Good afternoon and welcome to the Inogen 2018 Fourth Quarter Financial Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matt Bacso, Investor Relations Manager. Please go ahead.

Thank you for participating in today’s call. Joining me from Inogen is CEO, Scott Wilkinson and CFO and Co-Founder, Ali Bauerlein. Earlier today, Inogen released financial results for the fourth quarter of 2018. This earnings release and Inogen’s corporate presentation are currently available in the Investor Relations section of the Company’s website. As a reminder, the information presented today will include forward-looking statements, including statements about our growth prospects and strategy for 2019 and beyond, market growth estimates and expectations, hiring expectations and the impact of recent hires on sales results, marketing expectations, international growth, product development and the upcoming launch of the Inogen One G5, expectations regarding the impact of Chinese tariffs in the finance – in financial guidance for 2019. The forward-looking statements in this call are based on information currently available to us. These forward-looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic reports filed with the Securities and Exchange Commission. Actual results may vary, and we disclaim any obligation to update these forward-looking statements, except as may be required by law. We have posted historical financial statements and our third quarter investor presentation in the Investor Relations section of the Company’s website. Please refer to these files for more detailed information. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures, taken in conjunction with the U.S. GAAP financial measures, provide useful information for both management and investors by excluding certain non-cash items and other expenses that are not indicative of Inogen’s core operating results. Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented in tables within our earnings release. For future periods, we are unable to provide a reconciliation of our non-GAAP guidance to the most directly comparable GAAP measures without unreasonable effort as discussed in more detail in our earnings release. With that, I’ll turn the call over to Inogen’s President and CEO, Scott Wilkinson. Scott?

Thanks, Matt. Good afternoon and thank you for joining our fourth quarter 2018 conference call. Looking at the fourth quarter of 2018, we generated total revenue of $86.5 million, reflecting a robust 35.7% growth rate and solid results in all four revenue channels. Direct-to-consumer sales of $36.8 million in the fourth quarter of 2018 increased 50.4% over the fourth quarter of 2017, primarily due to increased sales representative headcount and associated consumer advertising. Our direct-to-consumer sales team consisted of 446 inside sales reps as of December 31, 2018, which represented an increase of 183 reps, up approximately 70% over our 2017 year-end total of 263. Fourth quarter 2018 domestic business-to-business sales increased to $25.4 million. While business-to-business sales continued to grow, primarily due to strong demand by traditional home medical equipment providers and Internet resellers, order activity did slow from one national home care provider in the fourth quarter of 2018. Aside from this national home care provider, we saw strong demand across our diversified HME customer base. Specifically, when excluding this national home care provider, in the fourth quarter of 2018, domestic business-to-business sales increased at roughly the average rate of the previous four domestic business-to-business sales quarters. As we have always said, it is important to remember that domestic business-to-business sales can be lumpy quarter-to-quarter due to the inherent challenges facing providers from both an infrastructure and financial perspective. Despite these natural barriers, we continue to believe the conversion to non-delivery technology is in process and will take at least five more years to fully realize. Fourth quarter 2018 international business-to-business sales were very strong at $18.5 million. While we have acknowledge the fourth quarter was our easiest comp in 2018, we were very pleased to see robust European demand without the contribution of any meaningful tenders in…

