Vapotherm, Inc.

Good afternoon, and thank you for joining us for the Vapotherm Third Quarter 2021 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 SEC, on February 24, 2021. Our quarterly reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021, which were filed with the SEC on May 5, 2021, August 9, 2021, and November 3, 2021, respectively, 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 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 VapoTherms President and Chief Executive Officer, Joe Army.

Good afternoon, and thank you for joining us today. I will begin by discussing our third quarter 2021 results. Then I'll hand the call over to our CFO, John Landry, to provide 3Q financial details. Lastly, I will update you on our key areas of focus for the remainder of the year before taking questions. Demand for our technology surged in the third quarter, resulting in one of the strongest quarters in the company's history in what is typically our seasonally slowest quarter. Total revenue was the second highest on record, disposable revenue was the highest on record, and our U.S. disposables term rate was the highest it has been in over five years. Importantly, our total worldwide revenue and total disposables revenue both exceeded our performance in the third quarter of 2020. This performance is significant for several reasons. First, it further validates the safety and efficacy of our proprietary high-velocity therapy in treating respiratory distress patients who could benefit from our noninvasive ventilatory support as an alternative to intubation. With thousands of hospitals across the world using our technology on a daily basis and our rapid expansion during the pandemic, The value of our high-velocity therapy delivers to patients and hospitals is clear. This is proven by the significant disposables revenue growth during the quarter, a trend that we have seen throughout 2021. Year-to-date, total disposables revenue has grown 33% over 2020 and has more than doubled over the first three quarters of 2019. second our technology appears to have reached critical mass we received a ton of clinical exposure since the start of the pandemic resulting in greater awareness of our technology around the world our global install base now sits at nearly 35 000 more than double the size it was 24 months ago and we are in over 500 of the top 2 000 largest emergency departments in the us our creativity Agility and focus on customers has paid dividends. Our ability to deliver product during this extremely difficult period has continued to grow our reputation in the marketplace. A number of the new ED gold and silver accounts we won during the quarter were highly competitive situations. The fact that we delivered when others could not has been an important element of our success and one of the reasons we believe we are taking market share. Third, as the COVID-19 virus continues to mutate, Many believe it has become a permanent part of the respiratory landscape, much like flu and RSV. While no one can predict what this virus will do, if it continues as a chronic annual problem, our global TAM will expand significantly, in which case our large and growing install base leaves us well positioned to capitalize on this trend. I'm very proud of our team and our ability to deliver product and support to our customers. To make sure we can continue to do this with the much larger install base, We significantly expanded our disposables production capacity in the third quarter by establishing additional manufacturing capability in Mexico. Not only were we able to increase capacity by 75%, but we're able to do so in a way that will drive gross margin improvement over the long term. We also took steps to address the labor shortages affecting the entire country, which threatened our ability to meet customer demand for disposables. We found creative ways through that challenge, which included recruiting in other geographic areas and flying in and housing teams from across the country to staff our production lines in New Hampshire. This enabled us to staff second and third shifts, which proved crucial to our success in delivering for our customers. While the ebbs and flows of COVID-19 will continue to cause some near-term quarter-to-quarter volatility in our results, over the long term, we are confident in our ability to successfully manage the business no matter the environment. In the midst of a COVID-19 surge, we will run the same play we did this quarter and focus on delivering flawlessly for our customers while rapidly expanding our install base and winning new gold and silver accounts. As the COVID-19 surge subsides, we will shift our focus back on our 1H1D, 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 and hypercapnic patients. We consider this a win-win strategy. focusing on satisfying high demand during surges when access to customers is limited, and focusing on executing our 1H1D strategy when access to customers returns to normal levels. Given the significant expansion in our install base over the last six quarters, we estimate it could take four to six quarters to complete our 1H1D training across our entire customer base, assuming no intervening COVID-19 surges. Once completed, we believe our install base will be fully productive and our disposable utilization rates will match or exceed historical levels regardless of what happened with COVID-19. In summary, we believe the combination of our superior technology, white glove field support, proven track record of always delivering for our customers, growing suite of digital solutions, commitment to high-quality clinical education in alignment with our customers' mission of the best clinical outcome at the lowest overall cost will allow us to continue to drive long-term growth and establish Vapotherm as the complex lung disease patient management company. I will now turn it over to John to review the financial results of the quarter. I will then close by telling you our key areas of focus for the fourth quarter, which will set us up for a successful 2022.

