Ekso Bionics Holdings, Inc. (EKSO) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Ekso Bionics Fourth Quarter and Full Year 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Debbie Kaster. Thank you. You may begin.

Thank you, Matt and thank you all for participating in today’s call. Joining me from Ekso are Tom Looby, President and Interim Chief Executive Officer and Max Scheder-Bieschin, Senior Vice President and Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the quarter ended December 31, 2015. A copy of the press release is available on the company’s website. Before we begin, I would like to remind you that management will make statements during this call that includes forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are statements of historical facts should be deemed to be forward-looking statements. Our forward-looking statements including without limitation, our examination of historical operating trends and our future financial expectations are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, we should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. Ekso disclaims any intention or obligation except as required by law to update or revise any financial projections on forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 14, 2016. I will now turn the call over to Tom Looby. Tom?

Thank you, Debbie and thanks everyone for dialing into our call this afternoon. As many of you know, I recently assumed the role of Interim Chief Executive Officer at Ekso Bionics. After spending almost 2 years as President and Chief Commercial Officer, I could not be more excited for this opportunity. I am truly inspired by the technology at Ekso Bionics and I am proud to lead our remarkable team here as we push the company to the next level. I am grateful to our board and also to our Co-Founders, Nate Harding and Russ Angold who have built Ekso from the ground-up for putting their confidence in me to lead us forward. 2015 was a very good year at Ekso Bionics marked by many meaningful accomplishments that will be instrumental in our growth as we progressed toward making our life changing products, standard of care and the rehabilitation clinic and beyond. Amongst our many achievements, three key focus areas have paved the way for us to deliver on our strategic, operational and commercial goals in the coming months. First, we have made meaningful progress on the regulatory front. Following collaborative discussions with the FDA during the review process, we have recently submitted our final response documentation in support of our pending 510(k) notification. Second, we established a preeminent group of key opinion leaders in the U.S. and abroad who have been instrumental in helping us advance our clinical strategy. This has led to the recent launch of the clinical trial to be conducted by the Kessler Foundation and funded by a federal grant from the National Institute on Disability, Independent Living and Rehabilitation Research. We are also excited about the recent initiation of the MOST study, a randomized comparative clinical trial, which is currently underway in Europe. And third, we have developed a thoughtful, prudent and deliberate market development strategy in which our rehabilitation business serves as a base camp for us to further demonstrate safety, efficacy and cost effectiveness. Through this base camp work in the rehab business, we continue to gain valuable market knowledge which lays the groundwork for our broader business and for future entry into the home mobility markets. Our industrial initiative continues to be a priority for us as well. We have an experienced and dedicated business development team working to build upon our established IP portfolio and solid industry Intel to create an optimal product for industrial workers. Direct cost of injuries associated with overexertion in the workplace totaled approximately $21.1 billion per year. We have collaborated with several companies to understand their needs and we are developing products that prioritize safety and productivity in the workplace. As with all areas of our businesses, we want to be smart and deliberate about how we enter and then grow this part of the business taking the time necessary to make sure we do it right. I will start today’s call with a brief overview of our results for Q4 2015 and an update on our business and operational progress and then we will outline some strategic objectives for the company. I will then turn the call over to our CFO, Max, who will provide further detail on our financial results. After that, I will come back and make some concluding remarks and we will then open it up for questions. Turning to the fourth quarter, revenue reached $1.9 million growing 31% compared to the fourth quarter of 2014. Medical device revenue in the fourth quarter was $1.1 million, up 22% from a year ago. Engineering services revenue in the fourth quarter was $0.8 million, up 46% from a year ago. As of year end 2015, we had an installed base of over 170 medical units at over 115 rehabilitation facilities worldwide. We are particularly proud of the growing number of centers that have more than one unit as it speaks to our winning value proposition and believe that our exoskeletons can transform and improve rehabilitation outcomes. At year end, we had 21 customers with multiple devices in place. That was up 75% from a year ago. This is an increasing strategic focus for the company as we look to deepen our penetration with our existing customers and bring our technology to the forefront as standard of care. We have shipped 15 new units for the quarter. In addition, 2 units that were previously rented converted to sales in Q4 2015. Customers rent for at least two reasons. One, because they have not yet budgeted for this important technology and two, because they are proving out the value proposition of our product, including the smart Variable Assist software. I am proud to say that we have an 85% success rate in converting rentals to capital sales since we have started our program. I think this demonstrates that our value proposition is being tested and is also winning. At year end, we had recorded over 37 million steps taken in our exos and over 30,000 patient sessions. To put this number in perspective, for most of our patients taking