Lifeward Ltd. Q2 FY2021 Earnings Call

Good day, and thank you for joining us. Welcome to the Q2 2021 ReWalk Robotics Limited Earnings Conference Call. I will now hand it over to your host, Mr. Ori Gon. Please proceed.

Thank you, Patricia. Good morning, and welcome to ReWalk Robotics' second quarter 2021 earnings call. This is Ori Gon, ReWalk's Chief Financial Officer, and with me on today's call is Larry Jasinski, our Chief Executive Officer. This morning, the company issued a press release detailing financial results for the 3 and 6 months ended June 30, 2021. This press release and a 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's management as of today and involve risks and uncertainties, including those noted in this morning's 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. A telephone replay of the call will be available shortly after the 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's website. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 09, 2021. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to ReWalk's CEO, Larry Jasinski. Larry?

Thank you, Ori. Good morning, everyone. ReWalk had a very good Q2 and met our key objectives. We see the right trends to grow our business and are optimistic about the direction for the year. We have seen the majority of our accounts returning to normal levels of activity. As a measurable example, after 15 months without being able to schedule a single user training or trial in the VA, we now have 10 in the process of being scheduled in Q3 and Q4. We have a database of 45 potential VA candidates that we will work with in the second half of 2021 and 2022. Q2 sales were $1.436 million, which represents our fourth consecutive quarter of growth and recovery from the pandemic. The patient trainings and present account activity support continuing growth in the second half of 2022. Our sales mix resulted in a Q2 gross margin of 50.6% and is at 52.1% year-to-date. Our expenses increased by $140,000 to $3.868 million as we increased activity with the market reopening. We started the year identifying the key milestones that will drive our growth and long-term success. We are pleased with the progress occurring with each and they remain the most important measurements to meeting our goals of providing broad access to our products via coverage policies and expanding the supporting base for their use. The four we outlined were: first, German courts. The federal social court ruling which will define whether the ReWalk system serves as direct compensation for disability has progressed and final elements are being completed in September. We would expect the ruling to be published in the weeks following that session. The positive ruling would have a significant impact that would broaden access to exoskeletons. Second, German insurer coverage expansion. Measuring the expansion of contracts with German insurers is an important indicator. We had expected this to be limited until the court case was completed, but we have had five additional BKK groups join the contract in the last quarter, which has added 2 million further covered lives with real contracts to a total of 25 million Germans, as we also have a contract with the DGUV for work-related injuries, which essentially covers all German workers. Overall, we have made significant progress to date with our German reimbursement strategy. Third, establishing processes with CMS. Our progress in building pricing, category, and contracts around the successful HCPCS code for exoskeletons issued by CMS is our primary focus in 2021. We are finding that it is similar to Germany, where once we have the code established, the process of establishing contracts requires education and detailed planning. We have ongoing activities in selecting the initial users for the application process for supply, have gained guidance on how to proceed from CMS, and are continuing to build our resources for the contracting process. And then fourth, national account activity for broader supply of our stroke and other product lines. While COVID has delayed implementation for much of the year, we now have trial evaluations underway with two national chains in the United States, and have completed training for the three lead sites for NHS in the U.K. As the patient flow expands, we will seek to build on their data and clinical experience as a basis for establishing national contracts for the expansion of the unique soft exosuit design for this whole community. I'd now like to turn the call over to Ori for a review of the financial details. Ori?

Thanks, Larry. ReWalk booked a total of $1.4 million in revenue in the second quarter of 2021, compared to $1.7 million in the second quarter of 2020. The decrease was mainly due to a lower number of Personal 6.0 units sold in Europe this quarter. For the 6 months period ended June 30, 2021, we have recorded a total of $2.8 million in revenues, compared to $2.4 million in the previous year, which represents a 13% year-over-year growth. This increase is mainly due to higher revenues in the U.S from Personal 6.0, Myolyn, and ReStore sales. This quarter, for example, we had sold 9 Myolyn units for over $100,000, which marked our highest quarter to date for this product line. As we look at our insurance progress, during this quarter, we had a total of eight new insurance decisions to place a device for new rental or direct purchase and five conversions of previously rented devices. Our current pipeline of active rentals consists of 17 cases, representing a total of $1.7 million, and our overall insurance cases are currently at 86, with 73 in Germany and 13 in the U.S. Turning to our gross margin. In the second quarter of 2021, our gross margin was 51% compared to 61% in the prior year quarter. The decrease is mainly due to the changes in our sales mix, and the reduced revenue, as well as the higher costs related to service. Regarding our operating expenses, our second quarter 2021 OpEx was $3.9 million compared to $3.6 million in the prior year quarter. This increase is mainly due to higher sales and marketing expenses that we are now back in the field, and we also had cost reduction elements in the prior year quarter. The lower R&D that offset this increase during this quarter is mainly due to lower employee and employee-related expenses. To recap the quarterly results, our net loss for the second quarter of 2021 was $3.1 million compared to a net loss of $2.8 million in the second quarter of 2020. Our non-GAAP net loss for the second quarter of 2021 was $2.9 million compared to $2.7 million in the second quarter of 2020. We ended the quarter with $64.2 million in cash. With that, I'd like to turn the call back to Larry for some final remarks.

