Q1 2024 Inogen Inc Earnings Call
Welcome to energy first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
Following managements prepared remarks, we will hold a question and answer session.
That's a question at that time, Please press star followed by one on your on your keypad.
If anyone has difficulty hearing the conference. Please press star zero for operator assistance as a reminder, this conference is being recorded today may seven 2024.
I would now like to turn the call over to Ryan Peterson Investor Relations. Please go ahead.
Ryan Peterson: Thank you all for participating in today's call. Joining me are president and CEO, Kevin Smith, and CFO, Mike Clark earlier today and it Didnt released financial results for the first quarter of 'twenty 'twenty four that's the earnings release is available in the Investor Relations section of the Companys website, along with supplemental financial.
Ryan Peterson: As a reminder, the information presented today will include forward looking statements, including without limitation statements about our growth prospects and strategy for 'twenty 'twenty, four and beyond expectations related to our financial results for Q2, 'twenty 'twenty four progress of our strategic initiatives, including innovation.
Ryan Peterson: Our expectations regarding the market for air products on our business and supply and demand for products in both the short term and long term.
Ryan Peterson: The forward looking statements in this call are based on information currently available to US as of today's date May seven 2024.
Ryan Peterson: 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.
Ryan Peterson: Actual results may vary and we disclaim any obligation to update these forward looking statements, except as may be required by law.
Ryan Peterson: Posted historical financial statements and our Investor presentations and the Investor Relations section of the company's website. Please refer to these files for more detailed information.
Ryan Peterson: 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 by excluding certain noncash items and other expenses.
Ryan Peterson: Not indicative of energy loans core operating results.
Ryan Peterson: Management uses non-GAAP measures internally to understand manage and evaluate our business and make operating decisions.
Ryan Peterson: 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 energy.
Ryan Peterson: President and CEO, Kevin Smith.
Kevin R. Smith: Good afternoon, and thank you for joining our first quarter 2024 conference call.
Kevin R. Smith: I'm excited to be joined for the first time by Energen Xu CFO, Mike Baur.
Kevin R. Smith: We are thrilled to have Mike on the gene, bringing with him over two decades of financial leadership experience.
Kevin R. Smith: Joining today's call I will provide updates on our progress against our three strategic priorities driving topline growth advancing our path to profitability and expanding in our innovation pipeline.
Kevin R. Smith: First we endeavor to position for sustainable top line growth by evaluating and improving our sales and rental strategies, while strengthening our relationships with distributors and stakeholders.
Kevin R. Smith: We had many positive discussions with our business to business partners in the first quarter, some of which led to the completion of new sales agreements. We will continue to focus on developing fruitful relationships and building awareness of our market, leading portable oxygen concentrator with partners across the globe.
Kevin R. Smith: As part of this initiative, we are closely monitoring the U S market trends and are prepared to fill any gaps that may arise from a recent competitor's temporary exit from the U S home respiratory market at this time, we have seen very modest tailwind as a result of that exit.
Kevin R. Smith: And we will remain ready to capitalize on potential outstanding customer demand so as the year goes on.
Kevin R. Smith: We continue our efforts to reduce friction increased synergies and efficiencies across our sales channels. We have seen encouraging results by promoting communication between our sales personnel and launching specific pilot projects to drive this class partnership.
Kevin R. Smith: These initiatives, including training our team to execute both direct to consumer and rental sales partnership programs within our b to b customers and new targets within our rental channel. These initiatives while in early stages are showing promising results.
Kevin R. Smith: Secondly, we remain focused on establishing and advancing our path to profitability.
Kevin R. Smith: As part of our efforts to better manage our cost and margin profile. We recently made the calculated decision to target hospitals. In addition to individual practitioners do a rental business.
Kevin R. Smith: Expanding our scale efficiency and throughput in the rental channel, we anticipate driving profitability over time.
Kevin R. Smith: In addition, we are seeing cost benefits in the form of lower sales and marketing expenses due to the recent exit of a third party relationship in the rental channel, which we spoke to on our last quarterly call.
Kevin R. Smith: Also rolling out pilot programs to drive a return to growth in our high margin direct to consumer business.
Kevin R. Smith: As a reminder, we have materially downsized, our DTC team on a year over year basis.
Kevin R. Smith: We have now achieved a healthy organization size and are beginning to see improving productivity per rep.
Kevin R. Smith: As always we are carefully considering the return potential of every dollar we invest into the business and we'll maintain this philosophy going forward.
