Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Q2 2016 Results Earnings Conference Call July 28, 2016 4:30 PM ET
Debbie Kaster - Investor Relations, Gilmartin Group
Tom Looby - President and Chief Executive Officer
Max Scheder-Bieschin - Chief Financial Officer
Jeffrey Cohen - Ladenburg Thalmann & Co. Inc.
Amit Dayal - Rodman & Renshaw
Greetings and welcome to the Ekso Bionics' 2016 Second Quarter Financial Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Debbie Kaster of Gilmartin Group. Thank you. Please begin.
Thank you, Roya, and thank you all for participating in today’s call. Joining me from Ekso Bionics are Thomas Looby, President and Chief Executive Officer; and Max Scheder-Bieschin, Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the quarter ended June 30, 2016. A copy of the press release is available on the company’s website.
Before we begin, I’d like to remind you that management will make statements during the call that includes forward-looking statements within the meaning of federal securities laws 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 without limitation our examination of historical operating trends and our future financial expectations 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 business, 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 projections or 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 live broadcast today, July 28, 2016.
I will now turn the call over to Thomas Looby. Tom?
Thank you, Debbie, and thanks everyone for dialing into our call this afternoon. We have made great progress at Ekso Bionics in the last several months as we worked to continue to execute on our strategy, focus on optimizing our operations and work hard to establish exoskeletons as standard of care.
With the clearance for stroke granted in April this year, we are approved to address more than 20 times the patient population of any other exoskeleton technology on the market. It is important to note that a stroke clearance for an exoskeleton is truly game-changing for patients and the industry. With this exclusive clearance, Ekso Bionics can now focus our resources on educating and selling to the large and under penetrated market of customers who serve these stroke patients. We believe this in turn will uncover the great value that our company represents.
2016 is a building year at Ekso Bionics as we have started to put our strategic directives and infrastructure in place and now are putting our heads down in order to deliver on our operational and commercial goals. Since our last quarterly call, we have accomplished several important milestones.
First, on the heels of our groundbreaking clearance for stroke in April, earlier this month we received from the FDA an additional clearance on our label, furthering the ability for stroke patients to have access to our devices.
Our original clearance specified arm strength requirements in both arms, a nuance that is appropriate for our spinal cord injury label as our Ekso GT is the only device cleared for spinal cord injury above T4, where upper arm strength maybe affected for patients. However, our team collaborated with the FDA to modify this requirement in our label for stroke where many patients with hemiplegia due to stroke have strength in only one arm. We're thrilled to have received this additional clearance so quickly.
Second, in conjunction with our clearance in April, we completed a full review of our sales and marketing efforts. As a result, we are making some key changes to optimize our team and our sales strategy so that we can amplify our go-to-market efforts. Our goal is to reach the many clinics who could not use exoskeletons for patients with hemiplegia due to stroke before Ekso Bionics was granted this label. This clearance is a real differentiator for the company and industry.
Third, we are excited to share the initiation of the first-ever Ekso Bionics-sponsored clinical trial, which is led by Professor Dylan Edwards of The Burke Medical Research Institute, a leading institution for neuro rehabilitation. The study, entitled WISE, Walking Improvement for spinal cord injury with exoskeletons, will evaluate improvement in independent gait speeds of spinal cord injury patients undergoing rehabilitation with our Ekso GT, with the goal to collect data that support marketing and clinical adoption to further support reimbursement.
We're also happy to report that we recently received 20 preorders in Europe for our proprietary Smart Assist technology, a series of software tools and pre-gait features that allow physical therapist to address a larger continuum of care of patients with acute disease through discharge. These upgrades will go to previously sold devices. We think this release reflects our ongoing commitment to the rehab environment.
We also completed the reverse split of our stock in the second quarter and subsequently applied to uplift our stock to the NASDAQ market. Our application is currently under review and we have been in close contact with the staff at NASDAQ. We believe the move to NASDAQ will represent a significant step toward our efforts to create long term shareholder value, while attracting a broader and more diverse shareholder base.
Each year, approximately 740,000 patients are discharged with strokes and 55,000 with spinal cord injuries in the US alone. These patients are treated during an estimated 5.9 million rehab sessions each year in 16,000 hospitals, rehabilitation centers and skilled nursing facilities in the US. We are excited that we can now promote our device and educate the rehab centers and hospitals on the clinical and financial benefits of our technology for this large population of stroke and spinal cord sufferers.
