Q4 2021 Vapotherm Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the baseball third fourth corner 2021 financial results conference call.
This call is being webcast live and recorded it is now my pleasure to introduce you to your house Mr. Mark Klausner of Westlake. Please go ahead Sir.
Good afternoon, and thank you for joining us for the day, both third and fourth quarter 2021 financial results conference call.
Joining us on today's call are <unk>, 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 vapor through 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, 2021 which was filed with the Securities and Exchange Commission or SEC on February 24th 2022, 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 accepted accounting principles or GAAP.
We generally refer to these as non-GAAP financial measures reconciliations of the historical non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are 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 <unk> President.
And Chief Executive Officer, Joe Army.
Good afternoon, and thank you for joining us today I will begin.
Begin by discussing our fourth quarter and full year 2021 results.
And share our perspective on the impact of COVID-19 on our business.
I want to review the substantial progress we made in 2021 against the objectives, we set at the beginning of the year.
I will then hand, the call over to our CFO , John Landry to provide the financial details.
Lastly, I will update you on our key areas of focus for 2022 before taking questions.
The fourth quarter of 2021 was another strong quarter for <unk>.
We booked $22 2 million in revenue, bringing full year 2021 revenue of $213 3 billion.
These results reflect two year compounded annual growth rates of 31% and 53% respectively.
Our worldwide installed base now stands at 35200 units or more than double the installed base at the end of 2019.
Over the past two years, we also doubled the number of our emergency Department gold and silver accounts.
Exited 2021, with 528 gold and silver EDA accounts, which are the top 2000 hospitals in the U S as measured by respiratory discharged.
Without question. These strong results reflect the impact of COVID-19 on our business and importantly, the positive impact our technology has had on the lives of COVID-19 patients around the world.
But it's undeniable COVID-19 has made our business difficult to predict.
An example recall that in 2021.
Our revenue guidance multiple times with full year revenue ultimately exceeding the midpoint of our original estimate by $28 million.
This unpredictability is likely to continue for as long as the virus remains unpredictable.
This makes it challenging for investors trying to value the business and disguises the significant amount of progress in the business over the past year.
However, it is important to note that COVID-19 dramatically increase the awareness of our technology.
It has validated the unique efficacy of our product and highlighted our organization's patient and customer focus.
We now have a robust global installed base exceeding 35000 units, which is a 23% increase over 2020.
To put this rapid expansion of our installed base. Some context. These units alone will generate approximately $85 million in recurring revenue, assuming a return to historical levels of utilization.
This would represent a 27% increase in recurring revenue over 2021, even if there were no further increases in our installed base and zero increases in average selling price.
This also does not take into account the significantly higher utilization rates, we see in our gold and silver accounts.
Our technology is recognized and respected in an ever increasing number of hospitals and clinics around the world.
And if as many predict COVID-19 becomes a chronic seasonal illness like flu or.
Our total addressable market has grown.
We think all these factors leave us exceptionally well positioned to execute on our fundamental strategy to become the complex lung disease patient management company.
Our strategy combines digital clinical and device solutions to create a health care ecosystem focused on improving the lives of complex lung disease sufferers, while reducing the cost of their care.
We've been making steady progress toward that goal.
Going into 2021, we outlined four objectives to set us on a path towards becoming the complex lung disease patient management company.
Number one ensuring our installed base is productive.
Number two growing our installed base number three launching HPT to point out a number for building a digital presence.
Made significant progress against these objectives in 2021.
Regarding the productivity of our installed base, we saw an 18% year over year increase in disposables revenue versus 2020.
Regarding growth of our installed base. We ended 2021 with a global installed base of 35200 units, representing a year over increase of 23% from 2020.
Regarding the launch of HPT to point out we successfully obtained FDA five 10-K clearance for this next generation product, which does not require a source of wall air and will be central to our ability to treat patients anywhere in the hospital as well as in the home and during emergency transport.
We launched a limited market release of this product and a small number of facilities earlier this year.
It had been receiving positive feedback.
Regarding expansion of our digital presence, we launched paper from access 365, and they put them access post care in 2021.
I will elaborate further on each of these initiatives.
Ensuring the productivity of our installed base is the principal purpose of our one H, one DS program, which you've heard me talk about before.
