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Vapotherm Inc (VAPO -0.76%)
Q2Â 2020 Earnings Call
Aug 4, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, ladies and gentlemen, and welcome to the Vapotherm Second Quarter and Fiscal Year 2020 Financial Results Conference Call. As a reminder, this call is being webcast live and recorded.
It is now my pleasure to introduce your host, Mr. Mark Klausner of Westwicke. Please go ahead, sir.
Mark R. Klausner -- Managing Partner
Good afternoon and thank you for joining us for the Vapotherm second quarter 2020 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 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, 2019, which was filed with the Securities and Exchange Commission on March 4, 2020; our quarterly report on Form 10-Q for the quarter ended March 31, 2020, which was filed with the Securities and Exchange Commission on May 5, 2020; our quarterly report on Form 10-Q for the quarter ended June 30, 2020, which was filed with the Securities and Exchange Commission on August 4, 2020; and in any subsequent filings with the Securities and Exchange Commission. 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 President and Chief Executive Officer, Joe Army.
Joseph Army -- President and Chief Executive Officer
Good afternoon and thank you for joining us today. I will begin by discussing our second quarter 2020 results. Then I'll hand the call over to John Landry, our CFO, to provide the financial details of our 2Q 2020 results. After which I'll update you on our key areas of focus for the third quarter and the remainder of the year before taking questions. 2Q was another big quarter for Vapotherm as we generated $35.2 million in revenue, a 193% increase over 2Q 2019. We increased our worldwide installed base by more than 4,100 units to approximately 22,000 units and opened 65 net new gold and silver accounts in the U.S. In addition, we printed our first 50% gross margin quarter despite significant headwinds and expect to continue to improve our gross margin by executing on our three-point plan.
We're pleased with the growth of our worldwide installed base and have our field team focused on implementing and educating both our new and existing customers on how to use our high velocity therapy on patients suffering from both Type 1 respiratory distress, such as COVID-19 patients, and Type 2 respiratory distress, such as COPD patients. We believe this continued focus on education will help drive the adoption of our technology, especially when customers see how our high velocity therapy can be used to help patients beyond COVID-19. On our 1Q call, I stated my belief that our business has been significantly transformed based on increased awareness and usage of our high velocity therapy and our continued progress in developing the Oxygen Assist Module, or OAM for short, and the next generation system. With another quarter under our belt, I am growing increasingly confident in our ability to sustain this transformative momentum post COVID-19. Today, I will update you on what I'm seeing in our business that is driving my thinking on this as well as provide an update on the work we've been doing on our product pipeline during the second quarter.
First, as we all know, high flow therapy is now recommended as an appropriate first-line therapy for COVID-19 patients experiencing respiratory distress by the NIH, CDC, WHO and many other major medical society guidelines. Vapotherm invented high flow therapy and now produces the Precision Flow system, an advanced form of high flow therapy that is differentiated due to its ability to deliver oxygen at a high velocity to treat spontaneously breathing patients with both Type 1 hypoxic respiratory distress, like that experienced by COVID-19 patients, and Type 2 respiratory distress hypercapnia, like that experienced by COPD patients. As these medical society guidelines began recommending high flow therapy and clinicians rapidly shared best practices, we significantly expanded our installed base across the largest 2,000 hospitals in the US, which we refer to as gold and silver accounts. In the first two quarters of 2020, our global installed base has grown by over 5,400 units.
By comparison, our worldwide installed base grew by 1,200 units in the first two quarters of 2019. We opened 103 net new gold and silvers in the first two quarters of 2020 as compared to 64 in the first two quarters of 2019. These hospitals are large and typically part of a major system, which means they may open the door for additional expansion opportunities. Our strategy of focusing on the gold and silver EDs meant our systems have likely been in the right place at the right time to help treat the respiratory distress experienced by many COVID-19 patients who show up in the ED.
We're also able to significantly increase our presence in some markets where we had not previously had a meaningful installed base. Just like New York City and Spain became important markets for us earlier this year, we are seeing an uptick in adoption of our high velocity therapy in Arizona, Texas, Florida and Mexico early in 3Q. Second, when we saw the hospitalization numbers begin to subside in mid-2Q, we turned our attention to deeply training and supporting the large number of net new gold and silver accounts, both in the field and remotely through our Vapotherm Academy, and preparing for the fall.
We're teaching all of these big net new accounts about how to treat COVID-19 and other Type 1 hypoxic respiratory distressed patients. We have also begun to teach them how to effectively treat Type 2 patients, the hypercapnic patients, who would normally be treated with NIPPV. To that end, I was happy to see that our turn rates for 2Q ran ahead of historical rates, and we are hearing stories about aha moments from these new users about the applications of our system beyond just COVID-19. I believe that when the pandemic passes, we could see our high velocity therapy being used with patients in some areas of the hospital that we haven't historically focused on, which could have a positive impact on our total addressable market.
