Earnings Call Transcript - LFWD Q4 2021

Operator, Operator

Welcome to the Q4 2021 ReWalk Robotics Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. I will now turn the call over to your host, Ori Gon.

Ori Gon, CFO

Thank you, Vanessa. Good morning, and welcome to ReWalk Robotics Fourth 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. Today, the company issued a press release detailing financial results for the 3 and 12 months ended December 31, 2021. This press release and a webcast of this call can be accessed through the Investor Relations section of the ReWalk website. Before we get started, I would like to remind everyone that any statements made on today's conference call that express the beliefs, expectations, projections, forecasts, 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 ReWalk's non-GAAP reconciliations on our corporate website. 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 the archived webcast, this call was held and recorded on February 24, 2022. 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?

Larry Jasinski, CEO

Thank you, Ori. ReWalk finished 2021 in a strong position to realize our vision of establishing a significant and sustainable market for the personal use of robotic technologies that can transform lives. Our key metrics for the year are on track, including our efforts to create systematic reimbursement payment pathways, technical advancements that broaden our market presence, and a financial foundation that supports our objectives. Despite the ongoing pandemic and the notable surge in the fourth quarter due to the Omicron variant, we increased our revenue to $5.97 million for the year ended December 31, 2021, reflecting a 36% rise compared to the previous year. We recorded $1.24 million in sales for Q4, representing a 2% increase over the same quarter last year. Throughout 2021, the COVID-19 pandemic continued to affect our sales operations. We faced three main challenges: first, a decrease in incoming leads for much of the year due to limited trade shows and in-person demonstrations caused by COVID-19 restrictions; second, our inability to train patients as many clinics remained closed, which hindered the lengthy process of transitioning patients through our system in Q4; and third, further restrictions on converting training previously achieved because of the Omicron variant surge in Q4. The current revenue levels are insufficient for a sustainable business, and significant growth in market penetration relies on successfully securing reimbursement and implementing our strategies in the marketplace. I would like to outline three key focus areas that we believe will support our future: first, our ongoing progress in establishing reimbursement payment programs; second, the technical advancements related to our products that we believe will drive growth; and third, developing and implementing structures for training, service, reimbursement support, and sales coverage to facilitate effective growth. To elaborate on these three areas, starting with reimbursement, our outcomes will be influenced by ongoing legal processes in Germany and the completion of benefit category, pricing, and coverage determinations by the Center for Medicaid and Medicare Services (CMS) in the U.S. In Germany, the Federal Social Court, the top court in defining social programs, is making progress on a case that will establish a requirement for direct compensation for spinal cord injuries across all insurers. This case has been in progress since 2017 and is approaching a final ruling after five years. Although we do not have specific timing on when the court will reach a decision, ReWalk is currently the third case on the docket. While we cannot predict the order in which cases will be addressed, we have been informed that a ruling in Q1 is a reasonable expectation. In the U.S., we have significantly enlarged our resources and expertise to support the completion of coverage based on the new code we secured in 2020. We are focused on enhancing evidence documentation and engaging with CMS regarding decisions on benefit categories and pricing, as well as preparing our initial case submissions to CMS. We are improving our current dossier to clearly convey the clinical, economic, and humanistic value in terms that resonate with relevant stakeholders. We have expanded our evidence-based documentation to meet submission standards and provide fresh scientific support for the economic value and modeling for payers. On December 21, 2021, CMS issued a final rule related to durable medical equipment, prosthetics, orthotics, and supplies, which outlines methodologies for benefit categories and payment determinations for new items, directly impacting exoskeletons and our 2020 code. This final rule offers a clear path for us regarding CMS. We expect that our benefit category and pricing will be addressed in CMS meetings mid-year, with conclusions expected by the fall sessions. We plan to process our first Medicare and Medicaid cases in 2022 and hope to define a coverage pathway for patients seeking exoskeletons by year-end or early 2023. We also anticipate that progress with CMS will facilitate our expansion into the private sector afterward. Our approach emphasizes a systematic method to identify the right patients and ensure they meet all criteria to pursue walking again. Moving on to technical developments that support market growth, in 2021, we worked on features for spinal cord injury designs to enhance system usability in more locations across the U.S. and have concentrated on meaningful technological improvements for easier operation and broader data access for users and stakeholders globally. We expect to submit two applications to the FDA in 2022 for various design enhancements we have developed. ReWalk is the leading personal exoskeleton globally and is progressing to a seventh-generation design. We are also initiating early research for an eighth-generation design, which we believe will continue to simplify system use. Regarding infrastructure for implementing coverage, we are dedicated to ensuring we have the necessary training, service, reimbursement assistance, and sales coverage to facilitate market development and growth. We have gained valuable insights from our successes in Germany that inform our U.S. strategy as reimbursement decisions are made. Alongside maintaining and expanding our U.S. and German teams, we have partnered with Robotics Technology in the U.K., where we are transferring one of our employees to provide the essential infrastructure for expansion in that market. Our capital position is aligned with our goals, enabling us to transition from an establishment phase to a growth phase. Although this process has taken longer and has proven more challenging than anticipated, we believe this is a pivotal year built on a foundation of understanding the potential of these technologies and garnering support from all stakeholders to advance. Now, I would like to invite Ori to discuss the specifics of our year-end financials and our overall financial position. Ori?

