Earnings Call Transcript - EKSO Q3 2020

Operator, Operator

Greetings, and welcome to Ekso Bionics Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. For opening remarks I would now like to turn the call over to David Carey of Lazar Partners. Thank you, David. You may begin.

David Carey, Moderator

Thank you, operator, and thank you all for participating in today's call. Joining me from Ekso Bionics are Jack Peurach, President and Chief Executive Officer; Jack Glenn, Chief Financial Officer; and Bill Shaw, Chief Commercial Officer. Earlier today, Ekso Bionics released financial results for the quarter ended September 30, 2020. 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 include forward-looking statements within the meaning of the federal securities law, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including our future financial or operational expectations, or our expectations of the regulatory landscape governing our products and operations, are based upon management's current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our businesses, please see our filings with the Securities and Exchange Commission. Ekso disclaims any intention or obligation, except as required by law, to update or revise any financial or operational projections, our regulatory outlook or other forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the broadcast today, October 29, 2020. I will now turn the call over to Jack Peurach.

Jack Peurach, CEO

Thanks, David. And thanks to everyone for joining us today. First, I'd like to recognize our Ekso team members for their continued commitment and support as we collectively prioritize serving our customers through this challenging time. The need for improved care remains at the forefront for patients recovering from stroke, spinal cord injuries, and traumatic brain injuries. Our team at Ekso is elevating the standard of care for rehabilitation with our groundbreaking exoskeleton. Inpatient rehab centers worldwide are adopting our technologies as they recognize that EksoNR delivers better patient outcomes. On the industrial side of our business, our newly introduced exoskeleton has already generated strong customer enthusiasm. This latest advancement provides key benefits to industrial workers in different settings to increase productivity, reduce fatigue-related injuries, and lessen the strain on the shoulder and lower back. In total, we are showcasing the benefits of our exoskeleton solutions in both medical and industrial settings. We are pleased that we achieved third-quarter revenues of $2.9 million, a 28% sequential increase over Q2, as we continue to navigate the COVID-related challenges. Led by our commercial team, we successfully raised customer engagement levels by leveraging a virtual sales approach to remain connected with our customers. As a result of our efforts, we achieved 90% of revenues in the third quarter compared to the same period last year. Given where we were at the beginning of the pandemic in late March and early April, we believe we are on a path to recovery; however, with the recent rise of COVID cases across the country and around the world, we are cautiously optimistic in our near-term outlook. We generated 22 total EksoNR bookings in the third quarter, including 17 bookings for new units. Since most orders have been delayed and not canceled because of the pandemic, our order pipeline remains solid. A major achievement in the third quarter was our 63% overall gross margin, which was seven percentage points above the record we set in the second quarter. In terms of our operational performance, we continue to manage costs well, resulting in the lowest quarterly use of cash. Our actions have made us a leaner and more efficient business, which has resulted in margin expansion. In addition to our strategic and operational flexibility, proceeds from our previously completed financing and subsequent warrant exercises strengthened our cash balance and put us in a solid financial position. I'm proud of the way our team delivered under these challenging circumstances. Our commercial sales team is getting the job done, and we believe our adaptive approach to customer engagement is making a meaningful difference. At this time, I will turn the call over to Bill, who will provide an update of the medical device segment and global commercialization strategy.

Bill Shaw, CRO

Thank you, Jack. We're pleased to report better-than-expected Q3 results. And I'm proud of our commercial team's performance as we kept focused on extending the benefits of the Ekso program across the globe. Our commercial team continues to expand our install base by leveraging multiple acquisition options, including our new subscription model. Altogether, our approach helps facilitate a strategic sale that we believe is working. We continue to gain traction with our network strategy and are excited about our prospects moving into 2021. Let me briefly touch on some specific examples of how we are achieving success. We previously shared news about our new pilot program with vibrant healthcare, which was delayed several quarters due to the pandemic. We're now moving forward and starting our first pilot in Q4. We continue to advance our relationship with Kindred Healthcare and work with their transitional care hospital organization to launch one of our first subscription programs. The Kessler Foundation purchased an additional EksoNR in support of a new clinical and research initiative. Ekso will be hosting a webinar on Acquired Brain Injuries with Dr. Karen Nolan, Senior Research Scientist from Kessler, on Thursday, November 12, as part of a highly attended clinical webinar series. Ekso Bionics is the first and only exoskeleton that is FDA-approved for the treatment of acquired brain injury. Today, we highlight another patient success story with one of our partners at Sunnyview Rehabilitation Hospital and how they utilized EksoNR to help Kylie, a patient at Sunnyview, and an incredible journey following a serious brain injury. In October of 2019, Kylie was in a serious motorcycle accident and was airlifted to the hospital, suffering multiple internal injuries, fractures, and a traumatic brain injury. While still in a coma, she was transferred to Sunnyview Rehabilitation Hospital and eventually woke up with the help of Sunnyview's amazing team, including the therapy team. The EksoNR was a key component of her recovery. The physical therapist, Erica G., said the progression she has made using Ekso is amazing. In the first session, she walked maybe 10 steps, and now she's walking 1,200 steps routinely. Kylie has recovered remarkably well with support from her family and the team at Sunnyview and continues treatment in Sunnyview's outpatient facility. We wish Kylie continued success. We're becoming more efficient and shortening the sales cycle, highlighting the continued strength of our commercial sales organization, as evidenced by a strong showing from our North America team leading the way in the third quarter. We delivered approximately $2.7 million in Ekso health revenue, compared to $2.1 million in the second quarter of 2020 and $3 million in the same period in 2019. Outside of the US, we gained traction in certain international regions, with several units sold in APAC and EMEA regions in the third quarter. Looking ahead, while overall customer interactions are improving, we remain cautious regarding our outlook with the uptake of COVID cases in the US and Europe. We believe the strategies we implemented and the broad reach of our commercial sales team will allow us to remain active with our customers, enabling us to drive our mission forward, which is to amplify human motion, helping accelerate a person's recovery and ability to achieve movement. At this time, I'd like to turn the call back to our CEO, Jack Peurach.

