Operator:

Good day, and thank you for standing by. Welcome to the Vapotherm Inc., First Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I will now turn the call over to your speaker today, Mr. Mark Klausner. Please go ahead. Mark Klausner: Good afternoon and thank you for joining us for the Vapotherm First Quarter 2021 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. 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 listen to 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 factor section of our annual report, filed on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 24, 2021 and our quarterly report on Form 10-Q for the quarter ended March 31, 2021, which was filed with the SEC on May 5, 2021 and in 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 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 President and Chief Executive Officer, Joe Army. Joe Army: Good afternoon. Thank you for joining us today. I will begin by discussing our first quarter results. Then I will hand the call over to John Landry, our CFO, to provide the financial details of our first quarter, 2021 results. I will then update you on our key areas of focus for the remainder of the year before taking questions. Our first quarter was another strong quarter for Vapotherm. We generated $32.3 million in revenue, a 69% increase over first quarter 2020, and increased our worldwide installed base by nearly 2,200 units to 30,829 units. Of note, we significantly increased our installed base in Latin America, which we expect will pay dividends for years to come. Lastly, we printed a 40% or 53% gross margin for the quarter and our adjusted EBITDA loss was $5.2 million, or roughly half of our adjusted EBITDA loss for the first quarter of 2020. As I mentioned on our last earnings call, our objectives for 2021, are: one, ensure the current installed base is productive; two, grow the installed base; and three, launch HVT 2.0. Let me walk you through the progress we've made towards each of these during the quarter. In addition, I'd like to update you on our recent HGE Digital Health acquisition, and share a little more color on our plans for this business in 2021. Our first objective is to ensure the current installed base is productive, especially the Precision Flow units that were installed in 2020. In the first quarter, we were able to continue driving increased awareness of our technology and education, particularly in our key target ED Gold and Silver ED accounts, which represent the top 2,000 ED hospitals as measured by respiratory discharges. As of the end of the first quarter 2021, we were in nearly 500 ED Gold and Silver accounts in the U.S., which reflects nearly a 50% increase from a year ago. Recall, EDs are important to us as over 50% of all hospital admissions come through the ED. These Gold and Silver ED accounts are especially important to us, because they are some of the largest accounts in the U.S., treat a significant number of patients and are highly referenceable accounts. As COVID-19 hospitalizations decreased across the United States from the early January peak, we were able to accelerate our customer education efforts, specifically our 1H 1D or one hospital one day strategy. This is a customer education focused strategy where a member of the team meets with one of the hospital customers, either in-person or remotely, and educates all the stakeholders across each care area of that hospital on how to use high velocity therapy to treat patients in respiratory distress for either hypoxic or most importantly hypercapnic. You may recall, hypoxic patients such as COVID-19 patients are not absorbing enough oxygen into their system. Hypercapnic patients such as COPD patients have difficulty clearing carbon dioxide from their systems. In addition to onsite and virtual visits, we've had good success with our virtual Vapotherm Academy, where we've now educated over 28,000 clinicians on the efficacy of our high velocity therapy for treating patients in respiratory distress, where either hypoxic or hypercapnic. We continue to develop new content in order to drive more traffic to this important clinical education resource. Our growing base of clinical evidence further demonstrates our technology's ability to treat patients in respiratory distress, including hypercapnic patients, with the same efficacy as other forms of noninvasive ventilation, but with the ease and comfort of a nasal cannular. In the first quarter, a study out of Argentina focused on hypercapnic patients was published in Critical Care Explorations, a journal of the Society of Critical Care Medicine. We found this study to be impactful for the following reasons: one, clinicians reported over a success rate in avoiding intubations for severe hypercapnic patients, when treating patients here; two, when it worked, it worked within the first hour; and 3, reductions in CO2, as measured by a blood gas draws were comparable to levels achieved with other forms of noninvasive ventilation, primarily bypass. In addition, we continued to make progress on our HYPERACT study in the