Q1 2021 Inogen Inc Earnings Call
Greetings and welcome to the energy and first quarter 2021 financial results Conference call.
At this time, all participants on a listen to only mode.
A brief question to answer session will file a formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Alley balance line, Chief Financial Officer to Flores Yours.
Thank you for participating in today's call joining me, yeah, you'd be able to shop Scott.
Here today and it didn't really financial result, the first quarter on 2021.
Furniture Lee.
Presentation are currently available in the Investor Relations section of the company's web site.
As a reminder, the information presented to today willing to look forward looking state, including without limitation statements about our gross prospects and strategy for 2021 and beyond.
Patients related to our operating results for 2021, our ability to create shareholder value to say driving awareness of our products.
<unk> to regarding our international and domestic sales channel expectations related to a rental channel expectations related to our physician salesforce hiring expectations and expectations regarding our sales and marketing low wasn't really isn't backman product development.
Patients.
Patients regarding reimbursement and regulatory changes and our expectations regarding the market for our products and in fact of the COVID-19 pandemic on our business on demand for our products to short term and long term.
And forward looking statements to this call are based on information currently available to US as of today day. These forward looking statements are only to prediction 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 disclaim any obligations to update these forward looking statements except that may be required by law we.
Posted historical financial statements and our Investor presentation, and our Investor Relations section of the company's website. Please.
Please refer to the files for more detailed information.
Starting to call. So also for that certain financial information on a non-GAAP basis managed to believe but non-GAAP financial measures taken in conjunction with US GAAP financial measures provides useful information for both management and investors basically reading certain non-cash items and other expenses, they're not indicative inogen for.
Four operating results.
Management to use as non-GAAP measures internally to understand manage and evaluate our business and they operating decisions.
[laughter] affiliations between U S gap and non-GAAP results are presented end tables within our earnings release.
With that I will turn to call over to introduce president and CEO, maybe I'll shop shop to deal.
Thank you I really good afternoon, and thank you for joining on first course in 2021 close to the schools well to cover the 19th and then to continue to have an impact on on over all business on the first quarter to 721, we saw a sequential gross and all force channels and sequential to go with a 17.5 per cent and both of revenue from the fourth quarter of 20.
20.
As expected domestic business to business days was strong with double digit grow with him to first quote those 2021 over the competitive in theater them to try to you primarily driven by the needs to temporarily to COVID-19 patients up on top of the business than.
In addition, we would please by a strong rental revenue go without improve buttock to consumer savings revenue in the first quarter of 2021 sequentially vs. The fourth quarter of 2020.
To consumer sales increase due to higher to demand, which supposed to improve sales representative productivity and higher average revenue put older listens to that's three quarters in 2020 on these metrics that seem to decline over quite a beauty is associated with the COVID-19 pandemic.
We believe that to improve method to sort and brought it to consumer sales, but primarily due to higher to the explanation day with them all patient population moving to increase desire for mobility go on curtains would be the next station of pleasure or is it are they took to the COVID-19 P. H E. As one asked them to the statements and to improve consumer confidence.
With that I will now provide details of our first force. The 20th one you wanted to add to know by channel.
For the first posted on 2021, we generate a total revenue of $86.9 million compared to $88.5 million and the first call to those 2020, the decline of 1.8 per cent from to competitive submitted in 2020.
Domestic business to business sales in the first 415 to 21 increased 11 six per cent $37 million compared to 27 $6 million and the first 2020.
We believe they seem to use was primarily due to the day to demand for people to see you spoke COVID-19 patients up on hospital discharge plushy to offset by the other way to be sending to be mad.
In addition to believe that evolution of the competitors living on so it can be on October 2020, also contributed to increase demand and all domestic business to business Shannon during the first cool to those 2021.
International business to business savings and the first four to the 2021 degrees by 21.7 per cent is 27.4 per cent degrees on a constant comes to bases to $15.7 billion compared to $20.1 million and the first floor to the 2020, we believe the degrees was primarily driven by the.
Continued in fact of the COVID-19 pandemic with intermittent luck balance in many European countries, along with reduced operation to get back with the or something to go to for your interest for that to the assessment centers.
Direct to consumer sales between 15 point to eight per cent to $36 million from the first one to the 2021 from $35.5 million in the first book was 2020.
