Ekso Bionics Holdings, Inc.
Q4 2022 Earnings Call Transcript

Published: 28 Mar 2023

[Operator:]

Greetings, and welcome to the Ekso Bionics Fourth Quarter 2022 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. And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Steinberg with FINN Partners. Thank you, Matt. You may begin.

[Matt Steinberg:]

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. Earlier today, Ekso Bionics released financial results for the quarter and year ended December 31, 2022. 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, March 28, 2023. I will now turn the call over to Ekso Bionics' Chief Executive Officer, Scott Davis.

[Scott Davis:]

Thank you, Matt. We're pleased to have officially closed 2022 with continued solid demand for EksoNR and the completion of our most significant transaction to date, the acquisition of Human Motion & Control business unit, or HMC, from Parker Hannifin. The importance of this acquisition cannot be understated, as it expands our product offering across the continuum of care to home and community use markets. This is also why we are announcing our Q4 and 2022 financial results weeks later than usual as is often typical in matters involving business combinations. I'll touch on this deal in more detail shortly, including what it means for our business and the value we are bringing to customers and patients. But first, a summary of our fourth quarter business performance. We generated revenue of $3.6 million in the fourth quarter, which included bookings totaling 27 EksoHealth devices, of which two were Indego devices that were booked in the last few weeks of December, post close of the acquisition. Throughout our EksoHealth segment, we continue to leverage our advanced robotic exoskeleton technology and rehabilitative programs to help patients on their road to recovery and improved health, with better outcomes than the current standard of care. In 2022, we successfully executed on our commercial strategy, resulting in the placement of substantial volume of additional devices within network operators globally and the completion of many multi-unit orders, both of which contributed to drive a solid year for EksoNR bookings and record revenue internationally. With EksoNR receiving FDA clearance for the multiple sclerosis indication, the first known exoskeletal device to carry this designation for rehabilitative use in patients suffering from MS, enthusiasm for EksoNR continues to grow. Demand in order flow for EksoNR remained robust with revenue in our EksoHealth segment up by more than 20% compared to 2021. Overall, for the year, we recorded 100 EksoHealth device bookings. Our cumulative conversion and renewal rate is 81%, and we now have more than $2.2 million of contracted unrecognized revenue under our subscription model. Furthermore, we have made significant inroads with many of the large network operators or IDNs throughout the year, as they continue to make EksoNR their standard of care in lower extremity neurological rehabilitation. Our pipeline of new opportunities remains strong; although due to more challenging economic and market conditions, the sales timeline is taking longer than in previous quarters. Nevertheless, we remain bullish on our future growth prospects. Our integrated sales and marketing teams are executing on our overall commercial strategy, putting us in what we believe to be a favorable position heading into 2023. On the international front, we achieved record annual revenue performance in Europe and APAC, with APAC growing more than 60% year-over-year. We're excited by this increase and we'll continue to invest in our international footprint to support ongoing growth in these regions. Now, turning to our acquisition of the HMC business from Parker Hannifin, which is synergistic and broadens our product portfolio in commercial health and expands our reach into home use. These products acquired include

[Jason Jones:]

