Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Q3 2023 Earnings Call Transcript

Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Q3 2023 Earnings Call Transcript October 26, 2023

Ekso Bionics Holdings, Inc. beats earnings expectations. Reported EPS is $-0.24, expectations were $-0.31.

Operator: Greetings, and welcome to the Ekso Bionics Quarter Three 2023 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, Matt Steinberg of FinPartners. Please go ahead.

Matt Steinberg: Thank you, operator. And thank you all for participating in today’s call. Joining me from Ekso Bionics are Scott Davis, Chief Executive Officer; Jason Jones, Chief Operating Officer; and Jerome Wong, Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the third quarter of 2023. 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 made during this call that are not statements of historical facts should be deemed to be forward looking statements.

All forward looking statements, including statements regarding our business strategy, future financial or operational expectations, or our expectations of the regulatory landscape governing our products and operations 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.

Regulatory outlook or other forward-looking statements, whether because of new information, future events or otherwise, which speak only as of today, October 26, 2023. I’ll now turn the call over to Ekso Bionics’ CEO, Scott Davis.

Scott Davis: Thank you, Matt, and thank you to everyone for joining us today. I’m pleased to announce that we achieved another strong quarter of sales for EksoNR and Indego devices. That propelled us to grow our quarterly revenues by a significant 38% year-over-year. In addition, we’ve established the groundwork our EksoWorks segment, resulting in a record quarterly number of EVO unit sales. Finally, we continue to work hard to improve our bottom line by focusing on improvements in operating efficiencies and costs resulting in a $700,000 narrowing in our operating loss compared to Q3 of 2022. Overall, our third quarter results reflect the growing adoption of our products across our target markets as well as the continued execution of our team.

We sold or recognized new revenue on a total of 41 EksoHealth devices in the third quarter, which includes devices within the EksoNR and Ekso Indego product lines. As in previous quarters, we believe a key to our growth will be our ability to continue building a strong multi-unit order pipeline with top network operators. Like our 10 EksoNR device order in the quarter from a large integrated delivery network. Additionally, we remain committed to leveraging our longstanding relationships with our existing customer base to heighten awareness for individuals who can benefit from the long-term use of our personal devices in their daily activities. Our relationship with the US Department of Veteran Affairs or VA remains a critical part of our go to market strategy with our Ekso Indego product line.

We were encouraged by the increasing adoption of our advanced technology through this relationship. The lightweight modular design and slim profiles of both our Ekso Indego personal and our Ekso Indego therapy devices are compatible with many wheelchairs and can bring much needed rehabilitation support to our valued veterans in both home and community use settings. We remain committed in bringing our exoskeleton solutions to more VA hospitals and clinics in the hope of giving our veterans who have suffered a spinal cord injury better access to this potentially life changing technology. On the international front we secured several multiunit orders highlighting the success of our strategic investment in our indirect partnerships. In Europe we sold 6 EksoNR devices as part of a multi-unit order to one of our largest distributors.

In APAC, in addition to an EksoNR order, we secured three-unit Ekso Indego personal order, which is among our first global multiunit orders for Indego. We remain focused on building relationships with larger customers in these regions while raising awareness of our expanded EksoHealth capabilities that now stretch across the continuum of care. As mentioned on our second quarter call, the Centers for Medicare and Medicaid Services, or CMS, proposed a new rule to include personal exoskeletons in the Medicare benefit category for braces in the updated 2024 home health perspective payments and rate. This proposed rule is important because it would classify certain exoskeleton type devices as braces for Medicare payment purposes. If approved, we believe this expanded coverage could significantly grow the addressable population for Ekso Indego personal to the estimated 164,000 individuals for the spinal cord injury who have Medicare or Medicaid coverage.

Importantly, these individuals could obtain their Ekso Indego personal device at a fraction of the current costs. Additionally, we recently applied Ekso Indego personal for Medicare code determination. We look forward to CMS’s ruling including level of reimbursement, which is expected in late November. Now turning to an update on our industrial product line, EksoWorks. As part of our new volume pricing strategy, we secured a sharply higher number of EVO units sold compared to the third quarter of 2022 resulting in a record quarter for this product. Driven by our commercial efforts, employers are recognizing the meaningful productivity and safety benefits that EVO provides to industrial workers. With several promising opportunities in our pipeline and the implementation of our new high volume contract manufacturer we’re encouraged by this initial momentum.