Thank you, Joe. As mentioned, Revenue in 3Q 2021 was $38.1 million compared to revenue of $30.6 million in 3Q 2020 and $10.8 million in 3Q 2019, a two-year compounded annual growth rate of 88%. U.S. revenue was $33 million in 3Q 2021 as compared to $25.5 million in 3Q 2020. International revenue was $5.2 million in 3Q 2021 as compared to $5 million in 3Q 2020. Disposables revenue was $21.7 million in 3Q 2021, representing an increase of $80.6 million over disposable revenue of $13 million in 3Q 2020. In 3Q 2021, U.S. disposable revenue was $19 million as compared to $10.4 million in 3Q 2020, while international disposable revenue was $2.6 million in both 3Q 2021 and 3Q 2020. In 3Q 2021, we sold roughly 200,000 disposables worldwide versus 129,000 in 3Q 2020. Capital revenue was 15.1 million in 3Q 2021 as compared to 16.9 million in 3Q 2020. In 3Q 2021, we sold roughly 2,400 PF units worldwide versus roughly 2,700 in 3Q 2020. UF capital revenue was 12.9 million in 3Q 2021 as compared to 14.8 million in 3Q 2020. International capital revenue was 2.2 million in 3Q 2021 as compared to 2.1 million in 3Q 2020. We believe the significant year-over-year increase in disposable revenue compared with a small year-over-year decrease in capital revenue serves to illustrate the significance of our growing install base in ED gold and silver accounts. Worldwide service revenue was $1.3 million in 3Q 2021 compared to $617,000 in 3Q 2020. The increase in worldwide service revenue was due to vapor farm access-related revenue and an increased worldwide install base of precision flow units. Our worldwide installed base grew by approximately 2,500 units in 3Q 2021. As of the end of 3Q 2021, our worldwide installed base consists of approximately 34,500 units, reflecting 39% year-over-year growth. Our monthly U.S. disposable utilization rate in 3Q 2021 was 2.56, which was a record new high despite the fact that the third quarter is typically our slowest quarter from a disposable utilization perspective. For context, our monthly average disposable utilization rate was 1.65 in the third quarters of 2017 through 2019. Gross profit in 3Q 2021 was $18.8 million, an increase of $3.3 million over gross profit of $15.5 million in 3Q 2020. Gross margin was 49.4% in 3Q 2021 compared to 50.8% in 3Q 2020. Gross margin was negatively impacted by one-time charges related to the transfer of certain activities to our contract manufacturer in Mexico, partially offset by increased labor and overhead absorption due to higher disposable volumes and a greater percentage of total revenue coming from the U.S. Operating expenses were $31.7 million in 3Q 2021, an increase of $5 million over $26.7 million in 3Q 2020. The increase in operating expenses was primarily due to an increase in sales commissions on higher revenue levels. Net loss in 3Q 2021 was $13.6 million, or 52 cents per share, compared to a loss of $12.4 million, or 49 cents per share, in 3Q 2020. Adjusted EBITDA loss for 3Q 2021 was negative $10.7 million compared to negative $8.2 million in 3Q 2020. The increase in adjusted EBITDA loss was primarily due to an increase in year-over-year expenses and slightly lower gross margins. As of September 30, 2021, cash and cash equivalents were $70.3 million compared to $81.5 million as of June 30, 2021, and $113.7 million as of December 31, 2020. In 3Q 2021, we used cash of $11.2 million, of which $1.2 million was used for paying down our line of credit. Based on the strong results we saw in the last three weeks of the third quarter, we now expect full-year revenue to be at least $106 million, which represents an increase of 120% over 2019 and a two-year compounded annual growth rate of 48%. This new revenue guidance reflects an update from previously issued full-year revenue guidance of at least $102 million. We expect U.S. revenue in 4Q 2021 to approximate 2Q 2021 levels based on the following assumptions. First, we do not anticipate any significant COVID-19 surges in 4Q. Second, we expect a light flu season in the U.S. based on what the southern hemisphere experienced in 2Q and 3Q, and we expect RSV levels to be consistent with what we saw in 3Q. Third, we believe many of our U.S. customers ordered more product than what they needed in 3Q and will burn this inventory down in 4Q, which is consistent with our experience in previous COVID-19 surges. We expect international revenue to grow about 25% over 4Q 2019. It continues to be difficult to predict the timing, duration, and impact of COVID-19 on hospitalization, and to the extent the impact of COVID-19 deviates from those expectations, our full-year revenue forecast would be impacted. We now expect full-year gross margin to be between 47% to 49%, an increase from previous guidance of 46% to 48%. While we expect our gross margin to decrease year over year, we see this as a temporary issue due to reduced revenue and overhead absorption in 2021 versus 2020. In addition, the new production capacity in Mexico will help us execute on our gross margin improvement plan, and we remain comfortable in our belief that we'll be able to increase gross margin long-term to 65%. We now expect full-year operating expenses of at least $106 million, an increase from previously issued operating expense guidance of at least $102 million. The increase in operating expense guidance is due primarily to increased sales commissions on higher expected full-year revenue. With that, I'd now like to turn it back over to you, Joe.

