Inogen, Inc. (INGN) CEO Nabil Shabshab on Q4 2021 Results - Earnings Call Transcript

Feb. 24, 2022 8:36 PM ETInogen, Inc. (INGN)
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Inogen, Inc. (NASDAQ:INGN) Q4 2021 Earnings Conference Call February 24, 2022 5:00 PM ET

Company Participants

Jason Somer - General Counsel

Nabil Shabshab - Chief Executive Officer

Mike Sergesketter - Chief Financial Officer

Conference Call Participants

Robbie Marcus - JPMorgan

Brett Fishbin - KeyBanc

Maggie Boeye - William Blair

Mathew Blackman - Stifel


Welcome to Inogen's 2021 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today. Please stand by for one moment, as we bring the speakers through. Thank you.

Thank you, ladies and gentlemen. And with that, I will now turn the call over to our host, Jason Somer, General Counsel. Please go ahead.

Jason Somer

Hi. Sorry, we're having a little bit of technical difficulties here. So we're on a cell phone. Hopefully, everyone can hear us. We're going to try and reconnect at some point. But again for now we're just -- we're going to be on the cell phone.

Well, with that thank you for participating on today's call. Joining me are Inogen's CEO, Nabil Shabshab; and our CFO, Mike Sergesketter.

Earlier today, Inogen released financial results for the fourth 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 2022 and beyond; expectations related to our financial results for the first quarter and full year of 2022; our expectations with respect to supply challenges and cost inflation related to semiconductor chips, using our batteries and concentrators; our expectations of European regulatory clearances and related impact on our international sales; 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 prescriber sales organization, including the expansion of the sales team and implementation of health care intelligence platforms and tools through our partnership with Ashfield Healthcare, LLC; hiring expectations; expectations regarding reimbursement and regulatory changes; our expectations regarding the market for our products and the impact of COVID-19 pandemic on our business of supply and demand for our products in both the short 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 obligation to update these forward-looking statements except as they may be required by law. We have posted historical financial statements on our investor presentations in the Investor Relations section of the company's website. Please refer to these files for more detailed information.

Also, during the call, we will present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with 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.

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

Nabil Shabshab

Thanks, Jason. Good afternoon and thank you for joining our fourth quarter 2021 conference call. We have made steady progress on the execution of our strategy to expand and effectively increase our sales footprint, while driving the productivity of our commercial operations. We also continue to make progress in mitigating the supply chain challenges in order to meet the market demand and we are investing in R&D and clinical, while strengthening other critical capabilities in support of short-term growth, while setting us up for long-term sustainable and year-over growth in profitability.

A few months back, we announced an important new partnership with Ashfield, our contract sales organization to effectively advance our prescriber growth strategy. And we have made significant progress ahead of plan in terms of training and deploying the additional sales representatives and enhancing the operating model. In addition to enhancing our overall commercial excellence, we successfully executed the price increase in September 2021 that primarily offset the cost of inflation associated with the industry-wide limited semiconductor chip availability.

Turning to the fourth quarter results, we saw total revenue growth of 3.3% from the fourth quarter of 2020, primarily driven by improved average selling prices, sustained demand and the reduced impact of the COVID-19 pandemic and related Public Health Emergency or PHE versus the comparative period in the prior year which was partially offset by supply chain constraints, that primarily limited sales in our domestic business-to-business channel.

This was in line with the midpoint of our preliminary un-audited revenue estimates provided on the January 10th 2022 and the results for each revenue channel reported were in line with those estimates as well. With ongoing supply chain constraints and while attempting to fulfill critical orders for our domestic business-to-business partners we intentionally focus our available capacity on supplying our direct-to-consumer and rental channels and our international business-to-business sales channel in an effort to optimize revenue and margins.

Additionally, in anticipation of the temporary suspension of manufacturing operations effective January 1st 2022, we had reserved a portion of our supply produced in December 2021 to partially meet the demand primarily for our direct-to-consumer sales and rental customers we expected in the first quarter of 2022 until the time we had restarted production.

Before we go through the fourth quarter financial results in more detail, I would like to provide an update on the two items we reported in the January 10th press release relating to preliminary revenue results, for fourth quarter and full year 2021. With respect to the impact from supply chain disruptions associated with the semiconductor chips used on the printed circuit board and batteries of our portable oxygen concentrators, we are seeing continued pressure on supply with some early signs of improvement in the regular supply channel for these chips.

