Ekso Bionics Holdings, Inc.
Q1 2020 Earnings Call Transcript

Published: 1 May 2020

[Operator:]

Greetings and welcome to the Ekso Bionics First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.It's now my pleasure to introduce your host, David Carey. Please go ahead, sir.

[David Carey:]

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 ended March 31, 2020. A copy of the press release is available on the company's website.Before we begin, I would 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 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, April 30, 2020.I'll now turn the call over to Jack Peurach.

[Jack Peurach:]

Thanks, David. And thanks to everyone for joining today's call. I'd like to start today's call by describing COVID-19's impact on our operations and markets, and then pass the call to Bill who will provide a more detailed summary of our medical device segment and commercial strategy during COVID-19. Then I will provide an update on our industrial segments and China joint venture before turning the call to Jack Glenn for an overview of our first quarter financial results.Obviously, the health and safety of all Ekso employees, our customers and their patients are always our top priority. As the magnitude of this pandemic began to unfold, we took proactive steps to move all non-essential Ekso employees to work from home.At the same time, we implemented a series of measures to adapt to this new operating environment. This included staying connected with customers virtually and reducing costs.Since mid-March, the pandemic has had an impact on our customers, and subsequently, our business. Many customers opted to delay orders, which are typically booked in the last few weeks of the quarter. As a result, we generated $1.5 million in first quarter revenue, which is well below our forecast and results of prior quarters.It is important to emphasize that, based on feedback from customers, most orders are delayed and not canceled, pending a return to a more normal environment. We maintain a strong pipeline and are working on more creative selling solutions. Until then, with near-term challenges in front of us, we took immediate action to adjust our business operations to the current environment.We have implemented a virtual selling strategy, which enables us to continue engaging with our current and prospective customers without the need for in-person interaction. This allows our sales and marketing team to initiate and continue discussions around the benefits of our exoskeleton solutions in both the medical and industrial settings.We also adapted our support, training and service models to ensure all customers can continue their Ekso programs without interruption and without Ekso Bionics personnel being present at their facilities.In addition to these operational adjustments, we made significant expense cuts, including the difficult decision to furlough a portion of our extremely dedicated, talented and valued employees. These furloughs were made to weather this crisis, preserve our cash and enable us to resume normal business operations as soon as we're able.At this time, I will turn the call over to Bill, who will provide an update on our medical device segment and global commercialization strategy.

[Bill Shaw:]

Thank you, Jack. This is a challenging time for everyone in the post-acute care market that we serve, including the patients, physicians and clinicians.As Jeff mentioned, many of our sales opportunities have been delayed as priorities have shifted. This is an important distinction from canceled orders, as we were generating strong sales momentum during the first two months of 2020.To this point, we've already seen three opportunities that were expected to close in March, now close in April. Although we are dealing with an unprecedented situation, interest remains high for our innovative Ekso devices, including several exciting pilots that closed in March.Our ability to quickly adapt and implement a virtual selling strategy has yielded solid results under these unique circumstances. I'd like to share two examples of how we are continuing to make progress with our network strategy.We signed a multi-site pilot program with Vibra Healthcare, a leader in the field of medical rehabilitation and long-term acute care, with centers across 19 states. We expect to launch this pilot Q2 or early Q3. 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.We also signed Ignite Medical Resorts, an Illinois-based operator of post-acute care facilities. Ignite is a high-end skilled nursing facility network operating nationwide.In addition to our virtual selling strategy, we are proactively engaging with customers by hosting online training. These include webinars, video conferences and educational events that keep us connected and help educate our customers about the value and advanced features of our Ekso devices.For example, we started a six-week clinical educational webinar series for prospective and current customers that has been well attended to date. We also launched a specific educational series for network operators, tailored more around their individual programs.Through these virtual events, we can sustain customer enthusiasm for our products in the near term. We are also providing flexible acquisition options to make it easier for customers to still access our technology.Additionally, our rental program continues to yield great results as a bridge to capital purchase. At the end of Q1, our cumulative conversion rate of a rental to sale remains strong at 84%. Total revenue upside from rentals under contract, assuming that all current US rental units convert to sales, as well as deferred rental revenue exceeds $2.5 million.Internationally, we were able to close several new pilots with our new upper extremity device. We have a center in Germany that is working to pilot the device to a tele rehab program currently being developed. We'll share more on this tele rehab pilot in the coming quarters.Last quarter, we highlighted a patient story that underscores the true value of an Ekso program. For today's call, I'd like to highlight a success story with one of our patient ambassadors, Megan Burns.Megan had a spinal stroke. After having an operation to resect her spinal cord, she used a wheelchair, then a wheeled walker, and then a straight cane and ankle braces. While the doctors were thrilled with their progress, she was still not able to function at the level she was happy with.She discovered an opportunity to be part of a research project using Ekso. After her first use of an Ekso device, she immediately found her balance with the help of the pre gait functions and the posture had improved.After several more sessions in Ekso, Megan was not only taking more steps, but higher quality steps. She became very comfortable and confident in the device, which led to her beginning to walk in the community without her cane. Soon after that, Megan was golfing again and had her social life back.She continues to carry the lessons from her Ekso training, and now has been walking unassisted for nearly two years. We thank Megan for her story, and wish her continued success.Looking ahead, the number one focus of our commercial strategy is to maintain consistent touch points with current and prospective customers, particularly as different regions of the country and the global economy begin to open up once again.We remain in touch with network operators and key decision makers and are prepared to scale production as orders ramp up.Our long-term strategy remains unchanged to further expand our shares in the inpatient rehab market and our footprint with IDMs and network operators to fulfill our mission of improving lives by accelerating a person's recovery and ability to achieve movement.At this time, I'd like to turn the call back to our CEO, Jack Peurach.

