Good day, ladies and gentlemen and welcome to the Inogen 2014 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to Lee Savo [ph], Investor Relations. Ma'am, please go ahead.

Thank you for participating in today’s call. Joining me from Inogen is President and CEO, Ray Huggenberger; and CFO and Founder, Ali Bauerlein. Earlier today, Inogen released financial results for the fourth quarter and the year ended December 31, 2014. As you know, Inogen distributes its earnings release to its Investor Relations website located at www.inogen.com/investor. Before we begin, I want to remind you that our comments today will include forward-looking statements within the meaning of federal securities laws. Forward-looking statements include among others statements regarding our expectations, goals or intentions, including but not limited to our assessment of the impact from competitive bidding under new Center for Medicare and Medicaid Services, CMS rules and regulations, our expectations regarding our pricing and sales strategies, and future avenues for growth. Our current views with respect to our 2015 revenue, cash flow, net income, and adjusted EBITDA guidance, as well as our estimate of our 2015 effective tax rate, current estimates of the Audit Committee investigation cost, our expectations regarding the classification timing and launch of our fourth generation portable oxygen concentrator, the Inogen One G4, our assessment of the impact of the strengthening U.S. dollar and our assessment of the timing and size of international sales. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections, and are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements. Our businesses and any financial projections provided today are subject to numerous and continually changing risks and uncertainties, including the possibility that Inogen will not realize anticipated revenue, the impact of reduced reimbursement rates in connection with the implementation of competitive bidding under new CMS rules, the possible loss of key employees, customers or suppliers, intellectual property risks…

Thank you, Lee [ph]. Good morning everyone and thank you for joining our fourth quarter 2014 conference call. I'm pleased to report another solid quarter of revenue growth which provided a strong finish to 2014 for Inogen. We exceeded our revenue guidance for 2014 achieving total revenues for the year of $112.5 million. Both adjusted EBITDA and net income were also higher than our expected range for the full fiscal year coming in at $24 million and $6.8 million respectively. Fourth quarter 2014 revenues were $29.1 million reflecting 47.3% year-over-year growth. This was primarily due to stronger than anticipated growth in our domestic and international business-to-business sales channels. 2014 was a transformational year for Inogen. We completed a successful IPO in February and a secondary follow-on offering in October. On the product development front, we expanded our product portfolio with the receipt of FDA clearance and release to market of the Inogen At Home, the lightest 5 liter per minute continuous flow oxygen concentrator on the market today. Our Inogen One G3 portable oxygen concentrator received a positive reimbursement decision in two major European markets, France and Germany. We currently sell our products in 44 countries outside the United States. Lastly, we successfully expanded our head count to include 129 in-house direct-to-consumer sales reps, 12 field sales reps targeting physicians' referrals and 5 employees in business-to-business sales as of December 31, 2014. Many of these additions came in the fourth quarter of 2014, so the growth we experienced during 2014 is a result of the shift in sales strategy we made at the end of 2013 which resulted in productivity improvements throughout 2014 and only minimal contribution from these hires in the fourth quarter. I am very proud of these results we achieved in 2014 and confident that we have…

Okay, thanks Ray and good morning everyone. During my prepared remarks I will review the details of our full year 2014 and fourth quarter financial performance and then I will update our current guidance for full year 2015. As Ray reported, for the full year 2014 total revenues were $112.5 million representing 49.2% growth over 2013 and above our guidance range for the year of $106 million to $110 million. The better than expected results in the fourth quarter were primarily due to the continued strength of our business-to-business sales both domestically and internationally. For the full year 2014 revenue from sales were $73.1 million reflecting 62.8% growth over the prior year. Revenue from rentals in 2014 were $39.4 million representing 29.2% growth over the prior year. For the full year 2014 business-to-business sales in the U.S. were $19.3 million, up $9 million reflecting growth of 87.2% over 2013 and represented our fastest growing segment in year-over-year percentage increase. International business-to-business sales for the full year were $24.4 million, up $7.7 million reflecting 45.8% growth over 2013. Direct-to-consumer sales for the full year 2014 were $29.3 million, 64.6% higher than 2013. This segment produced the most revenue dollar growth year-over-year with an increase of $11.5 million primarily driven by the sales strategy shift towards retail sales and the increased productivity of the direct-to-consumer sales force. Rental revenue for the full year of 2014 was $39.4 million, a 29.2% increase over 2013 in spite of the significant headwind associated with the shifting sales strategy and the decrease in Medicare reimbursement rates. Our business-to-business domestic sales channel increased as a percentage of total revenue for the full year of 2014 to 17.2% from 13.7% and our direct-to-consumer sales channel increased to 26.1% from 23.6%. Our rental channel was still our largest individual…

