Q1 2021 Vapotherm Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the <unk>, Inc. Fourth quarter and fiscal year 2020 financial results call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session traffic of question during.
The session you'll need the press star one on your telephone.
The require any further assistance. Please press star zero. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your host Mr. Mark Klausner. Thank you. Please go ahead Sir.
Good afternoon, and thank you for joining us for the vapor third and fourth quarter 2020 financial results Conference call.
Joining us on today's call are depot of firms President and Chief Executive Officer, Joe Army and its senior 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 IR section of our website the plethora of 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 factors section of our annual report filed on form 10-K for the year ended December 31, 2020, which was filed.
With the Securities and Exchange Commission or the SEC on February 24th 2021, and in any subsequent filings with the SEC.
Such risk factors may be updated from time to time in our filings with the SEC, which are publicly available on our website. We undertake no obligation to publicly update or revise our forward looking statements as a result of new information future events or otherwise unless required by law.
This call will also include references to certain financial measures that are not calculated in accordance with generally acceptable accounting principles or GAAP.
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 GAAP are available in the earnings press release of the Investor Relations portion of our website.
With that it's my pleasure to turn the call over to <unk>, President and Chief Executive Officer, Joe Army.
Good afternoon, and thank you for joining us today.
I will begin by discussing our fourth quarter results.
<unk> and full year 2020 of accomplishment when John Landry, our CFO will provide the financial update of our fourth quarter results.
I will then update you on our key areas of focus for 2021 before taking questions.
For Q was another strong quarter for vehicle for them.
We generated $49 million in revenue.
214% increase over for Q2 thousand 19.
Increased our worldwide installed base by more than 3800 units.
The 28650 units and are now in over 450 gold and silver EBIT accounts, which are the top 2000 emergency department of hospitals in the U S as measured by respiratory discharged.
In addition, we printed a 56% gross margin for the quarter.
Before digging too deep into our fourth quarter performance I would like to take a step back and discuss the significant progress we made as a company in 2020.
This past year was transformational for vapor firm and I believe our accomplishments are best understood from a longer term perspective.
Going into 2020, we outlined the set of objectives that we were focused on is the organization.
The reminder, these objectives were first driving top line growth.
Improving our gross margins third reducing our cash burn and for planting the seeds for growth.
We achieved each of these and I am confident we would have done so even without COVID-19.
In March we like all other companies were forced to quickly adjust our efforts to respond to the challenges of Covid next we recognized our products the ability to help customers truth of the COVID-19 patients who in respiratory.
The stress then put significant effort in the securing our supply chain and building significant capital and disposable production anticipated needs of our customers.
I'm incredibly proud of how the vehicle from team responding to these customers as they work tirelessly.
The pandemic.
No.
Not only that we were able to.
Mid pandemic to meet the needs of our customers without sacrificing quality or significantly increasing our overhead spend.
Overall, COVID-19 has materially transformed our business both operations.
And I would now like to review our key accomplishments from 2020 that I believe put us in a great position going into 2021.
First and most importantly by meeting our customers' needs. During this pandemic, we were able to increase customer loyalty and significantly expand our installed base.
We finished the year with nearly 29000 units from our installed base and increase the role of 12000 units of 73% over the installed base at the end of 2019.
To give you some context prior to Covid, we expected to achieve an installed base of the size in 2024.
As I've shared with you before the growth of our installed base of the key metrics that I watch is each of these units drive significant recurring revenue, which we can grow over time.
Aided by our expanding installed base, we were able to drive increased awareness of our products, particularly in our key targeted gold and silver E D accounts.
Which we expect to benefit from for years to come.
As of year end, we were at over 450 E D gold and silver accounts from the U S, which reflects a 50% increase in the total number of V. The gold and silver accounts, we were in as of the end of 2019.
The user accounts are important to us there's over 50 per cent of all hospital admissions up from patients who present in the U E D.
Gold and silver E. D accounts are especially important to us and they're the largest accounts from the U S truth the greatest number of patients.
Wiley reference of all accounts.