Thanks, John. As we move into the fourth quarter, we remain focused on our four key growth initiatives. First, we will ensure our install base is productive. Our entire focus during this most recent COVID-19 spike was on delivering product to our customers. As we move into a more normal environment, we have refocused our efforts on our 1H1D strategy to train and educate customers on hypercapnia. Second, we will set the stage to increase long-term recurring revenue per installed capital unit by developing and launching new products with higher clinical and economic value. In the international markets, this will be driven by our Oxygen Assist Module, or OM, which is available in 21 countries. We are receiving positive feedback from customers and look to expand the OM install base. In the US, our OM-IDE study was approved and we have begun enrolling patients in this study. we expect enrollment to continue into 2022. third we will introduce hvt 2.0 to the market during the third quarter we received fda 510k approval for our next generation device and expect to begin a limited market release during the fourth quarter finally we are establishing our digital business now branded vapotherm access we believe our initial product Vapotherm access post-care will allow hospitals to lower their 30-day COPD readmission rates by allowing clinicians to remotely monitor patients on a daily basis. 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 toward keeping these patients from returning to the hospital. We trained our entire US field team on this product in July, but were not able to engage customers during the quarter because of the latest COVID-19 surge. We are now reengaging our gold and silver ED accounts in these discussions. In closing, I would like to share the following patient story, which came to me from one of our field team members from the West Coast in 3Q. An ICU patient was placed onto a BiPAP system with high flow nasal cannula capabilities due to low oxygen saturation levels after contracting COVID-19. He complained about the burning discomfort in his sinuses while on the combination BiPAP high flow nasal cannula device. We educated the respiratory therapy staff on our high velocity therapy with a focus on our medical grade humidification. The RT soon after decided to switch the patient to Vapotherm. The patient immediately praised the RT for the switch and stated that he was much more comfortable on Vapotherm and that he wished he was on the therapy sooner. The patient's O2 saturation level initially dropped to 91% and then quickly rose to 96%. The RT staff was amazed at how quickly Vapotherm increased the patient's O2 saturation and was delighted at the patient's claim of rapid improvement in comfort. The settings were reduced the next day, and the patient continues to receive high-velocity therapy. In conclusion, I'm excited about the position we're in right now. COVID-19 brought worldwide attention to Vapotherm, allowing us to transform our business in just 18 months. The value we deliver to customers and their patients has been validated on a global scale during one of the most challenging periods faced by the healthcare industry ever. As we move into a more steady state macro environment, we have a huge opportunity to leverage our significantly expanded customer base to our training and education efforts, as well as new product and service introductions. Whether we like it or not, COVID-19 is likely here to stay, so we believe our market just got a lot bigger. With our leading technology and massively expanded global footprint, we will continue to take share and help customers treat patients suffering from respiratory distress. I'm extremely proud of what our organization has done throughout this pandemic, which has put us in the best position we've ever been to drive growth and continue on the path to becoming the complex lung disease patient management company. Thank you for trusting us with your capital. We appreciate it. Now, I'd like to open it up for questions.

