Vapotherm Reports First Quarter 2019 Financial Results

EXETER, N.H.–(BUSINESS WIRE)–Vapotherm, Inc. (NYSE: VAPO), a global medical technology company
focused on the development and commercialization of its proprietary
Hi-VNI® Technology products that are used to treat patients of all ages
suffering from respiratory distress, today announced its financial and
operating results for the first quarter ended March 31, 2019.

First Quarter 2019 Summary

  • Revenue for the first quarter of 2019 was $12.3 million, representing
    a 14.5% increase over the prior year period
  • Gross margin was 42.1% in comparison to gross margin of 39.5% in the
    first quarter of 2018

We are pleased with our performance during the first quarter,” said Joe
Army, President and CEO of Vapotherm. “We drove top line growth and
exceeded our gross margin expectations. We expanded our body of clinical
data and our new product development projects are tracking to plan. For
the rest of 2019, our focus will be to drive adoption of Hi-VNI
Technology and leverage the momentum we continue to build with the
expansion of our salesforce and focus on the Emergency Department (ED).
We are also excited about the potential future launch of multiple new
products, including IntellO2™, and its compelling clinical data showing
the value of our Hi-VNI Technology versus the current standard of care.”

Results for the Three Months Ended March 31, 2019

The following table reflects the Company’s net revenue for the three
months ended March 31, 2019 and 2018:

        Three Months Ended March 31,          
2019     2018 Change
(unaudited)
(in thousands, except percentages)
Amount     % of Revenue Amount     % of Revenue $ %
Revenue    
Capital (product & lease revenue) $ 2,678 21.8 % $ 2,468 23.0 % $ 210 8.5 %
Disposable 9,019 73.3 % 7,569 70.5 % 1,450 19.2 %
Service and Other   602   4.9 %   702   6.5 %   (100 )   -14.2 %
Total Revenue $ 12,299   100.0 % $ 10,739   100.0 % $ 1,560   14.5 %

Revenue for the first quarter of 2019 was $12.3 million, representing a
14.5% increase over the first quarter of 2018. Total capital revenue,
including both product sales and lease revenue, increased 8.5% over the
first quarter of 2018 as a result of increased sales and leases of our
Precision Flow® units in the United States. Total disposable revenue
increased 19.2% year over year, primarily driven by an increase in the
worldwide installed base of Precision Flow units. Disposable revenue as
a percentage of total revenue for the first quarter of 2019 and 2018 was
73.3% and 70.5%, respectively.

Revenue information by geography is summarized as follows:

        Three Months Ended March 31,          
2019     2018 Change
(unaudited)
(in thousands, except percentages)
Amount     % of Revenue Amount     % of Revenue $ %
United States $ 10,049   81.7 % $ 8,622   80.3 % $ 1,427 16.6 %
International   2,250   18.3 %   2,117   19.7 %   133   6.3 %
Total Revenue $ 12,299   100.0 % $ 10,739   100.0 % $ 1,560   14.5 %

Revenue growth in the U.S. and International markets in the first
quarter of 2019 was driven primarily by an increase in disposable sales
related to an increase in the installed base of Precision Flow units
worldwide. We sold and leased 324 and 141 Precision Flow units in the
U.S. and International markets, respectively, in the first quarter of
2019, bringing our total installed base of Precision Flow units to
10,713 and 3,846 units in the U.S. and International markets,
respectively. In the first quarter of 2019, we sold 71,376 and 17,301
disposables in the U.S. and International markets, respectively.

Gross profit for the first quarter of 2019 was $5.2 million, an increase
of $0.9 million over the first quarter of 2018. Gross margin was 42.1%
in the first quarter of 2019 compared to 39.5% in the first quarter of
2018. The increase in gross margin was driven by favorable sales mix of
disposables as well as a decrease in disposable component costs in
comparison to the first quarter of 2018. Additionally, we achieved
operating efficiency by holding operating overhead constant while
increasing throughput of our manufacturing facility to support continued
sales growth.

Operating expenses were $17.3 million in the first quarter of 2019, an
increase of $4.6 million as compared to $12.7 million in the same period
last year. The increase in operating expenses was primarily a result of
increased headcount and employee-related expenses, including stock-based
compensation, product development costs, legal and consulting fees,
public company related expenses and increased investments in sales and
marketing initiatives.

Net loss for the first quarter of 2019 was $13.0 million, or $0.76 per
share, compared to $8.9 million, or $11.33 per share, in the first
quarter of 2018. Net loss per share was based on 16,949,027 and 786,184
weighted average shares outstanding for the first quarter of 2019 and
2018, respectively. The number of shares outstanding as of March 31,
2019 was 16,899,685.