With the widest clearance in the market and with an estimated stroke population of approximately 270,000 who can be treated with our Ekso GT, our technology can serve over 20 times that of any other exoskeleton. We have work to do to educate the market on the significant value of our technology for stroke patients. As such, we have worked hard to develop a new strategy to most effectively understand our customers’ needs.
Our sales process combines deep market analysis and customer targeting, followed by demos, clinical and economic education and constant follow up. It is early days, but we are seeing good initial traction to educate the market that exoskeletons are not just about spinal cord, but are an effective tool for stroke rehab as well.
Our team has also been focused on building clinical data to help support adoption of our products. We are thrilled about the recent launch of our company-sponsored WISE study. Our randomized controlled study that will compare patients rehabilitated with our Ekso GT to patients who are rehabilitated with traditional gait training as well as compared to a passive control group of patients who do not undergo rehabilitation therapy at all.
The US-based study across eight centers seeks to enroll approximately 160 community dwelling people with chronic incomplete spinal cord injury. We believe these results; the results of this study will be quite powerful and will help to support our exoskeletons as standard of care as we grow our business into a market leader.
Turning to the quarter, revenues reported were $1.6 million; $1.4 million were related to medical sales, an increase from $1 million for the same period last year. Plus, we also saw over $100,000 in sales from our pilot industrial products. As you know, in engineering services, we made a strategic decision to shift almost all of our engineering talent to be laser-focused on major developments for our medical and industrial applications.
As of June 30, 2016, we had an installed base of about 190 medical units at over 120 rehab facilities worldwide. Two of our eight units sold this quarter were to existing customers who bought a second Ekso GT device for their center. We continue to be encouraged by the growing number of customers that have procured more than one unit, now almost 25, as it speaks to the value of our technology and the belief that our exoskeletons can transform and improve rehabilitation outcomes. This is an increasing strategic focus for the company and we believe our recent clearance and our broad indication provides an even more promising return on investment for clinics.
Ekso Bionics has evolved into a commercial company with an FDA cleared device, a solid sales strategy, company-sponsored clinical studies underway and exciting prospects in our industrial business unit. I'm encouraged by the foundation we have worked hard to establish on the operational front and know we have the team and momentum to continue to execute and to expand our market.
The medical market for exoskeleton is comprised of inpatient, outpatient, home and community use. Our strategy at Ekso is quite specific with regard to addressing the needs of these various patient populations and within different environments. First, we want to win in the rehab environment by establishing exoskeleton the standard of care. Second, we want to address the home and community markets when the capabilities of the devices, the safety record and economics become practical for these environments.
Rehab is a sizable and important market. It is where every patient needs to go and where many dollars are being spent. The rehab clinic is where the trajectory of patients recovery can best be impacted and thus affect the quality of life and lifetime care costs of that individual.
Importantly, the physical therapist in the rehab clinic is the gatekeeper to the home mobility market. While our current strategy is to focus on the rehab environment as a first step, we recognize that home and community emulation with exoskeletons are going to be an important market when the industry can provide safe, effective and cost effective solutions. We at Ekso have important programs and active internal development efforts that will address this home market.
The momentum at Ekso Bionics is strong and we are confident that we will drive increased use of exoskeletons to help change lives around the world. With our FDA cleared label for stroke, 2016 is a year where we are laser focused on our operations from optimizing our sales strategy to building our clinical data so that we can build out this large market for our technology.
We have streamlined and honed in on a sales strategy that we believe will produce results for the company, our customers and most importantly our patients. We've initiated the WISE study which allows us to work with our study centers to gather data on the clinical progress of patients who use our exoskeletons. As we put the building blocks in place, we strongly believe that we have the best strategy and the ideal team to achieve our goal of the being the premier exoskeleton company and to establish all of our products as standard tools for their respective markets.
We continue to be committed to our brand promise of safety, reliability and innovation and to use this foundation and our extensive IP portfolio to further develop our products for future markets. I believe that we have put into place the foundational element of a strategy for success.
With that, I will hand the call to Max, our CFO.
Thank you, Tom. Now to some financial highlights; please see our accompanying earnings release and 10-Q for further details regarding the quarter.
