What happened

After Inogen (INGN 1.76%), a medical device company focused on repository care, reported ugly second-quarter results and lowered its guidance, its shares dropped 23% as of 2:12 p.m. EDT on Wednesday.

So what

The headline numbers were pretty unattractive: 

  • Revenue grew 4%, to $101.1 million. That was well below the $106.8 million that Wall Street was expecting.
  • Gross margin dipped 10 basis points, to 49.7%.
  • Operating expenses jumped 11%, to $38.1 million. 
  • Net income dropped 30%, to $10.2 million, or $0.45 per share. That was below the $0.49 that analysts were expecting.

Management doesn't see this trend reversing itself anytime soon, either. Revenue is even expected to decline in the third quarter of 2019. 

Businessman sitting in front of a laptop and making the thumbs down gesture with his right hand.

Image source: Getty Images.

To make matters worse, management cut its full-year guidance for the second quarter in a row:

  • Total revenue is now expected to land between $370 million and $375 million, down from its prior outlook of $405 million to $415 million. Wall Street was expecting $408.9 million in total revenue.
  • Net income is now expected to land between $26 million and $28 million. That's down from its prior range of $36 million to $38 million.

CEO Scott Wilkinson said that "the level of sales representative attrition was higher than expected as many of the representatives hired in 2018 were unable to meet our sales targets."

Management also announced it's acquiring a company called New Aera, which makes portable non-invasive ventilators, for $70.4 million in cash and up to $31.4 million in potential earnouts.

Traders mauled the stock in response to the weak results, surprise acquisition, and guidance cut.

Now what

It's hard to find any good news in this earnings report. Attrition now appears to be a major problem for this business, which isn't great news given that the unemployment rate is so low and the company gets poor reviews on Glassdoor.com. Filling those vacancies with high-quality employees might prove to be very challenging. 

The acquisition of New Aera looks promising, but it's hard to get excited about the potential of the business, given that the company's business is performing so poorly.

I continue to believe that this company holds long-term potential, but there are clearly major issues going on that need to be sorted out. Until we get clear signs that the company's growth engine is back on track, I'm content to watch this story unfold from the sidelines.