Ekso Bionics Holdings, Inc. (EKSO) Q2 2023 Earnings Report, Transcript and Summary

Hello, and welcome to the Ekso Bionics Q2 2023 Financial Results Conference Call and Webcast [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Matt Steinberg with FINN Partners. Please go ahead, Matt.

Thank you, operator. And thank you all for participating in today's call. Joining me from Ekso Bionics are Scott Davis, Chief Executive Officer; Jason Jones, Chief Operating Officer; and Jerome Wong, Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the second quarter of 2023. A copy of the press release is available on the company's Web site. Before we begin, I would like to remind you that management will make statements during this call that will 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 facts should be deemed to be forward-looking statements. All forward-looking statements, including statements regarding our business strategy, 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, or speak only as of today, July 27, 2023. I will now turn the call over to Ekso Bionics CEO, Scott Davis.

Thank you, Matt, and thank you to everyone for joining us today. We are very pleased with our second quarter results, most notably a record number of EksoHealth device bookings and strong revenue growth of 36% year-over-year, driven by the ongoing performance of our EksoNR, the positive contributions from our Ekso Indego products and continued solid execution of our team. We are making tremendous progress in reaching more patients across the continuum of care. Ekso has taken an approach of using our technology and rehabilitative programs to follow patients from post-acute to outpatient care and onto continued home and community use. This helps differentiate us in the industry and provides our patients with more options for use of technology in their recovery process. We believe this differentiating strategy gives us access to a sizable addressable market. Specifically, we believe the VA alone with its programs around the Ekso Indego Personal provides us a market opportunity of more than $3 million. Additionally, with the full Indego product line, our reach now expands to outpatient facilities that total almost 63,000 centers domestically, along with wellness centers, which is an emerging market for us that total approximately 31,000 across the US. Our commercial and marketing teams are hard at work to drive greater awareness as we seek to penetrate these large markets. In the second quarter, we booked a total of 44 EksoHealth devices, a quarterly record. This includes devices within the EksoNR and Ekso Indego product lines. Among these bookings was another significant multiunit order from an integrated delivery network, or IDN, for 12 of our EksoNR devices. This represents the second straight quarter of sizable booking number with a large IDN customer. We believe that our customers are seeing firsthand how our cutting edge devices elevate the standard of care for neuro rehabilitation. Our research suggests that post acute care centers gain clear benefits with our EksoNR and Ekso Indego devices in the form of positive patient outcomes, a differentiated and more efficient offering and better economic value. Furthermore, we are leveraging our current customer base to heighten awareness for individuals who can benefit from the use of Ekso Indego personal. These adoption drivers are among the reasons our commercial team is generating strong demand from new and existing network operators, putting us in a position to reach a significantly larger patient population. Internationally, we're pleased to have reported a strong booking quarter, particularly in Europe. One exciting deal of note is through a distributor in Hungary that resulted in a six unit EksoNR deal. The strength in Europe underscores our investment in indirect partnerships in the region. In APAC, we secured our first Ekso Indego booking. We continue to these regions as important growth drivers in the years to come. Turning to an update on the progress with our industrial product line, EksoWorks. During the second quarter, as we previously mentioned, we continued focusing on a different go-to-market strategy, placing increased emphasis on EVO and its placement into large industrial settings where we believe there is an addressable market opportunity of approximately $5 billion. This refocus takes time with a longer sales cycle, but I'm pleased to report subsequent to quarter end, we won a competitive bid with a global automotive leader and have a number of other promising opportunities in our pipeline. During the quarter, we also shipped our first EVO from our new contract manufacturer, which brings us a better pricing structure. Looking ahead, our EksoWorks commercial team is focused on targeting large commerce and increasing engagement to drive demand and ensure the success and safety of our customers' workforce. Another exciting development at the end of the quarter was the recently updated 2024 home health prospective payment system rate from the centers for Medicare and Medicaid services or CMS with a newly proposed rule that is relevant for our business and our patients. This rule would cut of a long-standing Medicare definition of race to provide clarification on the scope of the Medicare Part B benefit for leg, arm, back and neck braces. And as a result, we classify certain exoskeleton-type devices as braces for Medicare payment purposes. This is a positive step in facilitating the potential for Medicare coverage of personal exoskeletal such as RXO Indego Personal for qualified patients as a lump sum reimbursement. We fully support the codifying of the proposal to further enhance potential access for Medicare beneficiaries and look forward to providing updates around this proposed rule in coming quarters. Overall, we are encouraged by our performance, highlighted by record quarter results of revenues and bookings, securing multiunit orders with large network operators and inroads we are making in large markets across the continuum of care. Driven by the strength of our commercial team and newly expanded portfolio, we look forward to bringing our life-changing solutions to a greater number of patients in the worldwide. Now I will turn the call over to our Chief Operating Officer, Jason Jones.

