Ekso Bionics Holdings, Inc.
Q2 2020 Earnings Call Transcript

Published: 31 Jul 2020

[Operator:]

Greetings, and welcome to Ekso Bionics Second Quarter 2020 Financial Results 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. I would now like to turn the conference over to your host, David Carey of Lazar Partners. Please begin.

[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 June 30, 2020. 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 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 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. This conference call contains time-sensitive information and is accurate only as of the broadcast today, July 30, 2020. I will now turn the call over to Jack Peurach.

[Jack Peurach:]

Thanks, David. And thanks everyone for joining us today. I’d like to start today's call by discussing our overall second quarter performance, then pass the call to Bill who will provide a more detailed summary of our medical device segment and commercial strategy. Then I’ll provide an update on our industrial segment and other items before turning the call to Jack Glenn for an overview of our second quarter financial results. At the end of the first quarter and entering the second quarter, the emergence of COVID-19 pandemic impacted the priorities and purchasing decisions of our customers. We took immediate action by archiving the health and safety of all Ekso employees, our customers and their patients by moving all non-essential Ekso employees to work remotely. Additionally, we implemented a series of measures designed to reduce expenses and adjusted operations to match customer needs. This included a reduction of our workforce and transitioning to a more virtual interaction with existing and potential customers. Thanks to our strategic and operational flexibility, we generated second quarter revenues of $2.3 million, representing a sequential increase from first quarter revenues of $1.5 million and record quarterly gross margin of 56%. Additionally, we enhanced our financial position by raising approximately $11.1 million in gross proceeds from our recent financings and subsequent warrant exercises. Under these difficult and unforeseen circumstances, our second quarter performance reflects strong execution and dedication of the Ekso team, and I’m very proud of the way we responded to the challenge. As we previously stated, feedback from our customers indicated that most orders are delayed and not canceled, which allows us to maintain the strong pipeline. Our ability to remain connected with customers through our virtual selling strategy reduces the need for in-person interaction while allowing our team to initiate and continue discussions around the benefits of our exoskeleton solutions in both the medical and industrial settings. And while we improved performance during the quarter, there remains some regional challenges due to COVID hotspots. As such, we will continue to manage our costs prudently to weather this crisis. 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. Let me begin by complimenting our team at Ekso for their remarkable efforts to keep a mission-driven focus during a challenging time. Our commercial team executed at a high level and we were pleased with their ability to quickly adapt to a virtual environment that still allowed us to demonstrate the unique capabilities of our powerful product portfolio. In the second quarter, EksoHealth generated seven new orders and seven rental conversions, keeping our rental conversion rate at 84%. We delivered 2.1 million in revenue, led by the U.S. Considering the uncertainties related to the pandemic, we were pleased that U.S. orders were broad-based across all regions in the country. It was a more challenging quarter internationally as the impact of COVID in the APAC and EMEA regions led to earlier shutdowns and delayed acquisitions. While we continually monitor the uptick in COVID cases, we remain actively engaged with several customers on potential deals. We continue to gain traction with our network strategy as evidenced by our collaboration with Post Acute Medical, as we work together to convert three more pilot programs with their network. We now have approximately 430 Ekso units placed globally and we’ll continue to focus on driving adoption throughout the world. In spite of the challenges brought on by the pandemic, our clinical and customer service teams maintained a level of support our customers expect from Ekso Bionics. We instituted virtual training and have begun carefully training on-site again. We are pleased to receive 510(k) clearance from the FDA to market our innovative EksoNR robotic exoskeleton for use with patients with acquired brain injury, or ABI. EksoNR is the first exoskeleton device to receive FDA clearance for rehabilitation use with ABI and is the broadest category of brain injury comprised of both traumatic brain injury or TBI and non-TBI causes. This clearance reinforces our commitment to the patients and clinicians within the neurorehabilitation market. This indication broadens the market opportunity of an EksoNR as the combined annual incidence of TBI and stroke represent an estimated 3.7 million patients in the U.S. and 84 million globally. Over the past few quarters, we have been sharing success stories of patients that have recovered with the benefit of an Ekso product. Today, we highlight a story of a patient that recovered from a traumatic brain injury at St. Joseph Barrow Neurological Institute in-patient rehabilitation center in Phoenix, Arizona. Riley is a young woman who was in a car accident and sustained a traumatic brain injury as well as a cervical spine fracture that did not affect her spinal cord function. As she progressed out of the ICU and into Barrow’s in-patient rehabilitation center, the team trialed various therapeutic interventions. Due to her low functional ability, her physical therapist trialed many therapeutic interventions that proved unsuccessful. Despite her inability to speak, her physical therapist was able to create a successful communication strategy and introduced Ekso. With Ekso trunk support, intuitive software and patient engagement, Ekso was able to create a walking experience to stimulate an intrinsic response to engage her brain in recovery. Ekso taps into cognition and balance which are two primary deficits of traumatic brain injury. With assistance provided by Ekso, Riley regained functional ambulation and progressed through the stages of recovery. After being discharged from in-patient rehab, Riley continued to use the Ekso in outpatient rehab and with remarkable success, fully regained functional ambulation. These are the stories that inspire our vision of amplifying human motion. Looking ahead, we anticipate a challenging environment with the uptick of COVID cases. Our pipeline of opportunities remains strong, but the future is difficult to predict. We will continue to be flexible on business offerings and committed to supporting patients and customers. 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’d like to provide an update on our industrial segment and China joint venture. Starting with industrial, near-term adoption and purchasing decisions in the second quarter were delayed as customers continue to navigate through the pandemic. To alleviate capital barriers, we are excited to launch a new service model allowing customers to access Ekso’s technology without an upfront capital purchase. By quickly adapting to challenging business conditions, this service offering has already generated traction with new customers. Our focus continues to be on driving adoption in a high-value exchange regarding EksoWorks devices based on their productivity and safety benefits. We are pleased with the initial customer interests and look forward to sharing additional updates on future calls. Now turning to our China JV. As announced in May, we received a notice from CFIUS in connection with its review of the China JV transaction. CFIUS determined that it's national security concerns regarding the JV could not be mitigated. On July 13, together with the JV partners we entered into a National Security Agreement, which among other things requires the termination of the company's agreements and role with the JV. The company is working cooperatively with the JV partners and CFIUS to implement the terms of the National Security Agreement. The termination of the JV should not have a material impact on our revenue and operations during the remainder of 2020. We are confident in our ability to achieve our cost reduction targets through alternative initiatives to build on the strength of our record Q2 gross margins. Now, I will turn the call over to Jack Glenn to review our second quarter financial results.

