Ekso Bionics Holdings, Inc. (EKSO) Q3 2019 Earnings Report, Transcript and Summary

Greetings and welcome to Ekso Bionics Third Quarter 2019 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. It is now my pleasure to introduce David Carey, Lazar Partners. Thank you, please begin.

Thank you, operator, and thank you all for participating in today's call. Joining me from Ekso Bionics are Jack Peurach, President and Chief Executive Officer and Jack Glenn, Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the quarter ended September 30, 2019. 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 include Forward-Looking Statements within the meaning of the 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 forward-looking statements. All forward-looking statements, including without limitation or examination of historic 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 businesses, 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, October 30, 2019. I will now turn the call over to Jack Peurach.

Thank you, David. And thanks everyone for joining today's call. Our financial results for the third quarter of 2019 demonstrate our ongoing commitment to achieving our sales and operational objectives. In what is typically our seasonally weakest quarter, revenues for the third quarter increased 30% compared to the third quarter of 2018 and were up slightly over the second quarter of 2019, highlighted by a strong record revenue quarter for EksoHealth. We also saw an improvement in gross margins, which increased to a record of 53%, up from 42% in the same period last year. We have continued to improve our operating expenses, achieving a 23% decrease in the third quarter of 2019 compared with the same period in 2018. Additionally, our rental program continues to yield great results. At the end of Q3, our cumulative conversion rate of our rental to a sale remains strong at 86%, the solid year-over-year improvement in multiple financial metrics achieved in the third quarter reflects the success of our commercial strategy and the value our customers see in adopting our solutions. As I noted on last quarter's call, we established the near-term goal in both the EMEA and APAC regions to continue to extend customer awareness and better support and equip our channel partners to effectively communicate the value our products provided to shorten the sales cycle. We are pleased that the changes we implemented in Europe while recent are having a positive impact by improving our sales results in our direct markets, reducing our operating expenses and better supporting our distribution partners. As mentioned, we are experiencing traction in the direct market in Germany and expect that market will play a significant role in our EMEA growth. We continue to evaluate our European strategies to realize the full potential of our products in this key region. Let me now review our business segments, beginning with EksoHealth. Revenue in the third quarter increased by more than 70% relative to Q3 2018, primarily the result of higher sales to our U.S. and European customers. In the third quarter, we booked 23 Ekso units comprising both EksoGT and EksoNR units. This includes two rental units and seven previously rented units that were converted to sales. As I have discussed in the past, our primary market focus is the Inpatient Rehabilitation Facility segment or IRF segment where much of the acute and post acute rehabilitation occurs. Today, eight of the top 10 U.S. rehab centers have at least one EksoGT and roughly 10% of the approximately 1300 stork rehab centers in the U.S. are Ekso customers. In addition to Inpatient Rehabilitation Facilities. We are also seeing increased interest in additional market segments with new pilots happening in the Long-Term Acute Care hospitals or LTAC segment where the focus is on long-term rehab and treatment of other medical conditions and in the skilled nursing facilities or SNIF segment where the focus is on long-term rehabilitation. There are about 600 LTACs and 15,000 SNIFs in the United States. For our type of robotic therapy, we believe the aggregate post acute market opportunity is roughly $500 million to $750 million annually. To gain share in these markets, we are focused on IDNs and network operators. We believe they provide opportunities for multiunit sales, which will play an increasingly important role in our growth strategy and we are adapting our sales practices to facilitate the purchase process for these customers who typically have more complex decision-making processes. We currently have power at various stages with multiple network operators that represent approximately 400 centers. An important compliment of our strategy to increase both our customer base and our sales per customer is to solidify our leadership position at the cutting edge of robotic neuro rehabilitation. With the unveiling of the EksoNR, our next generation EksoGT and the expansion of our medical exoskeleton portfolio to include the EksoUE upper extremity device. Our activities in the third quarter of 2019 underscore our ongoing capacity for and commitment to innovating solutions that amplify human motion by enhancing strengths, endurance and mobility. These achievements also reflect our ability to address the needs of the customers and the patients that we strive to serve everyday and we remain focused on providing superior customer service, driving continued sales growth and optimizing our cost structure. We recently hosted many of our customers clinical staff at our Annual Clinical Users Group meeting and we were pleased that the early feedback on EksoNR’s new feature and software enhancements was highly favorable. The PT users were particularly excited about the new patient feedback scores and new ways to implement this information for better treatment interventions. Additionally, the EksoNR’s outcome measures allow patient tracking over multiple sessions. Customer enthusiasm has already translated into orders an outstanding quotes for upgrades to existing EksoGT’s already in the field with orders of outstanding quotes already represented greater than 10% of our existing U.S. EksoGT installed base. Our recently as EksoUE is a one-of-a-kind wearable device that gives patients greater range of motion and increased ability to complete tasks during therapy sessions, allowing them to actively participate in longer and more productive sessions. In addition to its innovative features EksoUE expand our customer base to include occupational therapists who represent an exciting new user segment within the rehabilitation market. Our initial commercial activities is focused on existing customers where we have already placed a small number of units. Patient and clinician feedback so far has been excellent. We expect to ramp commercial activity through Q4 2019 and into Q1 2020 as we continue to educate the market about the unique opportunity this product represents. Our EksoGT users already recognize the clinical and economic benefits of our rehabilitation solutions. We are communicating a compelling value proposition that clearly articulates how the EksoUE and upgraded to the EksoNR will help them improve their clinical workflows and patient outcomes. Additionally, we believe that the EksoUE will be an important complement of our strategy for expanding our customer base, because it can help rehabilitation providers enhance their patients offerings even if they are not yet in a position to purchase an EksoNR unit. Additionally, it provides our salesforce with another reason to engage with potential customers and to build the trust and understanding that is essential for securing future business. Going forward, we will continue to improve and evolve our product offerings with a clear focus on improving patient outcomes. Let me now turn to our Ekso Works industrial segment. Revenues for the third quarter 2019 were lower compared with the same period a year ago, primarily due to slower than anticipated customer purchasing decisions. As we have noted, the time from initial evaluation to adoption is somewhat longer than expected and some of the industrial customers we been working with as they put our product through rigorous qualification processes. While we are optimistic about the longer term potential of our industrial offerings, several customer opportunities remain at the early stage. We are taking steps to engage with a broader mix of companies in industries and segments outside of our initial go-to-market, including a variety of construction segments. I look forward to updating you on our progress in the industrial markets as a customer discussions, pilot programs and diversification strategies advance. In China, we are in the process of transferring production to the JV and expect to qualify our China JV partner as a manufacturer for our industrial products before the end of 2019 with industrial shipments anticipated to commence in the first quarter of 2020. Production qualification shipments of our Ekso Medical Devices are expected to follow shortly thereafter. Initiating shipments from the JV is an important milestone in Ekso Bionics strategies to improve our cost of goods and achieve additional operational efficiencies. Additionally, achieving medical device production capability will allow the JV to pursue China regulatory compliance, which is required to market and sell the EksoNR in China. That concludes my opening remarks. Now I will turn the call over to Jack to review our 2019 third quarter financial results.