Thank you, Scott, and thank you for having me join today's call. I am excited to expand my role at Ekso to include Operations in addition to Product Development. As background, I've been with Ekso since 2018, previously serving as Senior Vice President of Product Development. My goal as COO is to leverage my experience in engineering, product development and supply chain management to build Ekso into their platform with the capacity to design, produce, distribute and service a broad range of products that amplify human motion and mobility. Improving our operational efficiency is critical to enabling us to scale our business both organically and through strategic initiative. As a case in point, the recent acquisition of the Indego product line represents the next step in leading the way for patient rehabilitation. While we are well on our way to successfully integrating the business, we are also using this as an opportunity to improve or upgrade systems and processes. As one example, we now have a second R&D and manufacturing facility in Macedonia, Ohio. Currently, we are using space provided by Parker Hannifin for continued operation. We plan to move the facility to a separate nearby location within the next 12 to 16 months, and are evaluating how to optimally utilize our Ohio presence. Additionally, as mentioned earlier, we are starting the process of combining our engineering and product development teams, while also working with Vanderbilt in an effort to (ph) our technology innovation. We believe the combined expertise of these teams is unmatched in the field of exoskeleton R&D, which helps to further strengthen our position as industry leaders. On the EksoWorks side, in 2022, we began the process of adding external manufacturing capability for our EVO product line at a contract manufacturing partner located in Malaysia. We believe this will help us to expand capacity, lower cost and improve quality. Our current expectation is for production from Malaysia to begin in the first half of 2023. Moving forward, as part of our executive leadership team, I am intent on ensuring the successful execution of our strategy and supporting our corporate development activities. I look forward to contributing to the company's success. At this time, I'd like to turn the call over to our Chief Financial Officer, Jerome Wong, to review our fourth quarter and full year financial results.

[Jerome Wong:]

Thank you, Jason. Ekso generated fourth quarter 2022 revenue of $3.6 million compared to $4.1 million for the fourth quarter of 2021. Our gross profit for the fourth quarter was $1.7 million, representing a gross margin of approximately 47% compared to a gross margin of 59% for the same period in 2021. The decrease in gross margin was primarily driven by an increase in service and supply chain costs, elevated labor costs and lower average selling prices of device sales due to sales channel mix. Operating expenses for the fourth quarter of 2022 were $6.1 million compared to $7 million for the fourth quarter of 2021. The 14% decrease was primarily due to lower legal and consulting expenses. Net operating loss in the fourth quarter of 2022 was $4.4 million compared with a net operating loss of (ph) in the prior-year period. Gain on warrant liabilities for the quarter ended December 31, 2022 was $0.3 million from the revaluation of warrants issued in 2019, 2020 and 2021 compared to a $2 million gain associated with revaluation of warrants issued in 2019, 2020 and 2021 for the same period in 2021. Turning to our full year results for the year ended December 31, 2022. Revenue increased by 15% to $12.9 million compared to $11.2 million for the same period in 2021. Revenue growth was primarily driven by an increase in the volume of EksoNR device sales. Gross profit for the full year ended December 31, 2022 was $6.2 million, representing a gross margin of approximately 48%, compared to a gross profit of $6.7 million for the same period in 2021, representing a gross margin of 60%. The decline in gross margin is primarily due to an increase in service and supply chain costs, elevated labor costs and lower average selling prices of device sales due to sales channel mix. Operating expenses for the 2022 full year were $21.8 million compared with $20.6 million for the prior-year period. The increase was primarily due to one-time severance costs associated with management changes, costs related to the relocation of our corporate headquarters and manufacturing facility and acquisition and operating costs of HMC. These increases were partially offset by a decrease in legal and consulting expenses. Net operating loss in the 2022 fiscal year was $15.6 million compared with $13.8 million for the comparable period of 2021. For the year ended December 31, 2022, we recorded a gain on warrant liabilities of $1.3 million associated with the revaluation of warrants issued in 2019, 2020 and 2021, compared to a $4 million gain associated with revaluation of warrants issued in 2019, 2020 and 2021 for the same period in 2021. Cash used in operating activities in the 2022 fiscal year was $14.7 million. As of December 31, 2022, the company had a strong cash balance of $20.5 million. Please see our 10-K filed earlier today for further details regarding the quarter and full year. Operator, you may now open the line for questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. And the first question comes from the line of RK from H.C. Wainwright. Please proceed with your question.

[Swayampakula Ramakanth:]

Yes, thank you. Good afternoon, Scott.

[Scott Davis:]

Hi, RK.

[Swayampakula Ramakanth:]

So, at the start of the call, you said -- I think you said, there were two Indego installs in the fourth quarter. Is that part of the backlog that you received when you went through the acquisition? And if that is true, what sort of backlog is out there now going into '23?

