Inogen Inc. Q1 2023 Earnings Call
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Welcome to <unk> first quarter 2023 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 to ask a question at that time. Please press star followed by one on your Touchtone phone.
If anyone has difficulty hearing the conference. Please press star zero for operator assistance.
Reminder, this conference is being recorded today may 4th 2023, I would now like to turn the call over to Agnes Lee Senior Vice President of Investor Relations.
Strategic planning ma'am the floor is yours.
Thank you, Karen and Hello, everyone and thank you for participating in today's call. Joining me on the call today are president and CEO and Bill Sharpe shop, and CFO Kristian called trader.
Earlier today Inogen released financial results for the first quarter of 2023.
<unk> earnings release is currently available in the Investor Relations section of the Companys website, along with a supplemental financial package.
As a reminder, the information presented today will include forward looking statements, including without limitation.
Think about our growth prospects and strategy for 2023 and beyond.
Our expectations related to our financial results for 2023.
Expectations related to a return to profitability in 2023 expectations regarding increasing productivity of our internal and external sales team.
Most of our strategic initiatives, including integration.
Our expectations regarding the market for our products.
On our 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 May four 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 FCC.
Actual results may vary and we 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 now.
Management believes that non-GAAP financial measures taken in conjunction with U S. GAAP financial measures provide useful information for both management and investors by excluding certain noncash items and other expenses that are not indicative you mentioned core operating results.
<unk> 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.
That I will turn the call over to <unk>, President and CEO mobile shop shop, maybe Neil.
Thanks, Agnes good afternoon, and thank you for joining our first quarter 2023 conference call.
Our disciplined execution allowed us to make progress during the first quarter in support of our growth strategy and return to profitability. While our revenue was in line with the expectations. We had communicated during our Q4 2022 earnings calls our gross margin and EBITDA performance was above our internal expectations.
We continue to leverage the investments we have already made to drive our commercial strategy launched new products progressed, the integration effort and clinical work and round up the capabilities.
We had embarked on.
In 2023, we remain focused on delivering low to mid single digit revenue growth and return to positive adjusted EBITDA by the fourth quarter, we are expecting the year to be an inflection point for energen as we set up for stronger top and bottom line growth in the years ahead.
On the supply side, our forward semiconductor buys during 2020 to help US cover the demand for a significant portion of 2023 and based on the improvement we have seen so far in the regular supply channels, we feel that we'll be able to meet demand for 2023.
Before I provide an update on our commercial progress I would first like to discuss some of the elements behind our strategy.
As a leader in POC based portable oxygen therapy, our vision in patients and prescribers, having wider access to the most appropriate therapy modality irrespective of the point of prescription or how patients qualify for coverage for it because he's our chairman strategy was designed to improve our ability to such patients at the point of.
Most of that prescription through energen, and HMA partners, while refining our DTC model to meet the needs of patients who desire to switch to <unk> based therapy later in their disease management journey.
In 2023, and we look forward to seeing the continued evolution of our channel strategy into a patient centric one agnostic to channel boundaries, specifically in the U S to accelerate patient and prescriber adoption of emergency USD based therapy.
Scale predictability and profitability overtime.
Now moving on to an update on our Q1 progress with respect to growth.
Revenue continues to be a strong growth trajectory.
Year anniversary of our renewed focus on the prescribed this channel.
The execution behind our prescriber channel strategy has delivered double digit growth at double digit increases in referral and sales rep productivity sequentially.
In support of our rental chairman, we have been securing coverage for more private payers in the U S and <unk>.
The strength of our core CMS coverage. We recently added two large private healthcare Payors. We now can cover the COPD patient population out of approximately $160 million privately covered by us.
Moving to <unk> channels, we continue to monitor the overall market dynamic in the U S. B to B channel, where some of the larger <unk> have increased their focus on margin accretion restructuring and capital expense management.
Our strong and unique value proposition remains solid image and brand equity device quantity and that's after sales service come together to deliver optimized fleet deployment and competitive total cost of ownership for HMA is with high patient satisfaction.
This has helped and adding new HMA customers and expanding the base with while we manage competitive pressures and work towards lending into normal ordering patterns across the board.
