Q1 2020 Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the people through first quarter 2020 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 Westwicke. Please go ahead Sir.
Good afternoon, and thank you for joining us for that they both are first quarter 2020 financial results conference call.
Joining us on today's call or baseball Therms, President and Chief Executive Officer, Joe RB, It's Vice President and Chief Financial Officer, John Landry.
I would like to remind you that 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 our section of our website. They both are dotcom.
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 factor section of our annual report filed on form 10-K for the year ended December 31, 2019, which was.
Filed with the Securities and Exchange Commission on March 4th 2020, our current report on form 8-K filed with the FCC on April 13th 2020, and our quarterly report on form 10-Q for the quarter ended March 31, 2020, which was filed with the Securities and Exchange Commission on May 5th.
2020, and in any subsequent filings with the Securities and Exchange Commission.
Such risk factors, maybe updated from time to time in our filings with the FCC, 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 acceptable accounting principles were gap.
We generally refer to these as non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with gap are available in the earnings press release on the Investor Relations portion of our web site.
With that it's my pleasure to turn the call over to vapor Therms, President and Chief Executive Officer, Joe Army.
Good afternoon, and thank you for joining us today I will begin by discussing our first quarter results, then I will hand, the call over to John Landry our CFO.
To provide financial details of our first quarter 2020 results.
After which I'll update you on our key areas of focus for second quarter and the remainder of the year before taking some questions.
First quarter was a big quarter for vapor pressure as we generated 19.1 million in revenue, 55% increase over the first quarter of 2019.
In the quarter, we grew our worldwide installed base by nearly 1300 units.
To Q looks to be even better as in April alone. We estimate that we've already generated between 19 and 19.3 million in revenue.
And grew to worldwide installed base by over 2200 units as compared to nearly 1300 during the entire first quarter 2020.
Apart from the strong recent financial results I believe our business was significantly and sustainably transformed over the past quarter.
And I see a very different business than I did 60 days ago for three primary reasons.
First I believe the pandemic fundamentally altered the awareness and usage of our technology.
Second I believe we made significant progress with the development of our oxygen assist module.
Lastly, we were able to improve our gross margins in spite of strong headwinds.
And scale our business ahead of expectations.
Let me provide a little color on each of these important changes.
At the beginning of the pandemic high velocity slash high flow auction therapy was not viewed as a first line therapy for treating the respiratory distress experienced by many colder 19 patients.
As physicians believe patients required more than supplemental oxygen.
Would need to be placed on a mechanical ventilator.
Now the CDC WH show NIH Society for critical care Medicine American College of emergency physicians, the Chinese German a tie and Australian thoracic societies.
And hospitals are getting hit with the covert 19 surgery on a country.
All recognize our technology as an appropriate first line therapy.
In the pre pandemic world the development and alignment of these guidelines would have taken a lot longer to come together in my opinion.
The increased awareness of our technology.
And the increased need due to the large number of Coburn 19 patients allowed us to expand our business in both new and existing accounts.
Since the beginning of 2020.
Our global installed base has grown by over 3500 units.
By comparison, our worldwide installed base grew by 2500 units in all of 2019.
Our gold EDI focus pay dividends for us as we opened 50, new gold EDI accounts in the U.S. since the beginning of the year up from 12 in the fourth quarter 19.
In addition, our strategy of focusing on the goal Bds meant our systems were in the right place at the right time to help treat the respiratory distress experienced by many covert 19 patients who presented to the are.
We're also able to significantly increase our presence in some markets, where we had not previously had a meaningful installed base.
For example, we had under 100 units in New York City going into first quarter and as of end of April we have nearly 500 units in the installed base.
Internationally, our installed base in Spain grew four fold from the mid Sixty's.
At the beginning of the year to over 260 units.
Just as important as the net new accounts, we've added with a significant number of new physicians, who were exposed to the efficacy of our therapy.
I believe a whole new groups of physicians learned about our technology and were able to experienced their own aha moments when they observed how cold it 19 patients in respiratory distress responded to our high velocity therapy.
The second important change in our business was the significant progress we made with our oxygen to assist module or own.
Since the beginning of the year, we received our CE Mark initiated our limited market release in the UK and recently received breakthrough device designation in the U.S., which I believe will help expedite the development assessment and Ft, a review of the own.
The limited market release in the UK has gone well and we saw significant interest including pull through of our Hybean, our technology into net new accounts.
We've already developed enhancements based on user feedback and we'll be expanding the Nick you limited release in the UK and potentially in other select European markets as we move through the rest of the year.
Recall that oxygen is a deadly dangerous life, giving drug with a narrow therapeutic window.
