INGN - Earnings call transcript Q3 2018

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Operator

Hello and welcome to the Inogen 2018 Third Quarter Financial Results Conference Call and Webcast. All participants are in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Manager, ahead. Relations Investor Bacso please go Matt

Matt Bacso

Thank participating in today's call. you for

results quarter me Scott and the Earlier Relations Ali financial CEO, Inogen Inogen's today, website. section the and released Joining currently is Investor Co-founder, corporate Wilkinson; presentation from available earnings XXXX. of This CFO are and Inogen of for release company's third in Bauerlein. the

XXXX including marketing and and adjustments presented expectations, productivity and statements and financial the including expectations and a information today XXXX. guidance development the will impact strategy announcements, forward-looking hiring product and reminder, rate enter of planned for our about impact the and CMS expectations, for recent XXXX to our statements, beyond, growth international growth the plans market, the prospects expectations As include Chinese CMS related tariffs financing Chinese program, regarding tenders, of and

information maybe forward-looking involve Forward-looking uncertainties detail based this to forth in Commission. on are in by periodic these our Exchange Securities forward-looking and predictions and to available only more and results except any may These with statements call risks are vary statements as are the recent set reports we update currently us. filed law. disclaim that in and statements most Actual obligation required

our posted refer to Please website. quarter have for Investor statements investor detailed of and information. historical company's the Relations third these We financial presentation section in the more files

GAAP to release. business Inogen's not indicative core Reconciliations in earnings measures uses items by both certain also measures investors with we results. between financial that call, the US and operating decisions. on excluding evaluate and and conjunction for certain present financial management our non-GAAP useful will information in expenses non-GAAP results basis. US information presented provide a and taken our During believes financial tables and non-GAAP measures non-GAAP manage are operating other within non-cash are Management GAAP understand, Management make of that internally

For non-GAAP Wilkinson. without periods, our reconciliation most to Scott the and we of our in GAAP future provide Scott? effort that, release. earnings measures more turn in to I'll unreasonable discussed the a President to Inogen's comparable guidance over call CEO, as are With unable directly detail

Scott Wilkinson

afternoon Good XXXX our thank joining third Matt. quarter you conference Thanks, for and call.

third Direct-to-consumer XXXX. in generated and increased our $XX.X expectations sales to headcount the the of at sales We sales results advertising. representative our revenue XXXX of million, channels. third million of $XX.X Looking three due quarter total of solid of all quarter reflecting in consumer primarily associated exceeded

is to sales strategy to in most representatives awareness advertising to still additional our direct-to-consumer of means believe as sales. invest this our success, continue to recent is hire effective our growth and activities Given increase drive consumer we

second end at on Cleveland-based two-thirds plan call, these with quarter employees be to have our of As by XXXX we expect stated to XXX year representative. employees still sales least

Third quarter medical by driven sales continued XXXX domestic resellers. adoption home internet primarily business-to-business sales were traditional providers and were $XX.X equipment million. by Business-to-business

an sales infrastructure quarter-to-quarter perspective. said, always be the inherent from facing providers, due important it remember challenges to have and can business-to-business we domestic that As lumpy both to is financial

conversion technology Given these to non-delivery believe will natural years. to seven barriers, the ten we continue to take

Spanish our XXXX on X, US in the the a imported with set tenders tariffs, XX% from to quarter. meaningful was tenders Once to tax of government subject Chinese Transitioning materials $XXX million import products. the us growth quarter no increase sales January federal to XXXX Chinese XX% on European to Third and of billion were date. postponed primarily adoption later a to appears for of were there business-to-business record continued international due again, from third $XX.X Expected partners. its

into we percentage XXXX. factored This our sold goods of unit per to changes, incremental increase increase a low-single-digit cost was these With in estimate XXXX our guidance.

any I monitor interests new also cost year to the risks. we policy forward, CMS reduce for material like released our necessary and protect and tariff financial standard and continue economic full would the XXXX. the steps our proposals data from Going take to to changes will on Medicare recently comment

when from information While therapy as the we to assemble or brand CMS absence oxygen has used as the some a Based of entire proxy a XXXX XX.X% serve XXXX. manufacturer portable to the for oxygen set, concentrators information the limitations market in X.X% oxygen the the such the picture market. information, that estimate believe of we data market can share in therapy oxygen therapy on of the grew Medicare that in

insurance or not does private However, include cash estimate patient this transactions. sales

significantly, patients Our direct-to-consumer grew XXXX in sales direct rental declined. while our cash on service

this that opportunity portable modality category POCs on CMS a growing from penetration. may oxygen fastest were and concentrator believe estimate in we CMS actual growth ahead. we market based the the therapy this still oxygen significant has conservative represent data So believe a data of

Specifically rental oxygen base, POC transfill set, excluding adjusted By comparison, claims above XXXX Code: X.X% declined Code: for XX% beneficiary claims KXXXX tanks increased our this given declining XX% beneficiary X.X% home POC and HCPCS for levels. HCPCS EXXXX above Inogen and data XXXX increased When devices levels. from respectively.

