Welcome to Inogen’s Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, August 7, 2023. I would now like to turn the call over to Agnes Lee, Senior Vice President of Investor Relations and Strategic Planning.

Thank you, Doug. Hello, everyone, and thank you for participating in today’s call. Joining me on the call today are President and CEO, Nabil Shabshab and CFO, Kristin Caltrider. Earlier today, Inogen released financial results for the second quarter of 2023. This earnings release is currently available in the Investor Relations section of the company’s website, along with a supplemental financial package. As a reminder, the information presented today will include forward-looking statements, including, without limitation, statements about our growth prospects and strategy for 2023 and beyond, expectations related to our financial results for 2023, expectations regarding increasing productivity of our internal and external sales teams, progress of our strategic initiatives, including innovation, our expectations regarding the market for our products on our business and supply and demand for our products in both the short term and long term. Forward-looking statements in this call are based on information currently available to us as of today’s date, August 7, 2023. These forward-looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic reports filed with the SEC. Actual results may vary, and we disclaim any obligation to update these forward-looking statements, except as may be required by law. We have posted historical financial statements and our investor presentations in the Investor Relations section of the company’s website. Please refer to these files for more detailed information. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain non-cash items and other expenses that are not indicative of Inogen’s core operating results. Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented in tables within our earnings release. With that, I will turn the call over to Inogen’s President and CEO, Nabil Shabshab. Nabil?

Thanks, Agnes. Good afternoon and thank you for joining our second quarter 2023 conference call. During today’s call, we would like to work our way through high-level comments around our performance in the quarter, how that relates to our outlook for 2023 and provide an update on our progress and mitigation plans. Then we will transition to Kristin, who will walk through the details of our financial performance and our annual guidance before we take your questions at the end of the call. In summary, while we have made progress with the execution of our commercial strategy, we are disappointed with the performance this quarter. Our revenue for the quarter fell short, mainly due to two factors: due to the headwinds primarily with a few key accounts, predominantly in the U.S. and slower-than-expected progress on our DTC productivity initiatives despite continued sequential improvement. Considering the shortfall this quarter and understanding that our mitigation actions might take longer than expected to materialize, we are resetting expectations for revenue and adjusted EBITDA for the balance of the year. 2023 revenue is now expected to be within the range of $315 million to $320 million. Despite the decrease in revenue, our focus on cost containment allows us to limit the impact on adjusted EBITDA hence, expecting the full year to be a loss in the range of $20 million to $25 million. I would like now to spend some time talking through factors that impacted our revenue in the quarter and the actions that we are taking. We believe patient demand for long-term oxygen therapy remains stable and is slowly recovering. However, in the B2B channel, some customers continue to face pressures relating to capital deployment, cost of borrowing, while focused on margin accretion. Coupled with aggressive competitive pricing activities, this continued to…

Thank you, Nabil, and good afternoon, everyone. Unless otherwise noted, all financial comparisons are to the prior year comparable period. Total revenue for the second quarter of 2023 was $83.6 million, a decrease of 19.1% versus the prior period. The decrease was driven primarily by lower international sales and lower direct-to-consumer sales, partially offset by an increase in U.S. business-to-business sales and rental revenue. For the second quarter, foreign exchange, net of hedging, had a negative 60 basis points impact on total revenue and a negative 130 basis point impact on international revenue. On a constant currency basis, second quarter total revenue decreased 18.5%. Looking at second quarter revenue on a more detailed basis, domestic business-to-business revenue increased 63% to $18.3 million in the second quarter of 2023 compared with $11.2 million in the comparable period. It is important to note that the domestic business-to-business revenue was down considerably in the second quarter of 2022 due to supply constraints that limited shipments to the channel. Despite the good growth, we had expected an even larger increase in domestic B2B sales now that the supply constraints have been diminished. International B2B sales decreased 37.8% to $23.3 million in the second quarter of 2023 as compared to $37.4 million in the prior period. Last year, international sales were higher as we prioritized shipments to Europe due to the pending expiration of EU MDD certificates in May of 2022. Given the tough comparable, we expected a year-over-year decrease, but sales were short of our expectations. Direct-to-consumer sales decreased 34.1% to $26.8 million in the second quarter of 2023 from $40.6 million in the prior period, driven primarily by lower sales volume due to fewer inside sales representatives and lower marketing and advertising spend as we continue to drive towards improved profitability in this…

Thank you. [Operator Instructions] Our first question comes from the line of Matthew Blackman with Stifel. Please proceed with your question.

