Ekso Bionics Holdings, Inc.
Q1 2016 Earnings Call Transcript

Published: 10 May 2016

[Operator:]

Greetings, and welcome to the Ekso Bionics' 2016 First Quarter Financial Results Call. At this time, all participants are in a listen-only mode. A brief 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, Ms. Debbie Kaster of Gilmartin Group. Thank you. You may begin.

[Debbie Kaster:]

Thank you, Michelle, and thank you all for participating in today’s call. Joining me from Ekso are Thomas Looby, President and Chief Executive Officer; and Max Scheder-Bieschin, Senior Vice President and Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the quarter ended March 31, 2016. A copy of this press release is available on the company’s Web site. Before we begin, I’d like to remind you that management will make statements during the 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, our 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 on 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 10, 2016. I will now turn the call over to Thomas Looby. Tom?

[Tom Looby:]

Thank you, Debbie, and thanks everyone for dialing into our call this afternoon. As many of you know, I recently [indiscernible] Chief Executive Officer and Board member at Ekso Bionics after spending almost two years as President and Chief Commercial Officer. I’m delighted to lead the company during this exciting time in growth and opportunity and I am grateful to our Board for putting their confidence in me to guide us forward. As the Ekso story unfolds, I become more and more encouraged and excited about our opportunity, our momentum and the moving impact that our incredible technology has on users very single day. I view it now as my responsibility as Ekso’s new CEO to make sure that we live up to our goal of establishing exoskeleton as standard of care. A truly successful business is one that reaches as many people as possible and I believe that the team at Ekso will continue to build upon our technology platform to commercialize the best products for the widest user population in the industry. We have made significant progress at Ekso Bionics and we continue to deliver on strategic, operational and commercial imperatives. In the last six weeks, we have accomplished three important milestones. First, we received groundbreaking FDA clearance to market our Ekso GT robotic exoskeleton. The Ekso GT is the first exoskeleton cleared by the FDA for use in stroke patients and is the only exoskeleton cleared for spinal cord injury in the upper thoracic and cervical spine. It should be underscored that this labeling opens up a huge opportunity for both Ekso Bionics and for a considerably large number of patients. With our technology, clinics can now offer robotic rehabilitation to more than 20 times the patient population of any other exoskeleton on the market. There are roughly 650,000 stroke survivors each year in the United States alone and we believe that our Ekso GT can help rehabilitate a majority of these patients, none of whom had exoskeleton rehabilitation available to them until now. We are proud to have accomplished this momentous regulatory milestone. This clearance allows our team to market our best-in-class technology to the widest patient population amongst all exoskeleton technologies and brings us one step closer to establishing exoskeleton as standard of care in the rehab clinic. Second, at the end of March, Ekso Works, our industrial division received and shipped its first pilot order of Ekso Aerial gravity balancing arms. Many of these units have already been placed in the field. We are extremely pleased by the seamless integration of the product line, which we acquired just last December and are optimistic about our industrial business. And third, last week we announced a reverse split of our stock. We expect that the reverse split will enable Ekso Bionics to qualify our common stock for listing on the NASDAQ Capital Market. Listing to NASDAQ will be a major event for Ekso and we anticipate that it would attract a broader and more diverse shareholder base for Ekso. We believe this is the next logical step for the growth of our company. One by one, we are achieving our commercial milestones and Ekso is evolving from a development stage company to a commercial company with an FDA cleared device. As we shift focus to market expansion and commercialization, we are excited by the opportunity our clearance provides. We are now able to promote our device and educate the rehab centers and hospitals on the clinical and financial benefits of our technology for the large population of stoke and spinal cord injury sufferers. I am excited to now be steering Ekso in its life-changing product as we build upon our trusted brand and grow our business into a market leader. Turning to the quarter. Revenues reported were $8.5 million. This includes 6.5 million from a one-time non-cash recognition of previously deferred revenue due to a change in our policy for the recognition of medical device revenue. Max will talk more about this. Revenues from devices sold in the quarter and engineering services provided in the quarter were $2.0 million. This represents a 16% increase from the $1.7 million in Q1 of 2015 on a comparable basis. As of March 31, 2016, we had an installed base of over 180 medical units at over 120 rehabilitation facilities worldwide. Three existing customers bought a second Ekso GT device