Given the lower level of POC based oxygen therapy penetration in the U S. H I mean partnerships are essential to our strategy of reaching more patients with energy, leading POC and providing <unk> with a more competitive business model.
As for our international business to business.
We have made solid progress after launching logistics in Europe at the end of 2022 and have been granted reimbursement in Germany. During Q1 2023. Additionally, we recently received confirmation of it all fixed reimbursement coverage in France and are awaiting the results to be published in the official Gazette over the next few weeks we are.
Cited about securing these reimbursement slightly ahead of expectation and support of the rollout of imaging drove six across Europe .
For our DTC business, we have remain focused on scaling the new disciplines in DTC as we work towards achieving the right growth and product productivity, while optimizing our cost basis. This quarter, we made progress as we continue to institutionalize the new sales management disciplines.
Evidence of our progress while we decrease the number of sales reps Q1, 2023 delivered solid sequential growth in the teens on a third rep basis for both unit and revenue productivity.
Before I summarize I would like to reiterate that in December 2022, and as you have received FDA clearance for ROE for and we are on track for an anticipated U S launch in the back half of 2023 as communicated previously.
The launch of Euro six in Europe , and the unexpected loss of row four in the U S are important steps as we commercialize the latest innovations in <unk> portfolio.
Currently we are very excited about the progress behind our ambition to serve a larger COPD population and broaden our portfolio to address respiratory needs across additional indications, including dyspnea, congestive heart failure and potentially hydro Kathryn.
In summary, while remaining imminently focus on driving growth and delivering positive adjusted EBITDA by Q4 'twenty 'twenty. Three we are also excited about the future of imaging.
Beyond COPD and the new indications that are essential to managing respiratory Howard.
We continue to see underlying demand for our offering and see it.
<unk> way, the scalable and profitable growth as we advance our commercial channel and innovation strategies.
I will now turn the call over to Kristen Kristen.
Thank you Bill and good afternoon, everyone.
Revenue for the first quarter of 'twenty, 'twenty, three with $72 $2 million in line with our internal expectations.
Revenue decreased 10, 2% year over year from the first quarter at 2022.
The decrease was driven primarily by lower international sales and lower direct to consumer sales, partially offset by an increase in U S business to business sales.
Rental revenues.
For the first quarter Foreign exchange had a negative 170 basis point impact on total revenue and a negative 460 basis point impact on international revenue on a constant currency basis first quarter total revenue decreased eight 5% from Q1 2022.
Looking at first quarter revenue on a more detailed basis.
Rental revenue increased 25, 4% to $16 $3 million in the first quarter of 2023 from $13 million in the first quarter at 2022.
One year. After we began investing in our prescriber initiative. It continues to bear fruit, resulting in continued growth in rental patients on service.
Rental revenue was also positively impacted by higher Medicare reimbursement rates.
Domestic <unk> revenue increased 146, 7% to $12 $6 million in the first quarter of 2023, compared with $5 $1 million in the comparable period of 2022.
It is important to note that the domestic business to business revenue was down considerably in Q1 'twenty two.
These supply constraints that limited shipments to the channel.
International <unk> sales decreased 32, 1% to $19 million in the first quarter of 2023 and $27 $9 million in the comparable period at 2022.
Last year International sales were higher as we prioritized shipments to Europe .
Pending expiration of the EU mbd.
In may of 2022.
Direct to consumer sales decreased 29, 2% to $24 $3 million in the first quarter of 2023 and $34 $4 million in the first quarter 2022, driven primarily by lower volumes due to fewer inside sales representatives, partially offset.
By higher average selling prices.
Now on to discuss our gross margin.
Sales revenue gross margin was 39, 2% in the first quarter 2023 declining 220 basis points from the comparable period of 2022, driven primarily by channel mix with a higher volume of units sold through the business to business channel versus the direct to consumer channel.
This was partially offset by lower labor and overhead costs and higher average selling prices.
Rental revenue gross margin was 54, 1% in the first quarter of 2023 versus 54, 7% in the first quarter of 2020 care a decline of 60 basis points.
