Q2 2022 Ekso Bionics Holdings Inc Earnings Call
Hello, and welcome to the Exo Bionics Q2, 2022 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. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference.
Is being recorded its now my pleasure to turn the call over to David Carey. Please go ahead. Thank.
Thank you operator, and thank you all for participating in today's call.
Joining me from extra Bionics are Stephen Chairman, Chairman and Chief Executive Officer, Scott Davis, President and Chief operating Officer, and Jerome Wong interim Chief Financial Officer.
Earlier today, <unk> Bionics released financial results for the second quarter of 2022.
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.
So disclaims any intention or obligation, except as required by law to update or revise any financial or operational projections, our regulatory outlook or other forward looking statements whether it be kept their new information future events or otherwise, which speak only as of today July 28.
2022.
I will now turn the call over to <unk>, Chairman and CEO Steven Sugarman.
Thank you David.
Thank you to everyone for joining us today.
We achieved strong revenue growth in the second quarter, reflecting the continued execution by our team.
We are successfully raising awareness of the benefits that our innovative XO and our devices are bringing to patients.
This is resulting in strong demand with inpatient rehab.
Rehabilitation facilities to network operators.
And now with the recent clearance by the U S food and drug administration, giving us the ability to market X O N or are they.
It used with M. S patients, we are poised to help a significantly larger patient population.
Oh extra works business continues to build momentum with large key customers as they more clearly understand the overhead productivity and safety benefits that our XO E D O devices deliberate.
We expect this segment to be a thing that they can contributor to outgrowth in the future.
Financially we are in a solid cash position a dedicated team of professionals that constantly improving efficiencies.
Our commercial team is deepening customer relationships and management team is motivated by a core responsibility, which is to maximize shareholder value.
Now I will turn the call over to our President and Chief Operating Officer, Scott Davis.
Thank you Steven Exo.
<unk> bionics generated strong revenue growth in the second quarter, reflecting the continued positive traction we are making with network operators.
This momentum resulted in year over year revenue growth of 57% led by our XO health segment, which delivered $3 $2 million of revenue.
We achieved a couple of major company milestone this quarter.
First we delivered on the largest order in <unk> history. This multi unit order was comprised entirely of capital purchases.
I'm proud of this accomplishment and believe that highlights our commercial team's effort to engage with large network operators, who are now choosing to make extra when are their standard of care and neurological rehabilitation.
Second as Stephen just mentioned the F. D. A five 10-K clearance to market <unk> for use with MF patients not only gets more patients in need the opportunity to rehab using our leading exoskeleton devices.
But it also meaningfully expands our total addressable market.
I'll touch more on this in a moment.
Turning back to our performance for the quarter.
We booked 17, XO and our units the majority of which were capital purchases.
Demand continues to improve as capital budgets previously restricted by Covid are opening up.
Our cumulative conversion and renewal rates remained strong at 82% was approximately $1 $9 million of contracted unrecognized revenue under our subscription model and.
Additionally, we have witnessed an encouraging trend whereby our customers are increasingly committing to multi year subscription agreements.
Which indicates their confidence in the value proposition of the XO and our.
For example of Ara Mckinnon network, operator in Sioux Falls, South Dakota, and our first customer in the state recently secured a multiyear XO and our subscription.
In the international market. We're pleased to have recorded a strong bookings quarter, particularly in Europe . The strength in Europe underscores our investment and lucrative indirect partnerships in that region and APAC, we generated a solid number of bookings as well adding to our optimism.
We continue to see these regions as important growth drivers in the years to come.
Now for a discussion on the FDA clearance of the extra ONR for multiple sclerosis indication and what it means for MF patients and our business.
So in our as the first exoskeleton device to receive FDA clearance for rehabilitation use in patients with M. S.
With this we are excited to bring our device to a broad group of patients in need.
According to the National M. S Society, there are nearly 1 million people in the U S living with M S and more than $2 8 million globally.
Every five minutes someone who is diagnosed with MFS nowadays.
Now these patients will have access to a wearable robotic device potentially improving their mobility and supporting them and their rehabilitation.
I'd like to share a story of how a patient with M. S benefited from an extra when our from the Kessler Foundation one of the facilities that provided data to help US received this clearance Isle.
