Inogen Inc Q1 FY2020 Earnings Call

Greetings and welcome to the Inogen First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to your host today, Matt Bacso. Please proceed, sir.

Thank you for participating in today's call. Joining me from Inogen is CEO, Scott Wilkinson; and CFO and Co-Founder, Ali Bauerlein. Earlier today, Inogen released financial results for the first quarter of 2020. This earnings release and Inogen's corporate presentation are currently available on the Investor Relations section of the Company's website. As a reminder, the information presented today will include forward-looking statements, including without limitation statements about our growth prospects and strategy for 2020 and expectations regarding international sales and tender activity, the impact of COVID-19 public health emergency or PHE on our business and demand for our products and expectations regarding related reimbursement and regulatory changes. Forward-looking statements in this call are based on information currently available to us as of today's date. 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 maybe required by law. We have posted historical financial statements in our investor presentation 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 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 US GAAP and non-GAAP results are presented in tables within our earnings release. For future periods, we are unable to provide a reconciliation of our non-GAAP guidance to the most directly comparable GAAP measures without unreasonable effort as discussed in more detail in our earnings release. With that, I'll turn the call over to Inogen's President and CEO, Scott Wilkinson. Scott?

Thanks, Matt. Good afternoon and thank you for joining our first quarter 2020 conference call. Before moving into a review of our quarter results, I'd like to take a moment to update everyone on how the COVID-19 public health emergency or PHE has impacted our company and how we have responded to what has truly been a terrible crisis for our country and everyone around the world. Additionally, I will provide an update on Medicare's response to the COVID-19 PHE and our expectations of its potential impact on our company. As everyone is aware, the COVID-19 virus was first identified in China in late 2019 and quickly spread across the globe. The resulting pandemic led governments to order residents to shelter in place and practice social distancing to reduce further transmission. Symptoms of COVID-19 have ranged from very mild, including some with no reported symptoms, to severe, including illness resulting in death, with higher mortality rates among older adults and those with certain chronic medical conditions. Given the impact to the respiratory system, oxygen therapy is prescribed by healthcare professionals for treatment for certain patients with COVID-19. We also believe stationary and portable oxygen concentrators could be prescribed by healthcare professionals in an effort to provide relief to global hospital systems by allowing appropriate patients to be treated in the home, such as patients early in the disease progression or those in recovery post-hospital discharge, thus making room for more severe patients who need treatment in the hospital. As the pandemic started to impact Europe and the United States in the first quarter of 2020, there was heightened interest and demand for our oxygen concentrators late in the quarter, particularly within the domestic business-to-business sales channel. The sales increase in our business-to-business sales channels was partially offset by lower direct-to-consumer sales toward the end of the first quarter. We believe the mandates and behaviors emanating from the COVID-19 pandemic, including shelter-in-place orders, reduced travel and lower consumer confidence, reduced direct-to-consumer sales. Next, I would like to provide an update on the recently announced expansion of Medicare coverage related to respiratory illnesses as a response to the COVID-19 PHE. The CARES Act stimulus bill signed on March 27 extended the 50/50 blended rate for HME providers in rural and non-contagious non-competitive bid areas. It also established a new 75/25 blended rate for all other non-competitive bid areas through the duration of the COVID-19 PHE and is retroactive to March 6, 2020. While the duration of the COVID-19 PHE is impossible to predict, as a reference, the public health emergencies for the Zika virus lasted approximately 360 days and the H1N1 flu outbreak lasted approximately 450 days. Furthermore, the 2% Medicare sequestration reduction that went into effect in 2013 will be removed from May 1, 2020 through May 31, 2020. When consolidating these reimbursement changes, we estimate modest Medicare rate increases for the duration of the COVID-19 PHE compared to what was in place before. The CARES Act also established to provide a relief fund of $100 billion, of which $30 billion was distributed on April 10, 2020 for Medicare providers and suppliers to prevent, prepare for and respond to the COVID-19 PHE. As a Medicare supplier, we received funds of $1.1 million related to this distribution. On April 22, 2020, Health and Human Services announced new funding allocations to distribute the remaining $70 billion and provide relief funds, of which $20 billion will be based on 2018 net patient revenues across all payers. These additional distributions started on April 24, 2020. In addition, there is an interim final rule that was published in the Federal Register on April 6, 2020 with the comment period until June 1, 2020. This proposal would allow clinicians additional flexibility in determining Medicare patient needs for respiratory devices to allow patients to manage their treatments at home. During the COVID-19 PHE, retroactive to March 1, 2020, Medicare is proposing to cover oxygen