ReWalk Robotics Ltd.
Q1 2022 Earnings Call Transcript

Published: 17 May 2022

[Operator:]

Good day, and thank you for standing by. Welcome to the Q1 2022 ReWalk Robotics Ltd. Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that this call is being recorded. [Operator Instructions]. I would now like to hand the conference over to your host today, Almog Adar, Director of Finance. You may begin.

[Almog Adar:]

Thank you, Justin. Good afternoon, and welcome to ReWalk Robotics first quarter earnings call. This is Almog Adar, ReWalk's Director of Finance. And with me on today's call is Larry Jasinski, Chief Executive Officer. Today, the company issued a press release detailing financial results for the three months ended March 31, 2022. This press release and the webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ReWalk management as of today and involve risks and uncertainties, including those noted in our press release and ReWalk's filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ReWalk specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release including relevant non-GAAP reconciliation on our corporate website at rewalk.com. A telephone replay of the call will be available shortly after completion of this call. You will find the dial-in information in today's press release. The archived webcast will be available on the company website, www.rewalk.com. For the benefit of those who may be listening to the replay of the archived webcast, this call was held and recorded on May 13, 2022. Since then, ReWalk may have done announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I will turn the call over to ReWalk's CEO, Larry Jasinski.

[Larry Jasinski:]

Thank you, Almog. Good day, everyone. While Q1 was a disappointing quarter in terms of closed sales, it was also a quarter where we made meaningful progress on key long-term initiatives, including positive developments with CMS, the VA and in Germany. The closed sales in Q1 were limited to $876,000. We were about 75% of what we expected in Germany and only 35% of what was expected in the United States. The coverage contracts in Germany made processing more predictable while the U.S. will not have a similar predictability until Medicare or private coverage is more clearly decided. The limitations in the quarter were driven by slow insurance processing, VA facilities that remained closed much of the quarter, the COVID surge with Omicron that limited trading in clinics into late February, and COVID infections within 40% of our field team during the quarter. While we had a sufficient pipeline to meet our targeted sales level, we simply could not force a final insurance processing within the limitations of COVID restrictions within a timely manner to meet our sales goal. Importantly, we did not lose these potential patients during the quarter and expect recovery of most of these placements as the year progresses. Our objective of establishing a predictable coverage process within the U.S. with Medicare and private payers has progressed. We are working closely with individual patients and CMS to establish more efficient claims processing. I'd like to cover our status on the three categories of focus I identified at the start of the year. First, progress with CMS and the status of the German court case. Second, movement on our technical developments to improve our ReWalk personal system. Third, continuing development of processing infrastructure with respect to training, service, reimbursement assistance and sales coverage to grow effectively. To add detail to these three categories, first, starting with reimbursement. Our success will be aligned with guidance from CMS on benefit category, determination of the category, subsequent pricing, methodology, and the local and national coverage process by CMS. ReWalk is actively collaborating with CMS for "scientific innovation and technology." This initiative directly impacts ReWalk, which is defined as a novel breakthrough technology. To this end, ReWalk is one of the first companies to be participating in the new process for benefit category determinations. Reimbursement and payment is a priority of the medical device industry and CMS and ReWalk are active participants in these statutory and legislative initiatives. Medicare benefit category and reimbursement will be determined through the process from the final rule on w DMEPOS, which is durable medical equipment, prosthetics, orthotics and supplies issued by CMS in December of 2021. For background, we've had a formal meeting with CMS and continued communications. We have submitted some reporting materials on what we believe to be an appropriate Medicare benefit category and have had a follow-up discussion regarding the process. CMS published the healthcare common procedure coding system, known as HCPCS, public meeting announcement for June the 8. Our benefit category request for the ReWalk has been assigned to this agenda. We will provide extensive documentation to CMS to support benefit category assignment, including information from broader medical device industry, patients and practitioners. We have progressed sufficiently to begin to submit our initial cases. We will be proactively engaging with CMS' Medicare contractors to help facilitate smooth processing of cases. Our end goal remains having a reliable and systematic method to identify and cover the appropriate patients. In Germany, the Federal Social Court has not yet processed the pending exoskeleton cases expected in Q1. The case remains on the docket, and we expect the case to be heard in the coming weeks or months. Although it is one of the longest pending cases and is listed near the top of the docket, the court does not provide specific information on the timing for ruling on accepted case. When this occurs, it will be a signal for all insurers on the standards to provide exoskeleton systems. Now the second category I identified of focus, technical developments to support market growth. We anticipate an FDA submission in midyear 2022 for new features with ReWalk. These new features have been awarded a Breakthrough Designation by the FDA as of May 14, 2021. We are currently completing final validation testing prior to submission. Once cleared by the FDA, the new features will increase physical access for users, allow them to travel to more locations, and engage in more activities of everyday life. Our next generation design is occurring in parallel. They will make the system easier to use, improve performance, provide more data and increase the choices of walking parameters. In April, we announced that ReWalk has joined and gained funding within the MAGNET Consortium program based out of Israel, which had the goals to develop "advanced technologies aimed at providing robots with social capabilities, enabling to carry out various tasks and effective interactions with different users in diverse operational environments." We are hopeful this research will support an eighth generation system that can further expand adoption and the range of applicable users. The third area of focus is processing infrastructure. Infrastructure development started with defining each step of the patient's journey and determining resource requirements to achieve each element of the Medicare coverage and reimbursement process from identification through supply and maintenance of the system over the life cycle of the product. We are also setting up the process for private payers, which we expect to follow Medicare. Our model is building on the positive experiences in Germany and is lending internal and external resources. We will start testing this within our initial CMS submissions in mid-2022 and seek to expand it among other payers as contracts are established subsequently. As a company, our capital position is suitable to achieve these goals and 2022 remains a pivotal year for the company in defining this industry and in building long-term market leadership for the ReWalk personal systems. We look forward to continuing to expand access to our life-changing technologies for the benefit of patients and all of our stakeholders. I'll now ask Almog to cover the specifics of our financials and our overall financial position.