Thank you very much, Mr. Army. Ladies and gentlemen, at this time, if you have any questions or comments, simply press star 1 on your telephone. If you are joining us today using a speakerphone, please make sure to pick up the handset before pressing star one. Additionally, if you do find that your question has already been answered, you can remove yourself from the queue by pressing star one again. Just one moment. Gentlemen, our first question today will come from Margaret Kayser of William Blair.

Hey, good afternoon, everyone. Thanks for taking the questions. Maybe the first one is for Joe. You know, you're talking a lot about 1H1D, and I was curious if you can comment at all on the back end uplift to utilization and those that are trained. I know it's tough to do that. And, you know, I guess maybe even more so in those areas where you were able to increase capital placements throughout COVID, can you give some context around any follow through of revenues? Because ultimately, if I'm an owner of the stock, I'm saying your installed base went up massively. You know, how do you kind of take advantage of that? And are you seeing that at this point yet?

Well, Margaret, thanks very much for the question. That's a good one. And I tell you, the way that I'm thinking about it is the second quarter is probably the best read for us in terms of what to expect going forward. You know, in the second quarter, we really were able to run the 1H1 deep play cleanly because we had had a significant reduction in overall hospitalization rates from COVID-19. And our field team was running and gunning, really working that 1H1 deep play. Our field leadership team did an excellent job at focusing them on our top 100 customers. So what I can tell you out of that experience is that the turn rates out of those top 100 customers in the second quarter were were at or above our historical averages, despite seeing a respiratory census rate in the United States in May, for example, that was 20% below what historical averages were. So that piece of data gives me a great deal of confidence that as we now run this 1H1B plan going after the next 100, that we're going to see a significant amount of success. With respect to the second part of your question about near-term uptake, what I can share with you is last week I was in Boston at the American College of Emergency Physicians Conference. It's the first medical conference that was back in person. And I had a lot of opportunities to interact with ED physicians from around the country over cocktails and between the sessions. And, you know, what I learned was they had used a ton of our devices in that emergency department setting. And as they were just learning more, they were very surprised to learn that they could use this on hypercapnic patients as well and actually quite excited to do it. So it feels to me like the ground is very fertile for going out and doing it, but it's going to require our field team to go out and run that 1H1D play. So I'm very confident in what I'm seeing. It simply will be a function of time to do it. Okay.

And then you also said that you can, you know, theoretically, if this is a more recurring chronic disease, unfortunately, it might be. How do you look at that TAM for getting bigger? Is it just a number of new patients that could potentially hit the market, and then you're assuming flu comes back? Any context on that?

Well, that's a difficult answer to give in numbers. What I will tell you is that there are really two sets of patients that this whole pandemic has created for us to continue to serve going forward. First is moving more into an endemic phase of this. We believe that we are going to continue to see COVID-19 spring up in parts of the world that we're in on a seasonal basis. We see that in the southern tier of the United States, for example, when it gets really hot out, people went back inside. and into the air conditioning. And that's when we really start to see the beginning of the Delta surge in the US. The second group of patients that we're looking at are COVID long haulers. I mean, this is a very significant number of patients. And we know that one of the elements of the long haul COVID-19 syndrome is respiratory issues. So it's going to take us some time to be able to get our arms around just exactly how many patients and what this looks like. But You know, as far as we can tell, despite having the vaccines, which is going to move it more into an endemic thing, it's going to be an important part of our business going forward.

Okay. And this last one for me, and this one is more directed to John. You know, can you talk maybe about some of the expectations that you have around disposable utilization, capital sales in 22, 23? You sort of alluded at least to disposable utilization a bit. But I listen to Joe and I hear the 1H1B and I say, well, that's actually a pretty encouraging sign for utilization. So maybe some context there and how we should think about that installed base increase versus capital sales.