concentrators and other respiratory products based solely on the clinicians' assessment of the patients' need for such products. We believe this could reduce the paperwork burden on the system and allow for quicker patient setups. Given this increased flexibility, we believe these changes could facilitate Inogen's ongoing conversion of patients to portable oxygen concentrators through our rental business. Also, it was announced on April 9 that the CMS removed the non-invasive ventilator product category from the Round 2021 competitive bidding program due to the COVID-19 PHE. CMS has not announced the delay in competitive bidding Round 2021 for oxygen, and as a result, we still expect competitive bidding pricing to be announced in the summer of 2020. Given all of these changes, we are encouraged by Medicare's rapid response to increase access to respiratory products during the COVID-19 PHE, as well as provide much-needed financial assistance to allow HME providers to service respiratory patients with minimal disruption. We believe these changes will aid patients in receiving the proper and necessary treatment in a timely manner during the COVID-19 PHE. In addition, this will allow our company greater flexibility to serve our patients' needs and meet their demand for our products. However, while we are encouraged by Medicare's actions, we recognize there is no certainty as to how long these changes will remain in place. With that, I will now provide details around our first quarter 2020 revenue by channel. We generated total revenue of $88.5 million, reflecting a decline of 1.9% from the first quarter of 2019. As previously disclosed, we experienced some manufacturing challenges due to a component part shortage on the Inogen One G5 that impacted the fourth quarter of 2019 and the first quarter of 2020. As we announced in our last earnings call, we were able to return to normal production levels of the Inogen One G5 midway through the first quarter of 2020. Domestic business-to-business sales in the first quarter of 2020 increased 5.7% to $27.6 million compared to $26.1 million in the first quarter of 2019. The increase was primarily driven by increased demand from our home medical equipment provider partners for oxygen concentrators in response to the COVID-19 PHE, partially offset by lower Inogen One G5 availability early in the quarter and the impact on demand due to the uncertainty around competitive bidding Round 2021. While there was an initial surge in demand for oxygen concentrators from our home medical equipment provider partners early in the COVID-19 PHE, we believe that demand could be limited or decline while physician offices continue limiting patient interactions that traditionally have led to new oxygen patient referrals. International business-to-business sales in the first quarter of 2020 increased 1.4% on an as-reported basis and 3.6% on a constant currency basis to $20.1 million compared to $19.8 million in the first quarter of 2019. The increase was primarily driven by higher demand in Canada and Australia. Sales were slightly down in Europe, primarily associated with the continued tender uncertainty in certain European markets, partially offset by increased demand associated with the COVID-19 PHE in the quarter. The pending tenders in the United Kingdom are on hold due to the COVID-19 PHE. Direct-to-consumer sales decreased 8.9% to $35.5 million in the first quarter of 2020 from $39 million in the first quarter of 2019. The decrease was primarily driven by an approximate 15% reduction in average sales representative headcount for the first quarter of 2020 versus the comparative period in the prior year. The reduction in headcount was partially offset by an increase in productivity from the remaining sales reps. We believe the government-mandated shelter-in-place initiatives that rolled across the United States reduced travel plans and mobility among our patient population. This lack of mobility, combined with the decline in consumer confidence resulting from an economic slowdown, reduced the sales of our portable oxygen concentrators to consumers, particularly in March, which tends to be the beginning of a seasonal increase in demand. In April, direct-to-consumer order volumes dropped by approximately 25% compared to the first quarter of 2020 when we typically see increased order volumes due to seasonality in our business. We did hire new sales representatives to our expectations in the first quarter of 2020. However, due to the reduced direct-to-consumer close rates and challenges of remote hiring, training, and coaching, we plan to reduce new sales representative hiring for the remainder of 2020. Rental revenue in the first quarter of 2020 decreased to $5.3 million, a reduction of 0.7% compared to the first quarter of 2019, primarily due to a 6.1% decrease in patients on service, but partially offset by higher Medicare reimbursement rates. We had approximately 24,600 patients on service as of the end of the first quarter of 2020. While patient count was down 2.8% compared to the fourth quarter of 2019, we made progress in expanding our rental intake team, which should lead to increased rental setups as well as increased productivity of our inside sales team. Lastly, given where Inogen stands today and in spite of the challenges we and the global economy face in the coming months, we believe our strong cash and cash equivalents of $208.4 million, with no debt outstanding, provides us with a certain level of stability and liquidity to operate and be adaptable during this unprecedented time. We still see portable oxygen concentrators as the future for oxygen therapy patients worldwide as it provides increased freedom and independence for patients, while also decreasing service and delivery costs to providers. With that, I will now turn the call over to our CFO, Ali Bauerlein. Ali?

