Q4 2022 Inogen Inc Earnings Call
Greetings and welcome to the Energen Twenty-twenty took fourth quarter financial results.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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Please note. This conference is being recorded I'll now turn the conference over to your host Agnes Lee you may begin.
Thank you Molly.
Thank you for participating in today's call joining me, our CEO mobile shop shop, and CFO Kristin called Schrader.
Earlier today Innocent released financial results for the fourth quarter of 2022.
This earnings release is currently available in the Investor Relations section of the company's website, along with the supplemental financial package.
As a reminder, the information presented today will include forward looking statements, including without limitation statements about our growth prospects and strategy for 2023 and beyond.
Expectations related to our financial results for 2023.
Expectations related to our return to profitability in 2023.
Expectations regarding increasing productivity of our internal and external sales team.
Progress on our strategic initiatives, including <unk>.
Innovation, our expectations regarding the market for our products.
Business and supply and demand for our products in both the short term and long term.
The forward looking statements in this call are based on information currently available to US as of today's date February 23 2023.
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 Securities and Exchange Commission.
Actual results May vary and we may disclaim any obligation 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 measures provide useful information for both management and investors by excluding certain noncash items and other expenses.
They're not indicative of <unk> core operating results.
Management uses non-GAAP metrics 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 interim president and CEO and ABL shop shop B L.
Thanks, Agnes good afternoon, and thank you for joining our fourth quarter 2022 conference call.
So anytime you see what has been the testimony of the team's ambidextrous leadership as evidenced by our ability to progress the need of transformation, while delivering revenue growth. Despite the multiple challenges, including macroeconomic and inflationary headwinds that presented themselves during the back half of 2022.
In addition to building a healthy innovation pipeline, we continue to get both capabilities processes and system that can deliver durable and profitable growth in the medium to long term.
I would like to first start by addressing our performance in the quarter.
Though we have grown revenue and overcame multiple challenges we fell short with regards to scaling the needed changes in DTC with them the timeline that we originally anticipated.
Naturally this has an impact on revenue mix as well as on gross margin.
As we look ahead to 2023.
Confident that our continued progress around commercial excellence and closely managing operating expenses will contribute to our goal to drive adjusted EBITDA improvement in 2023 and have an environment, where you are seeing moderated revenue growth.
Before I walk through our strategy I would like to provide some context about our commercial transformation progress on our innovation and an update on the supply situation.
A key element of strengthening allegiance performance in the short to medium term is driving commercial excellence in that respect our efforts over the past 21 months relating to several commercial pilots have informed changes.
Go to market strategy within and across channels. We have made excellent progress in strengthening our prescriber, China go to market capabilities and delivering solid growth of 23% in 2022. After the August standing up and scaling the prescriber team in mid Q1 2022.
We have also demonstrated the potential to drive productivity within our direct to consumer channel. What's the evolution has been slower than expected.
We have continued to apply the learnings from the pilot as we set up for scale to deliver a stronger second half of the year in DTC.
The process of piloting and beginning to institutionalize the envisioned improvements in DTC had an impact on our fourth quarter sales and we expect continued impact in the first half of the year with improvements in the second half of 2023.
We have announced an investor event on Monday February 27 to allow for more engagement with investors and to share productivity metrics are evolving channel strategy and the progress on the overarching growth strategy.
This year, we plan to drive further differentiation for Imogen in COPD with anticipated new product launches in 2023, and the U S and Europe after securing the necessary regulatory clearances.
Our focus on innovation led growth extends beyond the 2023 launches and we look forward to sharing more details during our strategy overview on February 27, including how we plan to expand the patient population and indications and extend vintages in fact beyond oxygen therapy and COPD.
Finally in 2022, we were successful in our efforts to effectively manage the supply chain challenges, we expect the supply situation to gradually get back there in 2023, and we have good visibility for the first half of the year due to a combined effort of securing additional forward buys in Q4 2022 and <unk>.
Movements in the regular supply channel for semiconductors.
Open channel purchases of semiconductors remain a part of our efforts to ensure supply continuity and as such during 2022 with continued performance by semiconductors. When the premium paid was impact product cost until we sell through all of the acquired at higher prices.
This strategic decision has helped us ensure supply continuity through the first half of 2023 improved visibility into Q3 and the strategy that we will continue to do it selectively.
