Good morning. Thanks for joining us at the 24th Annual Needham Healthcare Conference. I'm Mike Matson, and I lead the MedTech Equity Research Team at Needham & Company. I'm pleased to introduce Inogen. Presenting from Inogen today, we have President and CEO Kevin Smith and CFO Michael Bourque. Instead of a standard presentation, we're going to do a Q&A session or fireside chat. If you have any questions you'd like to ask, you can submit them electronically through the Needham Conference website. You can also email them to me at m.matson@needhamco.com, and I'll do my best to fit them in. Thanks, Kevin and Mike, for joining us. We're going to just dive right into the Q&A here. I want to start with a higher-level question here, Kevin. You've been at Inogen now for over a year.
I know that you've made quite a bit of progress with the turnaround, but I wanted to see if you could just give us an update at this point in time what you've done since you joined, and kind of compare Inogen's position to where it was when you joined and where it is now.
Sure. Thanks, Mike. I appreciate you inviting us here. Thank you. If we look over the past year, I really think the most important change that we've been able to make is solidifying our leadership team. We've made a lot of changes to that leadership team over the year, and I believe we've got the right people in place with the right capabilities to take us into the future. We've also made some changes to our sales organization. We ended the third-party external sales party, that agreement that we had in place, that was in a rental channel. We reduced the expenses associated with that, that weren't contributing positive results to the organization.
That enabled us to bring more talented salespeople directly under our control, not through a third-party relationship, and focus on getting the rental piece back to the profitability that was specific to that channel. We right-sized our DTC channel. We talked this last year about rebaselining the DTC. We completed that in the second half of the year. That has enabled us to get to the right contribution that we wanted coming from that organization, positioning ourselves to return to profitable growth, not just in DTC, but certainly throughout the rest of the company. Over the course of this last year, we also returned to growth. We made great strides. We did approach adjusted EBITDA profitability. To that end, we have also guided to a 6% growth at the top end of our range in 2025. We also expect to approach adjusted EBITDA break-even.
I think we're making we've made the right strides. We've put the right pieces in place to position ourselves for the future.
Okay. Thanks. In terms of what your expectations were when you joined Inogen, and what you've seen in the past year plus since you've been there, maybe just talk about what's been better, what's been worse, and what you kind of expected going in.
Yeah. I think one of the positive things that I've seen since joining here, Mike, is the passion that we have throughout the organization. That is key. We have people that are absolutely dedicated to our patients, dedicated to our mission, and what we're doing with our patient population. We have people that have joined, intentionally joined Inogen because they had family members that have respiratory disease, that have seen the benefits of Inogen's POC. That passion shows throughout the team. We've also opened up the silos that were here in the past. We have bottoms-up forecasting. We have ideas. We have change management, things that are happening that are coming throughout the organization, not just from the top down.
There are some of the changes that we've seen, but also that positivity that I would say is a little bit of a pleasant surprise, but that passion is incredible.
Okay. Got it. To use the baseball analogy, what inning do you think we're in in terms of the turnaround now?
Yeah. Interesting analogy. We have taken a lot of action. We have put the time in here over the last year to do some of the foundational work that needs to happen. We have seen some positive results with our financials. You have seen that through our communication that we have had over the quarters here. I would say that we are still in those early stages. I would put us in the third inning right now focusing on a turnaround because even though we have the foundation that is in place, and you are starting to see that positive momentum come through, this is a turnaround, yes, but it is also repositioning ourselves for the future. We have a great foundational product, which is the Inogen POC. We have a strong brand name. We have the ability to execute going forward. We have been seeing some of those.
When you think about the transformation and expanding the pipeline and turning Inogen more from a single-product company into a respiratory care company that ultimately in the future has connected devices and digital health components to it, that's exciting. That's still in the early stages here right now. We see some of that throughput coming, but I'd say third inning. We do have the right people on the field and feel confident in the team.
Okay. Great. I think you sort of already answered some of my next question, but I'll go ahead and ask it anyway. What's on your to-do list in terms of next steps in the turnaround?
