Vapotherm Inc (VAPO) 2023 Q2 法說會逐字稿

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vapotherm Inc.'s second-quarter 2023 financial results call. (Operator Instructions)

Thank you so much. Now I'd like to turn the call over to Mark Klausner market. Please go ahead, sir.

Good afternoon, and thank you for joining us for the Vapotherm second-quarter 2023 financial results conference call. Joining us on today's call are Vapotherm President and Chief Executive Officer, Joe Army. And its Senior Vice President and Chief Financial Officer, John Landry. This call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit the Events link in the IR section of our website, vapotherm.com.

Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements. These statements are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our annual report filed on Form 10-K for the year ended December 31, 2022. And the Form 10-Q, which will be filed today, and then any subsequent filings with the SEC. Such risk factors may be updated from time to time in our filings with the SEC, which are publicly available on our website.

We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise, unless required by law. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.

We generally refer to these as non-GAAP financial measures. Reconciliations of the historical non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

With that, it's my pleasure to turn the call over to Vapotherm's President and Chief Executive Officer, Joe Army.

Thanks, Mark. And thank you all for joining us. On today's call, I will review the progress we made during the second quarter. And then John will review our financial performance, before I provide my thoughts on the balance of 2023 and turn to Q&A.

During the second quarter, our revenue grew significantly. Highlighted by strong and continuing demand for HVT 2.0. We also continued to execute well against our pathway to profitability initiatives. Gross margins improved significantly. Cash operating expenses continue to decline. And our inventory balance continue to decrease.

The combination of these factors provides us confidence that our cash burn will continue to decrease significantly in the back half of the year. And that we have adequate capital to run the business to profitability.

Revenue in the second quarter was $16 million, an increase of 34% compared to the second quarter of last year. Excluding revenue from Vapotherm Access, which we exited in the fourth quarter of 2022. Growth was driven by strong HVT 2.0 adoption, largely due to existing customers who upgraded their installed base of precision flows to HVT 2.0, and new customer acquisition.

Customers are clearly seeing the value of HVT 2.0. It's intuitive, easy to use. And since it has its own air source, it can be used throughout the hospital. As a result, our HVT 2.0 pipeline is strong, especially given existing customer demand to upgrade their Precision Flow fleets.

Our disposables revenue increased by 38% compared to 2Q 2022 but came in below our expectations, as US DPC churn rates did not recover as quickly as expected. Despite the positive trends we saw in Q2, we're lowering our annual revenue guidance as a result of the slower pace of recovery of the US DPC turn rate.

We expect to see US DPC turn rates improve with increased utilization of our growing HVT 2.0 installed base. And our ongoing efforts to increase awareness regarding the effectiveness of our technology in treating acute hypercapnic respiratory failure in COPD patients, as well as other non-seasonal conditions requiring respiratory support.

Turning to our gross margin improvement initiatives. Our gross margin improved by nearly 800 basis points sequentially compared to Q1, as our Mexico facility is fully operational. And nearly all higher cost of disposables inventory built in our New Hampshire facility was burned off in Q1. We are executing on these initiatives and seeing the positive impact on our gross margin.

As a result of our ongoing focus to reduce our non-GAAP cash operating expenses to pre-COVID levels, we reduced cash operating expenses by another $2.2 million from Q1 and $7.5 million from the second quarter of 2022. This is the fifth quarter in a row of sequential reductions in cash operating expenses, since we launched our path to profitability efforts in 2022. We have taken further actions to reduce our cash operating expenses in the second half of the year. And expect that our annual cash OpEx run rate going into 2024 will be $48 million to $50 million, which is lower than our cash OpEx in 2018, the year we went public.

Part of these initiatives, I personally taken a 25% cut my salary and annual bonus potential. During the quarter, we continued to make further progress on converting excess inventory into cash. And remain on track to normalize our inventory levels by the end of 2024 by selling off excess inventory built or purchased during the pandemic to ensure we could fulfill every customer need during COVID surges.

Our clinical research group is working to expand the clinical evidence supporting and differentiating our products. We recently saw some exciting data on our Oxygen Assist Module, or OHM, published in the British Medical Journal. This was an independent, randomized controlled trial, where our technology was recently used in the UK to treat 60 pre-term infants in the NICU.

