.H.D., you're unable to estimate the true impact on our financial results, including our revenue estimates for the full year.
In addition to uncertainty in our revenue mix between the direct to consumer and business to business channels makes is unable to forecast the overall impact our operations and financial results for the full year, which could be material leading us to also withdraw are 2020 gap that income and adjusted either died.
We believe we could continue to see a declining sales in our direct to consumer channel until patient mobility in Cuba consumer confidence increase it.
We also believe the increase in demand that we experience in the first quarter for our product in our business to business channels due to the Tobin 19, P.H.D., maybe limited or demands may decline in the future as new C.O.P.D. patient referrals could decline.
Offices are limiting patients interaction.
You have been these uncertainties, we're implementing cost savings.
Certain personnel hires and reducing advertising spend well also increasing rental set up to improve leading utilization.
I also want to reiterate stop comments are liquidity position.
I believe our strong passion pass equivalent of 208.4 million with no debt outstanding provides us the stability and liquidity necessary to operate during this time of uncertainty.
But that will be happy to take your question.
Thank you at this time, we will conduct a question and answer session.
If you would like to ask a question. Please press star one well your telephone keypad.
<unk> indicate your mind is in a question cue.
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What participants using speaker equipment, you may be necessary to pick up your hands that before person <unk>.
Once again that start want to ask a question at this time.
One moment, while we pulled my first question.
First question sound some market has door with <unk> he's was even request.
Okay. Good afternoon, guys. Thanks for taking the question.
Yeah, maybe the first one for me to they spend thing and.
Some sort of April trend for the P.P.L.P.N.B. to be businesses. Yeah. Yeah was demand decreasing are stable thing or the same and.
Should be applied D.P.C. down in line with travel, but you sound pretty.
Pretty severely or the more picky goodness.
Yeah sure Margaret I'll take that that question I've got a shared in his.
I've prepared remarks, we did give a little bit of visibility on what we saw on the direct to consumer order volumes in April.
Volumes were down approximately 25% compared to the first quarter of 2020 and as you know typically we would expect to see or volume increased going into the second quarter, which.
Stronger for US if you look at.
Oracle increase we've been going from Q1 didn't seem to that sequential increase.
From 2012 to 2018 that average about 25%. So you know what was a large declined that we saw in April and the direct to consumer side in terms of close right now what we also saw though in in April is we still are generating sick.
Mythic impatient infrared so they'll leave volume has actually been very strong. It's the clothes rate that is is really down compared to what we've seen historically so in in that area. That's why we talked about.
Increasing lead utilization towards the rental business because it you know really difficult to predict how long the.
Crisis will last and how long it will take for consumer confidence to return as well as ever time to traveling particularly for the elderly population.
The business to business side Internet reseller demand, which is of course, a subset of that domestic business to business demand saw similar drop off in April. So we expect that to follow pretty closely with what we've seen on the direct to consumer side of the business, but of course the majority.
He about domestic business to business socket is traditional H.M.U. providers and as you saw on our results. The the business to business provider orders were up and the first quarter versus expectation.
We do expect that to continue to be lumpy overtime, obviously, there's a lot of moving parts right now and with oxygen therapy being a a potential treatment for a certain patients with Kobe 19, but we also we're seeing a referral down for traditional feel P.D.P.
Patients because they're just is limited.
Physician interaction so feel P.D. patients may eventually need oxygen and you know seeing their doctor those conventional appointments or just not happening right now so that little really depend on on you know how quickly best shelter in place for her.
Are are removed and you know how quickly we have returned to normal Seabear. We also have seen some on the domestic business to business side really trying to limit interaction in the patient home due to you know obviously wanting to reduce the the potentials.
Right up Cobin 19, so I do think that boy that carried it it could also limit the restructuring activities R.B. to be partners from tank to P.S.C.
The good thing, though is that we we continue to see the benefits.
You know patients being interested in p., a fees and wanting a better solution and you know maybe turn it just got to talk about the the long term outlet there.
Yeah, I guess you know if we look at the long term.
I mean first of all you know covert 19 is is a respiratory ailments.