Yeah. If I'm looking in the near term here right now, focusing on that Simeox reimbursement, we have the 510(k), but we need to get the reimbursement in place. That takes time. That takes effort working through private insurers as well as through the CMS process. Getting through that process is high on the to-do list, as well as rolling out the stationary concentrators that we are bringing in and rebranding from Yuwell that we announced earlier in this year. Executing on that is key, as well as finishing up the rollout of one of the pilot programs that we have with the Patient First program in our DTC channel, and then coming to a conclusion on our hospital pilot and making decisions go, no-go on that one.
Okay. Got it. That also leads well into my next topic, which is on the diversification efforts to kind of broaden your product offering. In January, you announced this collaboration with the Chinese company Yuwell. You just referred to that. I was wondering if you'd start out by giving us kind of an overview of the agreement and what it means for Inogen.
Certainly. We see this opportunity as a way for us to accelerate our growth and profitability over time. Shortening that curve to getting us to positive, sustainable profitability, as well as getting us back to double-digit growth in the future. The way that this is going to contribute to that is really three separate agreements that we have with Yuwell here. The first is expanding our pipeline as a distribution agreement. We will be bringing, as I mentioned there, the stationary concentrators in. We feel very confident in the quality of these stationary concentrators, bringing that into our pipeline, branded as Inogen, supported as Inogen, maintained by Inogen, and being able to expand our reach and our putting those through the existing sales channels that we have today.
We also have that ability now through our partnership with Yuwell to open up the Chinese market, which is a large, vast opportunity for us and affordable concentrators, bringing our POCs in as the premium product in a growing market with many patients that are suffering from COPD in China. That is all new business for us. We do not have any market today in China, no access to the market today as we work through that. The other part of this agreement, or one of the other agreements, is collaboration where we are going to work together, putting our expertise. We have expertise in portable oxygen concentrators. They have expertise in other areas of respiratory care, working together on new innovations for the future, opportunities for Inogen to expand our pipeline and, again, achieve long-term sustainable profitable growth.
The last part there was a stake in the organization. Yuwell had acquired 9.9% ownership stake. That gave us $27 million to put on the balance sheet, dry powder to be able to utilize for operational initiatives as well as R&D. That is, again, an exciting opportunity for us.
Okay. Just out of curiosity, we've had a lot of news on the tariff situation. I do not want to get into tariffs more broadly later, but I am just specifically asking now about tariffs with China, the kind of back and forth, because I guess now there is going to be a tariff on imports into the U.S., but it looks like they are going to be tariffing some of our products, U.S. products going into China. Do you have any idea whether that would apply to your products since they are medical products and whether this would be kind of for the cost of these products, assuming that these things remain in effect, that is?
Yeah. As they're written today, we don't believe there's any material impact on us. I think the other thing to keep in mind is, especially when we're looking at if we're looking at this more broadly, and I know I might be getting a little bit ahead here, Mike, but we have manufacturing in Plano, Texas, for the U.S. and select international markets. We have a manufacturing partner in the Czech Republic for European partners and elsewhere. With the partnership with Yuwell, our intent is not to have Yuwell manufacturing our POCs. It's certainly not for export. There's a potential there, though, to be able to take advantage of that relationship specifically for the Chinese market. I believe we're in a really good position, and we have the right partner to make sure that we have minimal, if any, impact.
Okay. All right. Just from a timing perspective, in terms of both directions, when would you expect to start selling their concentrators in the U.S., and then vice versa, when do you expect to start selling your POCs in China?
With the stationary concentrators, we are in the process of rebranding and making some minor adjustments to the stationary concentrators. We expect to start being able to sell those in the second half of the year. Although the material impact on that, the positive uplift, would be more of a 2026 event than it will be a 2025 event because we have to get customers in the pipeline, work through the ordering process to get that business closed, and do the evaluations that are necessary. This would be more of a 2026 uplift than it will be a 2025 uplift. On the other side, with our POCs going into China, they are going to be still branded as Inogen premium products in China, but we have to work through the regulatory process there. That takes some time.
