Q3 2022 Inogen Inc Earnings Call
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Welcome to <unk> third quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
Following managements prepared remarks, we will hold a Q&A session.
To ask a question at that time. Please press star followed by the one on your Touchtone phone.
If anyone has difficulty hearing the conference. Please press star zero for operator assistance.
As a reminder, this conference is being recorded today November 2nd 2022.
I would now like to turn the call over to Agnes Lee Senior Vice President of Investor Relations and strategic planning.
Thank you Brock and good morning, everyone. Joining me today are an M. P O shop shop, President and CEO and Christian call trigger our CFO .
Earlier. This morning, we released financial results for the third quarter of 2022.
This press release is available in the Investor Relations section of the company's website.
Along with a supplemental financial package.
As a reminder, the information presented today will include forward looking statements, including without limitation.
And it's about our growth prospects and strategy for 2022 M. P M.
Expectations related to our financial results for the fourth quarter of 2022 and expectations related to a return to profitability.
Our expectations with respect to supply challenges and cost inflation related to semiconductor chips and other product parts eastern our P. S T.
Our expectations on European regulatory clearances and approvals.
Future reimbursement rates.
Expectations regarding increasing productivity of our internal and external sales team.
Progress of our strategic initiatives, including innovation.
Hiring expectations, our expectations regarding the market for our products on our business and supply and demand for our products in both the short term and the long term.
Forward looking statements in this call are based on information currently available to US as of today's date November 2nd 2022.
These forward looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic reports filed with the S E T.
Actual results May vary and we may disclaim any obligations to update these forward looking statements, except as may be required by law, we have posted historical financial statements and our investor presentation in 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 certain financial information on a 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.
Alluding certain noncash items and other expenses that are not indicative of any change core operating results.
Management uses non-GAAP measures internally to us.
Understand manage and evaluate our business and make operating decisions reconciliations between U S. GAAP and non-GAAP results are presented in the tables within our earnings release.
With that I will turn the call over to <unk>, President and CEO and appeal sharp sharp B L.
Thanks segment, good morning, and thank you for joining our third quarter 2022 conference call.
I'm incredibly pleased with our team who did a tremendous job.
Building on <unk> backlog with orders from Q2, as well as driving Devin in Europe in the countries, where we were granted delegation broad exception.
We have also demonstrated excellent progress against our prescriber strategy, if we thought that at the end of Q1 'twenty two.
Delivering excellent growth and contributing to the strong performance this quarter.
The extra ordinary efforts of our team resulted in third quarter year over year constant currency revenue growth.
Eight 5%.
Similar to the other metrics and consumer Health company, we are focused on understanding and addressing the extent possible emerging.
Related with the unprecedented ongoing market conditions.
Macroeconomic and inflationary pressures are generally outside our control. Hence we are acutely focused on levels in our control to mitigate part of those risks and more typically stayed the course with our transformation aimed at delivering durable and sustainable growth and return to profitability in the medium to long term.
During this call I would like to take a moment to frame our strategic initiatives and the time Horizon, then address how we are managing the remaining supply chain challenges.
Based on the progress around commercial excellence and productivity and share initial thoughts on optimizing operating expenses.
The elements are intended to help deal with some macroeconomic and market headwinds and more importantly continues to drive the ongoing transformation.
Let me cover our strategic pillars and related time horizon.
Our strategic pillars, including include driving oxygen therapy market penetration and accelerating new product introductions in our core markets, while diversifying our portfolio.
And the right time, we plan to expand our portfolio channel and global presence through inorganic efforts.
We see our strategic initiatives organized across three time horizons that does durability and sustainability and top line growth and enable the long term aspiration of returning to profitability.
In the short term with the best in class portfolio in place commercial excellence and execution remains our primary focus.
And investments are focused on standing up.
Enabling tools and systems instilling Hyatt rigor and discipline in sales management and optimizing our talent base to drive sales and service productivity.
And expand market penetration.
In the medium to long term, while building on the expected market position as a result of the ongoing commercial execution, we anticipate introducing a pipeline of new and improved poc's, including a next generation POC and the device offering that will include value added digital health services that will benefit patients and clinicians.
And the longer time organically, we anticipate further strengthening of our portfolio with further new product introductions to address new patient populations and indications in oxygen therapy or combination therapies, and making digital health value added services, a core pillar of differentiation and growth.
