Welcome to the Inogen 2014 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded today, August 12, 2014. I would now like to turn the conference over to Lynn Pieper, Investor Relations. Please go ahead.

Thank you for participating in today’s call. Joining me from Inogen is President and CEO, Ray Huggenberger and CFO and Founder, Ali Bauerlein. Earlier today, Inogen released financial results for the second quarter ended June 30, 2014. If you have not received this news release or if you would like to be added to the company’s distribution list please call Westwicke Partners at 415-513-1281. Before we begin, I want to remind you that our comments today will include forward-looking statements within the meaning of federal securities laws. Forward-looking statements include among others statements regarding our expectations, goals or intentions, including, but not limited our assessment of the impacts on competitive bidding, market share expectations, our current views with respect to our ability to achieve revenue and income, EBITDA and adjusted EBITDA targets, our expectations regarding the stationary market and anticipated product releases in that category, our projections regarding our effective tax rate, our expectation that the Inogen At Home will be lightest stationary oxygen concentrator in its class and our expectation that we will expand our sales and marketing resources. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections and are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in forward-looking statements. Our business is and any financial projections provided today are subject to numerous risks and uncertainties, including the possibility that Inogen will not realize anticipated revenue; the impact of reduced reimbursement rates in connection with the implementation of the competitive bidding process under Medicare; possible loss of the employees, customers or suppliers; intellectual property risks if Inogen is unable to secure and maintain patent or other intellectual property protections for the intellectual property use in it’s products. Information on these and additional risks, uncertainties…

Thank you, Lynn. Good afternoon everyone and thanks for joining our second quarter call. I would like to start with a brief review of the strategy we set forth at the beginning of the year. Then I will cover the highlights of the quarter with some commentary on market trends. Ali will provide detail on our financial results and updated guidance for 2014. And then I will make a few closing remarks and open the call up for questions. I would say that I am very encouraged by the results we have seen in the first half of the year as we executes against the strategy we set forth at the beginning of the year. This strategy included focusing on generating leverage on the investments we had already made in our go to market capacity, raising awareness of our innovative product offering in the oxygen therapy through the support of our patient centric sales and marketing efforts, receiving FDA clearance for our stationary oxygen concentrated product, it has substantially more consumer appeal than what the market standard is today and carefully executing on our technology investments and process improvement to drive productivity not only in the sales area but across administrative and operating function as well. This strategy has enabled us to grow revenues while adding leverage to EBITDA. Our second quarter performance reflects continued execution throughout the entire organization and better than expected results in both our direct to consumer and business to business channels. Total revenue was $30.4 million in Q2, up 50.8% over the same period in 2013 and another record quarter for Inogen. I am very encouraged with the level of productivity demonstrated throughout the first half of this year with revenues reaching $54 million, which is 50.5% higher than the first half of the prior…

Thanks, Ray. During my prepared remarks, I will review the details of our second quarter financial performance and provide our updated full year 2014 outlook. As Ray mentioned, our total revenue in the second quarter was $30.4 million, which is an increase of 50.8% in the second quarter of 2014 versus the second quarter of 2013. This reflects continued strong performance on the top line and high growth in all segments. Similar to last quarter, we continued to see a shift towards our direct-to-consumer cash sales from rentals in some markets, but still managed high growth in rental revenue. Our first half revenues were $54 million which is a 50.5% increase over the first half of 2013. Total units sold in the second quarter increased over 9,200 which is 67.3% increase over the same period in 2013. Turning to our second quarter revenue in direct-to-consumer and business to business, we were pleased to continue to see strong revenue growth in all categories. Direct-to-consumer sales grew 86.1% in the second quarter over the same period in 2013 and accounted for 29% of total revenues. Direct-to-consumer rentals in the second quarter grew 34.1% over the same period in the prior year in spite of competitive bidding reimbursement rate reduction and accounted for 32.7% of total revenues. At the end of the second quarter we had more than 25,100 patients on rentals, a 38.7% increase over the patients – over the number of patients on service as of June 30, 2013. This is a 9.1% sequential quarterly increase equivalent of 2,100 net patients added in the quarter. Business to business domestic sales were our fastest growing segment in the second quarter at 88.8% over the same period in the prior year and represented 18.1% of total sales. Business to business international sales grew…

Thank you, Ali. So, I believe the balance of 2014 will continue to be a year of high growth, execution and productivity. Our focus will be on driving consumer awareness to create more and more demand. We are excited to bring the Inogen At Home to the market later this year and build out our go-to-market capacity with targeted investments for future growth. We believe that as we continued to progress on our corporate objectives we will bring significant value to our shareholders, innovation to the market and fill an unmet need in the current oxygen therapy market. With that, thank you for joining us today and we look forward to updating you on our progress in future calls. We will now open it up for questions. Operator, can you take over?