U.S., which has focused on providing further support of our technology's ability to treat hypercapnic patients. The study is designed to demonstrate, among other things, that patients with severe hypercapnia treated with our equipment will achieve relief of shortness of breath, comparable to positive pressure noninvasive ventilation. Patient enrollment has been slower than expected at the outset due to fewer than usual visits to the emergency department for such patients during the pandemic, but we believe enrollment will accelerate as vaccines roll out and COVID-19 hospitalization decrease. One of the other ways we're looking to increase the productivity of our installed base is through the introduction of additional products, including recurring revenue products like our Oxygen Assist Module or OAM. Recall that the OAM device is designed to help caregivers maintain patients within a physician prescribed oxygen saturation range while requiring significantly fewer manual adjustments to the device. We are pleased with the initial results from our full launch in the U.K., Europe, Middle East, we're now in 10 countries, and like that recurring revenue model that OAM provides. Given OAM's initial success, we are now working on quantifying OAM's economic value to potentially pursue reimbursement in the U.K. and other EU markets. We're also continuing to work with the FDA through the Breakthrough Devices Program to clear OAM in the U.S. I am pleased to announce that our IDE clinical study was approved, which represents the first step in this process. We expect to begin enrolling patients in this clinical study in the new year future. Our second objective is to increase our installed base. The focus here is to continue to drive the growth of our installed base, both existing and new accounts, by leveraging our expanded sales force in both the U.S. and internationally. In the U.S., we grew our installed base by over 850 units and added 21 new Gold and Silver ED accounts this quarter. Internationally, we grew our installed base by over 1,500 units, largely driven by high rates of COVID-19 hospitalizations in Latin America. Our final objective is launching HVT 2.0 worldwide. HVT 2.0 will have its own built-in air compressor technology, which will allow us to break free from the need to be connected to a hospital's piped in air. This will allow us to expand our footprint into areas of the hospital that don't have piped in air, which we estimate to be 50% of all hospital beds in the United States. We're pleased to have received a CE mark for HVT 2.0, and expect to initiate a limited market release in the EU, in the sector, before moving into full market release later in the year. In the U.S., we anticipate bringing the HVT 2.0 to market in the second half of 2021. In the first quarter, we received an Emergency Use Authorization in the U.S. to treat COVID-19 patients in respiratory distress during the pandemic, the HVT 2.0 EUA does not change our overall timing for full market release. Instead, it provides us with an additional way to serve our customers in the unlikely event COVID-19 demand exceeds our ability to supply Precision Flows into the market. Our initial focus with HVT 2.0 will be on the hospital market, where we have an existing customer footprint. In addition, we will use the second half of the year to learn how our HVT 2.0 might be able to help patients in the EMS and home settings, including in conjunction with our HGE Digital Health Services. As you may recall, HGE is a remote patient monitoring platform, which we acquired in the fourth quarter of 2020, to empower COPD patients, providers, and payers to manage day-to-day symptoms at home, reduce or prevent ED visits, lower costs, and improve their quality of life. In the second quarter, we expect to begin working with certain hospital customers to launch a pilot program to monitor patients at home for 30 days post discharge. We believe that by monitoring COPD patients in the home, it may help our ED Gold hospital customers reduce their 30-day readmission rates. As a result of COVID-19, we have seen a desire toward treating these patients at home instead of in the hospital to improve patient quality of life and reduce costs. We believe HGEs remote patient monitoring program, when coupled with our high velocity therapy, may enable these patients to be treated at home more effectively in the future. Well, I'm proud of our strong starts 2021. Our team is continuing to perform each day in an unprecedented operating environment. I am very excited for what 2Q and the remainder of the year holds for our business and after John details our financial results, I'll spend some time outlining our focus for 2Q in 2021. John? John Landry: Thank you, Joe. As mentioned, revenue in the first quarter of 2021 was $32.3 million, representing a 69% increase over revenue of $19.1 million in the first quarter of 2020. U.S. revenue with $22.1 million representing an increase of 54% over the first quarter of 2020 revenue of $14.3 million, while total international revenue with $10.2 million, which represented