[Jack Glenn:]

Thank you, Jack. Against the challenging backdrop of the pandemic, we achieved sequential revenue growth versus the first quarter. While we are pleased with this growth, our revenues remain under pressure as some customers delayed orders to prepare for and manage their business during the pandemic. Ekso generated second quarter revenues of $2.3 million compared to $1.5 million in the first quarter of 2020 and compared to $3.3 million for the second quarter of 2019. Our gross profit for the second quarter was $1.3 million, representing a record gross margin of approximately 56% compared to a gross profit of $1.6 million and gross margin of 48% for the same period a year ago. As Jack mentioned, we refocused our cost structure to navigate through this challenging operating environment. Operating expenses for the second quarter of 2020 were $4.4 million compared to $6.7 million for the second quarter of 2019, a reduction of approximately $2.3 million or about 35%. For the three months ended June 30, 2020, we recorded a loss on warrant liabilities of $8.6 million due to the revaluation of warrants issued in 2015, 2019 and 2020 compared to a $2.7 million gain associated with the revaluation of warrants issued in 2015 and May 2019 for the same period in 2019. Net loss for the second quarter of 2020, which was impacted by the revaluation of warrants, was $11.8 million or $1.88 per share compared to a net loss of $3.1 million or $0.65 per share in the second quarter of 2019. We continue to reduce our utilization of cash to adapt to current market conditions and use $3.8 million in cash from operations, excluding restructuring charges compared to $4.6 million in the same period in 2019. Turning to year-to-date results, revenue for the first six months of 2020 was $3.7 million compared to $6.9 million for the same period in 2019. Gross profit for the first six months of 2020 was $1.9 million compared to gross profit of $3.2 million for the same period in 2019. Gross margin for the first six months of 2020 increased 51% from 46% for the same period in 2019. Operating expenses for the first six months of 2020 were $9.8 million, a decrease of $3.4 million or about 26% compared to the prior year period. For the first six months ended June 30, 2020, we recorded a loss on warrant liabilities of $6.1 million due to the revaluation of warrants issued in 2015, 2019 and 2020 compared to a $1.6 million gain associated with the revaluation of warrants issued in 2015 and May 2019 for the same period in 2019. Net loss for the first six months of 2020 also impacted by the revaluation of warrants was $14.3 million or $2.37 per share compared to $9.6 million or $2.12 per share in the same period in 2019. Cash used in operating activities for the first six months of 2020 was $5.7 million compared to $9.7 million for the same period in 2019. As of June 30, 2020, we had a cash balance of $13.3 million. In June and July, we successfully raised a combined $11.1 million in gross proceeds from a registered direct offering and the exercise of warrants related to the current and previous offerings. The net proceeds from these offerings strengthened our cash position and will be used for general corporate purposes and to meet working capital needs. 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, sir. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]. Our first question today comes from Ramakanth of H.C. Wainwright. Please proceed with your question.

