Rewalk Robotics, Inc. (NASDAQ:RWLK) Q2 2015 Earnings Conference Call August 6, 2015 8:30 AM ET
Lisa Wilson – Investor Relations
Larry Jasinski – Chief Executive Officer
Kevin Hershberger – Chief Financial Officer
Imron Zafar – Jefferies
William Plovanic – Canaccord Genuity
Young Li – Barclays
Good day ladies and gentlemen, and welcome to ReWalk Robotics’ Q2 2015 earnings conference call. At this time, all participants on the phone lines have been placed on mute. Later we will conduct a question-and-answer session and the instructions will be given at that time. [Operator Instructions]. Please do note today’s program is being recorded.
I’d like to now introduce our first speaker, Ms. Lisa Wilson, Investor Relations for ReWalk Robotics. Ma’am, please begin.
Thank you, Roland. Good morning and welcome to ReWalk Robotics’ second quarter 2015 earnings call. This is Lisa Wilson of In-Site Communication, Investor Relations for ReWalk. With me on today’s call are Larry Jasinski, Chief Executive Officer, and Kevin Hershberger, Chief Financial Officer of ReWalk.
This morning the Company issued a press release detailing financial results for the three months ended June 30, 2015. This can be accessed through the Investor Relations section of the ReWalk website at rewalk.com, and you can also access the webcast of this call from there.
Before we get started, I would like to remind everyone that any statements made on today’s 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 statement 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 completion of this call for the next two weeks. You’ll find the dial-in information in today’s press release. The archived webcast will be available for one year on the Company’s website at ReWalk.com.
For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 6 of 2015. 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.
Thank you, Lisa. Good morning everyone. Thank you for joining us. This morning we issued our financial results for the second quarter of 2015. We placed 12 systems in Q2 compared to 10 in the prior year quarter. Although Q2 growth was slower than we expected, demand generation in terms of qualified leads and completed filings from reimbursement grew substantially. We expanded and modified our training program to more effectively qualify users and to better assist individuals in advancing the reimbursement applications.
In July, we launched a significant new product that will increase the number of users and offer them a better walking experience. Its streamline design, which eliminated the need for a backpack, will offer greater comfort. The ReWalk 6.0 with its new design offers superior features over any product in the market or in clinical trials today.
Our top line results were impacted by two primary factors during Q2. The first, timing of reimbursement decisions; we had some reimbursement wins early in the quarter that led us to believe the reimbursement process for additional claims would be completed sooner. However, the insurance decision making process are moving at a deliberate but slower pace.
As we seek to expedite the process, we are working closely with insurers on each and every pending claim. In parallel, we have expanded efforts to educate insurers and the market more broadly about the health benefits and the cost savings that come from being able to walk again.
The second factor is the length of the sales cycle. Simply put, it is taking longer to convert our solid pipeline of leads into actual sales. This is common for new technologies in emerging industries, and to address this we have modified our sales efforts to include a more integrated team based approach that now includes the sales team, clinical organization, reimbursement team as well as the individual training centers in a more efficient multi disciplinary sales effort.
While the top line results were below our short-term targets, we are exceeding our goals with leads and in reimbursement submissions. Based on what we are seeing, we remain confident that there is a very large market opportunity for us. With our sales structure, demand pipeline and reimbursement backlog, we are building the foundation for long-term success. We have now placed 70 units for community use. And during the second quarter of 2015, we added more than 240 qualified leads to our growing pipeline. This compares to 170 in Q1.
More specifically, in the United States 25 insurance claims have been submitted, up from 6 at the end of Q1. In Germany, there are 34 insurance claims in our pipeline, up from 25 at the end of Q1. But overall, we have 59 fully completed claims with pending insurance decisions in our direct markets compared to 31 at the end of Q1. We also have over 140 additional potential users in the United States and Germany who have transitioned form qualified leads through the initial clinical training and are ready to be referred to a training center for evaluation and to trial a ReWalk. We expect most of these to move to insurance claims in the months ahead.
