Ekso Bionics Holdings, Inc.
Q3 2016 Earnings Call Transcript

Published: 10 Nov 2016

[Operator:]

Greetings and welcome to the Ekso Bionics' 2016 Third Quarter 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, Miss. Debbie Kaster with Gilmartin Group. Thank you. You may begin.

[Debbie Kaster:]

Thank you, Audrey [ph], 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 ended September 30, 2016. A copy of the press release is available on the Company’s website. Before we begin, I’d like to remind you that management will make statements during 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 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, November 9, 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. I’m really proud of the great strides we have made at Ekso Bionics in the last several months with an approval to address more than 20 times, the patient population of any other exoskeleton technology in the market. Our team is focused on both short-term operational objectives to accelerate market adoption of our product as well as our long-term goal to established Ekso Bionics standard of care. Ekso Bionics has always had great engineers in the most cutting-edge Ekso exoskeleton technology. We are a human-centric robotics companies with singular focus is to help people realize their own inherent capabilities. For more than 11 years, our technical teams have pushed the boundaries on what was thought possible in both healthcare and able-bodied exoskeleton. But to help the greatest number of people and healthcare and industrial applications, we have to have more than just the best technology. We also need to run smart company that is why I’m so pleased to report on the progress our team has made in the last few months as we surround our technical excellence with the solid business that is focused on both short-term and long-term success. A few headlines from the quarter. In the last six months, we have concentrated on operational improvements which have brought us some great results. We shift 11 units in Q3, the first full quarter with our new label from the FDA, up from 8 units in Q2. We have now sold rented over 200 units to over 130 rehabilitation and hospital customers in North America and Europe. We saw continued improvement in our average direct sales price, up now to four successive quarters. We improved our medical device gross margin, which is up from 0% in Q3 2015 to 25% in Q3. We decreased inventory levels by post to 20% from 2.4 million during the second quarter of this year to 1.9 million at the close of Q3. We achieved 99% product reliability as indicated by customer uptime. These products are in heavy use in rehab centers, and this important measure looks at the percentage of time the devices are usable. We experienced a major increase in our internally monitored net promoter score, a standard metric of customer satisfaction. I am delighted that a former colleague of mine Matthias Stief also joined the Ekso's management team to run our European operations. Matthias has successfully built medical franchises in Europe for EndoChoice as well as Given Imaging. He is off to a great start here as well. On the clinical evidence front, Ekso Bionics initiated our first company sponsored study. We also saw an increase in the number and quality of independent research studies featuring the Ekso GT by both U.S. and European clinical scientists at four key industry conferences in the last few months. Since our clearance in April for the largest patient population in rehab exoskeleton, our sales and marketing teams have end-up their efforts to communicate to all potential customers, the Ekso GT is the only device on the market approved to treat stroke. Since then, our product demos are up almost 30% on a monthly basis and we have seen an increase in business meetings as well. As the only company that can legally promote our product for stroke, we are thrilled that in September the President signed into law, the fiscal year 2017, Military Construction and Veterans Affairs Appropriations Bill. This bill encourages the development of a stroke center of excellence within the VA System. We are proud of our ongoing collaboration with the VA and Congress to advance rehabilitation for our veterans and are excited to see the growing acceptance of the Ekso with standard of care across the VA and the healthcare industry as a whole. To-date, 22 Ekso devices has been deployed across the VA including the second and third unit purchased by the parallel to VA just this past quarter, a smaller accomplishment that can mean so much for our model moving forward. In Q3, we sold our first unit to a clinic where demonstration was not required. We feel like this milestone along with a number of repeat orders we are seeing from existing customers signified that the market is catching onto our value proposition. On the industrial front what we call EksoWorks, we saw a steady traction on our pilot programs. Given the progress and optimism around the business, we have decided to breakout industrial revenue in units for the first time. Overall revenue was up to 1.6 million including 1.1 million from our healthcare franchise and 406,000 from our EksoWorks industrial business. One of the goals Ekso Bionics has set for itself at the beginning of the year, which to attract broader investor base by uplifting onto the NASDAQ capital market. I am happy to report we achieved this uplift goal in august and simultaneously completed an equity financing with net proceeds of $14.7 million, which creates runway for us to execute our strategy. All of these headlines continue to reinforce my confidence that we are building something great here at Ekso. At this time, I'll hand the call to Max, our CFO to talk about our financial results for the quarter.