Turning now to our product pipeline. As you may recall from our 1Q call, I had diverted all engineering resources to supporting the supply chain and our customers. As 2Q progressed, we began to settle in and we restarted some important projects. Our Oxygen Assist Module was initially compatible with the Masimo pulse oximetry technology and is now also compatible with the Medtronic's Nellcor pulse oximetry technology. We believe these two companies, combined, hold the majority of the market share where Vapotherm operates today. Both versions of this product are approved for use in Europe, including the United Kingdom, and we believe those markets will be moving to full market release later this year.
We continue to work with the FDA on our IDE to determine the appropriate clinical and regulatory pathway for the United States. 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 equipment. Our pre-pandemic strategy was to focus on the neonatal patient population as our data is strong, and we believe the unmet clinical need is significant. Over the past several months, it became apparent that this technology may have an important role to play in dosing oxygen to COVID-19 patients while reducing the number of times caregivers need to adjust the equipment at the bedside while in close proximity to infected patients.
In order to learn more about the use cases of the technology beyond the neonatal population, we are now using the technology in select European markets on adults with respiratory distress. Clinician feedback to date has been positive across the adult population, and we are now intrigued at the potential this technology may hold for both the adult and neonate population.
Our progress on our next-generation system has restarted in earnest, and we are pleased with the progress we're making. This is the only development project we are currently working on, and we are running hard at this. We have been able to make some improvements to the system based on lessons learned from the pandemic. This system has an integrated air source, integrated OAM technology, nurse call, EMR connectivity and will be designed to be used in all acute and subacute care settings. We are currently planning on treating the first patients with this system in 1Q 2021 and may be able to fully release the system in the hospital setting in the back half of 2021. And currently, in the back half of 2021, we plan to execute a limited release in the home setting so we could start to collect important clinical data that we will use to optimize the home version prior to a potential full release in this care setting.
Lastly, to repeat myself from the last call, I want to thank all our teammates and partners from around the world for their extraordinary efforts to serve our customers and their patients on the front lines during this crisis. It's been remarkable to see what they accomplished in a very uncertain and stressful period. They have repeatedly and successfully navigated the day-to-day challenges of scaling our capacity significantly, while adapting to significant change at work and at home made necessary by the COVID-19 pandemic. And I have never been prouder of our team in my life.
Now I will turn it over to John Landry, our CFO, to provide a financial review. John?
John Landry -- Senior Vice President and Chief Financial Officer
Thank you, Joe. Revenue in the second quarter of 2020 was $35.2 million, representing a 193% increase over revenue of $12 million in the second quarter of 2019, and a $16.1 million or an 84% increase over revenue of $19.1 million in the first quarter of 2020. US revenue was $25.7 million or 73% of revenue, while international revenue was $9.5 million or 27% of revenue. While revenue was strong across the board, I'd like to point out the following highlights. Our worldwide installed base grew by approximately 4,100 PF units in the second quarter, bringing our year-to-date worldwide installed base growth to 5,400 units, which is more than 4.5 times the 1,200 we grew our installed base in the first half of 2019.
Our US disposable utilization rate in the second quarter of 2020 was 2.15 turns [Phonetic] as compared to 1.9 turns in the second quarter of 2019. This is the second quarter in a row where our US disposable utilization rate exceeded our historical experience by approximately 0.25 turns. The international disposable utilization rate in the second quarter of 2020 was 2.7 turns as compared to 2.14 turns in the second quarter of 2019. We believe this increase in worldwide disposable utilization rates is largely due to the increased usage of our technology for the treatment of respiratory distress experienced by many COVID-19 patients. The ProSoft cannula and Aerosol's DPC, which were launched in the first quarter of 2020, helped increase our US disposable average selling prices in the second quarter due to increased clinical utility for the customer.
Gross profit in the second quarter of 2020 was $17.6 million, an increase of $12.1 million over gross profit of $5.5 million in the second quarter of 2019. Gross margin was 50.1% in the second quarter of 2020 compared to 45.5% in the second quarter of 2019. This is the first quarter where we posted gross margin that started with a five since I joined the company back in 2012. We improved gross margin faster than anticipated due to improved overhead absorption on a relatively fixed cost overhead base as we significantly scaled production beginning late in the first quarter of 2020. This provided us with a significant tailwind in the second quarter, and we also improved our worldwide average selling prices. These tailwinds were partially offset by significant headwinds in the form of higher labor cost and increased supply of freight and expediting fees incurred to meet the rapid increase in production capacity. In addition, we experienced a much higher mix of capital equipment revenue than we did in the second quarter of 2019, which also partially offset our year-over-year gross margin improvement.