That'll be in 2026 is what we're targeting to be able to launch in China.
Okay. Got it. Let's see. Just maybe Chinese oxygen market, can you just talk briefly about that? I think it's more I'm not sure that there really is a covered product by insurance or government over there. It's more out of pocket. Is that correct? Maybe just talk about the size of the market and opportunity.
Certainly. It is an out-of-pocket pay in China. To give you an idea, Yuwell sells approximately 1 million stationary concentrators for cash in China each year. That is a sizable market that is just cash pay. That is for the stationary concentrator. The portable concentrator market in China is also going to be cash pay. The way that they sell directly to patients in China is similar to our DTC, but a little bit different. It is a bit easier in that it does not require a physician's prescription. That makes that process more simple and less back-office support is needed to be able to get sales and manage these patients. The other side of that is they do direct advertising, almost like a QVC-type sales for medical devices that Yuwell has. They own the channels. They put a lot of respiratory care products through there.
Through them, we will be showcasing the Inogen product after we have regulation approval and are entering the market. When you think about this, there are early stages of portable oxygen concentrator in that market. It's primarily stationary concentrators. We are going to be building that off. This is the right time for us to be able to get in there and position Inogen as the premium brand in the Chinese market.
Okay. Got it. I wanted to move on to talk about the other diversification effort with Simeox. You already talked a little bit about that. Just wondering if you could start out by giving us a quick overview of the product for people that maybe aren't as familiar with it, kind of where it's used and the market opportunity there.
Certainly. When you look at Simeox, it's lightweight. It's transportable, but it's airway clearance. It's an airway clearance device to remove bronchial mucus from the patients who have chronic lung disease. It could be patients that have COPD, cystic fibrosis, bronchiectasis. The other modalities that are available out there for airway clearance are oftentimes either ineffective or bulky and cumbersome to be able to use. This is a very elegant, effective way to help patients. When you think about the opportunity and what the sizing of this market would be in the United States, you've got about 15 million patients that have between stage two and stage four COPD. When you look at bronchiectasis as a specific category within that, there's some overlap.
Not all of it is overlapping, but we believe it's very much an undiagnosed disease, as is reported in publications and studies that come from around the world. The market appears to be about a 7-8 million range within that stage two to stage four patient population overlapping with COPD. The opportunity here is to utilize our existing sales channels. We aren't going to need to invest in a new commercial organization. We have the direct-to-patient. We have the rental, which is calling on the prescribers to create need and awareness. Once we have the reimbursement in place, it will be an attractive option for HME B2B partners.
Okay. Got it. Maybe talk a little bit about, you started to get into this, I think, the launch and the reimbursement strategy with this product and timing of when you could potentially get some Medicare coverage for it.
Sure. Within each of these channels, we're going to start off with this in our DTC because this will initially be cash pay as we're working towards the reimbursement. We'll work towards the private reimbursement. We'll work towards Medicare reimbursement. Those will be somewhat in parallel, but they take time. It also is worthy to note that it's a razor-razor blade model. We have the capital components that will be the Simeox itself, the box. We also have the disposable components. There will be a monthly disposable that goes with it. There's an RFID, so it needs to be changed out on a monthly basis. That's an opportunity for us to now have those disposable sales, which we have very little of today at Inogen.
The strategy to go to market is initially through the DTC channel, utilizing some of the prescriber network to be able to create awareness with the physicians. Then as we work through the reimbursement, that'll be potentially into that B2B channel. You'd ask about the timing on that. The timing is going to, when you think about CMS, and it'll be a little bit fluid with the private pay. With CMS, you have two times during the year to be able to file for that. You have a January, and then you have a July opportunity. We anticipate being able to get the necessary details done, clinical work to support it, to submit in 2026. Although we're not really guiding it when we expect to be able to submit in 2026. There have been some changes at CMS.
There's been a lot of people that have left, and there's a bit of an unknown as to what that will mean for timeline impact. We see being able to file in 2026.
