Vapotherm Inc (VAPO) Q1 2019 Earnings Call Transcript

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Vapotherm, Inc (NASDAQ: VAPO) Q1 2019 Earnings Call May 7, 2019, 4:30 p.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Vapotherm First Quarter 2019 Financial Results Conference Call. As a reminder, this call is being webcast live and recorded. It is now my pleasure to introduce to your host, Mr. Mark Klausner of Westwicke. Please go ahead, sir.

Mark Klausner — Investor Relations, Westwicke

Good afternoon, and thank you for joining us for the Vapotherm First Quarter 2019 Financial Results Conference Call. Joining us on today’s call are Vapotherm’s Chief Executive Officer, Joe Army, and its 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.

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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 on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 22, 2019. 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 acceptable 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.

Joe Army — Chief Executive Officer

Good afternoon, and thank you for joining us today. I’ll begin by discussing our first quarter 2019 results, and then I’m gonna hand the call over to our CFO, John Landry, to provide a financial review, after which I will discuss 2019 strategic priorities before taking questions.

Big picture, several things worked pretty well this quarter and a couple areas didn’t work the way we expected them to. What worked in the quarter was the emergency department focus, U.S. disposable turn rates, the gross margin improvement play, and expansion of our clinical data and new product development efforts. What didn’t work was some disruption in turnover in the U.S. field, which led to lower than expected US capital equipment sales.

So, let’s dive into what didn’t work and discuss some of the disruption in the U.S. sales force. We put a lot of stress on the sales force with the changes that we made in the fourth quarter. Recall that we expanded a number of U.S. sales territories by 25% in the fourth quarter. We also shifted the scope and focus of our clinical educators to the larger higher volume accounts and combined the leadership of both the sales and clinical educators under a single region leader. This involved a fair amount of territory changes. Any time you split territories to expand, it can take a little time to settle everybody down. While we’re optimistic about the benefits of these changes longer-term, the impact on our results this quarter, as we saw lower than expected capital equipment sales in the US.

We are evolving the profile of the sales reps we’re hiring. Historically, we hired young B2B sales reps looking to get into medical sales, and then would see a percentage of them leave after several years of experience for OR-focused medical device jobs with big companies. With the improved economics of the higher value PF Plus, in the fourth quarter sales force expansion, we began hiring seasoned medical device reps from larger OR-focused medical device companies that had a lot of experience selling high clinical value technologies to physicians. These folks are a whole different kettle of fish. It has been really interesting to see them progress through sales training and in the field, with only three months under their belts.

We like the new profile. We see them ramping as expected. Our focus now is on helping the remaining tenured reps that came from B2B settle down in the midst of all these changes and continue developing as medical technology sales professionals. We expect to sort this out in the next several quarters before we begin the next sales force expansion in the fourth quarter later this year. Every year, we get better at this, which is good, because we’ll be doing this for the foreseeable future.

Shifting gears to what did work. First, our focus on the emergency department is continuing to gain traction. We achieved our internal goals with respect to new gold and silver ED accounts. We added additional customers to our ED guarantee base, sharpened our medical education efforts to reach more ED physicians, and continued our digital marketing efforts. The ED is all about workflow, and Hi-VNI helps our customers treat all their spontaneous breathing respiratory distress patients with a single tool that patients find comfortable and effective. We’ve seen good traction so far and believe we still have a significant opportunity to expand our penetration with this play. The way I think about this is while we have approximately 400 EDs today, we still need to go get the other 4,600 hospitals in the U.S. And the more we get, the easier it will get over time.

The second aspect of our business that worked during the quarter was our U,S. disposable revenue turn rates. One of the things I really like about our business is how sticky the disposable revenue is. Every month, our customers use roughly two disposables for every capital unit they have. Interestingly, this quarter, our turn rates in the U.S. were better than expected, despite a mild to moderate flu season nationwide. Last year, our first quarter turn rate in the U.S. was 2.19 in the face of a very severe flu season. This quarter. we came in at 2.22. We’re not really sure why the turn rate increased, but one possible reason could be that areas of the country where the flu season was worse was where our presence is strongest. Remember that 1Q and 4Q are the seasonally strongest quarters from a disposable point of view, while 2Q and 3Q tend to be the slower quarters. There’s fewer kids at school getting sick and no flu season in the summer. Despite the positive performance this quarter, we are continuing to forecast with our historical turn rates.

