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Inogen's DTC sales shine in Q4

Inogen's DTC sales shine in Q4 B2B growth slows, however, due to reduction in orders from national provider

GOLETA, Calif. - 2018 was a “year of investment” for Inogen and it paid off, company officials say, with a 50.4% increase in direct-to-consumer sales in the fourth quarter

The company topped out at 446 inside sales reps for its DTC segment by the end of 2018, a nearly 70% increase compared to 2017.

“We feel very comfortable investing in sales capacity, looking at the long-term (potential of the POC market),” said CEO Scott Wilkinson during a conference call to discuss the company's latest financial results. “We made some conscious decisions that we were going to make some investments in 2018 and that we were going to focus a little less than we have in the past on our bottom line. And if you look at our growth rates, we accelerated pretty significantly in 2018 versus the previous years and that's even on a higher base.”

Inogen reported total revenue of $86.5 million for the fourth quarter of 2018, up 35.7% over the same period in 2017, and a net income of $10 million vs. a net loss of $606,000. For the year, the company reported total revenue of $358.1 million in 2018 vs. $249.4 million in 2017, and a net income of $51.8 million vs. $21 million.

It was a slightly different story for Inogen's domestic business-to-business segment, which saw sales increase only 16% in the fourth quarter of 2018 compared to the same period in 2017. A big reason: one national provider slowed its orders in the quarter.

“The large customer that slowed their purchases, they bought at a much heavier rate in the fourth quarter of 2017 and the first half of 2018, and then they started to slow down in the end of the third quarter and in the fourth quarter,” he said. “We don't know when they might pickup.”

The rest of Inogen's provider customers, however, continued to buy at a rate that was consistent with the prior four quarters.

“So we've got a nice diversified customer base,” Wilkinson said.  “The rest of them continue to purchase at a nice growth rate.”

The call was the first since an activist investor called into question* Inogen's estimate of a total available market (TAM) for POCs of 3 million, saying it was closer to 1.3 million.

“There is no change to our TAM estimate of 2.5 million to 3 million patients,” Wilkinson said. “We've looked at it a few different ways, and we keep landing in the same area.”

Inogen earmarks $4M increase in COGS due to tariffs

Inogen held the conference call a few days after President Donald Trump announced that he would again delay a planned increase in tariffs on products imported from China. Here's what Wilkinson had to say about the company's strategy:

“On Dec. 1, 2018, the U.S. and China agreed to postpone any increase in existing or new tariffs until March 1, 2019, as both sides work toward a more amicable trade deal. Specifically, the U.S. refrained from increasing its China import tax from 10% to 25% effective Jan 1., 2019, on $200 billion of imported Chinese materials and products.

“President Trump decided on Feb. 24, 2019, to delay the increase from 10% to 25% effective March 1, 2019; however, no official trade deal has been reached and no timing was given for how long this additional delay will last.

“Given the level of uncertainty around this global issue, our 2019 guidance continues to assume the full impact of these tariffs on applicable Chinese-sourced materials. Included in guidance is an estimated $4 million increase to our cost of goods sold in 2019 for the revenue range listed.

“Going forward, we will continue to monitor any new tariff proposals and economic policy changes and take the necessary steps to protect our financial interests and mitigate our standard material cost risks.”

For 2019, Inogen has a total revenue guidance range of $430 million to $440 million, representing growth of 20.1% to 22.9% compared to 2018.


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