Inogen, Inc

Welcome to Inogen's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. To ask a question at that time, please press star followed by one on your touch-tone phone. If anyone has difficulty hearing the conference, please press star zero for operator assistance. As a reminder, this conference is being recorded today, August 4th, 2022. I would now like to turn the call over to Agnes Lee, Senior Vice President of Investor Relations and Strategic Planning.

Thank you for participating in today's call. Joining me are CEO Nabeel Shabshab and CFO Kristen Kaltreuter. Earlier today, Inogen released financial results for the second quarter of 2022. This earnings release is currently 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 2022 and beyond, expectations related to our financial results for the third quarter of 2022, and expectations related to a return to profitability. Our expectations with respect to supply challenges and cost inflation related to semiconductor chips and other product parts used in our POCs. Our expectations on European regulatory clearances and approvals, future reimbursement rates, expectations regarding increasing productivity of our internal and external sales team, progress of our strategic initiatives, including innovation, hiring expectations, 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 four little statements in this call are based on information currently available to us as of today's date. August 4th, 2022. These forward-looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic report filed with the Securities and Exchange Commission. Actual results may vary, and we disclaim any obligations 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 non-cash 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. Reconciliation between U.S. GAAP and non-GAAP results are presented in tables within our earnings relief. With that, I will turn the call over to Imogen's President and CEO, Nabeel Shabshab. Nabeel?