The third aspect of our business that worked during the quarter was our gross margin play, which is continuing to produce positive results. We call it the simple three-prong game plan to improve margins: selling higher clinical value products, reducing direct product costs, and driving more volume through the factory’s fixed cost base. In 1Q, all three elements were working, and we’re cautiously optimistic about the remainder of the year, and are working to set the table for 2020 as we build leverage into the P&L.

The fourth aspect of our business that worked during the quarter was our continued expansion of our clinical data. The change in standard of care from NIPPV, the 20-year gold standard — we need to continue to develop a large and compelling clinical data set. The first quarter saw a paper on congestive heart failure patients e-published in the American Journal of Emergency Medicine. This is an interesting subgroup analysis from the ED RCT. It looked at 42 patients presenting with congestive heart failure in the emergency department and showed hi-VNI technology to be as effective as the current gold standard NIPPV in treating these very sick respiratory distress patients. We’ve incorporated this important clinical information into our medical education presentations and digital marketing messaging to inform clinicians that they now have a new option when treating CHF patients that are in respiratory distress.

On our last earnings call, I mentioned a new feasibility study we began on the potential benefits of ambulating patients recovering from CHF, COPD, or major surgery. Clinical evidence suggests ambulating these patients as soon as possible, mainly to quicker recovery and shorter lengths of stay. Ambulating these patients is hard, as they frequently have compromised respiratory systems, and the technology available to ambulate them is not designed for this purpose. Customers have been reporting the use of our Vapotherm transfer unit, the VTU 2.0 product, to ambulate these patients. So, the feasibility study looked at the impact Hi-VNI technology and our VTU may have in getting these patients up and moving. And I’m pleased to report that enrollment has completed, and the authors have begun the publication process. And we are optimistic we can see the study published later this year.

The final aspect of our business where we made good progress in the quarter was our product development efforts. We spent a fair amount of time this quarter on the IntellO2 project, our oxygen-dosing module for the Precision Flow system. Recall that oxygen is a life-sustaining but very dangerous drug with a narrow therapeutic window. Delivering too much oxygen to a baby can result in blindness, while not delivering enough oxygen to a baby can result in developmental disabilities or even death.

We are over 700 hours of clinician stick time on the Gen0 platform during the Reynolds and Ives study, so we’re able to get a lot of great user input for the commercial model. We showed the product to our international distributors during the first quarter and have been investing a lot of time and energy thinking about the right business model for this interesting technology.

In Europe, there are several mechanical ventilator companies that sell a module on their ventilators for controlling oxygen. We’ve been doing our homework on their business models, and we’re excited to begin a limited market release in selected OUS markets late this year.

To wrap up, first quarter was a pretty good start to 2019. We managed to make our way through some growing pains in the U.S. field team, while still delivering on our commitments. We managed through a 25% expansion of the US sales force, along with a repositioning of personnel. Despite the softer U.S. capital sales in the quarter, the installed base is right where it needs to be. The ED focus is working. Gross margins continue to improve. and the clinical data set expanded with important new papers. And the product development efforts are on track.

Now. I’ll turn it over to John Landry, our CFO, to provide a financial review. John?

John Landry — Chief Financial Officer

Thank you very much, Joe. Revenue for the first quarter 2019 was $12.3 million, which represented a 14.5% increase over revenue of $10.7 million in the first quarter of 2018. Total U.S. revenue was $10 million, representing an increase of 16.6% over the first quarter of 2018, while total international revenue was $2.3 million, representing an increase of 6.3% over the first quarter of 2018.

Capital revenue, which includes revenue from both product sales and lease revenue, was $2.7 million for the first quarter of 2019 and represented an 8.5% increase over the prior year. U.S. and international capital revenues were $2.2 million and $500,000 respectively for the first quarter of 2019.

Disposable revenue was $9 million in the first quarter of 2019, which represented a 19.2% increase over the first quarter of 2018 and was primarily driven by an increase in our worldwide installed base of Precision Flow units. During the first quarter of 2019, we sold roughly 89,000 disposables worldwide. Disposable revenue was $7.5 million and $1.5 million in the U.S. and international markets respectively in the first quarter of 2019.

Worldwide service revenue was $602,000 in the first quarter of 2019, and of this amount, $329,000 was generated in the U.S., and $273,000 in our international markets.