<unk> will continue to look for opportunities that align with our strategy and help accelerate growth and profitability.
Our R&D and product development, and we are accelerating the efforts to drive innovation and new product introductions in the medium and long term to drive growth.
Additionally across the medium and long term horizon, we plan to effectively build a dossier of clinical and potential economic evidence.
Look at the full POC based oxygen therapy for COPD and beyond.
Turning to supply chain, we have continued their relentless focus and investments with the semiconductor inventory.
Being diligent and persistent efforts continue to help us mitigate most but not all and supply chain pressures.
Actively managing our regular suppliers proactively sourcing parts on the open market when possible and redesigning our products to work around certain acute shortages.
We have made notable progress in managing supply chain challenges this year, but see some uncertainty continuing at least into 2023.
With respect to commercial excellence and productivity, we have made steady progress this year building, our prescriber team working towards optimizing our direct to consumer overall <unk> performance.
Strengthening our <unk> organization and strategic account management.
For our rental business, we have increased revenue more than 25% for the first nine months of this year compared to the same period. In 2021, we have continued to refine our coverage and targeting strategies to add new target prescribers, while increasing the photos from existing and new prescribers.
Additionally, we have been actively expanding our market access to secure coverage from private payers as most patients in the prescriber business I would expect it to be rental patients.
We recently added Humana with approximately 25 million covered lives in the U S, which is expected to drive sales productivity.
Pending the overall number of prescribed the referrals that we can convert to rental patients.
We are incredibly pleased with the solid results delivered by prescribers premium and with the ongoing efforts to further refine our go to market strategy and we see a path to improve productivity and accelerated performance in 2023.
For our DTC business, we have continued to build and refine systems and tools that enhance our ability to be a more data driven in our efforts to improve sales management drive productivity and optimize performance. We are also continuing with our newly developed disciplines around talent selection development Onboarding and training.
As a result, we are seeing notable acceleration of the productivity ramp for new sales associates as well as improvement in conversion rates across the organization.
As we continue to enhance our commercial leadership and discipline, we are already seeing notable and promising productivity improvements across our direct to consumer and prescriber teams that we plan to institutionalize and scaled during 2023.
Turning to our explorations of returning to profitability I would like to reiterate that the price increases we took successively in September 2021 in March 'twenty. Two we're aimed at mitigating margin compression and are expected to flow through our P&L, especially when the incrementals supply chain related costs abate late 2023.
Beyond currently expected.
Macroeconomic challenges could present certain headwinds in the short term and the short to medium term, but we remain committed to funding prioritized growth initiatives and support of launch of our long term growth aspirations.
As we look towards 2023, we will further focus on operating expenses, including optimizing commercial operations supplier management, and dual sourcing and process optimization as well as diligent overall operating expense management.
In support of these initiatives in August we added Vijay Polliwog to our leadership team as imaging SVP of enterprise enablement to drive cross functional process optimization and digital transformation through connected systems optimized workflows and on demand data in support of our productivity agility.
And efficiency goals.
Vijay and his team will also play a significant role in re architected and delivering a differentiated sustainable and scalable experience for our customers and patients.
Before sharing thoughts on the Horizon ahead, I would like to provide an update on the European regulatory clearances.
The review of our European MBR submission is progressing as expected.
We're cautiously encouraged by the progress, but we cannot speculate on the timing, yes, we will.
Update when we have approval or pre.
<unk> strategy to file litigation request in a number of European countries resulted in receiving exceptions Oracle to continue selling <unk> in five countries, including France, where we would allow us to continue commercialization until the end of October and the U K Austria.
Switzerland till the end of 2022 approximately.
As evidenced by our revenue growth this quarter the underlying demand for our offerings remains steady, but we continue to monitor potential headwinds as a result of the ongoing adverse macroeconomic conditions and potential supply chain interruptions.
Our experience and track record of managing supply chain interruptions should help us mitigate similar challenges in 2023, if unexpected supply chain dynamics present.
At the same time, we are steadily progressing our strategic initiatives to drive productivity in the commercial organization and to strengthen our new product pipeline and build out and build out our clinical evidence dossier.
Our strong balance sheet cash position and pricing excellence allow us to manage medium term cost challenges and continue to execute our long term strategy understands the profitability.
We're making progress on our strategic initiatives.
Up for scale and return to positive free cash flow in late 2023 and beyond.
We have short to medium term visibility into supply of semiconductors and as such we are providing revenue guidance for the fourth quarter.