Yeah. Okay. All right. I want to move on to supply chain. Again, I know the tariff situation could change things, but at least up until these things get sort of implemented here, can you just give us an update on your supply chain? I think it has mainly improved or kind of stabilized from where things were a few years ago coming out of the pandemic. I guess a secondary question, maybe this is more for Mike, but have you worked through all the higher-cost inventory from those spot buys and stuff of semiconductors that you had to do a few years ago?
Yeah. Thanks, Mike. I'll take those questions. First of all, in terms of our supply chain, we're really comfortable. We think we're in a really good place with it. We've had no problem sourcing materials or components. We don't foresee that changing. We did talk a little about tariffs. Kevin talked about that earlier. I will reiterate that as a detail today. We don't see them having a material impact on our business. Of course, it's very fluid, so we'll continue to monitor that, and we'll act accordingly. As Kevin also mentioned, we have manufacturing in the U.S. and Plano, Texas. We also have manufacturing in the Czech Republic. We believe those things help us really mitigate risk pretty well. In terms of your question about the costs on the balance sheet or premium cost, we have worked through most of those.
I think we talked about it last year quite a bit when we were looking at gross margin year over year and the impact that they had in 2023. We do have a little bit of those premiums on the balance sheet that we expect to work through in 2025, which was baked into our guidance. As I mentioned in our Q4 call, our earnings call, less than 100 basis points impact. We will work through those during the course of 2025, again, not a significant impact to us.
Okay. Just as a follow-up to your commentary on the tariff stuff, I know you have the plant, as you said, in Plano and Czech Republic. I guess I should say plants, but what about your kind of supply chain and raw materials or components? I mean, is there exposure there to those things? Are any of those coming from outside the U.S. where you can see some cost pressures or not from the tariffs, like semiconductors and things like that?
Yeah. I guess I'll start with that when Kevin can jump in. We've been working pretty hard over the last year or so just on second sourcing initiatives, things like that with our supply chain to try to—that does a couple of things, right? It gives us a little bit of a diversification depending on where we're getting, where we're sourcing that from. It also gives us an ability to really work with vendors and leverage one against the other in some cases and get better pricing. We've seen that, actually. We've gotten some benefit of that. We'll see some of that benefit run through 2025, but we'll continue to work on those things. Again, as we looked at the tariffs in general, and I'll just say again that right now, look at this. Everybody knows how fluid this is. It changes daily almost.
We will continue to monitor it. As it stands right now, we do not see a material impact to our business. Of course, like everyone else, we will continue to monitor that. I do not know, Kevin, if you want to add anything.
Yeah. I think the only thing I'll add is also on the logistics with getting those materials to both Plano, Texas, as well as to the Czech Republic. One of the things that we've been able to put in place and avoid is, for example, for the Czech Republic producing for Europe, is to have our supply chain directly shipping into that location so it doesn't have to pass through the U.S. and be hit with potential tariffs there. That does help us reduce our exposure. We think the way that we've managed all of this and set it up through the last year, this may give us an advantage in the future over competition. Especially when you think about products coming in directly from China, wholly assembled and so forth, it is fluid, as Mike has indicated, but we believe this gives us an advantage.
Yeah. I mean, that's a really good point, I guess, on the competition. Just in the POC space specifically, do you have a feel for how many of the competitors are coming from outside the U.S., China or somewhere else? Is it most of those products, or are there any others that are kind of built in the U.S. like you guys?
Yeah. It is a fair question. I do not want to necessarily quantify that. What I would say is that where we do see the price pressure coming in the market is from Chinese products that come in at a very low cost, arguably low quality. They do not have the eight-year useful life that we do. They do not have the local support. They do not have the advantages that Inogen is able to add to that. There are certainly products that are coming in off the boat from China that would go directly to a B2B, for example. This may give us an advantage.
Okay. Got it. All right. You have launched some new products as well in the POC space. I think Rove 4 and Rove 6. Just wondering if you could give us an update on how those are doing and just remind us of when they were launched.