an increase of 115% over the first quarter of 2020 revenue of $4.8 million. Disposable revenue with $17.2 million in the first quarter of 2021, representing a 38% increase over revenue of $12.4 million in the first quarter of 2020. In the first quarter of 2021, we saw roughly 170 disposables worldwide. Disposable revenue with $12.5 million in the U.S. compared to $9.7 million in the first quarter of 2020, representing 29% year over year growth. International disposable revenue was $4.79 million compared to 2.7 million in the first quarter of 2020 representing growth of 72%. Worldwide service revenue was $1.7 million in the first quarter of 2021, which grew by $1 million over the first quarter of 2020, largely due to HTE revenue and increased service and other revenue. A worldwide installed base grew by 2,179 units in one. And as of the end of the first quarter, our installed base consisted of 30,829 units reflecting 73% year-over-year growth. Our monthly U.S. disposable utilization rate for the first quarter of 2021 was 1.81 as compared to 2.51 in the prior year. Our installed base expanded significantly due to COVID-19 and as expected, it will take time for these newly installed units to become fully productive. In addition, the decline in U.S. disposable utilization was also due to little to no flu or RSV because of social distancing and mask wearing and lower birth rates worldwide than in the prior year. The monthly international disposable utilization rate for the first quarter of 2021 with 2.21 as compared to 2.29 in the first quarter of 2020. Gross profit in the first quarter of 2021 was $17.2 million, an increase of $8 million over gross profit of $9.2 million in the first quarter of 2020. Gross margin was 53.1% in the first quarter of 2021, compared to 48.2% in the first quarter of 2020. The gross margin improvement was due to significantly higher revenue and production volume in comparison to 1Q 2020 as well as an increase in average selling prices in the U.S. on both capital and disposable sales. Operating expenses were $26.9 million in the first quarter of 2021, an increase of $5 million over $21.9 million in the prior year. The increase in operating expenses was primarily due to an increase in general and administrative costs due to increase headcount, auditing and compliance costs as well as an increase in research and development expenses due to the development costs for our next generation platform, HBT 2.0. Net loss in the first quarter of 2021 was $10.4 million or $0.40 per share compared to $13.8 million versus $0.66 per share in the first quarter of 2020. Adjusted EBITDA loss for the first quarter of 2021 was negative $5.29 million compared to negative $10.2 million in the first quarter of 2020. The reduction in adjusted EBITDA loss was primarily due to higher revenue and gross margins. As we drive to adjusted EBITDA positive through revenue growth, gross margin improvement and operating expense leverage, we expect to adjust that EBITDA positive at roughly $125 million in annual normalized revenue, assuming a 65% to 70% gross margin. As of March 31, 2021, cash and cash equivalents were $93.8 million compared to $113.7 million as of December 31, 2020. In the first quarter, we used $20 million in cash. Of this amount, $12.6 million was used to fund working capital primarily related to our inventory build to ensure uninterrupted supply to our customers and to support our HBT 2.0 watch. The balance of $7.4 million was used to fund operations. As we've reduced our inventory balance to more normalized levels, we expect to realize it for benefit over the balance of the year. In terms of guidance, recall that we're only providing annual guidance based on a result through 1Q of 2021. In our expectations for the full year, we will not be changing previously guidance for the full year. The assumptions we made related to our fiscal 2021 outlook remain the same as provided on our fourth quarter earnings call held on February 24, 2021. However, given the impact of COVID-19 in our international markets, we now expect a higher contribution of revenue from the international market than our historical levels, especially in the second quarter of 2021. We continue to expect full year revenue to be between 82 million and 88 million, which represents a two-year compound annual growth rate of 33% at the midpoint of this range. We continue to expect full year gross margin to be between 46% to 48% and old year operating expenses of $97 million to $99 million. This concludes my remarks. I'll now turn back over to you, Joe. Joe Army: Thanks, John. Before opening the line for questions, I would like to review what we will focus on in 2Q and for the remainder of the year. We will place heavy emphasis on ensuring is productive, especially all the precision point units that were installed in 2020 and the first quarter of 2021. We accelerated our one hospital, one day program as COVID-19 hospitalizations decreased in the U.S. and we'll continue to educate our customers on how our technology treats both hypoxic and especially hypercapnic