Q2 2020 Vapotherm Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the people from second quarter and fiscal year 2020 financial results Conference call.
As a reminder, this call is being webcast life and recorded.
It's now my pleasure to introduce your host Mr. Mark Klausner Westwicke. Please go ahead Sir.
Good afternoon, and thank you for joining us for the vapor <unk> second quarter 2020, <unk> financial results conference call joining us on today's call or baseball terms, President and Chief Executive Officer, Joe RV, <unk>, Senior Vice President and Chief Financial Officer, John Landry.
I'd 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 IR section of our web site. They both are dot 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 factor section.
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 four 2020, our quarterly reports on form 10-Q for the quarter ended March 31, 2020, which was filed with the Securities and Exchange Commission on May 15 22.
20, our quarterly report on form 10-Q for the quarter ended June 30, 2020, which was filed with the Securities and Exchange Commission on August 4th 2020, and in any subsequent filings with the Securities and Exchange Commission.
Such risk factors may be 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 gap.
We generally refer to these as non-GAAP financial measures.
Conciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with gap or 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 vapor Therms, President and Chief Executive Officer, Joe Army.
Good afternoon, and thank you for joining us today.
I will begin by discussing our second quarter 2020 results, then I'll hand, the call over to John Landry, our CFO to provide the financial details of our to Q 2020 results.
After which I'll update you on our carries a focus group third quarter and the remainder of the year before taking questions.
To Q was another big quarter for people service, we generated 35.2 million in revenue.
893% increase over to Q2 thousand 19.
We increased our worldwide installed base by more than 4100 units to approximately 22000 units.
And opened 65, net new gold and silver accounts in the U.S. In addition, we printed our first 50% gross margin quarter, despite significant headwinds and expect to continue to improve our gross margin by executing on or three point player.
We're pleased with the growth of our worldwide installed base and have our field team focused on implementing and educating both our new and existing customers on how to use our high velocity therapy on patients suffering from both type one respiratory distress, such as coordinating patients and try to respiratory distress such.
As she'll PD patients.
We believe this continued focus on education will help drive the adoption of our technology, especially when customers see how our high velocity therapy can be used to help patients beyond cobot 19.
Or what you call I stated my belief that our business has been significantly transformed based on increased awareness and usage of our high velocity therapy, and our continued progress in developing the oxygen assist module or own for short and the next generation system.
First as we all know high flow therapy is now recommended as an appropriate first line therapy for cold and 19 patients experiencing respiratory distress by the NIH CDC Whrrl and many other major medical Society guidelines Maple syrup invented high.
Oh therapy, and now produces the precision flow system and advanced form of high flow therapy. This differentiated due to its ability to deliver oxygen at a high velocity to treat spontaneously breeding patients with both type one hypoxic respiratory distress like that experienced by cold 19 patients and.
Two respiratory distress hypercalcemia like that experienced by Seo PD patients.
As these medical Society guidelines began recommending high full therapy and clinicians rapidly shared best practices, we significantly expanded our installed base across the largest 2000 hospitals in the us, which we refer to as gold and silver accounts.
In the first two quarters of 2020, our global installed base has grown by over 5400 units.
By comparison, our worldwide installed base grew by 1200 units in the first two quarters of 2019.
We opened 103 net new gold and silver is in the first two quarters 2020 as compared to 64 in the first two quarters of 29 team.
These hospitals are large and typically part of a major system, which means they may open the door for additional expansion opportunities our strategy of focusing on a gold and silver EDSS meant our systems have likely been in the right place at the right time to help treat the respiratory distress experienced by.
Many kobin 19 patients who show up in the.
We're also able to significantly increase our presence in some markets, where we had not previously had a meaningful installed base just like New York City, and Spain became important markets for US earlier. This year, we're seeing an uptick in adoption of our high velocity therapy in Arizona, Texas, Florida and Mexico.
Early in Threeq.
Second when we saw the hospitalization numbers begin to subside in mid two Q, we turned our attention to deeply training and supporting the large number of net new gold and silver accounts, both in the field and remotely through our April Therm Academy.
And preparing for the fall.
We're teaching all of these big net new accounts about how to treat cobot 19, and other type one hypoxic respiratory distress patients. We've also begun to teach them how to effectively treat type two patients the hyper Catholic patients, who would normally be treated with an eye PPV.
