Inogen, Inc. (INGN) CEO Nabil Shabshab on Q2 2021 Results - Earnings Call Transcript

Inogen, Inc. (NASDAQ:INGN) Q2 2021 Earnings Conference Call May 4, 2021 4:30 PM ET

Company Participants

Jason Somer - Executive Vice President & General Counsel

Nabil Shabshab - President & Chief Executive Officer

Alison Bauerlein - Founder, Chief Financial Officer & Executive Vice President, Finance

Conference Call Participants

Margaret Kaczor - William Blair

Brett Fishbin - KeyBanc

Lilia - JP Morgan

Rebecca Wang - SVB Leerink

Mike Matson - Needham & Company

Operator

Greetings, and welcome to the Inogen's Second Quarter 2021 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now pleasure to introduce your host, Jason Somer, General Counsel. Thank you, Jason. You may begin.

Jason Somer

Thank you. Thank you for participating in today's call. Joining me are our CEO, Nabil Shabshab and CFO, Ali Bauerlein. Earlier today, Inogen released financial results for the second quarter of 2021. 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, without limitation, statements about our growth prospects and strategy for 2021 and beyond; expectations related to our financial results for the 2021; our expectations with respect to supply challenges and cost inflation related to semiconductor chips, using our batteries and concentrators; our ability to create shareholder value by driving awareness of our products; expectations regarding our international and domestic sales channels; expectations related to our rental channel; expectations related to our physician sales force; hiring expectations; expectations regarding reimbursement and regulatory changes; our expectations regarding the market for our products; and the impact of the COVID-19 pandemic on our business and supply and demand for our products, in both the short term and long-term.

The forward-looking statements in this call are based on information currently available to us as of today's date. 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 obligations to update these forward-looking statements, except as may be required by law. We have posted historical financial statements and our investor presentations 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 US 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 US GAAP and non-GAAP results are presented in tables within our earnings release.

With that, I will turn the call over to Inogen's President and CEO, Nabil Shabshab. Nabil?

Nabil Shabshab

Thank you, Jason. Good afternoon and thank you for joining our second quarter 2021 conference call. We saw sequential growth of 16.8% in total revenue from the first quarter of 2021 and growth of 41.7% in total revenue from the second quarter of 2020. Overall demand and average selling prices for our products were strong in the second quarter of 2021. However, due to supply chain constraints and an effort to optimize financial results, we intentionally focused supply capacity on our direct-to-consumer and international business-to-business sales channels, which you will see reflected in those results.

We were pleased by our strong rental revenue growth and our improved direct-to-consumer sales revenue in the second quarter of 2021 sequentially versus the first quarter of 2021 and versus the second quarter of 2020. Direct-to-consumer sales increased due to higher demand, which lead to improved sales representative productivity and higher average revenue per order sequentially versus the first quarter of 2021 and versus the second quarter of 2020, when these metrics had seen the declines from prior periods associated with the COVID-19 pandemic. We believe that the improved metrics we saw in direct-to-consumer sales were primarily due to higher vaccination rates within our patient population leading to increased desire for mobility, concurrent with the relaxation of closure orders related to the COVID-19 Public Health Emergency or PHE, as well as improved consumer confidence.

With that, I will now provide details of our second quarter 2021 revenues by channel. For the second quarter of 2021, we generated record total revenue of $101.6 million, compared to $71.7 million in the second quarter of 2020, an increase of 41.7% over the comparative period in 2020. Domestic business-to-business sales in the second quarter of 2021 increased 27.8% to $27.6 million, compared to $21.6 million in the second quarter of 2020. We believe this increase was primarily due to greater demand for portable oxygen concentrators or POCs for both traditional long-term oxygen therapy patients and secondarily due to COVID-19 patients upon hospital discharge, as well as higher reseller demand.

