For the first time as a public company, Inogen reported fourth-quarter results after the close on Thursday, March 27. Revenue of $19.8 million was higher than our estimate of $18.6 million and the Street’s $18.5 million estimate. Rental sales for the fourth quarter were $8.6 million and direct sales totaled $10.9 million (42% and 45% growth year-over-year, respectively). EPS came in at $0.01 versus our $0.02 target.

Both rental and direct sales were higher than our estimates, by roughly $0.8 million and $0.3 million, respectively. Rental patient additions were in line with our estimate at about 2,000 net new patients. While we are assuming a steep decline in 2014 because of Medicare’s competitive bidding program, we believe these results are encouraging and suggest our estimates are conservative.

Fourth-quarter direct sales beat our estimates by $300,000 as the company’s direct-to-consumer strategy is paying off. The upside came even as the shift in focus to the DTC model was made during the latter half of the fourth quarter, making us optimistic regarding the strategy’s potential over a full year.

Round 2 of competitive bidding was implemented on July 1, 2013, and was in effect for half of the year. Reimbursement fell by 41% off the standard allowable and was 10% below initial Round 1 rates.

Despite the implementation of Round 2, second half 2013 patient additions increased 11%. We are assuming a 50% decline in net patient additions throughout 2014, which suggests our estimates are conservative. Assuming flat patient additions in 2014 versus the second half of 2013, we estimate $3.8 million in upside to rental sales (up 9%).


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