We are working closely with our regular semiconductor suppliers to firm up their overall commitment and smooth out delivery schedule for the orders they had initially confirmed for 2022. Despite early promising signs, the semiconductor shortages linger and likely will continue to limit our ability to fully meet demand in 2022. We reported in the fourth quarter of 2021, prerelease announcement that we were temporarily suspending manufacturing operations due to the semiconductor shortage related to the commitments from various brokers on the open semiconductor market.

The late cancellation of committed but outstanding semiconductor orders resulted in a decision to temporarily suspend operations beginning January 3rd 2022. As expected, that suspension was a brief one and we have now restarted our production at our Texas and California facilities and at Foxconn our contract manufacturer in the Czech Republic, between February 7 and 9 2022, ahead of the plan we laid out on January 10, 2022 and we are back at lower production levels.

We are continuing to work across the semiconductor suppliers of our OEMs and leveraging to the extent possible, the open market channel to purchase the necessary semiconductor chips. We additionally are completing the redesign of the motherboards on our Inogen One G5 POC to utilize alternative chipsets that currently have a higher level of availability which we expect to begin using in production starting in the second quarter of 2022.

With the motherboard redesign, there will be no material impact on the functionality, performance, patient user interface or patient experience, but we expect greater optionality in sourcing semiconductors moving forward. The cost for the chip -- sourced from the open market has trended higher in the fourth quarter of 2021 versus the third quarter of 2021 as a result of high demand and constrained supply.

This resulted in inflated costs related to the acquisition of semiconductor chips that negatively impacted our cost of goods sold in the fourth quarter of 2021. We expect the increased cost of chips to have an increased impact on our material cost in 2022 based on purchases already made to secure supply. We also expect such impact will increase as the regular supply chain's ability to catch-up to demand further regresses and the alternate chips that our entry design motherboards start to witness similar shortages due to the heightened demand. The higher semiconductor costs incurred in the fourth quarter of 2021 as a result of sourcing on the open market have also increased our prepaid expenses and other current assets and inventory given that most of these components were not yet in finished goods that were sold during that period.

We still believe based on industry feedback and our evaluation that the supply shortages are likely to continue through the second half of 2022 despite some expected improvements.

As part of our strategy to minimize supply disruptions and meet a higher portion of the expected 2022 demand, we decided to forward buy a portion of our semiconductor requirements for 2022 opportunistically during the second half of 2021. As a result, we expect the increased cost of goods sold per unit of 2022 to be higher than the cost increase seen in the fourth quarter of 2021, especially given that we will continue to source part of our semiconductor requirements during the first half of 2022 and possibly into the second half of 2022 from the open market channel.

While the supply chain situation remains fluid, we are pleased with the motherboard redesign for our Inogen One G5 POC and are aggressively continuing to pursue efforts to get firmer commitments from the regular supply channel, while simultaneously canvassing the open market for additional quantities. Again our execution around the price increase we took back in September 2021 has allowed us to cover most of the cost inflation due to the chip shortages.

As mentioned in our pre-announcement on January 10 2022, current Inogen products are commercialized in the European Union under the Medical Device Director certificates and ours is expected to expire on May 18, 2022. We are preparing the filing for the MDR submissions for certification under the EU Medical Device Regulation in the earlier part of 2022 for both existing and new and improved systems and expect the MDR certificates to be issued during the third quarter of 2022. We have verified our ability to meet most of the demand in terms of existing orders through our shipments up to May 18, 2022 MDD certificate expiry.

Additionally we are in the process of applying for select EU country level derogations or exemptions as an additional mitigation measure. We are also working towards securing the necessary certification for Great Britain and Switzerland where the EU MDR is not directly applicable, allowing for continued operations in those two territories independent of the time frame for certification under the EU MDR.

I would like to reiterate that the anticipated GAAP and EU marketing is unrelated to product safety or performance and will not impact US commercialization. Based on our latest discussions with the notified bodies, we expect the EU MDR dossier for our improved products to be reviewed and potentially cleared in time for long-term operations in the EU.

With that, I will now provide details for our fourth quarter 2021 revenue by channel. For the fourth quarter of 2021, we generated total revenue of $76.4 million compared to $74 million in the fourth quarter of 2020, which represents an increase of 3.3% over the comparative period. Domestic business-to-business sales in the fourth quarter of 2021 decreased 57.6% to $10.3 million compared to $24.2 million in the fourth quarter of 2020, primarily due to supply chain constraints that limited product availability in this channel.