We believe increased customer loyalty and awareness of the clinical benefits of our products. In these accounts will help drive adoption in all areas of respiratory distress, including type one respiratory distress patients like like Covid patients, who can't get enough oxygen in the system and also tied to respiratory distress.
Patients like COPD patients, who can't get rid of the carbon dioxide from their body.
Second we made solid progress on new product initiatives during the year rigor.
Regarding the oxygen assist module for AUM, we completed the limited launch in the U K select European markets and Israel.
The clinical experience confirmed our belief in the benefits of this technology in the neonatal patient population.
This clinical experience also demonstrated there's a significant unmet clinical need in adult patients, which makes the money market for this technology much larger than we expected at the beginning of 2020.
During the year, we were also able to expand the own software to operate with both the Medtronic Nellcor and Massimo S. P O two sensors to improve the user experience.
We also made good progress on the development of our Nexgen platform.
The key to point out.
As a reminder of this device of an internal blower, which will allow us to access areas of the hospital, but do not have pipe in the air.
And allow us to sort of patients in respiratory distress outside the hospital in the home setting.
While the initial market focus of this product will be in the hospital setting we expect to learn a great deal about clinical utilization and patient needs that will inform our strategy when they're ready for launch into the home the.
Currently expect launch the HPT to point out in the second half of 2021.
Third we expanded our capabilities as the company by acquiring a small technology company called H G. The digital health for H T E for an initial payment of $6 million plus revenue based earn outs.
H.
He is a remote patient monitoring platform empowering COPD patients and providers to manage day to day symptoms prevent exacerbations lower costs and improve quality of life.
Initially this product will be piloted in the service to our current hospital customers to allow them to monitor patients have the discharge with the goal being to improve COPD readmission rates.
We believe this platform they all sort of give us some deeper insight into the whole market and home patient needs that we will use as we continued to refine our service offering for the whole.
We are currently in the very early innings of this technology platform and while the revenue contribution from HPE is currently immaterial to our financials. We are very excited about the potential opportunity.
Overall, I am incredibly proud of how we executed despite the unprecedented the opera.
Operating environment.
Could not be more excited about where we sit going into 2021.
If the job details of our financial results I will spend some time outlining how we are going to address the opportunity in front of us Johnny.
Johnny.
Thank you Jeff.
As mentioned revenue in the fourth quarter of 2020 was $40 $9 million, representing the 214% increase over revenue of $13 million in the fourth quarter of 2019 for the prior year.
The U S revenue of $33 6 million, an increase of $23 8 million for 242% over the prior year, while international revenue was $7 3 million, an increase of $4 1 million for 129% over the prior year.
The worldwide installed base grew by approximately 12100 tee up units in 2020, including fourth quarter's growth of approximately 3800 of Phoenix as of the end of the fourth quarter of worldwide installed base consisted of 28650, <unk> units, reflecting 73 per cent year over year growth.
I'm not talking U S disposable utilization rate for the fourth quarter of 2020 was two point for three as compared to 2.19 in the prior year. It's.
For the fourth quarter in a row, where our U S disposable utilization rate exceeded our historical experience where at least the appoint.
Two five turns per month.
We believe this increase in U S disposable utilization rates in the quarter was largely due to the increased usage of our technology for the treatment of the respiratory distress experienced by many COVID-19 patients.
Given the significant increase in the installed base, we believe that utilization rates will be lower than historical averages until the significant number of newly installed pf units become productive.
U S disposable average selling prices increased over prior year due to the competing uptake of the pro stopped nasal cannula and air slides disposal of patient circuit, both of which were launched in the first quarter of 2020.
The monthly international disposable utilization rate for the fourth quarter of 2020 was 167 as compared to $1 69 in the prior year.
Recall that we use the distributor network internationally, which results in slightly lumpier disposable utilization rates.
Gross profit in the fourth quarter of 2020 was $20 7 million, an increase of 14, $814 8 million or the gross profit of $5 9 million in the prior year.