Thanks, guys. Thanks a lot, Margaret. So as we look at 2022 and 23 and beyond, you know, I think right now we're not going to be providing any guidance for 22-23 at this point. I think we're excited about the size of the install base we have going into 2022 and 2023 and going out and executing that 1H1D program. I think as I look back at Investor Day, we've spoken about growing our business, doubling our business over that five-year time horizon, growing our business on a compound annual growth rate. in the mid-teens, and based upon the install-based growth we have seen, plus the addition of the UED gold and silver accounts this most recent quarter, we feel good about that long-term compounding of growth rate.

Thanks, Chris.

Thank you, Ms. Kayser. Our next question today will come from Bill Plevenik with Canaccord Genuity.

Great. Thanks. Good evening. Can you hear me okay? You bet. Okay. Thanks.

You know, just a little clarity around, you know, Joe, I think you've given us some good color in what you've seen with 1H1D and Q2. And I was just curious, you know, I know COVID was pretty pervasive in Q3, but Is there any pockets of, you know, examples you could share with us maybe that didn't get impacted and maybe you did the 1H1D and continued to see, you know, you saw continued usage utilization or anything like that that kind of is you had that view in Q2, anything in Q3 that we could point you to say, yes, you know, it's kind of you just need to get in there and train them and then you see that usage continue.

Well, thanks very much, Bill, for that question. I appreciate it. You know, probably not in Q3 because literally every single person in our organization was focused on meeting all of those customer needs. I mean, it was nothing short of remarkable given all the other supply chain problems that everybody else had. We found ways to solve those problems and they were big problems and got it. So it took all of our resources around the country. You know, Respiratory Care Week was held the same week as ASAP, and I can tell you from our internal chatter posts from our field team out in the field, touching a lot of new accounts and really celebrating what the respiratory therapists have done, the number of those new user stories and their experience with the device has been very encouraging. But, you know, we had all the oars in the water in 3Q, just making sure that everything that any customer needed out there was met. You know, looking ahead to how we're going to feather that 1H1B play just a little bit, you know, the problem that's going to be facing the healthcare system over the coming months and quarters and years is a massive labor shortage bill. And that labor shortage is manifesting itself with nurses, with respiratory therapists, with a number of the folks that are absolutely critical to making sure they can take care of these patients. And one of the things that our technology does is brings a much easier form of setting up and running the gear. So when you're manned down in a hospital, anything we could do to make it easier for them to treat those patients is going to be well-received. And that, I think, is going to be an element of that 1H1D training that we're doing here in the fourth quarter and beyond.

Thanks for that. And then how – You know, you have a really unique look into kind of what's going on at the ground level, given your product set and treating the COVID patient. I'm just wondering if you could give us maybe a little color on what the cadence looked like, whether it be weekly or monthly as we kind of flowed through Q3, and kind of where do we sit today in Q4? Just your kind of perspective. I think that's very unique.

So, you know, we like the CDC's weekly hospitalization data. We find that to be incredibly useful for us. And so we actually use that very aggressively, and we plot that against our high-flow disposable shipments, or actually on the POs on a weekly basis to be able to understand it. The shape of that curve during the first major wave was interesting. The shape of the curve in the most recent wave was very, very tightly correlated. So... You know, we look at that, we think about now for any kind of future wave. And personally, I don't feel like we're going to see any more really massive waves. We can get more people vaccinated. You know, the natural immunity that's showing up from folks who've had it. That said, you know, we're watching we have a very robust business in Israel, very robust business. And we're watching that data set coming out of Israel very closely around the efficacy of these vaccines over time. And there has been a bit of information coming out of there about seeing some of that efficacy taper off a little bit. So we're paying close attention to that as we consider our production planning, building out that increase in disposables capacity and creating more diversification by putting that in Mexico and having another labor pool to go and really scale that up rapidly if we need it. I think that's what we're looking at. We did see a significant pop in the Asian markets with the Delta surge. And now we're keeping our eye on this Delta Plus and the other variants that may potentially surface. We just have to be ready. I've said it before. I'm going to keep saying it. Anytime we're having to deal with a COVID surge, it's a lot like being in a knife fight in a dark room. And we just have to be prepared to do whatever the customers need to take advantage of that. and then be able to flip back and run one H1D. And, man, I'll tell you what, our teams are doing an excellent job at demonstrating that ability to flip from one play to the next.