Santayana was diagnosed with M S in 2006.
And as the progression of the disease worsened it impacted her ability to walk.
Tyler joined a novel pilot study led by Dr. Guys on draws at the Kessler Foundation evaluating robotic exoskeleton training and M. S. Using extra ONR as part of the eight week study pilot learned how to balance standup straight and improve our posture and gait mechanics at the end of the eight week training session Pilar.
Ted.
What I had done with the exoskeleton three months of physical therapy could never do.
Doctor in Dallas was quoted as saying initial findings suggest that robotic exoskeleton training to proves mobility in cognition and they play an important role in the future rehabilitative care for people with M. S.
We're proud of pilots progress and hope to see many more success stories like hers.
Turning to an update on the progress with our industrial segment extra works.
We're making inroads with several large customers with sizable employee head counts, who can benefit from significant workplace productivity and safety features that Evo provides.
We continued to see demand primarily emerging in the automotive aerospace and solar energy verticals.
Our current strategy is geared towards developing larger customers, which can result in a longer sales cycle like it did this quarter.
For the second quarter extra works delivered approximately $237000 of revenue.
As construction general manufacturing and Green energy ramps up across the country. We've.
We remain committed to educating and expanding customer access of evo to a wider number of industrial verticals.
As previously mentioned our target industrial verticals represent a vast addressable market opportunity of approximately $5 billion.
Moving forward our commercial team is focused on building customer awareness and engagement to ensure the success and safety of our customers workforce.
Okay.
I'd like to take a moment to comment on the challenges associated with the global supply chain and our plans to mitigate its effect on our business.
Like so many other businesses were not immune to the tight supply market. Our devices are comprised of more than 600 unique components.
As discussed earlier, we are pleased with a healthy demand environment. However, with that comes a greater need for supplies, resulting in manufacturing pressures.
To ensure that we can fulfill current and future orders in a timely manner. We made the decision to order parts well in advance when we would ordinarily do so.
This has led to an increase in our use of cash.
And when combined with inflationary pressures can impact our gross margins.
Nevertheless, we are well financed and well prepared to navigate through the current market environment.
We have we have an experienced team of professionals, managing our business, allowing us to prudently manage our expenses and limit our cash burn.
Finally, I'd like to briefly highlight a corporate update.
Currently in the process of moving our headquarters across the San Francisco Bay.
To a new facility and Sandra fell in Orange County.
Our new headquarters aligns with our current management administrative and manufacturing needs. We expect to complete this move during the third quarter.
Looking ahead to the second half of the year, our outlook remains that of cautious optimism.
Driven by the strength of our commercial team we are increasingly encouraged by the progress of our growing customer engagement level levels and international opportunities.
Our innovative wearable exoskeletons are among the most studied exoskeleton devices in the industry.
With more than 180 unique publications demonstrating significantly improve patient outcomes.
Now with the extra ONR, receiving FDA clearance for M S.
We're excited to bring our game changing solutions to a greater number of patients who are in need.
Before turning the call over to drum Wang who will discuss our second quarter 2022 financial results I'd like to recognize his recent appointment as our interim CFO .
Jerome has served as the company's controller since May 2017, and brings more than 20 years of experience in finance accounting and strategy to this role his knowledge of our finance and accounting controls enables a seamless transition.
Now I'd like to turn the call over to Jerome.
Thank you for those kind words, Scott now onto a summary of our second quarter 2022 financial results.
<unk> generated second quarter, 2022 revenue of $3 $5 million compared to $2 $2 million for the second quarter of 2021, an increase of 57%. This.
This increase in revenue was primarily driven by an increase in the volume of excellent NR device sales our gross profit for the second quarter was $1.6 million, representing a gross margin of approximately 47% compared to a gross margin of 58% for the same period in 2021.
Raul decrease in gross margin was primarily due to the increase in Exo health service and inventory costs due to the continued global supply shortage, partially offset by a favorable change in product mix. As we noted on previous calls gross margin tends to fluctuate from quarter to quarter based on channel and product mix as was the.
Case this quarter.
Operating expense for the second quarter of 2022, or $4 9 million compared to $4 $6 million for the second quarter of 2021 during.
