Q1 2022 Inogen Inc Earnings Call
[music].
[noise] welcomed imaging first quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
Following management's prepared remarks, we will hold a Q&A session.
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As a reminder, this conference is being recorded today may the fifth 2022.
I'd now like to turn the conference over to Jason Some General Counsel. Please go ahead.
Thank you for participating in today's call joining me our CEO in the shot show and CFO Kristian culprit.
Earlier today Inogen released financial results for the first quarter of 2022. This earnings release is currently available in the Investor Relations section of the company's web site.
As a reminder, the information presented today will include forward looking statements, including without limitation statements about our growth prospects and strategy for 2022 and beyond expectations related to our financial results for the second quarter and full year 2022, our expectations with results with respect to supply challenges.
And cost inflation related to semiconductor chips, using our batteries and concentrator.
Our expectations on European regulatory clearances and related impact on our international sales our ability to create shareholder value by driving awareness of our product expectations regarding our international and domestic sales channel.
Rotations relates to our rental channel expectations related to our prescriber sales channel our organization, including the expansion of the sales team and the implementation of health care intelligence platforms and tools for our partnership with Ashfield healthcare hiring expectations expectations regarding reimbursement and regulatory changes are.
Expectations regarding the market for our products and the impact of the COVID-19 pandemic on our business as supply and demand for our products in both the short term and long term.
The forward looking statements on 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 at our most recent periodic reports filed with the Securities and Exchange Commission actual results may vary and we disclaim any obligations to update these forward looking statements, except as maybe required by law.
Posted historical financial statements and our Investor presentations in the Investor Relations section of our company website.
Please refer to these files for more detailed information.
During the call. We will also present certain financial information on a non-GAAP basis managed 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 <unk> core operating results managed.
It 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 Bureau somehow the bill. Thank you Jason Good afternoon, and thank you for joining our first quarter 2022 conference calls we are pleased with <unk>.
Without execution during the first quarter of 2022, whereby we continue to mitigating higher costs in our supply chain headwinds, while largely meeting stronger customer demand has delivering results that exceeded our expectations.
Complishments is significant in the context of the semiconductor shortages and the company navigating amongst long global manufacturing shutdown in January and February nine 2022.
We have made steady progress on the execution of our strategy to expand and effectively increase our sales footprint specifically on the prescriber channel, while driving increased productivity across all our commercial operations. We continue to want to do with supply chain challenges to meet the market demand and we are investing behind our commercial strategy.
In the Atlantic Coast in support of long term sustainable and European growth and cost saving measures.
Now turning to the first quarter total revenue declined seven 5% to $84 million from eight to $6 $5 million in the same two units in 2021, primarily driven by supply chain constraints that resulted in limited sales in our domestic business to business channels.
We directed the available capacity, primarily to the direct to consumer sales and rental channels and our international business to business channels to balance strategic imperatives, while optimizing revenue and margin.
And in an effort to mitigate margin related pressure, we have recently implemented an additional price increase in our domestic direct to consumer channel beginning in March 'twenty 'twenty. Two in addition to the previous price increase that went into effect September 'twenty, 'twenty, one and all channels except rentals.
Domestic direct to consumer sales increased 12, 2% to $74 4 million in the first quarter of 2022 from $36 million in the first points about 2021 primarily driven by increased average selling prices.
Sales representative productivity increased in the quarter, despite lower average inside sales representative headcount, which was down approximately $6, 9% from the comparative periods in the prior year.
We continue to optimize our inside sales capabilities with increased focus on enhanced sales management disciplines and data driven selling techniques and we are actively managing turnover through a focus on talent acquisition and development that is aimed to strengthen our commercial capabilities across the board.
We are pleased with the performance of our inside sales team in the first quarter, we saw improved direct to consumer sales productivity, but represented an increased average revenue per order versus the first quarter of 2021.
I had some revenue in the first quarter of 2022 increased 31, 8% to $13 million from $9 $5 million in the same theaters in 2021, primarily due to increased patients on service and higher Medicare reimbursement rates.
As of March 31, 2022, we had approximately 43200 patients on service, which was up 24, 5% compared to March 31 2021.
We had an approximately 30 to 1800 patients on service as of March 2022, an increase of 22, 1% over the prior year.