Gross profit for the first quarter of 2019 was $5.2 million, an increase of $934,000.00 over a gross profit of $4.2 million in 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 a favorable sales mix of disposables, as well as a decrease in disposable component cost in comparison to the first quarter 2018. Additionally, we achieved operating efficiency by holding operating overhead constant while increasing throughput of our manufacturing facility to support continued sales growth.

Research and development expense was $3.3 million for the first quarter of 2019, an increase of $1.1 million over the prior year. The increase in research and development expenses was due to new product development costs and an increase in research and development headcount and employee-related expenses, including stock-based compensation.

Sales and marketing expense was $9.2 million for the first quarter of 2019, an increase of $1.1 million over the prior year. The increase in sales and marketing expenses was primarily due to investments in marketing initiatives, clinical studies, and increased compensation, travel, and employee-related expenses, including stock-based compensation, in our sales and marketing organizations.

General and administrative expense was $4.9 million for the first quarter of 2019, an increase of $2.5 million over the prior year. The increase was primarily due to increased headcount; employee-related expenses, including stock-based compensation; legal, advisory, and consulting fees; and public company-related costs.

Net loss for the first quarter of 2019 was $13 million, or $0.76 per share, compared to a net loss of $8.9 million, or $11.33 per share, in the first quarter of 2018. Adjusted EBITDA for the first quarter of 2019 was a negative $9.6 million, compared to a negative $7.8 million in the first quarter of 2018. Adjusted EBITDA adjusted for foreign currency gains or losses, net interest expense, changes in the fair value of warrant liabilities, depreciation and amortization expense, and stock-based compensation. Adjusted EBITDA loss increased by $1.8 million in the first quarter of 2019 as compared to the first quarter of 2018 due to higher operating expenses, which were partially offset by an increase in gross profit.

As of March 31, 2019, cash and cash equivalents were $56.7 million, compared to $58.2 million as of the end of December 2018, and $15.1 million as of the end of March 2018. During the quarter, we pulled down the final tranche of term debt available to us under our current term debt facility in the amount of $10.5 million.

Now turning to guidance for the full year 2019, we continue to expect revenue to be between $49 million and $51 million, which represents a year-over-year increase of 16% to 20%. For the full year 2019, we now expect gross margin to be in the range of 41.5% to 42%, an increase from our prior guidance of 41% to 41.5%.

For the full year 2019, we now expect operating expenses to be in the range of $68 million to $70 million, an increase of $4 million related to stock-based compensation expense for equity awards granted during the first quarter of 2019. For the second quarter of 2019, we expect revenue to be between $11.8 million and $12 million, which represents growth of 12% to 14% over the second quarter of 2018 respectively.

This concludes my remarks. I will now turn it back over to you, Joe.

Joe Army — Chief Executive Officer

Thanks, John. Before opening the line for questions, I’d like to review how we intend to execute on our 2019 strategic priorities over the balance of the year. As a reminder, our priorities are: expanding our worldwide channel with a focus on the emergency department, launching a couple of very interesting new products, growing our compelling clinical data set, and continuing to improve our gross margins.

So, starting with the expansion of our worldwide channel, in 2019, we started the year with 52 territories in the U.S., many of which were filled late in 2018. Despite some of the dislocation of the field team, these new territories are ramping as planned, and we continue to expect them in full productivity in the back half of the year. We’re currently planning another expansion in late 2019.

On the risk side, we’ll be keeping a close eye on the legacy tenured reps, and to the extent there is turnover, we intend to backfill with senior seasoned medical device reps with experience selling new technology to clinicians. Continuing with our 2018 efforts, our U.S. field team is very focused on the emergency department. The ED is the gateway to the hospital and accounts for over half of all respiratory ICU admissions.

As you know, the ICU is a capacity-constrained area of the hospital and a very expensive place to treat patients. Most hospitals require patients on NIPPV support to be in the higher intensity ICU environment. By focusing on the ED, where patients often arrive who have historically required NIPPV treatment for their respiratory distress before they’re admitted into the ICU, we may be able to help hospitals move patients into a less intensive care setting, such as the general care floor. These generally have more capacity, lower cost, and improved patient satisfaction.

Moving on to our second strategic initiative, the launch of new products, we’re on track to launch our next generation of Hi-VNI patient interfaces designed to improve patient comfort and user friendliness, and increase material softness, color coding, and new packaging. We’re also on track to launch an integrated aerosol drug delivery Hi-VNI disposable. This product is gonna enable continuous delivery of selected inhaled drugs used by spontaneously breathing respiratory distress patients.