Babies treated with the OHM had optimal oxygen levels 81% of the time, compared to only 55% of the time using manual control. This difference is both statistically and clinically significant. Remember, oxygen is both a life-saving and a dangerous drug, especially for premature babies.

If you give those babies too much oxygen, they can go blind. If you don't give them enough oxygen, they can have developmental problems or worse. The OHM has been shown in multiple studies to keep babies in a safe range. These results are extremely compelling, and we look forward to continuing to develop such strong data to support the use of our technology on patients worldwide.

In the US, we are currently enrolling a study, we call MODERATION Neo to further develop data to support the clinical efficacy of OHM. We expect to have additional sites open as part of the trial during the third quarter of this year. The data from this trial will be used to support an FDA regulatory submission for all.

During the quarter, we also completed enrollment in our hyperactive study, which was designed to compare the ability of our technology to treat acute hypercapnic respiratory failure in the emergency department compared to BiPAP. This trial is focused only on moderate to severe COPD patients, with CO2 levels above 60 and PH below 7.35. These hypercapnic patients are very ill, and are a tough patient population to treat, particularly with BiPAP, the current standard of care.

The targeted endpoint of the trial is non-inferiority to BiPAP and the data is currently being analyzed. And we expect the independent investigators will submit for publication in 3Q. We look forward to his publication and are excited to share the results of this important study with the medical community.

There was another interesting study that completed enrollment during the quarter. In this study, which was conducted at Auburn University's exercise physiology center, healthy athletes from a division one athletic center underwent an exercise test, measuring their maximum power output. Immediately after exercise sessions, they recovered using our technology at various settings. Blood lactate levels and other measurements were taken to see if our gear supports improved recovery.

These results are being analyzed and prepared for publication. Recovery support is important, not only for high-performance athletes, but also for patients needing physical or pulmonary rehabilitation. This has the potential to open new markets in physical and pulmonary rehab, as well as high performance athletics. Recall that in our previously published ambulation pilot study, medical rehabilitation patients who used our equipment recovered 30% faster.

Before turning the call over to John, I wanted to provide an update on the progress we've made on our product for the home market. In the US alone, there are 2.2 million late-stage COPD patients. And about 500,000 of these patients are on a home ventilator system. We expect them to be able to treat these patients and those who are intolerant of a BiPAP mask, which according to clinical data is roughly one-third of all patients who wear BiPAP mask.

Our solution brings together HVT technology in volume ventilation, including volume assured ventilation with pressure support with Vapotherm Access 365 symptom tracking, all in a cloud-connected platform. The solution enables engagement between the patients and their caregivers to optimize therapy delivery for late-stage COPD patients across the care continuum. All of these capabilities are managed through an easy-to-use full touch screen interface that supports maximum patient comfort and optimal respiratory conditions. We expect the home product to launch in 2024, and to begin generating revenue in the back half of 2024.

Importantly, this solution provides both capital and recurring disposable revenue streams, which are uncorrelated with the typical respiratory seasonality we see with flu and RSV. Investment between now and the launch of this product is included in our updated cash OpEx guidance.

I will now turn the call over to John, who will review the financial results for the quarter.

Thanks, Joe. Worldwide revenue in the second quarter of 2023 was $16 million. US revenue was $11.8 million, and international revenue was $4.2 million. Capital revenue grew 42%, and HVT 2.0 capital sales represented 71% of our US unit sales. Gross margin was 42.8% in the quarter, which is up from 35% in Q1, as we ramped up production in our Mexico facility and have begun to more fully realize the benefits of that move.

GAAP operating expenses were $17 million in the second quarter, down from $42.2 million in the second quarter of 2022, which included impairment charges of $18.7 million. Non-GAAP cash operating expenses were $14.2 million in the second quarter, down from $16.4 million in the first quarter of 2023. Non-GAAP cash operating expenses have decreased sequentially every quarter since we launched our path of profitability initiatives early in 2022. And were down from $21.7 million in the second quarter of 2022 a year over year reduction of $7.5 million.

Adjusted EBITDA was a loss of $6.4 million in the second quarter of 2023, down from an adjusted EBITDA loss of $9.2 million in the first quarter of 2023, and $20.2 million in the second quarter of 2022. We ended the quarter with $25.1 million of inventory, a reduction of $3.4 million during the quarter. We continue to make progress in reducing inventory from the peak of $38.4 million in the second quarter of 2022. We remain on track to hit our target of reducing inventory levels by another $10 million to $12 million by the end of 2024.