Kevin R. Smith: Regarding our efforts to expand our innovation pipeline, we remain diligently focused on bringing new innovative products to market and supplementing our current market leading POC.
Kevin R. Smith: It's very software and accessories to ensure a best in class provider and patient experience.
Kevin R. Smith: I would also like to touch on our plans to expand physio assist availability in the U S.
Kevin R. Smith: We remain excited about the addition of physio assist to our portfolio and we are pleased to share that we have engaged in healthy discussions with the FDA. We look forward to bringing this product to the U S market in the future.
Kevin R. Smith: We have an exciting pipeline of store and we look forward to updating investors on specific launches later this year.
Kevin R. Smith: I would like to briefly highlight our first quarter 2024 results before turning the line to Mike for a full review of our financials and outlook we.
Kevin R. Smith: We achieved $78 million in total first quarter revenue, reflecting 8% year over year growth and 3% from our fourth quarter 2023.
Kevin R. Smith: Our results are a reflection of really execution against our strategic goal.
Kevin R. Smith: Now I'd like to turn the call over to Mike for a more detailed review of our financial results Mike.
Mike: Thank you, Kevin and good afternoon, everyone.
Mike: Unless otherwise noted all financial comparisons to the prior year comparable period.
Mike: Total revenue for the first quarter of 2024 was $78 million, an increase of eight 1% versus the prior year period.
Mike: The increase was primarily driven by higher international and domestic business to business sales as a result of increased volumes from existing and new customers during the quarter.
Mike: For the first quarter Foreign exchange had a positive 50 basis points impact on total revenue and a positive 180 basis points of impact on international revenue.
Mike: Looking at first quarter revenue on a more detailed basis.
Mike: Direct to consumer sales decreased 15, 6% to $25 million from $24 $3 million in the prior period, driven primarily by lower representative head count, partially offset by increased average selling prices and increased unit volume per rep.
Mike: Domestic business to business revenue increased 31, 3% to $16 $5 million.
Mike: With $12 $6 million into comparable period, driven by new customer business and increased demand from resellers.
Mike: International business to business revenue increased 37, 2% to $26 million compared to $19 million in the prior period.
Mike: Our year over year growth in this channel was primarily driven by higher sales volumes to existing customers.
Mike: Rental revenue decreased eight 3% to $14 $9 million from $16 $3 million in the prior year period.
Mike: Primarily driven by a higher mix of lower private payer reimbursement rates and higher rental revenue adjustments.
Speaker Change: I want to discuss our gross margins.
Speaker Change: Total gross margin was 44, 1% increase in 150 basis points from the same period in the prior year.
Speaker Change: Primarily driven by a lower average cost of components and this quarter relative to a year ago.
Speaker Change: The benefit of lower component costs was partially offset by channel mix shift with a greater proportion of total Q1 2024 sales from our lower margin B to B channel relative to total Q1 2023 sales.
Speaker Change: Sales revenue gross margin was 44, 1% an increase of 490 basis points, driven primarily by lower component premiums.
Mike: Rental revenue gross margin was 43, 7%.
Mike: The decline of 1040 basis points, primarily due to lower net revenue per patient as a result of a decrease in the percentage of patients build versus total patients on service.
Mike: The mix shift from Medicare versus private Payors and higher rental revenue adjustments.
Mike: Moving on to operating expense in the first quarter total operating expense decreased to $56 million compared to $52 $6 million in the prior period.
Mike: Representing a decrease of three 8%.
Mike: The decrease was primarily due to restructuring costs of $1 $8 million incurred in the prior year period as well as the lowest sales and marketing expenses, primarily resulting from last quarter's exit from a third party sales partnership.
Mike: In the first quarter of 2024.
Mike: We reported a GAAP net loss of $14 $6 million and loss per diluted share a 62 cents.
Mike: On an adjusted basis, we reported a net loss of $10 $4 million and adjusted loss per diluted share a 45 cents.
Mike: Adjusted EBITDA was a loss of $7.6 million compared to a loss of $11 $8 million in the prior year period.
Mike: We are pleased to be driving improvement in our adjusted EBITDA metrics as we continue to manage the business carefully with profitability is a key objective.
Mike: Moving onto our balance sheet as of March 31st 2024, we had cash cash equivalence and marketable securities of $119 $8 million with no debt outstanding.
Mike: Before I turn the line back to Kevin I would like to share our revenue expectations for the second quarter.