And oxygen therapy is used it's one of the treatments for it. So you know in the short term we saw an uptick in the long term. If you look at our business you know kind of where do we go and what's the impact on our business. After the kind of the smoke clears from the pandemic.
It's uncertain what kind of impact this might have on on needs by people that had cope with 19 and if there's long term damage you know to their respiratory system, there's always a chance that over the long term you know they may turn into oxygen therapy patients, but that's kind of up in the air certainly you know it it's not going to.
Harm the demand or you know put decrease the demand for our product that there could be an increase time will tell him that that's more long term play I.
I think also is alley said, we've had the dialogue patience has been a lot different on these you know all the patience that have called in are still answering our our marketing campaign. You know most of heart are looking for a product to go on a trip or go on a visit everybody's kind of hunker down in their homes, but they do have can.
<unk> about their supply they do have concerns about having a stranger come you know to their home to deliver tanks. If you look at the other side of the equation homecare companies are kind of in the same boat.
They have concerns about going into our patients home or to a patient's home either you know exposing them are being expose themselves. So this really shines a light and I think puts another you know piece of pressure on the non delivery model in the future up you look ahead, we've already had.
Pressure from reimbursement cuts that it really make it difficult to continue to deliver a war sustained the delivery model with all the expenses associated with it you know here's another thing that you know down the road when the smoke clears again people are going to say how do we better prepare for this next time around well there's a few.
Friends, you know people have talked a lot about seven Madison Big you know maybe more emerging in the future from this I think there'll be more pressure put on the on the non delivery model to convert to that.
So that we avoid these exposures and risks in the future and that patients are more in control. So long term you know I think there could be some I'll say.
Positive pressure for our business short term you know as alley outlines there's a lot more variability introduce that we have to cope with and obviously, we're not alone that the whole world's going through coping with a lot of variability right now.
Yeah, Yeah, <unk> and so if we dive a little bit deeper in that age you need the man yeah, Yeah, where did those products in sorry, you know get distributed it sounds like maybe they're in the patients house, but what kind of unclear and you know are they being used code patients as far as me no post.
Close discharge.
Yeah. So we have been seen some indication of it being used for some cove at 19 patients of course, the mass majority of oxygen usage right now is really for C.L.P.D. patients. So, but there is you need it for oxygen to treat a portion of the cold at night.
Patients and yeah, either early in the disease date or later after they're in the hospital in their discharge that may still need some level of oxygen support for some period of time so.
So yes, we are seeing that as a potential use but remember the those uses of oxygen or not longterm use as those are short term, you said, where a patient may need it for.
Weeks or months not not for a long term you.
Okay. That's helpful. And then just Ah last one to me I I heard that sales rep headcount go down 15%.
Year can you give us offensive how that's trend in sequentially. It's it improved in declined and you know you kinda alluded to to maybe changing its strategic plan around D.T.P., but what do you do for the next 345 quarters.
Oh this is ongoing people travelled thanks.
Yeah I'll take that question. So we did hired to our expectations in the first quarter. So sequentially headcount was up and so we were glad that we are able to get the wraps in the door.
Right.
And you know kind of looking forward from here. We did continue to do some level of hiring you been as you know the stay at home orders went into place. So we did some remote learning obviously, you know that more difficult than in person learning, but so far that husbands.
Successful so we do plan to hire some level of employees, but it will be lower than what we had initially planned going into 2020 until we can really see the the return of the the clothes rates of that group and or do more rentals as a <unk>.
Thanks.
Oh My next question comes from Robbie markets with J.P. Morgan pleased to see what the question.
Thanks for taking the question Ali I Wonder if you could walk us through some d. in packs to the P.N. now you know he's D.P.C., which is most profitable want a dollar basic stayed down I think to 20% in April you know how should we.
Think about 18 black rates in the impact down the P. and how how much can you caught on and you know how much it's <unk> manufacturing any help would be appreciated.
Yeah sure. So we said 25 per cent was the amount sales were down in April compared to the first quarter of 2020 and again, usually April would be an uptick from two one just given our our traditional seasonality pattern.
In terms of D. leveraging as we mentioned we are going to produce advertising advertising into one was $10 million. So that you know a significant portion of our a little over 40 million that we had an operating expenses in terms of the.