Certainly. We have the Rove 4, which was launched last year. We brought that in late last year, which is our newest one, the Rove 6 in the year prior. Those are our two flagship POCs right now. They had replaced the G4 and had replaced the G5. The Rove 4 is just the target on this one are patients who are a little bit earlier in their disease state, patients who are highly mobile but need to have oxygen when they're active, when they're out and they're living their lives. The Rove 6 is for patients that are a little bit more advanced, still have the mobility. They do not want to drag the oxygen tanks around with them when they're moving. They still want lightweight. They want long life.
The Rove 4 weighs, that's a 2.9 pounds POC, six hours of battery life, which of course can be extended with additional batteries, plug it in to recharge on the go into your car or what have you. The Rove 6, six settings, 4.8 pounds, 13 hours. One of the really interesting things here with the Rove 4, we have people that run marathons, running marathons, excuse me, with somewhat of a small backpack that's in. It's like a hip pack that we have. Super lightweight, enables mobility even extending to marathons.
Okay. Got it. And then just in terms of the pipeline there, I mean, in POC specifically, is there anything that we'll see being launched in the next year or two?
We have not announced any launches that are coming up. We are continuing to focus on extending our pipeline and maintaining competitive advantages there. One of the things that we have been putting out and we have been hinting towards is also focusing on the connected components of that, the digital health aspects. We do have some additional launches that we will be talking to you later in this year.
Yeah, I mean, I've heard you guys talk about that. One question there would be on that connectivity feature. I mean, is that mainly like a software upgrade? Is that something that could be backwards compatible with some of the later, like the Rove 4 and Rove 6, the newer POCs that you put out there, or is it something where the customers would have to buy, like it's only going to be on production from a certain point going forward?
It is something that's backwards compatible. We do have on the Rove 4s and the Rove 6s that we're selling, even going back to the G5s, we do have connected components that are in there. We have Bluetooth capability, which could connect to the devices. It enables us to have better communication with the patients. It allows the patients to be able to see the status of their device more effectively. It allows them—we have portals for the patients to be able to go online, order accessories, engage with the people at Inogen. It gives us that more closeness, but it is also setting us up for futures that I won't necessarily get into now.
From a B2B standpoint, it also enables them to do troubleshooting on devices remotely, reducing the expense if they have to get a device back from the field. If it is something that is simple, they can just send, for example, a column replacement to a patient that they can install themselves rather than having to pick it up and do a replacement. That enables them to have better fleet management and can also reduce the cost, which also sets us up as a better partner.
Okay. Got it. I want to ask some questions on some of your kind of business categories. Starting with DTC Rentals, the rentals business prior to, I think, when you joined the company, had gone through a period of pretty strong growth, but that's kind of slowed down. I think more recently, it's been declining. Can you maybe just talk about what's happened there? I mean, can you get this part of the company back to growth, and how are you going to do that?
Mike, do you want to start with this one, or do you want me to?
Sure. I'll be happy to, Kevin. Mike, there's a couple of trends in the rental channel that have had a negative impact. First of all, you may recall we exited a third-party prescriber agreement partnership we had, brought that in-house. That's led to some short-term impacts on sales, but it's provided us a lot more flexibility, greater control over the relationships that we have in that channel. I know Kevin could probably add to that in a moment, but I'll first talk about the second item that's had an impact to that business. We've talked about this a little bit in the past. It's really a mix shift from Medicare to private payer. Our patients being serviced, we're seeing that more and more of them are going to private pay from Medicare. Medicare has a higher monthly reimbursement.
As you're looking at that impact, the patients, if they're the same patients, but they're switching more towards private pay, we're getting less revenue. We're servicing those patients at the same cost. There's an impact to gross margin as well. We've been seeing that trend over the past, say, five quarters. An important distinction from that, I think it's important that's going to serve us well going into the future, is that unlike Medicare patients, the private pay patients do not get capped at 36 months. Now we're seeing that if we were at Medicare patients at 36 months, assuming the patient continues to be on service, we don't get a reimbursement. We continue to serve that patient. Under private pay, we'll continue to get that reimbursement. That'll be something that'll benefit us in the future.
