Inogen Inc Q4 FY2021 Earnings Call

Welcome to Inogen's 2021 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. As a reminder, this conference is being recorded today. Please stand by for one moment, as we bring the speakers through. Thank you. Thank you, ladies and gentlemen. And with that, I will now turn the call over to our host, Jason Somer, General Counsel. Please go ahead.

Hi. We're currently experiencing some technical difficulties and are on a cell phone. Hopefully, everyone can hear us. We will try to reconnect later. Thank you for joining today's call. With me are Inogen's CEO, Nabil Shabshab, and CFO, Mike Sergesketter. Earlier today, Inogen announced its financial results for the fourth quarter of 2021. You can find this earnings release and our corporate presentation in the Investor Relations section of our website. Please note that today's information will contain forward-looking statements, including our growth prospects and strategy for 2022 and beyond, expectations for our financial results in the first quarter and full year of 2022, and insights into supply challenges and cost inflation related to semiconductor chips, batteries, and concentrators. We will also discuss our expectations regarding European regulatory clearances and their impact on international sales, our ability to create shareholder value, and our sales channels. Additionally, we will cover our rental channel, prescriber sales organization, hiring expectations, reimbursement and regulatory changes, our product market outlook, and the COVID-19 pandemic's effect on supply and demand for our products in both the short and long term. These forward-looking statements are based on the information available to us as of today. They are predictions that involve risks and uncertainties detailed in our recent periodic reports filed with the Securities and Exchange Commission. Actual results may differ, and we are not obligated to update these statements unless required by law. We have also posted historical financial statements in the Investor Relations section of our website for more detailed information. During the call, we will present certain financial information on a non-GAAP basis. Management believes that these non-GAAP measures, when combined with U.S. GAAP measures, provide useful information for understanding and evaluating our business performance. Reconciliations between U.S. GAAP and non-GAAP results are included in our earnings release. Now, I will turn the call over to Inogen's President and CEO, Nabil Shabshab. Nabil?

