Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Q2 2019 Earnings Conference Call August 1, 2019 4:30 PM ET
David Carey - Lazar Partners
Jack Peurach - President, Chief Executive Officer and Director
Jack Glenn - Chief Financial Officer
Greetings and welcome to Ekso Bionics Second Quarter 2019 Financial Results Conference Call. At this time all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded.
I will now turn the conference over to your host David Carey with Lazar Partners. Thank you, you may begin.
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 June 30, 2019. 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 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 or examination of historic operating trends and our future financial or operational 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 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 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, August 1, 2019.
I'll now turn the call over to Jack Peurach.
Thank you, David. I'd like to start by reiterating our vision here at Ekso Bionics. We are committed to amplifying human motion by enhancing strength, endurance and mobility across medical and industrial applications with advanced robotics. And we feel great about our progress towards our vision.
Our financial results for the second quarter of 2018 reflected continued revenue growth primarily driven by higher Ekso GT sales in the United States, a higher rate of rental-to-sale conversions for the Ekso GT and solid margin expansion within EksoHealth segment. These results demonstrate the increasing demand for an adoption of Ekso GT, exoskeletons, as well as our ability to operate more efficiently across all aspects of the company. While we are very pleased with the gains we achieve from our optimized U.S. commercial strategy for our Ekso GT exoskeletons, our growth levels here were offset by softer performance in EMEA and APAC.
Second quarter revenue was $3.3 million, up from $3.0 million in the same quarter last year. Gross margins expanded to approximately 48%, an increase of 15 percentage points from the second quarter of 2018, as we continue to achieve greater selling efficiencies while reducing our production costs. Over the past several quarters, we've emphasized our continued focus on better managing our costs. We are pleased that our operating expenses for the second quarter of 2019 are more than 18% lower than prior year quarter. This resulted in reduced net loss. The operating efficiencies that we have achieved and creating a leaner organization with a reduced cost structure enabled us to lower our use of cash. We are proud of our operational accomplishments, which are trending in the right direction. And we expect this trend to continue as we optimize our company to meet the needs of our customers and their patients.
Let me now review our business segments beginning with EksoHealth. Revenue in the second quarter increased by approximately 18% relative to Q2 2018, primarily the result of higher sales for U.S. customers and continued traction with network IDNs. We are also pleased to see increased conversion rates to sales from our rental offering which for a number of customers is an important bridge to a capital budgeted purchase. In the second quarter, 11 of our existing rental customers purchase their units. Additionally, we booked two new rental customers. This brings our cumulative conversion rate of rental-to-sale to 84% in the United States, up from 76% in the first quarter. Total rental revenue upside from rentals under contract, assuming that all current U.S. rental units convert to sales, as well as deferred rental revenue is more than $3 million.
As we've discussed in the past, many of our customers and prospects operate multiple inpatient rehab facilities or IRFs that serve larger patient volumes across many markets. Our U.S. commercial strategy is clearly resonating with these customers, as we are seeing more multi-unit opportunities with network operators and have initial pilot started with several. Additionally, we are also seeing interest from network operators within broader segments, including long term acute care hospitals or LTACs and skilled nursing facilities or SNFs. This has the potential of expanding our market opportunity. We are optimistic that are focused on these larger network operators will accelerate our revenue over time. An important element of serving these larger customers includes working with them to ensure their Ekso GT programs deliver both clinically and economically. And this allows us to be more closely engaged in a partnership with our customers.
Our install base now includes 8 of the top 10 rehabilitation centers in the United States, and over 30% of our customers own multiple Ekso GTs. We are more confident than ever in our ability to secure these and other customers with the addition of Bill Shaw to our management team as Chief Commercial Officer, which we announced in May. Though of a highly experienced sales leader in the global medical robotics industry and brings more than 15 years of medical device sales and leadership experience to Ekso Bionics. In his role as Chief Commercial Officer, Bill will be responsible for overseeing our global commercialization strategy, accelerating customer adoption of the company's medical technologies, and driving increased traction in our key markets. I'm pleased with the progress Bill's made in his first three months of CCO, and we intend to continue leveraging his industry knowledge and executional capabilities to increase our top line revenues.
In addition to Bill's appointment, as mentioned on the last call, we strategically expanded our U.S. sales team to further strengthen our customer pipeline and build on the success we already have achieved in educating current and potential customers about the benefits that our Ekso GT provides to patients and care providers. One of those primary priorities is to facilitate ramp up of our recent sales team hires. While we believe it typically takes a minimum of two full quarters for a new salesperson to achieve sales volume, we believe we have the right talent in place to achieve our sales objectives and drive continued revenue growth for our Ekso GT units.
As I noted earlier, our second quarter growth in the U.S. market was partially offset by softer performance in EMEA and APAC. Although we are disappointed not to have achieved our sales targets in these regions, we remain confident that these regions have tremendous potential. In order to ensure that we are positioned to capitalize on that potential, we have made changes to our European Organization and on the process of transitioning to a model that better supports our distribution channel partners. Our near term goal in both EMEA and APAC is to continue to expand customer awareness and better support and equip our channel partners to effectively communicate the value our products provide to shorten the sales cycle. While the Ekso GT remains our flagship EksoHealth product, our company has a long and deep history of innovation and we remain committed to developing new technologies and products that can further protect, enhance and transform human mobility.