The margin compression was primarily driven by higher patient servicing costs.
Actually upset by higher Medicare reimbursement rate.
Moving on to operating expense in.
In Q1 total operating expense increased to $52.6 million in the quarter compared to $48 $6 million in the first quarter.
2022.
The current quarter included restructuring and other related charges at $1.8 million like many other companies. We are taking steps in 2023 can mitigate the macroeconomic impact on our business and our profitability, including reducing operating expenses.
Excluding restructuring charges operating expenses increased to $58 million, primarily due to higher general and administrative costs.
Going into more detail on them.
Doses in the first quarter.
We have continued to invest in research and development as we further our innovation pipeline with a total spend for the quarter of $5 $3 million roughly in line with the first quarter of 2022 amortization.
Amortization of intangible assets declined in the period, partially offset by an increase in third party and employee expenses related to product development activity.
Sales and marketing expenses in the period was $24 million the zero point $4 million increase in spending was primarily related to higher third party fees, mostly offset by a decrease in media and advertising costs.
And finally, we incurred $18 $9 million for general and administrative expenses in Q1, representing a $3 $7 million increase as compared to the prior period.
This included a $1 8 million charge for restructuring and other related charges as well as an increase in personnel related expenses and business development charges.
In the first quarter of 2023, we reported a net loss of $23 million and a loss per diluted share is 88%.
On an adjusted basis, we reported a net loss of $14 $5 million and an adjusted loss per diluted share a 63.
Adjusted EBITDA was a negative 11 $48 million.
Moving on to our balance sheet as of March 31st 2023, we had cash cash equivalents and marketable securities of $174.6 million with no debt outstanding.
We continue to carry inventory of premium priced components for semiconductor chip purchased on the open market, but not yet filled and finished good Steve.
Keith out industry side on the balance sheet as inventory and prepaid expenses and other current assets.
As of March 31.
2023, the value of premium component in our inventory and prepaid balances with $12 $5 million.
I will now turn to our financial outlook.
As <unk> mentioned, we are reiterating our annual revenue guidance, we expect total company revenues for the full year 2023 to grow in the low to mid single digit.
In addition, as supply continues to improve and we get premium price component in the back half of 2023, we expect to see margin expansion as price increases remain production volumes increase and material costs are we do we.
We remain focused on our return to profitability and anticipate reaching positive adjusted EBITDA by the fourth quarter of 2023.
And with that we will be happy to take your questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your Touchtone phone at this time once again, if you do have a question or comment. Please press star one on your Touchtone phone at this time, please hold as we poll for questions.
Yes.
And we will take our first question from Robbie Marcus from Jpmorgan. Please go ahead Robby.
Hi, This is actually Lili on for Robbie. Thanks, So much for taking the question.
Domestic b to B was a lot softer than what we were thinking so can you talk a little bit about the drivers of that are you prioritizing.
The supply that you have elsewhere in the business or is there something else going on there and how do you see that segment trending over the course of the year.
Thank you Larry for the question. This is <unk>. So if we if you go back sequentially and do you think about the messaging that we had 2022 was part of the remediation efforts, which we had in b to B. So we had pushed through really remediate the back orders with water in the system for an extended period of time, sometimes in excess of 12 months.
So there was a major push in the.
Towards the end of the year to be able to meet the demand remediate those orders and our focus our customers on the imaging value proposition. So that's a little bit.
Into the quarter and led to a softer start as we said that there were some challenges in the b to B U S specific channel in terms of our customers thinking a little bit about capital deployment, a restructuring in terms of operating expenses. So we continue to work with them in terms of landing ordering what do we need it to be a star.
That was a little bit softer, but we're very encouraged by the progress that we're making.
Got it that's helpful.
And you know just with the backdrop of the supply challenges how should we be thinking about the cadence over the course of the year.
Should we see this as being a more backup backloaded year.
Try and hopefully continue to improve or do you think we could see more normal seasonality in 2023. Thanks so much.
So maybe let me start with also the other part of the message on the DTC side. We had said that we're going to take the first half of 2023 to be able to get back to the productivity that we need so that is an indication that youre going to see a little bit different.
Different performance in the.