Thanks, Jason. Good afternoon and thank you for joining our fourth quarter 2021 conference call. We have made steady progress on the execution of our strategy to expand and effectively increase our sales footprint, while driving the productivity of our commercial operations. We also continue to make progress in mitigating the supply chain challenges in order to meet the market demand and we are investing in R&D and clinical while strengthening other critical capabilities in support of short-term growth, while setting us up for long-term sustainable and year-over growth in profitability. A few months back, we announced an important new partnership with Ashfield, our contract sales organization to effectively advance our prescriber growth strategy. And we have made significant progress ahead of plan in terms of training and deploying the additional sales representatives and enhancing the operating model. In addition to enhancing our overall commercial excellence, we successfully executed the price increase in September 2021 that primarily offset the cost of inflation associated with the industry-wide limited semiconductor chip availability. Turning to the fourth quarter results, we saw total revenue growth of 3.3% from the fourth quarter of 2020, primarily driven by improved average selling prices, sustained demand and the reduced impact of the COVID-19 pandemic and related public health emergency versus the comparative period in the prior year which was partially offset by supply chain constraints, that primarily limited sales in our domestic business-to-business channel. This was in line with the midpoint of our preliminary unaudited revenue estimates provided on January 10th 2022 and the results for each revenue channel reported were in line with those estimates as well. With ongoing supply chain constraints, and while attempting to fulfill critical orders for our domestic business-to-business partners we intentionally focused our available capacity on supplying our direct-to-consumer and rental channels and our international business-to-business sales channel in an effort to optimize revenue and margins. Additionally, in anticipation of the temporary suspension of manufacturing operations effective January 1st 2022, we had reserved a portion of our supply produced in December 2021 to partially meet the demand primarily for our direct-to-consumer sales and rental customers we expected in the first quarter of 2022 until the time we had restarted production. Before we go through the fourth quarter financial results in more detail, I would like to provide an update on the two items we reported in the January 10th press release relating to preliminary revenue results for fourth quarter and full year 2021. With respect to the impact from supply chain disruptions associated with the semiconductor chips used on the printed circuit board and batteries of our portable oxygen concentrators, we are seeing continued pressure on supply with some early signs of improvement in the regular supply channel for these chips. We are working closely with our regular semiconductor suppliers to firm up their overall commitment and smooth out delivery schedule for the orders they had initially confirmed for 2022. Despite early promising signs, the semiconductor shortages linger and likely will continue to limit our ability to fully meet demand in 2022. We reported in the fourth quarter of 2021, prerelease announcement that we were temporarily suspending manufacturing operations due to the semiconductor shortage related to the commitments from various brokers on the open semiconductor market. The late cancellation of committed but outstanding semiconductor orders resulted in a decision to temporarily suspend operations beginning January 3rd 2022. As expected, that suspension was a brief one and we have now restarted our production at our Texas and California facilities and at Foxconn our contract manufacturer in the Czech Republic, between February 7 and 9 2022, ahead of the plan we laid out on January 10, 2022 and we are back at lower production levels. We are continuing to work across the semiconductor suppliers of our OEMs and leveraging to the extent possible, the open market channel to purchase the necessary semiconductor chips. We additionally are completing the redesign of the motherboards on our Inogen One G5 POC to utilize alternative chipsets that currently have a higher level of availability which we expect to begin using in production starting in the second quarter of 2022. With the motherboard redesign, there will be no material impact on the functionality, performance, patient user interface or patient experience, but we expect greater optionality in sourcing semiconductors moving forward. The cost for the chips sourced from the open market has trended higher in the fourth quarter of 2021 versus the third quarter of 2021 as a result of high demand and constrained supply. This resulted in inflated costs related to the acquisition of semiconductor chips that negatively impacted our cost of goods sold in the fourth quarter of 2021. We expect the increased cost of chips to have an increased impact on our material cost in 2022 based on purchases already made to secure supply. We also expect such impact will increase as the regular supply chain's ability to catch up to demand further regress and the alternate chips that our entry design motherboards start to witness similar shortages due to the heightened demand. The higher semiconductor costs incurred in the fourth quarter of 2021 as a result of sourcing on the open market have also increased our prepaid expenses and other current assets and inventory given that most of these components were not yet in finished goods that were sold during that period. We still believe based on industry feedback and our evaluation that the supply shortages are likely to continue through the second half of 2022 despite some expected improvements. As part of our strategy to minimize supply disruptions and meet a higher portion of the expected 2022 demand, we decided to forward buy a portion of our semiconductor requirements for 2022 opportunistically during the second half of 2021. As a result, we expect the increased cost of goods sold per unit of 2022 to be higher than the cost increase seen in the fourth quarter of 2021, especially given that we will continue to source part of our semiconductor requirements during the first half of 2022 and possibly into the second half of 2022 from the open market channel. While the supply chain situation remains fluid, we are pleased with the motherboard redesign for our Inogen One G5 POC and are aggressively continuing to pursue efforts to get firmer commitments from the regular supply channel while simultaneously canvassing the open market for additional quantities. Again our execution around the price increase we took back in September 2021 has allowed us to cover most of the cost inflation due to the chip shortages. As mentioned in our pre-announcement on January 10, 2022, current Inogen products are commercialized in the European Union under the Medical Device Director certificates and ours is expected to expire on May 18, 2022. We are