International business-to-business sales in the fourth quarter of 2021 increased by 47.6% or 50% on a constant currency basis to $20.1 million compared to $13.6 million in the fourth quarter of 2020. The increase was primarily driven by increased ambulation of patients in Europe and improving operational capacity of certain European respiratory assessment centers closer to normal level as improving COVID-19 vaccination rates has enabled patients to return to normalized activity levels and seek treatments, partially offset by supply chain constraints that limited product availability in this channel.

Domestic direct-to-consumer sales increased 23.3% to $33 million in the fourth quarter of 2021 from $26.8 million in the fourth quarter of 2020, primarily driven by increased average selling prices. Inside sales represented productivity increased in the quarter despite lower average inside sales representative headcount, which was down approximately 3% from the comparative period in the prior year.

We are continuing to optimize our inside sales representative team by increasing our focus on enhanced sales management disciplines and utilizing data driven and insights led sales techniques aimed at improving the productivity of our inside sales force.

We are pleased with the performance of our inside sales team in the fourth quarter, as we saw improved direct-to-consumer sales productivity to representatives and increased average revenue per order versus the fourth quarter of 2020, including the price increase effective September 1, 2021.

Rental revenue in the fourth quarter of 2021 increased 39.4% to $13 million from $9.4 million in the same period in 2020 primarily due to increased patient for service higher Medicare reimbursement rates and higher billable patients as a percent of total patient home service. As of December 31, 2021 we had approximately 42,900 patients on service, which was up 6.2% sequentially compared to September 30, 2021 and up 33.2% compared to December 31, 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.

Despite the supply chain challenges being worked through, we remain cautiously optimistic about the direct-to-consumer sales and rental channels while we continue to assess the potential impact including changing COPD diagnostic rates and other variables as a result of the COVID-19 in the US and other major markets where we operate.

Moving to the strategic initiatives focused on increasing our prescriber sales organization. Our total physician sales representative headcount was 35 as of December 31, 2021 compared to 24 as of December 31, 2020 an increase of approximately 46%. However, in light of the collaboration with our contracted organization Ashfield as of January 2022, our prescriber-facing sales organization was at 47 sales reps in place and 10 sales reps with accepted offers that will be in the field early March 2022 well ahead of the timing we have communicated when we announced this agreement.

To support the combined 57 physician-facing sales reps, we have evolved our operating model by adding 12 Ashfield concierge service reps that will be assuming administrative responsibilities, which we believe will increase the selling time of the sales reps by about 60% according to our internal early estimates while improving the customer and patient experience.

We expect the new strategy and action plan will significantly improve our coverage of the highest proprietary prescribers with adequate core frequency while driving sales productivity through proprietary prescriber insights and analytics for the first time with Inogen. The enhanced sales tools and techniques, as well as the concierge service model, will benefit the combined sales force including Inogen and Ashfield representatives and we expect will increase our coverage of the portable oxygen patients that are diagnosed and prescribed in the prescriber channel from 40% to approximately 65%.

Regarding reimbursement rates, we continue to see increases in Medicare rates for oxygen therapy with Medicare reimbursement rates increasing approximately 5% effective January 1, 2022 and due to the annual inflation adjustment. The 2% Medicare sequester benefit that has been in place since May 2020 due to the COVID-19 PHE was set to expire December 31, 2021 but has now been extended until March 31, 2022. The sequester then resumes with a 1% reduction to rates from April 1, 2022 until June 30, 2022 with the full 2% Medicare sequester resuming July 1, 2022 and continuing through September 30, 2030.

As we look ahead, despite some near-term challenges the underlying demand for our offerings is strong and we are committed to increasing the POC market penetration and improving patient access. In the meantime, we are committed to working through the ongoing supply challenges and mitigating most of the material cost inflation focusing on commercial excellence and driving our operational efficiency.

We will continue to invest in our infrastructure and capability build, clinical evidence, innovation and new product development as well as commercial capabilities to strengthen and advance our market leadership position in portable oxygen therapy. We believe that these focus areas and investments will contribute to our aspirations of long-term sustainable and profitable growth and value creation.

With that I will now turn the call over to our Interim CFO Mike Sergesketter. Mike?

