Greetings, and welcome to the Inogen 2023 Third Quarter Financial Results Conference Call. This conference is being recorded. It is now my pleasure to introduce Marissa Bych from Gilmartin Group. Thank you, Marissa. You may begin.

Great, thank you. And thank you all for joining today's call. Joining me are President and CEO, Nabil Shabshab; and Interim CFO, Mike Sergesketter. Earlier today, Inogen released financial results for the third quarter of 2023. The earnings release is available on the Investor Relations section of the company's website, along with the 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, our business and supply and demand for our products in both the short and long term. The forward-looking statements in this call are based on information currently available to us as of today's date, November 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 Securities and Exchange Commission. Actual results may vary, and we disclaim any obligation 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 noncash 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, Nabil Shabshab.

Thank you, Marissa. Good afternoon and thank you for joining our third quarter 2023 conference call. During today's call, I will discuss our performance in the quarter, our progress across our business initiatives and our outlook for the rest of the year. Then Mike Sergesketter, our CFO, will walk through more details of our financial performance and our annual guidance before we take questions. We recognized $84 million in total revenue in the third quarter while continuing to address some lingering headwinds to our business. Despite the typical third quarter seasonality, we grew total revenue by 40 basis points in the third quarter versus the second quarter. Starting with our direct-to-consumer business. In the third quarter, we recognized $25.1 million in DTC revenue as a result of strong revenue per sales rep, offset by fewer total reps as we continue to optimize the size of our team and focus on sales rep productivity. We are continuing to drive efficiency in this channel and our productivity per rep, both in units and revenue was up double digits on a year-over-year basis. Turning to our domestic B2B business. We recognized revenue of $17.3 million, which was impacted by residual headwinds to our business from the share loss we experienced over the past year due to the 2022 supply chain-related volume constraints and lower price competition. In the third quarter, we made progress in recapturing market share while diversifying our customer base. In our international B2B business, we recognized $25.6 million in revenue, reflecting strong double-digit growth on a year-over-year and sequential basis. While we witnessed a significant delay in the Rove 6 French reimbursement approval, we did secure reimbursement in August, and we are currently focused on introducing Rove 6 to key customers in that market. Please note that although our third quarter was relatively strong, we expect a lighter fourth quarter in the international B2B channel with sales expected to be roughly flat year-over-year as we work through the Rove 6 introductions in France. Our rental revenue was $16 million, increasing both year-over-year and sequentially. Rental revenue continues to benefit from improved prescriber team productivity with increases in referrals per sales rep as compared to Q2. We expect continued steady progress as we further optimize sales territories and core frequency to drive scale and number of prescriptions per prescriber and overall growth. Shifting gears to our efforts to improve our cost structure and our operating efficiency. Mike will provide additional details on our operating expenses, but in short, we saw an increase in operating expenses in the quarter, primarily due to noncash impairment charges related to the write-down of goodwill. Our adjusted operating expenses fell to $47.6 million in the quarter, a decrease of $5.5 million year-over-year. This was primarily due to our initiatives to optimize productivity of our sales organization while managing marketing spend. Before I turn the call over to Mike, I'd like to highlight that we are very excited to have closed our acquisition of Physio-Assist during the quarter. Physio-Assist expands our innovative respiratory portfolio with the addition of Simeox, a technology-enabled airway clearance and mucus management device predominantly aimed at treating bronchiectasis. Entering the adjacent airway clearance market provides us the opportunity to serve patients earlier in the disease journey, expanding their lifetime value for Inogen and standing up a business model that delivers a recurring revenue stream from consumables. We did not recognize any revenue from Simeox in the third quarter and consistent with our expectations at the time of acquisition, we do not expect any material revenue from the acquisition this year. I will now turn the call over to Mike for a review of our financial results.

