Earnings call transcript Q3 2022

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Operator

Good afternoon, ladies and gentlemen and welcome to Vapotherm's Third Quarter 2022 Financial Results Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Mr. Mark Klausner of ICR Westwicke.

You may begin, sir.

Mark Klausner

you financial us results thank third the and XXXX quarter conference afternoon for for joining Vapotherm Good call.

President our To event in please webcast, visit and Joining Vapotherm's Events link us recorded. the is Senior being Army; available and This the President the are Financial will A Vice replay its and call Chief webcast John on Executive Officer, call today's access following Landry. IR and Chief call website, section of Officer, live the be of on vapotherm.com. our website. the Joe

available we remind including your remarks could cause Before Factors risks was XX, those begin, filed forward-looking based subsequent that on indicated, I September and the to XXXX may which filed law. our will SEC of of forward-looking events, filings XX-Q references factors financial certain results accordance Risk our website. to section in today of calculated call Relations accepted actual current publicly may measures are to information, would statements. to to inherent the materially a principles everyone management in generally or to responses the accordance uncertainties statements or from with XXXX the the in involve calculated those undertake available release are from SEC required otherwise as and like are our financial financial unless most identified on which We result of and February the with website. include Investor Reconciliations for of report update GAAP. on on and refer quarter time earnings the any as not our updated statements for today We and in on Form that obligation Commission press that by was XX, Securities or non-GAAP presented measures. with contain historical filings GAAP report differ future quarterly risk no This the the be XXXX then These measures XX-K our to accounting in questions time these expectations the also with annual SEC. and to the non-GAAP Such our are publicly filed or Form Exchange ended filed comparable on measures XXth, year which ended new December our generally with portion revise and

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

Joe Army

for Thanks, joining Mark. you us Good and afternoon today. thank

is which call In to calls, demonstrated of continue structure our allowing significant XXXX for took unsustainable Vapotherm to efficacy is profitability transitional early we've to because XXXX pre-COVID The resulting a the our on prior Vapotherm. while grow response, As surprise, start our of by future a year our mentioned COVID it in benefit was grew late drivers. in as revenue us quarter what technology, from plan beginning inventory post-COVID invest and to admissions increased visibility in flu installed base. in But and lower-than-anticipated first our of COVID, PXP with our levels. XXXX, drop us resulting relative to as sudden the in even hospital intended customers we path cost well equally illnesses and we underlying continued to growth structure respiratory other the dramatically business as launched right-size or an cost to

a plan revenue growth. offers X good consists driving PXP X which our Slide first, summary elements: of XX% of

products X, uplifts; to road introduce X, core drive to map levers, introducing care be through which areas; long-term achieved product leveraging our will X, rates disposable XHXD disposable higher our into high-growth products, We X, will clinical offerings. care X expect consistent growth including: new the ASP as value to such levels; revenue additional one, HVTX.X; pre-COVID expanding strategy our and respiratory turn

turn in accounts that by clear as corner are second, evidenced turning signs disposables gold We XX%. margins are progressing our revenue improving towards gross the rates to seeing pre-COVID levels;

XXXX combination due to exit XX% ASPs of gross XQ product We operating to launches. from and expect Mexico move a through margins our and costs resulting new with lower to higher labor

is Our XX% and gross gross margin we improvement plus plan we on remain margins. confident track can achieve

pre-COVID levels. operating cash returning Third, expenses to

reducing R&D statement, plan While the not difficult decisions expenses initiatives, visible facility rightsizing flexibility. these on via of our track of already in-house on John quarter clear and shortly. financial Fourth, majority our our a We in cost-saving made in our improving creates Access completed transitioning organization R&D and Vapotherm reduced in Singapore. the including of RespirCare operating on our the facilities, progress but we've new XQ believe commercial income investments profitability. commercial and significantly third the path the which we require for this significant Reducing discuss will and expenses is establishment to