patients throughout the hospital. Our field team will also continue to be focused on adding new gold and silver ED accounts while our critical team will continue to develop clinical evidence, demonstrating our ability to treat hypercapnic patients. The launch of [indiscernible] will be expanded throughout the EU and U.K. , and we'll be working closely with the FDA on our own [indiscernible] pathway in the US. We will continue to focus on growing our installed base in both the U.S. and internationally, and will be ready to meet our customer's needs should COVID-19 hospitalizations increase or remain at the elevated levels we're currently seeing in Latin America and the EU. We will also prepare for the launch of our new HPT 2.0 platform in the second half of 2021. Finally, we expect that the HGE pilot work we will be conducting in select U.S. geographies will help inform our home strategy. Last but not least. I'm excited to let you know that we will be hosting our first ever investor day on June 23 at 10:00 AM in the morning, Eastern time. This event will be held onsite in our New Hampshire facility and webcast for those who still can't travel. We have a great day plan with a facility tour and new product demos. I really look forward to sharing more about our vision for the future, and it will be great to see you all in New Hampshire. Before closing I'd like to share the following patient story, which came to me from one of our field team members in the last couple of weeks. I was at a silver ED account this week doing education for the respiratory therapists or RTs for short and pulmonologists. This account was a COVID-19 hotspot for so long that they wanted to go back to the basics in how to handle hypercapnic patients. After several education sessions, one of the RTs that was in the ICU asked us to go and look at a patient with them. The patient was a 56-year-old male with anxiety issues and COPD. The patient's work of breathing was extremely high. His respiratory rate was 56 breaths per minute versus teens for healthy adults. And his oxygen saturation level came in at 76%, well below a hundred percent. The RT placed the patient on our gear after a failed bi-pap attempt and although the patient was anxious, he kept trying to remove our gear. He eventually calmed down long enough to get an arterial blood gas drop. Within 30 minutes, the patient's pH and carbon dioxide levels were normal. The patient's respiratory rate went from 56 to 34 and his SPO2 increased from 76% to 95% in the time it took the RT check the arterial blood gas and come back into the room. The RT immediately got the pulmonologist to show him how much the patient had changed in such a short amount of time. Based on this patient's experience, we changed their minds about using Vapotherm only for hypoxic COVID-19 patients. As a result, the ED and pulmonary doctors vowed to use our gear before any other device on most of their respiratory distress patients. In conclusion, I'm very proud of the work my entire organization put into the first quarter of 2021 to ensure we met our customer's needs worldwide. I'm confident that with a strong start to the year and our team's tremendous work ethic, we will accomplish our 2021 objectives. We're excited about the opportunity to drive further adoption of our high velocity therapy for both hypoxic and hypercapnic patients for the hospital and begin our move into the home care setting. Thank you for trusting us with your capital. It means a lot to us. Now I'd like to open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Bob Hopkins from Bank of America. Bradley Bowers: Brad Bowers on for Bob today. Thanks for taking our questions. So I appreciate the color that you gave on the decline in the US. disposable. They're obviously a little bit below historical. So I was just wondering, you know, what conversations you're having that sort of give me confidence that, you know, you can return to normal utilization, and how the progress is going with making sure that those boxes in the U.S. that you placed are getting used. Joe Army: So I'll take that one, John, if you don't mind. So thanks very much for the question. First thing I'll tell you is that when you look at the quarters turn rates, when you, we don't publish this information for you guys, but when we look at the, the aggregate, the components for that, the monthly pieces, the January turn rates were very, very strong, very high. And as we saw the COVID-19 hospitalizations begin to drop off, and they dropped off very quickly after they peaked in the first or second week of January, we saw that drop off pretty rapidly from, from well below what we've seen for historical norms. We started talking, obviously out in the field, talking about all the customers and what they were telling us is "There's no flu anywhere in the system at that point in time", and we haven't seen any flu in north America in any, any capacity whatsoever this year, nor have we seen any kind of RSB. But what it did do is it let our field team get back into the accounts. You know, by the time we got into February, our