preparing the filing for the MDR submissions for certification under the EU Medical Device Regulation in the earlier part of 2022 for both existing and new and improved systems and expect the MDR certificates to be issued during the third quarter of 2022. We have verified our ability to meet most of the demand in terms of existing orders through our shipments up to May 18, 2022 MDD certificate expiry. Additionally, we are in the process of applying for select EU country level derogations or exemptions as an additional mitigation measure. We are also working towards securing the necessary certification for Great Britain and Switzerland where the EU MDR is not directly applicable, allowing for continued operations in those two territories independent of the time frame for certification under the EU MDR. I would like to reiterate that the anticipated GAAP and EU marketing is unrelated to product safety or performance and will not impact US commercialization. Based on our latest discussions with the notified bodies, we expect the EU MDR dossier for our improved products to be reviewed and potentially cleared in time for long-term operations in the EU. With that, I will now provide details for our fourth quarter 2021 revenue by channel. For the fourth quarter of 2021, we generated total revenue of $76.4 million compared to $74 million in the fourth quarter of 2020, which represents an increase of 3.3% over the comparative period. Domestic business-to-business sales in the fourth quarter of 2021 decreased 57.6% to $10.3 million compared to $24.2 million in the fourth quarter of 2020, primarily due to supply chain constraints that limited product availability in this channel. International business-to-business sales in the fourth quarter of 2021 increased by 47.6% or 50% on a constant currency basis to $20.1 million compared to $13.6 million in the fourth quarter of 2020. The increase was primarily driven by increased ambulation of patients in Europe and improving operational capacity of certain European respiratory assessment centers closer to normal level as improving COVID-19 vaccination rates has enabled patients to return to normalized activity levels and seek treatments, partially offset by supply chain constraints that limited product availability in this channel. Domestic direct-to-consumer sales increased 23.3% to $33 million in the fourth quarter of 2021 from $26.8 million in the fourth quarter of 2020, primarily driven by increased average selling prices. Inside sales represented productivity increased in the quarter despite lower average inside sales representative headcount, which was down approximately 3% from the comparative period in the prior year. We are continuing to optimize our inside sales representative team by increasing our focus on enhanced sales management disciplines and utilizing data driven and insights led sales techniques aimed at improving the productivity of our inside sales force. We are pleased with the performance of our inside sales team in the fourth quarter, as we saw improved direct-to-consumer sales productivity to representatives and increased average revenue per order versus the fourth quarter of 2020, including the price increase effective September 1, 2021. Rental revenue in the fourth quarter of 2021 increased 39.4% to $13 million from $9.4 million in the same period in 2020 primarily due to increased patient service higher Medicare reimbursement rates and higher billable patients as a percent of total patient home service. As of December 31, 2021 we had approximately 42,900 patients on service, which was up 6.2% sequentially compared to September 30, 2021 and up 33.2% compared to December 31, 2020. The increase in patients on service was primarily driven by greater utilization of patient leads for rental opportunities and physician-facing initiatives to increase prescriber awareness by our sales force as well as the relaxed Medicare criteria for oxygen therapy reimbursement due to the COVID-19 public health emergency. Despite the supply chain challenges being worked through, we remain cautiously optimistic about the direct-to-consumer sales and rental channels while we continue to assess the potential impact including changing COPD diagnostic rates and other variables as a result of the COVID-19 in the US and other major markets where we operate. Moving to the strategic initiatives focused on increasing our prescriber sales organization. Our total physician sales representative headcount was 35 as of December 31, 2021 compared to 24 as of December 31, 2020 an increase of approximately 46%. However, in light of the collaboration with our contracted organization Ashfield as of January 2022, our prescriber-facing sales organization was at 47 sales reps in place and 10 sales reps with accepted offers that will be in the field early March 2022 well ahead of the timing we have communicated when we announced this agreement. To support the combined 57 physician-facing sales reps, we have evolved our operating model by adding 12 Ashfield concierge service reps that will be assuming administrative responsibilities, which we believe will increase the selling time of the sales reps by about 60% according to our internal early estimates while improving the customer and patient experience. We expect the new strategy and action plan will significantly improve our coverage of the highest proprietary prescribers with adequate core frequency while driving sales productivity through proprietary prescriber insights and analytics for the first time with Inogen. The enhanced sales tools and techniques, as well as the concierge service model, will benefit the combined sales force including Inogen and Ashfield representatives and we expect will increase our coverage of the portable oxygen patients that are diagnosed and prescribed in the prescriber channel from 40% to approximately 65%. Regarding reimbursement rates, we continue to see increases in Medicare rates for oxygen therapy with Medicare reimbursement rates increasing approximately 5% effective January 1, 2022 and due to the annual inflation adjustment. The 2% Medicare sequester benefit that has been in place since May 2020 due to the COVID-19 public health emergency was set to expire December 31, 2021 but has now been extended until March 31, 2022. The sequester then resumes with a 1% reduction to rates from April 1, 2022 until June 30, 2022 with the full 2% Medicare sequester resuming July 1, 2022 and continuing through September 30, 2030. As we look ahead, despite some 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. In the meantime, we are committed to working through the ongoing supply challenges and mitigating most of the material cost inflation focusing on commercial excellence and driving our operational efficiency. We will continue to invest in our infrastructure and capability build, clinical evidence, innovation and new product development as well as commercial capabilities to strengthen and advance our market leadership position in portable oxygen therapy. We believe that these focus areas and investments will contribute to our aspirations of long-term sustainable and profitable growth and value creation.

