All right. Hello, everybody. My name is Matt Blackman. I cover small and mid-cap med tech at Stifel. And welcome to the 2024 Stifel Healthcare Conference. And welcome to our session with Inogen. We're thrilled to have CEO Kevin Smith and CFO Mike Bourque with us today. And this is, I believe, your inaugural Stifel Healthcare Conference.
Yes.
So, welcome to the splendor that it is. So, I think maybe just to start off, this story has had challenges over the past few years. But Kevin joined as CEO about a year ago. And he's building a new leadership team, Mike being one of the key hires. And I guess having you here for the first time, it might be helpful to start with just framing it for us. What drew you to Inogen? What was it about the opportunity that was interesting to you, I guess, both of you? And I think, you know, what experience can you bring to bear here? You saw what the issues were. Why are you guys the right team to fix this?
All right. Thanks, Matt. Thank you first for having us here. It's certainly much appreciated. And when I looked at the opportunity here at Inogen, I saw that underserved patient population, for one. And the story resonated with me. I have a family history. I have a grandmother who was on an oxygen tank.
Likewise.
I saw her being tethered to her home. Couldn't move, couldn't leave. She lived with my aunt for a while. My aunt couldn't move the tanks around. So that basically meant she's homebound. And I, frankly, didn't know about the POCs before I heard about Inogen. And kicking myself and thinking, wow, that could have been a meaningful change for her. And so then I saw this as an opportunity, certainly, to bring Inogen to more people. And then as I was researching, great brand name, good people, good core within the organization. And I've worked at turnarounds in my past. That's where I've come from. It's what I'm passionate about. I saw what some of the trouble that Inogen had been going through. And I looked at this and said, OK, the core is there. This is something I feel passionate about.
I can get my arms around this. And I wanted to join. So it's been good. And I think that we've built the right team here going forward. We have a new leadership team that's in place over the course of the year. But I couldn't be more than thrilled to be here. But, Michael, it's you if you want to.
Yeah, sure. Thank you, Kevin. So, Matt, yeah, appreciate the invitation. Really happy to be here. I would echo a lot of what Kevin said. For me, looking at what we do and really being able to really see some of the stories you hear about some of the folks that have used our units and used POCs, really makes you feel good about what you're doing and really increasing the quality of life of people. And then looking at Inogen and really having a great product. So that was, I guess, that was the first two pieces. Then I came after Kevin. So I had the ability to come in and meet with Kevin and see what he was doing with the management team. Felt really good about that.
For me, what's really important is that really good collaborative executive team, which I believe we have here, made it really exciting. For my background, being a lot of med device and life sciences throughout my career at public companies, this is where I wanted to be. I'm really happy to be here.
And maybe, again, it's sort of later in the year. I may be alone here, but it's a time of reflection, usually at these latter stages of each year. Maybe just sort of reflect on the last year or so. You've accomplished a lot. And so maybe if there are a couple of things you want to call out that, I mean, the business is on better footing today than we can remember over the last several years. But if there's something in particular you're proud of. And I think we're also interested as we sort of reflect ahead or focus ahead on where the heavy lift is still in front of us. And again, you can keep it in general terms. You can talk specifics, however you want to frame that.
Certainly. I think if I'm looking back over the last year and where we were when I started with the organization, aside from the leadership team, which I think is a key thing to get the right people in place, but it's the culture shift that we've seen here. The culture of not just talking the talk, but walking the walk as far as putting the patient first, but then also focusing on the patient, focusing on the people that we have in the organization, leadership development, working well together, breaking down some barriers to communication, and then on the profit side, where we were changing the culture internally for people to look at every dollar we spend as an investment back in the company, and we're now going through our first AOP together. We're seeing some of the shift where people are working together.
We're building from the bottoms up inside the organization, building up forecasts, building up budgeting process, collecting great ideas from the people that we have within Inogen, so it's the cultural shift, I think, is the biggest thing that we've seen, and then when we talk about people and customers and patients, you've seen some of that reflected in the growth that we've experienced here through our B2B channel and as we're level setting or resetting some of the other pieces of the business. Those will continue to be focuses for us going forward. We've had a couple of good quarters of positive EBITDA, but we've got to build on that as we go forward.