Operating expenses were $24.4 million in the second quarter of 2020, an increase of $7.2 million over the prior year. The increase in operating expenses was primarily due to commissions earned on increased revenue and increased headcount in the worldwide sales and marketing organization, new product development costs associated with our next-generation system and general and administrative expenses, partially offset by reduced worldwide T&E due to COVID 19.
Net loss in the second quarter of 2020 was $8 million or $0.35 per share compared to $12.9 million or $0.76 per share in the second quarter of 2019. Adjusted EBITDA for the second quarter of 2020 was a negative $4.3 million compared to a negative $10.2 million in the second quarter of 2019 and a negative $10.2 million in the first quarter of 2020. The adjusted EBITDA adjusts for foreign currency gains or losses, net interest expense, depreciation and amortization expense and stock-based compensation. The $5.9 million decrease in adjusted EBITDA loss in the second quarter 2020 as compared to the second quarter of 2019 was primarily due to higher revenue and gross margin partially offset by higher operating expenses.
As of June 30, 2020, cash and cash equivalents were $148.3 million compared to $60.4 million as of the end of March 2020 and $71.7 million as of December 31, 2019. During the quarter, the company raised net proceeds of $9.8 million through its at-the-market facility and completed a public offering of its common stock, raising net proceeds of $93.8 million. In the second quarter of 2020, our cash burn was $16.1 million, of which $8.6 million was due to working capital needs as a result of higher revenue and production. On an apples-to-apples basis, excluding working capital requirements, our cash burn would have been $7.5 million in the second quarter of 2020 as compared to $12.8 million in the first quarter of 2020.
Shifting gears. It remains difficult to accurately estimate the scope, duration and impact of the pandemic on our operations and financial results. Accordingly, we will not be providing full year financial guidance at this time. However, in the spirit of transparency, we would like to discuss the current trends we are seeing in the business and our current expectations for the third quarter revenue. For the past five months, we have seen significant monthly volatility in our capital revenue as COVID-19 has impacted different regions of the country. We have been analyzing multiple data points and try to better predict capital sales, and there appears to be a relationship between COVID-19 hospitalization rates and increases in our capital equipment sales, especially in markets where COVID-19 hospitalization surged for the first time. That said, these models are subject to great variability, and consequently, we caution on placing much emphasis on this data.
Internally, we consider this data more directional in nature and use it in conjunction with our on-the-ground reports from our global field teams. In addition, our disposable turn rates have also been volatile on a month-to-month basis and have also been favorably impacted relative to historical experience as COVID-19 cases have increased in various parts of the country. As a reminder, the third quarter is typically our lowest revenue quarter of the year due to seasonality, with July and August typically being slow months. However, with the COVID-19 related hospitalization surges in selected geographies across the south of US, we have seen a relatively strong start to Q3 in the US.
Historically, the fourth quarter has been stronger as the RSV and flu seasons typically kick off as children return to schools. The timing and manner of return to school this fall remains up in the air. We're also hearing that the flu season in the Southern Hemisphere has been relatively mild, which is often a leading indicator for the Northern Hemisphere. In addition, we are hearing that many factories are increasing production of flu vaccines to meet anticipated increased demand, given the heightened awareness of COVID-19. All of these factors lead us to believe that our historical seasonal patterns may not repeat in 2020, and that the third quarter may be stronger than the fourth quarter.
In the third quarter of 2020, we expect revenue in the range of $24 million to $28 million, representing an anticipated year-over-year increase of 122% to 159% over the third quarter of 2020. I recognize that this is a larger range of guidance than we typically provide and would like to share our perspective on this guidance range. The bottom end of the range reflects less COVID-19 impact and a return to more historical patterns, while the high end of the range reflects a worsening of COVID-19 hospitalizations as fall returns.
With that, I'd like to turn the call back to Joe to discuss our key areas of focus for the remainder of the year.
Joseph Army -- President and Chief Executive Officer
Thanks, John. Before opening the line for questions, I'd like to review how we intend to focus our efforts for the remainder of 2020. The play is very simple. First, ensure our production capacity and supply chain is prepared to support all customer needs in the fall. Earlier in 2Q, we announced plans to increase our capital equipment manufacturing capacity significantly. We have recently completed the space expansion, and the production lines are set up and qualified. We've begun hiring and the supply chain is ramping. We're in a fortunate position in that a number of our critical suppliers are now shaking loose capacity as the mechanical ventilator contracts from the US government are ramping up, which may make availability of parts smoother.