Thank you, Jack. In the third quarter 2019 Ekso generated revenues of $3.3 million an increase of $770,000 or 30% compared to prior year period. The growth reflected the success of our EksoHealth U.S. commercial strategy, improved European and APAC performance and the strategic value of our rental to sale program. The range now for Q3 2019 revenue is as follows; We recognized approximately $3 million in medical device and related revenue a record in the quarter, up from $1.7 million in Q3 of 2018. We booked 23 EksoGT an EksoNR units in the third quarter two of which were rental units and seven of which were previously rented units that were converted to sales. As a reminder, bookings represent quarter that we had either been shipped or in the process of being shipped. We recognize approximately $320,000 in Ekso Works revenue compared with approximately $790,000 in the same period a year ago. The decrease is primarily due to slower than anticipated customer purchasing decisions. Our gross profit is up 62% for the quarter at $1.8 million, representing a gross margin of approximately 53% both records for the quarter. This compares to a gross margin for the same period last year of 42%. This strong increase in our gross margin is primarily attributed to continued execution of our medical business. We achieved higher average selling prices and lower production costs our EksoGT and next generation EksoNR devices. Going forward, we continue to focus our efforts on increasing total gross margin, operating expenses for the third quarter of 2019 were $5.5 million compared to $7.2 million for the third quarter of 2018, a reduction of approximately $1.7 million or about 23%. This reduction reflects the continuation of the companywide initiatives we implemented last year primarily in general and administrative expenses, as well as improving overall operational efficiencies. Our focus remains on optimizing the cost structure of our organization by growing sales of the commercialized products. Loss from operations for the quarter was $3.8 million compared to a loss from operations of $6.1 million in the third quarter of 2018. For the three months ended September 30, 2019, we recorded a gain on warrant liabilities of $4.4 million due to the revaluation of warrants issued in 2015 and 2019 compared to $0.7 million loss associated with the revaluation of warrant issued in 2015 for the same period in 2018. Net income for the quarter was $0.2 million of about $0.0 per share compared to a net loss of $7 million or $0.11 per share in the third quarter 2018. Turning to year-to-date results. Revenue in the first nine-months of 2019 was $10.2 million compared to $8 million for the same period in 2018, an increase of 27%. The increase in revenue for the first nine-months of 2019 is primarily due to higher sales volume of EksoHealth sales. Operating expenses in the first nine-months of 2019 were $18.7 million a decrease of $6 million or about 24% compared to the prior year period. Net loss year-to-date was $9.4 million or $0.13 per share compared to $22.9 million or $0.38 per share in the first nine-months of 2018, we are improving our financial standing by reducing the use of cash. Cash used in operating activities for the first nine-months of 2019 was $14.3 million compared to $17 million in the first nine-months of 2019. As of September 30, 2019, we had a cash balance of the $8.1 million. Please see our 10-Q filed earlier today for further details regarding the quarter. Operator you may now open the line for questions.

