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Inogen (INGN) Beats Earnings and Revenue Estimates in Q2

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Goleta, CA-based Inogen, Inc. (INGN - Free Report) reported second-quarter 2017 earnings of 38 cents per share, up 5.6% year over year, which comfortably beat the Zacks Consensus Estimate of 28 cents and the year-ago figure of 36 cents.

The upside was driven by roughly 17.5% growth in revenues, which totaled $64.1 million, beating the Zacks Consensus Estimate of almost $60 million.

Q2 Details

Sales revenues surged 27.3% to $58 million, while rental revenues declined 32.3% to $6.1 million.

Business-to-business: Business-to-business domestic sales were up 32.2% on a year-over-year basis to almost $21.2 million, primarily driven by traditional home medical equipment provider purchases and the consistent strength of the private label partner.

Inogen, Inc Price, Consensus and EPS Surprise

 

Meanwhile, business-to-business International sales rose around 13.9% to almost $14.9 million on the back of solid demand from the company’s partner’s in Europe.

Direct-to-consumer: Direct-to-consumer domestic sales advanced 33.3% to almost $21.9 million.

However, direct-to-consumer rental sales fell 32.3% to $6.1 million. This decline can be attributed to decreased rental reimbursement rates and the company’s increased strategic focus on sales.

Margin Details

In the reported quarter, Inogen registered a gross margin of 49.2% (as a percentage of revenues), up 120 basis points (bps) on a year-over-year basis.

Meanwhile, sales gross margin expanded 240 bps in the quarter to 51.8%, as a percentage of revenues. Per management, an increase in sales gross margin was driven by lower material costs resulting in decreased cost of goods sold in the quarter.

Rental gross margin was 25.0% in the reported quarter, much lower than 41.0% in the second quarter of 2016. This was primarily driven by lower net revenue per rental patient led by fallen reimbursement rate. However, this decline in rental gross margin was partially offset by decreased cost of rental revenue particularly led by lower depreciation and servicing costs.

Adjusted EBITDA rose 5.6% to $14.4 million on a year-over-year basis.

Guidance

Banking on solid performance in the second quarter, Inogen raised its 2017 revenue and adjusted net income guidance. Moreover, the company narrowed its full-year adjusted EBITDA guidance.

Inogen projects revenues in the range of $239–$243 million, higher than the previous range of $233–$239 million. This represents year-over-year growth of 17.8%–19.8%, up from the previously provided range of 14.9%–17.8%. The company expects rental revenue to decline in 2017, courtesy of lower average rental revenue per patient and continued focus on sales.

Adjusted EBITDA is now projected in the band of $48–$50 million, compared to $46–$50 projected previously, thereby presenting an increase of 10.6% to 15.2% from 6%–15.2% year over year.

Inogen expects adjusted net income in the range of $25--$27 million, up from the previously provided range of $22–$24 million. This represents 21.8%--31.6% year-over-year growth compared to the previous range of 7.2%–17%.

Our Take

Inogen reported a stellar second quarter of 2017, beating the Zacks Consensus Estimate for both the counts. The company witnessed solid growth in revenues and adjusted earnings on a year-over-year basis. In our view, solid domestic and international business-to-business sales has driven the stellar quarterly performance. In fact, the company expects direct-to-consumer sales to be its fastest growing channel, followed by domestic business-to-business sales in the coming quarters, with solid focus in Europe. In this context, the company recently signed a lease for its expansion site in Ohio to accelerate growth in domestic direct-to-consumer sales channel.

Moreover, during the second quarter, the company took a series of strategic initiatives to strengthen its product offerings and market position. In this regard, the company successfully integrated MedSupport Systems B.V. acquired in May 2017.

Continuing with the slew of product developments and launches, the company received EC Certificate for its One G4 product in Jun 2017.

Per management, the company also effectively launched its new customer relationship management (CRM) system in Jun 2017. This latest development is expected to enhance the productivity across sales, billing, and customer service teams in the long term.

On the flip side, declining rental revenues raise concern, which might mar the company’s prospects. Moreover, since the company generates a significant portion of its revenues from the International market, volatile foreign exchange rate will always continue to pose a concern for the company.

Zacks Rank & Key Picks

Inogen currently carries a Zacks Rank #3 (Hold).

A few better-ranked medical stocks are Edwards Lifesciences Corporation (EW - Free Report) , INSYS Therapeutics, Inc. (INSY - Free Report) and Align Technology, Inc. (ALGN - Free Report) . Notably, Edwards Lifesciences, INSYS Therapeutics and Align Technology sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

INSYS Therapeutics has a long-term expected earnings growth rate of 20%. The stock posted a stellar four-quarter average earnings surprise of 37.8%.

Align Technology has an expected long-term adjusted earnings growth of almost 26.6%. The stock has added roughly 23.5% over the last three months.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has gained around 5.3% over the last three months.

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