Over the past year, when COVID-19 was surging, we focused on delivering flawlessly for our customers furthering the growth of our installed base.
But as COVID-19 pressures subsided, we shifted focus to our one <unk> or one hospital, one day strategy in which we train and educate customers across all parts of the hospital on our technology's unique ability to treat both hypoxic patients who can't get enough oxygen and hyper cabinet patients.
Such as COPD patients, who cannot clear enough carbon dioxide.
The goal of increasing utilization across all types of respiratory illnesses.
While much remains to be done to increase awareness of how well our equipment treats hyper cabinet for COPD patients we.
We are pleased with the progress we made with our <unk> program in 2021, despite the headwind of the pandemic, which often with hospitals with little bandwidth to focus on much else.
For example, when we focused on one <unk> in our top 100 accounts during the second quarter we.
We saw disposable utilization rates rise in these facilities.
When all of our customers are trained we believe our installed base will become highly productive and disposable utilization rates will continue to rise.
<unk> or achieving historical levels, regardless of the course of COVID-19.
Which in turn will resolve the unpredictability of our revenue growth.
With HPT to point out we will have a more robust and flexible platform to accomplish this.
As I noted <unk> was cleared for sale in Europe , and the U S. In 2021.
A limited market release is a bit behind schedule due to the Delta omicron surges experienced in the second half of 2021.
Now well underway initial.
Initial feedback on the HPT to point out has been quite positive.
HPT to Plano is a key element of our plan to expand our digital footprint and data its own internal or source.
The ability to help patients in areas of the hospital that don't have piped in error.
And in the future and transport in the Hall.
Yeah.
In addition to HPE to point out we made significant progress expanding our digital footprint building on our acquisition of Hte medical in late 2020, and putting additional pieces in place for a complete healthcare ecosystem focused on complex lung disease patients.
Rebranded all of this paper from access a mid year launch Bay performed access post care hospitals, a program dedicated to reducing 30 day Readmissions are recently discharged COPD patients.
We also launched vehicles them access 365 to hospitals and providers extending the 30 days post care full year patient monitoring.
Initial customer feedback has been positive although as with many hospital facing initiatives in 2021, we were slowed by the Delta and Omicron surges in the second half of 2021.
Given the initial positive feedback we've received a recently established a small direct sales force focused exclusively on <unk> post care.
And <unk> 365, and are excited about expanding our funnel as omicron subsides.
I'm very proud of our team and our ability to deliver product and support to our customers during another challenging year.
Unlike many medical technology companies, we've been able to resolve supply chain issues and labor challenges and meet our customers needs throughout this pandemic.
From a team perspective, while we did experience employee turnover during the great resignation Im.
Im excited about the talent, we recently brought into the organization.
We strengthened the leadership team onboard added an experienced chief technology officer to the team and expanding our digital and software expertise.
From a customer perspective, our ability to consistently deliver product has grown our reputation in the marketplace, resulting in knee EDI gold and silver account wins and highly competitive situations.
To ensure we meet our customers' needs as we continue to grow and COVID-19 becomes a permanent part of the landscape, we significantly expanded our disposables production capacity by adding manufacturing capability in Mexico.
Our partners in Mexico will assemble our established high volume products.
Excellent based team will focus on our higher technology, new product offerings.
I am pleased to report that we added this capacity without materially increasing our fixed cost base, which will help set us up for long term gross margin improvement.
Last but not least we opened a distribution center in Texas to reduce the delivery times and costs for our customers on the west coast in the U S. In summary, we believe our proven track record of always delivering for our customers.
Our expanded installed base.
Increased awareness of our technology, new products and digital solutions are all going to allow us to continue to drive long term growth.
Established vapor Xyrem as D complex lung disease patient management company.
I will now turn it over to John to review the financial results for the quarter.
I will then close by telling you our key areas of focus which will set us up for a successful 2022.
Thank you Joe as mentioned revenue in <unk> 2021 was $22 2 million.
Compared to revenue of $40 9 million in <unk>, 2020, and $13 million in <unk> 2019, a two year compounded annual growth rate of 31%. Please.