To that end I was happy to see that our turn rates for two Q ran ahead of historical rates and we are hearing stories about aha moments from these new users about the applications of our system beyond just cobot 19.
I believe that when the pandemic passes we could see our high velocity therapy being used with patients in some areas of the hospital that we havent historically focused on.
Which can have a positive impact on our total addressable market.
Turning now to our product pipeline as you may recall from our one Q call I had diverted all engineering resources to supporting the supply chain and our customers.
As Twoq progressed, we began to settle in and we restarted some important projects.
Our oxygen assist module was initially compatible with the Massimo pulse oximetry technology.
And is now also compatible with the Medtronic Nellcor pulse oximetry technology.
We believe these two companies combine.
Hold the majority of the market share where Paypal therm operates today.
Both versions of this product or approved for use in Europe, including the United Kingdom, and we believe those markets will be moving to full market release later this year.
We continue to work with the FDA on our I'd to determine the appropriate clinical and regulatory pathway for the United States.
Recall that the owned device is designed to help caregivers maintain patients within a physician prescribed oxygen saturation range.
While requiring significantly fewer manual adjustments to the equipment.
Our pre pandemic strategy was to focus on the neonatal patient population as our data is strong and we believe the unmet clinical need is significant.
Over the past several months it became apparent that this technology may have an important role to play in dosing oxygen to cope with 19 patients while reducing the number of times caregivers need to adjust the equipment at the bedside, while in close proximity to infected patients.
In order to learn more about the use cases of the technology beyond the neonatal population. We are now using the technology in select European markets on adults with respiratory distress.
Clinician feedback to date has been positive across the adult population.
And we're now in treat at the potential is technology may hold for both the adult and neonate population.
Our progress on our next generation system has restarted in earnest and we're pleased with the progress we're making.
This is the only development project. We're currently working on and we are running hard at this.
We have been able to make some improvements to the system based on lessons learned from the pandemic.
The system has an integrated air source integrated own technology nurse call EMR connectivity and will be designed to be using all acute and sub acute care settings.
We're currently planning on treating the first patients with this system in one Q2 thousand 21, and maybe over the fully released the system in the hospital setting the back half of 2021.
Concurrently in the back half of 2021, we plan to execute it limited release in the home setting. So we can start to collect important clinical data that we will use to optimize the home version prior to a potential full release in this care setting.
Lastly.
To repeat myself from the last call I want to thank all our teammates and partners from around the world for their extraordinary efforts to serve our customers and their patients on the front lines. During this crisis.
It's been remarkable to see what they accomplished in a very uncertain and stressful period. They have repeatedly and successfully navigated the day to day challenges of scaling our capacity significantly.
While adapting to significant change at work and at home made necessary by the covert 19 pandemic.
And I have never been prouder of our team in my life.
Now I will turn it over to John Landry, our CFO to provide a financial review John.
Thank you Joe.
Revenue in the second quarter, 2020 was $35.2 million, representing 193% increase over revenue of $12 million in the second quarter 2019, and a 16.1 million on 84% increase over revenue of 19.1 million in the first quarter of 2020.
Revenue was 25.7 million or 73% revenue while international revenue was 9.5 million were 27% of revenue.
While revenue was strong across the board I'd like to point out the fallen highlights.
Our worldwide installed base grew by approximately 4100 Pf units in the second quarter, bringing our year to date worldwide installed base growth to 5400 units, which is more than four and five times. The 1200, we grew our installed base in the first half 2019.
Our U.S. disposable utilization rate in the second quarter 2020 was 2.15 as compared to 1.9 in the second quarter 2019.
This is the second quarter in a row, where are you less disposable utilization rate exceeded our historical experience by approximately 8.25 turns.
The international disposable utilization rate and the second quarter 2020 was 2.7 as compared to 2.14 in the second quarter 2019.
We believe this increase in worldwide disposable utilization rates in largely due to the increased usage of our technology for the treatment of respiratory distress experienced by many called the 19 patients the Prosoft Canyon and our slides DPC, which were launched in the first quarter of 2020 helped increase our us disposable average selling price.
In the second quarter due to increased clinical utility for the customer.
Gross profit in the second quarter of 2020 was 17.6 million an increase of 12.1 million over gross profit at 5.5 million in the second quarter 2019 gross margin was 50.1% in the second quarter 2020, compared to 45.5% in the second quarter of 2019.