Hi, this is Colin on for Matt. I just wanted to start with one on guidance. What does the guide imply in the broader context of your efforts to turn around the various business lines. Are things just moving slower than you guys anticipated? Or are you encountering new challenges that you may not have foreseen. For example, has anything changed regarding your rep productivity outlook? Thanks.

Thank you, Colin, I’ll take the question. So we are not seeing any new challenges, to your point. In terms of rep productivity, like we indicated, there is a very healthy productivity increase Q2 versus Q1 in the DTC channel as well as the prescriber channel. The challenges with respect to the new guideline mainly relates to B2B and a slower progress in terms of DTC revenue generation. And that is directly related to the lower number of people in the seats. And as a reminder, we had focused on trying to actually achieve both growth and profitability in that channel. The progress is, albeit a little bit slower, but the productivity per rep is actually where we expected it to be and it’s very encouraging in that channel. Again, from my perspective, the B2B challenges are a little bit more pronounced even though there are some in DTC, but the encouraging productivity indications are very positive for us.

Okay. And given those B2B dynamics you just mentioned, should we expect 3Q to take a step back from the second quarter for things kind of start getting a little bit back on track in the fourth quarter. Just what should we expect from a cadence standpoint there?

Yes. Potentially, there might be a small step back in Q3. I think maybe let me elaborate a little bit. So, as we work through some of the challenges, but also the opportunities like we said in the prepared remarks, with our large B2B customers, it might take a little bit longer than we expected. That’s why we have been very judicious about calling down the number. With that said, we are seeing good progress in the ability to win back some of the accounts that we had lost as well as promising progress in terms of winning new accounts. Now, some of the losses are in larger, more concentrated accounts, like we mentioned also in our remarks, but there is nevertheless, progress. We think it will take a little bit longer than we expected.

Okay. Thank you.

Thanks.

Our next question comes from the line of Robbie Marcus with JPMorgan. Please proceed with your question.

Hi. This is actually Lilia on for Robbie. Thanks for taking the question. Can you talk a little bit more about what you are seeing in DTC? It sounds like productivity is improving. So, I guess headcount is really the issue there. So, when can we expect turnover to start stabilizing? And how are you thinking about the size of the sales force growing from here?

Yes. Thank you, Lilia. I am going to go back to maybe comments that we have made publicly before. Just as a reminder, we used to be in the 300 range in terms of sales people. We had indicated recently that we are going to be closer to the 200 range, give or take here plus or minus 10%. To your point, specifically, the productivity actually is very encouraging. It’s plus 30%, both in terms of unit productivity as well as revenue productivity per rep. The number of reps in the seats, naturally as you dial up the accountability and the new expectations, there is a little bit more churn and that we had expected. But it’s not that all of it is regrettable in all honesty, but to go back into your other part of the question, where do we think this is going to stabilize. As part of our long-range plan early in 2024, we will give an indication of where we think that channel will be but with that said, DTC will always be part of our go-to-market strategy. It’s a unique channel that differentiates us. What we were trying to do and we are making progress against that is to get to the right balance between growth, but at the right price from a profitability perspective. Hence, as we mentioned, there is a reduction in salespeople in the seats as well as the reduction in advertising, spend in terms of the leads that we generate and an effort to continue to compensate for some of that revenue through increased productivity that we are seeing good progress on.

Got it. That’s helpful. And then just as a follow-up, can you give us an update on the state of the supply environment. Do you feel you have good visibility through the rest of the year? And when do you think you can get back to normal ordering patterns with your suppliers? Thanks so much.

Yes. So, the state of the supply in general is, I think trending normally. There are no huge lag, there are a few issues here and there with very specific products that we are trying to source, but I would not characterize that as a major concern for us unless there is something material changes moving forward, which we don’t expect it to be. So, this is – we are not in a supply-constrained environment in general.

Great. Thank you.

Thanks Lilia.