The increase in patients on service was primarily driven by our strategic efforts to elevate prescriber awareness amplify those throw out for Skype or facetime and greater utilization of patient leads for rental opportunities aided by the relaxed Medicare criteria for oxygen therapy reimbursement due to the COVID-19 phe.
Domestic business to business fans in the first quarter of 2022 decreased 83, 4% to $5 $1 million compared to $37 million in the first quarter was 2021. This was a result of the kind of supply constrained environment and based on a strategic decision to balance values business valuables.
Most critically as of early May 2022 we have started shipments to our domestic business to business channels in order to elevate some of the orders and backlog in our system.
International business to business sales in the first quarter of 2022 increased by 77, 7% or eight to six 8% on a constant currency basis to $27 $9 million compared to $15 $7 million in the first quarter of 2021.
The open market has learned entire versus the fourth quarter of 2021, which has resulted in inflated cause it's negatively impacted on cost of goods sold.
As part of our strategy to minimize supply disruptions and meet a higher portion of the expected 20 twenty-two demand we decided to for one by a portion of our semiconductor requirements for 20 twenty-two.
Some off the opportunistic purchases of semiconductor chips remain on the balance sheet as prepaid expenses and other current assets or inventory.
This is because much of these components have not yet been utilized in the manufacturing process, nor sold to customers into period.
Why do we expect some improvements we believe that supply shortages and there's nothing cost impacts unlikely to continue through the second half was 20 twenty-two resulting in higher cost of goods sold per unit versus the first quarter of 2022.
We are pursuing edition of the motherboard redesign as well as aggressively engaging a regular suppliers to get Saddam and commitments, while simultaneously kind of its thing open market for additional quantities. We are pleased with the motherboard that he designed for our end of June and adjourn one G. Five P O C, which has already gone into production as well as the pricing.
Reasons that allows us to cover most of the cost inflation related to the chip shortages.
Now for an update on the strategic initiatives focus on increasing the size and productivity of our prescriber says organization.
As of March 31, 2022, we had 54 says representative versus our third target of 60, which we expect to reach during Q2 2022.
This team is focused on top decile oxygen prescribers nationwide, which we believe will allow us to cover 65% of the oxygen therapy patients in the U S. At the point of diagnosis and prescription supporting this team Unplugged virtual concierge service reps attended all the administrative staff and allow the prescriber.
Facing them to maximize their sending time.
While still in the early months, we are very pleased with the initial results across both our contract says organization Ashfield as well as our internal energy and teams. This is evidenced by a faster productivity Ram for new hires increases impatiently photos and growing photos from new prescribers.
In addition to expanding the same sorts of coverage we are focused on driving sales productivity through proprietary prescribed but insights and unlimited specific to that channel for the first time in a gym.
Next I'd like to cover the reimbursement rates.
And the first quarter CMS implemented at five per cent Medicare inflation adjustment effective January 120 22.
As expected the 2% Medicare sequestered benefits that has been in place since may of 2020 due to the COVID-19 public health emergency or P. H E expired on March 31 2022.
The sequestered then resumed with a 1% reduction right from April 120, twenty-two until June 30th 2022, with the full two per cent Medicare sequestered expected to resume on July 120, 22, and continuing through September 30, 20th therapy.
As a reminder, based on the D. M E. P O as someone finalized in December 20th 21, the areas that are an underwater none form of competitive bidding areas will be subject to reimbursement reduction once the phe associated with the COVID-19 is declared over.
And these areas rates would probably decrease approximately 20% to be in line with the former competitive bidding areas. In addition, once the D. As she has declared over the relaxed Medicare criteria for oxygen therapy reimbursement wouldn't be removed and then your oxygen national coverage determination would be in place.
It is important to note that the phe has been extended recently for 90 days through July 15th 2022.
Now moving to the status of our European drinking <unk> as a reminder, current energy products are commercialized and the European Union under medical device directive certificates and hours. It's expected expired on may 18th 2022.
We anticipate securing an approval of our medical device regulations submission and for the issuance of the empty our certificates during the fourth quarter of 2022.
We have privatized shipments to Europe to go into supply chain before may 18th 2022, which should help us meet the existing owners.
