Inogen, Inc. reported financial results for the three-month and twelve-month periods ended December 31, 2017.
Fourth Quarter 2017 Highlights
- Total revenue of $63.8 million, up 25.4% over the same period in 2016
- Sales revenue of $58.4 million, up 37.0% over the same period in 2016
- Rental revenue of $5.4 million, down 34.1% from the same period in 2016
- GAAP net loss of $0.6 million, reflecting a $5.9 million decrease from the same period in 2016
- Non-GAAP net income of $7.0 million, reflecting a 32.5% increase over the same period in 2016 and a 10.9% return on revenue (see accompanying table for reconciliation of GAAP and non-GAAP measures)
- Adjusted EBITDA of $11.6 million, representing 5.8% growth over the same period in 2016 and an 18.1% return on revenue (see accompanying table for reconciliation of GAAP and non-GAAP measures)
- Total units sold were 34,000, an increase of 10,700, or 45.9%, over the same period in 2016
Full Year 2017 Highlights
- Record total revenue of $249.4 million, up 23.0% versus 2016
- Record sales revenue of $225.5 million, up 34.1% versus 2016
- Rental revenue of $23.9 million, down 30.9% versus 2016
- GAAP net income of $21.0 million, up 2.4% versus 2016
- Record non-GAAP net income of $28.6 million, reflecting a 39.3% increase versus 2016 and an 11.5% return on revenue
- Record Adjusted EBITDA of $50.8 million, representing a 17.2% increase versus 2016 and a 20.4% return on revenue
- Record units sold of 128,000, an increase of 36,000, or 39.1%, versus 2016
- 263 inside direct-to-consumer sales representatives as of December 31, 2017, an increase of 86 or 48.6% versus December 31, 2016
“The fourth quarter of 2017 was another successful quarter for us, driven by record sales in our domestic direct-to-consumer channel and strong sales in our domestic business-to-business channel,” said Chief Executive Officer, Scott Wilkinson. “We are executing on our strategic initiatives and remain focused on increasing adoption of our best-in-class oxygen product offerings across all of our sales channels. We believe we should see strong sales growth in 2018 as portable oxygen concentrator penetration increases worldwide. In the fourth quarter of 2017, we continued hiring in our Cleveland facility primarily to expand our direct-to-consumer sales team. In support of our European customers, we began production of our Inogen One G3 concentrators with our new Czech Republic-based contract manufacturing partner, Foxconn.”
Fourth Quarter 2017 Financial Results
Total revenue for the three months ended December 31, 2017 rose 25.4% to $63.8 million from $50.9 million in the same period in 2016. Direct-to-consumer sales rose 57.5% over the same period in 2016, ahead of our expectations and primarily due to an increase in the number of sales representatives, marketing expenditures, and sales representative productivity. Domestic business-to-business sales also exceeded our expectations and grew 46.1% over the same period in 2016, primarily driven by continued strong demand from our private label partner and traditional home medical equipment providers. International business-to-business sales in the fourth quarter of 2017 declined 0.8% from the comparative period in 2016, primarily due to no major European tenders being awarded to our provider partners in the fourth quarter of 2017. Additionally, the fourth quarter of 2016 included sizeable unit orders from South Korea that did not repeat in the fourth quarter of 2017, creating a difficult comparable. Sales in Europe represented 84.3% of international sales in the fourth quarter of 2017, up from 83.3% in the fourth quarter of 2016. Rental revenue in the fourth quarter of 2017 was $5.4 million compared to $8.2 million in the fourth quarter of 2016, representing a decline of 34.1% from the same period in the prior year, primarily due to the $2.0 million rental benefit recorded in the fourth quarter of 2016 associated with the 21st Century Cures Act (Cures Act), which increased reimbursement rates retrospectively for some Medicare beneficiaries, and our continued focus on direct-to-consumer sales versus rentals. Rental revenue declined to 8.5% of total revenue in the fourth quarter of 2017 from 16.2% of total revenue in the fourth quarter of 2016.
Total gross margin was 48.2% in the fourth quarter of 2017 versus 48.5% in the comparative period in 2016. The decrease in total gross margin was primarily due to the $2.0 million Cures Act benefit recorded in the fourth quarter of 2016, which contributed 2.1% to total gross margin in the fourth quarter of 2016. Sales gross margin was 50.5% in the fourth quarter of 2017 versus 49.9% in the fourth quarter of 2016. The sales gross margin percentage improvement was primarily attributable to an increased sales mix towards direct-to-consumer sales and lower cost of goods sold per unit, mostly due to lower materials costs, partially offset by decreased average selling prices. Rental gross margin was 23.2% in the fourth quarter of 2017 versus 41.4% in the fourth quarter of 2016. The decrease in rental gross margin was primarily due to the $2.0 million Cures Act benefit recorded in the fourth quarter of 2016, which contributed 19.2% to rental gross margin in the fourth quarter of 2016.