This is the first quarter when we posted gross margin that started with a five since I joined the company back in 2012.
We improved gross margin faster than anticipated due to improved overhead absorption on a relatively fixed cost overhead base as we significantly scale production beginning late in the first quarter of 2020.
This provided us with a significant tailwind in the second quarter and we also improved our worldwide average selling prices.
These tailwinds were partially offset by significant headwinds in the form of higher labor costs, an increase supply of freight and expediting fees incurred to meet the rapid increase in production capacity.
In addition, we expect a much higher mix of capital equipment revenue and we did and the second quarter of 2019, which also partially offset our year over year gross margin improvement.
Operating expenses were 24.4 million in the second quarter of 2020, an increase of 7.2 million over the prior year. The increase in operating expenses was primarily due to commissions earned on increased revenue and increased head count in the worldwide sales and marketing organization, new product development costs associated with our next generation system.
General and administrative expenses, partially offset by reduced worldwide teeny due to cover the 19.
Net loss in the second quarter 2020, with $8 million with 35 cents per share compared to 12.9 million or 76 cents per share in the second quarter 2019.
Adjusted EBITDA for the second quarter of 2020 was a negative 4.3 million compared to a negative 10.2 million in the second quarter of 2019, and a negative 10.2 million in the first quarter of 2020.
Adjusted EBITDA adjusted for foreign currency gains or losses, net interest expense depreciation and amortization expense and stock based compensation.
The $5.9 million decrease and adjusted EBITDA loss in the second quarter 2020, as compared to the second quarter of 2019 was primarily due to higher revenue and gross margin, partially offset by higher operating expenses.
As of June Thirtyth, 2020, cash and cash equivalents were 148.3 million compared to 60.4 million as of the end of March 2020, and 71.7 million as of December 31 2019.
During the quarter accompanying raised net proceeds of 9.8 million through its at the market facility and completed a public offering of its common stock raising net proceeds of $93.8 million.
In the second quarter of 2020, our cash burn was 16.1 million of which 8.6 million was due to working capital needs as a result in higher revenue and production.
On an apples to apples basis, excluding working capital requirements, our cash burn would have been 7.5 million in second quarter of 2020, when compared to 12.8 million in the first quarter of 2020.
Shifting gears it remains difficult to accurately estimate the scope duration and impacted the pandemic on our operations and financial results.
Accordingly, we will not be providing full year financial guidance at this time.
However, in the spirit of transparency, we like to discuss the current trends, we're seeing in the business and our current expectations for the third quarter revenue.
For the past five months, we've seen significant monthly volatility in our capital revenue has called the 19 has impacted different regions of the country.
We have been analyzing multiple data points and try to better predict capital sales and there appears to be a relationship between coded 19 hospitalization rates and increases in our capital equipment sales, especially in markets, where cobot 19 hospitalization search for the first time.
That said these models are subject to great variability and consequently, we caution on placing much emphasis on this data.
Internally, we consider this data more directional in nature and use it in conjunction with our on the ground reports from our global field teams.
In addition, our disposable term rates have also been volatile on a month to month basis and have also been favorably impacted relative to historical experience as covered 19 cases have increased in various parts of the country.
As a reminder, that third quarter is typically our lowest revenue quarter of the year due to seasonality with July and August typically being slow months.
However, with the covered 19 related hospitalizations surges in selected geographies across the southern US we've seen a relatively strong start to Q3 in the U.S.
Historically, the fourth quarter has been stronger as the RSV and flu season, typically kick off as children returned to schools.
The timing and manner of return to school. This fall remains up in the air.
Were also hearing that the flu season in the southern Hemisphere has been relatively mild which is often a leading indicator for the northern hemisphere.
In addition, we're hearing that manufacturers are increasing production of flu vaccines to meet anticipated increased demand given the heightened awareness covered 19.
All these factors lead us to believe that our historical seasonal patterns may not repeat in 2020 and at the third quarter may be stronger than the fourth quarter.
In the third quarter of 2020, we expect revenue in the range of 24 million to $28 million, representing an anticipated year over year increase of 122% to 159% over the third quarter 2020.
I recognize that this is a larger range of guidance and we typically provide and we'd like to share perspective on this guidance range.
