Q2 2021 Inogen Inc Earnings Call
Greetings and welcome to the Inogen and second quarter 'twenty to 'twenty, 1 and earnings release conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Jason and Summer General Counsel and thank you Jason you may begin.
Thank you. Thank you for participating in today's call. Joining me are CEO and the B O shop shop, and CFO Ali Bauerlein.
Earlier today Inogen released financial results for the second quarter of 'twenty to 'twenty 1.
This earnings release and imaging and corporate presentation are currently available and the Investor Relations section of the company's website.
As a reminder, and information presented today will include forward looking statements and <unk>.
Clothing without limitation statements about our growth prospects and strategy for 2020, 1 and beyond.
Expectations related to our financial results for 2021.
Our expectations with respect to supply challenges and cost inflation related to semiconductor chips, using our batteries and concentrator.
Our ability to create shareholder value by driving awareness of our products.
Expectations regarding our international and domestic sales channels.
Expectations related to our rental channel expectations related to our physician sales force.
Hiring expectations and.
Expectations regarding reimbursement and regulatory changes.
Our expectations regarding the market for our product and impactful to the COVID-19 pandemic on our business and supply and demand for our products and both the short term and want to.
The forward looking statements and this call are based on information currently available to US as of today's date. These forward looking statements are only predictions and involve risks and uncertainties that are set forth in more detail and our most recent periodic reports filed with the Securities and Exchange Commission.
Actual results may vary and we disclaim any obligation to update these forward looking statements, except as may be required by law.
We have posted historical financial statements and to our Investor presentations and the Investor Relations section of the company's website.
Please refer to these files for more detailed information.
During the call, we will also present and certain financial information on it and non-GAAP basis.
Management believes that non-GAAP financial measures taken in conjunction with U S. GAAP financial measures provide useful information for both management and investors by excluding certain noncash items and other expenses that are not indicative of innocent and core operating results.
Management uses non-GAAP measures internally to understand manage and evaluate our business and make operating decisions.
Reconciliations between U S GAAP and non-GAAP results are presented in tables within our earnings release.
With that I will turn the call over to <unk>, President and CEO the bills shop shop, maybe ill. Thanks, Jason Good afternoon, and thank you for joining and our second quarter 2021 cluster and school, we saw sequential growth of 16, 8% and total revenue for the first quarter of 'twenty, 1 and growth for 41, 7%.
Revenue for the second quarter of 'twenty to 'twenty.
Overall demand and average selling prices for our products were strong and the second quarter of 2000, Twenty's and however used to supply chain constraints and and efforts to after my son, and I said results, we intentionally focused supply capacity on a direct to consumer and international business to business sales channel, which you will see it afflicted and those results.
We were pleased by our strong rental revenue growth and improved direct to consumer sales revenue and the second quarter of 2021 sequentially versus the first quarter of 'twenty, 'twenty, 1 and versus the second quarter of 2020.
Direct to consumer sales increased due to higher demand, which led to improved sales representative productivity and higher average revenue per order sequentially versus the first quarter of 2021 and versus the second quarter of 'twenty. When these metrics that seem to declines from prior periods associated with the COVID-19 pandemic we.
We believe that the improved metrics was so and direct to consumer sales was primarily due to higher vaccination rates were going to have a patient population and leading to increased desire for mobility concurrent with the relaxation of bullshit orders related to the COVID-19, and public health emergency or P. H E as well as improved consumer confidence.
With that I will now provide details of our second quarter 2021to revenue by channel.
For the second quarter of 2021, we generated record total revenue of 1 O $1.6 million compared to $71.7 million and the second quarter of 2020 and increase of 41, 7% over the comparable theaters and 2020.
Domestic business to business sales and the second quarter of 'twenty to 'twenty, 1 increased 27, and 28% to $27.6 million compared to $21.6 million and the second quarter of 'twenty 'twenty 1.
We believe this increase was primarily due to greater demand for reported of oxygen concentrators or POC for both traditional and longtime oxygen therapy patients and secondarily due to COVID-19 patients upon hospital discharge as well as high a reset of the mine.
