Vapotherm, Inc.

Good afternoon and welcome to BAPO Therm's fourth quarter 2022 financial results conference call. All participants are in a listen-only mode and this call is being recorded. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, simply press star followed by the one on your telephone keypad. It is now my pleasure to turn today's conference over to Mark Klausner, With ICR Westwick, sir, you may begin.

Good afternoon, and thank you for joining us for the VapoTherm fourth quarter 2022 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. 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, 2022, which will be filed today, and then 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 VapoTherm's President and Chief Executive Officer, Joe Army.

Thanks, Mark, and thank you all for joining us. On today's call, I will review the steps we took in 2022 to set us up for success in 2023 and beyond, and John will review our fourth quarter financial performance and discuss our 2023 guidance. I will then tell you the actions we will take to achieve our guidance and drive predictable, profitable growth in the future. As a result of COVID during 2020 and 2021, we doubled our worldwide install base and doubled the number of our gold accounts, which are the top 1,000 US hospitals in terms of respiratory discharges. After two years of COVID volatility, it was difficult to predict what 2022 would look like. As COVID transitioned from a lower respiratory disease to an upper respiratory disease, COVID-related hospitalizations decreased dramatically. At the same time, we saw reduced revenue. Our expenditures to meet all customer needs had left us with lower gross margins, an unsustainable operating cost structure, and a capital-constrained balance sheet. Throughout 22, we addressed these issues and devoted considerable effort to de-risking the business and setting us up for success in 2023. One of our key focus areas throughout the year has been to return to predictable disposable revenue growth as it represents the majority of our revenue and carries the highest gross margin. We've done this by focusing on our gold accounts. In these accounts, we've been expanding into additional care areas and delivering high-quality medical education and training. As a result of these efforts, we've seen U.S. disposable turn rates which represent disposables sold per month per box, steadily recovered. In the fourth quarter, we hit 70% of our pre-COVID three-year historical average, due in part to flu arriving earlier than usual. Our fourth quarter U.S. disposable return rate of 70% was up from 42% in the second quarter and 60% in the third quarter. We're also executing on the launch of the HVT 2.0, This next generation platform represents a major upgrade over our Precision Flow Plus. First, it incorporates a built-in blower, which allows it to be used in areas of the hospital that don't have wall air. And second, it makes it easier to transport patients between care areas. It is also easier to use and therefore requires less training time. There's been a lot of interest in this product since launch, and we're beginning to see a number of customers replace their existing fleets with these newer devices. During the quarter, we continued our efforts to improve gross margins. I'm pleased to report that our new Vapomex facility is certified. All our production lines have been moved and validated. Importantly, all of our cost assumptions are intact, and we are building product and putting it into inventory. We will begin to see the impact of these lower cost products as we work through the high cost inventory that we built during COVID to meet all customer needs. Another key area of focus in 2022 was our balance sheet. Our balance sheet is now in good shape and we have improved our financial flexibility. We recently completed a $23 million equity raise and expected 17 million of inventory presently on the balance sheet will convert to cash by the end of 2024. We also restructured the SLR debt facility to reset our 2023 financial covenants, reduce our minimum cash covenant, and add the ability at our election to pick a portion of our 2023 interest expense, saving cash expenditures potentially up to $9 million. Between the additional cash from our recent equity raise, the conversion of inventory to cash, the ability to pick our interest payments, Our reductions in operating expenses and the gross margin improvements we expect from our relocation of manufacturing to Mexico, we believe we have the necessary capital to get us to adjusted EBITDA positive by the end of this year. During 2022, we also focused heavily on reducing cash operating expenses to pre-COVID levels, or $63 million in 2019. Cash operating expenses decreased by approximately $17.2 million in 2022 versus 2021, with the state set to deliver pre-COVID level cash operating expenses in 2023 of $60 million to $62 million. During the year, we right-sized our worldwide commercial organization, stopped commercial investments in vapor film access and respite care, brought R&D back in-house and won a grant from the Singaporean government to offset a portion of our new R&D efforts in our newly established R&D center. I will now turn the call over to John, who will review the financial results from this quarter. Thanks, Joe.