Yeah, and maybe that's sort of an interesting way of framing it, sort of when I think about any story, but I think about Inogen specifically. It's product. You've got a great product. You're obviously working on innovation there. It's people. And so you've brought in the leadership team, and it's also the customers, whether it's your B2B customer or your direct customer. Has there been a significant amount of work because there were obviously challenges that the prior management team faced and maybe alienated some customers? When you think about sort of the customer side of the equation, or I guess maybe better said, those three elements, are those sort of the three key elements? And if so, is the customer one sort of the heaviest lift from here? Or I don't know. That's sort of how I frame it in my head.
Yeah, that's one that we're going to continue to build on, certainly going forward. We have relationships that we had to reestablish and we had to rebuild, and I believe we've done a good job in doing that, in piecing that together and moving forward with it. We brought on some people that have existing relationships. We've worked hard to build those up, and one is also reducing the friction that existed between the channels as well, showing our B2B partners that we are good partners for the future, that we're working with them to make sure that we're not stepping on each other's toes wherever possible, so that's something that was a significant lift for us, and we've done a number of things that we could certainly talk about with how we've enabled some of that to happen, but that's a big... that certainly is a big piece.
And the other is, I would just say, is pipeline. Not to leave that out of it, right, to put the right pipeline in place. And I think we've made some good progress there.
OK. I think you've outlined your mandate from the board, which is pretty straightforward and I think very compelling, which is positioning for growth, advancing towards and sustaining profitability, and you mentioned expanding the innovation pipeline. Maybe talk a little bit specifically if there's one example of each of those. I think we may have touched or alluded to some of them as the conversation started, but where are you in sort of executing against that mandate?
Yeah, so yeah, I think, and Mike, chime in here. When we look at that, we look at that growth. I think we've talked quite a bit about that with the B2B, with what we've done with the DTC. Although year on year, you see that coming down. But it's a completely different headcount that we have inside that organization. And making sure that the investments that we're making there are the right investments so we get to a positive contribution margin, and the pilots that we're working through, both of those in the hospital and the Patient First pilots. On the profit side, that's one I think we're continuing to build on and maybe can address some of those.
Matt, so excuse me. Kevin talked about some of the things we've done in terms of the sales channels. Clearly, the B2B growth, we were happy with that this year. A lot of focus, as Kevin said, on building relationships. The DTC, although you look at that business from a revenue perspective, and it's down a year over year basis, as Kevin alluded to, it's more profitable. So it's finding that right sweet spot. Continuing to look at, let's say, look at the P&L, right? And you say, OK, we talked about growth and profitable growth. We've talked about that a little bit. The other area we're focused in on, and we haven't really seen a lot of it yet this year, but we're optimistic about where it's going, is cost of goods sold initiatives and how do we reduce the cost per unit.
A lot of initiatives and COGS that we've been working on. We'll see some of that rolling through 2025. We haven't really gotten into how much yet. But again, not leaving any stone unturned, looking at that. And then we've talked a lot. We've said this a lot. And we really live it. Kevin talked about the culture. And it's true. I mean, we're building the culture about every dollar we spend is an investment in the company. We truly believe that. And we're looking at things. I think some of the things we've done, Kevin joining here, with looking at that prescribing channel, how do we get that cost base where we need it to be, right-sizing DTC, and really just really challenging our OpEx spend as well. And I think we've got our executive team, that mindset, I think, is in place.
So those are all the things, I think, kind of pulling all those things together, getting to that second initiative of really getting a path to profitability. We feel like we're really moving down that path. But we need to keep executing to that.
And Mike, this is probably a difficult question to answer. But how do you thread that needle in terms of everyone wants profitable growth, but it's sometimes at the expense of growth? And so how do you thread that needle of driving sustained? And I don't know what that target is. Is it mid, high, single digits with a top line growth while still investing in the business, but doing it in a manner that's efficient and still can drive profitability? How do you titrate those two?
