Q4 2023 Inogen Inc Earnings Call
Participants
Marissa Bych; IR; Gilmartin Group LLC
Kevin Smith; Chief Executive Officer; Inogen Inc
Michael Sergesketter; Interim Chief Financial Officer, Executive Vice President, Treasurer; Inogen Inc
Margaret Andrew; Analyst; William Blair & Company LLC
Mike Matson; Analyst; Needham & Company LLC
Presentation
Operator
Greetings, and welcome to the Inogen 2023 fourth quarter financial results call. (Operator Instructions) And as a reminder, this conference is being recorded.
It is now my pleasure to introduce to you, Marissa Bych from Gilmartin Group. Thank you, Marissa, you may begin.
Marissa Bych
Great. Thank you, and thank you all for joining today's call. Joining me are President and CEO, Kevin Smith, and interim CFO, Mike Sergesketter.
Earlier today, Inogen released financial results for the fourth quarter of 2023. The earnings release is available on the Investor Relations section of the company's website along with the 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 2024, expectations regarding increasing productivity of our internal and external sales team, progress of our strategic initiatives, including innovation, or expectations regarding the market for our products, our business and 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 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 US 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 make operating decisions. Reconciliations between US 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 fourth quarter 2023 conference call. During today's call, I will provide insight into my experiences during my first 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 Energen. We have a great team and a great product portfolio during my first 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. 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 they strategize our path forward.
I'm pleased to welcome two additional new leaders to our team. We are thrilled to have appointed Greg remind as Chief Commercial Officer in January, Greg's experience will help improve and insurance products, commercial strategy and customer experience.
We also look forward to bringing onMichael Bourque as our new CFO, whose appointment we announced in late January. Michael will be joining the company effective next week, March fourth, strengthening our finance organization and stewarding our accounting and FP&A teams. I'm confident that both their additions our step towards achieving its full potential.
I would like to share insights into Energen's strategic priorities going forward. Our top priority is positioning the business for revenue growth. An important piece of this process is the pursuit of regulatory clearance for Physio assists in reduction 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 clients, and we'll be providing updates as they are available. 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 structure 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. 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 and 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 fourth quarter and full year 2023, we achieved $76 million in total fourth quarter revenue and $316 million in fiscal year 2023 revenue. Our recent sales were in part driven by the full launch of robotics 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 study analyze the effectiveness burden and cost of illness have over 380,000 long-term oxygen therapy patients. Baseline mobility was strongly correlated to lower risk of mortality over a 72 month period in multiple patients using POCs with higher duration of autonomy at nine months longer median overall survival, lower risks of hospitalizations and ER visits and consequently, lower healthcare resource utilization costs in patients using POCs were shorter duration of time.
This further reinforces that patient mobility is key to their health and well-being in using the devices that are compatible with it and do not restrict restricted, 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.
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, the ability to track patient breast per minute and air and maintenance notifications linked to specific device. These changes are part of our broader effort to make sure intelligent devices are not only dependable, but also practical for all users.
In addition, we have initiated a shift within our rental channel to achieve our POCs, the prescriber referrals as part of the continued effort to improve our rental process, expand 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 in shifts 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 as a 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 on our market leadership, differentiated product offering and brand recognition. We expect that there may be a void in the market. And if so, we will be ready to step in and fill.
And now I'll turn the call over to Mike for more detailed review of our financial results.
Mike?
Michael Sergesketter
Thank you, Kevin, and good afternoon, everyone. Unless otherwise noted, all financial comparisons are to the prior year comparable period. Total revenue for the fourth quarter of 2023 was $75.9 million, 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 fourth quarter, foreign exchange had a negative 50 basis point impact on total revenues and a negative 140 basis point impact on international revenue.
Looking at Q4 revenue on a more detailed basis, direct to consumer sales decreased 21.6% to $19.8 million in the fourth quarter of 2023 from $25.3 million in the prior period, driven primarily by fewer representatives, partially offset by higher rep productivity. Domestic business and business revenue decreased 33.6% to $18.1 million in the fourth quarter of 2023 compared with $27.2 million 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 $21.5 million in the fourth quarter of 2023 compared to $20.7 million in the prior period, primarily driven by the addition of Physio-Stim semi oxygen sales revenue, partially offset by competitive pricing pressure and an increasing cost of capital.