Mike Sergesketter

Thank you, Nabil. As Nabil noted, total revenue for the fourth quarter of 2021 was $76.4 million, representing an increase of 3.3% over the comparative period in 2020.

Turning to gross margin. For the fourth quarter of 2021, total gross margin was 50.5% compared to 46% in the fourth quarter of 2020. Our sales revenue gross margin increased to 49.2% in the fourth quarter of 2021 versus 44.5% in the same period of 2020. The increase was primarily due to higher average selling prices and decreased mix of domestic business-to-business sales, which have a lower gross margin than direct-to-consumer and international sales.

The increase was partially offset by higher cost of goods sold per unit in the quarter, primarily due to higher material, labor, and overhead costs. The fourth quarter of 2021 included $2.3 million of higher material costs associated with open market purchases of semiconductor chips used in our batteries and POCs, which represents approximately 360 basis points of gross margin. This cost is lower than our previous expectation of $4.1 million to $6.1 million of higher cost of goods sold in the fourth quarter of 2021 for open market purchases of semiconductor chips due to the timing of usage of chips purchased.

Rental revenues gross margin increased to 56.8% in the fourth quarter of 2021 versus 56.5% in the fourth quarter of 2020, primarily due to higher Medicare reimbursement rates, higher billable patients as a percent of total patients on service, and lower service expense for patient on service, partially offset by higher depreciation expense per patient on service.

As for operating expense, the total operating expense increased to $45.3 million in the fourth quarter of 2021 versus $39.6 million in the fourth quarter of 2020, primarily due to increased personnel-related expense and consulting expense, partially offset by a $2.9 million non-cash decrease in the change in fair value of the new earnout liability versus the comparative period.

Research and development expense increased to $4.7 million in the fourth quarter of 2021 compared to $3.7 million in the fourth quarter of 2020, primarily associated with increased personnel-related expense.

Sales and marketing expense increased to $29.7 million in the fourth quarter of 2021 versus $25.4 million in the comparative period of 2020, primarily due to increased personnel-related expense, consulting expense, and credit card and financing fees.

Media and advertising costs were $9.5 million in the fourth quarter of 2021 compared to $9.3 million in the fourth quarter of 2020. General and administrative expense increased to $10.9 million in the fourth quarter of 2021 versus $10.5 million in the fourth quarter of 2020, primarily due to increased personnel-related expense and increased consulting expense, offset by the non-cash change in the fair value of the new earnout liability versus the comparative period.

In the fourth quarter of 2021, we reported an income tax expense of $16 million which included a $17.4 million non-cash income tax provision expense associated with the revaluation of our deferred tax assets. The valuation allowance was recorded in the period due to uncertainty around the ability to utilize existing deferred tax assets to offset tax liabilities in future periods, primarily due to cumulative pretax losses, planned strategic investments in future periods, and the impact of the COVID-19 pandemic including related supply chain impacts on parts availability and cost inflation.

In the fourth quarter of 2021, we reported an operating loss of $6.7 million, adjusted EBITDA of negative $0.5 million, net loss of $22.9 million, and loss per diluted common share of $1.01.

Finally, we ended the fourth quarter of 2021 with cash, cash equivalents, and marketable securities of $245.5 million with no debt outstanding.

As Nabil mentioned, we paid significant additional costs in the fourth quarter of 2021 for the semiconductor chips purchased on the open market but not yet sold in finished goods, which increased our prepaid expense and other current assets and inventory as of December 31st, 2021 by $15.4 million and $0.7 million, respectively.

Now turning to our outlook. While we continue to make progress addressing the uncertainties caused by supply chain disruptions, we do not expect -- we do expect they will continue to impact 2022 results in terms of increased costs. We do believe material costs will be incrementally lower in the second half of 2022 versus the first half of 2022 once the motherboard redesign effort is complete and our regular supply chain further returns to normalcy.

We are also closely watching for any potential impact from the Omicron or other potential variance of the COVID-19 pandemic and its potential impact on COPD diagnosis rate. As a result at this point, we will not be providing detailed guidance for full year 2022.

However, we can provide some general context to our expectations for the first quarter and full year of 2022. Due to the expected supply chain constraints impacting semiconductor chip supply, we expect total revenue in the first quarter of 2022 to be similar to the fourth quarter of 2021 with the full year-over-year revenue growth expected to be in the mid single-digit range over 2021.

