Lifeward Ltd. (LFWD) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 ReWalk Robotics Earnings Conference Call. Please note that today's call is being recorded. [Operator Instructions] I would now like to hand the conference to our CFO, Ori Gon. Ori, the floor is yours.

Thank you, Jay. Good morning, and welcome to ReWalk Robotics 4th quarter 2020 earnings call. This is Ori Gon, ReWalk's CFO, and with me on today's call is Larry Jasinski, our CEO. This morning, the company issued a press release detailing financial results for the 3 and 12 months ended December 31, 2020. This press release and a webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com. Before we get started, I would like to remind everyone that any statement made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ReWalk management as of today and involve risks and uncertainties, including those noted in this morning's press release and ReWalk's filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ReWalk specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. A telephone replay of the call will be available shortly after completion of this call. You'll find the dial-in information in today's press release, and the archive webcast will be available on the company's website at www.rewalk.com. For the benefit of those who may be listening to the replay or our archive webcast, this call was held and recorded on February 18, 2021. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to ReWalk CEO, Larry Jasinski. Larry?

Thank you, Ori. Good morning, everyone, and I am glad to start 2021 as we foresee a healthier and very active year ahead of us. Q4 and 2020 results were greatly impacted, as we lost access to clinics and patients for much of the year due to the COVID virus. Nonetheless, we maintained sales and, importantly, achieved key milestones for building the business. We also improved our financial status through careful management through this pandemic. The fourth quarter was impacted by the second lockdown cycle of 2020, as we achieved $1.22 million in sales compared to $1.18 million in the prior year quarter. For the full year, sales were $4.4 million compared to $4.9 million in the prior year. In 2020, COVID left us with over 4 months of almost no direct access to our patient and rehab population contrasted to full year access for the entire prior year. Nonetheless, in Q4, we were able to make meaningful progress with coverage of the ReWalk Exoskeleton and in financial management of the company. First, the Medicare HCPCS code took effect on October 1, and we added 2 new contracts in Germany. The issued HCPCS code defines the acceptance of the new category of exoskeletons, which facilitates submission of claims to Medicare and other health insurers in a consistent and orderly manner and is a key step in the company's efforts with pursuing coverage determinations. The 2 new German contracts include a private insurer and BKK Mobil Oil as a public group that initiated coverage for their constituents. On the financial side, we controlled expenses carefully and recalibrated our investing to invest on commercialization, which continued to reduce our burn rate. At the end of 2020, we completed repayment of our outstanding debt with Kreos Capital, which we've been paying down at about a rate of about $1.6 million per quarter. Our 2020 commercial focus was to expand remote customer outreach and qualify customers for when the market reopens. This initiative resulted in establishing 171 active ReWalk cases between Germany, U.K. and the U.S. at year-end. These efforts supported our business where we can gain access in 2020 and have established a pool that will impact our sales and results in 2021 and 2022. The ReStore, MYOLYN and MediTouch lines were not able to be marketed effectively remotely as a hands-on demo is needed with the new technologies of this type. The most important initiatives for these 3 product lines are national accounts and BA penetration. For ReStore, early trial activities with the NHS in the U.K. and with 3 chains in the U.S. were planned in 2020 and will be starting as clinic conditions allow access in 2021. These chains will be a model and a baseline for expansion of these products. Entering 2021, we have 22 ReStore targets, 74 active MYOLYN targets and 8 MediTouch targets. We maintained our field team throughout 2020 to source targets and make contexts remotely with potential users. We also greatly expanded our online clinical, technical and scientific information programs for remote interaction. Participation from clinicians was extensive and a leading source of interest for our product lines in 2021. There are several key milestones to watch in 2021 that are based on activities from 2020 and the preceding years. Each will have an impact on our efforts to develop this new and emerging market. First, in the German Federal Social Court, which is the highest court for social jurisdiction in Germany, a ruling is expected regarding whether supply of an exoskeleton is a direct or an indirect compensation disability. A ruling as a direct compensation will advance the case for every qualified ReWalk candidate and increase the provision of systems through all public and private payers. This would be a precedent for all German courts regarding exoskeletons. Second, in Germany, 2 additional supply contracts are in progress, which, when combined with the 6 contracts already achieved, we have almost all major German groups under contract. Third, in the U.S., the successful HCPCS code issuance will be followed with applications in the pursuit of coverage contracts. Fourth, in the U.K., the utilization of the ReStore system in NHS evaluation centers will expand experience and is intended to build a base for widespread adoption of the technology. I'd now like to turn the call back over to Ori for a review of the financial details.