We believe that to please with primary bidders on but nowhere to incite savings are presented to check on which was down approximately 18 per cent from to competitive period primary with you to the investment to the COVID-19 pandemic on on hiring or from your savings to present with this.
While we were able to hide on you insights able to presented to them to first sports on of 2021, we did not to find enough qualified candidates stole separation. We continue to look to add to your savings to present. It there's one maintaining our heightened standard and being mindful of the continuing to effect on to the COVID-19 P. H E. R C as in marketing efforts, but we expect.
That to be challenging in the Nissan due to the size and the quality of the Kennedy.
Despite the day, please as compared to the first four to 70 20, there was increased demand for people to use in this channel and the first to <unk> 2021 compared to the fourth floor to the 2020. This.
This increase was primary to review to hide to exclamation dates with an outpatient population do they like to see some of the closure to or visit late to to the COVID-19 P. H E leading to increased emulation. In addition to a new stimulus payments and improve consumer confidence.
This led to improve sales representative productivity and increased average you'd have to know if at all good vs. Each of the last three quarters in 2021 vs metrics decline associated with the COVID-19 pandemic.
Compared to the first quarter of 2020 sales representative productivity with snap and evidence you'd have to note that in order to was slightly up we are cautiously optimistic that this may be forwarded to indicate the four to improving market conditions for all products. However to given to that is going to be short timeframe for these improve the results we will be monitoring faith performed on.
A specialist in future courses to assess the multiple switching to.
Rental revenue from the first quarter to 2021 increased 84.2 per cent to $9.5 million from $5.3 million in the same period in 2020 primary due to increase patients on surface hired available on patients as it for simple stupid patients on service entire to Medicare reimbursement rates as a from.
March 31, 20, <unk> 21, we had to approximately 34700 patients on service, which was up seven eight per cent sequentially compared to December 51, 2020, and 41.1 per cent compared to March 31 2020.
Please and patients on service was primarily driven by the great that equalization of patient please for going to local charities and physician facing initiatives to increase describe it wasn't missed by our sales force.
With a three month tenure and design look ahead I'm, even more confident about images commitment to making people will cease to standard of care Bye domain name Nathan focused on increasing patients access to all products and extending physician to witness we remain committed to other anything on investments and on M. D and building a they'll see authentical evidence to strengthen our market.
Market leadership and oxygen therapy.
Oh that'd be in these efforts I believe that to be on on the right path to create long term sustainable and possibly gross.
With that I will now to them to call back to our C. F O anti Valentine's day.
Alley.
Thanks to be all to be all noted total revenue for the first quarter of 2021 with $86 $90 million.
Fine.
Eight per cent from the comparative.
<unk> 2020.
<unk> will increase.
Five per cent.
[noise] to the first order of 2021 total gross margin at 145.
Compared to 43, 44, and the first quarter of 2020.
Our sales.
832, 44 seven per cent.
First quarter of 2021.
First is 43 three per cent to the same period.
It increases primarily due to low or manufacturing cost per unit versus certain manufacturing to inefficiencies me experienced terrible period of 20th.
This is partially offset by low or average selling prices due to it to increase snake domestic business to business day.
A a lower price margin burst darker accents from our staff.
Rental revenue first margin increase to 55.1 per cent from the first quarter of 2021 vs 43 eight per cent in the first quarter of 2020.
Primarily need to hire available patients per cent.
Total patients on service Empire, Medicare reimbursement right.
Partially offset by higher service to transfer patient on Sir.
As for operating expense total operating.
<unk> to $42 million to the first quarter of 2021 vs.
45 and.
First order of 2020.
C E O transition to <unk>.
And to increase and I figured value as a new era.
<unk>.
To your personnel related expenses, partially off that I'm on our app.
Okay.
Research and development expense increase to $4 million on the first quarter of 2021 compared to 3.6 million in the first quarter of 2020.
Located the increase product development.
Sales and marketing decreased to 25 to 5 million in the first part on 2021 vs.
27 929.
Period of 2020.
Advertising expenditures, partially offset by increased person I'll go to like expensive.
<unk> furniture is 476 million on the first quarter of 2021 compared to 10 million and the first order on 2020.