Consistent with this commitment, last week, we announced the expansion our medical exoskeleton portfolio with the introduction of the EksoUE, a wearable upper extremity rehabilitation device. The EksoUE assist patients who have a broad range of upper extremity impairments, and aims to provide them with a wider range of motion and increased endurance for rehabilitation sessions of higher dosage and intensity. The EksoUE was developed through a collaboration between Ekso Bionics and the Johns Hopkins University School of Medicine. We believe this is the first wearable device of its kind to provide upper extremity support for rehabilitation use. EksoUE will first be made available to our centers of excellence and other key placements, and we intend to make the EksoUE generally available in the United States and Europe by the end of the year. We are excited about this latest innovation from macrobiotics and look to remain at the forefront of developing exoskeleton solutions for rehab and spinal injury patients with additional product launches planned in the future.
We've also made progress in our WISE study. As we announced previously, we reduce the scope of the study in 2018 so that we could get results in 2019. We are pleased to announce that the final patients have completed their treatment protocols, and we expect to complete the initial data analysis in Q4.
Turning to EksoWorks industrial segment, revenues were lower compared with the same period a year ago, primarily due to changes in order timing and continued evaluation by customers using our products and pilot programs. Despite this reduction, we are pleased with the customer evaluations we are receiving, which continues to validate the safety and productivity benefits the product provides. The feedback we received from customers will enable us to evolve our EksoWorks product offerings to deliver noticeable benefits and better meet their needs. We're also exploring verticals beyond the automotive and aviation sectors and believe that there are compelling opportunities to grow the EksoWorks business across a variety of industries.
That concludes my opening remarks. Now I will turn the call over to Jack Glenn to review our 2019 second quarter financial results.
Thank you, Jack. In the second quarter of 2019, Ekso generated revenues of $3.3 million, an increase of $300,000 per 10%, compared to the prior year period. The growth reflected continued execution of our U.S. commercial growth strategy, resulted in an increase of EksoHealth revenues.
The breakdown for Q2 2019 revenue is as follows. We recognize approximately $2.8 million in medical device and related revenue, up from $2.4 million in Q2 of 2018. We booked 22 Ekso GT units in the second quarter of which two units were rentals. Additional 11 previously rented units were converted to capital sales. Bookings represent orders that have either been shipped or in the process of being shipped. We recognize approximately $415,000 in EksoWorks revenue compared with approximately $555,000 in the same period a year ago. The decrease is primarily due to delayed customer purchasing decisions.
Our gross profit for the quarter was $1.6 million, representing a gross margin of approximately 48%. This compares to a gross margin for the same period last year of 33%. This strong increase in our gross margin is primarily attributed to continued execution of our medical business. We achieve higher average selling prices, improved reliability and lower production costs for Ekso GT devices. Going forward, we continue to focus our efforts on increasing total gross margin.
Operating expenses for the second quarter of 2019 were $6.7 million compared to $8.2 million for the second quarter of 2018, a reduction of approximately $1.5 million, or about 18%. This reduction reflects the continuation of the company wide initiatives we implemented last year to optimize our organization and focus on our sales of commercialized products.
Loss from operations for the quarter was $5.1 million, compared to a loss from operations of $7.2 million in the second quarter of 2018. Now loss for the quarter with $3.1 million or $0.04 per share, compared to a net loss of $8 million or $0.13 per share in the second quarter of 2018.
Now turn to year-to-date results. Revenue in the first half of 2019 was $6.9 million, compared to $5.5 million for the same period in 2018, an increase of 25%. The increase in revenue for the first half of 2019 is primarily due to a higher volume of Ekso GT sales. Operating expenses in the first half of 2019 were $13.2 million, a decrease of $4.4 million, or about 25% compared to the prior period. Net loss for the first half of 2019 was $9.6 million or $0.14 per share compared to $15.8 million or $0.26 per share in the first half of 2018. We are improving our financial standing by reducing the use of cash.
Cash used in operating activities in the second quarter of 2019 was $4.5 million, compared to $5.2 million in the first quarter of 2019. As of June 30, 2019, we had a cash balance of $13.3 million. This includes a $5 million equity investment from one of the JV affiliates in connection with the China JV, $2.4 million that were raised under the ATM equity financing in the first quarter and net proceeds of 9 million from a public offering of our stock in the second quarter. Cash at December 31, 2018 was $7.7 million. Please see our 10-Q files earlier today for further details regarding the quarter.
Operator, you may know open the line for questions.
Thank you all for joining us today. To recap, second quarter growth reflected higher U.S. sales and higher rental-to-sale conversions for Ekso GT units. This is a strong indication that we are successfully educating current and potential customers about the benefits that our Ekso GT exoskeletons provide to patients and care providers. We also improved our financial performance by lowering production costs to drive expanding gross margins, and better managing our cost structure to reduce operational expenses. Going forward with an expanded sales and marketing team, we expect to continue strengthening our customer pipeline while maintaining our disciplined approach to managing costs. Additionally, we have completed treating all 30 patients in the unit, we expect to report the complete study data before the end of 2019.
I'd like to thank everyone for joining us on today's call. We look forward to updating you on our continued progress.
Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.