Transcript
Welcome to Inogen’s First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the management’s prepared remarks, we will hold a Q&A session. As a reminder, this conference is being recorded today, May 7th, 2025. I would now like to turn the call over to Ryan Peterson, Investor Relations.
Thank you all for participating in today's call. Joining me are President and CEO, Kevin Smith; and CFO, Mike Bourque. Earlier today, Inogen released financial results for the first quarter of 2025. The earnings release is available in the Investor Relations section of the company's website, along with a supplemental financial package. As a reminder, the information presented today will include forward-looking statements, including, without limitation, statements about our growth prospects and strategy for 2025 and beyond; expectations related to our financial results for the second quarter and full year 2025; progress of our strategic initiatives, including innovation; our expectations regarding the market for our products, and our business and supply and demand for our products in both the short-term and long-term. The forward-looking statements in this call are based on information currently available to us as of today’s date, May 07, 2025. 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 obligations to update these forward-looking statements, except as may be required by law. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures, taken in conjunction with U.S. GAAP financial measures, provide useful information for both management and investors by excluding certain non-cash items and other expenses that are not indicative of Inogen’s core operating results. Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented in tables within our earnings release. With that, I will turn the call over to Inogen’s President and CEO, Kevin Smith.
Good afternoon, and thank you for joining our first quarter 2025 conference call. During today's call, I will review our first quarter performance and provide an update on our progress towards our three strategic priorities: driving top line growth, advancing our path to profitability, and expanding our innovation pipeline. I will then turn the line to Mike for a full review of our financials and outlook. Before I share more on our first quarter results, I would like to briefly address the recently announced tariff. Considering our business position and current exemptions, we do not anticipate a material impact to our operating plan or financial profile from the announced tariffs. We believe that we are well-positioned to continue executing on our strategic priorities and financial goals despite these developments. However, the situation is dynamic, and we will continue to monitor it closely. Shifting back to our strong first quarter results, we delivered over $82 million in revenue, reflecting 5.5% year-over-year growth. Alongside the strong top-line performance, we achieved another quarter of adjusted EBITDA profitability, reflecting our focus on operational excellence. Our growth was driven by the continued strength of our business-to-business channels. This was offset by expected pressure in our DTC channel, where we have optimized the size of our sales team. We expect more favorable year-over-year comparisons in the back half of 2025 as we lap one year with our newer, more efficiently sized team in place. As previously announced, we finalized our collaboration with UL Medical during the quarter. This collaboration furthers our efforts toward all of our strategic priorities by driving growth, broadening our geographic reach, and improving our product portfolio. UL will distribute Inogen portable oxygen concentrators under the Inogen brand in China, accelerating our entry into the attractive Chinese respiratory market. We will be distributing their stationary oxygen concentrators under the Inogen brand in the United States, expanding our offerings across all of our channels. Our team is making progress on completing the necessary regulatory hurdles for a full rollout of these products in both the United States and China. In the United States, we expect a limited launch in 2025, while in China, we continue to work through the registration process with UL. Additionally, UL completed an investment through one of its subsidiaries of approximately $27 million in late February, acquiring a 9.9% ownership stake in Inogen. This investment is reflected in our first quarter financials and is meaningful capital for reinvestments into growth and innovation. Now turning to our second strategic objective, progressing towards sustained profitability, where we have continued to make considerable advancements. In the first quarter, we again generated positive adjusted EBITDA due to our continued top line strength and focus on managing expenses responsibly. We still expect to approach adjusted EBITDA breakeven for the full year 2025 as we continue to invest in innovation. We have made significant progress where we will carefully manage our expense profile and drive manufacturing and operational efficiencies going forward. Finally, I would like to provide an update on our innovation pipeline. We are continuing to make progress with our pursuit of reimbursements and the limited commercial release of Simeox. There are no material updates to provide as of now, but we will continue to show pertinent information in the future. I am proud of our team's strong performance in the first quarter and look forward to delivering progress on growth, profitability, and innovation throughout the rest of 2025.