Thank you, Nabil. As Nabil noted, total revenue for the fourth quarter of 2021 was $76.4 million, which is a 3.3% increase compared to the same period in 2020. Regarding gross margin, for the fourth quarter of 2021, gross margin was 50.5% compared to 46% in the fourth quarter of 2020. The sales revenue gross margin increased to 49.2% in the fourth quarter of 2021 from 44.5% in the same period of 2020. This increase was mainly driven by higher average selling prices and a reduced proportion of domestic business-to-business sales, which generally have a lower gross margin than direct-to-consumer and international sales. However, it was somewhat offset by higher costs of goods sold per unit, mainly due to increased material, labor, and overhead costs. In the fourth quarter of 2021, we experienced $2.3 million in additional material costs linked to open market purchases of semiconductor chips used in our batteries and POCs, impacting gross margin by about 360 basis points. This figure was lower than our earlier estimate of $4.1 million to $6.1 million due to the timing of chip usage. The gross margin for rental revenues rose to 56.8% in the fourth quarter of 2021 from 56.5% in the fourth quarter of 2020, primarily because of higher Medicare reimbursement rates, an increase in billable patients as a percentage of total patients receiving services, and lower service expenses, despite facing a rise in depreciation expenses per patient served. In terms of operating expenses, total operating expenses rose to $45.3 million in the fourth quarter of 2021 from $39.6 million in the fourth quarter of 2020, mainly due to higher personnel-related expenses and consulting fees, slightly mitigated by a $2.9 million non-cash reduction in the fair value of the new earnout liability compared to the previous year. Research and development expenses increased to $4.7 million in the fourth quarter of 2021 from $3.7 million in the prior year, largely due to growing personnel-related costs. Sales and marketing expenses rose to $29.7 million in the fourth quarter of 2021 from $25.4 million in the comparative period, primarily driven by increased personnel, consulting expenses, and credit card and financing fees. Media and advertising expenses were $9.5 million in the fourth quarter of 2021 compared to $9.3 million in the fourth quarter of 2020. General and administrative expenses increased to $10.9 million in the fourth quarter of 2021 from $10.5 million in the previous year, mainly owing to higher personnel-related costs and consulting fees, but partially offset by the non-cash change in the fair value of the new earnout liability. In the fourth quarter of 2021, we reported an income tax expense of $16 million, which included a $17.4 million non-cash income tax provision related to the revaluation of our deferred tax assets. This valuation allowance was made because of uncertainties regarding the utilization of existing deferred tax assets to offset future tax liabilities, primarily due to cumulative pretax losses, planned strategic investments, and the impact of the COVID-19 pandemic, including supply chain disruptions affecting parts availability and cost inflation. We experienced an operating loss of $6.7 million, adjusted EBITDA of negative $0.5 million, a net loss of $22.9 million, and a loss per diluted common share of $1.01 for the fourth quarter of 2021. We ended this quarter with $245.5 million in cash, cash equivalents, and marketable securities, with no outstanding debt. As Nabil mentioned, we incurred notable additional costs for semiconductor chips purchased on the open market but not yet incorporated into finished goods, which raised our prepaid expenses and current assets and inventory by $15.4 million and $0.7 million, respectively, as of December 31, 2021. Looking ahead, while we are making progress in addressing the uncertainties stemming from supply chain disruptions, we anticipate they will continue affecting our 2022 results through increased costs. We expect material costs will be somewhat lower in the latter half of 2022 compared to the first half, following the completion of the motherboard redesign and as our supply chain moves closer to normalcy. We are also monitoring any potential effects from the Omicron variant or other COVID-19 variants on the diagnosis rate of COPD. Therefore, we will not provide detailed guidance for the full year of 2022 at this time. However, we can share some broad expectations for the first quarter and the whole year of 2022. Due to anticipated supply chain constraints affecting semiconductor chip availability, we expect total revenue in the first quarter of 2022 to be similar to that of the fourth quarter of 2021, with year-over-year revenue growth for the full year anticipated to be in the mid-single-digit range over 2021. Although we recorded $2.3 million in higher material costs for open market purchases of our semiconductor chips in the fourth quarter of 2021, we predict this cost will rise significantly in the first quarter of 2022 due to inflation on materials and labor across the supply chain, which is primarily related to semiconductor chips we purchased in advance in 2021. We expect about $4.5 million to $5.5 million of incrementally higher material costs for the first quarter of 2022 relating to these open market purchases. Despite this, we remain committed to investing in clinical research, research and development, and building the infrastructure needed to support future revenue growth and margin expansion. Given these investment plans, we expect operating expenses for the full year of 2022 to rise compared to 2021, with the expectation that these investments will start yielding meaningful benefits in 2023 and beyond. In summary, while we are confident that our pricing initiatives will mitigate much of the material cost inflation, we project negative operating and net losses for the full year of 2022 due to anticipated revenue constraints from supply insufficiencies, higher cost of goods sold per unit, rising operating expenses, and growth investments compared to the previous year. To reiterate, while our short-term outlook is affected by certain supply constraints, we are proud of the structural improvements we have instituted in our business, including investments in our prescriber sales and service organization, enhancing productivity in our direct-to-consumer channel, and increasing our average selling price. We believe our long-term strategy to optimize our commercial infrastructure and improve productivity, while investing in clinical research and development related to commercial opportunities, will help us work towards our goal of returning to sustainable revenue growth and profitability.