International business-to-business sales in the second quarter of 2021 increased by 57.3% or 47.8% on a constant currency basis to $21.8 million compared to $13.9 million in the second quarter of 2020. We believe the increase was primarily driven by improving COVID-19 vaccination rates and increased ambulation of patients in Europe, increased operational capacity of certain European respiratory assessment centers, and increased sales in India associated with the spike in COVID-19 cases in that market. International business-to-business sales in the second quarter of 2021 included $2 million in sales to our distributor in India versus no sales in the second quarter of 2020.

Direct-to-consumer sales increased 35.6% to $40.9 million in the second quarter of 2021 from $30.2 million in the second quarter of 2020. We believe the increase was primarily driven by increased demand for POCs due to higher COVID-19 vaccination rates within our patient population and the relaxation of closure orders related to the COVID-19 PHE leading to increased ambulation, as well as improved consumer confidence. This increased demand was partially offset by lower average inside sales representative headcount, which was down approximately 18% from the comparative period as attrition outpaced hiring, primarily due to increased competition for sales professionals in 2021, along with reduced hiring of new sales representatives in 2020 due to the COVID-19 pandemic.

We continue to look to add new sales representatives, while maintaining our hiring standards and being mindful of the technology and constrains we are facing. Our rate of hiring increased in the second quarter of 2021, with headcount up slightly as of June 30, 2021, as compared to December 31, 2020. We expect minimal net new hires in the near term due to the size and quality of the candidate pool and expected attrition. We are pleased with the performance of our inside sales teams in the second quarter, as we saw improved direct-to-consumer sales productivity and increased average revenue per order versus the first quarter of 2021.

Rental revenue in the second quarter of 2021 increased 85.2% to $11.3 million from $6.1 million in the same period in 2020, primarily due to increased patients on service, higher billable patients as a percent of total patients on service, and higher Medicare reimbursement rates. As of June 30, 2021, we had approximately 37,100 patients on service, which was up 6.9% sequentially compared to March 31, 2021, and up 40.5% compared to June 30, 2020. The increase in patients on service was primarily driven by greater utilization of patient leads for rental opportunities and physician facing initiatives to increase prescriber awareness by our sales force as well as the relaxed Medicare criteria for oxygen therapy reimbursement due to the COVID-19 PHE. We are still cautiously optimistic that our performance both in the direct-to-consumer sales and rental channels is a positive indicator for improving market conditions for our products overall.

I would also like to talk about the supply-chain disruptions we are currently experiencing. While we are proud of the fact that we were able to avoid significant impact to our business in terms of supply availability in 2020, we have seen supply chain disruptions in 2021 primarily associated with the semiconductor chips used in our portable oxygen concentrators and batteries. This semiconductor chip shortage being experienced across many industries placing additional pressure on existing supplies. While we have been hard at work to mitigate the impact of the supply shortage, it has and will likely have a negative impact on our ability to manufacture products, as these chips are used across all of our portable oxygen concentrators in both batteries and printed circuit boards.

We are continuing to work with our OEM partners and exploring other open market avenues to purchase necessary semiconductor chips. But these products are facing extremely demand and we expect continued challenges in terms of supply constraints and pricing inflation until supply meets demand and prices stabilize. The acquisition cost of these chips from third parties has trended significantly higher in the third quarter of 2021 than the standard purchase price, and is expected to continue to increase if and to the extent supply is available during the shortage. As a result, we expect these inflated costs will increase our cost of goods sold starting in the first quarter of 2021 and continuing until supply meets demand and prices stabilize.

We believe based on our assessment and industry feedback that these supply shortages may continue through the second quarter of 2022. While we expect to be supply constrained and unable to meet full customer demand for our products in the interim, we are planning on partially offsetting these rising costs by implementing price increases across our products as of September 1, 2021.