The bottom in the range reflects less cobot 19 impact and a return to more historical patterns, while the high end of the range reflects a worsening of Coca 19 hospitalizations as follows returns.
With that I'd like to turn the call back to Joe to discuss our key areas of focus for the remainder of the year.
Thanks, John before opening the line for questions I'd like to review, how we intend to focus our efforts for the remainder of 2020.
The plays very simple first ensure our production capacity and supply chain is prepared to support all customer needs in the fall.
Earlier in Twoq, we announced plans to increase our capital equipment manufacturing capacity significantly.
We have recently completed the space expansion and the production lines are set up and qualified.
We have begun hiring in the supply chain is ramping we're in a fortunate position in a number of our critical suppliers are now shaking loose capacity as the mechanical ventilator contracts from us government in wrapping up which may make availability of parts smoother.
Second one of our key initiatives in the second half of the year is training and educating all the net new users and sharing with them how to use our high velocity technology on hyper Catholic patients as well as hypoxic patients, including cope with 19 patients.
To achieve this goal, we recently completed and expansion of our us clinical field team to better support the implementation and training in our net new and expanded current customers.
We expect later this year, we will expand our sales team as has been our historical practice, our focus will continue to be on the largest govies as that is where patients in respiratory distress, including those who called in 19 show up in the system.
Third we intend to focus on new product development.
Threeq you we plan on an expanded Nicview and adult all limited market release in the United Kingdom in Europe. We also plan on fully launching on in the fourth quarter in the UK Europe and certain middle Eastern markets in both the neonate and adult space, including for adult hypoxic patients.
Such as those suffering from Coburn 19.
And hope to have finalized our own neonate I'd. He study design and regulatory pathway with the FDA by the end of the year.
Additionally, we plan to turn a great deal of attention to the next generation system in the back half of the year.
Lastly, we will continue to run our 3% gross margin improvement plan leverage our operating expenses and drive working capital efficiencies overtime.
To provide a little more insight into how impactful our high velocity therapy is at treating the respiratory distress experienced by many kobin 19 patients I want to share one of the many patient stories from last quarter that comes from one of our net new gold accounts in Pennsylvania.
As related to me by one of our sales professionals.
On day, one of implementing Paypal term at the hospital I learned there was a 69 year old male patient who was covered positive maxed out at 60 leaders and 100% oxygen on a conventional high flow oxygen therapy device.
His oxygen saturation was lingering between 70 and 85% with a heart rate in the high 100, Sixtys and he was breeding like a freight trains.
The caregivers, we're deciding between either trying eni PPV or integrating the patient from mechanical ventilation.
The thing about this patient was his wife had passed away two weeks earlier from coded and is only side was terrified about making the wrong decisions and potentially losing his father as well.
The Sun was beside himself and Didnt know what to do.
This patient ended up being the first patient placement Vaporware Memphis Hospital. He was placed on 40 leaders at 100% oxygen and in my opinion inpatient looked more comfortable almost instantly.
Does oxygen saturation came up and maintain between 85% 93%.
Heart rate came down to the one twenties in his respiratory rates stabilized. He remained on vapors terms high velocity therapy for 21 days with the majority of those days at 40 leaders and 100% oxygen.
He was unable to prone however, the staff got him to sit up and its share every day. He was able to communicate it is meals and once he was feeling better he was even face timing is family members while on the technology.
It was amazing to see this patient after being nearly intubated was weaned off walked out on a hospital on room air.
The our key director chromium expressed that he had no doubt that without April serms high velocity therapy. This patient probably would not be here today.
In conclusion, our feeling good with how we performed into Q and how we're set up for Threeq, you and the remainder of 2020 and beyond.
Our installed base is growing materially faster than we anticipated and we believe there is significantly more awareness for the benefit of our technology than there was at the beginning of the year.
Revenue has significantly exceeded our expectations for the year at this point in our gross margin improvement plan is ahead of schedule despite strong headwinds.
Our key product development initiatives, including own and the next generation system are progressing nicely.
Lastly, I want to reiterate how very proud of our team.
We're working to meet the needs of our customers.
Thank you for trusting us with your capital it means a lot to us.
And now I'd like to open it up for questions.
In order to ask a question at this time, Please press star and then the number one on your telephone keypad.
Our first question is from Bob Hopkins with Bank of America Merrill Lynch. Your line is open.
