Q2 2024 Inogen Inc Earnings Call
'twenty 'twenty four progress on our strategic initiatives, including innovation.
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.
Forward looking statements in this call are based on information currently available to US as of today's date August six 2024.
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 disclaim any obligations to update these forward looking statements touch as may be required.
We have posted historical financial statements in our investor presentations in the Investor Relations section of the company's website.
unknown: Please refer to these files for more detailed information.
Please refer to these files for more detailed information.
During the call. We will also present certain financial information on a non-GAAP basis management believes that non-GAAP financial measures taken in conjunction with U S. GAAP financial measures provide useful information for management and.
And investors by excluding certain noncash items and other expenses that are not indicative of <unk> core operating results.
unknown: Now turning to updates on our strategic initiatives, and I will start by highlighting our progress on driving top-line growth.
Speaker Change: I think about the prospects of these initiatives, but they will take time to begin flowing through the financials.
Turning to operating expense, where we experienced and expect further increases in advertising costs as we approach the November election. These.
Speaker Change: These costs, primarily in fact, our direct to consumer sales channel, which relies heavily on TV advertising to reach consumers and generate leads.
Speaker Change: Finally, I would like to share updates on our innovation pipeline.
Speaker Change: We look forward to bringing the <unk> product to the U S market and continue to make meaningful progress towards FDA clearance.
Speaker Change: We will provide updates as they become available.
Speaker Change: Moving to our POC portfolio, we continue to expect the launch of the newest generation POC. The row four in the back half of the year. The ROE for offers patients a new fourth flow setting a service life of up to eight years and the highest oxygen production and the lightest weight POC in the market.
Speaker Change: These innovations are representative of our mission to provide patients on oxygen therapy with an opportunity to maintain mobility and quality of life as they undergo treatment.
Speaker Change: Additionally, we continue to invest in our digital offerings to ensure imaging devices remain as easy to utilize and maintain as possible.
Speaker Change: With that I would like to say I am proud of the significant progress our team has made towards our strategic initiatives in the quarter, we will continue to position <unk> for near and long term success.
Speaker Change: I will now 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.
unknown: In the second quarter, foreign exchange had a negative 10 basis points impact on total revenue. Before I turn the line back to Kevin, I would like to share our revenue expectations for the full year 2025.
unknown: We look forward to updating you on our progress as we continue to expand our impact on patients with respiratory disease.
Speaker Change: <unk> hundred 50 to 170 range and so we're not gonna y.
Mike: Continue to comment on that size of that organization unless it varies unless varies outside of that significantly.
Mike: But that size is is the size team that we are comfortable with going forward. We believe that we have a good team building the tenure of the training and so forth that are that we need to what they have in order to grow we're seeing.
Mike: Positive traction come out of them, we're not going to go into individual metrics within that other than other than as were talking about revenue here today, but we are focused on increasing that productivity within that DTC channel. We do have the patient first pilot that we had referenced as well we're trying to make it as easy as Pos.
Mike: Well for any patient who wants to have an image and POC to guests and energen POC. So, we're making that smooth and efficient and we believe that's going to help us continue to grow in the future.
Mike: Sure.
Speaker Change: Great. Thank you.
Speaker Change: And then on the rental side of the business. You know you talked about the hospital strategy. So can you give a bit more color on how those efforts have been progressing and how we should be thinking about how big of an opportunity. This can be for you relative to kill.
Speaker Change: All participants thank you so much.
Speaker Change: Certainly will it be.
Speaker Change: When you look at the hospital pilot so the.
Speaker Change: As we're looking at that what that is and Ive.
Speaker Change: References a little bit in the in the.
Speaker Change: The prepared remarks, as well as before but some additional color. This is going a bit further upstream right. So that that rental channel you would think about that as the prescribers. The sales team that's going to be physician's offices too wide to gain referrals from those from those offices. We had previously a third party organization that we were partners.