I'll let Kevin talk a little bit more, I think, about that prescriber channel.
Yeah, certainly. This goes back to that third party that we had exited. It was expensive. We did not see that as contributing profitably to the organization. We downsized that group by exiting that relationship, and we brought in the best reps from that group directly in-house. It is a smaller, more focused team. That is something that we have been focusing on, doing the right things, controlling that sales channel and building that up for profitability. We also see that as calling on the prescribers as an important step when we are launching the Simeox because it is the same prescribers. This team is directly in front of these physicians that can help build awareness and demand for that future.
Okay. Thanks. Mike, sorry, when you say private pay, is that essentially that the patients are moving from straight-up Medicare to Medicare Advantage plan or something like that, or is it something else, like younger patients?
Yeah, that's a big part of it. The Medicare Advantage would be inclusive and private pay. It would be inclusive of whether moving to a private pay insurance or a Medicare Advantage.
Okay. All right. Just moving on to DTC sales. Kevin, I think you said earlier in the call that you'd reduce the sales headcount there. I understand that that's kind of creating some headwinds in that business. Maybe you could just talk about kind of where things stand with DTC sales and when you expect things to stabilize there. I think you probably lapped those headcount reductions mid-middle of this year or something like that. Is that right?
That's right. That's right. We see this team as we have it now stabilize going forward. It would be an unfavorable comparison when you think of that headcount on this first half of the year. The second half of the year would be a more favorable year-on-year comparison with the people and the team that we have in place. We are, through that organization, completing the rollout in the first half of this year of that patient-first initiative. As a reminder, what that is, is when a patient calls and wants to have an Inogen, we would focus that team historically on cash sales. If that patient was not right for a cash sale purchase of an Inogen, they would then transfer over to another group who would come back to reconnect with the patients and explore insurance opportunities.
As you can imagine, we lost a lot of contact with patients in that type of a handoff. Those are missed opportunities for us. What we are doing today is we have the right incentives and the right training in place, and we're rolling out that training process to have our sales organization focus on what's best for the patient the first time that they call. Exploring both cash options as well as insurance coverage options, training them on how to evaluate patients for insurance coverage. We see that as an opportunity to help us grow. The rental patients are the month-to-month covered by insurance. The cash sales, of course, is all upfront.
Also within that channel, Mike, will be in the second half of the year is the opportunity to be able to bring in that new Inogen branded stationary concentrator as a lower-cost option versus the Inogen At Home device that we have, which is very premium price, very specific patient population, but allows us to extend that opportunity for other patients.
Okay. Got it. Moving on to the B2B business, I mean, in contrast to the DTC side, this has seen some really strong growth. Maybe you could just give us an update on this business and kind of what you're seeing from the customers, particularly some of the larger regional national regional HME companies. We just did a survey. It looks like they're continuing to transition from tanks to POCs. I mean, are you seeing that? Kind of is it accelerating at all, or?
That is what we've been seeing as well. That for us is opportunity. The larger opportunity for Inogen in the portable concentrator market for the future is not a competitive which device, us versus the competitive POC, but it's the POC versus the tank. As we see the B2B partners shifting more towards the portable concentrators, driven by a couple of things. It's driven by, one, the patients specifically asking for a POC. When they do ask, they ask for an Inogen. That is a good value in the advertising that we continue to do and the brand awareness that we continue to create. That is an opportunity to gain more B2B business in the future. The only other option, of course, is the tanks that the HMEs traditionally provide patients. They have an investment that's in there.
They have to work through getting those off of the books. What we're continuing here is more of a desire to go to the POCs for the patients in the future. We are seeing that happening. That's one of the reasons why we're also focused on digital health offerings to support our B2B partners and continue to set us up as the product of choice.
Okay. Got it. Now I want to move on to some financial questions. I guess your guidance, as you mentioned earlier, implies kind of 5-6% growth for this year. You grew 6% last year. Should we think about Inogen as a mid-single-digit growth company? You mentioned kind of aspiring to double digits. What's it going to take to get to double digits growth?
