Ekso Bionics Holdings, Inc. (EKSO) Q1 2023 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ekso Bionics First Quarter 2023 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]. And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Steinberg, FINN Partners. Thank you, sir. You may begin.

Thank you, operator. And thank you all for participating in today's call. Joining me from Ekso Bionics are Scott Davis, Chief Executive Officer; Jerome Wong, Chief Financial Officer; and Jason Jones, Chief Operating Officer. Today, Ekso Bionics released financial results for the quarter ended March 31, 2023. 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 laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including statements regarding our business strategy, future financial or operating 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 obligation, except as required by law, to update or revise any financial or operational projections, its 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, April 27, 2023. I will now turn the call over to Ekso Bionics' Chief Executive Officer, Scott Davis.

Thank you, Matt. And thank you, everyone, for joining us today. We're off to an excellent start in 2023. In the first quarter, we achieved record quarterly revenues of $4.1 million, up 61% compared to this time last year. Our growth levels were the result of continued success of our commercial strategy, as well as contributions from our recently acquired Indego product line. We believe we have built a solid foundation to bring our game changing exoskeleton devices to rehabilitation patients in need from post-acute care centers to outpatient facilities and into home and community settings. Our team is excited by our expanded focus that enables us to bring our advanced treatment solutions to more patients across the continuum of care. We look forward to building on this momentum. Now I will share updates on our business performance, starting with EksoHealth. During the first quarter, EksoHealth delivered $4 million of revenue as we continue to gain traction with network operators, or IDMs . As part of our strategy, we secured several multi-unit orders with large network operators. In total, we booked 23 EksoHealth devices in the quarter, including the second largest multi-unit EksoNR order ever with a large network operator. As illustrated by our record quarterly revenues, we are generating strong demand and healthy order flow, which is also adding to our growing pipeline. Our cumulative conversion and renewal rate remained strong at 81%, with approximately $1.4 million of contracted unrecognized revenue under our subscription model. Overall, this was a strong quarter for bookings and a testament to the inroads we've made with our commercial strategy. Internationally, EMEA and APAC have been important growth regions, with EMEA up 67% compared to first quarter last year. Increased proficiencies in our sales process are driving more opportunities and the success we've seen internationally is a positive reflection of the investments that Ekso has made to support growth in these regions throughout prior quarters. We are also pleased to have booked our first Ekso Indego personal device in Europe during the quarter. Going forward, we will remain diligent in our strategy to expand our distributor network and generate robust demand pipelines in both the domestic and international fronts. Turning to an update on our recently acquired Human Motion Control or HMC business unit. The integration continues to progress smoothly. And with early contributions to our top line in the first quarter, we anticipate that Ekso Indego Personal and Therapy will be key to our growth moving forward. Importantly, this acquisition expanded our product offerings across the continuum of care to home and community use markets, whereby we can now reach more patients in need across the larger market opportunity. Furthermore, we expanded our product development pipeline to the orthotic and prosthetic or O&P industry, and added strategic relationships with key commercial and research partners, including Vanderbilt University. We will provide more updates on our progress here in the coming quarters. Earlier this month, we reestablished our partnership with SoldierStrong, a charitable organization whose mission it is to provide revolutionary technology and innovative advancements to better the lives of our veterans and their families. It's our understanding that their purchase and donation of an Ekso Indego device to the Charlie Norwood Department of Veteran Affairs Medical Center in Augusta, Georgia, is the 30th robotic exoskeleton that SoldierStrong has donated to a VA Medical Center in the last 10 years of operations. We are honored to be joining forces with SoldierStrong and we look forward to bringing much needed rehabilitation and support to our valued veterans through our innovative devices. Now turning to an update on the progress with our industrial product line, EksoWorks. During the first quarter, we continue to transition our focus towards volume purchases from large customers. We are seeing interest from marquee customers across the construction, manufacturing, green energy, automotive and aerospace verticals, and believe that this pipeline of potential customers offers a path at taking share from the large addressable market opportunity. We plan on sharing updates from EksoWorks in the future as large orders are booked. To recap, our team is excelling at raising customer awareness and driving demand from our EksoNR and our newly acquired Ekso Indego devices as illustrated by our record revenue performance. We're particularly pleased with the success of our commercial strategy in securing multi-unit orders for large network operators, while also introducing the new Indego product line to patients in need. Looking ahead to the rest of 2023 and beyond, we remain focused on driving sustainable growth and demand for our products across the continuum of care. At this time, I'd like to turn the call to Jason to discuss our operational developments for the quarter.

Thank you, Scott. And good afternoon, everyone. I am pleased with the progress we have made from an operational standpoint with our focus in the first quarter on continued process improvement. By driving efficiency in our operations, we believe we have the potential to elicit significantly more volume with only modest incremental capital spending. I'm also pleased with the progress achieved on integration of the HMC team and products. With the goal of delivering lower extremity rehab and mobility solutions to patients across the continuum of care, we are evaluating how best to merge our market leading technologies. I'm particularly excited about the potential to combine the capabilities of our two proprietary sets of device software, which encapsulate the majority of our combined core intellectual property. I look forward to providing additional updates throughout the year. Now I'd like to turn the call over to Jerome to review our first quarter financial results.