Hey, guys, you've got to tile Betsy on for Bob Just one quick question for you.
We think about the quarter.
Back to one Q release seems like you had a really strong April result, but it appears that revenue really dropped off in May and June.
I think those obviously counter to expectation. So I just wanted to make sure I understand what's happened that caused that just want to make sure that I understand.
Your views on I guess demand going forward as well.
Sure Kyle it's Joe could talk here. Thanks for the question. So on our last call in early May we communicated that while we had a strong April we thought that capital sales volumes are going to begin returned to a more normalized level in the back quarter second quarter.
And what we have observed is that there appears to be a relationship between our capital demand and spikes in cope with 19 hospitalizations.
And it's especially pronounced Kyle when those spikes recurring in those markets for the first time like New York City.
In the US we saw increased capital demand beginning in late March from continued into April and the rate of new coated cases plateaued the demand for capital equipment wasn't as significant but we continue to serve the customers disposable needs.
I think we John mentioned, a little bit about.
Third quarter started out strong.
Arizona, Florida.
And Texas, I guess right and.
We're expecting when we look at the third quarter. We think we can see something somewhat similar it all depends though on how the cobot 19 hospitalizations trend, we were very surprised to see.
Trend upward in July that's.
Arguably July and August our two weeks months in year from a seasonality point of view.
So again just to recap.
On the May call. We had told you guys. It was our expectation and we thought we would see demand.
Regress to the mean and moved to a more normalized basis and I think thats in fact, what we saw.
Got it Thats helpful. Thank you very much.
Our next question is from Margaret because owner with William Blair. Your line is open.
Hey, good afternoon, guys. Thanks for taking the question.
Got a few hearing that maybe the first wanted to start out with obviously the installed base and there's a leading indicator for utilization and so on app, but I think what was impressive to assist the utilization America disposable turns were so high.
So.
Can you give us any sense over how much of that as inventory stocking how much of that is co bid patients.
How much of that.
It could be just true utilization of other types of patients just in respiratory distress.
Margaret It's Joe its could talkative. Thank you for the question attack. So you've got a lot packed in there let me see if I can take it apart what piece of the time. So we give you guys quarterly turn rates, but we model our business on monthly turn rates right because as we move further into the summer.
We see fewer and fewer respiratory distress cases in the hospital in it kind of makes sense. The kids get out of school flu seasons tailed off and you really don't see it. So by the time you get into June July August. These are our three lowest turn rate months, because the census simply isn't there in the hospital.
So what we saw there's clearly a cobot element to this when we got started in in.
Sort of the middle of March we were very concerned that hospitals were going to be stocking and we wanted to make sure that we could get disposables into the hands of every single customer that needed it and so we put a process in place, where we weren't letting them by more than a modest percentage above what they're sort of their tough flu season historical power.
Returns of bet.
If they needed more it had to get on the phone and talk to us about actual census that share data. So I feel pretty confident that when I look in that second quarter.
In the quarters, a whole an uptick there was a ton of stock.
We saw our our turn rates for June were a little bit softer than what we historically would scene and we kind of said, okay. There's a there's a bit of that they're working through the system, but Conversely, the turn rates in July which are normally very low were pretty robust.
So I think we've got a pretty good process in place to prevent stocking to make sure. We can meet all customer needs around the world. So I don't I don't feel like stocking is a big problem for us I can tell you anecdotally in the cities that experienced the wave first and settle down the quickest I'm not hearing that we flooded the zone. The last 60 days we fly.
Flooded the zone with our clinical people teaching all of these hospitals that are new users how to use it on type two respiratory distress because remember this is like a whole new world for them and they they've never considered being able to use the technology on those type of patients and the stories that we're hearing out of those markets are very positive as what gives me confidence.
That those historical turn rates I'm I'm very confident that we're going to see them from that new installed base that we've built.
Okay, So you're kind of hitting on the next set of questions here, which is a sense of new account growth versus recent new accounts, how those guys are ramping at versus the existing accounts and then kind of the.
The New York, So while many of our co that has come down what you're saying is you're still saying the same.
Great.
The nation at those hospitals that he would traditionally maybe expect early for us.
Yeah, as our with our traditional you expect in a non cobot environment right.
Certainly they have not counting as much as they were when New York was up to their nexsan and covered patients in those hospitals those guys were quite like crazy, but certainly relative to our historical norms, yeah, we like what we're seeing.