[Max Scheder-Bieschin:]

Thanks, Tom. Now to some financial highlights, please see our accompanying earnings release and 10-Q for further details regarding the quarter. Total recorded revenue for the quarter was 1.6 million. Device and related revenue was 1.5, an increase from the 1.1 million for the same period last year. As you will note in our 10-Q, we now provide detail to breakout device revenue between medical and industrial. Of our device-related revenue, 1.1 million came from a medical business and 406,000 came from our nascent industrial business. This industrial revenue is up from 139 in Q2 as we are starting to see growing faction in sales of the Ekso arm. Revenue for engineering services unit was $101,000 compared with 1.8 million in Q3 2015. This reflects a strategic shift that Tom spoke about earlier this year to focus our engineering team on our next generation home mobility device. Our overall gross profit for the quarter was $403,000 for a gross margin of 25%, this compares to a gross margin of 16% for the same period last year. Gross margins for our medical business in Q3 were 25% as compared to 0% for the same period last year, driven in part by higher ASPs and in part by an improvement in our service business. Gross margin for industrial business services was 29% in Q3. Operating expenses for the quarter were $7.3 million as compared to $5.6 million for the same period in 2015. The increase was driven in part by the sales clinical and marketing investments we are making since our April clearance, and the increased R&D investment, we are making for the next generation home mobility product. Net loss for the quarter was 11.5 million, or 8.5 million before non-cash preferred deemed dividend expense as compared to a $5.2 million loss for the same period in 2015. Given that all the preferred shareholders have converted, we do not foresee any further non-cash preferred deemed dividend expenses. Cash used in operating activities for the quarter was 6.4 million. As of September 30, 2016, we have 12.8 million in cash and no debt. With that, I will turn the call back to Tom.

[Tom Looby:]