Thank you. [Operator instructions] Our first question comes from line of Craig Bijou with Cantor Fitzgerald. Please proceed.

Hi this is [Dennis] (Ph) for Craig. Thanks for taking the questions. So first net placement stepped up sequentially. Can you give any color on what drove this number up this quarter and as a follow-up. What are your pipeline of centers of like today compared with a year ago and how are your new products impacting your pipeline?

Okay, first question, net placement and a little color on net placements is second one, can you repeat that?

So what do your pipeline of centers look like today, compared with a year ago and how are your new products impacting your pipeline?

Got it, okay so net placement, increase of net placements, we have been really focused on driving our proxy into the market. I think a number of things are helping us accelerate that, we have really in Europe made some changes to our go-to-market and sales organization focus initially have the direct salesforce and we have seen some benefits from that in a relatively short-term so that is part of it. I think the second thing that has really helped a lot is that we have continued to focus on IDNs in the U.S. and are starting to see some additional pilots with IDNs that are helping with our placements and then just continued adoption and progression into the market, our value proposition is more and more understood and accepted by our customers. So I think it's a combination of all those things. With respect to the pipeline of our centers in the role that new products have in bringing those centers on board. So with me is Bill Shaw, Bill is our Chief Commercial Officer. I will take a start at this and I will pass it over to Bill. We continue to build our pipeline both with individual centers and with our network operators. Our products - we have really introduced two new products in the last quarter. One our EksoNR which is the next generation EksoGT that has been extremely well received. I mentioned in the call that we had a user group meeting, we brought in a lot of our clinical users. And part of that was to share more about the Ekso and harness benefits and we have had a I would say pretty tremendous response from that customer set to upgrade their existing units to the NR. So I think that has helped us to stay engaged and with our customers and continue to bring value to them even after the initial sale. On the EksoUE, we are in initial trials with a very small number of our key customers. So it's not yet really played in, but I think there is a lot of interest in our installed base for sure about that product and I feel very confident that we will get to see a lot of adoption into that as we release it this quarter and begin in the next quarter. Bill anything you would like add?

