Good afternoon, ladies and gentlemen, and welcome to the Vapotherm Fourth Quarter and Fiscal Year 2018 Financial Results Conference Call. As a reminder, this call is being webcast live and recorded. It is now my pleasure to introduce your host, Mr. Mark Klausner of Westwicke. Please go ahead, sir.

Good afternoon, and thank you for joining us for the Vapotherm fourth quarter and fiscal year 2018 conference call. Joining us on today's call are Vapotherm's Chief Executive Officer, Joe Army; and it's 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 covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 indentified in the Risk Factors section of our most recent prospectus filed with the Securities and Exchange Commission on November 15, 2018 and the Form 10-K for the year-ended December 31, 2018, which we anticipate filing in the upcoming weeks. 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 Vapotherm's Chief Executive Officer, Joe Army.

Thank you, Mark. I appreciate it. Good afternoon, everybody. Thank you for joining us on today's call. So, given that this is our first call as a public company, I'm going to start by providing an overview of Vapotherm, and then I'm going to walk you through our fourth quarter and the full-year results. Then, I'm going hand the call over to our CFO, John Landry, and he is going to walk you through a financial review. And then, I'm going to talk to you about our strategic priorities for 2019. Then, we’re going to open it up for some Q&A. Vapotherm is an advanced respiratory technology company focused on development and commercialization of our proprietary Hi-VNI Technology. This technology is used to treat patients of all ages suffering from respiratory distress. Hi-VNI delivers noninvasive ventilatory support for the spontaneously breathing patients. We do that by providing heated, humidified, oxygenated air at very high velocity to patients through a comfortable small-bore nasal interface. Our Precision Flow system, which is really the embodiment of Hi-VNI Technology is a clinically proven alternative to the current standard of care for the treatment of respiratory distress in a hospital setting. That's noninvasive positive pressure violation. More than 1.7 million patients have been treated with our Precision Flow systems and we've got a global installed base of over 14,000 of those systems. And as razor-razorblade business, this is very important to us. So, patients with respiratory distress have severe difficulty breathing and they are unable to sustain enough oxygen in their bloodstream or effectively remove carbon dioxide from their blood as they breath. And respiratory distress is caused by a big range, a wide range of serious underlying conditions including COPD, CHF, pneumonia, asthma, just to name a few. The market for the treatment of…

Thank you very much, Joe. Revenue for the fourth quarter of 2018 was $11.7 million, representing a 12.3% increase over revenue of $10.4 million in the fourth quarter of 2017. Total U.S. revenue was $9 million, representing an 11.5% increase over the fourth quarter of 2017, while total international revenue was $2.7 million, representing an increase of 15.1% over the fourth quarter of 2017. Capital revenue, including revenue from both product sales and lease revenue, was $3.3 million for the fourth quarter of 2018, representing a 6.5% increase over the prior year quarter. This increase was a result of product mix, partially offset by lower fourth quarter 2018 capital unit volumes when compared to the fourth quarter of 2017. The fourth quarter of 2017 represented a difficult comp for us, as it included a significant number of capital units that were delayed from the third quarter into the fourth quarter due to the major hurricanes that hit the southern U.S. in the third quarter. U.S. and international capital revenue were $2.3 million and $900,000, respectively, for the fourth quarter of 2018. Disposables revenue was $8 million in the fourth quarter of 2018, representing a 16.9% increase over the prior year, and it was primarily driven by an increase in our installed, the Precision Flow units worldwide. During the fourth quarter of 2018, we sold approximately 82,000 disposables worldwide. Disposable revenue was $6.4 million and $1.6 million in the U.S. and international markets in the fourth quarter of 2018. Worldwide service revenue was $459,000 in the fourth quarter 2018, which is generally in line with our worldwide installed base. Of this amount, $363,000 was generated in the U.S. and 96,000 in our international markets. Gross profit for the fourth quarter of 2018 was $4.8 million, an increase of $1.3 million over…

