Q3 2024 Inogen Inc Earnings Call
Speaker Change: Welcome to INAGEN's 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: Earlier today and it Didnt released financial results for the third quarter of 'twenty 'twenty four its earnings release is available in the Investor Relations section of the company's website, along with a supplemental financial package. As a reminder, the information presented today will include forward looking statements including without.
Speaker Change: Patient statements about our growth prospects and strategy for 'twenty, 'twenty, four and beyond expectations related to our financial results for the full year 'twenty 'twenty four progress of our strategic initiatives, including innovation, our expectations regarding the market for our products on our business.
Speaker Change: Supply and demand for our products in both the short term and long term.
Speaker Change: The forward looking statements in this call are based on information currently available to US as of today's date November seven 2024.
Speaker Change: 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.
Speaker Change: Actual results may vary and we disclaim any obligations to update these forward looking statements, except as may be required by law we.
Speaker Change: We have posted historical financial statements and our investor presentations in the Investor Relations section of the company's website.
Speaker Change: Please refer to these files for more detailed information.
Speaker Change: 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.
Speaker Change: Is that are not indicative of <unk> core operating results.
Speaker Change: Management 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 I will turn the call over to <unk>, President and CEO Kevin.
Speaker Change: Smith.
Kevin Smith: Good afternoon, and thank you for joining our third quarter 2024 conference call.
Kevin Smith: During today's call I will review, our third quarter performance and provide an update on our progress towards our three strategic priorities driving topline growth advancing our path to profitability and expanding our innovation pipeline.
Kevin Smith: He will then turn the line to Mike for a full review of our financials and outlook.
Kevin Smith: I'm pleased to share that we are making great progress against our strategic initiatives beginning with our progress on driving top line growth in the third quarter. We delivered on this objective by achieving 89 million in total revenue, reflecting 6% year over year growth.
Kevin Smith: Our performance was led by strong P. O S T cells through our business to best in channels, where we drove over 20% year over year revenue growth for the second consecutive quarter, we continued to expand our relationships with new and existing customers as patients and providers increasingly recognize the benefits that our solutions provide over others.
Speaker Change: Jim therapies, and appreciate our quality ease of servicing an eight year service life and.
Speaker Change: Particular, we're having success, taking and expanding share within the accounts and some of our largest customers.
Speaker Change: Turning to our direct to consumer sales channel, we saw year over year declines as we continue to operate with a downsized and streamline sales force.
Speaker Change: Although our revenue was down we are pleased that this channel is becoming more profitable as a result of our cost structure and careful management.
Speaker Change: As we complete our first full year with a smaller team and move into 2025, we anticipate better year over year performance.
Speaker Change: DTC is a core part of our business model and we are working diligently to bring it back to growth.
Speaker Change: As part of these efforts within the D. T C business, we continued to advance our previously announced hospital and patient first pilot programs on.
Speaker Change: The patient first pilot we are still in the process of expanding the program out but we are pleased with the effects. We have seen thus far and anticipate it will be fully rolled out in the first half of 2025.
Speaker Change: Our hospital pilot is still being evaluated for effectiveness and we will share updates as they become available you programs along with a host of other improvements we have made to the organization structure and strategy or a large part of our effort to reposition energen for long term sustainable and profitable growth.
Speaker Change: Before I move on to talk about our next strategic priorities I would like to highlight the recent addition of ore haulage to our team as vice President of North American sales.
Speaker Change: Eric joined US in early September and we are excited for the two plus decades of experience. He brings to our sales force. In addition to his years of experience Eric brings a number of strong relationship from his years of leadership in the respiratory field and as part of our efforts to reduce friction between our business channels and scale overall growth.
Speaker Change: Eric is now managing both the rental and domestic business to business channels, marking a change from our prior sales structure in which separate leaders managed our business to business direct to consumer and rental channels.
Speaker Change: We believe this change will improve alignment across our business and ensure that we are directing every customer and patient to the right resources for sales to be complete and successful.
Speaker Change: I will now discuss our progress on our second strategic priority to reach sustained profitability.
Speaker Change: In the quarter, we generated $3 million of positive cash flow strengthening our already was on your balance sheet.
This marks our second consecutive quarter of positive cash flow and testament to our team's focus on ensuring every dollar spend is being allocated to position <unk> for growth.
Speaker Change: We also achieved our second consecutive quarter of adjusted EBITDA profitability.
Speaker Change: While we still expect to end the second half of 'twenty 'twenty four with an adjusted EBITDA loss. This is proof that our strategy portfolio and team can achieve long term profitability.
Speaker Change: Part of our efforts to achieve this long term profitability have been through our initiatives to improve gross margin.