Ah gross margin profile most of those costs are materials call versus a labor and overhead costs and fixed costs. So that can overall be of course leverage that a a better rate, but as b. to be becomes the bigger portion of the sales mix.
That also can impact our gross margin per cent. So I do want to highlight that as you know something that will depend on the overall mix in our business as we did see you know that decline. There. We said we are reducing hiring and that's really a cross the entire company that were.
I'm, making sure that were being careful with our spending at our investment across the group, but we still or you know hiring and making the investments that we think are proof or the long term. So there is some level of see leveraging but of course.
You know it certainly will be.
More challenging in these times, where d. to see you still have the overall sales call. The the sales rep cost, but you have a lower close right. So that that certainly is expected to have an impact on the bottom line in our business for the the duration of this.
Lower close rate associated with lover consumer confidence in travel now we are planning on as we said doing more rental investments that would be a small use of cash in in the scheme of our overall cash balances but.
About that also should produce some more stable revenue stream over time and a return on those investments. So that is something that we we plan to do.
[noise], great and maybe just as a follow up by I'm jumping between calls. So if you said this I I apologize just like we should call out how much bayes nets sales ways do you do what you think Kobe to impact wise in the quarter and how should we be thinking about that.
Based on what you've seen in April so far back.
Yeah, we didn't call out a specific number there and frankly, if it would be really difficult for us to do that because the mass majority of the entities buying from us our customers are the same customers buying units for us <unk> or from or their core C.O.P.D. patients and their.
Using them interchangeably. They they may use it for a covert 19 patient for a month and then start using it for I.C.O.P.D. patients. So we didn't call out specifically, what the that amount was but we did here qualitatively from our provider partners.
Units were being used for that purpose, we did see some level of a smaller buys from charitable organizations in hospitals that we don't typically see in our normal ordering pattern, but none of those were material in the corridor.
Yeah.
Are we next question Council met me shall we Keybank pleased to see what the question.
Great Big predicting the questions and thank you for doing everything you can to support the health care system at this time Uh huh.
I'm, just curious where your call centres open throughout this throughout the throughout the crisis and <unk>, where are you able to adjust to it to a work at home environment and and if so how do you give everyone back to the office safely.
Yeah. It's a good question about we've.
You know we've moved a large portion of our office staff to work from home environment that does include a lot of our inside sales reps.
We haven't really force people to go home you know we've left that option old and said if you feel comfortable working from home, it's probably a prudent thing to do I'll say, we probably encouraged it but not mandated it I if just throw in a number out 80, 85% of our office staff are now you have migrated to working from home.
And if you don't mind might be just give a shout out to R.I.T. teams for making that happen in a really short period of time, that's worked really well and I'll tell you. We started that right at the beginning you know back in early March and you know obviously, we've never had this many people work from home before so we had some questions on how that.
It's going to go and I I took my hat to our employees everybody has dug in and kinda rallied around the cry of we are we are part of the solution to this problem.
And you know, let's do everything that we can to take care of every patient that we can and so I'm incredibly proud of our staff and they've they've done a great job now you know <unk> somewhere down. The line you know we'll have those people come back we're not really in any rush to bring them back because like I said everybody is doing a great job. So there's there's no sense of urgency to do.
That.
But you know I want to maintain a level of engagement in our company. So long term. The plan is to bring them back now of course, you know our manufacturing people they've they've got to come to work today Nobody's building their products from from home, So and I took my hat to them for you know come into work every day to build the products and get them out the door and help the patients.
But really everybody has done a terrific job and I think I think we've handled those changes very well.
But that's great and then any up that you have on on somebody European tenders, we're expecting in the first half of 20 I think there was one specifically in in in the U.K. that you accomplish that was going to go through if you know it has it gone through or it's stolen flux.
Yeah, we actually started to see some progress in the first quarter and then everything was put on hold in March. So you know we have been informed on some of the winters in some of the losers, but there's been no transition take place because even though some of that has been sorted out.
Decisions standpoint, it's a lot of work from an execution standpoint to make those changes and so in the U.K. everything was put on a hard stop so that so that all of the home care companies and on the entire healthcare system could focus on you know taking care of patients instead of you know switching product around to one provider to another.