International business to business sales and the second quarter of 2021 increased by 57, 3% or 47, 8% on a constant currency basis to $21.8 million compared to $15.9 million and the second quarter of 2020.
We believe the increase was primarily driven by improved and COVID-19 for explanation for rates and increase emulation of patients and Europe increased operational and capacity of certain whether it be interest spread to the assessment centers and increase sales and India associated with the Spike in COVID-19 cases and death market.
And international business to business sales and the second quarter to a 'twenty 'twenty..1 include a $2 million and sales to our distributors and India versus no sales in the second quarter of 10 to 20.
Direct to consumer sales increased 35% to 6% to $45 million and the second quarter of 'twenty to 'twenty, 1 and 50 points to a million dollars and the second quarter was 2020.
We believe the increase was primarily driven by increased demand for people seem to get the highest COVID-19, and vaccination rates with an older patient population and the relaxation of closer to or does it relate to to COVID-19 to H E leads and to include emulation as well as improved consumer confidence.
This increased demand was partially offset by a lower average inside sales representative headcount, which was down approximately 18% from the comparative period.
Krishnan outpaced tiring, primarily due to increased competition for sales professionals in 2020, 1 along with reduced hiring new sales representatives and 2020 due to the COVID-19 pandemic.
We continue to look to add new phases for sensitive 1 and maintaining our hiring standards and being mindful of the chemicals team USA, Inc.
Our rate of hiring increases and the second quarter of 2020, 1 with head count of slightly as of June 30 to 2021 as compared to December 31 and 2020.
Expect minimal net new hires and then used to them due to the size and quality of the candidate pool and expected attrition.
We are pleased with the performance of our inside sales teams and the second quarter as we saw improved direct to consumer space productivity and increased average revenue per order versus the first quarter of 'twenty 'twenty 1.
Rental revenue and the second quarter to 21 increased 85, 2% to $11.3 million from $6.1 billion and the same period in 2020, primarily due to increased patients on service higher available patients as a percentage of total patients on service and tire and Medicaid reimbursement rates as well.
June 30, 'twenty to 'twenty, 1 we had and approximately 37100 patients on service, which was up 6 points to 9% sequentially compared to March 31, 2021, and up 45% compared to June 32020, and.
Increase in patients on service was primarily driven by greater utilization of patients leave for rental opportunities and physician facing initiatives. This includes prescriber awareness by our sales force as well as the relaxed Medicare criteria for oxygen therapy reimbursement due to the COVID-19 phe.
We are still cautiously optimistic that our performance both in the direct to consumer sales and rental channel as a positive indicator for for improving market conditions for our products overall.
I would also like to talk about the supply chain disruptions. We are currently experiencing.
While we are proud of the fact that we were able to avoid significant impact to our business in terms of supply availability in 2020, we have seen supply chain disruptions and 2021 primarily associated with the semiconductor chips and all.
What day, the oxygen concentrators and factories.
The semiconductor chip shortage is being experienced across many industries, placing additional pressure on existing supplies.
While we have been hard to work to mitigate the impact of the supply shortage and it has and will likely have a negative impact on our ability to manufacture products. At these chips are used across all of our portable oxygen concentrators and both factories and printed circuit boards.
We are continuing to work with our OEM partners and exploring other open market evidence to purchase necessary semiconductor chips, but these products are facing extremely high demand and we expect continued challenges in terms of supply constrained and pricing inflation and to supply to demand and breakfast stabilize.
And the acquisition cost of these chips for third parties has trended significantly higher and the third quarter was 2021, then to set standard purchase price and is expected to continue to increase if and to the extent supply is I think a little during the shortage.
As a result, we expect these inflated costs would increase our cost of goods sold starting to first quarter of 'twenty to 'twenty, 1 and continuing to supply meets demand and prices stabilize.
And based on our assessment and industry feedback that the supply shortages may continue through the second quarter of 2020.2.