Speaker Change: These include second sourcing our raw materials to ensure we are reducing costs production.
Speaker Change: Production, streamlining and implementing even more rigorous quality control to minimize defects and product returns.
Speaker Change: Programs like these are just one part of our strategy, but we are seeing the benefits are paying off and continue to expect to see that's going into next year.
Speaker Change: On the topic of operating expenses, we have continued to see rising advertising costs due to the excess demand for TV spots in advance of the election.
Speaker Change: As a result, we're redo some campaigns that were not returning value to the organization.
Speaker Change: This decision is emblematic of our efforts to evaluate the return on every dollar invested in the business.
Speaker Change: Finally, I would like to share updates on our innovation pipeline.
Speaker Change: We recently announced the launch of the ROE for our newest P. O C weighing less than three pounds. The row, four delivers power and performance and the lightest weight and the highest oxygen output for setting P. O C in the market.
Speaker Change: Alongside that sort of new features including up to 840 milliliters of medical grade oxygen per minute and up to five hours and 45 minutes of battery life. These innovations advance our mission to deliver the highest quality of life possible for patients, allowing them to remain ambulatory for as long as possible while undergoing oxygen therapy.
Speaker Change: With respect to semiotics, we continue to have very productive discussions with the FDA and as we've stated before we will provide a formal update upon quaintance.
Speaker Change: We remain committed to investing in innovation to drive growth in our business and expand our ability to serve patients with respiratory conditions around the world as well as our business customers.
Speaker Change: We're making significant progress against our strategic priorities and are taking meaningful steps towards profitability. In addition to introducing another leading P. O C to the market and expanding the capabilities and network of our sales team.
Mike: 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.
Mike: Total revenue for the third quarter of 2024 was $88 $8 million, an increase of five 8% compared to the prior year.
Mike: The increase was primarily driven by higher domestic and international business to business sales, partially offset by lower direct to consumer sales and rental revenue.
Mike: For the third quarter Foreign exchange had a negative 20 basis points impact on total revenue.
Mike: A negative 70 basis points impact on international revenue.
Mike: Looking at third quarter revenue on a more detailed basis direct to consumer sales decreased 23, 2% to $19 $2 million from $25 $1 million in the prior period as we continued to operate with a smaller and more efficient team.
Speaker Change: As Kevin mentioned, we look forward to completing our first full year with this team in place and positioning the D to C business better performance into the years ahead.
Domestic business to business revenue increased 35, 1% to $23 $4 million versus $17 $3 million in the comparable period.
Speaker Change: Driven by increased demand from new customers and resellers.
Speaker Change: International business to business revenue increased 26.2% to $32 $3 million compared to $25 $6 million in the prior period, primarily driven by increased demand with new and existing customers.
Speaker Change: Rental revenue decreased 13, 1% to $13 $9 million from $16 million in the prior period, primarily driven by continued lower average billing rates due to the mix shifts to private payers.
Speaker Change: I want to discuss our gross margins.
Speaker Change: Total gross margin was $46, 5%, increasing 630 basis points from the same period in the prior year, primarily driven by lower premiums paid for raw material components, partially offset by sales channel mix.
Speaker Change: As shared on our second quarter call, we expect gross margins to be in the low to mid forties in the second half of the year.
Speaker Change: Sales revenue gross margin was 47, 2% an increase of 1000 basis points, driven primarily by a reduction in premium price components, partially offset by the continued mix shift towards business to business sales.
Speaker Change: Rental revenue gross margin was 43, 2% a decline of 990 basis points driven by continued mix shift towards private payer reimbursement lower net revenue per rental patient and higher service cost.
Speaker Change: Moving on to operating expense.
Speaker Change: In the third quarter total operating expense decreased to $49 $1 million compared to $85 million in the prior period, representing a decrease of 39%.
Speaker Change: Third quarter 2023.
Speaker Change: Results included one time impairment charges of $32 $9 million.
Speaker Change: When excluding the impact of this charge total operating expenses of $49 $1 million increased three 2% from $47 $6 million.
Speaker Change: This increase was primarily related to increased personnel related expenses and higher advertising costs.
Speaker Change: In the third quarter of 2024, we reported a GAAP net loss of $6 million compared to a loss of $45 $7 million in the third quarter of 2023.
Speaker Change: And a loss per diluted share of 25 cents birthday loss of $1 97 in the third quarter of 2023.
Speaker Change: On an adjusted basis, we had net loss of $2.6 million compared to a loss of $8 $5 million in the comparable period and then adjusted loss per diluted share of <unk> 11 cents compared to a loss of 36 cents in the third quarter of 2023.
Adjusted EBITDA was a positive point $5 million in the third quarter of 2024.