And OEM has been proven to help clinicians maintain oxygen within the targeted auction saturation range.
We know this is important in premature babies, hence our initial focus in the near Q.
One of the things we've learned in the Cobot 19 crisis is that helping clinicians maintain a tight oxygen saturation range is also important for adult hypoxic patients.
We plan on offering me on to some of our European customers to help them keep their adult cobot 19 patients in the physician prescribed oxygen saturation range in the coming months.
While there's still a lot to learn the opportunity for own maybe even greater than we initially thought.
The third reason this is a different company today is we're showing faster gross margin improvement than anticipated despite significant headwinds.
I now believe we will be able to scale the business and leverage our fixed cost base faster than originally planned.
We increased gross margin despite higher variable costs, resulting from major increases in labor costs tied to our more than three X increase in capital production capacity.
Increases in supplier freight costs and expedite fees for components as well as a higher mix of capital equipment and international revenue.
Im looking forward to seeing our gross margin improvement plan play out as our variable cost and mix between capital and disposables revenue and us and international revenue eventually revert to historical norms.
Lastly, I want to thank all of our teammates and partners around the world for their extraordinary efforts to serve our customers and their patients on the front lines. During this crisis. It has been remarkable to see what they accomplished in a very uncertain stressful period.
They have repeatedly and successfully navigated the David a challenges of scaling our capacity significantly while adapting to significant change at work and at home made necessary by the cobot 19 pandemic.
And I've never been proud of our team.
Now I will turn it over to John Landry, our CFO to provide financial review John.
Thank you Joe.
Revenue in the first quarter of 2020 was $19.1 million, representing a 55.4% increase over revenue of 12.3 million in the first quarter of 2019, primarily as a result of increased sales of our single use disposable due to a larger installed base of precision flow units, an increase utilization due to the coated 19 pandemic.
Which also resulted in an increase in precision flow unit sales.
So do you lost revenue was 14.3 million, representing an increase of 42.7% over the first quarter 2019 revenue of 10 million, while international revenue was 4.8 million, representing an increase of 112.1% over the first quarter of 2019 revenue of 2.3 million.
Capital revenue, including revenue from product sales and lease revenue was 6 million in the first quarter of 2020, representing a 125.3% increase over revenue of 2.7 million in the first quarter of 2019 due to strong worldwide demand for Precidian flow units geographically U.S. capital revenue was 4.2 million in the first quarter of 2020.
Representing a 95.4% increase over revenue of 2.2 million in the first quarter of 2019, while international capital revenue is 1.8 million in the first quarter of 2020, representing an increase of 254.3% over revenue of $505000 in the first quarter of 2019.
Disposable revenue was 12.4 million in the first quarter 2020, representing a 37.8% increase over revenue of 9 million in the first quarter of 2019 and was primarily driven by increased worldwide demand for our single use disposables as a result of our increase installed base of precision full units worldwide and increased utilization do.
To the Coven 19 pandemic.
In the first quarter of 2020, we sold roughly 126400 disposables worldwide.
Disposable revenue was 9.7 million in the us compared to $7.5 million in the first quarter of 2019, representing 28.4% year over year growth.
This growth was driven by 18.7% year over year growth in our us installed base and increased utilization our single use disposable due to covert 19.
International disposable revenue was 2.7 million compared to $1.5 million in the first quarter of 2019 representing growth of 85.9%.
This growth was driven by increased utilization of our single use disposable as a result of our 34% increase in our international installed base of precision flow units and increased utilization.
Worldwide service revenue was 651000 in the first quarter of 2020, which grew 8.1% over the first quarter of 2019.
402000 of the 651000 was generated in the U.S. and 249000 was generated from international markets.
Gross profit in the first quarter of 2020 was 9.2 million an increase of 4 million over gross profit of 5.2 million in the first quarter of 2019.
Gross margin was 48.2% in the first quarter of 2020 compared to 42.1% in first quarter of 2019.
We improved gross margin faster than anticipated due to improved overhead absorption as we scale production late in the first quarter of 2020, and our ASP is on us disposable sales and international capital sales increased on a year over year basis.
We manage this improvement despite significant headwinds from higher labor cost increase supplier freight and expediting fees incurred to meet the rapid increase in production capacity and a higher mix of capital equipment revenue and international revenue.
Research and development expense was 3.4 million in the first quarter of 2020, an increase of 89000 over the prior year. The increase in research and development expense was primarily due to new product development cost associated with our oxygen assist module and nexgen, having I platform, partially offset by savings due to the completion and launch of our new Prosoft candela.
And Aerosolized disposable patient circuit and the first quarter of 2020.