(Operator Instructions) And our first question will come from the line of Ben Andrew with William Blair. Your line is now open. Please proceed with your question.

Great. Thank you very much for taking the questions. Couple of things, Ray can you talk a little bit about the plans you have for the sales and marketing organization specifically in the second half or if you have already made some expansions versus where we were before and then kind of how significant of an increase you are planning for the media spending?

The – let me answer the second part first. The media spend is commensurate to the number of sales reps that we have on the phones, because we are using a pool system. So we are basically spending enough media to keep the sales force occupied. The size of the expansion I don’t want to put a number to it because we certainly don’t want to compromise, we are going to find right people. But the nature of it is just to hire more sales reps.

Okay. And so as you have talked I mean that B to B business in the U.S. was particularly strong, how did those conversations go with those partners/customers and do you see a change in attitude from them now that CD2 is a bit further behind us?

I think there is a small sliver of realization that some things going to have to change with some certainly not with the majority of the market we don’t see that yet. I think the bigger driver of the business to business success we have had in the – specifically in the second quarter whereas that we are educating patients about this technology. And not every call goes to us many call their current provider and say yes, this is what I want and if you don’t give it to me I will go somewhere else. We will be there to receive them. And I think so – so I think we created pull through demand and the reason I believe that is just if you look at size of the orders of the business to business in the HME channel, lots of relatively small orders. I think the resellers saw a good quarter in terms of their ability to do the same thing we do on sell through consumers. But I think it’s more a pull through effect than a paradigm shift or a tipping point in the market yet.

Okay and then Ali could you maybe talk a little bit about the sequential dynamics in Q3 and Q4, I mean how much were things down last year in Q3 and what has changed this year versus last that we might need to factor into our projections?

Yes. So last year in the second quarter and really where you see the seasonality in the business is on the sales revenue side. The rental revenue is of course impacted by the reimbursement rates but you wouldn’t expect to see the same seasonality that you see in the sales business. So, just specifically looking at the sales line (Technical Difficulty) million in sales and that came down to $12.1 million in the third quarter of 2013 $11.1 million in the fourth quarter of 2013 so declining with the second quarter being the peak of the year for our sales revenue.

Got it. Great, stunning results. Thank you.

Thank you.

Our next question comes from the line of Puneet Souda with Leerink Partners. Your line is now open. Please proceed with your question.

Yes. Hi guys. Congratulations on the quarter, this is Puneet and for Daniel. Just on the as you look at 2015 as you sort of – you talked about it briefly that as gross margin expense on the DTC and with At Home products coming on board what sort of other drivers and expansion that you see as you move forward into that?

Well, I mean the 2015 is going to be driven by first and foremost, more of the same of what we are already doing right now, continue to educate more patients, create momentum in the market, that switches from the traditional modalities to the POCs, drive sales revenue, drive rental revenue, do that with a larger sales force than what we have today, continue to make improvements on productivity and then on top of that so that the cherry on top of it hopefully will be the Inogen At Home.

Okay. Thanks so much for that. And then just a second one, on tax efforts, you mentioned it briefly before then, it’s – as you look into the impact on 2015 you’re going to be planning that during the sort of the second half. So, if you could give an update on that and help us understand, where things are headed on that end?

So, on the tax side similar to what we expect in 2014 of an effective tax rate we would expect that to continue go forward. At this point that we’re not really prepared to give specific guidance on 2015 expectation.

Okay. That’s fair. Thank you so much.

Our next question comes from the line of Mike Weinstein with JPMorgan. Your line is now open. Please proceed with your question.

Thank you. I am glad (indiscernible). So, first off, great quarter, obviously you didn’t have the performance in the first half of the year. I don’t appreciate with it on the second half, because your innovation is from how you are getting impact from last year on the rental side of the business? And the guidance for the second half of the year, seem to imply 20% to 30% growth versus the 50% we saw in the first half. So, anything else other than seasonality and conservatism, we should be factoring in, more model in the back half of the year?

Yes. So, obviously seasonality is an impact and wanting to continue to have put up numbers that we see are as achievable targets. But also on top of that our sales rep count, we have in the first quarter of 2014 over the first half of 2014 versus the first half of 2013, the number of sales reps that we had was significantly higher in those comparative periods. That difference will – less than over the course of the next two quarters and really will be based on how many additional sales reps we can hire, but that gap will be narrowing. So, we did also factor that into our guidance expectation.

Ali and Ray, is that really the license in the first half of the year that kind of the bet you guys made going back to the middle of last year on moving it more towards the direct model and building out this which you call as call reps, this internal calling out there is paying off and that this..

Yes.

And that this model shift is working. So, now, now that you’ve seen it in year one continue to feel that and that it’s going to drive the adoption of the business going forward?