Thanks, Scott and good afternoon, everyone. During my prepared remarks, I will review our fourth quarter of 2018 financial performance and then provide details on our updated 2019 guidance. As Scott noted, total revenue for the fourth quarter of 2018 was $86.5 million, representing 35.7% growth over the fourth quarter of 2017. Looking at each of our revenue streams, and turning first to our sales revenue, total sales revenue of $80.7 million in the fourth quarter of 2018 reflected 38.4% growth over the same quarter of the prior year. Total units sold increased to 46,100 in Q4 2018, up from 35.6% – up 35.6% from 34,000 in Q4, 2017. Direct-to-consumer sales for the fourth quarter of 2018 were $36.8 million, representing 50.4% growth over the fourth quarter of 2017, primarily due to increased sales representative headcount and increased advertising expenditures. We are proud of the growth we achieved in the fourth quarter of 2018, given the difficult comparable in the prior year where direct-to-consumer sales increased sequentially. As a reminder, this is normally not the case given the seasonality of our business. Domestic business-to-business sales of $25.4 million in Q4 2018 reflected 16% growth over Q4 2017. When looking at customer mix, we saw strong demand from traditional HME providers and Internet resellers, but were negatively impacted by reduced orders from one national home care provider in the fourth quarter of 2018. Excluding this national home care provider in the fourth quarter of 2018, domestic business-to-business sales increased at roughly the average rate of the previous four domestic business-to-business sales quarters. International business-to-business sales of $18.5 million in Q4 2018 increased 54.5% from Q4, 2017, and was driven mostly by strong European volume. While Q4 with our easiest growth comparable in 2018, demand continues to exceed our expectation despite the…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Robbie Marcus with JPMorgan. Please go ahead.

Hi, and thanks for taking my question. Maybe you could spend a minute on the composition of sales in the quarter with B2C doing so well and U.S. B2B slowing down a little bit for the second quarter, maybe speak to some of the underlying trends you’re seeing in the business in terms of distributors willing to purchase POCs and is this actually a benefit for you here as you get the benefit of picking up more of the direct-to-consumer sales?

Yes, Robbie, it’s Scott. I’ll take that one. I’ll start with the B2B channel. We mentioned that there is a major customer that they slowed down their purchases. But if you’ll note, we also mentioned that the rest of the HME customers are continuing to buy at a rate that’s consistent with the previous four quarters that we’ve seen in that channel. So we’ve got a nice diversified customer base, the rest of them continue to purchase at a nice growth rate. And we wanted to highlight that because while a large customer, when they slow down the purchases, it’s hard to ignore in the total growth rate, we wanted to give some color and understanding on what’s going on in the market. So that’s part one and we continue to expect that the market will convert to POCs over the next five years as we said. If you look at how things will shape up though, the customer – the large customer that slowed their purchases, they bought at a much heavier rate in the fourth quarter of 2017 and the first half of 2018 and then they started to slow down really, in the end of the third quarter and in the fourth quarter, last year and we don’t know when that they might pickup. Now, I tend to not like to talk about any specific customer individually, we always try to tell our story instead of somebody else’s story. So let me kind of frame some of the struggles that happened out there in the market at more of a macro level. You’ll note that we’ve always said the purchases by the HME community are lumpy and people always want to know why, why do you think they’re lumpy, why is your guidance in that channel generally…

That’s it for me. I’ll leave. That was a great answer. I’ll leave it there. Thanks a lot, guys.

The next question is from JP McKim with Piper Jaffray. Please go ahead.

Hi. Thanks for taking the question. Scott, I just wanted to ask a question on kind of your investment, because this is the second quarter of heavy investments. and so from our view, we look at margins and then we say they’ve been going down, so maybe, these investments aren’t worth today, but you’ve got better internal metrics that you look at. So, is there a way that you could frame up to us that these investments that you’re hiring reps and spending on advertising are paying off maybe more kind of lead indicators you can provide for us?

Yes. I’ll start and if Ali has something to add, I’ll let her chime in. But remember, the underlying issue here, I should say, opportunity is that, and I said it earlier, there is a lot more patients dragging around tanks than carrying POCs. Now, if you go back to the most recent data that we have, the Medicare data, where we look at the measure of POC penetration, it’s still pretty modest and that comes out to 11%, now the data as 2017 and we’ve been pretty candid to say that that doesn’t capture patients on the retail side. And the retail side is much more significant now due to the access issues and the spend, but even if you added a fair amount of basis points to that, or even more conservative and say we doubled it, 20%, 20% penetration is still quite a ways from full penetration in the market. So, we feel very comfortable investing in sales capacity, looking at the long-term and you’re absolutely right, I mean we made some conscious decisions that we were going to make some investments in 2018, we were going to focus a little less than we have on the past on our bottom line. We certainly didn’t plan to go into a loss, but we said we’ll titrate and if we could actually hold our net income even or better than we would be satisfied for that and the trade-off would be a higher growth rate. And if you look at our growth rates, we accelerated pretty significantly in 2018 versus the previous years and that’s even on a higher base. We think, looking at the long-term, that’s the right investment to make and we’re absolutely long on ourselves. So, while obviously as a public company, you’ve got to manage quarter-to-quarter, we do put an emphasis on the long-term and the right strategic moves to keep us in a winning position.