Now turning to the latest from CMS; on July 2, 2021, CMS announced a proposed change to the home use of oxygen national coverage determination and proposed removing of the national coverage determination for home oxygen use to treat cluster headache. If approved, these new policies would allow the Medicare administrative contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headache. Additionally, CMS proposed to expand patient access to oxygen and oxygen equipment in the home by allowing oxygen use for acute or short-term needs, including cluster headaches or COVID-19, instead of limiting coverage to chronic hypoxemia. CMS also proposed removing the requirement for alternative treatment measures before dispensing of oxygen therapy and removing the requirements to patients be in a chronic stable state when tested for oxygen therapy.

CMS is also proposing to remove the limited list of conditions for which oxygen may be covered to respiratory-related diseases and allow physicians flexibility to make the needed determination. In addition, CMS proposed to define exercise more broadly to include functional performance of the patient and to give flexibility on pulse oximetry readings to reduce racial disparities in care. Lastly, CMS proposed to reduce provider burden by removing the oxygen certificate of medical necessity. CMS is seeking comments to these proposed decisions and respond to public comments in the final decision memorandum.

We are supportive of these proposed changes and believe that expanded coverage for patients, who would benefit from oxygen therapy, reduced administrative burdens and greatest physician decision making authority on proper patient care can improve access for patients who are in need of oxygen therapy.

As I look ahead, while we have some near-term challenges, the underlying demand for our offerings is strong and I'm confident about Inogen's commitment and focus on increasing the POC market penetration and improving patient access. To that effect, we remain focused on expanding physician and patient awareness of the POC modalities for oxygen therapy and [indiscernible] offerings in this space. We are committed to working through the ongoing supply challenges, while we continue to invest in our infrastructure and elevate our investment in clinical evidence and R&D to strengthen our market leadership position in oxygen therapy. While we are still early in these efforts, I believe that we are on the right path to create long-term sustainable and profitable growth.

Lastly, I'm happy to have expanded the senior leadership team and in the last couple of months with two new roles, Chief Medical Officer held by Stan Glezer and General Counsel held by Jason Somer. I look forward to Stan's contributions in medical affairs clinical research and regulatory affairs and Jason's contributions to our legal and compliance functions.

With that, I will now turn the call to our CFO at Ali Bauerlein. Ali?

Alison Bauerlein

Thanks, Nabil. As Nabil noted, total revenue for the second quarter of 2021 was a record $101.6 million, representing an increase of 41.7% over the comparative period in 2020, and a sequential increase of 16.8% from the first quarter of 2021.

Turning to gross margin. For the second quarter of 2021, total gross margin was 49.6% compared to 45.7% in the second quarter of 2020. Our sales revenue gross margin increased to 48.4% in the second quarter of 2021 versus 45% in the same period of 2020. This increase was primarily due to increased mix of direct-to-consumer sales, which have a higher gross margin versus our business-to-business sales, and improved average selling prices in all channels. The increase was partially offset by higher cost of goods sold per unit in the quarter, primarily due to increased labor and overhead costs and material costs. Rental revenue gross margin increased to 58.6% in the second quarter of 2021 versus 53% in the second quarter of 2020, primarily due to higher billable patients as a percent of total patients on service and higher Medicare reimbursement rates, partially offset by higher service and depreciation expense per patient on service.

As for operating expense, total operating expense increased to $38.7 million in the second quarter of 2021 versus $35.1 million in the second quarter of 2020, primarily due to increased personnel-related expense and increased media and advertising costs, partially offset by a $9 million non-cash decrease in the change in fair value of the New Aera earnout liability versus the comparative period.

Research and development expense increased to $4.1 million in the second quarter of 2021, compared to $3.3 million in the second quarter of 2020, primarily associated with increased personnel-related expense. Sales and marketing expense increased to $29.3 million in the second quarter of 2021 versus $22.1 million in the comparative period of 2020, primarily due to increased personnel-related expense, increased advertising, and other direct-to-consumer sales and marketing costs.

