Vapotherm, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Vapotherm 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. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. 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 Vapotherm Fourth Quarter 2020 Financial Results Conference Call. 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. 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, vapotherm.com. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements. These statements are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated including those identified in the risk factor section 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 24, 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 on the investor relations portion of our website. With that, it's my pleasure to turn the call over to VapoTherm's President and Chief Executive Officer, Joe Army.

Joe Army Good afternoon and thank you for joining us today. I will begin by discussing our fourth quarter results and full year 2020 accomplishments. Then 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. 4Q was another strong quarter for VaporFirm. We generated $40.9 million in revenue, a 214% increase over 4Q 2019. increased our worldwide installed base by more than 3,800 units to 28,650 units and are now in over 450 gold and silver ED accounts, which are the top 2,000 emergency department hospitals in the U.S. as measured by respiratory discharges. In addition, we printed a 50.6% 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 VapoFirm, and I believe our accomplishments are best understood in a longer-term perspective. Going into 2020, we outlined a set of objectives that we were focused on as an organization. As a reminder, these objectives were, first, driving top-line growth. Second, improving our gross margins. Third, reducing our cash burn. And fourth, planting the seeds for growth. We achieved each of these and I'm confident we would have done so even without COVID. In March, we, like all other companies, were forced to quickly adjust our efforts to respond to the challenges of COVID. First, we focused immediately on ensuring the safety and security of our employees and their families. Next, we recognized our product's ability to help customers treat their COVID patients who were in respiratory distress and put significant effort into securing our supply chain and building significant capital and disposable production capacity to support the anticipated needs of our customers. I'm incredibly proud of how the Vapotherm team responded to these challenges. and what we were able to deliver for our customers as they worked tirelessly to treat patients impacted by the pandemic. Not only that, we were able to rapidly scale our operations 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 operationally and financially. And I would now like to review our key accomplishments in 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 29,000 units in our installed base, an increase of over 12,000 units, or 73% over the installed base at the end of 2019. To give you some context, prior to COVID, we're expected to achieve an installed base of this size in 2024. As I've shared with you before, the growth of our installed base is the key metric that I watch as 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 ED accounts, which we expect to benefit from for years to come. As of year end, we were in over 450 ED gold and silver accounts in the U.S., which reflects a 50% increase in the total number of ED gold and silver accounts we were in as of the end of 2019. These accounts are important to us as over 50% of all hospital admissions are from patients who present in the ED. Gold and silver ED accounts are especially important to us as they are the largest accounts in the U.S., treat the greatest number of patients, and are highly referenceable accounts. We believe increased customer loyalty and awareness of the clinical benefits of our products And these accounts will help drive adoption in all areas of respiratory distress, including Type 1 respiratory distress patients, like COVID patients who can't get enough oxygen in their system, and also Type 2 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. regarding the oxygen assist module, or OM, we completed a limited launch in the UK, select European markets, and Israel. This 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 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 Nelcor and Massimo SpO2 sensors to improve the user experience. We also made good progress on the development of our next-gen platform, HVT 2.0. As a reminder, this device has an internal blower, which will allow us to access areas of the hospital that do not have pipes in air, and allow us to serve patients in respiratory distress outside the hospital in a 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 we're ready to launch into the home. We currently expect to launch the HVT 2.0 in the second half of 2021. Third, We expanded our capabilities as a company by acquiring a small technology company called HGE Digital Health, or HGE, for an initial payment of $6 million plus revenue-based earnouts. HGE 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 as a service to our current hospital customers to allow them to monitor patients after discharge with the goal being to improve COPD readmission rates. We believe this platform may also give us some deeper insight into the home market and home patient needs that we will use as we continue to refine our service offering for the home. We are currently in the very early innings of this technology platform. And while the revenue contribution from HGE 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 operating environment. It could not be more excited about where we sit going into 2021. After John details our financial results, I will spend some time outlining how we are going to address the opportunity in front of us. Johnny?