Ekso Bionics Holdings, Inc. (EKSO) Q4 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Ekso Bionics Fourth Quarter 2019 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Matt Steinberg. Please go ahead, sir.

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; Jack Glenn, Chief Financial Officer; and Bill Shaw, Chief Commercial Officer. Earlier today, Ekso Bionics released financial results for the quarter and full year ended December 31, 2019. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities law, 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 our future financial or operational expectations or our expectations of the regulatory landscape governing our products and operations, 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, our regulatory outlook 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, February 27, 2020. I'll now turn the call over to Jack Peurach.

Thanks, Matt, and thanks, everyone, for joining today's call. Our mission at Ekso is to amplify human motion by enhancing strength, endurance and mobility across medical and industrial applications with advanced robotics. We ended 2019 on a strong note with record fourth quarter revenues of $3.7 million. Growth was driven by another record quarter from our EksoHealth segment. In 2019, we achieved a 35% increase in EksoHealth revenues and continued to maintain high conversion rates of device rentals into sales. We believe that this achievement underscores our progress in driving market awareness and supporting our customers so they can successfully implement their Ekso programs. We continued to execute on our mission in 2019 by making greater progress with network operators, which is beginning to yield positive results and further penetrate the inpatient rehabilitation market. To date, we have shipped over 400 devices globally to over 300 different rehab centers. Spinal cord injury and stroke patients are realizing the game-changing benefits in their recovery process as evidenced by a higher quality of recovery with improved outcomes combined with a lower length of stay. At the forefront of innovation, we are developing exciting new technologies, such as the recent introductions of the EksoNR, the EksoUE and the worldwide launch of our upgraded EksoPulse platform that we announced earlier this month. EksoPulse is an innovative cloud-based information technology platform that measures and analyzes progress using the EksoNR robotic exoskeleton. The improved analytics system provides an easy-to-use dashboard to chart activity and rehab sessions, enhancing the experience of the patient, the clinician and the administrators. The upgraded EksoPulse platform is immediately available to rehab centers around the world that are using the newest generation, EksoNR. To date, we have received favorable feedback from physical therapists, physicians and patients alike who continue to see the benefits in tracking patient care. We believe the EksoPulse platform will become the foundation of an evolved analytics system that can rapidly advance patient care in more efficient ways. Joining us on the call today is Bill Shaw, Ekso's Chief Commercial Officer. Bill joined Ekso nearly a year ago and brings more than 15 years of medical device sales and marketing experience in leadership positions at J&J and Intuitive Surgical. During his time at Ekso, Bill is focused on refining our commercial strategy, increasing the footprint for our medical products among our existing customers and expanding our customer base. At this time, I will turn the call over to Bill, who will provide an update on our global commercialization strategy.