people were back on the ground back to teaching, training, coaching. So we're hearing stories like what I shared with you guys on this call, we're hearing more and more of those stories. Like now, I'm able to get back into these accounts and I've been able to see it firsthand. I'm telling you, I think this year's going to be sloppy, but I'm very excited about what I see for the end of the year, in terms of reverting back to our historical norms. And in fact, because of the number of gold accounts that we've been opening, you guys know that those gold ED accounts turn at a higher rate than non-ED accounts. So what we're, what we're working on doing is to make sure that we're educating the heck out of everybody on using this technology on hypercapnic patients now. And we, we can see that what we're going to get to by the end of the year, and feeling very good we'll be back to historical norms. Bradley Bowers: Got it, appreciate that. That's helpful. And then I guess this one, I guess we'll call it a clarification, but on, you know, your confidence, when you talk about having disposables in the U S showing year over year growth, you know, it sounds to me like we might see the utilization be a little bit lower than typical, you know, over Q2 and Q3. So are you talking about for the full year there? Cause I mean, that seems to me to imply that it's, it would be maybe Q4 weighted a bit. So maybe just trying to think about the progression of that and thank you. Joe Army: Yes, I guess that's probably right. I think the other question that you got to be factoring in is are people going to continue to wear masks? Because what everybody's learned is that masks have an impact on the spread of flu. I mean, it's really what we saw this year. We've masked, and are the kids going to school or not, because they're a vector for not only RSB, but for flu as well. So we're, we're taking a, when, when the patients are back in the hospital, we're treating them, but we got to see the patients get back in the hospital first. But I think from a modeling point of view, John's probably better off talking to you about that than I am. John Landry: Yes, that's right, Brad. And that is for the full year, a year over year disposable growth, we expect despite some of the points that Joe made around training and education and some of the downsides we saw there in the first quarter after COVID hospitalizations decreased, we're still confident that through training and education, focusing in on the ED Gold accounts and the hypercapnic patients specifically, we'll be able to grow that disposable revenue on a year, over year basis versus 20. And then when you look at it on a two-year compounded annual growth rate, our U.S. disposables we expect those to grow in the low thirties on a two-year compounded annual growth rate versus to 2019. Joe Army: When you start to look at 2022, and you think about the size of that install base, that's what I'm thinking about it is, that is a really, really big install base that we've been able to build during this pandemic. And that's why I'm telling you, I think this year is going to be sloppy, but I'm very excited about what I'm seeing for 2022, on that disposable front in particular. Operator: Your next question comes from the line of Margaret Kaczor from William Blair. Margaret Kaczor: A few things I wanted to follow up on, you know, number one, you talked about doubling your presence in gold and silver EDs. It's obviously been a bit of a land grab for you all, but as you look through this year and next year, are you still seeing repeat purchases from these newer accounts, meaning that you can continue to see kind of the benefits of 2020 in future years? And then how should we think of possible capital budgets trending through 21 and 22? Joe Army: Well, that's the second part first, right? Because I got to tell you, I don't think there's going to be much amount of capital dollars available on the respiratory front. We've just gone through a pandemic that was, you know, it was respiratory central. So you know, we're planning and capital budgets being pretty limited for the next, you know, I don't know, a couple quarters because of the next year or so. But what we are seeing is, we continue to see, when they've opened up accounts they are continuing to buy more of our gear, whether it be BTU's or that they're, they're, they're rounding those fleets out. So I like what I'm seeing there, Margaret, in terms of our ability to repeat what we've been doing, which is, you know, 60% of our capital equipment in any given quarter before this whole pandemic thing was to current accounts or expanding our fleet. And so I think that we're going to continue to see that particularly with the launch of the HVT 2.0, I mean that, that product is going to provide a lot of capability to take this technology throughout the hospital. And hospitals has been doing it, but it's been very hard to do, right, they have to buy a compressor and have to move it through there. So despite all that friction in that process, they've been doing it. So I'm, I'm