Inogen, Inc. (NASDAQ:INGN) Q1 2024 Earnings Call Transcript May 7, 2024
Inogen, Inc. beats earnings expectations. Reported EPS is $-0.62295, expectations were $-0.76. INGN isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Inogen’s First Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded today, May 7, 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 Bourque. Earlier today, Inogen released financial results for the first quarter of 2024. This 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 limitation, statements about our growth prospects and strategy for 2024 and beyond. Expectations related to our financial results for Q2 2024, progress of 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.
The forward-looking statements in this call are based on information currently available to us as of today’s date, May 7, 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 obligation to update these forward-looking statements, except as may be required by law. We have posted historical financial statements and our investor presentations in the Investor Relations section of the company’s website. Please refer to these files for more detailed information. During the call, we will also present certain financial information on a non-GAAP basis.
Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures, provide useful information for both management and investors by excluding certain noncash items and other expenses that are not indicative of Inogen’s core operating results. Management uses non-GAAP measures internally to understand, manage and evaluate our business and makes 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 Inogen’s President and CEO, Kevin Smith.
Kevin Smith: Good afternoon, and thank you for joining our first quarter 2024 conference call. I’m excited to be joined for the first time by Inogen’s new CFO, Mike Bourque. We are thrilled to have Mike on the team, bringing with him over two decades of financial leadership experience. During today’s call, I will provide updates on our progress against our three strategic priorities: driving top line growth, advancing our path to profitability and expanding on our innovation pipeline. First, we endeavored a position for sustainable top line growth by evaluating and improving our sales and rental strategies while strengthening our relationships with distributors and stakeholders. 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 concentrators with partners across the globe. As part of this initiative, we are closely monitoring 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 tailwinds as a result of that exit, and we will remain ready to capitalize the potential outstanding customer demands as the year goes on. 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 cross-partnership.
These initiatives including training our team to execute both direct-to-consumer and rental sales, partnership programs within our B2B customers and new targets within our rental channel. These initiatives, while in early stages, are showing promising results. Secondly, we remain focused on establishing and advancing our path to profitability. 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 through our rental business. By expanding our scale, efficiency and throughput in the rental channel, we anticipate driving higher profitability over time. In addition, we are seeing cost benefits in the form of lower sales and marketing expenses due to the recent exit of our third-party relationship in the rental channel, which we spoke to on our last quarterly call.
We are also rolling out pilot programs to drive a return to growth in our high-margin direct-to-consumer business. As a reminder, we have materially downsized our DTC team on a year-over-year basis. And we have now achieved a healthy organization size and are beginning to see improving productivity per rep. 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. 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 POCs with necessary software and accessories to ensure a best-in-class provider and patient experience. I would also like to touch on our plans to expand Physio-Assist availability in the U.S. We remain excited about the addition of Physio-Assist to our portfolio, and we are pleased to show 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. We have an exciting pipeline in store, and we look forward to updating investors on specific launches later this year. 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 achieved $78 million in total first quarter revenue, reflecting 8% year-over-year growth and 3% from our fourth quarter 2023. Our results are a reflection of early execution against our strategic goal. Now, I’d like to turn the call over to Mike for a more detailed review of the financial results. Mike?
Mike Bourque: Thank you, Kevin, and good afternoon, everyone. Unless otherwise noted, all financial comparisons are to the prior year comparable period. Total revenue for the first quarter of 2024 was $78 million, an increase of 8.1% versus the prior year period. 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. For the first quarter, foreign exchange had a positive 50 basis points impact on total revenue and a positive 180 basis points impact on international revenue. Looking at first quarter revenue on a more detailed basis. Direct-to-consumer sales decreased 15.6% to $20.5 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.
Domestic business-to-business revenue increased 31.3% to $16.5 million compared with $12.6 million in the comparable period, driven by new customer business and increased demand from resellers. International business-to-business revenue increased 37.2% to $26 million compared to $19 million in the prior period. Our year-over-year growth in this channel was primarily driven by higher sales volumes to existing customers. Rental revenue decreased 8.3% to $14.9 million from $16.3 million in the prior period, primarily driven by a higher mix of lower private payer reimbursement rates and higher rental revenue adjustments. Now, I want to discuss our gross margins. Total gross margin was 44.1%, increasing 150 basis points from the same period in the prior year, primarily driven by a lower average cost of components in this quarter relative to a year ago.
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 B2B channel relative to total Q1 2023 sales. Sales revenue gross margin was 44.1%, an increase of 490 basis points, driven primarily by lower component premiums. Rental revenue gross margin was 43.7% and a decline of 1,040 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, a mix shift from Medicare versus private payers and higher rental revenue adjustments. Moving on to operating expense. And the first quarter total operating expense decreased to $50.6 million compared to $52.6 million in the prior period, representing a decrease of 3.8%.
The decrease was primarily due to restructuring costs of $1.8 million incurred in the prior year period as well as lower sales and marketing expenses, primarily resulting from last quarter’s exit from a third-party sales partnership. In the first quarter of 2024, we reported a GAAP net loss of $14.6 million and loss per diluted share of $0.62. On an adjusted basis, we reported a net loss of $10.4 million and adjusted loss per diluted share of $0.45 Adjusted EBITDA was a loss of $7.6 million compared to a loss of $11.8 million in the prior year period. We are pleased to be driving improvement in our adjusted EBITDA metrics as we continue to manage the business carefully with profitability as a key objective. Moving on to our balance sheet. As of March 31, 2024, we had cash, cash equivalents and marketable securities of $119.8 million with no debt outstanding.
Before I turn the line back to Kevin, I would like to share our revenue expectations for the second quarter. We are continuing to make progress on our strategic priorities through the second quarter including our ongoing 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 quarter. We anticipate providing guidance for the back half of 2024 on our second quarter earnings call. And with that, I will pass the call back to Kevin for closing remarks.
Kevin Smith: I’m pleased that our organization made meaningful steps in the right direction during the first quarter. Our resilience and progress are a testament to the strength of our team at Inogen. We recognize there is much work to be done, but we will continue to execute against our strategic goals and remain excited about the future. With that, I will open it up for questions. Operator?
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