As a result of improving supply visibility and the progress we have made with our commercial resolution, we would be issuing annual guidance for 2023, and Kristin will go into more detail later on in Nicole.
I would now like to move some updates on our growth strategy.
As our strategy evolves core tenants remain constant as it relates to balancing investment choices to diversify our portfolio deliver scalable growth and allow for a return to profitability in the medium to long term.
The short to medium growth strategy focuses on two factors. The first is to drive POC based oxygen therapy by primarily using the strong portfolio in place, while improving productivity and efficiency of our commercial operations. The second factor relates to driving differentiation in growth through new product introductions that would expand.
The portfolio choices for current COPD patients.
More advanced COPD patients and start to expand the indications we address.
While remaining focused on the short to medium term commercial and pricing et cetera, and existing channels and portfolio has been a key focus over the past several years, where we have made good progress.
The major focus was serving patients downstream through our DTC team, who is focused on cash pay is predominantly.
At the beginning of 2022, we subsequently evolved our strategy and directed our investments to stand up a prescriber channel enables us to serve patients upstream at the point of diagnosis and prescription.
This model is analogous with the patient diagnosis prescription and buying journey and maximize the opportunity of placing COPD patients on the most appropriate oxygen therapy modality throughout their disease management journey.
This patient centric model, which is agnostic to channel boundaries should mix.
And the right patient and prescriber adoption of imaging POC based therapy, driving scan predictability and profitability overtime.
And the prescriber channel when we sold 23% year over year growth. During 2022 is core to this new model.
Our patient centric model also lends itself to advancing energen in partnership with <unk> in the U S and distributors internationally.
Our vision of patients and prescribers, having access to the most appropriate oxygen therapy modality across channel and service providers offers an opportunity for partners to drive growth, while better serving patients and prescribers due to patients predominantly favoring POC based oxygen therapy. According to our primary research additions.
We strongly believe that a more balanced operating model of delivery and non delivery will also serve as an opportunity to improve the overall economics, and HMA or distributor and improve their profitability overtime.
As part of refining our overall channel strategy DTC remains a critical driver of our success as we improve productivity and efficiency and that China is based on the assignments. We ran in Q3 and Q4.
We continue to believe that all of these chairman's, whether DTC prescriber, all b to B has a place in our business model and we are moving to the next steps to optimize our commercial strategy. So with that we are well positioned for both growth and profitability.
New.
Thats introductions also have a role in driving differentiation in growth in both the short to medium and medium to long term horizons.
Staying with the short to medium time horizon in December 2022, we started selling rose six in European markets that grandfathered reimbursement upon the receipt of the EU and the US certificates wireless fulfilling orders for <unk> in other markets with required reimbursement through Jan for the newly introduced POC.
At that time, we also initiated the sequential process of securing reimbursement for robotics in two European countries that do not identify the reimbursement.
We are pleased to share that we have successfully secured reimbursement in Germany.
I would expect this timeline and our team has resumed its effort to commercialize the euro six device in that market through our distributor partners.
The review of our reimbursement five in France is progressing and we will keep you updated with respect to the anticipated completion date of late Q2 2023.
Additionally, in December 2020 to Energen received FDA clearance for that all four and we anticipate the U S launch to be in the back half of 2023. We are excited about these launches as an important and imminent next step as we continue to lead and POC innovation.
Shifting now to the medium to long term growth strategy I would like to quickly cover the two vectors involved at a high level on this call and while allowing for a more thorough discussion.
The Investor event on February 27.
The first factor relates to continued efforts around market development for POC based oxygen therapy predominantly through clinical evidence and collaboration with our scientific Advisory Board and key opinion leaders.
We're making good progress on our clinical strategy.
The debate sharing some of the results through scientific conferences and publications during the second half of 2023.
The second factor relates to the innovations that expand the indications and patient populations we serve.
We are making encouraging progress and we'll be sharing the overall innovation roadmap and strengthened our COPD focus portfolio and allows us. Additionally, select patients with congestive heart failure.
And potentially hydro in the medium to long term, we will be discussing this in a bit more detail during our investor event next week.
Lastly, as we advanced our innovation strategy to serve patients beyond COPD, we remain open to potential acquisitive growth opportunities that would support our aspiration for image and becoming a more comprehensive respiratory care company.