looking forward to seeing what happens when they don't have to go through all of those hoops and we can put this thing anywhere they want. Margaret Kaczor: Okay. So yes, a couple of follow ups on that as well. If we think about installed base growth versus capital equipment or a cap X budgets within hospitals, I have to assume you're still thinking install-base, you know, domestically grows this year, certainly outside the U.S. grows this year and in future quarters as well as for ‘22. But, as you think about HPT 2.0, how comfortable are you pushing us up? You know, and how do you think about the pricing structure for those types of devices, whether around, you know, the device itself for committed contracts? Joe Army: Well, you know, I think the timing on this thing is actually pretty interesting. Especially when you start to think about different business models that can help hospitals deal with limited capital budgets, but still need the technology. So we're going to try a couple of different things and see how they work. But really it's, I have no doubt now, Margaret, given the exposure that we've gotten during this pandemic, we just scratched the surface on what we've got to go do, both in terms of the installed base and councilor RDA, but also in the installed base and all the accounts that we're not in. You know, while, while we're in 500 of the 2000 largest hospitals in the country, I mean, there's 1500 of the hospitals that we're not in yet, and there's an awful lot of ground to cover. Margaret Kaczor: Okay. And so let me add- I want to ask another one HVT 2.0, because you talked about the digital platform there. You know, can you remind us the cost benefit, I guess, of discharging the patient home, not having a patient come back to the hospital? That return, you know, if they were to come back, would be a cost to the hospital yet, so what are the cost savings associated with that digital platform? Joe Army: Well, first and foremost, you're going to improve the quality of the patient's life to begin with. Right? The second thing you're going to do is what HDE has been to demonstrate is a 40% reduction in all cause utilization on people who are on their remote monitoring platform at home. But I think for our gold and our silver accounts, what they're thinking about is CLPD readmissions within that 30-day window is a big problem for them. And it affects their entire CMS book of business where they're going to pay penalties on the whole book, not just on that CLPD patient. So there's the cost of treating them, but then there are the penalties imposed on that CMS book for, for all the CMS business. So that's really what we're kind of excited because it lines up really well with our existing book of business and what our hospitals are trying to accomplish, which is treat these patients, and then keep them out of the hospital. And, you know, that's what, that's what these platform is designed to do. Operator: And your next question comes from the line of Bill Plovanic from Canaccord. Unidentified Analyst: it's John for Bill tonight. I first want to dig also into the new HGE system. Are there any hurdles or challenges to reimbursement for home oxygen that you're considering when designing the business model for at home use? Joe Army: Well, you know, HGE is a remote patient monitoring system. It's not an oxygen system per se, right? So these, these, the reimbursement has been established during the pandemic. And it is, it is all designed to take care of these patients in the home as opposed to in that hospital. So the two are really, they're not connected at this stage. Now you can imagine that some point while we are dialing in on what our home, high velocity therapy product's going to look like, we're going to marry these two technologies together. So we're, we're really not going to be exposed to the home oxygen reimbursement, we're going to be looking more towards how do we keep these patients out of that hospital? And then how do we help the hospitals or health insurance company said money? And then how are we going to partner with them in that area? G. Unidentified Analyst: Got it. Thanks, Joe. And then just more on, a dig on the HYPERACT trial. I know you feel it's slow to enroll, but can you provide some timeline expectations on how you plan to use the data to really drive the use in type two patients? Joe Army: Well, you know, it's building on, on the body of data that we've already built. I mean, this is a big deal. When you think about, well, what our technology is able to do, you can treat all kinds of respiratory distress in an emergency department with this. You don't have to pick and choose, right. If, if that patient comes in and they're, hypercapnic that technology, high-velocity therapy, is, is going to be the frontline therapy for them. Everybody could see why it makes sense that you're going to be able to treat a hypoxic patient with this. It was, it is not obvious to them at the outset when we first started down this path, and we began that Doshi trial that you could ever treat a, or blow off the CO2 of one of