Our next question comes from the line of Matthew Mishan with KeyBanc Capital Markets. Please proceed with your question.

Hi guys. This is Brett on today for Matt. Thanks so much for taking the questions. Wanted to start off on a question regarding the Rove 6 announcement this morning that you touched on during the prepared remarks as well. Just curious if you could walk through what’s changing around the value proposition given the extended service life. And as a follow-up there, does that mean that the product will now have an 8-year warranty? And does anything change around the economics for Inogen around ASPs or warranty revenue, given the improvement there?

Yes. Thank you, Matt. I will take that question also. So, let me start with the characterization. So, Rove 6 is an update of G5, but it’s very important for us to actually think of it as the new platform for the innovation that we said is coming around 2024 in terms of a larger than six setting device. So, the improvements in this device are basically through the user interface, the alarming capability as well as the cannula placement. So, with that said, we also managed to achieve an 8-year service of the life, expected service life which is really critical. If you think – if you are a B2B customer and you are thinking about the return on that invested capital that you have in the fleet of POC, it’s very important for you to be able to buy a device that is approved and has a label of 8 years from a regulatory perspective versus a 5-year label. So, we are very excited about the fact that the value proposition we are trying to drive before continues to get stronger. And to our knowledge, we don’t know of any other devices that have an 8-year expected service life yet in the marketplace. So, that’s very important for us. And that applies both here as well as in Europe. Back to your other question about the warranty, we don’t have an intention to extend the warranty beyond the 5 years in the sense that people can potentially – like today, we have a 3-year and a 5-year warranty on the 5-year device and we believe that we are going to stay within the 5-year warranty, but we will allow – we will ourselves service those devices after warranty expires as well as allow the key large customers like they do now service their own devices by providing them with the right parts and service support.

Alright. Got it. That’s very helpful. And then just – this might be a little bit of a tough one to answer, but just trying to maybe take a step back, can you maybe touch on just from an underlying patient demand perspective, especially in the direct-to-consumer channel, like stripping back some of the changes in sales force levels. Like what can you say about just the level of demand, especially as we proceeded into the summer months when you typically would see a step up? Like are there any positive maybe early signs you could point to that would give a little more positivity on what we might see into next year at a lower number of sales reps?

Yes. So Brett, thanks for the question. I think let me start with the DTC channel that you sort of called out first. And the positive I can see there is – as a reminder, we took price increases successively in the last 1.5 year. Despite that, through productivity and the ability to continue to serve the patients that don’t have any option in terms of insurance-based coverage, we see that the demand continues to be there despite the price increases that we have taken, which are honestly intended to price for value more than anything else, and they were partially intended to cover the premium pricing for semiconductors. So, from a demand perspective, I don’t see any softness in that. I think let me transition to the second – the other part of the business. With respect to demand in B2B, in general, if you look at the prescription rates of people that are getting diagnosed and prescribed, it’s actually steady and recovering slowly. So, from a patient perspective, the demand is there. What we saw in the quarter and in the preceding quarter is a little bit of softness in terms of the B2B customers and their willingness, like we said in the prepared remarks, to deploy capital, the cost of borrowing as well as making sure that they get a return on that capital. But then again, I would label it as transient in nature where people sort of look the other way about acquisition price and now are starting to slowly turn around and saying, there is a different way to look at this model. So, we believe the demand will slowly start getting back on track into what we believe is a normal level of demand and the B2B channel also.

Alright. Thanks a lot for taking the questions.

No worry, Brett.

There are no further questions in the queue. I would like to hand it back to Mr. Shabshab for closing remarks.

Thank you. In the near-term, we are focused on improving our commercial execution, strengthening our portfolio through innovation beyond COPD and positioning the company for sustainable growth and profitability. Our transformational journey continues, and we remain committed to driving value for our patients, customers and shareholders over the medium to long-term organically and with an expanded portfolio, including Airway Clearance solutions. As I conclude, I would like to thank our investors for your support and your interest in Inogen. I am extremely proud of the Inogen team’s collective effort to work through these short-term challenges, continually improving our execution while building needed capabilities, fulfilling our purpose of improving patients’ lives through respiratory care while driving growth and eventually profitability remains an exciting true north for all of us. Thank you again, and enjoy your afternoon.

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.