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Why Inogen Shares Are Plunging Today

Brian Feroldi, The Motley Fool

What happened

In response to reporting first-quarter results and lowering its guidance, shares of Inogen (NASDAQ: INGN), a high-growth medical device company focused on oxygen therapy, fell 24% as of 11:40 a.m. EDT on Wednesday.

So what

Here are the headline numbers from the quarter: 

  • Revenue grew 14% to $90.2 million. That beat the $89.6 million that Wall Street was expecting.
  • Gross margin rose 150 basis points to 49.2%.
  • Operating expenses rose 36% to $39.6 million. The big jump was caused by increased employee head count and higher advertising expenses.
  • Net income was cut in half to $5.3 million, or $0.24 per share. That was below the $0.30 that analysts were expecting.

The mixed quarterly results weren't great, but the huge contraction in the share price appears to be related to management's full-year guidance updates:

  • Total revenue is expected to land between $405 million and $415 million. That's down from its prior range of $430 million to $440 million.
  • Operating income is expected to land between $42 million and $44 million, down from $46 million to $50 million.
  • Adjusted EBITDA is expected to land between $66 million and $68 million, down from $67 million to $71 million.
  • Net income is now expected to land between $36 million and $38 million. That's down from its prior range of $40 million to $44 million. It's also a steep decline from last year's net income of $51.8 million.
  • Free cash flow is expected to remain positive for the full year but will be lower than in 2018.

On the conference call with investors, CEO Scott Wilkinson stated that the company's domestic business-to-business sales are facing challenges that are pressuring near-term growth. The company is also shifting its business toward a rental model, which acts as a near-term headwind on revenue and profits. 

Man with head against wall in conference room

Image source: Getty Images.

Check out the latest Inogen earnings call transcript.

Now what

The good news for investors is that Inogen still expects to post double-digit top-line growth in 2019. The bad news is that the bottom line is expected to contract significantly. If management can get net income growth back on track in 2020, then today's drop could represent a nice buying opportunity for investors who have been waiting for their chance to get in. 

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.