I’ve already spoken a bit about our IntellO2 project. 2Q and 3Q are gonna be focused on researching and designing the offering for both our international distributors and newly direct UK markets, as well as securing the international regulatory clearances. We’re dialoguing wealth FDA on the appropriate pathway for clearance of this important technology in the U.S., and are considering a U.S. clinical trial later this year. We’ll also be defining the patient population for this technology. We’re getting our arms around the VNI population and expect this will have a positive impact on our total addressable market and could potentially create pull-through of our PF units in those NICUs not yet using our Hi-VNI technology.

Our third strategic initiative for 2019 is to expand our large and compelling clinical dataset. A new study we’re considering involves the effect of our Hi-VNI technology on emergency room boarding. ED boarding is when the ICU is full and there are no beds for the patients, so they’re forced to wait on gurneys in the hallway until a bed is available. As you can imagine, this creates a lot of workflow issues, cost issues, and patient satisfaction issues for the hospital and the ED team. And normally, our customers believe that Hi-VNI technology can help move patients through the ED faster, and we’re looking at the best way to measure the effect on ED boarding when the hospital deploys Hi-VNI technology in the ED.

We also expect to see several papers published later this year or early next on the effectiveness of Hi-VNI technology on severely hyperpathic patients, the types of patients that in the past could only be treated with NIPPV.

Our final strategic initiative is to continue to improve our gross margin. We intend to keep running the same three-prong play to drive gross margin improvement that we’ve used to date — launching new products that have more clinical value, reducing product cost, and scaling production volumes. Rinse and repeat, rinse and repeat, rinse and repeat.

We believe one of our competitive advantages and a critical part of our sales process as we seek to change the standard of care for NIPPV is what we call the ah-ha moment. It’s that moment when a clinician truly understands the value that Hi-VNI brings to his patients. Every morning, I start my day by reading an ah-ha moment from a customer that our field team has shared on our CRM system. What I think about is how that patient must feel and what the clinicians were thinking when they used this new technology instead of the 20-year gold standard NIPPV for the first time.

I’d like to share one of these with you in closing. This comes directly out of our CRM system and was written by one of our West Coast clinical educators during her first week of training a new hospital on how to use our technology in the ED in the first quarter. So, here goes. A 47-year-old female came into the ED from an urgent care getting back-to-back breathing treatments. She said she has a home NIPPV system, but it wasn’t helping, and she wanted to go on a mask. I could hear her wheezing from outside the room. Her respiratory rate was mid to high 30s, and she could only speak a few words at a time. Her heart rate was 138, and she couldn’t stop coughing. She was placed on Hi-VNI, our technology, at 40 liters per minute at 60% FIO2, and it worked. Her breathing seemed to improve quickly. She was able to speak easier and didn’t have as much of a panicked look on her face as when I first saw her.

After 20 minutes, her respiratory rate was down to 20, her work of breathing had subsided significantly, and her heart rate had come down between 105 and 115. She seemed happy to finally be able to relax, and she made sure that when she was admitted, she’d be able to go to the floor with Hi-VNI technology. She was transferred to their step-down eventually. A great way to start off use in the ED in any hospital.

In summary, we had a pretty good first quarter ,and we remain cautiously optimistic about the remainder of the year. Thank you for trusting us with your capital. It means a lot to us. Now, I’d like to open it up for questions.

Questions and Answers:

Operator

If you would like to ask a question at this time, please press * then the number 1 on your telephone keypad. We’ll pause for just a few moments to compile the Q&A roster.

And your first question comes from Jason Mills with Canaccord Genuity. Your line is open.

David Ruskin

Hey, this is David Ruskin on for Jason. Can you hear me all right?

Joe Army — Chief Executive Officer

You bet.

David Ruskin — Canaccord Genuity — Analyst

Hey. So, I want to start first on the U.S. sales force, specifically looking at capital revenue. Can you talk a little bit more, provide a little color around what you’re doing within that, the sales force territories, to kind of remediate what happened in the first quarter, and really, how we should think about the Q2 guidance going forward, given the guidance is similar to what was in the first quarter, and the company still did beat that guidance?

Joe Army — Chief Executive Officer

Well, I think I want to start with the — we beat it, but we beat it by $300,000.00 or so, right? So, that’s good, but that’s not anything to write home to mother about, in my book. And so, that’s why John is reiterating what the guidance should be for the year. We’re not changing our revenue at this time. And when you think about any kind of dislocation and disruption that we caused in that field through that expansion and the realignment of duties and then the realignment of leadership, that’s gonna take another one or two quarters to really work its way out through the system before we start that next expansion in the fourth quarter.