Please note we experienced a significant COVID-19 surge late in <unk> 2020, which drove revenue to an all time high and result in a difficult year over year revenue comp.
To provide you with context to how we've done compared to pre COVID-19 levels from a revenue perspective, I'm going to provide commentary comparing <unk> to 'twenty. One I guess for Q2 thousand 19, along with our two year compounded annual growth rates, which is how we eliminate the near term volatility in our quarterly results.
Disposable revenue was $15 million in <unk> 2021, representing a $5 3 million increase over disposable revenue of $9 7 million for Q2 2019, a two year compounded annual growth rate of 25%.
Our monthly U S disposable utilization rate in <unk> 2021 was 156, which is lower than our historical disposable utilization rate.
The fourth quarter of the year, given the significant expansion of our installed base.
Despite lower utilization rates overall in 2021, we grew our disposable revenue by 18% over 2020 levels. This gives us confidence that we'll be able to drive long term recurring revenue growth in our business, especially once we complete our one <unk> strategy and all accounts.
As Joe pointed out we saw at or above historical churn rates in <unk> 2021, and those accounts were $100 <unk> is deployed.
As we have seen in prior quarters, our disposable utilization rates in gold and silver EDI accounts are above our overall disposable utilization rates long term, we expect recurring revenue to account for over 70% of our revenue.
Which is important to us given its predictability and higher gross margin profile.
Capital revenue was $5 $4 million in <unk> 2021, as compared to $2 9 million for Q2, 2019, and <unk> 2021, we sold 613 Pf units worldwide versus 604 in <unk> 2019, our worldwide installed base grew by 682 units in <unk> 2002.
One.
As of the end of <unk> 2021, our worldwide installed base consisted of approximately 35200 units, reflecting 23% year over year growth.
We like the long term recurring revenue stream that this worldwide installed base will provide once we have a chance to complete our one <unk> strategy with existing accounts, which we won't expect to be complete until mid 2023.
Assuming a return to historical utilization levels, we would expect annual recurring revenue of approximately $85 million or 27% more than in 2021 without factoring in additional growth in the installed base higher utilization rates or increased average selling prices.
Worldwide service revenue was $1 9 million in <unk> 2021, compared to 400000 in <unk> 2019, the increase in worldwide service revenue was due to vapor therm access related revenue and higher service revenue on an increased worldwide installed base of precision flow units.
Gross profit in <unk> 2021, with $7 $8 million, a decrease of $12 9 million over gross profit of $27 million in <unk> 2020, gross margin was 35% in <unk> 2021, compared to 56% in <unk> 2020.
Gross margin was negatively impacted by cost related to the setup of disposable lines in our contract manufacturers facility in Mexico.
Labor rates are temporary resources, including travel related costs and expedited freight costs.
These temporary production costs allowed us to meet all customer demand, while setting us up to better handle future fluctuations in customer demand and to achieve our long term gross margin objectives.
Operating expenses were $25 $8 million in <unk> 2021, a decrease of $7 3 million from $33 million in <unk> 2020. The decrease in operating expenses was primarily due to lower sales and marketing expenses due to lower sales commissions.
Net loss in <unk>, 2021 was $18 6 million or <unk> 71 per share compared to a loss of $17 2 million or <unk> 67 per share in <unk> 2020.
Adjusted EBITDA loss of $4 2021 was negative $13 5 million compared to negative $9 1 million in <unk> 2020.
The year over year increase in adjusted EBITDA loss was primarily due to lower revenue and gross margin due to temporary production cost we incurred this quarter, partially offset by lower operating expenses.
As of December 31, 2021, cash and cash equivalents were $57 1 million compared to $73 million as of September 32021, and $113 7 million Hasnt December 31 2020.
In February we refinanced our existing term debt and line of credit and replaced it with a new $125 million five year term debt facility with $100 million drawn at closing and $25 million available in 2023 upon the achievement of revenue milestone the.
The new term debt facility is interest only for four years, which may be extended to a 50 year upon the achievement of the revenue milestone.
Upon closing our cash balance increased by $52 million.
We believe this additional cash along with $25 million of additional debt capacity will allow us to fully fund the business to cash flow positive.
On a pro forma basis cash and cash equivalents as of December 31, 2021 would have been $173 million, including the $52 million of net cash received in February as part of our new debt facility.