long-term the the adjustments. new next place. and in rates set competitive of in market similar As be subject until DME may was receive States beginning contracts beneficiaries November budget-neutrality level areas United bidding an POCs released XXXX, to are all expected transition rule, are is therapy at CPI July. supplier pleased XXXX. which annual the subject we equipment January round see adjustment to supporting which any the very released the X, our be CMS proposed until will patients. throughout oxygen XXXX, the vision enrolled CPI in Reimbursement will to On round Medicare of for care to rule the under Effective until X, pricing not in portable DME that bidding, final next is from to Pricing current competitive effect Medicare standard the leader, patients, will XXXX the be bidding oxygen concentrators takes X, for that January POC

clear these calculation oxygen adjustments these all is neutrality the also increase only impact adjustments instead the associated our to whether and before EXXXX. this in reimbursement rate beginning is not to will bigger It apply code January to but with provision the budget equipment XXXX, or have of decrease CMS associated a oxygen stationary clarity the applying rates Medicare reimbursement with X, reimbursement on CPI XXXX the oxygen yet on classes on changing expect previously adjustment budget-neutrality However, we rates, year-end. the

just new rule extends include equipment December oxygen product present XXXX, want set glad these believe oxygen XX, patients access to oxygen lead not high winning oxygen Transitioning they In areas DMEPOS at finalizes classes and the able liquid next discuss for blended are see and generation reimbursement supplier, concentrator, who portable development, from until increased item reimbursement in will rural will we for program result concentrators the rates I December to Similar winners. and international any first the changes be establishes portable briefly Inogen addition, rule This flow were for the the XX-XX Overall, final XX, this expire maximum to XXXX. to bid and our setting One rate. followed competitive on This now bid channel. that non-contiguous rounds in we launch the the pricing GX revisions also liquid to payment content. median the our in domestic launch, then XXXX. business-to-business bid One rule of we in expect by first These channel, winning GX, the rate, through of half expect GX and to channel to revisions bid future. Inogen the we the rollout direct-to-consumer to business-to-business instead implementing which to bidding receive also

specifics, than Thus be we obsolete not the pound the the in While intermediate have higher the will GX, oxygen will oxygen than that expect we the GX can output smaller GX size ready are that than term. output we GX we the and to over per the say higher capacity a GX produce GX. will to talk a expect

Further, discuss platform new would like One we get on Connect, to Inogen GX features. launch, and comment Inogen we As I closer to devices. our GX other the for connectivity will

software GX the oxygen through Inogen year-end Connect purity followed away as such Android We believe find and equipment functions, remote compatible oxygen patient health platforms, is oxygen Apple end launch includes of location the notification the model. and Inogen channel from to updates. for battery when XXXX. home the features providers the transitioning expect direct-to-consumer status, will the also and Connect checks, a quarter OxyGo by alerts, operational tank tracker features we by run-time, with channel with remote and first Specifically, XXXX, efficiencies product support domestic troubleshooting, will of business-to-business drive delivery GX by and FIT as such

third-party securing customer care we between tool direct a model. help financing will for the providers through lease constrained. an HME-focused have and a HME business plan also be us support Inogen We their Capital, third-party HME smaller Capital believe recourse in obligations will valuable financing believe events non-delivery that will home default to provide that been for to Inogen We providers convert a the under financing Capital contracts. of historically to to program Inogen capital with POC our be financed no launch to

expect in worldwide. we portable to sales concentrator invest force, adoption to order and continue efforts remain drive and ahead in to to growth Looking heavily operations to high a advertising our XXXX, oxygen company

Capital the turn patient CFO, to by Inogen now of and the Ali? We regulatory in preference. One invest we the Connect, approval GX, this Bauerlein. Inogen business such also provider at believe call year-end over keep to and to China in launch forefront expect I infrastructure us and to of to markets open XXXX our plan new With We initiative. will continue that, Ali international the support will as XXXX, and Inogen

Ali Bauerlein

good and afternoon everyone. Scott, Thanks,

will XXXX I guidance. and provide of and During my our details prepared guidance financial third performance then on updated remarks, our quarter initial review XXXX XXXX

of noted, representing quarter for XXXX over Scott third of $XX.X was revenue growth the third quarter XX% the As XXXX. total million,

sales toughest oxygen of increased Direct-to-consumer up growth reflected $XX.X due XX,XXX representative XXXX the in quarter of the of of quarter to XXXX, of to each retail price. XXXX, the in total the million representing quarter of down revenue in million exchange X.X% third from of on prior quarter X.X% patient a QX Sales $XX.X a million dollar versus effective million, due total XXXX, increased results. by over On benefit third $XX.X revenue, XXXX of of selling service. and decline increased in international offset offset XXXX XXXX. streams, growth lowering from by the our QX third of expenditures. in by in in per the the worldwide traditional strong and by prior of international period demand quarter higher rates. year the third headcount compared X.X% to basis, and sales QX increased the increased QX tanks business-to-business for primarily rental sales to XX% business-to-business pricing our a quarter to sales lower XXXX, which net revenue revenue the and the are X, to patients XX.X% XXXX. international currency mostly in in volume revenue third our period of XX.X% quarter adopting represented units of have average of million HME to third advertising X.X%, portable third were European $X.X in revenue of sold the QX more mix volumes oxygen turning due quarter sales of XXXX of to XXXX, third XX.X% Record the same XXXX. third same due in patients. was increased and XX.X% direct-to-consumer $XX.X to in per in of XX,XXX of decrease declined as sales over of providers $XX.X at of primarily providers Domestic to June their primarily Sales higher was XXXX, representing sales, to XX% quarterly partially same primarily QX million due Total year. Rental a of revenue comparable reflected compared revenue XXXX, instead third the strong quarter XXXX, XX.X% service XX% unit quarter $X.X Europe year, the over revenue quarter concentrators XXXX Rental from represented in from driven over XXXX sales prior the of partially in on XXXX Looking business-to-business, the first sold third quarter million was from service a pricing from growth favorable XXXX, X.X%

of gross XXXX. in to of the Turning quarter quarter margin for compared gross XXXX margin, was third total third to the XX.X% XX.X%