In summary, we see that underlying demand for our offerings remains steady and we have recently received data demonstrating a modest rebound in COPD diagnosis, but we are projecting to continue in 2023.
We expect supply visibility to continue to improve.
As such we are providing revenue guidance for the full year.
In addition, we are confident that the evolution of our channel strategy to support our patient centric vision will allow us to serve more patients and drive growth and chocolate path back to profitability at the end of 2023.
Look forward to talking to all of the above our commercial and growth strategy at our event next Monday.
I will now turn the call over to Kristin Kristin.
Thank you Neil and good afternoon, everyone.
Total revenues for the fourth quarter of 2022 with $88 1 million 15, 3% year over year growth from the fourth quarter of 2021.
The increase was driven primarily by higher U S business to business sales and rental revenues.
Really upset by lower direct to consumer channel.
For the fourth quarter Foreign exchange had a negative 240 basis points impact on total revenue and a negative 890 basis points impact on international revenue.
On a constant currency basis fourth quarter total revenue increased 17, 7% over Q4 of 2021.
Looking at the fourth quarter revenue on a more detailed data domestic.
Domestic revenue increased 164, 6% to $27 2 million.
Fourth quarter at 20, <unk> compared with $10 $3 million in the comparable period of 2021, as we prioritize fulfillment of open orders and sales to new ones.
It is important to note that the domestic business to business revenue was down considerably in Q4, 'twenty one due to supply constraints limited shipments to the channel.
Rental revenue increased 14, 4% to $14 9 million in the fourth quarter of 2022 from $13 million in the fourth quarter of 2021 as the investment in our prescribing initiatives continue to bear fruit, resulting in increased available patients.
Rental revenue was also positively impacted by higher Medicare reimbursement rates and higher available patients as a percent of total patient from surface.
International <unk> sales.
Okay.
Three 1% to $27 million in the fourth quarter of 2022 from $21 million in the comparable period of 2021.
Bill mentioned earlier, we received our EU MBR certificates in December enabling us to commercialize our new product, whereas tick in select countries in Europe .
Direct to consumer sales decreased 23, 4% to $25 3 million in the fourth quarter of 2022 from $33 million in the fourth quarter of 2021, driven primarily by lower volumes due to fewer inside sales representatives and higher mix of tenure.
<unk> sales reps as compared to the prior period.
Moving to revenue on a full year basis.
Total revenue of $377 $2 million increased five 4% compared to 2021 the year over year increase was primarily due to higher international business to business sales and rental revenue.
Partially offset by decline in U S business to business and direct to consumer stance.
For the full year foreign exchange had a negative impact of 150 basis points and a negative 680 basis point impact on international revenue.
On a constant currency basis full year total revenue increased six 9% over 2021.
International <unk> sales increased 27, 3% to $101 $2 million for the full year 2022 from $79 $5 million in 2021, as we prioritized shipments to Europe ahead of EU MDT certificate expirations in Q2.
Sure.
Additionally, when the EU MTR certificate was received in December we were able to begin satisfying demand, but the new rose six units in Europe .
Rental revenue increased 22, 5% to $56 7 million for full year 2022 from $46 3 million in 2021 due to the continued success with the prescriber team in generating higher rental patients on service.
Initially we have realized higher favorable patients as a percent of total patients on service and benefited from higher Medicare reimbursement rates.
Domestic direct to consumer sales decreased five 4% to $133 $3 million for the full year 2022 from $149 million in 2021, driven by lower volume.
To a lower number of sales representatives and an increased percentage of non tenured sales ramp partially offset by increased average selling prices.
Domestic <unk> revenues decreased five 8% to $86 million for the full year 2022, compared with $91 $4 million in 2021, primarily due to supply chain constraints that limited our ability to meet all customer demand during the first half of the year partially.
Offset by higher average selling prices.
Now on to discuss our gross margin.
Sales revenue gross margin was 29, 3% in the fourth quarter of 2022 declining 1900 90 basis points from the comparable period in 2020 months.
Driven primarily by channel mix.
Increased material costs, including premiums paid for semiconductor and higher warranty costs.
This was partially offset by higher manufacturing productivity from increased production volume.
Rental revenue gross margin was 53, 9% in the fourth quarter of 2022 versus 56, 8% in the fourth quarter of 2021, a decline of 290 basis points.
The margin compression was primarily driven by increased service costs and device recovery.
Partially offset by higher Medicare reimbursement rate.
