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Vapotherm Reports Second Quarter 2022 Financial Results

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EXETER, N.H., August 03, 2022--(BUSINESS WIRE)--Vapotherm, Inc. (NYSE: VAPO), ("Vapotherm" or the "Company"), today announced second quarter 2022 financial results.

Second Quarter 2022 Summary

  • Total revenue for the second quarter of 2022 was $13.0 million, a decrease of 37.1% over the second quarter of 2021

  • Disposables revenue for the second quarter of 2022 was $7.9 million, a decrease of 38.2% over the second quarter of 2021

  • Worldwide installed base of Precision Flow systems increased by approximately 400 units in the second quarter of 2022 to over 36,100

"The second quarter of 2022 was a tough quarter for us due to low respiratory patient census and Customer destocking of inventory purchased during the Omicron wave in the first quarter of 2022. Revenue bottomed out in April and we saw sequential increases in revenue in May and June," said Joseph Army, President and CEO. "We began executing on our path to profitability and delivered on key milestones related to our move of operations to Mexico and took the steps needed to normalize our cash operating expense structure. We completed our HVT 2.0 limited market release and entered full market release in July. We’re excited about initial market receptivity and Customer reaction to this new platform technology noting its ease of use and ability to address the respiratory needs of Patients throughout the hospital, including those rooms without piped-in air."

Results for the Three Months June 30, 2022

The following table reflects the Company’s net revenue for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

2022

2021

Change

(in thousands, except percentages)

Amount

% of Revenue

Amount

% of Revenue

$

%

Revenue

Capital (product & lease revenue)

$

2,568

19.8

%

$

6,172

29.9

%

$

(3,604

)

(58.4

)%

Disposables

7,913

61.0

%

12,794

62.0

%

(4,881

)

(38.2

)%

Service and other

2,490

19.2

%

1,659

8.1

%

831

50.1

%

Total net revenue

$

12,971

100.0

%

$

20,625

100.0

%

$

(7,654

)

(37.1

)%

Net revenue for the second quarter of 2022 was $13.0 million. Capital and disposables revenue decreased in the second quarter of 2022 primarily due to low respiratory census worldwide and Customers decreasing their inventory levels of disposables purchased during the Omicron surge early in the first quarter of 2022.

Revenue information by geography is summarized as follows:

Three Months Ended June 30,

2022

2021

Change

(in thousands, except percentages)

Amount

% of Revenue

Amount

% of Revenue

$

%

United States

$

9,498

73.2

%

$

11,330

54.9

%

$

(1,832

)

(16.2

)%

International

3,473

26.8

%

9,295

45.1

%

(5,822

)

(62.6

)%

Total net revenue

$

12,971

100.0

%

$

20,625

100.0

%

$

(7,654

)

(37.1

)%

Gross profit and gross margin for the second quarter of 2022 was $2.4 million and 18.2%, respectively. In the second quarter of 2022, gross margin was negatively impacted by lower revenue and production levels, inventory reserves and higher costed product built in the second half of 2021.

Operating expenses include a non-cash impairment charge of $18.7 million related to the goodwill and intangible assets recorded in connection with the acquisitions of HGE and RespirCare, which form the basis of the Company’s Vapotherm Access reporting unit. While the Company will continue to invest in HGE and RespirCare, the Company completed an interim goodwill impairment assessment as a result of its year-to-date stock price decline. As a result of reduced revenue expectations, the Company wrote down its goodwill to its estimated fair value and wrote off intangible assets related to customer relationships and developed technology. Total operating expenses were $42.2 million in the second quarter of 2022, an increase of $16.2 million as compared to the same period last year. Cash operating expenses, excluding impairment charges, depreciation and amortization, stock-based compensation expense, severance accruals recorded and change in the value of contingent consideration, were $21.7 million in the second quarter of 2022 compared to $22.8 million in the second quarter of 2021 and $24.3 million in the first quarter of 2022.

Net loss for the second quarter of 2022 was $42.7 million, or $1.61 per share, compared to $17.3 million, or $0.67 per share, in the second quarter of 2021. Net loss per share was based on 26,574,027 and 25,887,313 weighted average shares outstanding for the second quarter of 2022 and 2021, respectively. Net loss for the second quarter of 2022 includes a non-cash impairment charge of $18.7 million related to the goodwill and intangible assets recorded in connection with the acquisitions of HGE and RespirCare.

