VAPO - Earnings call transcript Q2 2019

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Vapotherm Second Quarter 2019 Financial Results Conference Call.

As a reminder, this call is being webcast live and recorded. It is now my pleasure to introduce your host, Mr. Mark Klausner of Westwicke. Please go ahead, sir.

Mark Klausner

you Financial us Results thank Second the and XXXX Quarter Conference afternoon for for joining Vapotherm Good Call.

and and Joining Vapotherm's us Vice Army; President are Officer, President its and Chief Landry. on Executive Officer, today's Chief Financial call John Joe

IR you to webcast, link of webcast our replay this call event website. of call please on will Events be section To I live remind is the vapotherm.com. recorded. the and visit website, would the in that like the access A the being our available following

of December obligation result Exchange time publicly a XXXX, update factors SEC, with on be for based any of Before ended we our involve unless XX-K XXXX, information, those including which no provisions statements that required of updated statements the your filings We time may or in begin, otherwise, Securities Factors uncertainties current These in the results Securities I on to as March undertake harbor our remind are and to law. XX, Act Exchange filed forward-looking the actual of filings our or our would cause are questions annual the remarks future Risk everybody publicly risks Form like website. by risk Reform year could identified differ covered which inherent XX, materially contain those safe available on and forward-looking XXXX. Litigation to to and report with events revise section new was the subsequent the in the Private that under expectations to responses with Securities Commission. from the Such and of and filed and Commission risks today indicated, management on statements from may

to non-GAAP accounting to references measures. that We Reconciliations the comparable in most website. in with calculated accordance or to include are also are principles financial refer of measures the these generally with measures certain financial GAAP as acceptable financial in non-GAAP measures Relations not the available will accordance GAAP. call This on presented our calculated these of Investor release portion and press earnings generally

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

Joseph Army

Good afternoon up begin I'll and on disposable I'm CFO, the to We questions. The up quarter to with to and our our At the good million. fronts. XX us details results, burn financial how our on new focus accounts the on results, second which $X this silver of ticked gold our speed. midpoint up were picture, XX%. and of Gross then you margins by we're with our hand over key reps up additional grew executing going our for XXXX Landry, are U.S. quarter regards cash joining most then quarter. thank pretty opened decreased over after I'll and again. update Emergency Department XXXX, coming feeling today. disposables for areas to second open call rates We it turn above I'll the call XX%, XXXX John by and he's discussing Big provide we'll you

On the U.S. our in lower-than-expected capital other performance legacy equipment produced rep the U.S. hand, sales. tenured

through discussed fall. an of the on last last we we call, the at U.S. team went As field awful change lot

a and new sales a you, sales rep remind leader of new profile. model the expansion, to Just realignment team, clinical

changes part, or than are these the were expected. For most better as we working

getting of a success work way maturing reps We're transition Today, nicely them experiencing. Of that remaining territories the they are the job XX% have of them tenured new the have staffed done. and been our with U.S. the and roughly legacy proud XX of sales through reps, and profile. the XX% they half for are developing

to we adjusting trouble had expected. made, build have pipeline they reps didn't and tenured legacy the the we the changes of some as However,

we decent deliver seasoned but out the or to of plan We at performing and to really backfilling majority of plan. it, a of on device low of close XQ are the and This legacy saw moved the end medical sales folks whole with sales our getting performers some professionals, chunk to the focused quarter, them didn't. we're force

Shifting gears to what worked.