Gross margin was 56% in the fourth quarter of 2020 compared to $45 one per cent and the prior year.
Improved gross margin faster than anticipated due to improved overhead absorption and a higher mix of the U S revenue.
The call we significantly increased the production volume beginning late in the first quarter of 2020 to meet increased customer demand for our products, especially capital equipment.
Operating expenses were $33 million in the fourth quarter of 2020, an increase of $14 4 million over $18 6 million in the prior year. The increase in operating expenses was primarily due the commissions earned on increased revenue and increased head count from the worldwide sales and marketing organization general and administrative expenses and new product development.
Cost.
Net loss in the fourth quarter of 2020 was $17 $2 million were <unk> 67 per share compared to $12 $5 million or <unk> 60 per share in the prior year. Please note that the net loss in the fourth quarter of 2020 reflect the loss on debt extinguishment of for $2 million related to our debt refinancing.
Adjusted EBITDA for the fourth quarter of 2020 was a negative $9 1 million compared to negative $10 8 million in the prior year.
The EBITDA adjusted for foreign currency gains or losses net.
Interest expense taxes, the loss on debt extinguishment day.
On the litigation settlement, depreciation and amortization expense and stock based compensation.
The $1 $7 million decrease in adjusted EBITDA loss in the fourth quarter of 2020 as compared to the prior year was primarily due to higher revenue and gross profit, partially offset by higher operating expenses.
As of December 31, 2020, cash and cash equivalents for $113 7 million compared to $139 million as of September 32020, and $71 7 million as of December 31, 2019.
In the fourth quarter of 2020, we used cash of $25 3 million of which $15 1 million related to the acquisition of hte and our debt refinancing.
Excluding these two transactions, we used $10 $2 million of cash to fund operations and working capital.
Before I provide guidance I'd like to discuss the perspective on the current operating environment and trends we are seeing in the business.
To start the first quarter of 2021, we saw near peak Covid related hospitalizations across the U S and Europe.
From an increased demand for our capital and disposable at levels of expense in late fourth quarter.
Beginning in mid January we saw a decrease of U S. Hospitalizations from the peak experienced in early January and reduced demand for our products and.
In addition, we have not seen meaningful flu related cases or hospitalization for the U S portion of the quarter to date.
The call U S disposable utilization rate the highest in the first quarter each year due to the <unk>.
The impact of the flow.
Based on the current environment, we expect revenue in the range of 30 million to $33 million from the first quarter of 2021 and anticipated year over year increase of 57 per cent to 73% over the prior year.
Our current expectations of the vaccination efforts will be successful and will result in the declining number of Covid cases, and hospitalization in the last three quarters of the year.
Despite the decrease in COVID-19 cases, the potential for reduced flu cases, and the expected expectation that utilization rates will be lower than historical levels. Given the significant increase in the installed base. We expect the disposables will show year over year of growth in the U S.
Our planning assumption of that they will be very limited budget dollars available for capital equipment for the last three quarters of the year.
The result, we expect capital sales to decrease significantly year over year, given the COVID-19 driven demand we experienced in 2020.
As a result for the full year 2021, we expect revenue of $82 million to $88 million, representing a two year compounded annual growth rate of 33% at the midpoint of this range.
For the full year 2021, we expect gross margin of between 46, and 48%, which is lower than 2000, Twenty's gross margin of 50% due to reduced revenue and production volumes the increase.
Reduction capacity to meet customer demand, which was over $2 three times, our original 2020 revenue guidance without adding substantial overhead and we expect to be able to scale further without increasing our fixed overhead spend.
Longer term our strategy to improve gross margin remains the same increased average selling prices reduced cost and increased volumes.
We expect 2022 gross margin can be above 2020 levels and our long term target of mid <unk> is still intact.
From an operating expense perspective, we expect operating expenses to be between 97 and $99 million in 2021.
Due to the significant impact of Covid, we are providing revenue guidance for the first quarter, but going forward, we will update our annual guidance for revenue gross margin and operating expenses, but will not give quarterly guidance.