Ori Gon, CFO

Thanks, Larry. ReWalk reported total revenues for fiscal year 2021 of $6 million compared to $4.3 million in 2020, which represents 36% year-over-year growth. Our 2021 fourth quarter revenue remained flat with $1.2 million compared to the prior year quarter. Now let's look at the elements that drove the growth in 2021 in some more detail. First, Personal 6.0 sales have increased by fourteen systems with a higher average selling price, resulting in a total of $5.3 million compared to $4.1 million last year. The increase in volume was shown in both the U.S., which included our multi-unit order to an academic center in the third quarter and in Germany, where we have 5 more units sold this year. The average selling price was positively affected by the euro-dollar exchange rate and change in sales mix. Second, distributed products performance has increased to $446,000, compared to $86,000 in the previous year. This increase is primarily with our MYOLYN FES product line as we sold 20 personal systems and 9 rehab systems compared to 6 and 1, respectively, last year. We have also placed our first 2 MediTouch kits within 2 clinics in Q4 2021. Third, our restore results remained generally flat with 7 units sold each year and a total of $199,000 in revenues this year, compared to $160,000 in 2020. Now let's look at our insurance performance. This quarter, we had a total of 7 new insurance decisions to place a device for a new rental or a direct purchase, including 1 from the VA, and 5 conversions of previously rented devices. Our current pipeline of active rentals consists of 15 cases, representing a total revenue potential of $1.5 million, and our overall pending insurance cases is currently at 71, with 56 of them in Germany and 15 in the U.S. Turning to our gross margin. In the fourth quarter of 2021, our gross margin was 27% compared to 33% in the prior year quarter. This decrease was mainly due to a reduction in our average selling price due to change in sales mix this quarter compared to the last quarter. Our fiscal year 2021 margin was 49% compared to 50% in the previous year. This year, we have written off some of our restore inventory parts as we had lower sales than expected due to COVID restrictions that have not allowed us to price and demo the device properly. We have also seen increased service costs. We anticipate margins will return to similar levels for the full year in 2022. As we look into our operating expenses, our 2021 fourth quarter OpEx were $4.2 million compared to $3.2 million in the prior year quarter. This increase is mainly attributed to our SG&A as we had higher labor and sales-related expenses as well as an offsetting PPP loan that was forgiven in the previous year. The lower R&D that offset this increase is mainly due to lower employee and employee-related expenses as well as reduced professional services. Our full year OpEx landed in $15.6 million compared to $14.2 million in the previous year. Same as we have seen in the fourth quarter, the main contributors to that change of higher SG&A, offset with reduction in R&D employee and employee-related expenses. To recap the quarterly results, our net loss for the fourth quarter of 2021 was $3.9 million compared to a net loss of $3 million in the fourth quarter of 2020. Our non-GAAP net loss for the fourth quarter of 2021 was $3.6 million compared to $2.7 million in the fourth quarter of 2020. Our yearly net loss in 2021 was $12.7 million, compared to $13 million in 2020. Our non-GAAP net loss was $11.6 million in 2021, compared to $11.9 million in the previous year. We ended the year with $88.3 million in cash, and our cash burn was $11.5 million compared to $12.6 million in the previous year. With that, I'd like to turn the call back to Larry for additional remarks. Larry?