[Almog Adar:]

Thanks, Larry. As mentioned, our first quarter revenue for 2022 closed at $876,000 compared to $1.3 million in Q1 2021 and $1.2 million in the previous quarter. The decrease compared to last year was due to decreased number of ReWalk Personal 6.0 units sold in the U.S. and with distributors and our agents in the UK We had less case files completed from training to allow delivery as clinic training was delayed by the COVID conditions. Overall, we did not have any increased incoming cases as our demand pool has been stagnant due to limited trade show and the lack of reimbursement. As we look at our insurance progresses, during this quarter, we had a total of five new ReWalk insurance decisions to place a device for a new rental or direct purchase. And two VA decision to place a device for a new rental. Our current pipeline of active rentals consists of 19 cases, representing a total of $1.9 million, and our overall insurance cases are currently at 73, with 56 in Germany and 17 in the U.S. With our other primary on-based system, we sold 16 MYOLYN owned units for over $180,000, which marks our highest quarter to date for this product line. This occurred as this is an effective design for utilization at home and health improvement. Since this product is primarily for exercise only and because it is not limited by significant in-clinic training, we are able to place them more readily and expect it to expand in the quarters ahead. We have placed two ReStore system in Poland and Hungary to expand demonstration and to initial trial use. Turning into our gross margin. In the first quarter of 2022, our gross margin was 30% compared to 54% in the prior year quarter. This decrease is due to reduced revenue generated this quarter to spread over our overhead from our ReWalk Personal 6.0 device. Regarding the operating expenses, our Q1 2022 operating expenses landed at $4.6 million compared to $3.7 million in the prior year quarter. This increase is mainly attributed to sales and marketing as we had higher labor and sales-related expenses invested in our first series of trade show as the segment began to open late in the quarter and higher consulting expenses related to CMS progress and increased our efforts to support veterans within the VA. General and administrative also grew as we had higher personnel and personnel-related expenses along with professional services expenses. To recap the quarterly result, our net loss for the first quarter of 2022 was $4.4 million compared to a net loss of $3.1 million in the first quarter of 2021 due to decreased revenue and increased spend. Our non-GAAP net loss for the first quarter of 2022 was $4.1 million compared to $2.8 million in the first quarter of 2021. We ended the quarter with $82.6 million in cash. With that, I would like to turn the call back to Larry for some final remarks.