Thank you, Kevin, and good afternoon, everyone. Unless otherwise noted, all financial comparisons are to the prior year comparable period. Total revenue for the first quarter of 2025 was $82.3 million, an increase of 5.5% on a reported basis, and 7.1% on a constant currency basis compared to the prior year. The increase was primarily driven by higher demand from international and domestic business-to-business customers, partially offset by lower direct-to-consumer and rental revenue. As a reminder, full constant currency growth rates across our channels can be found in our earnings release. For the first quarter, foreign exchange had a negative 160 basis points impact on total revenue and a negative 500 basis points impact on international revenue. Looking at first-quarter revenue on a more detailed basis, domestic business-to-business revenue increased 29.9% to $21.5 million versus $16.5 million in the prior period, driven by increased demand from existing customers. International business-to-business revenue increased 22.9% to $32 million compared to $26 million in the prior period, primarily driven by an increase in demand from new and existing customers. Direct-to-consumer sales decreased 26.8% to $15 million from $20.5 million in the prior period, as we continue to operate with a smaller and more efficient team. We have made significant changes to our business and operational profile within the DTC channel to improve efficiency as part of our commitment to driving increased profitability. These changes also allowed us to adapt to the evolving market dynamics. We believe our current team is well-positioned for better performance as we look to the back half of this year and beyond. Rental revenue decreased 7.5% to $13.8 million from $14.9 million in the prior period, primarily driven by continued lower average billing rates due to the mixed shift to private payers. Despite year-over-year declines, rental revenue grew slightly on a sequential basis, which we see as a positive indicator for the health of this channel. Now, I want to discuss first quarter gross margins. Total gross margin was 44.2% in the first quarter of 2025, increasing 15 basis points from the same period in the prior year, primarily driven by lower warranty expenses. Sales revenue gross margin was 44.4%, an increase of 24 basis points. Rental revenue gross margin was 43.3%, a decline of 33 basis points. Moving on to operating expense, in the first quarter of 2025, total operating expense decreased to $44 million compared to $15.6 million in the prior period, representing a decrease of 13.1% as we continue to execute on our goal to improve operating margins. In the first quarter of 2025, we reported a GAAP net loss of $6.2 million compared to a loss of $14.6 million in the prior period and a loss per diluted share of $0.25 in the first quarter of 2025 versus a loss of $0.62 in the prior period. On an adjusted basis, we had a net loss of $2.9 million in the first quarter of 2025 compared to a loss of $10.4 million in the prior period, resulting in an adjusted loss per diluted share of $0.11 in the first quarter of 2025 compared to a loss of $0.45 in the prior period. Adjusted EBITDA was a positive $36,000 in the first quarter of 2025 compared to a negative $7.6 million in the prior period. Moving on to our balance sheet, as of March 31st, 2025, we had cash, cash equivalents, and restricted cash of $122.5 million with no debt outstanding. As a reminder, we made a $13 million earn-out payment to Physio Assist in the first quarter of 2025 related to achieving FDA clearance for Simeox. On that note, I'll discuss our full year 2025 and second quarter financial outlook. We continue to expect full year 2025 reported revenue to be in the range of $352 million to $355 million, reflecting a 5% to 6% reported growth relative to the full year of 2024. Our gross margin expectations for the full year have not changed. For the full year 2025, we expect to approach adjusted EBITDA breakeven. For the second quarter of 2025, we expect reported revenue to be in the range of $89 million to $91 million, reflecting flat to approximately 3% growth relative to the second quarter of 2024.
Thank you, Mike. I am proud of our achievements in the first quarter. They are a direct reflection of the dedication and resilience demonstrated by our team. We've driven notable growth while staying focused on operational efficiency and innovation. I'm confident that we'll maintain this momentum throughout the year and look forward to continuing to meet the needs of respiratory patients globally. With that, I will open it up for questions.
Thank you. We will now be conducting a question-and-answer session. Our first question is from the line of Matthew Blackman with Stifel. Please proceed with your questions.
Hey guys, this is Colin Clark from Matt. I had a quick one on rentals. You spoke to billing rates being down. But looking at my model, net patients have been declining for a few straight quarters now. Can you speak to what's driving that?
Colin, take that question. This is Mike. What we've been discussing in the past in terms of rental is a couple of things that have been challenging. The first one is really as we look at total patient service and what percentage of those patients are under Medicare versus private pay, with private pay being a lower monthly reimbursement rate. What we had been seeing for a number of quarters was that the percentage of private pay was getting higher as a percent of total patient service. Therefore, we're seeing an impact on both the revenue line and gross margin because our service costs remain the same. That was one of the dynamics we've been talking about. Additionally, we have seen an increase in patients at the capitated period, which has also impacted revenue and gross margin. Now what we're seeing now in that channel is both of those factors leveling off a little bit. We're not ready to say that's an inflection point yet, but we're encouraged by that. Importantly, in Q1 of 2025, we had the first sequential improvement in rental revenue in a number of quarters.
And I'm curious about the rentals, gross margin outperformance, at least, versus our estimate and consensus. Was there anything in particular behind that? I think we had thought about the billing changes having more of an impact. Is this tracking as you guys expected?
Yes, I think it's another positive sign for sure. We've had past challenges in that area with certain operating costs and cost-of-goods sold associated with that. We've been doing a number of things to improve those, and we're seeing some benefits from that.