First, growth. rep curve drive these coming growing working. is installed sales their are that new base disposable Mostly, profile and the to folks up

now the to patients all is a better spontaneously of it customers Technology and Hi-VNI ED XXX than It's Emergency country. respiratory ED [bypass] treat and efficient and use, the up about [ph]. the the respiratory find on distressed set working. distressed gold that effective all EDs U.S. being deploy clinicians a Department Second, their with our Hi-VNI is in for silver and Technology is patients really are single is and and around Hi-VNI focus breathing it's the because place all patients to in tool Technology helps effective. used patients tool, comfortable breathing. cool workflow, spontaneously tolerate that

The in third element was our really disposable that rates U.S. turn worked the

year, X.X. our in easier use be in to turn growth early Department. of of how our hospitals penetration days, and Emergency our XQ transfer things units, have turn was this forecast historical dig XQ is. and disposable see to turn on over XX% and revenue when increased It the Transfer driving we of is above to U.S. quarter, rate ED one affecting focus or revenue might VTUs. but I really sticky this, X.XX; like our continued rates from and makes VAPO that are our higher the one Vapotherm our it We're averages. is us One disposables. the It's interesting our business the Units those was in use that be our Last about continuing It into come seeing total could rates it variable much

our field we this mean confidence team from positive with hitting U.S. here and more performance the are our In and to improve really on and going to the the working. tied worked within three it's selling aspect quarter clinical historical something to historical volume plan all real, we Despite control. was the business XQ, our quarter, to our higher we value until factory's driving deviation cylinders in costs rates cost fixed product once that again, game that base. more it's continue is get fourth sustainable, were The direct elements the gross margins, three turn this through pronged reducing products, of all forecast of gain

is developmental The business with during Recall a system. preparation narrow final drug of deadly, dangerous, life-sustaining too quarter or planned blindness, coming the baby for baby was even is delivering enough money development. nicely, The product market this oxygen module while oxygen oxygen we oxygen death. window. can a a our Flow much than on therapeutic to management a limited that result although are more result the in worked to can along our for release Precision of in our spending Delivering aspect disabilities a that not

file options. through for July business tech been leaders the have pricing European marking CE and working as thought as training with submitted model X and on in well thinking closely European education and We materials building

to a had at reception was a a We the expect European late trial begin In we this conference, clinical the FDA and and also in U.S., the productive positive. the neonate U.S. with meeting displayed technology year.

The like the success set we're Despite growing on of while capital focus our efforts sales the XXXX. were delivering module is on U.S. XXXX. grew ED commitments. the be. year, halfway knocked right cautiously development XX%. To is base to managed cash some our up. working. And we Disposables in work are wrap to we the U.S. through field work track. Once turn the bumped more optimistic softer up the disposable Gross remainder it feeling margins OX way million. $X still our in by quarter, about burn the We doing up, the we're to needs over rates down XX%, again, in pains and dosing team installed U.S. over where through

provide turn he's going CFO, John? will financial Landry, our review. and I Now to over a it to John

John Landry

increase increase Revenue of XX.X% million, XXXX Thank was quarter you $XX.X of the of quarter very revenue total XXXX. quarter second an in revenue an while second over representing second over of over million XX% XXXX, second revenue XX% of million, million, of much, increase XXXX. represented quarter U.S. $X.X Joe. was of $XX which representing international the the $X.X was of Total an for the

Precision Flow $X.X an were revenue our XXXX, including from million was revenue $X.X and both second revenue, second of product and in a second a utilization primarily in higher was representing quarter and the for representing million increase revenue by the quarter the million XXXX. base XX.X% million, XXXX, lease worldwide prior installed Capital of $X of over $X.X revenue, was of and quarter quarter increase the of and capital sales the international decrease XXXX over driven second year. rates. U.S. units respectively, Disposable XX.X% for

the second the XX,XXX During of million in and XXXX. we $X.X U.S. $X markets, XXXX, in and second sold million disposables worldwide. international the Disposable of quarter revenue quarter roughly respectively, was

margin of comparison in the was was quarter and million XXXX amount, the of second The of international was XXXX mix quarter of second XX.X% the XXXX. in costs for over second margin of decrease U.S. $X.X generated a component gross disposable disposables and revenue in second markets. service XXXX. the a second driven $XXX,XXX was as $X.X $XXX,XXX million in profit $X.X quarter quarter well profit was of to the second by the XXXX, Worldwide in of Gross an this quarter of as quarter increase increase XXXX. Gross sales XX.X% million, favorable of in of compared the to in $XXX,XXX in our gross in