Yes, and just to add on to that, I mean I would say, we did consciously make an effort in 2018 to accelerate that growth rate and we are proud of that result, as Scott said, we went from 2017, our revenue grew 23% and in 2018, it grew 43.6%. So, a substantial acceleration in our revenue growth rate and that costs us about 50 basis points of operating margin. So while, it did, that we are showing less leverage than we saw in previous periods, we do think that that was a worthwhile investment. Now when you look at the specific quarters, obviously, there was more leverage in the first half of the year than there is in the back half of 2018. And there were some inefficiencies, as we did scale this business so quickly and there were some learnings there, as we increased the advertising spend, we didn’t see as much efficiencies there, as we had hoped and we really are focused on that now, as a key area that we’re looking at in 2019 to improve our overall results as to look at getting those reps fully up to speed and also making sure we have effective and efficient media sources for the lead sources that we need. So that is a focus, obviously, a part of guidance is to improve operating margin versus our 2018 results and we, as a management team, are certainly focused on that and we certainly had some headwinds in Q4 that we don’t plan to repeat in 2019.

Okay. That’s very helpful. Just a couple of ones more from me here is, just can you comment quickly on the G5 COGS compared to G4 or G3, if you can do that? And then how do you give investors confidence that this large HME is just pausing purchases and they’re not just buying from another competitor?

Yes, sure. So, I’ll take the first one. On the COGS side, we haven’t put out an official COGS reduction or anything related to the G5 versus the G3 or the G4. Historically, we have been able to reduce COGS as we’ve launched new products and be able to take in lower part counts, design efficiencies, higher volume, all of that does lead to lower cost over time. So that would be our plan for the G5 as well. There’s always some inefficiencies right out of the gate, as you’re ramping up manufacturing and you’re working through the processes that we would expect that to occur with the G5 as well. So, at volume, at scale, we do expect the G5 to be a lower cost profile for us and to help improve margins over time, but we haven’t quantified the exact impact and obviously, we haven’t yet launched the product to the market. So, we would be pretty cautious in doing that until we’re kind of through that initial manufacturing build and plan.

Yes. And let me take the second part on the large customer that you talked about on buying patterns and who they’re buying from. While they’ve slowed very significantly, we do still see orders from them, so they certainly have not ceased ordering from us and they advised that they were going to slow down. So, that wasn’t a huge surprise, once that was communicated to us. Now, you have to remember that most of the larger guys out there, whether it’s nationals and even some of the larger medium players, they’ll generally dual or even tri-source to mitigate risk, just like we do that with our suppliers. So were they buying units from somebody else? Well, probably, they – most people always do when they have that kind of size, just like we do. But that’s why it’s so important that we continue to invest in product development that we continue to improve our product, stay ahead of the competition, so that we remain the preferred product. That’s the best way to be the preferred supplier with any customer out there is to drive that patient preference and give them great value, great preference at a reasonable price.

Got it. Thank you so much.

The next question comes from Margaret Kaczor with William Blair. Please go ahead.

Hey, good afternoon guys. Thanks for taking the questions. So first off for me, you guys addressed market growth commentary on the front end, but just wanted to follow up on the market dynamics, so I’m warning it’s a four-part question. So, part A, can you guys address how you’re monitoring the market dynamics within HME on penetration? Part B is, what kind of customer targeting efforts are you and/or your private label partner making? What kind of investments are you putting in the field? And then I guess the third part is how is this year different from what you’re saying, either strategically going out throughout this year relative to the prior year, two, is it easier and more difficult and any examples you can provide?