of unit. favorable to in and quarter The gross sales XXXX in of primarily Our direct-to-consumer partially was Rental lower by business-to-business the prices XXXX. rental XX.X% X, XX.X% gross expense. gross the gross rental lower lower versus margin XXXX. margin a and on sales service XXXX was XX.X% per volumes in sales sold mix third The increase both due patient direct-to-consumer selling and increased quarter favorable versus average increase to increased in The June depreciation was mix shift the third XX.X% quarter per channels, due third revenue in business-to-business XXXX. of primarily due of margin effective pricing margin of cost offset towards versus quarter to third the goods was average was lower in sales

offset in primarily in in of revenue we the revenue quarter expense versus to as infrastructure $X.X the XXXX, third expense to third an expense, the compared million compared third In quarter of the the we million in bad growth. million $XX.X million support marketing increased Sales comparative a recorded representatives tax of versus sales in quarter versus period million advertising increased partially million due Research XXXX, personnel-related in XXXX to in $X.X $XX third for quarter invested advertising XXXX, and million $X.X expense, our XXXX in expenses. million $X.X in in In million increased to XXXX, of in XXXX inside to of in XX% of the to by of as quarter or XXXX of to the million primarily $XX.X to Cleveland expenses third expense third benefit XXXX. $X.X million quarter which increased or costs third quarter quarter planned of development administrative the patent compared $X.X expenses. the hire we was advertising XXXX. the reduction operating As of personnel-related decreased million expense of in million increased and XX.X% $XX.X we spent in facility to $XX.X continued and as related increased $X.X debt $X.X QX to primarily at million income reduction sales to and total $XX.X the was due due and expenditures. General in tax of third defense third XXXX income of reported operating personnel-related XXXX, quarter quarter and third expense

$X.X XXXX tax Our recognized in included to benefit quarter in compared from stock-based provision the of million third the quarter taxes an $X.X for decrease of income third in related XXXX. to income benefits excess million tax compensation

of of quarter increase revenue quarter shift on rental Excluding of EBITDA the sales expense, XX.X% XXXX related primarily to third third impact sales adjusted the third XXXX to the the versus the the $XX.X revenue. quarter return in was of The continued $XX.X XXXX, XXX.X%. to adjusted which tax mix third of net where of on in XXXX. effective of of third towards XXXX which EBITDA $X.X was an in in third the million, XX.X% XXXX share lower quarter reform. the stock-based for in third XX.X% net XXXX, rate was income of of represented In of in compensation versus in we reduction due quarter benefit, million, advertising, a $X.XX the XXXX, quarter Adjusted Adjusted represented infrastructure compared EBITDA XX.X% in US the revenue. and per quarter our tax of XXXX, to a of EBITDA the depreciation versus investments XXXX margin third XX.X% $XX.X third million return income third Earnings diluted federal increased due revenue. XXXX common compared quarter reported million was in of $X.XX quarter primarily our and third quarter quarter was non-GAAP

believe income As continues placing favor it business. our trends as reporting the sales move emphasis of relevant we be of to operating business revenue, when in analyzing on more is will we profitability more

in ended in flat adjusted is XX operating margin September comparison, comparative By margin Specifically, comparative XXXX Cash, of the nine XXXX. September period of in income basis in XX, months $XXX.X XX.X% XXXX. ended is versus versus million the nine-month roughly XX.X% to the EBITDA XXXX down to million, in marketable the of compared cash an June XX.X% period XX, increase securities as XXX $XX.X million equivalents points were $XXX.X XX.X% and XXXX. in at

significant fastest $XXX growth million XXXX rental up Turning be $XXX to domestic we million strategy to to will from results. approximately international sales sales are business-to-business revenue sales to rate guidance guidance, and XXXX increasing have XX.X% still be We sales million, revenue XX% to We business-to-business expect to on still where our focused to in total the XX.X% full-year solid to versus rate $XXX rental. to still our be range representing a markets. to million, growth growth to compared full-year due growing a focus down expect of for direct-to-consumer $XXX continued channel, versus have European the on XXXX XXXX our

Additionally, lower income for provision of due of net increase is decrease $XX to in rate as from in the rate. from million compared income non-GAAP will $XX by GAAP reduction and recognized to excess XX.X% taxes million benefit. to to forecasted of to of $XX representing non-GAAP net XXXX compensation from sales growth lead range to taxes XXX.X% compared of of a estimate to XXXX which compared offset marketing million growth approximately continued income range XXXX XX% guidance we net $XX the lower GAAP the tax and to based a $XX million, $XX statutory income to tax of We the fourth $XX.X related our stock-based to our rate. benefits effective net XXXX, investments a provision of and would for estimate on income million, XXX% XXXX that are quarter year our to million million full an tax previous US narrowing This further income activity, effective stock million $XX in primarily in expected

we on forward, When depending price, to Going quarter-to-quarter pre-tax income, and effective tax size in compensation option our estimated the now effective non-GAAP we of vary from deductions including approximately stock XX%. XXXX net timing from XX% the to expect amount taxes exercises. of rate, provision expected million compared $XX and the on decrease deductions, expect previous expectation of share the for our benefit excluding in stock income tax rate of compensation stock-based the