All right. Thank you, Jack. I want to start off by emphasizing my excitement for the opportunity at Ekso Bionics. It was an easy decision to join Ekso as my value is aligned to being part of a mission-driven organization focused on improving people's lives. I've spent the last 9 months traveling the globe to engage team members, existing customers and prospects. And I've been impressed with the feedback from our employees' passion for our products and the positive impact our technology is making to our customers and their patients. I'd now like to highlight a story from one of our customers about a person that we believe demonstrates the true value of an Ekso program and is the reason behind our inspiration to make sure every person needing neuro rehabilitation has access to our platform of technologies. This story is from MidAmerica Rehabilitation Hospital in Overland Park, Kansas. It's about Emilia Clark, a mother of 3 boys. She suffered a stroke at the age of 39. She woke up in the hospital not knowing what had happened. When she arrived at MidAmerica Rehab, she couldn't walk, use her arms or get herself out of bed. She was determined to do the simple things again, such as cook and drive, to take care of her young family. Her physical therapist said she had several breakthrough moments during the rehabilitation, and the day she got into an Ekso device was one of them. She believes our Ekso device helped initiate her neurological recovery, retrain her gait pattern and help her relearn how to walk. Emilia's physician at MidAmerica said Ekso gave her a jump-start at her recovery. Now she can walk on her own again and has regained her independence. She is happy and grateful to be taking care of her boys. And her experience inspired her not only to share her story, but she now wants to become an ambassador for Ekso to help others with their recovery. This story is a testament to our customer success model where we provide extensive training and support to our customers. We have made this a high priority as we recognize getting customers comfortable using our product is a prerequisite to them successfully implementing a robotic rehabilitation program. In addition to the training that is included with each sale or rental, we also offer additional training services for customers who are interested in more advanced uses of the product or who desire more supervised experiences. We will continue to share stories moving forward that support our mission to amplify human motion. A special thank you to Tiffany Kiehl, CEO of MidAmerica and Emilia Clark for sharing her success story. Now to the update on our EksoHealth segment. Our core market continues to be inpatient rehabilitation facilities, or IRFs, with a heightened focus on network operators with multiple centers. We're making inroads with a variety of our network operators, particularly with the larger networks. We have -- are in the process of converting several of these pilot programs to multi-unit sales, an increasingly important role in our overall growth strategy. We are gaining momentum as we continue to increase the number of pilot programs with multiple network operators. Currently, the networks that we're piloting with represent approximately 400 rehab centers across the U.S. IRFs remain our major focus while long-term acute care, or LTAC, and skilled nursing facility, or SNF, markets are potential longer-term opportunities. As we've shared in the past, our pilot rental program has allowed us to bypass a longer selling process to help a center experience the benefits of an Ekso program sooner. At the end of 2019, our cumulative conversion rate of rental to sale remains strong at 88%. As we have stated in the past, we are investing in our commercial sales organization to focus on the U.S. market, our largest market, to support continued adoption and conversions. This strategy is paying off as we achieved a 68% revenue growth for EksoHealth in the fourth quarter of 2019 compared to the fourth quarter of 2018 and a 61% revenue growth for the 2019 full year compared to 2018. We continue to look at alternative pathways to help centers get accelerated access to our technology and have recently partnered with a new firm to develop more acquisition financing options, which we will discuss on future calls as we roll out these offerings. To further enhance our core offering and gain share in the IRF market, the EksoNR, our next-generation EksoGT, which we launched last year, is a strategic differentiator for stroke centers as it has the potential to accelerate a person's recovery, reduce their length of stay, improve the center's discharge back to community rates and attract incremental patients to its center. In the U.S., we now have over 200 devices shipped to 160-plus post-acute care centers with 30% of these centers owning multiple devices. I'd like to share two examples of how we are achieving success in the U.S. The first is with Post Acute medical, or PAM, a large network operator of inpatient rehabilitation hospitals. After piloting in 2019, they decided to acquire 3 additional EksoNR devices and have expanded their Ekso program to 7 facilities. The second example is highlighted by our recently announced collaboration with a new division of Kindred Healthcare, a leading transitional hospital network. Under this partnership, we expanded into a new vertical for Ekso under the Kindred umbrella, which represents 71 LTAC centers in the U.S. Kindred is the first network to explore the benefits of EksoNR in the LTAC setting. The piloting began last year, and it's now being conducted in 4 of Kindred's LTAC hospitals in the Houston Metro area. In Europe, we continue to leverage high-volume neurorehabilitation centers to build awareness about our Ekso platform of technologies. We recently expanded our relationship with several customers in Germany, Poland, Italy and Croatia now piloting the new EksoUE, our wearable upper extremity device that was introduced in Europe in the third quarter of 2019. While still in the first phase of clinical evaluation, this represents another opportunity where we penetrated new European markets with our latest innovations. Looking ahead to 2020, we are continuing our focus to further expand our share of the IRF market and our footprint within the IDNs and network operators. Our commercial strategy is clearly supporting our overall growth trajectory by targeting customers that can make multi-unit purchases and maintaining high rental to purchase conversion rates. Our sales priorities are to effectively educate both clinical and executive shareholders on the clinical and economic value of starting an EksoNR stroke and spinal cord injury Ekso program. In tandem, we continue to leverage our EksoNR customer base to educate and mentor strategic target centers that specialize in stroke and spinal cord injury rehab in key markets. Customer enthusiasm for our new products is high, giving us the confidence that we will continue to build awareness of the clinical and economic benefits with existing customers while expanding our customer pipeline. At this time, I'd like to turn the call back to our CEO, Jack Peurach.