Thanks, Scott, and good afternoon everyone. During my prepared remarks, I will review our first quarter of 2020 financial performance and discuss the details surrounding our decision to withdraw 2020 guidance. As Scott noted, total revenue for the first quarter of 2020 was $88.5 million, representing a decline of 1.9% from the first quarter of 2019. Turning to gross margin, for the first quarter of 2020 total gross margin was 43.4% compared to 49.2% in the first quarter of 2019. Our sales gross margin was 43.3% in the first quarter of 2020 versus 50.4% in the first quarter of 2019. The decrease in sales gross margin was primarily due to higher cost per unit associated with certain manufacturing inefficiencies in the period that contributed to higher labor and overhead expenses. In addition, we experienced an increase in product sales mix toward the Inogen One G5, which remained at a higher cost than the Inogen One G3 during the period. Finally, average selling prices were down in the first quarter of 2020 versus the same period in the prior year across all sales channels. The increased mix to business-to-business sales, which has a lower gross margin, also reduced total sales gross margin in the first quarter of 2020 versus the comparative period in the prior year. Rental gross margin increased to 43.8% in the first quarter of 2020 versus 30.8% in the first quarter of 2019, primarily due to higher Medicare reimbursement rates and lower servicing and depreciation expense. As for operating expense, total operating expense increased to $40.5 million in the first quarter of 2020 versus $39.6 million in the first quarter of 2019, primarily due to New Aera intangible amortization expense of $1.9 million, partially offset by a $1 million benefit from the change in fair value of the earn-out liability. Research and development expense increased to $3.6 million in the first quarter of 2020 compared to $1.7 million in the first quarter of 2019, primarily associated with the $1.9 million of New Aera intangible amortization expense. Sales and marketing expense decreased to $27.2 million in the first quarter of 2020 versus $28.2 million in the comparative period of 2019, primarily due to decreased personnel-related expenses associated with the 15% decline in average sales representative headcount versus the comparative period in 2019. In the first quarter of 2020, we spent $10 million in advertising as compared to $10.2 million in the first quarter of 2019. General and administrative expense increased to $9.8 million in the first quarter of 2020 versus $9.7 million in the first quarter of 2019, primarily due to increased consulting and legal fees. This was partially offset by a $1 million benefit from the change in fair value of the New Aera earnout liability, which was primarily associated with a reduction in cost of debt assumption due to the lower interest rate environment. In the first quarter of 2020, we generated an operating loss of $2.2 million and adjusted EBITDA of $4.1 million. In the first quarter of 2020, we reported an income tax benefit of $0.1 million, compared to an income tax expense of $0.8 million in the first quarter of 2019. Our income tax benefit in the first quarter of 2020 included $0.2 million of excess tax deficiencies recognized from stock-based compensation compared to a $0.6 million benefit in the first quarter of 2019. In the first quarter of 2020, we reported a net loss of $1.6 million compared to net income of $5.3 million in the first quarter of 2019. Loss per diluted common share was $0.07 in the first quarter of 2020 versus earnings per diluted common share of $0.24 in the first quarter of 2019. Now turning to guidance, because of the unprecedented market uncertainties, we are withdrawing our previously announced full-year 2020 guidance. Given the uncertain scope and duration of the COVID-19 PHE, we are unable to estimate the true impact on our financial results including our revenue estimates for the full year. In addition, the uncertainty in our revenue mix between the direct-to-consumer and business-to-business channels makes us unable to forecast the overall impact to our operations and financial results for the full year, which could be material, leading us to also withdraw our 2020 GAAP net income and adjusted EBITDA guidance. We believe we could continue to see a decline in sales in our direct-to-consumer channel until patient mobility and consumer confidence increase. We also believe that the increase in demand that we experienced in the first quarter for our products in our business-to-business channels due to the COVID-19 PHE may be limited or that demand may decline in the future as new COPD patient referrals could decline as physician offices are limiting patient interaction. Given these uncertainties, we are implementing cost savings by decreasing certain personnel hires and reducing advertising spend while also increasing rental setups to improve lead utilization. I also want to reiterate Scott's comments on our liquidity position, we believe our strong cash and cash equivalents of $208.4 million with no debt outstanding provides us the stability and liquidity necessary to operate during this time of uncertainty. With that, we will be happy to take your questions.

