Vapotherm, Inc.

Hello and welcome to the FAPO 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, simply press star one on your telephone keypad. I will now turn the conference over to Mark Klausner. Please go ahead.

Good afternoon, and thank you for joining us for the VapoTherm first quarter 2023 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, and Form 10-Q, which will be filed today, and then any subsequent filings with the SEC. But 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 Bapotherm'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 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. We had a solid first quarter as we continued to execute against our path to profitability initiatives. First margins continued to improve. Cash operating expenses continued to decrease. We significantly decreased our inventory balance. We successfully began production at our Mexico facility and demand for our HVT 2.0 platform was strong with large fleet sales to major hospital systems and a robust pipeline entering the second quarter. Starting with revenue, despite the challenging capital equipment environment, capital revenue increased 28% over fourth quarter 2022, as we're seeing strong HVT 2.0 adoption. Customers are recognizing the value of this technology. It's intuitive, easy to use, and since it has its own air source, can be used throughout the hospital. In the quarter, HVT 2.0 is accounting for two-thirds of total capital sales in the U.S. in just our third quarter of commercialization. Turning to our gross margin improvement initiatives, I'm pleased to report that our Mexico facility is fully operational and we're building and shipping product. All our cost assumptions related to the move, including overhead, labor, and materials, are tracking in line with our expectations, and we're starting to see the positive impact on our reported gross margin. During 2022, we took the steps necessary to return our non-GAAP cash operating expenses to pre-COVID levels. During the first quarter of 23, we maintained our focus on expense control, and as a result, cash operating expenses continued to decrease. As a reminder, first quarter APACs is typically the highest of the year due to expenses such as our annual sales meeting. 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. We continue to make progress on converting excess inventory into cash, and during the first quarter, reduced inventory by approximately $5 million. I will now turn the call over to John, who will review the financial results for the quarter.