Thanks, Bill. Before I turn the call to Jack Glenn, who will provide more details on our financial performance, I'd like to provide an update on our industrial segment and our China joint venture. Starting with the industrial. Revenues in this segment were $2 million for the year -- full year 2019 compared to $2.5 million in 2018. Several factors impacted our industrial business in 2019, which included new competitive entrants into the market, extended qualification processes of customers piloting our technology leading to slower adoption and purchasing decisions and some internal personnel changes. To mitigate these challenges and capitalize on future growth opportunities within this segment, we are making structural changes to bring in new personnel that will support and advance our strategy. This includes the recent hiring of Michael Pratt as our VP of the Industrial business. Michael brings to Ekso 15 years of commercial experience, most recently in leading the U.S. commercial launch and execution of the Robotics division at Zimmer Biomet. We are evolving our go-to-market strategy by diversifying our activities into more vertical segments and pursuing new business development opportunities. As part of our diversification strategy, we are expanding geographically to Europe,and strengthening our distribution network there. One example of how we are making our progress on this front is a recently signed distribution agreement with the largest Danish-owned distributor of building materials, the Bygma Group, to make the EksoVest available in Northern Europe. Bygma has over 100 locations throughout the Nordic countries and will offer EksoVest through its business-to-business sales channel. Now turning to our China JV. We have made significant progress transferring our manufacturing activities to our JV partners, specifically for the industrial EksoVest. During Q4 2019 and the beginning of Q1 2020, the JV has developed a robust local supply chain and implemented a complete production line to manufacture the JV products. In Q4 2019, we qualified the EksoVest produced at the JV. And in Q1 2020, we qualified the production process and all new suppliers. We also started building out the supply chain for the production of EksoNR through the China JV. In parallel to this, we have been working to complete the JV formation and registrations. As previously disclosed, after receiving questions from the Committee on Foreign Investments in the United States, or CFIUS, in Q4 of 2019, we and the China JV entity voluntarily submitted joint notification to CFIUS to review the China JV arrangement. As part of their review and as an interim mitigation measure, CFIUS has directed us to temporarily pause integration activities and further technology contributions to the China JV until their review is completed. We continue to engage with CFIUS to address their concerns and expect CFIUS' assessment of the China JV arrangement to end in April. The coronavirus outbreak has also had some effects on the China JV by limiting the activities the China JV has been able to undertake. These 2 issues will delay the timing of the China JV's production ramp-up. While the delay will not impact our revenue plans, it may delay the introduction of some cost-reduction activities. Now I will turn the call over to Jack Glenn to review our 2019 fourth quarter and full year financial results.

Thank you, Jack. In the fourth quarter of 2019, Ekso generated record quarterly revenues of $3.7 million, an increase of over $420,000 or 13% compared to the prior year period. The growth reflected the progress made by our EksoHealth U.S. commercial strategy, the strategic value of our rental-to-sale program and improved performance in our European segment. The breakdown for Q4 2019 revenue is as follows. We recognized approximately $3.3 million in medical device and related revenue, a record in the quarter, up from $2.6 million in Q4 of 2018. We booked 26 EksoNR units in the fourth quarter, 4 of which were rental units and 3 of which were previously rented units that were converted to sales. As a reminder, bookings represent orders that have either been shipped or in the process of being shipped. We recognized approximately $430,000 in EksoWorks revenue compared with approximately $730,000 in the same period a year ago. The decrease is primarily due to the reasons Jack Peurach had mentioned earlier. Our gross profit is up 24% for the quarter at $1.9 million, representing a gross margin of approximately 50%, an increase of 500 basis points compared to a gross margin for the same period last year of 45%. This strong increase in our gross margin is primarily attributed to a continued execution of our medical business. We achieved higher average selling prices and lower production costs for our EksoNR devices. Going forward, we continue to focus our efforts on increasing total gross margin. As we have done in the past, we are committed to maintaining a disciplined approach to our expenses. Operating expenses for the fourth quarter of 2019 were $4.7 million compared to $6.7 million for the fourth quarter of 2018, a reduction of approximately $2 million or about 29%. This reduction reflects the continuation of the company-wide 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 while growing sales of commercialized products. Loss from operations for the quarter was $2.8 million compared to a loss from operations of $5.2 million in the fourth quarter of 2018. For the 3 months ended December 31, 2019, we recorded a gain on warrant liabilities of $300,000 due to the revaluation of warrants issued in 2015 and 2019 compared to a $1.2 million gain associated with the revaluation of warrants issued in 2015 for the same period in 2018. Net loss for the quarter was $2.7 million or about $0.04 per share compared to a net loss of $4.1 million or $0.07 per share in the fourth quarter of 2018. We are improving our financial standing by reducing the use of cash to record levels. Cash used in operating activities for the 2019 fourth quarter was $1.5 million, our lowest recorded number, compared to $5.1 million for the same period in 2018. Now turning to year-to-date results. Revenue for the 2019 full year was $13.9 million compared to $11.3 million for the same period in 2018, an increase of 23%. The increase in revenue for 2019 is primarily due to a higher volume of EksoHealth sales. Gross profit for the 2019 full year increased by 57% to approximately $6.8 million compared to gross profit of $4.3 million for the same period in 2018. 2019 gross margin increased to 49% from 38% in the 2018 full year. Operating expenses for the 2019 full year were $23.4 million, a decrease of $7.9 million or about 25% compared to the prior year period. Net loss for the 2019 full year was $12.1 million or $0.17 per share compared to $27 million or $0.44 per share in the same period in 2018. Cash used in operating activities for the 2019 full year was $15.8 million compared to $22.2 million for the same period in 2018. As of December 31, 2019, we had a cash balance of $10.9 million, which includes net proceeds of $4.5 million with the equity financing in December of 2019. Please see our 10-K filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.