Rental revenue increased 10.6% to $16.5 million in the fourth quarter of 2023 from $14.9 million in the prior period. Growth was driven primarily by an increase in the number of patients on service.
Now onto our gross margins. Total gross margin was 37.1% in the fourth quarter, increasing 360 basis points from the prior period, primarily driven by lower premiums paid for components, warranty costs and labor and overhead costs. Partially offset by higher inventory related losses. Sales revenue gross margin was 32.8%, an increase of 350 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 first quarter of 2024 relative to the fourth quarter of 2023, driven by labor efficiency and lower impact from premium price components.
Moving on to operating expense. In the fourth quarter, total operating expense decreased $57.1 million compared to this compared to $88 million in the prior period, representing a decrease of 35%. The decrease was primarily due to the loss on disposal of an intangible asset of $52.2 million in the prior year period, partially offset by the change in fair value of earnout liabilities and certain one-time costs related to the EO transition and bad debt expense in the fourth quarter of 2023, we reported a GAAP net loss of $26.6 million and a loss per diluted share of $1.14 on an adjusted basis, we reported a net loss of $19.4 million and an adjusted loss per diluted share of $0.83. Adjusted EBITDA was a loss of $17.3 million.
Moving on to our balance sheet. As of December 31st, 2023, we had cash, cash equivalents and marketable securities of $128.5 million with no debt outstanding.
Now to touch on full year performance, total revenue for the full year of 2023 was $315.7 million, a decrease of 16.3% 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 $236.1 million compared to $238.8 million for the full year 2022, representing a decrease of 1.1% excluding the onetime noncash impairment charge of $32.9 million in 2023 and the loss on disposal of intangible asset of $52.2 million in 2022. Operating expense increased 8.9%, primarily driven by the change in the fair value of the earn-out liabilities. Gaap net loss was $102.4 million compared to a GAAP net loss of $83.8 million.
For the full year 2022, adjusted net loss was $48.3 million compared to adjusted net loss of $26.2 million for full year 2022. Adjusted EBITDA was a negative $37.8 million compared to a negative $13.5 million for the full year 2022.
Before I turn the line back to Kevin, I would like to share our revenue expectations for the first quarter. We expect first quarter 2024 revenue of $73 million to $74 million, reflecting growth of 1% to 3% compared to the first quarter of 2023. With that, I will pass the call back to Kevin for closing remarks.
Kevin Smith
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 for there's much work to be done, a 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 six months. His presence has been in immense benefits to myself and the company during this time.
With that, I will open it up for questions. Operator?
Question and Answer Session
Operator
Thank you. And ladies and gentlemen, at this time, we'll conduct our question and answer session. (Operator Instructions)
Robbie Marcus, JPMorgan.
Hi, this is Allen on for Robbie. Just my first question. I think when we look at your performance in the corner near quarter, DTC. kind of some standard that 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. So what are your plans for really stabilizing the business and what gives you confidence that you can execute on that over the coming quarters?
Kevin Smith
Yes. And so yes, sure. This is Kevin. So the when we look at our opportunities here over the over the coming quarters to stabilize and grow the business. We look at it three areas we're really focused on. It's one is reducing the friction, and that's within the sales channels. We see as opportunities there to continue to improve that. Our opportunities have allowed us to grow the business.
We also see some near-term opportunities within our B2B channel, reducing costs and controlling expense is another key focus for us going forward to improve our pathway to profitability and also approval of the Physio assessed an expansion of our digital health portfolio. But I've seen more positives than negatives and 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 with our sales strategy. We have a new Chief Commercial Officer, who was just appointed started sort of 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 and each month and the number of aspects of the business, excuse me, 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 flow.
Got it. And then just thinking about your capital position, you just mentioned how, you know, kind of reining in costs as a key part of the strategy. But you ended the quarter with a little over $21 million, $28 million. How should we think about cash burn, whether or not you're confident that you can kind of steady the ship before you might need to raise more capital? Thank you.