Yes. So I’ll take that one, Margaret, it’s Scott. Thanks for your question. As far as the penetration rate, the best data available is still that Medicare data and unfortunately, there is nothing else that we’ve seen that’s cleaner data. So that’s our index that we get once a year. Now, we watch all of our other advertising and close rate metrics as part of our D2C channel as leading indicators on what’s going on. You look at buying patterns from customers, I mean, certainly, the customers that we sell directly to, we service monitor, look at what they’re buying so they grow year-over-year, for some reason any given customer is not, you go find out why, you always want to find out if somebody’s even or down in a growing market and POCs are certainly a growing market, are they having an issue or have you lost a customer? And you’ve got to find that out and you have to address it. I mean, we’ve at times, everybody occasionally lose with the customer, so it’s not that we’ve never lost a customer in our lives, but if you want to understand if you did why and what you have to do to get them back. So that’s what our direct HME team is doing. Now, that’s a pretty small and modest team and we’ve been pretty conservative as far as making investments there. Our investment has been in our primary go-to-market strategy of direct-to-consumer and we’ve got this great partnership with our private label partner, they’ve got more field reps out there that can call on HMEs than we do. And we think they’ve done a super job. So we’ve kind of handed that off to them to drive that and we’ve been more of a support vehicle to them. What do you need for help? What is pricing look like? You have to make sure that they are able to offer a competitive price. You can put them in a position, where they can’t make any money and they price themselves out of the market. So that’s where our efforts go is making sure that they have the support from us that we’ve got the support to the direct players that we’ve kind of got our finger on the pulse of the market and understand what’s going on. So far, we’re pleased with the conversion. Like I said, outside of albeit a large customer finding it necessary to slow down the numbers that we see in the market and all of our metrics are very positive for growth.

Okay. And then just I guess part C of that question was, as you look at this year or the future years relative to the prior years two, is it better or is it worse? And then if I’m calculating it correctly, excluding sales into this one larger provider, was that growth in B2B domestic almost 50%?

Yes.

Correct. I’ll just take the last part of that first. So yes, if you just look at the domestic B2B for the prior four quarters, it was approximately 50% was the growth rate for those prior periods.

Yes, I mean, Margaret, it’ll, as I said, it’ll – until there is a return to normalcy, it creates a tougher comp in the B2B channel, at least in the first half of the year until we catch up with they’ve slowed down. So we recognize that. As far as the other part of your question is more challenges this year versus last year. I think there are some inherent challenges as you go down this path to convert your business as a home care provider. When you start out, there’s always some low hanging fruit that every provider can pick. They can put some POCs on either some highly ambulatory patients that shoot through a lot of tanks and they actually see some benefit without really reducing any significant infrastructure or they can put some POCs on more remote patients that are a higher cost of delivery and they see some fast results there. But you don’t see that forever, eventually, you have to hunker down into the tough task of sorting out your infrastructure and as people have been buying at a fairly brisk rate over the last couple of years, that will be more of a challenge for them that they’ve got to – for them to really realize benefit, they’ve got to get those costs out that are associated with delivery. Now, as I’ve said in the past, I think once you get past that halfway point, once you get through, you’ve got more patients that are on a POC than on tanks that makes it a little bit easier, it’s literally your kind of climate up one side of the hill and once you get past the halfway point, I think it gets a little bit easier. But we’re certainly not on the back side of the hill yet.

Yes. and just to add on to that, we still feel very confident in our guidance for this year at a range of $430 million to $440 million. When we put that guidance in place in November, we had already seen from some volatility with this large national provider, which is why when we initially put out the guidance for 2019 that we said we expected solid business-to-business growth domestically and that we did know already the comps were going to be tough for us in Q1 and Q2 2019, just associated with the buying patterns in 2018. So, all of that was factored into guidance. And that’s why we are conservative when we look at B2B guidance both domestically and internationally is because we aren’t in control and we know that this industry has significant challenges to convert their businesses and that there will be starts and stops, and lumpiness in how this develops over time. So that was factored into guidance and obviously, we’ve made a significant investment in our sales force, direct-to-consumer sales force in 2018 and that’s why we expect that to be our fastest growing channel going into 2019.

Great. Thank you, guys.

The next question comes from Danielle Antalffy with SVP Leerink. Please go ahead.

