Shares of Inogen Inc. plunged to pace all decliners Thursday, after the portable oxygen container (POC) company reported a surprise second-quarter profit and a big revenue beat, but warned that the semiconductor shortage will likely keep hurting sales and margins for the next year.

Chief Executive Nabil Shabshab said demand for POCs and pricing has been strong, given higher rates of vaccination for COVID-19 and an “increased desire for mobility” as pandemic-related restrictions have been lifted. But the ongoing chip shortage is placing pressure on supply. The chips are used in all of the company’s POCs, in both batteries and printed circuit boards. Read more about the chip shortage.

Shabshab suggested gross margins could take a hit in the current quarter, as “the acquisition cost of these chips from third parties has trended significantly higher in the third quarter,” while price increases aren’t being implemented until two months deep into the quarter. And he expects the “inflated costs” for chips will continue into next year.

“We believe based on our assessment and industry feedback that these supply shortages may continue through the second quarter of 2022,” ShabShab said, according to a FactSet transcript of the post-earnings conference call with analysts. “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 Sept. 1, 2021.”

The stock

took a 33.0% dive in midday trading, enough to make it the biggest decliner on major U.S. exchanges. It is also on track to be the biggest one-day selloff since Inogen went public in February 2014, passing the previous record decline of 25.6% on May 8, 2019.

The company reported late Wednesday net income that more than doubled, to $5.5 million, or 22 cents a share, from $2.5 million, or 12 cents a share, in the year-ago period. That the FactSet consensus for a per-share loss of 11 cents.

Revenue grew 41.7% to $101.6 million, above the FactSet consensus of $88.7 million, as sales revenue increased 37.6% to $90.3 million and rental revenue rose 85.2% to $11.3 million.

Total cost of revenue grew less than revenue at a rate of 31.5%, helping gross profit margin improve to 49.6% from 45.7%.

Chief Financial Officer Alison Bauerlein noted on the analysts call that the higher costs associated with the chip shortages were not seen during the second quarter, and there were no formal pricing changes.

She said there was still too many uncertainties caused by the continued impact of the COVID-19 pandemic and the chip shortage to provide full-year financial guidance.

Bauerlein did say, however, that she expects revenue in the second half of 2021 to be lower than the first half, and the improvement in gross margin seen during the second quarter isn’t expected to be sustainable given the higher chip costs.

KeyBanc Capital analyst Matthew Mishan followed by downgrading Inogen to sector weight from overweight, saying the upside for financial estimates and the stock appears limited given “more clouded” forward visibility as a result of the supply chain challenges.

“Supply chain disruptions limit [Inogen’s] ability to meet [near-term] demand, and weigh on margins/profitability into early 2022,” Mishan write in a note to clients.

Despite the stock’s selloff, it was still up 23.4% year to date, while the SPDR Health Care Select Sector exchange-traded fund

has gained 16.8% and the S&P 500 index

has advanced 17.7%.

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