While we expect to be supply constrained and unable to meet customer demand for our products and to enter them.
Ending on partially offsetting these rising costs by implementing price increases across our products as of September 1st 2021.
Now turning to the latest from CMS on July 2nd and 2021 CMS announced a proposed change to the home use of oxygen and national coverage determination and for.
Of course to removing of the national coverage determination for home oxygen to use to the true cost of habits.
This is true these new policies with allowed the Medicare administrative contractors to make coverage determinations regarding the useful for them oxygen and oxygen equipment for cluster headaches.
Recently, CMS proposed to expand patient access to oxygen and oxygen equipment and to home by allowing oxygen to use for acute or short term needs include and cluster headaches for COVID-19, and instead of limiting coverage to chronic hypoxia.
CMS also proposed to removing the requirement for alternative treatment measures before dismissing of oxygen therapy, and removing the requirement for patients to be in the chronic stable state when tested for oxygen therapy.
C and message also proposing to remove the limited list of conditions for its oxygen, maybe cousin to respiratory related diseases, and allow physicians and flexibility to make the needed determination.
In addition, CMS proposed to define exercise more broadly to include functional performance of the patients and to the.
Flexibility and pulse oximeter readings to reduce race of the aesthetic and cash lastly, CMS proposed to reduce provide to burden by removing the oxygen and certificate to for medical necessity to flow.
And that's S seeking comments to this before that decision and we'll respond to public comments and the final decision limit and and.
We are supportive of these proposed changes and believe that the expanded coverage for patients who would benefit from oxygen therapy to reduce the administrative burdens and greater physician decision, making authority on profit patients care can improve access for patients who are neither for oxygen therapy.
As I look ahead, and why do we have some near term challenges the underlying demand for our offerings and strong and I'm confident about interest commitment and focus on increasing the POC and market penetration and improving patient access to.
To that effect will remain focused on expand and physician and patient awareness of the POC modality for oxygen therapy and imaging.
Lead and offerings in this space.
We are committed to working through the ongoing supply challenges, while we continue to invest and our infrastructure and elevate our investment and clinical evidence and bartleby to strengthen our market leadership position and oxygen therapy.
While we are still early and these efforts I believe that to our own direct path to create long term sustainable and profitable growth.
Lastly, I'm happy to have expanded the senior leadership team and the last couple of months for student noodles, Chief Medical officer felt by staying Blizzard and general concepts and by Jason Summer I look forward to stand for contributions and medical Affairs, and clinical research and regulatory affairs, and Jason Jason and contributions to our legal and compliance.
And functions.
With that I will now turn the call to our CFO Ali Bauerlein Ali.
Thanks for the deal and if you'll notice to total revenue for the second quarter.
Okay.
Net.
Representing an increase of 41, 7% credit comparative period, and 2020 asked a question for increased.
Thank you for Sun for the first quarter.
Turning to gross margin for the second quarter of 2021 total gross margin was 49, 6% compared to 45, 7% and a second.
2020.
Our sales revenue gross margin increased to 44% and the second quarter.
2021 versus 45% from the same period 2020.
This increase was primarily due to increased direct to consumer sales, which have a higher gross margin versus our business to business sale and improved average selling prices and all channel.
The increase was partially offset by higher cost of itself for unit and a quarter, primarily due to increased labor and overhead costs and material.
Rental revenue gross margin increased to <unk>.
6% and the second part of our 2021 versus 53% and the second quarter of 2012, primarily due to higher filler for patients as a percent.
Total patients on service and higher Medicare reimbursement rate, partially offset by higher service and depreciation expense for patients I'm sorry.
As for operating expenses total operating expenses increased to $38.7 million for the second quarter FY 'twenty, 1 versus $35.1 million and the second quarter at 25, primarily due to increased personnel related expense and increased media and advertising.
Partially offset by a 9 million dollar and non cash decrease and the change in fair value and new era.
Versus the comparative period.