So you know we do expect when again when this is all over that that will sort itself out you know, we'll see that transition take place, but nothing is going to move until the the public health emergency is lifted.
Okay. Thank you.
[noise] [noise] how my next question comes from Mike Mats, and we'd need them in companies with you with your question.
Yeah. Thanks, So I was I want us about the new era title assist product can you remind me I I don't know if you formally launched that yet and it's not something I know there's been this clambering for ventilators. It has.
Benefited from Nigeria potential benefit from that.
Yeah sure I'll take that one so we launch the.
T.A.V. product in a limited launch in December so it's really been just a few months, but it's been available both through our domestic direct to consumer and domestic business to business channels. It is not a traditional invasive ventilator, it's really meant as an assistant.
Score with oxygen and you know that launch really was going well in and we were rolling it across the sales force cross the d. to see side, we have not trained to all the sales reps yet on that product, but really that also with impacted similar to our core.
Oxygen business on the direct to consumer side with the stay at home mandates in the lower consumer confidence. So we've seen a similar and pulled back in the direct consumer interest in that product now.
Really you know while we've done some great learning right now we didn't expect that to be a significant contributor to 2020 anyway. The goal is really to integrate that T.A.B. product into the P.O.C. and into our stationary concentrate or that's really where we think we'll see a lot.
<unk> uptick and overall interest in the product and I still on an ongoing r. and D. Asher that we're focused on right now obviously I know <unk> eat a lot of <unk> for the benefit.
Treatment and hope it 19 patients but.
We really have not seen that for this product and we're still exploring if there's a small role play there, but that's not really.
Product effort.
Okay understand.
And then just question on your D.D.C. wrap count. So you were down 15% you every year. This corridor. What's the you said you're going to slow you're hiring but are you still planning to increase the to count between now and then to the year and or at least I guess, where you were at the beginning of the year and then.
The.
When would you win does your grip count actually stop declining on a year over year basis, when you expect that.
Yeah. So if you recall last year the large reduction in the sales force occurred in the first half. So we expect to laugh that large reduction at the end of the second quarter. So we're we're close to it now have you seen it sequentially decrease as a headwind.
Since you know we started reporting the mid last year as a as a head when to that.
You know in terms of the exact tiring, we obviously haven't put out a number of how many wraps we expect to hire and also remember there's some level of attrition up rap built into our models as well. So you know kinda that will depend on where exactly we and the year, we're not going to give specific.
Items on where we expect headcount to be at the end of 2020, but we do plan to hire in the remainder of the year just that lower rate, then where we shake out will depend on you know how many we actually can execute in this remote model and then also you know how many wraps we lose 10 normal.
Electrician.
But <unk> willing to give a number but on a net thesis your plan right now is to to end the your higher than you started.
Yeah sure you're not sure Okay. Yeah, alright, yes are and it's to to add to our our wrapped base now where we actually come out will depend on you know factors that we still have to execute on including hiring into how many rap.
We've been that period as well.
Yeah.
And then finally, just I know you make a stationary concentrate or I've heard that the stationary cards traders have become really scarce. These days just given all covered related demand. So one have you been able to take advantage of that with your own product into if not has have P.C.'s.
And being used as a substitute for stationary cops traders at all.
Yeah. So we have seen heightened interest in stationary concentrate or is I think that's been yeah, well reported that there's been some shortages there our product is not typically a product that would be used by our business to business partners for stationary.
Constant traders because it is a higher cost product that is more of a premium product with lower weight and less noise and lower power consumption things that patient care about not necessarily things that providers are willing to put into that run hopefully so historic.
Dot product been a direct to consumer focus product, but of course with the shortages of stationary concentrate or is we have seen more interest there are not product.
But we also are you know limited by how quickly we can ramp up that Ah supply chain. So we have tried to ramp up the supply chain a bit to accommodate the need but we also are are balancing that just given the fact that we know the other issue very pleasant traders are also being.
Ramped up for volume and when it comes when there is adequate supply in the market the providers will choose the the lower cost product in most scenarios. So we certainly are.