What's out there that is now just purely an in house team, although scaled back a little bit but we are we are satisfied with the results of that team is achieving are actually very very happy with that as an opportunity for us to continue to build but going into the hospital side is growing even further upstream so by the time the patient leaves the hospital they are set up with.
Speaker Change: With oxygen often a tank as they're coming out of the out of the center. We are with the prescribed between trying to get those patients further downstream, but they've already had some months of billing that are eating away before they go into that catheter period.
Speaker Change: But if we go into the hospital, we get that patient day, one coming out of the hospital set them up with a POC with and energen and be able to capture that billing plus we're more efficient with the number of patients. We can have referrals for per sales call with the sales with the sales reps that is as I'll remind you is in a pilot phase right now we don't.
Speaker Change: See that flowing into the financial statements until into were fully executing on that one, but I wouldn't expect to see that as a as a meaningful.
Speaker Change: Flow through here in this coming quarter.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question is from James Beard with William Blair. Please proceed with your question.
James Beard: Hey, guys. Thanks for taking the question. This is Jamie on for Margaret and congrats on the good quarter.
James Beard: I wanted to first start off on some of the <unk> strength you saw maybe looking first at O U S.
Speaker Change: Were there any large tenders.
Speaker Change: During the quarter I know it tends to be a little lumpier internationally.
James Beard: And then can you just give us a sense on your confidence on international continuing at that rate and then also on <unk>.
Speaker Change: <unk> domestic.
Speaker Change: Could you also just parse out I know you mentioned that you saw a tailwind related to restaurant X exiting the market or is this also the market getting better and maybe say improved relationships on your own.
James Beard: Okay.
Jimmy: Thanks, Jimmy.
Mike: Mike maybe al do you want to start with yes sure sure Kevin I'll take the first part of that question. So in terms Jim in terms of your question on any large one time orders or tenders, we really didnt receive any orders that we believe that we can just call out one time and not repeatable.
Speaker Change: <unk> results will not be to be channels were the result of broad based demand from both new and existing customers. So to answer. The first question no there really wasn't anything you'd call out sized orders.
Speaker Change: Yeah in those.
Speaker Change: We do see the opportunity to continue to build there internationally for for that reason that Mike said this is <unk>.
Speaker Change: Now it can be it can be pretty pretty chunky at times, but we feel that the relationships that are being built.
Speaker Change: Is.
Speaker Change: It's certainly adding to the.
Speaker Change: The growth that we'll see internationally and on the domestic side of things. We we certainly do see some tailwind from from the exit of our competitor in the in the U S market. We see this as a as growth. We have gained new customers. We've also why we've also gained somewhat some additional business in existing customers I don't see this.
Speaker Change: As a one time deals that we've gained because of that exit, but certainly that tailwind is there.
Speaker Change: Great. Thanks, that's helpful. And then maybe switching gears a little bit I wanted to touch on guidance.
Speaker Change: You grew 6% this quarter, 8% last quarter I mean, you're now growing high single digits call. It in the first half of the year I think the guide now implies a default.
Speaker Change: <unk> in the second half despite a similar to easier comps.
Speaker Change: Maybe why the more conservative outlook and then maybe as you look to 2025 and long term, what's the right range of growth, we should sort of model for this business going forward. Thank you.
Speaker Change: Yes, Jimmy Thank you for that question first of all I'll start off by saying, we're really pleased with the strong first half we had 2024.
Speaker Change: I'll also talk a little bit just about our guidance philosophy. So oregon's philosophies to really said prudent and achievable ranges and we want to be able to commit to that number meet or exceed it.
Speaker Change: In terms of our guidance per se.
Speaker Change: The full year guidance and therefore, the second half for the year guidance, what we're seeing is we're anticipating headwinds.
unknown: beyond normal seasonality based on the national election.
Speaker Change: Beyond normal seasonality based on the national election.
Speaker Change: Advertising, we're expecting to be more expensive.