sales holding our we to manufacturing operating in Additionally, by growth. efficiency facility throughput while improved constant support overhead increasing continued operating

development due $X.X of in XXXX, of expense sales and $XXX,XXX an our The new the and increase due development over employee-related to increase and in Sales count primarily prior was sales quarter expense and XXXX, increase second in was expenses, of compensation of million including stock-based and head organizations. expenses in increase Research and marketing year. year. development compensation. quarter costs research and the compensation, the prior development million was and $X.X expense expenses, including was over an for an and stock-based research $X.X for travel increased marketing second million product The employee-related to the marketing increase

$XX.X for fees XXXX, employee-related was of stock-based the quarter or advisory public XXXX. for of loss to over including in Net General quarter was an increased compensation, second head million year. and company-related XXXX of second and increase or and compared $X.XX quarter the second $XX.XX million the administrative consulting million costs. share was per the share prior legal, per million $XX.X $X.X to primarily of due The expense expenses, increase $X.X count,

the in second second EBITDA of increase liabilities, EBITDA Adjusted higher $XX.X interest XXXX extinguishment million value and a partially or the depreciation gains profit. expense second loss for in expense, The offset XXXX. quarter changes XXXX Adjusted the to million quarter currency was expenses, foreign million quarter fair losses, due net negative primarily by compensation. negative to a operating stock-based $X.X for of were adjusted debt, compared adjust EBITDA on warrant of in higher loss amortization of in of the which and was gross $X.X

million As $XX.X to of XXXX were of of the $XX.X million June XX, the March end of million December XXXX, of and cash end XXXX. $XX.X as and as equivalents cash compared

Solus decreased XXXX $X the cash Excluding our burn to from and acquisition activity, the the of of of debt million our impact second quarter over XXXX. quarter first by our

guidance. to turn I as Now

expect and increase of For the XX%. which year to million a year-over-year represents be to full to continue million, XX% we between XXXX, $XX revenue $XX

of the an of XX.X%, to to from year XXXX, XX.X% range we our increase expect now XX%. gross in For be the to guidance XX.X% full prior margin

year XXXX, to to of the full we be million $XX expect million. expenses the For operating $XX in to continue range

of kids holiday quarter and and is sick. For to in perspective, million, expect from a as third million are our slowest school be fact the XXXX, over a XXXX, the quarter $XX Please seasonal typically that $XX.X revenue the the growth schedules of given XX% XX% to and we note quarter of that third between revenue not representing not third perspective quarter respectively. from

turn remarks. over Thanks. I'll back now it Joe. This concludes my to

Joseph Army

Thanks, Johnny.

opening balance the to like for Before we up the intend review the how year. to line focus efforts over I'd of questions, our

are back First, to again getting U.S. the in quarter. to sales reps we're on fourth channel preparing track force, underperforming the our with expand and focused sales our on regard

end our medical of changes, while are second of the seasoned sales the back the proud delivering by we the focus the to has year our plan the way the get legacy device reps force While underperforming is throughout tenured half the for reps year. backfilling habit worked of of into

current Some sales starting the expect and of we we with from the In that work has territories, the territories, fourth of up already XXXX XX expand anticipate quarter, begun. number to XX.

focus on will we the of products. new Second, launch

preparing begun line push the the to of softness, release third are return product packaging. Technology market color marks to of delivery of These kids' typically our with aerosol to late comfort to increase material ProSoft interfaces. would a back limited limited Hi-VNI coincide user decided integrated friendliness have of We new cannulas more be market to disposable our improve coding where school, Hi-VNI our busy season drug We used. this release and quarter for the beginning to new and designed patient next-generation patient which

the our units. a spoken also I've module bit for about PF Flow oxygen management Precision

the and MDR, distributors mainly to new have PF we After of are to model this we The we by European if to will to this expect newly We'll U.K. Third mark, process. also MDD through for disruption reassess of refining as the patient the secured caveat see focused our expect that to international pulls technology. for time relates to be models direct markets international to but test offering transition account. an clearance quarter the population in business regulatory and this on be from end CE technology several concerned line the year. regulatory units defining in only receive we the the both approval

