Inogen Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 27, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Inogen 2023 4th Quarter Financial Results Call. At As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Marissa Beich from Gilmartin Group. Thank you. You may begin.

Speaker 1

Great. Thank you all for participating in today's call. Joining me are President and CEO, Kevin Smith and Interim CFO, Mike Sergesketter. Earlier today, Inogen released financial results for the 4th quarter of 2023 and full year 2023. This earnings release is available in the Investor Relations section of the company's website along with a supplemental financial package.

Speaker 1

As a reminder, the information presented today will include forward looking statements, including without limitation, statements about our growth prospects and strategy for 2024 and beyond, expectations related to our financial results for 2024, progress of our strategic initiatives including innovation, our expectations regarding the market for our products, our business supply and demand for our products in both the short and long term. The forward looking statements in this call are based on information currently available to us as of today's date, February 27, 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 report filed with the Securities and Exchange Commission. Actual results may vary and we disclaim any obligation to update these forward looking statements except as may be required by law. We have posted historical financial statements and our investor presentation in the Investor Relations section of the company's website.

Speaker 1

Please refer to these files for more detailed information. During the call, we will also present 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 non cash items and other expenses that are not indicative of Inogen's core operating results.

Speaker 1

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. And with that, I will turn the call over to Inogen's President and CEO, Kevin Smith.

Speaker 2

Good afternoon and thank you for joining our Q4 2023 conference call. During today's call, I will provide insight into my experiences during my 1st months as CEO, outline our strategic priorities going forward and share a few highlights from the recent quarter. I'm pleased to be leading my first earnings call here at Inogen. We have a great team and a great product portfolio. During my 1st months as CEO, I have observed and reflected on the strengths and challenges within our business, seeking substantial internal and external feedback regarding our portfolio, strategy, sales structure, field organization and performance.

Speaker 2

I have spent much of my time visiting our global teams, investors and management to understand the company from its roots. From my conversations with our leaders, I have immense confidence in the opportunity ahead of the company and our capability to make improvements across the business. As I strategize our path forward, I'm pleased to welcome 2 additional new leaders to our team. We are thrilled to have appointed Greg Raimond as Chief Commercial Officer in January. Greg's experience will help improve Inogen's products, commercial strategy and customer experience.

Speaker 2

We also look forward to bringing on Michael Bork as our new CFO, whose whose appointment we announced in late January. Michael will be joining the company effective next week, March 4, strengthening our finance organization and stewarding our accounting and FP and A teams. I am confident that both of their additions are a step towards achieving Inogen's full potential. I would like to share insights into Inogen's strategic priorities going forward. Our top priority is positioning the business for revenue growth.

Speaker 2

An important piece of this process is the pursuit of regulatory clearance for Physio Assist's introduction to the U. S. Market. Physio Assist represents an exciting opportunity to expand our portfolio, increasing our ability to impact the lives of existing and new patients. We remain optimistic about our ability to achieve clearance and we'll be providing updates as they're available.

Speaker 2

We will also be pursuing a return to sustainable profitability in the coming years. To this end, we are evaluating optimization of our production and cost with the intent to improve the cost of goods sold. Advancing our innovation pipeline with transformative technologies is also a key priority. We are advancing developments to make our products more accessible, mobile and effective. This includes innovation within our digital health portfolio.

Speaker 2

Inogen Devices are known for their superior patient compliance, monitoring and diagnostic capabilities. And we know that continued investment in our platforms to improve their ease of use and cost effectiveness can take us even further with our business to business partners, further establishing patient and provider preference and loyalty. In tandem with all of these efforts, Inogen will continue to bring best in class POCs to the market, evaluate our sales strategies and strengthen our relationships with distributors and stakeholders in new and existing markets. We remain dedicated to delivering the highest quality, most dependable and most advanced respiratory therapies to patients around the globe. Now, I would like to highlight our accomplishments during the Q4 and full year 2023.

Speaker 2

We achieved $76,000,000 in total 4th quarter revenue and $316,000,000 in fiscal year 2023 revenue. Our recent sales were in part driven by the full launch of Rogue 6 in Europe, which is progressing along well with our expectations. We have followed our 2023 achievements with several areas of progress in early 2024. For example, we saw a compelling conclusion supporting the adoption of POCs through a recently completed real world evidence study. The study analyzed the effectiveness, burden and cost of illness of over 380,000 long term oxygen therapy patients.