During the second quarter of 2022, the company incurred increased expenses related to increased sales and marketing activities and higher research and development expenses due to sustaining engineering activity for the excellent NR and the development of next generation products.
Net operating loss in the second quarter of 2022 was $3 $2 million compared with a net operating loss of $3 $3 million in the prior year period.
Gain on warrant liabilities for the quarter ended June 32022 associated with the revaluation of warrants issued in 2019, 'twenty 2020 'twenty, one was $1 million compared with a gain of $9 million due to the revaluation of warrants issued in 2019, 'twenty 'twenty and 2021 for the same period in 2020.
One.
Turning to our 2022 first half results revenue increased $1 9 million or 46% to $6 million for the six months ended June 30th 2022, compared to $4 $1 million in the same period of 2021. The increase in revenue was primarily driven by an increase in the fall.
Up XO and our device sales and the recognition of previously deferred prepaid royalties associated with our license and distribution agreement that expired.
Gross profit for the six months ended June 32022 was approximately $2 $9 million, representing a gross margin of approximately 47% compared to a gross profit of $2 $5 million for the same period in 2021, representing a gross margin of 61%.
Operating expenses for the six months is 2022 were $10 $3 million compared to $9 million for the same period in 2021.
During the first half of 2022, the company incurred increased general and administrative expenses, primarily due to non cash stock based compensation and severance expense and higher research and development expenses due to an increase in product development activities.
Net operating loss in the first half of 2022, what some point $5 million compared with $6 $5 million for the comparable period in 2021.
Gain on warrant liabilities for each of the first half of 2022 and 2021 was <unk> $9 million in each case from the revaluation of warrants issued in 2019, 'twenty 'twenty and 2021.
Cash used in operating activities in the first half of 2022 was $8 $5 million.
As of June 30th 2022 the company had a strong cash balance of $31.5 million.
Please see our 10-Q filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.
Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.
Before pressing star one one moment. Please while we poll for questions. Our first question today is coming from RK from H C. Wainwright. Your line is now live.
Thank you good afternoon.
Scott and Steven and Jerome Okay.
Okay, I've got a couple of them.
All right.
Quick questions from me.
And it's great to see that most of your sales came from the.
Multiyear subscription.
So.
So in terms of I've.
I've been taught in multi unit orders so in terms of that.
The 17 units that go out so I'm going to Miss him.
Can you give us a little bit more color on that and also.
Then when you start doing.
Child's with some of these potential clients you know do you.
Now gravitate more towards the Multiunit dogs.
Clients are you know you're right.
And to be agnostic at this point.
Okay.
Okay.
Okay. Thank you for your question. So really two part question you know talking about the 17 bookings.
That were that were made in a in the quarter and all of those bookings we had a mix.
Of both.
Capital S.
As well as subscription 11 of those.
Oh, I'm, sorry, five five of those being five of those being subscription and the balance.
Being a capital.
Of that.
The orders that we had.
In terms of.
Selling into Ibms are relative to some of the smaller clinics that are out there. Our sales team is really has a focus and with focused sales professionals that are targeting.
The larger idms and <unk> and then also the large slightly larger regional ideas.
But we still have a sales focus on some of the smaller.
Some of the smaller clinics as well we have a portion of our sales team that is continues to work and with those.
Network providers with reserves.
So, but if you look at the bulk of what we're really working on is really the larger.
The larger customers and that is absolutely paying off as we've seen a significant increase.
Over the years and in sales to those larger idms.
From 2019, and 20 somewhere around 30%.
Of sales and now upward of 70 in 2021 and 2022.
Perfect and then.
<unk> said in ex U S, especially in APAC, you had solid number so I would like to understand what the solid number means.
Yeah.
Okay. So you know in.
And in APAC.
We had to.
To bookings that were in in Hong Kong.
And in Europe .
Europe .
We had eight.
Total AR.
Bookings that were capital and driven through distribution.
Uh huh.
In that market. This this quarter.
All of them were actually through distribution in Europe .
Perfect.
And then.
In terms of.
No.
Multiple multiple ear subscription.
And you said that there is increasingly more interested in having a multiyear subscriptions.