[Jack Peurach:]

Thanks, Bill. Before I turn the call to Jack Glenn, I would like to provide an update on our industrial segment and China joint venture.Starting with industrial, similar to our medical device segment, order levels late in the first quarter were severely impacted by COVID-19. Near-term adoption and purchasing decisions are likely to be delayed as customers continue to navigate through the pandemic.As we stated on the fourth quarter call, we are continually evolving our go-to-market strategy by diversifying our activities in the more vertical segments and new business development opportunities.Additionally, we're evaluating customer-friendly product acquisition models to make it easier for our customers to optimally use our EksoWorks devices based on their immediate needs. We are very optimistic with the customer interests we are seeing and the progress we are making.Now, turning to our China joint venture. As discussed previously, we along with our JV partners voluntarily submitted a joint notification to the US Committee of Foreign Investments, or CFIUS, in Q4 to review the joint venture.We continued to engage with CFIUS to address our concerns. However, due in large part to the measures imposed to deal with COVID-19, CFIUS' assessment of the China JV has been extended for an additional 45 days, with a conclusion targeted no later than May 28.As reminder, 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 first quarter financial results.

[Jack Glenn:]

Thank you, Jack. After generating record quarterly sales in the fourth quarter of 2019, our revenues for the first quarter of 2020 were significantly impacted by COVID-19 as customers shifted their priorities to prepare for and manage their business during the pandemic.Ekso generated 2020 first quarter revenues of $1.5 million compared to $3.6 million for the same period in 2019. As Jack mentioned, we have heard from many of our customers that their originally planned opportunities, which are typically booked in the last few weeks of the quarter, are delayed, and not cancelled.Our gross profit for the quarter was $0.6 million, representing a gross margin of approximately 43%, compared to a gross profit of $1.6 million and a gross margin of 44% for the same period a year ago. The decrease in gross profit is primarily attributed to lower volume of medical device sales.As Jack had mentioned, we have taken measures to reduce expenses in order to weather this global health crisis. Operating expenses for the first quarter of 2020 were $5.4 million compared to $6.5 million for the first quarter of 2019, a reduction of approximately $1.1 million or about 17%.For the three months ended March 31, 2020, we recorded a gain on warrant liabilities of $2.5 million due to the revaluation of warrants issued in 2015 and 2019 compared to a $1.1 million loss associated with the revaluation of warrants issued in 2015 for the same period in 2019.Net loss for the quarter was $2.5 million or about $0.44 per share compared to a net loss of $6.6 million or $1.51 per share in the first quarter of 2019.We continue to reduce our utilization of cash to adapt to current market conditions. Cash used in operating activities for the first quarter of 2020 was $1.7 million compared to $5.2 million for the same period in 2019.As of March 31, 2020, we had a cash balance of $8.5 million.On March 24, we announced a 1-for-15 reverse stock split, primarily intended to raise the per share trading price of the company's common stock. As a result of this action, Ekso regained compliance with the minimum price threshold required by the listing rules of the NASDAQ capital market on April 7.Please see our 10-Q filed earlier today for further details regarding the quarter.Operator, you may now open the line for questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question today is coming from Sean Lee from H.C. Wainwright. Your line is now live.

[Sean Lee:]

Good afternoon, Jack, Bill and Jack. Jut would like to get a better idea on the scope of the impact on the COVID. Because different areas have different lockdown rules and some areas have begun to reopen, could you provide an idea on maybe what percentage of your customers have remained open or have reopened and what percentage maybe are staying closed?And as a follow-on on that, as areas start to reopen, how quickly can you turn the switch back up and resume normal selling activities? Would we see any impact on inventory supply and distribution? Thanks.