[Scott Davis:]

So, RK, thank you for your question. Those were not backlog units. Those were units that were actually orders received in the last three weeks of December post close. So, with the acquisition, we did not receive a backlog of orders. However, we do have a strong pipeline.

[Swayampakula Ramakanth:]

Okay. That's good. And then, so for the NR business, you're saying that the demand is robust. The pipeline is strong. But at the same time, you're saying the lead time is becoming longer. So, I don't know what -- how you define long. And also, is there a possibility that if that -- some part of the backlog -- because if the backlog becomes longer, do you foresee any loss in terms of the demand as well? Because nobody wants to wait forever to get the product in.

[Scott Davis:]

Yeah, understood. So, in terms of our backlog, I think as we came through 2022, we managed backlog pretty well certainly as we pushed to the close of 2022. So, generally speaking, we're not carrying a huge backlog of orders with us. To answer the first part of your question, which is regarding the lead time, generally speaking, we are experiencing slightly longer times to close, maybe a couple of months, generally speaking, anywhere from 30 to 60 days that we're seeing, as we have seen more of our customers beginning to use some third-party financing options that we offer, and it simply takes a bit longer to work through that process. But in general, we have a strong pipeline going forward, and it looks good. And Jason would like to elaborate just a little bit.

[Jason Jones:]

RK, this is Jason Jones. It's good to meet you. Just to clarify on lead times. So, our -- when we say lead times in this context, we're really talking about deal close time. Our actual lead time on shipment is quite short. Usually, I'm not going to say it's immediate, but it's between four and eight weeks probably with where I would estimate it. So, I don't think that -- once the order is in, the lead times are pretty short. I think Scott is referring to the deal cycle time as opposed to lead time for shipment.

[Swayampakula Ramakanth:]

Okay. Thank you for that. And then, the last question from me is, now that you have had Indego for a few months, how -- when do you think Indego will be completely integrated within the Ekso business such that you can actually start seeing synergies not only on the sales end, but also on the operating end?

[Scott Davis:]

Well, I think -- so that's a two-part question. And from a sales and go to market standpoint, the integration has been progressing quite well. We have aligned our commercial team and we have great synergies with that. In many ways, Ekso's sales team all carry with them the Indego product line as well, and we have a slightly different method for -- sales methodology for selling the personal unit that has also been aligned to work in conjunction with our sales team. So, I would say that overall that side of the business and integration has been going very well. There's a second part of the integration which involves looking for synergies in operating and engineering, and maybe Jason would be best to answer those.

[Jason Jones:]

Yes, sure. So, maybe just a quick update on integration. So, from a systems perspective, ERP and accounting systems, those are fully integrated already. So that integration is complete. On the R&D side, that -- we have a plan that includes integrating some systems there that really is going to take through the remainder of the year, this year, it's kind of incremental. And then, the last area is kind of on pure operations, manufacturing and supply chain. Those are separate functions today and I think that's a longer process, because the business units are kind of operating as is already. But over the next maybe 12 to 18 months, I think we'll probably see some more integration on the supply chain and operation side.

[Swayampakula Ramakanth:]

Thank you, both, for taking my question.

[Scott Davis:]

Thank you, RK.

[Operator:]

There are no further questions. Now I'd like to turn the floor back over to Scott Davis for any closing comments.

[Scott Davis:]

All right. Thank you, John, and thanks to everyone for joining us today. 2022 was a transformational year for Ekso Bionics, was highlighted by the successful acquisition of the Indego product line, FDA clearance to market EksoNR for rehabilitation use in patients with MS, and a strong number of EksoHealth bookings. The complementary acquisition of the HMC business was critical to our future growth, principally as it expands our product offering across the continuum of care to home and community use markets. We can now reach more patients in need across the larger market opportunity. We believe that the smooth integration of the HMC business, combined with the continued strong demand for our industry-leading products, has us well positioned to continue our momentum into 2023 and beyond. We look forward to providing updates on our continued progress. Thank you, and have a great day.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.