First half of 2023 was that adequately ramp in the back half of the year across all channels, but its not supply related I just wanted to make sure that I stress that we have enough supply to meet the demand. That's just the roll out of our channel strategy and execution around it and the focus to not only.
<unk>, what it needs to be back to normal ordering pattern, but getting DCT DTC to drive productivity levels that we our plan and we're making very good progress on the.
The first quarter as we've as we've commented in our.
Our remarks earlier.
Great. That's helpful. Thanks, so much.
Let me.
Thank you and we will take our next question from Mike Matson from Needham <unk> Co. Please go ahead Mike.
Yes. Thanks.
I guess.
I'll start with.
The second quarter so.
I understand youre, giving kind of rough annual guidance, but.
I understand also understand that like the first quarter, you are saying that your own expectations, but unfortunately, it didn't meet the analyst's expectations. So.
Is there any help you can give us in terms of modeling the second quarter.
Revenue I guess do you expect it to be.
Up down flat relative to last year.
Yes, Thank you Mike.
We're only going to make a comment on the annual guidance for the time being we can have a little bit more detailed conversations like that on the calls but for the time being we're doubling down on two things one is a low to mid single digit revenue growth and return to our adjusted EBITDA positive by Q4 of the year and.
So that's that's what we can comment on for the time being.
Okay got it.
And then just your comments on you know.
Not being supply constrained anymore.
I just was wondering if you could clarify are you apply as of today or does that mean that the revenue in the first quarter was really dictated by demand as opposed to squad.
Yes, so maybe two part the answer to this is as we stand here today and look towards the end of 2023, where the cost of them between what we've pre orders and commitments that our suppliers are meeting from the regular channel that we will not be supply constrained for the totality of the year, Mike and the Q1, but for.
This was not a constraint.
Constrained from a supply perspective, just for complete transparency.
Okay Alright.
And I mean, just given that I mean it.
It seems like you've got a pretty big ramp in those to get to that mid single digit growth.
Just your confidence level in being able to grow for the year, yes.
Yeah, and actually if you do the math like Youre doing a quickly on the call.
The ramp in the back half of the year I think I'm going to take it back to the fundamentals, we're seeing really good progress on the DTC productivity our strategy in terms of the disciplines with putting in place, we're making encouraging progress around the b to B U S. In terms of despite the challenges in the market dynamics, we're making probably.
Because our value proposition remains very solid in terms of the components I listed on the call also international B to B is has been the demand has been steady and growing. So we're pleased with that and then of course you saw the results on the prescribed with channel that was bound to continue to scale and drive forward with.
The increased focus on acquiring new prescribers and also productivity within that channel. So naturally there's a steep back half of the year, but we're comfortable with where do we stand in reiterating the overall annual guidance.
Thank you and next we'll go to Matthew Mitchell from Keybanc. Please go ahead Matthew.
Hey, maybe I'll. Thank you for taking the questions.
Hey, Matt how are you.
Good.
Just on that.
Direct to consumer sales.
You've made a lot of these you've made a lot of changes to the commercial sales force.
Do you think you've done this in enough time to really take advantage of but I guess, what your spring summer.
You're entering the seasonally strong period for for when you would generate.
The most amount of your sales in that.
In that segment.
And also just kind of can you remind us what the what the lead time is.
Between like point of contact and actually being able to do.
Close this out.
Okay.
Thank you, Matt let me start with the first part of the question I think typically the seasonality starts ramping up I don't early April sometimes late March early April I think we have made enough changes like you asked for us to put the right disciplines in place and maybe that's the evidence to point to is despite the fact that we lowered the number of salespeople in Q1.
We had and the teams were double digit in the teens growth.
Sales rep in terms of both productivity and revenue, which is very encouraging that says we have that I, perhaps isn't the right team in place to meet the seasonality demand.
Well as we're continuing to improve every week there is an update and review in terms of what argue from a productivity perspective, and we're encouraged by what we're seeing so I don't see an issue from a seasonality and the ability to capture the sales as.
As the seasonality kicks and your second part of the question around lead times from point of contact.