We look forward to updating you on our progress in the fourth quarter and providing further information on our opportunities and execution to drive growth profitability and value creation.
I will now turn the call over to Kristen Kristen.
Thank you Dan and good morning, everyone.
Total revenue for the third quarter at 2022, with $105 4 million or 13, 2% year over year aircrafts from the third quarter of 2021.
The increase was driven primarily by higher sales to our domestic business to business portal as we made good progress towards maybe eating backlog orders accumulate it earlier in the year.
We also drove a significant increase in rental revenue and higher than expected sales in our international Pvp channel driven by an increase in European countries, which allowed exceptions or guarantee Asian, enabling us to continue to sell our products in those regions in the quarter.
This growth was partially offset by lower direct to consumer sales as we prioritize shipment.
Business to business customer already.
For the third quarter Foreign exchange had a negative 130 basis points impact on total revenue and a negative 550 basis points impact on international revenue.
On a constant currency basis third quarter total revenue increased 14, 5% over Q3 2021.
Looking at revenue on a more detailed basis.
Domestic <unk> revenue increased 86, 7% to $42 $5 million in the third quarter of 2022, compared with $22 8 million in the third quarter 2021, as we prioritize fulfillment at the backlogged orders in this channel.
International <unk> sales decreased 39% to $15 1 million in the third quarter of 2020 care from 21 $8 million in the comparative period.
Driven by our limited ability to ship internationally due to the expiration of the EU MTBE certificates.
Domestic direct to consumer sales decreased nine 1% to $33 $1 million in the third quarter of 2022 from $36 $3 million in the comparative period.
Primarily driven by lower volume as we prioritize fulfilling orders in the U S. P to P. Channel. This was partially offset by an increase in average selling prices.
Rental revenue increased 21, 3% to $14 $7 million in the third quarter of 2022 from $12 $1 million in the third quarter of 2021.
Both in rental revenues was driven by increased patients on service higher billable patients as a percentage of total patients on service and higher Medicare reimbursement rates.
Now on to discuss our gross margin.
Sales revenue gross margin was 38, 4% in the third quarter of 2022 declining 1100 70 basis points from the third quarter of 2021 due to the unfavorable channel mix and higher material costs, driven by open market buys and inflationary pressures partially offset.
The higher selling prices.
Rental revenue gross margin was 54, 5% in the third quarter of 2022 versus 58, 9% in the third quarter of 2021, a decline of 440 basis points.
The decrease was primarily driven by increased service costs and device right now.
Actually offset by higher Medicare reimbursement rates.
Moving on to operating expense.
Total operating expense increased to $53 $1 million in the quarter compared to $41 3 million in the third quarter of 2021 and.
An increase across all categories.
First we have continued to invest in research and development with a total spend for the quarter at $4 $6 million, an increase of $800000 versus the third quarter of 2021 and majority of this increased spend was in support of product development activity.
Our sales and marketing total spend for the quarter was $33 7 million.
The $5 $4 million increase in spending was primarily related to bolstering our prescriber business.
Increases in media and advertising costs and increased subscription fees and consulting expenses associated with improving analytical tools and sales rep productivity.
And finally, we incurred $14 8 million for general and administrative expenses.
The $5 5 million dollar increase was primarily due to higher personnel related expenses aimed at rebuilding core capabilities as well as a decrease in the benefit from the change in fair value at the new era earn out liability.
In the third quarter of 2022, we reported a net loss of $9 $5 million and loss per diluted share at 42 cents.
On an adjusted basis, we reported a net loss of $4 $1 million and an adjusted loss per diluted share at 18 cents.
Adjusted EBITDA was a $1 2 million dollar loss.
Notably on a constant currency basis, adjusted EBITDA was roughly breakeven.
Moving onto our balance sheet.
Imaging continues to maintain its strong balance sheet as of September 32022.
With cash and cash equivalents of $209 $6 million with no debt outstanding.
Accounts receivable balances.
Increased to $55 million as of September 32022, driven by the large increase in PDP shipments in the quarter.
We continue to make investments this quarter in our inventory incurring significant additional costs to the semiconductor chips purchased on the open market.
Not yet sold in finished goods.
These items reside on the balance sheet as prepaid expenses and other current assets and inventory.
As of September 32022, the value of prepaid components and these balances were $9 8 million and $3 $6 million respectively.
I will now turn to our financial outlook.