Hey, good afternoon, guys. Thanks so much for taking the question. Just one question on the market commentary, Scott. So, I think what you’re seeing now is the oxygen therapy market based on more recent data you think is more low single-digits; POC should grow faster than that. Do you have any update specifically on the TAM? I think in the past you guys have said total of 2.5 million to 3 million oxygen therapy patients, I mean, is that number still an accurate number given the way – the new way you guys are looking at the data?

Yes, it’s a good question, Danielle, and there is no change to our TAM estimate of 2.5 million to 3 million patients. So, yes, we’ve looked at it a few different ways, we keep landed in that same area. I will emphasize that we’ve always said 2.5 million to 3 million, we haven’t said 3.0 million or anything, it’s kind of an acknowledgment that it’s an estimate, it’s probably a tougher estimate now than it used to be because of the movement within the data sources. But I think the key is, it’s not 20 million, it’s not 500,000, we feel very good about that estimate, no change to that.

Yes. Okay. That’s perfect. Thank you so much for that. And then one follow-up question on the home care provider that you saw back off on purchasing recently. Is this something that you expect to, and sorry if I missed this earlier, but you expect this home care provider to start purchasing again or is this potentially a customer that’s lost? And how in touch with that customer are you today during this time, where they’re not actually a purchaser? Just trying to get a sense if this is some – if we could see this customer come back?

Yes, it’s a good question.

And how much that you can have behind that?

Yes. and I think – and again, I try as much as possible to not talk about somebody else’s business plan or what they’re going to do individually. So, let me say it like this. I don’t know when they’ll come back. They’ve got some things that they would have to sort out in order for, I think, the pace to pick up, where it used to be. I go back to remember patients want POCs and so if they can’t get it through that provider, they can get it through other providers and they can get it through Inogen, that’s again I’m happy we put ourselves in that position 10 years ago, so that we’re not blocked from access to the market when the home care provider channel or a big customer like that have some things that they have to tackle. So, we just can’t predict when, so I don’t want to make a prediction that we just don’t have clarity on.

Yes.

Yes. And just to reiterate, that customer is still buying but in reduced quantities compared to the prior run rate.

Okay. got it. Thank you so much, guys.

The next question comes from Mike Matson with Needham & Company. Please go ahead.

Hi. Thanks for taking my questions. Just wanted to start with the – some of the market commentary that you made. I know you just gave Danielle kind of the repeated numbers, but I think I heard one other change in what you’re saying. So it sounds like you’re now talking about the market kind of being fully penetrated inside of a five-year timeframe versus the seven years to 10 years that you used to talk about. Did I hear that correctly? And I guess why do you now think it’s five years?

Yes, I mean we – it’s a good question, Mike. We’ve been saying, seven years to 10 years, but we realize we’ve been saying seven years to 10 years for a couple of years, and we’ve also said we’re already in process of that conversion. So we realize that if we continue to say seven years to 10 years, we’re kind of just pushing that out, right? So that’s why we now said more than five years. So I still don’t – I don’t think it’s going to happen overnight, again, I’ll say it’s an estimate, we’re seeing some of the challenges that people have. Could it take longer? Yes, it could take – it could take longer. Could it go faster? Yes, it could. For us again, that’s why it’s so important that we have access to the market ourselves, so that we have more control of our own destiny.

Right. And remember, if it does take longer than five years, say, it does take 10 years from now, that would mean that the cash, the retail opportunity would be stronger for a much longer period of time. So we see that still as an opportunity for us to be able to continue to capture market share and as B2B accelerates, then obviously, the B2B sales would be well above our 2019 guidance in whatever period that acceleration happened versus expectations.

Okay. That’s helpful, thanks. And then just with regard to the first half of 2019, I understand you don’t give quarterly guidance, but I’m coming up against some really tough comps in the first half. So, I know you’ve guided to revenue growth range, I haven’t calculated exactly, where consensus is, but are you comfortable in that with where the street was modeling things for the first and second quarters of 2019, is there any kind of qualitative guidance you’d like to give us around do you expect to be – I’d imagine you’re going to be growing slower in the first half than in the second half, but?