We ended the quarter with $18 million of cash. Net cash burn in the quarter was approximately $7.8 million or approximately $3.2 million less than in the first quarter. We expect that cash burn in the second half of 2023 will be in the range of $3 million to $8 million, with the significant decrease driven by increased revenue and gross margin in combination with further reductions in cash operating expenses and continuing inventory reductions. This will leave us with a cash balance at year end in the range of $10 million to $15 million, which we continue to believe will support our ongoing operations as we achieve cash flow breakeven in mid-2024.

Turning to guidance. As Joe noted, while we expect capital revenue to remain strong for the balance of the year, we are anticipating lower US disposables growth than we anticipated at the beginning of the year. As a result, we now expect annual revenue of $70 million to $73 million, down from the previous range of $77 million to $79 million.

Our updated revenue guidance represents an annual growth rate of 9% to 14%, excluding revenue from Vapotherm Access, which we exited commercially in Q4 2022. Excluding Vapotherm Access, revenue growth in the second half of 2023 will be 19% at the midpoint of our updated revenue expectations, demonstrating our ability to drive growth despite the reductions we have made in cash OpEx.

We believe this growth rate in the second half of 2023 is achievable for two reasons. First, the first half of 2022 was a difficult comp to the Omicron-related purchasing, especially in Q1 2022. Second, we saw 32% growth in US disposables in June 2023 versus June 2022. The first non-COVID impacted year over year comparison.

Given the strength we have seen with HVT 2.0 capital sales, we now anticipate that 65% to 75% of our revenue will come from disposables revenue. And that the remainder will come from capital and service revenue. We now expect gross margin for the full-year 2023 to be in the range of 43% to 45%, down from previous guidance of 48% to 50%. This decrease from prior guidance is due to lower expected revenue, especially US disposables revenue.

Given the additional actions we've taken to reduce cash OpEx early in Q3, we now expect that GAAP operating expenses will be between $70 million to $72 million, down from previous guidance of $76 million to $78 million. And that non-GAAP cash operating expenses will now be between $55 million to $57 million for the full year, down from $60 million to $62 million. We expect to exit the year with an annual cash OpEx run rate of $48 million to $50 million.

Before I turn the call back over to Joe, I'd like to remind investors that a reverse share split of between one to three, to one to eight was approved by shareholders at our June annual meeting. And provided the Board with the authority to determine whether and when to implement the split and the appropriate split level. Given that our share price remains below the $1 required for continued New York Stock Exchange listing, our Board approved today a one-for-eight reverse stock split, which we expect will become effective on August 18.

Back to you, Joe.

Thanks, John. As we look to the back half of the year, our focus continues to be on driving towards profitability through revenue growth, gross margin improvement, and driving cash operating expenses below pre-COVID levels, while investing prudently in future growth drivers, such as the home market and the MODERATION Neo clinical trial.

I'd like to thank our team for their ongoing efforts, as we drive towards profitability. We made some significant changes in the past year. I'm very proud of our execution on our path to profitability initiatives. As always, we appreciate your support of Vapotherm. And look forward to updating you on our next quarterly call. I will now open the call up for questions.

(Operator Instructions) Bill Plovanic, Canaccord.

Hey, gentlemen. Hey, Joe and John. It's John Young on for Bill tonight. Thanks for taking our questions. First, can we just start on the cash burn guidance for the second half this year of $3 million to $8 million. How are you getting there? And what drives really the high versus low end of that $3 million to $8 million range? Thank you.

Hi, John. This is John. I can take that question, and thanks for joining tonight. So from a cash burn perspective, as you've seen in our earnings call, we're basically going to be reducing our cash OpEx burn over the balance of the quarter. And going to continue to reduce our cash OpEx, such that we're exiting the fourth quarter with a run rate of approximately $12.5 million, which is between $48 million to $50 million for next year.

As we knock down the cash burn with increased revenue in the back half of the year, improved gross margins, and reduced cash OpEx and the balance of the year, we're going to get that cash burn down from what we just saw at around $7.8 million in the second quarter to amount less than that here in the balance of the year. I think the range that we're providing, I think, really is around the adjusted EBITDA over that period, plus or minus our progress that we continue to make on reducing our inventory levels over the balance of the year.