We believe these market building activities are working and will allow us to provide ReWalk systems to an increasing number of individuals in the community who could benefit from being able to walk. Continuous and dramatic improvements in these new and disruptive technologies will be a hallmark of this evolving industry sector. As the Company with the most extensive user experience, we are building on this knowledge to provide even better products for our customers, and we believe this will provide value to our shareholders for the long term. We believe that the continuous refinement of our product so that it offers superior performance and comfort will enhance the marketability of the device.
With our next generation system and a broadening awareness and acceptance of exoskeletons in the marketplace, our outlook for long-term growth in the business remains positive.
I’d now like to turn the call over to Kevin to discuss our Q2 financial results. Kevin?
Thank you, Larry. Our revenue was $610,000 for the second quarter of 2015 compared with $500,000 in the second quarter of 2014. Of the 12 units placed during Q2, seven were placed for personal use with the balance placed for use in rehabilitation centers. The slower ramp and timing for patients to complete the qualification to purchase cycle impacted the results in the U.S. and in our international markets. We remain encouraged with the interest and the growth in our pipeline of leads in insurance submissions which we believe will build our revenue base going forward.
During Q2, we recorded a gross profit of $60,000 compared to a gross loss of $225,000 during Q2 2014, reflecting the positive impact of moving manufacturing operations to Sanmina in the second half of 2014. Additionally, we continue to see strong ASPs in our direct market, especially with insurance reimbursements in the U.S.
R&D expense increased to $1.4 million for the second quarter of 2015, compared to $1.1 million in Q2 2014 as we invested in R&D for the ReWalk Personal 6.0 system and advancing additional next-generation ReWalk devices. SG&A expense grew to $4.5 million during the second quarter of 2015, compared to $2.5 million during the same period in 2014, driven by ongoing market development activities following our FDA clearance, investment in the reimbursement team, marketing activities related to the rollout of ReWalk Personal 6.0 and the cost of being a public company.
Net loss was $5.8 million for the second quarter of 2015, compared to a net loss of $4.7 million in the second quarter of 2014. On a non-GAAP basis, net loss for the second quarter of 2015 was $5.2 million compared to a net loss of $3.7 million in the prior-year quarter. As of June 30, 2015, our balance sheet remains strong with $31.2 million in cash, cash equivalents and no debt.
With that, I will turn the call back over to Larry.
Thanks Kevin. ReWalk robotics is leading an emerging industry. The development of this industry and of our Company depends heavily on building programs and infrastructure that will support global growth and expansion. This begins with demand qualification, relies on extensive training programs and requires successful reimbursement for most users.
In Q2, the ReWalk training programs received certification by the Federation of State Boards of Physical Therapy for continuing education credit in 22 states. That not only validates the high caliber of our extensive training standards and program protocols but also demonstrates the growing acceptance of exoskeletons within the broader community.
We continue to make good progress, executing on our broad reimbursement strategy as well. This includes, first, educating and gaining support from national advocacy groups and societies to support the review process within the insurance industry. Second, working with payers and their internal constituents to significantly expand their understanding of the benefits of the ReWalk device for spinal cord injury patients as they formulate policy and make case-by-case decisions. Third, establishing and providing data for publication about the health and economic benefits of wearing exoskeletons in general and the ReWalk system in particular.
We believe we have the right team in place to execute effectively and that all the upfront work they are doing to educate the market will pay off with higher quality submissions and faster and positive decisions in the near term.
During the second quarter, two additional large private commercial insurers made positive coverage decisions on behalf of our customers and six of our 12 placements in Q2 were covered by insurance. As we scale the business and more insurers grant coverage, we expect a pace of reimbursement decision making will become more predictable. Our focus remains on helping secure additional coverage for each individual that wants this technology to improve his or her life as well as reducing the time it takes to gain these positive coverage decisions.
To aid our reimbursement efforts, we are collecting data for publication on the economics of life constrained in a wheelchair which will provide added support to reimbursement submissions. More specifically, we have contracted with various independent research groups to utilize data from the largest U.S. domestic and international databases. And here is what we want to do. First, to stratify the co-morbidities in SCI patients post surgery and in-patient rehabilitation, detailing incident level and cost per incident. Second, to document the economic impact of spinal cord injury in the healthcare system, real dollars and quality adjusted life years. Third, to use data to show clinical and economic benefits of ambulation, detailing the economic impact in years one through five. We expect this series of studies to be completed and published over the next several quarters starting as early as Q1 of next year.