Second, one of our key initiatives in the second half of the year is training and educating all the net new users and sharing with them how to use our high velocity technology on hypercapnic patients as well as hypoxic patients, including COVID-19 patients. To achieve this goal, we recently completed an expansion of our US clinical field team to better support the implementation and training in our net new and expanded current customers. We expect later this year we will expand our sales team, as has been our historical practice. Our focus will continue to be on the largest gold EDs as that is where patients in respiratory distress, including those with COVID-19, show up in the system.
Third, we intend to focus on new product development. In 3Q, we plan on an expanded NICU and adult OAM limited market release in the United Kingdom and Europe. We also plan on fully launching OAM in the fourth quarter in the UK, Europe and certain Middle Eastern markets in both the neonate and adult space, including for adult hypoxic patients, such as those suffering from COVID-19, and hope to have finalized our OAM neonate IDE study design and regulatory pathway with the FDA by the end of the year. Additionally, we plan to turn a great deal of attention to the next-generation system in the back half of the year. Lastly, we will continue to run our three-pronged gross margin improvement plan, leverage our operating expenses and drive working capital efficiencies over time.
To provide a little more insight into how impactful our high velocity therapy is at treating the respiratory distress experienced by many COVID-19 patients, I want to share one of the many patient stories from last quarter that comes from one of our net new gold accounts in Pennsylvania, as relayed to me by one of our sales professionals. On day one of implementing Vapotherm at the hospital, I learned there was a 69-year old male patient who was COVID-positive, maxed out at 60 liters and 100% oxygen on a conventional high flow oxygen therapy device. His oxygen saturation was lingering between 70% and 85%, with a heart rate in the high 160s, and he was breathing like a freight train. The caregivers were deciding between either trying NIPPV or intubating the patient for mechanical ventilation.
The thing about this patient was his wife had passed away two weeks earlier from COVID and his only son was terrified about making the wrong decisions and potentially losing his father as well. The son was beside himself and didn't know what to do. This patient ended up being the first patient placed on Vapotherm at this hospital. He was placed on 40 liters and 100% oxygen, and in my opinion, the patient looked more comfortable almost instantly. His oxygen saturation came up and maintained between 85% and 93%, heart rate came down into the 120s and his respiratory rate stabilized. He remained on Vapotherm's high velocity therapy for 21 days, with the majority of those days at 40 liters and 100% oxygen. He was unable to prone, however, the staff got him to sit up in as chair every day. He was able to communicate, eat his meals, and once he was feeling better, he was even FaceTiming his family members while on the technology. It was amazing to see this patient, after being nearly intubated, was weaned off and locked out of the hospital on room air. The RT Director called me and expressed that he had no doubt, that without Vapotherm's high velocity therapy, this patient probably would not be here today.
In conclusion, I'm feeling good with how we performed in 2Q and how we're set up for 3Q and the remainder of 2020 and beyond. Our installed base is growing materially faster than we anticipated, and we believe there is significantly more awareness for the benefit of our technology than there was at the beginning of the year. Revenue has significantly exceeded our expectations for the year at this point, and our gross margin improvement plan is ahead of schedule despite strong headwinds. Our key product development initiatives, including OAM and the next-generation system, are progressing nicely.
Lastly, I want to reiterate how I'm very proud of our team for working to meet the needs of our customers. Thank you for trusting us with your capital. It means a lot to us.
And now I'd like to open it up for questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question is from Bob Hopkins with Bank of America Merrill Lynch. Your line is open.
Kyle Andrew Pezzi -- Bank of America Merrill Lynch -- Analyst
Hey guys. You got Kyle Pezzi on for Bob. Just one quick question for you. As we think about the quarter, back on the 1Q release, it seems like you had a really strong April result, but it appears that revenue really dropped off in May and June. And I think that was kind of obviously counter to expectations. So I just wanted to make sure I understand kind of what happened that caused that? I just want to make sure that I understand your views on, I guess, demand going forward as well.
Joseph Army -- President and Chief Executive Officer
Sure. Kyle, it's Joe. Good talking to you, and thanks for the question. So on our last call in early May, we communicated that while we had a strong April, we thought that capital sales volumes are going to begin to return to a more normalized level in the back part of the second quarter. And what we have observed is that there appears to be a relationship between our capital demand and spikes in COVID-19 hospitalizations. And it's especially pronounced, Kyle, when those spikes are occurring in those markets for the first time, like New York City. In the US, we saw increased capital demand beginning in late March, which continued into April. And the rate of new COVID cases plateaued, the demand for capital equipment wasn't as significant, but we continue to serve the customers' disposable needs.