Device related revenue was $1.5 million for the second quarter 2016. This is an increase from the $1 million from the same period last year. Of our device-related revenue, just under 10% came from our growing industrial business where we sold both aerial arms and vests for our various pilot programs this past quarter.
Revenue for our engineering services unit was $100,000 compared with $1 million in Q2 2015. This reflects a strategic shift that Tom spoke about earlier. In engineering services, we currently have a major follow-on project which DARPA. Our overall gross profit for the quarter was $203,000 as compared to a gross profit of $502,000 for the same period last year.
Gross margins for our medical device segment in Q2 were 11% as compared to 7% for the same period last year, driven in part by an improvement in our service business. Gross margin for engineering services was 38%. This compared to a 40% gross margin we reported for the same period 2015.
Operating expenses for the quarter were $7.6 million as compared to $6.1 million for the same period in 2015. Net loss for the quarter was $10 million as compared to a $6 million loss for the same period in 2015. Cash used in operating activities for the quarter was $7.3 million. As of June 30, 2016, we had $4.7 million in cash and no debt.
With that, I will turn the call back to Tom.
Thanks, Max. We are working hard to make sure that we have everything in place to make Ekso Bionics a success. With our stroke clearance in hand, we are now equipped with what we need to fully market our exoskeleton technology for use in the 6 million rehabilitation sessions that take place each year for stroke and spinal cord injury.
I'm incredibly energized about our business and I'm excited to be leading the company during what I know will be an exhilarating time ahead. Our innovation has made us leaders in exoskeleton technology. Our Ekso brand is trusted and well regarded. We have a terrific team assembled here at Ekso Bionics and we are determined to ensure the company's commercial success as we help enhance the lives of people around the world.
With that, I’ll end our prepared remarks and we look forward to your questions.
[Operator Instructions] Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.
So number of [rental units] in the fleet now?
About 12 units.
And could you extrapolate a little bit on how we should think about your OpEx for the back half of the year?
I think what you've seen for the second quarter is a good indicator for the remainder of the year.
Max, you said something about arms and vests in the industrial business, can you elaborate a little bit for us?
So as people have heard from us before, we have this program for addressing the industrial market and we've got three early products, two that are in extensive training right now with some important companies doing this sort of work and so those are the arms and the vests that we spoke about before. We’re encouraged by the early returns on the information that we're receiving from these placements and it's going to help to inform the rest of our strategy in industrial.
And I imagine the third product then is [covered]?
No, the third product, look, I think people should know that the industrial market is going to be very exciting and it's going to take just like the medical business multiple devices to meet the different user needs. It just so happens that the third device is a passive full body exoskeleton that also bears the weight of tools for skilled workers to the ground and helps to reduce safety costs, we think improve productivity as well as quality.
So if you think about the arms that we've talked about before, these are the gravity balancing arms and this, Jeff, this full body exoskeleton would be used maybe in conjunction with an arm just like that as well. That one we have in development, but the two that we really have in play right now and early trials are the arms and the vests.
And could you talk about codes, reimbursement codes and could you talk about where you stand now, where you could stand down the road?
Yeah, absolutely. We have very good evidence from the placements that we have right now that there is both short term and long term financial benefits and potential benefits for the uses of our devices. In the short term, let's talk about inpatient and outpatient, right.
Early data and this is clinical data as well shows that we can help physical therapist achieve a higher SIN Score rating, okay, which is a measure that physical therapist use to show the progression that patients are seeing in rehab and maybe do so in a faster amount of time.
That's a pretty good impact on the inpatient environment. But I think more importantly that inpatient session today is really a gatekeeper to outpatient relationship of that clinic and patients. And it’s the outpatient that is a very attractive profitable patient for those facilities. I would characterize all of that in the short term.
In the long term and this is something that we spoke about with the WISE study and some other studies that we are looking at is how do we reduce the cost for patient over the lifetime, while increasing the quality adjusted life years of that patient. These are the things that payers will be interested in. So our reimbursement plan very much is founded on top of our clinical evidence plan and I'm very happy to say that in 2016 Ekso has been really focused on getting these things underway.
One more if I may, could you talk about your program for the wellness in the home as far as current R&D and progress there and what you’re finding?
