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Dole plc (DOLE)

Q2 2023 Earnings Call· Thu, Aug 17, 2023

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Transcript

Operator

Operator

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vapotherm Incorporated Second Quarter 2023 Financial Results Call. [Operator Instructions] Thank you so much. I would now like to turn the call over to Mark Klausner. Mark, please go ahead, sir.

Mark Klausner

Analyst

Good afternoon, and thank you for joining us for the Vapotherm second 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 Factors 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. 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.

Joe Army

Analyst

Thanks, Mark, and thank you all for joining us. On today's call, I will review the progress we made during the second quarter, and then John will review our financial performance before I provide my thoughts on the balance of 2023, and turn to Q&A. During the second quarter, our revenue grew significantly, highlighted by strong continuing demand for HVT 2.0. We also continued to execute well against our pathway to profitability initiatives. Gross margins improved significantly. Cash operating expenses continue to decline, and our inventory balance continued to decrease. The combination of these factors provides us confidence that our cash burn will continue to decrease significantly in the back half of the year, and that we have adequate capital to run the business to profitability. Revenue in the second quarter was $16 million, an increase of 34% compared to the second quarter of last year, excluding revenue from Vapotherm Access, which we exited in the fourth quarter of 2022. Growth was driven by strong HVT 2.0 adoption largely due to existing customers who upgraded their installed base of precision flows to HVT 2.0, and new customer acquisition. Customers are clearly seeing the value of HVT 2.0, it's intuitive, easy to use, and since it has its own air source can be used throughout the hospital. As a result, our HVT 2.0 pipeline is strong, especially given existing customer demand to upgrade their Precision Flow fleets. Our disposables revenue increased by 38% compared to 2Q, 2022, but came in below our expectations as U.S. DPC turn rates did not recover as quickly as expected. Despite the positive trends we saw in Q2, we're lowering our annual revenue guidance as a result of the slower pace of recovery of the U.S. DPC turn rate. We expect to see U.S. DPC turn…

John Landry

Analyst

Thanks, Joe. Worldwide revenue in the second quarter of 2023 was $16 million. U.S. revenue was $11.8 million, and international revenue was $4.2 million. Capital revenue grew 42% and HVT 2.0 capital sales represented 71% of our U.S. unit sales. Gross margin was 42.8% in the quarter, which is up from 35% in Q1, as we ramped up production in our Mexico facility, and have begun to more fully realize the benefits of that move. GAAP operating expenses were $17 million in the second quarter, down from $42.2 million in the second quarter of 2022, which included impairment charges of $18.7 million. Non-GAAP cash operating expenses were $14.2 million in the second quarter, down from $16.4 million in the first quarter of 2023. Non-GAAP cash operating expenses have decreased sequentially every quarter since we launched our path to profitability initiative early in 2022, and we're down from $21.7 million in the second quarter of 2022, a year-over-year reduction of $7.5 million. Adjusted EBITDA was a loss of $6.4 million in the second quarter of 2023, down from an adjusted EBITDA loss of $9.2 million in the first quarter of 2023 and $20.2 million in the second quarter of 2022. We ended the quarter with $25.1 million of inventory, a reduction of $3.4 million during the quarter. We continue to make progress in reducing inventory from the peak of $38.4 million in the second quarter of 2022. We remain on track to hit our target of reducing inventory levels by another $10 million to $12 million by the end of 2024. We ended the quarter with $18 million of cash, net cash burn in the quarter was approximately $7.8 million or approximately $3.2 million less than in the first quarter. We expect that cash burn in the second half of 2023…

Joe Army

Analyst

Thanks, John. As we look to the back half of the year, our focus continues to be on driving towards profitability through revenue growth, gross margin improvement, and driving cash operating expenses below pre-COVID levels, while investing prudently in future growth drivers, such as the home market and the MODERATION Neo clinical trial. I'd like to thank our team for their ongoing efforts as we drive towards profitability. We made some significant changes in the past year. I'm very proud of our execution and our path to profitability initiatives. As always, we appreciate your support of Vapotherm and look forward to updating you on our next quarterly call. I will now open the call up for questions.

Operator

Operator

Thanks gentlemen. [Operator Instructions] Okay. Looks like our first call is from Bill Plovanic with Canaccord. Bill, go ahead.

Jon Young

Analyst

Hi. Joe and John, it's Jon Young on for Bill tonight. Thanks for taking our questions. First, can we just start on the cash burn guidance for the second half of this year of $3 million to $8 million? How are you getting there? And what drives really the high versus low end of that $3 million to $8 million range? Thank you.