Obviously, it's good news on one end and on.
The other side.
How are you set up in a sense.
What is a multi year or is it more than two years and if so.
Is that a clause us too.
Our conversion to a capital purchase at the end of <unk>.
The second I'm, sorry, do you have what I would say at that time.
Sure Great question in general when we talk about a multiyear subscription we're selling 24 month subscription.
Within our within our program tips.
Typically if it's reaching beyond that we would consider capital procurement options, whether through direct capital purchase or through a capital lease.
For the customer 24 months Uh huh.
It has.
The part of the reason for that is as our as clinics are rolling out a new programs with XO.
We want to give them sufficient time to.
<unk>.
Really realize the benefits of implementing a neuro rehab program using the XO and are and what we found as you know within a 12 month period certainly they can experience those benefits, but you know really takes you know.
18 months to really start to enjoy the benefits of that and and as a result.
We anticipate that driving you know.
We have customers, who will re subscribe at the end of that at the end of that term because they've had successful programs.
I think that I'm, then going to the new indication and mass.
You know you gave us the number of patients on them.
In terms of annual incidents, but what's the what is the real market opportunity for you in terms of rehab.
Hum and then when your commercial.
Folks go out there it was just that a different call point.
Jim.
Do you have mutation.
Honda Sport.
So come the other patients along with them I saw two different places that they need to go into.
Yeah, Great. Great question, we are very excited over our M S.
Indication largely because we can we can help an entirely new segment of patients.
Patients with these with these great outcomes one of the things that's quite different about about an Ms patient relative to some of the other neuro patients that we have with you know with Sci or acquired brain injury.
Is that you know these.
These patients.
We will have a.
Simulation of sort of degradation over you know over the period of having there.
Hum.
This disease so.
We are we like to say that you know with with XO.
Patients walk out of an XO and with with M. S. A this is something that can be used as a treatment to.
Prolong and preserve their health and fight against this this this.
Illness, and give them all to help benefits from that to that and yes. There's a there's a large addressable market that exists for this there is crossover for.
For some patients who have a you know a.
Acute spells of this certainly inpatient rehabilitation is a is an area that they would use it but this expands our reach into outpatient rehabilitation.
We have a crossover into outpatient right now, but this is a effectively bringing us down the continuum of care into a into outpatient as well.
Alright good.
And then my last question here before that folks can jump in.
On the supply chain I know it used to.
<unk> talked about this during the last quarter call.
And it looks like you have a handle on this on this right now.
What is the status and I in terms of managing the supply chain and I also see that they are in one place number has gone up.
Quite a bit more like a 50%.
And then last quarter.
I'm done than dissimilar either so.
Does that mean over time.
You know your gross margin should improve because some of it is in one case that are that are currently on books.
Yes.
That's correct as we've talked about for the last couple of quarters.
Supply chain challenges have have been just something that's been plaguing, not only us, but but but everybody.
Anyone who is dealing with a circuit boards or even mechanical parts. Its been a its been challenging. So we we did place orders much more aggressively than we ordinarily would have.
To ensure that we maintain the supplies necessary to meet our growing demand as you can see the inventory. The result of that is that our our inventory is up and yes of course. It also is having an impact on on margins. So what we expect over time.
As we've gotten ahead of this and assuming at least consistency and no further degradation in the in the supply chain environment.
We expect that overtime that will begin to normalize.
And we are obviously looking for ways to improve those costs as we move through the crisis and get us back to.
Margin position that is a more along with what we expect.
Thank you thanks for taking all my questions.
Thank you RK.
Thank you. Our next question is coming from Kyle Bowser from Lake Street Capital. Your line is now live.
Great. Thanks, Stephen Scott in your own for all the updates here and congrats on a really strong quarter, maybe I'll follow up.
On the M S opportunity and sorry, if I missed this stat, but can.
Can you talk just a little bit more about maybe the broader opportunity as you kind of outlined it in terms of incidents, but also prevalence I mean is there an opportunity to treat the prevalence pool here.
And and and then separately you know.
If that's the broader opportunity in your assessment, what would be kind of.
This smaller more focused near term opportunity, whether that's in terms of number of patients or facilities just kind of curious.