Larry Jasinski, CEO

Thank you, Ori. I would like to conclude today's session by discussing three topics: our organizational plans, significant events that have taken place in the fourth quarter and early first quarter, and our goals for 2022. First, regarding our organization. Ori Gon just finished his presentation and is transitioning to a new opportunity in the coming weeks. He has been a vital part of our company, first as our Controller and then as CFO, achieving meaningful accomplishments during a challenging period by focusing on market development, managing our teams effectively, controlling expenses, and enhancing our financial position. His contributions have greatly advanced our company and the industry as a whole. I appreciate his hard work and wish him the best in his future endeavors. Looking ahead, we have a robust team in place, led by our Director of Finance, Almog Adar, who has been with us for over two years along with his team in Israel, Germany, and the United States. They are well-acquainted with our financial controls and reporting and have successfully guided us through recent years. During this transition, we also have Ami Kraft, the CFO who took us public, continuing as Executive Vice President and providing valuable guidance to our management team for over a decade. He will assist during this transition period. We are actively looking for a new CFO through a reputable recruiting firm that specializes in public company CFOs with medical device experience. We will make announcements once this process is completed. Second, I would like to highlight some meaningful events related to our business objectives. The VA has faced significant restrictions due to COVID-19 over the last two years but has recently made progress in advancing the ReWalker through the system via the Choice Program, which allows for training at local clinics under VA guidelines. The VA is also supporting some veterans' training at regional VA Spoke centers, under the supervision of national hub locations, which is promising for us. Our efforts to promote expanded local VA training have been intense. Just to note, this program has led to over 100 ReWalk training sites available to veterans, which expands access beyond the 24 VA sites. While the co-op randomized trial publication has been delayed by the pandemic, we conducted a detailed study in 2021 on the economic factors associated with exoskeleton use in the VA system. We collaborated with the VA to analyze their database, comparing costs for injured individuals before and after they used exoskeletons. We expect to publish our findings in 2022. Regarding our Soft Exo-Suit, the pandemic has restricted our presentation, promotion, and clinical use of the ReStore line, but we are measuring its effectiveness where we can. In the U.K., we conducted initial clinical evaluations within the NHS under NICE guidelines with successful trials at two NHS Trusts, and a satellite site is now being assigned to serve as a hub for implementing the ReStore within NHS rehabilitation clinics. Our new partnership with Robotics Technology in the U.K. will enhance our chances of meeting the NHS procurement requirements. In the United States, a major national chain has completed its committee review process and scheduled clinical demonstrations of the ReStore Soft Exo-Suit as one of the new technologies under consideration. Once the selected manufacturers conclude their demos, the committee will decide which technologies to clinically evaluate in 2022. We anticipate this could help facilitate a post-COVID relaunch later this year. As we focus on establishing sustainable payment pathways, our marketing efforts are now geared towards developing significant referral centers to attract and accommodate multiple patients, allowing for coverage that goes beyond single case considerations. One of the first chains applying this approach is located in Northern Germany, as they prepare to incorporate both ReWalk and ReStore into their offerings as a strategy for business growth. Now, let me outline our key objectives for 2022. Firstly, we expect to see revenue growth as COVID-19 restrictions ease, the German court case concludes, additional supply contracts are secured, the VA reopens, and we advance our first CMS case. The timing of these factors is largely outside of our control, limiting our ability to provide further guidance at this moment. Secondly, we aim to add at least one additional commercial product line, which we believe will enhance our organizational structure, foster growth, and aid in achieving profitability. This acquisition initiative is part of an active M&A process that involves external expertise for strategy, analysis, and planning. Thirdly, we will work on advancing Medicare's category for determination, pricing, and coverage. Fourthly, we plan to submit two 510(k) applications for improved ReWalk designs set for launch in 2022 and 2023. The timing for these launches will depend on the CE and FDA processes and supply chain considerations. Lastly, we will cautiously increase investments by an additional $3 million to $4 million in areas such as reimbursement, product development, market development, investor relations, and new business development. We will keep you updated on these topics through press releases, quarterly earnings calls, and other appropriate communications. The stage is set for a pivotal year for our company and this industry. We firmly believe we are on the right path and look forward to providing updates throughout the year. Thank you for your time and interest today. I would now like to open the call for questions. Vanessa, could you please provide the instructions?