We XX.X% for sales are continued from our range XXXX to year the results $XX full representing expect XXXX representing growth full-year in $XX investments to XX% operating of fourth $XX we million growth full our reducing year EBITDA to to our $XX of and be quarter million XX.X% million, adjusted XXXX. Further, to expected $XX versus income to million $XX to XXXX marketing guidance due of to year XX% million full results. XXXX versus down million,

full XX.X% total to million, also providing guidance to over growth of representing initial XX.X% XXXX year for guidance $XXX an million are revenue $XXX $XXX midpoint of We range the million. XXXX

we focused rate. to We the domestic and fastest-growing primarily channel to our on markets a solid expect will be growth and expect sales sales international Internationally, business-to-business direct-to-consumer have XXXX. European sales in we be business-to-business

for impacted the net in compensation the our over are of we be taxes Lastly, $XX by the year on to deductions, statutory which rate We further in income tax in $XX recognized a income decrease to a from income tax rate in lower net we keep to XX% million compared XX% associated excluding in XXXX in rental expect lead and would XX.X% XXXX X.X% million provision $XX stock benefits in a provision from estimate compared $XX XXXX. from for Please excess effective taxes that guidance XXXX, XXXX compared stock-based When effective to taxes benefits provision mind, revenue stock-based decrease to related the the Due tax representing as in estimated our in income tax expected we in for to approximately to grow tax stock-based income million, price XXXX may estimate decline providing midpoint to approximately compared non-GAAP forecasted of compensation expect forecasted compensation rate. activity, $XX million stock XXXX. million will based significantly benefits, XXXX. expected to GAAP modestly benefit in growth reduction US million. expected the in to XXXX of of $XX XXXX full

range $XX of guidance of million. adjusted for X.X% year We guidance to representing the to million growth are $XX providing million, XX.X% XXXX XXXX $XX over midpoint full a the EBITDA

primarily cash expect net for growth full that, expect representing be to positive XXXX marketing We be plans. guidance XXXX $XX million, over will continued to no still XX.X% happy sales current with income Scott XXXX operating $XX required We and XX.X% and take capital meet million $XX of additional midpoint year operating investments to and XXXX. to the to million, in flow expected With our questions. to XXXX I your due

Operator

of William Thank Instructions] is Margaret Kaczor Our [Operator question you. from Blair. first

Margaret Kaczor

pretty First of past But twofold, follow drop just market but commentary little on sequential HME near-term, and continuing. question question of a as at we've the to wanted strong least seen a seemed follow-up. the all, adoption the is on level some one bit. up change that's I'm the on bit how I terms And of going at the some the in cheat quarter off and the growth in one to this to

around guys it's internet this whether that, a just bidding little question a competitive And color part kind you is long-term or the can of second lumpiness. on So of new general this basis. bit rule, of then provide resellers

I think a now year. So whereas the basis XX.X% pretty XXX years, year, the closer points marked adoption in we're POCs points a seeing we're penetration for XXX a a suggest to which prior acceleration over basis

especially you out Inogen Connect with shouldn't potential go we you're and of if see least not initiatives why and forward, 'XX that at maintain rate, the we Capital? So with some can putting that assume further acceleration Inogen as 'XX into

Scott Wilkinson

-- same in issue and old this see that On the we the really before that lumpiness said the channel. it's it's we've it's HME growth,

kind are have segment in and heavy pretty had You their C-pep I've time POCs to they fast, that on I had buying this providers and told they capital had provider One stops, will in on a go then that over C-peps. used divert calls. they an there and starts We replacing past of example to story Europe. issue were the some

And stop. so somebody with are then due the issues, and capital down and to things you're running and start line growing things constraints, then business

least think sequentially the back changing numerically quarter it nature, the back it that back we picked constraints, they I lumpy this, quarter at homecare really things faced providers their really like if quarter a to expect up goes and short-term, cetera. got go we over first in the quarter-to-quarter, as to one half will the they've ago, all just seemed then again. business, be XXXX, of declined et capital that next lumpy. really It challenges from and you it the fundamentally year then quarter We and a saw high second had about growth

Now you their It mentioned, them them help from to That's pace. flow that our providers business. doesn't standpoint, from on restructure the Inogen but smaller perspective. capital have Capital they it fundamentally helps challenge purchase really program, help a own their think certainly a at of a that'll cash take some I

change we want told nature say, this you so. it's But the just that. kind about the the been in this probably the XX for what said that's frankly, in think seen HME don't putting it's We to I And expect grease past -- into any market little years. I've channel. still forward. going be in gears. while to lumpy we've that, I've It's a So, is of don't of going I and

adding year from it go years at depends then you in pickup. at seven if X% X.X% up And XX% convert it don't to XX the to looking and your you a won't X%, you look if XX the Now XX%, from to see or on growth XX%, year that absolutely you're data, you're the if cycle, conversion right. on horizon, time Medicare seven

we you the So up extrapolate curves, timeframe to of next what predict there were an to expect hard out. over we number pick seven, -- it's in absolutely and that five, here at if infinite it accelerate, exactly rate is from XX years to

So about in to always expect POCs picture, yes, But the said, conservative care. we're pretty the big we've we be standard that. of

XXs about the patients, expect in, are full stationary-only patients, remember of in rounding, terms XX% be of curve, end of percent. that We patients. of And the the I'm a to say, low-XXs total penetration

that's just So be see the that acceleration. portable like the predict concentrator. oxygen of about expect would quarter XX% XX-year on or next over in to would still ambulatory next We seven- mathematically even you period, there patients and to of that don't get to a it the We year.

Ali Bauerlein

the to material Just really to that had bit. on ruling little add the think We that don't DME a any impact on quarter.

didn't It natural see of kind patterns waiting just starting to the HME final as buying we So it. of was any the stopping, ruling whether people of indication see were holding mentioned. orders Scott type was, thing, what or and that more

their in issued end -- consumer, side, on proposal BXB guidance had And the November the giving to the from the of to course, want that they us final business. the cautious the they customers that's XXXX July. very had ruling are didn't We And ruling I mention, we see impact close out telling waiting on came of saw. So or that that we we farther be ruling particularly would that XXXX, guidance. issued the course see more what final they more of would what were just how that are to in us also

out trend that built to We ahead model. like Inogen so continued providers So has XX% September that grown domestic we channel a again while that's want and see of we the and and into projects non-delivery don't continues market still that market about Capital tank-based We how a cautious, want over business-to-business conversion, that system the of year-to-date conversion talk seven- particularly through conversion that guidance. of cautious to be really given the to to XX-year adoption are get a process, we of the to end from year-over-year.