No. The only other thing I would just add is we are getting more directly focused on the network operators as well as the key markets within our space.

Great that is helpful. And you mentioned that over like 30% of your customers on multiple rehab units, is that number trending up and what do you think that it could get to over the next couple of years?

Yes, that number is trending up. I’m going to ask Bill to fill in the gaps on this one, but it is actually really exciting because, right now, 30% of our customers do have more than one, some have many more than one. But it is something that we haven't really made a focus for us internally, and as we start to go back and we see customers with high utilization and we help them with successfully implementing Ekso program, we start to see them have more and more interest for multiple units. So that is sort of one key element. The other thing that is driving this is that many centers will have an acute setting, in-patient setting and an outpatient setting, perhaps on the same facility, but moving a piece of equipment around from location-to-location is tough. So as utilization comes up, people will add a second unit, maybe for a second part of their facility. Where do we see this going, in any entitled state when we think about this, we generally believe this is the best solution for neurological rehabilitation gate therapy. So you expect this to happen and the majority of centers to have multiple units. But timing I don’t want to be too aggressive about timing, but in the end game, we certainly think there is going to be everywhere. Go ahead.

Yes, I would just say it's interesting. If we look at the top 10 players in the inpatient space, for example, our penetration is only about 5% at this point, and so we have a lot of blue ocean ahead. So I think making sure we execute really well with our pilot programs, we are driving really good clinic focus around outcomes, hitting key growth objectives with hospital executives, operational efficiencies, all those things they measure are really important. And so I think as we do a better job managing our customer success model that is going to help us continue to expand in that space.

Okay. Can you talk about your salesforce expansion plans for rest of 2019, 2020, and what the ramp to full productivity looks like for new hire, and then work those full productivity look like from a revenue perspective?

Yes, I will take that. So right now we are expanding. So we have expanded in Europe, we are continuing to expand in the U.S. But we are trying to be really strategic with the type of people we are bringing on Board. So we have made some personnel changes. As we get more focused on the network operators, we believe there is a different skill set that you have to have. So with our current sales, we are investing in some training, but we are also looking to bring more experienced people have worked network operators on board. And so that is something that we will continue to focus on through 2020.

Okay, and then on your JV, is there anything that changed with your recent announcements. And when can we expect any revenue contribution from the JV?

Yes, so for the first part of it, the contract that we signed agreement is just part of normal course of business with our JV partner, I think it's progressing extremely well. Right now as a reminder, the three primary motivators for that, number one to establish manufacturing centers in a low cost area and help us with our cost of goods and our working capital, that we are going to see benefit from in 2020, for sure. The second was to expand it to the Chinese market, which is a very large market opportunity for us. There are revenue that we will see from that is largely through a the royalty stream. We will see that there is a few year holiday and that so we won’t really see revenue from royalty until you know a few years from now from the China market, however there is third dimension which is a we are an equity owner in that venture and this gets adopted [indiscernible] Charlie see that value being quite significant quite significant.

Great and last one from me. So I mean really strong pick up in gross margin so far in 2019. What specifically is driving the improvement in production costs and ASP and then where can we see gross margins go in 2020 and beyond?

Well first thank you, we really have tried hard to improve the net area. I think two things are driving it. One, the way we sell our product and communicate the value proposition and demonstrate it I think is acknowledged so that has allowed us to maintain relatively high ASP in fact increasing little bit over time. The second thing is just really focusing on the cost of our product and we have done that internally. I think next year we will see some improvements as we move to China and so where do we expect to get on that I think we have got some relatively conservative targets and low 60% gross margins, but we feel pretty confident about that.

Great. That is it for me. Thank you.