Thanks Max. Along with great technology one of the things that set Ekso Bionics apart is our strategy to establish our brand within the rehabilitation environment and to later expand into the home mobility market. We believe this is the smart approach because the rehab setting is where every patient needs to go first where a lot of the dollars are spent, and it is where we can best impact the trajectory of recovery for spinal cord in stroke patients. Our ultimate hope is to get these patients up and walking and to help reduce lifetime care costs. The rehabilitation clinic is where devices like ours are most capable safe and cost effective. It is also where we are best able to establish the trust of the medical practitioners who are the present day and future recommenders of mobility solutions. Because of our strategy to optimize the solutions for rehab, Ekso Bionics is a clear leader in both unit placements with over 200 to-date as well as site installation at over 130 centers. No other robotic exoskeleton comes close to these numbers. This initial success does not reflect the fact that we now also have a stroke label, a 20 times increased in patient population only we can address. Each year approximately 650,000 patients survive a stroke and 175,000 patients incur spinal cord injuries in the U.S. alone. We estimate that approximately 250,000 of these stations can be treated with our Ekso GT. Our success is also due to the unique design and fit of our product, which was carefully and specifically engineered for use in the rehabilitation clinic. The Ekso GT is easy to get into and out of, which translates into maximum productivity during each session while many competitive devices can take 30 minutes to get on and off of the patient each season. This means more steps for patient per session, more patient throughput each day and therefore higher financial return on each device. Our product was also constructed with attention to safety and reliability. Our designs and our manufacturing processes have been continuously improved, and we have extremely talented field service engineers supporting our customers. All of these factors will help us to achieve our vision of gaining the trusted brand for exoskeletons for healthcare and beyond. Having secured our label with the FDA, our team is now engaging with and educating the large and underpenetrated market of hospital and rehab customers about the clinical benefits of our technology. Our marketing team has been hard at work increasing the awareness of the Ekso brand and has increased the presence and exposure of our technology amongst the clinicians and customers through such outlets as industry conferences, media outreach, branding, customer partnerships and social media. We saw the immediate results of our efforts last month at the research focus American Conference on Rehabilitation Medicine where Ekso ended the meeting identified as one of the top influencers based on mentioned by the attendees in social media. We have also recently dedicated significant time to re-launching our web based capabilities, adding customer access as well as growing library of online resources to our website. These tools allow a potential customer to essentially start the sale cycle on their own via the website. In the third quarter, we experience increased inbound inquires and we believe that our recent changes have resulted in quicker customer conversions. Customers and prospective customers are becoming more educated about and aware of the unique benefits of our technology, both the patients as well as to themselves as businesses. As the impact of our technology becomes clear, we have been excited to learn that many customers have been sharing their positive experiences using the Ekso GT with their network and providing testimonials via promotional videos. These activities are the truest form of validation of our technology. We were really excited to have Ekso Bionic featured in 14 presentation and posters at the ISCoS Conference in Vienna in September. These presentations which were shared by researchers from eight countries and covered a total of 125 patients compiled results for multiple studies, and results show the safety and feasibility of clinical use and gait progression as well as improvements in secondary complications resulting from the injury. For example, a pan-European study examined 52 spinal cord injury patients at nine centers and found among other things that the number of steps increase and walking time became a larger percentage of treatment time. Other study shows statistically significant improvements in endurance as well as improvements across the number of functional tests. We also had a report from a Canadian study of improved walking ability in patients previously thought were plateaued. It is important to note that we mix many of our studies such as this Canadian study so compelling is that patients are actually walking out of our device after rehabilitating in the Ekso. These current trials are steppingstones to prove efficacy to support financial benefits and to efficiently achieve the best outcomes during rehabilitation and eventually in the home. In august, we announced the initiation of our WISE study, the first ever company-sponsored clinical trial. WISE which stands for walking improvement for spinal cord injury with exoskeletons is being led by Professor Dylan Edwards of the Burke Medical Research Institute. The U.S. based study which will be conducted in up to eight centers, seeks to enroll approximately 160 community dwelling people with chronic incomplete spinal cord injuries. The study is evaluating improvement in independent gait speed to spinal cord injury patients, undergoing rehabilitation with our Ekso GT with a goal to collect data to support marketing and clinical adoption, and to further support reimbursement. Outcome measures for the WISE study include walking and balance tests as well as patient reports of changes in mobility function, bowel and bladder function, quality of device and dispersion, physical, mental and a motional effort of both user and the physical therapist. We believe that our clinical work will not only collect data to support the efficacy of our product, but will also help to establish a compelling financial argument to support both adoption and reimbursement. As highlighted in part by the American Heart and American Stroke Association's new recommendations, earlier mobilization, high intensity and high-step dose is being recognized as critical to improving recovery from stroke. The current standard of care is inconsistent and it burdens on patients and care providers, and we believe the Ekso GT is the only technology available to economically meet these new standards. As we collect data on our technology, our focus is twofold improving quality of life and reducing dollars per patient for the life of that patient. This is a tall order, but it is the work we have taken on; and we believe the results of our clinical studies will help support both of these metrics; and we will ultimately support our technology as standard of care. Earlier this quarter, we also announced our first shipments in Europe of Ekso GT device equipped with our SmartAssist technology, which is the next generation expansion of our proprietary Variable Assist technology. Our SmartAssist technology, which is the key differentiator of our device to any other competitive exoskeleton, allows our robust to detect the specific amount of support each user needs and to adapt to that patient's need for every step taken. While Variable Assist benefits patients at the walking stage of rehabilitation, SmartAssist can now help patients at every stage of the rehabilitation. Patients who have traditionally been limited to bed mobility exercises due to the lack of strength can begin pre-gait and gait training therapy earlier than before, which should allow patients to leave the hospital in better shape than current standard of care allows. We believe this translate into fewer complications down the road and ultimately better economic outcomes. While our first priority is to establish Ekso Bionics as a leader in the rehab market, the home use market segment is a $20 billion opportunity for Ekso Bionics. To this end, we are developing a revolutionary home mobility platform leveraging the exceptional safety of our flagship Ekso GT along with new technology for best-in-class size and weight, functional capability and simple operation. Our goal is to give our customers a customized easy to learn product that offers essential daily capabilities, which are impossible in a wheel chair. We are confident that we will be able to grow our network of partner clinics and that we can leverage their established relationship with our first-class technology and brand, as we enter the home market. We’re already in testing of breakthrough technologies as we will continue to work with clinics, payers and regulatory agencies as we further develop our home ability and wellness products. On the industrial side of the business, we have been working with several products to sell and develop the best product to solve the safety and productivity challenges that face many industrial markets today. Our initial focus has been on our Ekso arms, and we are seeing good progress. Our pilot programs here are expanding with the number of early customers purchasing additional units as they develop plans to scale the opportunity. We have also progressed that several potential industrial partners and putting in place master development or collaboration agreements. The momentum at Ekso Bionics is strong, and we are confident that we are on the right path to drive increased use of exoskeletons to help change lives around the world. We have streamlined and honed in on a sales strategy that has begun to produce results for the Company, our customers and most important our patients. We’ve initiated the WISE study to gather data on the clinical progress of patients to use our exoskeletons and have increased our exposure through multiple posters and presentation at industry conferences. Now, we had increased operational efficiencies, tighten costs and improved margins. We are proving that we can execute on our initiatives, and we are more confident than ever that we have the best strategy and the ideal team to achieve our goal of being the premier exoskeleton company and to establish all of our products as standard of tools in the markets. We continue to be committed to our brand promise of safety, reliability and innovation and to use this foundation in our extensive IP portfolio to further develop our products for future markets. Our innovation has made us leaders in exoskeleton technology. Our Ekso brand is trusted and well regarded. We have a terrific team assembled here 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 will end our prepared remarks and we look forward to your questions.