I think DTC is a really great example of how we did that, right? We tend to think that you're taking your rep count down, taking your revenue down. So there's a kind of give and take there. But at the end, when you kind of look at that business and say, we are more profitable. Some of the other things I would just say, just in terms of this management team, sometimes there is a give and take. And I think the one thing I really like about the team that Kevin's put together here is we're focused on what's best for Inogen. We're not kind of pulling what's best for our specific areas. So sometimes some of that give and take is effectively saying, OK, we want to go down this path. We want to do this.
But this piece over here is more beneficial to us as a company and saying, OK, we're all on board with that. And we're going to continue down that path and follow that in terms of what's best for the company. So that kind of gets into that OpEx piece, what's right and what's wrong, what's something we should invest in, what's the return on that investment. And I think it's really important that our management team is dialed in on that and focused in on that. And that's going to help us, I think, as we progress to the future in 2025 and on.
Go ahead.
Yeah, and just to add on that too. So then once we think of the DTC example, baseline that we understand how we get to a positive contribution from a per rep. And we can analyze it and understand that a per rep, what do we have to invest and what other resources do we need if we add another rep? And then how do we grow from there? I think you have to understand how you get to profitable growth before you can just start adding more people at it, throwing money in, and then just digging a deeper hole in the bottom.
That makes sense.
Another good example too, Matt. I'll just add to that. We talk about the advertising spend, and it's an important part of the business. We need to advertise, generate the leads in DTC, but it's also beneficial to us across all our channels, but really looking at that spend and saying, what campaigns are not getting us the return we want? Which ones do we want to focus in on? It's not just about pumping the money out into the advertising channel, so that's another area we've looked at and we've got some benefit from.
OK. Let's maybe dig into. We touched on some of these briefly, but we'll talk about each of the individual channels and some of the dynamics there, and we'll start with the U.S. B2B business, B2B or business to business franchise, which has shown really strong growth the last couple of quarters. Can we just talk about what you've done to drive that improvement, and I think the key question is how sustainable that is from here.
Certainly, so we look at it. We separated out the B2B in the U.S., of course, and the B2B international, and if I only start with the international, then come back to the U.S., so part of this is relationships and building the relationships, building the trust, not having it be a transactional relationship, but have it be something that is more meaningful to set Inogen up as a proper partner for the B2B customers that we have. We brought on a Chief Commercial Officer, Greg Ramade, that we announced early in the year, and he's a very long relationship-oriented person. He's known a lot of these customers for quite some time. Him coming in has helped build that trust. I've spent a lot of the time with the customers, as Mike, as other people in the organization.
We've opened up, and this mirrors both international and the U.S., where we've brought our key customers into our facility in Texas, where we do our manufacturing, have them see what we do, how we do it, talk about the quality of Inogen. We talk a little bit about pipeline and what that pipeline could look like and get their input as to the future iterations and future development. Plus, on the digital health side, working with the B2B customers to understand how we could add more value to them. And then also on the U.S. side, more particularly, working through some of the friction that they've seen out there and where they see us competing against them and having transparent conversations with, OK, here's what's important to us as Inogen. Let's talk about what you guys are doing. Here's the pilots that we're running.
How do we make sure that there's room for both of us or we're not stepping on your toes? And I think we've come to some pretty good places with our key customers to know that we can work together and not against each other.
Is your biggest competitor in that space not another product, but your customers themselves? Is that the best way to think about it?
I think if you think about the tank business as what we're trying to do, right, is more of that conversion of the tanks, patients who should have and can have mobility and need to have a POC in order to have a proper level of mobility. The HMEs would be our biggest competitor to that because, of course, they're the ones supplying the patients with the oxygen tanks, and so working through with them as to what's going to help them convert that business, where does the line cross where it makes good sense for them from a business standpoint to enable those patients to have a POC versus setting them up initially with a tank, so it's not just competing against the POCs, but working through some of that mindset and understanding more intimately their business.