While we expensed $2.3 million of higher material costs associated with open market purchases of our semiconductor chips used in our batteries and POCs in the fourth quarter of 2021. We expect this cost to increase significantly in the first quarter of 2022 due to cost inflation on materials and labor throughout the supply chain primarily related to semiconductor chips we forward bought in 2021.

We expect approximately $4.5 million to $5.5 million of incrementally higher material costs associated with open market purchases of semiconductor chips used in our batteries and POCs for the first quarter of 2022.

At the same time, we're still committed to making multiyear investments in clinical research, research and development and building the necessary infrastructure to support future durable revenue growth and margin expansion. Given such investment initiatives, we expect increased operating expense for full year 2022 compared to 2021 with the expectation that these investments will begin to meaningfully benefit results in 2023 and beyond.

In summary, while we believe our pricing actions will cover most of the material cost inflation, we expect negative operating and net losses for the full year of 2022 reflecting the anticipated supply constrained revenue, increased cost of goods sold per unit, higher operating expense and incremental growth investments versus the prior year.

To reiterate what Nabil said earlier, while in the short term our outlook is impacted by certain supply constraints, we are proud of the actions we have taken to make structural improvements in our business including our investments in our prescriber sales and service organization, productivity improvements in our direct-to-consumer channel and increases in our average selling price.

We believe over the long-term our strategy to optimize the commercial infrastructure and drive productivity, while investing in clinical research and research and development around commercial opportunities will help us work toward our plan to return to sustainable revenue growth and profitability.

With that we'll be happy to take your questions. Diego do we have any questions in the queue?

Question-and-Answer Session


Thank you, sir. [Operator Instructions] Our first question comes from Robbie Marcus with JPMorgan. Please go ahead.

Robbie Marcus

Great. Congrats on the quarter. I wanted to ask there's a lot of moving pieces in 2022 and I do really appreciate the mid single-digit sales growth over 2021. But maybe you could walk us through the different moving pieces and how to think about the components of each of the businesses just given there's -- with Europe and the B2B there's a lot of ups and downs through the year. So I think that would be a great place to start.

Nabil Shabshab

Yes. Thank you, Robbie. Thanks for the question. So as I maybe let me take a step back and say that the good thing is the underlying demand that we see is very sustainable in Europe which is a good thing. As you can tell from the prepared comments that there is a supply situation that still is lingering over our performance.

With that said, we feel confident that with the channel mix that we have planned for and will execute around, that will get to that mid-single-digit growth.

As expected, of course, we're going to be focused on prioritizing where we get the highest revenue and margin, not too dissimilar from 2021, but we hope with the improved supply situation we’ll be able to also serve the needs of the B2B domestic channel a little bit better than what we've done in 2021.

Robbie Marcus

Got it. And how do you think the current HME -- the health of the HMEs are in the U.S.? Do you think once you get supply back online that there'll be a willingness to go out and buy Inogen POCs or do you foresee more of DTC and rental as the biggest drivers going forward? Thanks.

Nabil Shabshab

Yes. Maybe, let me make a comment first on the HME. I think there is an understanding that, what we're trying to do as a company in terms of the prioritization of the channel is only expected, everybody would behave the same way if they were running their own business.

So despite the fact that there is some, maybe, uncertainty around us supplying the HME business, there is some understanding to the fact of why we're doing it. Now with that said, we continue to see orders that are in the system. They're not being canceled.

We get also additional orders as an indication that, also that supply is constrained all around, Robbie. So it's not only us. And we believe that most of that will remain in place as supplies come back online. But we -- that's a normal part of the uncertainty that we're all leaning through, but we believe that most of it will stay in place.

Robbie Marcus

Great. If I could just slip one more question in. With the first quarter guide below consensus, how do you get confidence in mid-single-digit growth for the full year, if there's still going to be some supply issues at different points during the year? And that's it for me. Thanks.

Nabil Shabshab

Yes. No, thank you, Robbie. So I think, despite the fact that the first quarter was a little bit lower, we believe that, from the visibility we have in terms of supply chain, as well as our ability to ramp up production the second half, of course, of the year is going to be stronger than the first half of the year, giving us that confidence that, for us to, at least at a high level, indicate where we believe the growth rates are going to land.

Robbie Marcus

Great. Thanks a lot.

Nabil Shabshab

Okay, Robbie.


Our next question comes from Matt Mishan with KeyBanc. Please state your question.

Nabil Shabshab

Hey, Matt.