Adjusted EBITDA was ($9.6) million for the first quarter of 2019 as
compared to ($7.8) million for the first quarter of 2018. The $1.8
million increase in Adjusted EBITDA loss in the first quarter of 2019
was primarily due to increased operating expenses partially offset by an
increase in gross profit.

Cash Position

Cash and cash equivalents were $56.7 million as of March 31, 2019
compared to $58.2 million and $15.1 million as of December 31, 2018 and
March 31, 2018, respectively

Fiscal 2019 Outlook

For fiscal 2019, we continue to expect revenue in the range of $49.0
million to $51.0 million, representing an anticipated year-over-year
increase of between 16% to 20%.

In the second quarter of 2019, we expect revenue in the range of $11.8
million to $12.0 million.

For fiscal 2019, we now expect gross margin to be in the range of 41.5%
and 42.0%, an increase from prior guidance of 41.0% to 41.5%.

For fiscal 2019, we now expect operating expenses to be in the range of
$68.0 million to $70.0 million, an increase of $4.0 million related to
stock-based compensation expense for equity awards granted during the
first quarter of 2019.

Conference Call

Management will host a conference call at 4:30 p.m. Eastern Time on May
7, 2019 to discuss the results of the quarter with a question and answer
session. To listen to the conference call on your telephone, please dial
(877) 201-0168 for U.S. callers, or (647) 788-4901 for international
callers, approximately ten minutes prior to the start time and reference
conference code 5167987. 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 90
days following completion of the call. A replay of this conference call
will be available by telephone through May 14th, 2019 by
dialing (800) 585-8367 in the U.S. or (416) 621-4642 outside of the U.S.
The replay access code is 5167987.

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 the non-GAAP financial measure of EBITDA and
Adjusted EBITDA, which differ from financial measures calculated in
accordance with U.S. generally accepted accounting principles (“GAAP”).
EBITDA in this press release represents net loss less interest expense,
net and depreciation and amortization. Adjusted EBITDA in this release
represents EBITDA as adjusted for the impact of foreign currency loss or
gain, the change in fair value of warrant liabilities, and stock-based
compensation expense. The Company has reconciled
these non-GAAP financial measures with the most directly comparable GAAP
financial measures in tables accompanying this release.

Adjusted EBITDA is presented because the Company believes it is a useful
indicator of its operating performance. Management uses the measure
principally as a measure 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 this
measure is useful to investors as supplemental information because it is
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.

Adjusted EBITDA is a non-GAAP financial measure and should not be
considered as an alternative 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. It should not be construed to imply that the
Company’s future results will be unaffected by unusual or non-recurring
items. In addition, the measure 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 contain 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 on a supplemental basis. The Company’s definition of
this measure is not necessarily comparable to other similarly titled
captions of other companies due to different methods of calculation.

About Vapotherm

Vapotherm, Inc. 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 1.8 million patients have been treated with Vapotherm
Hi-VNI Technology. Hi-VNI Technology is mask-free noninvasive
ventilatory support for spontaneously breathing patients 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. Hi-VNI
Technology’s mask-free interface delivers optimally conditioned
breathing gases, making it comfortable for patients and reducing the
risks associated with mask therapies. While being treated, patients can
talk, eat, drink and take oral medication. For more information, visit www.vapotherm.com.

Legal Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995, including statements about the potential launch of new
products and full year or quarterly revenue, gross margin, and operating
expense guidance. In some cases, you can identify forward-looking
statements by terms such as ‘‘expect,’’ “guide” or “typically” or the
negative of these terms or other similar expressions, although not all
forward-looking statements contain these words. 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,
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, its inexperience directly
marketing and selling its products, the potential loss of one or more
suppliers, including a sole source supplier, 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 and maintain
patent or other intellectual property protection for its products 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, 2018, as filed with the Securities and Exchange
Commission on March 22, 2019, 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except share and per share amounts)

       
Three Months Ended March 31,
2019     2018
(unaudited)
Net revenue $ 12,299 $ 10,739
Cost of goods sold   7,120     6,494  
Gross profit   5,179     4,245  
Operating expenses
Research and development 3,273 2,225
Sales and marketing 9,161 8,051
General and administrative 4,879 2,382
Loss on disposal of fixed assets       3  
Total operating expenses   17,313     12,661  
Loss from operations (12,134 ) (8,416 )
Other (expense) income
Foreign currency loss (9 ) (3 )
Interest income 203 1
Interest expense (1,024 ) (616 )
Gain on change in fair value of warrant liabilities       128  
Net loss $ (12,964 ) $ (8,906 )
Net loss per share basic and diluted $ (0.76 ) $ (11.33 )