Kevin Smith
Yes, sure. So at the at the end of the year, we had over $125 million 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. But 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 risk anything to add there.
Anything to add there Mike?
Michael Sergesketter
No, I think you covered it well.
Operator
Margaret Andrew, William Blair.
Margaret Andrew
Hey, good afternoon, guys. Thanks for taking the questions. And I maybe wanted to go back to your commentary on some recent volatility in the market associated with the competitor. I'm leaving at I guess what does that mean is that related to pricing? Is that related to demand, more other things kind of intra-quarter? And Smith, I guess I'm curious if you can also give us an estimate of what their market share was in the last year?
Kevin Smith
Yes. So yes, thank you, Margaret. And with the with the exits from from the market, both on the SOC and the POC business, as I mentioned, we do see that there's a shift in dynamics there where we are closely monitoring that. We believe that there's going to be opportunities for us and we're putting ourselves in position to be able to want to take advantage as they present themselves.
But it's not a it's not a light switch. This isn't a this isn't a windfall. This is something that is going to present itself over time. We're focused on those opportunities. We see them coming. It 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 a on an ASP. aspect as well as your market availability demand for POCs where there's a where there may be a potential void, but that is what I know.
I can't really comment on their market share versus our market share. We believe that we have a leadership position in the market. And that is also giving us an advantage to be able to step in and help by and help fill that void.
Margaret Andrew
Okay. And I'll maybe tie these two questions together. And can you at least say if they were maybe the number two player in the marketplace? I'm just trying to get out get a sense of just roughly how big they might have been out. And then yes, I guess the real question is around first growth quarter sales guidance and maybe a little bit lower than we were expecting and other than 2023. I'm not sure that I and we've seen a down sequential Q1 for Enogen EO and in my time, covering the company. So is that related to certain business segment? Or can you give us a better breakdown by business segment?
Kevin Smith
Yes. So yes, regards to the to the market share in the position, there's been certainly some shifts in that. And so I don't believe it's I am in the right position to be able to comment on exactly who's number two 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 certainly I will and I and on the quarter on quarter. We see opportunities, as I as I mentioned, they're ahead of us. And as we look at giving further guidance as we go out, I think we'll be able to give you some I have some additional clarity, but it's not necessarily tied to any one of the in one of the segments.
We do also see upside within this that we're working to position ourselves to be able to want to be able to accelerate the growth as we go forward.
Margaret Andrew
I'm sorry, not in the first quarter, you would just assume every every business segment is down sequentially, even with the way that you guys had presented the guidance on a total company basis, is that correct?
Kevin Smith
But the sequentially instead, you mean for Q4 versus Q1?
Margaret Andrew
Correct.
Michael Sergesketter
No, there's if you looked at Q4, we had growth in our international market, international B2B. We were down in our domestic B2B and I think that would be the way I would think about the trends I think going forward for the near term.
Margaret Andrew
Okay. Thanks.
Operator
(Operator Instructions)
Mike Matson, Needham & Company.
Mike Matson
Yes, thanks for taking my questions. So I guess I know, Kevin, you know he's been there for a few months, but I'm here that the prior management team had kind of had a strategy where they were to some degree deemphasizing the DTCI. channel and focusing more on kind of the rental side of things that they were giving up on DTC., but they were scaling back the sales for someone trying to just drive more productivity through that through the view of smaller number of reps.
But so is that it's consistent with the way you're going to kind of run the business and then there's kind of four channels here. They all have kind of different margin structures and different, I guess, some call points. So maybe you could just tell us where you plan to focus your investment on between those four, if you know at this point?
Kevin Smith
Yes, thank you for the question there. And Mike, when we look at it the different channels. We're looking at it synergies that we have within them. And when I mentioned some of the friction that we've seen before, this is I have patients are that are reaching out to us that want to have antigen POC. We have referrals are coming in from the prescriber channels, same thing, patients to want to have a have an engine POC ends. There's crossover in there between patients that have insurance coverage, appropriate coverage with a number of months left that they want to POC versus those that they want or need to for certain dynamics have a cash sale.