Thanks, Johnny. Before opening up the line for questions, I want to review our 2019 strategic priorities. And they are expanding our worldwide channel, launching a couple of very interesting new products, growing our compelling clinical data set, and continuing to improve our gross margins. So, let me start with the expansion of our worldwide channel. And as I mentioned earlier, in 2019, we started the year with 52 territories in the U.S., many of which were filled late in 2018. We expect these territories to ramp to full productivity in the back of the year, and they're going to help contribute to our growth of the Precision Flow installed base, and we are also planning on another expansion in late 2019. Continuing on with our 2018 efforts, our U.S. field team this year is going to be highly focused in the emergency department. The ED has high growth potential because it's the gateway to the hospital and accounts for over half of all respiratory ICU admissions into a hospital. So, you know the ICU is a capacity constraint area of the hospital and it is very expensive place to treat patients. So, by focusing on ED, we are helping our hospitals move patients into less intensive care settings, and they generally have more capacity, they are lower cost settings and they also have significantly higher patient satisfaction scores staying in those places rather than the ICU. So, there are couple of different tactics that we've taking to drive our value in the ED department. So first, when we offer an ED guarantee program in which we offer a money back guarantee to the hospital if a patient who is intolerant to NIPPV, in other words, they can't wear the mask, if they go on to our Hi-VNI Technology and…

[Operator Instructions] Your first questions comes from the line of Bob Hopkins from Bank of America Merrill Lynch. Please go ahead. Your line is open.

Hi. Thanks and good afternoon. I apologize for the background noise. I’m at the orthopedic meeting in Las Vegas and there's nothing quiet about Las Vegas. So, Joe, congrats on a good end to the year and a good year. I guess, the first question I want to ask is really big picture. You grew very high teens in the -- for the year, you are projecting another year of kind of similar type of growth, high teens, but you have an awful lot going on in terms of the de novo label, new products, new hires. What would hold you back from accelerating growth in 2019 over 2018? Maybe there's some conservatism in those numbers. But, it seems to me like there is a lot of good things going on at the company and it wouldn’t be too outrageous to suggest that you could have a growth acceleration year rather than kind of a flat growth year. Thank you.

Hey, Bob, it's good to hear you. And have fun at AOS. I always enjoyed that show when I was at Salient. In terms of your question, first and foremost, we have learned very carefully from everybody that when we give a set of numbers to Wall Street, we better be prepared to fully deliver on those numbers, barring some end of the play kind of an outcome. So, we are very focused on making sure as a new public company that whatever we give you, we’re going to be able to deliver on. If we were in fact to outperform the guidance that we've given you, some of the factors you touched on would in fact be the reasons why. The recent expansion of that sales force would have then coming up the curve quicker than what we had planned on. The effect of this de novo labeling and the new QAV categories, our ability to talk about mask free NIV throughout the ED space, with ED docs are on the country's proven to be pretty important to well as the dose ED clinical trial. So, there's a lot of factors that you touched on it, if we in fact were to over perform I’m sure it's going to be those that are the reason why.

Are there any other kind of headwinds to the business in 2019, that we should be considering as we think about the model I mean challenges in delivering on the growth? And then lastly for John, just wanted to get a kind of refresh sense from you, as you think about the business and where you’re taking it long-term from a margin perspective. And I know it's one of the top priorities of the Company, but can you just give us any updated sense of long-term, if you execute on your plan, where you think you can take the gross margins of this business?

So, Bob, the headwind question is a good one if when we think it of a lot about and we worked to put some factors, and some headwinds into the plan. In the fourth quarter, late fourth quarter we retooled that sales team in terms of expansion. It was a 25% growth were doing that all of our managers who are hiring people while they were going and driving a number. Anytime you redraw territory lines you have the potential to create confusion and a bit of a distraction part of the sales force. I was very proud of our field leaders to see their ability to stay focused and go deliver despite that significant expansion and retrying the territory lines, but that's always something that we think a little bit about every time you go to extend sales force you run some risk around losing a step. In terms of looking at other competitive technology that would be another potential headwind, we continue to hear rumors of Phillips bringing their non invasive positive pressure system incorporating a oxygen delivery channel into that. We competed against that technology or those types of technologies in Europe for many years now and done so successfully. But you never want to underestimate that they bring that into the U.S. at some point that certainly create a bit of a conversation piece with a number of our customers. But seeing in any particular that gives us a lot of heartburn right now. But as we all know, anything can happen. So may be John you can address the margin part of that question.