Okay, and I'll turn it to both you and John but as you said Q3 guidance at how should we think about those capital placements I understand there's there's a lot of kind of variability and maybe that's the.
Sure range is really just see upside from installed base, but are you still expecting the same kind of turn rates going forward.
Yes, Hi, Margaret's done so as we think about the upcoming quarter. When we put together the 24 28 million revenue range, we expected the below into that range would be assuming some co bid.
Surges, so and starting to subside across the country and on the higher end, we'd see them continues so I think as we look at disposable utilization, we feel good as Joe indicated.
Pretty good with where we expect disposable utilization to be in the third quarter July did start out strong as Joe indicated.
As cobot makes its way through the asked that will determine where where it goes from here I would point out that August is usually very slow month, and then things have historically picked up in the September timeframe as kids go back to school and fluid RSV starts to kick in but with the.
Situation across the country not sure how thats going to look this year so.
That said, we still feel pretty good about where disposable utilization will be for the third quarter.
Okay, and then on high on my number of questions I'll sneak one more in at in terms of that society is the obviously you guys have gotten a lot of recommendations for covered patients to be one of the first line treatment.
What's the plan here to try to go beyond that or can there be or is this more a matter of hospitals getting a sense of the system using it and then realizing this is better afterwards thanks.
Thanks, Margaret as Joe I'll take the on I think.
You are making good 0.1st and foremost about all the societies and NIH CDC and those kind of things those kind of organizations recognizing it.
We do we are focused primarily on training. These hospitals how to use this technology high velocity on type two respiratory distress patients remember that's the fundamental difference we we invented high flow nasal cannulate, we have a more advanced form of it and that technology.
Ken in fact, we used to treat both types of respiratory distress either type one hypoxic like cobot 19 or tied to hyper kapnick like the typical Seo PD patient feedback Thats why we have FDA has created a category a technology code for this the Q Avi and we're the only.
A technology in that category. So first and foremost was get those reps out into the street and get them into those hospitals and make sure that we're training developing and teaching all of these new users how to handle that technology in those new set of patients.
The second element to this is really about this next gen technology that we're going to be developing that will allow them to bring it throughout the hospital and obviously, we're working closely with.
Our clinical team on developing additional clinical data, particularly around those hyper Catholic patients. The question around how do we performed with severely hypoxic patients and Thats asked and answered 10 times over I mean, I've got about a million stories about these covert 19 patients which had a poster children for hypoxic really interesting trick is helping all of these new.
New users and Margaret I can't stress enough that being in the de was the right place and opening up all of those gold EDI accounts has moved US ahead by years now teach them about type two and we're off to the races.
Our next question is from Cecilia for long with Canaccord. Your line is open.
Hi, John John Thanks for taking my question.
I guess I just wanted to start with your commentary around really expanding utilization that you've seen within centers.
Just where do you think that can go longer term and then penniman in conjunction with that I'm just the DRG contrast, and that you signed and that introduction in the new customer base, just the potential you view within that channel.
As well as just from an overall awareness perspective, and driving increased awareness around high Deanna.
So Cecilia is really good to hear from you. Thank you very much for that question.
The first when this is the 13th quarter in a row.
Where our turn rates in our gold TV accounts are higher than the turn rates in the non Goldie accounts.
And we don't think that thats by accident.
Once the E.D. is the front door to these hospitals.
It's all work flow dependent and if you have a technology that you can use on any respiratory distress patient type one or type too and it's very efficient to deploy and it has a high patient tolerance level. It becomes improves that entire workflow, particularly if you can get the same clinical.
Outcomes as you would within normal standard of care the previous gold standard.
So being in those emergency departments and continuing to focus on opening up net new goals. My sense is it's possible we're going to see those turn rates continue to increase now the other thing that's happened as a result this is.
You think about the learning curve and a hospital.
You bring a technology and you've got a couple of people who use that they're expanding the you should slowly now core the covert 19 jet fuel on top of this thing where everybody learns how to use it literally overnight and now it's going all through the hospital because those colby patients were transferred everywhere.
It's brought us up into the I see you much faster than what we would normally see in a in a in a typical pattern, which has allowed for that to then take hold quicker.
We're also seeing it show up in other parts of the hospital already places like pack you and so forth. So I think Theres no question in my mind that.