Thank you, Jason. Ekso generated first quarter 2023 revenue of $4.1 million compared to $2.6 million for the first quarter of 2022, a 61% increase. The increase was comprised of a $2.1 million increase in EksoHealth revenue, partially offset by a $0.6 million decrease in EksoWorks. Gross profit for the first quarter was $2 million, representing a gross margin of approximately 49% compared to a gross margin of 47% for the same period a year ago. The 65% overall increase in gross profit was driven by the sharp increase in EksoHealth device sales, while margin expanded primarily due to lower device costs. Operating expenses for the first quarter of 2023 were $6.4 million compared to $5.4 million for the first quarter of 2022. The increase was primarily due to the additional costs associated with the acquisition of HMC and an increase in marketing activities, partially offset by lower service costs. Loss from operations in the first quarter of 2023 was $4.4 million compared with a loss from operations of $4.2 million in the prior-year period. Cash used in operating activities in the first quarter of 2023 was $4.2 million. As of March 31, 2023, the company had a cash balance of $16.3 million. Please see our 10-Q filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.

[Operator Instructions]. Our first question is from RK, H.C. Wainwright.

Congratulations on a strong 2023. So I have a few questions. But to start off, trying to focus on the latest product, Indego, what is the contribution from Indego itself in the first quarter of 2023?

The contributions, we are rolling – the Indego revenue is tied into our overall EksoHealth numbers. But I can say that, in Q1, the contributions from Indego were relatively modest. But we do anticipate a strong contribution to our EksoHealth business as the year progresses.

In terms of EMBA, as you said, there was 67% growth in the quarter, and including one Indego being sold in Europe. Does that mean it is becoming meaningful? What I mean is that EMEA revenue is becoming meaningful enough that in terms of contribution that you need to kind of strengthen additional sales personnel in the EU or still there's time for it to get to that that stage.

I think we have a very strong team in EMEA. And with the acquisition of HMC, we ended up picking up an additional commercial resource in Europe, as well. So through the acquisition, we have added to that team. I think the way of looking at it is the team as it was being developed in EMEA was built to be able to support a larger scale business. So, the way that we go to market there is both direct in the DACH region and then through a pan-Europe, we use strong distribution partners. The combination of HMC has expanded our distribution partner network, as well. And again, we have an additional resource to manage that. So we feel like we are correctly resourced for this significant increase that we're seeing in EMEA.

In the US, you were saying quite a bit of the contribution for the increase during the first quarter was multi-unit orders. Can you kind of define it a little bit more for us? And also, how do you plan to increase that number, number of multi-unit orders, and also make it sustainable?

This is something, RK, that we've been working on for years. So the pipeline development that the US team has been working on is not a surprise or something that's happened just recently. We have resourced appropriately to build strong relationships with the IDMs. And it's a combination of both our commercial team as well as our clinical team supporting these neuro rehab programs that are quickly becoming more of a standard of care inside of these IDMs. As we look at our pipeline, more and more, and not even necessarily just in the US, but also outside of the US, we're seeing more multi-unit opportunities that are present in our strong and growing pipeline. So, again, this is something that was done deliberately and with years of effort. And we continue to work at that every day and continue to grow those relationships within those segments and within those partners. Further, as we've expanded our products through the acquisition of HMC, we have some new and exciting products that we can offer within those same customers.

Last question from me just on the operations. Is there potential for further margin expansion at this point? Or do you need to complete the integration of HMC before we can actually think about sustainable margin expansion from here?

This is Jason. I'll answer that. I would say that some of – we've had a little margin compression over the last couple of years, and there's many factors to that. But the primary one is really supply chain challenges, which I think everybody knows that's going on. So our view on that is that there's still some of that out there. But most of it, we feel like is either peaking or behind us. So my expectation is that we'll will continue to work to drive down costs through supply chain activities. I don't think it's time to talk about integration with the Indego product line driving those cost reductions. I think it's more just a more rational supply chain. The same thing for our inventory level. I would expect that we've built extra inventory to guarantee supply and I think those things are all starting to kind of stabilize. So, I expect some improvements from both of those going forward.

At this time, there are no further questions. I would now like to turn the floor back over to Scott Davis for closing comments.

Thank you, Maria. And thanks to everyone joining us today. Our strong first quarter performance and record revenues reflect the progress we've made executing on our core strategies. We were encouraged by the demand for our innovative EksoHealth devices, including both EksoNR and newly acquired Ekso Indego products. Our commercial strategy continues to support our growth as evidenced by the increase in volume of multi-unit orders with large network operators. Now with the additions of Ekso Indego Therapy and Ekso Indego Personal devices, we've expanded our market opportunity to reach patients in need across the continuum of care to home and community settings. We are pleased with the strong start to 2023 and look forward to sustaining this momentum moving forward. In closing, I'd like to thank our employees for their invaluable contributions and shareholders for their continued support. Thank you. And have a great day.

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