And what is just the underlying health of that channel here? Obviously, some of your HME partners have been dealing with the CPAP recalls. And that's certainly sucked up a lot of their capital. When they may have been investing in POCs, they were probably buying CPAP machines. But just the underlying trends in that business, are they investing again in POCs? And I think the bigger question here is, how do you continue, and I assume it's chipping away rather than some sort of inflection, sort of chipping away at the penetration or the reliance on tanks at the HMEs? How do you sort of march the POC penetration higher?
Yeah, part of that is, one, having that awareness, right, to know where we stand today and is there a gap and what is that gap between their business models. So we know that they can be profitable by positioning a POC versus the oxygen tank. That's a key piece. And focusing on the total cost of ownership through the time that they have. And part of that comes through their digital offering, fleet managements, reducing the number of touches that they have to have with the POCs. And that's when you look back at the CPAP, where we started off with some of that question. I haven't seen the capital restrictions being in there necessarily this year as being a reason not to invest in Inogen or even other POCs.
But I do believe that it's not a wholesale conversion that a B2B is going to have to say, I'm going to get rid of all of my oxygen tanks and all of my trucks associated with the oxygen tanks and the people and then shift over to POCs. They've made investments that they have to continue to see through. But I do believe it's the right thing for the patients. And I believe that we're seeing that dial move a bit with some of the larger nationals. So yeah, that's a good sign.
Maybe, I think one of the other dynamics in this channel was that one of your competitors exited. Maybe just talk about, to the extent you have, and I don't know that you've given a ton of detail, how long-tailed an opportunity that is, how you've been able to get after what's likely some incremental business has been a real tailwind.
Yeah, so we've seen some of that tailwind coming in here more recently. But again, that's one that's not a windfall for us, as we talked about earlier in the year. It's not as if when they exited the business that now there's a big gap in the market that has to be filled with a supplier. The POCs that they had put into the B2B market, and I believe that there was a lot of sell-off that was going on before they made the decision to exit the home respiratory business, that that creates a tailwind for us into the future. But it's as POCs come out of service and then they need to be replaced with something else, we're positioning ourselves to be that supplier of choice.
OK. We just sort of transition. We'll talk about the DTC channel. Historically, it has been of high importance to investors, and you're obviously refining and reshaping that business. Maybe sort of a state of the union on where that business is today, obviously much lower headcount, but just what you see today that gives you confidence that, let's say next year we lap some of the or anniversaries, some of the footprint challenging comps. You know why that business can grow. Clearly, it can grow profitably, but what have you done there and what should we expect?
Do you want to start off with some of that, or do you want me to start?
I'll say. Yeah, and I'll let you.
All right.
I'll jump in. Don't worry.
So for the DTC, we've talked about rebaseline year for DTC. And it's really as we've gotten into the third quarter, towards the end of the third quarter, that we see, OK, this is the baseline that we want to have. We see the positive contribution. We feel we have a much better handle on how to achieve growth and what we need to do. Going into the first half of the year next year, it's going to be an unfavorable comparison given the number of headcounts and so forth. I believe it's going to be more favorable when you start to consider it from a profitability standpoint, but from a pure revenue standpoint. It won't be until you get into probably the second half of the year that you start to see that.
Until the first half and the second half.
You see positive growth.
Yeah, and I think another thing to note on there too is when we think about rental revenue, when you think about the DTC business, we bucket DTC altogether as sales. Those are cash sales units in the U.S. But through that patient-first that we've talked about a bit, where through that channel, we're also offering the patient insurance coverage and talking them through that and doing the insurance checks. We're piloting it with the group of users that we're looking to continue to roll that out. That means more potential for rental to come through that channel as well. So, different from the traditional rental channel.
Gotcha. Did you want to?
Yeah, just so the goal is you might see maybe you don't see the cash sale, but we're still getting an Inogen POC to a patient, whether it's through the rental channel or through the DTC. So sometimes you don't necessarily see that because it's the rental channel.