Media and advertising costs were $8.7 million in the second quarter of 2021 compared to $7.2 million in the second quarter of 2020. Personnel-related expense increased primarily due to increased commission and bonus expense along with recent management addition. General and administrative expense decreased to $5.2 million in the second quarter of 2021 versus $9.7 million in the second quarter of 2020, primarily due to a $9.0 million decrease in the change in the fair value of the New Aera earnout liability and lower consulting costs, partially offset by increased personnel-related expense including $0.8 million in officer transition costs.

The change in the fair value of the New Aera earnout liability was a benefit of $8.1 million in the second quarter of 2021 compared to an expense of $0.9 million in the second quarter of 2020. The reduction in the fair value of the earnout liability in the second quarter of 2021 was associated with the reduced expected revenue from the TAV technology due to the negative Medicare reimbursement coding outlook based on the recent court decision to dismiss our legal case against CMS with regards to non-invasive ventilation coding.

In the second quarter of 2021, we reported operating income of $11.7 million, adjusted EBITDA of $12.4 million, net income of $5.1 million, and income per diluted common share of $0.22. Finally, we ended the second quarter of 2021 with cash, cash equivalents, and marketable securities of $250 million with no debt outstanding.

Now turning to guidance, we are facing a number of uncertainties caused by the continued and varying impact of the COVID-19 pandemic, in addition to supply chain disruption and the increased cost of critical components previously discussed. These include the impact of the Delta variant and the potential emergence of new variants, the durability of higher consumer confidence and increased consumer ambulation, and worldwide vaccination rates. As a result, we are still unable to provide guidance for the full year 2021, including our revenue, revenue mix, net loss, and adjusted EBITDA estimates for such periods.

However, we can provide some general context to our expectations for the second half of 2021. Due to the supply chain constrains, Nabil discussed, we expect total revenue in the second half of 2021 to be lower than the first half of 2021, with the largest negative impact on our domestic business-to-business channel. We also expects increased cost of goods sold per unit in the second half of 2021 due to cost inflation of materials and labor throughout the supply chain including semiconductor chips and higher freight costs. To partially offset these rising costs, we plan to implement price increases across our products, which are planned to be effective as of September 1, 2021.

We still believe it is prudent to continue to make investments in clinical research, research and development, and building the necessary infrastructure. Given these investment initiatives, which we believe will support future revenue growth and predictability as well as margin expansion, we expect increased operating expense for the year in 2021. In addition, while we incurred minimal expenses related to bonus and performance-based stock compensation expense in 2020, we expect such costs to increase in 2021 along with certain expenses related to the previously announced officer transitions and additions.

In summary, we expect net losses in both the third and fourth quarters of 2021 and a net loss for full-year 2021, reflecting the anticipated supply-constrained revenue decline, increased cost of goods sold per unit, and higher operating expense in the second half of 2021 as compared to the first half of 2021.

With that, we'll be happy to take questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Margaret Kaczor with William Blair. Please proceed with your question.

Margaret Kaczor

Hey, everyone. Thanks for taking the questions and good afternoon. You guys had a few third positive metrics for us, particularly around DTC fees and gross margin. I realize you're on shortfall for chip supply but it does seem like you've got a little bit more pricing flexibility. So I've got a few questions with that setup. So on the DTC side, normally the seasonality would suggest a flat to down mid-single digits. However, we're seeing travel continue to rise, you mentioned yourself you're pushing more supply towards DTC. So maybe walk us through those puts and takes and how inventory versus demand might affect the second half within this business and how that might be different, I guess from your stats.

Alison Bauerlein

Yeah, sure. I can take that one, Margaret. And really, I think what you're calling out on the demand side is certainly true and consistent with what we saw in the second quarter and into the third quarter. We continue to see strong consumer demand for our products and business demand for our products. So that is certainly very positive and you see that reflected in our second quarter results. However, the chip shortages that we are seeing, they are impacting our ability to meet that demand. So I think when we look at the third quarter and the fourth quarter dynamics, it's not necessarily driven by demand impacts and that would be reflective of our typical seasonality, it's more reflective of what we have from a supply chain perspective.