was in stories could so-called occur of triple higher-than-normal same the seen provide in the are year. we will demic that I brief on the are we're and our financial continue large on quarter moving have spread us revenue. COVID trends on macro current expectations, winter in the that progress in seeing third probably of flu give go of quarter capital and fall some Many of equipment In this amount business PXP we environment. additional due our hospitalizations. and Before I digest as the RSV, to the sold through would making and detail to at slightly that a the performance disposables lower the revenue largely update you this U.S. into plan, widely fourth news a revenue in into third extent, and time result the confidence the below quarter, lesser note COVID international our these to important markets transitional

the rate in we've seen pre-COVID January highest turn disposable in their the with our in revenue the cases weekly the in to October RSV XX late increase Given since September. from U.S., encouraged the increases through disposables have the our April in comparison early since ending U.S. We're in midst rise we the an being levels, surge. monthly September Omicron sequential of seen week by

and XXXX XXXX assumes impact light, RSV from seasons flu full-year and and no Our COVID. guidance revenue

Slide to Turning X.

we've in past, which As watch the are one define turn per metric month of as carefully the rates purchased installed disposables number told we we disposable you per device.

installed our With divided the peak was increase base of installed particularly becoming increasingly or direction, after a as base our that trends we base. gold accounts productive. dropped our our rates beginning we much the that rates happens see, levels. we churn biggest What When dramatic disposables is in are in in the have the accounts, of turn installed in pre-COVID return hoped sold number to to over larger to COVID, know

on silver likely the also and encouraging accounts. still tells patients. actively us the levels bronze basis. turn comparative we we and this this us which devices carefully. have trends our average for against are each our are But seasonally being are lower QX, period April Not We're flu been we on on Exiting So X-year also month gold this in of number at seeing approximately tell does only being occurs more hospitalizations, now COVID hypercapnic our trending since because the patients. the backdrop it rates and more in upwards accounts pre-COVID like and used seeing our XX% used adjusted watch devices are of a

trends educating our in the of all is efficacy accounts strongly devices suggest treating working. aimed These clinicians respiratory at in program gold forms XHXD distress on our of

not accounts in Our and as field X referenceable opportunity presently, to in hospitals respiratory among the we can for often also both the cause volume, on severe U.S. for accounts. the only our XHXD which respiratory care gold -- of conditions of accounts. the COVID-XX, Gold XX% capital flu top and highly terms represent example, of a are accounts on key X often X,XXX team are opinion in which Gold disposables, us COPD distress. remain number significant the will and have focused these requires intervention. executing multiple in shock, areas patient strategy, leaders. growth for only are are discharges. highest primarily respiratory in

respiratory our are to care of in efficacy is XHXD important XXXX we increase plan the more It to result, to our that associated shock. a of As addressing distress reiterate program the devices the in extend awareness with effective products unique the been and believe our we higher in strong We in, business the a have underlying expect future. will used pipeline. be with turn excellent and areas rates we we product have an

a With EBITDA positive XX% gross confident leading of and the we're we cash pre-COVID growth, margins PXP of sheet. we operating XX% a return pursuing, can initiatives expenses goals stronger are adjusted and year-over-year balance to our levels, achieve revenue sustainable to

financial progress guidance. through now CFO, the remaining elements Landry, discuss will Our of and you our John our PXP take

John Landry

Thanks, Joe.

to to plan transition turning initiative crucial due inventory aspect margin production Now margins. to our quarter, Slide achieve the gross HVTX.X XX.X% demand PXP our the our A third In to of gross and reserves is XX% our flow levels. and write-offs lower-than-anticipated and due precision was higher-than-normal X. from to

reserves write-offs, margin quarters remains income gross a while quarterly take seeing improvement plan few track. higher-than-normal more begin on have will Excluding the it and XX.X% and gross margin our inventory would been statement, meaningful -- to in our

on our we is report our cost lower drivers our and key manufacturing to I'm overhead to track that is can to complete. us plan to from pleased Mexico allow Slide most illustrates this benefit XX% and margin X remains project where goal. achieve will operations the impactful The that relocate labor gross nearly structures.

