Q4 2022 Ekso Bionics Holdings Inc Earnings Call
Greetings and welcome to the <unk> Bionics fourth quarter 2022 financial results Conference call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad and as a reminder, this conference is being recorded it is now my pleasure to introduce your host Matt Steinberg with Finn partners.
Matt you may begin.
Thank you operator, and thank you all for participating in today's call.
Joining me from Exo Bionics are Scott Davis, Chief Executive Officer, Jerome Wong, Chief Financial Officer, and Jason Jones, Chief Operating Officer.
Earlier today, <unk> Bionics released financial results for the quarter and year ended December 31st 2022.
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 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.
These 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 and future financial or operating expectations or our expectations on 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.
And so disclaims any obligation except as required by law to update or revise any financial or operating operational projections, it's regulatory outlook or other forward looking statements, whether because of new information future events or otherwise. This conference call contains time sensitive.
Formation is accurate only as of the broadcast today March 28 2023.
I will now turn the call over to Exo Biotics, Chief Executive Officer, Scott Davis.
Thank you Matt.
We're pleased to have officially closed 2022 with continued solid demand for XO and art.
And the completion of our most significant transaction to date the acquisition of human motion and control business unit or H M. C from Parker Hannifin the.
The importance of this acquisition cannot be understated as it expands our product offering across the continuum of care to home and community use markets.
This is also why we are announcing our Q4 and 2022 financial results weeks later than usual as is often typical of matters involving business combinations.
I will touch on this deal in more detail shortly including what it means for our business and the value, we're bringing to customers and patients.
The first a summary of our fourth quarter business performance, we generated revenue of $3 $6 million in the fourth quarter, which included bookings totaling 27, XO health devices of which two were indigo devices that were booked in the last few weeks of December post close of the acquisition.
Throughout our XO Health segment, we continued to leverage our advanced robotic exoskeleton technology and rehabilitative programs to help patients on the road to recovery and improved health.
With better outcomes than the current standard of care in.
In 2022, we successfully executed on our commercial strategy, resulting in the placement of substantial of substantial volumes of additional devices within network operators globally and the completion of many multi unit orders both of which contributed to it to drive a solid year for XO in our bookings and record revenue internationally.
Holly.
With exo and are receiving FDA clearance for the multiple sclerosis indication.
First known exoskeleton device to carry this designation for rehabilitative use in patients suffering from MFS enthusiasm for XO and <unk> continues to grow.
Demand and order flow for XO, and our remained robust with revenue and our XO health segment up by more than 20% compared to 2021.
Overall for the year, we recorded 100, XO health device bookings, our cumulative conversion and renewal rate is 81% and we now have more than $2.2 million of contracted unrecognized revenue under our subscription model.
Furthermore, we have made significant inroads with many of the large network operators or <unk> throughout the year as they continued to make exo and all are the standard of care in lower extremity neurological rehabilitation.
Our pipeline of new opportunities remains strong, although due to more challenging economic and market conditions. The sales timeline is taking longer than in previous quarters.
Nevertheless, we remain bullish on our future growth prospects are integrated sales and marketing teams are executing on our overall commercial strategy, putting us in what we believe to be a favorable position heading into 2023.
On the international front, we achieved record annual revenue performance in Europe , and APAC with APAC growing more than 60% year over year.
We're excited by this increase and we'll continue to invest in our international footprint to support ongoing growth in these regions.
Now turning to our acquisition of the HFC business from Parker Hannifin.
Which is synergistic and broadens our product portfolio and commercial health and expands our reach into home use.
These products acquired include Indigo therapy, and indigo personal now renamed ex owing to go therapy and ex owing to go personal both devices are FDA cleared lower limb powered exoskeleton, which enabled task specific over ground gait training to patients with weakness of paralysis in their lower extremities.
And so indigo personal is a lightweight exoskeleton safe for use and most home and community environments.
Only known exoskeleton to offer a modular quick connect design, which allows the portability and for users to put on and take off the device without assistance.
This device allows for gating paired individuals' to stand and walk again granting them a new level of independence at home and in the community.