[Operator Instructions]. Our first question today is coming from Craig Bijou from Cantor Fitzgerald.

This is Dennis on for Craig. So first, could you comment on the opportunity for Kindred to expand the pilot into other LTACs in their network? And then can you give us an update on what kind of interest you're seeing specifically from other LTAC or SNF operators?

Yes. For sure. Dennis, right? Dennis?

Correct.

Well, yes. So first, thanks for the question. Bill is here. I'm going to transfer it over to Bill to talk about the Kindred expansion and also LTAC space in general. Go ahead, Bill.

Yes. So good question, Dennis. Right now, this is not a primary market for us. Right now, I'd say, we're early in exploring this market. Kindred is a partner that we've -- has been a strong partner of ours on the inpatient side. Last year, we started a pilot with 2 of their centers, both -- in the LTAC space. And both of those went really well to the point where they wanted to extend that pilot. And so now we're doing it with 4. So they have 71 total. Right now, it's -- we're going to keep working with the fee that we have. It's really important that we measure the right clinical outcomes. And then from there, we expect to press ahead.

Okay. That's helpful. On the EksoUE, what kind of adoption are you seeing from your existing customer base? And how should we think about revenue contribution from the UE during the quarter and in 2020?

I'll take the first part of that. So right now, we're actually -- as part of that launch, we're doing a 3-phase launch. So we're still right now doing our Phase 1, which is clinical evaluation. So we're only working with a select few customers who were getting clinical feedback. Phase 2 is going to be an early release to our existing customer base and then Phase III, we'll do a full commercial launch.

And then the second part of your question was really what -- what's the expectation of contribution from -- I think I got it right, from the EksoUE in 2020. It's still -- it's early stages for us in terms of adoption. We're seeing a lot of interest in it, but I think we'll be very pleased if it ends up being between 5% and 10% of our overall medical revenue in 2020.

Yes. And then one more comment on that. And just overall, when you look at the market opportunity, clearly, we've been focused on neurorehabilitation in the inpatient market, but this is a technology that we believe we'll be able to take to other markets like the SNF, long-term acute care as well as outpatient. So we are doing some piloting in the outpatient setting. We're also looking at some potential with orthopedics to pilot as well.

Okay. And last one from me. Can you just comment on your cash position and what you think your cash needs will be over the next few years?

Yes, for sure. I'm going to pass it over to Jack Glenn, our CFO, to address that.

Sure. So yes. Our cash at the end of the year was roughly around $11 million. We did the raise, the equity raise right before the end of the year of about $4.5 million net. And so that certainly helped our position and our runway going into 2020. I would say that as we've made significant progress, as you can see in Q4 in our cash burn, and we believe we can continue to do that over 2020. The other, I would say, is as we go along, we're certainly evaluating alternatives for any future raises. But at this time, I would say that the other thing to note would be that the investment from the planned investment from the JV, which was targeted somewhere around midyear where some of the developments there has probably pushed out a little bit. But again, I think we'll just -- as we go along, we'll certainly evaluate our alternatives as far as cash needs going forward.

Our next question today is coming from RK from H.C. Wainright.

Can you hear me?

Now we can.

Yes.

Yes.

Okay. Sorry about that. Congratulations on the quarter and certainly the year. So one of the comments was that you're increasing your focus on centers which you would pilot initially and end up buying -- either buying multiple units or initiate rentals that could convert at a higher rate. So what sort of centers are we talking about? Is this the Kindred kind of networks you're targeting? And I have a couple of other additional questions just on the Kinder deal itself.

Okay. I'm going to -- RK, thanks for that. I'm going to transfer you over to Bill here, and he'll answer the -- he'll address the -- your questions on...

Yes. RK, so the best way to answer that right now is we are hyper-focused on what I call national network operators. So similar to the Kindred model, you saw the success that came out of that inpatient focus. So the answer is yes. More of these centers are starting to start pilot programs with us. And the goal is to continue to either expand pilots at additional centers, obviously convert those pilots. But also over time, as we prove out the model with those centers, the end goal is to make this become standard of care for these centers, similar to what we did with Kindred. There's also regional operators in the inpatient market. So there's a lot of centers that are maybe anywhere from 2 to 3 to 20 centers in a regional market. So that's also a focus of ours is to expand in select markets by working with some of the regional operators as well.