Kevin R. Smith: We're continuing to make progress on our strategic priorities through the second quarter, including our on going work to evaluate and optimize some dynamics in our sales and rental channels based on trends in our business. Today, we expect total sales to be $81 million to $84 million in the second quarter, we anticipate providing guidance for.
Mike: The back half of 'twenty, 'twenty, four and our second quarter earnings call and with that I will pass the call back to Kevin for closing remarks.
Kevin R. Smith: I'm pleased that our organization made meaningful steps in the right direction during the first quarter.
Kevin R. Smith: Zillions and progress are a testament to the strength of our team at imaging we were.
Kevin R. Smith: Recognize there is much work to be done, but we will continue to execute against our strategic goals and we made excited about the future with that I will open it up for questions operator.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate your line is in the question queue you may.
Kevin R. Smith: Press Star two if he would like to remove your question from the queue.
Kevin R. Smith: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Mike: Thank you. Our first question comes from the line of Mathew Blackman with Stifel. Please proceed with your question.
Mike: Hi, This is Colin on for Matt Congrats on a great quarter, I guess I wanted to start on the U S. B to B business. A couple of dynamics. There you saw a little bit of a tailwind from a competitor exiting the market, but I'm also curious about any improvement in the capital environment for H in knees.
Colin: Has anything changed to how we should think about these dynamics going forward and how do you think about that.
Colin: Hmm.
Mike: When laying out the guide for the second quarter.
Mike: Thanks, Colin This is this is Kevin and I'll go ahead.
Kevin R. Smith: That one Mike.
Speaker Change: No we don't.
Speaker Change: Yes.
Kevin R. Smith: Not seeing any real headwinds that are sitting in front of us here as far as the capital markets. It hasnt been interfering with our business.
Kevin R. Smith: Feedback that we have from from Dnb is strong we are.
Kevin R. Smith: We've been forecasting building bottoms up with Amazon.
Kevin R. Smith: Once a month and quarter to quarter basis, and we feel pretty good about our ability to why at least here over the next quarters, we're providing guidance to be able to order.
Kevin R. Smith: So.
Kevin R. Smith: In short, we're not seeing any.
Kevin R. Smith: Mark.
Speaker Change: Okay, Great and I just had a two parter on the rentals business was there any impact during the quarter due to the exit of the third party support contract for the prescribed will chip channel and how should we think about gross margin in that business going forward.
Speaker Change: Given given the revised down profile during the first quarter versus last year.
Speaker Change: So I'm going to start with.
Speaker Change: I'll start at the beginning.
Speaker Change: Part of that so from the impact from the third party sites.
Speaker Change: You characterized that before we exited the third party relationship with Brian.
Speaker Change: Yes.
Speaker Change: The members of that team is already at the highest performing members of that team in house directly and part D. Energen team and integrated that came in July and his family.
Speaker Change: We saw a little better.
Speaker Change: Yeah, I'll say, a transition period, there, where we're integrating the team and DIY and the energen caused a little bit of.
Speaker Change: Just on my last SaaS, and so forth, but that is and that is behind us that has is working well now moving forward and we like what we're seeing out of that team and the collaboration that we have more variety.
Speaker Change: Yes, My LNG why chairman.
Speaker Change: Thanks, Kevin.
Speaker Change: Yeah. Colin this is Mike just a little bit on the.
Mike: On the gross margin. So we're not we're not providing specific one.
Mike: Guidance in terms of gross margins going forward.
Mike: But I can tell you it's kind of what the impacts were kind of where they came from and that rental business for Q1. So.
Mike: Ken will start with rental revenue a couple of things impacting us there and favorably we did have lower Medicare rates are they kind of went into effect on January of this year. So that's part of the that's part of the impact.
Ken: Also seeing a unfavorable unfavorable mix with a higher percent of our patients coming from the private pay or a payer as opposed to Medicare so.
Ken: Those two things are really directly impacting gross margin.
Ken: In addition to that rental gross margins were also impacted by some higher service costs in that channel during the quarter.
Ken: We do have some visibility into patient pay plans and the patient mix going forward, but we're not we're not able to ship concrete rental gross margin outlook at this time, and we'll revisit that as a future call.
Speaker Change: That's great. Thank you, Kevin and Mike for taking my questions.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Margaret Cask score with William Blair. Please proceed with your question.
Margaret Cask: Hey, good afternoon, thanks for taking my questions.
Margaret Cask: I'm not trying to dive a little bit into the second quarter guidance, if I may but by business line in and apologize in advance for the series of questions but.
Margaret Cask: Number one you usually Q2 with C. D T C N V to be domestic just seasonally increase and a.