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 our objectives for 2021, which are as follows one ensure the current installed base as productive.
To grow the installed base and three launch H D. T. Two porno, which may help to significantly expand our total addressable market let.
Let me walk you through each of these in a little more detail.
Our first objective is to ensure the current installed base as productive, especially all of the precision flow units that were installed in 2020 to do so we will educate our customers two of our one of hospital one day program on how our technology not only treats type one respiratory distress patients like COVID-19 patients.
It can also help treat patients suffering from type two respiratory distress like COPD patients.
Published clinical data on the use of high velocity of therapy are tied to respiratory distress patients like the study just published in critical care of explorations and the ongoing Hyperx study you would probably shoot on clinical trials Gov will become key parts of that program.
If we can't conduct education of person, we direct correlations to vapor Therm Academy, which is an online educational tool used by over 26000 clinicians to date.
Each productive precision flow unit provides us with an important footprint in the hospital the generates durable recurring revenue stream that we want to grow over time.
We will accomplish this by continuing to focus on the gold and silver accounts, where we have seen higher disposable utilization rates than the non E. D accounts over the past few years.
And by launching high value of new products for the increase ISP or create incremental revenue streams, such as the oxygen assist module and potentially H G E for the.
Hospital and home.
Our second objective is to increase our installed base. The focus here is the continuing to drive the growth of our installed base in both existing and new accounts by leveraging our expanded sales force from both the U S and internationally.
With a larger and more tenured global sales force. We think we can leverage the expanded awareness of our products for both type one and type two respiratory distress to continue to increase our penetration in gold and silver EDI accounts from the U S and any of the international focused markets.
Our final objective is launching H B T two point of worldwide.
We were recently notified by the FDA that we received with the emergency use authorization for the age from Q2 point Oh for use of treating COVID-19 patients from respiratory distress during the pandemic in the event, we can't meet demand with our precision flow.
The HPT to point out the way it doesn't change our overall timelines for full market release.
However, it provides us with an additional way to serve our customers in the event pulled the demand exceeds our ability to supply of precision flows into the market.
We expect the mood the HPT to point out into full market release in the second half of 2021.
And our initial focus will be on the hospital market, where we have an existing customer footprint.
The ability to break free from wall Air will allow us to expand into areas of the hospital, but don't have piped in there and the.
The us we estimate that roughly 50% of the hospital beds don't have piped in there throughout the facility and HPT two pointed out will allow us to more effectively address those hospital beds.
In addition, we will use the second half of the year to learn how our H V 2.0 might be able to help patients from the E&S setting.
And when coupled with the H G. How it might be able to help patients from the home.
Expect both E&S and the home to significantly expand our total addressable market long term.
And we are targeting limited market releases for MFS and the home beginning in 2020 true.
Before I close of I'd like to let you know that we'll be hosting our first ever investor day to Q I look forward to sharing more about our business with all of the view them.
In closing the following patients for them about the share came to me from one of our field team members.
I spent the day with the customer to help them with patient selection of the E D.
The respiratory therapist or or <unk> for short that was on calling the EBITDA came in to get of Bipap to go to the E D.
He did not know what was going on with the patient. So I asked if I could follow of her download of April for let's see if he would be of good patient to put on high velocity therapy.
When we got to the E D. The physician said he ordered bipap because the patient C O two was high.
And then explained how the April therm worked and he said to give it a try and just read the bipap outside the door just in case you needed it.
The patient did not have increase work of breathing the saturation was fine but he was confused of sleepy because he was hyper Catholic and combative. When he was woken up the most likely would not have tolerated the bypass mask the.
The RFP put them on the high velocity of therapy, and the Doctor said to do another arterial blood gas draw in an hour from.
<unk> came in and asked for a quick in the service.
I was in servicing the nurse the patient setup look right at the nurse said, what happened and where am I.
When our share Oh, My God I was so fast she cannot believe how fast at work and out of the patient setup and look during the yard because when he came in he could not make eye contact the.