As <unk> mentioned earlier, we are providing revenue guidance for the fourth quarter. We are now expecting total company revenue for Q4 2022 in the range of $87 million to $92 million, resulting in growth of 14% to 20% on a year over year basis.
It further helps provide context for modeling.
We will continue to actively manage our supply chain constraints, including forward buying of semiconductor chips.
This increased cost is expected to cause margin compression in Q4, 2000 22 million into 2023, we do not have line of sight to win the supply chain disruptions makes it fun.
And as this impact is reduced the offsetting impact of increases to our selling prices taken in Q3 21 in Q1, 'twenty will remain potentially allowing for margin expansion over time.
We also anticipate that Prepays and inventory balances will decline as these components are sold through in the form of finished goods.
From an operating expense perspective, we expect to see similar levels of spend in the fourth quarter in line with our original long range plans aimed at strengthening capabilities as.
As we look to 2023 and with the economic uncertainties ahead, we are judiciously looking for ways to drive towards positive free cash flow, while continuing to invest in our key initiatives, which set us up for long term revenue growth and a return to profitability.
And with that we will be happy to take your questions.
At this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question for Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question today is from Matthew Blackman of Stifel. Please proceed with your question.
Hi, Good morning, everybody. Thank you for taking my questions. Just two for me, maybe I think one of the biggest challenges in our ceded is trying to get a sense of true underlying demand.
Each of your channels, but especially in the U S. Given the supply noise, but also price increases is there any way you can talk to what you think the demand picture looks like in the U S DTC and <unk> businesses and I've got one follow up.
Yeah, Hey, Matt how are you today.
So let me let me start by saying I wish that we were in a full supply situation for me to really have a strong assessment can we actually need and do we have excess capacity versus the demand in case, just its like struggling a little bit and generally we have not seen a major softening in demand as evidenced by the.
Either the cash sales in the DTC channel and all the B to B orders that we've really re mediated and we continue to see a very healthy conversation in terms of how we're going to end the year and get back to normalized.
Supply situations on the <unk> side, as I said, especially in the U S. So.
It's difficult, we know that the macroeconomic conditions and potential inflationary pressures that might have an impact we are working hard to try and isolate that as you said, it's not easy to be able to pull that outcome. The performance, but we're being very diligent in terms of how we're watching for that but so far I think the demand is I would say steady.
And we're keeping an eye in terms of any impact from the macroeconomic conditions.
Great.
And then the follow up I guess if you.
You think about the fourth quarter what percent of your O U S business do you have line of sight to be able to sell into it.
It also it sounded like the derogation should do have will expire by year end I know you don't want to speculate on timing of approval, but is it realistic to expect MBR approval could come in such that there isn't a gap early next year. Thanks.
So maybe this afternoon. Thank you for the question, Matt Let me start first of all what we have not moved so far from the progress that we have seen that we are cautiously optimistic about we have not moved the approval date for the MBR certificates from Q4.
Also if you remember we actually not only got the delegations exceptions in fact five countries that allowed us to continue to supply loose specific.
Countries, but we also had shipped a little bit more in terms of against our open orders in Europe to make sure that we can meet the demand we believe that between the three variables at play we would be able to.
Cover the gap that you might be thinking around or modeling for <unk> and <unk>.
Revenue for this year.
Thank you I appreciate it.
The next question is from Mike Matson of Needham <unk> Company. Please proceed with your company.
Question.
Hey, Mike Hi. This is hey, this is Joseph on for Michael joining.
Yeah.
So I guess just first one it seems like with.
Inflation Les.
Labor shortage that we're seeing the.
The economics of Psv's may have become more favorable for HMH.
You just kind of want to get your guys thoughts on that and what you've been hearing from your <unk> customers.
So maybe John let me go back to the basic premise I think if you look at the industry recovery.
The lobbying by the HMD industry, I think the macroeconomic conditions and the inflation and wages and other costs are not favorable to the <unk> model I think they may.
May be favorable through the rental model.
Slightly but if you look at how the lobbying is happening in terms of the.
Reimbursement rate the person the foremost thing that despite the increase in cost of the HMA delivery model. That's why we think that the non delivery model in terms of POC based therapy.
<unk> advantage and continues I think to be a very strong proposition in terms of overcoming some of those challenges I think the second part of your question with respect to what we're hearing from B to B ongoing I think healthy conversations in terms of how well first of all until we mitigated most but not all of the backlog orders.
