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Innovative Oxygen Therapy Company Reveals Second Quarter Financial Results

Inogen, Inc. (NASDAQ:INGN), a medical technology company offering innovative respiratory products for use in the homecare setting, reported Aug. 11 financial results for the three months ended June 30, 2015.

"Our record revenues in the second quarter reflect exceptionally strong performance across all of our sales channels as well as the benefit of seasonality. Net income and Adjusted EBITDA also reached record levels, demonstrating our substantial operating cost leverage," said President and Chief Executive Officer, Raymond Huggenberger. "As we look out towards the second half of this year, we expect to see stronger than originally anticipated demand continue, and as a result, are updating our guidance for 2015 accordingly."

Second Quarter Financial Results

Total revenue for the three months ended June 30, 2015 rose 44.9 percent to $44 million from $30.4 million in the second quarter of 2014.

Total sales revenue in the second quarter of 2015 rose 58.3 percent from the second quarter of 2014.

Domestic business-to-business sales grew 80.5 percent over the same period in 2014 and represented the fastest growing channel in the quarter, primarily due to growing reseller and private label demand for the company's portable oxygen concentrators.

International business-to-business sales grew 71.7 percent over the same period in 2014. International business-to-business sales continued to materially exceed
the company's expectations, in large part due to the strength of its European partners.

Direct-to-consumer sales rose 35 percent over the same period in 2014, primarily due to the impact of the additional sales headcount the company added at the end of 2014 and in the first half of 2015. Direct-to-consumer rental revenue grew 17.3 percent over the same period in 2014.

The Company's total patient population increased by 1,600 net patients in the second quarter of 2015 compared to the first quarter of 2015.

Inogen continues to shift sales capacity towards consumer sales instead of rentals, primarily due to the upcoming additional Medicare reimbursement cuts.

Combined, direct-to-consumer sales and rental revenue represented more than half of our total revenue in the quarter, highlighting the strength of the Company's direct-to-consumer model and growing brand awareness.

Gross margin was $20.8 million, or 47.3 percent of revenue, in the second quarter of 2015 compared to $15.1 million, or 49.7 percent of revenue, in the comparative period in 2014.

Sales gross margin was $14.5 million, or 44.8 percent of revenue, in the second quarter of 2015 versus $9.8 million, or 47.8 percent of revenue, in the second quarter of 2014. The decline in sales gross margin percentage was primarily related to a shift in sales mix towards lower gross margin business-to-business revenue streams domestically and internationally versus direct-to-consumer revenue.

In addition, while average-selling prices for direct-to-consumer increased in the second quarter of 2015 primarily due to the pricing trial conducted in the second quarter of 2014, average-selling prices declined across business-to-business sales as volume increased to resellers, private label partners and international customers.

Rental gross margin was 54.1 percent in the second quarter of 2015 versus 53.7 percent in the second quarter of 2014, primarily due to lower servicing costs of 
the Company's rental patients on service.

Operating expense was $15.5 million, or 35.2 percent of revenue, in the second quarter of 2015 versus $11.2 million, or 36.7 percent of revenue, in the second quarter of 2014.

Research and development expense was $1 million in the quarter versus $0.9 million in 2014, primarily due to increased personnel-related expenses for engineering projects.

Sales and marketing expense was $7.6 million in the quarter versus $6.4 million in 2014, primarily due to increased direct-to-consumer personnel-related expenses and related customer and clinical services personnel-related expenses.

General and administrative expense was $6.9 million in the quarter, compared to $3.9 million in 2014. The increase was primarily related to increased legal fees and personnel-related costs.

General and administrative expense for the quarter included $0.9 million in legal and accounting fees associated with the audit committee investigation and class action lawsuit that were both concluded in the second quarter of 2015.

Expenses associated with the audit committee investigation and the class action lawsuit in the six-month period ended June 30, 2015 were $1.8 million. These costs are
expected to be non-recurring in future periods.

Adjusted EBITDA for the three months ended June 30, 2015 rose 28.8 percent to $9.6 million from $7.4 million in the second quarter of 2014.

Net income for the three months ended June 30, 2015 increased 51.3 percent to $3.5 million from $2.3 million in the second quarter of 2014, or $0.17 per diluted common share on a GAAP basis compared to $0.11 per diluted common share on a GAAP basis in the second quarter of 2014.

In the second quarter of 2015, Inogen's effective tax rate was 34.9 percent.

Cash, cash equivalents and short-term investments were $66.1 million as of June 30, 2015, an increase of $5 million in the quarter primarily due to profits, reduced working capital and option exercises, partially offset by investments in property and equipment primarily for the Company's rental fleet additions.

Financial Outlook for 2015

Inogen is increasing its 2015 revenue guidance to a range of $145 to $149 million, which represents year-over-year growth of 28.8 percent to 32.4 percent.

This increase compares to the previous revenue expectation of $133 to $137 million. This increase in guidance is associated with better than expected business-to-business revenue worldwide.

The company typically sees the highest revenue seasonality in the second quarter of the year when patients are more likely to travel and as a result purchase or rent its products.

The company is also increasing its 2015 Adjusted EBITDA estimate to a range of $29 to $32 million, representing an increase of 21.1 percent to 33.6 percent over 2014. This is updated from prior guidance of $27 to $30 million.

Net income for 2015 is currently expected to be in the range of $8.5 to $10 million, representing an approximate increase of 24.5 percent to 46.5 percent over 2014. This is updated from a prior range of $8 to $9.5 million. 

The one-time general and administrative operating expenses of $1.8 million associated with the audit committee investigation are included in this guidance, and all expenses were incurred during the six-month period ended June 30, 2015.

The company continues to expect an effective tax rate in 2015 of approximately 35 percent.

It also confirms its expectation of net positive cash flow for 2015 with no additional equity capital required to meet its current plan.

About Inogen

Inogen is innovation in oxygen therapy. We are a medical technology company that develops, manufactures and markets innovative oxygen concentrators used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions.

For more information, please visit www.inogen.com.

— Byron Myers represents Inogen.

 

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