some leased fit-out at completed and facility. a hired the relocated expected production to have engaged the and facility a X to Tijuana, general state-of-the-art HR which this We to month, contractor is perform manufacturing manage be employees employees existing in new

thus this planning attribute There a of far that progressed are have our have and project always we we magnitude with issues. people our built hiccups very to its and when this significant undertaking few into

gross as Vapotherm improvement RespirCare margin. focus. which of gross primary our exit these a necessary is Another was impacted path step Access which made profitability our margin tough operations, exit to We presently it driver negatively decision and is from on to a businesses our both of the

exit digital XQ, technology While the Vapotherm however, device. these Access capabilities our for develop we in will, businesses home use we to expect to

higher driver gross of margin plan is important selling average prices. last our The XX%

For in economic via consistently both disposables, we value selling prices to and products. average delivered capital customers clinical increases years the seen as and more have new substantial have over our we last X worldwide

we as expect services. ASPs and introduce we drive capital new ahead, look we disposable and As products higher-value higher to

is unit it like in with fully the with offering early, priced The Vapotherm the standard Precision comparably legacy While to HVTX.X along launch accessorized is Transfer U.S. the unit. we've unit what HVTX.X we Flow seen the capital

tracking or Cannula of cannula, ProSoft the patient resulting HVTX.X series, optimized are resulting addition, our DPC on disposable both higher increase cartridges in an in for mix DPCs the HVTX.X ASP premium a In ProSoft and are ASPs. our been added of to we The important higher our disposable and margin an HVTX.X which contracts have disposables gross GPO element unit our improvement Capital targeted ASPs plan. to and are

Turning to X. Slide

made levels $X.X While fully XQ XQ. operating XQ decline our cash reducing in a and it to sequential were evident quarter. expenses the a not is million during Non-GAAP from statement, in cash excellent in $X.X million, income we operating $XX.X expenses progress decline from pre-COVID XQ million

a it operations workforce access the and our of advantage technology facilities bringing and government footprint and operation we businesses our to rightsizing including steps, of on taken of commercial silver relocation take important relocating skilled to Singapore During gold Mexico, and back in to to the the our Vapotherm exiting light planned organization shrinking our RespirCare focus subsidy. have and in-house the substantial quarter, R&D of accounts, highly

offer of engineers, in who lease and letter Technology engineer our past. led the hired a Officer signed R&D worked Chief We a X with senior has by in to Singapore space

to is a continuing while delicate and aggressively expenses in our challenge we to date. is invest growth Our This progress future to are drivers. pleased balance with remove

debt element on by Now our and turning The flexibility inventory PXP our decreasing final X. balance I'll to our affording ourselves to and is improving greater Slide financial pre-COVID sheet levels. touch restructuring

required quarter, minimum we covenants successfully for the year. remainder modified During our XXXX the the which revenue renegotiated revenue of

initiatives several us inventory lender turning of minimum requires to year. inventory $XX we a drive covenant There across than at added part a liquidity this currently As cash which per are amendment, of balance to million. maintain as down the one board time our greater are our

plan our level have We back back the of balance year to that will to turning turn experience to our $XX X get cash million sheet. and had inventory times per which return is

forecast. the we the of cash not plan, this conversion inventory believe exact execute can is timing While to on into of easy we

liquidity into minimum sheet. timing forecasting to new the cash, inventory the Given to add challenge are of covenant converting we evaluating currently additional and options the of capital balance

Now turning to X. Slide

have the by to late XXXX see year we'll adjusted a and 'XX structure XXXX. and believe revised Based streamlined to see impact execution the a pathway on clear quarter driven the margin in year-to-date we table. gross third XXXX and EBITDA of which a on view continue We the plan. only positive We beginning that cost of column by PXP expansion positive our can have growth, you left-hand our revenue provided as we results, in transition guidance our