We are also continuing our efforts with the veterans administration as they build the infrastructure to support their policy of providing exoskeleton coverage to all veterans. We presently have 38 veterans waiting to pursue a system within the VA, once the VA is prepared to train users and supply systems. Broadening the infrastructure for this eligible veteran pool will make a meaningful difference to thousands of injured veterans throughout the U.S. and would substantially advance our leadership position in the industry.
ReWalk has a growing body of data to support the clinical benefits of wearing exoskeletons in general and ReWalk systems in particular.
During the second quarter, two additional studies were published on community use and the health benefits of using the ReWalk device. The first study published in the spring issue of Topics in Spinal Injury Rehabilitation indicated that the majority of patient studies were able to ambulate at speeds equal to or greater than 0.4 meters per second. This speed supports ambulation in a variety of community activities. The study also recorded a peak walking speed of 0.71 meters per second, 40% faster than previously observed. The second study published in the Journal of Rehabilitation Research & Development focused on the health benefits of wearing the ReWalk exoskeleton, measuring oxygen uptake and the heart rate during sitting, standing and walking.
Results indicate that routine use of the device to increase activity energy expenditure would be expected to have positive cardiopulmonary and metabolic benefits. Both of these studies reinforce our efforts to educate the broader market and insurers more specifically about the benefits of wearing a ReWalk exoskeleton.
Turning now to R&D, our ability to innovate is at the core of what we do. Research and development will fuel ReWalk’s growth well into the future. The launch of the ReWalk 6.0 in July is a major advance in the technology that will allow more individuals to use the system and provide all users with a better walking experience. The enhanced design incorporate years of user feedback and thousands of hours of research and development.
ReWalk Personal 6.0 now offers users highly customized fitting to better match the size and anatomy of each individual user. It has improved software and an overall better walking experience than any other known product in the clinical trials around the world. Each system is custom fitted based on the specific measurements of the individual, a more precise fit enhances the functions, safety and the alignment of the user’s joints for improved mobility. We expect the improved comfort of the device will broaden its appeal to user that clinically qualify for it. In fact, we sold our first 6.0 device just two weeks after launch to a user that had been waiting for a system that better fit his body.
Perhaps the most visible feature of the ReWalk Personal 6.0 system is the device’s streamlined design. The enhanced design eliminates the backpack allowing the user greater upper body movements and clothing options. The sleek redesign of the padding and strapping makes it easier and faster for users to put the device on and take it off. We expect this enhancement will further increase the marketability of the system.
As I conclude my prepared remarks, I’d like to remind everybody that ReWalk is a Company of first. We are the first and remain the only exoskeleton provider to receive FDA clearance in U.S.and CE clearance in Europe. ReWalk is the first and only device cleared for community use with documented speeds of up to 0.71 meters per second. We have the first personal device with demonstrative reimbursement success in the United States and the first and only device to be in eight of the top 10 rehabilitation centers in the United States.
Our clinician training program recently became the first and only program of its kind to qualify for continuing education credits for physical therapists in 22 states. And with the introduction of the ReWalk Personal 6.0 in July, we continue to lead the industry with the device that offers the fastest walking speed, most natural gait and most precise fit of any exoskeleton.
I am reminded each day about the impact of our first at the individual level. Recently Spaulding rehab center sent their first user home with a ReWalk device. Today the user is able to take a walk with his wife and his dog and looks forward to navigating the hills in his neighborhood with the ReWalk exoskeleton. We anticipate more personal victories as we work with centers like Spaulding to expand our training programs and offer more ReWalk Personal units.
We could plan to continue to expand our presence in training centers around the world, work closely with the SCI community to build demand, to educate the market on benefits of wearing an exoskeleton, and to innovate to advance our product pipeline. We remain confident that the market opportunity and growth potential for ReWalk in this emerging industry is significant and that ReWalk will continue to be a Company of first, expanding our leadership position in the wearable exoskeleton market for many years to come. We look forward to updating you on our progress and we thank you for your ongoing support. With that I’d like to open the call to questions. So operators, if you could please go ahead with the instructions.