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While revenue contributions from our industrial segment were modest, our focus remains on placing an increased emphasis on EVOs placement in large industrial settings which consists of an addressable market opportunity of approximately $5 billion. We look forward to providing additional updates as we drive further market penetration across our industrial verticals. As we continue to scale EksoWorks for future growth, we are pleased to have recently launched an e-commerce platform that will allow customers to purchase EVOs directly from Ekso. This new site provides customers with a user-friendly experience to also acquire Ekso branded apparel and accessories. We invite all listeners and customers to visit our site at shop.eksobionics.com. Overall, we are encouraged by our third quarter performance and the progress we have made throughout 2023.

Going forward, we’re focused on driving greater awareness and adoption of our products. Expanding market access for our customers, securing more multi-unit orders with new and existing large network operators and on continual improvements in operating efficiencies achieving 38% year-over-year revenue growth and driving sustained demand in our target markets across the continuum of care is a testament to the strength of our commercial team and expanded product portfolio. Now, I will turn the call over to our Chief Operating Officer, Jason Jones.

Jason Jones: Thank you, Scott. In the third quarter, our operations team continued to manage operating expenses tightly, resulting in flat quarterly operating expense and narrowed quarterly operating loss both year over year, despite higher headcount and costs associated with our HMC acquisition. As part of our effort to achieve positive cash flow, we continue to look for areas where we can improve efficiency without impacting quality or growth. As I noted in our second quarter financial results call, we have been carrying higher than desired inventory to mitigate production risk due to supply chain disruptions. Over the past couple of quarters, our supply chain has normalized. Which has allowed us to reduce our on-hand inventory.

As evidenced, our decline in inventory at quarter end was the first quarter-over-quarter reduction in inventory since 2020. As our updated inventory and management approach flows through the entire supply chain, we believe further reductions are possible. As Scott mentioned earlier, we are starting to see higher volume orders for EVO in response to lower pricing. This strategy is enabled by our successful transition of the product line to our contact manufacturing partner in Malaysia. In addition to significantly lower cost, outsourcing the manufacturer of EVO gives us higher capacity and the ability to respond quickly to any potential increase in demand. I look forward to providing additional operational updates on our future financial results calls.

I will now turn the call over to Jerome Wong, who will discuss our third quarter 2023 financial results.

Jerome Wong: Thank you, Jason. Ekso generated third quarter 2023 revenue of $4.6 million compared to $3.3 million for the third quarter of 2022, an increase of 38%. This increase was comprised of a $1.2 million increase in EksoHealth revenue and a $0.1 million increase in EksoWorks revenue. Gross profit for the third quarter was $2.5 million representing a gross margin of approximately 53% compared to a gross profit of $1.7 million and a gross margin up 51% for the same period in 2022. A 46% overall increase in gross profit was driven by an increase in sales and EksoHealth segment. Margin expansion was primarily due to lower EksoHealth device and service costs. Operating expenses for the third quarter were $5.4 million compared to $5.3 million for the third quarter of 2022.

The increase was primarily due to additional headcount associated with the acquisition of HMC, partially offset by a decrease in legal expenses. Net loss applicable to common stockholders for the third quarter were $3.4 million or $0.24 basic and diluted share compared to net loss of $4.3 million or $0.33 per basic and diluted share for the same period in 2022. Turning to year-to-date results, revenue increased $4.1 million or 43% to $13.4 million for the nine months ended September 30, 2023 compared to $9.4 million in the same period of 2022. The increase in revenue was primarily driven by an increase in EksoHealth device sales of $4.7 million. Gross profit for the nine months ended September 30, 2023 was $6.7 million representing a gross margin of 50% compared to a gross profit of $4.5 million for the same period in 2022 representing a gross margin of 48%.

The overall increase in gross margin was primary due to lower device cost. Operating expenses for the first nine months of 2023 were $18.4 million compared to $15.7 million for the same period in 2022. The increase in operating expenses was primarily related to additional headcount and integration activities associated with the acquisition of HMC. Net loss applicable to common shareholders for the first nine months of 2023 was $12 million or $0.88 per basic and diluted share compared to a net loss of $11.9 million or $0.92 per basic and diluted share for the same period in 2022. Cash used in operating activities in the first nine months of 2023 was $10.5 million down from $11 million in the same period of 2022. As of September 30, 2023, the company had cash on hand of $9.9 million.