For now the million revenue of to we expect range $XX million. XXXX, in $XX

pre-COVID our a to disposable with rate previous results the the quarter average headwinds which $XX RespirCare our which Vapotherm XQ. cycles consistent revenue to impacted XQ million, $XX range in form fourth-quarter and would from X-year assumes $XX since capital XQ turn first primarily worldwide and longer U.S. beginning to of due near-term was reduction results. sales $XX million from our This million COVID is Access and XX% in revenue is million and of the of of quarter implies equipment elimination of guidance of by be which third-quarter This largest a

we will XX% In for service capital XX% revenue and disposables to revenue. of XQ, account from revenue will XX% XX% expect to come and total

expect worldwide total the of revenue also that drive U.S. XQ. XX% We will the in

which expect $XX For million we to reflects of XX% year-over-year growth. $XX million XXXX, revenue

turn guidance and of through is rate X-year a XXXX what exited with Our October. continue see pre-COVID disposable revenue XQ to assumes approximately which U.S. full-year average of we the XX%

Flow be replacements and historical our end and Precision assume will expect unit based near expansions historical accounts. X-year be driven on primarily the We U.S. by pre-COVID into units sales older experience they capital existing low average of to of

We in in the XX% 'XX. to margins XX% expect fiscal of gross range

operations Our implied incur expense expect of XX% Mexico, will guidance XX% to to start-up to XQ. gross XQ margin significant in of we charges Mexico all the one-time for we includes move with costs

reserves expect set operation margins write-offs the the to due one-time of and and XX% manufacturing cost we XXXX, inventory HVTX.X our launch gross XX% Mexico as up us. to For higher-than-normal behind

[ph] rates our levels. New XXXX XX% are Mexico returned in overhead last labor Our in to manufacturing costs Hampshire and

shift Lastly, we new ASPs due in mix expect to to in benefit a and increase from an to HVTX.X products.

excluding million decrease XXXX. We million, to $XX $XX the $XX million expect XQ of $X This expenses the range. charges at implies XQ total $XX of sequential operating of midpoint in expenses operating GAAP to from million impairment a million

to expect For expenses, GAAP million. XXXX, we of million operating $XX excluding charges impairment $XX

This to the OpEx million million $XX now of $XX $XX the cash range. $XX expect a We implies OpEx in from to non-GAAP sequential XQ range $X.X cash million, midpoint to of of non-GAAP be million decrease in XXXX. million at XQ the

non-GAAP million. cash fair the compensation, For of equipment, and $XX and amortization expect depreciation and charges, value to severance OpEx accruals, XXXX, the million loss on consideration. property disposal of we cash OpEx Non-GAAP of $XX impairment stock-based in change contingent excludes

points revenue improved grow XXX Beyond and XXXX, per to year by we expect XXX gross to basis XX% margins year. per

the call to that, With to would now turn like back Joe. I

Joe Army

XXXX the XXXX. and Thanks, In recap let of our John. for plan closing, me remainder

to in getting by new gold with growth areas revenue XX% accounts our usage expanding disposable care like educating the into drive into expanding using historical and will in patients, by all launching the XHXD, use care especially on products turn we HVTX.X, X general levels floors. hypercapnia First, accounts rates shock important back

and we will margins XX% our X-pronged Second, margin burning during one-time low-cost COVID world-class a massive fourth expense meet of improvement customer factory Mexico, plan by gross incurred the by need. late spinning gross improve up caused XXXX quarter to in inventory executing every a by costs to off

space drive to growth the executed have will invest structure medical the HBT Third, X-point pre-COVID team profitability. very to in and Home This normalized our the opportunities. future while to drivers, us continuing technology cost best by we plan levels digital especially in

and debt convert drive cash, will to sheet Lastly, to our by support working continue we're stabilizing renegotiating to us our to balance into inventory covenants to which allow profitability. plan our

teammates one and above, to customers, mentioned want dedication to are other. balance patients our and for capital thank John adding their and options each of I As every evaluating we my also the each sheet. to commitment for

Now, the open line questions. I'd to for like

Operator

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

Maggie Boeye

as to season for there, what's Margaret Maggie on guidance and obviously, today. assumed I you're is the in maybe that light assumed COVID on as that what's well no that. Boeye far about RSV you QX just can just This seeing the talk disposables you've that for all can flu parse maybe levels But in so appreciate the been and us? wanted for assuming start out