Sales and marketing expense was 13.3 million in the first quarter of 2020, an increase of 4.2 million over the prior year. The increase in sales and marketing expense was primarily due to commissions earned on increased revenue an increase headcount in the worldwide sales and marketing organization, partially offset by reduced teeny due to covert 19.
General and administrative expense was 5.3 million in the first quarter of 2020, an increase of 372000 over the prior year.
The increase was primarily due to increased employee related expenses insurance costs and bad debt reserves, partially offset by reduced stock based compensation expense and teeny due to cover 19.
Net loss in the first quarter of 2020 was 13.8 million or 66 cents per share compared to $13 million or 76 cents per share in the first quarter of 2019.
Adjusted EBITDA for the first quarter of 2020 was negative 10.2 million compared to negative 9.6 million in the first quarter 2019.
Adjusted EBITDA adjusted for foreign currency gains or losses, net interest expense depreciation and amortization expense and stock based compensation.
The $544000 increase adjusted EBITDA loss in the first quarter of 2020 was primarily due to higher operating expenses, partially offset by higher gross profit.
As of March 31st 2020, cash and cash equivalents were 60.4 million compared to 71.7 million as of December 30, Onest 2019.
Subsequent to March 30, Onest 2020, the company raised gross proceeds of 10.2 million or 9.9 million net of commissions through its at the market ATM facility.
In the first quarter of 2020, our cash burn was 11.3 million a decrease of 600000 from the fourth quarter of 2019 due to increased revenue and borrowing under our line of credit partially offset by the payment of yearend bonuses and commissions.
We anticipate working capital needs will increase in the second quarter as a result, a materially higher revenue and production.
We provided preliminary April results to give you some insight into the magnitude of the impact Cobot 19 is having on our business right. Now however, interim preliminary financial results are not something we plan on providing in the future.
Additionally, as disclosed in our April 13th press release, we withdrew our previously announced annual guidance for 2020.
Through the significant increase in demand, resulting from coven 19, which has continued into the second quarter.
Our inability to estimate the scope duration and impact of the pandemic, we cannot yet predict the effect of the code at 19 pandemic on our operations and financial results.
This concludes my remarks, I'll now turn it back over to you Joe.
Thanks, John before opening the line for questions I'd like to review, how we intend to focus our efforts in 2020.
First we intend to support hospitals around the world dealing with the covert 19 pandemic and we'll work to manage our supply chain in a manner that puts us in the best possible position to do this.
We believe it is likely that the growth in the installed base and disposable utilization will revert to more normalized historical levels in late Twoq too early Threeq you.
Recall that Threeq, you is our slowest quarter seasonally but volumes pick back up in Fourq, Hugh Wynne RSV and flu season starts.
This year, we will be planning for the possibility of a return of Covance 19 as well.
Our focus will continue to be on the largest gold bds as that is where these patients show up in the system.
We expect to heavily focused on educating all the net new users and sharing with them how to use our high velocity technology on hyper Catholic patients as well as the hypoxic cobot 19 patients.
And we're also planning to execute on an expansion of our U.S. field organization in the back half of the year as we historically have done.
Secondly.
We intend to focus on new product development.
We plan to start an OEM neonate I'd study in the U.S.
And move into an expanded Nick you own limited release in the UK and potentially certain European markets as we move through the year.
We also plan on offering me on to some of our European customers for use with hypoxic adult corporate 19 patients in the coming months.
Additionally, we plan to turn a great deal of attention to the next generation system in the back half of the year.
Recall the next generation system is designed to provide high velocity nasal insufflation using a portable device removing the requirement for access to built in wall Air.
Lastly, we plan to grow revenue by getting all the newly installed PFC units turning disposables after coated 19 receives.
Run our three pronged gross margin improvement plan.
Leverage our operating expenses.
And drive working capital efficiencies overtime.
To provide a little more insight into how impactful our hybean I technology is a treating the respiratory distress experienced by many coburn 19 patients I want to share one of the many patient stories, which you from last quarter. The comes from one of our New York City hospitals as related to me by one of our sales representatives.
This patient was a 54 year old mail, who came into the I see you in respiratory distress within oxygen saturation rate in the low sixtys.
This low oversaturation rate is very dangerous for patients our sales rep learned that the patients dr. wanted to integrate the patient and put them on the mechanical ventilator, but this patient refused to be intubated.
Our sales Rep was there at the time assembling the new precision power units that have just been delivered the dark to grab one of the units and put the patient on at 40 leaders and 100% oxygen.
Our sales rep learned that within 10 minutes the patients oxygen saturation rate was at 95% is worker breeding was reduced his respiratory rated declined and he now seem to be sitting comfortably in his bet.