And I think with -- John mentioned a little bit about third quarter started out strong in Arizona, Florida and Texas, I guess, right? And we're expecting when we look at the third quarter, we think we could see something -- somewhat similar. It all depends, though, on how the COVID-19 hospitalizations trend. We were very surprised to see the trend upward in July. That's -- arguably, July and August are our two weakest months in the year from a seasonality point of view. So again, just to recap, on the May call, we had told you guys that it was our expectation, and we thought we would see demand regress to the mean and move to a more normalized basis. And I think that's, in fact, what we saw.
Kyle Andrew Pezzi -- Bank of America Merrill Lynch -- Analyst
Got it. That is helpful. Thank you very much.
Operator
Our next question is from Margaret Kaczor with William Blair. Your line is open.
Malgorzata Maria Kaczor -- William Blair & Company -- Analyst
Hey, good afternoon guys. Thanks for taking the questions. I've got a few here. Maybe the first one to start out with, obviously, the installed base is a leading indicator for utilization and so on. But I think what was impressive to us was just the utilization and the disposable turns were so high. So can you give us any sense over how much of that is inventory stocking? How much of that is COVID patients? And how much of that could be just true utilization of other types of patients just in respiratory distress?
Joseph Army -- President and Chief Executive Officer
Margaret, it's Joe. It's good talking to you. Thank you for the question. So you got a lot packed in there. Let me see if I could take it apart one piece at a time. So we give you guys quarterly turn rates, but we model our business on monthly turn rates, right? Because as we move further into the summer, we see fewer and fewer respiratory distress cases in the hospital. And it kind of makes sense, the kids get out of school, flu seasons tailed off. And you really don't see it. So by the time you get into June, July, August, these are our three lowest turn rate months because the census simply isn't there in the hospital.
So what we saw, there's clearly a COVID element to this. When we got started in sort of the middle of March, we were very concerned that hospitals were going to be stocking. And we wanted to make sure that we could get disposables into the hands of every single customer that needed it. And so we put a process in place where we weren't letting them buy more than a modest percentage above what their -- sort of their tough flu season historical patterns had been. If they needed more, they had to get on the phone and talk to us about actual census, they had to share data. So I feel pretty confident that when I look in that second quarter, in the quarter as a whole, I don't think there was a ton of stocking. We saw our turn rates for June were a little bit softer than what we had historically would seen. And we kind of said, OK, there's a bit of that, they're working it through the system. But conversely, the turn rates in July, which are normally very low, were pretty robust.
So I think we've got a pretty good process in place to prevent stocking to make sure we can meet all customer needs around the world. I don't feel like stocking is a big problem for us. I can tell you, anecdotally, in the cities that experienced the wave first and settled down the quickest, I'm now hearing -- and then we flooded the zone. The last 60 days, we flooded the zone with our clinical people teaching all of these hospitals that are new users how to use it on Type 2 respiratory distress. Because remember, this is like a whole new world for them, and they've never considered being able to use the technology on those type of patients. And the stories that we're hearing out of those markets are very positive. That's what gives me that confidence that -- those historical turn rates, I'm very confident that we're going to see them from that new installed base that we've built.
Malgorzata Maria Kaczor -- William Blair & Company -- Analyst
Okay. So you're kind of hitting on the next set of questions here, which is a sense of new account growth versus recent new accounts. How those guys are ramping versus the existing accounts? And then kind of the New Yorks of the world, maybe where COVID has calmed down, what you're saying is you're still seeing the same kind of rate of utilization at those hospitals as you would traditionally maybe expect, or at least close.
Joseph Army -- President and Chief Executive Officer
Yeah. As I would have traditionally expect in a non-COVID environment, right? Certainly, they have not turned in as much as they were when New York was up to their necks in COVID patients in those hospitals, those guys were fighting like crazy. But certainly, relative to our historical norms, yes, we like what we're seeing.
Malgorzata Maria Kaczor -- William Blair & Company -- Analyst
Okay. Yeah. And I'll kind of turn it to both you and John. But as you set Q3 guidance, how should we think about those capital placements? I understand there's a lot of kind of variability, and maybe that's the -- the true range is really just the upside from installed base. But are you still expecting the same kind of turn rates going forward?
John Landry -- Senior Vice President and Chief Financial Officer
Yeah. Hi Margaret, it's John. So as we think about the upcoming quarter when we put together the $24 million, $28 million revenue range, we expected the low end of that range would be assuming some COVID surges starting to subside across the country. And on the higher end, we'd see them continue. So I think as we look at disposable utilization, we feel good, as Joe indicated, pretty good with where we expect disposal utilization to be in the third quarter. July did start out strong, as Joe indicated. As COVID makes its way through the S, that they'll determine where it goes from here. I would point out that August is usually a very slow month, and then things have historically picked up in the September time frame as kids go back-to-school and flu and RSV starts to kick in. But with the situation across the country, not sure how that's going to look this year. So that said, we still feel pretty good about where disposal utilization will be for the third quarter.
