Good day, ladies and gentlemen and welcome to the Inogen 2015 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Ms. Leigh Salvo from Investor Relations. Ma'am please begin.

Thank you all 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, 2015. Inogen’s earnings release and a corporate presentation are currently available in the company's Investor Relations section of the website. During the call and subsequent Q&A session, we will be discussing plans and projections for our business, future financial results and market trends and opportunities including among others, statements regarding future product releases, reimbursement rate expectations and guidance. These statements are forward-looking and are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from currently anticipated events or results. Additional information about risks and other factors that could potentially impact our financial results included in today's press release and in our filings with the SEC including our Form 10-K and most recent Form 10-Q to be filed with the SEC. We advise investors to review these risk factors carefully. The forward-looking statements in this call are based on information available to us as of this date August 11, 2015, and we disclaim any obligation any forward-looking statements except as required by law. During the live call, we will also present certain financial information on a non-GAAP basis. A reconciliation between GAAP and non-GAAP results is presented in the table accompanying our earnings release and can be found in the Investor Relations section of our website. I'll now turn the call over to Ray Huggenberger. Ray?

Thank you, Leigh. Good afternoon everyone and thank you for joining our second quarter 2015 conference call. For our agenda today, we'll start with the highlights from our second quarter financials followed by remarks on our recent business trends and operational accomplishments. Ali will then review the financials and 2015 guidance. At that point we will open the call up for questions. I am very proud of the momentum we have sustained into the first half of this year as we bring to market a best in class product portfolio of innovative oxygen concentrators. Our record revenues in the second quarter reflect exceptionally strong performance across all of our business channels. As anticipated we also saw the benefit of seasonality from the warmer month when patients are more likely to travel and thus see the advantages of our portable oxygen concentrators. We achieved record revenue of $44 million in the second quarter of 2015, which represented 44.9% growth from the same period last year. We continue to see stronger than anticipated growth in our domestic and international business to business sales channels as well as growing patient demand and brand awareness in our direct to consumer channel. Our positive results also included record adjusted EBITDA and net income results. Adjusted EBITDA was $9.6 million in the second quarter of 2015, representing 28.8% growth over the same period of 2014 and a 21.7% return on revenue. This included the increased investment we made in sales personnel as well as the remaining non-recurring cost associated with the audit committee investigation and the related class action lawsuits that were withdrawn in the second quarter of this year. Net income in the second quarter was $3.5 million, representing a return on revenue of 7.9%. Domestic business-to-business sales was our strongest growth channel in the…

Thanks, Ray, and good afternoon everyone. During my prepared remarks, I will review the details of our second quarter financial performance and then I will provide our current guidance for full year 2015. Revenue for the second quarter of 2015 was $44 million representing 44.9% growth over the second quarter of 2014. Once again we saw continued strong performance on the topline and period over period growth in all revenues streams. Looking at each of our revenue streams, sales revenue was $32.4 million reflecting 58.3% growth over the same quarter of the prior year. Total units sold increased to 16,400 in the second quarter of 2015, up 78.3% from the second quarter of 2014. Revenue from rentals in the second quarter was $11.6 million representing 17.3% growth over the same period in the prior year. Direct to consumer sales for the second quarter of 2015 were $11.9 million representing 35% growth over the second quarter of 2014 primarily due to the impact of additional sales headcount that we added the end of 2014 and continue to add in 2015. Direct to consumer rental revenue was $11.6 million in the second quarter of 2015, a 17.3% increase over the second quarter of 2014. Rental revenue represented 26.4% of total revenue in the quarter. We continue to ship sales capacity towards consumer sales instead of rentals primarily due to the upcoming additional Medicare reimbursement cut. Combined direct to consumer sales and rental revenue represented more than half of our total revenue in the quarter, highlighting the strength of our direct to consumer model and growing brand awareness. At the end of the second quarter we had 31,600 rental patients on service, a 25.9% increase over the number of patients on service as of June 30, of 2014 and a 5.3% sequential quarterly…

[Operator Instructions] Our first question comes from the line of Mike Weinstein from JPMorgan. Your line is open.