All right, thanks, Ali. I will keep it short because not much is changing from our strategy that we have employed so far. We entered 2015 in a position of strength stemming from the continued traction we have achieved in developing and bringing to market a best-in-class product portfolio of innovative oxygen concentrators. We have multiple avenues with the potential to drive our growth including the continued expansion of our direct-to-consumer and physician referral networks, increasing adoption across our domestic and international business-to-business channels, additional private player contracts and new products like the Inogen One G4 and the Inogen At Home. We look forward to updating you throughout the year on our progress and Ali and I will schedule additional investor meetings after our first quarter conference call which we expect to do before the May 15, 2015 deadline. With that, I will now open it up for questions. Operator?

Thank you. [Operator Instructions] And our first question comes from the line of Mike Weinstein of JPMorgan. Your line is now open. Please check your mute button.

Can you hear me?

Yes, now we can.

Okay, sorry for that guys. So, first question just with the resolution of the Audit Committee investigation what comes next and the expected release of the 1Q results will be when?

Yes, so we do expect to release before the May 15, deadline for Q1, so we are in process of preparing those financials as well. The big next step in terms of the results of the investigation is implementing our remediation plan. So that includes some new and revised control procedures in that order review process as well as compliance program, supplemented document retention policies on our sales documentation, additional core release screening through data analytics to confirm compliance with our policies and improved processes and controls in our customer relationship management software system.

Perfect. Ray, you talked about the size of the DTC sales force today, can you just talk about how you are thinking about that as you've built it out over the last 18 months and kind of where you see that going?

Yes, so I mean, in 2014 because we made that shift in the sales strategy, we got a lot of productivity improvement in the first six to nine months of the year and almost all of our hiring or expansion of the headcount of the sales force was in the fourth quarter. We don’t have the benefit of a new productivity step change in 2015, so as we expand to 2015 it should be less lumpy and a little bit more straight lined throughout the year.

Okay. And you made a comment Ray on the call about G4, I think you said that it wouldn’t require 510(k) approval, did we hear that correctly?

That is correct, that is correct, because it is essentially just a new version, a letter to file is sufficient.

Okay. Great, I will jump back in queue, thank you guys.

Thank you.

Thank you.

Thank you. And our next question comes from the line of Margaret Kaczor of William Blair. Your line is now open.

Hi, good morning guys. Just a few questions from me, on the audit and the reps that were terminated, have you guys already hired those replacements? I mean, does this change any of your annual hiring plans when you started before this event?

Yes, it really doesn’t change our strategy of continuing to hire reps, so it will five reps out of 129 basis about 4% of our rep population, so its within normal churn and yes, we have replaced them and continue to grow that sales force.

Okay, and then in terms of the private label partnership that you guys have with Applied Home Healthcare, how is that contract worked up this year, is it above or below expectations and how much of that contract is in your guidance?

We have included, we did know about the Applied Home Healthcare when we put out our original guidance for 2015, so we knew that that was a portion of it. Obviously, it is still early in the development of that relationship and something that will take many quarters to fully reach full potential. So it is a contributor to guidance, but it is something that will take some time to develop and it is on track. We have seen traction there thus far.

And in terms of how many new DME customers that you guys may have now, whether as a result of that contract or not, but may be how many of those, how many DME customers have bought your products before at the launch of the OxyGo and then after and i.e. going into how much of the Greenfield opportunities just for you guys?

