Inogen, Inc

Welcome to InnoGEN's second quarter 2023 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 1 on your touchtone phone. If anyone has difficulty hearing the conference, please press star 0 for operator assistance. As a reminder, this conference is being recorded today, August 7, 2023. I would now like to turn the call over to Agnes Lee, Senior Vice President of Investor Relations and Strategic Planning.

Thank you, Doug. Hello, everyone, and thank you for participating in today's call. Joining me on the call today are President and CEO Nabeel Shabshab and CFO Kristen Kaltreiter. Earlier today, Inogen released financial results for the second quarter of 2023. 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 2023 and beyond, expectations related to our financial results for 2023, expectations regarding increasing productivity of our internal and external sales teams, progress of our strategic initiatives, including innovation, our expectations regarding the market for our products, on our business, and supply and demand for our products in both the short-term and long-term. The forward-looking statements in this call are based on information currently available to us as of today's date, August 7, 2023. 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 SEC. 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. Reconciliations between U.S. GAAP and non-GAAP results are presented in tables within our earnings release. With that, I will turn the call over to Inogen's President and CEO, Nabeel Shabshab. Nabeel?

Thanks, Agnes. Good afternoon, and thank you for joining our second quarter 2023 conference call. During today's call, we would like to work our way through high-level comments around our performance in the quarter, how that relates to our outlook for 2023, and provide an update on our progress and mitigation plans. Then we will transition to Kristen, who will walk through the details of our financial performance and our annual guidance before we take your questions at the end of the call. In summary, while we have made progress with the execution of our commercial strategy, we are disappointed with the performance this quarter. Our revenue for the quarter fell short, mainly due to two factors, B2B headwinds, primarily with a few key accounts, predominantly in the US, and slower than expected progress on our DTC productivity initiatives, despite continued sequential improvements. Considering the shortfall this quarter and understanding that our mitigation actions might take longer than expected to materialize, we are resetting expectations for revenue and adjusted EBITDA for the balance of the year. 2023 revenue is now expected to be within the range of $315 million to $320 million. Despite the decrease in revenue, our focus on cost containment allows us to limit the impact on adjusted EBITDA, hence expecting the full year to be a loss in the range of $20 million to $25 million. I would like now to spend some time talking through factors that impacted our revenue in the quarter and the actions that we are taking. We believe patient demand for long-term oxygen therapy remains stable and is slowly recovering. However, in the B2B channel, some customers continue to face pressures relating to capital deployment, cost of borrowing, while focused on margin accretion. Coupled with aggressive competitive pricing activities, this continued to impact our performance, especially with some of our large customers. The supply chain constraints related to semiconductor availability from mid-2021 through 2022 required us to prioritize the channels that could deliver higher revenue and margin when we were not able to fully meet market demand. This provided an opportunity for lower-cost competitors to aggressively push for share gains during a prolonged but necessary period of back orders in the US B2B channel. We were able to remediate most of the back orders by end of Q3 and into Q4 of 2022, but subsequently saw increased aggressive competitive pricing tactics into 2023. Based on our analysis, we now understand that this backlog and the resulting circumstances had a bigger impact on some of our key accounts than we had expected. Our focus has been on regaining some of the business lost in key accounts as well as winning new customers. Our strategy in B2B channels include delivering enduring benefits to our customers through a very strong total cost of ownership model, high patient and prescriber brand recognition, best in class device quality, and top tier after sales service. Our strong value proposition is allowing us to win back some of the lost business as well as incrementally win new accounts. We are focusing on advancing customer conviction around the benefits of the non-delivery long-term oxygen therapy model and Inogen's ability to consistently deliver value beyond the unidimensional benefits of lower acquisition price. Additionally, our business development efforts now include the value of future partnerships with B2B customers as the result of Imogen's investment in innovations and how that could expand our customers' access to patient populations and indications beyond COPD via new product introductions over the next two to four years. We are also pleased by our recent completion of the necessary regulatory steps to allow us to commercialize our new ROV6 as a POC with an approved eight-year expected service life. The eight-year expected service life will also cover the current G5 POC And in both cases, it's a critical element that further strengthens Inogen's value proposition as it relates to delivering a better return to B2B customers due to an optimized total cost of ownership. Moving to our direct-to-consumer business, we have remained focused on scaling the new disciplines in DTC as we work towards achieving scalable and profitable growth measured through productivity per sales representative. As a result of institutionalizing the new sales disciplines and the broader DTC organization, we have delivered sequential improvements of about 30 percentage points in both unit and revenue productivity per rep, with a double-digit reduction in the number of sales reps and low single-digit reduction in marketing leads. We believe that during the remainder of 2023, our progress on the revised sales management strategy would get us closer to steady state and set us up to meet our 2024 aspirations for that channel, both in terms of growth and profitability. For our international B2B business, we continue to drive our value proposition to expand business with current customers as well as win new ones. Our Rogue 6 launch in Europe is progressing well, and we have been recently notified that the last remaining signature required to publish the new reimbursement code in France has been secured. We also believe that the eight-year expected service life for row six will play a role in making Inogen's value proposition to B2B customers even stronger. Rental revenue continues to benefit from improved prescriber team productivity with double-digit increases in referrals per sales rep as compared to Q1. We expect to continue to see steady progress as we further optimize sales territories and call frequency to drive scale per account and overall growth. In summary, we believe headwinds in B2B are generally transient in nature and could be addressed in short to medium term by working through challenges and opportunities with existing customers while equally focusing on winning new accounts. As part of our plans to provide a path forward to revenue growth and profitability in the medium term, we are maintaining critical investments while closely managing operating expenses and adjusted EBITDA during 2023. Part of our ongoing investments supporting organic growth are directed at expanding the patient population and indications we serve beyond COPD. Additionally, with respect to inorganic growth, upon the close of the transaction, PhysioAssist will provide an opportunity for Imogen to enter the airway clearance adjacency through a clinically differentiated offering. PhysioAssist will allow Imogen to access respiratory patients earlier and before they require long-term oxygen therapy hence expanding a patient's lifetime value for the company. This acquisition met our strategic, clinical, financial, and capital deployment criteria, and we expect to now pause our M&A efforts, and upon close, focus on executing on the commercial, clinical, and regulatory milestones to deliver the expected returns. I will now turn the call over to Kristen for a review of financial results. Kristen?