[Operator:]

Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Imron Zafar with Suntrust Robinson Humphrey. Please state your question.

[Imron Zafar:]

I wanted to first ask about sort of the outlook for GT placement over the next few quarters. I know obviously you had the year-now, not having strong by the enforcement discretion and you have obviously the stroke label. I know you noted a 30% increase in demos since those overhang removals, but can you just talk about maybe what type of a quarterly unit placement run rate we should think about. Maybe exiting 2017 where we are now and where you think we could be as you look at the backlog just developed over the past couple of quarters? Thank you.

[Tom Looby:]

Imron, I think to your question. Yes, we are very excited now to get on the road and to talk about this label. We are really just exiting our first full quarter as you mentioned. And what we are surprised about is maybe we shouldn’t then surprised is that, customers just like the FDA were even regarding exoskeleton as devices for stroke, and now that we have the label, we are the only ones that can go and actually develop that market. So, our sales our marketing teams are making really good strides there. It has seen a 30% increase in the demos. We see that continuing as we go through quarters. What we are projecting I think for exiting Q4 2017 is probably about 10 units per month at that point time with still some room for additional acceleration.

[Imron Zafar:]

And then on, the home market -- I am sorry, if I missed this but is the timeline unchanged there in terms of getting regulatory approval and commercial launch sort of way next year early 2018?

[Tom Looby:]

You are talking about regulatory approval for what?

[Imron Zafar:]

The home segment.

[Tom Looby:]

For the home segment, yes, so we are very excited about what we are doing, and not all this is for public consumption, but we are now really making great strides. Again, we have a really good history. We probably have the most steps ever created with robotic exoskeleton. This has shown us a lot of knowledge about what to do, I think in the home. But we as a company believe, it's not going to be a one size fits all market. There are patients or users who are going to have major injuries and some of that are going to have minor injuries, so the technology platform that we are producing inside, we are going to have to package in different ways for those different patients. So that’s an issue that we are going to have to talk to the FDA about, putting the testing and so on. So, as you know, it's not just about the R&D, but it's about the regulatory path and the clinical path to get there. So, I think that we are on our timeline to be sure, but we see that it's probably being something in early 2019 must be first products.