Now I'd like to turn to our 2022 financial outlook as stated last quarter, we believe that COVID-19, and its mutations have become a chronic recurring problem, which will continue to result in COVID-19 related hospitalizations, each year and significantly expand our total addressable market.
Based on our expectation that some level of COVID-19 related hospitalizations will continue worldwide. We expect net revenue of between $104 million and $108 million in 2022.
We believe we are now near the tail end of the current surge in the U S and it has played out as expected.
While hospitalizations were higher than in previous searches the level of respiratory distress and demand for our product wasn't as great as in prior surges.
We anticipated this would be the case, which is why we built in an expectation that the impact of future surges would be approximately 50% at the previous searches.
Well, it's difficult to predict the impact of another variant on hospitalizations and demand for our product. Our estimate assumes one additional COVID-19 related surge in the U S. This year and the fourth quarter similar in scope to the search we are currently experiencing.
The impact of COVID-19 on hospitalizations worldwide continues to be very dynamic should our expectations regarding COVID-19, hospitalization not materialize as planned our future financial results could be materially different than expected.
We expect full year gross margin to be between 47% to 50%.
In the back half of 2021, we incurred higher temporary labor costs expedited freight costs and made investments in additional disposables production capacity to ensure we could meet every customer need during the pandemic.
Given the fact that COVID-19 is less predictable than other seasonal respiratory diseases have been the expansion of disposables contract manufacturing in Mexico will allow us to ramp production up or down as needed with little to no incremental overhead.
These costs are behind us, but we expect them to impact gross margin for the first half of 2022.
After that we expect our three point gross margin improvement plan that will improve gross margins.
New products, such as HPT to point out will allow us to increase average selling prices and decreased direct material and labor costs at scale.
Lastly, we expect to drive more volume through our fixed overhead base, thereby lowering overhead rates per unit.
I want to be clear that the impact to gross margin that we saw in Q4, 2021 and will impact us in the first half of 2022 is a temporary impact resulting from the extraordinary measures. We were willing to take to ensure all customer needs were met despite the labor and supply chain issues that many industry has dealt with in the second half.
2021, we.
We believe these costs will be repaid many times over what the customer loyalty they generated.
Also now that our new contract manufacturing lines are operational we are much better positioned to deal with fluctuating demand without having to go to these links.
With all three elements of our gross margin improvement plan at work, we remain comfortable in our view that we will be able to increase gross margin long term to 65% within the timeframe that we discussed during our Investor day This past summer.
We expect full year operating expenses of between 110 and $112 million, which represents a slight increase over 2021 operating expenses of $110 million the.
The increase in our operating expenses over the past two years has been driven by commission expenses and ensuring we can meet customer demand as we look forward. These expenses will be replaced by investments focused on driving revenue growth launching new products and expanding our <unk> access platform we.
We expect adjusted EBITDA loss for 2020 to be between $39 million at $41 million.
I would now like to turn it back over to you Joe.
Thanks, John in 2022, and beyond we're going to be focused on recurring revenue growth.
Gross margin expansion and driving to cash flow positive.
Driving sustainable recurring revenue growth consists of three elements first we will ensure our significantly expanded installed base is productive by running our <unk> program in non COVID-19 surge periods. These.
These efforts will be focused on training and educating customers by hyper Catholic patients that clinicians have historically placed on our technology.
Make up one third to one half of all respiratory distress patients.
Given our <unk> experience in the second quarter of 2021.
Which was focused on our top 100 accounts, we expect we will be able to return to historical disposable utilization levels per installed capital unit within four to six quarters.
Second we will introduce new products, such as the <unk> platform and oxygen assist module or AUM, which will result in higher clinical and economic value for our customers, which we expect will translate into higher recurring revenue per installed capital unit.
The HPT two point old platform will be launched in the hospital setting first and focus on areas of the hospital.
Don't have piped in error.
Which we estimate to be 50% of all hospital beds in the United States.
We will complete a limited worldwide marketing release in the first half of 2022.
Test the marketing messaging training materials and business model before rolling out more fully and <unk>.
