Ekso Bionics Holdings, Inc.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Welcome to the Ekso Bionics' 2017 First Quarter Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Debbie Kaster of Gilmartin Group. Please go ahead, ma'am.

[Debbie Kaster:]

Thank you, Jerry, and thank you all for participating in today’s call. Joining me from Ekso Bionics are Thomas Looby, President and Chief Executive Officer; and Max Scheder-Bieschin, Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the quarter and year ended March 31, 2017. 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 includes forward-looking statements within the meaning of federal securities laws, 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 without limitation are examination of historical operating trends and our future financial expectations 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 business, 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 projections or 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 live broadcast today, May 09, 2017. I will now turn the call over to Thomas Looby. Tom.

[Thomas Looby:]

Thank you Debbie and thanks everyone for dialing in to our call this afternoon. This quarter had mixed results. I am very satisfied with the progress that our team has made as we move along our path to become standard of care and our healthcare program and standard of use in our Eksoworks program thanks to the team's hard work over the last quarters we have a lot of green shoots starting to rise up that we are confident will enhance the market and financial picture for Ekso. Study data is up, utilization in the clinic is up, demos, a lead indicator of future sales or rentals are up, EMEA's team is rebuilding and we recently moved from introductory phase to commercial phase for our EksoZeroG mount system. Having said that I am not satisfied, we as a company are not satisfied with the unit shipments of our Ekso GT and our first quarter. For me 10 units shipped is not satisfactory nor its sustainable and for two quarters in a row EMEA was particularly soft. We are well aware of these that these are not the result that any of us are striving for. I will go into rehabilitation sales and our intent and focus on the bottom line in more detail shortly but first a few notes on this quarter and our achievements. We shipped 10 Ekso GT units, seven of which were sales. We now have 225 medical devices in the field of which 215 were sold and 10 are under a rental agreement, at 169 customers in North America and EMEA. We have built strong sales analytics to make sure our sales force can be as efficient and effective as possible this includes tracking our funnel through the various stages of the sales cycle to understand the conversion rates and timing. We have provided the opportunity for individuals who cannot take a step on their own to take over 74 million steps at more than 150,000 patient sessions. We can track this because of our real time data capture system called EksoPulse. We have now signed up five centers with IRB [ph] approvals in place in our important WISE study, this is the first randomized multi-centered clinical trial within the exoskeleton industry. We were the subject of a medical innovation briefing released by the National Institute for Health and Care Excellence in the United Kingdom, the institute specifically called out our proprietary SmartAssist software, the technology which intelligently adjusts to a patient session at over sessions step after step. We launched our centers of excellence peer to peer advocacy program and listing initial fourth centers from the U.S. and another first in the industry to help us educate existing and potential customers on the clinical benefit and value proposition of the Ekso GT. Now to what is happening on the sales front for the Ekso GT, a very important piece of our sales analytics process is understanding the indicators of uptake in this market and it is in how we are developing our pipeline. We believe that the number of demos we perform at potential customers is one of the best and most reliable indicators of future sales. With our particular focus over the last nine months and better understanding the customer we have seen our quarterly demos in the U.S. grow from an average of approximately 16 demo's per quarter prior to our FDA clearance to 27 demos this past quarter in the U.S. alone. Europe held 20 demos in the same quarter. Our target remains on track to reach 60 demos per quarter, 30 in the U.S. and 30 in EMEA by the end of 2017 ultimately a successful direct sales rep is expected to place a minimum of one unit per month. As we hone in on an optimal sales we're also seeing the first signs of a shortening in the sales cycle prior to getting our label for stroke and spinal cord injury sales cycles range from 12 to 18 months. Now with our clearance in hand we are