So to the extent we make more progress on knocking down adjusted EBITDA loss further and reducing our cash investment and inventory, that will determine basically the ends of those range from a cash burn perspective and ending cash perspective at the end of the year.

Got it. Thanks, John, that was helpful. And just as a follow-up here. Maybe just touch on the updated revenue guidance for the year too. And I heard your commentary on the disposables versus the capital sales for the rest of the year and your expectations around that.

But maybe you could go a bit deeper on the disposable usage. Is this across all respiratory, the challenges you're seeing here? And maybe you could talk about what was happening in your gold accounts specifically? Thank you.

Sure. Yeah. We continue to focus, John, on our gold accounts as they drive the majority of the revenue in our book of business. And we see that they continue to do so, and they have higher turn rate. So we are seeing it across the entire book of business.

So the bulk of the reduction in guidance we have that we talked about was really around the US disposables. A little bit around the international side due to some HVT 2.0 clearances in certain markets, and a little bit in US capital about a million bucks there, given some of the changes made in the US sales organization.

The rate of the recovery in the US turn rates, John, hasn't been as fast as we expected. So if you recall at the beginning of the year, we built our guidance around US DPC turn rates, that'd be in the mid-60%s for this year. Starting at low-60%s at the beginning of the year, ending at the low-70%s by the end of the year. And you have to recall in Q4 last year, we had a turn rate that was in the 70% recovery rate of the pre-COVID averages.

In Q3, it was about a 60% recovery rate to that three-year pre-COVID average in what is typically our slowest quarter of the year. So in hindsight, we used the Q3 2022 as a baseline for the recovery rate for our turn rates for 2023. And they've been running in the low-50%s at this point so far, as a percentage of pre-COVID average here to date. And based on what we've seen in June and July, we expect to be in the mid-50%s for the full year, which is what we're using to plan our go-forward cash OpEx levels in the business.

Thank you.

(Operator Instructions) Margaret Kaczor, William Blair.

Hi, everyone. This is McCauley on for Margaret. Thanks for taking our questions. I guess just to start, it was obviously good to hear about the success of HTV 2.0. And I know you mentioned mostly coming from existing customers, driving the growth this quarter.

But are you seeing those purchases spread throughout hospitals? And is there anything you can tell on demand indications or contracts you're signing from these that give you confidence beyond this year?

Yeah, this is Joe Army. I'll take that call. So the majority of our HVT 2.0 sales in the first half of the year were to existing customers, although there were some notable new account wins that we had. So we're pretty excited about it. The integrated air system, not requiring medical-grade air from the wall, is turning out to be a really big deal as is the mobility and the simplicity of this device.

So we continue to be pretty positive about what we're seeing. I can tell you that our US field team has done an excellent job at building up that pipeline and continuing to move these deals through a capital equipment purchasing cycle, which you may have seen this to other company. There is a little bit tighter environment for capital equipment perhaps than what we've seen in the past.

But nonetheless, our team is getting the job done and I think it speaks volumes to them, as well as to the product itself. So we like what we see in our pipeline for going forward.

That's helpful and great to hear. And then one on just some of the headlines we've been seeing around the RSV vaccines. So the first thing there, I guess, are PQs and EQs still a sizable piece of the business today? And what are your assumptions in terms of potential impact from that? Thanks again for taking the questions.

Yeah, you're welcome. Yes. I think -- when the early stages of that vaccine for RSV at this point. So from a modeling perspective, we haven't really factored in significant RSV, a flu season here coming up for the back half of the year of modeling normalized flu and RSV patterns. We expect that based on conversations with industry and the medical community.

We expect it will take some time for that RSC vaccine to take root and take effect and kick in and potentially impact the RSV rates longer term. So we expect that to be more of a longer-term impact in the near term impact here with the RSV vaccine just recently came out. So it's something we'll continue to monitor and keep track of here as we see results of that over the long term.

(Operator Instructions) Okay, Joe. It doesn't look like we have further questions at this time. So I will hand it back to you for closing comments.

Thank you for joining us today. We look forward to updating you on our next earnings call. Have a great day.

And ladies and gentlemen, that concludes today's call. Thank you so much for joining, and you may now disconnect. Have a great day, everyone.