Which I think was received very positive meeting.
The channel itself and the B to B business now the discussions are ongoing in terms of how we mitigate the remainder of the orders for the year as well as.
When we get back to normalized sales levels, what does that look like but we have continued to see healthy orders coming in in general.
Exceptions here and there, but nothing notable in general.
Maybe just a quick continuation on that and then one more if possible do you think.
You can size.
The backlog I guess still remaining with the U S customers that had been worked through and then just.
Follow up on that.
In terms of the physician sales force productivity.
Improvement is there any way you can kind of give more detail on on the metrics.
The productivity gains just kind of give a little bit more color about.
What are you guys have done there this quarter this last quarter. Thank you.
Joe So let me take the simple one first with I'm not going to make comments on the backlog of the orders in be it could be I think if you look at the performance in the quarter really remediated a significant portion of the backlog and if you look at historical rates and B to B shipments you realize that this was a significantly strong quarter in that channel and <unk>.
And can comment on that later on so let me go to the physician sales force or the prescriber Salesforce as we as we indicated earlier in the year in March this is relatively new but this was a key strategic focus in terms of actually expanding penetration of POC based oxygen therapy, I think the productivity that we're seeing.
Relates to three things basically one is an ability to actually get the right coverage of the prescribers that are the highest defined and they are the biggest prescribers.
Oxygen therapy, secondly, get to drive frequency thirdly get to that.
To shorten the sales cycle in terms of getting referrals from them and I'm going to add one which is the ability to now.
Onboard new prescribers that we've never done business with before now across the existing and the new prescribers. We are also looking at repeat business that we get from them. So I don't get one referral I'll get repeat referral from them. We are not in a position until we get to steady state in that organization to start talking about metrics, but we hope that in 2023 will be.
But to put some very specific but finite metrics that will demonstrate the progress.
We'll see I would say that if you look at the performance from a revenue base, you'll realize that the strategy is working the one thing I will add to what we are learning and reapplying in terms of tightening our coverage and frequency plan because the first six months with tremendous and the.
Experienced as well as the insights that we gain on top of the database approach that we have our blending the back from the field response as well as the data that we have but now actually reorient the organization to do Paul and frequently slightly differently and more productively and we see that after to institutionalize that towards that.
Vendor of the year with respecting that acceleration earlier in 2023.
Okay.
Okay, great. Thank you very much.
The next question is from Margaret Kaczor of William Blair. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my question.
I wanted to start maybe with guidance, especially as we look at kind of the I guess initially the fourth quarter and what gets you to the high end what gets you to the low end.
Really I'm trying to put into context, a little bit how we should think about 'twenty three how are you guys.
Think about the various inputs like supply like a potential recession or any other items because the guidance in Q4, I guess, there's a little wide and I just wanted to kind of get a good sense of what how and what and how you'd look at 'twenty three.
Hey, Margaret I'm going to have Kristin answer the guidance question, and then I'm going to comment on 2023.
Hi, Margaret.
For the question as we look into Q4, if you. If you were to look at our Q3 results, you'll see that our <unk> domestic.
An extraordinary quarter as we fulfill those backlogs alright.
Alright that majority of our backlog in that period.
As we look back to well what a normal ordering patterns. We're farthest channel you have to look back prior to the supply constraint timing and that began to kick in in Q4 late Q3 and into Q4. So if you look at the first three quarters of last year, you'll see kind of what we see as a new.
<unk> ordering pattern for that channel.
And if you make that adjustment along with the the seasonality that we see.
Over the many years Q4 tends to be a softening quarter, roughly 3% down from the prior quarter. Those two together will walk you to R. R.
Our estimates.
So Margaret I'll make some comments on 2023, so I think.
The earlier like opening prepared remarks around the macroeconomic conditions and potential inflationary pressures are something that we're continuing to watch where also feel that the demand remains steady.
Moving forward so as we think about the potential growth rates moving forward will make more comments towards the end of the year, when we have a little bit more visibility to the runway.
But we don't expect that.
But the growth rate when the accelerated further all decelerate in general so when we.
Give you an update at the end of the year.
Okay.
Okay. So the growth rates are a little bit different throughout 2010. So.
I mean, I hope that youre referencing maybe the full year growth rate that you guys saw.
Lately.
Find out.