Research and development expenses increased to $4.1 million for the second quarter of 2021 compared to $3.3 million and the second quarter of 2020, primarily associated with increased personnel related expenses.
Sales and marketing expense increased to $29.3 million and the second quarter of 2021 versus 2000 to 1 billion and the comparative periods for 2020, primarily due to increased personnel related expense increased advertising.
Consumer sales and marketing costs.
Media and advertising costs for $8.7 million for the second quarter of 2021 compared to $7.2 million and the second quarter of 2020.
Personnel related expenses increased primarily due to increased commission and bonus expense along with recent management additions.
General and administrative expenses decreased to $5.2 million for the second quarter of 2021 versus $9.7 million for the second quarter of 2020, primarily due to a $9 million decrease and the change and the fair value and Europe.
New era earn out liability and lower consulting and.
Partially offset by increased personnel related expenses, including 8 million and officer transition.
The change and the fair value and earn out liability for the benefit to $8.1 billion and the second quarter of 2021 compared to an expense of $9 million and the second quarter of 2020.
The reduction in the fair value of the earn out liability and the second quarter of 2021 was associated with the reduced expected revenue from the Tid technology due to the negative Medicare reimbursement coding outlook based on the recent court decision to dismiss our legal case and CMS with regards to non invasive ventilation.
And the second quarter of 2021, we've reported net operating income of $11.7 million adjusted EBITDA of $12.4 million net income of $5.1 million and income per diluted common share of 20 to stack.
Finally, we ended the second quarter of 2021 with cash cash equivalents and marketable securities of $250 million with no debt outstanding.
Now turning to guidance, we are facing a number of uncertainties caused by the continued and Barry impact of the COVID-19 pandemic and addition to the supply chain disruption and the increased cost of critical components previously discussed to Scott.
These include the impact of the delta of areas and the potential emergence of new bearing and the durability of higher consumer confidence and increase consumer ambulation and worldwide vaccination right right.
As a result, we are still and able to provide guidance for the full year 2021, and putting our revenue revenue net loss and adjusted EBITDA estimates for such period.
However, we can provide some general context to our expectations for the second half of 2020.1.
Due to the supply chain constraints and to be able to Scott. We expect total revenue and the second half of 2021 to be lower than the first half of 'twenty to 'twenty, 1, but the largest negative impact on our domestic business to business channel.
Also expect increased cost of goods sold for units for the second half of 2021 due to cost inflation of materials and labor throughout the supply chain, including semiconductor chips and higher freight costs.
To partially offset these rising costs and we plan to implement price increases across our products, which are planned to be affected other steps.
Number for 2021.
We still believe it is prudent to continue to make investments and clinical research research and development and building the necessary infrastructure given these investment initiatives, which we believe will support future revenue growth and predictability and margin expansion.
Increased operating expenses for the year in 2021 and.
In addition, while we incurred minimal expenses related to bonus and performance based stock compensation expense in 2020, we expect such costs to increase and 2021, along with certain expenses related to the previously announced transition to the addition.
In summary, we expect net losses and both the third and fourth quarters for 2021, and our net loss for full year 2021, reflecting the anticipated supply constrained revenue decline increased profit of it felt for unit and higher operating expense and the second half of 2021 as compared to the first half of 2020.1.
With that we'll be happy to take your questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad and confirmation tone will indicate that your line is and the question queue you.
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1 moment, please while we poll for questions.
Thank you. Our first question comes from Margaret Kaczor with William Blair. Please proceed with your question.
Hey, everyone. Thanks for taking my questions and good afternoon and yeah.
And you guys had a few very positive metrics for us, particularly around DTC, asp's and gross margin and I.
Realize you're on yeah.
Shortfall for chip supply, but it does seem like you've got a little bit more pricing flexibility.
And a few questions with that set up and.
And so on the DTC side normally the seasonality would suggest to flat to down mid single digits.
Remember, we're saying travel continue to rise and you mentioned yourself, you're pushing more supply towards DTC and so yeah, maybe walk us through those puts and takes and how inventory versus demand it might affect the second half with them to states Hudson and how that might be different I guess from years past.