Adjusted EBITDA was negative $20.2 million for the second quarter of 2022 as compared to negative $12.3 million for the second quarter of 2021. The increase in Adjusted EBITDA loss was primarily due to lower revenue and gross margin on a year over year basis.

Cash Position

Cash and cash equivalents were $49.9 million as of June 30, 2022 compared to $72.9 million as of March 31, 2022. The decrease in cash in the second quarter of 2022 was due to the net loss.

Debt Covenant

On August 1, 2022, the Company entered into an agreement with its lender for a one-month extension of the covenant-free period through August 31, 2022. The Company is in discussions with its lender regarding its revenue covenant and anticipates having this fully addressed before the first reporting period, although no assurance can be provided that it will be able to do so.

Fiscal 2022 Outlook

For fiscal 2022, the Company expects net revenue to be in the range of $76 million to $81 million. This guidance reflects a modest return of RSV in late third quarter as kids go back to school and a modest flu season which typically begins in the fourth quarter in the U.S. This guidance does not reflect any significant COVID impact. The Company’s guidance assumes US disposable utilization rates of 60-70% of pre-COVID levels as seasonally adjusted for third and fourth quarters. This guidance also includes capital and disposable sales from the worldwide commercial launch of the Company’s HVT 2.0 platform.

For fiscal 2022, gross margin is now expected to be in the range of 30% to 32%, a decrease from the previous range of 34% to 36% due to lower revenue and production levels and inventory reserves.

For fiscal 2022, operating expenses excluding impairment charges are expected to be in the range of $97 million to $100 million, a decrease from the previous range of $99 million to $102 million.

For fiscal 2022, operating expenses excluding impairment charges, depreciation and amortization, stock-based compensation expense, change in the value of contingent consideration and the impact of severance accruals are expected to be in the range of $84 to $86 million, a decrease from the previous range of $86 million to $88 million. The Company has also identified other cost areas that it intends to normalize as it adjusts its operating expense levels to pre-COVID levels without sacrificing future growth. The Company expects to exit the fourth quarter of 2022 with operating expenses excluding impairment charges, depreciation and amortization, stock-based compensation expense, change in the value of contingent consideration and the impact of severance accruals of between $17 to $18 million.

The Company expects to end 2022 with $15 million of cash plus another $35 million of inventory, $15 million of which the Company expects to convert into cash by mid-2023 as it returns its inventory turn rates to its pre-COVID historical level of 4 turns/year. This will allow the Company to fund its business through 2023 and get it to Adjusted EBITDA positive in the fourth quarter of 2023.

Conference Call

Management will host a conference call at 4:30 p.m. Eastern Time on August 3, 2022 to discuss the results of the quarter with a question and answer session. To listen to the conference call on your telephone, please dial (888) 330-2391 for U.S. callers, or +1 (240) 789-2702 for international callers, approximately ten minutes prior to the start time and reference conference code 6585549. To listen to a live webcast, please visit the Investors section of the Vapotherm website at: http://investors.vapotherm.com/events-and-presentations/events. The webcast replay will be available on the Vapotherm website for 12 months following completion of the call. A replay of this conference call will be available by telephone through August 10, 2022 by dialing (800) 770-2030 in the U.S. or +1 (647) 362-9199 outside of the U.S. The replay access code is 6585549.

Website Information

Vapotherm routinely posts important information for investors on the Investor Relations section of its website, http://investors.vapotherm.com/. Vapotherm intends to use this website as a means of disclosing material, non-public information and for complying with Vapotherm’s disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of Vapotherm’s website, in addition to following Vapotherm’s press releases, Securities and Exchange Commission filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, Vapotherm’s website is not incorporated by reference into, and is not a part of, this document.