Total operating expense increased to $25.6 million, or 40.1% of revenue, in the fourth quarter of 2017 versus $18.5 million, or 36.4% of revenue, in the fourth quarter of 2016 as the Company continued to make investments it expects will increase future revenue growth.
Operating expense included research and development expense of $1.4 million in the fourth quarter of 2017, which was up slightly from the $1.2 million recorded in the comparative period in 2016, primarily due to increased product development expenses. Sales and marketing expense increased to $15.2 million in the fourth quarter of 2017 versus $9.3 million in the comparative period in 2016, primarily due to increased advertising expense and increased personnel-related expenses due to salesforce additions. General and administrative expense increased to $9.0 million in the fourth quarter of 2017 versus $8.0 million in the comparative period in 2016, primarily due to increased personnel-related expenses.
In the fourth quarter of 2017, Inogen’s provision for income taxes totaled $6.4 million, representing an effective tax rate of 110.5%. In the fourth quarter of 2016, Inogen’s provision for income taxes totaled $0.6 million, representing an effective tax rate of 9.8%. As a result of the Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017, Inogen reported a $7.6 million non-cash income tax provision expense associated with the revaluation of the deferred tax asset. Our effective tax rate in the fourth quarter of 2017 also included a $3.5 million decrease in provision for income taxes related to excess tax benefits recognized from stock-based compensation compared to $1.7 million in the fourth quarter of 2016. Excluding both the deferred tax asset revaluation expense and the stock-based compensation benefit, Inogen’s non-GAAP effective tax rate in the fourth quarter of 2017 was 40.0% versus 39.7% in the fourth quarter of 2016.
As a result of the TCJA, Inogen reported a GAAP net loss of $0.6 million in the fourth quarter of 2017, primarily due to the $7.6 million non-cash income tax provision expense associated with the revaluation of the Company’s noncurrent deferred tax asset. Non-GAAP net income for the fourth quarter of 2017 increased 32.5% to $7.0 million from $5.3 million in the fourth quarter of 2016.
Adjusted EBITDA for the three months ended December 31, 2017 rose 5.8% to $11.6 million, or 18.1% of revenue, from $10.9 million, or 21.5% of revenue, in the fourth quarter of 2016.
Cash, cash equivalents, and marketable securities were $173.9 million as of December 31, 2017 compared to $163.1 million as of September 30, 2017, an increase of $10.9 million in the fourth quarter of 2017.
Financial Outlook for 2018
Inogen is increasing its full year 2018 total revenue guidance range to $298 to $308 million, up from $295 to $305 million, representing growth of 19.5% to 23.5% versus 2017 full year results. The Company expects direct-to-consumer sales to be its fastest growing channel, domestic business-to-business sales to have a solid growth rate, and international business-to-business sales to have a modest growth rate, where the strategy will continue to be heavily focused on the European markets. Inogen expects rental revenue to be relatively flat in 2018 compared to 2017 as the Company continues to focus on sales versus rentals.
Further, the Company is also increasing its full year 2018 GAAP net income and non-GAAP net income guidance range to $36 to $39 million, up from $31 to $35 million, representing growth of 71.4% to 85.7% compared to 2017 GAAP net income of $21.0 million and growth of 26.0% to 36.5% compared to 2017 non-GAAP net income of $28.6 million. The Company estimates that the decrease in provision for income taxes related to excess tax benefits recognized from stock-based compensation will lead to a decrease in provision for income taxes of approximately $8.0 million in 2018 based on forecasted stock activity, which would lower its effective tax rate as compared to the U.S. statutory rate. Excluding the $8.0 million decrease in provision for income taxes expected in 2018, the Company expects an effective tax rate of approximately 25%, down from its previous estimate of 37% due to the TCJA. The Company expects its effective tax rate including stock compensation deductions to vary quarter-to-quarter depending on the amount of pre-tax net income and on the timing and size of stock option exercises.
Inogen is maintaining its guidance range for full year 2018 Adjusted EBITDA of $60 to $64 million, representing 18.0% to 25.9% growth compared to 2017 results.
Inogen also expects net positive cash flow for 2018 with no additional equity capital required to meet its current operating plan.
Conference Call
Individuals interested in listening to the conference call today at 1:30pm PT/4:30pm ET may do so by dialing (855) 238-8123 for domestic callers or (412) 317-5217 for international callers. Please reference Inogen (INGN) to join the call. To listen to a live webcast, please visit the Investor Relations section of Inogen’s website at: http://investor.inogen.com/.
A replay of the call will be available beginning February 27, 2018 at 3:30pm PT/6:30pm ET through 3:30pm PT/6:30pm ET on March 6, 2018. To access the replay, dial (877) 344-7529 or (412) 317-0088 and reference Access Code: 10116324. The webcast will also be available on Inogen’s website for one year following the completion of the call.
Inogen has used, and intends to continue to use, its Investor Relations website, http://investor.inogen.com/, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. For more information, visit http://investor.inogen.com/.
