Inogen (INGN) Q1 Earnings Miss Estimates, FY16 View Intact

Inogen Inc. (NASDAQ:INGN) reported first-quarter 2016 earnings of 11 cents per share, which missed the Zacks Consensus Estimate by a penny. Following the miss, shares plunged 5.1% in after-hours trading.

However, earnings improved 48.8% on a year-over-year basis, driven by 48.8% growth in revenues which totaled almost $43 million, slightly ahead of the Zacks Consensus Estimate of $42 million.

The year-over-year upside can be mainly attributed to better-than-expected growth in Inogen’s domestic and international business-to-business sales. Rising patient demand along with brand alertness of the company’s direct-to-consumer channel also paved the way to higher revenues.

Segment Details

Sales surged 42.4% to $32.8 million, while rental revenues decreased 4.9% to $10.2 million. We note that traditionally, the first quarter has been seasonally weaker for Inogen as the company faced reimbursement headwind related to rentals in the quarter.

Business-to-business domestic sales were up 61.2% on a year-over-year basis to $9.5 million, primarily driven by strong private-label sales.

Business-to-business International sales shot up 18.7% to almost $10 million, on the back of strong performance in Europe (90.8% of international sales).

Direct-to-consumer domestic sales soared 52.4% to $13.4 million. Meanwhile, direct-to-consumer rental sales declined 4.9% to $10.2 million.

Unit sales in the quarter surged 54.5% on a year-over-year basis to 17,000. Rental patient population increased 10.7% to 33,200.

Margin Details

Gross margin expanded 200 basis points (bps) on a year-over-year basis to 49.5% in the reported quarter. The upside can be largely attributed to favorable sales mix toward higher margin direct-to-consumer sales. Moreover, lower material and labor costs related to upgraded Inogen One G3 product drove gross margin expansion.

Favorable sales mix and lower costs helped Inogen fully offset a decline in business-to-business average selling price (ASP). The lower ASP was due to additional discounts provided to raise sales volumes and a higher proportion of private label sales.

Adjusted EBITDA soared 27.3% from the year-ago quarter to $8.1 million.

Operating expenses, as a percentage of revenues, increased 230 bps on a year-over-year basis to 41.9% in the reported quarter. As a percentage of revenues, research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses increased 20 bps, 30 bps and 140 bps, respectively.

The increase in R&D expenses was primarily due to higher personnel and product development expenses attributed to the upcoming Inogen One G4 product.

As a result of the escalated operating expenses, operating margin expanded only 20 bps on a year-over-year basis to 7.6%.

Product Update

Notably, Inogen One G4 is scheduled for launch by the end of May. The product is smaller, lighter and involves lesser development costs when compared to Inogen One G2 and G3 products. The company also deems that it will not require a new 510-K clearance for the product.

Guidance

Inogen maintained its outlook for full-year 2016. The company continues to project revenues in the range of $187–$191 million, reflecting year-over-year growth of 17.6%–20.1%.

Inogen continues to expect total revenue headwind from Medicare competitive bidding national rollout of 3.5%–4% in 2016.

Management expects direct-to-consumer sales to be Inogen’s fastest growing channel in 2016.

Adjusted EBITDA is still expected to be $37 million to $39 million, representing an increase of 14.6% to 20.7% over 2015.

Adjusted net income is expected to be around $12–$14 million. Inogen expects net positive cash flow for 2016.

Zacks Rank & Key Picks

Inogen carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector include Edwards Lifesciences (NYSE:EW) , IRadimed (NASDAQ:IRMD) and Masimo Corp (NASDAQ:MASI) . All the three stocks sport a Zacks Rank #1 (Strong Buy).