Thank you. Our first question comes from Margaret Kaczor with William Blair. Please proceed with your question.

Hey, good afternoon, guys. Thanks for taking the questions. Yes, maybe the first one from me is can you give us a sense of April trend for the DTC and B2B businesses as demand decreasing or stabilizing or the same? And should we plug DTC down in line with travel which is down pretty severely or is it a more sticky business in that?

Yes, sure, Margaret. I'll take that question. As Scott shared in his prepared remarks, we did give a little bit of visibility on what we saw on the direct-to-consumer order volumes in April. Those volumes were down approximately 25% compared to the first quarter of 2020. And as you know, typically, we would expect to see order volume increase going into the second quarter, which is seasonally stronger for us. If you look at the historical increase we've seen going from Q1 to Q2 that sequential increase, from 2012 to 2018 that averaged about 25%. So, it was a large decline that we saw in April in the direct-to-consumer side in terms of close rates. Now, what we also saw though in April is we still are generating significant patient interest. So the lead volume has actually been very strong. It's the close rate that is really down compared to what we've seen historically. So, in that area, that's why we talked about increasing lead utilization toward the rental business because it's really difficult to predict how long this crisis will last. And how long it will take for consumer confidence to return as well as a return to traveling, particularly for the elderly population. On the business-to-business side, Internet reseller demand, which is of course a subset of that domestic business-to-business demand saw similar drop-offs in April. So, we expect that to follow pretty closely with what we've seen on the direct-to-consumer side of the business. But, of course, the majority of that domestic business-to-business bucket is for additional HME providers. And as you saw in our results, the business-to-business provider orders were up in the first quarter versus expectation. We do expect that to continue to be lumpy over time, obviously there's a lot of moving parts right now and with oxygen therapy being a potential treatment for certain patients with COVID-19. But we also are seeing referrals down for traditional COPD patients because there just is limited physician interaction. So, that will really depend on how quickly the shelter-in-place orders are removed and how quickly we return to normalcy there. We also have seen some on the domestic business-to-business side really trying to limit interactions in the patient's home due to obviously wanting to reduce the potential spread of COVID-19. So, I do think that for that period, it could also limit the restructuring activities of our B2B partners from tanks to POCs. Now, the good thing though is that we continue to see the benefit of patients being interested in POCs and wanting a better solution and I'll maybe turn it to Scott to talk about the long-term outlook there.