Speaker 2

Baseline mobility was strongly correlated to lower risk of mortality over a 72 month period in mobile patients using POCs with higher duration of autonomy had 9 months longer median overall survival. Lower risks of hospitalizations and ER visits and consequently lower healthcare resource utilization costs than patients using POCs with shorter duration of autonomy. This further reinforces that patient mobility is key to their health and well-being and using the devices that are compatible with it and do not restrict it have clear benefits. At Inogen, we take pride in the mobility our devices offer patients. We are always striving to find ways to improve mobility through battery life, device size and weight to improve patient outcomes.

Speaker 2

In early February, we rolled out updates for our connected app and service portals to provide better patient monitoring and user experiences for our customers and business to business partners. Changes included the ability to connect to wearable diagnostic devices, ability to track patient breaths per minute and error and maintenance notifications linked to specific devices. These changes are part of our broader effort to make sure Inogen devices are not only dependable, but also practical for all users. In addition, we have initiated a shift within our rental channel in which we run our POCs via prescriber referrals.

Operator

As part of

Speaker 2

the continued effort to improve our rental process, expand the rental channel and increase our forecasting and predictability, we are moving away from one of our external sales partnerships and bringing support for prescriber rentals in house. I believe this is an important step ensuring we are able to assist as many patients as possible. As always, we will continue to evaluate all of our business relationships and look for opportunities to streamline our cost structure. Before I turn the call over to Mike, I'd like to address the news of a recent competitor exiting the market. Due to this development, we are seeing some volatility in the domestic business to business channel, but we also see the potential opportunity to capitalize in our market leadership, differentiated product offering and brand recognition.

Speaker 2

We expect that there may be a void in the market and if so, we will be ready to step in and fill it. I'll now turn the call over to Mike for a more detailed review of our financial results. Mike?

Speaker 3

Thank you, Kevin, and good afternoon, everyone. Unless otherwise noted, all financial comparisons are to the prior year comparable period. Total revenue for the Q4 of 2023 was $75,900,000 a decrease of 13.8% versus the prior year period. The decline was primarily driven by a decrease in domestic business to business sales and direct to consumer sales, partially offset by higher rental revenue. For the Q4, foreign exchange had a negative 50 basis point impact on total revenue and a negative 140 basis point impact on international revenue.

Speaker 3

Looking at 4th quarter revenue on a more detailed basis, direct to consumer sales decreased 21.6 percent to $19,800,000 in the Q4 of 2023 from $25,300,000 in the prior period, driven primarily by fewer representatives, partially offset by higher rep productivity. Domestic business and business revenue decreased 33.6 percent to $18,100,000 in the Q4 of 2023 compared with $27,200,000 in the comparable period, driven by competitive pricing pressure, increased cost of capital and HME expense management. International business to business revenue increased 4% to $21,500,000 in the Q4 of 2023 compared to $20,700,000 in the prior period, primarily driven by the addition of PhysioSimiox sales revenues, partially offset by competitive pricing and an increasing cost of capital. General revenue increased 10.6 percent to $16,500,000 in the Q4 of 2023 from $14,900,000 in the prior period. Gross was driven primarily by an increase in the number of patients on service.

Speaker 3

Now on to our gross margins. Total gross margin was 37.1% in the 4th quarter, increasing 360 basis points from the prior period, primarily driven by lower premiums paid for components, warranty cost and labor and overhead costs, partially offset by higher inventory related losses. Sales revenue gross margin was 32.8%, an increase of 3.50 basis points, driven primarily by lower component and labor costs. Rental revenue gross margin was 52.7%, a decline of 120 basis points, primarily due to decreased reimbursement rates relating to insurance coverage mix as well as higher servicing costs. We expect a modestly higher gross margin in the Q1 of 2024 relative to the Q4 of 2023 driven by labor efficiency and lower impact from premium priced components.

Speaker 3

Moving on to operating expense. In the 4th quarter, total operating expense decreased to $57,100,000 compared to $58,000,000 in the prior period, representing a decrease of 35%. The decrease was primarily due to the loss on disposal of an intangible asset of $52,200,000 in the prior year period, partially offset by the change in fair value of earn out liabilities and certain one time costs related to the CEO transition and bad debt expense. In the Q4 of 2023, we reported a GAAP net loss of $26,600,000 and a loss per diluted share of $1.14 On an adjusted basis, we reported a net loss of $19,400,000 and an adjusted loss per diluted share of $0.83 Adjusted EBITDA was a loss of $17,300,000 Moving on to our balance sheet. As of December 31, 2023, we had cash, cash equivalents and marketable securities of $128,500,000 with no debt outstanding.