Excellent Indigo personal is primarily sold to veterans by using existing reimbursement and rehabilitation programs to support it through the Veterans Association.
But it's also been funded through workman's compensation and various international programs. We believe there are future opportunities to expand to more traditional reimbursement programs, both domestically and internationally.
XO Indigo therapy is an adjustable modular exoskeleton used primarily for patients with spinal cord injury, but also stroke complementing <unk> product offering in outpatient facilities.
It can be finished most patients in minutes, providing the potential for high dose therapy sessions that further enhanced rehabilitation.
Last month, we showcased our new XO indigo therapy with functional electrical stimulation or Fas at the American physical therapy Association meeting and recently filed a premarket notification 500 10-K with the U S food and drug administration that covers. The addition of integrated hardware and software to XO and they go therapy.
This added technology brings forth further patient benefits, allowing for improved limb function balanced and muscle strength.
Through this acquisition.
So out of the ongoing development of intelligent robotic assisted technology designed for.
Use in the orthotic in prostate or O N P industry.
This potential technology is being designed to enhance the capabilities of existing industry, leading knee ankle foot orthosis or cable products to improve the standard of care.
This is a large and accessible market with established reimbursement payment and channel models.
I was looking forward to continued development along this front.
Also along with these current and future products. This combination expands the current exo team to include the former employees of HFC comprised primarily of highly experienced engineering operations clinical and sales professionals.
Finally through this acquisition of XO has added strategic relationships with key commercial and research partners, including Vanderbilt University.
The collaboration with Vanderbilt is expected to provide a continued path for future research and product development.
This decade long partnership has yielded the successful team to go product line.
And as promised prospects for development for future innovations.
With <unk> core engineering staff and experience quality and operations team. We are thrilled to have joined forces with this elite academic partner to help power new product development.
To showcase the value and benefits of our newly integrated product line I'd like to share a story of a patient who regain mobility through the use of XO indigo personal.
Phil was initially diagnosed with spinal dependent moment tumors. Despite numerous treatments the tumors recurred four times, leaving him partially paralyzed from cervical vertebrae seven down.
Over 20 years of increase neuropathy, Phil explore different therapies and devices in an effort to maintain its mobility.
Eventually he was chosen to participate in the Va's exoskeleton evaluation program, where after exposure to multiple exoskeleton devices. He opted for a rehabilitation program utilizing XO indigo.
The extra when they go device helps fill with countless aspects of his daily life. For example, he no longer experiences severe physical challenges when scanning and his digestive processes are much improved quoting Phil.
On the physical improvements the indigo exoskeleton is giving me the confidence to try sports and social events that I would not have previously.
We are honored to see our products improving the lives of our patients firsthand and are very grateful to fill for sharing your story.
Turning to an update on our industrial segment extra works in.
In 2022 hour extra works business refocused its product offerings and go to market strategies temporarily re scaling our sales and marketing resources, while refocusing and refining our market approach to larger high volume customers.
We remain encouraged by the high level of engagement with our strategic targets and customers across the aerospace automotive manufacturing commercial construction and renewable energy verticals.
As to progress into 2023.
We look to expand upon the execution of these strategies set in motion in 2022.
And to continue to engage with potential industry partners.
Now I will turn the call over to Jason Jones, our new Chief operating officer to provide background on himself and an overview of the initiatives that have been working on to improve our efficiencies Jason.
Thank you Scott and thank you for having joined today's call.
Besides the stand my role to.
To include operations. In addition to product development and background I've been with access in 2018 previously serving as senior Vice President of product development. My goal as C. O O is to leverage my experience in engineering product development and supply chain management to build <unk> into a platform with a capacity to design produce and distribute.
And service a broader range of products.
By human motion and mobility.
Proving our operational efficiency is critical to enabling us to scale, our business, both organically and through strategic initiatives.
As I pay standpoint, or even acquisition of Indigo product line represents the next step and leading the way for patient rehabilitation.
While we are well on our way to successfully integrating the business. We are also using this as an opportunity to improve our upgrade systems and processes.