And the DTC is typically later in the diagnosis of that patient, right? So you're not maybe getting the full life of that patient on an outright sale, whereas you would get it for a longer duration with the rental. Is that right?
Yes, so you get all of the certainly the cash upfront with the cash sale. But there are a couple of dynamics in there. One is when you have the rental that comes through that side, typically you're not getting the patient directly out of the hospital. So you have some months that are left. But if you collectively add up the months billing for a longer life of a patient, that can add up to be more than the cash sale.
And then before we sort of shift and talk about the pipeline, how should we think about each of the businesses just in the, if you're willing to share, sort of in the biggest picture framework of maybe from a profitability standpoint, DTC should be the most or the least profit? Is there a way to rank order which of the businesses we should think about being most important for driving growth and maybe the most important for driving profitability? Is there a way to frame it that way?
So Matt, the way I look at it, we have basically the DTC business and the rental business typically have higher gross margins. We don't get into the discussion about the profitability perspective. We talked a little bit about DTC earlier in terms of the move from looking at that cost structure, taking it down to the reasonable level. But we view all our channels as pretty critical to our business and the path to profitability. I don't know, Kevin, if you want to add anything.
Yeah, no, I think that's right. From a pure margin line, DTC is going to be higher. But just when we look at all of those channels, we're trying to meet the patients in different places, right, and their journey through their disease and the opportunities that they may have to get a POC. The DTC business is important where patients are self-advocating. They have an oxygen tank. They don't have the mobility that they want. They see the advertisements, and then they come directly to us. From the HME side, the B2B side, there is the opportunity to work with the HMEs to get patients either directly out of hospital or after they've been on a tank for a period of time and the patients are asking for Inogen.
That's one of the things that we've learned and we've heard from our B2B partners is they ask for an Inogen. They're not asking for a POC. So we have the brand name recognition. And then, of course, on the prescriber side, especially as we're working through some of the hospital pilots going after the discharge planners at the hospital, where we don't have an HME that is actively going after that discharge planners at that hospital, we can capture them earlier in that disease state and get them set up straight away.
And so I guess also the idea here is to make each of these businesses from a profitability standpoint such that you are financially agnostic as to which channel the patient comes through.
That's where we're working to get towards here now is that we can see profitable growth out of each of our channels. They have to be there either today or that we see are a pathway and we have a strategy in the future.
I think Kevin talked about this early on about kind of the friction initially between the different channels, eliminating that friction so effectively that's what we're doing. We get that POC into the hands of a patient one way or another.
I want to leave these last five minutes because I don't think historically you've really ever had a chance to talk about an Inogen pipeline. So it's a nice change. But Simeox, I think, is the one we should start with. Maybe could you just give folks a little bit of background of what the product is and how it fits into the Inogen story?
Sure. So when you look at the COPD patient population, you have an overlapping subgroup in there with patients who also have bronchiectasis. So the Simeox device is for airway clearance with patients that have bronchiectasis, non-cystic fibrosis, bronchiectasis, or other needs for airway clearance. And today, particularly in the U.S. market, if you think about mechanical clearance, it's usually the percussion vests that would be used, companies like Tactile and so forth that have those. It's a nice business. It's a high-margin business. Simeox is available today in Europe. It's not yet available in the U.S. We're working through that process.
But this is an opportunity for us to bring to the same call point that has potential within each of our sales channels to have a relatively high-margin product, is our anticipation for this and a razor-razorblade model as well, which I think is a nice step up from where we've been in the past.
Have you sized what you think this opportunity could be just in a raw TAM?
We have, but we have not discussed that yet, and one of the reasons that we're holding back and being a little bit conservative in there is we want to get through the regulatory process. We want to have that clarity with that we have different approaches that we can take and that we're planning on taking with CMS. We've got to have private reimbursement, public reimbursement. We want to make sure that we're guiding appropriately there.