Thank you, Nabil, and good afternoon, everyone. Unless otherwise noted, all financial comparisons are to the prior year comparable periods. Total revenue for the third quarter of 2023 was $84 million, a decrease of 20.3% versus the prior period. The decrease was driven by lower direct-to-consumer and domestic business-to-business sales, partially offset by increased rental and international B2B sales. For the third quarter, foreign exchange had a negative 120-basis point impact on total revenue and a negative 790-basis point impact on international revenue. Looking at third quarter revenue on a more detailed basis. Direct-to-consumer sales decreased 24.1% to $25.1 million in the third quarter of 2023 from $33 million in the prior period, driven primarily by lower sales volume due to fewer sales representatives and lower marketing spend as we continue to drive towards improved sales rep productivity and overall channel profitability. Domestic business-to-business revenue decreased 59.4% to $17.3 million in the third quarter of 2023 compared with $42.5 million in the comparable period. Please note that our year-ago B2B revenue had benefited considerably from pent-up demand and the fulfillment of backlogged orders in the channel. International business-to-business revenue increased 69.9% to $25.6 million in the third quarter of 2023 as compared to $15.1 million in the prior period. Rental revenue increased 8.7% to $16 million in the third quarter of 2023 from $14.7 million in the prior period. Growth was driven primarily by an increase in the total number of rental patients on service. Now to discuss our gross margins. Total gross margin was 40.2% in the third quarter, declining 40 basis points from the prior period, primarily driven by higher warranty costs and partially offset by lower consumption of premium-priced components. Sales revenue gross margin was 37.2%, driven primarily by a shift in channel mix with the lower volume of units sold through the direct-to-consumer channel as well as an impact from pricing pressure in the business-to-business channels. Rental revenue gross margin was 53.1% primarily due to increased rental revenue adjustments and higher servicing cost per patients on service, partially offset by higher Medicare reimbursement rates. Please note that we continue to carry inventory of premium-priced components for semiconductor chips on our balance sheet as on-hand inventory. As of September 30, 2023, the value of premium components in our inventory balance was $4.8 million. Due to lower forecasted sales volumes, we now expect the cost for premium-priced components to continue to impact cost of goods sold at a declining rate through the first half of 2024. Moving on to operating expense. In Q3, total operating expense increased to $80.5 million compared to $53.1 million in the prior period, representing an increase of 51.6%. The increase in expense is almost exclusively the result of one-time $32.9 million impairment charges. As previously mentioned, we incurred the $32.9 million of impairment charges. This is a noncash expense that has no impact on the company's cash balance or business operations. Excluding the one-time charges, operating expense decreased to $47.6 million, representing a reduction of 10.4% as compared to the prior period. Going into more detail on our expenses in the third quarter, we have continued to work on our innovation pipeline through investment in research and development with a total spend for the quarter of $4.5 million. This spend was in line with the third quarter of 2022. Sales and marketing expense in the period was $26.1 million, representing a 22.7% decrease from the prior year. The $7.6 million reduction in spending was primarily driven by lower personnel-related and media and advertising costs associated with our direct-to-consumer channel. And finally, we incurred costs of $17 million for our general and administrative expenses in Q3, representing a $2.2 million increase as compared to the prior period. The increase was primarily attributable to $1.4 million in restructuring-related costs as well as $1 million of acquisition-related costs. In the third quarter of 2023, we reported a net loss of $45.7 million and a loss per diluted share of $1.97. On an adjusted basis, we reported a net loss of $8.5 million and an adjusted loss per diluted share of $0.36. Adjusted EBITDA was a loss of $5.5 million. Moving on to our balance sheet. As of September 30, 2023, and after closing the Physio-Assist deal, we had cash, cash equivalents and marketable securities of $138 million with no debt outstanding. I will now turn to our financial outlook. We continue to expect total company revenues for the full year 2023 to be in the range of $315 million to $320 million. We now expect an adjusted EBITDA loss of approximately $27 million for the full year, inclusive of investments in our Simeox airway clearance portfolio, which we acquired through the Physio-Assist transaction. And with that, we'll be happy to take your questions.