Speaker Change: Maybe difficult to obtain good slots and we believe that that May result, unless as being placed so we.
Speaker Change: And we may have fuel leads as a result of the outer besides advertising changes. So we kind of see that as an impact to our D to C business and that's really what's driving that.
Speaker Change: The guidance for the second half of the year.
Speaker Change: Great that was helpful. Thank you guys.
Speaker Change: Now in terms of your question. Your other question about kind of future, so what kind of kind of stick to what.
Speaker Change: We've talked about in terms of guidance and as we kind of progress towards the rest of the year, we get into our MLP.
Speaker Change: <unk> and kind of move forward will determine what type of guidance. We think we should give going forward, but at this time, we're really not going to comment on 2025.
Speaker Change: Or beyond at this point.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question from Mathew Blackman with Stifel. Please proceed with your question.
Speaker Change: Hi, guys. This is Colin on for Matt I wanted to start in the rental business.
Speaker Change: Thinking specifically about the productivity ramp for.
Speaker Change: For the prescriber channel efforts that you brought.
Speaker Change: In house, how do you think about that productivity ramping and could.
Speaker Change: Could we see this return to being your fastest growing business in the near term or even in 2025, what was left to chop there.
Speaker Change: Yes.
Speaker Change: So I'll start Paul and I'll start basically I think it may be helpful to give kind of our view on what's going on in that rental business. At this point in time and then we can we can expand on some of the other questions you had but.
Speaker Change: What's going on as we see it we're still seeing the trend towards private payors.
Speaker Change: Lesson Medicare so the lower reimbursement rate per month on the private payers versus Medicare part of that trend relates to the patient shifting to Medicare advantage.
Speaker Change: As we look at patients on service.
Speaker Change: Compared to say Q2 of last year, but.
Speaker Change: Ah patient on service has stayed somewhat consistent over the past few quarters with the attrition offsetting new patients. So what we're seeing is a more cap patients. Therefore, less bill patients those are the kind of the dynamics.
Speaker Change: Impacting our rental business, obviously on the top line, but those are also dropdowns impacting our gross margin as well we are focused on adding more billable patients to the funnel.
Speaker Change: Kevin maybe you can add some color here and kind of how we're approaching this channel.
Kevin: Yes, certainly in that.
Kevin: That will that will go back to the.
Kevin: Looking at the hospital pilots that we're working through that through that channel opportunities too.
Kevin: Get more.
Speaker Change: More opportunities per sales rep further up the further up that food chain right and to be able to get more months of billing before a patient enters the capitate period. So more revenue per patient and then also opportunity to have more referrals per per sales call. If you will going into the discharge planners at the hospital. So we do see.
Speaker Change: The opportunities for that to continue to build that creativeness I won't.
Speaker Change: Comment on the future of the specific channel there as to as to how that will compare with the other ones at this point in time, but we do see good opportunities.
Speaker Change: Understood. That's really helpful. And then I had one on gross margins.
Speaker Change: Beyond the higher cost inventory rolling off can you walk me through again, the driving cost of the driving forces of the step up from last quarter.
Speaker Change: And particularly.
Speaker Change: Which which gross margin line rental or sale of the one time adjustments really affected during the during the second quarter.
Speaker Change: Sure Colin.
Speaker Change: So in terms of what we're getting a little bit of an uptick this quarter from some adjustments to our reserve accounts. So typical.
Speaker Change: Adjustments that we run through the closing process.
Speaker Change: Consistently reevaluating in estimating what those are going to be but those are we're calling them one time adjustments representing about 300 basis points of favorability.
Speaker Change: Two our gross margin in Q2.
Speaker Change: And in terms of.
Speaker Change: What was your other question I'm sorry, the second part of that question.
Speaker Change: Really which gross margin line sales or rental did that did that flow through during the quarter, yes, do matters, and which parts of fall off going forward.
Speaker Change: Sure that's under the sales gross margin line.
Speaker Change: Okay understood. Thank you.