Speaker 3

Now to touch on full year performance. Total revenue for the full year of 2023 was $315,700,000 a decrease of 16.3 percent versus the prior year period. The decrease was driven by declines in direct to consumer sales as well as domestic and international business to business sales, partially offset by higher rental revenue. For the full year, foreign exchange had a negative 10 basis point impact on total revenue and a negative 40 basis point impact on international revenue. Total operating expense was $236,100,000 compared to $238,800,000 for the full year 2022, representing a decrease of 1.1%.

Speaker 3

Excluding the one time non cash impairment charge of $32,900,000 in 2023 and the loss on disposal of intangible asset of $52,200,000 in 20 22. Operating expense increased 8.9 percent, primarily driven by the change in the fair value of the earn out liabilities. GAAP net loss was $102,400,000 compared to a GAAP net loss of $83,800,000 for the full year 2022. Adjusted net loss was $48,300,000 compared to adjusted net loss of 26 $200,000 for full year 2022. Adjusted EBITDA was a negative 37.8 $1,000,000 compared to a negative $13,500,000 for the full year 2022.

Speaker 3

Before I turn the line back to Kevin, I would like to share our revenue expectations for the Q1. We expect Q1 2024 revenue of $73,000,000 to $74,000,000 reflecting growth of 1% to 3% compared to the Q1 of 2023. With that, I will pass the call back to Kevin for closing remarks.

Speaker 2

The start of 2024 opens a new chapter for Inogen. I remain optimistic for the future and I'm excited to welcome the new additions to our management team. Our products are trusted and reliable, our innovation pipeline is robust and we have a particularly exciting opportunity to increase our ability to impact patients' lives with the recent addition of Physio Assist to our portfolio. While there's much work to be done, our team is equipped to handle the challenges ahead. Before turning it over for questions, I would like to take a moment and thank Mike for stepping in the Interim CFO role for the past 6 months.

Speaker 2

His presence has been an immense benefit to myself and the company during this time. With that, I will open it up for questions. Operator?

Operator

Thank you. Our first question comes from Robbie Marcus with JPMorgan. Please state your question.

Speaker 4

Hi, this is Alan on for Robbie. Just my first question, I think when we look at your performance in the quarter, in your quarter, DTC kind of stands stood out to us again, a pretty significant sequential step down. And then when we think about the guidance, it seems as though you're expecting that to stay relatively weak. What are your plans for really stabilizing the business? And what gives you confidence that you can execute on that over the coming quarters?

Speaker 2

Yes. Sure. This is Kevin. So the when we look at our opportunities here over the coming quarters to stabilize and grow the business, we look at 3 areas we're really focused on. It's one is reducing the friction that's within the sales channels.

Speaker 2

We see opportunities there to continue to improve and opportunities that allow us to grow the business. We also see some near term opportunities within our B2B channel. Reducing COGS and controlling spend is another key focus for us going forward to improve our pathway to profitability and also approval of the physio assessed and expansion of our digital health portfolio. I've seen more positives than negatives. We have a good team in place, an existing product that is top of the line, but we do see a lot of room for improvement within our sales strategy.

Speaker 2

We have a new Chief Commercial Officer who we just appointed, started last month. We're working on it, but we want to ensure that we have that we're maximizing the number of patients that we can reach each month. And there's a number of aspects to the business. Where we're not prioritizing certain types of sales because of our incentive structure, and we want to fix that. That incorporates both the DTC business, it looks at the rental business as a whole as well as our cash sales.

Speaker 4

Got it. And then just thinking about your capital position, you just mentioned how kind of reining in cost is a key part of the strategy, but

Speaker 2

you

Speaker 4

ended the quarter with a little over $128,000,000 How should we think about cash burn whether or not you're confident that you're going to kind of steady the ship before you might need to raise more capital? Thank you.

Speaker 2

Yes, sure. So at the end of the year, we had over $125,000,000 in cash and equivalents with no debt outstanding. We focused our investments on innovation within our pipeline, sales organization and manufacturing capabilities. We're going to continue to monitor and manage our expense and our cash burn. We do believe that we have a strong balance sheet and capital position to fund our upcoming initiatives and we don't anticipate going out for a raise.

Speaker 2

Anything to add there, Mike, that I missed?

Speaker 3

No, I think you covered it well.

Operator

Thank you. And our next question comes from Margaret Andrew with William Blair. Please state your question.