Thank you. Our next question will come from the line of Swayampakula Ramakanth with HC Wainwright. Please proceed.

Thank you. Thanks for taking my questions Jack and Jack. As you stated - units in the third quarter of 2019 versus 2022 in the second quarter, but I’m just trying to understand what was total number of units currently in the rental program at this point. And also the seven conversions of rentals to sale, how many of those there with an IDN maybe at the point. And how many outside of IDN.

Sure I can take that one. So currently in our rental fleet there is 23 units in achieved unit course there were 70 conversion. I believe about for those were with IDN with Kindred in the quarter and then you know also those 23 units you can correlate to about $3 million of potential conversion revenue going forward and about a half million of contract revenue currently. Well by the way that is all - I’m giving you all the U.S. number.

Okay. And then obviously on the second quarter your first quarter - with Kindred and now – Kindred. So is there more room to grow within that customer at this point or for the next set of expansion in the IDN market we need to look at current pilots who will be converting into at least a rental. I will stop with this question and then I’m going to come back with a follow up.

Okay so yes, to answer your question, there is an opportunity to continue to expand with the customer you mentioned. We also are working with several other IDNs right now who are network operators where we have pilot started. So that is something that we will continue to focus on. The opportunity really, when you look at these network operators, our core market has been the inpatient rehabilitation market. We are also starting to pilot outside of that in the skilled nursing space, also long-term acute care. So some of these network operators play in multiple market segments. So that is where we would expand with them to new areas, but we continue to focus on our primary market right now of in-patient of the primary focus.

Okay. I know you did say that pilot is going on with other network operators or IDNs. Is it possible for you to tell us how many pilots there are. And also from your experience with Kindred and learning from that experience, how should we think about future pilots and our conversion into a rental, at least into a rental.

Yes, I will take that. So, in terms of number of pilots that we have got actively underway right now, we have got between five and 10 pilots with large network operators at various stages, so I think the second part of your question is, what is the sales cycle for those pilots. And I think the sales cycle is much more complicated sales cycle, the evaluations of the pilots is one aspect of it. But there are other aspects as well that Bill alluded to earlier. We have really invested in the ability to support our customers, we call it customer success programs, so they can have a successful experience with Ekso as we are working through the pilot. We think the sales cycle is going to be somewhere between probably nine-months on the front end and 12 to 15 months on the back end before we get really good visibility in terms of what the success of this and will interest and magnitude of the opportunity going forward. So I think that is where we are at right now. We are learning all the time on this opportunity, but that is where we are at right now.

One more comment just to clarify the Kindred which was our first real network operator that we worked with, that came around as a rental that then converted into a capital sale. That is not necessarily always the case. Many of our rentals are now with network operators. And then of course, some network operators may not choose to go rental right away, just to clarify that.

Thank you. Building your initial comments, I was trying to take a note and at the same time listen to you, so probably I'm trying to make sure that whether I record this correctly or not. So when you were talking about the pilots running in various IDN centers. I understood that some of these centers right now if you add them up it would make up for nearly 400 centers, was it correct or did I hear something by mistake. I didn’t get the thing correctly.

No, you heard it correctly, but maybe let me clarify it. So we have pilots running right now with network operators and those network operators represent approximately 400 centers. We don’t have 400 pilots. So - we think there is tremendous opportunity.

That is right, that is what I was trying to underscore basically. So last quarter I think you gave market a numbers saying units are approximately in about 270 centers or something like that in the U.S. So how many centers do you have at this point and just trying to understand how that trajectory is improving and also now that you have Bill on Board and also with sales force who are more focusing on these large networks. How should we think about that trajectory because that also kind of plays a little bit into how that growth should be in the EksoGT placements.

Okay I got the question, I just need to get the number for you. So the question is really about number of centers we are in the United States right?

Yes.