For the full year sales revenue gross margin was 38, 3% in 2022 declining 980 basis points compared to 2021.
Driven primarily by higher premiums paid for components in 2022, the company expense $23 8 million.
Of higher material costs associated with open market purchases of semiconductors required to manufacture batteries and motherboard used in our portable oxygen concentrators in.
In addition, we experienced higher warranty costs and an unfavorable channel mix, partially offset by the benefit of higher selling prices.
Rental revenue gross margin was 54, 3% in 2022 declining 310 basis points compared to 2021.
The margin compression was driven by increased service costs and device recovery part.
Partially offset by higher Medicare reimbursement rates.
Moving on to operating expense.
Total operating expense increased to $88 million in the quarter compared to $45 3 million in the fourth quarter of 2021.
Excluding a onetime $52 2 million.
Associated with a loss.
Disposal of an intangible asset operating expenses decreased to $35 $8 million, primarily due to lower general and administrative and sales and marketing costs.
Partially offset by higher research and development costs.
Going into more detail on our expenses in the fourth quarter. We have continued to invest in research and development with a total spend for the quarter of $5 9 million, an increase of $1 $3 million versus the fourth quarter of 2021.
The majority of this increased spend was for product development and clinical research activity.
For sales and marketing, we had a total spend for the quarter of $28 $6 million.
One 1 million decrease in spending was primarily related to reduced media and advertising expense and lower commissions and bonus expense.
Should we offset by increased spend on the prescriber initiatives professional fees and consulting.
And finally, we incurred $1 3 million for general and administrative expenses in Q4, representing a $9 $6 million decrease as compared to the prior period. This.
This was primarily due to a $12 million increase in the benefit from the change in fair value of the new era earn out liability.
Partially offset by increases in personnel related expenses aimed at rebuilding core capabilities of the company.
For the full year 2022, total operating expenses increased to $238 8 million compared to $167 2 million in 2021.
Excluding the aforementioned $52 $2 million loss on disposal of an intangible asset operating expenses increased to $186 6 million.
Going into more detail on our annual spend we have continued to invest in research and development with a total spend for the year of 21 $9 million inclusive of $7 8 million.
Amortization of intangibles related to the <unk> technology.
At $5 4 million increase in spend versus 2021 what you used to bolster our product development capability and build a dossier of clinical evidence in support of our current and future products.
For sales and marketing we had a total spend of $128 million the $8 million increase was primarily related to standing up the new prescriber team as well as professional and consulting fees, partially offset by lower commissions and bonus expenses in media and advertising costs.
And finally, we incurred $43 9 million for general and administrative expenses.
$6 1 million increase was primarily due to higher employee related expenses consulting and legal fees.
These increases were partially offset by a $3 $8 million increase in the benefit from the change in fair value of the new era earn out liability and a decrease in officer transition costs.
In the fourth quarter of 2022, we reported a net loss of $56 6 million and a loss per diluted share of $2 47.
On an adjusted basis, we reported a net loss of $13 million and an adjusted loss per diluted share of 57.
Adjusted EBITDA was a negative $10 $6 million.
For the full year 2022, we reported a net loss of $83 8 million and loss per diluted share of $3 67.
On an adjusted basis, we reported a net loss of $26 2 million and then objected locked producing a big share at $1 15.
Adjusted EBITDA was a negative $13 $5 million.
Moving onto our balance sheet.
At December 31, 2022, we had cash and cash equivalents of $187 one.
With no debt outstanding.
Accounts receivable balances increased to $62 7 million.
As of December 2022.
Driven by a large increase in DTP shipments in the quarter.
We continue to make investments in the fourth quarter in our inventory incurring additional premiums for the semiconductors for semiconductors.
Purchased on the open market, but not yet sold in finished goods.
These items reside on the balance sheet as prepaid expenses and other current assets and inventory.
As of December 31, 2022, the value of premium components in our inventory and prepaid balances were $10 1 million and $7 million respectively.
Additionally, intangible asset and inventories were reduced by 51 $5 million and $5 million, respectively. As a result of the loss on disposal of intangible assets.
I will now turn to our financial outlook.
As <unk> mentioned earlier, we are providing annual revenue guidance for 2023, we are expecting total company revenue to grow in the low to mid single digits.