So as we said, we do expect revenue in the second half of 2021 to be lower than the first half of 2021. Now, of course, the comparison, given the low sales last year, we still do expect to see sales up on a year-over-year basis in the third and fourth quarters versus the 2020 comparative periods but it will be limited by the chip shortages. And certainly the improvement in gross margin that we saw in the second quarter, we don't expect to be sustainable in the back half of 2021, given the increased costs we're seeing on the chip side.

Margaret Kaczor

Okay. So it sounds like you're going to try to maybe meet demand across the board, maybe slightly shift supply to DTC but you obviously want to make sure that all your customers are seeing some demand or some ability to access products. Did I hear that that right? So we could still see DTC maybe down a little bit, sequentially.

Alison Bauerlein

Yeah, I think that's a fair, Margaret. I mean, our typical seasonality would already say, in the DTC channel that we would expect sales to be down in the third quarter, and then down again in the fourth quarter versus the typical second quarter being the high. So, we would expect that type of trend to continue and as we said in the prepared remarks, we expect our US business-to-business channel to be the largest impact in terms of lack of supply. Of course, that is our lowest margin business but we are trying to allocate product to all of our customers and fill what we can based on that supply constraints that we see across the business.

Margaret Kaczor

Okay. So that kind of leads me to the next set of questions, which is how material are these, and I appreciate the second half is maybe lower than the first half, but it sounds like you've got a ton of demand out there. So, based on what you're seeing today, can you give us any sense of how much inventory you might have relative to what we've seen in the second quarter? And is that the right way of looking at it or why isn't that, I guess? Thanks.

Alison Bauerlein

Yeah, I mean, I wouldn't say that that's necessarily the right way to look at it, Margaret. If you look at our balance sheet, you'll see 27 million or so of inventory on the books, so we don't have material inventory levels versus levels of revenue in the business. But this is more acute than that, this is a supply chain within our supply chain. So, these are subcomponents bought by our suppliers of various parts of printed circuit boards and batteries and their suppliers of these chips parts where we are experiencing the shortages. So, this is kind of an acute issue that is impacting the business. And we certainly are trying to offset this as much as possible with open market purchases of chips. We are validating the quality of those products, the validity of those products, but we are seeing a significant cost associated with those specific parts that will impact our cost of goods sold, in the range of a mid-single to high-single digit increase in cost of goods sold per unit for the unit that we purchased with these higher costs.

Nabil Shabshab

And Margaret, for clarity, we're not letting the increased costs get in the way. What we'd like to do is we're trying to meet demand as much as we can. But as Ali said, there will be an impact on cost of goods but it's a supply issue, and we're not stopping - actually allowing our supply providers to go work with their supply chain downstream, we are working hand-in-hand with them to go all the way to the source and try to argue or put a business case for a fair allocation. We don't believe that's happening all the time but we're compensating by paying multiple, multiple, multiples of the original price on the open market, because we are doing our best just to meet demand across the channel as we can, despite the fact that we're getting this disruption. But we're basically just meeting demands; we don't have a lot of inventory.

Margaret Kaczor

Okay. I'll apologize. I'm going to sneak one more in. But just in terms of pricing, you guys referenced I think in the press release that you're seeing pricing up across the board in all the various channels. And so if you could speak to that, and I guess more specifically, why wouldn't you raise price now, rather than wait for September 1st? Thanks guys.

Nabil Shabshab

I will take that one Margaret. So there are - we're doing it in a very orderly fashion. There are some contractual obligations that we have and we are going to take prices up, but we believe in a timely fashion. So September 1, it will go into effect; it's in the low-double digit range. We believe that about 70% of it will go through depending on the terms and conditions of different customers. So, we're trying to get ahead of it. But also I just want to clarify, we're not covering all our increases in costs, we're trying to actually catch up a little bit the cost increases that have been happening since the beginning of the pandemic, but now has gotten to a level that require us to take action. And we believe that's the right sort of level of price increases that we can pass on without impacting the business and in the most timely fashion we can.