Looking at that but we don't think that's a major driver for us as a business mass majority of our sales are still p. a sees in the shortage of stationary constant traders, though we have seen providers using P.L.C.'s as another treatment source.
To get the patient oxygen therapy to treat tilted 19, another patient.
Okay. Thank you.
Once again to ask a question that star one on your telephone keypad are we next question comes from Danielle empathy with pets.
Pleased to see the question.
Hey, guys. Good afternoon. Thank you so much her for taking the question and giving giving that the color that you that you had.
My first question is around how to think about first of all on the business to business domestic you know it looks like on a comp adjusted basis, you did p. some improvement slash you know.
Less bad decline I guess on a compromise to basis <unk> fourth quarter. So I.
No it doesn't sound like you're talking about much of it coded benefit in the corridor. So it feels like that's more organic in nature is that the right way to think about that anything you'd call out there that might have driven that growth are you feeling you know I don't think there's any seasonality. She went to help us maybe understand what's what's driving that.
Yeah. So we did see some level of increased buying from the business to business partners, because that's a little bit 19 crisis. So that certainly was part of the Q1 numbers. There of course in the first part of the corridor, we were dealing with the component parts shortages of Benji five which.
She is why we were expecting you did be to be interest in the period, because they would wait for the g. five product instead of you know by other products and putting it into their fleet. So we didn't expect those orders to push until later in the corridor, but as the.
The health emergency started evolving we certainly saw providers wanting to increase their inventory levels and make sure that they had the supply in order to deal with Cove at 19, and any potential increases in demand and as I said.
Earlier, we did see some level of buying from charitable organizations in hospitals, those weren't material out and it's really hard for us to break out a specific cobin 19 impact because really the buying with mostly through our existing a provider partners that was not through.
Many new account.
Got it okay. Okay and then my next question is on margins longer term you know you saw a little bit <unk>.
Quarter within business next shift toward it'd be it'd be business I mean, how do we think about for a long term margin potential here doesn't look any different as you think about the ramp in the shifts to be to Beaverson D.C. I mean help us.
<unk> sort of think about long term margin potential things too much.
Yeah sure. So you know as we've said historically, our gross margin will fluctuate based on our mix of me to be versus direct to consumer direct to consumer is obviously a higher gross margin profile also has a lot harder a higher percentage of the sales and marketing costs.
Weighted with that business and as you have more be to be it has a lower gross margin margin profile, but also much lower operating expenses associated with it. So we do expect those gross margins to fluctuate over time as our mixed fluctuate if d. to see does become a lower portion of the.
Total revenue profile, then certainly we would expect that to also impact our gross margin now.
Obviously in a quarter. We were also impacted side the manufacturing inefficiencies with the component parts shortages as well as G. five still being at a higher costs than the G. Three we are making progress on the t. five cost we still feel like by mid year that will be at a at cough parity there and you know.
You think hogs is really a top priority for us. So we are focused on reducing our cost of goods sold. So we can continue to you know that offset at least a portion of those gross margin headwins, but it it will be heavily mixed dependent to drive what our actual gross.
Version comes out of that.
Now of course.
I mentioned on the rental side of the business. He continued to see improvement in gross margin there and that's something we're really proud of particularly as we're looking to to add more rentals into the fleet and we do expect that to incrementally improve with the.
The tailwinds associated with the the lower rate or the higher rates excuse me for the length of the Tobin 19 P.H.D.
Thank you.
Thank you at this time I would like to turn to call back over to Mrs Got Wilkinson for closing comments.
Thank you.
While the covered 19 P.H.G. is placed all of us in unprecedented times.
We're proud to be part of a solution that helps patients with respiratory disorders.
Despite these immediate challenges we continue to believe our future is bright and that portable oxygen to concentrate or will be the standard of care for oxygen therapy patients worldwide.
Given our strong balance sheet, we believe we have the ability to weather the storm and once the storm passes.
Believe we can execute on our plan to deliver attractive revenue growth with improvements in operating leverage.
What's that I would like to thank our employees for the extraordinary effort. They make every day to take care of patients who require oxygen therapy.
Thank you even have a good day.
Thank you dispose conclude today's teleconference. You meet disconnected lines at this time it. Thank you for your participation and have a great thing [noise].