Operator, Operator

And I see we have our first question from Arthur He with H.C. Wainwright.

Arthur He, Analyst

Larry and Ori, this is Arthur He for RK. First, congratulations on the strong finish for the year. I just want to follow up on the German Federal Court case. So I recall during the pre-remarks you mentioned, the case was in the queue for the 2022 rulings. Could you tell us what gives you the confidence for your estimate for the decision by the end of the first quarter, if I recall correctly?

Larry Jasinski, CEO

It is primarily based on the progress we've seen with the court. We have steadily moved up the list and it is through the interaction we've had with our counsel. Very important case, I think, for the German social system and the courts. So we believe it will be addressed during in Q1, if COVID keeps the courts open. That has been one of our big limiters. But that is generally the guidance we've been given mostly by counsel.

Arthur He, Analyst

And so could you remind us how many cases pending for the German insurance?

Larry Jasinski, CEO

Ori, do you want to do that?

Ori Gon, CFO

Yes. I can speak about that, Larry. So we have a total of 56 cases within the insurance pipeline. Out of them, we have 13 active rentals currently being trained into a conversion. And remember we have a good conversion rate over 60%, and it's getting even improved as we continue to qualify the process in the patient. And the rest are basically in the reimbursement pipeline, about half of the 56 are within what we call the legal stage, and those will be the ones who will be more affected of a positive decision when it comes.

Arthur He, Analyst

Great. So Larry, I just want to take your brain regarding the CMS decision. So if I understand correctly, if things are moving smoothly, we could expect a number for the reimbursement from the CMS by early 2023. Is that correct?

Larry Jasinski, CEO

There are sessions that are held within CMS that they conduct in midyear and in the fall, and we will also begin moving some cases forward. And those two events together, the cases that we will put in for payment will help them set and finalize the category and the pricing. So they are all sort of working together, so there's multiple things moving. But we do believe we will have a conclusion in 2022. A little bit of fear of COVID still, a fear of the 2 years we've just had. But if we can keep the business open and everybody is continuing to work, we should be okay this year.

Arthur He, Analyst

Got you. So I guess for a follow-up, do you guys have started the conversation with the private insurance payer, or do you prefer to wait for the discussion after the CMS to get more engaged?

Larry Jasinski, CEO

We do have some ongoing interaction with the private insurers at a lower level. But we believe that because many of the insurers also are overseeing parts of Medicare Advantage and things of that type, that this is a much more appropriate path after we have completed things with CMS to engage in a coverage and policy level. So until then, we'll provide data, we'll do case-by-case as we have in the past, but we'll build mostly on the CMS decision.

Arthur He, Analyst

Got you. And Ori, all the best for your future journey. Nice working with you.

Ori Gon, CFO

Thank you very much, Arthur.

Operator, Operator

I see no further questions at this time. I will now turn the call over to Larry Jasinski for closing remarks.

Larry Jasinski, CEO

First, Vanessa, thank you for your leadership of the call here. And for everybody here, I appreciate the time you've invested in the call today. Stay tuned to the publications and announcements because I've outlined the goals for this year, and we will continue to update the progress against these goals. So I wish everyone to have a very good day. Thank you.

Operator, Operator

And thank you, ladies and gentlemen. This concludes our conference. We thank you for participating. You may now disconnect.