[Operator Instructions] Our first question comes from the line of Imron Zafar with Jefferies. Your line is now open. Your question please.
Hi, good morning, thank you very much for taking my question. I wanted to ask about the VA channel. I think last quarter you mentioned that there were 38 patients qualified and waiting for a device and I think you said the same number today. Is that suggesting that there haven’t been any new qualified patients added in that channel or that some have actually gotten a unit and others have replaced them to keep that number at 38? I am just trying to understand what’s going on in the VA channel a little bit better.
Certainly. With the VA, the number of 38 is the same. It hasn’t changed quarter over quarter. We are seeing that many veterans are waiting a broader policy decision in other parts of the country from the VA before they move through the qualification process. Presently to get trained in a ReWalk, it has to be done in the James J. Peters VA in Bronx, New York, and for most of those people that are enquiring they are in geographies where they can’t get to the James J. Peters VA and they are waiting for local guidance. So the others that have enquired have simply held back a little bit until this policy statement that we are aware that the VA is working on is issued on a national basis so they know how and where and when to go get a ReWalk.
And do you have a sense of why that hasn’t happened yet in terms of a national VA policy saying that they would cover the technology? Is it just a waiting game at this point or is there any particular reason why they are taking so long to do so?
I’m not aware of any specific reason that is holding them back or slowing them down, I know they have worked very hard in examining the data and in formulating a policy. They have asked us for a great deal of input, have indicated a lot of the progress that they have made, and my understanding is that it is being reviewed now at the highest levels of the VA but I can’t forecast the timing of the government beyond that.
Got it. And then one last quick question on 6.0, is your sense that there might be some pent up demand ahead of that launch, that recent launch, in other words were there patients waiting for maybe the availability of that iteration in order to actually get the system?
Yes, I think the best example I have is our very first sale. This is a gentleman who has used all the different exoskeletons but he was waiting for one that fit his body better and fit him perfectly and he was our first buyer because as he saw the way this fit him and worked, it solved some of the fitting problems due to some specifics of his anatomy and we are aware of others that are like that. So we believe that the new 6.0 will be able to offer a exoskeleton to a larger audience and a few people that were holding back. At least one has already come forward and we expect several more.
Okay. And those centers that have already been trained on 6.0 – I’m sorry, on the prior gen, is there additional training that is now required with the 6.0?
There is no specific training required within the rehab center where they’re getting their program, but at the time they get their product we will just train them a little differently on the specifics feel of the device because it is a little different for handling. For example, changing the battery is now much easier and simpler, putting on the straps is now much easier and simpler. So it’s – we will have to train it each individual as they get the new system, but fundamentally it doesn’t require anything further at the rehab centers.
Okay. Thank you very much for taking my questions.
Thank you. Our next question comes from the line of William Plovanic with Canaccord Genuity. Your line is now open. Your question please.
Hi, thanks, good morning. So of the seven personal units that you sold in the quarter, how many were outright sales versus how many were leases?
Of the seven units in the U.S., we have…
And four were outright sales.
Yes, I’m talking globally, globally.
So three were rentals.
So but for the seven in the U.S.…
Those were all sales, all the ones in the U.S.
All seven in the U.S. were sales, okay.
Okay. And then you said that you had two commercial insurance approvals. What geography were those located?
They were in the northeast.
So they are in the United States?
Yes, both were in the United States, yes.
And then I am just trying to hand around this. So you have a lot of leads in the pipeline. There is a lot of discussion regarding kind of taking longer to kind of put these through. What exactly is that bottleneck? Is that infrastructure on your side, is it data that you need to understand, is it understanding each payer? What do you need to start being more streamlined in processing these and have more visibility and accuracy in predicting the timeline to close the sale?
I think there is two or three types of things that have a lot to do with that. The main one is education within the insurance groups. As they get more and more information from the case managers and more publications, I think they are going to move more quickly because they tend to be asking a lot of questions. And among the questions are how often are they using it, do you have a way to monitor it, types of things like that.
