Ekso Bionics Holdings, Inc. (EKSO) Q2 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ekso Bionics' Second Quarter 2018, Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. For opening remarks, I will now turn the call over to David Carey of Lazar Partners. Thank you, David. You may begin.

Thank you, Devin and thank you all for participating in today's call. Joining me from Ekso Bionics are Jack Peurach, President and Chief Executive Officer and Max Scheder-Bieschin, Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the quarter ended June 30, 2018. A copy of the press release is available in the company's website. Before we begin, I would like to remind you that management will make statements during this call that include 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 not statements of historical facts should be deemed to be constitute forward-looking statements. All forward-looking statements, including without limitation are examination of historical operating trends and our future financial or operational expectations are based upon management's 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, you 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 or operational projections or other 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 broadcast today, August 7, 2018. I will now turn the call over to Jack Peurach. Jack?

Thanks, David and thanks to everyone for participating in today's call. Five months ago, I eagerly stepped into the CEO role at Ekso Bionics because I was excited about our products and believed that our company could have a critical impact on improving mobility in both rehabilitation and industrial markets. Our second quarter financial results demonstrate that we are effectively articulating the value proposition of EksoGT and our EksoWorks offerings. And in Q2 customers are gaining increased appreciation for the value that our products can add to their operations and the patients and employees in their care. As a result we achieved records for total revenue, revenue from our rehabilitation segment and placement of rehabilitation units. I'm extremely proud of our revenue growth and unit adoption in the rehabilitation market in the United States and the EMEA, both year-over-year and quarter-over-quarter. Our total revenue just under $3 million for the second quarter of 2018 is a nearly 60% increase over the same quarter in 2017. And in our rehabilitation business, Q2 revenues of $2.4 million represent a 20% quarter-over-quarter increase. We shipped 25 EksoGT systems in the second quarter, which is the most units we've eve shipped in a quarter. 15 new units were sold and 10 units were added to our rental fleet. As we noted last quarter, our rental offering allows customers without immediately available budgets to adopt the EksoGT into their rehabilitation programs immediately, giving them time to plan for a future capital investment. The 28 rentals we have in the field, most of which we will look to convert in 2019, represent over $3 million in potential sales. As we increase our sales, we also focused on continuing to reduce our cost of goods and minimizing our customer acquisition costs. By way of example, because we've gotten better and explaining our value proposition to hospitals. Our ASPs have continued to increase. This resulted in a significant improvement in our gross margin for the second quarter, which was nearly 33% compared with a gross margin of 21% for the same period in 2017. We also made progress in our industrial segment. In the second quarter we shipped more than 100 EksoVest and EksoZeroG units and now have over 500 industrial units in the field. Reflecting the growing enthusiasm for industrial mobility solutions, we were excited to announce earlier today the expansion of our partnership with Ford. Ford employs over 200,000 people around the world and some assembly line workers lift their arms more than a million times per year. Ford's purchase of additional EksoVest is part of its expanded initiative to help reduce the physical toil of repeated overhead tasks among their assembly line workers. This purchase follow the pilot program for Ford and its employees gained hands on experience with the EksoVest and it will allow Ford to expand testing of the EksoVest to 15 Ford assembly plants in seven different countries. Ford's selection of the EksoVest is an important validation of the benefits our technology provides in industrial settings. We are proud to continue our alliance with Ford a pioneering giant in manufacturing and look forward to collaborating with them as well as other customers interested in helping to lessen the physical toll on their workers. Now let me turn to our commercial strategies in the rehabilitation market. Today we have installed more than 200 EksoGT systems within rehab centers and we have trained more than 100 sites and had integrated EksoGT into their rehabilitation programs. It's important to note that about a third of our US customers have multiple EksoGT systems. We believe this is a solid indication that our customers are embracing the EksoGT and making them a core part of their rehabilitation programs. To this end, we continue to focus our market development events in target areas of North America. These events are outstanding opportunities to showcase the benefits of EksoGT to patients, customers and administrators all at the same time. They are also a very efficient way of reaching our target customers and decision makers. We found that having all constituents together improves the likelihood of everyone gaining a common understanding of how an investment in the EksoGT technology supports clinical and economic goals. We are also thrilled that we were able to support our first integrated delivery network customer or IDN with a broad deployment across multiple rehabilitation facilities. Prior to this adoption decisions were made at each individual facility. With an IDN relationship we can work across multiple facilities, is very quickly delivered and trained throughout the network. We believe that our learning's from this experience can be leveraged to support other IDNs who are interested in aggressively differentiating their rehab services by adopting the EksoGT. We are also focusing on the economic value proposition that EksoGT provides to rehabilitation centers for inpatient strokes and spinal cord injury care. I'd like to spend a moment discussing how one of our customers has realized economic benefit from EksoGT. Currently hospitals are reimbursed at pre-negotiated rates based on specific diagnosis codes. The amount of inpatient rehabilitation time is also pre-negotiated, although extended stays may be covered if patients can demonstrate early and continuing progress. Our customers have been able to show that early and continuous use of the EksoGT results in patient improvement over a longer period of time when compared to standard therapy. One customer found that the average improvement in functional independence measurement scores or FIM scores was meaningfully higher in acute stroke patients using the EksoGT than the patients who did not use the EksoGT. These improved outcomes allowed the rehabilitation center to advocate successfully for extended length of stays and negotiate higher reimbursement rates. Based on the positive patient and economic outcomes that this facility has experienced with EksoGT, they conduct EksoGT assessments on every patient that meets the system's inclusion criteria within the first week of admission. Additionally, this facility has expanded their patient base because the center has integrated the EksoGT into their rehab program they are proactively being sought out for inpatient rehabilitation by patients and referring physicians who are looking for leading rehabilitation services with EksoGT. This expanded patient base has enabled it to further increase its revenue while achieving its mission of providing the highest quality rehabilitation care to the patients it serves. We believe that this case study is a compelling demonstration of the value EksoGT can provide to other potential customers. Additionally, based on our experience with this organization, we now work to make sure that this see sweet advocate for the EksoGT is involved in the purchase decision whenever possible. This ensures that both the clinical and economic benefits we offer are clearly articulated to and appreciated by an institution's critical decision makers. This customer case study continues to affirm that severe stroke patient's benefit and demonstrate functional improvement over longer periods of time when EksoGT is incorporated into stroke rehabilitation. I will now turn the call over to Max, who will review our 2018 second quarter financial results. Max?