As we continue to drive towards profitability, we anticipate reaching a positive adjusted EBITDA by the fourth quarter of 2023.
To further help provide context for modeling.
Given the time to ramp sales rep capability and productivity in the D to C channel.
We're expecting the first quarter to be the lowest revenue quarter of the year and below levels that we saw last year due to the continued evolution of the DTC model.
As well as returning to normalized ordering patterns in the BW channel.
We expect D to C cash revenues to be soft in the first half of the year, but to recover in the second half as the efficiency and productivity efforts are realized.
We are expecting revenue growth ramp.
Revenue growth to ramp in the back half of the year as we gain reimbursement in France in sales in the BW channel continues to normalize.
In addition, as supply gets better in 2023, and we deplete premium priced components, we expect to see margin expansion in the back half of the year.
As price increases remain and production volumes are increased.
Improvements in our bottom line would also come from cost management efforts, which allow for the investment needed to drive medium to long term growth, while limiting expansion of our operating expenses.
As we look to 2023, we expect to reach positive adjusted EBITDA by the fourth quarter, we are judiciously, managing operating expenses to improve our bottom line.
While continuing to invest in our key initiatives, which set us up for long term revenue growth and profitability.
And with that we will be happy to take your questions.
Okay.
Thank you and at this time, we'll be conducting a question and answer session.
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Handset before questions Sir.
One moment, please pool for questions.
Our first question comes from the line of Robbie Marcus with Jpmorgan. Please proceed with your.
Hi, This is actually Lili on for Robbie. Thanks, So much for taking the question.
Maybe just starting with guidance can you talk through what's assumed in terms of disruption from supply are macro challenges.
Any potential COVID-19 headwinds and what takes you to the higher low end of the range.
So really thank you for the question I'll start.
Kristin can add some commentary so the range as you saw includes Oh, there is remaining BPC scaling and productivity that we are working on that will continue to ramp through the first half of the year and then improve in the back half of the year, that's baked into the range as well as potential supply chain interruptions that remain.
I think all I would add to that is there are few things that we think could impact the number first of all foreign currency.
Depending on where the U S dollar euro.
On the currency exchange rates go that could be one impact.
As <unk> mentioned supply chain that could that could drive an impact one way or the other and then finally the timing of the reimbursement in France also could could have an impact.
Got it that's helpful and.
Maybe just as a follow up.
There's obviously a lot of moving pieces here.
And beyond that.
I know you guys have taken price to offset some of these headwinds. So I'm just trying to get a sense for how underlying volumes and demand are doing them. So any color you could share there would be helpful. Thanks, so much.
Mhm.
All right.
As we look to to our forecast we are projecting increased volumes. So we are believe we believe in the underlying demand and we are again as we gave a little color on the timing of the quarters, we believe it'll be a little softer in the first half, but growing in the back half.
The one thing I would add.
As we rebalance our channel strategy.
You said there are moving pieces, but we're confident that the.
Focus on where we're putting it in terms of looking through all the channels as we said from how we serve the patients will have a role to play but overall my Kristin said, we expect volume to go up and the demand to remain steady.
Great. Thank you.
Our next question comes from the line of Matthew <unk> Keybanc Capital Markets Inc. Please proceed with your question.
Hey, guys. This is Ben on today for Matt. Thanks for taking my questions. Just wanted to follow up on a couple of the potential near term growth headwind you guys discussed and maybe a few months ago.
I'm not sure like how much they came up on the call today. So first like around the issue around B to B customer access to capital are you still seeing that as a headwind or has that gotten better a little bit a little bit.
Sure.
Yeah. Thank you Brett I'll take this so we continue to see some of that still materializing thats why we exited in the prepared remarks said returning ordering patterns to normal. So we started working and partnering like we said earlier in terms of lending where the enrollment pattern should be in Q4 that are remaining at western chat.
<unk>, depending on their size and the complexity of the customer in terms of access to capital, but we continue to work through some of these challenges as the year progresses.
Makes sense and then also just on the topic of just didn't come up to some of those be customers opting to purchase.
Lower quality competitive products at a discount that.
That continued to play out or.
That also connect to some of the previous commentary yes.
Yes.
Great question. So let me talk about how the cycle works. So people during the supply shortages on our sites migrated to some competitive offering I think the competitors at that time also availed themselves of the opportunity to offer aggressive pricing. So they can probably grab a bigger share of the market. The feedback that we have and the interactions that we have to do.