As one example, we now have a second R&D and manufacturing facility in Macedonia, Ohio. Currently we are using space provided by Parker Hannifin for continued operation we plan to move that facility to a separate nearby location within the next 12 to 16 months and are evaluating how to optimally utilize our Ohio pattern.
Additionally, as mentioned earlier, we are starting the process of combining our engineering and product development team.
Also working with Vanderbilt in an effort to align our technology innovation.
We believe the combined expertise of these teams are unmatched in the field of exoskeleton, R&D, which helped to further strengthen our position as industry leaders.
On the activewear side in 2022, and we began the process of adding a turn on manufacturing capability for our Evo product line and our contract manufacturing partner located in Malaysia.
I believe this will help us to expand capacity lower cost and improve quality.
Our current expectation is for production from Malaysia to begin in the first half of 2023.
Moving forward as part of our executive leadership team I am intent on ensuring the successful execution of our strategy and supporting our corporate development activities and look forward to contributing to the company's success.
At this time I'd like to turn the call over to our Chief Financial Officer, Carol Moore to review, our fourth quarter and full year financial results.
Thank you Jason <unk>.
<unk> generated fourth quarter, 2022 revenue of $3 $6 million compared to $4 $1 million for the fourth quarter of 2021.
Our gross profit for the fourth quarter was $1 $7 million, representing a gross margin of approximately 47% compared to a gross margin of 59% for the same period in 2021. The decrease in gross margin was primarily driven by an increase in service and supply chain costs elevated labor costs and lower average selling prices.
Of device sales due to sales channel mix.
Operating expenses for the fourth quarter of 2022 or $6 $1 million compared to $7 million for the fourth quarter of 2021, a 14% decrease was primarily due to lower legal and consulting expenses net operating loss in the fourth quarter of 2022 was $4 $4 million compared with a net operating loss of four points.
In the prior year period.
Gain on warrant liabilities for the quarter ended December 31, 2022 was <unk> 3 million from the revaluation of warrants issued in 2019, 'twenty 'twenty and 2021.
Compared to a $2 million gain.
Associated with the revaluation of warrants issued in 2019 2020 in 2021 for the same period in 2021.
Turning to our full year results for the year ended December 31, 2022 revenue increased by 15% to $12 9 million compared to $11 $2 million for the same period in 2021 revenue growth was primarily driven by an increase in the volume of XL and our device sales.
Gross profit for the full year ended December 31, 2022 was $6 $2 million, representing a gross margin of approximately 48% compared to a gross profit of $6 $7 million for the same period in 2021, representing a gross margin of 60%.
The decline in gross margin is primarily due to an increase in service and supply chain costs elevated labor costs and lower average selling prices of device sales due to the sales channel mix.
Operating expenses for the 2022 full year were $21.8 million compared with $26 million for the prior year period. The increase was primarily due to one time severance costs associated with management changes cost related to the relocation of our corporate headquarters and manufacturing facility in acquisition and operating costs of HFC.
These increases were partially offset by a decrease in legal and consulting expenses.
Net operating loss in the 2022 fiscal year was $15 $6 million compared with $13 8 million for the comparable period of 2021 for the year ended December 31, 2022, we recorded a gain on warrant liabilities of $1.3 million associated with the revaluation of warrants issued in 2019 2020.
<unk> and 2020, one compared to a $4 million gain associated with the revaluation of warrants issued in 2019 2020 in 2021 for the same period in 2021.
Okay.
Cash used in operating activities in the 2022 fiscal year $14 $7 million.
As of December 31, 2022, the company had a strong cash balance of $25 million. Please see our 10-K filed earlier today for further details regarding the quarter and full year. Operator, you may now open the line for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before.
This darkies.
One moment, while we poll for questions.
And the first question comes from the line of RK from H C. Wainwright. Please proceed with your question.
Yeah. Thank you good afternoon Scott.
Hi, RK.
So.
At the start of the call you said.
I think you said.
There are two indigo installs.
In the fourth quarter.