Margaret Cask: Double digit pace sequentially. So is that the assumption here and why or why not and two are you assuming any benefit from Philips thing often the mark in the second quarter benefit or headwind frankly.
Margaret Cask: And three you know relative to our number we saw you know a lot of upside coming from B to B International Ah Yeah was there something specific to that number and how repeatable is that 26 million as we go along our adult into Q2 and the rest of the year.
Margaret Cask: Right.
Margaret Cask: So Larry this is Mike I'll take the first part of that question. So in terms of kind of what we're guiding to.
Mike: So we're not providing guidance at the channel level, but I would just say that our guidance is reflective of the trends that we're seeing in the business today, we've taken a new kind of a lot of different things the evolution of our channel.
Margaret Cask: Channel mix.
Mike: The new leadership team that's.
Mike: Well this year.
Margaret Cask: And in terms of the question was do you see I think it's important also that are we consider 2024 to be a rebase year and do you see given.
Margaret Cask: The new size of our team but.
Margaret Cask: But we have seen early signs of higher productivity, which is very encouraging.
Margaret Cask: In terms of maybe a little bit more in terms of that guidance of the revenue guidance.
Margaret Cask: Maybe it'll be helpful to say, how we approached it we look at the pipeline.
Margaret Cask: And we look at what is most likely to occur what is life unlikely to occur and it's more of a bottoms up forecasting that we're instituting in the business and that gets us to that long with the low end of the range that we provided to get to that higher and we really have to see higher percentage of upside and a lot.
Margaret Cask: A lot of repeat of yours coming in.
Speaker Change: And I'll just add on to that a little bit yes, Margaret therefore.
Margaret Cask: One of the assumptions of the benefit from from Fellas.
Speaker Change: We have seen very modest tailwind coming from.
Speaker Change: Tell us so far again as we characterized previously we see that there is opportunity out there and we're going to position ourselves we have been positioning ourselves to take advantage of it.
Margaret Cask: And it's something that we've not been seeing coming in.
Margaret Cask: And then the dribs and drabs of let's say opportunities that present themselves.
Margaret Cask: Particularly.
Margaret Cask: The trade back to that but that may that may come more down the road and we are we're positioning ourselves to be able to take advantage of every opportunity that comes our way and on the international <unk> and being able to see that continue were not forecasting anything right now past Q2, and we haven't broken down.
Margaret Cask: The channel by channel mix, but we've seen that we've seen good results coming from the <unk> in general and we do anticipate those opportunities.
Margaret Cask: Continue to be there and.
Margaret Cask: Taking advantage forever.
Margaret Cask: Okay.
Margaret Cask: Okay.
Margaret Cask: And then as we think about the hospital channel, which is maybe a newer combat and your intro Yeah. My my understanding in the past in a hospital wasn't really something quite as focused on by the company because the flow rates, maybe weren't aligned with what the hospital needs. So yeah.
Margaret Cask: Walk me through that hospital strategy, you know how big is that is that as an end market for you guys and how aggressively are you going to be pursuing that.
Speaker Change: So it's a good good.
Speaker Change: Good dialogue there so one of the when we looked at the hospital opportunity so.
Margaret Cask: Yeah, a large percentage of patients are diagnosed in the ER and the hospital from an event that triggers a visit to the to the emergency room leads to inpatient care and then when the patient goes home they have that.
Margaret Cask: As a upon discharge from the hospital. So there's an opportunity for us to go even further upstream and be able to gain a few mines at the very least by some number of months.
Margaret Cask: The only prior to a patient hitting a capitation period there so.
Margaret Cask: And those patients of course that follow up by five prescribers to that leads to another connection relationship back to the prescribed but we see this as.
Margaret Cask: As an opportunity for us to continue to explore.
Margaret Cask: And that we like what we're seeing so far it's early stages to see how well we roll. This out further advisors it looks promising and at this time.
Margaret Cask: Okay.
Speaker Change: Just last question for me is as we think about Cogs.
Speaker Change: And I appreciate you not wanting to go too far into gross margin, but yeah, we can back into our Cogs per unit number and it seemed like it actually did quite well and so you've talked historically about getting that the high cost consumables off the books that Directionally point to continued gross margin improvement for them.
Margaret Cask: From here, but maybe you can provide some some color around that and kind of any long term profitability comments about that.
Speaker Change: It may have changed from the last quarter. Thank you.
Speaker Change: Thank you Margaret So just in terms of you know.
Speaker Change: The improvement in Cogs.