Thank you, Scott. Within operations, we continue to execute on our mandate to reduce our cash burn and have a number of related initiatives underway. Among these are improving processes and efficiencies, tightening OpEx and cost controls and optimizing inventory. That said, our operating expenses did increase in the quarter on a year over year basis. This is in line with our expectations due to the costs associated with HMC or human motion control integration. On the inventory front, since the second half of 2022, we have carried higher than optimal inventory to mitigate production risks due to pervasive supply chain disruptions. While not completely back to normal, our component lead time are much more predictable than they have been in past quarters. In response to these improvements, we are working diligently to optimize our inventory levels to free up additional working capital. The integration of HMC continues progressively. From a product perspective, all former HMC products are now fully integrated into our portfolio, which now covers a broad portion of the continuum of care for rehabilitation and mobility. As a result, our production and revenue potential are significantly higher. The former HMC team is also now fully utilizing our combined operational systems, which we are continually working to improve. In addition, the process to combine our engineering and quality systems is well underway with a target completion of mid-2024. I look forward to providing additional updates as the year progresses. I will now turn the call over to Jerome Wong, who will discuss our second quarter 2023 financial results.

Thank you, Jason. Now on to a summary of our second quarter 2023 financial results. Ekso generated second quarter 2023 revenue of $4.7 million compared to $3.5 million for the second quarter of 2022, an increase of 36%. This increase was comprised of a $1.5 million increase in EksoHealth revenue, partially offset by a $200,000 decrease in EksoWorks. In the quarter, EksoWorks revenue was affected by delays from our transition to our contract manufacturer. Gross profit for the second quarter was $2.3 million, representing a gross margin of approximately 48% and compared to a gross profit of $1.6 million and a gross margin of 47% for the same period in 2022. The 37% overall increase in gross profit was driven by the sharp increase in EskoHealth device sales. The increase in gross margin was primarily due to lower device costs. Operating expenses for the second quarter were $6.5 million compared to $4.9 million for the second quarter of 2022. During the second quarter of 2023, the company incurred increased expenses related to the acquisition and integration of HMC, severance expense and an increase in marketing activities. Net loss for the second quarter was $4.2 million or $0.31 per basic and diluted share compared to net loss of $3 million or $0.23 per basic and diluted share for the same period in 2022. Turning to our 2023 first half results. Revenue increased $2.8 million or 46% to $8.8 million for the six months ended June 30, 2023 compared to $6 million in the same period of 2022. The increase in revenue was primarily driven by an increase in EksoHealth device sales of $3.6 million. Gross profit for the six months ended June 30, 2023 was $4.3 million, representing a gross margin of 48% compared to gross profit of $2.9 million for the same period in 2022, representing a gross margin of 47%. The overall increase in gross margin was primarily due to lower device costs. Operating expenses for the first six months of 2023 were $13 million compared to $10.3 million for the same period in 2022. The increase in operating expenses was primarily related to the acquisition and integration of HMC severance expense and marketing costs. Net loss applicable for the first six months of 2023 and was $8.6 million or $0.64 per basic and diluted share compared to net loss of $7.6 million or $0.59 per basic and diluted share for the same period in 2022. Cash used in operating activities in the first half of 2023 was $7.1 million, down from $8.5 million in the year ago period. As of June 30, 2023, the company had a cash balance of $13.3 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 today is coming from Sean Lee from H.C. Wainwright.

My first question is on the Indego. It's great to hear that the product is going well and adoption is increasing. I was wondering if you can provide a bit more color on how much of the -- how much is Indego contributing to the overall increase in revenue that we've seen in the last quarter, and where do you see it going for the rest of the year?

With the Indego devices, Ekso considers these devices as part of our EksoHealth bookings. So generally speaking, we contain those within that category. However, within that family of products, the Ekso Indego therapy and EksoIndego-NR are typically used by clinics for patient rehabilitation and the Ekso Indego Personal is used by individuals for home and community health use. So in Q2, our home and community health segment of the Indego product line represented in the neighborhood of 20% of our revenue overall. And if we talk specifically about our legacy Ekso and our product and strip out the Indego, we are seeing year-over-year growth even within that product line alone. So Indego was certainly a contributor to our great numbers in Q2.

In the prepared remarks, you also mentioned that you guys want to bid with an auto manufacturer for EksoWorks. I was wondering whether you can provide some more details on that.

Well, we're really excited about the win with the auto -- in the auto industry. We booked an initial order from that. However, in the quarter due to some supply chain challenges and late delivery of our EVOs we were unable to fulfill those in the quarter, but we carry those as backlog into Q3. And we continue to have additional development in that category as well with new customers coming into our forecast and pipelines.

My final question is on the margin side. You mentioned an increase in -- the margin increased the last quarter because of lower device prices. So I was wondering whether we can see that trend continue for the rest of the year?

We continue to work to improve operational efficiencies and we are, as a result, seeing lower costs in our supply chain. So it is a trend that we are constantly working towards. Jason Jones, would you like to maybe shed a little more light on that?

I guess I would just say that we are not satisfied with our current margin level. We think it should be higher. I don't think we're in a position to forecast that’s going to be higher, but that's a focus of ours along with reducing our inventory. So that's how we’re operating. But I don't think we're in a position to forecast higher numbers in the future yet.

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

All right. Thank you, Kevin. And to everyone, we are very proud of the progress we made so far this year, highlighted by our quarterly record number of EksoHealth bookings and revenue. Our commercial team continues to generate new demand by strengthening our relationships with top network operators. We're generating new multiunit orders. And combined with the strength of our sales team and our expanded product portfolio now reaching across the continuum of care, we believe that we are well positioned to sustain this momentum into the second half of 2023 and beyond. We look forward to providing additional updates throughout the year. Thank you all and have a great day.

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