Thanks. As Larry discussed the revenue numbers, I will just add some metrics regarding the quarterly activity and our insurance pipeline as we look forward into 2021, and I will then turn to our gross margin expenses and cash position. So during Q4, we have received 4 new rental approvals in Europe and 4 units converted from prior quarters. Our total number of SCI pending insurance cases was 98 at the end of the year compared to 96 at the previous quarter, with 84 of these cases in Germany and 14 in the U.S. The cases in Germany, which are currently already covered under contracts, represents 44% of the total cases, and we are now working on implementation within these sales, as Larry will provide the details shortly. Turning into our gross margin. So our annual 2020 margin ended in 50% of revenue compared to 56% in 2019. Our Q4 2020 margin was 33% compared to 61% in the previous year quarter. The quarterly decrease was affected mainly by $150,000 service parts write-off related to our older rehab and personal designs as well as some changes in revenue mix. The yearly reduction of 6% was also affected by the onetime inventory write-off as well as the effect of our overall reduction in revenue compared to last year and the change in mix. We ended the year with $14.2 million in operating expenses and $3.2 million in the fourth quarter of 2020 compared to $16.8 million in 2019 and $3.9 million in the previous year quarter. The reduction was affected by 2 major elements. First is our reduction in R&D, employee and employee-related expenses, consultant and material as we finished the development of our ReStore product in 2019. And second is showing in our sales and marketing, which is a positive $400,000 effect in the fourth quarter due to our PPP loan forgiveness. In 2020, we have repaid in full our Kreos loan, which accounted for $900,000 in interest payments and principal payment of $6 million. This will no longer affect our bottom line as well as our cash flow requirements going forward. Our net loss for the year 2020 was $13 million and $2.9 million in the fourth quarter compared to a net loss of $15.6 million in 2019 and $3.6 million in the previous year quarter. This year's net loss is the lowest since our IPO and shows our commitment to be as efficient as possible in order to get us to breakeven as soon as we can. Our non-GAAP net loss for the fourth quarter of 2020 was $2.7 million compared to a non-GAAP net loss of $3.2 million in the fourth quarter of 2019, and our 2020 non-GAAP net loss was $11.9 million compared to $14 million in 2019. We ended 2020 with $20.3 million in cash, and we have received additional $13.2 million from warrant exercise in 2021. Our cash flow from operation was $12.6 million, including the $900,000 in interest expense. This is our strongest balance sheet for the last 5 years, which allowed the removal of our going concern qualification from our audited report. With that, I'd like to turn the call back to Larry for some final remarks. Larry?