Hi this is Robbie Marcus in for Mike. Congrats again on another great quarter. I wanted to start on the business-to-business side. This is another quarter where we’ve seen growth well above what we were expecting. So can you help walk us through on the U.S. side what’s really driving that? Is it your sales? Is this third party resellers going out and driving up demand? Or is it your reps in the doctor's offices driving up demand? Maybe help us parse out what’s going on there exactly? And then internationally this is a year and half now where it’s exceeded expectation, so how much more runway is there to go and how fast should we expect to keep this growth going?

Yeah, so on the -- let’s split that up, Robbie, on the domestic side, you have a couple of moving parts, one is obviously the fact that we’re growing our sales force, hence we are investing more dollars into consumer marketing. Hence we reach more patients and those patients may or may not call directly us. So the patient education and awareness is obviously growing as we spend more money on advertising. The resellers do the same thing. If you have something that that works well and is growing for you, you try to do more of it. So their advertising and their marketing is in addition educating patients and raising awareness, which then again can come either back to us or can come back to them or somebody else. The third element is that you have a DME industry that is in small tiny little steps picking up on the fact that the delivery model has probably seen its prime and is trying to adjust and reinvent itself. And whether by using POCs or defaulting to POCs certainly not the majority today or not even a huge number of businesses, but the POC has become a more accepted and more readily available and on the forefront of more people's mind in the DME industry than it was two or three or four years ago. And the fourth element is that we have not had any access or any specific program that would go and communicate and talk to the DME industry, because our focus in our sales force was focused on the consumer. With the private label program, we now have a partner that has the infrastructure to do that and we’re seeing some of that pay off. None of this individually is a reason why we would see…

Okay. And maybe just to follow-up on that, digging into the U.S. like you said you’ve done DTC advertising, but not everybody calls you. Can you help us understand the profitability to Inogen, if a patient calls you directly or if a patient goes to a third-party reseller? Are you trying to funnel all the patients to your sales channel or is it more of -- you're agnostic on the bottom line where they go. Thanks.

Certainly it’s more profitable for us to capture the top to bottom margin and to service those patients directly instead of through a third-party. But remember that our number one limiting growth factor is how many sales reps we have. So we do have limited sales capacity, so working with our partners is a great way to extend our sales capacity and reach more and more patient to continue to penetrate the market. So at this point, we’re looking to both increase our direct to consumer sales through our sales reps as well as leverage the partners that we have. It is very important for us to have both legs moving forward.

And as far as profitability is concerned Robbie, as you’ve seen in the last two or three quarters where we’ve had above average business-to-business growth the gross margin may always take a little hit. But at the end of the day, the net income has always been growing faster than the top line and that in part is because we do get leverage from sales that may come at a low gross margin but we’re not expanding a lot of SG&A cost.

All right. Thanks a lot.

Thank you. Our next question comes from the line of Margaret Kaczor from William Blair and Company. Your line is open.

Good afternoon, everyone.

Hey Margaret.

So few questions for us, first in terms of the DTC sales, you guys obviously beat on that as well. How much of that is really due to the higher number of reps that you guys have versus higher sales rep productivity. Can you for some reason actually answer how much your -- how much of an impact the two was separately?

Yeah, I would actually say the bigger impact here obviously we did add reps in the quarter but those take four to six months to come up to productivity. So in the second quarter we’re seeing really the impacts of the reps that we hired in the fourth quarter of last year coming up to full productivity as well as the benefit of sales seasonality. The other thing that I would like to point out is that we’re continuing to shift towards cash sales instead of Medicare insurance rental because of those expected reimbursement declines in 2016. So that shift is also contributing to the beat on the direct to consumer sales side versus the direct to consumer rental side. So we are continuing to shift towards the sales bucket.

Okay. So should we expect kind of a -- I know this is a seasonably higher productivity, but we should expect more dollars per rep maybe on an annual basis going forward.

Well, you're talking about more revenue dollars per rep, a little difficult to predict going forward because of the changes in reimbursement structure, but we are looking at how do we maximize the sales dollars per rep in spite of those cuts to reimbursement.