Jeff, much like the clinical evidence generation program which is a longer term thing, I think anybody who follows med device companies knows that this is – it takes quite a bit of focus over a long period of time to do. The same thing with next generation products, so we have just in 2016 really kind of amplified our efforts for home mobility and ongoing wellness.
But it's going to take a few things to come into focus for this market to really fulfill up on the expectations. And I'm not just talking about Ekso Bionics; I'm talking about our other colleagues that are out there. We have got to cater the functionality of the device for specific patients, disease states and injury levels et cetera. They've got to be pretty capable for community and for home ambulation. They've got to be very safe.
We have to have trusted devices out there to do these things out in the community and I think underscoring all of that stuff, for underneath all that stuff, it’s got to be cost effective. So we've got programs to address those four characteristics for different disease states and we will bring them to market, I think, when it makes sense to bring them to market.
Right now, our focus in the short term is winning in the rehab. That is where the patients go, the dollars are being spent, the trajectory of rehabilitation begins and then we will build up the confidence of exoskeletons within the marketplace, we’ll deploy those products to the home and community ambulation markets. So I think that we've got very much the right strategy to approach the entire health care market for exoskeletons.
Our next question comes from the line of Amit Dayal with Rodman & Renshaw.
In regards to these gravity balancing arms that we deployed or put in play last quarter, is there any feedback in how these are performing et cetera?
So yes, we have been – it's not been so long since we deployed and I want to make sure people understand, as Max mentioned, that we received revenue for the units that we've deployed that are both arms and also vests and that's interesting, but I think what is more interesting is very much the feedback that we're getting from the field. So on these arms, the partner that we are deploying these into the market with are seeing some repeat users and they're seeing some multiple device per activity use. We are seeing, I think, attractive dollars per rental. These are all very good characteristics I think in this early market to say that we're on to something with our value proposition.
I might have missed this comment of how many units was shipped in the quarter.
We shipped eight medical units and 14 industrial units of various types in this particular quarter.
In regards to your comments around ramping up marketing and sales post the 510(k) clearance, is there anything you're doing specifically or that could be a little bit more granular for us to sort of get her hands on understanding how that batch will progress.
Just to recap for some people, the FDA reclassified exoskeletons just in 2014 and we met with the Agency very quickly after that time. And as we've said this phrase before in previous calls we were on enforcement discretion while we had our file in front of the Agency. That meant that we could remain on the market, but we are selling mostly in a one to one basis, not doing broad communication et cetera.
And more than that, until you get the classification of the clearance in hand, you're not entirely certain what it's going to contain. That was the hard work that we put in in collaboration with the FDA. We more than weathered this storm and came out on the other side with an expansion of the spinal cord injury indication over what the predicate had and we’re the only ones to get stroke as we've mentioned before.
So we're happy to have the clearance, but I think more than that we're happy to have this expansion which was not so certain before we have the document in hand. So that now allows us just starting in Q2 2016 to really fine-tune our go-to-market efforts, especially in the United States. And what we're learning in the early days is that the market has been educated to think of exoskeletons as spinal cord injury rehab devices or mobility devices.
So we have a lot of work to do to communicate broadly and also through an amplification of our sales and clinical team to basically put more leads into the funnel, again 16,000 clinics seeing these patients. We think that right now in terms of our prioritization 4,000 of them in the US are the top priority. So it still means that our relatively small company has got to adjust our go-to-market approach to be able to go and hit as many of those 4,000 as possible.
But it's not just about 4,000 units because we are seeing now with our early sales data that 25% of them could be candidates in the early days treat in multiple units. So those are some things that we’re working on, but that work really could not start until we got that clearance in hand to really define for us what work we needed to do and go-to-market.
And maybe just last question around the listing, timeline for that, is it something you expect could come through in the third quarter or is it maybe towards the end of the year?
Just to say what has happened, we just filed our application at the end of June. It’s currently under review and we have been in constant communication with NASDAQ. This is about our broader effort to increase long term shareholder value and to broaden and attract more diverse investors. We don't want to say too much more about the timeline for that, but that we're very happy with the dialogue that we're having with NASDAQ.
We have no further questions in queue at this time. I would like to hand the floor back over to management for any closing remarks.
I'd like to simply say that we thank you for your time to join this call and please have a great evening.
Thank you. This concludes today's teleconference. You ma disconnect your lines at this time. Thank you for your participation.
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