Yes. So thanks for the question. And we don’t give quarterly guidance, as you know. But we did make the comment around the particularly tough comps in Q1 and Q2 for a reason. So, we do think that those growth rates will be challenging in the first half of the year, assuming that the large national provider doesn’t go back to the cadence that they were buying previously, but we do feel good about still maintaining a solid growth rate in the domestic B2B channel for the full year that it already taken into account some level of volatility within the quarters, but yes, Q1 and Q2 will be more challenging than Q3 and Q4 in the domestic B2B channel from a comp perspective.

Okay, thanks. And then just finally, can you comment at all on the uptake or adoption, I guess of Inogen Connect? I mean, I know it’s on the products that you’re selling now, but how much of that is the newest and then second point I guess would be just on Inogen Capital. That’s sort of you kind of indicated last quarter was, you’ve rolled out or talked about rolling out Inogen Capital. So, maybe where things stand with that and what kind of reception have you seen? Thanks.

Yes. On Inogen Connect, I’ll take that one and I’ll turn the Inogen Capital question over to Ali. We launched, as we said in the patient channel late fourth quarter, we’ve seen a ton of patients hook up. It’s really kind of exciting, because of that geo tracker we can – we can look at all the product on the map, you actually – even though we’ve only sold devices in the USA. You can see where people are taken trips and product shows up in Europe and other places on the globe. We’ve probably got a little bit heavier connect rate out of the gate than we expected and it’s been a little easier for people to hook up, we beefed up a little bit on the support side, realized that the seniors tend to struggle with this Bluetooth connection things, that’s going pretty well. No, it’s not for everybody. There’s some people have no interest. Some people say maybe later, but it’s pretty exciting those that really value it and to see that are moving about in that retail channel. It excites the team and the – I’ll say, it really excites our engineers that they can see those patients moving around. On the B2B side, we just launched this month. So, we’re a couple of weeks in, pretty early. Most of the B2B customers are just getting their provider portals setup, so that they can monitor the data through their portals. So, it’s a little early to comment, because like I said, we’re only two weeks in, but we can have some more commentary on the next call. Capital?

Yes. So on Inogen Capital, obviously, we’re excited to roll that out in the fourth quarter, we have had customers use that. Remember, this is really targeting the small HME providers. So, this is really not meant to be a financing source for the regional or large players as most have access to financing through their own banking relationship. So, it’s really meant to help those small HME providers and we expect that to continue to grow in 2019 as more providers get comfortable with the product offering.

Great. Thank you.

Your next question comes from Matthew Blackman with Stifel. Please go ahead.

Good afternoon, everyone. If I could start with a couple more questions on the provider that decreased ordering activity. First, would you be willing to share what percent of your business that customer represents? And then second, just want to be clear, the second half acceleration you expect in domestic B2B, that’s purely comp driven right, your guidance doesn’t contemplate that provider accelerates ordering in the back half.

Correct, yes. So – so let me take the first question. So that customer was not a material customer, that customer actually purchasing through our private-label partner who is the material customer. So just to make that clear. But our guidance does not assume that, that customer accelerates growth in the back half, and that that’s contributing to the overall guidance number.

Okay. And then if I could shift to cash deployment and this is for Ali or Scott, I assume M&A is still the highest priority and any updates on business development activities would be helpful. But also, just given the volatility in the stock, I’m curious if you’re now more actively considering other ways of putting the balance sheet to work?

Yes. let me talk about the M&A piece first, we continue to look for the right product to add. But we’re certainly not at a point, where we just want to add something to add it. So that bar continues to be high. We’d like something obviously that’s disruptive. We don’t want to just add a me-too product that we sell on price, that’s really a waste of this fantastic asset that we have in our direct-to-consumer sales force and our marketing team. So, we continue to look, obviously, haven’t found anything yet. We haven’t closed anything. If we were to get to a point where we feel like we’re over that back side of a mountain that I described with Margaret, and we haven’t found anything yet, then we probably relax our criteria, but right now, we’re really looking for something that would be disruptive, big market, leverage all of our expertise and haven’t found it yet. And the second part of the question?