While the HPT to Plano is cleared for home we will further develop the HPT two point old platforms to allow us to better serve patients in the home and in transport or MFS and to improve long term gross margins by a lower cost design.
The HPT two pointed out home version is currently under development with the goal of first patient use in the first half of 2023.
Our own installed base continues to grow and select international markets and we are enrolling patients in our own study in the U S, which will support our regulatory efforts and submission to FDA.
Lastly, we will expand our digital business now branded vehicle firm access.
We believe our initial product vehicle time access post care will allow hospitals to lower their 30 day COPD readmission rates.
Remotely monitoring patients' daily for the first 30 days post discharge.
This monitoring will allow for early clinical intervention in the event the patient's health deviates from their unique baseline, which we believe is key towards keeping these patients from returning to the hospital.
Okay.
We will continue to execute on our three pronged gross margin improvement plan.
We believe the launch of the HPT to point our platform all in the digital expansion will allow us to increase our average selling prices by offering more clinical and economic utility for our customers.
The HPT to point, our platform will provide for lower direct material and labor costs due to volume based cost reductions, which we have negotiated with our suppliers.
In addition, we will continue to drive cost out of the HPT to point, our platform through continuous improvement efforts and new product offerings for home and transport.
Lastly, we expect to drive overhead efficiencies as we've been able to scale capacity over the past couple of years with little to no incremental fixed overhead costs.
As we drive more volume through our facilities, we expect overhead rates per unit to come down over time.
Lastly, we will drive to cash flow positive through gross margin improvement and operating leverage in our P&L.
To bridge us until we're cash flow positive, we recently refinanced our debt facility and added $52 million of cash onto our balance sheet.
This additional cash along with another $25 million of debt capacity will provide us with the runway needed to get to cash flow positive.
In conclusion I am excited about the progress we made in 2021 and how we are positioned for 2022.
Our technology and the value we deliver to our customers has been proven time and again over the course of the pandemic, resulting in a materially expanded installed base, which will provide us with opportunities for significant recurring revenue growth for years to come.
In speaking with our largest investors over the past few months they have shared the following points with us.
They'd like to see transparency around our near term revenue expectations, given the unpredictability of COVID-19.
Non dilutive financing of our growth.
My pay tied to performance.
Clear and consistent progress towards profitability in the long term value of the installed base.
To that end in early January we provided 2022 revenue guidance detailing our operating assumptions to address the near term prospects.
We refinanced our term debt, which we believe will provide us with the capital we needed to get us to cash flow positive.
<unk> 2022 equity award is now entirely performance based and tied to targeted 2020 for revenue of $147 million.
Our two year compound annual growth rate of 18%.
Given the progress we've made as a business and the opportunities in front of us.
My personal belief that our long term prospects are very strong.
I'm extremely proud of what our organization has done through this pandemic.
Like to thank each of our employees for their focus on meeting every customer need while selling us well on the path to becoming the complex lung disease patient management company.
Thank you for trusting us with your capital now I'd like to open it up for questions.
And at this time in order to ask a question. Please press star and then the number one on your telephone keypad.
Our first question will come from Margaret either with William Blair.
Please go ahead.
Hi, everyone. This is Brandon on for Margaret Thanks for taking the question.
Wanted to focus first on the 'twenty two guidance I. Appreciate the color you guys are giving you know it's hard to kind of.
Model these ebbs and flows with Covid.
One wanted to understand what are you assuming kind of in the core Blue business you have this COVID-19 way it sounds like in Q4 and the winter timeframe. Maybe so are you assuming flu comes back as well or is COVID-19 kind of overtaking the flu. So what are you assuming in there and then.
Does the does this just get totally replace and does it drive.
And this COVID-19 wave that you're assuming are you assuming more of a pull through of systems or disposables or both.
Okay.
Brandon This is John I'll take that question. So in terms of the assumptions we have layered into the guidance for 2022. This this current surge is largely due to the the omicron surge Brandon.
We've seen little to no flu here in the first quarter, if you will.
Look at the CDC track.
Tracker for flu cases in the first quarter of the year started out tailwind of <unk> starting to ramp up and then ramped down pretty quickly. So if you look at it is really largely a.
Omicron related surge here and there.
The first quarter.
As we are expecting over the.