[Jack Peurach:]

Hey, Sean. This is Jack P. Thanks for the question. I'll introduce this and turn it over to Bill. Our customers typically are inpatient rehab centers, where we [Technical Difficulty] any of those close, but we have seen them limit or restrict the operations that they undertake. So, where we have seen some facilities close is when you get to outpatient rehabilitation where they're serving people who are at home and they may be shelter in place conditions, so they just don't have patients who can come in. But from an inpatient perspective, they're all open. Just have limited operations and somewhat restricted or down patient flow. I'll let Bill talk a little bit about that.In terms of our ability to recover on this, we've continued to maintain connection with all the potential customers that we've been working with and certainly all of our existing customers. As soon as the customers are ready to go, I think we are we are ready to go. There's really not going to be a delay there.I'll turn it over to Bill now to add some more color.

[Bill Shaw:]

Yeah. I'd just say, overall, the patient volumes are definitely down across inpatient rehabilitation. However, I think the general feeling is that there will be a significant uptick as things begin to normalize over time.There's some sites that are actually at or over capacity, but those are fewer. So, we are hearing that certain regions have started to experience a slow recovery with an uptick in volumes, especially as elective procedures open back up. So, we're cautiously optimistic, but the real recovery is still a moving target.

[Sean Lee:]

Great to hear that. And thank you for the additional color. And also, I think in the prepared remarks, you mentioned a new deal with Germany on remote health things. I was wondering if you could provide some more details on that.

[Bill Shaw:]

Yes. It's a little early to give too much on that. I did comment. We'll provide more in the months to come. But, essentially, we have a customer that definitely sees utility of our new upper extremity device being useful for telehealth. So, you have a lot of centers right now that are looking at different ways that they can continue to take care of patients, obviously, given the environment. And so, he's looking to run a pilot with our device through telehealth. So, I think we'll be able to give a little bit more detail on that as that gets up and running. But to us, that presents an opportunity. I think we feel like we're well positioned with our technology post-COVID just with the one to one relationship that we offer.

[Sean Lee:]

Thank you. That's all I have.

[Operator:]

Our next question today is coming from Nathan Weinstein from Aegis Capital. Your line is now live.

[Nathan Weinstein:]

Hi, guys. So, thanks for taking my question and good job on preserving cash in a difficult environment. You spoke about this, but I just wanted to confirm. Is it the case that patients who have a spinal cord injury or a stroke at this time and are in dire need of the rehabilitation care can get it from your exoskeletons currently if they need it?

[Jack Peurach:]

Hey, Nathan. Yeah, that's still the case. There's still patients who have strokes who end up in inpatient rehabilitation facilities using our product. I think when there's a discretionary element to that, either through an elective procedure or if their condition is such that they might be able to go straight home versus into inpatient, which would be a subset, they may not have access immediately and those are the patients who would come back in the future. But, certainly, for the more critical conditions right now, they still have access and we're seeing continued utilization of our products in those centers.

[Nathan Weinstein:]

Is that utilization rate that you're able to see? Does that come through from the EksoNR connected device or is it basically from pulling your customers?

[Jack Peurach:]

Both actually.

[Nathan Weinstein:]

Okay, thanks. And then, just another question about your company and operating in a virtualized environment. You made some nice comments on how you've adapted. Just in terms of fulfillment, like if you send a unit to a customer now, do most of them have the capability to sort of unbox that and put it to use through remote assistance?

[Bill Shaw:]

Yeah. I'll take that one, Jack. I'd just say, so as it relates to training, that's probably one of the favorable consequences of this whole situation of that. It's forcing us to innovate in real time how we deploy our training. So, it's a great question because, obviously, that's really important. So, right now, our training team has done a very nice job of quickly adapting to a new training pathway that can be delivered between a balance of online and onsite. So, I think the reality is, we do have a backlog of trainings. And so, that's something that we're monitoring when we can get onsite again. But we are pivoting right now to doing more online. And we have customers that are open to piloting that with us. So, of course, we're going to handle it site by site in terms of the timing and when we can get back onsite live. But it is an opportunity for us to drive a more efficient pathway.

[Nathan Weinstein:]

Okay, thanks a lot. That's really helpful.

[Bill Shaw:]

Sure.

[Operator:]

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

[Jack Peurach:]

Thank you all for joining us today. I want to reiterate that Ekso Bionics is taking the necessary actions to ensure the health and safety of our employees, while maintaining business continuity through aggressive cost reducing actions and virtual selling strategies.Although market uncertainties related to the pandemic make it difficult for us to project the full impact on our business and customers, we are prepared to restore full service activities when market conditions begin to normalize.We continue to see interest in our products and remain optimistic about our prospects to create value for patients, customers and investors in the long term.Thank you for joining us today.

[Operator:]

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.