Q1 2023 Vapotherm Inc. Earnings Call
Speaker 3: Hello and welcome to the FAPL Therm Inc. first quarter 2023 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. If you would like to ask a question during this time.
Speaker 3: simply press star 1 on your telephone keypad.
Speaker 4: I will now turn the conference over to Mark Klosner. Please go ahead. Good afternoon and thank you for joining us for the Vapotherm first quarter 2023
Speaker 4: Joining us on today's call are Vapotherm's President and Chief Executive Officer, Joe Army and its Senior Vice President and Chief Financial Officer, John Landry.
Speaker 4: 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, Vapotherm.com.
Speaker 4: Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements.
Speaker 4: 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. The report is filed on Form 10-K for the year ended December 31, 2022.
Speaker 4: and Form 10Q, which will be filed today, and then any subsequent filings with the SEC.
Speaker 4: Such risk factors may be updated from time to time in our filings with the SEC, which are publicly available on our website.
Speaker 4: 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.
Speaker 4: This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAP.
Speaker 4: We generally refer to these as non- GAAP financial measures. Reconciliation of the historical non- GAAP financial measures to the most comparable measures calculated and presented in accordance with GAP are available in the earnings press release on the investor relation portion of our website.
Speaker 4: With that, it's my pleasure to turn the call over to Bapho Thurman's president and chief executive officer Joe Arming.
Speaker 4: Thanks, Mark, and thank you all for joining us. On today's call, I will review the progress we made during the first quarter, and then John will review our financial performance before I provide my thoughts on the balance of 2023 and turn to Q&A.
Speaker 5: We had a solid first quarter as we continued to execute against our path to profitability initiatives.
Speaker 5: First margins continue to improve, cash operating expenses continue to decrease. We significantly decreased our inventory balance. We successfully began production at our Mexico facility. The demand for our HVT 2.0 platform was strong, with large fleet sales to major hospital systems.
Speaker 5: and a robust pipeline entering the second quarter.
Speaker 5: robust pipeline entering the second quarter. Starting with revenue. I'm good.
Speaker 5: Despite the challenging capital equipment environment, capital revenue increased 28% over fourth quarter 2022, as we are seeing strong HVT 2.0 adoption. Customers are recognizing the value of this technology.
Speaker 5: It's intuitive, easy to use, and since it has its own air source, can be used throughout the hospital.
Speaker 5: In the quarter, HTTP2.0 is a counter for two-thirds of total capital sales in the US and just our third quarter of commercialization.
Speaker 5: Turning to our gross margin improvement initiatives and pleased to report that our Mexico facility is fully operational.
Speaker 5: and we're building and shipping product.
Speaker 5: All our cost assumptions related to the move, including overhead, labor, and materials are tracking in line with our expectations.
Speaker 5: and we're starting to see the positive impact on our reported gross margin.
Speaker 5: During 2022, we took the steps necessary to return our non-GAP cash operating expenses to pre-COVID levels.
Speaker 5: During the first quarter of 23, we maintained our focus on expense control and as a result, cash operating expenses continued to decrease.
Speaker 5: As a reminder, first quarter op-ax is typically the highest of the year due to expenses since as our annual sales meet.
Speaker 5: During the quarter, we took a number of steps to bolster our balance sheet, including the closing of a pipe transaction and the conversion of inventory to cash, ending the quarter with approximately 26 million in cash.
Speaker 5: We continue to make progress on converting excess inventory to cash and during the first quarter reduced inventory by approximately $5 million.
Speaker 5: I will now turn the call over to John , who will review the financial results for the quarter.
Speaker 4: Thanks, Joe. Worldwide revenue in the first quarter of 2023 was $17.7 million. US revenue was $13 million. International revenue was $4.7 million.
Speaker 4: Capital revenue was strong as HVT 2.0 capital sales represented 68% of our capital sales in the US and over 50% in our direct international markets.
Speaker 6: Growth margin was 35% in the quarter, which is up from 27.5% in Q4 2022, despite near-term inefficiencies as we ramped up production in our Mexico facility.
Speaker 6: We estimate these inefficiencies in final set of costs negatively impact a gross margin by approximately 3% in the quarter.
Speaker 6: In addition, all the higher cost of legacy disposable inventory has been burned off, which will result in lower cost disposable.
Speaker 6: Getting the P&L beginning in Q2.