This happened to only five minutes. After it was put on vapor for she called the Doctor and then he was shocked as well and how quickly the program helps us patient and went back an hour later in the patient of sitting up the value of breakfast yelling from the nurse the.
Second of arterial blood gas was not needed because of the patient look so good the RT.
He was also pleasantly surprised because she knew he would not tolerate the mask the true would've been brought back it for it to put the byproduct mascot.
In conclusion, I'm incredibly proud of the effort of our entire organization put in throughout 2020.
And the results of those efforts of an amazing we're going into 2021 with a huge amount of wind at our backs, having transformed our size scale and capabilities going forward. We are excited about the opportunity to leverage the momentum. We've created this year to drive further adoption of our high velocity of therapy in both type one and two.
The two patients in all areas of the hospital and begin our move into the home care setting.
Lastly, I want to reiterate how very proud of our team for working to continually meet the needs of our customers.
Thank you for trusting us with your capital needs of an awful lot to us now I'd like to open it up for questions.
Yeah.
Yeah.
As a reminder to ask a question of you wont need to grasp on one of the telephone from talking a question press the pound key he signed by other can kind of look in the last day.
Yeah.
Our first question is from the line of Bob Hopkins from Bank of America. Your line is now okay.
Hi, there you've got Bowers on for Bob today, Thanks for taking our questions just a couple for me.
Wanted to kind of think make sure I'm thinking about guidance and the right way.
Yes. So we have the Q1 guide and then it looks to me like if you take.
The disposables run rate as of kind of exist. It's we're looking at capital sales maybe on the slightly above what we have.
And in 2019, how would you think of it as sort of a conservative estimate for the capital sales and it seems like it's a pretty steep drop off from Q1 to Q2, So just kind of want to make sure I'm thinking about that right.
Yes, Hi, Brad it's John from the book.
From here, So let me touch base on the guidance and I'll do it in a couple of chunk of it that's what the first I'll take a look at 2021 in total.
What we're thinking about is if you recall historically, we generally send.
The 525 split and that's generally 75 per cent U S revenue of 25 per cent of rational and the same of recurring revenue versus capital and service. So as we think about the business this year.
Covid starts to subside.
The way from US we'd expect that to continue for us here in 2021 of them and beyond so the other item is with regards of the quarter, specifically, what we're seeing share in the first quarter is unlike.
Unlike that 25 per cent of so from Catherine service, we're seeing a little bit higher capital contribution in the first quarter the.
Typical of 25 per cent splits in the thinking more in the 35% to 40% split but the.
Balance coming from.
Recurring revenue stream.
And with capital as we as I mentioned in my remarks, we expect budgets for hospitals to decrease of of course of the year. So.
The lion's share of work.
70 ish percent of so of the capital equipment revenue, we would expect to have booked in the first quarter and in the first quarter given the strength of the scheme internationally you expect it to be able at the higher than the 25 per cent. We've typically seen maybe more of 30 33 per cent range. So that's how we're thinking about the guidance of based on what we're seeing in the marketplace right now and how we're thinking.
About a.
Capital revenue and not in the current revenue streams going forward here in 2021, and you know chairman of Q1.
Got it that's helpful. And then just one quick follow up is H. The key to point out is that launch contemplated in the guidance and do you expect it to be a meaningful contributor in 2021. Thank you.
Sure Brad So we have very minor revenue and care for 2021 from HPT to point out it is.
More of a 2021 of 2022 revenue contributed in 2021.
Thank you.
Welcome.
We have our next question from kind of a teaser from William Blair. Your line is now open.
Again Margaret Keybanc. Your line is now open.
Oh, sorry about that I was on it and hopefully you guys can you hear me now.
And so first of all thanks for providing the guidance I know, it's a little tough for you guys given the recent ebbs and flows of demand.
They take a second crack at it.
You're saying a little bit more of a bunch of you guys are implying so yeah.
So I ran some of the numbers through our model given what's implied in Q1 and some of your commentary around system sales.
Sales for Q2 to keep for because.