Yeah.
Yeah sure. So I can take that 1 Margaret and.
Really I think what youre, calling out on the demand side is certainly true and consistent with what we saw in the second quarter and into the third quarter and we continue to see strong consumer demand for our products and business demand for our products. So that is certainly very positive and you see that reflected in our second quarter results.
However, the chip shortages that we are seeing they are impacting our ability to meet that demand. So I think when we look at the third quarter and the fourth quarter dynamics.
Not necessarily driven by a demand impact and.
Reflective of our typical seasonality and it's more reflective of what we have from a supply chain perspective. So you know as we said we do expect.
Revenue and the second half of 2021 to be lower than the first half.
2021 now of course, that's the comparison given the.
Low sales last year, we still do expect to see sales up on.
On a year over year basis in the third and fourth quarters versus the 2020 comparative period.
But we will be limited by the chip shortages and certainly the improvement in gross margin and that we saw in the second quarter we.
And we don't expect to be sustainable in the back half of 2021, given that increased costs, we're seeing an omni channel side.
Okay. So it sounds like Youre going to try to maybe and meet demand across the board maybe slightly shut to supply to DTC, but you obviously want to make sure that all your customers.
Yeah, we are seeing some demand or some ability to to access products.
To hear that right and so we could still seem to be to kind of maybe down a little bit.
Yeah, I think that's going to Aramark I mean, our typical seasonality would already save in the D to C to C channel that we would expect sales to be down and the third quarter, and then down again and the fourth quarter versus the typical second quarter being high so we would expect that that.
That type of trend to continue and as we said in the prepared remarks, we expect our U S business to business channel to be the largest impact in terms of lack of supply and of course that is our lowest margin business.
But we are trying to allocate product to all of our customers and still what we can and based on that supply constraints that we see across the business.
Okay. So that kind of leads me to the next set of questions, which and how material are these and I. Appreciate the second half is maybe lower than the first half and.
But it sounds like you've got a ton of demand out there. So you know based on what you're saying today can you give us any sense of how much inventory you might have relative to what we've seen and the second quarter and is that the right way of looking at it or you know what.
Why is it not I guess.
Yeah, I mean, I wouldn't say that that's necessary for bright way to look at it right. If you look at our balance sheet, you'll see $27 million or so of inventory on the books. So.
We don't have to material inventory levels versus <unk>.
Revenue in the business.
This is more acute and that Vista, our supply chain with me and to our supply chain. So these are sub components bought by our.
Our suppliers are various parts of printed circuit boards and batteries and there.
Buyers of these chips parks, where we are experiencing for shortages. So.
This is kind of and acute issue that is impacting.
Impacting the business.
And and we certainly are trying to offset this as much as possible with open market purchases of chips.
We are validating the quality of those products the validity of those products, but we are seeing a significant cost associated with those specific parts.
This will impact our cost to goods sold.
In the range of a mid single to high single digit increase and cost to goods sold per unit for the unit that we purchase like these and these higher and more.
Margaret for clarity, we're not letting to increase cost get and the way we went to what we'd like to do is we're trying to meet demand as much as we can but as Alex said, there will be and impact from cost of goods, but its a supply issue and we're not stopping at extra day, allowing our supply providers to go work with their supply chain and downstream we are working hand in hand with.
Them to go all the way to the source and try to.
<unk> or put the business case for a fair allocation. We don't believe that's happening all the time, but to a compensating by PE multiple multiple a multiple of the original price on the open market because we are doing our best just to read demands across the channel as we can despite the fact that we're getting this disruption but with.
We're basically just meeting demand and we don't have a lot of inventory.
Okay, I'll apologize I'm going to sneak 1 more and that but just in terms of pricing and you guys referenced I think and the press release that you're saying pricing up across.
Across the board and all debt and and all the various channels and.
And so if you could speak to that and and I guess more specifically why wouldn't you raise price smell a.