Speaker Change: <unk> to a loss of $5 $5 million in the prior year period.
Speaker Change: Moving onto our balance sheet as.
Speaker Change: As of September 30 of 'twenty 'twenty, four we had cash cash equivalents marketable securities and restricted cash of $124 $3 million with no debt outstanding.
Speaker Change: As Kevin mentioned this marks the second consecutive quarter of cash generation as we continue to diligently manage and strengthen our balance sheet.
Speaker Change: Before turning the line back to Kevin I would like to share an update to our revenue expectations for the full year 2024.
Speaker Change: Based on all the progress in this quarter in the available I'll look today, we are raising our full year 'twenty 'twenty four revenue expectations due within $329 million to $331 million, reflecting approximately 45% year over year growth.
Speaker Change: In addition for the back half of the year, we continue to expect gross margins in the low to mid forties and an overall adjusted EBITDA loss.
Kevin Smith: And with that I'll pass the call back to Kevin for closing remarks.
Speaker Change: And a week from now I'll have had the privilege of being the CEO of vintage and for a year.
Kevin Smith: While we have just recently cemented our leadership team in place I am thrilled with the progress we have made thus far.
Kevin Smith: Much work to be done, but our team is performing at a high level and I'm very optimistic for the end of 'twenty 'twenty four and 'twenty twenty-five holds in store for antigen with that I will open it up for questions operator.
Speaker Change: Thank you we will now conduct a Q&A session.
Speaker Change: To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: The moment, please while we poll for questions.
Speaker Change: Thank you My first question comes from the line of Robbie Marcus with Jpmorgan. Please proceed.
Speaker Change: Hi, This is actually ROE him on for Robbie Thanks for taking our question just maybe.
Speaker Change: Starting with E. T. C. I was hoping you could give a little bit more color on the sales force and specifically just around the size and productivity heading into 2025, just wanted and I also kind of going off of that just want to understand what the strategy is given the downside salesforce to get the business back to growth potentially next year.
Speaker Change: Beyond.
Kevin Smith: Thanks, Ron I'll start with that this is a this is Kevin appreciate the question the.
Kevin Smith: Yeah, when we look at the size of the sales force I mean year over year basis, we are down, which which is yeah as plan as we've talked about in some of the some of the previous calls we are looking at.
Kevin Smith: Increased productivity per rep compared to compared to some of the recent historic levels and that's a that's a positive we start to see that trend up and as we're looking outward on the on the DTC remember that's one where we have a we have focused on the patient first initiative as well as make.
Kevin Smith: I'm sure that we're right sizing and evaluating how we are spending more advertising dollars to continue to build that up. So this has been a rebase year for DTC, we've been through that the third quarter in the middle of that Rebase and so we have a we have positive outlooks for this going forward, but we won't be getting into that that full rollout.
Kevin Smith: Of the patient first program until we hit until the first half of next year.
Kevin Smith:
Speaker Change: Got it and then it was also nice to see some topline momentum in the quarter as well as another quarter of positive free cash flow. So I just wanted to ask about your expectations for both the top and bottom line into 2025, and specifically just around cash flow generation from here do you think this is something that's probably more.
Speaker Change: Sustainable Hereon out and what are some of the puts and takes.
Speaker Change: Hi, Ryan this is Mike.
Speaker Change: Yeah in terms of cash generation clearly, we're really happy with the fact that we had the second consecutive quarter of positive cash generation.
Speaker Change: But I think a lot of this really kind of gets back to.
Speaker Change: As Kevin talked about executing on our strategic initiatives are.
Speaker Change: Looking at the topline growth path to profitability, the innovation pipeline, but getting to those first two I guess I'm really it's we've been talking about investing in the business wisely smart at the same time diligently managing our P&L.
Speaker Change: Maturing with generating profitable growth high gross margins, Kevin also talked about some of the things we're doing on the cost of goods sold reduction initiatives. Some of the things that we're looking at there.
Speaker Change: Just getting back to what we said about managing our cost structure and Capex are always looking at ways to manage their working capital improve cash flow.
Speaker Change: In terms of if you're looking at kind of a forward looking we're not guiding to what we expect our cash to be but what I can say is.
Speaker Change: If you're looking at kind of where where are we from a perspective of.
Speaker Change: Quarter over quarter.
Speaker Change: We were going into Q4, which is typically a C.
Speaker Change: Seasonally impacted particularly in D. C. We're expecting to see and we've talked about that a little bit more of an impact of general more difficulty generating some leads as a result of some of the advertising expense experiences that we're seeing and expecting to see.