[Larry Jasinski:]

Thanks, Almog. I'd like to complete the session today by covering a few key topics that have occurred in Q1 and early Q2 and then to cover the status of each of our 2021 goals, as laid out at the start of the year. Key event number one. The VA co-op study finished enrolling approximately 160 patients in early 2020 and completed a follow-up on about 140 before it was completely shut down due to COVID. From 2020 until a few weeks ago, access to the database for analysis was frozen due to the uncompleted follow-up and then by a government server that was not available for multiple studies throughout the pandemic. We were recently informed that access to the database has now been reopened, and the analysis is starting. We do not have visibility to the data or the timing of any conclusions, but are encouraged that this is restarting after a two year holding pattern. Key event number two. During this two year period, ReWalk sponsored VA's research team's independent analysis of all exoskeletons placed by the VA outside of the clinical study. This large database compares cost to the health care system for injured individuals in the period before they walked to the period they were walking in an exoskeleton. A manuscript of this data is in progress, and we anticipate the VA will submit it for publication in 2022. Key event number three, return to trade shows. We have had five trade shows in 2022 after a two year period with none due to COVID. These shows are a meaningful lead source as hands-on demonstrations and peer discussions among community have a significant impact on technology buying decisions. And key event number four. ReWalk continues to increase its overall presence and resources within the U.S. Department of Veterans Affairs, or VA, by focusing on large flagship medical centers specializing in polytrauma and spinal cord injury. In addition, the company will be placing attention on the community care outpatient clinic networks used by the VA when their medical centers lack the capacity to train eligible ReWalk candidates. This will increase the number of available training sites, which in many instances, will be more geographically convenient for veterans to access and likely contribute to a higher overall success rate associated with the completion of the ReWalk training protocols now that VAs are reopening. Here is a follow-up on each of the objectives as we defined in Q1. We'll start with revenue. We expect to continue year-over-year growth despite the slow start and movement of pending cases in Q1. The drivers will be the German court case conclusion and subsequent additional supply contracts. In Germany, faster processing of workmen's compensation claims than we saw in Q1 and as we move our first CMS cases forward. The timing of many of these are beyond our control and that limits our ability to provide further guidance at this time. Second objective, new products. We seek to add at least one additional commercial product line which we believe can allow further leveraging of our organizational structure, provide growth and help achieve the pathway to profitability. This is a secondary focus to our reimbursement activities. We have also defined and limited the scope to ensure we have sufficient size and capital to complete the adoption phase of payer coverage on our core product lines. Third, to advance the Medicare benefit category for our CMS determination regarding coverage and reimbursement. This is entirely on track as we established in 2021. CMS is engaged at a proper level. Our request for a benefit category has been assigned for discussions at CMS' June 8 HCPCS meeting, and we continue to anticipate a final benefit category decision from CMS by year's end or early 2023. Fourth objective, technology. Submission of two device applications for approved ReWalk design to launch in 2022 and in 2023. The timing to launch is dependent on the CE marking and FDA 510(k) processes and some supply chain considerations. These technical developments remain on track for the submission cycles as we have planned. And last, investment. Controlled but increased investment of an additional $3 million to $4 million in reimbursement, product development, market development and access, investor relations and new business development. We have followed through on reimbursement support in a precise manner, have been able to restart market development and access programs post COVID, and have resourced the process for identifying and pursuing new business development. We have proceeded a little slower on the increased resourcing of investor relations that are now in the process of engaging a team to express our vision and progress at a higher level for all investors. We will provide updates to each via press releases, quarterly earning calls and other appropriate communications. This remains a pivotal year for this company and for this industry. Other than the slower than desired start for sales, all other business building objectives are progressing in a positive direction. Thank you very much for your time and interest today. I'd like to turn the call over for questions at this stage. Operator, please go ahead.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Marty Pollack from KMTR Holdings.

[Martin Pollack:]

Good afternoon. It's nice to see a call coming at a time where I'm not asleep -- fast asleep in the morning in the West Coast. Just with regard to the confidence level about revenues exceeding the last years, is any of that visible to you even beginning to the second quarter? So that when you're saying we can expect a higher revenue than last year, do you feel confident that you're already seeing some attestation of that in that second quarter coming up? That's the first question.