A secondary factor is some of the users are taking a little longer to finish the training. I’ll give an example, the first unit that went out of Spaulding with a young man, it took him a little longer to get his core strength built up to a point where he was comfortable taking the unit home. So he stayed and did some extra training. But that was one of the two commercial users in the United Sates that approved.
And then I think, I am sorry, you threw a lot of numbers out at us. I think said you had 170 leads at the end of Q1, 240 leads, and then something about leads submitted, and I think you said you had 69 leads submitted going into the quarter versus like 31 last quarter. So if I look at this, you closed on – of the 31, you closed on seven personal, so you closed on about a quarter of them. Should we think that just use that as kind of a baseline closure rate going forward, so if you have 69, maybe you will close a quarter of those going into the fourth quarter or we’re just not at that level of visibility yet?
Okay. Well, you did get all the numbers right. Actually the submitted number is 59 right now that are pending. But to answer your question, it is still too early to know. I don’t think we have developed a trend that we can provide you yet. I think in the next two or three quarters that percentage will emerge and we’ll get a sense of whether it is going to be a large percentage or a modest percentage. We do not know that yet.
And then I know Imron asked on the VA, and this is my last quarter, is this something, I know, so it is at the highest levels, you have been in discussions with him, you would know the pace and the tone of those discussions. In your opinion, do you think this is something that will be a 2015 event or is this going to flow into 2016 in regards to setting that national VA policy? Thank you.
Well, the tone of the discussions with the VA has been positive, entirely positive. They really do care and are trying to get this done. They are trying to hire and build the infrastructure to do it and have policies to clear. So all contacts have been positive, the only frustration is the pace, and I think they are very close to finishing but it is impossible for me to commit the government to a date, although then I think April 15th we have to pay taxes, that is the only date I can give you.
That’s all I have. Thank you.
Thank you. [Operator Instruction] Our next question comes from the line of Matt Taylor with Barclays. Your line is now open. Your question please.
Hi, guys. This is Young Li, in for Matt Taylor. Thanks for taking our questions. I guess just to start off, regarding the Bronx VA, I am just kind of curious, and sorry if I missed this if you mentioned in the call but just wondering, during the quarter what’s the, I guess the training pace as well as the selling pace at the Bronx VA like? Were there a lot of additional patients trained at the center? Just any color would be helpful.
Certainly. For the James J. Peters VA in the Bronx, I’d break it into two categories. First, this is one of the leading research centers in the world. So they have a high level of activity that reflects research and that is really a lot of what will benefit the community in the months and years to come.
But I think you are focusing a little more on the clinical side. They have completed the training of their clinical department and are actually starting, at least I know of one individual they are already processing. But they are at the beginning. I know they are doing some physical plant infrastructure, for example, to enhance the ability of placing of the training center for clinical. But they are just at the beginning and this is a little bit of the VA. It took some time to build the physical plant, to get the unit in, to hire the people, to get them training. And the overall VA policy is starting with VA Bronx. But they are really just at the beginning of training individuals at this time for a clinical setting to take them home.
Okay. Got it. And I think – correct me if I am wrong, but I think you mentioned the length of time to train patients on the rehab unit might have slowed a bit. Is that right and if so what’s driving that slowdown in training?
Well, I gave an example of a young man that took some extra time in his training in order to do it well and be well prepared to be home. It varies highly by individual. I can’t say there is a specific trend in our clinical studies. The average time to ambulation at an independent level was about 15 sessions, but we had a broad range. And I think the numbers, it’s just a little early to put big numbers on it. Most people are having successful trainings at this point but it varies depending on the individual approach, their level of injury. So it isn’t a very general number that I can give at this point.
Okay. Got it. Thank you very much.
Thank you. I’m showing no further questions at this time. I would like to turn the call back over to Mr. Larry Jasinski for any concluding remarks.
Okay. Well, first, I’d like to thank everybody for the time and we appreciate you joining us this morning. So have a good day. And if you have other questions, we’ll be glad to connect with people individually. Thank you.
Ladies and gentlemen, thank you very much for participation. This does conclude the program. You may now disconnect. Everyone have a great day.