Jack Peurach, CEO

Thanks, Bill. Before I turn the call to Jack Glenn, I'd like to provide an update on our industrial segment. Our industrial customers have become accustomed to our innovative technologies that transform the way they think about construction and manufacturing. Customers who use Ekso Industrial technologies benefit from increased and more consistent labor productivity, reduced worker fatigue and injuries, and an expanded labor pool. We have taken the next step in delivering on all these fronts with the August launch of EVO. EVO is our next-generation endurance-boosting assistive upper body exoskeleton that helps augment human capabilities. It was developed in collaboration with customers to address the unique challenges of the industrial workforce. EVO is making productivity more predictable by reducing fatigue-related injuries, lowering company costs, and improving employee morale. EVO has already received an enthusiastic response in the form of several new customer orders and pilots across a variety of industry verticals, such as construction, food processing, and logistics. This morning, we announced our first customer for EVO, EGM Builders, a general contractor that provides construction services and represents our largest order in the construction vertical to date. EVO addresses many of the productivity and health risk challenges faced by construction workers. We are pleased to deliver this solution to EGM and look forward to providing more updates on this exciting product. Now, I will turn the call over to Jack Glenn to review our third-quarter financial results.

Jack Glenn, CFO

Thank you, Jack. We had a solid quarter, achieving sequential revenue growth driven by an increase in EksoNR volumes. Operationally, we generated a record overall gross margin and reduced our quarterly use of cash to the lowest level in the company's history through prudent expense management. Now on to the summary of our third quarter financial results: EksoNR generated third quarter revenue of $2.9 million, compared to $2.3 million in the second quarter of 2020 and compared to $3.3 million for the third quarter of 2019. Our gross profit for the third quarter was $1.8 million, representing a record gross margin of approximately 63% compared to gross profit of $1.8 million and a gross margin of 53% for the same period a year ago. This was driven by an increase in higher average selling prices for EksoNR, an increased proportion of medical device sales in overall revenue composition, lower unit production costs, the introduction of EVO, and higher service margins. Our early actions to preserve our cash and align our cost structure with the current operating environment enabled us to significantly lower our operating expenses. Our operating expenses for the third quarter of 2020 were $4.2 million compared to $5.5 million for the third quarter of 2019, a reduction of approximately $1.3 million, or about 24%. For the three months ended September 30, 2020, we recorded a gain on warrant liabilities of $4.5 million, due to the revaluation of warrants issued in 2015, 2019, and 2020, compared to a $4.4 million gain associated with the revaluation of warrants issued in 2015 and May 2019 for the same period in 2019. Net income for the third quarter of 2020, which benefited from the revaluation of warrants, was $2.5 million or $0.30 per basic share and a $0.01 loss per diluted share, compared to net income of $0.2 million or $0.04 per share in the third quarter of 2019. We continue to reduce our utilization of cash to adapt to current market conditions and used $1.6 million in cash from operations, excluding restructuring charges, the lowest in our history compared to $4.6 million in the same period in 2019. Turning to year-to-date results, revenue for the first nine months of 2020 was $6.6 million, compared to $10.2 million for the same period in 2019. Gross profit for the first nine months of 2020 was $3.7 million compared to gross profit of $4.9 million for the same period in 2019. Gross margin for the first nine months of 2020 increased to 56% from 48% for the same period in 2019. Operating expenses for the first nine months of 2020 were $14 million, a decrease of $4.7 million, or about 25%, compared to the prior-year period. For the first nine months ended September 30, 2020, we recorded a loss on warrant liabilities of $1.6 million, due to the revaluation of warrants issued in 2015, 2019, and 2020, compared to a $6 million gain associated with the revaluation of warrants issued in 2015 and May 2019 for the same period in 2019. Net loss for the first nine months of 2020 was also impacted by the revaluation of warrants, amounting to $11.8 million, or $1.75 per basic share, and $1.78 per diluted share, compared to $9.4 million or $2.1 per share in the same period in 2019. Cash used in operating activities for the first nine months of 2020 was $7 million compared to $14.3 million for the same period in 2019. As of December 30, 2020, we had a strong cash balance of $14.5 million. This includes net proceeds of $2.5 million from the exercise of warrants in the third quarter. Please see our 10-Q filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.