Our next questions come from the line of Robbie Marcus with JP Morgan. Please proceed with your question.
Hi, this is actually Rohan on for Robbie. Thanks for taking our question. I just wanted to ask about the cadence for the balance of the year. I know that you guided for the second quarter slightly below expectations to maintain the guide for the year. So I want to get a sense for how you're thinking about the progression. Could you elaborate on some of the specific actions you're taking to stabilize the DTC sales and rental revenues? More color on that moving forward would be valuable.
Rohan, I'll take that one as well. This is Mike. As we look at the year, first of all, we're pleased with our Q1 results. We are where we expected to be for the first half of 2025, and we’re confident in our full year guidance. Last year, we faced tough year-over-year comparisons in DTC. This negative impact on our year-over-year total company revenue growth will likely only occur in the first half of 2025. We anticipate that in the back half, we will start seeing better growth as we have restructured the DTC channel and eliminated outdated costs. So our expectations for second half growth rates are better than the first half.
Yes, that was helpful. I also wanted to ask about tariffs. I appreciate the color provided on the exemptions, which seem to only apply to products manufactured coming into the U.S. How are you thinking about the UL partnership beyond China? Have you also secured exemptions for that relating to reciprocal tariffs?
Yes, thanks. The tariffs are with the exemptions, and we are not impacted on bringing products into the United States. We do have manufacturing in the Czech Republic, as a contract manufacturer in Europe, allowing us flexibility in how we manage our supply chains without needing components to pass through the U.S. to reach the Czech Republic, providing us with international market opportunities, including in China. However, we still need to complete our product market launch in China.
Our next questions come from the line of Mike Matteson with Needham & Company. Please proceed with your questions.
Yeah, thanks. It's great to see the strong growth continue in B2B both in the U.S. and internationally. I’m just wondering if you have any measure of how much of that is share gains versus overall category growth for portable oxygen concentrators. Any thoughts?
Yeah, Mike, I’ll start with that. We believe it is a mix of factors. We know that we're gaining new companies and customers from B2B through conversations and surveys. We see a continued shift from tanks to portable oxygen concentrators, which we view as a share gain against traditional tanks. It's a bit harder to measure against competition, but our unit growth from ‘23 to ‘24 and a 27% increase in unit volume in the first quarter of ‘25 reflects strong market performance.
Got it. On the DTC business, given the rep count reduction and changes, what are you seeing in terms of the economic environment and consumer spending? Are you measuring close rates on leads generated, and have you noticed any drop there?
I appreciate your question, Mike. As we look at quarter-on-quarter performance, our focus has been on re-basing rep count for profitable growth. We are rolling out our patient-first initiative, now about 75% complete, which improves sales on a per-rep basis. We see improvements in unit volume per rep, revenue per rep, and fewer returns per rep, indicating improved customer satisfaction. We believe that once we achieve a year-on-year equal comparison by rep count, we will see favorable results by the year's end.
Thank you. Our next question is from the line of Margaret Andrew with William Blair. Please proceed with your question.
I wanted to touch on a couple of different things. Firstly, regarding guidance, you’ve mentioned new customers and B2B global growth. Was this above the prior guidance range? With new customer ramp-up, what supports continued traction? How do macro issues potentially influence this guidance?
I'll start with that. We don’t typically provide guidance by channel, but I can give insight into how we build our guidance. Our guidance is realistic and achievable, and we base it on a bottoms-up process discussing pluses and minuses across various factors. We want to provide a clear idea without giving specifics on guidance by channel, but we approach this year similarly.
You guys exceeded expectations in the first quarter, so I’m trying to understand if there are underlying macro issues reflecting that guidance or if there are pushes and pulls impacting our projections based on what we saw in Q1.
Yes, I can add context there. Our strong performance in B2B, aided by a larger national B2B customer that began ordering towards the end of Q1, positively impacts our baseline for the coming quarters. We anticipate continued year-on-year growth in B2B, offsetting DTC comparisons.
I appreciate the context. On OpEx, G&A and R&D pulled back sequentially. Given that this was the first positive adjusted EBITDA performance, could you walk through where the dollars from the first quarter beat may go in the coming quarters?
Regarding OpEx, we don’t typically guide on that but our expectation is to see a lower OpEx as a percentage of revenue in 2025 versus 2024. Our Q1 OpEx shouldn’t be viewed as a proxy for the rest of the year. We have a couple of initiatives planned for Q1 that may slip into later quarters, and we will continue to manage our cost structure while expecting a decrease in OpEx as a percentage of revenue.
Thank you. At this time, we've reached the end of our question and answer session, and that will also conclude today's teleconference. You may now disconnect your lines. We thank you for your participation and have a wonderful day.