Our sales were up shared with me to from his perspective. This patient went from almost being put on the mechanical ventilator potentially dying.
To being put on vapor firm and being discharged home three days later to recover.
In conclusion I'm feeling good with how we performed one Q.
Now we are set up for Twoq, you and the remainder of 2020 in below it.
Our installed base is growing materially faster than anticipated and there is significantly more awareness of the benefit over technology than there was at the beginning of the year revenue is significantly exceeded our expectations for this point in the year and our gross margin improvement plan is ahead of schedule despite strong headwinds.
Our key product development initiatives, including on and the Nexgen system are progressing nicely.
Lastly, I want to reiterate our very proud I am of our team for working to meet the needs of our customers. Thank you for trusting us with your capital. It means a lot to us now I'd like to open it up for questions.
At this time and I wanted to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from the line of Bob Hopkins of Bank of America. Please go ahead. Your line is open.
Hey, John Joe This is Kyle Betsy on for Bob I, just had two quick questions. So obviously, you're having a pretty incredible opportunity here to expand your presence and close units and potentially have a real long term opportunity, but I just kind of wanted to hear your thoughts on a on the sustainability of this growth kind of longer term and.
Kind of your views on the ability to penetrate that previously and 1.5 billion dollar opportunity. So just wanted to kind of get your views there and how quickly you think you can penetrate that versus what you thought previously and then also wanted to get your views on the impact to disposable utilization and why.
To placing so many units in a short period of time. Thanks.
Thanks for your question Kyle This is Joe So as I mentioned in my prepared remarks.
This transformed the business I think this is a different company than it was 60 days ago and I really take that it has a lot to do with how many of these new systems that we were able to crack how many new positions that were just simply not aware of us they didnt. They didnt know what.
Term technology was able to do.
They will have their own aha moments on hypoxic patients.
So in terms of sustainability I mean, certainly I don't I don't think that the the rate of capital equipment growth will continue like it is an April you saw those April numbers are those are pretty big great but.
There's no question in my mind that there's at least a year probably two years that we've we've been able to make up in terms of our growth plan and.
Now the question is what are we going to do about it we're going to go send our entire field organization into those hospitals and help show all those physicians how to use that technology not only on hypoxic patients, but on hype accountant patients as well tied to respiratory distress.
So that's that's the plan, particularly as it relates to that disposable business because crowd remember.
Typically speaking not this quarter, but typically speaking 75% of our revenue comes from single use disposables and it's very very stable and predictable. So we are a disposables company and we're going to continued to do that but I certainly think that is it it is changed our business for the better.
Got it and then just wanted to follow up on the I guess disposable utilization you, obviously, placing a ton of units here. So just will that can have a dilutive effect to utilization in the near term or is that the wrong way to think about it.
Yeah, It's an interesting question Kyle so.
Currently and we typically see a turn rate about 2.22 0.25 in the first quarter the year.
This quarter, we saw about you know two two and half of the first quarter.
Obviously much of that increase was likely related to covert 19.
As we noted in the past we've begun to CRT D approach, yielding slightly higher turn rates, but given the uncertainty around cobot 19 that change your models from our historical turn rates, but to your point. It is possible that we might see lower average turn rates over the course of the year as such a significant number of these newly installed units that are coming online.
Got it that's helpful. And then one last question for me, obviously, I think historically said in terms of going cash flow positive you'd need to reach roughly 100, plus nine revenues, maybe 120 130.
Mostly kind of April is tracking really well and it looks to me you know like you should be able to get close to cash flow positive in second quarter, but I just wanted to kind of here your reaction to that kind of understand your views on what would prevent that from happening.
Yeah no.
Good question.
Well I think from from our perspective, you know the we have indicated he adds roughly about $125 million soda to cash flow breakeven.
I think in terms of.
This upcoming quarter, not not ready to provide any granularity in terms of what that cash flow.
It's going to look like or.
Profitability, but you know the 125 million is still a good number from a cash flow breakeven perspective.
Thank you very much.
Our next question comes from the line of Cecilia for lot of Canaccord. Please go ahead. Your line is open.
Hi, Joe and John Thanks for taking my question.
I wanted to ask about has called E account penetration and just squarely within the quarter can you just talk about those accounts specifically when you were previously and really the room to grow beyond this going forward kind of where you are in that penetration cycle.
So silly, it's good to hear from you know bodes well with you.
I hate the way to think about it is historically, 60% to 65% of our revenue comes on the capital equipment revenue comes from current existing customers.
Yeah.