Margaret Kaczor

a quarters. bit And wanted it's that accelerating. perspective, then expense second the to sales from quite hit for last up because few growth a I on obviously still and a marketing It's

provide, that you seems a If enough even to growing expense kind direct out, guys still sales are pretty it level. take that at healthy marketing expense you like is the

And more I that or should as right reps. So Why how that means we XXXX about really, in QX is hires wrong? impact that think assume ramp? the and sales

Ali Bauerlein

do great we we of our our base as market last to in penetration. the sales of because call, we know types expanding of base POC the on we that on are been quarter still that stages known us continue expand sales And on are those is and Cleveland that side. in are do hiring said we third has So quarter. and the return a and expectations a there that ahead investments the early for we to really

a that leadership This that people, expense we continue the the nice the had set sure make right maintain to what train to will to high we that So is certainly do seen a so really consumer and really want that position infrastructure ourselves XXXX and product we can investments XXXX know think ratios forward. if know on I we up and it's that is an that above market opportunity. But appeal, and to we and right for historically. the have can plan. capitalize find we we've going we we that market are need

Operator

Company. at Mike The next Matson & question Needham is from

Mike Matson

I tariff with just to impact. start want guess I the

your the what a included in impact guidance. and confused around the you've commentary was by I So little

about? case, worst low-single-digit does that tariffs, So and hit talking to XX% does margin include the to that guidance equate your this gross the you're

Ali Bauerlein

Yes.

the are is impacted. for that components that that assume now impact tariff scheduled right So XX% does the as

line So margin that into we impact directly built the it's we percentage have is countries. operating -- there guidance. that COGS It's our assumptions mix China guidance that it guidance the those then exemption don't both to our get components not that mix not from all sourced rates was it portfolio, different bottom And factored an gross based to give come and we to But obviously many made product. income, dependent, on into but of and net low-single-digit applied. specifically Obviously, from for margin. we've since heavily some EBITDA code do product is be our our that have adjusted of assumed would for,

Mike Matson

available any of them? all? with And there GX to then you? the the at then the associated then I that'll gross to goes assume impact Are in the also it be that be when connectivity launch And Will fees every free for Okay. any GX. out with is cost Is and so mean door to that? added feature, regard these margins there it the you that I on products customers

Scott Wilkinson

of level. already I right when being factored efficiency a been really Right that's we impacts driver so kind Mike, have provider that fees any to new at or anything design. impact provider to into products level, tariffs it when shouldn't now and the mean, level. us improve fees operational whether excellence is just no your drive or a provider the patient our behind plans like you're everything And for want now, and managing could this at we what's look COGS. it's the any there's at material ourselves no that. guidance, at We There be a rental fleet, how

opening markets the will said GX channel, we'll in though my this before be reiterate it as to launch be in will with I every of launch, GX the end Just the road start direct-to-consumer that. the international out comments, in the down then business the we'll channel then by and of will year, it go and after to channel, quarter it go roll first to business to will kind in

Mike Matson

force kind to I of of of the customer given of are tell but willing are tapping in numbers, I what buy into terms markets just willing those signs acquisition then, to the under-penetrated been to of are. DTC and going look I -- going expansion to any patients that And is incremental buy pool more just out been have to saturation patients, this I'm that you least we wondering, when sales of at of costs, the not calculating off, of those are out you pocket, pocket. getting us know sales know seeing pool you But patients force, costly you're it acquire your the at assume large -- have

Scott Wilkinson

the saturation that And mean, investments those monitor you're I I making we're we confident that of these Yes, out. numbers all at when Medicare certainly do we're and a at we're mean obviously, bear metrics. not point where

investment. bear otherwise an such that other Our wouldn't metrics make out, we

Now I will some past, shared comment we've around metrics say the in our direct-to-consumer it's just general a of the go-to-market program.

in at in their We the forward, are two go-to-market are sharing because they as more water there POC same have space there said least metrics strategy. about that going that with little out putting going cautious the to that you other manufacturers be a are toe those know,

our So, go not from learn on earnings to learn own they're going calls. have to their

Operator

The Robbie next with JPMorgan. question from Marcus is

Robert Marcus

operating bucket you of from for the for expenses do XXXX. line, then how learned and headwinds Ali, that them how on third hoping second What for XXXX guidance impacted the could quarter about the since into us expense and walk I margin could think us gross a you you we and operating was quarter. cross maybe kind from if then for

Ali Bauerlein

Yes.

clearly we thought was media on quarter then reps So spend. ramp and second in seen the number the related and the investment call higher of the level have of we people the the because than had of sales we've that facility the on

what second leads of ahead in the think which we higher the right call, expected come has quarter in that but course decision. term, to So the of that's expenses we near that on

marketing EBITDA, it's did those sales So lower and for expenses. while we really adjusted our

in quarter quarter higher sales those well. fourth in expect third the we also and higher to expenses also So be marketing they and the were as

great last When gross gross seeing up a us. of those So year. that was for the we in a QX margin two at from side, EBITDA. adjusted combined for It really items QX XXX of fantastic XX.X%, to changes expansion basis margin was result points look the we're account