General and administrative.
Increase to 12 $45 million from the first quarter of 2021 vs.
8 million in the first quarter of 2020.
To do to one eight.
Oh transmission cough I don't want to.
2 million increase in that fair value of a new era liability.
All set to my lower consulting expense.
And the first quarter of 2021, we've reported in operating on to 1 million adjusted EBITDA five four.
And that.
7 million and fostered common share three.
Finally, he ended the first pair of 2021 with cash cash to someone.
Security $233 $2 million with no debt outstanding.
Regarding reimbursement rate.
Hinder the budget neutrality provision for oxygen therapy was removed in December 2020, as part of did you ask to government stimulus package as a result.
Great increase 10 per cent former competitive sitting area and five per cent all other Medicare area effective April 1st 2021.
In addition to two per cent faster parts from it.
Send it to December 31st 2021, instead of expiring on March 31st 2021 previously scheduled.
We see both changes on top of the bar industry brought P O C adoption.
Now I'm trying to diet.
Because of the continued COVID-19 related market uncertainties, we're still unable to provide guidance for the full year 2021, including a revenue revenue.
On my lap and adjusted EBITDA estimates for such period.
Despite the ongoing COVID-19 pandemic, we believe it is prudent to continue to make it.
Our sales force to focus on the on call at the on such care enhancing R&D said starting to build a dossier of clinical evidence.
Building the necessary infrastructure to support our strategy.
Giving such an assessment initiative, which is illegal support future revenue girls can take the ability as well as margin expansion, we still expect to increase operating expense for 2021.
I also heard medical expenses related to focus on performance day Doc based compensation expense in 2020, we expect such costs to increase in 2021, along with certain expenses related to the previously announced to recent officer transition.
Regarding the second quarter of 2021, we expect all day sales channel to increase for her to period in the prior year, but the largest percentage gross affected in a rental channel.
To continue to see the largest COVID-19 related to impact on our international business to business sales channel primarily due to the continued to reduce operational capacity of the respiratory it off to the counters and flow of actually rollout.
[noise] with that so we'll be happy to take your questions.
Ladies and gentlemen wheel now have our question and answer session.
If you would like to ask a question. Please crestar one on your telephone keypad.
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One moment, please while we know poll for questions.
Alright first question comes from Matthew Mission with Keybanc capital markets. Please proceed with your question.
I need to thank you for taking the questions I need to.
Bill Alley, and that's the way to think about direct to consumer rental from from from one to 222 is that <unk> sequentially. The patient population increases by X amount. In addition to a five to 10 per cent increase in it and reimbursement.
Yeah, that's correct, so you'll see it going into the queue to uhm, we do expect our patient population on rental patients on service to be continue to increase.
We would also like to check to see that five to 10 per cent increase in right on the portion of the business day is Medicare related uhm, which is about.
75 per cent 80 per cent of that total pool.
Yeah.
Okay. Thank you for that and given it's a renewed focus on on on this part of the business how should we be thinking thinking about the seasonality of the rental fleet from one to the to two to three to.
Of course, yeah.
One of the great thing about the rental business is that you don't see as much seasonality that you see in the cash business because you have uhm underlying patients demand in a patient wants to convert to P. O. C. Then to meet our coverage criteria, they really want to do that year round.
What is the difference in the Brian hopefully in terms of net patients added in a given period is there is seasonality around unfortunately patients death, and then also patient changes and insurance. So we tend to see a higher number of pain.
<unk> coming off service in the fourth quarter and then the first quarter of any given here then you see in the second to order for the third corner. So if you look at our patients edition or net patient additions in the period those tend to be stronger.
And then the third quarter vs.
Uhm fourthquarter or the first quarter, so hopefully that houseful and then of course it comes down to how much sales capacity to we have how many referrals are we driving.
Take care of it.
Okay that is that is that is helpful. And then on the direct to consumer sales uhm. It sounds as if there are certain metrics that are better to reading you to believe that there's thirst increasing momentum there, but on the same token you're not able to hire the C. The white.
To inside sales people at this point in time are not able to not able to find them are you, losing sales or or is it just putting both sales off by about a quarter or so.
So it comes up you know that factors that we're seeing you know as you said, we are seeing positive indicators day.