This is Colin on for Matt. I wanted to start with the DTC franchise for a moment. I understand the sales force productivity and the hiring efforts are still ramping and we're still dealing with tough comps from a footprint standpoint. But I'm curious when we'll start seeing any inflection in the DTC revenue line from the recent changes you've implemented to increase the headcount and efficiency. Could this be a 2024 event or a 2025 event? Any color there would be helpful.

Colin, it's Nabil. I'll take that question. Thank you for the inquiry. So with respect to DTC, we are happy to continue to drive productivity per sales rep, both in revenue as well as in units. And as we had communicated on earlier calls, we're using this opportunity in 2023 to set up for a more productive 2024 performance in terms of both continuing to drive the productivity per rep as well as getting to the right number of people in the seats that are productive, so we can get the overall growth.

Okay. Understood. If I could ask one on the rental side. The rental business and your prescriber channel strategy in general, seemingly continues to be a highlight for you guys. So I was wondering if there's been any cannibalization of the DTC business as of yet? And if not, what revenue run rate would the rental business have any effect on your new patient acquisitions downstream in the DTC side of things?

Yes. That's a good question, Colin. So let me maybe just depict the journey in terms of the buying process that these patients go through. When we go to the rental prescriber, we intended to go upstream, whereby we secure that prescription from the actual physician or the prescriber, and we sell it as an HME or DME ourselves. Typically, our downstream, which is the direct-to-consumer cash sales, are patients that have gone through that journey and are dissatisfied with the devices they're on, and they're not covered anymore by insurance, hence, they're willing to actually pay for the device in cash. And in general, there is no overall cannibalization that is material. If you capture them upstream a little bit earlier and put them on the right device in rental, there could be a slight impact on downstream. But typically, the DTC patients are ones that have run out of options and coverage. So they're not really the same patients, and that's why we can sell them on cash because that's the only option left for them. If they want to get on the latest technology, a new device and they have no other option there.

Maybe just to start, I'm not sure I heard in the intro comments, whether or not you guys are seeing any kind of a macro impact, whether it's on DTC or B2B domestic. Now, is it all harder for folks to get financing? Is there any kind of change in friction or it's more of the commercial dynamics with the sales force and so on?

Thank you for your question. You're correct that we didn't delve into specifics. We acknowledged that we are facing some ongoing challenges in the B2B sector. As you've noted, there are still issues related to access to capital and borrowing costs for certain customers. We are addressing these concerns. Additionally, companies are seeking to enhance their margins. We are diligently working to offer a compelling value proposition that resonates with these customers, highlighting our total cost of ownership compared to acquisition prices. By operating these assets and generating revenue from them, we see favorable returns when evaluating overall margins. This is, of course, a gradual process with customers, as not everyone uses the appropriate metrics for purchasing decisions. Nevertheless, we are making solid progress with our target customers to regain market share and diversify our customer base.

Okay. And that was in reference more to B2B domestic? Or is that both DTC and B2B domestic?

Thanks for the clarification. It's B2B domestic. In direct-to-consumer, we have not seen any impact on demand related to our current pricing. Direct-to-consumer appears to be stable.

Okay. Great. That's helpful. And then as we think about B2B international, it seems like maybe that business, especially as we get into 2024 should maybe return to growth is the right way of phrasing it. How do you look at kind of tender contracts as best as you see them today as you go out into 2024? And kind of the market growth rate and your growth rate potentially, whether it's '24 or beyond?

Yes. So Margaret, let me start with the comment on the question on the tenders. So there has been a little bit of delays in Europe in general in terms of actually moving forward with tender decisions. We're seeing some of it remain. We're seeing some of it actually move forward. Fortunately, there is also a change in share in terms of the biggest customers that actually participate in those tenders. And they all happen to be our customers. So our focus is on continuing to work with all parties that provide them with the best value proposition and value. And then in some cases, we are sort of like gaining in one place and losing in another place, in general, within the same franchise of customers that we deal with. So the outlook for 2024 is a more stable market, and from what we can gather from the feedback of our distributors that we work with, and a little bit more return to the normal demand that we used to see before.