Alison Bauerlein

Yeah. And just to add on to that, Margaret, we didn't see any of the higher costs associated with the chip shortages in the second quarter. So you don't see that reflected in any of the margins that we show here. And just to talk a little bit about the increased average selling prices that we saw in the second quarter, we didn't have any formal price changes in the second quarter. That's really reflective of people buying more batteries, extended warranties, kind of getting back to the pre-pandemic levels of accessory purchases, but raises the overall average selling prices, as well as raises gross margin related to those purchases. So, I just wanted to clarify that.

Margaret Kaczor

Thanks, guys.

Nabil Shabshab

Thanks, Margaret.

Operator

Thank you. Our next question comes from Matt Mishan with KeyBanc. Please proceed with your question.

Brett Fishbin

Hey, guys, this is Brett Fishbin on today for Matt. Thanks for taking the questions. Just wanted to follow up on gross margin a little bit, given the price increases aren't going into effect until September, how can we be thinking about the magnitude of a potential headwind for 3Q and then looking ahead, can you give us maybe a sense of what portion of the headwind you think you can offset with the price increases?

Alison Bauerlein

Yeah, sure. Thanks for the question. And certainly gross margin has multiple moving parts in it. So I want to remind everyone that it's not just related to selling prices and our cost of goods sold. There's a happy factor mix in our business because there are very different gross margin profiles in our direct consumer business versus our business-to-business areas. So, mix is a very important to think about when you're looking at gross margin projections. But looking at the cost impact, certainly, when we look at the size of the cost of goods sold, per unit increase, we're expecting that to be in the mid-single to high-single digit increase in cost of goods sold per unit. So that's what you can think about for the units with these higher chip prices. And then, of course, as Nabil said, we expect to have a low-double-digit increase in pricing for the majority of our customers effective September 1. So, we do expect, given those factors, to see gross margins decline versus where we were in the second quarter of 2021. So, we would not expect those levels to be repeatable, given where we are from a pricing perspective and a costing perspective in the near term, until we get past these higher costs.

Brett Fishbin

Thanks for that additional color. And then can you also comment on how some of the supply chain constraints can change the approach to hiring new reps? And do you still plan to add more reps on a net basis in the second half?

Nabil Shabshab

Yeah, we've adjusted our plans in terms of hiring to reflect the supply chain shortages that we're seeing, as you mentioned, but that said, we don't expect a net-net increase in terms of the hiring. We're just trying to cover for attrition and while we remain very conscious of the quality of the reps we hire, but definitely the supply chain shortages are being reflected in the hiring plans, so we don't over hire.

Alison Bauerlein

Yeah, just to add on to that we are still investing in our field sales-force because that is important looking into 2022 and beyond as those reps take a lot longer to come up to speed building those physician relationships. So, we are continuing to build out that a physician facing sales-force but we're being more constrained on our direct-to-consumer inside sales team hires, and as Nabil said, trying to offset attrition with replacement hires.

Brett Fishbin

Alright. And then last one from me. Just putting some of the near-term headwinds aside for a second, can you comment a bit on how the international recovery has progressed over the last few months versus expectations, particularly in areas that you've previously called out as more challenged, like Europe and Latin America? Thank you.

Nabil Shabshab

Yeah, so on the international side, we've been encouraged by the progress that we've seen in terms of diagnosis as well as demand on our products. So far, it's all been trending in the right direction, however, we remain very cautious about what the impact of these new variants are going to be. As you know, we're seeing a return to more strict guidelines and/or restrictions throughout European countries, and that potentially will have an impact on dampening the demand that we're seeing so far. The same, the demand is very strong in the US market over all the channels but the one thing that we're being cautious about is the impact of what's going to happen next, in terms of adding [indiscernible] and some of the return to the restrictions that you're all hearing about.