There is increasing patients interest in purchasing the product vs. What we saw is dampened demand uhm associated with the COVID-19 pandemic. So we are.
Glad to see those improvement in those key metrics that we look at for the day to see business and as you mentioned the challenges that we've really seen on the hiring side have also made it difficult for us to show throat and that channel and year over year comparison.
<unk> in the first quarter now going forward Uhm in spite of that we do expect to get back to grow send that channel even the remaining quarters of the year because of the improvements that we've seen uhm in overall demand for the product. So we do see that.
As a positive and we do hope to hire more brats, but we are cautious on that front because it has been a challenge to hire and train people in in this period of a cat.
So the number of sales Rep I don't think our attrition has changed significantly from historical levels, but our ability to replace the attrition with a new sales reps.
Wow.
Okay and then just last question on I'm, sorry for for for asking me to many.
To to sales given given goodbye, that's what you're saying are above one to.
Yeah, Great question, and I do expect to to 2021 to be up from the first quarter of 2021 on his punch on basic.
In total revenue I think there may be some moving parts within the various pocket.
But you know we are seeing.
Seeing more of that historic seasonality that we've seen where direct to consumer demand is stronger in the second quarter with and it's been in the first quarter. Obviously, we've seen some increasing demand in some areas hit hard by by COVID-19. If it also should impact the second quarter.
And of course, as we sat in our prepared remarks, we expect rental revenue to have the highest gross as a per cent of you know last year's second quarter results.
So you know we do see positive trends in the business and do expect to see a sequential increase in the second quarter over the first quarter on 20th.
Alright excellent. Thank you very much.
Thank you.
Our next question on comes from Margaret to someone with William Blair. Please proceed with your question.
Hey, good afternoon, everyone and thanks for taking my question that so I'd love to push it to a little bit on guidance for 21, I know you're not to get but I'll do my best to see what we can get out to you. So.
Given the demand we've seen in queue on if we apply kind of a traditional seasonality metrics. We've seen in the past that that brings count are full your number for 20 wanting to $360 million or more now I understand there's a lot of moving pieces, we don't really know what's going to happen in a variety of areas but.
Maybe more specifically why wouldn't D. T C do as well seasonal way as it's done in past years, especially given some lighting to mad extra travel and so on and then shouldn't we also see travel P. O Ts increase from the D. M V channel, hoping to pour code that'd be to be domestic roof.
Yeah. So I can take that question and you know certainly we've seen positive trends I mean are numbers that we saw in March or certainly an improvement and more in line to past seasonality patterns. So that is a positive sign but this is only.
A couple of months and now with March and April really behind us and seeing that on.
So we want to get a little farther into the gear and make sure that it's sustainable and if this is not just a pent up demand that we're seeing in the day to see channel, but it it's really something that we can predict going forward uhm, but your right to an initial indications are certainly positive.
For US you know I I know everybody would love for us to reinstate guidance, but we want to make sure that when we reinstate guidance that we have the proper visibility to put a number out there that is you know an achievable number of beautiful number and that that number.
<unk>, we have high confidence and from a predictability standpoint Uhm. In addition to you know we just hired a new cheap commercial officer, who just started left on a month ago and so we want to make sure that that entire management team is up to speed and a line on our priorities both.
Short term and long term and has the same level of visibility and confidence in those results before be put guidance out there, but you know the initial indicators that we are seeing in the market recovery seems to be positive and you know we we also.
Uhm, you know need to make sure that we can continue to maintain the base a sales rep to fill that capacity.
On your question on that.
Consumer demand through our be to be accounts.
Day throughout the whole pandemic have really mimic what we've seen in our direct to consumer business, including in the first floor. So I <unk> I don't see their trend substantially different from ours.
And so as a result, I would expect given the easier comps them to also show gross and effective border vs that you're over here and you know kind of that returned to road.
So you know they have slightly different dynamics, but in the end, they're also tracking consumer demand for P. O T.
Okay AD and I've got that a follow up to that in one check that on the 20th to him a long term. So just as a as a follow up to your comments on D. M. A and kind of the the sequential increases potential end to cute to and throat to hear how big was hospital on the first quarter because.