Operator, Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of RK Ramakanth with H.C. Wainwright, please proceed with your question.

RK Ramakanth, Analyst

Thank you. Good evening, Jack and Jack, and congratulations on a great quarter. It's really nice to see that you're on the path to recovery potentially here. I understand the cautious optimism as well. Overall, the quarter seems to be going in the right direction. In terms of the placements itself, I believe you had said you had 22 placements, out of which 13 were new. So as time goes along, are you seeing any decline in terms of the sales cycle, in terms of the time it takes between initial touchpoint and the sale? And if this is the case, how can you know is it getting to the most optimal time point that you would like to see? Or do you still have something to squeeze out of there?

Jack Peurach, CEO

Hey RK, this is Jack Peurach. Thanks for the question. I'll just and turn it over to Bill. We've been doing a lot of things to help reduce both the time and the costs associated with selling the product. I think that sales cycle, if anything, was probably extended during this period of time, mostly given the distance, certainly on customer decision-making capability. But I do think there are some things we are doing that are shortening the sales cycle, and we'll talk about that a little bit. Overall, I'd say no, we're still not satisfied with it; there's still a lot of opportunity to shorten the cycle on our side, and we're working on some of those right now. But okay, over to Bill.

Bill Shaw, CRO

Hey, RK. What I'd say is just selling advanced technology in general, especially in the front end of market adoption, it takes a lot of steps. So there's a lot of different stakeholders you have to get on board. Typically, you see anything from maybe three months on the short side to 18 months on the longer side. I know that's a large swing. But it's our job really to accelerate that; there are different ways to do it. Almost every deal we're involved with starts and ends with clinical support. We really have to have the support of our clinical champions to start and, from there, the way we accelerate is just by helping justify or validate the program value. Whether it's operational efficiency or ROI, whatever is important to the executive group, and then finding different acquisition options that will help them get something done sooner. As you can imagine, right now, in this environment, there are some capital constraints. But what's helped us actually accelerate our sales cycle a little better is just having more flexible options. Whether that's doing something with purchase terms, our rental program, or subscription, those types of options are helping us get into conversations a little sooner about the transaction and really aligning with executives to find an option that will work for them.

RK Ramakanth, Analyst

Very good. And then also Bill, you're talking about APAC and India. I think this is the first time I've heard India. So, it's good to see these countries outside the US getting into the business. How sustainable is this? Is this line in the sense - India and other countries, and do you need to be doing more or less, or how sustainable that is?

Bill Shaw, CRO

So let me just real quick to correct that, it's actually EMEA or Europe, mostly Europe, although we do have a partner in India. So to answer your question, obviously, we are focused on having a global presence. We've been very focused on Asia; there are certain countries within Europe that we're very focused on. But it's a methodical approach; we want to make sure that we're going deeper in the right countries first and learning more. We do have partners throughout the globe, and we'll continue to evaluate what markets make the most sense to invest in on a go-forward basis.

RK Ramakanth, Analyst

Okay, thank you. And then one question for Jack Glenn. Obviously, it's nice to see the uptick in the operating margin. Especially in the GNA expenses, we see that line going down at a decent clip starting from $2.1 million in Q1 to $1.7 million now. So how much of that is almost done, or is that more to get out of that operating margin?

Jack Glenn, CFO

That's for sure. We feel really good about the burn, the cash burn in the quarter, as you noted that it was a record for us, as far as even the lowest that we've had in the history of the company. We have been making great progress there. From the margin standpoint and from the operating standpoint, I think that the structure that we have right now, we continue to look at, and certainly in areas that we think we can become even more efficient. We're pretty comfortable with the infrastructure we have, especially on the G&A side right now, going forward. I would say that's probably going to remain fairly stable.

RK Ramakanth, Analyst

Thank you. And congratulations again.

Operator, Operator

Thank you. There are no further questions. At this time, I'd like to turn the floor back over to Mr. Peurach for closing remarks.

Jack Peurach, CEO

Thank you, everyone, for joining us today. Before closing the call, I'd like to reiterate our quarter highlights. Led by our commercial team, we're realizing improving revenue trends and higher levels of customer engagement. While the increase in COVID cases is something we continue to track and may impact the timing and predictability of future sales, we will look to take advantage of opportunities in our pipeline, both domestically and internationally, by increasing user adoption and education. Operationally, we achieved record gross margins and significantly lowered costs from the prior-year period. As a leader organization with a solid cash balance, we are taking prudent measures to achieve margin expansion and believe we're well positioned financially. Lastly, we are pleased to have launched EVO, our next-generation exoskeleton that was built based on feedback we've received from our trailblazing exoskeleton technology. To this point, we've generated a positive response from customers and their employees who use EVO. We will share more on this innovative product in the quarters to come. Going forward, we remain committed to delivering long-term value for patients, customers, and shareholders. Thank you for joining us today.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.