successfully informing a broader number of clinics about the use of our exoskeleton and this allows our sales people to be more focused and efficient on developing the all-important demo and closing business. As a result of these efforts our average sales cycle went below 12 months over the past quarter including two shipments that went from demo to sale within the quarter. In our efforts to further identify the best customers for the Ekso GT we are beginning pilot projects in the next few weeks with two leading post-acute care companies to explore how the Ekso GT can help them provide better clinical outcomes more efficiently within skilled nursing facilities. Based upon claims data we have analyzed a large number of stroke rehabilitation happens within skilled nursing facilities. This we believe represents a large untapped market for Ekso Bionics. Of course an essential tool for our sales and marketing team is educating our market on the clinical data and results of using our products I was pleased to see that our recent clinical webinar we had over 200 participants learn about the rapidly growing body of clinical studies and away with the Ekso GT. In total there are currently 55 independent studies on the Ekso GT 33 of which have been completed and 22 are still enrolling patients. Together these studies will include more than 1200 participants overall. Some of the specific compelling outcomes observed include a 150% to 200% increase in dosage in stroke patients compared to standard physical therapy. The most notable difference in dosage came at the first sessions 443 three feet walked [ph] in Ekso versus seven feet walked in standard physical therapy. Improved gait parameter such as increased stride length, decreased step width, and improved symmetry on both affected and unaffected sides walking in Ekso GT compared to gait training and current physical therapy. Improved gait speed, balance, motor activity and control and finally statistically significant improved functional independent motor scores from admission to discharge. Ultimately we believe that the outcomes with our device will reduce the cost to the healthcare system. It is part of some of the studies underway to show cost reduction outcomes. A big driver of clinical outcomes we believe relate to the Ekso GT with our powerful SmartAssist software being a great rehabilitation tool that allows for early mobilization, higher per session step count and more economically viable gait sessions. SmartAssist enables therapist to use the Ekso GT to rewire a patient central nervous system, a concept known as neuroplasticity. We now have had a number of customers share their experience where they have had a patient that they thought would never walk independently again go through their rehabilitation using the Ekso GT and see that patient walk out of the device this is incredibly exciting for us and represents the fantastic potential of the technology. Ultimately our goal is to demonstrate that better health at discharge can help reduce the cost burden on healthcare systems through a reduction and readmissions and other costs associated with stroke and spinal cord injury. In North America alone the cost to treat stroke is projected to more than double from $72 billion in 2010 to $183 billion in 2030. Our Ekso GT is the optimal tool to mitigate this. Along with our clinical evidence program we recently added a peer advocacy program, our centers of excellence program. The charter members are Villa Beretta in Europe and (inaudible) Good Shepherd and (inaudible) in North America. This program is the first of its kind peer to peer advocacy program to its some of our key customers and thought leaders can share their real life experiences with fellow clinics to discuss the clinical, business and financial merits of using the Ekso GT as a tool in rehabilitation. On the industrial side this past quarter we went from what I would describe as an introductory phase to a commercial phase with our showing at world of concrete. We began with our EksoZeroG mount system where we had sold close to 200 units and the customer base has broadened from a handful to over 20. We now have three manufacturing rep agencies signed and in total have 30 sales employees trained for the North American market and we've started to look at international markets as well. We maintain our target to at least double sales in 2017 from the $1.2 million we hit in 2016. In addition we plan to introduce our Ekso Vest by the third quarter of this year. This momentum affords us the opportunity to also proactively pursue strategic opportunities and partnerships to ensure Eksoworks taps into what we believe is a significant business opportunity while minimizing our own cash investment in this area. At this point I'd like to hand the call the Max, our CFO to talk about our financial results for the first quarter.