Malgorzata Maria Kaczor -- William Blair & Company -- Analyst
Okay. Yeah, I know I'm high on my number of questions, but I'll sneak one more in. In terms of the societies, obviously, you guys have gotten a lot of recommendations for COVID patients to be one of the first-line treatments. What's the plan here to try to go beyond that? Or can there be? Or is this more a matter of hospitals getting a sense of the system, using it and then realizing this is better after all? Thanks.
Joseph Army -- President and Chief Executive Officer
Margaret, it's Joe. I'll take that one. I think you make a good point, first and foremost, about all the societies, NIH, CDC and those kind of things, those kind of organizations recognizing it. We do -- we are focused primarily on training these hospitals how to use this technology, high velocity, on Type 2 respiratory distress patients. Remember, that's the fundamental difference. We invented high flow nasal cannula. We have a more advanced form of it, and that technology can, in fact, be used to treat both types of respiratory distress. Either Type 1 hypoxic, like COVID-19, or Type 2 hypercapnic, like the typical COPD patients. In fact, that's why we have -- FDA has created a category, a technology code for this, the QAV, and we're the only technology in that category. So the first and foremost was get those reps out into the street and get them into those hospitals and make sure that we're training and developing and teaching all of these new users how to handle that technology in those new set of patients. The second element to this is really about this next-gen technology that we're going to be developing that will allow them to bring it throughout the hospital. And obviously, we're working closely with our clinical team on developing additional clinical data, particularly around those hypercapnic patients.
The question around how do we perform with severely hypoxic patients, I mean that's asked and I answered 10 times over. I mean I've got about 1 million stories about these COVID-19 patients, which are the poster children for hypoxic. The really interesting trick is helping all of these new users. And Margaret, I can't stress enough that being in the ED was the right place, and opening up all of those gold ED accounts has moved us ahead by years. Now teach them about Type 2, and we're off to the races.
Operator
Our next question is from Cecilia Furlong with Canaccord. Your line is open.
Cecilia E. Furlong -- Canaccord Genuity Corp. -- Analyst
Hi Joe and John, thanks for taking our questions. I guess I just wanted to start with your commentary around really expanding utilization that you've seen within centers. Just where you think that can go longer term? And then kind of in conjunction with that, just the DoD contract that you signed and that introduction of a new customer base. Just the potential you view within that channel as well as just from an overall awareness perspective in driving increased awareness around Hi-VNI.
Joseph Army -- President and Chief Executive Officer
So, Cecilia, it's really good to hear from you. Thank you very much for that question. The first one, this is the 13th quarter in a row where our turn rates in our gold ED accounts are higher than the turn rates in the non-gold ED accounts. And we don't think that, that's by accident. Once -- the ED is the front door to these hospitals. It's all workflow-dependent. And if you have a technology that you can use on any respiratory distress patient, Type 1 or Type 2, and it's very efficient to deploy and it has a high patient tolerance level, it becomes -- it improves that entire workflow particularly if you can get the same clinical outcomes, as you would with a normal standard of care, the previous gold standard. So being in those emergency departments and continuing to focus on opening up net new golds, my sense is it's possible we're going to see those turn rates continue to increase.
Now the other thing that's happened as a result of this is, if you think about the learning curve in a hospital, you bring a technology in, you got a couple of people who are using it. They're expanding the use of it slowly. Now pour the COVID-19 jet fuel on top of this thing, where everybody learns how to use it literally overnight, and now it's going all through the hospital because those COVID patients were transferred everywhere. It's brought us up into the ICU much faster than what we would normally see in a typical pattern, which has allowed for that to then take hold quicker. We're also seeing it show up in other parts of the hospital already, places like PACU and so forth. So I think that there's no question in my mind that ED plays the right play in order to create that awareness in that hospital. It has just accelerated the speed with which it can spread through the hospital.
In terms of other places that it can go inside the hospital, the clinicians are going to take us there. They continue to take us there. And as time goes on, we will begin to do clinical trials in those areas to make sure we can document the clinical and economic value.
Turning to the BPA for just a minute. That was a really interesting situation because we don't talk about things like that. And we never would have issued a press release on that if it had not been for one of these new scraper things that put that out on the wire. And we felt like we really had to give a little more clarity, a little more color to it. I want you to think about the BPA as really a hunting license for all of those DoD hospitals. And it is an exclusive contract. When you couple that with the fact -- I'm not sure we had shared this previously, but we were added to the government's ECAT system. And I want you to think about that for the VA, it's kind of like Amazon Prime, right? So it makes it way easier for these VAs to now go and acquire the equipment that they need to treat their patients.