And we're in the process of and having these distinct channels, there's friction where we're handing patients off from one channel to the next channel. And so we see opportunities to be able to minimize that friction to be able to maximize the number of patients on an indigent POC, regardless of what that patient preferences insurance status and so forth. If it's a cash sale, we get on the cash flow with a minimum touches that fits that insurance coverage, give them an engine POC with minimum touches.
So it's perhaps not directly answering the question there, but we do see opportunities within the rental space as well as the as well as the TDC. cash sales but there is there is a lot of crossover between those. So it's hard to why as we're approaching this with our new Chief Commercial Officer, looking at the best way to maximize that and accelerate it. It's hard to start them to keep them in very specific and pure silos so that that for us is creating opportunity for growth.
Mike Matson
Okay. That's fair. And then just you commented on this partnership that you were going to, I guess, and I think you were referring to that the prior management team had set up this physician or prescriber sales force, I think it was around 60 reps, but I think maybe some of those reps were employed via a third party or something. I don't remember the name of that company off the top of my head, but is that what you're referring to? And I guess what happens to that sales force? Does it just transition over to to Energen and become an engine employees or that number 60, does that go up? Does that go down?
Kevin Smith
Yes. So it's a it's a fair question there. And a couple of answers to that is yes. There's a there's a third party within that within that prescriber channel that we went away from. We're bringing those sales reps in house for a restructuring. How that how that looks a little bit for us to be able to have more control tactical control and strategic control over that sales channel going forward.
We are rightsizing that. I'm not going to comment right now on the numbers specifically in each of these sales channels, but it's important for us one to become profitable and to control those expenses. This was an opportunity for us also to control some of the OpEx, take some of that out by bringing those by bringing that sales channel in house. And again, it's important for us to have the right synergy within these channels going forward, be operating as one antigen. And so bringing them in-house enables us to want to move forward that plan as well.
Mike Matson
Okay. Thanks. And then just one last one on 50 or so of just can you comment on I guess I never really got a straight answer from the prior management team about the timing of when or I guess even the regulatory pathway that you're going to have to go through? So is it a five, 10-K? And what's the expected timing of when you can get this thing cleared and launched it in the US.
Kevin Smith
Yes. And when we look at the semi action, Physio assays coming in, what I will say is we're very happy with the progress that we've made. We've engaged with the FDA. We're working through that through that process, and I'm not trying to avoid it, but I do want to be careful on giving any any expectations about the regulatory approval until we have that firmly underway. We know we have clarity as to when that's going to have to happen. So at the appropriate time, we'll come back and I'll give you some more information on that.
Mike Matson
Okay. That's fine. But I guess one and one follow-up on physicist. So you called that out, you know, in the early part of your remarks, prepared remarks about kind of needing that to or relying on that to drive growth. So kind of maybe I'm misinterpreting what you said there, but a hum, what does that imply for the POC part of the business? I mean, do you think you can get POCs back to growth without without relying on Physio sisters and other new categories like this?
Kevin Smith
It's simple answer. Yes. Yes, we can. We can get POCs back to growth without relying on Physio Assist, Physio assessed wearing that Intuit. There's synergies within that with that device as well as overlay with the patients that will benefit from a Physio Assist Device semi-active device as well as a POC that will help us develop even deeper relationships, especially with commissions as well as the B2B channel. We see down the road. But we are we do see a pathway for us to grow the POC business independent of Symmetrix.
Mike Matson
Okay, great. Thank you.
Operator
Mathew Blackman, Stifel.
Hi. This is Colin on for Matt. I had a quick one regarding US B2B business and how durable you expect the H and the expense management to be from here. You talked about are revenues being down in the fourth quarter and possibly expecting continue in the first quarter? How durable should we expect this environment to be.
Kevin Smith
Yes, we see good upside within B2B channel. We've been working on relationships. They're building synergies with the B2B, having direct conversations across the 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 between the channels, our direct channels as well as the B2B. So we see we see opportunities there for us to continue to build and grow that business.
And just one follow-up on the market exit from your competitor, I just wanted to confirm, is that in any way factored into the first quarter.
Kevin Smith
No, it's not.
Great. Thank you.
Operator
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 day.