Yeah, great. Thanks. And then just one for John, if I could. Your Q2, your Q4 guidance for the U.S. is similar to Q2. Is that similar on both capital and disposable, or are you just talking an overall number? And how should we think about it? And thanks for taking my questions.

Thanks a lot, Bill. In terms of U.S. Q4 as compared to Q2, it looked pretty similar in terms of total dollars. I think it might be a little bit heavier on disposables and a little lighter on capital. I think our thought is going into the fourth quarter, most of the capital orders have been placed for the year, so we wouldn't expect to see quite as much going into the fourth quarter from a capital perspective.

Great. Thanks so much. Thanks, Bill.

Thank you. And our next question today will come from Marie Thibault with BTIG.

Hey, good afternoon, Joe and John. This is Sam Ibarron from Marie. Thanks for taking the question. Maybe moving over to the new products here, you have the limited launch of HVT 2.0 this quarter. You know, maybe any thoughts on how you're thinking about the expected ramp there, the go-to-market strategy? Maybe if you're planning to start with those top gold and silver ED accounts, any other color there would be great. Thanks.

So I'm going to tell you that what I want to do is to go slow with this because we have so many net new customers from that expansion and just running that 1H1D. We will be bringing that platform out into the marketplace. We are very excited about what that does in terms of allowing the hospitals to treat these patients anywhere in the hospital in a very frictionless way. But, you know, we really are going to keep the vast majority of our effort in our field organization focused on that 1H1D and really get people to using this on hypercapnic patients. That said, I will tell you that, you know, this Vapoterm access piece that we're really beginning to work on, we were delighted that we booked our first deal with that. We're now starting to see our field team really begin to reengage with that now that they can. And just I want to give a shout out to the folks in our northeast region for having booked that deal. That's very exciting and can't wait to see what the rest of the team does. That folds in really nicely with the existing install base and with 1H1D. So when I think about that, I'm going to really make sure that we're staying very closely focused on 1H1D with all these new customers and continue to bleed HVT 2.0 out into the market. But we're going to do that slower.

Understood, Joe. Thanks for that. And then maybe on the oxygen assist module here, a couple more countries here and across EMEA, any customers start to use it outside the NICU, or is it predominantly mostly in the NICU still?

No, no. We've seen it in those markets where you see any kind of COVID flare-up. It's turned out to be a very effective tool for treating COVID-19 adults, because if you think about it, you can set their SPO2, their saturated oxygen targets, and you don't have to go into the room to adjust it. So we have seen that. We've retrieved a number of very interesting customer stories around that. So we've actually seen that, and we're pretty excited about what that holds for the future. And then we're seeing them start to use it on other type of adult cases as well. But our focus will remain on the NICU for the near term. We think that the use case in the NICU is very, very positive, and we just want to take time to really drive that with our sales force. We do not want to get them too distracted. So customers are going to keep using it where they're going to use it. Our field team is going to go into the NICU and drive the hell out of it.

Great. Thanks for taking the questions.

You bet. Thank you.

And gentlemen, your next question will come from Jason Bednar of Piper Sandler.

Hey, good afternoon. Thanks for taking the questions. Congrats on the quarter here. You know, Joe, can you talk about how you might be benefiting from maybe some challenges that your competitors and you know, VapoTherm's ability to deliver when others cannot. I think that's the wording you used there. Maybe talk about how your response levels contribute to some of the success in the quarter and maybe how that positions you to benefit as we think forward to future years.