[Max Scheder-Bieschin:]

Thanks, Tom. Total reported revenue for Q1 2017 was 1.4 million compared to 8.5 million in Q1 2016. As a reminder the Q1 2016 revenue number includes a 6.5 million one-time non-cash recognition of previously deferred medical device revenue. The breakdown for Q1 2017 revenue is as follows. We recognize approximately 900,000 in medical device and related revenue down from 1.5 million in Q1 2016. While the unit placements this quarter were comparable to last year we shipped some units as rentals this quarter impacting revenue by approximately 400,000. We recognize approximately 0.5 million in Eksoworks revenue compared with a 100,000 in the same period a year ago and in engineering services we recognize the last of our revenue from our soft exoskeleton project with DARPA. Our overall gross profit for the quarter was 400,000 for gross margin of 25%. This compares to a gross margin for the same period last year of 18%. Operating expenses for the first quarter 2017 were 8.5 million compared to 8.1 million for the first quarter 2016. The increase is driven by increases in clinical and marketing investments such as our company sponsored WISE study and by an increase in R&D investment to support our industrial and next generation whole mobility products. Net loss from operations for the quarter was 8.1 million as compared to 6.7 million net loss from operations in Q1, 2016. Cash used in operating activities for the quarter was 7.3 million as compared to 6.8 million for Q1 2016. As of March 31, 2017 we had a cash balance of $9.4 million not including the 11.7 million financing we announced April 3rd. A few final observations for you before I hand the call to Tom again, one as Tom mentioned we're more actively tracking a number of sales metrics to better understand and develop our pipeline. One such metric what we call qualified sales demos we will share going forward. Our 2017 target is to average 60 demos per quarter, split 50

[Thomas Looby:]

Thanks, Max. The playbook for developing a medical market is quite clear, build great products, prove efficacy and safety for them, win clearance and establish a growing utilization of the product while building up a body of clinical and economic evidence on the path to expanding uptake and winning coding coverage and then payment. By the way I think it's very much the same path for uptake in industrial markets where you also need great products, you need to prove a value proposition and you need to win orders. Winning clearance from the FDA for our targeted patient populations last year was a major breakthrough for us and for the industry it's a strong starting point for the missionary work we are doing as a company to further develop the market in accordance with this playbook. Along the way there are bumps to endure and as we navigate those bumps we also continue to test our strategy. We continually ask ourselves is the market real and does Ekso Bionics have a right to win. What we are finding continues to validate our and others assertion for a large market opportunity. Consider a January 2017 article in The Economist which projects that physical therapist and physical therapist assistants as well as other rehabilitative healthcare professionals are projected to be among the fastest growing jobs in the U.S. and for good reason society is getting older and will require more resources to rehabilitate and provide mobility solutions, we assert that our technology will be used to leverage these scarce resources. Societies are getting older all over the globe in some places like China the craft of physical therapy is relatively new to, this profession of physical therapy will grow but we believe that technologies like the Ekso GT will be in demand driven by the scarcity of healthcare service providers in the coming years. And in the industrial space we are experiencing not just the receptiveness to exoskeleton solutions for construction and assembly but an actual hunger to seek out solutions for jobs that have a higher safety risk as well as the need for productivity gains. As we chart the course in this evolving industry in order to prove not only that the opportunity is real but that we offer the best solution we continue to emphasize clinical data that supports adoption and reimbursement, powerful case study that demonstrate ROI for the value proposition of this technology for the hospital and for the clinical team, an effective and efficient sales team company operations intent on maximizing shareholders value and the right amount of technology to augment our customers drive for new standards and rehabilitation and on the workplace. Despite our Q1 revenues in our rehabilitation business we remain abundantly confident in our platform, product portfolio and strategy to continue building the best product for our markets. We are looking forward to better predictability in accelerating unit placement growth throughout the remainder of 2017. With that I will end our prepared remarks and look forward to your questions.

[Operator:]

[Operator Instructions]. First question is from Imron Zafar, Suntrust Robinson Humphrey. Please go ahead, sir.

[Imron Zafar:]

I wanted to go a little bit into the performance in medical, obviously the sequential trend was a little bit disappointing in terms of unit placement. So I just wonder if you can talk a little bit more about that dynamics' in that end market in terms of factors that may have impacted the performance whether it was executional or whether there was any impact from healthcare reform uncertainty, competitive dynamics or just Tom if you could just talk a little bit more about the performance in that business please.