Rather than wait for September force.
Scott.
I don't think thats non mortgage debt.
We're doing it and a very orderly fashion that are some contractual obligations that we have and we.
We are going to take prices up, but we believe and as timely fashion for September 1st It will go into effect and.
Low double digit range, we believe that are about to 70% of it will go through depending on the terms and conditions of different customers. So we're trying to get ahead of it but also I just wanted to clarify what enough covering all of our increases in costs, we're trying to actually catch up a little bit to the and cost.
Cost increases that had been happening since the beginning of the pandemic, but no haven't gotten to that level debt required us to take action and we believe that's the right sort of level of price increases and that we can pass on.
Impacting the business and.
And the most time professional weekend.
Yeah, and just to add on to that Margaret.
Didn't see any of the higher costs associated with the chip shortage in the second quarter. So you don't see that reflective in any of the margin debt.
We show here and just to talk a little bit about the increased average selling prices that we saw in the second quarter. We didn't have any formal price changes and in the second quarter, that's really reflective of people buying more batteries extended warranties are kind of getting back to that.
Pre pandemic levels of accessory purchases debt raises the overall.
Average selling prices as well as a racist gross margin related to those purchases. So I just wanted to clarify that.
Thanks, guys.
Thanks Margaret.
Thank you. Our next question comes from Matt <unk> with Keybanc. Please proceed with your question.
Hey, guys. This is breakfast and on today for Matt. Thanks for taking my questions. Just wanted to follow up on gross margin a little bit given given the price increase and arent going into effect until September and how can we be thinking about the magnitude of a potential headwind for 3 to you and then looking ahead could you give us maybe a sense of.
And what portion of the headwind do you think you can offset with price increases.
Yes sure. Thanks, Thanks for the question and certainly gross margin has multiple moving parts for net so I want to remind everyone that it's not just related to selling prices and our cost to goods sold a happy factor of mix and our business because there are a very dip.
<unk> gross margin profiles, and our direct to consumer business versus our business to business areas. So mix is very important to think about when you're looking at gross margin projections.
But looking at that.
The cost impact.
Certainly.
And we look at the size and the cost to goods sold unit per unit increase we're expecting that to be in the mid single to high single digit increase and cost to goods sold per unit. So that's what you can think about for the unit with these higher chip prices and then of course.
To be all said, we expect to have.
Low double digit increase and pricing.
For the majority of our customers effective September 1st so.
You would expect given those factors to see.
Gross margin declined versus where we were in the second quarter of 2021.
So we would not expect those levels to be repeatable, given where we are from a pricing perspective and.
And.
Costing perspective in the near term until we get past these hum.
Scott.
Alright. Thanks, Thanks for that additional color and then can you also comment on how some of the supply chain constraints and a change to the approach to hiring new reps and do you still plan to add more and more reps on and that business and the second half.
Yeah, we've adjusted.
And the plans in terms of hiring to reflect the supply chain shortages that for you as you mentioned.
That said, we don't expect and net net increase in terms of the hiring we're just trying to cover for attrition and wild with remaining very conscious of the quality of the reps, we hire but definitely the supply chain.
Short to just aren't being reflected and the hiring plan. So we don't overhang and yes.
And just just to add onto that.
We are still investing in our field sales force because that is important and looking into 2022 and beyond as opposed to replicate.
A lot longer to come up to speed building those physician relationships. So we are continuing to build out that our physician facing sales force, but we're being more constrained on our direct to consumer insight sales team hires.
And as to be upset trying to.
And that attrition with replacement tires.
Alright, and then last 1 from me just putting some other near term headwinds aside for a second can you can you comment a bit on how the international recovery has progressed over the last few months versus expectations.
Particularly in areas that you've previously called out as more challenged like Europe and Latin America. Thank you.
Yeah, So armed and international side, we've been encouraged by the progress that we've seen in terms of diagnosis as well as demand on our products.
For its all been trending and the right direction. However, we remain very cautious about what the impact of these new variants are going to be as you know, we're seeing and return to a more strict guidelines and.