Speaker Change: So I guess, if you look at that and you look at the positive EBITDA for two quarters positive cash two quarters looking at our two strongest quarters, which are typically Q2 and Q3. So again, we'll continue to focus in on on on making sure. We're investing our money into the business doing it in a smart way controlling our cost.
Speaker Change: Structure.
Speaker Change: Managing Opex and Capex.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Mike Matson.
Speaker Change: Mattson with Needham. Please proceed.
Mike Matson: Yeah. Thanks, So I guess just following up on the commentary around the D. T C.
Mike Matson: You know rep head count so I guess.
Mike Matson: Just trying to figure out when that would sort of stabilize so another work like you know what quarter will be where you know you're lapping year over year change in that head count is basically flat like how how far out is that some sort of like the third quarter.
Speaker Change: You just reported.
Speaker Change: Yeah. So as we are as we look where we are in the on the third quarter and going forward, we feel like we've got a pretty good handle.
Speaker Change: A handle on the Rep count and what it takes to be to be profitable from from that standpoint. This this channel we are seeing improved.
Speaker Change: Improved productivity as I mentioned, we're seeing improved profitability coming from the coming from the channel and the number of reps that we have in there right now we feel pretty good as I was saying about that so in a year on year basis, you'll still see us going into the beginning of next year would probably be a little bit under where we started but getting into the getting there.
Speaker Change: Back at the Middle part of next year, where we see it continue to be steady.
Speaker Change: Okay got it.
Speaker Change: Alright, and then.
Speaker Change: Just on the New York, So I wanted to see if you could clarify what you said because I thought you said something that you know you're talking to FDA and provide an update upon clearance. So my interpretation is that this might be wrong, but would be that you've submitted something for clearance and.
Speaker Change: But using the word Claire suppliers.
Speaker Change: Five 10-K, I think but I dunno.
Speaker Change: I understand that correctly or am I missing something.
Speaker Change: Yeah in our in generally speaking there what are you know certainly we've been asked a lot about the timing on semiotics and so what we've been doing is giving the indication in the U S.
Speaker Change: Sharon that we've had positive interactions with the FDA we.
Speaker Change: Have not.
Speaker Change: Yeah illustrated any further what the what the nature of that is and we haven't we haven't.
Speaker Change: And from that we filed with the F. D. A very sudden and some of them I think on a previous call that we are going to be providing an update once we do have that that regulatory pathway completed in other words that the FDA has given us clearance, but yeah. My Guy I know we've talked also about.
Speaker Change: About the financial statements and how that kind of points to that positive outlook, yes.
Speaker Change: Yes, Kevin So I can add just a little bit of that I think so.
Speaker Change: Because I understand that we do have an earn out agreement with with.
Speaker Change: With the <unk> acquisition.
Speaker Change: We disclosed this information of 10, two so if you kind of get trying to get a general idea in terms of how things are going.
Speaker Change: That earn out is matched with $13 million, we continue to accrue a we're at about $11 9 million through Q3. So I guess, all I can I could say would be that when you see the the accrual will continue to increase it just means we're progressing but it is as Kevin said, who will talk more about what will talk more about that when we obviously get the clearance but.
Speaker Change: I think that gives an indication of kind of how we're moving forward with this.
Speaker Change: Okay Alright.
Speaker Change:
Speaker Change: And then just I guess the world for I mean, it seems like a great product based on the facts. So I mean, how is that being received across the different channels and is that something that's more it seems like that's more geared probably the mid teens.
Speaker Change: You saw it in the VIP side.
Speaker Change: Hello.
Speaker Change: Yeah, no. That's a yes, that's pretty spot on there and it's a sort of so the ROE for we are yeah, we do see that being a influential piece of our business as as we're going forward, but there'll be more of a 2025 versus <unk> 24, since we've just launched it but as you said the the play for that will be.
Speaker Change: In the U S market will be more interesting in the DTC side. So if you think about that.
Speaker Change: We're able to capture patients earlier in their disease state take them on that first product that first in the robe series of road for for a little bit longer send set side has an additional setting and its characteristics versus the versus the G. Four so theres an opportunity. There also as we are as we initiate patient.
Speaker Change: Treatment with the road for that if they are if they do well what they live alone but their disease progresses, then we could upgrade them there in the future to the Rogue sex. So that's a that we believe is an it is an interesting play for it for us and the beta beside it would be more on the international than it would be for the domestic <unk> business because in the <unk>.
Speaker Change: The beta beside the H M. He's they tend to want to get a patient on one POC and have them stay on that POC for a longer period of time or reduces their investment, but the international markets have a little bit of a different view.
Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you there are no further questions at this time I'd like to conclude the call.
Speaker Change: Thank you everyone for your participation you may now disconnect your lines.
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