[Thomas Looby:]

Last week I spoke at an NIH hosted meeting where several med tech companies were talking about the time from FDA clearance to the time of significant market traction and I think that what Ekso Bionics is dealing with right now is sort of a traditional uptake. So we won our clearance in the middle of 2016. We knew very much what where all the patients were going, the 16000 clinics in the U.S. etcetera and we were starting to do the broad education that stroke is important and it's not just about spinal cord. We thought that maybe we'd be a little bit further along in that uptick in Q1 because we had a very good Q4 where we did see that uptick. So I think it's still there, I think it's still there, I think it's just some of that lumpiness. What we started in Q1 is really a deep dive on all the sales operational metrics, what is the real pipeline look like it etcetera and we then are starting to focus on some ways to streamline that pipeline making it easier for people to procure or using that technology with rentals and leases and as Max and I mentioned driving the all-important demo. We are seeing I think a pretty good yield when we do a demo, it’s a matter of time and these are the programs that we're going to really highlight moving forward in 2017.

[Imron Zafar:]

Okay, and then last quarter you had talked about expectations for ending the year with the placement run-rate of about 10 units per month or 30 per quarter I wonder if that is still intact about that expectation or if you tampered that outlook?

[Thomas Looby:]

Yes, through this deep dive on our sales again in the yield that we're seeing in demos we really like the building of that quality demo metric in Q1 and certainly we're focused on that in Q2 and beyond. So I think that we see that that's very much in focus for the U.S. group. I will say that in EMEA where we saw soft sales in Q4 and Q1 and we really had to rebuild that team over the past two quarters that they're going to get to that rate to be sure but I think that we feel more confident about doing that the United States.

[Imron Zafar:]

Okay. And then the sales versus rentals unit mix that we saw on the quarter do you see that as more or less representative of what we should see for you know on a go forward basis and Max if you can just talk about what the gross margin implications are for a potentially higher mix of rental units versus sales?

[Max Scheder-Bieschin:]

We started the rental program not all that long ago and with our balance sheet maybe testing it versus full deployment but I think we're very interested in a full deployment of that rental program and one of the things that we need to do is to really take a look at the contracts and how we go about that process with these hospitals because we want to make it easy for them and if a capital equipment purchase and a rental purchase more or less go at the same speed then the rental program is not performing for us. So I think that what we will do is really focus on streamlining both processes but seeing if that can actually be a program that can get a lot of traction, the rental program get a lot of traction here in the next couple quarters.

[Thomas Looby:]

On the gross margin side Imron, there are a little bit less than 30% on the rental side versus the device side and one of the things we neglected to mention are just ASP's in general and for direct sales we continue to see a slight uptick in those ASP's. So even though we didn't have all ten as sales, the seven that went out and those that were that direct had a slight uptick in the ASP's.

[Imron Zafar:]

Okay. And then just one housekeeping question, did the 10 units, what was the U.S. versus Europe gait tone?

[Thomas Looby:]

There are seven, we're in United States, three of which were rentals and three were in Europe. And Imron you asked before just so people know about it, today there are 169 units that we mentioned, 169 customers that are out there, 89 of which are North America, so North America is overtaken EMEA and EMEA has some 80 customers.

[Operator:]

The next question is from Greg Chodaczek, B. Riley Financial. Please go ahead, sir.

[Greg Chodaczek:]

The question is you received clearance in April of 2016. So now we're about a year end into it, we talked about the sales cycle and it does take time, I guess my question Tom is what was going on in the last nine months and what is going to change. Is it the people? Is it the type of marketing, I just last quarter was great this quarter it seems be a little hiccup and I'm just trying to figure out why?