Okay, so I think the numbers that you quoted maybe was a global number. We are between 130 and 140 closer to 150 centers in the United States, you know those are principally not entirely but 95% plus in inpatient rehab facility segment. The second part of your question is around, what is the expected growth rate or penetration into those centers going forward. You know we were very optimistic that our call it recent shifted and focus on IDNs and really understanding the customer better. You know it all levels not just at the individual center, but throughout the organization and helping to address the variety of challenges that may be associated with adopting our technology so we can accelerate that process will help us penetrate into those centers and that becomes a much more efficient way for us to serve our customers and bring our technology to markets. So we are very optimistic in terms of I don’t think we are in a position to really forecast a growth rate as we do that but we generally believe it's going to be much more efficient and ultimately will deliver higher growth rate for us into that market. That said is a small number of customers swampy and decisions are complicated. And I think initially to get started difficult to forecast things, but it also I think once we get rolling on this it going to be a lot more stable for our business.

And just two more question and then I will get it over to you. On the NR products you said there was quite a bit of an interest in the NR, there are sort of people who are looking to convert or upgrade this GT to NR. So how does that revenue look like in the sense, would it be just an upgrade to fuel - I’m not sure what the upgrade cost it or is it going to be like placement of a new units which could be obviously quite a bit of a revenue. So I’m just trying to understand what that would mean? And also is your outstanding orders that you were talking about most of them are only the upgrades are some of them - or is it a decent percentage for actually looking for purchasing your fresh and new NR unit and who have had no experience with GT?

Okay, great question. So, I will try to break it down number one, in terms of upgrading we have our EksoGT we have a number of different vintages in the field. Depending on the vintage the upgrade can be - it's always a hardware and software upgrade, but it's relatively straight forward, we are selling that in the market for between $10,000 and $15,000. And that is really what a number of our customers are kind of driving for. So that is the first point. The second point is that depending on the vintage, it could also be a significant upgrade to bring a EksoGT in our level of capability. In those cases where those are usually older, they have more use on them. So we have had discussions with customers about upgrading and do have a some folks out upgrade sorry to -- not upgrade but replace effectively EksoGT unit with an EksoNR unit. I think those are- that is a much smaller percentage of the population out there. But I think the interest is certainly there to do that. But the principal near-term opportunity this is really in the upgrades and builds in the field so maybe you can a little bit to that.

Okay I think, I didn’t covered it

So okay I said one last question, on the JV and your [indiscernible] excitement about the JV in terms of what it brings to the table. So in terms of what it can drive your gross margin. How should we think about this, I know you kind of gave a guidance for like 2020 but that is only with the Ekso Works fully operating for next year, but EksoHealth business also starts getting that structured of the JV I'm just trying to figure out, how quickly you can move the gross margins to a better number. And I'm just trying to understand how to think through that. And what it - for a qualification. If there is a lot of bureaucracy, I know you are expecting it and I'm sure you already have your licenses of course, but I'm just trying to understand for my own sake, to get a comfort level with that expectation.

Got it, okay so, on the product cost side, the our product costs have been reducing approximately 20% annually, we would expect to be better than that in 2020, both on the certainly on the industrial products, and on the medical products. So, a lot of that will be driven by the JV rather than driven by us, which is part of the banks of the JV. The second part of your question, what is involved in qualification and so for a non FDA regulated products the qualification process is entirely internal. Just as we would qualify any vendor as long as they met our quality requirements they would become a vendor, a qualified vendor. For the medical products there are some additional qualification requirements around implementing - quality program that we been working with our JV partner on implementing and that and that is the second part of it to become a qualified vendor of medical products to us is the degree that we are talking about. Those are not heavily bureaucratic, but there is work involved in it. We would expect to be qualified by the - certainly this quarter for the industrial and probably Q1 for the medical where shipments at least of subassemblies in Q2 for the medical and trying to get some benefit from all the other aspects of the JV over that period of time. The last thing I will say is that there is third qualification element that is related to selling the medical products into China. That qualification is not an internal qualification process, it is a external qualification process. It includes the Chinese equivalent of the FDA's and that is - think of it as a 12 to 18 month process in China, that affects the revenue - go-to-market in China for the medical product in how many - the types of customization they can approach before versus after getting that kind of certification.