I also wanted to touch on the demand maybe youre seeing us domestic side. So just a follow up how much of that backlog that you saw was in the HMA channel versus online resellers and again looking at 'twenty. Three is this a relatively sticky business assuming it's in the HOA channel maybe you have some tailwind there.
Or is it kind of maybe a little bit more similar to the DTC channel with the resellers. Thanks guys.
So Margaret literally make sure I understand the question, you're asking me if the demand in the BW childless sticky right.
Yes.
The drivers of the backlog this quarter was that online resellers or HD.
So let me so the demand was across the resellers as well as the b to b customers, both large and fiber as well as the medium to small.
So let me maybe talk a little bit about the stickiness of that I think the brand itself and the demand for the for the imaging remains very strong and Theres, notably I think present in the H M E channel.
But also the fact that we had not remediated the backlogs and the fact that they all stayed almost impact if you look competitively, we're not going to quantify it but the bulk of it most of that did not get canceled or deferred as an indication of how sticky that business is and how strong. The brand is also a lot of dialogue in terms of the deal.
The cost of ownership versus an acquisition costs and this is aimed at making sure that people make the right decision in terms of when they expand their fleet and capitalize the business that they have been making the right decision for in totality for profitability and I think also back to the earlier comments. So when we address the other question some of the ongoing challenges in terms of.
The increase in cost and so on my probably making people think long and hard but about the non delivery model versus the delivery model, which has a lot of margin compression. So we believe that business is healthy and sticky likely.
Like the comments, we made were working to look at what the normalized demand is going to be but we are encouraged profiled by the conversations we've had.
Thanks, guys.
The next question is from Matt Mission of Keybanc capital markets. Please proceed with your question.
Hi, This is actually Liz on for Matt Thanks for taking my questions.
If I could just follow up on the 2023 comments like what would you need to see.
In order to provide guidance for 2023 during our next earnings.
Yeah Alright.
Relatively simple question, what we're looking forward as visibility from a supply perspective in all honestly. So let me take a step back and characterize how we've evolved in terms of that and how we manage that like at the peak of the crisis. We used to have a week by week visibility nothing beyond that then we moved to a monthly visibility we have now around the quarter visibility.
Good, but I don't have full year visibility and in our opinion the biggest variable that will allow us to guide comfortably is the fact that we have a line of sight for the full year supply chain. So we make sure that we can meet the demand because in the market and honestly, we need a few if you look at the semiconductor industry and the outlook I think things are going to extend into.
2023, now we're being very judicious in trying to move forward with bi and secured part of what we need in 2023.
We will not stop at securing as much as we can but it's simple that the supply is not all available product. So towards the end of the year, maybe potentially early in 'twenty two 'twenty three if that abates as potentially a risk we will start talking about longer term guidance.
Okay and then.
Assuming that you have enough supply to meet demand for DTC rentals as a top priority and what do you think the right long term growth rate for that business looks like.
Yes.
Commenting on growth rate business by business I think.
Back to the prioritization of the channel.
Earlier in the year, we prioritized the channel mix was really because they can productively meet as much of the demand that we could and DPC.
Just to maybe make a comment around how weitzman flipped around this quarter, we got to a point, whereby we're balancing board strategic financial and potential business variable. So we decided to flip the balance building with the ATM and long standing back order and need to be we will get back hopefully to balancing these channels as Mr. Farquhar them, but those variables.
So as you can as you can tell from what's going on in the business as well as the market and from a competitive perspective, but we're not going to speculate since we're not guiding on any growth rates and even at the total level or at the group level.
Okay.
The last question for me as your supply in Peru, do you last year advertising do you increase the sales rep count or.
Do you seed the VW channels that I've been watching strained over the last year.
So if I heard the question correctly, so as we would always trying to optimize the performance of all the beams, so I'm going to start with.
DTC opinion of.
Of course, we paid about the advertising spend based on the supply situation also and balancing that with generating the right level of demand. We continue to be judicious in terms of how we're looking at those expenses and acquisition cost of these patients. So that is something that is in flight. We do with all the time and we are just based on the supply demand situation.
So I think I think that was mainly your question if not give me the second part if I can answer it.
No that was good thank you.
Okay. Thank you.
The next question is from Robbie Marcus of Jpmorgan. Please proceed with your question.
Hi, This is actually Allen on for Robbie I kind of wanted to touch on the backlog, but maybe from a different angle you mentioned that in the quarter. The USD UTC business suffered a little bit because you were prioritizing addressing the backlog and USB to be so while I don't want to.