So we're really pricing the of proud pricing there. in the trial the lower pricing of from that and rollout $XXX remember of DTC spite that. And that's lower

a think well. was as really compared strong that and strong QX we certainly to results So, that

to certainly something want that highlight. we that's So

guidance from Looking marketing is into year and the dollar marketing secondarily, on a really expect the but an messages side, sales XXXX particularly XXXX operating happens. perspective, expenses, guidance where R&D but we gross investment obviously or we investment the sales key still on don't to and profit specific are be give

actually expect Given fastest margin little expansion. our to to channel year, just a Obviously tariffs have that should direct-to-consumer be and general you bit be you that And the we gross higher then mix see with a course, price of associated growing tailwind next a business-to-business expenses and higher in certainly, percent. that shift the profit margin gross pressures, impact channels. the versus also gross dollars has a but business, operating of on the big headwind

that So and there. put factored was the we guidance in all of out to numbers that

into it out well. guidance to for that that the change as also been. out XXXX that has think that achievable and a right and Obviously taking what income the tax all point important is versus factors but of planning is on the compensation business, ahead in the of also factored on it's net same so both approach the investments in. sure always to the We the lower, XXXX business execute, lumpiness making BXB the get we don't market so for we and was what to are impact of conversion also can as dramatic significant go Our making that account has much benefit of guidance side we're stock-based

Robert Marcus

for minute for shops there. has been heard it. Capital. a the the Inogen the mom This I I've has that long This crunch And is been capital pop industry the I itself maybe constrained was out another hoping for you time. a you you, and Ali. a on question a small lot talk know of could about spend first

why impacting So then sheet maybe and balance flow going how cash And should help drive now, we this this understand can your help how business us forward. needs. the think about

Ali Bauerlein

sure. Yes,

excited have been for It's about So us a years tool frankly our time for asking selling HME as used a customers Inogen that that financing have our competition has something that tool. long didn't something we're many we a well really Capital. as against and

customers partner out excited for these and really we're as also businesses. going So and to We think that the convert found the provide period. can right financing them understands the there the this about this through HME their working business help transition they're industry proper getting we with

this no In to is our recourse terms balance of sheet impact, Inogen.

So it just a that's to the Inogen under of the third-party payments be then brand. and is the would owed operating Capital that's lease the traditional actually product sale

associated with a on losses. will potential through no it it's no but with us Inogen, operate recourse So and as third-party to sheet it balance liabilities is our

Robert Marcus

Okay.

they and it you and be finance sell then sell agency to to the the rent it to patient? it So and clear, it rental

Ali Bauerlein

to the it They lease then HME.

XX whether with HME, the a to the between it HME us XX So company third-party XX the we there the -- whatever term over then monthly is and payments and to financing they sell months pays deal HME payment months, make financing the if or months. that's third-party

Operator

at The next Leerink Danielle question is from Partners. Antalffy

Danielle Antalffy

make mean, I you there there competitive to was do we or did customers competitors? want you in to to that when some maybe the is another BXB to business any look worry Just to way I lost sure all change ask, that is and understand -- Maybe lumpiness, ask question dynamic customers continue BXB sell the at you your was to there? there the

Scott Wilkinson

what a there is I say dynamics mean from to we but I competition. and price price continue continued there No, sell is everybody. we market pressure is wouldn't to saw change,

the So, but that's same. not new, of it's more

that their new on to certainly go-to-market I really is providers, of we decision same. mean share we see saw where concessions and from the continue the strategy, we financing make home our leadership price part or purchasing But price. anything to our material care products a and defend So was more a of any didn't big different it position. just appropriate or

legacy and commodity I seems tank. it a ever quality I a think where reliability a reasonable like tanks. larger to part still a other products, mean If we probably and obviously like reliability premium at in plays Now past, enjoy the decision a in be some there we're different really than is maybe of tank point Danielle. POCs, than product but continue their But I that what nothing were call high in this high would market, for that quality tanks. it

Danielle Antalffy

the XXXX, And gave, sense. out and makes That for it. look as then we got you guidance adding Okay, reps DTC. to are you appreciate

that could that upside. and conservative But that this sounds like in very being be. know drive about wondering sources just where guidance a first in so for is upside half the of upside rep So of hires we we how potential much saw could the baked thinking year BXB, potential year? whatever you're of source I see accelerated on next like DTC, you're to DTC

Ali Bauerlein

upside the Yes, certainly. we above if leads on side. mean, our to DTC I also that expectations hire can

hire we train. So trying we can still are many of how ahead get cautious to don't sure effectively we there make and of people again

will curve, goal our the models can in BXB the that's factored I many into said. community all many is how ramp-up out cautiousness into been how is looking we inherent at of to business-to-business is strong There is the guidance guidance. always so course, the put built leave, of because built we what just challenges hire, businesses. is So the their as that has something have is on that more certainly results side into this know achievable, and year's converting their And

domestic international as the side. as the continue to there, well we still both be side I'd conservative So say on

are if buys those market in our adoption and the for certainly product. So, the accelerates opportunities upside

Operator

McKim next comes The from question with Piper Jaffray. JP

Kevin Farshchi

here. product have customers margin the care benefit, that This early on appreciate the product the then spend operating on any any that had on do products. Does gross current products, that the is might it for of GX. I margin margin do get And offset most Would the any, the you breakdown such Kevin of you think you can for for on to you curious if first one versus think on? what the principal increase features about grow type average? the JP. I type two questions there? was side ask what I'll

Scott Wilkinson

it start commentary of the with GX second just for I'll the Ali question. to rationale part some over design I'll the of and turn Yes, on then

lighter we they version patients when said about they first and improvement, in I of we the POC, out talk more when we like So, smaller and than mouth GX our improve ago, see what to said the version we I that I'd would little we've launched their want can right every gone calls two past here And how heard automatically We a quieter, longer battery what is, wanted launched market heard we and when run-time. didn't I'd to things time, we always until it, wanted we've that it it smaller like of years like GX. to each lighter. launched for