Yes. I’ll take that. So, on other capital allocation strategies, currently all options are certainly items that we could pursue in the future. Nothing has been decided at this point that would be appropriate given that we still have a large opportunity on the acquisition front. And we expect to use cash at some point in time for that. So no change in capital allocation strategy at this point.

Okay. And if I could sneak in one last one for you, Ali. Just given the large increase in the sales force denominator, is there a way you can give us a tenured rep productivity rate in 2018 and maybe how that compared to 2017, anything precise or even directional would be helpful.

Yes. We really don’t disclose that for competitive purposes, particularly as more of our manufacturing competitors have now jumped into the direct-to-consumer space, we’d like to keep that information very tightly held in the organization.

But I think in the past, you said that sort of on a year-to-year basis, it’s sort of a low single-digit increase. I’m just wondering if that’s still accurate.

Yes. that is still accurate. So, we do expect to continue to improve productivity each year. So each year, we have initiatives on the productivity side to improve that. And usually that’s a couple of percentage points. Sometimes, the things that jump productivity are things like new product launches, that type of thing, but nothing like that is assumed in guidance.

Okay. Thanks very much.

The next question comes through – from Matthew Mishan with KeyBanc. Please go ahead.

Great. thank you for taking the questions. And just a follow-up on the M&A piece of it. Are you guys seeing that that type of products in the pipeline that you think could be a good fit for Inogen to leverage the direct-to-consumer channel or – but not necessarily at the right price right now? And just curious, what do you think really would be the kind of criteria of a product that would leverage your D2C sales force?

Yes. I think it’s fair to say we really haven’t found the right product, one that is truly disruptive, because if you believe you have the right product, and of course, there is a reasonable limit, but price is not that important if you think you have the right product, that’s going to keep you on a high growth path for many years in the future. So, I suppose, somebody could price themselves out of the market. But the main thing is that we haven’t found the right thing that we think is disruptive, that really fits what we want to do from a market standpoint. We’ve seen some things that I’ll say they caught our eye. It’s not that we don’t have anything that we don’t – we’ve got some things we have our eye on, but they haven’t been compelling enough for us to jump. It’s – I think it’s fair to say that if we were a few years out in the future, some of these things that we’ve said maybe that checks five of our six boxes that we want, we might be willing to take that if we didn’t find something compelling in the next couple of years. But right now, I will say, we’re very picky right now.

Okay.

Yes. And I would say also there – of the ideas that we’re watching, it is important for that clinical efficacy and making sure that it’s something that really will make a difference to patients and treat their needs. So that’s something we’re – in evaluating all ideas, really taking at the forefront.

We have seen some pretty cool things though, Matt, I’ll say that they didn’t – they were great products, but didn’t leverage our direct-to-consumer approach. So that’s where it wasn’t a good match.

Okay. And then the last question, could you give us a sense of what the underlying growth for sales and marketing is in 2019 that’s implied by your guidance? I’m just trying to understand the leverage to the direct-to-consumer next year and how we should think about the phasing of the growth of sales and marketing for 2019?

Yes. So obviously, we don’t give specific guidance on the sales and marketing line just at a qualitative basis, so we do expect to see some leverage, the best leverage should happen in Q2 and Q3, just given when we see our normal sales seasonality and then lower in Q4 and Q1. So, I would expect that trend to repeat in 2019 as it has in most years, all else being equal. So, I do think that that’s important to note, but we do expect to see some efficiency compared to, where we were in 2018, because remember, the rate of sales force expansion in 2019 should be lower than that rate for the last couple of years.

All right. Thanks, Scott, Ali. Bye.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Wilkinson for any closing remarks.

Thanks. I wanted to close by saying 2018 was a year of investment for Inogen, as we continued to scale our sales infrastructure associated with our direct-to-consumer commercial strategy. These investments helped us deliver record revenue and bottom line results in 2018 and helped position Inogen for what we believe will be another year of strong revenue growth in 2019. We are executing on our strategic initiatives and remain focused on increasing adoption of our best-in-class portable oxygen concentrators. I would likely last to thank our employees for another fantastic year. Thank you and good evening.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.