Does that get capital unit sales that are maybe below the quarterly 2018, 2019 rates and then would that be a good face the same for 'twenty, two and or does that not accounting maybe for a couple of weeks.
Some of the outright sales.
Hi, Margaret.
Joined today, just in terms of the capital equipment revenue, we would expect that over the course of 'twenty one the.
The slightly higher than what we've seen in prior pre COVID-19 types of levels in 2019 and prior.
So that's how we're thinking about it for 2021 and beyond and really the big driver of our revenue as you know of disposable revenue.
The core recurring revenue.
We're looking at.
As we mentioned about 33% two year compounded annual growth rate overall as U S. Recurring revenue goes so goes the paper from revenue profile. So so we're really expecting the U S disposable revenue it's really.
Nicely over the two year compounded growth rate basis versus what we saw in 2020, which was obviously the heavy capital contribution to the Covid driven demand.
Okay.
On the AD.
I guess two questions on that one Joe you talked about installed base growth being appropriate for 'twenty, one how should we think about that.
And then the two Johnny just facts of our disposable utilization at our proposal thing of growth driver.
I think in your forward commentary talks about utilization thing, a little bit lower as well or the business system.
To wrap up so to what magnitude is your guidance assuming kind of on the high end of the low end for those two drugs.
Sure. So in terms of the installed base first.
Clearly we won't.
Don't see or realize the same type of installed base growth. We saw in 2020. So we're looking more at pre COVID-19 types of levels, which were in the mid teens prior to Covid could go back to the 18 19 timeframe. So we're thinking we're going to be in that that's sort of the affinity for.
For 2021 and beyond in terms of the disposable utilization.
Do expect to see.
Relation decrease in comparison to historical averages.
In terms of what that looks like on a two year compound annual growth rate perspective in particular.
The us which is the heavier contribution which the kind of in the low thirties in terms of what the guidance reflects in terms of that two year compound annual growth rate overall.
Okay, and then just kind of the the last question for I don't take up too many questions, but as we look at you know, whether it's 2022 or beyond and John you just talked about kind of a mid teens per installed base of ad spend.
Ending utilization is even at flat kind of the underlying growth hopefully shouldn't be around kind of the mid teens or at least double digits for for the overall business. So is that what you guys are thinking about it it's not higher given utilization improvements and then what is the H eight feet to point out of the <unk> acquisition and all of these other things you're doing you know where does that get you because it seems.
It should be a pretty solid if not stronger the profile okay.
Yeah.
Yes, so longer term Margaret so we're really going to be focused on driving the installed base all of the current revenue.
We like what we see here in terms of the installed basically behind in 2020 of that were realized.
Like what we're seeing going into 2021.
And to your point expected to drive that going forward of those mid teen rates I think the things that we have as you know of tailwind for us in this.
Recent COVID-19 expenses the increase the awareness of the technology.
In the marketplace as well as in the E. The gold and silver accounts, which are very.
The large accounts with a lot of the expansion opportunities at which are highly referenced simple. So that's a tailwind that we have behind us in terms of the potential headwind the.
Capital budget dollars for hospitals have been largely focused on Dunn of later and a number of respiratory devices. This year. So.
Sort of a wait and see as to what's going to be available for the.
That going forward. So all in all sort of the tailwind and headwinds we see in front of us, but we feel good that we'll be able to at least grow at a rate.
What we've been able to do historically on a go forward basis with the HPT to Plano as well as some clinical data that we're working on to help provide additional support to the.
Our field teams, especially in the types of respiratory distress sphere.
Okay. Thanks, guys.
Thank you once again.
Once again, if you wish to ask of clubs channel. Please press star one of your telephone and wait for your name for the announced snacks is marine for Bob from D. T. I T and your line is now open.
Hi, Joe and John Thank you for taking the questions.
I'll try to fit in a couple of here.
I was the most intrigued in your guidance John by the.
Confidence and dispose of birth of growing our year over year for 2021 fine wanted to try to drill down.
That something you expect the hold true for each quarter throughout the year or is there going to be of cadence that we should sort of look at it at the 2021, I know, particularly Q2 and in Q4 it could put out some of that have come for you there.