It sounded like maybe you were saying from access to ma'am associated with that that might make a smidge to print yeah, but I know international to tough to gauge, but any any color. There. Another question on 20 to after that.
Yeah. So Margaret you know, we would love to be able to answer the question on hospitals demand specific to the first quarter Uhm, it's very challenging for us to answer that question because the demand.
Is tied to the same customers. So we weren't selling to hospitals directly in the first quarter, we were selling to all of our same customer base and they were telling us that they were using a portion of that demand for COVID-19 patients that were being discharged on P. O C.
So uhm. Unfortunately, we can't break that out specifically outside of just looking at trends and trying to do you know are on estimates, but we don't have a card number of how much was specifically tied to that.
Okay. That's fair enough and then you know I think the the big question that you know I get I think a lot of other people get is kind of a long term profile post COVID-19 and whenever that happens if it's 20 to or be on that but how do you guys. You know on the bill on the team how to you guys view that gross.
File and as we go through this year over the next four quarters what are those fundamental indicators that you'll look forward to say you know what I feel very confident about there'll be at mid single high signal digital or you have double that you can be on for gross that's.
Okay. So <unk> Margaret I'll take that one we see ourselves, but apparently to double digit gross but not the gardening anything beyond that but we believe that day indicators. So far that we've seen in terms of to recovery in terms of what we're putting in place to get this back to the double digit space to please let us fighting for in terms of in 2022.
Moving forward.
Okay fair enough. Thanks, Scott.
Thank you.
Our next question comes from Robbie Marcus with J P. Morgan. Please proceed with your question.
Hi, This is actually Lily on for Robby. Thanks for taking the question. So I was hoping you could just give a little bit of color on on what you're seeing in different geographies. Obviously things are very different in in Europe in there on the last right now.
So yeah any color you'd be willing to get on you know how to recovery has trying to it you asked vs. Though you asked me to be helpful.
Maybe I'll take that one so definitely we're seeing a recovery, which is a little bit stronger in do you ask them to starter to to make it as we all moved to the high end of exclamation day, so even though receive them now fluctuating Elizabeth back and forth and things with the hesitancy for people to vaccinate, but that's a very different picture on thumbs off the mobility that this is creating them to.
You ask them to be ma'am, four seven as well general mobility vs. Europe as an example, and with the standard but also marked down approach to things in the major yoga for you to to upgrade to N b as in France and order on other continental European countries have you also to.
And that's in America things on very diet and tons of what's happening in Brazil as what other countries. So definitely the lead to indicate that in the U S is leaving and it's in nature and doesn't apply to the rest of the geography, but we expect overtime as maybe help in terms of exclamation place that's slowly.
To the other markers to please just to see if someone listen to what we're seeing in B U S.
Great. Thank you and then just one quick follow up just how how should we be thinking about opex that over the course of the air as the recovery continues to play out in particular adds button considering P. T. C. You spell the past day.
Yeah sure. So we're proud of what we accomplished in the first quarter in terms of reducing our advertising spend we do expect advertising spend to increase in the second quarter through the fourth quarter has to be do see an opportunity for us to spend more than half higher revenue associated with.
<unk> in the direct to consumer channel. So we are.
Are moving back toward that model vs. Uhm now what we started really in the second quarter of last year to reduce advertising expense to try and you know minimize our operating expenses with that impact if the COVID-19 candy on it. So I would expect that to increase go on forward, but also have to see.
<unk> you know a return of the revenue generation associated with that uhm higher level of spend.
Thank you.
Our next question comes from Mike bathroom with me to one company. Please proceed with your question.
Yeah. Thanks for taking my questions I just wanted to ask one on on the pipeline I don't know if you're willing to to give any updates there, but it has been a couple of years since we've seen a new P. O C. Uhm. So I'm wondering if you have anything new coming there just wanted to give us an update on the the effort to integrate the new era.
Technology into your business is.
Yeah. Thanks, Mike for the question, we are actively working to on a variety of R&D project, but we for competitive purposes really aren't going to be speaking about the specifics back uhm until we're ready to launch those products. So just like we've done historically.
We want to keep that was pretty tight to the best until we're ready to launch, but as you can see from our financials for continuing to invest heavily in R&D and are focused on goal is to stay the innovation leader in oxygen therapy with the best in class P O C.