just one single step is a huge hurdle and 37 million steps represents approximately 7,000 miles or the distance from San Francisco to New York City back with more than 1,000 miles leftover. In 2015 alone, over 22 million steps were taken in our exoskeletons, up 150% from 2014. Again, our goal is to dramatically increase the number of steps taken in our exoskeletons over the foreseeable future. We are growing our organization internationally and in November, we announced the opening of our European headquarters based in Freiburg, Germany marking an integral step in the company’s development of our Europe, Middle East and Africa business. This gives us a dedicated sales organization in Europe and allows us to enhance our customer’s service with training, education and field support. A strengthened international presence will help accelerate regional growth plans and optimally positions Ekso to build key international partnerships. From a corporate development standpoint, Ekso had a very exciting close to the year of 2015. Early in December, we acquired the gravity balancing arm technologies of Equipois, LLC. This acquisition was an all-stock transaction and nicely complements our in-house technology. The Equipois technology expands our exoskeleton capabilities in the industrial market and further supports our mission to enhance human performance and safety. Also, in December, we completed a registered direct financing with net proceeds to the company of $13.9 million. These funds bolster our balance sheet to further fund our operations and will help us reach our strategic milestones. As we work to drive the commercialization of our exoskeleton technology worldwide, our primary goal is to establish robotic rehabilitation as standard of care for patients with spinal cord injury and hemiplegia due to stroke. To that end, we recently submitted to the FDA our formal response in support of our pending 510(k) notification. We will continue to collaborate closely with the FDA in securing our 510(k) clearance. Regulatory clearance is only one part of our plan to drive adoption and establish Ekso as standard of care. Obtaining appropriate reimbursement is also a key element to our ultimate success as it is for any medical technology. We are working with payers to understand where exoskeletons fit into overall healthcare economics. While there are currently existing codes that provide reimbursement for therapy that utilizes our technology in the rehab setting, our goal is to work with payers to have reimbursement that is more closely aligned with the benefit that result from over-ground robotic rehabilitation. To this end, we are excited to have several trials underway that will provide clinical evidence to enhance reimbursement. In January, we announced the initiation of a randomized comparative clinical trail sponsored by a large rehabilitation center in Germany using the Ekso GT in Europe. The trial which is called the MOST study is investigating the impact of treatment with the Ekso GT robotic device when compared to conventional physical therapy on stroke patients with impaired gait. The enrollment goal of this trial is 80 patients and we believe that gait training with Ekso GT will show to be a superior method over conventional physiotherapy techniques to improve rehabilitation of the stroke patients. This study will follow patients daily over the course of three weeks comparing the level of functional mobility between the Ekso and conventional physical therapy groups. This study is scheduled to conclude mid-year 2017. We are pleased this trial is underway and eager to see and share the results. In February the Kessler Foundation, a global leader in rehabilitation research announced that it would use the Ekso GT in a multi-center randomized controlled trial funded by a federal grant from the national institute on disability independent living and rehabilitation research. This 96 patients study will explore the clinical, functional and neurophysiological effectiveness of early intervention gait therapy using robotic exoskeletons with stroke patients. Researchers are looking to show improvements in functional independence measurement known as FIM scores and neurophysiological outcomes associated with the Ekso GT. Results of this study could help to further validate robotic exoskeleton gait therapy for stroke patients, thus supporting both reimbursement and clinical adoption of our technology. This is now the fourth study that Kessler has undertaken using the Ekso GT. We are excited about the progress we are making on the clinical front. These results and our interaction with our research partners are helping us understand which larger scale studies we as a company should undertake and sponsor in the future. We believe all of this data will support and strengthen our value proposition for hospitals today and our reimbursement strategy for payers tomorrow. As I mentioned earlier the third component of our strategic plan is to leverage our exoskeleton expertise and our commercial experience to actively begin developing a next generation device geared for use in the home. We will produce a device that will have greater functionality and levels of independence than any exoskeleton currently on the market. While we believe that ultimately the home use market for exoskeletons will encompass a very large opportunity, we also recognized the higher hurdles for safety, ease of use and cost effectiveness and will therefore build on what we have been learning from our base camp and rehab to smartly develop our home use product. In other words, there is a wide range of patients who today use our device within the rehab setting and they will help us understand the needs of that product for when they take it home. We strongly believe that our path is the right one to build the best exoskeleton company for the rehab market today to continue to build upon our brand promise of safety, reliability and innovation and to use this foundation in our extensive IP portfolio to extend into the home. We are energized by our accomplishments and excited for the year ahead. In summary, we finished 2015 with momentum across the board. I am encouraged by our many accomplishments which positioned us well for future success. And with that I will hand the call to Max, our CFO.