Thank you, sir. Our first question comes from Robbie Marcus with JPMorgan. Please go ahead.

Great. Congratulations on the quarter. I wanted to ask about the various factors affecting 2022. I really appreciate the mid single-digit sales growth compared to 2021. Could you explain the different aspects of each business, especially considering the volatility in Europe and the B2B sector throughout the year? I think that would be a valuable starting point.

Yes. Thank you, Robbie. Thanks for the question. So as I maybe let me take a step back and say that the good thing is the underlying demand that we see is very sustainable in Europe which is a good thing. As you can tell from the prepared comments that there is a supply situation that still is lingering over our performance. With that said, we feel confident that with the channel mix that we have planned for and will execute around, that will get to that mid-single-digit growth. As expected, of course, we're going to be focused on prioritizing where we get the highest revenue and margin, not too dissimilar from 2021 but we hope with the improved supply situation we’ll be able to also serve the needs of the B2B domestic channel a little bit better than what we've done in 2021.

Got it. How do you think the current health of the HMEs is in the U.S.? Once supply is back online, do you expect there to be a willingness to purchase Inogen POCs, or do you anticipate that DTC and rental will continue to be the main drivers moving forward? Thanks.

Yes. Let me first comment on the HME. I think there is an understanding of what we're trying to do as a company regarding prioritizing the channel, which is something everyone would likely do if they were running their own business. Despite some uncertainty around our supply of the HME business, there is an understanding of our rationale. That said, we continue to see orders that are still in the system and not being canceled, and we are receiving additional orders, indicating that supply is constrained overall. This situation isn't unique to us. We believe that most of this demand will remain as supplies come back online. However, this is a typical part of the uncertainty we are all navigating, and we are confident that most of it will stay in place.