[Swayampakula Ramakanth:]

Thank you. Good afternoon, Jack and Jack. A couple of quick questions. Congratulations on the EksoNR receiving the 510(k). The first reception – first receiving the 510(k), I’m just trying to figure out the commercialization of that and any update if you have installed any or on the way to install any of the EksoNR and how different is that from your other devices? Especially I believe this is suited more to the TBI patients. Any commentary there would be helpful.

[Jack Peurach:]

Sure. Hi, RK. This is Jack Peurach. Just for clarification, the EksoNR is our standard product for all neurological rehabilitation. It was cleared to also be applied to acquired brain injury diagnosing. So the product itself is the same product that was previously cleared for stroke and spinal cord just for clarification. Now I’ll quickly introduce sort of the impact that is having and I’ll ask Bill to provide a little more color. But our customers are in-patient rehab facilities who see a variety of different patient types that comes through their facilities. Often stroke is a major condition that those in-patient rehab facilities treat, but brain injury is also a very critical part of their patient population. So this allows them to use the product on label on a much broader set of their patient population. And then in some cases where there are in-patient rehab facilities that are more targeted or geared towards TBI or ABI type of patients, this opens up a new opportunity with those customers. So that’s really the impact we’ve seen from it. Maybe I’ll ask Bill to throw in a little bit more information if he cares to?

[Bill Shaw:]

Yes, absolutely, Jack. So I’d just say, from a commercial strategy standpoint, right, our focus is driving adoption to give patients access to our technology. So this just broadens the conversation for our commercial organization. We’ll give you an example. There’s a few centers in Colorado that we actually were working with but because we didn’t have this indication, they weren’t willing to move forward with us. So there’s opportunities for us because of this new indication to reengage with customers that maybe weren’t comfortable moving forward, because we didn’t have that specific indication. So we do see an uptick of opportunities to go after for sure. But, overall, I’d just say, it just allows us to kind of broaden the overall conversation and approach to our customers.

[Swayampakula Ramakanth:]

Okay. Thank you very much for that additional color. In terms of the network strategy, obviously there was some positive commentary in your remarks. But could you provide us some additional color as to how that’s working and how much effort are you putting into the networking strategy currently? Obviously that will be a little bit of a larger sell at a touch point. How is that working? And I believe you said there are some trials going on and do you have an idea of how long it takes for these trials to convert into a sale?

[Bill Shaw:]

Yes, sure.

[Jack Peurach:]

Yes --

[Bill Shaw:]

Sorry, go ahead, Jack.

[Jack Peurach:]

Okay. I’m going to just introduce it quickly and then pass it to Bill. The network strategy is still a very important part of our go to market, and we do have a number of trials or pilots underway. Some are waiting to start as they free up, get through the current COVID crisis. But it is a very important way to drive adoption for us and get a broader – more efficient sales process and get our technology to a broader set of customers in a more efficient and quick way. We’ve also worked a lot on developing more flexible solutions for them in providing different, whether it be services or different acquisition models and financing to allow them to fit into their specific situation. So I think we try to be as flexible as possible as well and I think that’s helped us a lot as we try to advance these. I’ll let Bill talk about a little specifics here. Bill?

[Bill Shaw:]

Well, I think you answered it really well, Jack. The only add I’ve had is just that working with these IDNs, we can really engage with the executives at a higher level to make sure that we’re really aligning the programs that we’re developing, the key metrics that are important to them. So taking a step back and really focusing on the programmatic piece and developing those programs for future success. But I think Jack answered it well.

[Swayampakula Ramakanth:]

Okay. And then the last question from me is during the second quarter you did state that the international markets didn’t work as well as it used to because of COVID-19. So what are you – not only international but also domestic. So what are you seeing post close of the quarter in the sense, in the last month or so, how are you seeing things progressing for you folks so that we can have an idea as to how this quarter can shape up? Obviously things are pretty fluid still in the United States with some schools not saying that they will be opening up and things like that. But internationally I would think some of the places are opened up, but I would like to hear your commentary on that.