Thanks Jack. Total reported revenue for Q2 2018 was just under $3 million compared to $1.9 million in Q2 2017, an increase of nearly 60%. In terms of revenue, excluding a onetime adjustment in 2016 this is the best quarter for Ekso Bionics since we were founded, including the fact that 10 of our 25 EksoGT shipments for the quarter were rentals. The breakdown for Q2 2018 revenue is as follows. We recognized approximately $2.4 million in medical device and related revenue, up from $1.5 million in Q2 2017. The 25 unit placements this quarter is a 25% increase over the 20 units placed in the same period last year. We recognized approximately $600,000 in EksoWorks revenue compared with $400,000 in the same period a year ago. In total we placed 103 units which consisted of 40 arms and 63 vests We currently have a total of just over 320 Ekso rehab units in the field of which 28 are rentals. As you know in our efforts to drive adoption to over 50% per year, we have encouraged twelve months rentals. Our track record with conversion of these rentals remains well over 80%. We believe it's a testament to the clinical and the economic value proposition for our hospital customers In terms of EksoWorks, we now have over 500 units in the field, while close to 70% represent our arms, the vests are really gaining traction among manufacturing customers as evidenced by the adoption of Ford. As more of our trial programs with manufacturers go through their pilot testing, we are optimistic that our EksoVest will represent an increasing percentage of overall EksoWorks revenue. Our overall gross profit for the quarter was over $950,000, representing a gross margin of just under 33%. This compares to gross margin for the same period last year of 21%. Given that 82% of our business is in rehab, it is important to note the improvements to our cost of goods sold are beginning to make a big impact, both on the hardware and on the service side. Our gross margins for EksoGT increased from 21% in Q2 2017 to over 38% in Q2 2018. Operating expenses for the second quarter of 2018 were $8.2 million compared to $8.9 million for the second quarter of 2017. This is a reduction of $700,000 or close to 9%. The reduction is driven primarily to the shifts in our business that we have discussed in the past, more efficient efforts in EksoWorks and a consolidation of US marketing into the US sales team. In addition, it reflects a reduction in the R&D workforce from May of last year. Nevertheless, we continue to invest in areas that we believe will drive sales and improve our margins and reduce our customer acquisition costs. For the second half of this year, we expect our base operating expenses to be below $7.5 million per quarter excluding onetime expenses. Net loss from operations for the quarter was $7.2 million dollars, a $1.3 million or 15% reduction to the $8.5 million net loss from operations in the second quarter of 2017. Cash used in operating activities for the six months ending June 30, 2018 was $12.8 million as compared to $16.9 million for the first six months of 2017. As of June 30, 2018, we had a cash balance of $13.9 million. As a result of our pipeline for both our rehab and industrial businesses and continued recent improvements to our operating structure, we expect cash used in operating activities to be well below $10 million for the second half of this year. Please see our 10-Q filed earlier today for further details regarding the quarter. And with that I will turn the call back to Jack.