for their center in the first quarter. We continue to be encouraged by the growing number of centers that have procured more than one unit, now up to 24, as this speaks to the value of our technology and the belief that our exoskeletons can transform and improve rehabilitation outcomes. This is an increasing strategic focus for the company and we believe our recent clearance and our broad indication provides an even more promising return on investment for centers. I am encouraged by the foundation we have established on the operational front and now we have the team and momentum to continue to execute. On our last call, we laid out three strategic priorities. We have already spoken about the first, which was to achieve regulatory clearance. Our second priority is to accumulate strong clinical evidence to support marketing and reimbursement. And third is to develop the next-generation product. I believe these strategic initiatives will create durable long-term value at Ekso and will ultimately help build our company into a market leader in the exoskeleton industry. With our regulatory clearance in hand, the team at Ekso is poised to market the Ekso GT to the widest patient population of any exoskeleton. As noted earlier, the stroke market is large and there is a vast unmet need for rehabilitation therapy for recovering stroke sufferers. The medical urgency for these patients is significant and the availability of our Ekso GT will be game-changing for these patients and their families. We are also particularly excited about the timing of our clearance as May is National Stroke Awareness Month, and an ideal time for us to connect with stroke sufferers around the country and introduce them to our life-changing product. The FDA clearance is a foundational milestone both for clinical use as well as for reimbursement. We are aware of some clinics that were awaiting FDA validation before using the Ekso GT with patients and we are excited to work with these centers and educate them about our product. Additionally, with our wide indicated use, clinics will be able to amortize the cost of our device across multiple patient populations creating very meaningful ROI for the clinic. Since many of our devices are capital expenditure purchases for the clinic, ROI is an important measure as it relates to reimbursement. While reimbursement does currently exists for clinics that purchase our Ekso GT, we will continue to work with payors and rehabilitation societies to achieve favorable payor policies for a higher payment for the user of exoskeletons for rehab in the future. We are extremely excited about the multiple clinical trials that are underway with several of our key opinion leaders. Many of these thought leaders have previously conducted small self-funded studies to demonstrate the feasibility and safety of the Ekso device. These early studies in turn have led many of the same investigators to initiate larger studies and to expand their scope to also examine the clinical efficacy and value of the Ekso GT. We are aware of 14 such studies that are currently underway. The results of these studies along with our interaction with the research partners has helped define the larger scale studies that we as a company are planning to undertake and sponsor in the coming months. These studies will be the foundation for us to accelerate adoption and drive reimbursement. Our know-how in the rehab market provides us with valuable clinical and market information that are the foundations for our broader business. Our experience along with our strong patent portfolio will ultimately support future entry into the home mobility market, which we believe will encompass a very large opportunity. When the needs for home device in terms of safety, functionality and costs are fully understood by thought leaders, customers and the overall market, we are confident that Ekso Bionics will offer the best product for the home market. As mentioned earlier, we have made good progress in our Ekso Works industrial division. We continue to conduct comprehensive field testing on upper body vests and gravity balancing arms, the results of which provide key insights for our industrial strategy. We have a dedicated team working to build upon our established IP portfolio and solid industry intelligence to create optimal products for industrial workers. Direct costs associated with overexertion and injuries in the workplace are estimated to total approximately $21.1 billion annually just in the U.S. alone. Additionally, safety issues in the industrial workplace can lead to comprised productivity and work quality, the cost of which are not even included in the numbers above. With the sale of our first units, we see the next level of customer proof point that our technology can offer long-term solutions and benefits to address these escalating costs. The momentum at Ekso Bionics is strong and we are confident that we will drive increased use of exoskeletons to help change lives around the world. We soundly believe that our path is the right one to build the best exoskeleton company for the rehab and industrial markets today to continue to build upon our brand promise of safety, reliability and innovation, and to use this foundation in our extensive IP portfolio to extend into the home. We are energized by our accomplishments which position us well for future success. With that, I will hand the call to Max, our CFO.