How you plan on kind of attacking that opportunity.
Sure understood and.
So.
Okay.
Using XO NR for MFS is not.
A new thing.
You know we've had.
Our customers and researchers.
Using the product for that purpose sort of out of band.
Historically, what the.
New MF indication gives us is the ability to market. This.
And so what that means is we can go back into our existing customers that we have and we've already started this with our sales and our and our clinical teams to go back into our existing customers and let them know about the the great potential outcomes.
That they can have with with MFS Ah Ah patients. So near term you know this is a this is something that we're doing.
It's just getting the word out to to our existing customers.
As we move a little bit further out again this expands our reach into a broader continuum of care.
And allows us to knock on the doors of some of the outpatient facilities as well as this.
Better aligns with their patient population.
So it's a you know from a.
You know Resourcing perspective, you know one of the strengths that our XO has is our great commercial.
Commercial team, including ourselves and our and our clinical teams are.
And as well as our marketing team and we are basically leveraging those teams in and and getting them out there to be able to spread the good word of of how we can help more patients.
Oh got it appreciate that and then maybe following up on that now that you are able to market. This on label.
It sounds like you've already kind of deployed.
Marketing and commercialization resources towards this.
So I guess.
Question is in terms of opex and incremental overhead and potentially changing any sort of marketing strategy. How should we think about kind of the run rate of SG&A.
Going for forward for the balance of the year.
You know, we don't anticipate any changes relative to this indication we've.
We've anticipated this for some time.
Sure.
Got it and then just lastly housekeeping.
If it's handy, what what was depreciation and stock comp in the quarter second back into EBITDA. Thank you.
One moment.
Yeah.
You are just digging up the detail on that right.
Now one moment.
Okay.
Yeah.
And then maybe while we're digging that up.
Scott just lastly in terms of.
The new headquarters.
Sorry, what did you say about Q3, I mean that.
Maybe you could just outline briefly again the timing of that.
Sure. So our timing so we we have been in a long term lease over here and in Richmond, and he had a rather interesting and sizable facility and we are extremely excited over finding our new location in Sandra.
Well. So we're enrichment currently Sandra felt is just over the Richmond Bridge I'm not not far from where we are we went from one side of the bay to the other side of the bay over in Marine County, So the.
The facility is is right sized for our for our organization. It just fits our needs.
Much better than the than the facility that we've been in and on top of all that our it represents a savings.
To us yet.
You know as well so.
It's a positive it's a positive move for us, but we are making this relocation and we're doing this.
In Q3.
So it will be it will be officially in.
But before the end of Q3.
Does that answer your question Kyle that's perfect. Thank you.
Okay and now back to your depreciation question Jerome.
And can answer this so depreciation is about 125000.
And then stock comp.
Was 519.
It's all for Q2.
Yeah.
Excellent.
Okay, great. Thanks, guys for all the updates and congrats on the quarter.
Yeah. We appreciate it thank you.
Thank you we reached end of our question and answer session I would like to turn the floor back over to Scott for any further or closing comments.
Thank you, Kevin and thanks to everyone for joining US today, we're thrilled with the progress the milestone achievement in our second quarter.
Highlighting by the largest multi unit capital purchase order in our company's history.
Pleased to have accelerated our revenue growth in the quarter. Additionally, receiving five 10-K clearance from the FDA to market, our XO and <unk> for use in patients with Ms.
Not only gives us a greater pool of patient access to access.
But it allows them to.
I have this as part of their rehabilitative solutions.
And it also significantly expands our market opportunity.
Underscoring our success is our ability to execute under difficult market challenges continue to impact the broader macro market.
We're doing this for the patients.
Desperately need treatment options and are pleased that we've developed that we have helped elevate the standard of care for neuro rehabilitation.
Strengthening relationships with top network operators, we are generating more multi unit deliveries.
Yield is a stronger pipeline to support our future growth can.
Combined with deeper customer relationships across a variety of industrial verticals for Evo.
And proactive management of supply chain constraints.
We are poised to sustain our momentum through the second half of 2022 and beyond.
In closing I'd like to express my gratitude to the entire exo team and our valued shareholders. We look forward to providing additional updates throughout the year. Thank you all and have a great day.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.