Thank you, Tom. Now to some financial highlights where unless stated otherwise, we will focus during this call on our fourth quarter results, can we see our accompanying earnings release with further details regarding quarterly and year-to-date comparisons. Our Medical Device segment accounted for $1.1 million in revenues in the fourth quarter, up 22% from the same period last year. Revenue for our engineering services grew to $800,000 compared to $600,000 we have recognized in Q4 2014. In terms of units, we shipped a net 15 units for the quarter. Of these 15 units, 14 were sold and one was rented. We also had two additional units convert from a rental to a sale. Our overall gross profit for the quarter was a loss of $200,000 as compared to a gross profit of $600,000 over the same period last year. The majority of this swing is a result of a negative gross margin incurred in the quarter from one of our large engineering services projects for the U.S. government where we had an additional $500,000 in development expenses not originally planned for the project. Our gross profit for the hardware and software elements within our Medical Device segment has remained consistent quarter-over-quarter. Our gross margin for the service element within our Medical Device segment continues to be negative. Given the ongoing efforts to transition our after-sale service to a profitable one, we expect to see our medical gross margins improving in 2016. Gross margin for engineering services was negative at 31%. This compares to a positive 49% gross margin we reported for the same period 2014. This is a result of $250,000 negative gross margin on one of our Ekso labs or engineering services projects. Operating expenses for the quarter were $6.5 million as compared to $5.4 million for the same period in 2014. Total loss from operations for the quarter were $6.7 million as compared to $4.9 million loss for the same period in 2014. Cash used in operating activities for the quarter averaged $1.7 million per month, consistent with our target. As of December 31, 2015, we had $19.6 million in cash and no debt. With that I will turn the call back to Tom.

Thanks Max. To wrap up, I am excited about 2016 and beyond. We are working hard to prove that getting more people up and walking sooner and more regularly can translate into real benefits both in terms of reducing rehabilitation and lifetime care costs and improving overall health with increased mobility function and quality of life. Our progress in the clinic and with continued innovation will push us closer to our goal. Some of our strategic objectives for the upcoming year include the following. Drive market development for our medical segment by securing 510 (k) clearance, advancing relationships with key opinion leaders and continue to collect important clinical evidence. Secondly, to promote our business development in the Industrial segment, we believe that the impact our technology has on safety, productivity and quality will have a ripple effect across the entire industrial market. And third, innovate our technology platform across all aspects of the business. I am incredibly energized about our business and I am sure that will be leading the company during what I know will be an accelerating time ahead. We have a terrific team here at Ekso and we will continue to deliver on our milestones in order to advance the treatment for our patients. We look forward to updating you on our progress throughout the year. And with that I will end our prepared remarks and we look forward to your questions.

Thank you. At this time we will be conducting question-and-answer session. [Operator Instructions] Our first question comes from Jeffrey Cohen from Ladenburg Thalmann & Company. Please go ahead.

Hi, can you hear me. Okay.

Hi, Jeff. How are you? Yes, we can hear you fine.

Hi Tom. So, firstly could you give us a little more color as far as timelines at what you anticipate to hear from the FDA, your final response where then could you give us a more accurate timeline when it went in and when you would expect to see something back?