What is left to do in the U.S. on the regulatory front?
We have to get the clearance from the FDA.
The 510(k).
So that's the easiest pathway, right, is to go through, which is the pathway you would normally want to take with the FDA to avoid any sort of need and necessity for clinical evidence. And that, of course, is the desired pathway. But the FDA can always change things as you're going through it. So we're being, again, conservative. The next update we'll give as to where we are in that process is once we have that clearance in hand from the FDA.
OK. And I know you're not giving guidance on TAM, but I would think that this would be at least accretive to sort of base business margins when it's at scale or just how we should be thinking about this in the larger mosaic of the company.
Yeah, so the expectation is it will be a decent margin product, so yeah, I think that you can make that a size.
and more of a recurring revenue stream than the rest of the business as well. I think that's also probably critical.
Yeah, bronchiectasis patients are diagnosed. We had a patient panel recently which was interesting that a couple of the patients that we had in our panel were diagnosed in their early teens. And so patients can live with bronchiectasis for a long time. And there's a myriad of reasons why a patient may develop that. It's not from smoking. It's not necessarily from that. Of course, it overlaps with COPD. But there's the potential to have patients for many years continue to use the Simeox device and use a disposable.
OK. We've got about a minute and change left. And I know you don't want to give 2025 guidance. But maybe just end sort of where we started when you think about in your mind's eye what this company could be if everything goes right. And again, I'm not going to hold you to this stuff, but just so we have a framework. Is this a high single-digit top line grower with the opportunity to expand margins over a several-year period? Just give us a little, I mean, selling futures, but just give us a little taste of what you're trying to build, what the end game is.
Certainly. So let me answer it this way, and then Mike, chime in. So it's one of the things I looked at when I got here as well, which I left out of the early piece. So I appreciate that question. And it's something that's become more clear the more that we've gotten our management team in place here and we start to think about our future is we have a single device company for all intents and purposes. We have different models, but we have an oxygen concentrator, POC. We do have an SOC. That SOC is mostly cash sales in the home through the DTC channel. But we have the opportunity to expand our pipeline out and become a real respiratory care company. We've talked about that. That's in our vision. Simeox is the first product that we would be introducing that will lead us beyond the POC.
And when we think about this in the future, we have, and it's one of the reasons why we've been focusing on the baseline, getting the basics right, doing the blocking and tackling, get us to a position where we know we can grow profitably channel by channel, and we can reach these patients in a number of different ways. But we're looking at what's the potential for us to bring additional technology into this pipeline and we can leverage what we have here today. And not every product is going to fit with every channel, but we see this as the potential to build a real high-touch respiratory care company with real estate and patients' homes, which then becomes applicable when you start to think about futures with connectivity.
Future stuff. OK. Well, we'll stop it there. If there are any questions, we can take them. If not, I don't see any. Thank you so much, guys. Really appreciate it. Oh, yes, please.
You guys have done a great job of kind of rationalizing your DTC headcount exposure. What is the climate for both sides of the business from your competitors? I mean, is everybody going to make this a good business now because everybody realized it can't be shitty business? Sorry, sorry. I mean, how does the climate from your competitors feel like now and over the next year or so?
So the way the climate feels coming up from our competitors is more of a low cost versus, as we're positioning it, we look at it as a premium brand, if you will, but we look at total cost of ownership with our POCs versus the tank business. So if you look at the competitors from other POCs that are out there, it's mostly the products that would be coming in from China that are manufactured overseas that are coming in at low cost and saying, hey, don't spend the money on an Inogen. Spend the money on my product. If we're looking at it from POC pure, but we're not looking at it necessarily as the POC business as the main competitor. We're looking at how do we tackle more of the tank market. There's a lot of opportunity out there.
And it's one of the reasons why we need to get back, and I know we're out of time, but why we need to have a good solid relationship with the HMEs because if you really want to have an impact on that tank business going forward, you've got to work together with the HMEs. They're the ones that own those patients. And so we've got to show the right profit model for them to make bigger leaps.