[Thomas Looby:]

Maybe you did make miss some -- its hard to know when you got on the call but first and foremost we had to start broad marketing for the stroke indication, not sales you know sales visit, the sales visit but really educating the market. We're doing that through the trade shows, we're doing that through social media which is an important channel today some other advertising and we're doing that through these webinars to educate people on the body of evidence. So we've gotten past this era I think of, hey exoskeletons are interesting and now we're in this era of they're important but why and why should I start to buy now. So that I think takes a little bit of time to get in. I think we still knock on doors that think that these devices are about spinal cord injury alone and has not been so compelling for them. The other thing is that we need to mature a little bit on our sales ops side about how to take a order and develop it all the way to a sale and we are now I think pretty clean on that funnel, so we've got very good visibility of when a sales cycle starts and how to mature that to in order.

[Greg Chodaczek:]

I've asked this question in the past I'll ask it again. What's Good Shephard [indiscernible] know that nobody else knows in terms of Ekso?

[Thomas Looby:]

Yes there are others out there besides those like Mary and Joy [ph] for example that are doing the same thing and just for the rest of the audience these people, these clinics that Greg mentioned are really great proof points. They buy one, they are not ones that have deep scientific budgets that do a lot of clinical trials at least initially and they really have to evaluate tools for the physical therapist on the merits of outcomes and also the economics and when they deploy these systems they're seeing those outcomes, they're seeing those economic proof points at 50% IRR for example in the case of Good Shepherd and then they buy their second and third and they start getting multiple devices and so it's our job to really provide those case studies in advance but say population based metrics which we all eventually will have but these case studies I think can win the day and what we're seeing is in our business still more multi-unit placements. You know it's easier to sell to an existing customer that is to a naïve customer and so we're seeing some of that. I think that maybe Greg what you're suggesting is it also taking a little bit of time for that traction to get there with other clinics and we would agree with you. We're fairly -- our eyes are open that it's taking longer than we wanted it to let's two quarters ago. But our sales cycle is down, the utilization of our devices are up quarter over quarter by 14% and I think that that is a bellwether for whether that clinic or those series of clinics will buy a second unit and as I said our demos are up from 16 to 27 per quarter in the U.S. in the last nine quarters. So there's real missionary work being done to develop this mark and that's why we're still encouraged about our future business here.

[Greg Chodaczek:]

Okay. And this maybe another rehash but the Zero mount while moving to -- the zero mount is moving from introductory to commercial phase, you may have talked about that. Exactly what does that mean and does that also include the vest or we are going to have a introductory phase for the vest when that comes out hopefully in the second half of this year.

[Thomas Looby:]

This is an example of that Ekso Bionics really maturing as a business. Few years ago we announced to the world that we're starting industrial and then we really learned what's getting into the industrial business meant, but over the last year we were sort of cautious to say that we were in full scale commercialization because we wanted to test our products out with a small group of customers and potential partners really learn the use cases, maybe even learn their business model so that if they are ere rental what are they getting per month for the rental of our unit to their customers. How many repeat users are they getting for their customers? United Rental has been fantastic partner in the early days but there's been others besides United Rental really giving us that feedback but now what we're seeing is a broadening of -- so we pressure tested the device, we feel very confident about the ZeroG arm and now we're seeing a growing receptiveness for other customers and I think that gives us the confidence to say we're going to be in regular commercialization not pilot or introductory phase. And on the vest side we have already gone through one I think significant cycle in the development of that product. We were asked to help to innovate an area that was a big safety risk in productivity risk for an automotive manufacturer, we developed a first vest that way and since then we've reduced the weight by a third. We've made it more comfortable for the user to wear for long periods without sacrificing the support that it provides the arms for these tools underneath when they work underneath the car in the assembly plant. We've done that and we've also reduced the cost in the next generation. So we've actually started to pilot it in our beta phase it's just underway and we think that in Q3 this is really where we're going to start to take some significant orders for that device.

[Operator:]

[Operator Instructions]. We have reached the end of the question and answer session. I'd like to turn the call back to Tom Looby for closing remarks.

[Thomas Looby:]

I think I just simply like to thank you for taking the time to join the call today and the please have a great evening.

[Operator:]

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