Thank you, very much for patiently answering all my questions. And we will talk to you soon.

You bet RK. Thank you.

Thank you. Our next question comes from the line of Nathan Weinstein with Aegis Capital. Please proceed.

Hi guys, congrats on the strong quarter. If I could just ask a question about your prepared remarks Jack, I think you may have mentioned total addressable market number, did you say that could be over 500 million and then if you could sort of decompose that, does it includes finance to LTACs or what else is in there.

Yes, sure. I did say that we have really looked a lot at the market to try to understand the opportunity in front of us in a little more detail. So that included [UBS] (Ph). That number includes all three LTACs skilled nursing facilities and inpatient rehab facilities, and we have included in those segments, you know high penetration into the inpatient rehab facilities. We actually believe that this will be - as it becomes standard of care in every one of those centers in patient rehab in LTACs. And in skilled nursing facilities. We have still a major focus in a subset of the skilled nursing facilities, albeit maybe a slightly different easier-to-use form that we currently offer, but we believe that that will have some significant penetrations well in our model were 50% to 60% adoption into the SNIF segment in small unit though. Maybe one unit per SNIF versus multiple.

Okay. Thanks and then of the conversion ratio at 86% look like we moved up from recent quarters. Could you call out anything that may have driven that conversion ratio higher?

Yes well you know its cumulative conversion ratio and everything that was up for conversion converted. And I think that what is driving that I think there are multiple things. One is, as we are out in the field selling the product, we are really - I think early units that didn't convert were likely related to, maybe this wasn't a great match to begin with. So there is probably that. Second is that we really focus on customer success in helping our - making sure our customers are successful with our technology and addressing challenges when we see them, so we don't have a conversion problem. I think that would be the second. Overall, just general improvement of our ability to serve them and I think pleasure with products and with our Company. As I have said before, this is really - in my mind this exceeds our internal targets going back to my days on the Board. I think it's really a testament to the whole Company in the way that we serve our customers and help them address things. Remember, they have done a whole year to evaluate working with us, not just our product, but our customer service, our field service, our clinical training team. And for them to say yes, I'm going to buy this product after working with us for years it is just a really strong word of confidence.

Thanks. Okay. And last one from me. And just in discussing the margins, I know you covered it quite extensively, but are you called out both ASPs and lower production costs as both benefiting margins? I mean not to think about those two buckets, is there room to draw from both of those or do you feel like you are getting close to the limit on either of them?

Good question. We are very careful on ASP. We do not want to price ourselves to the point that we are impacting demand. I don't think we have done that yet. But it's a learning process. So I think that there is probably some room there. I think, on the cost side, you know, I think there is still significant opportunity on the cost side as we really transition to the JV and more importantly really a low cost supply chain in addition to a low cost manufacturing center. So, I think there are opportunities in both, I would probably say there is probably a little more opportunity on the cost side than the ASP side, but we are working both.

Yes. Thanks a lot.

Thank you. We have reached the end of our question-and-answer session, allow me to turn the floor back over to Jack Peurach for closing remarks.

Okay. To summarize we had multiple achievements in the third quarter of 2019, including exciting product introductions, increased revenues, expanded gross margins and decreased operating expenses. These achievements help to strengthen our financial position while providing resources to invest in our sales and marketing efforts and to continue innovating products that meet customer, patient and worker needs. The introduction of the EksoNR and the EksoUE highlight our ability to advance and expand our product portfolio is strategic and cost effective matter. As we move through 2019 and into 2020 we remain focused on increasing our sales to existing customers and expanding our customer pipeline in both medical and industrial segments. We also continue evaluating areas of our business in which we can reduce operating expenses while maintaining a robust sales effort, highest quality customer service and strategic innovation. I look forward to updating you on our progress in the months ahead. I would like to thank everyone for joining today's call. Have a great afternoon.

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.