Brett Fishbin

Hey, guys. This is actually Brett on today for Matt.

Nabil Shabshab

Hey, Brett.

Brett Fishbin

Just a couple of questions. Hey, Thanks, Nabil. How are you? Just a couple of questions from us today. I just wanted to start with gross margin. The 50% number seems pretty positive in 4Q and with the understanding some of the supply chain cost seems to be increasing and other moving pieces. Just how would you be thinking about gross margins directionally in 1Q versus 4Q? And then also, just touching on the cadence for the rest of 2022 as we sit here today?

Mike Sergesketter

Yes. This is Mike. As you think about gross margin, because we talked about what we expect in Q1 in terms of top line and we also put a number out there in terms of what we expect the supply chain premiums that we're going to be absorbing in Q1.

And so if you think in terms of -- we've had pretty good gross margins in Q4. Obviously, they were propped up a little bit by the price increase and a little lower material cost effect than we had planned in the quarter, so we came in higher, higher than we thought we would.

And so I think as you look at Q1 you have to kind of factor in the fact that we're going to have about double the amount of PPV that's going to be flowing through our financials similar revenue. And I think that can get you pretty close probably to a number in terms of what to expect for Q1.

Now, if you think about the full year, obviously, we're going to be ramping up, we think in the back half of the year. And we expect things to improve in the back half of the year around supply chain, as we see some more normalcy coming back to supply chain. So we would hope that, as we move through the year, we'll continue to see improvement in our gross margins from that low point in Q1.

Brett Fishbin

All right. And then, just a little bit of a bigger picture question here. And I appreciate this could be a little bit tough to answer, but do you guys have a sense of what underlying demand might look like if not for the supply chain constraints? And what upside to the initial mid-single-digit growth guidance could be in more of a normalized environment?

Nabil Shabshab

Yes. So Brett, I'm going to take that. So if I look at underlying demand, I have to characterize it in two senses. One is, are we continuing to see the demand in the cash channel and the cash sales as well as in the orders that we received from B2B. And the answer is, we're seeing steady demand from both those channels, be it B2B in Europe or B2B in the US as well as our own DTC. So there's not a significant concern that might flag so far that the underlying demand is weakening.

The other side or the other list that I look at is also, we don't believe, to our knowledge that there is any major reduction in prescription as a result of diagnosis and prescription rates. Nothing that we have been able to see or determined so far. So that's the other angle that says that the underlying demand seems to be steady and healthy. I'm not going to make a comment on saying it's increasing, but it's actually steady as we go through the earlier part of 2022.

Brett Fishbin

All right. Totally fair. And then last question for me today. Just thinking about capital allocation for 2022, what would you consider your biggest priority is at this stage? And how would you characterize the current pipeline for potential acquisitions maybe relative to a year ago? Thank you very much for taking the questions.

Nabil Shabshab

Yes. So Brett, I'm going to say the priority is we have a growth strategy. We're going to make sure that we fund that growth strategy. We believe that's one of the best returns we can give back to our shareholders. But with that said, as you know and as you can see from our balance sheet that we have the ability to continue to look for an acceleration of our growth rates if we happen to find the right inorganic play through M&A, so that would be part of it.

And of course, as you can see, now we're funding some of the increases in our cost bases from the cash that we have. We believe the balance between the three things, meaning we're doing some investments like we said in multiple areas, we are actually overcoming some of the challenges from the cost increases as well as we are constantly engaged in dialogue around potentially finding the M&A acceleration that we would hope to get to in the future. So, three ways but we're in a good place in terms of the cash on hand to be able to do all of them at the same time.


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

Maggie Boeye

Hey, guys. This is Maggie on for Margaret today. I wanted to ask a question on the physician sales force. So you guys have added several new reps to the physician sales force in the first quarter alone. So how long does it take these reps to ramp? And then when do you expect these reps to be fully productive? And do you think we can see material impacts to the top line this year from these reps?

Nabil Shabshab

Hey Maggie, it's Nabil. How are you doing? So, great question. So first I think with the new -- not only the additional salespeople but the insights behind them in terms of the sales tools as well as the data-driven insights we're providing as well as the operating model in terms of giving people the productive time back. So they're not doing administrative work. They're focused on selling. We definitely believe that we'll see a faster ramp to productivity. The ramp before used to be 12 to 16 months more trending towards the end. Well, I'm not going to make a comment on how do we expect that ramp to be, but we expect it to be shorter than we've seen before with higher productivity also based on the back end of it.