Thank you, Ori. I'd like to continue the session with a focus on the second half of 2021. We have several major milestones and business activities that drive the second half results and will support growth for 2022 and beyond. There are several highly visible efforts and other activities that are meaningful as they build our business position. The highly visible ones are the German court case, progress with CMS, and national account efforts. Very importantly, there are also several less visible nuts and bolts activities, which include: first, our investment in building high-level health economics and market access (HEMA) processes within ReWalk in anticipation of the expanding coverage landscape. With ReWalk coverage, the provision of systems will rely heavily upon establishing a strong physician referral network to prescribe ReWalk systems to qualified users. We have built a large base of clinical data through various publications and two large-scale randomized trials. In parallel, we are developing economic studies from the extensive database on ReWalk use. We started our expansion of the HEMA team with a biopharma executive with an extensive history of gaining access through the physician base and in establishing contracts with both the public and private markets. Our success for wide-scale supply will rely on data, education, and systems that enable the prescribing community with all of the tools for selection and processing for those who qualify for the ReWalk system. You will then see the expansion of U.S contracts in a manner similar to what we have accomplished in Germany. Second, among the smaller nuts and bolts groups, our maintenance and building of our U.S. field organization. We effectively expanded our team just before COVID started and elected to keep that team in place to be well prepared for capitalizing on unexpected success with coverage and to build in the post-COVID marketplace. Our database has been expanded, our customer contacts shifted to content-driven educational materials, our new team is very well trained for this period of growth ahead, and we have established implementation plans at a local level. Third, in parallel, we have continued to invest in our core product line as we prepare for a wider coverage position. Our development of new features that will improve the users' breadth of use will be available in a new design, and we will also be able to offer an upgrade package to our existing users. We are in the regulatory process of development presently and anticipate a launch in 2022. Fourth, published peer-reviewed data is building on the use of soft exosuits. In July 2021, in Frontiers in Neuro Robotics, the first of several papers on the store that documents a better outcome was published. This data demonstrated pre- and post-changes in walking that exceeded the threshold for clinical meaningfulness. The acronym MCID, which stands for minimal clinically important difference, in all three categories investigated. First, comfortable walking speed; second, maximum walking speed, both of which had increases of 0.3 meters per second for each. And then third, the 6-minute walk test, which showed an increase of 59 meters. These substantial improvements and clinical outcomes have been achieved by training for improved paretic propulsion strategies. Specifically, significant pre- and post-improvements were observed in peak paretic propulsion, propulsive power, and trailing limb angle. So, in summary, we are establishing a pattern of growth, have built the team required to expand this market, have done the fundamental work we could to allow for coverage contracts, have eliminated debt, controlled our expenses, and have a cash position of $64.2 million. We finally have a mix of a growing market position, the pathways to coverage, the resources to implement, and a realizable plan in place. I very much look forward to reporting our progress in the coming quarters. Thank you for your time and interest today. I'd like to turn the call over to questions at this stage. Operator, if you can please go ahead with the instructions.

Your first question comes from Swayampakula Ramakanth from H.C. Wainwright. Your line is open.

Thank you. Good morning, Larry and Ori. In terms of thinking about the German court process, as you stated, if the German courts are successful in completing their process and also publishing their findings by mid-October, would you think the revenue growth from it would be meaningful in '21? Or is it more of a '22 event?

I think, first, the timing in which they actually issue it is not in our control. We anticipate, based on past history, that it will be mid-October. It could be a little bit later, it could be a little bit sooner, but just want to clarify that. There would probably be some immediate impact as we have a significant number of social court cases. So that may allow a few to convert, but the majority of the value to this will probably be in '22. Because if we get in October, we would have to convert those patients, with the holidays, by early December. So the timing may affect that a little bit. So there is some potential in '21 and a lot of potential in '22.

Okay, perfect. It is actually very encouraging to see the additional five BKK partners joining the contract even as the court case is progressing; probably, it's a good sign. But what is the process for them? As they're signing on, do you see an increase in the backlog, so you can kind of get an idea as to how many units you will need to keep ready when things all come to fruition?

The BKK additions are encouraging to see. As I said, we didn't anticipate them, but what they will do is bring in some additional patients that will go into the system and process in about the 6 month cycle, which is common by the time we trial on to get them fully trained and then get a product to them. So their impact will be late this year, early next for those. The number of patients in those specific five, I cannot identify for you right now. Ori might have that number, but I do not have it in front of me.

Yes. Yes, I have the number. So currently, we have a total of six cases within the BKK different groups.

Thank you. And the last question from me, before I get back into the line. So on the trial evaluations in international chains and also through NHS, what is the process there and how is that progressing from trial to revenue generation?

The process for NHS and national chains is similar. Initially, we approached committees within each group to showcase the product and present data, leading them to decide to move forward with a trial evaluation as a basis for potentially expanding to more accounts. This happened quite some time ago, delayed by COVID, which meant we weren't very active for a while. As the centers reopened, we have transitioned to the actual evaluations that were scheduled about nine months ago. We completed the necessary training, and the product is now being utilized in selected centers by both the chains and NHS. We're currently in the midst of that process. We expect the results to be in line with what we've observed at other sites that have used the product, which should lead to a contracting phase and additional sites. However, this will depend on how well the product fits their specific clinical needs at NHS and each U.S. chain. The pace at which this moves is not particularly rapid due to the ongoing impact of COVID; the number of patients has been slower in the U.K. compared to the U.S. We do not have a specific timeline for when we might transition from evaluation to contract, but I hope it happens before the end of the year. Regarding this year’s sales, the impact will likely be minimal, perhaps a few additional units, but not a significant amount. I apologize for the lengthy explanation, as we are still uncertain about the precise timing.

Thank you. Thanks for taking all my questions.

Thanks.

I am showing no further questions at this time. I would like to turn it back to Mr. Larry Jasinski for further comments.

Thank you, Patricia. As I close the call, I made the statement I very much look forward to reporting this in the coming quarters. And it's really based on the trends that we see this quarter. If these continue, these will be some enjoyable calls for us with progress in the coming months. So please stay tuned to our publications, and everybody have a wonderful day. Thank you.

And this concludes today's conference calls. Thank you all for joining. You may now disconnect.

Thank you, Patricia.

Thanks.