Hi Bob, it's John. So in terms of our long-term gross margin profile given our mix of disposable revenue, capital revenue and mix of the business between U.S and international, we’re targeting a 65% to 70% gross margin profile at scale.

Your next question comes from the line of Margaret Kaczor from William Blaire. Please go ahead. Your line is now open.

So, the first one that I wanted to focus on is a little bit more on the ED as since you've referenced that’s the focus over the reps in U.S at least this year. And so, first, can you maybe remind us penetration into the ED channel at year end? And then maybe the traction that you have seen from the clinical data you referenced at Omni 2018, and as you look at that money back guarantee within the ED? Can you give us any kind of feedback that you saw from the trial versions of putting that into some market in 2018 and before that if you did?

Margareta, it's good to hear you. In terms of penetration rates, the number it is a very, very small number it's a single digit number. There is so much room for us to run it's not even funny. So we have a lot of room left to go. In terms of how the piloting of our ED guarantee program went, it was quite interesting because as the field teams started to use this, the customers would react in a very particular way in a way, we go you are willing to -- the message being, you're willing to stand behind your products to that degree, your technology to that degree that you give us a money back and often times that's as far as they took it. Then they would just begin the sale process and move through it, what we had to do is because I'm going to remind the field team that this is really important information that we are going to get for this sort of real-world registry and we really need to sign these people up. So, the reaction has been pretty interesting and we've been thinking about other ways to expand that particularly as we begin to think about the launch of the IntellO2 in Europe, selected parts of Europe in late 2019. There are other ways that we could adapt that whole concept of the performance guarantee.

And then in terms of drivers of that business, is that going to be more new accounts and that facilitate to drive those new countered option? Or is it going to be going deeper within the existing accounts and getting numbered under by their 5th or 10th Precision Flow?

And a lot of times we are seeing it more and more in new accounts, but it also works with existing customers as well. If you think about it, very early at a using our technology membership before we show up we have to teach them because this is the mask-free form of non-invasive ventilation, and for 20 years clinicians were trained but the only way you really would benefit respiratory distress patients put them on non-invasive ventilation, put them on BiPAP or NIPPV. And this is really a way to help the clinicians understand along with reminding them, it's a mask-free form of NAV, to get comfortable to go try it. This is they start putting on patients, they have an "aha moment" and then that leads to continued validation or adoption. But it happens in both net new accounts as well as existing accounts.

And then if you look at international for bit I mean you guys talked about the UK acquisition as a distributor. Can you give us a sense of kind of how big that acquisition was? Why was the UK the first to target? Was it IntellO2 or something else? And then, I assume this is more than just ASP increases, so what kind of strategic changes do you think you'll be able to incorporate in that market with some more direct feet on the street?

Well, this was really a very, very opportunistic acquisition on our part. Solace has very similar culture to ours. They have a big footprint in NICU and when we kept thinking about the two principal investigators, the two centers that used, that did the IntellO2 study. Dr. [Reynolds] and Dr. Ives and their institutions Oxford and St. Peters. These are major institutions in the UK in the neonatology world. And it seemed to us to be an absolutely wonderful place to go begin the process of launching this into end of the market. And to be able to do it with a direct organization in an English speaking country quite frankly, it's really going to allow us to test some different business models that were looking at there. So, we are pretty excited about it, we are delighted that these people are on board with us, and if we really don't mind picking up the full ASP either Margaret to tell you the truth. I think, John, has something to add to that.

Yes, hi, Margaret. I mean the last piece of your question this isn’t included in the guidance that’s been provided.