Yeah.
The short Murray.
The good to hear for me the first leg of it in terms of the disposables, we would expect to see seasonality in the recurring disposable revenue stream both in the U S and internationally.
Again.
Fourth quarter of second quarter, typically higher than the third quarter, where it's generally a flat season for us and with the lower utilization rates, we would expect to see that.
So it would be the same across each of the quarters in 2021 as well.
Okay. Okay. That's helpful. And then what are the we're hearing from some of the E D Gold and silver accounts I know you expanded a lot in that important segment this year.
Are you starting to hear from them that they are committing to continuing to use their new systems.
I think we just want I gain confidence around the fact that these systems will stay in there.
Yes.
It's Joe Army I'll pick that one so you know I had shared with you guys. The story on the third quarter call about what we had seen with helping these folks begin to learn how to use this gear on type two respiratory distress.
Had an increasing level of confidence around that and I can tell you.
Leading up to the latest surge in the fourth quarter I continue to feel that we're adding more and more clinical evidence around this around this application and I'm hearing stories from our field team about already.
Charter U S hospitalizations start to drop by the Middle of January So our field team has not been sitting around they went right back to work of teaching people about type two.
And the story that I'm hearing out of the field makes me feel pretty positive about how this is all going to wind up I do think youre going to see 'twenty 'twenty, one is going to be a little bit choppy, but I'm very very excited about what I get out of the end of 2021 of coming into 2022 with.
The historical churn rates that are right there for us.
Okay, that's great to hear Jim. Thank you and then I guess, one last one if I can.
The operating spend $97 million to $99 million this year.
And finally from investments I'm curious, where your spending is just on sales force does this non clinical work or is it really just the new products of your brand born.
Sure.
The main driver of that is.
It's really on the investments on the sales and marketing side. We're also investing in new products and and also in clinical studies of the <unk> continued to invest in clinical work specifically the type two respiratory distress support that our field team needs. So thats for the investment dollars that are really going into for 2020 of.
For them.
Alright, thank you.
Thanks for it.
We have our next question from Jason <unk> from Piper Sandler Your line is now open.
Hey, good afternoon, everyone I appreciate all the color on the call.
The bigger here on guidance further but didn't want to come back to some of the commentary you made there.
You're referencing from the very limited capital budget dollars from hospitals to impact as soon as the second quarter of this year.
John are you hearing that directly from the hospitals or are you simply anticipating that given what's still an uncertain backdrop out there.
Hey, Jason with show Army How're you doing.
Hey, Joe.
We are we're not hearing it directly from hospitals, but were anticipating.
Or are suggesting to us the best what Youre seeing there is an awful lot of respiratory equipment at those hospitals have you know the way of.
Ventilators.
The other other gear, so where we are.
Kind of set this thing up and make sure that we're running it in a way that the.
Achievable so.
Sure.
Yes, I would agree with that Joe I think we're.
We're anticipating that the.
There have been some.
Anecdotal discussions, but by and large.
It's more on in anticipation of what we expect to see here as Covid.
It starts to fade away here with the vaccine is being rolled out.
Okay, Alright, that's helpful for you guys. Thanks for that.
And then.
Just talking about maybe some of the education efforts that you have just driving around that type two opportunity I mean do you view.
So I know what your answer is going to be here, but I mean do you view in person versus virtual education anymore of less effective in driving the the the understanding of the cadence of the capabilities of precision flow better.
Again, particularly around that type two opportunity.
Let me tell you something if you'd asked me that a year ago I would've told you. There is no way of the sales rep to do this virtually I would've told you absolutely Jason that can't happen, but what we're seeing in the field is virtual is turning out to be very very effective the.
Other thing that has helped because these people have used our gear on a ton of patients. So we've gotten really good with it the other hypoxic patients, but they've got really good and really confident with the gear. So there's a lot of this.
<unk> and training and teaching them can happen virtually it can happen in person you can add to our clinical teams and it's happening so I'm I really like what we're doing virtually I like what we're doing in person I can tell you that.