[Max Scheder-Bieschin:]

Thank you, Tom. A first note is that in this quarter there is a significant change to the way we report our medical device revenue. When we brought our first-generation medical device to market in 2012, given that we were essentially bringing the first medical exoskeleton to market, we could not be certain as to the cost we would need to incur to support and update our early devices. Primarily for this reason, prior to January 1, the sale of the device, associated software, initial training and extended support and maintenance were deemed as a single unit for accounting purposes, and the revenue from the sale of a device and associated cost of revenue were deferred at the time of shipment typically over a three-year period on a straight-line basis. Effective January 1 of this year, we determined we had sufficient historical evidence to bifurcate our sales transactions into separate units of accounting. This means that going forward, revenue and associated cost of revenue of medical devices will be recognized when delivered and training is completed. Consistent with this change, we also recognized all previously deferred medical device revenue and associated cost of revenue at December 31, 2015 in this quarter’s financial statements. Now to some financial highlights. Please see our accompanying earnings release and 10-Q for further details regarding the quarter. Device-related revenue was 8.1 million for the first quarter of 2016. This included a 6.5 million one-time non-cash recognition of previously deferred medical device revenue and 1.5 million of device revenue primarily related to medical devices sold during the first quarter of 2016, an increase of 55% from the 1 million for the same period last year. Revenue for our engineering services unit came in at 429,000, a decrease of 39% from the 704,000 in Q1 2015. In engineering services, we currently have one major follow-on project with DARPA. Last year at this time we had two large projects; one with DARPA and the other with Special Operations Command. Going forward, it is important to point out that we are making a strategic shift away from outsourced R&D work and more towards internally-focused R&D, especially in the near term as we develop our next-generation product for the home mobility business. Overall, gross profit for the quarter was 1.5 million as compared to a gross profit of 403,000 for the same period last year. Gross margin for medical devices sold in Q1 were 34% as compared to 20% for the same period last year. Gross margin for engineering services was 26%. This compares to a 31% gross margin we reported for the same period in 2015. Operating expenses for the quarter were 8.1 million as compared to 4.5 million for the same period in 2015. Approximately 1.3 million of this increase was associated with a one-time non-cash expense associated with the resignation of our previous CEO. The other element of the increase is associated with our moving most of our Ekso labs engineers to support this home device development effort. Net loss for the quarter was 3.7 million as compared to 4.1 million loss for the same period in 2015. Cash used in operating activities for the quarter was 6.8 million including a $1.5 million capital increase in inventory, which we expect to see reverse in the coming quarters. As of March 31, we had 12.3 million in cash and no debt. With that, I will turn the call back to Tom.

[Tom Looby:]

Thanks, Max. To wrap up, we are working hard to prove that getting more people walking earlier and more regularly can translate into real benefits both in terms of reducing lifetime care costs and improving overall health of increased mobility function and quality of life. Our strong momentum and progress continues to push us closer to our goal. I’m incredibly energized about our business and I’m excited to be leading the company during what I know will be an exhilarating time ahead. Our innovation has made us leaders in exoskeleton technology. Our Ekso brand is trusted and well regarded. We have a terrific team here assembled at Ekso Bionics and we are determined to ensure the company’s commercial success as we help enhance the lives of people around the world. With that, I’ll end our prepared remarks and we look forward to your questions.

[Operator:]

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

[Jeffrey Cohen:]

Hi, Tom and Max. Can you hear me okay?

[Tom Looby:]

Yes, Jeff. Thank you.

[Jeffrey Cohen:]

Hi. Just a couple from me, so thank you for clarifying the financials on the units out there and bringing them all forward. So as far as that goes, can you talk about where they were placed geographically U.S., ex-U.S. on the 10 that were placed during the most recent quarter?