Well, I mean it is somewhat of a, I don’t know if I would call it a Greenfield, but I mean the fact of the matter is that our business model will preclude a number of DMEs to buy directly from us and believe it or not, some will buy from OxyGo we knowing fully wall that it is an Inogen product. So we will see how big this animal gets and as Ali said, it’s going to take quarters to develop, so far it’s been meeting our expectation. And we have not really seen a meaningful decline in the number of DME customers buying directly from us.

Okay and then last one from me, can you guys walk us through the sales growth margins, may be in even more detail? This also happened in 2013, it looks like and it bounced back pretty quickly. So is this a similar situation or should we expect gross margin to come in, in 2015, and then wouldn’t you get leverage on the sales and marketing line despite the lower gross margins since you are selling B2B and have fewer sales and marketing expenses? Thank you.

Yes, so on the gross margin side, yes, the margin obviously did come in lower in the quarter compared to where we had been trending. It really is because of those strong business-to-business sales that we had where we do give price on the top-line, but we do see very few operating expenses associated with that portion of business, so they are still profitable sales for us. We also had some sell off of assets that we were no longer wanting to redeploy into our fleet and those are done at low ASPs, so that does have a diluting impact on that margin, but those are kind of one-time impacts as you move through that. I mean, go forward and looking at 2015 gross margin, obviously we don’t give specific guidance on gross margin, but it is most heavily impacted by the mix of direct-to-consumer and business-to-business. So, as we see items, one of those areas perform stronger than the other, you would see margin either increase or decrease proportionally to that on the gross margin side. On net margin side, you see a similar net margin profile where in the end both businesses are quite profitable for us.

Yes and as far as the bounce back is concerned Margaret, in the first quarter 2014 we had a bit of a benefit from the shift in our sales strategy that pushed the direct-to-consumer retail sales up. If you remember we had 60% to 70% growth in that area in the first quarter last year. We’re probably not going to see the same benefit of this bounce, the step change reflected in the margin, so I wouldn’t necessarily expect the same bounce that we experienced in 2014 to happen again in 2015.

Thank you.

Thank you. And our next question comes from the line of Danielle Antalffy of Leerink Partners. Your line is now open.

Thank you so much, good morning guys and congrats on another great quarter. You know obviously, your business-to-business segment is growing very rapidly and I was hoping you guys could comment on what you are seeing in the competitive environment as far as some of these DMEs taking more notice clearly, at least some of the mom-and-pop shops are, but at what point do the larger DMEs or Lincares' of the world take notice and get more competitive here in your view?

Well, it’s very difficult for us to predict what Lincare is or is not going to do. But if you look at the overall trend, what you can see is that POCs continue to penetrate the market, so we see that on the Medicare data. We see that on our business-to-business growth rate. I mean we are far away from any meaningful penetration that would slow growth down, but we see that the adoption rate is increasing. Now, whether or not that is because other DMEs are actually making a conscious decision to employ POCs as the default mode of providing oxygen services or whether or not that is a direct response to increasing patient demand is pretty much anybody’s guess. Our interpretation of the relatively small penetration numbers is that it is still first and foremost driven by patient demand and that the DME industry is responding to some extent to that patient demand, but more in a defensive way than in a provocative way.

Great, okay that makes a lot of sense. And then obviously international has been strong for you and you recently got reimbursement for the G3 in Germany, just wondering if you could comment on any potential expansion from a geographic perspective that we should be cognizant as we head into 2015?

Yes, so there is no additional reimbursement on the horizon that we haven’t already talked about with Germany and France coming on board and seeing the growth of those areas. It’s really, for international driving it through our partners. We have great partners especially in Europe. Europe is about 80% of that overall international line, so it’s continuing to work with our partners to drive conversions from tank and liquid based systems. There are opportunities for us to continue to expand in other areas outside of Europe. We take those sales at this point pretty opportunistically, but eventually those are large markets that we would consider going after, but with over half of the market being in the United States, the focus is still on the U.S. for us.

Okay, that’s fair, thanks so much guys.

Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Tom Carroll of Stifel. Your line is now open.

Hey, good morning.