EDI plays the right play in order to create that awareness in that hospital. It. It has just accelerated the speed with which you can spread through the hospital in terms of other places that it can go inside on hospital. The clinicians are going to take US there. They continue to take US there and you know as time goes on we will begin to do clinical trial.
Sales in those areas to make sure we can document the clinical and economic value turning to the VPA for just a minute I was a really interesting situation because we.
We don't talk about things like that and we never would have issued a press release on that if it had not been through one of these new scraper things that.
Put that out on the wire and we felt like really had to give a little more clarity and little more color to it.
It should think about the BP a as as really a hunting license for all of those deals the hospitals and it is a it is an exclusive.
Contract.
When you couple that with the fact that I'm not sure. We had shared this previously but we were added to the government's he can't system and I want you to think about that for the VA, it's kind of like Amazon Prime right. So it makes it way easier for these VA ways to now go in acquire the equipment that they need to treat their patients. So we've seen.
Pretty substantial and are very substantial uptick in our government business in the second quarter and really those two factors had a lot to do with it. So we're pretty excited about that and we think that that bodes well for us because if you think about how many VA hospitals. There are in the country and if you think about their patient profiles middleman there is more Seo PD.
Okay, and hypoxia CHF in that patient population that we can go in help.
Great. Thank you John I guess, if I have just asking.
Just about your thoughts on your sales force expansion plans really more about that sales first composition as you bring on your Nexgen system as you expand into additional centers, good volume, but but just how you're thinking about really.
Leveraging itself for us going funding.
I have to tell you I love, what we've built in our US field organization I think you know we have over 70% of these folks know who.
They are now tenured sales professionals and they've really done a great job at serving our customers through the Pandemics I'm, particularly proud of our clinical team to that clinical team is really what we just expanded and we expanded by a fair amount, it's not clear to us yet.
What is going to happen with lending sales reps back fully into the hospital away. It wasn't a pre pandemic period.
A lot of our sales professionals are still working remotely is the hospitals are still not comfortable with them coming it so they're doing a really good job at supporting the customers, but a lot more of it is remote but our clinical team is spending a fair amount of time in those hospitals training educating teaching and coach.
So when we did our latest expansion of our field organization here in the last 45 days, we did it because like I said, we wanted to flood zone and get as many clinical trainers into those big net new accounts as we could.
But the people that we hired they're all clinical experts from the bed side, but they also all have salesforce DNA.
We use a series of profiling tools to really help us understand and that group of 12 clinical people have salesforce CNX meet time, we're working in developing our next set of training plans for our existing shells force for the salespeople were doing a lot more clinical training will be where we're going to be.
Summer for the clinical people were doing a lot of sales training.
So we're going to do another expansion of our field organization. Later this year, we want to really allow a little bit more time to shake out to see how the hospitals are going to think about sales reps being in there, but what is clear is that they want the clinical people on the ground to teach a trainer bear.
Their caregivers and we also using our people term academy remote tool to do that so I think that's how we're thinking about that field organization, but man, we feel really good about what we've built there.
Great. Thanks, Tony if I can I just ask when my question I guess, just with the coded resurgent things seemed geography, especially within the U.S. and just the demand that you seed for capital just your ability to meet that demand just as you've been scaling your production capabilities and just how you think about that.
Pardon keeping it flat.
Sure So we're pretty coated.
Our theoretical weekly capacity.
Was 100 units a week.
At the height of the crisis, we were able to produce somewhere in the order of 500, a week, but you beat the be.
Links that we went through to scale at five fold in the middle of this thing was unbelievable. It was like crazy overtime, the big gating factors there for variables here the for inputs to this right. The first is space. The second is production lines themselves the equipment to capital equipment and the line configuration.
The third element of course is parts and the fourth element was people well, we figured the people piece out and it was really we even figured out parts, where we ran into trouble was spacing lines.
So what we announced was a 20 fold increase from our pre pandemic levels of our manufacturing capacity.
And we got really lucky here, because roughly a third of our people are never coming back into the office, they're going to work from home and it's been very successful we took that space that they used to occupy and I converted we converted it into production space. So now that space is all fitted out of production lines are in place there all validated.
And it's a fully modular production space. So we can reconfigure those lines for whatever we need on that capital front. So if the demand is there we will be able to satisfy up to a 20 fold increase in I mean on a real time basis, not having das customers wait 234 weeks to take delivery.