Thank you, Ori. I'd like to start by further discussing the developments of coverage in Germany. We now have 6 active contracts in Germany. The DGUV covers essentially all individuals for work-related accidents. We have public and private insurers covering 25.3 million lives, and we expect that coverage to reach as many as an additional 35 million more lives in 2021, with the new contracts currently under discussion. Our next focus for these contracts will be on improving effective implementation through all aspects of the supply chain of the insurers. These insurers are still learning how to manage these detailed contracts and have had to adjust with the pandemic interrupting the flow. We have found the communication through the individual insurers organization is taking some time. We have also observed the supporting groups for medical assessment would benefit from further training and information on the standards for the selection of ReWalk candidates. Our efforts in 2021 will focus on basic factors that strengthen the performance of these contracts. These will include tactics, such as increased case manager communication, additional materials via secure online support, increased follow-up training on patients to ensure they achieve high skill levels and in providing more published information in areas such as bone density to help guide assessments. Additionally, we are eager for the return in 2021 of German industry events, such as REHACARE, which traditionally provide a significant generation of ReWalk candidates to our pipeline. The short-term U.S. growth will be based on VA activity and a focus on workers' compensation issues. Longer-term growth will be driven by a pursuit of CMS coverage pathway at a local or national level. The VA centers will begin to be more active as the COVID vaccine is more widely implemented. In Q1 2020, the Coop Study completed enrollment in a multicenter randomized study, which was considered and conducted at many of the top pa VA SCI sites. This will open up centers that had diverted 30 to 40 SCI individuals and potential ReWalk candidates to research, instead of personal sales this year. We have identified a significant number of entrants that we will seek to move into training in 2021. The VA Coop Study remains in a holding pattern on completing all follow-up activities due to the pandemic. We do not yet have a forecast as to when or how the VA will process and publish the data at this time. We are aware that no significant adverse events were reported during the study and expect this much larger data set will be similar to prior studies on the benefits of being able to walk. Our long-term efforts for CMS and private coverage are based on the new established code and the extensive data set that we'll complete this year. That key data includes: one, a dossier of the literature history for exoskeletons that has been reviewed by medical directors. Two, the first published randomized clinical trial on exoskeletal assisted walking. This included 50 patients and was published on August 4, 2020. This study control concluded the users were able to achieve reasonable mobility skill milestones. Three, the ReWalk real-world data survey for the FDA has examined the use patterns of 57 individuals and will be submitted for publication in 2021. Fourth, the VA 160 patient randomized trial publication data has not yet been identified, but enrollment was completed over a year ago, and follow-up was completed on over 130 patients prior to the COVID shutdown. We anticipate the VA will move forward and publish this in a reasonable time frame. Five, the company is sponsoring an additional study focused on economic data that we expect to publish in 2021. This study is analyzing all medical cost for years post spinal cord injury prior to exoskeleton use compared to the results once they started walking again. This study will help to find the payback period for an exoskeleton via [defrain] medical treatments such as surgeries for pressure sores, treatment for UTI or other interventions, along with reduced medications for pain, specificity, bowel programs and infections. Operationally and financially, our primary goals are: first, in 2021, we expect to achieve sales growth year-over-year as we gain field access due to the management of pandemic. We expect the ReWalk will grow as our large field team gains traction as we implement the German contracts with the court decision in Germany, with the VA reopening and with workman's compensation cases in the United States. In addition, our ability to relaunch ReStore, the MYOLYN cycle and the MediTouch lines into a more open market will also provide sales growth. Second, we expect in 2021 that total operating costs will be kept level, other than some increases in travel and commissions with growing sales. Third, we target a national or local coverage application with CMS during 2021. Fourth, we will consider processing some of our Harvard-based technologies through the FDA, CMS Medicare coverage of innovative technologies breakthrough categories for processing and coverage at the time of FDA clearance. This landmark program features a national coverage decision for products deemed breakthrough and automatically establishes 4 years of Medicare coverage after a device is cleared by the FDA in the U.S. This rule, which CMS published in January, improves access to innovative devices for persons with life-threatening or irreversibly debilitating diseases or conditions. The Harvard technologies include a home design for stroke patients, and we are also considering applying for designs for multiple sclerosis and knee osteoarthritis. Each of these concepts are targeted for personal use with use at home and in the community. We believe these factors will reduce our cash requirements and improve our financial position. In parallel, longer-term initiatives are consistent with the vision we have laid out for this company. Thank you, everybody, for your time and your interest today. At this point, I'd like to turn the call over for questions. Operator, could you please go ahead with the instructions?

[Operator Instructions] Our first question from the line of Swayampakula Ramakanth from of H.C. Wainwright.

This is RK from H.C. Wainwright. Larry, within your 2021 milestones, one of the first things you talked about was the German court ruling for direct/, indirect compensation for exoskeleton use. Can you expand on this a little bit? What is the real court case? And as you said, if it is direct compensation, then it's going to be better, obviously. But just like to understand what's the premise for this court case and how does it impact your relationship with the different payers in Germany.