So, I think our advice to you is, stick with our topline guidance of 49 to 51. You bump that gross margin up, I think that’s fine, but let’s get another quarter or two under our belt with this sales force expansion, and really, the redevelopment of the rep profile that we’re using. John, do you have anything to add to that?

John Landry — Chief Financial Officer

No, I would agree with that, Joe. I think we did beat by $300,000.00 in quarter. And reiterating our guidance for the full year, I think that’s prudent, given where we’re at right now. So, that’s what we’re going to stick with here for 2019.

David Ruskin — Canaccord Genuity — Analyst

Okay, thanks. And then, maybe going more into kind of the topline growth for the year, could you qualify at least how you’ve been seeing new accounts versus going deeper into existing accounts, and how you expect that to trend for the remainder of the year?

Joe Army — Chief Executive Officer

I think the big question there is the balance still between new accounts and existing customers, what we’ve seen historically, and I think the answer is yes. John?

John Landry — Chief Financial Officer

I would agree with you, Joe. When you look at our book of business, roughly two-thirds of our capital equipment sales come from existing customers and one-third come from new customers. And that’s been pretty consistent rate or split over the past several quarters, and we expect that to continue throughout 2019.

Operator

As a reminder, if you would like to ask a question at this time, please press * then the number 1 on your telephone keypad. We’ll pause for just a moment to compile any remaining questions.

Your next question comes from Margaret Kaczor with William Blair. Your line is open.

Anna — William Blair — Analyst

Hi, guys. This is Anna on for Margaret. Thanks for taking my question. Congrats on the quarter. Given the launch of new products, publication of new data, and further expansion into the emergency room, but then with some of the sales force disruption in mind, can you help us better understand some of the puts and takes of guidance, including anticipated productivity improvements, as well as any benefit from the soft launch of the IntellO2 later this year?

Joe Army — Chief Executive Officer

Let me maybe start with IntellO2, and then John can work through some of the other ones. I wouldn’t put anything in your models for IntellO2 for 2019. I would put not a nickel in there, because I know I don’t have any in mine. And it has to do with — this is gonna happen very late in the year and in a handful of OUS countries. And we think that we’re gonna learn an awful lot about this. It’s gonna really help us figure out the best way to — the best offering to provide our customers the solutions that they need for managing exposure of oxygen to their patients or dosing of oxygen to their patients. But I gotta tell you, I wouldn’t put anything in that model. I don’t think that’s a great idea.

John Landry — Chief Financial Officer

Yeah, I would agree with that, Joe. So, when you think about our IntellO2 product, we’re gonna be looking at a limited market release here by the end of the year. And our initial focus is in the EU. So, Joe is correct — we do not have any revenue in our model for IntellO2 in 2019. And when you look at the other couple products, Anna, we have a couple. One’s our Prosoft around our cannula, which we talked about, as well as our Airgen adapter, which we’ve previously disclosed. Those are coming online in the second half of the year. We expect to launch those late in 2019. So, from a revenue and margin impact perspective, it’s an immaterial amount for 2019. So, our guidance excludes those. But as we start thinking about 2020, those will become more impactful to our continuing growth and expansion in 2020 and beyond.

Anna — William Blair — Analyst

Okay, that’s helpful. Thank you. And then, in regard to some of the clinical data that has already come out this year and that you continue to work on across your portfolio of products, what steps are you taking — what specific steps are you taking in regards to the digital marketing campaign and educating the emergency department physicians and nurses on the technology in order to help them incorporate it into their practices?

Joe Army — Chief Executive Officer

So, that’s a really good question. Digital marketing continues to be an important lead generation and development tool for us, and it’s still one that I scratch my head. I still can’t believe that clinicians find ideas or new technologies off of Facebook to go and apply, but welcome to the 21st century. We’re running a series of plays with respect to digital marketing ads, as well as webinars, as well as CME events, or CMU events — CEU events, excuse me. So, it’s really a combination of all three, and in any given month, they’re being changed up.

So for example, we know that we’ve got — there will be a concentrated effort, for example, around ambulation of patients in both ICU and other parts of the hospital later this year that would coincide with publications of those papers. I would tell you that your best bet, honest to God, go follow us on Facebook and go see for yourself what we’re doing. And I think it’ll give you a perspective that maybe not everybody has. Or if you’re like me, you don’t have a Facebook account, then you gotta go get your kids to do it.