Is that part of the backlog that you received.
When when you went through the acquisition.
If that is true.
Backlog is out there now.
Going into 'twenty three.
So RK. Thank you for your question.
Those were not backlog units those were units that were actually.
Orders received.
In the last three weeks of December .
Post close so with the acquisition, we did not receive a backlog of orders.
However, we do have a strong pipeline.
Okay. Okay. That's good.
And then.
So for the entire business.
You're saying that the demand is robust.
The pipeline is strong but at the same time.
Youre, saying that lead time is becoming longer.
So I.
I don't know what how you define long and also is there a possibility of that.
No.
Yeah.
Some part of the backlog.
Well.
Because.
Oh, yeah, because if.
If the backlog becomes longer deal do you do.
Do you foresee any loss in terms of the demand as well because you know nobody wants to wait forever and I forget the product N.
Okay.
Understood. So in terms in terms of our our backlog I think as we came through 2022, we managed backlog.
Pretty well certainly as we as we push to the close of <unk>.
2022 so.
Generally speaking.
You know, we're not carrying a huge backlog of orders.
With us to answer the first part of your question, which is regarding the.
The lead time.
Generally speaking we are experiencing a slightly larger longer times to to close.
Maybe.
A couple of months generally speaking.
Anywhere from 30 to 60 days that we're seeing as we have seen more of our customers beginning to use some third party financing options that we offer and it simply takes a bit longer to work through that that process, but in general we have a strong pipeline going.
Forward.
And it looks good and Jason I would like to elaborate just a little bit RK. This is Jason Jones good to meet you.
Just to clarify on lead time, so our when we say lead times in this context I'm really talking about deal close time, our actual lead time on shipment is quite short usually I'm not going to say, it's immediate but it's.
It's between four and four and eight weeks, probably with where I would estimate it. So I don't think that once the order is in the lead times are pretty short I think Scott is referring to the to the deal cycle time as opposed to lead time for shipment.
Okay. Okay. Thanks for that and then the last question from me is now that you've ever had indigo for few months.
When do you think indigo.
Whether it be completely integrated with index of business such that.
You can actually start seeing the synergies not only on the sales end, but also on the operating it.
Okay.
Well I think that's a that's a two part question and from a sales and go to market standpoint.
The integration has been progressing quite well.
We have aligned our commercial team and.
We have great.
Synergies with that in many ways Xo's sales team all carry with them the.
The indigo.
Product line as well and we have a slightly different.
Method for sales methodology for selling the.
Personal unit that has also been aligned.
To work in conjunction with our with our sales team. So I would say that overall that side of the business and integration has been going very well there was a second part of the integration, which involves looking for synergies and operating and engineering and maybe Jason would be best to answer those yeah sure.
So.
Maybe just a quick update on integration so from a from a systems perspective, ERP and accounting systems. Those are fully integrated already so that integration is complete.
On the R&D side that we have a plan that includes integrating some systems. There that really is going to take through the remainder of the year. This year, it's kind of incremental and then the last area is kind of on pure operations manufacturing and supply chain. Those are separate functions today and I think that's a longer process because.
The business units are kind of operating as it has already but over the next maybe 12 to 18 months I think we'll probably see some more integration on the supply chain and operations side.
Thank you Bob Thank you for taking my question.
Thank you RK.
There are no further questions now I'd like to turn the floor back over to Scott Davis for any closing comments.
Alright, Thank you John and thanks to everyone for joining US today 2022 was a transformational year for <unk> bionics was highlighted by the successful acquisition of Indigo product line FDA clearance to market XO NR for rehabilitation use in patients with Ms and a strong number of XO health bookings.
The complementary acquisition of the HFC business was critical to our future growth principally as it expands our product offering across the continuum of care to home and community use markets. We can now reach more patients in need across the larger market opportunity.
We believe that the smooth integration of the HFC business combined with the continued strong demand for our industry leading products has.
As is well positioned to continue our momentum into 2023 and beyond.
We look forward to providing updates on our continued progress.
And have a great day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.
[music].