[Tom Looby:]

Yes, it was a 50-50 split. We did five in EMEA and five in the United States.

[Jeffrey Cohen:]

Okay, got it. And how will you deal with the financials forward, Max, as far as your rentals? How many rentals are in the current fleet now and how will you deal with rental income going forward?

[Max Scheder-Bieschin:]

The rental income we’re going to handle similarly to what we’ve done in the past. I believe we have 13 rentals in the fleet right now out of the 180 plus that are placed in the market. And we’ll continue to recognize that on a month-to-month basis.

[Jeffrey Cohen:]

Okay. So for rental is $15,000 to $20,000 quarterly that will just carry forward.

[Max Scheder-Bieschin:]

Correct.

[Jeffrey Cohen:]

Okay. And could you talk about the demos? There were 25. Was it one entity? Were they sold or were they rented? And do all of them include the Equipois arm on top of the device itself?

[Tom Looby:]

Yes. There are 25 in one transaction to a large equipment supplier to the industry. They were sold by us to them and this particular company is now renting that out in their fleet with very good reception, I’ll say, in the early days of this demonstration. These devices are the aerial arm called Ekso Aerial and they are mounted devices. They are not part of the full body exoskeleton, for example. They are standalone arms.

[Jeffrey Cohen:]

So is this the Equipois arm attached to the manual unit going to the ground?

[Tom Looby:]

Yes, the basis for the technology is the Equipois transaction that we acquired in December of 2015. And I think that what is important to note is that internally we had a set of milestones for that transaction and I think that we are ahead of the curve for integrating that business into our own. But, yes, Equipois is the fundamental technology there.

[Jeffrey Cohen:]

Okay. Are you including that in the gross margins for medical devices or can you give us some indication on revenues standalone from those 25 units, or how that’s been your takeaway?

[Max Scheder-Bieschin:]

In terms of the payments, the payments are upfront, normal – I think in that 30 days actually. And the revenue we have accounted for under medical devices, we have not broken out that segment. It’s not material yet. And at some point when it does become material, we will break it out. But for this quarter’s reporting we kept it in the medical device segment.

[Jeffrey Cohen:]

Okay. So just go back, this does not include the Equipois arm or it does?

[Max Scheder-Bieschin:]

It does. It’s the basis of the units sold on the Equipois arm that are then used on lifts and similar type of devices in the construction environment and they carry the weight of the tools, ribbon busters [ph] and the like and drills. They carry the weight for the workers so that they work in a safer environment not prone to dropping tools and obviously much more productive. I think if you go to our Web site, you’ll see a couple of excellent demonstrations on the comparisons of what an individual can do with the device versus without the device and the productivity gain.

[Tom Looby:]

Jeff, maybe just to underscore something. Certainly receiving revenue for this demonstration activity is nice. I think what is even nicer is what we’re learning from this first placement. We have a value proposition that we designed around and I think that this trial so far is outperforming that value proposition, so we’re very encouraged. And we think that Ekso Bionics doesn’t just have the best technology for this market but really the intel that we have gotten through the last few months in this business I think is really important for how we make this an important industry.

[Jeffrey Cohen:]

Okay, got it. And can you talk a little bit about your R&D and sales and marketing? Congratulations on the stroke approval. What that will mean for some of these line items as far as adding on clinical support?

[Tom Looby:]

I’m sorry, Jeff. You started with R&D, I thought you were going one way. Can you --?

[Jeffrey Cohen:]

Could you talk about the sales and marketing budgets and spend and R&D budgets and spend from the recent approval for stroke and how that might look going ahead over the next four to six quarters as far as headcount and clinical folks out in the field?