John, since you turn back in and last question for me. But as we look at the seasonality of the business this year, can you walk us through some of the comps that you gave us the Q1 guidance range? So how should we think about the traditional seasonality of your business relative to the rest of the year?

Sure, so from the seasonality perspective, Margaret, the fourth quarter of each year is a typically the highest of revenue quarter for us, it’s generally tight around capital equipment revenue in the year end due to the yearend budgeting cycle of hospitals. The next highest quarter is generally the first quarter of the year that’s due to the higher disposable cell through due to the flu season, particularly in the U.S. and North America. Then second and third quarters of the year typically that software given at the flu subsides in the U.S.

Your next question comes from the line of Jason Mills from Canaccord Genuity. Please go ahead. Your line is now open.

Joe a bunch of questions for you, I will try not to be too verbose, but start with some of the more big picture question, specific to the ED, the really try to tie end the new next generation, the x wall air product that you have coming down the pipeline. Perhaps I shouldn't be tying these two together and I think you’re targeting the ED to do well in the ED even before that products comes down. But how important is that product for you to reach a tipping point? If you think about entering the ED those are going elsewhere and be able to ambulate those patients and get them move in with your new next generation seems important. Maybe talk about the product cycle there and how important that might be for you to just tip that ED in a big way?

Jason, it's good to talk to you, and hope all is well. The next generation technology is still going to be in late 2020 we will be putting first patient. So when I think about that, there is an awful lot of ED patients that we are going to treat between now and then. I think you're right that once we've integrated this, this air source capability, it's going to allow us to move those patients throughout the entire. All EDs are going to have wall gas, but not all hospital beds general floor beds, stepped on units are going to have that wall gas. So, it will make it much easier to move those patients throughout the care continuum. But I have to tell you, I think right now with the tools that we have in our kit, we have a lot of opportunity in front of us between now and the end of 2020 to go open up EDs across the country.

I didn’t anticipate you would be waiting and I just wanted to tie those two together. So next question on new products in IntellO2, look forward to seeing early progress in the UK, the U.S. obviously a big market for you, what’s the pathway for IntellO2 in the U.S.? And have you worked out at this point in time, definitively the model you're going to use, the model with which you will sell that to customers?

So, it's way too early for us to talk about U.S. business model for IntellO2 because we haven't even had an opportunity go and try out something in Europe, but the beauty of that Solace acquisition is. We got the idle test bed now to really shakedown and try out some very interesting business models. In terms of the pathway to get it cleared in U.S. this is the nontrivial exercise, it’s going to be hard. FDA has not cleared it a closed-loop control system in the United States in this department and this division in respiratory and anesthesia. We met with them on several occasions and we have a pathway that we think it’s going to work, but it is it’s going to take a lot of work, were coming up to, to do more clinical work we’re going to have to continue to educate and develop and refine. But if you're ever going to bring a closed-loop controller into the NICUs in the United States, this is the technology to do it with. We create asymmetric risk Jason. If you think about it, it's kind of like lane assist, that's really what we're doing is. We're going to put in lean assist on the delivery of oxygen to these babies, and we're going to do it in a setting where if it goes wrong from the FDA's point of view -- if things go wrong, while we fall back to exactly what we already have today, which is a nurse covering two babies with an independent monitor and from a safety point of view, we are very, very comfortable with that. So long load hold, lot of work to do, but we like that pathway. We think it makes a lot of sense and we are confident that we will be able to get there when FDA given the appropriate time.

And a huge opportunity if you get there, right, Joe?

I really like the IntellO2 platform a lot. I like what it does for our patients. I like what it does for our business model. I like what it is does for our margins and I like what it does for a total addressable market.

And last question for me I could ask 10 more, but I will ask one more to John and get back in queue. John, just with respect to the guidance, could you talk a little bit about the growth implicit for capital through the year and the growth implicit for the disposables and also maybe service for the year inherent in that guidance range?