Or for.
And restrictions throughout the European countries and debt potentially will have an impact on dampening the demand that we're seeing so far.
The same the demand is very strong and the and the U S market over all the channels, but.
The 1 thing to sort of being cautious about the impact of what's going to happen and mixed in terms of adding specially up and some of the return to the restrictions that you're all hearing about.
Thank you. Our next question comes from Robbie Marcus with Jpmorgan. Please proceed with your question.
Hi, This is actually Lili on for Robbie Thanks for taking the question.
So I was hoping just to give a little bit more color on the day to be business, specifically decided to thinking about the outlook for that over the balance of the year and is there any way to size. The benefit that you saw some COVID-19 related demand and the quarter.
Do you think that could result, and another sequential increase like we saw and and this quarter as the adult to Barry and spreads are.
Should we expect similar sequential decreases of about 20 to 31.
Okay.
Yeah, I think the certainly the demand continues to be strong for the product on the <unk> side, but I do think the supply constraints will limit our ability to to grow that in the third and fourth quarters.
The first half of 2021.
But we are seeing.
Continued strong interest and the price.
Across our partners both in the U S and Europe. So it does seem like both the recovery of core COPD treatment as well as a short term use associated with COVID-19 that those demand factors are still.
Largely and play but.
We are being limited by.
Supply constraints.
[laughter].
Got it. Thank you and then just 1 more quick 1 do.
Do you have any updates to share on the new era of product on where you stand and development for us and any sort of timelines and should be thinking about here.
Yes. Thank you for the question so we're continuing to.
Work and diligence in terms of defining what the path could be moving forward in terms of the combination products between oxygen therapy and new era.
Turning our attention to and little bit more on the diligence on the patients profile and what patient population to benefit more from a support in terms of high flow oxygen therapy, and we're continuing to actually progressed. The investigation. So we can make a decision on the path forward.
Points and assignment and we finished that work, we're not providing any guidance for even better.
Thank you. Our next question comes from Rebecca Wang with SVP Leerink. Please proceed with your question.
Hi, Thanks.
And so we're back to how long on for Danielle and thanks for that.
For your question.
And I guess I just wanted to ask either it might be a higher level question and long term how should we think about the makeup of your for for business day.
Day, and rental and then go to the domestic and international away as you are increasingly focused on your rental business.
We think about the makeup of growth.
For parts and how does this mean for where images from a operating margin perspective. Thank you.
Yeah sure so I'll take that Rebecca and thanks for the question and.
Yes.
We do think and what we've said is that we expect rental is to become a bigger portion of the business over time. It has been our fastest growing channel and we would expect that to to continue as we build out our physician facing field sales force and focus more of our inside sales team on continuing to set up new.
Rental patients and.
And we think that that's the way to provide the best access to our products long term.
And as patients prefer to use their insurance benefits to gain access to our products.
Of course, we do think that there will continue to be strong direct to consumer sales demand for the product and.
We also want to continue working with our <unk> partners, who are also continuing to help us to get more patients setup with POC versus cash.
So we see a balanced approach with rental being but.
The largest.
And this area for us and likely the fastest grower.
For channel and.
And Rebecca and 1 additional follow up when we talk about our focus in terms of the physician facing work force those puds source volume into the rental business to so that.
And that also has a positive impact in terms of getting patients that the onset of <unk>.
Of being diagnosed as well as prescribed and then it could go either way and.
Rental and or into cash.
And that's all very helpful and how is it how should we think about that.
And at rental growth to be a bigger part of the business how does that impact your operating margin and longer term.
Can you provide any color on that.
Overtime, Rebecca we do expect that to improve our EBITDA profile of the business.
And we would expect that to to occur as we it becomes a bigger portion of the business.
And cautious.
And a little bit cautious there in terms of just the profile. It takes some time to build up the revenue and that business and you have called for sales and marketing costs to hit upfront in the business, but thanks for that.
As a very nice EBITDA margin profile long term.