Speaker 6: Gap operating expenses were 19.8 million in the first quarter, down from 22.8 million in the fourth quarter of 2022 and 27.8 million in the first quarter of 2022.
Speaker 6: non-GAAP cash operating expenses were $16.4 million in the first quarter, down from $18 million in Q4 2022, which is notable as the first quarter is typically the highest quarter for operating expenses due to the timing of various programs such as our national sales meeting.
Speaker 6: non-GAAP cash operating expenses have decreased sequentially every quarter since we launched our past profitability initiative early in 2022 and we're down from $24.3 million in the first quarter of 2022, a year-over-year reduction of $7.9 million. We ended the quarter with inventory of $28.5 billion.
Speaker 6: We continue to make progress in reducing inventory from the peak of 38.4 million in the second quarter of 2022. Since then, we have decreased our inventory by nearly $10 million with roughly $5 million of that reduction coming in the first quarter.
Speaker 6: We ended the quarter at 25.7 million of cash. Met cash burned in the quarter after adjusting for 23 million of private placement proceeds.
Speaker 6: with approximately $11 million, or approximately $2 million less than Q4 2022. We expect that cash burn in the first quarter of the year will represent more than half of the total cash burn in 2023. Turning to guidance. For the full year 2023, we reiterate our previously issued guidance and continue to expect revenue of $77 million.
Speaker 6: of our total revenue over the long term. We anticipate that the contribution of disposable revenue as a percentage of total revenue may be slightly lower than this in 2023. Given the market receptivity, we have seen to HBT 2.0. We have seen to HBT 2.0.
Speaker 6: With that, I'd like to turn the call back over to Joe.
Speaker 5: Thanks, John . As we look to the second quarter, our focus continues to be all about driving towards profitability to revenue growth, gross margin improvement, and maintaining operating expense at pre-COVID levels while investing prudently in future growth drivers.
Speaker 5: If we're turning to Q&A, I'd like to thank our team for all their continued efforts as we drive towards profitability.
Speaker 5: We made some significant changes in 2022 and I'm very proud of how we've executed thus far in 23 under the new strategy
Speaker 5: As always, we appreciate your support of April firm and look forward to updating you on our next quarterly call.
Speaker 5: appreciate your support of April Firm and look forward to updating you on our next quarterly call. I'll now open the call up for questions.
Speaker 3: Thank you. We will now begin the question and answer session. If you have a question, please press star one on your telephone keypad. Should you need to remove yourself from the queue you may press star one again. One moment please for your first question.
Speaker 3: Do our first question?
Speaker 3: comes from the line.
Speaker 6: of Margaret Cazer with William Blair. Please go ahead. Hi everyone. This is McCauley on for Margaret. Thanks for taking our question. I guess I'm the first so it looks like disposable and utilization were lower than expected this quarter.
Speaker 7: So, wondering if we could get any commentary on if that was golden to over EV accounts and how we can be sure that this is...
Speaker 6: Flu related as opposed to utilization decline. This is John , I can take that question. So in terms of our disposable revenue, I just see a decrease from the fourth quarter to the first quarter.
Speaker 6: past flu season we had was a normal flu season overall, but did start an end earlier than usual. We expected some residual hospitalizations for the flu which didn't materialize.
Speaker 6: We came in at about 50% of the pre-COVID average for the first quarter, and our turn rate in the US is about 1.1. If you look at our turn rate over the Q4 through Q1 time frame or the duration of the flu season, it was about 60% over that period, which is what we saw in the third quarter of 2022. And in terms of the gold silver.
Speaker 3: comes from the line of Bill Plovanec with Canacorn Genuity. Please go ahead.
Speaker 6: Yes, this is Eckerday on from Bill. Thank you for taking the question. Regarding the gross margin cadence, on the last earnings call, you said that it should be in the low-to-mid-fourth season first half of the year, then about 50% of second half of the year. Is that still on track given in the Mexico Manufacturing Launch? Thank you.
Speaker 6: Yeah, it's John . I can take that question. So in terms of gross margin ramp, you know, in the first quarter, as we wrapped up the lines, we experienced the typical inefficiencies that are seen during that phase. We believe this is behind us now and we're scaling production as we speak.
Speaker 6: But the higher cost of displesables and in total burned off, we do expect to see improvement beginning in the second quarter and again sequential improvements in the third and fourth quarters. As we gain efficiencies in our Mexico facility and this includes the displesables and the components that we're producing there. So we also expect to see that higher ASPs from new products also continue to grow next.