So, we don't actually break it down between the guidance between the different lines whether it's capital disposable to service. So, we're looking at the 16% to 20% overall sort of general ballpark directions, it will be sort of consistently aligned to across those three categories.

Your next question comes from the line of Sean Lavin from BTIG. Please go ahead. Your line is open.

Hi, this is Marie Thibault on for Sean Lavin tonight. Congrats on reporting your first quarter as a public company, nice to see you. I had a couple of questions. I would love to hear a little bit more about your digital marketing efforts. And I know you mentioned that as part of your investments in sales and marketing for the years. So I'd love to hear if you're extending and kind of how that program?

Well, that's a really good question. And I'm not crazy about answering it because I really don’t want the rest of the world and all of our competitors to get any good at this. With that being said, you know, I'm a little bit of a dinosaur when it comes to this all digital thing. I don't have a Facebook account, I don’t -- it's just never occurred to me. The clinicians would learn about new technologies on Facebook, and yet they do. And so, we've gone through a bit of an exercise over the past 18 months, where we've invested in and we've built up our capabilities in it, and we're going to continue to do that. And it's all focused on education whether it'd be CEU, CME programs, whether it would be helping the clinicians come on to our website and then work their way through the clinical data that’s on the website. And then when they come out of the other end of it, they are looking for a field representative to contact them. They are much further along on the education process and much more deeply knowledgeable about how Hi-VNI is a mask-free form of non invasive ventilation. So, it's an area that we’re going to continue to invest capital in, and we like to return and we’re seeing on this. And we see a lot of potential for this in the future for communicating even more robustly with our customers.

One question I guess mentioning that UK distributor and I’m wondering, if this is strategy you’re going to see following as you're going to impress the world. Should we expect to hear in the future about more distributor acquisitions or territory expansion all U.S.?

This was a really unique opportunity in a unique set of circumstances in that the vast majority of these guys back was, was our Hi-VNI technology. The values of those companies lined up incredibly tightly and we've known these guys forever and a day. So and coupled with strategic intent around the IntellO2 launch coming really in the UK and other international markets in Europe. So, it's really not something that we're going to go pursue aggressively. If there is an opportunistic situation that has a strategic value as well as the financial value, I think we would consider it. But I think we've got lot on our plate right now and we are going to just go and execute on that.

Last question for me on the congestive heart failure and COPD feasibility study that sounds really intriguing like lot of potential there, I’m curious what kind of end results would be? Would that be sort of an addition to the label? Would that just be something you can talk about more with clinicians and respiratory therapist? How do you envision that playing out?

Let’s talk just briefly about the label. Right now, we treat undifferentiated respiratory distress, which means, if you show up in emergency department and you're in respiratory distress for whatever reason. We are now the mask-free form of non-invasion ventilation where we can treat you. If you’re spontaneously breathing patient, we’re going to treat you. So, it doesn’t matter the underlying cause whether it's CHF, COPD, asthma, dyspnea. You name it, doesn't matter, we’re going to take care of the symptoms, right. In terms of the CHF paper that was published last week, EPUB, it was really interesting about business that all the clinicians that have been trained for the last 20 years have been trained at really the only way to resolve respiratory distress in CHF patients that are in exacerbation is. You go put pressure on them because the concept is they have wet lungs and we’re driving the fluid back across the lungs. And what was so interesting about this study that we're able to use mask-free NIV to do that, which is not a pressure-based therapy, it’s a velocity-based therapy. So, it's pretty interesting, I mean its 42 patient, so it’s a reasonable sized. And really what it's done is given clinicians permission to use Hi-VNI on that patient population. Anyhow, it's a nontrivial patient population is well over 1 million of these CHF patients that show up in the emergency department each year that are experiencing respiratory distress. So, it's cool, gives us more to talk about to these ED physicians.

That concludes our question-and-answer session for today. I will now like to turn the call back Joe Army for closing remarks.

Well, I just like to thank you all very much for joining us today and we look forward to updating you on our next quarterly call. Have a good one.

This concludes today's conference call. You may now disconnect.