This is Rohin on for Robbie. I have a couple of questions. First, could you walk through the key factors regarding 2024, particularly the sales force attrition, direct-to-consumer trends, and the competitive pressures in the B2B sector? I'm interested in how these elements are balancing and changing in relation to each other. Additionally, what are your thoughts on the supply chain situation as we approach the end of this year?

Okay, let me quickly address the supply chain situation first. As mentioned in our prepared remarks, we are seeing a return to normal levels similar to what we experienced previously. We are still managing some prepaid items on our balance sheet and working through them. As Mike mentioned, we expect these to gradually be reflected in the P&L by the middle of 2024. Overall, there are no significant supply chain issues, although a few residual effects remain, none of which are particularly concerning at this moment. Regarding the sales force attrition, I believe you're referring to the comments about resizing the DTC sales team. To provide some context, as we aim for higher performance and productivity, a normal attrition rate in the sales force is to be expected. This rate may fluctuate somewhat. We are handling this by not only raising the performance standards but also by actively hiring new team members who are adequately trained and equipped with the necessary tools and oversight. Our goal is to stabilize the sales force by 2024 while increasing productivity. Your third question pertains to B2B pressures. This situation is ongoing and is becoming slightly more moderate, but it remains a concern. We are actively monitoring competitive pricing in the field and are aware of ongoing challenges in the B2B space. Some competitors are offering financing or extended credit terms. As we previously noted, we are using promotional strategies as needed. We are not willing to engage in aggressive price cuts that could harm the industry, so we are selective in our customer engagement, focusing on those more aligned with patients' needs and better conversion rates. We are committed to managing this channel carefully to maintain and hopefully regain market share as discussed in our prepared remarks.

Yes. I recently learned about the rental business, which has grown about 8% or 9% year-over-year. I realize you've made significant investments in your prescriber sales force, so I wanted to check on how that's impacting your results. I am somewhat surprised that the growth isn't higher, considering there are around 60 prescriber representatives. Please correct me if I'm mistaken.

So Mike, thanks for the question. So we have about 60 sales reps in the rental channel, if that's the question specifically. We're continuing to see productivity in terms of both the referrals per sales rep as well as the referrals per prescriber. And we're continuing to work through optimizing not only the size of the territories, but the frequency of core for us to continue to drive that productivity upward. We now have come to the conclusion that frequency also matters a lot for us. So we're in the process of refining that to get back into the higher growth rates. With that said, we're happy with the progress we made in terms of the new patients that we put on service as well as the progress that we're making in terms of the prescriber prescriptions per office.

This is Mike. The original guidance was based on Inogen as a separate entity. Now that we've introduced Physio-Assist in Q4 and considering the revenue size and the quality of the products, we'll need to invest to launch that product successfully. This is reflected in the impact on our Q4 revenues.

And I'll just add, Mike, the majority of the investment goes to the clinical regulatory work in terms of us securing, getting ready for filing in terms of the FDA approval.

Okay. I understand. But aside from that, I assume you would have maintained the previous guidance if we exclude the acquisition.

Yes. We would have likely ended towards the lower end of the original guidance.

And the first question comes from Mathew Blackman with Stifel.

Okay. Thank you. Our continued focus on executing our commercial strategy includes our plan to drive adoption of our current portable oxygen concentrators while expanding our portfolio to serve the larger COPD patient population as well as extend into adjacent indications, including dyspnea and hypercapnia. We also plan to efficiently integrate Physio-Assist and pursue regulatory clearance for Simeox in the U.S. Looking ahead, we remain focused on supporting a return to revenue growth while diligently managing expenses and cash. To conclude, I would like to thank our Inogen team who are working diligently through some headwinds while remaining focused on setting the right foundation for growth in the years to come. Their passionate focus on our patients and on fulfilling our purpose of improving patients' lives through respiratory care is foundational to who we are and Inogen's path forward. With that said, we thank you for your participation and conclude the call.

And this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.