Well, I think there's a couple of elements to that, right? And I alluded to that on the earlier part of the call about, number one, we have better technology. I mean, it just really, really works well. That combination device, these combination BiPAP and high-flow nasal cannula commodity high-flow systems or mechanical ventilator they put on these high-flow channels. We've been dealing with those people for the last three or four years around the world, right? And we've proven to be very, very adept at competing with them and doing it in a way that the customers truly understand the benefits. That humidification element of this and that patient story that I described to you, make no mistake, our humidification is really a secret weapon and you're going to hear more and more about that as time goes on and we look at where we're going to take that next in the marketplace. There are some challenges that some of the companies out there are dealing with. There are a couple of recalls going on now with people who put high flow channels on their mechanical ventilators or on their BiPAPs. I have no doubt that's helping us, right? That is not something that I would characterize as a long run tailwind. But, you know, our ability to go out there with white glove service with our field team, that field team is exceptional in how they approach this servicing their customers. That, I think, is a very high differentiator, coupled with our medical education. I think we've done a really good job at connecting deeply with those customers on that MedEd front. And then that ability to supply when no one else can. I don't know how the hell our supply chain people did it, but, man, they just These people, I wouldn't trade them for all the tea in China.

Very helpful. Thanks, Joe. And then maybe to follow up on VapoTherm Access and congrats on the first book in there. You mentioned the Salesforce Ready to Run as of July. It only just recently begun to really engage with those gold and silver accounts, but You know, maybe aside from that first win that you do have, any feedback from those initial discussions, what you learned from this process, you know, how long the conversations may take just as we calibrate ourselves and think forward on, you know, how to build this into models?

Well, I think the way you build it into models is you just take Landry's 15% long-run growth rate and that's it, right? I wouldn't try to get too, you know, building them all out. That's our goal, right? I can tell you that everybody that I've talked to, Jason, about this, and I've been talking a lot now to customers around this idea, they're very excited about this idea. And I think, you know, John Landry has also had some personal experience with this regard. Maybe he could share a little bit about what he's hearing from customers that he's talking to.

Sure. Thanks, Joe.

So I had a great opportunity to get out in the field and speak with some of the clinicians out at a customer on the West Coast. Feedback as I walk through the benefits or potential benefits of Vapotherm access with this particular customer was the ability to potentially keep those patients that are discharged from the emergency department from post-COPD exacerbation event, keep them home and keep them out of the hospital for a period of 30 days after the discharge, which as you know from a CMS penalty perspective, if those patients come back in and negatively impacts that hospital's readmission rate is a potential penalty for those hospitals. So this particular customer is very, very excited about the opportunity to have some sort of tools to keep those patients monitored, to be alerted in the event that there were any deviations from their underlying unique baseline status, and then be able to prevent a potential return trip to the emergency department. So it's great to hear that directly from a customer, and I'm grateful for the opportunity to go out there and share that with them.

Jason, I would also add, though, that nobody else is doing this, okay? So this is brand new. The customers have never heard, like we're bringing them something that's completely different they've never seen before. So it's going to take some time as they figure out how to buy it, how to think about it. We figure out how to sell it, how to make sure that everything we deliver on it meets their needs. But this is brand new ground that we're covering, which I'm pretty excited about because it's going to solve a problem that they have that's very significant.

Yeah, absolutely. Maybe just one more, if I could squeeze it in, John. I mean, you talked about maybe some above normal inventory levels your customers might be sitting on. Just maybe some extra stocking that helped in the third quarter at the expense of the fourth quarter. And sorry if I missed it, but I mean, is there a number that you're talking about of what extra stocking may have happened on the disposable side? Just as a, again, you know, think about modeling here in the third quarter to fourth quarter.

Yeah, hi, Jason. Yeah, in terms of the numbers, didn't provide any granularity in terms of what that potential may have been. I think when we look at the fourth quarter, we think it's going to look pretty similar to the second quarter this past year. Might be a little bit heavier on the disposable side in the U.S. than what we saw in the second quarter. But on the flip side, I think the capital might be a little bit lighter as we think most of the ordering has happened from a capital perspective in the third quarter.

So in total, roughly about the same, but just a little bit different split. Okay. All right. Thanks, guys. You're welcome.

Gentlemen, that will conclude our question and answer session for today. I will now turn the call back over to Mr. Armey for any closing comments.

Thanks very much. I want to thank you all for your interest in Vapotherm. We really appreciate it, and we look forward to updating you on our next quarter and our progress again next quarter. Have a great day.

Thank you, ladies and gentlemen. That will conclude today's Babel Therm third quarter financial results conference call. We'd like to appreciate you all for joining us and wish you all a great day. Goodbye.