Typically do not comment on that but like successful progression of an opportunity to enter the sales funnel and very close it's typically in the call. It 10% to 14 days typically so if youre going to capture that Ah patients. It has to happen within the 14 days of the of contact.
And then just how important is it for you guys to reduce the volatility.
Sales on the on the beta beside the swings of I'm not sure if they play there, but this was a tough or.
Difficult margins on difficult when you're manufacturing.
Is it is there a potential that kind of make it more ratable moving forward on around those sales.
Yeah. So maybe let me go back to just like one one for context as we always say there is a lot of volume to be rolled up into market just evidenced by the low penetration of POC is out of scope and modalities and that has to be achieved both by us and by our HMA partners, Let me start with us that he isn't it.
Like a partial answer to your question. The reason we went through the prescribers is we want to be able to control part of our destiny moving forward.
<unk> be able to make sure that we when I look at both the prescribed but NVA Jimmy channel in terms of covering that upstream patients at the point of diagnosis and prescription I'm progressing well the part in my control fully is the one that we're very happy with the progress on the path that is through my partner shifts is the one that you said is <unk>.
And for me it continues to be part of our strategy, but we're working through a few headwinds in the interim what that said if I look at the overall progress. Despite the challenges from a market perspective, we're happy in terms of the new customers, we're adding and we're working with the base the customers that I didn't know are based around some of the challenges.
Depending on what they're facing.
Thank you.
Thank you Matt.
As a reminder, that star why don't you do have a question or comment.
And we'll take our next question from Matthew Blackman from Stifel. Please go ahead Matthew.
Yes.
Hi. This is a this is calling on for Matt just had a couple starting with DTC. I know you guys said productivity was improving throughout the quarter and those pilot study efforts you guys are putting in are progressing well.
Either in absolute or relative to the plan and to the extent you're willing can you give us a sense of productivity levels entering the first quarter versus exiting the quarter and frankly now that we're nearly halfway through the second.
Where things stand right now.
Thank you Colin and I'm going to comment on the quarter itself, because we're not going to make comments on Q2.
Said in the prepared remarks, we have accomplished productivity per rep on the DTC side that are in the teens, so double digit in the teens.
We can but a little bit more color to it later on the call. But this is very good progress compared to what we were before and that productivity also.
At the same level when I look at the prescriber channels too so.
There is very good progress and the encouraging signs that we are on the right track in terms of that envisions a DTC model, whereby we can drive performance and profitability at the same time by optimizing not only the number of salespeople, but also the advertising spend is starting to show the value of how we envisioned that then.
We're executing around the diligently.
Okay, and then one follow up on the guidance I was hoping you could you can decompose it a little bit from a growth standpoint, how much price is baked into the guide versus volume you've got a bit of a U S tailwind with higher reimbursement there could be some mixed benefit from new products, there any way to tease out the major components that roll into the full year guide.
Yeah. It's a good question Colin I'm going to say the price element, there's a mix in general because the one thing that we had not made the comment on yet is we took a price increase in DTC in April .
Low single digits in April we didn't take a price increase and other things, but as you can maybe interpret our comments M. D to b, we are running certain interventions and promotional like support activities.
But to make sure that we land the orders where they need to be so that's net.
That guy versus the good guy on the other side overall pricing and ASP is trending what do we expect it to be albeit a little bit behind the curve, but we're not very worried about us being able to recover.
Great. Thank you I'll hop back in the queue.
Okay.
Once again star one if you do have a question or comment.
Okay.
There are no questions. Let me just make a few remarks in closing.
So as we look into the future of imaging. This year will be an inflection point as we execute on our channel strategy launching new products and set up for future scalable growth, while focusing on returning to positive adjusted EBITDA by the fourth quarter.
Quarter I'm pleased with the progress we have made across the commercial channels and geography, securing access to our devices for their large patient larger patient population and continuing to build capabilities and processes that will support our plan to scale. The business profitably in the years ahead as I conclude I would like to thank our investors for you.
Your support and your interest in the Gen I'm extremely proud of the vintage and teams collective effort to progress our business. So that we can fulfill our purpose of improving lives through our respiratory care. Thank you so much and have a good day.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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