Speaker Change: Thank you. Our next question is from Mike Matson with Needham <unk> Company. Please proceed with your question.
Mike Matson: Yes. Thanks, I just wanted to ask one on pricing trends kind of in the different channels. So.
Speaker Change: Domestic <unk> international will be to be in.
Speaker Change: DTC sales in particular.
Speaker Change: I guess just on a year over year basis, what's happening with price.
Speaker Change: And those channels.
Speaker Change: Yes.
Speaker Change: With the pricing in the channels, we've been we've been maintaining some pricing discipline as we go through there and there was this price pressure certainly.
Speaker Change: We see that we feel that from competitors, but we do feel that we have that we have the right.
Speaker Change: That we've got the right the right messaging to be able to pull through on that but we've been we've been holding.
Speaker Change: Relatively stable theres, a little bit of a downward momentum.
Speaker Change: <unk> on that but it's particularly in our <unk> channels, we've been holding on holding on tight to that we certainly see some some.
Speaker Change: When you see the DTC sales, we see some pressure certainly there on price with resellers and so forth and there's a moment certainly when we start to compete with our with ourselves on that still lies so imaging devices that we are that we're working to do there but what.
Speaker Change: But we do feel that we've got the right pricing strategy, we've got the right messaging and that's particularly important when we start to look at <unk> on how we can maintain our pricing with the with the lower margin sales.
Speaker Change: Yes, okay.
Speaker Change: And then.
Speaker Change: I did miss some of the prepared remarks I apologize if you've mentioned this but I just wanted to check in on the Sydney Ox product.
Speaker Change: Are there any updates there in terms of FDA pathway or timing or anything like that.
Speaker Change: No we haven't given any.
Speaker Change: Updates on the timing for that one what you should.
Speaker Change: Expect to.
Speaker Change: C. A firm update on timing would be when we have the regulatory clearance from that and we will provide the update.
Speaker Change: Yes, basically that outlook as to what that commercialization plan and timeline.
Speaker Change: It will look like.
unknown: Okay.
Speaker Change: Okay, Alright, and then just on the DTC sales business. So it's been declining for a while now and I know there has been kind of a scaling back in more the rep head count and so forth but.
Speaker Change: What is it going to take I guess to get that in.
Speaker Change: Business back to growth and.
Speaker Change: When do you think that could potentially happen.
Speaker Change: Yes, so Mike I guess just from a from a high level perspective, you know when you talk about what's going on with that business.
Speaker Change: Again, as we've talked early about rep counts in that so clearly thats that is whats driving the pretty much driving the reduction if you look on a year over year basis.
Speaker Change: For Q2, and the year to date.
Speaker Change: We are we are seeing though we're seeing we're seeing some favorable things there we're seeing in Ohio revenue per rep were seeing some pretty decent asps as well, but as we look at that I'll, let Kevin comment more on the future and we want to talk about that but effectively that's where you've seen that drop.
Speaker Change: We've cut a lot of cost out of that do you see salesforce, we're seeing that benefit running through selling and marketing on a year over year basis, but.
Speaker Change: We're trying to rightsize.
Speaker Change: That channel right.
Speaker Change: As a reminder.
Speaker Change: We're looking at this as a re baseline year ends.
Speaker Change: At DTC head count we feel we've got the right the right team in place the right leadership in place. We have we have excellent marketing effort that we believe is is put together and supporting that team as we go forward in this pilot program that we've been running that we've talked about a little bit here with that patient first enabling any patient that once again.
Speaker Change: Engender easily be able to get that smoothly and easily be able to get an inogen POC, regardless of whether they come in as potential cash sale or if they have they.
Speaker Change: They're choosing insurance coverage for that option. So so.
Speaker Change: So we're working through the pilots on their working on making sure that we're managing the cost within that to optimize but we feel we feel good with the structure that we have today going forward.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you there are no further questions at this time.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Speaker Change: Okay.