Mentioned in the fourth quarter would probably be our next surge time temperature get colder holiday season is upon us.
Audrey factoring in another related surge probably somewhat limited in the way of Blue as we look at it from a fourth quarter perspective, because it typically starts usually at the tail end of the year and it's really more of a Q1 impact. So we'll update you more on that as we think about 2023 guidance.
In terms of the sort of the mix of capital and disposables I think what we typically see in searches is that as surgeons start to recede, we will start to see the capital.
Contribution.
Slowdown first and then we'll see the disposables.
Next so I think as hospitalization start to decrease here.
<unk>.
CDC trackers.
We're starting to see the capital start to recede as well and demand start to recede as well, here's where near the tail end of this.
Most recent surge.
Yeah.
Got it and then.
Maybe shifting to <unk> I know you guys are still early in the limited market release, but it sounds like you're at least in a couple of accounts and maybe getting some early experience.
Hoping you can give us a little bit more color.
What are kind of the benefits that you guys are seeing in the account or are things going as you would have expected if theres been any surprises either positive or negative.
And would that would impact your excitement around that product.
Brandon, It's Joe I'll take that one so as you know we got five 10-K clearance on that in the third quarter.
As we mentioned we started a limited market release.
We are.
We're pleased with the results that we're seeing thus far.
The ability to move patients throughout the hospital without having to use a compressor or anything of that matrix reduces the complexity of using the technology.
I think I was.
The response has been.
Pretty positive.
I was surprised at the number of comments that we're getting around how easy it is to learn how to set it up.
And use it and part of that May be there is an awful lot of new people in all of those hospitals you know there's been a big a lot of turnover.
The hospitals in the respiratory and nursing teams.
So that was something that I had not expected to see.
Alright.
I think we will see how that plays out when we move this into full market release in the back half of the year.
Okay. Thank you.
Our next question will come from Bill <unk> with Canaccord.
Please go ahead, great. Thanks, Good evening, yes, great. Thanks, Good evening, Thanks for taking my question.
A couple of your first just is.
We roll into the first quarter I was wondering if you could give us some directionality on the topline and then how should we think about gross margins I mean, obviously.
A bunch of it sounds like a bunch of one time charges in the fourth quarter.
You didn't call out exactly how much was the setup versus ongoing so just trying to get a feel for what kind of the first quarter could look like and how quickly topline and gross margins come back and then I'll have a follow up.
Sure Bill This is John I'll take that question in terms of our expectations for the year were thinking first and fourth quarter will be the quarters, where we're impacted by by the surge so as.
As we factored in yet we're thinking it's roughly 50% of the volume that we've seen in previous searches.
It seems to be largely playing out based on our experience to date. So again, we think revenue split would probably be more first and fourth quarter. This year.
In terms of the gross margin implications to your point.
A large chunk of that delta from some of the numbers we experienced.
Earlier in the year and in comparison to prior years, largely due to those temporary costs associated with the disposables lines spun up in Mexico as well as ensuring we had the temporary labor in house to make sure. We can meet all customer needs. So a big chunk of that Delta is due to those temporary cost.
Some of which went through our P&L in the fourth quarter and 2021, and then the balance will work their way through in the first half of 2022. So as we think about the margin profile for the year.
First half of the year would be.
Lower weighted back half of the year will be a higher contribution from margin perspective, so ramp up in the second half of the year and we'll be back on our pathway to our improving our margin for the three point gross margin improvement plan with them running to date.
Okay, I'm, sorry, but maybe I missed it but.
Is Q1 revenue going to be higher or lower than the fourth quarter given we're in the middle of a search.
It's so difficult with your business to kind of get trending that's why I'm asking the question is.
I don't know if they bought all of the systems and maybe it's just going to be disposables are all they're doing is burning off disposables that were purchased with systems I'm just trying to get some color.
Yeah, we expect the fourth quarter bill to be larger than the first quarter.
So for us to be larger than the first.
The reason for that is we typically have year end buying that goes into.
Factors into the equation from a seasonality perspective, so both capital and disposables are generally larger from.
From a fourth quarter perspective.
Which would be our expectation here as well.
Okay. That's helpful. Thank you so much and then.
Just the last question I have is on the OEM trial.