Within the Kindred deal itself, so the statements read that the pilots were initiated last year, but then they are piloting in certain places now. So what was the message? I'm just trying to understand what exactly what you were saying. And so the pilot has been going on for a certain amount of time with Kindred, but these are new places that are piloting. And is that basically means that more and more hospitals within the Kindred network you're piloting? Is that what you're trying to say? And in such situations, especially in these bigger, larger corporations, how easy is it to get a conversion from the pilot to the rental to the sale? Is that cycle manageable? Or is that just one of those expandable ones?

Yes. So specifically, with Kindred, they have different divisions within Kindred. So we've been working for a while on the Kindred inpatient side and have done very well. A lot of collaboration with that group. The LTAC is a different division that we just started a relationship with early last year when we begin piloting in that space. And we had success in our first few pilots there to the point that the local leader of that region wanted to expand what we're doing to additional centers. So the end goal would be yes to convert them, to acquire the technology and keep it over time. We have a couple of different pathways. Typically, what we see is the center will run through a pilot, it's usually a 12-month pilot. Often, we'll get early conversions because they're seeing the success and so they want to convert it and move forward. But typically, it's a 12-month pilot. At the end of that pilot, they will convert to an acquisition. There have been some cases where we'll actually extend that pilot to another year. But usually, the pilot is a rental, and then it shifts to a sale over time. And that's really the end goal. So with the LTAC right now, we're just expanding carefully into 1 market because we're trying to prove out in an overall market the impact that Ekso can have to the patients in that market. The last thing just to comment on is, when we work with these centers, there's a couple of different things we're looking at. Clearly, number one, it's about the clinical performance. We're looking at quality indicators. Can we help their patients get better faster? There's also other aspects from an economic standpoint where are we able to help differentiate in a market to drive more growth to those centers because they have advanced technology? And can we also -- and this is more on the inpatient side, but can we also improve the discharge of these patients back home or what we call back to community. So right now, these are all things that we're working with Kindred to understand are we successfully impacting their balanced scorecard.

[Operator Instructions]. Our next question today is coming from Nathan Weinstein from Aegis Capital.

Congrats on the strong results. So actually, I'm just thinking about the reimbursement environment for exoskeleton-based rehab treatments. And just any thoughts on -- that you might have on the outlook there?

Yes. Thanks, Nathan. Yes. Let me start a little bit. So first of all, the reimbursement -- our target market, our core market, the inpatient rehab facility market is we have an economic value proposition without any changes to the reimbursement policy that exists today. So we don't require a special technology reimbursement or exoskeleton-based reimbursement for that for that capability, and we feel that we're bringing strong economic value to our customers without that. So first, I think that's really something that is very important to understand. So we're not dependent upon reimbursement. I think what we'll see over time and as we get into more and more, what I will call, session-based reimbursement, which is much more of an outpatient in-home type of rehab will -- those are dependent upon on -- those are reimbursed on a per-session basis. And in that case, the economics are important. And I think that it's going to be some time before those policies -- the reimbursement will actually exist in those markets for technology-specific care. But we see that happening over time. And I think that we're really well positioned to start to drive downstream as economics -- as the economics change and the clinical validation is better understood.

Earlier, you spoke about competitive entrants on the industrial side, but if you can make a similar comment regarding any updates to the competitive dynamics on the health side, please?

I'll -- yes. I would just say that we still feel really strong about our position in the market, both in terms of our -- the capability of our product, but also the service and the position we have in the industry. We do still consider the competitive environment, but we're really, really -- and I don't think anything necessarily has changed recently about the competitive situation. But we still feel very confident about the value that we bring uniquely to our customers and where we stand in the competitive rankings.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you all for joining us today. I'm pleased with the progress made in 2019 culminating in record revenues for the fourth quarter, reflecting the strength of our commercial sales organization led by Bill. He and his team have done a remarkable job of engaging with key decision-makers to narrow the sales cycle. We are generating strong interest from physicians, clinicians and patients, reflecting a steady stream of demand. The IRFs -- IRF segment could represent approximately $750 million annually, which we believe we have advanced in recent quarters. On top of the traction made by our commercial sales strategy, we enhanced our operational efficiency to lower our cash burn rate to the lowest levels in Ekso's recent history. Heading into 2020, we believe we are well positioned to build on our sales momentum to existing and potential customers. We will continue to penetrate the inpatient rehabilitation market of network operators while at the same time, we remain focused on optimizing our evolving go-to-market strategy. We believe the combination of continued sales growth with our focus on prudent spending has Ekso on the right path to achieve profitability. In closing, I'd like to thank everyone for joining us on today's call. I look forward to updating you on our progress in the months ahead. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.