Yes, certainly as everybody knows that we follow medical device companies. The final determination and final timing certainly depends on the agency, but we did talk to everybody about receiving an RAI from the agency back in September and that prescribes that we have got about 6 months to respond to them and we applied to them well within that period of time. And they have a time to evaluate and to reach out to us for further clarification. And at that point in time, we go into the interactive segments where we talk about our IFU specifically with the agency. And we expect to do that very soon. But I would probably not want to predict a time for when we expect to get clearance. I would just say that we are in good communication with the agency and expected things for them.

Okay, got it. Could you talk about the number of units Max indicated and you both talked about 15 placed in the fourth quarter and 2 converted of the 15, 1 was rented? How many units were rented out there in the fleet currently?

We have 8 currently rented in the fleet today.

Okay, 8 rented. And could you talk about OpEx, Max, for 2016, would you anticipate that clips at about Q4 rates for the next four quarters about what was it 6.6 for the fourth quarter? Is there assumption?

Yes, I am leery of giving too much guidance. But I think we have said that we have managed our business based on a cash burn of about $1.5 million a month and we will continue to do that. We want to make these important investments in clinical affairs and in the R&D that’s associated with the home unit, but we will be careful as not to get too far over our ski tips in terms of how the rest of the business grows.

Okay. And what’s the headcount as of December 31?

95 full-time employees.

Okay, 95 full-time employees. And could you discuss a little bit about these negative margins nearing about how will that resolve itself, because it’s been the second quarter in a row that we have heard about that firstly on the government side, on the contract side on the Ekso Labs? Could you also talk about those margins as well as give us some kind of flavor for projects going on in 2016 and how that number would increase or decrease based on margins?

Yes. So, the margins on the hardware and software side of the business have continued to be very consistent. So, those that have not changed, our ASPs have held up very nicely and I think people are recognizing the value proposition there. On the medical service element side of the business, we have said before we are losing money there. Things have been pretty consistent. One of the reasons [indiscernible] or one of the mandates [indiscernible] has is to take the experience we have been providing as we build up the brand albeit at a loss-making margin business and turn that around to make that a very profitable part of the business and we continue to do that through 2016. So, we still have some work to do, but over time, hopefully you will see that to become a profitable side of the business, specifically, in the fourth quarter, the negative margin relates to one project of the three projects that we had in our labs business, where it was a fixed price contract with the U.S. government, was very large project. The project itself ended up being a profitable gross margin as well. But we have decided to make a little extra investment on the development side in hopes of delivering a better outcome than they anticipated and hopefully positioning ourselves more strongly when they decide to continue with the fourth phase of that project, we will be in good position to be handed that award as well.

Okay. And anticipated revenues for 2016 for the labs business, do you expect that to be kind of in line with ‘15 greater than, less than or it’s still too unclear to predict?

No, the business has long-term views that I think you know the contracts tend to be longer. And I think what we have indicated in the past is historically that business has been somewhere between $1.5 million and $2.5 million on a regular basis. This past year was particularly rich for us, because of the sizable contracts. So, I am not – I don’t know that we can say we are going to have similar levels to this past year, but I think very similar levels to what we have had historically and is really a function of when one of these larger – one larger contract has come in already, you saw that the DARPA contract is the fourth project we have had with them. But some of the other larger projects we are still waiting to hear on how they continue forward with the U.S. government.

Okay. So, it sounds like somewhere between ‘14 and ‘15 levels – 2014 and 2015 levels?

I think that’s fair.

Yes, let’s not forget that one of the reasons why this word is important to us is because it amounts to somebody funding IP development for us, right. And so what we have done in 2015 and before is choose to participate in projects that we think will have greater utility for the business in the medical arenas and now in the industrial arenas. So, I think that this is still going to be the case. And I think it means that we can be relatively choosy about what we do in that arena as well.

Okay. And lastly, Tom, could you talk a little more about a personal mobility device and what we should anticipate hearing about or actually seeing in 2016 as far as prototypes and/or filings for approvals?

