Vapotherm: Out Of Air


  • Vapotherm has seen a boom induced by the pandemic reverse violently.
  • The pandemic has not boosted Vapotherm's business, as losses have only increased during this period of time.
  • With revenues down to much lower levels and losses being very substantial, there are no (quick) fixes in sight.
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Portret van hogere mens die van een de herfstdag in het bos geniet.

DjelicS/E+ via Getty Images

In the recent past, I have been quite critical on shares of Vapotherm, Inc. (NYSE:VAPO), leaving me to conclude nearly a year ago that there was hardly any breathing room for the shares.

This was despite the fact that the pandemic lifted sales, but that was about the only good news. The bottom line performance did not see a boost, with losses continuing during near-perfect conditions, making it very hard to become upbeat on the name.

Former Take

Vapotherm went public in 2018, and its shares immediately traded around the $20 mark. The company had developed its Hi-VNI product line, which helps people who suffer from respiratory diseases, among other things. The non-invasive ventilator provides heated, humidified, and oxygenated air through a nasal interface, with some 13,000 products installed at the time.

These products were used by patients which suffer from diseases like COPD, pneumonia, asthma, and heart failure, all benefiting from supplemental oxygen. Such a way of administrating oxygen has advantages over a traditional oxygen mask, being more comfortable to administer and resulting in a less claustrophobic feeling as well.

The company generated $35 million in sales in 2017, on which it posted an operating loss at nearly the same level. Revenues rose to $42 million in 2018, to rise further to $48 million in 2019.

Ahead of the pandemic, shares traded at just $8 per share, translating into a mere $140 million operating asset value. This worked down to a 3-times sales multiple, yet the lack of convincing revenue growth and continued losses rightfully made investors cautious.

The pandemic lifted the boat in a huge way, as revenues jumped to $125 million on its back. While the revenue growth was outright spectacular, operating leverage was not, as operating losses only narrowed from $48 to $43 million, despite the huge increase in sales. Shares peaked at $50 in the summer of 2020, but started 2021 around the $30 mark as the lack of operating leverage was manageable. Still, shares represented a more than $700 million equity valuation at that point in time, with 24 million shares outstanding, a bit less if we factor in a $68 million net cash position.

The 2021 guidance was very underwhelming, with full year sales seen down to $85 million and with operating expenses set to surpass the guided revenues. It was clear that big operating losses should be expected (again).

2022 - Turning For The Worst

Shares of the company actually still traded around the $20 mark when 2021 turned into 2022. Shares were down during 2021, even as the preliminary full year revenue numbers revealed a big beat in the annual sales guidance. This was confirmed in February of this year, as the company reported nearly $113 million in annual revenues, a much more modest decline than originally guided for. That was about the only good news, as gross margins took a beating and operating losses actually inched up to $57 million.

The outlook was very much uninspiring, with 2022 sales seen at a midpoint of $106 million, with operating expenses again set to surpass the revenues, translating into real big losses. Moreover, the company was actually basing this guidance on the assumption that Covid-19 is a real chronic disease, but of course, in recent months, many Western countries have seen some breathing room again with the pandemic on the retreat.

From here, the stock imploded fast. Shares fell to the high single digits in April as the company withdrew both its first quarter outlook, and actually the guidance for the entire year. Early in May, the company posted a $21.6 million revenue number for the first quarter, as this was a quarter during which there were actually still lockdowns in major geographic areas. Operating losses for the quarter came in at a staggering $19.9 million, with management not even showing any expense management here.

The company now seen revenues for the year in the mid-$80 million, with gross margins seen just around 35% and operating expenses seen around $100 million. That suggests that the current revenue run rate will be maintained and that losses could come down, but they will still be very large.

In the meantime, the market has completely given up on the shares, now trading at just $3, or actually below that. This has resulted in a mere $75 million equity valuation, a number which rises to $100 million if we factor in a modest net debt load following the continued cash burn.


The funny thing is that Vapotherm is now essentially seen as a call option, as a resurgence of the pandemic might actually create huge potential here. Based on the fundamentals and recent management actions, I completely understand why the market is puking on the name, as the pandemic has resulted in an uplift in sales, but not any profits, let alone reduction in losses. This makes it very hard for investors to see a credible story here.

Hence, there is still no breathing room here for investors or management. The story has been completely mismanaged, with miracles needed in order to create potential for returns, let alone create a decent risk-reward proposition here.

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This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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