John Landry

Analyst

Hi Jon. This is John. I can take that question, and thanks for joining tonight. So from a cash burn perspective, as you've seen in our earnings call, we're basically going to be reducing our cash OpEx burn over the balance of the quarter and going to continue to reduce our cash OpEx, such that we're exiting the fourth quarter with a run rate of approximately $12.5 million, which is between $48 million to $50 million for next year. As we knock down the cash burn with increased revenue in the back half of the year, improved gross margins and reduced cash OpEx and the balance of the year. We're going to knock that cash burn down from what we just saw around $7.8 million in the second quarter to amount less than that here in the balance of the year. I think the range that we're providing, I think, really is around the adjusted EBITDA over that period, plus or minus our progress that we continue to make on reducing our inventory levels over the balance of the year. So to the extent we made more progress on knocking down adjusted EBITDA loss further and reducing our cash investment and inventory that will determine basically the ends of those range from a cash burn perspective and ending cash perspective at the end of the year.

Jon Young

Analyst

Got it. Thanks John. That was helpful. And just as a follow-up here, maybe just touch on the updated revenue guidance for the year too. And I heard your commentary on the disposals versus the capital sales for the rest of the year and your expectations around that. But maybe you could go a little bit deeper on the disposables usage. Is this across all respiratory the challenges you're seeing here? And maybe you could talk about what's happening in your Gold accounts specifically? Thank you.

John Landry

Analyst

Sure. Yes, we continue to focus, John, on our Gold accounts as they drive the majority of the revenue in our book of business. And we see that they continue to do so, and they have higher turn rates. So, we are seeing it across the entire book of business. So, the bulk of the reduction in guidance that we have that we talked about was really around the U.S. disposables with a little bit around the international side due to some HVT 2.0 clearances in certain markets. And a little bit in U.S. capital, about $1 million there, given some of the changes made in the U.S. sales organization. The rate of the recovery in the U.S. turn rates, John, hasn't been as fast as we expected. So, if you recall at the beginning of the year, we built our guidance around U.S. DPC turn rates that would be in the mid-60s for this year, starting at low 60s at the beginning of the year, ending at the low 70s by the end of the year. And if you recall in Q4 last year, we had a turn rate those in the 70% recovery rate at the pre-COVID averages. In Q3, it was about a 60% recovery rate to the three-year pre-COVID average in what is typically our slowest quarter of the year. So in hindsight, we used Q3, 2022 as a baseline for the recovery rate for our turn rates for 2023. And they've been running in the low 50s at this point so far as a percentage of pre-COVID averages year-to-date. And based on what we've seen in June and July, we expect to be in the mid-50s for the full year, which is what we're using to plan our go-forward cash OpEx levels in the business.

Jon Young

Analyst

Thank you.

Operator

Operator

Thanks to the Canaccord team. [Operator Instructions] And our next caller is Margaret Kaczor with William Blair. Margaret, go ahead.

Macauley Kilbane

Analyst

Hi everyone. This is Macauley on for Margaret. Thanks for taking our questions. I guess just to start, it was obviously good to hear about the success of HTV 2.0. And I know you mentioned mostly coming from existing customers driving the growth this quarter, but are you seeing those purchases spread throughout hospitals? And is there anything you can tell on demand indications or contracts you're signing from these that give you confidence beyond this year?

Joe Army

Analyst

Yes. This is Joe Army. I'll take that call. So the majority of our HVT 2.0 sales in the first half of the year were to existing customers, although there were some notable net new account wins that we had. So, we're pretty excited about it. I mean the integrated air system, not requiring medical grade air from the wall is turning out to be a really big deal as is the mobility and the simplicity of this device. So, we continue to be pretty positive about what we're seeing. I can tell you that our U.S. field team has done an excellent job at building up that pipeline and continuing to move these deals through a capital equipment purchasing cycle, which - you may have seen this for other companies. There's a little bit tighter environment for capital equipment, perhaps than what we've seen in the past. But nonetheless, our team is getting the job done, and I think it speaks volumes to them as well as to the product itself. So - we do - we like what we see in that pipeline for going forward.

Macauley Kilbane

Analyst

That's helpful and great to hear. And then one on just some of the headlines we've been seeing around the RSV vaccines. So, the first thing there, I guess, are PICUs and NICUs still a sizable piece of the business today? And what are your assumptions in terms of potential impact from that? Thanks John, for taking the questions.

John Landry

Analyst

Yes. You're welcome. Yes, I think in the early stages of that vaccine for RSV at this point. So from a modeling perspective, we haven't really factored in significant RSV flu season here coming up for the back half of the year of modeling normalized flu and RSV patterns. We expect that based on conversations with industry, and medical community, we expect it will take some time for that RSV vaccine to take root and take effect and kick in and potentially impact the RSV rates longer term. So, we expect that to be more of a longer-term impact than the near-term impact here with the RSV vaccine just recently came out. So it's something we'll continue to monitor and keep track of here as we see results of that over the long-term.

Operator

Operator

Okay. Last call. [Operator Instructions] Okay. Joe, it doesn't look like we have further questions at this time, so I will hand it back to you for closing comments.

Joe Army

Analyst

Thank you for joining us today. We look forward to updating you on our next earnings call. Have a great day.

Operator

Operator

And ladies and gentlemen, that concludes today's call. Thank you so much for joining, and you may now disconnect. Have a great day, everyone.