year. As U.S. I a planning to earlier, start we're trial clinical late mentioned this

wait quarter. in large The the study begun beds a process, bed its more forward of our of we're clarity later study hope the is set. looks Third, they're Hi-VNI ICU at emergency no ambulation ED expanding gurneys discussed full compelling boarding Technology so study patients, we forced on for and until there boarding. is in is publication is last moving and our focused have the when data in This available. effect publication the this on to year to date. room is clinical on We've the the ED the hallway boarding ED with and we

Technology the through ED. imagine, As And on the that the patient ED you the and hospital workflow for our deploys ED looking this boarding and believe the the at issues, to Hi-VNI faster, Hi-VNI can can ED customers best totally, issues, creates we're issues lot when hospital effect help a patients of the cost team. way satisfaction measure move in

later early NIPPV. of past patients Hi-VNI We also expect effectiveness next could only severely hypercapnic this on on or to patients, see with treated the several types papers Technology year published the of the that be in

continued to Our final focus the margin. area of is improve gross our effort

have and While we keep and to beginning the our XXXX's improvement that P&L costs to build gross margin plan we burn. to value, rinse date, drive scaling we table the down production large we margin same the products volumes. We're reducing already the cash focus like into of intend what on play setting we drive used repeat, three for and and including we've rinse Rinse to repeat. year, new remainder clinical shift see pronged and gross and that more repeat, running and our that product leverage

do what patients the clinical without of you front part and feel, from XX-year to clinical in understand to change spontaneously these clinicians' as practice of do ventilatory to opportunities big us the more bypath changing the possibility will and the the challenges we what practice. the investors and we gold we mask. patients of breathing make how we clinicians The understand clearer standard is support of providing A a mind open in

quarter. a I last patient you from Now share with to want the

pulse CRM great by from I experiences as their to looking our I read share at my our field my our a the they and morning, It's team start day from day. you, system world. every As reminded around latest I start way

the Hospital of Currently, Now found patients course, Upper our to have share from modified too Midwest. a five through one bit. We going I'm of Upper leader, using that you success I'll up little validation. it one Technologies. Hi-VNI Midwest from came a the it. our teammates named I walk

with treatment One the in at wanted trache, facility was The to was patients second a intubated transferred the and family distress but plan of stay hospital to respiratory receive pneumonia. the the last a The this initially was patient he wouldn't really bypath, keep but himself. night, The patient to reintubating. They staff on. Last on place patient opinion. tried about extubated were breathe. the struggling to it talking

Technology. breathe. patient RT max max to he's he The the the on maintained him saw trying His Hi-VNI already afternoon, Hi-VNI stats is oxygen -- keeping ICU. I oxygen quickly the He the weaned across it. Medical extubate started to of as flow started I extubating Yesterday, out hall morning, this so Vapotherm's Technology. the loving I suggested support. patient the down I him to wean I off The moved saw down. a mid-range that to the This and have They I go setting, simple RTs type. patient at was was heard Hi-VNI on Technology wall patient our are and saw ecstatic, he above just staff they're the and settings, XX% XX%. another Today, to Director and for out while another Hi-VNI at calm cannula,

the summary, remain our work year. about we way managed We decent demand we to cautiously with another through. the In quarter wins optimistic rest had of

you Thank us. to an capital. us trusting for your It with lot means awful

up for Now I'd questions. to like it your open

Operator

your from William question Margaret from And comes the Kaczor Instructions]. first Blair. [Operator line of

Malgorzata Kaczor

a little had. that the of first bit follow-up a guys on question So is commentary me you for just force sales

some expansion it component a And in length on take then change can terms just of you quarters the a made follow-up of folks I'm other that to or fall were the forward. it. that few the in of the the last reason? of kind I'll call really maybe did of from pipeline And sales placements changes of structure because impact of remind the about have So the cycle talking -- new going the see