Additionally, we have applied for select your country 11, derivations or exemptions as an additional mitigation measures delegation request had been filed in Germany, France, Spain, Italy, Belgium, the Netherlands, and a few other European countries.
While we await his final decision decisions for those countries, where secured the U K C. A certificate required to continue to ship products enter the U K and they expect shortly to have the certification required to continue to ship products and to Switzerland.
I would like to reiterate in the anticipated gap in Eagle marketing is unrelated to product safety performance and will not impact you as commercialization based.
Based on our latest discussions with their notified buddies, we expect the E U N B R dossier for our impulse products to be reviewed and potentially clear in time for long term operations in the E U.
As we look ahead, despite some near term challenges the underlying demand for our offerings as strong and we are committed to increasing the P C market penetration and improving patient access.
We are focused on executing on our commercial strategy and driving pricing excellence, we remain committed to working through the ongoing supply challenges and mitigating the materials cost inflation impact, we're continuing to build capabilities invest in our infrastructure clinical evidence innovation and new product development as well as further commercial capability.
These to strengthen it advance our market leadership position and portable oxygen therapy. We believe that these focus areas and investments will continue will contribute to our goal is to driving long term sustainable and profitable growth and value creation.
I'm also happy to formally introduce a new C. F O Chris Thank God tried to turn the call over to her now Kristen.
Thanks to India.
Very happy to join the team here at any time.
Total revenue first quarter at 2022, like $80.4 million, representing a decrease of 7.5% over the comparative period in 2021, but an increase of 5.2% sequentially from the fourth quarter at 2021.
Profit in the first quarter of 2022 with $35 million, a decrease at $4.9 million as compared to the first quarter of 2021, driven primarily by lower sales volumes lower labor and overhead absorption due to the temporary manufacturing shut down and higher cost of materials associated with the purchase of <unk>.
Conduct a check on the open market.
This was partially upset a higher selling prices and favorable channel me.
Total gross margin was 43.5% in the first quarter of 2022 versus 45.9 per cent in the comparative period in 2021.
Year over year gross margin declined 240 basis points, driven primarily by higher cost of materials, and lower labor and overhead absorption, partially offset by higher average selling prices and decreased next at domestic business tickets in advance.
Tagging one layer deeper sales revenue gross margin was 41.4% in the first quarter of 2000, 2010 declining 330 atheist points for the first quarter of 2021, driven by the same factors.
Rental revenue gross margin was 54.7% in the first quarter of 2022 versus 55.1% in the first quarter of 2021, a decline it 40 basis points. The decrease was primarily driven by increased depreciation and circus <unk>, partially offset by higher than.
Medicare reimbursement rates.
Moving on to operating expenses research and development expense increased 542 $5.4 million in the quarter compared to $4 million in the first quarter of 2021.
Primarily associated with increased product development costs and personnel related expenses.
Sales and marketing expense increased to $28 million in the first quarter of 2022 versus $25.5 million in a comparative period of 2021.
This increases driven by higher personnel related and consulting expensive [noise].
General and administrative expense increased to $15.2 million in the first quarter of 2022 versus $12.5 million in the first quarter at 2021, primarily due to increased personnel related expense aimed at rebuilding core capabilities at the company one time recruiter.
<unk> severance costs and the non cash change in fair value at the new era liability.
In the first quarter of 2022, the company reported a net loss at $14.2 million and lost per diluted share at 62 cents.
On an adjusted basis the company reported.
Net loss of $8.8 million adjusted EBITDA loss of $5 million and then adjusted loss per diluted share a 39 cents.
Finally, we ended the first quarter at 2022 with cash cash equivalents and marketable securities of $223.4 million with no debt outstanding we.
We encourage significant additional costs in the second half of 2021, and the first quarter at 2022 to the semi connected shifts purchased on the open market.
Not yet filled in finished goods, which contributed to increases in prepaid expense another current assets and inventory.
As of March 31, 2022, these balances for $22.2 million and $34.1 million respectively.
Now turning to al <unk>, well, we have been successful in working through the supply challenges in 2021 and Q1 2022.
We continue to see ongoing supply chain uncertainty, especially in light of the additional complexities brought on by the war in your <unk> Green as well as the COVID-19 locked down in China.