John Landry

John. is Maggie. Sure, This

light quarter, modeled a and fourth guidance the in light from seasons So RSV we perspective for for fourth the flu quarter.

factored any fourth into in the haven't We quarter. COVID

recovery pre-COVID a disposable recovery in fourth the in our to So and guidance versus that's to a our assumed regard U.S. our We're with turn rate X-year average. rate U.S. rate XX% the quarter from perspective disposables. regards assumption historical targeting for

in to similar seen impact haven't RSV or in flu Europe. other with regard We markets

So right seasons. RSV now, U.S. to a regards largely and it's with issue light flu

Maggie Boeye

to it. expecting utilization, we're through you be improve got walk But for then can you assumed you're you can about know XXXX, the the XHXD of appreciate are us walk that XX% guys But Okay, you're guys for account just as if is I obviously, what all through I and that growth. And you execution great. can expecting that your as with you just think starting referenced disposable what full year, gold would the throughout what rate us expecting year. in

Joe Army

that Maggie, this is one. Joe. I'll take

fiscal third in 'XX drive keep year, turn are of really, we a 'XX even to only in XXXX, beyond? rate disposable next drive our see if the growth rates XXXX improvements driving are and to how rate the the how in quarter we we So over going expect to we modest growth XX%. in to going U.S. So versus XX% recovery

pre-COVID equipment their back all a year is that HVTX.X of drive absorbing levels expect to Second, purchased capital after going of launch during to COVID. we demand

we that's of by So and with pipe given in air. to have And all existing accounts replacements this it, its in air. don't XX% and expansions increased pipe hospital areas or that the ASPs that accounts what treat have hospital we're existing expect States remember, don't in go and happen patients the to And seeing. in in the ability beds United

clinical the thing RT be to use for our model. locked pretty GPOs out We've tiered it in ASPs higher And departments. is of contracting with our turning is critical other important a as Module Finley-staffed aerosolized The see ease pricing in higher around and to Cannula as higher Europe the we to lastly, as and mix ProSoft globally Oxygen our patient shift products well circuit, disposable preference driving the is in such Assist ASPs.

And greatly home So goal we X international drives to our which and Spain that And product going we're markets in revenue pulling to Belgium by X able these of in that really direct by drive markets, device a that also new drive same Vapotherm levers launching our be we'll patient's capabilities, the and and making the TAM increases going longitudinal use, in to Solution. the beyond, easy at to expect it year we're market. including this EU Cloud the and which HCE growth. be XXXX connect is baseline. hospital to look exercise digital going that that to it's home

drive of have We growth. lot levers a that to

Operator

Jason question Bednar line comes Your from Instructions] [Operator of next Piper from the Sandler.

Jason Bednar

larger? now. a can seeing elaborate Is really with potential on help understand side, regarding you once the up it improving again, or what that if cycle environment, delay it the in little just on guess, were just, capital seeing U.S. to pick you wondering to on here? going hearing, bit you international outright us capital Really, there you're out you I be saying to from and an trying prior that capital right question what XXXX have but sales focusing you're customers visibility smaller I'll purchasing thought until what Are maybe waiting seeing the Maybe orders they're later? and

Joe Army

Are you to do going that John. Go one? ahead,

John Landry

start. as can This Yes, can Joe. fill I in well, one, you

what capital markets. international U.S. we're seeing, Jason, both regard in and to So in cycle, the sales

customers' slow going in As so the markets interest interest saw which in recently. deals cost recession, of the We smaller approval third year to saw down into hikes increased amount the next turmoil equipment hospitals continued especially larger the they even that for the of the purchased respiratory quarter, borrowing. the start hikes, markets, rate some talk rate space, more in process, some given we cases, of in threatened deals, and especially

stabilize for and return and more Our purchasing to is our we year. it patterns guidance the how next which been we've thinking expectation respiratory is normal year next CapEx that forecast modeled about in and

much the term we're opportunity the deeper installed U.S. achievable, gold is in We I it's as capital believe demand international in seeing is longer cycles. the into further, wider as sales given larger have accounts. and well base to the what and near the expand we markets. But resulting think the

has HVTX.X and our I continues positive. the think very product to receptivity to been be

it's I think the the slowed bit, U.S. landscape, here macroeconomic up in both a from and process a abroad.