And the people that we are adding for the team, we're putting more clinical people on the ground and getting them into those accounts and helping those people really master and think about using it on type two patients.
Alright, that's helpful too big.
Maybe one more last one here just if I could sneak one more in.
Maybe it's the for your sales force and your and your team out there I mean.
With the kind of the this is for them maybe swap of years you put it Joe I mean, maybe you could just speak to how sales force incentives are aligned with your expectations and your goals for the year, both with respect to your kind of in growing the installed base and also growing that can see what the number year over year.
You bet. So you know the.
Majority of our Rep comp is tied to the disposables as John has told you guys over and over again. So the fact that we're confident we're gonna grow disposables over 'twenty 'twenty.
It creates a lot of alignment in terms of the sales force alignment, we're very sensitive to that we wanted to make sure that we've got we have great people, who are very talented the very experienced and we wanted to make sure that theres going to be able to make money and getting access to continue the growth. So I like the way we've got that aligned I think that our field leaders did an excellent job of doing that and at the same time.
The ability to start to see operating leverage show up.
Balancing all of those things, so I'd like to where it's come up.
Alright, great. Thanks, guys I appreciate it.
Have a good day.
We have a follow up from Bob Hopkins for.
From Bank of America of your line is now open.
Hi, there sorry, sorry to jump back in again, just one question. We've heard of the company, we heard of Massimo to talk about adding a high flows capability to their platform. So we were just wondering if there is anything there.
We should be thinking about on.
That impacting competition going forward of I mean again the numbers you talked about for the capital seem to be reasonable, but just wanted to hear if you had the spin seeing increased competition. Thank you.
So you've got kind of cute so most of the most of the option of validates what we've been saying all along about high flow of high velocity of effective adversely full for respiratory distress.
We have we have high regard for Nashville was the company.
And it would be foolish to underestimate them, but we're familiar with the software product and we're very comfortable with how we stack up against the beyond that we have no further comment.
Next in line is down from <unk> from Canaccord. Your line is now open.
Hi, Joe and John It's John on for Bill Tonight. Thanks for taking my question.
Just quickly on the OEM in the U S any expectations for the U S. I E in terms of.
Timeframe and are using any feedback from learnings from the Euro U S launched in those discussions.
Well you know the first let's just kind of break that into two pieces. The O U S is going very well.
Like a lot of what we're learning we were originally thinking about this as a.
The device, that's really going to be aimed at the NICU of neonatal patients, but what we learned during our limited market release, there's debt, there's actually a really interesting application of the adult population, which has implications for our Tam.
So.
Clearly that has been a very important lesson learned for us.
We continue to have.
Very productive conversations with FDA as we nail down the shape and size and the parameters of our IV clinical trial.
Having been designated as a breakthrough technology, we think that that's going to turn out to be pretty important and pretty useful.
But beyond that I don't have any for carbon around the timing here in the United States.
Okay. Thank you and then just overall, how do you see of penetration.
The overall opportunity given the awareness.
How close do you feel like they're becoming the standard of care.
Well I think we have of ways to go to get the standard of care I can tell you in certain settings, where we are a standard of care right, but you know where less of 10% penetrated around the world. We have a lot of room left to run and we look at that as being a pretty good quarter pretty good year of 2020 was her was the big big change for us but.
There is an awful lot of hospitals left to go.
We're only in 450 of the gold and silver EBIT, United States, well that lasers and other 1500 50 to go get just to be in the top 2000. So there's a lot of room left to run and we got a lot of work to do.
Thanks for taking my questions.
You bet. Thank you.
Okay.
No further questions at this time I turn the call back over to the company for closing remarks.
Well again, we want to thank everybody for their time this evening and for your interest in vapor for it means a lot to us and we look forward to coming back to your the.
The baytown for him to talk to you about the first quarter of just a reminder, we will be hosting our first ever investor day in the in the second quarter and John will be updating everybody on that day. So thank you again.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Good day.
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