these patients with a nasal cannula. It was just something that clinicians had been trained for two generations that the only way to do that was with the pressure-based therapy, like a bi-pap. So when we think about our clinical strategy and how HYPERACT fits into this, it really is building on the building blocks of the Doshi study. Then the subgroup analysis, which showed how effective it was on those hypercapnic patients, then the Argentina trial, which was just published, which was on more seriously hypercapnic patients. The HYPERACT trial is designed for moderate to severe hypercapnic patients, which is, it will be a very, very important piece of work to show and give clinicians that confidence that there is a lot of body of evidence out there now that shows how to treat these patients frontline with our therapy. So we think all of these are going to continue to build together. We're just going to keep building more and more of that critical data for them so they can see it. Our goal is that we're going to [indiscernible] respiratory distress patient that comes into that hospital. Hypercapnic, hypoxic, doesn't matter. As long as they're spontaneously breathing, our technology will be that first line therapy is what our goal is. Operator: And your next question comes from the line of Marie Thibault from BTIG. Marie Thibault: Lots of good updates here in your comments today. I want to ask a two-parter maybe on the international business. You noted that in Latin America you saw quite a lot of demand for the capital systems. I'm curious if there are new countries that you've entered or new ways to sort of expand your international business that weren't present before the pandemic, or maybe this latest spike, and then also sort of on the OUS side, how should we think about disposables after the pandemic is resolved? Should we think about it similar to the US? I know without as much direct salesforce, possibly there might be some difference in training and education outreach. So just love your thoughts there. Joe Army: Yes. I think you've hit the nail on the head there with the training through a distributor network. So we're spending a lot of time really working to help them develop and deliver on this hypercapnic training. So I think that's going to be the key. I would be surprised if the international turn rates didn't mirror the U.S. turn rates at some level, because there's been so much equipment that's gone up. That installed base has grown a lot, right. So I would expect to see that same kind of lag and then that same kind of return. And it's all going to be driven by that messaging and how tight we can deliver that education to those dealers right. And we have a very, very good network partners in all of these different countries. They're very clinically savvy and they understand how to treat these patients with them. With respect to new countries, Marie, we have been using this as an opportunity to expand in new countries. In Latin America, quite honestly, we have a very strong partner in Latin America. Linde, the gas company is our partner there and they've been our partner for a long time. And they have a lot of infrastructure in Brazil, in Mexico, in Columbia and all of these countries where we've been in a very good position to take care of those customers needs and our partners have done a super job. We continue to add distribution in new countries, but on a pretty selective basis. We really want to stay focused on those markets where we can see a path to being very successful in a reasonable period of time. So we're going to tend to continue to go into those countries that are maybe more [indiscernible] developed, but it has been an opportunity for us and I think we've made a fair amount of hay with it. That international businesses performing very well the U.S. is too, but those international guys have really done a great job with this. Marie Thibault: Okay. That's really good to hear. Let me ask one then on [indiscernible] and the FDA ID study. Glad to hear that you are about to get that kicked off. Would love to hear a little bit more about the design and possible time line around data coming out of that and a potential approval. And then over in Europe and the U.K., what is it specifically those bodies might want to see when it comes to reimbursement and granting reimbursement for [indiscernible]. Thanks so much. Joe Army: Sure. The U.S. trial, we're going to lay out a lot more detail at our investor day in June. So we would love to see you there and be able to walk you through that in a more detailed fashion. The way to think about this broadly speaking, Marie, is the trial that we ran at Oxford and St. Peter's is a very good proxy for what we're going to be running in the U.S. but, my guess is the U.S. one's going to be just a little bit bigger, probably have a couple more centers involved in it. You should expect to see some of the best NICUs in the United States participating in this trial. And I would expect it's a pretty similar design to that. We finished the enrollment in that thing in under a year. So I