Speaker 6: And is a 70% plus usage rate overall still attainable in the Gordon Silver accounts?
Speaker 6: from a utilization perspective and recovery rate.
Speaker 6: and gold and silver accounts. We believe a little long term. Yes, we believe that that is a recovery rate that we can achieve. We've achieved it before. Expect that long term that we'll be able to get those turn rates up to those levels. In particular, the gold accounts, which is a big driver, the focus for.
Speaker 6: our field team to expand into those goals accounts which represent the majority of our business.
Speaker 3: Great, thank you very much. Again, ladies and gentlemen, if you would like to ask a question, it is Star 1 on your telephone keypad.
Speaker 3: So our next question comes from the line of Jason Betner with Piper Sandler. Please go ahead.
Speaker 7: Hey guys, good afternoon. Thanks for the questions here. I wanted to start with the revenue guide. You know, just within the context of one queue, I think maybe following a little bit short, at least for all the bar model, I think, I'll get a consensus. Seasonally, we tend to have a step down, one queue into two queue and three queue, just that typical, like...
spring summer seasonality, lower respiratory issues, and admissions in the hospitals. Maybe you talk about your confidence in hitting that revenue guide, again, just given what we've seen thus far, and then I'll have one follow-up.
Sure, Jason. So in terms of the consensus revenue, you know, we're confident in the full year number. We like what we've seen in the strength of the HVT2.0 capital sales in particular. And we believe that it could potentially result in a higher percentage of our total revenue contribution this year.
We believe that would be able to upset what was a flu season in the first quarter that ended sooner than what we took the policing in the past. And I think from the seasonality perspective, we haven't provided quarterly guidance, but from the seasonality perspective, your observations are...
are correctly typically see a second and third quarter lower volumes in those quarters, especially getting the lack of a pool season and normal respiratory census. And then fourth quarter increases again as the pool season comes back online. Plus you also have year end capital purchasing, which also contributes to year end capital equipment sales.
from like an inter-quarter commentary on 2Q. But I guess is what you're seeing so far? Is that what's giving you confidence here, John , in terms of keeping the guidance where it's at? And maybe not seeing that, you know, has much of a step down here in 2Q. It just, it really feels like, again, correct me if I'm wrong. It just feels like the year or maybe even like...
it's really a very fourth quarter loaded type revenue year. I guess maybe what went into this decision not to maybe bring that guy down and make it a little bit more achievable or less risky.
Yeah, thanks for the question, Jason. So in terms of, in terms of the full year, I think what we're seeing in the business, in particular the HTTP 2.0 capital sales, I think we had a good first quarter of capital sales, we're up 28% over the fourth quarter of 2022. That's in the face of what we've seen.
Okay, fair enough. Thanks, guys.
And your final question comes from the line of Marie Teeble with BTIG. Please go ahead.
Hey, good afternoon everyone. This is Sam Iberon from Marie. Thanks for taking the questions here. Maybe I can start on a HVT2.0 and certainly encourage and commentary there. Maybe what's helping drive some of that demand here? Our customer is using it as a platform to expand into new carriers of the house.
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and expanding their overall fleets. And we are seeing them being able to bring patients into other care areas. In fact, the general care floor.
The other thing that we've noted from customers is that the ability to emulate patients with this product is significantly better.
and amulation is a pretty big deal for them. So I think the combination of those two factors, coupled with the ease of use that we're seeing in terms of people learning how to use the equipment, proving to be a pretty important point.
So we like what we're seeing with it. And as John said, the first quarter, we like battle out. And there's, you know, a fair amount of capital headlands out there. We're not, you know, we're aware of that. And, you know, we like to pipeline the sea. And we like the way that our field Salesforce is really...
taking the opportunity to bring this into some of our most important accounts and like what we see in terms of the way they're adopting it. Okay, that's really helpful. Thanks for that, Joe. And then maybe as a follow-up here, you know, you really rated the guidance throughout the P&L, but any timelines or updates on adjusted EBITDA when that might...
from an adjusted positive perspective, so that's what we continue to drive towards.
Great, thanks for your questions.
Thank you.
I will turn the conference over to Joe Army for any closing remarks.
Thank you all for joining us on today's call and we look forward to updating you again next quarter. Have a nice evening. This concludes today's conference call. You may now disconnect your line.
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