We will not be providing detailed financial guidance for the full year 2022, but we can provide some general context to our expectations for the second quarter of 2022.
The company expects total revenues for the second quarter to improve sequentially and be similar to the second quarter of 2021.
We believe the semiconductor chip shortage experienced across many industry has and will likely continue to have a negative impact on operations.
As in the Bill mentioned, we are actively working with suppliers both in the regular and open market channels to continue to procure necessary semiconductor chips. We are also exploring additional motherboard redesign.
To this point, we've had reasonable success in mitigating much of the material cost inflation through price increases across all channels excluding rentals.
But expect continued challenges until supply needs to demand and components prices stabilize.
We expect gross margins for the second quarter of 2022 to be in line with the first quarter of 2022 as increase selling prices are offset by continued cost pressure.
We remain committed to making investments in clinical research research and development and building the necessary infrastructure to support future durable revenue growth and margin expansion.
Given such investment initiatives, we still expect increased operating expense for full year 2022, compared to 2021 with the expectation that these investments will begin to many meaningfully benefit results in 2023 and beyond.
In summary, despite our pricing actions, we expect negative adjusted EBITDA, an operating in net losses in the second quarter of 2022, reflecting the anticipated supply constrained environment increased cost of goods sold per unit and.
An incremental growth investments.
To reiterate while in the short term our outlook is impacted by certain supply constraints. We are proud of the actions we have taken to make structural improvements in our business, including our investments in our prescriber sales and service organization productivity improvements in our direct to consumer channel and increases in.
In our average selling prices.
We believe over the longterm our strategy to optimize the commercial infrastructure and drive productivity, while investing in clinical research and research and development supports our plan to return to sustain.
Datable revenue growth and profitability.
With that we finish our prepared remarks.
And we will be happy to take your questions.
[noise]. Thank you.
We will be conducting a question and answer session.
If you would like to ask a question <unk> is one on your telephone keypad.
A confirmation code will indicate your line is in the Christian cute.
You may start in too if you would like to remove yourself from the Christian Q.
Full participant teasing speaker equipment, it may be necessary to pick up your handset before pressing the stocky.
One moment, please while we pull for Christian.
The first question comes from rubbing email cause from J P. Morgan. Please go ahead Robbie.
Hi, this is actually.
Thanks for taking my question maybe.
Maybe starting with the piano.
A lot of moving pieces here with <unk>.
Screens uhm and place in price increases so could you just give us some color on how you're thinking about uhm margin progressing over the rest of the year physically gross Megan.
Hi, Lily. This is Christian we are not giving guidance for the back half of the year at this time, but for Q2. We are we are suggesting that the margins will be in line with Q1.
Okay got it.
And again I know, there's a lot going on with the pandemic U N D. R and I know you guys have taken price to kind of upset some of those headwinds. So I'm just trying to get a sense for how underlying volumes are doing in this environment. So is there any way you can parse out the size of it.
Price increases and how much volumes and price are contributing cigarettes right now.
Yeah, <unk>, it's gonna be a lot I'm going to take that one so I think we would be more comfortable commenting on the underlying volume if we wouldn't left in a supply constrained and vitamins because today you have anything that we can make we can sell and we can look really put the gauge on we meeting all the underlying demand in the in the market <unk>.
All the channels or not we know that we oughta backlog within a couple of channels. So we believe that the underlying demand continues to be very stable and strong and but it did the music is supply to meet the demand relate them and maybe just as a reminder back to the margins and this is not the about the remainder of the year.
The supply chain precious <unk> and can I get this b B V. The President's all cost goes away. We took also the price increases as a reminder, and that should be agreed that for the mortgage on line, but we wouldn't know once we see with the the demand and supply stabilising, the chip market and <unk>, what the costs are going to be moving forward with for the remainder of.
You at least.
Got it thank you.
Thank you. The next question comes from Matthew My son from Keybanc. Please go ahead Matthew.
Good afternoon, and thank you for taking the questions. Okay ma'am.
I just want understand what the damage with a direct to consumer rental channel you know I believe you're having like sequencing successfully directed prescribed salesforce, but at the same token you know reimbursement is relatively captain.
The price of the appeal to you Sir.