You mentioned that you're continuing to enroll when do you expect to have enrollment completed <unk> trial enrollment completed on that and then you know what.
When does that position you for submission and approval.
Well I can tell you bill that the trial is ongoing and we're enrolling patients and in terms of projected when we're going to be done and I think that's it.
It's just not something we're prepared to comment on but you know as soon as we're done enrollment, we'll make sure that we let everybody know and that'll.
That'll be the big gating factor for us in terms of filing for regulatory clearance.
Okay, and if I could sneak one more in you've talked about building out a sales force in vivo access and the the post care and the $3 65, how should we think about contribution from that product set in 2022, and 2023 and thanks for taking my questions.
Sure Bill it's John So from a Salesforce perspective, we have a small half dozen reps that are dedicated to our people through our access products, whether it's a post care program or our 365 program. So we have them out in the field. They are trained and moving the product forward from a guidance perspective, we're not going to break that out.
Separately.
It's not a material nature is incorporated into the guidance and the service and other line items that.
Which is where it will flow through on a quarter to quarter basis.
Thank you.
And as a reminder, that our star one if you would like to ask a question. Our next question will come from Larry <unk>.
<unk>.
Hi, Good evening, Joe and John Thanks for taking the questions I have first question here on the pricing of capital units.
I Havent worked through my model entirely but just looking at capital revenue and the number of units placed cures.
Curious if there were price increases things that will pass along to customers. During this latest turnkey mark yes.
I'm sorry, it's John I'll take that question so in terms of the pricing.
Largely more of a mix situation, where we had a number of the capital units had accessory type of products. So.
No additional price increasing price increases other than what are typically.
Charged to distributors as part of our annual contract renewals.
CPI increases largely it's more onetime type a mixed situation right in any permanent uplift in the asps.
Okay got it thank you for that.
And then I wanted to I heard your comment earlier on.
Wins in highly competitive situations within some of the gold and silver accounts can you tell us a few of the reasons why precision flow with winning out over competitors in those cases.
So.
First and foremost is how the technology is used at the bedside precision flow is significantly easier to setup.
And the clinical effect that they get is very predictable and various sectors on both type one and they're all dealing with type one patients right now in this COVID-19 post the.
The second reason is our field organization that field organization just did.
Such a remarkable job throughout this pandemic and actually before that we are delivering a level of service, it's really white glove service there in terms of whatever these folks need.
And I would tell you you know there's a large body of clinical evidence you can sort of work through that and then looking at the overall.
Economic value of this over its lifecycle versus the commodity products.
We went and I think the last piece is really been the reputation that we built for delivering come hell or high water during the pandemic and I know for a fact, there are some very significant wins, we got specifically.
After 2020, where people were unable to get what they need it and now they're a baby books are part of the vapor <unk> they've got everything they need it in the most recent surges. So I think those are probably the.
Probably the biggest reasons why we're winning in these really competitive situations both in U S.
And internationally it's both.
Uh-huh all those factors together, okay. That's helpful. Thank you if I can sneak one last one in here.
Kudos on the plan to getting that cash flow positive would.
Would you mind sharing any kind of revenue run rate, we should be thinking.
Above that level, so to get to cash flow positive.
Yes Henry.
John here so in terms of the.
Path to profitability as we continue to drive our gross margin improvement and drive operating expense leverage primarily in the sales and marketing line items those would be the main levers or drivers to get us to cash flow positive.
I think from a breakeven point I think it depends on how quickly we want to invest to drive topline growth.
Or not so I think.
Previously we communicated in that ZIP code of 125.
Plus million or so would be sort of that pathway to get there.
That's directionally, where we would be assuming we get the margins kind of in that 60 ish percent range as well. So that's again dependent upon how fast we want to go on the Opex side, and making investments to drive top line growth may change that number up or down a little bit depending upon our.
The strategy going forward.
Alright, that's very helpful. Thank you.
Youre welcome.
And that concludes our question and answer session for today I will now turn the call back to Joe Army for any closing remarks.
Thank you very much I want to thank you all for your interest in <unk>.
Really appreciate it and look forward to updating you on our progress again next quarter.
And this will conclude today's conference. Thank you for your participation and you may now disconnect.
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