Yes, looking at the long-term, it’s important to note that COVID-19 affects the respiratory system, and oxygen therapy is one of its treatments. In the short term, we observed an increase in demand. However, the long-term effects on our business are uncertain after the pandemic subsides, particularly regarding the needs of individuals who had COVID-19 and any lasting damage to their respiratory health. There is a possibility that some of these individuals may require oxygen therapy in the future, but that remains uncertain. While it won't diminish the demand for our product, we might see an increase in the long term, which only time will reveal. As mentioned by Ali, our conversations with patients have changed significantly. Many patients reaching out are not seeking products for travel or visits; they are focused on their home supply and are concerned about delivery logistics, particularly about having someone enter their home to deliver tanks. Home care companies share similar concerns about entering patients' homes and the risks involved. This situation emphasizes the need for a non-delivery model going forward. We are already facing challenges from reimbursement cuts that complicate sustaining the delivery model due to high expenses. In the future, when things settle, there will be reflections on how to better prepare for similar situations. There has been talk about telemedicine becoming more prominent because of this, and I expect there will be increased pressure to shift towards a non-delivery model to mitigate risks and empower patients. In the long term, this could present positive opportunities for our business. However, as Ali pointed out, the short term brings increased variability that we all must adapt to, and we are not alone in facing these challenges globally.

Got it. No, that's helpful. And so, if we dive a little bit deeper into that HME demand, where did those products, as far as you know, get distributed, it sounds like maybe they are in the patient's house but was kind of unclear. And are they being used on COVID patients as far as you know post-discharge?

Yes. We have observed some usage of oxygen for COVID-19 patients. However, the majority of oxygen is currently used for COPD patients. There is an acute need for oxygen treatment for certain COVID-19 patients either early in their illness or after hospitalization when they may still require oxygen support for a limited time. While we are noting this as a potential application, it's important to keep in mind that these are typically short-term needs, lasting a few weeks to a month, rather than long-term.

Okay. That's helpful. And then just last one from me, I heard the sales rep headcount go down 15% year-over-year. Can you give us a sense of how that's trended sequentially as it improved and declined, and you kind of alluded to maybe changing a strategic plan around DTC, but what do you do for the next three, four, five quarters while all this is ongoing and people travel a lot?

Yes. I'll take that question. So, we did hire to our expectations in the first quarter. So, sequentially, headcount was up, and so we were glad that we were able to get the reps in the door. And kind of looking forward from here, we did continue to do some level of hiring even as the stay-at-home orders went into place. So, we did some remote learning; obviously, that's more difficult than in-person learning, but so far that has been successful. So, we do plan to hire some level of employees, but it will be lower than what we had initially planned going into 2020 until we can really see the return of the close rates of that group and/or do more rentals as a group.

Our next question comes from Robbie Marcus with J.P. Morgan. Please proceed with your question.

Thanks for taking the question. Ali, I was wondering if you could walk us through some of the impacts to the P&L as DTC, which is the most profitable on a dollar basis is down, I think, 20% in April. How should we think about the deleverage and the impact down the P&L? How much can you cut on expense? How much is fixed versus variable on manufacturing? Any help would be appreciated.