Thank you so much.
Yeah.
Thank you. Our next question comes from Mike Matson with Needham <unk> Company. Please proceed with your question.
Yeah. Thanks, Thanks for taking my questions I joined the call late so apologize for some of this has been discussed earlier, but.
I wanted to talk a little bit about the semiconductor issue.
I understand the cost side of the equation.
But I guess, what I'm wondering about is how much visibility you have and <unk>.
The actual quantities that you're able to get and and what sort of impact that will have for the remainder of this year and into next to your I know.
1 other comment that you expect second half revenue to be lower but.
When you get into next year.
Do you expect that to.
Also be lower than the first half of it to your for example.
Yes.
Thanks for the question.
As you could tell us this is a very fluid situation not only for us for Florida and other people and maybe just by way.
And with background. So we've characterized as part of the industrial vertical for these suppliers. So we're like and the mix or and the bold with huge other customers that we are fighting for allocations with but that said our customers and Oems are actually planning on a 52 to a 7 to 8 week cycle for further.
And while they are indicating that we are not to wait to see shipments start to back up.
Normally until that until Q1 of 2020 to and then the indication is it's not going to stabilize until Q2 for 2022.
With that said, we're doing our best to actually compensate for that through open market for orders and we are being extremely aggressive on debt from to give us as much visibility as we can but the first day of wealth and time. There is honestly there is no handset and amazed at how many doors for you or not.
In terms of being able to be provided debt visibility there is not as much assurance as well.
And what actually working towards a Q1 Q to hopefully stabilization and our visibility is closer towards the end of the year, but that's further than debt.
Okay.
Understandable and then just on the commentary and the press release about the price increase so I think that was on the DTC side. So can you just talk about that is there any ability to increase prices on the P to P side and you know what.
What sort of philosophy, there what do you expect that to to duty or demand and either of those categories. When you raise prices.
Yeah sure sure, Mike I'll take that and.
And the price.
And <unk> that we talked about is actually across the business. So we are expecting to increase prices for all customers effective September 1 and not just our direct to consumer businesses of course subject to contractual obligations. So we are going through that process with our customers now.
Scuffing these price increases.
And we do expect that to to occur across majority of our customer base.
Of course on the D to C side.
There is some level of elasticity and prices.
But we have seen high demand on the D to C side, So we expect.
Not a significant volume impact associated with the price decrease given price increase sorry debt.
That we are putting in place.
Given the availability.
Across the board and the inflation that people are seeing across many products.
And.
What what we've seen thus far.
Okay, and so I mean is it possible to the price increase could sort of offset the.
The volume impact and you could still.
Kind of come out above where you ended the first half for.
So even taking into account for price increase our comments apply for it and we still expect sales and the second half of the year to be built for first half of 2021 and was already factored into that comment and maybe in addition to despite all of the management of the mix. The channel mix, we're doing everything we can but some of the comments to.
Yes.
Okay Alright.
And then from a from a new product perspective, it's been a little while since we've seen anything new.
And if you could talk about any plans to launch a new PSC and so maybe the new era of integrated product and then.
You know to does this supply issue maybe effect.
From a high level affect the timing of any new products.
So in general as you as you used to with US we don't talk about launches that are coming up for at this time, we actually like to talk about them. Just before then at this point and time, we're not providing any sort of insight into that Mike, but we'll keep we'll keep you updated.
Okay I understand thank you.
Thank you there are no further questions at this time I would like to turn the floor back over to management for any closing comments.
Okay. Thank you.
I'm encouraged by the improved financial results, we saw and the second quarter of 2021 in spite of the supply chain challenges. We are experiencing I believe the strong underlying demand for our industry, leading solutions, coupled with the investments, we're making and position us to reach our vision of becoming a global market leader with innovative evidence based clinical risk.
Directly to care solution.
And for your time today, and I look forward to engaging conversations with our investors as we make progress on our strategy to build a stronger image and heavy.
Good day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participants to have a wonderful evening.