Operator

Thank you. Our next question comes from Robbie Marcus with JPMorgan. Please proceed with your question.

Lilia

Hi, this is actually Lilia on for Robbie. Thanks for taking the question. So I was hoping you could give a little bit more color on the b2b business specifically. Just how you're thinking about the outlook for that over the bounds of the year? Is there any way to size the benefit that you saw some COVID-related demand in the quarter? Do you think that could result in another sequential increase like we saw in this quarter as the Delta variant spreads or should we expect similar sequential decreases over the balance of 2021? Thanks.

Alison Bauerlein

I think that certainly the demand continues to be strong for the product on the B2B side, but I do you think the supply constraints will limit our ability to grow that in the third and fourth quarters versus the first half of 2021. But we are seeing continued strong interest in the products, across our partners, both in the US and Europe. So it does seem like both the recovery of core COPD treatment, as well as the short term use associated with COVID-19, that those demand factors are still largely in play, but we are being limited by our supply constraints.

Lilia

Got it. Thank you. And then just one more quick one. Do you have any updates you can share on the New Aera product on where you stand in development for this? And any sort of timelines we should be thinking about here? Thanks.

Nabil Shabshab

Yeah. Thank you for the question. So we're continuing our work and diligence in terms of defining what the path could be moving forward in terms of the combination product between oxygen therapy and New Aera, we're turning our attention to a little bit more on the diligence on the patient profile, and what patient population could benefit most from support in terms of high flow oxygen therapy. And we're continuing to actually progress that investigation so we can make a decision on the path forward. At this point in time, until we finish that work, we're not providing any more guidance on that.

Operator

Thank you. Our next question comes from Rebecca Wang with SVB Leerink. Please proceed with your question.

Rebecca Wang

Hi, this is Rebecca Wang on for Danielle Antalffy. Thanks for the question. I guess I just want to ask in the - it might be a higher level question. In the long term, how should we think about the makeup of your four business, D2C, and rental and then B2B domestic and internationally? As you're increasingly focusing on your rental business, how should we think about the makeup of those four parts? And then how does this mean for images from an operating margin perspective? Thank you.

Alison Bauerlein

Yeah, sure. So I'll take that, Rebecca, thanks for the question. And we do think and what we've said is that we expect rentals to become a bigger portion of the business over time. It has been our fastest growing channel and we would expect that to continue as we build out our physician facing field sales force and focus more of our inside sales team on continuing to set up new rental patients. And we think that that's the way to provide the best access to our products long term, as patients prefer to use their insurance benefits to gain access to our products. Of course, we do think that there will continue to be strong direct-to-consumer sales demand for the product and we also want to continue working with our B2B partners, who are also continuing to help us to get more patients set up with POCs versus [indiscernible]. So we see a balanced approach with rental being the largest focus area for us and likely the fastest grower of our four channels.

Nabil Shabshab

Rebecca, one additional thought, when we talk about our focus in terms of the physician facing workforce, those could source volume into the rental business too. So that also has a positive impact in terms of us getting patients at onset of being diagnosed as well as prescribed and then it could go either way into rental and or into cash.

Rebecca Wang

Thank you. That's all very helpful, and how should we think about that - as rental growing to be a bigger part of the business, how does that impact your operating margin longer term, can you provide any car on that?

Alison Bauerlein

Over time, Rebecca, we do expect that to improve our EBITDA profile of the business. And we would expect that to occur as we - it becomes a bigger portion of the business. I would be a little bit cautious there in terms of just the profile, it takes some time to build up the revenue in that business and you have all the sales and marketing costs that hit up front in the business. But we think that has a very nice EBITDA margin profile, long term.

Rebecca Wang

Thank you so much.