Hey.
<unk> customers are returning one thing to have a conversation about how they actually gets back to ordering from imaging because of their dissatisfaction with either the quality and all the supply assurance on the competitive side. So ongoing of course within that there's ongoing discussions about.
The competitive pricing and we continue to work on focus on the total cost of ownership of our device versus the acquisition price because if you compare acquisition prices of course.
And the unfavorable situation, but most of our <unk> customers, especially at the more the larger and the more complex ones understand that theres much more to the to the acquisition price and the total cost of ownership and they understand that we are positioned with the quality as well as the durability of our devices and the demand from a brand perspective.
So the advantage versus lower competitors, but as I said, it's a cycle that people can work through it we remain very judicious and cautious about monitoring competitive activity, it's not a major red flags, but we will work through it.
Alright, great that sounds it sounds promising and then last one around.
Some of the headwinds and then just a quick one more quick follow up after that so the last one was really around seeing some headwinds on the just on the direct to customer side.
In some of the inflation headwinds just given the uncertainty around a potential recession I'm wondering how you're factoring that into the initial guidance and what you've seen over the last few months.
Yes.
Since we have definitely like we said in the prepared remarks, we factored the time it takes us to adapt the DTC efforts I just wanted to stress again that.
We are internally organizing slightly differently with learning Andrea offline with the pilots and that took a little bit of time.
For it to materialize well Im looking for the first half of 2023 for us the scale and stand up the <unk> fully.
The headwinds from DTC are factored into the guidance for your question earlier.
Alright, Great and then lastly for me just wondering if you could provide any more level of color around the cadence I think you noted that <unk> would probably be the lowest quarter, but just a sense of how that might compare sequentially or if youre if youre.
And are you expecting any level of growth in the first half of first quarter, how should we be thinking about that thank you very much.
Hi, Brett I think I'll take that one.
We are trying to give color as to the lowest quarter.
And potentially not.
Not being a growth quarter, so Q1 will likely be lower than what we achieved in Q1 of 2022, but we do believe Q2 will ramp from there.
The summer months are the better months for us it will start to see some of that kick in.
Yeah, great. Thanks for taking the questions just.
Just a couple of things for your consideration.
Kristin mentioned.
That is DTC reorganization of evolution headwinds that is also on the VW you asked in the previous question and return to normal ordering patterns, but also I think as implied by our prepared remarks, we are looking at the channel strategy that makes one remaining focused on DTC to actually continue to drive towards profitability at.
The adjusted EBITDA line by the end of the year. So there is a judicious effort to also look at the sales force as well.
Makeup and the mix of sales forces.
Alright, thanks, very much for taking my questions.
Thank you Brett.
Yeah.
Our next question comes from the line of Mathew Blackman with Stifel. Please proceed with your questions.
Good afternoon. Thanks for taking my question I'll limit myself to one.
Maybe just a follow on I just wanted to make sure I wrap my head around the DTC headwinds.
It sounds like Youre talking about trying to scale a pilot program rather than maybe seeing outsized attrition.
Maybe a little bit more color of what happened in I'm, I'm, asking sort of relative to some of the metrics that you've shared over the last 18 months, where productivity seem to be ramping nicely.
Maybe just compare and contrast, what you had seen over the last 18 months.
Versus what manifested here in the fourth quarter and I guess the other point is.
Why does it improve in the second half why is six months enough time for you to stand everything up.
And I'll leave it at that thanks.
Yes, perfect. Thank you. Thank you Matt I'll take the question. So let me start with the productivity numbers next Monday, we actually are going to shed the productivity. This coming Monday, we're going to shed the productivity numbers that we shared before in multiple forums.
Well, we met with you JP Morgan there continues to be positive productivity traction.
And the fact that we're putting into the number around DTC is about honestly.
The attrition and get a certain number of sales reps you asked about attrition.
It's planned.
More than it has been on voluntary and then we will discuss roughly where we would land in terms of the size of the sales force again, I'm going to connected back to balancing at optimizing the channel strategy and the investments for us to get to the right growth level and getting back to profitability at the end of the year. The second part of your question.
Okay, why do we have the confidence that actually it will ramp up in the back half of the year I think throughout the pilots we've been able to isolate the key variables and through through piloting and testing and learning. We know exactly what are the variables that need to be focused on moving forward with their salesforce and that I'd say is disciplined meaning our excitement.