I'm moving higher how did how did you get a reconcilable those two factors and besides between.
Which one are you going to prioritize.
Consumer rental versus the the sale.
Yeah. So I Wanna. Thank you for the questions. So let me start with the fact that we have prioritized both Shannon from a supply perspective, so they figured that out of the way today. The production goes primarily to these two channels and then as we talked $10 prepared remarks.
Tomorrow.
The remainder goes to Europe because of that you went with the odd as well as the margin and then the rest of it to be so let me go to the to the D. C. C question that you ask <unk> just now so for US that is <unk> that is the basis of some of the performers that we have and what I'm working on making sure that we continue to support this.
But we are working on increasing productivity and efficiency. So we can drive higher growth rates within the channel and make sure that we are optimizing the cost of <unk> for US now with that said a lot of the good old welcome also from the prescriber channels, because we're going to add web people are actually diagnosed.
Prescribed so you'll get at that point in time 36 months of belittling probation, which are different profile from a financial perspective, and we have demonstrated in the recent the ear that we're able to continue to work on the margins of both businesses that almost equals and they will.
Actually continued to to get employed with the productivity and efficiency. So again, what am I speaking of our eye off the D. D. C. On the contrary would continue with the refined that but we are also putting a lot of effort behind the prescribed the channels because that is gross that sits out there that we would not participating and and this time for us to actually be able.
To participate in gets out fair share of that go with.
Okay sounds like a take along too.
<unk> was that area.
You have visibility there like to increase supply in three to four Q at this point I you know I I have to ask the question because you know your second quarter sales, where where you're putting them too are definitely much better than where you know last few quarters. It has been can you maintain the.
That level of sales in three Q and four Q based upon your level of visibility at this point.
Oh. Thank you. Thank you for that sort of thing maybe just go back and reflect on how we manage 2021 and the first quarter of 2022 those challenges that have been there all along does not prevent us what I'm actually being very industrious symptoms of how we found ways to be able to get the supplies to meet most of the demand of.
<unk> wouldn't let me. Thank all of the demand now is Elizabeth difficult for us to continue to because there are doing you about it but it's about on the table and of course, the Russia Ukraine.
Ukraine War as well as the shut down in China would that said we are very focused on <unk>.
We've listed the three things I'm going to start with the open channel and the open market as the regular channels and then Ah born to redesign, hoping that we would be able to continue to block and tackle like with this on a weekly basis. This is not something that's what managing in a long time this daily and weekly mean things accomplished.
Gets to where do we need to do in terms of painting the demand, but there is a nice that's on the table because of the two variables I'll just mention that were still having three and the low and how they're going to materialize and thumbs off is is going to be very different than 21 or is it going to be similar we've managed 4.6 quarters with the supply shortages and we.
We hope that our efforts levels continue to help us manage moving for work, but we'll see if we need to wait and see Elizabeth on the 20th of variables.
Okay. This last question for big.
I think you're making a lot of investments you're dealing with the credit supply chain issues, but you have a <unk>.
That's what I've been out there.
<unk> <unk> piece would be the balance sheet, we made an intact.
Go through the next couple of quarters do you still work at <unk> at <unk> with you know a couple of hundred million dollars is that okay.
<unk> how closely are you <unk> are you watching that at this point.
Yeah, So I'm going to maybe make a couple of comments without quantifying things. So the one that <unk> wait actually three bought some of what we need in 2022 orders you. So that already has eaten into the cash balance because we have I'm not going to quantify how much of it and what is the remaining buds were in a good position in my mind with the cash that sits on the bed.
<unk> to do three things one is continued to run the business. Despite the increased cost. The other one is invest like we had promised him. The beginning of the month is stronger company and then pay off these investments in the next year or so moving forward and then thirdly will remain open to potentially grow with through an organic <unk> with it.
The cash balance we have one allow us to balance and manage these three things at the same time. So the answer is we've we feel very comfortable with a cash balance we will have on hand.
Okay excellent. Thank you very much.
Thank you ma'am.
Thank you.
Just another reminder, if you'd like to ask a question Keith <unk>, if you'd like to ask a question Keith <unk> <unk>. The next question comes from like Madison from Needham incomes.
<unk>.