Push you on projecting that business forward, what should we think of.
As being the actual underlying demand.
<unk> in the quarter that you would've been able to satisfy if you hadn't been prioritizing the backlog would be to be.
So the DTC and it may be.
As I said earlier and I think the first question that we answered I wish we were in full supply conditions to be able to really determine if demand is softening or staying steady and stable.
So short of that happening is very difficult for us to sit here.
And speculate about the funnel and the weakness because the DTC business per se have funded that are shorter lived than the regular business. So and then by the way. They don't have the backlog for me to go measure easily so it's a very difficult.
Sort of a separate variable cities out and to isolate some some of them now in general we are not hearing from the sales organization and a lot of noise around inflation or weakening demand, but I would also remind as we said earlier on calls that we also took this opportunity by balancing the other factors.
This quarter, specifically in last quarter for Europe .
Finally, some of the volume through the B to B U S as well as European to optimize the sales organization on the DPP side. We have work ahead of us in terms of driving productivity and efficiency in the sales force and we continue to use that time call. It a little bit of downtime to be able to complete.
Some of the training upgrades the new disciplines in sales management, and we feel that that will help us continue to drive the performance in that channel as well as make sure that we come back some of the softening demand may be let me also leave you with a couple of data points in terms of how we are thinking about inflation.
So we actually did a primary set of research with our patients both on oxygen therapy, as well as potentially with COPD getting on oxygen therapy. If you will.
Look at the people.
Fully employed full time as well as business owners and or retire. They makeup between 67% and 77% of the patient population, where you can say those people have relatively easy.
And income or do they have insurance and or their own social security as you look at what.
The social security payments are going to be as of January 23, we all know that there's a bump of eight 7% in terms of the payouts. We feel that if there is any inflationary pressure at that time, a big chunk of the patient population that we have in our target could get some relief in terms of the dollars that are competing for.
Other things and we feel that that is approximately how we are thinking about trying to understand the pressure im not removing the risk, but I think it's going to be more.
Tangible and manageable also maybe just quickly by way of the coverage in terms of people that are either under the CMS. If you look at the total patients under CMS, both Medicare and Medicare and the Medicaid then between 46% and 53%, but when you add private insurance, it's between 90, 697% of the patient population.
We have so I think data points to say that you are now looking very carefully to understand what the impact is but we feel that until we get to steady state of supply we cannot really isolate the softening of the demand.
Got it. Thank you very much and then just a quick follow on and when we think about your efforts to optimize the DTC sales force should we think about that as basically continuing to pressure. If you will your average sales rep number through the balance of 2022.
And what should we really view as kind of a.
Good steady state for your sales force going forward recognizing that you are as you said in the process of taking that out yourself. Thank you.
Yes, I think it's a good question. So when we piloted earlier some of the new disciplines that I cited earlier on the on the Q&A, we realize that.
There's a lot of potential in terms of improving productivity and efficiency of our sales effort and overall.
Cost of acquisition. So we continue to roll these out I think the number and the ZIP code of 300 people is relatively where do we should land, but there is continued effort to try and understand how do we drive the highest optimization of that sales force and the other factors that we have in terms of the spend towards the acquisition of the patient base. So.
Roughly 300 give or take but and yes. You are right. We are looking for increased productivity as evidenced by what we demonstrated through the pilots and institutionalizing, a scaling that training and experience across the rest of the organization.
Yeah.
There are no additional questions at this time I would like to turn the call back over to Neal Shah sharp for closing remarks.
Thank you.
I am pleased with the incredible progress that we have made to manage and mitigate supply headwinds I'm equally pleased with the steady and incremental improvement to drive commercial productivity develop an innovation pipeline and start to build our clinical evidence dossier as part of our transformation.
Although there is work ahead of US we have made great progress in terms of rebuilding and strengthening the fundamental capabilities wildfire simultaneously growing revenue in 2023, we will be well on our way in terms of institutionalizing, a scaling capabilities processes systems and embedding our <unk> culture, and all that we do to help man.
It's current and ongoing macroeconomic headwinds and in support of accelerated and sustainable performance and the path to profitability in the long term as I conclude I would like to thank our investors for their support and continued interest in and adjourn I would also like to recognize and thank the imaging team for their dedication and hard work that has.
Allowed us to continue to serve patients with oxygen therapy needs or around the world. Thank you and have a good day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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