So look lighter that next at the and POC roll more and it's was all out generation kind versus other last our not to another smaller a of product balanced just and factored of into approach as GX our some parameters the version.

of we're points. Now, internal still ready those talk a in We're said, testing through all about I specification some or couple by to as right not spec left specifics a things today. the of can going and that tweak

amount. the like statements will and so year. that small to a size of changes, the if going It's that Those launch the GX than we be a things But efficient, tooling we more something than smaller pound it's and even but locked smaller end connected did than output will per we've going any device, even a say GX. what the we what is it and have output more it And of be before just higher know out it's in gate to is by connectivity the GX, we're are will than we this going so GX. it's the have the the to the really GX this call want already the So GX. because to make know, don't be in then

until of but patients I is at few to that find is about those and don't the And providers. their be want you a the the this a been GX, rental A of kind see think we did the this GX other embraced of talk fleet. that that's by providers is only also a back there, And them. with think that's the for But will specifics well. followed our homecare I not embraced product patients the have that this specs, by they market you we providers is other premium really if refine product only So to lot you'll fleet but going product by retail look I given not as leader, lead in the GX. success our our the patients, have included a standardized on not out

Ali Bauerlein

on costs. our on the we're comment remarks, just And of to the saw don't launch. specifically prepared at until cost profile side, comment you We the from we didn't cost really on want unit

little we at well. the as on the our talk and So guidance around well but made into about have impacts more margin, as assumptions we'll our impact profile operating built bit launch, specs cost the as those a

Kevin Farshchi

growth over because it to least to clearly I you you to are a $XX so earlier, And force company do the sales million just I larger the XXXX. GX, to the at put wanted put, last to XX% guidance And relates as time have about you're this it to year, midpoint ahead wanted going at XX% of year, this this up it's on XXXX point product. know asked XX% I probably that revenue gave in was next year but the new and finer

much the you So you time even -- confidence and much that gives sort how down, last for accounts if year? it, can't how in over GX just break of general, quantify type increase how you of would this

Ali Bauerlein

for of the to product so from we together. our our a what exactly how guidance in GX. inputs we sure direct-to-consumer look budgeting bottoms-up plan, to same. GX look the to our a ramp really, a we GX it's at all the the there want spend going mean things also versus I that on numbers curve are are together direct-to-consumer we looking always do reps Yes, and not mixes, at in going When when where philosophy, versus that to at We prediction make and then built they many of and look we adjust putting approach portion at We that's side, side. the

we out providers same pricing, they the the price at ASP or side, either Now how the remember, do actually patients. on to all come the selling

revenue is have cost doesn't So really it the a difference margin difference. differences, only

it material volume. a GX the of isn't change. that direct-to-consumer there the at from look majority So we is And already perspective, remember, when

more coming unit GX online smaller replacing eventually volume, have GX the So with the that really patients time. with for need over sicker they that's get a a or higher side. want at case on in direct-to-consumer balanced It's flow impact a really the

So for impact GX direct-to-consumer minimal XXXX. side the on

do we we the we the be adopted launched more Now, to Remember, that provider of course is launched. international the domestic expect phase always will in but widely side and and in on business-to-business phase first as GX business-to-business. direct-to-consumer the then product in side then

of half first direct-to-consumer. XXXX So in launch first the

cautious You're XXXX, especially depending talking strong finalized it launch the this that product But date early do about exact mentioned. guidance, think pretty in pretty yet. have that the But impact we haven't taking we're of will get of can on the the terms preference, when actually bank, on as launch. again we timing provider minimal we when Scott even in to

Operator

with The next Stifel. question is Blackman from Mathew

Matthew Blackman

about that think the feel now versus in clearly with tailwinds here opportunities. the recent a you'd you durable general potential the in than you years. do have elevated characterization? line how fair good perspectives, for the and last on several like more Do picture Is bigger tail headwinds. some XXXX also incremental and at of growth would for sight with And with good or I has feel more years of business XXXX, spend potential growth about start expectations very to maybe approaching the Scott, XXXX end feel business outlook

Scott Wilkinson

good I in we Yes, about very the I where feel sit mean market today.

versus the over our two if have growth growth POC rate last we the position. leadership you to that rate, indicates years, one have We market strengthened our look at it

little talked drive we've products. built in with but pretty We've we innovative us gives oxygen and is and launch team marketing we continue growth a disruptive in go-to-market not invested therapy sales to good to past bit this proud other heavily That So think force, we've to conducive and team sales about products about that. strategy only the that. our this and that the calls, we're pleased pad with future, feel and inside of also a in increased grow

our on indicate up have what done we've providers. trying strategy but the to the oxygen to while therapy company that numbers it company great for in and growth room be healthcare on an call oxygen the of therapy in ourselves is with I'll instead not view So a primarily just from end-user focused to a settle perspective, run we we're still future, a go-to-market homecare the and rather, consumer unique

had community. having we've them the consider Now homecare that, said provider our partners. with great We success

want We to all facing while that. in take offering with continue to we're down of so drive objectives got common we have We operational reimbursement to service enhance to patients oxygen challenges rates, costs, the we've patients. care and

I very bar sheet, but feel opportunities we that mentioned products good to the new when add But also strengthen We've our So products remains we're I about to to are the for I've that or in balance very aligned acquisition think new partnership there, either past continue future. high. the our of continued that that I along, take a that's and think because it, are therapy still comes one the the future but to haven't a the the is trigger market. great remain on success we've very bullish, to bar had pulled advantage and we tribute in we high yet auction how position right we a in review