Thanks Max. We have never had a more compelling clinical and economic value proposition to provide our customers. We are demonstrating important progress in capturing an increasing share of the large and growing opportunity in the rehabilitation space and we believe that the clinical and economic benefits that EksoGT provides are driving a paradigm shift in the stroke and spinal cord injury rehabilitation market. Our new commercial strategy is gaining traction in North America and we have a number of high profile opportunities in Europe, Asia and the industrial markets. We are proud that we are improving outcomes for stroke and spinal cord injury patients and creating value for the institutions that provide them with rehabilitation services. Improving returns for our investors requires that we continue to focus on improving our bottom line without sacrificing the innovative capacity that's generated our portfolio of transformative products. Over the past year we have made a number of changes to where we focus and how we operate as an organization and these initiatives are coming together in a very positive way. We expect to see continued improvements in unit adoption, pipeline visibility, gross margins and customer acquisition costs. All of these improvements will strengthen our company and allow us to better capitalize on the exceptional opportunity we have before us. Devin, you may now open the line for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Bruce Nudell with SunTrust Robinson Humphrey. Please proceed with your question.

Hi, this is Stan Fediuk on the line for Bruce. Thank you for taking my question.

Hi Stan.

Hi, first can you just provide more color on the unit trends in the quarter and the US Ekso exports for medical?

Yeah sure. Max, would you mind taking that question?

Sure, so for this quarter we had 15 units of United States, North America, nine units are EMEA and one unit is an APAC of 25 units.

Okay and so Jack it's your fifth month on the job as CEO, how do you view the business development from here?

Well first I want to say I cannot be happier both in my role and in the company. We're very pleased with our quarter. But in terms of the business I'm thrilled. The rehab business, we think about two businesses. The rehab business we've got a great product that our customers love and it works and delivers great clinical results. We delivered terrific economic value proposition to our customers that we're learning to articulate and willing to articulate in a way that makes sense to them. And we have a great team including our go-to-market team that is helping us get better visibility and predictability in our sales and allowing us to better communicate our story to our customers, so really, really pleased on the rehab side. On the industrial side it's early still. We've got some great traction with some fantastic customers including Ford, but we were piloting our products in a number of manufacturing - with a number of manufacturing customers and we really believe the value proposition is strong and we would expect to see some adoption over time. With all that it's still early for us, it's still an early market with predictability on sales being difficult and adoption rates being hard to predict, but overall I'm just - cannot be more excited, cannot be more excited Stan.

So circling back to the medical side, your rental program seems to be evolving nicely, how confident do you believe you can convert rental units to sales going forward?

Yeah, so our rental program is a program we developed to allow us to bridge a customer who wants to purchase a system too, but doesn't have the budget to pursue that to a time when they can actually budget and purchase the system. So one, it's really been a great program to allow us to deliver solutions for those customers. Whereas sales, we've experienced a very high conversion rate so far with rentals north of 80%. And I believe that we should see that trend continue and the reason I believe that is that when a customer brings an EksoGT into their center, into their program, it's a significant commitment and the commitment - whether they buy the system or rent the system, the commitment is real and it involves training, it involves education, it involves patient education, it involves program changes, so it's not something to be taken lightly. And when we do deliver a rental program we're sure that the customers are committed to the product and that's where we go into it with a lot of confidence.