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

16,949,027 786,184
 

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

     
March 31, 2019 December 31, 2018
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 56,666 $ 58,223
Accounts receivable, net 6,658 7,107
Inventory 12,420 13,710
Prepaid expenses and other current assets   2,456     2,683  
Total current assets 78,200 81,723
Property and equipment, net 13,901 13,416
Restricted cash 1,852 1,799
Goodwill 584
Intangible assets, net 455
Other long-term assets   350     308  
Total assets $ 95,342   $ 97,246  
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 1,508 $ 3,148
Contract liability 176 79
Accrued expenses and other liabilities 6,657 7,653
Short term line of credit   3,982     3,163  

Total current liabilities

12,323 14,043
Long-term loans payable 41,574 31,317
Deferred tax liability 97
Other long-term liabilities   329     325  
Total liabilities   54,323     45,685  
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock ($0.001 par value) 25,000,000 shares authorized as
of March 31, 2019 and December 31, 2018, respectively; 0 shares
issued and outstanding as of March 31, 2019 and December 31, 2018,
respectively
Common stock ($0.001 par value) 175,000,000 shares authorized as of
March 31, 2019 and December 31, 2018, respectively; 16,899,685 and
16,782,837 shares issued and outstanding as of March 31, 2019 and
December 31, 2018, respectively
17 17
Additional paid-in capital 268,348 265,926
Accumulated deficit   (227,346 )   (214,382 )
Total stockholders’ equity   41,019     51,561  
Total liabilities and stockholders’ equity $ 95,342   $ 97,246  
 

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

       
Three Months Ended March 31,
2019     2018
(unaudited)
Cash flows from operating activities
Net loss $ (12,964 ) $ (8,906 )

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

Depreciation and amortization 621 466
Stock-based compensation expense 1,903 116
Loss on disposal of fixed assets 23 150
Provision for bad debts 13 2
Amortization of discount on debt 44 14
Change in fair value of warrants (128 )
Changes in operating assets and liabilities:
Accounts receivable 847 189
Inventory 1,782 691
Prepaid expenses and other assets 197 75
Accounts payable (1,658 ) (597 )
Contract liability 22 18
Accrued expenses and other liabilities   (661 )   (2,570 )
Net cash used in operating activities   (9,831 )   (10,480 )
Cash flows from investing activities
Acquisition of business, net of cash acquired (1,560 )
Purchases of property and equipment   (1,128 )   (1,245 )
Net cash used in investing activities   (2,688 )   (1,245 )
Cash flows from financing activities
Proceeds on loans 10,500
Debt issuance costs (322 ) (1 )
Short term line of credit 837

Proceeds from exercise of stock options and purchase of restricted
stock

      393  
Net cash provided by financing activities   11,015     392  
Net decrease in cash, cash equivalents and restricted cash (1,504 ) (11,333 )
Cash, cash equivalents and restricted cash
Beginning of period   60,022     28,360  
End of period $ 58,518   $ 17,027  
Supplemental disclosures of cash flow information
Interest paid during the period $ 939 $ 576
Issuance of warrants in conjunction with debt draw down $ 293 $
Property and equipment purchases in accrued expenses at period end $ 42 $ 59
 

Non-GAAP Financial Measures

The following tables contain a reconciliation of net loss to Adjusted
EBITDA for the three months ended March 31, 2019 and 2018, respectively.

        Three Months Ended March 31,
Amount     Change
2019     2018 $     %
(unaudited)  
(in thousands, except percentages)
Net loss $ (12,964 ) $ (8,906 ) $ (4,058 ) -45.6 %
Interest expense, net 821 615 206 -33.5 %
Depreciation and amortization   621     466     155     -33.3 %
EBITDA $ (11,522 ) $ (7,825 ) $ (3,697 ) -47.2 %
Foreign currency 9 3 6 -200.0 %

Change in fair value of warrant liabilities

(128 ) 128 n/m
Stock based compensation   1,903     116     1,787     -1540.5 %
Adjusted EBITDA $ (9,610 ) $ (7,834 ) $ (1,776 )   -22.7 %

Contacts

Investor Relations Contacts:
Mark Klausner or Mike Vallie,
Westwicke, an ICR Company, [email protected],
+1 (603) 658-0011

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