Speaker Change: Improvement in Cogs and related gross margin really was largely driven by continued depletion of those premiums price components.
Speaker Change: But we have we have been incurring in the previous year.
Speaker Change: In terms of kind of where we're looking at going forward with that we we still do have some premium costs on our balance sheet.
Speaker Change: And we will be seeing.
Speaker Change: Some of that we kind of like make its way through the P&L over the course of the remainder of the year, but certainly to know did read that we've seen in 2022 and 2023.
Speaker Change: So too much low level, but we still have a little bit to get through.
Speaker Change: Okay. Thank you guys.
Speaker Change: Thank you. Our next question comes from the line of Mike Matson with Needham and company. Please proceed with your question.
Michael Stephen Matson: Mike you might still have yourself.
Michael Stephen Matson: Yeah, Yeah, sorry about that.
Michael Stephen Matson: The DTC sales team you know.
Michael Stephen Matson: The did the head count.
Michael Stephen Matson: James at all there and what kind of drove that.
Michael Stephen Matson: While sales in that business.
Speaker Change: Sorry, Mike I think maybe the first part of that might've been cut off but I think I asked I think I heard you asking where we are right now with the head count on the DTC business.
Mike: Yeah, the cell salespeople inside salespeople.
Mike: So.
Speaker Change: Yes, right now we have.
Speaker Change: We have a sales team that's been in the range of 150 to 170 sales reps in the DTC.
Speaker Change: DTC channel.
Speaker Change: As you know, we're going to probably not provide any additional updates on that going forward unless there is any deviation from that but that is a that the head count that we feel comfortable with right now.
Speaker Change: We have initiatives that are running through that we've talked about with <unk>.
Speaker Change: With reducing the friction and enabling any patient who reaches into the DTC channel and Tien tsin to help them all get it.
Speaker Change: Energy and PFC, whether that be for a cash sale or whether that be somebody who's covered by our by our rental plant being able to leverage that sales organization and the contact point to allow that to happen. We then seeing positive results coming from that that still is in a pilot phase right now will be likely that has has been trending and we're very comfortable.
Speaker Change: Happy with the size of that organization and we're going to continue to focus on growing across the board.
Speaker Change: Okay and then just.
Speaker Change: Some of the prepared remarks, I apologize you might have touched on this but just the decline there that that business I mean, what was the reason for that.
Speaker Change: Yes.
Speaker Change: Yes, the DTC channel.
Speaker Change: One thing to keep in mind, there too which is.
Speaker Change: That organization the size of that organization year on year from same same time prior year as it has been considerably reduced as.
Speaker Change: And we're focused on growing that piece of the business profitably so quarter on quarter, we've been happy with what we're seeing coming out of that we're happy with what we see in here.
Speaker Change: Going forward with that channel, but not just growing it at all costs are growing and profitable.
Speaker Change: Yeah, Okay I understand.
Speaker Change: And then what about just in terms of pricing. So on the <unk> side in particular, I mean, we did see really strong growth there with Respironic Philips respironics, having exited the market.
Speaker Change: Has there been you know potentially a shortage of P. O sees and is that an opportunity to raise you know give you some pricing power there.
Speaker Change: So we feel that it was a couple of points in there I think two arms race.
Speaker Change: To want to talk to you one.
Speaker Change: Yeah.
Speaker Change: The characterization of that business potentially being part of an exit from from their competitor.
Speaker Change: We're not seeing that that has been has been a meaningful contributor to the growth that we're seeing here or there.
Speaker Change: Since then we have coming out of this past quarter.
Speaker Change: We've seen very limited impact from that we are going to continue to monitor and position ourselves to why you have to take advantage, but we are we are positioning ourselves strongly against the low price competitors in the marketplace. We see we see price pressure that is coming in but we have a POC with.
Speaker Change: An eight year useful life on it which is three years longer than the next closest competitor and those were meaningful year. Santa <unk> partner can continue to deploy POC unveiled for we have a very strong brand name recognition. We know from our experience is working with our Bee partners working with.
Speaker Change: Labour channels and also having patients we agenda west through our DTC channel.
Speaker Change: More often than not patients are asking for energen, rather than asking for a POC that brand name recognition that linked to the quality of Energen is all gives it gives us a distinct advantage in and right now we feel like we are sitting alone at the top is a premium player in the marketplace. So we're going to continue to like it has to fight.
Speaker Change: Off price pressure, but we feel that we have a good message to one.
Speaker Change: So.
Speaker Change: Okay got it thank you.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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