[Jack Peurach:]

Yes, the situation is really dependent upon what’s happening regionally or locally and even in many cases. So if you look across U.S., Europe and APAC. Within U.S., it’s different in different places. The same is true for both Europe and APAC. However, we are seeing activity. And certainly from our customers’ perspective, we’re seeing rehab happening. And so most of our customers now are back in business. Not all of them, but most of them are back in business and getting back to pretty full levels of patient volume. And as that happens, the activity on our side is also opening up. So I would say that we’re still very cautious. We’re seeing activity – I think we’re seeing activity pick up a little bit. I’ll let Bill add some more color on that. But it’s still – it’s so cautioning [ph] that people are still in different regions dealing with this in more extreme ways than in others in the place where it’s less intense. So I think they’re more engaged. And Bill, maybe you can add some specifics to that.

[Bill Shaw:]

Okay. I’d just say as a broad brush, we’ve seen our in-patient centers in the U.S. rebounding pretty well over the past few months. But obviously right now with some uptick of COVID cases in specific regions, there are some situations where it’s impacting our ability to get on site and train and I think minimizing operations with certain centers in those areas. I’ll speak for Europe or just Germany. We have done a really nice job driving kind of our virtual selling strategy and keeping engaged with customers. And they’ve started to open up nicely, but they’re also starting to see slight uptick in cases as well. So for us, we’re just keeping the conversations going and keeping engaged, just really trying to be flexible with our offerings. So if anything, I think maybe there’s delayed sales cycles out of this. But we have not seen any business lost, it is just delayed.

[Swayampakula Ramakanth:]

Thank you for taking all my questions and talk to your folks soon.

[Jack Peurach:]

Thanks, RK.

[Bill Shaw:]

Thank you, RK.

[Operator:]

[Operator Instructions]. Our next question comes from Nathan Weinstein of Aegis Capital. Please proceed with your question.

[Nathan Weinstein:]

Hi, Jack and Jack. Thanks for taking my question and nice to see the progress in the business amidst a challenging environment. It actually ended up doing better than I was expecting in the quarter. And one of the things I’ve noticed is a lot of KOL calls, social media posts, digital engagement from you guys. And maybe you could just speak a little bit about that? Is it right to say that there’s been an increase in those types of activities from your company? And then what kind of level of engagement or kind of bang for the buck do you see from approaching the market through those channels?

[Jack Peurach:]

Okay, great question. Obviously, we are working very hard to be creative about how we stay in touch with both our customers and potential customers. We’ve done a lot of different webinars and other sort of educational formats either about something really to Ekso Bionics or something related to the industry. And it gives us a way to stay connected with our customers in a meaningful way to them. And that’s been extremely well received. We’ve generated a lot of new relationships through that mechanism and maintained a lot of existing relationships with our customers. So it’s been I think a really surprising, maybe positive that has come out of this as an effective and efficient way to just broaden the strength of our voice and a seat at the table on a lot of these discussions. In terms of what to expect and how this will impact our business more directly, maybe I’ll let Bill talk to that. But this has been a really important part of the way we’ve been interacting with our customers in the industry in general. Bill?

[Bill Shaw:]

Hi, Nathan. The only thing I’d really add is I just – Jack said it, but I think for us the more we can learn from our customers, the more we can evolve our go-to-market approach or pathway. And so one example is we are setting up some advisory councils or boards, so we have different groups. Whether it’s a clinical advisory group or an executive advisory group, the more we can learn about the different market segments that we serve and kind of pressure test some of our strategies or ideas, it’s going to help us make better decisions on our business and definitely arm our commercial team to make sure that we’re adding value in the right areas.

[Nathan Weinstein:]

Great. Thanks, Jack and Bill for the color there. Much appreciate it.

[Jack Peurach:]

Thanks, Nathan.

[Operator:]

There are no additional questions at this time. I would like to turn the call back to Jack Peurach for closing remarks.

[Jack Peurach:]

Thank you all for joining us today. In closing, it was certainly a challenging quarter for our company in managing through these unique times. I’m pleased that we were able to achieve sequential revenue growth, maintain the strong order pipeline, launch a new flexible service offering for our industrial customers and deliver online support and training for our innovative exoskeleton devices. Moreover, our operational flexibility enabled us to adjust our cost structure and, together with our recent financings, results in a strong cash position. I’m proud that Ekso Bionics is recognized as the Best Healthcare Robotics Company by MedTech Breakthrough. Winning this award is the testament to our industry leading innovative approach and the hard work of the entire Ekso Bionics team. While the pandemic may impact the near-term outlook for the customers that we serve, we remain creative and committed to deliver long-term value for patients, customers and our shareholders. Thank you for joining us today. I hope you and your family stay healthy and safe.

[Operator:]

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