Matthew Blackman

of advertising, back going see about those how appreciate guidance could in lumpy BXB a may on sales had. ask segment Thanks. then the growth this, anything I I I I to -- I we and outside implied that there sensitive but didn't positive that on couple all to really the spend together. have XQ have need That's we to missed then just follow-ups returns deceleration reps quickly investments? is be higher potentially if I for of the lumped and all just you and could

Ali Bauerlein

Yes.

stronger there So remember to of when against was last it us the growth now the the QX QX of the deceleration to see into then typical rate, obviously, direct QX, year tougher where side months for we the so assume the going actually consumer at expectation, on consumer get by does comps look are also direct the and strong because seasonality side that. QX followed we typically QX a on

sure of easier an continued growth and of so the also hire make else area us that that but -- the in is we've domestic was to a toughest obviously easiest actually people help is strong for want on comp see BXB side as an area to it it side, an rate is on for to last understand for that, very is QX I direct offset the comp comp us also consumer So us year QX. International should equal. year the us acceleration being for that in the QX, that

second So we we guidance that's that would when question sight lose is factor at put be the we again QX it achievable was. to wanting overall make and has, just would that that there sure say kind look driving don't results. one isn't of we it, challenges of individual provider And out that the the

Matthew Blackman

How quickly see on do in advertising? you typically and reps returns investments

Ali Bauerlein

it's the you're Yes, reps. that reps typically of that up the than in range perform obviously those a strongly, some we or it's better kind same before results as quarter of quarters been of have a two but the see return couple quicker from don't on now seeing and reps of

Matthew Blackman

Okay, thank you.

Operator

The at Mishan next Matthew KeyBanc. question comes from

Matthew Mishan

thank in. and squeezing you me Great for

Just oxygen higher to a for follow-up the on with and it what market flow reimbursement quick allow percentage GX, go product? the providers of you a potential could after does help dual

Scott Wilkinson

POC the with portable now stationery one are code coated that already the remember get code is right oxygen for auction reimbursed and Well, dual and asset. both you

as in coated offerings our way, past have well as be other the So continue market. that of GX to POCs in that all will way the the of all POC coated been

market, you patients. all XX% maybe points So even you few XX% a the pick GX, of help will a there's up serves already in at of incremental the output to up GX it When the the XX% no to look percentage change there.

times products our already sometimes on it doctor majority, a non-delivery their is does not get help on got go what switching them products products. you've increases POC, to you a you also put of rate. to product have are and those little but a and necessarily serve -- will the flow that patient flow avoid So they lot the when flow higher a that's It see the if cost that higher

flow think So will for that -- are POCs XX% you've back it points that why we've be really the provider liquid got or percentage pick to help, said assets. what a switching and will that's other few we to go XXX% percentage will does a but to and high reduce appropriate remain, help it and will not still really a the it up costs a that always tank of small in for market coverage the is markets

Matthew Mishan

corporate group physician systems hospital concentrators practices. give is Can hospital sales question you where with a sure their have do group a to you demand or a you're portable you And that's then physician practices have corporate you I'm that our force then to that with larger patients systems used an for update the oxygen with consolidating, group, being pretty sales and targeting works versus still change on have push -- to consolidating at delivery oxygen.

Scott Wilkinson

Yes.

field still force. sales So our do have referral we

rentals, of invested investment right said on three group them have us and basis, is sales inside group they've although We'll on And a nominally and two over group. force a have, The some but focused primarily add now the remember, cash effective kind surprised driving past a the heavily retail at more to has very to little is clinical actually in much then rentals. sales going out that to even more had that bit, to it's interesting and spreading success they're continue sales community field at added percentage referrals but we've on we've years. rate the they we've drives rentals. lesser inside gospel the the and We

hospitals that as call far area. So now business falls that right on team we'll in there, continue invest now, as our would our to business to

what make and remember do out of oxygen some we the So that concentrator. companies and already portable covering calls there we insurance those to you of they most have payers,

on taking or for basis on tanks ways oxygen patients weekly for predominant coverage, we're lobbying but and so modality the that's of started currently out basis, for the to we going a reimbursement have is to actually monthly So care for look be change are used reimbursed portable administered POCs, because a not oxygen. structure liquid to monthly is

your reimbursement costs model. that get revenue the this your POCs the month, deliveries kind this cost of up kind blows it you make this month. So With have of your you match month, you whole

could kind if that associated don't such of companies with dramatically think in asset monthly be we acquisition home change Medicare They would community we out for of with an reimbursement for flow that constrained, homecare cash cover have costs an they to frankly how that that's it's asset because the and no as now. that are down buy for they would put or adoption they've the of and got by the barriers month an break it provider to and a right month. reimbursement delivery reimbursement ongoing silly have upfront you to could asset get longer insurance it as figure So pay

you to a primarily efforts that change will we our long-term doesn't is are what So easy of to play. do on do most tell change and reimbursement, that focused need but I

Matthew Mishan

All right. you very much. Thank

Operator

This closing concludes our question-and-answer for conference Scott over the Wilkinson to session. remarks. I would turn now like to back

Scott Wilkinson

like a few close comments. with I'd to Thanks.

about excited the and growing large for look portable patients oxygen worldwide XXXX, we future we're oxygen still ahead standard market. oxygen we this concentrators in the care ambulatory to to expect therapy, As of and of become

and I'd thank employees instrumental those you. like on success. participated the Lastly, have today's all been call of our Inogen who to who to Thank

Operator

you The conference Thank has presentation. now concluded. today's attending for

You may disconnect. now

Inogen (INGN) 6 Nov 182018 Q3 Earnings call transcript