Great. If I could just slip one more question in. With the first quarter guide below consensus, how do you get confidence in mid-single-digit growth for the full year, if there's still going to be some supply issues at different points during the year? And that's it for me. Thanks.

Yes. No, thank you, Robbie. So I think, despite the fact that the first quarter was a little bit lower, we believe that, from the visibility we have in terms of supply chain, as well as our ability to ramp up production the second half of the year is going to be stronger than the first half of the year, giving us that confidence that, for us to, at least at a high level, indicate where we believe the growth rates are going to land.

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

Hey, guys. This is actually Brett on today for Matt.

Hey, Brett.

Just a couple of questions. Hey, Thanks, Nabil. How are you? Just a couple of questions from us today. I just wanted to start with gross margin. The 50% number seems pretty positive in 4Q and with the understanding some of the supply chain cost seems to be increasing and other moving pieces. Just how would you be thinking about gross margins directionally in 1Q versus 4Q? And then also, just touching on the cadence for the rest of 2022 as we sit here today?

Yes. This is Mike. When considering gross margin, we previously discussed our expectations for Q1 regarding revenue and the supply chain premiums we will be absorbing. We experienced good gross margins in Q4, boosted somewhat by a price increase and lower material costs than anticipated, leading to better results than expected. As you look at Q1, it's important to account for approximately double the amount of price-per-volume impact that will affect our financials with similar revenue. This can provide a good estimate for what to expect in Q1. For the full year, we anticipate a ramp-up in the second half, expecting improvements in the supply chain as normalcy returns. We hope to see our gross margins improve throughout the year following the lower levels we expect in Q1.

All right. And then, just a little bit of a bigger picture question here. And I appreciate this could be a little bit tough to answer, but do you guys have a sense of what underlying demand might look like if not for the supply chain constraints? And what upside to the initial mid-single-digit growth guidance could be in more of a normalized environment?

Yes. So Brett, I'm going to take that. So if I look at underlying demand, I have to characterize it in two senses. One is, are we continuing to see the demand in the cash channel and the cash sales as well as in the orders that we received from B2B. And the answer is, we're seeing steady demand from both those channels, be it B2B in Europe or B2B in the US as well as our own DTC. So there's not a significant concern that might flag so far that the underlying demand is weakening. The other side or the other list that I look at is also, we don't believe, to our knowledge that there is any major reduction in prescription as a result of diagnosis and prescription rates. Nothing that we have been able to see or determined so far. So that's the other angle that says that the underlying demand seems to be steady and healthy. I'm not going to make a comment on saying it's increasing, but it's actually steady as we go through the earlier part of 2022.

All right. Totally fair. And then last question for me today. Just thinking about capital allocation for 2022, what would you consider your biggest priority is at this stage? And how would you characterize the current pipeline for potential acquisitions maybe relative to a year ago? Thank you very much for taking the questions.

Yes. So Brett, I'm going to say the priority is we have a growth strategy. We're going to make sure that we fund that growth strategy. We believe that's one of the best returns we can give back to our shareholders. But with that said, as you know and as you can see from our balance sheet, that we have the ability to continue to look for an acceleration of our growth rates if we happen to find the right inorganic play through M&A, so that would be part of it. And of course, as you can see, now we're funding some of the increases in our cost bases from the cash that we have. We believe the balance between the three things, meaning we're doing some investments like we said in multiple areas, we are actually overcoming some of the challenges from the cost increases as well as we are constantly engaged in dialogue around potentially finding the M&A acceleration that we would hope to get to in the future. So, three ways but we're in a good place in terms of the cash on hand to be able to do all of them at the same time.

Thank you. Our next question comes from Margaret Kaczor with William Blair. Please state your question.

Hey, guys. This is Maggie on for Margaret today. I wanted to ask a question on the physician sales force. So you guys have added several new reps to the physician sales force in the first quarter alone. So how long does it take these reps to ramp? And then when do you expect these reps to be fully productive? And do you think we can see material impacts to the top line this year from these reps?