Okay, that’s helpful and then in regards to B2B domestic, obviously it's a huge lever for you guys that allows you to be at above kind of the number of reps that you’re adding, but within the B2B domestic number was it the number of units sold per account that's increasing or is it an increased number of accounts and how we separate those to really why shouldn’t that demand be a little bit more sticky in the growth later this year remain high in that line item?

Well, there is two questions in that. Let me go to the first one first. So the two main drivers are the resellers and the private label. Domestically although we’ve done well in all channels, but those are more successful than the others if you in comparison. How sticky that is? We are increasing our second half guidance by -- so we're increasing our full year guidance by more than to beat in the first half of the year because we do believe that some of it is on to stick. And to the extent of what’s the exact number of increased revenue that we can expect or continuous revenue that we can expect from this channel, there still are a couple of uncertainties, but we are definitely recognizing that our original estimates for the year were too low in this segment and so business-to-business our entire upside on the guidance for the second half of the year is in business-to-business.

And just to add a little bit to that, so when you’re talking about number of accounts, the number of resellers that we have hasn’t increased. So volume has increased there per reset seller and in the private label we don’t have visibility on their exact sales and where those are going. So we can’t really comment on that. I do want to note though just as a point here that we really had a particularly strong June and in the business-to-business category both domestically and internationally and so some of that is our caution of expecting the same thing in Q3 and Q4 is because that can just come down to timing of June versus July and as well as the comps getting harder on international B2B side, which typically is slower in the third quarter because of summer holidays.

Okay. And then just to follow-up on that a little bit more, if you guys are actually seeing so much demand because of some of the marketing that you're doing, some of your resellers and the private label guys doing marketing, why not spend more and really try to get as much of the land grab as possible today as you guys are kind of majority share?

We are spending as much as we can that we have the sales capacity of work and that's clearly why we've also wanted to leverage these additional partnerships that have been working well both on the private label side as well as resellers to leverage their sales capacity. So we are doing as much of that as we think is effective. But at this point given the current structure of what we have, we don’t think the additional marketing dollar would be more effective. So given the sales capacity we have, we are constantly looking at that and making sure we’re spending as much marketing dollars as we can that would turn into sales that we and our partners have the sales capacity to work.

And I am going to sneak one more in if I could, but real quick on your private label product oxygen, last quarter you guys hand mentioned how much of an contributor that was as a percentage of sales. How much higher was it this quarter and does this indicate that we might be seeing the early signs of a turn or a shift in the way DMEs are thinking? Thank you.

Yes, we're not going to comment specifically on the contribution of the private label sales as individual customer. It wasn’t material from a sense of needing to disclose that in detail. So we won't see breaking that customer out or that segment.

But it was substantially more than in the first quarter for two reasons, A, it was a full quarter whereas in the first quarter it was the first, the second half of the quarter and B, we saw some very encouraging growth as we went through the quarter. So we're quite pleased with the momentum that this project has taken on. The big question is where is it going to stop? What's the potential of it and that we're still on the road to find out.

Thank you. Our next question comes from the line of Danielle Antalffy from Leerink Partners. Your line is open.

Thanks so much for taking the question and congrats again on yet another great quarter. Ray just wanted to follow-up on a comment you made earlier I think to Robbie's question about seeing, I think you said maybe DME is starting to take notice and that's helping to drive simply the higher B2B sales. So now that and maybe you can clarify this for us, where are we with POC penetration into the market? It feels we're approaching maybe double-digit at this point if it's not there already. And at what point do you think we see that penetration gets you before the larger DMEs really you take notice and they really do start to shift their business model. Do you feel like we're anywhere near that? Are you seeing anything in the market to suggest that we might be close to that?