Non-GAAP Financial Measures

This press release includes non-GAAP financial measures, including EBITDA, Adjusted EBITDA, operating expenses excluding impairment charges and operating expenses excluding impairment charges, depreciation and amortization, stock-based compensation expense, change in the value of contingent consideration and the impact of severance accruals recorded, which non-GAAP measures differ from financial measures calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). EBITDA represents net loss less interest expense, net, provision for income taxes, and depreciation and amortization, and Adjusted EBITDA represents EBITDA as adjusted for the impact of foreign currency loss or gain, change in fair value of contingent consideration, stock-based compensation expense, goodwill impairment and intangible assets impairment. Since these adjustments to the GAAP measures are highly variable, difficult to predict and of a size that could have substantial impact on Vapotherm’s reported results of operations for a period, Vapotherm cannot provide without unreasonable effort a quantitative reconciliation to the most directly comparable GAAP measures for its 2022 financial guidance regarding operating expenses, excluding impairment charges, and operating expenses, excluding impairment charges, depreciation and amortization, stock-based compensation expense, change in the value of contingent consideration and the impact of severance accruals. The Company has reconciled all historical non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release.

These non-GAAP financial measures are presented because the Company believes they are useful indicators of its operating performance. Management uses Adjusted EBITDA and non-GAAP operating expenses, excluding certain items, as measures of the Company’s operating performance and for planning purposes, including the preparation of the Company’s annual operating budget and financial projections. The Company believes these measures are useful to investors as supplemental information because they are frequently used by analysts, investors and other interested parties to evaluate companies in its industry. The Company believes Adjusted EBITDA is useful to its management and investors as a measure of comparative operating performance from period to period.

These non-GAAP financial measures should not be considered alternatives to, or superior to, net income or loss as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP. They should not be construed to imply that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure to reflect our capital expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In evaluating Adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of Adjusted EBITDA should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on the Company’s GAAP results in addition to using Adjusted EBITDA and other non-GAAP financial measures on a supplemental basis. The Company’s definition of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

About Vapotherm

Vapotherm, Inc. (NYSE: VAPO) is a publicly traded developer and manufacturer of advanced respiratory technology based in Exeter, New Hampshire, USA. The Company develops innovative, comfortable, non-invasive technologies for respiratory support of patients with chronic or acute breathing disorders. Over 3.5 million patients have been treated with the use of Vapotherm high velocity therapy® systems. For more information, visit www.vapotherm.com.

Vapotherm high velocity therapy is mask-free noninvasive ventilatory support and is a front-line tool for relieving respiratory distress—including hypercapnia, hypoxemia, and dyspnea. It allows for the fast, safe treatment of undifferentiated respiratory distress with one tool. The Precision Flow system’s mask-free interface delivers optimally conditioned breathing gases, making it comfortable for patients and reducing the risks and care complexities associated with mask therapies. While being treated, patients can talk, eat, drink and take oral medication.

Legal Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements under the Private Securities Litigation Reform Act of 1995, including statements about anticipated market receptivity and Customer reaction to HVT 2.0 and the Company’s expected net revenue, gross margin and operating expenses for fiscal year 2022, expected cash and inventory balances at the end of 2022, and ability to fund its business through 2023 and get it to Adjusted EBITDA positive in the fourth quarter of 2023. In some cases, you can identify forward-looking statements by terms such as ‘‘expect,’’ "continue," "plan," "intend," "will," "outlook," "guidance," or "typically," or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words, and the use of future dates. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statement. Applicable risks and uncertainties include, but are not limited to the following: Vapotherm has incurred losses in the past and may be unable to achieve or sustain profitability in the future or achieve its 2022 financial guidance; risks associated with the move of its manufacturing operations to Mexico; Vapotherm may need to raise additional capital to fund its existing commercial operations, develop and commercialize new products, and expand its operations; Vapotherm’s dependence on sales generated from its Precision Flow systems, competition from multi-national corporations who have significantly greater resources than Vapotherm and are more established in the respiratory market; the ability for Precision Flow systems to gain increased market acceptance; Vapotherm’s inexperience directly marketing and selling its products; the potential loss of one or more suppliers and dependence on its new third party manufacturer; Vapotherm’s susceptibility to seasonal fluctuations; Vapotherm’s failure to comply with applicable United States and foreign regulatory requirements; the failure to obtain U.S. Food and Drug Administration or other regulatory authorization to market and sell future products or its inability to secure, maintain or enforce patent or other intellectual property protection for its products; the impact of the COVID-19 pandemic on its business, including its supply chain, and the other risks and uncertainties included under the heading "Risk Factors" in Vapotherm’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission on February 24, 2022 and Vapotherm’s most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on August 3, 2022, and in any subsequent filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release reflect Vapotherm’s views as of the date hereof, and Vapotherm does not assume and specifically disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

Financial Statements:

VAPOTHERM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

June 30, 2022

December 31, 2021

(unaudited)

Assets

Current assets

Cash and cash equivalents

$

49,882

$

57,071

Accounts receivable, net

7,052

10,909

Inventories, net

38,368

36,562

Prepaid expenses and other current assets

4,400

5,205

Total current assets

99,702

109,747

Property and equipment, net

25,527

22,157

Operating lease right-of-use assets

7,217

7,045

Restricted cash

1,109

253

Goodwill

539

15,300

Intangible assets, net

55

4,398

Deferred income tax assets

48

78

Other long-term assets

942

1,107

Total assets

$

135,139

$

160,085

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable

$

3,466

$

5,923

Contract liabilities

1,246

2,081

Accrued expenses and other current liabilities

14,145

28,559

Revolving loan facility

-

6,608

Total current liabilities

18,857

43,171

Long-term loans payable, net

96,672

39,726

Other long-term liabilities

5,871

10,521

Total liabilities

121,400

93,418

Commitments and contingencies

Stockholders’ equity

Preferred stock ($0.001 par value) 25,000,000 shares authorized; no shares issued
and outstanding as of June 30, 2022 and December 31, 2021

-

-

Common stock ($0.001 par value) 175,000,000 shares authorized as of
June 30, 2022 and December 31, 2021, 26,692,883 and 26,126,253
shares issued and outstanding as of June 30, 2022 and
December 31, 2021, respectively

27

26

Additional paid-in capital

456,290

443,358

Accumulated other comprehensive (loss) income

(214

)

26

Accumulated deficit

(442,364

)

(376,743

)

Total stockholders’ equity

13,739

66,667

Total liabilities and stockholders’ equity

$

135,139

$

160,085

VAPOTHERM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

(unaudited)

(unaudited)

Net revenue

$

12,971

$

20,625

$

34,593

$

52,933

Cost of revenue

10,606

11,218

24,336

26,358

Gross profit

2,365

9,407

10,257

26,575

Operating expenses

Research and development

6,310

4,577

11,859

9,487

Sales and marketing

11,833

12,804

25,155

26,704

General and administrative

5,323

8,627

14,277

16,686

Impairment of goodwill

14,701

-

14,701

-

Impairment of intangible assets

4,036

-

4,036

-

Total operating expenses

42,203

26,008

70,028

52,877

Loss from operations

(39,838

)

(16,601

)

(59,771

)

(26,302

)

Other (expense) income

Interest expense

(2,849

)

(648

)

(4,596

)

(1,313

)

Interest income

40

24

57

53

Foreign currency loss

(46

)

(60

)

(115

)

(130

)

Loss on extinguishment of debt

-

-

(1,114

)

-

Other

-

18

-

18

Net loss before income taxes

$

(42,693

)

$

(17,267

)

$

(65,539

)

$

(27,674

)

(Benefit) provision for income taxes

(10

)

-

82

-

Net loss

$

(42,683

)

$

(17,267

)

$

(65,621

)

$

(27,674

)

Other comprehensive income (loss):

Foreign currency translation adjustments

(185

)

7

(240

)

18

Total other comprehensive (loss) income

(185

)

7

(240

)

18

Total comprehensive loss

$

(42,868

)

$

(17,260

)

$

(65,861

)

$

(27,656

)

Net loss per share basic and diluted

$

(1.61

)

$

(0.67

)

$

(2.48

)

$

(1.07

)

Weighted-average number of shares used in calculating net
loss per share, basic and diluted

26,574,027

25,887,313

26,448,257

25,841,944

VAPOTHERM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Six Months Ended June 30,

2022

2021

Cash flows from operating activities

Net loss

$

(65,621

)

$

(27,674

)

Adjustments to reconcile net loss to net cash used in operating activities

Stock-based compensation expense

5,944

5,118

Depreciation and amortization

2,739

2,863

Provision for bad debts

285

(202

)

Provision for inventory valuation

815

(183

)

Non-cash lease expense

1,082

861

Change in fair value of contingent consideration

(3,113

)

763

Impairment of goodwill

14,701

-

Impairment of intangible assets

4,036

-

Loss on disposal of property and equipment

198

40

Amortization of discount on debt

320

64

Deferred income taxes

82

7

Loss on extinguishment of debt

1,114

-

Changes in operating assets and liabilities:

Accounts receivable

3,520

15,195

Inventories

(2,683

)

(9,286

)

Prepaid expenses and other assets

(408

)

(281

)

Accounts payable

(2,441

)

(308

)

Contract liabilities

(812

)

(1,664

)

Accrued expenses and other current liabilities

(8,884

)

(14,856

)

Operating lease liabilities, current and long-term

(1,013

)

(859

)

Net cash used in operating activities

(50,139

)

(30,402

)

Cash flows from investing activities

Purchases of property and equipment

(6,289

)

(3,156

)

Net cash used in investing activities

(6,289

)

(3,156

)

Cash flows from financing activities

Proceeds from loans, net of discount

99,094

-

Repayment of loans

(40,000

)

-

Payments of debt extinguishment costs

(817

)

-

Payment of debt issuance costs

(1,567

)

-

Repayments on revolving loan facility

(6,608

)

(1,993

)

Payment of contingent consideration

(135

)

-

Proceeds from exercise of stock options

55

917

Proceeds from issuance of common stock under Employee Stock Purchase Plan

135

851

Net cash provided by (used in) financing activities

50,157

(225

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(62

)

(12

)

Net decrease in cash, cash equivalents and restricted cash

(6,333

)

(33,795

)

Cash, cash equivalents and restricted cash

Beginning of period

57,324

115,536

End of period

$

50,991

$

81,741

Supplemental disclosures of cash flow information

Interest paid during the period

$

3,294

$

1,249

Property and equipment purchases in accounts payable and accrued expenses

$

224

$

442

Issuance of common stock to satisfy contingent consideration

$

5,630

$

-

Issuance of common stock warrants in conjunction with debt draw down

$

1,157

$

-

Issuance of common stock upon vesting of restricted stock units

$

12

$

91

Non-GAAP Financial Measures
The following tables contain a reconciliation of net loss to Adjusted EBITDA for the three months ended June 30, 2022 and 2021, respectively.

(unaudited)

Three Months Ended June 30,

2022

2021

(in thousands)

Net loss

$

(42,683

)

$

(17,267

)

Interest expense, net

2,809

624

Benefit for income taxes

(10

)

-

Depreciation and amortization

1,348

1,289

EBITDA

$

(38,536

)

$

(15,354

)

Foreign currency

46

60

Change in fair value of contingent consideration

(2,925

)

561

Stock-based compensation

2,498

2,433

Impairment of goodwill

14,701

-

Impairment of intangible assets

4,036

-

Adjusted EBITDA

$

(20,180

)

$

(12,300

)

The following tables contain a reconciliation of operating expenses to cash operating expenses for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively.

(unaudited)

Three Months Ended

June 30, 2022

March 31, 2022

June 30, 2021

(in thousands)

GAAP operating expenses

$

42,203

$

27,825

$

26,008

Impairment of goodwill

(14,701

)

-

-

Impairment of intangible assets

(4,036

)

-

-

Stock-based compensation

(2,304

)

(3,211

)

(2,253

)

Termination benefits

(1,844

)

-

-

Depreciation and amortization

(500

)

(472

)

(429

)

Change in fair value of contingent consideration

2,925

190

(561

)

Non-GAAP cash operating expenses

$

21,743

$

24,332

$

22,765

Supplemental Operating Metrics

June 30,

2022

2021

Change

Amount

Amount

Amount

%

Precision flow units installed base

United States

23,865

21,004

2,861

13.6

%

International

12,269

11,019

1,250

11.3

%

Total

36,134

32,023

4,111

12.8

%

Three Months Ended June 30,

2022

2021

Change

Amount

Amount

Amount

%

Precision flow units sold and leased

United States

129

415

(286

)

(68.9

)%

International

220

900

(680

)

(75.6

)%

Total

349

1,315

(966

)

(73.5

)%

Disposable patient circuits sold

United States

55,333

65,553

(10,220

)

(15.6

)%

International

24,785

72,466

(47,681

)

(65.8

)%

Total

80,118

138,019

(57,901

)

(42.0

)%

View source version on businesswire.com: https://www.businesswire.com/news/home/20220803005174/en/

Contacts

Investor Relations Contacts:
Mark Klausner or Mike Vallie, Westwicke, an ICR Company, ir@vtherm.com, +1 (603) 658-0011