[Larry Jasinski:]

Hey, Marty, this is Larry. We'll try to work more for the West Coast on our timing in the future. But to be specific on the revenue side, we do see specific activity that really started in March as COVID shut down where -- that's why we are confident we will see year-over-year growth. I will provide a specific example is we went almost two years with no VA patients and a frustrating line of patients who really wanted a system. We have already had more trainings and systems ready in the first few weeks of second quarter than we had all of the last two years. And we have a decent number of people in line. So that is the one factor that we believe is a very immediate one because we have real patients. The second two factors do rely on success with the reimbursement process both in Germany. That court case will finally get over the goal line, and we just can't get the date, but there's -- it will affect a number of patients, and we're confident that will happen this year. We think it will happen soon. And the third one is CMS. We are putting in some patients in CMS. We believe some of this will work. So we literally, on a patient-by-patient basis, have a basis for supporting our expectation for year-over-year growth.

[Martin Pollack:]

Larry, second question. Clearly, the runway into 2023 and beyond looks quite good. And in fact, everything you're doing now seems to be on track. So in some respects, while the short term results don't really tell you much about what the future looks like, but the confidence you've expressed has indicated that things are really going to open up by 2023. With regard to investors who now understand this is the short-term period, this is the time we're just kind of in the famine portion of things, with the stock currently at $1.33 net cash, and clearly, it's going to come down presumably in the next few quarters, how do you feel that -- how do you believe in terms of investment opportunities? If you -- things that you could be investing, obviously, buying another company. But it seems to be the most obvious thing you can do for current or remaining shareholders, if you were to do more meaningful share repurchase, is the value enhancement not only of improved valuation for those remaining shareholders simply because at net cash considerably higher than stock price, there's one benefit. But even more so, when you go into 2024, '25, the incremental earnings power of those existing shares if the float goes down 15% to 20% is enormous. The only thing that I think investors have to ask themselves, do you really believe in your story enough to really take some of that big cash number, $83 million? And even if you buy 20% of your stock back, what is that? That's $12 million, $13 million. Isn't that the best investment you could make? I recognize you may have other plans to eventually making an acquisition, but clearly, I cannot imagine a better investment than this one, especially with the outlook that you're describing. And I'm kind of really surprised. I think we talked about this before that the Board and yourself have not pushed for this more meaningfully. Is there a price that you just might realize if the stock stays where it is? I don't know what -- whether our current investors will reap the benefits if the company ends up being taken over by someone else and essentially leaving the upside for all future investors. So I'm concerned with what I see here is a lack of resolve by the company to recognize that shareholders in this company should be considered in a more meaningful way than sitting on your hands and looking for the future. I understand operationally, you're doing all the right things. But I don't think investors are reaping any of the rewards so far of that.

[Larry Jasinski:]

Marty, let me -- first, we do believe in where we're going very much so. That's why we're here. Second, and equally important to that, it's important that we listen to our shareholders. Your comments do matter and the Board must and we must consider them. I would say we have active discussions within our Board regarding what we should do in this area. I can't report more than that at this time, but it is -- will be considered as one of the pathways. I believe the two you pointed out, perhaps there are some technologies that may become available that fit well with our company and could get us to a better position both in terms of revenue and expense. There's some pressures in the market which can make some things attractive for us. But also, our shares themselves, we believe, are attractive and they will both be examined.

[Martin Pollack:]

Thank you.

[Larry Jasinski:]

Thank you, Marty.

[Operator:]

Thank you. [Operator Instructions] And I am showing no further questions. I would now like to turn the call back to Larry Jasinski for closing remarks.

[Larry Jasinski:]

Thank you first for everybody who attended today and everybody who listens in on this. We appreciate your support of our company. We would encourage you to reach to us for any other questions you have. We will respond. We will provide as much information. And I'd ask you to stay tuned to our publications. CMS' meeting is coming up soon, better than we thought it would be in terms of timing. We believe the German court case will work, and we will look at other ways we could properly use what we have to invest for a successful outcome for all of our stakeholders and specifically our shareholders. So with that, I'd like to thank you again, and have a great day. We'll keep in touch.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.