Certainly. Well, this particular court case is with the Federal Court. And in the German system, comparative to the Supreme Court, the United States almost, there are multiple levels. This is the highest level court in the country for determining social decisions. To date, most of the decisions that have been made on exoskeletons, or ReWalk in particular, have been done at the lower level social courts, and there are roughly 30 pending cases still in the social courts. This case was advanced by one of the larger insurers in Germany through the highest court, I think, in part to achieve a decision from the highest court that will define things for all of the lower courts. The specific case parameters, I don't know that I can discuss, even though I'm well aware of them. It's a very favorable case, we think, as does our counsel, but the ruling as a direct compensation basically would eliminate any of the other challenges to the use of this product. Direct compensation is meaning does a ReWalk or an exoskeleton in general provide an ability to walk that you cannot otherwise get. If it were considered indirect compensation, it would suggest you could go back to a wheelchair. So our expectations, this is an easy one to document. We know the specific case is a favorable one in terms of how well it works for the individual, and that court decision has been in process for about 1.5 years and is forecast in midyear this year.

Okay. And then you stated that there are about 84 pending cases in Germany, and you're expecting implementation of some of those in 2021. Does the court case decision -- do these -- basically, do these 84 cases wait on the decision from the court case or they will be working independently off the court case?

Most of those are independent of the court case. The insurers have been processing. Our limitation has actually been more COVID-related there. The only cases affected by the court decision are the approximately 30 specific court cases that exist. The others are falling under the contracts and have been being followed by both ReWalk and the insurers.

And just to add to this point, RK, one thing. Out of the 84, so there was about 30 in cases -- in cold cases. We have 20 either in a rental -- active rental as of the end of the year, I'm talking about, or pending decision, meaning that they completed the rental and are still awaiting a final decision. And the rest is ongoing cases in the reimbursement process, basically.

Okay. One last question on the German insurance. You stated, potentially, you will have like 60 million lives under contract once you have all the 6 different -- not only the current 6, but also the additional 2. So of the 60 million lives, what is generally the potential candidates that can or could use an exoskeleton?

Well, we have published our estimates of the German market a few times, so your German population data is not quite as precise as the U.S. due to privacy laws. But approximately 60,000 to 80,000 Germans have a spinal cord injury, and approximately 1/3 of those would meet all the inclusion criteria. So your potential market is fairly significant there in the 20,000 to 26,000 range. I think that market is accessed over time and depends on the health of the individual patients, so it will continue to be a smaller number. But on the whole from a top down, it's a significant number that we see as part of the potential growth for this industry over the coming years as these become a standard of care for all users.

Yes, yes. I certainly can see that. And then on the HCPCS code that you received in 2020, I'm sorry, I know you made some remarks about how you would be commercializing based on the code. Could you just highlight some of your comments again, please? I'm sorry about that.

No. That's okay. Well, most of our U.S. focus in 2021 will continue to be on the VA as we now see the centers getting vaccinated, and we believe they'll open up. So we have a number of candidates that we'll try to pass forward with the VA and with workman's compensation on a case-by-case basis. Regarding the HCPCS code, we can use that for applications. Our primary short-term focus is getting and completing all of the major data elements that we believe are most needed to support coverage decisions as a policy. So from a revenue end, most of our prosecution of cases is outside of the HCPCS code, although some people can apply using the code at this point. And our real work with CMS is to present a very strong database for coverage. And the variable for us the most is the timing of a few of those components and specifically the VA when we can gain access to that data and include it. We believe it strongly improves and strengthens our position. We'd have 2 randomized clinical trials that we could cite. One's already published. And the other one, we think, with the vaccine, will get to moving again in terms of getting the data analyzed. But that is the real driver. Data will drive our results with CMS more than any other factor at this point.

[Operator Instructions]

So operator, I think we are set then if there's no further questions at this time. I would ask anyone to please refer to our website for information if they are looking for any elements from this call or to reach us through Investor Relations, so we can answer questions that anybody may have. So thank you for joining us, and we appreciate the interest and time you've invested in ReWalk today. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.