So I know, I get asked that question a lot and I guess it's natural to expect a tipping point or a inflection point where instead of it being an uphill, it becomes a downhill. I honestly don't see that happening. I see the journey of the POC to become the default modality of how oxygen therapy is delivered to be relatively long and grinding one with tiny little mini baby steps made each quarter and each year. It's not a process that I foresee to be couple of years then it's there. I foresee that to take a long, long time and the reason for that is that there are existing infrastructures that are not easily changes as we have discussed many times. That does not mean that that businesses don't resort to the POC as a modality to enable their patients to travel if they so desire because in the past they would have had to organize tank deliveries to vacation homes or vacation spots are spots of quality or on a cruise, very expensive proposition. POC is a way cheaper way and so we see DME businesses establishing fleets of POCs on for temporary rental. We see some businesses seriously looking at the POC as a more default means of providing oxygen therapy, but in general, the bigger the company, the bigger the infrastructure and the harder it is to make that decision. So I would not at all be surprised if that inflection point or that tipping point that everybody is waiting for is several years in the future.

Okay. Okay. That's helpful. And how do we think about potential consolidation -- further consolidation amongst the DMEs? There were some rumors during the quarter about further consolidation. How could that impact the way we think about the market and the competitive landscape if at all? Thanks so much.

We've seen consolidation occurring in the industry and we would expect that trend to continue as reimbursement pressure continues. Consolidating is a good way to leverage your fixed cost and I do expect over time we will see less providers in this space. How that impacts the industry over time is really up in the air. What we're focusing on is driving patient awareness of our technology and working with partners who want to go on delivery and at this point, we're still in the very early stage of creating that awareness that we think we have a long road before we would consider needing to take an acquisition based strategy.

Okay. Thanks again guys.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Mike Matson from Needham and Company. Your line is open.

I think Mike you got to come out of mute.

[Operator Instructions] And our next question comes from the line of Brad Mas from Needham and Company. Your line is open.

Hey guys sorry about that. I am not sure what happened with mc. Just first one from me, with the European rep, I am just wondering, it's obviously showing great growth internationally. I am just wondering what your strategy is here going forward and if you plan to foresee a similar strategy in the future in other regions?

Yes so first question, what's our strategy? Our strategy is not that different from what it has been. What got us here is likely to get us a little further for at least for a little while. We do have -- Europe structurally is a little different than other regions of the world, simply because it has probably the most mature set of healthcare systems and the reimbursements structures if you compare that with South America or Asia certainly much more developed and more mature structure. So we typically do well in these well established structures. So whether or not that can apply to other regions of the world is more of a long term or longer term question. In terms of what we're doing right now, that's different from what we have been doing in Europe is that we actually have boots on the ground to call on the facilities and the subsidiaries of the multinationals there in Europe that combine make up a pretty significant share of the oxygen market and that's different from a market structure compared to here if they were a more concentrated market there with three or four multinational companies kind of sharing, competing with each other in almost every market. Our approach in the past has been to establish relationships with corporate purchasing functions and kind of go from there. We've added a European resource on the ground now to actually not only work with the corporate office, but also work with the field locations in each country to kind of duty and services and be a resource for them. And so much we're kind of taking it to the next level not necessarily a broader penetration, but a deeper penetration of those accounts in the European market.

Great, thanks for that. Ray that was helpful and then just a quick one for Ali, just wondering gross margin was hovering around 72% the first two quarters I think, is that kind of a level that we should think in the second half?

So overall gross profit percent in the two quarters was 47.4%. So we don't give guidance specifically on gross profit and the reason that we don't give guidance on gross profit is because you see it does kind of move around based on the mix of B2B versus direct to consumer, versus rental. So we don't give specific guidance on that because mix has a big impact on gross profit percent.

And it kind of depends on how you build you model for the second half. If you assume -- if you assume better business-to-business growth, then you ought to take the margin down. If you assume that it's flattening out, I would be able to -- it might be able to pick up a few basis points based on mix.

Okay. Great. Thanks guys.

Thank you. [Operator Instructions] At this time, I am showing no further questions. I would like to turn the call back to Mr. Ray Huggenberger for any further remarks.

Yes, so thanks for your questions and for your time this afternoon. I don't really have any words of wisdom here to close this. We do look forward to hosting those of you who are travelling to Southern California in the second half of the year as well as meeting some of you on our upcoming investor marketing trips and conferences. So with that again, thanks for your time today and have a good evening.

Thank you. And ladies and gentlemen thank you for your participation in today's conference. This concludes the program. You may all disconnect.