Joseph Army

You bet.

then So experienced changed technology. BXB year, the now just reps -- now professionals, profile. a fourth the a the improving break to remind we we to the into -- we're to economics medical that have had seasoned, Precision system, because hire Historically, position And used sales position last we you, sales professionals. senior, in rep Flow we device in were of were looking medical of actually in quarter,

So the sales really by with XX% do intention those it was and to folks. expand the force

manager a restructured those addition, deployed those clinical positions. and moved positions team. And our In we we some sales resources of around back bit into

We -- course, and you you a changed force also the when fair a of also territory lines by geography so, amount. See, everybody's grow changing. touch were XX%, sales

around curve. are organization field only just of them, I'm wrap could to then supposed to way reported the I'm we tickled XX% that people leader another. to is and about And while Historically, was XX% tenured not reported And one is that make the to -- manager, our we new heads have region model. single that to most of model a today you territories. the with single of of unplanned a pink coming largely lot incurred seemed because we up tell that reps would I the a had went happy What sales leader salespeople reps not from new turnover sense. we're shrinking the clinical their what found the profile that

truths, in time to did you're year, you're from the Every more that We you all get your up. not than to going learned going the a at ago quota And Well, industry. right? money go three to the before. going Brown go there smaller make John is territory. that's Every long copier year, year, every case is a year Stryker

it channel it, transition you, I this continued people to we who we really And lot back, senior did. are to did to medical difficult sales today. glad then I'm figure seasoned so device which down bet building that awfully professionals. our and looking young people like tell on make -- hire them. more trying got just for I was that we're for really a of them And And a out, not doubled

is model I think really the one itself out. proving leader

not, They're -- fourth back we them. the the We're new reps, seeing And expect the that hired see up to we the Roughly job. continue and I'm hard the Club. in go a progression. to But to them unbelievable. and field. They're expected lead They're super track they're to we But to at their pipelines productivity, know that them on device that profile that to and on make They're We're works. remaining doing continue going continue tracking half Presidents XX% to quarter of get to we're take coach leaderboard. go good it's be about see the them reps, come as half curve look them if now in just we the not really so a doing them. the able all built level tenured senior them, able proud are going to of to of a seasoned job. of

our move would where be. next that's So

Malgorzata Kaczor

helpful. Got it. That's

so And still you've lower-performing got the reps.

You're focused to them, shove. push retraining on comes maybe

higher that clearly maybe placements for that's a out about figure of pipeline that for model through got is the got part maybe point into. for disposable because that. new accounts utilization seems you're like that sell you've placements. a this rates, the looking into, us us that talk bit the continuing little how at With some accounts is working. pipeline new of new existing you've walk it remain You'll selling strong it and you But the But should

Joseph Army

base right last are is three base needs which at international. installed gross margin, Those the in That be and total things we it let and we first. part where right look are the answering that the me driving crazy, U.S. start what look Well, by on we're installed to them. That is us focused at, base, right? installed revenue,

for of are we the year. well second So half the very set up

work it, time sales create right? want maturing keep healthy like there, way XX% rates to doing sit We that pipelines the continue for to particularly to started really a going The through still in pipelines with start their buffer our very the and any force when tight pipelines bunch remaining good improve. sales and growing, They because Margaret, And of they're in to we're of want are tenured nicely. but Their uncertainty quarter. to force. people, the strong. that think U.S. the we turn increasing, about like are We just being, a you fourth we

So I the U.S. what just cautious want like a the there. than it I'm seeing remain we working more I'm the on equipment bit the little disposables. going capital in way That's side to in to.