We also know that when we put our products our systems into gold BD accounts, we know for a fact that the turn rates are higher there than they are adding other place yeah.
So what we see directories held to covert 19 news a couple of things one we just opened up a whole bunch more of these really really big Cds, but too you know they didnt tree proceeds just are they do treat those patients just in emergency department. They took him up to the I CEO and so now we've seen more a particular.
The critical care physicians get educated on our technology, which of the serves to open up.
Further pathways gross you think it's gonna once you get into the I see you then you can see him go into the pack you.
The pediatric guys to you you there are many other places in the hospitals and they go so.
I'll take that we're very pleased with the success that we had the here in the first quarter with opening up. These goal Bds. We think it's the right play and we've got a lot left that we have to go do visas.
This is a top thousand hospitals in the United States right now I think we might have you know sort of 300 level.
And that means that there's a lot left to go and then the ones right behind that the silver ones. The second largest thousand there's a tremendous amount of opportunity that we have to go get.
Great. Thank you and I guess, just tying into that too can can you talk about salesforce expansion and that the ended 2019, but then also has this impacted your thoughts just on how you expand yourselves bison 2020, maybe potentially accelerate that or how are you thinking about sales.
Growth going fine.
Well as we mentioned during their prepared remarks, we're going to we're going to begin that sales force expansion, we're probably going to do it started a little bit sooner than what we normally would Syria only because the world's really different place with golden 19th and so having to interview everybody distance wise, and then figuring out how to train and.
We get them all deployed so we just thought it would be smarter to start that you know earlier in the game and make sure that when we get to the end of the year, we had that sales force expanded.
As we were planning.
Okay, great and if I could squeeze on line and just <unk> I would I was curious if you could update us on your aerosol DPC, just how that well that's going in and what kind of feedback you're hearing yep. Thank you again, yeah I got to tell you. This is a lot that it's almost like those to pre cope with world and the postponement World and this was in the first two and a half.
Recall, what I would say what I was so proud of our team that Salesforce did an outstanding job communicating this and letting customers see the value and.
It's been it's been very very well received by our customers work that way.
And then you know, it's even more interesting because now you can deliver an aerosolized nebulized the drug.
To a patient without having to be.
The occupations bedside, you can actually have the whole aerosolization back at the box you know six feet away from the patient. So that's good because it was great to see that I think we've just got started the that but it's certainly been very positive launch we're excited about.
And proving to be.
Very well received by our customers. So we're excited about that Joe.
Okay. Thank you John John.
Yes.
And our next question comes on line of married to vote of BTI G. Please go ahead. Your line is open.
Hi, Joe Hi, John Bunker clicking the question was done a great job this quarter.
Experienced good to hear from here.
I wanted to ask a question on you know a tremendous April month, I'm curious, whether you're starting to see the demand low at the point, whether you think there's a couple more weeks last of that just curious.
Yes, very near term week to week trend at that point.
Well I can say at a very near term through the end debate.
Well was 19 and change.
Right.
They were prepared your comment any further than that other than that we're going to keep paying attention.
To our capacity and make it.
Later supply around is that something that.
Yeah.
Or not it would be something that the government would want to explore you know I can tell you that for our money we were very focused on getting.
Our systems into the hands of clinicians that we're experiencing major patient surges moments and so that's how we were able to prioritize that.
I think in the middle of the patient surge putting boxes in a warehouse is probably bad idea. It's just not good policy. It's not good for your customers certainly not good for patients, but I'm thinking more along the.
Yeah with the initial surge past you know, it's going to be interested to see what the government. All decides to do it's clear they bought a whole lot of ventilator mechanical ventilators right.
[laughter].
Right.
And then one for John understand lump that you made great progress on gross margins. Despite some of the hot around do you have any ballpark estimate for how much impact so.
Gross margin some of those headwinds <unk>.
Yeah, so probably not a break it out specifically Murray, but we did have a nice tailwind obviously in the form of increased volume, which provided incremental leverage on a fixed cost manufacturing those nice tailwind for us and.
On the flip side, we did have headwinds in a way of paying overtime from manufacturing team. We had supplier freight charges that we had to pay to get components to us.
Very short notice than we had expediting fees to get the components to us also as well so.
It's a little difficult to predict the timing, but net net we see nice gross margin per minute or up.
610, bips on a year over year basis.
Great. Thank you so much.
And that concludes our question and answer session for today I will now turn the call back over to Joe Army for any closing remarks.
So I want to thank you all for your interest in vacant there and we really appreciate it and we look forward to updating you on our progress again next quarter.
This concludes today's conference call you may now disconnect.
Hi.
[music].
Yes, Oh.
[music].