Okay and can you comment on the size of the rehabilitation market in the US and Europe?

Yeah sure, here's how we think about it. In North America there are about 900,000 strokes per year. We believe about a third of those patients can benefit from EksoGT training. And when we do the analysis to understand how many units that that becomes, we believe it's anywhere from 500 units to 4,000 units for us as a market participant per year in the United States. We believe the European market is roughly the same size as the US market, so that's how we think about the market size. Max is there anything you'd like to add to that.

No, I think that's a good summary Jack.

So can you just provide a little bit more color on the IDN case study and how confident that you can replicate that to other facilities.

Yes sure. So first we're thrilled to be working with some great partners including an IDN. So we've got a great sales process that we go-to-market with and that allows us to address - identify and address the right customers. We've identified those IDNs that we really want to partner with. We believe we've got a fantastic value proposition to deliver to them that allows them to improve their business and improve the care they give their patients and we're discontinuing to work that and we expect to see continued adoption.

Okay, switching over to industrial, can you provide additional details regarding the Ford EksoVest rollout to the 15 plants and what is the opportunity going forward and have there been other industries approaching you regarding EksoVest?

Yeah sure, a lot of questions packed in there. I'll do my best. If I forget something just bring it up later. So Ford is a tremendous customer for us. They're a leading manufacturer that takes - and leading safety company that ensures their workers are safe. They've been a great customer of ours. They've piloted our product in a couple of plants and recently extended that into 15 plants across seven countries. That is - we are working to continue that progress with Ford and we hope that that business will continue to grow. We are working with a number of manufacturing companies both inside the MO of business, inside other - and inside other manufacturing markets or industries. The news today, the clip included some footage from Boeing, but suffice as to say we are working with a number of large companies piloting our device that are involved in any kind of overhead manufacturing work like that. And I'm not sure if I answered all your questions.

That's good. Can you also update on - previously you talked about or mentioned Hasomed partnership, I believe it was announced last December. Is there any update there?

Yes, there is. I'm going to pass over to Max. Max is closer to that than I'm.

Yeah, thanks Stan. So we sold three SES units in Europe. I think you know that. That's where we are committed to sell. Those units are very active and there's initial training and pilot testing beginning with those units. In addition, we're looking to expand the use in the United States with some our US customers who are looking to put an IRB in place so that they can do research around the SES system with the Ekso.

Okay and is there any update on the WISE study?

Yeah, I can give a quick update on the WISE study. When I joined, we looked into our company to understand where we were investing, where we were spending money and making sure those investments were aligned with really where we needed to be successful. The WISE study we were spending a lot of money and it's a great study, but the results were pretty far out in terms of closure of that program and the patient introduction rate was pretty low. So we've spent a lot of time over the last quarter focused on modifying the WISE study to do a few things. One, we've concentrated with five clinics to drive the study and we've reduced the number of patients to a smaller number of patients both of which are allowing us to drive to some results earlier and we hope to have initial results in mid 2019. Thanks for asking.

Okay and final question, how is the CFO search progressing?

We've had a very robust and active search going on to - as people remind me not replace Max, but attend to issues [ph]. We are very far in that process and hope we can have something to announce very shortly.

Okay and thank you for taking my questions.

It's been a pleasure Stan.

Thank you. [Operator Instructions] We appear to have no further questions at this time. I'd like to turn the floor back over to Jack for closing comments.

Thank you all for joining us today. I'm proud of the records that we achieved in the second quarter of 2018 and based on the progress we made in the first half 2018, I believe we are on track to make this one of our best years ever. Our focused, streamlined and dedicated team has identified and is deploying strategies that help us compete effectively in the market place. We continue to refine and optimize our operations to reach our goals while providing a foundation for sustainable growth and value creation. Our products are robotic, but their focus is on people, the patients, care givers and investors who will benefit from our success. I look forward to sharing our progress with you in the months ahead.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.