Yes. So, on home mobility specifically, we have been sort of consistent in saying, first of all, we appreciate others out there working in home mobility for sure, but we have always said that these devices have got to have quite a bit more capability, quite a bit more safety and it was going to have to be about cost effectiveness as well, right. And so our strategy has been a little bit different. We have felt like there was a very, very large opportunity within the rehab clinic by itself for technologies like this and that’s what we have focused our development efforts on right making these products the fastest to change over from patient to patient, the widest range of patient capability etcetera. So, that’s what we are focused, but what we are saying in our comments is that we think that this know-how that we have gotten within the rehab clinic, I think puts us at a position where we are the best to innovate for the home mobility. We think we have got the technical capability and so on. But this is going to take a little while for us to go and do a brand new development project. Right, it’s not going to happen in 2016. So, you shouldn’t expect to see home mobility device from us in 2016. So, we are achieving – we are establishing a base camp in rehab. And from that foundation, we will then in future period of time release the home unit, okay. Now, there is an opportunity sort of a half-step of ours to go and do the required studies on the device that we currently have in rehab and to test that device in the home both in Europe and eventually in the U.S. And so that’s sort of the half step that we will make before having a ground-up transformative development project for the home. Hopefully, that answers your question.

Yes. And one more if I may, we have previously spoken about an adolescent unit for the GT, do you expect to have one in the next year, that’s available?

Yes. I would – first of all I will say this. We are not going to do a development project for an adolescent device. I think what you may see from us in the future though those plans are a little bit behind other priorities is to do the required study to prove this product out in adolescence. So we are not marketing our device for adolescence right now. There may be some clinics out there who choose to use it and that they are evidence that generate maybe important in helping us achieve different clearance levels. But right now that’s a different priority.

Okay, perfect. Thanks for taking the questions.

Thanks Jeff.

[Operator Instructions] And our next question comes from Amit Dayal from Rodman & Renshaw. Please go ahead.

Thank you. Good afternoon everyone. Just really quickly in terms of the visibility you can provide from a sales ramp point of view for 2016, but we have been coming in at like the mid-teen levels in terms of shipments for quarter for the medical units, should we expect similar run rate for 2016, what are we doing to potentially ramp this up if there is anything new with the table term, any color on this would be appreciated? Thank you.

Sure, I appreciate that question, Amit. I think that a lot of folks are wanting for the units to start to accelerate. And I will say this, I think that it’s going to happen, but right now what we are focused on as a company is having the right installations at the right clinics, who can actually get the utilization out. And so often in this particular part of medicine things are adopted and then later not used. And I think we can demonstrate by the step stamps that we are seeing in the multiple units that we are seeing at clinics. And the rental conversion amounts that we are seeing that our value proposition is leading. But that being said, we also had a lot of work to do to go and establish the foundation for clinical evidence, we need to get more enhanced reimbursement for these devices because they do achieve, we think they achieve that are outcomes than the current standard of care, but it’s going to take some time for us to go and prove that out within the marketplace. So we have a budget and I don’t think we are going to give guidance on the number of units we expect to place, but I think they were happily tracking to what our objectives are with regard to near-term sales while really focusing on what the long-term market development milestones are in the current year. So Max do you have any color to that. Hopefully that answers your question Amit?

Yes. In regards to the industrial units there was a lot of anticipation I guess seen at the end of the third quarter or during the third quarter call one of the takeaways was that maybe we would see some sales for those industrial units happening before the end of the year, it doesn’t look like it’s happened, can you give us any guidance on where that particular initiative is and if you can expect industrial units to start hitting the market this year?

First of all, I will say this. The company is tremendously excited about our industrial initiatives, right. I think that we could have done is come out of the gate a little bit too quickly a year ago and shared maybe some of our plans a little bit too early, because what has happened in that period of time, we have learned an awful lot about what the real needs are in this industrial space. Okay. I think that the number and quality of meetings that we having with customers all over the world about what they were looking for and what are they looking for is better productivity from their workers, better safety and better quality of workmen ship for hosted applications. And what that has made us do is it’s gone back and had a tinker with some of the designs that we had both in full bodied exoskeletons as well as a vest application. And let’s not forget we also then prioritized the acquisition of Equipois, which is a key complementing technology to what we are developing in-house. So all of these things I think are great achievements. And I think what you will see is some business coming forward, but I think I want to stay shy of saying when that’s going to hit. Again I think that we are a year smarter than we were when we first started talking about industrial and it’s remaining a very big priority for us as a business.

Alright, got it. And that’s all I have. Thank you.

Thanks, Amit.

So we would like to take – I would like to thank you for taking the time to join the call today and please have a great evening.

Thank you. This concludes today’s conference. You may disconnect your lines and have a wonderful evening.