Good morning.

Good morning, Tom.

So, just a couple of questions, it looks like the inappropriate documentation crossed into the rental business as well to some degree. I was wondering if you could tell us you know how much may be affected that part of the business and does this increase in your mind the likelihood of CMS looking into this a bit more?

So, we didn’t break out specifically, I mean 0.3 million in total is pretty immaterial regardless of the breakout between rental and sales. We have in the situations where any refunds were required we have done those, so we don’t believe this will lead to any further action from CMS or anybody else. The numbers we are talking about are very small and they were very minor issues overall.

All right, great, and then secondly, given your growth in 2014 and what you have done around the sales force, I wonder if you could comment a bit more on any kind of quarterly seasonality that we might see different in 2015 then prior years. And Ray, I think you mentioned earlier that you know things should be less lumpy was that correct?

Yes, in terms of the additional expansion of the sales force it should be less lumpy. As I said last year, almost all of our expansion happened in the fourth quarter. That would certainly be way more spread out this year. In terms of the seasonality, we don’t expect the seasonality to be fundamentally different in 2015 than in previous years. We have always seen a relatively weak fourth and first quarter and the relatively strong second and third quarter and we are not expecting it to be any different this year. The amplitudes may change a little bit from year-to-year, but in principle, I think the same distribution or very similar distribution should apply.

Great, thanks for that.

Thank you. And our next question comes from the line of Mike Matson of Needham & Company. Your line is now open.

Hi, good morning, thanks for taking my question. I guess, I just wanted to start with the recent changes to some of the bidding rules that were included in this "doc fix" bill. I know it’s going to be a few more rounds before any of that sort of kicks in, but with the binding bids and so forth, do you see that affecting Inogen at all, is it a positive, is it a negative?

It’s kind of a neutral. I mean, we see it as a good thing that CMS is looking to continue to refine that bidding process and making it fair. So, we are supportive of the changes that were made. Basically what this will require is bidders will get surety bonds for each CBA, so you will be getting 100 or so surety bonds of $50,000 to $100,000 each. And if the supplier bids lower than the median price, they either have to accept the contract or forfeit their surety bond. So this should reduce the likelihood of low ball bids coming in with people just hoping to win a contract because they will be binding in nature.

Okay, thanks. And then can you just comment on, I didn’t hear you, I might have missed it, but I didn’t hear you quantify the impact that you expect from foreign exchange on both revenue and earnings during 2015, what's sort of baked into your guidance here, and has that I guess increased since you gave the guidance, I would imagine it has increased since you gave the original guidance back in December?

Right, so in 2014 we sold almost exclusively in dollars. We have now shifted to begin to sell in euro to some distributors in key accounts. So, we’ve shifted that and then we are putting appropriate hedging strategies in place on the euro, so we will see some impact of foreign exchange in 2015. We don’t expect it to be significantly material, but we have seen some price pressures associated with the strengthening dollar.

Okay and then…

And that’s included in the guidance given.

Okay. And then do you, I know that you periodically do these pricing tests, do you expect to do any of those in 2015? And is there any, what’s the possibility that we could see your prices change on either the portable or at the At Home unit?

Well, you never know what the outcome of any pricing trial, this is why you're doing a trial. So, what we can say is, for I think for the last two trials we have, the result was that we should not change our retail pricing. Yes, you can expect that we are going to do another one sometime this year. And, I mean, I can’t predict whether the elasticity has shifted or not. If it hasn’t shifted then we know that we're good with our current retail pricing. If it has shifted then we will trade some margin dollars for volume.

Okay. That’s all I have, thanks a lot.

Thank you.

Thank you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Ray Huggenberger for any further remarks.

Thank you. So, I would like to thank everybody for joining us today. It’s been a long time coming. We've waited for this call more than anyone of you have and now that we are back on track we definitely plan to release Q1 in time, so that should be in not too distant future. And we look forward to talking to you then and hopefully seeing some of you as we get back out on the road and talking to investors. So, for now thanks for coming in early today and joining us for this call and we will talk to you again soon. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Have a great day everyone.