Discipline and execution, we are confident that we can actually ramp back up in the back half of the year.
Alright. Thank you so much thanks.
Thanks, Matt Thanks, Matt.
Our next question comes from the line of Mike Matson with Needham <unk> Company.
With your question.
Yes, Thanks, I wanted to ask a few on the new products the world Foreign rub six so.
One I guess.
How do they compare to the prior models and two are you planning to sell both of them I'm a little confused about what markets. They are being sold into it looks like in the press release. Originally one was for Europe and walnuts for the U S.
Why is that and then is there.
Or any kind of benefit to gross margin from these lower cost manufacturer or anything like that.
Okay. Thank you.
Thank you Mike I'll take that so let me go back to the regulatory strategy to start with so in the initial stages. The two products aimed at different markets because of how we actually went through a regulatory strategy to maximize their ability to get approvals on time.
<unk> drove six was actually went through the EU MTR and some of the changes in that product to address your question about differentiation the improvements in the product what required for <unk> versus what was previously accepted in the MTB. So the changes are not significant but there are noticeable to the user and that is an upgrade to <unk>.
You want to call it that over the next over the span of the year, we weren't actually apply to get an approval for <unk> in the U S. Also even though we started with the approval in Europe , and we're selling it there.
On the flip side roll forward was a five.
The application that we secured clearance.
And that is a new and improved <unk>. So it has one more setting almost the same size and weight tradeoffs. So we believe that that will allow for.
Opening up of the number of patients that we serve and this is the sweet spot. There is people just won that are afraid of running out of setting, but the one still the most portable.
A small note a POC base.
And from a portfolio perspective, there is consideration and discussion now we havent finalized the losses in the back half of the year for premium pricing on all four.
And in general that is always a consideration on pricing hygiene no matter, if it's a new product launch and all of the existing portfolio.
We will continue to manage.
And evaluate during the year. So ROE for starts in the U S. Eventually goes to Euro six Bucks in Europe comes back to the U S. So both of these products will be available.
In the near future in both markets.
Okay got it.
And then I joined the call little late so apologize if you touched on this in the prepared remarks, but.
The open market purchases of the component I mean, it sounded like that was still happening even into the fourth quarter. So do you have any visibility into when you can get back to your normal contracts with your with your suppliers.
Yes, yes, great question, Matt So let me talk about so we continue to meet with the large Mike.
They need to meet with the larger suppliers, the drug and get more visibility throughout the year.
We have meetings that are happening next month, we've seen improved schedules in terms of shipping and commitment we're trying to get the full visibility until the end of the year, we expect that situation to continue to improve throughout the year and to start sort of coming down towards Q4 in the meantime, I want to address the question that you raised.
In terms of the fact that we bought intention that in Q4 on the open market certain quantities because this visibility. We're talking about has just started happening recently in the last four or five weeks. When we were sitting in our seats in Q3 Q4 looking forward and not having the clarity we made this strategic decision.
But we want to encourage the extra cost because eventually is going to run off or not.
Our balance sheet and be invoice and we wouldn't actually secure supply assurance more than worrying about the margin at that point in time moving forward. This seems to be more optionality in terms of how we manage this and we are hoping that it will continue to come down hopefully by the end of the year and will return to normal next year early.
Okay got it thank you.
And we have reached the end of the question and answer session I'll.
I'll turn the call over to <unk> for closing remarks.
Thank you.
I am pleased with the excellent progress that we have made in 2022 to manage and mitigate supply disruptions react quickly to address macro economic headwinds, while continuing to transform our business drive commercial productivity and development innovation pipeline and clinical evidence. We believe that 2023 is an important year with.
Evolution of our commercial strategy the launch of new products and continued work on our innovation pipeline, coupled with judicious management of our operating expenses.
We see underlying customer demand, a promising horizon with market opportunities and we are building a solid foundation for long term sustainable growth and the return to profitability.
As I conclude I would like to thank our investors for your support and your interest in imaging.
I'd also like to recognize and thank the imaging team for their continued dedication and hard work I am extremely proud of our collective efforts the progress of our business. So that we can fulfill our purpose of improving patient lives through respiratory care.
Forward to discussing more details about our growth strategy on Monday at our event in New York. Thank you. So much have a good day.
And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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