But also expand into new air at Uhm, it into new areas like with the new era technology and that work is still on going.
Okay. Thanks, and then.
Have you seen any sort of response from from my end of your larger be to be customers with your increasingly focusing on your rental business are you worried about that at all.
Oh, certainly it's something that we work with the accounts that our partners to US we have strong relationships with a variety of H M knees, and we think that that really important as well and to work that we're doing here is meant to supplement to work that they're doing to convert their fleet and set up new patients.
On oxygen therapy. So we haven't seen a negative response associated with that I'd still say that when we look at our 35000 almost 35000 oxygen patients on service vs. Our estimate to 3 million oxygen patients from the U S were still a very small fraction of the total.
Okay. So well we continue to expand our rental base and have seen great success. There. We also have seen our partners continuing to you know focus on their conversion.
And we have not seen any negative repercussions from any any large major account associated with that so like I want to add that we should know what to expect attention to go away on <unk> to make it a good luck to cause I hope your pension and I'll focus on developing to market like we've common to many times before.
For which will help all of us to benefit from the penetration of the P. O C modality and it's the health attention decided to <unk> to is it's up to every participant to take as much of the upside as they can and I think in general. If this is something that they've known to live with him to leave month to live with and we're going to.
You to manage to any better you go on that but it doesn't matter.
Okay. Thanks, and then just wondering if you could give us an update on the appointment on <unk> sales force how big is that it from one to get those numbers or has affected to send it to your last year and then you know how it is you talked about productivity of your inside sales for so I don't know if you have any way to kind of measure the proclivity to these wraps her track, but we get to that or.
You know coming from from there positions that they're calling on.
Yeah. So so I'm, Mike we would 24 to I've been pension is to continue to hire to very selectively because we've very unique profiles and tons of feel me from sending them the ability to develop the market.
The to the question on one side on until the activity. The one thing I can say is despite the fact the visit to lower the percentage of tend to your good people on the to open sales force today, we have seem to double digit improvement in terms of that for the security vs compared to last to you, which is very encouraging to it on the right track had been to the right place.
Okay, great. Thank you.
Thank you.
Our next question comes from Daniella unhealthy with S. P. B Leerink. Please proceed with your question.
Hi, This is actually went back how I'll I'll put Danielle a question on on your can marshals strive to to you guys hired a new to commercial auto Sir how does this to your company's can work on strive to say overall on all your birthday to opportunity to forehead I'm going to have the most to impact is in.
<unk> afield now thank.
Thank you.
Mhm.
How does it change so that I didn't get the full question how does it change on my dad did.
Change, yeah, you're going to micro strategy.
So on where where do you say, yeah, we're going to stay as a pet priorities or area I'll focus forehead and of course that failed loans to to make an impact yeah. So the the cheese commercial also set a spark of the of the management team definitely is going to participate on the to biggest to on the to biggest levels of growth on.
On the portfolio sides and strategy is what I was on him to go to market. So on to port formula that low sparkman shape with the art on the end of engineering to make sure that we are actually making sure been to put for you is the Ah direct it towards towards the biggest gross areas on and the differentiation between five for all the time is one of them to it goes on.
From prevention and on the other side to them to go to markets threat to do in terms of increase in both the productivity and efficiency off our sales and marketing spend and efforts is one of the critical add to goes also other suddenly as we know this is the service business. So looking into things at on the customer to experience and the patients experienced in to them.
With them getting on therapy, and then staying on that therapy is one of the areas with the person would be looking to add in Georgia far to will be focused on on them things if I just mentioned.
Alright, great. Thank you.
Thank you.
There are no further questions at this time I'd like to put on the floor back to management on the closing remarks.
Okay. Thank you. So what was the COVID-19 pandemic has and will continue to influence on business. We are encouraged by the stabilization that we have seen in order to core markets I'm.
Uhm addition to excited about the physician sales team investments, which we believe when Polish on us to reach our vision of P. O C is becoming to standard of care to an oxygen therapy. Thank you for your time today and I look forward to engage in conversations with other investors as to make progress on our strategy to book to stronger to imaging.
Ladies and gentlemen. This concludes today's web conference you May now disconnect. Your line. So at this time.
Thank you for your participation and have a great day.
[noise].