Maggie Boeye

Okay, great. Thank you. You guys talked about the level of investments you've made in 2021 and plan to make in 2022 beginning to see impacts in 2023. So I know it's still early but assuming that you'll have an improving supply backdrop, is it reasonable to assume that you guys could begin to see high single digits to double-digit growth? Thank you.

Nabil Shabshab

By when? Is it -- you're asking by 2023?

Maggie Boeye

Yes, by 2023.

Nabil Shabshab

Yes. We believe that within the coming couple of years, we will be back to that level of double-digit growth as well as returning to profitability, Maggie.

Maggie Boeye

Okay. Great. Thank you.

Nabil Shabshab -

You’re welcome. Thank you.


Our next question comes from Mathew Blackman with Stifel. Please go ahead.

Mathew Blackman

Good afternoon, everybody. Thanks for taking my question. Just a couple. Maybe to start on guidance if you're willing to share that single-digit revenue growth you're expecting for 2022 is there any way to parse that between price and volume? And then a couple of follow-ups.

Nabil Shabshab

It's Nabil. At this point, in time we're not going to parse them out. I think the good news is we've got the ability to successfully execute on a price increase. And because of the fact that supply is the issue here we'd rather not answer that question now because the supply strengthens and the ratio would change significantly between where we're sourcing that revenue growth from.

Mathew Blackman

Fair enough. And then another one on the guidance, I just want to clarify the way it read in the press release and I apologize if you expanded on it in the prepared remarks but it sounds like for the full year you're expecting positive adjusted EBITDA. Am I reading that correctly? While in the first quarter for the full year it's supposed to be positive?

Mike Sergesketter

Yeah, that's what we were signaling in the press release. Absolutely. Yes.

Mathew Blackman

Okay. I appreciate that. And then my final question Nabil and I apologize again. There's a lot of moving parts. Particularly in Europe you're obviously doing a lot of things there. But is the sort of takeaway message is you're not expecting to see material disruption in the business? Is that sort of the take? Obviously there's a lot of different initiatives you've got in place. But is that sort of the bottom line takeaway? I would assume so because you wouldn't be able to grow mid-single digits if you were going to lose substantial revenues in Europe. But I just want to clarify that that should be the take?

Nabil Shabshab

Yeah it's a great question Mat. So let me maybe answer it in a two-part answer. One is we believe that the existing orders that were in the system because there is backlog a little bit in Europe also like here we can meet the existing orders with our ability to assert the NDD registration ship product before May 18. So that component, I would say affirmatively like you read it. Of course, we have also applied for the MDR certificate. And to our knowledge as you heard in the prepared remarks we feel that it will be cleared in time for longer-term operations. But I can sit here and say they don't have a huge backlog or there will be some questions that might come back. But we feel if you ask me today I think that we'll get that back on track in terms of the MDR certificate issued on time for us not to have major disruption, but I'm not going to take it off the table altogether.

Mathew Blackman

Okay. But does that mid-single digit – Go ahead sorry. I was going to ask if – go ahead Nabil. I apologize.

Nabil Shabshab

No, no, no. Not material enough. Go ahead.

Mathew Blackman

I was just going to ask, if that mid-single digit which I assume is like 4% to 6% is there some cushion in there to give you a little bit of flex in case things take a little bit longer? I'm just trying to get a sense of what's baked into that mid-single-digit guide.

Nabil Shabshab

We're not going to answer that right?

Mathew Blackman

Doesn't mean I can't ask but no I...

Nabil Shabshab

We realize that now but of course. We'll see you later today.

Mathew Blackman

Fair enough. Thank you. Appreciate it.

Nabil Shabshab

Okay. Thank you.


Thank you. And there are no further questions at this time. So I'll turn the floor back to Mr. Shabshab for closing remarks. Thank you.

Nabil Shabshab

Okay. So while the short-term outlook is impacted by certain supply constraints we are proud of the actions, we have taken to make structural improvements in our business, including a stronger commercial organization a more robust innovation pipeline and to support our market development efforts.

I remain confident in our ability to advance Inogen to a global market leader with innovative evidence-based chronic respiratory care solutions with long-term sustainable revenue growth and profitability.

Thank you for the time today, and we look forward to engaging in conversations with all of you. Thank you.


Thank you. This concludes today's conference. All parties may disconnect. Have a great day.

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