Yes, of course. We noted that sales dropped by 25% in April compared to the first quarter of 2020. Typically, April would see a rise in sales due to our usual seasonal patterns. Regarding deleveraging, we're planning to cut back on advertising, which was $10 million in Q1. This constitutes a significant part of the over $40 million in our operating expenses. Most of our costs are related to materials rather than labor and overhead, which can generally be managed more efficiently. However, as B2B sales increase in our mix, this could affect our gross margin percentage. It's important to note that this will depend on our overall business mix. Given the sales decline, we are slowing down hiring across the company to be cautious with spending and investments. Nonetheless, we are still making strategic investments for long-term growth. While we are decreasing our expenditures, it is challenging given that D2C sales still carry associated costs but yield lower closure rates. This situation will likely affect our bottom line until we see improvements in consumer confidence and travel. We are also planning to increase rental investments, which will require a modest amount of cash from our overall reserves but should provide a more stable revenue stream and returns over time.

Great. And maybe just as a follow-up, I'm jumping between calls, so if you said this, I apologize. But could you call out how much the business-to-business sales was due to what you think COVID impact was in the quarter and how should we be thinking about that based on what you've seen in April so far? Thanks.

Yes, we didn't call out a specific number there. And frankly, it would be really difficult for us to do that because the mass majority of the entities buying from us are customers or the same customers buying units for us or from us or their core COPD patients and they're using them interchangeably; they may use it for a COVID-19 patient for a month and then start using it for a COPD patient. So, we didn't call out specifically what that amount was, but we did hear qualitatively from our provider partners that units were being used for that purpose. We did see some level of smaller buys from charitable organizations and hospitals that we don't typically see in our normal ordering pattern, but none of those were material in the quarter.

Our next question comes from Matt Mishan with KeyBanc. Please proceed with your question.

Thank you for taking the questions and for your efforts to support the healthcare system during this time. I'm curious if your call centers remained open throughout the crisis or if you transitioned to a work-at-home setup. If you did, how are you planning to ensure everyone's safe return to the office?

Yes, that's a great question, Matt. We have shifted a significant number of our office staff, including many of our inside sales representatives, to a work-from-home setup. We have not mandated this; rather, it has been optional for those who feel comfortable doing so, and we believe it’s a wise choice. I would estimate that around 80% to 85% of our office staff is now working from home. I would also like to acknowledge our IT team for facilitating this transition in a very quick timeframe. It has been effective. We initiated this early in March, and this was the first time we had so many people working remotely, which raised several questions about how it would unfold. I want to commend our employees for their commitment; everyone has come together with the mindset of being part of the solution to the current challenges and doing everything possible to support our patients. I am extremely proud of our staff and their excellent work. In the future, we will welcome these employees back to the office, although we are not in a hurry to do so since everyone is performing so well remotely. Nonetheless, we wish to maintain engagement within our company. The long-term plan is to have them return. However, our manufacturing staff must come into the workplace as our products cannot be made from home. I also recognize their dedication as they come in every day to build and ship our products to assist patients. Overall, everyone has done an outstanding job, and we have managed these changes effectively.

That's great. And then any update you have on some of the European tenders you are expecting in the first half of 2020? I think there was one, specifically in the UK, that you were confident that was going to go through. Has it gone through or that's still in flux?

Yes, we saw some progress in the first quarter, but everything was put on hold in March. We have learned about some successes and some failures, yet no transitions have occurred. While some decisions have been made, executing those changes is a significant effort. In the UK, all activities were halted so that home care companies and the healthcare system could prioritize patient care rather than shifting products between providers. We expect that once the public health emergency is lifted, those transitions will happen, but nothing will proceed until then.

Our next question comes from Mike Matson with Needham & Company. Please proceed with your question.

Yes, thanks. I wanted to ask about the New Aera tidal assist product. Can you remind me if you have formally launched that yet? Also, I know there has been a demand for ventilators. Have you seen any benefits from that, or is there any potential for future benefits?