Yeah. I would start, Mike, by saying we don't categorize ourselves as a mid-single-digit growth company. It's certainly not our goal. We've talked a lot about the Yuwell collaboration representing really huge opportunity for us to accelerate that timeline to double-digit revenue growth. We've also talked about that taking kind of a multi-year process. This year, we do expect to have some revenue from that transaction, but it's not expected to be significant. We do look at that as a huge impact, and we're excited about where we think we can be with it. In terms of kind of taking that to the next level, certainly the Yuwell collaboration, even beyond the expectation this year of the stationary oxygen concentrators, a lot of products in there we can analyze and look at and determine which ones we think are going to fit our portfolio that we're building.
We also believe the Simeox commercialization, Kevin talked about a little bit earlier, and the additional digital offerings are going to all help us get to that point and help us sustain that in the future. At this point, as we said, we've kind of given the guidance for next year. We haven't gotten into too much beyond that, but we're really excited about those things helping us get there.
Okay. Got it. Just looking at gross margin, you guided to, I think, 43-45%. That is down a little from last year. I think you were at, sorry, 46%. To be fair, I know you are expecting improving EBITDA, but just in terms of gross margins, that is. Just in terms of your gross margins, I guess, why is it down a little? I know there is a lot of moving parts here between mix and things like that.
Sure. Yeah, Mike, that's right. As I think I mentioned in our Q4 call, in 2024, we had a one-time positive adjustment, about 50 basis points to the full-year gross margin. If you're kind of looking at that and say, if you want to start with 2024 as a baseline, you kind of look at that kind of 50 basis points impact. I talked earlier about some of the headwinds that we have, some of that being the premium still on the balance sheet that we're going to cost out this year. Again, those are one-time in nature as well. Those won't repeat. You mentioned the B2B business, right? The B2B is what's driving our growth. Clearly, ASPs are lower when we're selling volume like that. That is a challenge to our gross margin.
We also have the other side of that, which is some initiatives we're looking at, and we have some of those built into our guidance in terms of favorability to help drive down our cost per unit. We will see hopefully more of those as the year goes on and we can get these initiatives executed. I think it's important to kind of talk a little bit about when we're looking at this business and we're looking at B2B business in 2024 and 2025, driving that growth at the lower gross margin percentages impacting our gross margin. It's important to note that we're accelerating that growth without significant incremental costs, right? That's why we're seeing a lot more gross profit dollars drop down. That's why we're looking at in 2024, for example, we improved our profitability by almost $30 million.
We guided to approaching adjusted EBITDA neutral in 2025, which is about another $9 million improvement. That is a big thing that I think is important to note, that gross margins will be challenged when we do more B2B. On the bottom line, we are getting to accelerating that growth of profitability.
Yeah. Okay. Just as a final question, that leads into my next question, which was on OpEx. Operating expenses have come down significantly. Now, I mean, I'm looking at things on a GAAP basis, but it dropped from $236 million in 2023 to $197 million in 2024. I know there might have been some one-offs in there because of GAAP or whatever, but just it looks like it was mostly in G&A. Maybe you could just talk about what you're doing there. Is that something we should expect to see further on a dollar basis even?
Sure, Mike. I'd be happy to answer that. A big chunk of that reduction from $236 million on OpEx in 2023 to about $197 million, a lot of it was related to a one-time charge we had taken. Even if you exclude that, we're still looking at a 3% drop year over year. Just in terms of the overall comment on OpEx, what I would say is we've been preaching about every dollar we spend is an investment in the company. It's not just something we say in these calls. It's a culture we're driving. We're seeing that. Our expectation is to continue to drive down those costs. We do expect OpEx to be lower in 2024. Twenty-five, rather, sorry.
Yeah, understand. Okay, great. Thanks, guys. I think we're going to have to wrap up there. We're out of time. Hope you have some good meetings at the conference.
Thank you, Mike.
Appreciate it.