Yeah. Thanks, So I wanted to make sure I'm understanding the situation with the U N. P. R. So just from a modeling perspective, you know.
What should be assuming for the the international fee to be business over the next couple of quarters until you get the M. D. R place I mean is it gonna drop significantly in that timeframe or.
Yes, Hey, Matt then that'd be it. Thank you for the question I think you guys could competitively to the court and say, okay definitely that was in in a bush on our side within the allowed M. D D legislation to be able to send products into the.
Into the European markers I had this time to meet the demands that existed in our system would the would the orders. This went back to normal now part of it is of course to Ah satisfy the market's needs. One we actually beyond the certificates. Thanks, Bye, which is made anything and we believe that from the current feedback that's weird.
<unk> from the Ah Ah Ah Buddy is about reviewing this including B S. I wouldn't be able to dovetail that's supply of the market <unk> of the empty our certificates on the back half. Thank you four of 2022. So there is an increase in sales of course, there's going to be Elizabeth of <unk> because of the bush, but then we have to pick up.
And the balance of the year and once we get the certification that we need from in N D. R. A perspective.
Okay got it and then I assume if that the demand there is I should take the ban, but if yourself there lower because of this issue. Then you can funnel some of those seeds into the domestic me to be channel because the carbon starving that portion of your business.
And that's <unk>.
Yeah, Yeah, My best I think that's fair to say also indicated in the prepared remarks that we start this now and may in the first week of May to ship product into the domestic needs to be channeled. The intent is to remediate some of the pressure that this channel has actually taken in terms of the privatization and once.
<unk>, depending on supply how we can balance all the channels that we have definitely part of it is going to go to the B to B U S channel depending on supply them simply have we wanted to start with shipping to me.
Okay and then for my final question is just on your your new product pipeline I'm, probably not gonna talk about like what's in the pipeline or the timing, but but I guess, what I'm wondering is has the <unk> have the supply chain issues.
Had any sort of impact on your ability to develop and the timing of any future product watches like new P O fees or anything like that has it caused delayed. There then you know cause you to be watching them. Maybe later than you otherwise would have.
Yeah, So maybe it maybe I'll characterize it in a two part answer what's in the pipeline is relatively closer to a new and improved which have the same value of those symptoms of supply and the chips about acquired the chipset to go into the motherboard. So you can say you're dealing with an equal level offer you the challenges and ordered the mitigation Fleetwood running and.
<unk> future products, one of the things that we're thinking about is and would walk you actively on through outside partners is how old are you leap forward and your motherboard designs pork products, either existing or future products that take into consideration whether the investments on going from the <unk> basically because of course.
<unk> you know all the people that part of the challenges. We face is these lower margins low low power chips when the ones with the <unk> under the most constrained supply is because they never actually for other types of them and they were going towards the more complex. So the balance in game moving forward with a new product developed.
<unk> is the one with the third third parties outside of our experts in terms of the technology roadmap from these chipset manufacturers for us to read the effects of that into our design efforts also so eventually we don't have to go through the same issue that we suffered within the last year or so.
Okay that makes a lotta sense. Thank you.
Okay. Thanks, Mike.
Thank you and maybe you can <unk> you have reached the end of the Christian and on suspicion and I would like to turn the call back can appeal Sharp-set Oh Crazy remarks.
[noise]. Thank you. Thank you for the question that is.
In the short term our outlook is impacted by certain supply constraints. We are proud of our pricing execution to mitigate most of the margin pressure does one continuing to meet demand as a result of the focused efforts by auto manufacturing and commercial themes. I'm also pleased with the progress we are making in terms of structural improvements in our business and.
Losing a management team that is focused on new sources of growth, including commercial execution rebuilding our innovation pipeline and investing in Watkins development efforts I remain confident in our ability to advance an agenda of global market leader within all of this evidence base chronic respiratory care solutions with longterm.
<unk> and profitability as.
I would like to include I would like to thank all the investors for your support and your interest in Imogen and thanks <unk> employees for their continued dedication and hard work that has it allows us to continue to serve patients with oxygen therapy needs and the U S and abroad. Thank you so much and have a good day.
Thank you. This complete today's conference he may disconnect the call.
Thank you for your participation.
Okay. Thank you.
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