Speaker 5

Hey, good afternoon guys. Thanks for taking the question. I maybe wanted to go back to your commentary on some recent volatility in the market associated with the competitor leaving. I guess, what does that mean? Is that related to pricing?

Speaker 5

Is that related to demand? Were there things kind of intra quarter? And I guess, I'm curious if you can also give us an estimate of what their market share was in the last year?

Speaker 2

Yes. So yes, thank you, Margaret. And with the exits from the market both on the SoC and the POC business. As I mentioned, we do see that there is a shift in dynamics there. We are closely monitoring that.

Speaker 2

We believe that there's going to be opportunities for us, and we're putting ourselves in positions to be able to take advantage as they present themselves. But it's not a light switch. This isn't a windfall. This is something that is going to present itself over time. We're focused on those opportunities.

Speaker 2

We see them coming really opportunities within our various business channels there, but we would anticipate more near term opportunities within the B2B channel. But it's less on an ASP aspect as well as market availability, demand for POCs where there may be a potential void. But that is what I can't really comment on their market share versus our market share. We believe that we have a leadership position in the markets, that is also giving us an advantage to be able to step in and help fill that foyer market.

Speaker 5

Okay. And I'll maybe tie these two questions together. But can you at least say if they were maybe the number 2 player in the marketplace? I'm just trying to get a sense of just roughly how big they might have been. And then I guess the real question is around 1st quarter sales guidance, maybe a little bit lower than we were expecting.

Speaker 5

And other than 2023, I'm not sure that I've ever seen a down sequential Q1 for Inogen in the nighttime covering the company. So is that related to a certain business segment? Or can you give us a better breakdown by business segment? Thanks.

Speaker 2

Yes. So, yes, regards to the market share and the position, it's there's been certainly some shifts in that. And I don't believe it's I'm in the right position to be able to comment on exactly who's number 2 in the market here right now. If we get more clarity down the road and I have more comfort being able to address, yes, certainly, I will. And on the quarter on quarter, we see opportunities, as I mentioned there, ahead of us.

Speaker 2

And as we look at giving further guidance as we go out, I think we'll be able to give you some additional clarity. But it's not necessarily tied to any one of the segments. We do also see upside within this that we're working to position ourselves to be able to FDA. We're working through that process. And I'm not trying to avoid it, but I do want to be careful on giving any expectations about the regulatory approval until we have that firmly underway.

Speaker 2

We know we have clarity as to when that's going to happen. So at the appropriate time, I'll come back and I'll give you some more information on that, Mike.

Speaker 6

Okay. Now that's fine. But I guess one follow-up on Physiotis. So you called that out in the early part of your prepared remarks about kind of meeting that to or relying on that to drive growth. So maybe I'm misinterpreting what you said there, but what does that imply for the POC part of the business?

Speaker 6

I mean, do you think you can get POCs back to growth without relying on Physio Assist or other new categories like this?

Speaker 2

Simple answer, yes. Yes, we can. We can get POCs back to growth without relying on PhysioAssist. PhysioAssist wearing that into it, there are synergies that device as well. There's overlay with the patients that will benefit from a PhysioSys device, a Semiox device as well as a POC that will help us develop even deeper relationships, especially with clinicians as well as the B2B channel that we see down the road.

Speaker 2

But we do see a pathway for us to grow the POC business independent of Semiox.

Speaker 6

Okay, great. Thank you.

Operator

Thank you. And our next question comes from Matthew Blackman with Stifel. Please state your question.

Speaker 7

Hi, this is Colin on for Matt. I had a quick one regarding U. S. B2B business, and how durable you expect the HME expense management to be from here? You talked about revenues being down in the Q4 and possibly expecting that to continue in the Q1, how durable should we expect this environment to be?

Speaker 2

We see good upside within the B2B channel. We've been working on relationships there, building synergies with the B2B, having direct conversations across the globe with our top B2B partners to find out what are the best ways for us to work together to be partners and also reduce the friction between the channels or direct channels as well as the B2B. So we see opportunities there for us to continue to build and grow that business.

Speaker 7

And just one follow-up on the market exit from your competitor. Just wanted to confirm, is that in any way factored into the Q1 guidance?

Speaker 2

No, it's not.

Speaker 7

Okay, great. Thank you.

Operator

Thank you. And ladies and gentlemen, that's all the questions we have for today. And with that, we conclude today's conference. All parties may now disconnect. Have a great evening.

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Inogen Q4 2023
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