Hey Maggie, it's Nabil. I'm doing well, thank you. That's a great question. With the new salespeople, along with the insights from the sales tools and the data-driven insights we're providing, as well as our operating model that allows team members to focus on selling instead of administrative tasks, we believe this will lead to a quicker ramp-up in productivity. Previously, this ramp took about 12 to 16 months, leaning more towards the latter. While I won't specify exactly how quickly we anticipate this ramp will happen, we do expect it to be shorter than before, and we also expect higher productivity as a result.

Okay, great. Thank you. You guys talked about the level of investments you've made in 2021 and plan to make in 2022 beginning to see impacts in 2023. So I know it's still early but assuming that you'll have an improving supply backdrop, is it reasonable to assume that you guys could begin to see high single digits to double-digit growth? Thank you.

By when? Are you asking if it will be by 2023?

Yes, by 2023.

Yes. We believe that within the coming couple of years, we will be back to that level of double-digit growth as well as returning to profitability, Maggie.

Good afternoon, everybody. Thanks for taking my question. Just a couple. Maybe to start on guidance if you're willing to share that single-digit revenue growth you're expecting for 2022 is there any way to parse that between price and volume? And then a couple of follow-ups.

It's Nabil. At this point, we're not going to parse them out. I think the good news is we've got the ability to successfully execute on a price increase. And because of the fact that supply is the issue here we'd rather not answer that question now because the supply strengthens and the ratio would change significantly between where we're sourcing that revenue growth from.

Fair enough. And then another one on the guidance, I just want to clarify the way it read in the press release and I apologize if you expanded on it in the prepared remarks but it sounds like for the full year you're expecting positive adjusted EBITDA. Am I reading that correctly? While in the first quarter for the full year it's supposed to be positive?

Yeah, that's what we were signaling in the press release. Absolutely. Yes.

Okay. I appreciate that. And then my final question Nabil and I apologize again. There's a lot of moving parts. Particularly in Europe you're obviously doing a lot of things there. But is the sort of takeaway message is you're not expecting to see material disruption in the business? Is that sort of the take? Obviously there's a lot of different initiatives you've got in place. But is that sort of the bottom line takeaway? I would assume so because you wouldn't be able to grow mid-single digits if you were going to lose substantial revenues in Europe. But I just want to clarify that that should be the take?

Yeah, it's a great question Mat. So let me maybe answer it in a two-part answer. One is we believe that the existing orders that were in the system because there is backlog a little bit in Europe also like here we can meet the existing orders with our ability to assert the NDD registration ship product before May 18. So that component, I would say affirmatively like you read it. Of course, we have also applied for the MDR certificate. And to our knowledge as you heard in the prepared remarks we feel that it will be cleared in time for longer-term operations. But I can sit here and say they don't have a huge backlog or there will be some questions that might come back. But we feel if you ask me today I think that we'll get that back on track in terms of the MDR certificate issued on time for us not to have major disruption, but I'm not going to take it off the table altogether.

Okay. But does that mid-single digit – Go ahead sorry. I was going to ask if – go ahead Nabil. I apologize.

No, no, no. Not material enough. Go ahead.

I was just going to ask if that mid-single digit which I assume is like 4% to 6% is there some cushion in there to give you a little bit of flex in case things take a little bit longer? I'm just trying to get a sense of what's baked into that mid-single-digit guide.

We're not going to answer that right?

Doesn't mean I can't ask but no I...

We realize that now but of course. We'll see you later today.

Thank you. And there are no further questions at this time. So I'll turn the floor back to Mr. Shabshab for closing remarks. Thank you.

Okay. So while the short-term outlook is impacted by certain supply constraints we are proud of the actions we have taken to make structural improvements in our business, including a stronger commercial organization a more robust innovation pipeline and to support our market development efforts. I remain confident in our ability to advance Inogen to a global market leader with innovative evidence-based chronic respiratory care solutions with long-term sustainable revenue growth and profitability. Thank you for the time today, and we look forward to engaging in conversations with all of you. Thank you.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.