Thanks, Agnes. Good afternoon, and thank you for joining our second quarter 2022 conference call. We have made tremendous progress in the second quarter, driving 29% sequential revenue growth compared to the first quarter of 2022. This accomplishment can be directly attributed to the team's efforts to manage and mitigate supply chain headwinds and macro challenges to meet customer demands. From a supply perspective, the relentless focus and investments that we have made to secure semiconductor inventory from our regular channel as well as the open market, in addition to our POC redesign efforts, have allowed us to manage most of the challenges so far. As a result, we are pleased to be able to provide revenue guidance for the third quarter. We are expecting third quarter revenue to be in the range of $97 million to $100 million, representing growth of 4% to 7% versus same period in 2021. Kristen will be going into more detail regarding our outlook when she covers our financials later. Despite the improved visibility, the supply situation continues to be fluid, and we are still persistently engaging with our suppliers and working through challenges to improve coverage for the remainder of the year. While successfully managing our supply constraints this quarter, we have continued to execute on our transformation. I'm pleased with the pace of progress, the fundamental capabilities we have strengthened, and how this is impacting our execution in the current year, but more importantly, allowing us to set up for scale and profitability in 2023 and beyond. Our continued focus on improving talent and our envisioned culture are important pillars of our transformation. This quarter, we added Agnes Lee as our SVP of Investor Relations and Strategic Planning. Agnes brings more than 25 years of experience in investor relations, finance, and communication from a range of small, mid, and large cap medical device, life sciences, and diagnostics companies. We are continuing to selectively upgrade our team at various levels to drive relentless execution and add bench strength. We have also made significant strides executing on our commercial productivity while driving sales performance, specifically in our DTC and prescriber teams. Our efforts and focus to drive innovation are showing early promise of setting us up for a strong pipeline in the medium term. I will talk in more detail about this progress, but first, I wanted to provide an update on the supply chain situation. In the second quarter, we have been able to stay on top of our semiconductor supply situation. In many cases, we have actively engaged and partnered with our regular suppliers to manage commitments and delivery schedules. We have also been successful in securing supply from the open channel and have successfully completed the secondary design of the motherboard on our POCs to work around certain chip shortages. Based on our latest assessment and despite various moving pieces, our outlook is cautiously optimistic. While we have not mitigated all the supply risks, we feel we are making adequate progress to secure most of the needed parts for the third quarter, the remainder of 2022, and early 2023. Opportunistic forward buying of semiconductor parts will remain part of our strategy to mitigate risks moving forward. I would like to stress that although we have been successfully managing an unstable supply situation for several quarters, any delays in securing supply or receiving materials would impact our ability to meet customer demand potentially into 2023. Now turning to strategic initiatives, although supply chain had demanded a large amount of our time and energy, we have maintained a focus on our strategic initiatives that are essential to support durable growth in the future. I would like to walk through some of our progress in that area. One of the critical enablers of performance is commercial excellence, which we have been focused on to drive sales growth. We have been making steady progress to expand our sales footprint specifically in the prescriber team while driving increased productivity across all of our commercial operations. We continue to actively make adjustments in our prescriber sales organization aimed at addressing the makeup and performance of the team. While we remain focused on optimizing the overall capabilities, we achieved 57 staff sales positions out of our target of 60, despite the challenging hiring environment. In the DTC channel, we continue to strengthen our sales capabilities and refine our organization with focus on adding new sales talent, further deployment of greatly improved training and onboarding, and the use of analytics and tools to support sales management and productivity. We are happy with the early and promising signs of elevated sales performance and productivity across the cash and prescriber teams. Another critical part of our transformation is innovation and new product development. We are determined to build a stronger innovation pipeline to drive medium-term growth and support of our long-term growth aspiration. We have amassed patient and prescriber insights through ethnographic and quantitative primary research that are being used as part of our ideation and down selection of the concepts. We also recently added a senior leader to the organization to drive innovation strategy and projects and have partnered with an outside innovation company with several months of successful joint efforts already underway. Additionally, we are now working closely with our recently appointed scientific advisory board to seek input on clinical criteria that will augment our technical, commercial, and regulatory considerations in our prioritization efforts. The elevated disciplines, capabilities, and multifaceted external collaboration are starting to deliver higher quantity and quality projects with elevated predictability. We still have substantive work to be done over the medium term to create a solid product pipeline, and I look forward to sharing more details in the future when we are ready. As a medical technology company, we have also been building a clinical capability to support our go-to-market and innovation strategies. Our clinical efforts additionally focus on opportunities where we believe market development can help drive a higher level of adoption for POCs as part of the overall oxygen therapy. Over the last six months, we have had to direct the team's focus on meeting regulatory needs, but we recently added a clinical leader who will focus on driving clinical discipline and product development, engaging with key opinion leaders, and spearheading our clinical trial work. I would now like to move to an update on the European regulatory clearances and U.S. reimbursement. Current Inogen products are commercialized in the European Union under the medical device directive certificates, and ours expired on May 18, 2022. The review of our MDR submission is progressing, albeit a bit slower than we expected, and we will provide an update when we have approval. In the interim, we filed derogation requests in Germany, France, Spain, Italy, Belgium, the Netherlands, and a few other European countries. We have already received an approval to continue selling our POCs in France until the end of October 2022, as well as approvals in the UK. On the U.S. reimbursement front, the COVID-19 public health emergency has been extended another 90 days, which will continue to allow a lower burden in terms of medical documentation and administrative steps when physicians prescribe home oxygen therapy for Medicare patients. As we look ahead, despite the near-term challenges, the underlying demand for our offerings is strong and we are committed to increasing the POC market penetration and improving patient access. Despite the improvement in supply chain, uncertainties remain and we are committed to continue to manage that with the same focus and tenacity that we have displayed so far. I'm pleased to report that this quarter, several factors led to the improving clarity in our outlook. First, we have seen continued demand for our offerings in our core business in DTC and rentals. Second, we are seeing good outcomes from our ongoing efforts to remediate B2B backlog of orders. And third, we have been successful in our efforts to reasonably manage supply chain challenges. As a result of these factors, we will be providing Q3 revenue guidance with the hope of returning to full-year guidance as supply challenges abate. Our commercial organization continues to improve as we implement training, deploy analytics to drive performance, and strengthen our sales management disciplines to drive productivity. We have also laid the groundwork with good initial progress in terms of strengthening our innovation pipeline, and we are well positioned to continue progress with the clinical efforts moving forward. Over the last year, we have successfully strengthened our leadership team who have demonstrated abilities to strategize, execute, drive efficiency and productivity, and mitigate risks due to the challenging environment Imogen and other companies are operating in. I am particularly proud of the new fact-based and insights-driven discipline we have put in place and know that it is core to our efforts to drive successful commercial execution and results and accelerate our innovation efforts. We look forward to updating you on our progress as we stabilize our supply chain and refine our long-term strategy that articulates our short and long-term market opportunities and our runway for growth, profitability, and value creation. I will now turn the call over to Kristen. Kristen?