think once we get this thing moving, that was also in a pre COVID period, right? So this pandemic has added degrees of complexity to everything that we do across the Board. So we would expect that we're going to kick that trial off here by the time we get to our, like I said, our investor day in June, we're going to be able to give you a little more color on it. In terms of reimbursement in Europe, this is new for us because, we'd never actually explore this area, but when FDA made this a breakthrough technology, and we started to understand the possibility of additional reimbursement in the U.S. for that, we're like, well, let's do the same thing in Europe. There's an awful lot of economic value that this thing delivers by improving those clinical outcomes and creating more consistency of treatment effect. Oxygen is a, you heard me say this a million times, it is a deadly dangerous life-giving drug with a narrow therapeutic window. And this thing does an outstanding job of delivering on that. So we're learning about it, it's new for our organization, but we figured we really liked the fact that we'll get started on this whole reimbursement exercise in Europe ahead of the time. So that by the time we roll into the United States, we're going to know what we're doing on that front. Operator: And our last question comes from the line of Jason Bednar from Piper Sandler. Jason Bednar: Wanted to start with the ASP increase, taking on the equipment and disposables here at the start of the year. I'm just wondering if you can talk about how this, this price strategy lines up. How did the HBT 2.0 roll out? And then on the disposable side, just curious how these changes have landed with the installed base. Joe Army: Sure. One of the key items to driving the ASP increases, Jason, on the disposable side is the introduction of new products. So last year we introduced our ProSoft cannula as well as our air Slides, disposable patient circuit. Both of those have higher clinical utility for our customers and the patients that they utilize the technology with. And as a result, may command a higher price than our legacy technology and legacy cannulas in that space. So that's helped increase it as we've increased the mix of those new products that's helped uplift the ASP's as well as the typical medical CPI type increases that we're seeing there on a disposable front. On the capital side, it's more of a mixed situation, Jason, where we've had a higher mix of precision flow units that either are BTU or a compressor, which adds to the capital equipment revenue for the same amount of precision for units that go out there. So that's really a mix issue as well as again, the medical CPI price increases that we've seen on the capital. And as we look to HBT 2.0, we're still in the initial stages of working through that with a limited market of lease type work. And then we'll provide more color on that as we get deeper in that process. Jason Bednar: Okay. Just to be clear on this point, this is for both capital and disposal, this is mostly a mixed issue or entirely a mix issue -- not like-for-like price increase on either? Joe Army: You have medical CPI, which would be the base price increase, and then you have mix on top of that. Jason Bednar: Okay, great. And then as far as a follow-up, just wanted to touch on gross margin unit. Quick math from here would suggest maybe we're looking for margins to drop down to levels comparable to what we saw in 2019 over the balance of the rest of this year. So I guess, is that how you're thinking about things, John, or [indiscernible] of the first quarter margin strength make you more comfortable about delivering maybe at the upper end of the range you've got out there. Joe Army: Sure, Jason, a good question. So as we look at gross margins, our gross margin for the first quarter of the year comes on the heels of our highest revenue per year expect based on the midpoint of our guidance, roughly 40% of revenues come through. So based upon the production sales volumes that we had in the first quarter, we had quite a tailwind there in terms of gross margin benefit. And as we go through the rest of the year and our volumes decrease from here, both on the production and sales side, we believe that we'll be generating margins that are more aligned with where they were in the 2019 time frame, but long term, our three point post margin improvement plan is intact. And that as we come out of 2021 going into 2022, we'll continue that trajectory and be in the 2022 gross margin range, which would be above where we came out of 2020. So we feel good about where we're going long term on gross margin improvement. Operator: And as there are no further questions at this time, I will now turn the call back to Mr. Joe Army for closing remarks. Joe Army: We just want to thank you all very much for your time today. And we look forward to seeing as many of you as we could fit into the plant on June 23rd, up at Exeter. And after that, we'll be back to you in August and talk to you about how the second quarter went. Thank you again and have a great day.