Please see our 10Q filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.

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Q&A Session

Operator: Thank you. (Operator Instructions). Our first question is from Sean Lee with H.C. Wainwright. Please proceed with your question.

Sean Lee: Good afternoon, Scott and Jerome. And thanks for taking my questions. So I just have a couple of questions. First, on the CMS front with the meeting coming out next month, assuming everything goes well, when would the new rules come into effect and on your basis, how much of an impact would you say they’ll have on your sales in the U.S?

Scott Davis: Sean, thank you for your question. We’re really excited about the potential that exists with CMS, the end of November is the timeframe for notification that we’ve been given. The process from there is a bit complicated as we begin to process patients through the Medicare Medicaid process. So that — but we could assuming this happens, we could start to see positive impact on the business starting in the first quarter of 2024. There’s a lot of moving pieces around this is a rather complicated process. But the first major step in it would be approval of this lump sum reimbursement and treating the exoskeleton as a brace that will open up the market potential and the ability for folks to access this technology to a much wider population of individual. Currently there are approximately 164,000 individuals who have suffered a spinal cord injury who also have Medicare and/or Medicaid coverage.

Sean Lee: Great. Thank you for the additional color. My second question is on the across improvements, it’s great to see that you guys are getting better operating margins from your current and that’s translating into greater volumes, especially in the EksoWorks side. So I was wondering, speaking on a medium to longer term, say next two to four years, where do you see these margins could improve to?

Scott Davis: Okay. Sean, specifically on the, the overall margins or you had also made a reference to the Works business as well. Are you specifically talking about Works or just margins in general?

Sean Lee: Both for overall and for Works, please.

Scott Davis: Okay. Yes. So, we have been doing a lot of work. Jason and his team in operation have been doing a lot in supply chain to really improve our performance there. Certainly, the additional volume that we have is helping as well. We anticipate that as we go forward, as volumes continue to increase and as we continue to work on these improvements, we are optimistic that the margins will continue to improve. On the Works side of the business, this was really the contract manufacturing relationship that we put in place now for high volume as volumes increase, we have the mechanism within this relationship to maintain good margin as we continue to increase our volume. So, and again, as that starts to blend into our in a meaningful way into our overall margins. We see room for continued margin improvement as we go through the next several years.

Sean Lee: Great. My last question is on the international business. It’s good to see that you guys are getting multi orders even from Asia-Pacific region. So, I was wondering, where do you expect this market — the international market to grow to in terms of your overall revenues?

Scott Davis: Well, thank you. So the international market, we have certainly a strong presence in Europe and growing presence in Asia-Pacific region. In Europe, we have a very strong team that’s located in Germany, you know, cross discipline, you know, everything from sales to clinical to support. And we’ve built very strong relationships with distribution partners throughout that region as well as some of larger hospital networks that exist in regions. So we are anticipating and believe that there will be good growth, good, continued growth in Europe year-over-year on our enterprise business enterprise health business. And on the personal devices, that is an area that internationally we are just really starting to grow. We placed three devices in APAC this last quarter.

So we see that as also a great opportunity as there are mechanisms within various countries for offering some level of reimbursement to spinal cord injury individuals. So we are anticipating continued growth in these regions relative to the North American growth that we see today. So I think overall, it’s we see a positive outlook there.

Sean Lee: And thanks for taking my questions.

Scott Davis: Thank you, Sean.

Operator: There are no further questions at this time. I would now like to turn the floor back over to Scott Davis for closing comments.

Scott Davis: Thank you, Maria. Before closing today’s call, I’d like to reiterate some key takeaways as we enter the final quarter of 2023. First, we’re building growth momentum with another strong quarter of EksoNR and Indego device sales, we continue to elevate the standard of care for neuro rehabilitation across the continuum of care. Second, the proposed rule for CMS if adopted in November to potentially expand coverage for Ekso Indego personal to thousands of spinal cord injury patients, we fully support the proposal to further enhance potential access for Medicare and Medicaid beneficiaries. Third, we’re starting to see promising results from our commercial strategy for EVO with a record unit sales quarter. Supported by our new contract manufacturer, we’re poised to take the next step in bringing these innovative devices to customers worldwide.

And finally, we continue to execute on our plan to achieve scale and positive cash flow through revenue growth, product line expansion and operational improvements. We look forward to updating you on our progress ahead. We want to thank you all for joining us today.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.