Jason Bednar

clarifying for topic. a to capital the XX% just on think for grow that to Okay. Joe And your next for right, XXXX that looking next it maybe assumption that's to that you're baseline we question If about year. expect you you confirm like as want growth sounds heard year. buildup I I

John Landry

over we That's grow Jason. right, to it Yes. XXXX. do expect Yes,

and wider a us on equipment, classic. we these. to that footprint go larger a believe natural a And our and much about from of the cycle Plus our of lower before. installed given to based launched rates larger There's in XXXX X-year historical replacement of that range was ability a back plus sales, deeper that international this I replacement that levels, fact unit will of product we going think launch we've more when Flow and have pre-COVID our the We've year this grow a commensurate over terms the both we base, from Precision base in a the capital end opportunity to that perspective, the equipment of across perspective. our a that Precision our in pre-COVID U.S. And units contemplated with and older the versus in what thought installed average Flow much we into accounts large revenue marketplace. pre-COVID had provide U.S.

Joe Army

a Joe. this as program One offered we taking surprised as that really equipment. competitive HVTX.X, using been point hospitals is trade-in equipment not seeing that it rationalize fleets, to is both they're the we're are have interesting their this we're the to up where well expand help thing to our seeing we've really Jason, fleets. And

an for this from system really week we there down a the see And part they're hospital would I actually they United in XX-plus order a So it were and units fleet. clear in in of using very southern thought the that done we've trade States. to expand their

So that's to surprising a little us.

Jason Bednar

and helpful me. that's Maybe for more Okay, one good color, Joe.

Just about, margin changed XX% were the the we a smaller think with targets aren't numbers you're but longer-term saw not building but obviously that's base XXXX changed growth, we But as than different. significantly off lower. lower add -- from again, when maybe of guidance significantly where not some that They're you. we absolute we're

have capital margin growth I'm then been? So us, maybe they just as -- are how might targets at the just remind missed coming can you myself maybe have not And versus year, I least that is next XX%. just disposables together everything sorry get growth there you overly out to thought if to just it, revenue-dependent as

John Landry

Sure. Yes, Jason.

XX% that we next total year revenue with revenue our starting be the we think at COVID [ph] in capital revenue disposal as our recurring think about of disposables, going is last equipment the to year-over-year. So in piece,

of XX% total revenues. So

it'll side, will level to XX%-ish as capital return that nice well. as as So drive growth the the well equipment on there

a of more a see base that growth probably in driven we'll from perspective, the we lower from little capital growth we growth driver both side. that So recover them had as here given XXXX in

nice up from gross a is from improvement that's So Mexico I When margins, there. the think need here you that made the and by the in on pathway team spinning a thing perspective, target the there facility perspective, perspective. costing identifying on about split margin we we're we've speak progress hiring operations gross where

to we've of the overhead So have the as total of part we gone goods reduce tried burden a as forward, pool. cost

it it's the revenue forward to way, don't and as of of overhead. being that on more going much volume-dependent to have volume tied we plays as So drivers opposed

pre-COVID reduce regard nice back core drive made percent help going content volume the our in overhead gross forward of and have to a of will impact place minimizes to our that we've So plan on progress a which overhead which spend in revenue margin the improvement. levels as

Operator

back no there CEO I are remarks. turn to further will some Army, and call final President questions. closing for Joe over now And the Vapotherm's

Joe Army

much look very for forward all results coming the X in we back on call listening to fourth our and the in you Thank next today to with quarter you months.

Operator

for This concludes call. your conference Thank participation. today's you

You may disconnect. now

Vapotherm (VAPO) 2 Nov 222022 Q3 Earnings call transcript