Anna — William Blair — Analyst

Okay, great. Thanks again.

Joe Army — Chief Executive Officer

You bet. Thank you.

Operator

Your next question comes from Sean Lavin with BTIG. Your line is open.

Marie Thibault — BTIG — Analyst

Hi, Joe. Hi, John. It is Marie Thibault on for Sean tonight. Thanks for taking the questions. I wanted to ask very quickly about the ED guarantee program. I know that you were adding more customers this quarter. I’d love to hear what the early feedback is on that program, and I guess any kind of qualitative details you can give us around that program.

Joe Army — Chief Executive Officer

Well, I’ll tell you, the early feedback from my field organization — I wish they were on the call because they would tell you that they really like the ED guarantee program because it really just stops the customer in their tracks. And they go, you guys are really willing to stand behind the technology doing what you say it does on the label. And we’re like, yes. So, that begins a whole different set of conversations inside the customer. What I wish my sales reps would do is to keep driving that and bring it all the way to fruition instead of focusing — now, I want them focused on getting the order, absolutely. But I would like them to sign more of those ED guarantees. Because while we’re making progress adding them, there is a — I’ve got to get to a critical mass before we can start using this for a registry, and we’re not there yet. And I’m just impatient. I’d like to get there sooner.

But I’ll tell you, I think it’s a very useful — I don’t think; I know it’s a very useful tool to that field organization. And we’re looking at other ways to do this as well in other parts of the hospital where we’ve got a large dataset, and we know what the outcomes are gonna be relative to current standard of care. So, sales force loves it. I just wish that they would use it and continue that conversation, and not just close the deal, but close the deal and get them to sign this, too.

Marie Thibault — BTIG — Analyst

Sounds good. I’m sure we’d like to see that registry too, so that sounds great. And it sounds like your team has a lot coming later in 2019. I know one of the things you mentioned was the softer cannula, some of the kind of upgrades in the disposables. Should we think about higher ASPs alongside that, or how should I think about disposable ASPs going forward here?

Joe Army — Chief Executive Officer

The way I’d think about this is we’re running a three-prong play to improve gross margin. And one of those prongs is to develop products that have higher clinical value to our customers that have just — inherently, you’re gonna get a better patient outcome. You’re gonna take work out of it. You’re going to improve the overall clinical experience for that customer. That’s one of the ways that we’re going to command higher economics, is because we are delivering greater value to those customers.

So, the intention behind all of our new products is to deliver more clinical value, and by extension, improve our ASPs. But I wouldn’t look this year for any kind of significant impact or really any impact on our disposables. But that’s — I’m over my pay grade now. John will need to address that.

John Landry — Chief Financial Officer

Yeah, I would agree. I think we believe that the improved clinical utility and economic value it brings to the customers will improve our ASPs, as we’ve done in the past through, say, our Precision Flow Plus, which we launched several years ago. But that said, we’re still in the process of vetting that out with our customers here in 2019, and we’ll have more line of sight and visibility into that for 2020, Marie.

Marie Thibault — BTIG — Analyst

All right. Sounds good.

Joe Army — Chief Executive Officer

Don’t touch your back half of — leave your back half 2019 numbers alone.

Marie Thibault — BTIG — Analyst

Thanks for taking the questions, and congrats on the strong quarter.

Joe Army — Chief Executive Officer

Thank you, Marie.

Operator

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

Joe Army — Chief Executive Officer

I want to thank you all for your interest in Vapotherm. We really appreciate it, and we look forward to updating you on our progress again next quarter.

Operator

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

Duration: 34 minutes

Call participants:

Mark Klausner — Investor Relations, Westwicke

Joe Army — Chief Executive Officer

John Landry — Chief Financial Officer

David Ruskin — Canaccord Genuity — Analyst

Anna — William Blair — Analyst

Marie Thibault — BTIG — Analyst

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MLB roundup: Red Sox strike out 24, still lose to Rockies

May 14, 2019; Boston, MA, USA; Colorado Rockies first baseman Mark Reynolds (12) hits an RBI single during the eleventh inning against the Boston Red Sox at Fenway Park. Mandatory Credit: Greg M. Cooper-USA TODAY Sports May 15, 2019 Mark Reynolds hit a tiebreaking RBI single in the top of […]