[Tom Looby:]

Sure. I can start with sales and marketing. So obviously for people who have been on the calls for the last year or so, they know that we’ve been operating under unfortunate discretions in the United States at least, which means that we could sell and we could market but we did some on a one-on-one basis. And as we came towards the end of this quarter, Q1, and we had a better sense of what that label was going to look like, we became very encouraged by the number of patients that came into focus for our product and our product alone. So what we’re going to be doing in the next year or so is really building out that sales pipeline so that we have more customer interactions. We can market more, right. We can do advertising and things like that. That was not something that we could do before. Now we can reach more customers, set up more sales calls, et cetera. On a cost basis, we’re going to be taking a look at how many feet on the street that we have and really kind of factoring that to what it’s going to take to close units. That’s something that we’re not talking about yet. We’re not talking about necessary adding sales people. It’s something that’s in consideration. On the R&D side, we have – Max mentioned in his comments, we focused our labs group on important breakthroughs that we need to make on the industrial side of the business but also the healthcare side of the business. We have gone from improvements to Ekso GT, the current product, to thinking about next-generation products and we are very happy to have this group of engineers join our healthcare engineers as well as industrial engineers for those projects. Does that answer your question, Jeff?

[Jeffrey Cohen:]

Yes, perfect. That does it for me for the moment. Thank you very much.

[Max Scheder-Bieschin:]

Thanks, Jeff.

[Operator:]

Our next question comes from the line of Amit Dayal with H.C. Wainwright. Please proceed with your question.

[Amit Dayal:]

Thank you. Max, the question is just for you. I guess on a normalized basis for this quarter, could you clarify what the gross margins were? You mentioned 34% and 26%. Is this on the 1.5 million in Q1 or does that include --?

[Max Scheder-Bieschin:]

That’s correct. So that margin is specifically to the medical device and I think I mentioned 20%. So it should have been 34% in this quarter versus comparable 20% in the first quarter of last year, and it is apples-to-apples.

[Amit Dayal:]

Got it. In regards to the up listing, is this something that could potentially happen in the second quarter?

[Max Scheder-Bieschin:]

Well, with respect to the up listing, the reverse split was intended to help us meet the minimum price requirement on NASDAQ, which I think you know. And there’s a minimum trading period that were required to stay above 30 trading days. And at that point in time, as you also probably know, we can then complete our application with NASDAQ and it’s subject to their reviewing our application and approving our application. And there’s a time process for that.

[Amit Dayal:]

Got it. In your budgets, you spoke about your clinical studies and evaluations being an important part of the growth strategy going forward. Should we assume that these 14 studies you mentioned that are underway are already sort of accounted for in your budget and whether it’s R&D or sales and marketing, et cetera, or are these additional costs that might come into play as these studies advance?

[Tom Looby:]

This is Tom. Thanks for that question. So the 14 studies that we are seeing to in our prepared remarks are the studies that we call investigator-initiated studies. They are the ones that are sponsored by the centers themselves. Perhaps Ekso has had some participation with them on the way to collaborate. What we’re talking about doing next is something that is a little bit on the sponsored side. Ekso will initiate studies, work with sites to do maybe even registry, things like this. We’ll provide more details of that shortly. We’re preparing for those activities right now. And yes, they are included within our budget 2016. But this is very important as you know. What we’re trying to do is as we answered Jeff’s question about selling and marketing our current device, certainly that’s what we want to do. We also want to prepare for a better future, which means that we need to generate substantial clinical evidence as a foundation for more uptake in the market, but more importantly for perhaps enhanced reimbursement. So we’re selling and marketing and we’re also doing some longer term market development stuff, not to mention the product development that I mentioned a few minutes ago.

[Amit Dayal:]

Understood. That’s all I have. I’ll get back in queue. Thank you.

[Tom Looby:]

Okay. Thanks, Amit.

[Operator:]

There are no further questions at this time. I would like to turn the call back over to Mr. Tom Looby for any closing remarks.

[Tom Looby:]

We’d like to thank you for taking the time to join the call today and please have a great evening. Thank you very much.

[Operator:]

This concludes today’s conference. Thank you for your participation. You may disconnect your lines and have a wonderful day.