Yes, sure. I'll take that one. So, we launched the TAV product in a limited launch in December. So, it's really been just a few months that it's been available both through our domestic direct-to-consumer and domestic business-to-business channels. It is not a traditional invasive ventilator; it's really meant as an assist core with oxygen, and that launch really was going well and we were rolling it across the sales force across the D2C side. We have not trained all the sales reps yet on that product, but really that also was impacted similar to our core oxygen business on the direct-to-consumer side with the stay-at-home mandates and the lower consumer confidence. So, we've seen a similar pullback in the direct-to-consumer interest in that product. Now, really, while we've done some great learning right now, we didn't expect that to be a significant contributor to 2020 anyway. The goal is really to integrate that TAV product into the POC and into our stationary concentrator. That's really where we think we'll see a larger uptick and overall interest in the product, and that's still an ongoing R&D effort that we're focused on right now. Obviously, I know ventilators have received a lot of press for the benefit for treatment in COVID-19 patients. But we really have not seen that for this product and we're still exploring if there is a small role to play there. But that's not really the purpose of that product effort.

Okay. I understand. I have a question regarding your DTC representative count. It decreased by 15% year-over-year this quarter. You mentioned you would be slowing down your hiring, but are you still planning to increase the count between now and the end of the year, or at least return to the level you had at the beginning of the year? Additionally, when do you anticipate that your representative count will stop declining year-over-year?

Yes. Last year, we had a significant reduction in our sales force during the first half of the year, and we anticipate that this will be evident in our comparisons by the end of the second quarter. We are nearing that point. As you've observed, we've experienced a steady decline that has impacted our direct-to-consumer business since we began reporting this last year. Regarding hiring, we have not disclosed a specific number of representatives we plan to bring on board, and we also have accounted for some attrition in our models. Therefore, our hiring will depend on our year-end position. While we do plan to hire for the remainder of the year, it will be at a slower pace. The final count will rely on how effectively we can operate within this remote model and the typical attrition of our reps.

I understand you're not willing to give a number, but your plan right now is to end the year with a net increase compared to where you started?

Yes.

Or you're not sure? Okay.

Yes, I mean, yes, so our plan is to add to our rep base. Now where we actually come out will depend on factors that we still have to execute on, including hiring and how many reps leave in that period as well.

Yes. And then finally just, I know you make a stationary concentrator. I've heard that the stationary concentrators have become really scarce these days just given all the COVID-related demand. So, one, have you been able to take advantage of that with your own product? And two, if not, have POCs being used as a substitute for stationary concentrators at all?

Yes. So, we have seen heightened interest in stationary concentrators; I think that's been well reported that there has been some shortages there. Our product is not typically a product that would be used by our business-to-business partners for our stationary concentrators because it is a higher cost product that is more of a premium product with lower weight and less noise and lower power consumption, things that patients care about, not necessarily things that providers are willing to put into the rental fleet. So, historically, that product has been a direct-to-consumer focused product, but of course, with the shortages of stationary concentrators, we have seen more interest there in that product. But we also are limited by how quickly we can ramp up that supply chain. So, we have tried to ramp up the supply chain a bit to accommodate the needs, but we also are balancing that just given the fact that we know the other stationary concentrators are also being ramped up for volume and when it comes to when there is adequate supply in the market, the providers will choose the lower cost product in most scenarios. So, we certainly are looking at that, but we don't think that's a major driver for us as a business; the mass majority of our sales are still POCs. In the shortage of stationary concentrators, though, we have seen providers using POCs as another treatment source to get the patient oxygen therapy to treat COVID-19 and other patients.

Thank you. At this time, I would like to turn the call back over to Mr. Scott Wilkinson for closing comments.

Thank you. While the COVID-19 PHE has placed all of us in unprecedented times, we are proud to be part of a solution that helps patients with respiratory disorders. Despite these immediate challenges, we continue to believe our future is bright and that portable oxygen concentrators will be the standard of care for oxygen therapy patients worldwide. Given our strong balance sheet, we believe we have the ability to weather the storm. And once the storm passes, we believe we can execute on our plan to deliver attractive revenue growth with improvements in operating leverage. With that, I would like to thank our employees for the extraordinary effort they make every day to take care of patients who require oxygen therapy. Thank you and have a good day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation and have a great day.