So we've seen a pretty substantial -- a very substantial uptick in our government business in the second quarter. And really, those two factors had a lot to do with it. So we're pretty excited about that, and we think that, that bodes well for us. Because if you think about how many VA hospitals there are in the country and if you think about their patient profiles, man oh man, there is more COPD and hypoxia CHF in that patient population that we can go and help.
Cecilia E. Furlong -- Canaccord Genuity Corp. -- Analyst
Great. Thank you, Joe. And I guess if I could just ask as well just about your thoughts around your sales force expansion plans, but really more about the sales force composition as you bring on your next-gen system, as you expand into additional centers, greater volume. But just how you're thinking about really leveraging your sales force going forward?
Joseph Army -- President and Chief Executive Officer
I have to tell you, I love what we've built in our US field organization. I think we have over 70% of these folks now who have -- they are now tenured sales professionals. And they've really done a great job at serving our customers through the pandemic. I'm particularly proud of our clinical team, too. That clinical team is really what we just expanded, and we expanded it by a fair amount.
It's not clear to us yet what is going to happen with letting sales reps back fully into the hospital the way it was in a pre-pandemic period. A lot of our sales professionals are still working remotely if the hospitals are still not comfortable with them coming in. So they're doing a really good job at supporting the customers, but a lot more of it is remote. But our clinical team is spending a fair amount of time in those hospitals training, educating and teaching and coaching. So when we did our latest expansion of our field organization here in the last 45 days, we did it because, like I said, we wanted to flood the zone and get as many clinical trainers into those big net new accounts as we could. But the people that we hired, they're all clinical experts from the bedside, but they also all have sales force DNA. We use a series of profiling tools to really help us understand, and that group of 12 clinical people have sales force DNA.
In the meantime, we're working and developing our next set of training plans for our existing sales force. So the sales people, we're doing a lot more clinical training, we'll be -- we're going to be this summer. For the clinical people, we're doing a lot of sales training. So we're going to do another expansion of our field organization later this year. We want to really allow a little bit more time to shake out to see how the hospitals are going to think about sales reps being in there. But what is clear is that they want the clinical people on the ground to teach and train their caregivers. And we're also using our Vapotherm Academy remote tool to do that. So I think that's how we're thinking about that field organization. But man, we feel really good about what we've built there.
Cecilia E. Furlong -- Canaccord Genuity Corp. -- Analyst
Great. Thanks, Joe. And if I could just ask one more question. I guess just with the COVID resurgence that you've seen in select geographies, especially within the US, just the demand that you've received for capital. Just your ability to meet that demand, just as you've been scaling your production capabilities. And just how you think about that going forward in Q3 and Q4?
Joseph Army -- President and Chief Executive Officer
Sure. So with pre-COVID, our theoretical weekly capacity was 100 units a week. At the height of the crisis, we were able to produce somewhere in the order of 500 a week. But the lengths that we went through to scale it five-fold in the middle of the thing was unbelievable. It was like crazy over time. The big gating factors, there are four variables here, there are four inputs to this, right? The first is space. The second is production lines themselves, the equipment, the capital equipment and the line configuration.
The third element, of course, is parts, and the fourth element was people. While we figured the people piece out, and it was really -- we even figured out parts. Where we ran into trouble was space and lines. And so what we announced was a twenty-fold increase from our pre-pandemic levels of our manufacturing capacity. And we got really lucky here because roughly one-third of our people are never coming back into the office. They're going to work from home, and it's been very successful. We took that space that they used to occupy. And I converted -- we converted it into production space. So now that space is all fitted out. The production lines are in place, they're all validated. And it's a fully modular production space. So we can reconfigure those lines for whatever we need on that capital front.
So if the demand is there, we will be able to satisfy up to a twenty-fold increase. And I mean on a real-time basis, not having to ask customers wait two, three, four weeks to take delivery of capital equipment. We'll be able to satisfy it immediately. And the thing is if the demand doesn't scale that much, we will use that same space in those same production lines, in fact, for the next-generation of our system.
Cecilia E. Furlong -- Canaccord Genuity Corp. -- Analyst
Great. Thank you, Joe.
Joseph Army -- President and Chief Executive Officer
You bet.
Operator
Our next question is from Marie Thibault with BTIG. Your line is open.