Malgorzata Kaczor

Okay. Good. And then if I can sneak one more in.

of rates ED kind and disposable it us of can dynamics really the terms you've turn across interest higher kind of of you referenced some In new the got? You those utilization seeing focused are through being a but board? walk the better, program, Or rates? is on focus you an continued guarantee

Joseph Army

to we It's the we in the now it, couple I and for we Margaret, look, been NIV the crazy, it's patient. breathing found the of those not there's same every roughly interesting one driving right? every these visiting sales right? silver them, the parts thing the know magic up go, a experienced to country. know was in turn more It's same them of We patients, And EDs have even this the single X.XX this. of throughout force and quarter -- driving that into one bunch a are of It's more X,XXX in I EDs X.X. And interesting. EDs, was is getting It's and doing. up the Mask-Free of them different field No. it's the what and gold found and of early rates spontaneously we've though mask-intolerant teaching largest our EDs country, message bullet,

know model that the as us, for is but rates. pretty you -- So turn sensitive

that. cautious very we're about So

finding go full only getting hospitals gamut, and full using I'm the When it hospitals I adoption, when it months, hypoxic have yet see been really not patients. value them when even nine, it. a in they're that still using into the twelve of stages their that's on out hypercapnic of for it I still for early using patients

So this this. ED working. I is play like

I like think good you pound believe. thing we're going a just this thing, to is can't and this

Operator

line And your question Canaccord from Jason from Mills next the Genuity. comes of

Cecilia Furlong

ask wanted thoughts Cecilia actually your little is I sales this disposable QX the and of kind disruption, see maybe from what bit just And in QX QX the you sequential ramp in for This to about and two quarters. on that capital just sales guidance force what those ameliorating Jason. versus mix your implies and around in for a

John Landry

Sure. It's John. take this here. I'll one

in third now the the seasonally for given So our the terms that force quarter sales is year, coupled had the spoke fact our million of legacy the we guidance we earlier the turnover quarter, disruption million reps with and of the in our some about that we the is quarter, $XX.X revenue. slowest third best to right of feel $XX that range quarter estimate for third

guidance, the be full the which deliver If you year, about we'll confidence able gives on tracking number. ahead of half year us recall, were $XXX,XXX of the first for we to

fourth culminates 'XX of see well, that the of by XXXX, quarter to of the speed well fourth we we'd the that the up tenured the fourth as that of the year. to we as that in recently hired capital Recall coming fully December have quarter million fourth -- and modeled quarter to able to With $XX full in pipelines we'll also they're deliver well the we on year. feel our fourth largest regard quarter the million that, quarter, it's of in building pipelines, be rep guidance increase hospital that comfortable the the tenured the revenue expect of as which that the who've to as $XX for cycle, fact recently, number quarter as Typically, to a time With frame. the year. the reps budget in the been tied is sales

Cecilia Furlong

into you're type far? Okay. And back just are to of trends what curious, opening, been? guess those just so I of in have other new was those departments growth accounts seeing the ED. I that organic kind Great. on turning you focus then And what

Joseph Army

tell know kept we the because boxes So the hard are that it's ED. where the you answer outside question really don't to to of

is they literally the know up equipment we units floor using into in units, an actually Precision something and they're The what like really them. -- Precision until ED them on or rest the second Flow somebody go there. the they'll set will and So Flow storing corral needs

that don't units, general disposable pack we the being ED. or the What we whether it's they've to, the hospitals in we of one turn whatnot. hospital adopted patients bed, and then pattern floor where at move additional at overall we're rates, look ICU has two dollars, after they continued. That the And disposable the units. is we Flow So look generally, treated, those care buy know seeing in see queue, the number Precision to in quarters

second pattern coming capital given has from in that continued. any of that fleet. has roughly that continued expanding customers pattern The existing their equipment are is X/X is our That quarter

So go than ED, we I it more we the and and hospital. that, know any that have in clarity spreads open the throughout don't when up

Operator

That our the session Army I concludes question-and-answer call turn back Joe any remarks. will over now today. for closing to for

Joseph Army

in we're to wanted October. of you look time Well, and thank I year excited will appreciate forward to talking half We and about what you support, to the the again. very and all your just say second bring

Operator

today's concludes conference This call.

You may now disconnect.

Vapotherm (VAPO) 29 Jul 192019 Q2 Earnings call transcript