Direct-to-consumer sales to shine in 2016, Inogen predicts

GOLETA, Calif. - Inogen plans to offset an expected hit to rental sales next year with strong growth in direct-to-consumer sales, company officials said during a conference call last week to discuss third quarter earnings.

CMS is gearing up to roll out competitive bidding pricing nationwide on Jan. 1, creating a 2.5% to 3.5% headwind for the company in 2016, said Ali Bauerlein, founder, executive vice president of finance and CFO.

“Right now, rentals is the largest individual revenue channel of the business at 28.6% of the revenue year to year,” she said. “So given that we expect that business, because of the reimbursement cuts, to decrease next year compared to this year, we expect our largest segment increase to be that direct-to-consumer sales side.”

Inogen is paving the way for growth in direct-to-consumer sales by beefing up its sales force. Company officials wouldn't discuss headcount, but they noted that they added to their sales force in late 2014 and again in the third quarter of this year.

Company officials credited the sales reps added last year for a 63.7% increase in direct to consumer sales in the third quarter. While it's too early for the sales reps added this year to have an impact on financials—it takes four to six months for them to “come up to full productivity”—officials expect their investment to make a big difference early next year, just as the cuts are going into effect.

“We've had a very successful year, so now is the time when you have the opportunity and the means to actually make that investment and set ourselves up for 2016,” said Ray Huggenberger, CEO. “But don't forget the people we hired in the third quarter will not really hit their stride until January or February.”

Overall, Inogen reported $40.8 million in total revenues for the third quarter, a 38.7% increase from the same period last year. Net income was $2.7 million, a 26.4% increase.

It reported a 77.1% increase in domestic business-to-business sales, its fastest growing channel. A big reason for that growth: private label sales. The company has a private label partnership* with Cleveland-based Applied Home Healthcare Equipment for a lightweight portable oxygen concentrator called the OxyGo.

During the call, the company also announced an increase to its 2015 revenue guidance to a range of $150 million to $153 million, representing a year-over-year growth of 33% to 36%. It previously provided revenue guidance of $145 million to $149 million.

Inogen also provided revenue guidance for full year 2016: $177 million to $183 million, representing growth of 16.8% to 20.8%. This, company officials pointed out, despite those headwinds due to the rollout of competitive bidding pricing nationwide.

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