Capital equipment will be able to satisfy it immediately and the thing is if the demand doesn't scale that much we will use that same space and those same production lines in fact for us to next generation of our system.
Great. Thank you Jeff.
You bet.
Next question is from Marine side, both with the T. G. Your line is open.
Hi, Joe and John I Hope, you're well thanks for taking my question.
Ask a prior question I think Margaret App from a different angle I think when I go back to the revenue number you gave US an April and note that there were 2200 units added to the installed base at that point.
It looks to me like the capital shipments as you scale meet demand continued at a decent clip throughout Q2, but on the disposal site. It seems like utilization dropped off pretty dramatically in May and June my back of ambulant Maxpoint to number of disposables using kitchen being not that much higher than Q1, maybe 12002nd.
Now.
Sequentially. So you know what a full quarter as a pandemic happening that that surprised me a little bit could you tease that out for me a little bit more what their stocking in propping happening and April or was the drop in hospitalizations really that dramatic.
Well I'll take a shot in a little bit of it and then we'll let Johnny give you the real answer right first of all remember that we had a pretty good flu season. This year right. So those first quarter turn rates were reasonably high and you started to see these patients show up in the U.S. hospitals in March right.
So.
You've already got a.
Very robust first quarter turn rate going into the second thing to remember is that april's turn rates historically I'm not talking pandemic I'm talking to us historically, how our business works and with those disposables, they're very very predictable.
In April the turn rates are significantly higher than they are in June always kids are out of school and May right. The flu season is done and we see those churn rates fall off by the end of that core by the end by time, we get into June as I said, those turn rates are significantly lower historically than they are in April and then July and August or even lower.
And then they spiked backup typically in September when the kids go back to school. So I think when you looked at it scope and scale. There may have been a little bit of stocking, but I don't think a whole lot.
You know because I think the process that we put in place is pretty robust I think what you saw was everybody's feeling like I at least I know I was inside our plant we get to end the mail like Wow. Thank God. This this is we're going to have like three months. So.
Clean everything up get it all oil the up to get ready for the next go around and I think you saw a little bit lower than historical turn rates June but in July.
Significantly above what we see historically so I.
I don't know John how would you answer that question.
Yeah, I think you did a nice job there Joe in terms of framing it out I think when I look at the April timeframe is very strong demand above our historical levels for sure.
Sort of tied part and parcel to the code that 19 hospitalizations I think there was some some impact potentially from stocking we did have a process in place by which we have vetting out large significant customer orders on the disposal size that were significantly outsize compared to historical ordering patterns are able to work on those and.
And work closely with the customer to ensure they had what they needed when they needed it and.
We expect that in the month of April in early May and then ads historically has happened generally things start to decline in the May and June timeframe from utilization perspective.
Which we've done again saw this year, which was in parallel to the production and coated 19 hospitalizations, especially in the large.
Metropolitan areas in New York and.
Metro area.
Alright makes sense. Thank you for stepping in to that I'll keep it could just one follow up thanks any update on the next Gen. Six down I know you mentioned that you look to start doing some work on on the home care setting any update on the timeline of when we might see that system in the home care setting.
Market release, I know, there's a lot of index answer on that product.
There's a lot of my interest in that product that's a very interesting application for this technology right for us it's.
That product in the first quarter, we're going to start treating some patients in the home, but we're going to be learning Murray, we gotta go and understand the workflow make sure. We've got all that right, we're going to need to collect some clinical evidence from there and theres going to be things about this system. Because this system is designed specifically for the acute care.
Setting.
But there are some things that we have done within it is our once you sign up toward a pickup truck right my wife's kind of Lexus. It was the same frame. The same engine. The same transmission everything was the same amount except a different skin. That's I want you to think about people from 2.0 right that nexgen system. So we're going to go do a lot of shake down.
In 2021 any idea would be then let's go get commercial in later in 2022, but we want to make sure we're going the right product and right offering and everything that is wrapped around at the right way and especially how we're going to leverage our field organization.
Alright, thank you for much.
Thank you for the questions. We appreciate your interest and I want to thank you all for your interest to beef up there and we really appreciate it and we look forward to updating you on our progress again next quarter.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation into May now disconnect.
Yes.
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