Yes. I mean you’re exactly right. I mean we made a shift in focus late in last year, really starting at the beginning of this year to kind of focus more on the cash sales. We weren’t quite sure how that exactly was going to turn out, the first quarter was very encouraging, the second quarter is actually is confirming those numbers and those trends. I said at the last call, I don’t want to call one quarter a trend. I’m going to be cautious calling a second, two quarters in a row a trend. But I think we can conclude that, that focus shift has paid off and has exactly done what we wanted it to do. We were able to drive some substantial growth without purely relying on increased headcount to drive to growth. Now that we know you don’t have to – and have the same POCs redefined, I think it is time to invest in more capacity in order to do more of it.

And on that front, you are obviously outperforming your (indiscernible) for the first half of the year on the top-line. The EBITDA guidance range – raise was modest relative to the top-line raise. Can you just give us a better sense maybe on that spending that you’re planning in the second half? Is that – how much of that is going to be reps relative to the original plan, how much of that might be go into other programs that you want to highlight, and I will let somebody jump in? Thanks.

Yes. So, the biggest contributor is the increase in the sales reps and wanting to make sure that we’re setting ourselves for success in 2015 primarily because the results of what those reps contribute in the second half will be relatively modest in terms of the top-line, but it sets us up for 2015 results. So, that’s the majority of it. There are also some investments in the launch of the Inogen At Home product that we’re certainly planning on incurring in the second half of 2014.

Okay, great. Thank you guys. Well congrats again on the quarter.

Thank you.

Thank you.

Our next question comes from the line of Tom Carroll with Stifel. Your line is open. Please proceed with your question.

Hey guys. So, I jumped on a bit late, so hopefully not duplicating anything. But any pre-sale opportunity with Inogen At Home on that new product, I mean and maybe can you give us a sense of sales visibility with the new product into the back half of the year?

Yes. So, we deliberately stayed away from trying to pre-sell it.

Okay.

I want to kind of circle back and the idea of the Inogen At Home was initially conceived because we needed a solution for the backup concentrator that we’re currently buying in the market by other manufacturers. That ended up having substantially higher failure rates in the field than the portable ones that we are putting out and the portable ones are the ones that are – gets banged around pretty good at the stationers that are just sitting at home. They are being shipped though not hand-carried in. And so what we found was that there really wasn’t a product in the market that was perfectly suited for our business model. So, we basically was set out to build the Inogen At Home as a cost reduction exercise, that’s an exercise to that, what reduce instant – failure instances in the field and all the related costs that come with that, emergency shipments and what have you. And once that product was designed was you know what, there is a sales opportunity that comes along with that in about 30% of the market. This is a very attractive product. It will not be – we were totally focused on the consumer with this product, but it is a different sales strategy than the whole freedom and independence message that we are using for our POCs and there’s much more – it’s a different marketing, that we have to test out, we have to find a couple of strategies, that we don’t want to do that until the product actually ships. So, pre-selling usually works when you have a lot of business to business customers, in our particular case the products probably going to be too costly for our business to business use.

When do you think you’ll have sales visibility for the product?

Well I mean honestly I think we will be in a trial and see what works mode for the remainder of the year at least, at least.

Okay.

We will work on it until fully in the fourth quarter, and then you have always have to factor three, four, five months of see what works in terms of marketing message, lead generation, scripting, all of that is a living breathing thing that will develop over time. So, that’s why we are so cautious in including it in the guidance because we could be at least from a timing perspective we could be off quite significantly.

Yes. Just shifting gears quickly, you talked about your sales reps and stuff. What type of sales rep growth will we see for the second half of the year? Forgive me if you have already answered this?

No, I didn’t. I am not going to now.

Come on, Ray.

Sorry. And the reason simply is that, as much as we can pull off without compromising we are looking for specific traits in a person that will – that is successful in this role and we won’t just hire people just to hire them to make a quota, which is why we are not giving guidance on how many, but we will put a good solid effort into increasing our capacity to whether that ends up being 10 or 30 or whatever the number is. That really depends on resume flow, who are the candidates, how many can we find.

But it will be higher by the end of the year, you feel strongly about that, is that fair?

We feel pretty strongly that the rep count will be higher by the end of the year than it is now.

Great. And then when do you expect to provide guidance for 2015?

Probably with the third quarter, Ray.

We will start skewing some preliminary guidance with the third quarter.

Okay, great. Thank you so much.

Thank you.

Thank you. With no further questions in the queue, I would like to turn the call back over to the speakers for any closing remarks.

Alright, well thanks for taking the time out of your day to listen to our second quarter call and hopefully we will – could be able to talk to you again on our next quarter call if we don’t see you until then and thanks for being interested in Inogen.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a good day everyone.