Operator

Thank you. Our next question comes from Mike Matson with Needham & Company. Please proceed with your question.

Mike Matson

Yeah, thanks. Thanks for taking my questions. I joined the call a little late, so apologize if some of this has been discussed earlier. But I wanted to talk a little bit about the semiconductor issue. So I understand that the cost side of the equation, but I guess what I'm wondering about is how much visibility do you have into the actual quantities that you're able to get? And what sort of impact that will have for the remainder of this year and into next year? I know - I saw the comment that you expect the second half revenue to be lower, but when you get into next year, do you expect that to also be lower than the first half of this year, for example?

Nabil Shabshab

Yes, I'll start, Mike. Thanks for the question. So as you can tell, this is a very fluid situation, not only for us, but for a lot of people. And maybe just by way of background, so we're characterized as part of the industrial vertical for these suppliers, so we're like in the mix, or in the bowl with huge other customers that we are fighting for allocations with. But that said, our customers, our OEMs, are actually planning on a 52 to a 78-week cycle so further out. While they're indicating that we are not going to see shipments start the backup, normally, until Q1 of 2022. And then the indication is, it's not going to stabilize until Q2 of 2022.

With that said, we're doing our best to actually compensate for that through open market orders. And we are doing extremely aggressive on that front to give us as much visibility as we can. But the further you go out in time, there is - honestly there is no answer, no matter how many doors you knock on, in terms of being able to be provide with that visibility, there is not much assurances. So, we're actually working towards a Q1, Q2, hopefully stabilization. And our visibility is closer towards the end of the year, but not further than that.

Mike Matson

Okay, now, that's understandable. And then just on the commentary in the press release about the price increase, so I think that was on the DTC side. So can you just talk about that? Is there any ability to increase prices on the B2B side? And what, sort of elasticity is there, what do you expect that to do to your demand in either of those categories when you raise prices?

Alison Bauerlein

Yeah, sure. Sure, Mike, I'll take that. And the price increase that we talked about is actually across the business. So we are expecting to increase prices for all customers effective September 1, not just our direct consumer businesses, of course, subject to contractual obligations. So we are going through that process with our customers now, discussing these price increases, and we do expect that to occur across the majority of our customer base. Of course, on the B2C side, there is some level of elasticity in prices, but we have seen high demand on the B2C side, so we expect not a significant volume impact associated with the price decrease, given - price increase, sorry, that we are putting in place, given the availability across the board and the inflation that people are seeing across many products and what we've seen thus far.

Mike Matson

Okay. And so - I mean, is it possible that the price increase could sort of offset the volume impact, and you could still kind of come out above where you ended the first half or?

Alison Bauerlein

So even taking into account the price increase, our comments apply for we still expect sales in the second half of the year to below first half of 2021. That was already factored into that comment.

Nabil Shabshab

And maybe, additionally, despite all the management of the mix, the channel mix, we're doing everything we can, but still the comments stand.

Mike Matson

Okay. All right. And then from a new product perspective, it's been a little while since we've seen anything new. I was wondering if you could talk about any plans to launch a new POC or maybe the New Aera integrated product, and then does this supply issue maybe effect, just from a high level, effect the timing of any new products.

Nabil Shabshab

In general, as you reviewed with us, we don't talk about launches that are coming up. At this time, we actually like to talk about them just before then. At this point in time, we're not providing any sort of insight into that, Mike, but we'll keep you updated.

Mike Matson

Okay. Understand. Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Nabil Shabshab

Okay. Thank you. I'm encouraged by the improved financial results we saw in the second quarter of 2021, in spite of the supply chain challenges we are experiencing. I believe the strong underlying demand for our industry-leading solutions, coupled with the investments we are making will position us to reach our vision of becoming a global market leader with innovative evidence-based chronic respiratory care solution. Thank you for your time today and I look forward to engaging conversations with our investors as we make progress on our strategy to build a stronger energy. Have a good day.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.