Marie Yoko Thibault -- BTIG, LLC -- Analyst
Hi Joe and John, I hope you are well. Thanks for taking the question. I wanted to ask a prior question, I think Margaret asked, from a different angle. I think when I go back to the revenue number you gave us for the month of April, and note that there were 2,200 units added to the installed base at that point, it looks to me like the capital shipments as you scale to meet demand continued at a decent clip throughout Q2. But on the disposables side, it seems like utilization dropped off pretty dramatically in May and June. My back-of-the-envelope math points to number of disposables used in Q2 being not that much higher than Q1, maybe 12,000 circuits or so sequentially. So with the full quarter of the pandemic happening, that surprised me a little bit. Could you tease that out for me a little bit more? Was there stocking and prepping happening in April? Or was the drop in hospitalization is really that dramatic?
Joseph Army -- President and Chief Executive Officer
Well, I'll take a shot at a little bit of it, and then we'll let John give you the real answer, right? First of all, remember that we had a pretty good flu season this year, right? So those first quarter turn rates were reasonably high. And you started to see these patients show up in the US hospitals in March, right? So you've already got a very robust first quarter turn rate that's going into.
The second thing to remember is that April's turn rates, historically -- I'm not talking pandemic now, I'm talking just historically how our business works. And with those disposables, they're very, very predictable. In April, the turn rates are significantly higher than they are in June, always. Kids are out of school in May, right? The flu season is done, and we see those turn rates fall off. By the end of that -- by the end -- by the time we get into June, as I said, those churn rates are significantly lower historically than they are in April. And then July and August, they're even lower, right? And then they spiked back up typically in September when the kids go back to school.
But I think when you looked at it, scope and scale, there may have been a little bit of stocking, but I don't think a whole lot because I think the process that we put in place was pretty robust. I think what you saw was everybody is feeling like -- at least I know I was, inside our plant, we get to the end of May and like wow, thank God, this is -- we're going to have like three months of clean everything up, get it all oiled up and get ready for the next go-around. And I think you saw a little bit lower than historical turn rates in June, but in July, significantly above what we see historically. So I don't know. John, how would you answer that question?
John Landry -- Senior Vice President and Chief Financial Officer
Yeah. I think you did a nice job there, Joe, in terms of framing it out. I think when I look at the April time frame, it was a very strong demand, above our historical levels, for sure. Sort of tied part and parcel to the COVID-19 hospitalizations. I think there was some impact potentially from stocking. We did have a process in place, by which we were vetting out large significant customer orders on the disposables side that were significantly outsized compared to historical ordering patterns. So we're able to work on those and worked closely with the customer to ensure they had what they needed when they needed it. And we experienced that in the month of April and early May. And then as historically has happened, generally, things start to decline in the May and June time frame from a utilization perspective, which we then again saw this year, which was in parallel to the reduction in COVID-19 hospitalizations, especially in the large metropolitan areas in New York and -- New York metro area.
Marie Yoko Thibault -- BTIG, LLC -- Analyst
All right. Makes sense. Thank you for stepping me through that. I'll keep it to just one follow-up. Thanks for the update on the next-gen system. I know you mentioned that you look to start doing some work on the home care setting. Any update on the time line of when we might see that system in the home care setting in a market release? I know there's a lot of investor interest around that product.
Joseph Army -- President and Chief Executive Officer
There's a lot of my interest in that product. That's a very interesting application for this technology, right? For us, it's -- that product, in the first quarter, we're going to start treating some patients in the home. But we're going to be learning, Marie. We got to go and understand the workflow, make sure we've got all that right. We're going to need to collect some clinical evidence in there. And there's going to be things about this system because this system is designed specifically for the acute care setting.
But there are some things that we have done within it. I want you to -- so I had a tour at a pickup truck, right? My wife's got a Lexus. It was the same frame, the same engine, the same transmission. Everything was the same on that, except a different skin. That's how I want you to think about Vapotherm 2.0, right, that next-gen system. So we're going to go do a lot of shake down in 2021, and the idea would be then let's go get commercial in later in 2022. But we want to make sure we get the right product, the right offering and everything that's wrapped around it the right way, and especially how we're going to leverage that field organization.
Marie Yoko Thibault -- BTIG, LLC -- Analyst
All right. Thank you so much.
Joseph Army -- President and Chief Executive Officer
Thank you for the questions. We appreciate your interest. And 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
[Operator Closing Remarks]
Duration: 50 minutes
Call participants:
Mark R. Klausner -- Managing Partner
Joseph Army -- President and Chief Executive Officer
John Landry -- Senior Vice President and Chief Financial Officer
Kyle Andrew Pezzi -- Bank of America Merrill Lynch -- Analyst
Malgorzata Maria Kaczor -- William Blair & Company -- Analyst
Cecilia E. Furlong -- Canaccord Genuity Corp. -- Analyst
Marie Yoko Thibault -- BTIG, LLC -- Analyst