[Imron Zafar:]

2019, okay. Thank year you. And then Max, a question for you. I guess sort of an extension to my first question about GT outlook for next few quarters on the top line, can you just talk about how we should be thinking about investments operating expenses over the course of 2017, just in light of the new label and the extended market opportunities and then as you start to think about enter into the home segment thereafter? Thank you.

[Max Scheder:]

Sure. On the R&D front, you’ve seen some increases on our investments there as we move our engineers from our engineering services, which was a billable revenue business and where they're focusing on the next generation home mobility Ekso device. So, you've seen some ramp up in the R&D, and we don’t anticipate significant increases there for the medial effort. On the sales and marketing side, we continue to make investments in studies, our own company-sponsored studies and proceeding towards reimbursement. So, you’ll see some increase on that side and a little bit more variable increase as more units get placed as well.

[Operator:]

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann & Company.

[Jeffrey Cohen:]

I was wondering if you could give us a little more color as far as the sales organization at this point about the [indiscernible] as well as some of the international markets thus far and how that will work through 2017?

[Tom Looby:]

Yes. Right now, we have direct resources in the United States, and there we’re talking about direct sales people as well as clinical experts that sort of stand alongside of our sales force. We have the same thing in the core group of countries in Europe running by that it's the direct selling and direct clinical support in Germany, Switzerland, Austria and the UK and Nigeria. And we then do have distributors in other areas that often come along with that their own clinical expertise. What we’ve done in the last couple of months is focused on a lot of the sales operational side to support those groups, so that they're better educated. They’re starting with harder leaves, as we mentioned in our prepared statements that marketing has done a very good job of getting the message out about stroke. And then when the people are doing their self discovery, they are initiating the sales cycles on their own. We think this can help us short met sales cycle. So, we’ve talked about this in previous calls that we want to get the message out and then really have our sales people, take people through that sales cycle more quickly. We are seeing evidence of this in the first full quarter with our FDA label, and that’s why we have a sort of optimism that we will get to that three times run rate at the end of 2017, that we were predicting.

[Jeffrey Cohen:]

Okay. When you talk about three times run rate, can you give me some further color on that?

[Tom Looby:]

Yes. We were coming right of enforcement discretion where we had to be relatively silent or about a year and half at least in United States. We were, I think very happy with the number of units, but more happy with the ASPs that we were able to get in Q2. But we had about 10 units in that particular quarter. I think what we’re saying is that we would like to get 10 units per month as a run rate at the end of 2017. It’s going to be a ramp to be sure because it’s an education; it’s a change management challenge for us as we get this message out to the clinic. But Q3 could not have been better for us with the first full quarter with that label

[Jeffrey Cohen:]

And could you talk about some of those activities in the large European markets that you've been going after?

[Tom Looby:]

Yes, first, I'll start with our new leader over there who has been with us since the middle of September. I personally know Matthias and saw him out because we wanted to do what he is largely done two to three other times before in his career, which is to have the very firm sales operations, but more than just sales a complete organization over there. So, he is a seasoned distributor manager. He is a seasoned product manager and a direct sales manager as well. So, he is bringing all those capabilities with him. So, really in the last month and half, I've seen a really a step change function in the management and the organization of that team over there. I think it bodes well for us. They are doing a lot of what we are talking about on U.S. side again the capital equipment in marketplace. So how you will get into tenders earlier, how you write in language that supports the adoption of our product; and we are advantaged there because our product does more within the rehabilitation clinic than others. One thing I would also mention is we all know about the product adoption lifecycle, and early adapters the scientists and the large clinics with scientific budget adopt first. What that mean they can take a lot of intake all e-commerce and all different technologies. As we start to get into the second wave of adoption, it's going to have to be the product that makes the most sense logistically with regard to work flow, with regard to throughput of patients and that’s why it feels like we are advantaged in both Europe and United States when we get this message out.

[Operator:]

That does conclude our question and answer session. At this time I'll turn it back to management for closing remarks.

[Tom Looby:]

We simply like thank you for taking the time to join our call today. I know it's been a busy day for many of you. Have a great evening. Thank you very much.

[Operator:]

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