Q2 2023 ReWalk Robotics Ltd Earnings Call
[music].
Hello, and welcome to the Q2 2023 we walk Robotics Ltd earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions of course, a question your fresh stars and one on your Touchtone phone to withdraw your question. Please press Star then two.
Please note today's event is being recorded.
How much over to my call US Chief Financial Officer. Please go ahead.
Thank you Keith good morning, and welcome to rework Robotics second quarter 2023 earnings call.
Mike Wallace, we walk robotics, Chief Financial Officer, and with me on today's call is larger Lynskey Rewatched Chief Executive Officer.
Earlier. This morning, we walk issued a press release detailing financial results for the three and six months ended June 32023.
This release and a webcast of this call can be accessed through the Investor Relations section of the web three walk website at we walked dot com.
Before we get started I would like to remind everyone that on it.
Is that any statements made on today's call that express belief expectation projection forecast anticipation or intent regarding future events and the company's future performance may be considered forward looking statements within the meaning of the private Securities Litigation Reform Act. These forward looking statements are based on information available to reward management as of today.
And involve risks and uncertainties, including those noted in our press release and <unk> filings with the Securities and Exchange Commission.
Such forward looking statements are not guarantees of future performance actual results may differ materially from those projected in the forward looking statements. We work specifically disclaims any intent or obligation to update. These forward looking statements, whether as a result of new information future developments or otherwise except as required by law.
Play will be available shortly after the completion of the call accessible from the dial in information in today's press release.
The archived webcast will be available in the Investor Relations section of the company's web site.
For the benefit of anyone who's been gonna be listening to the replay or archived webcast. This call was held and recorded on August 11, 2023 since that date, we walk me. It made subsequent announcements related to the topics discussed. So please reference the company's most recent press releases and SEC filings for the most up to date information.
I'll turn the call over to <unk> CEO , Larry just escape thanks, Mike.
Welcome everyone and thank you for joining us today.
Q2, along with subsequent events was an excellent period for the company and specifically in regard to the milestones we have been pursuing.
In the last few weeks, we have hosted two public calls on the subject of the proposed Medicare rule that but formally defined a benefit category for personal exoskeletons.
They call on our pending acquisition of <unk>.
In parallel we achieved revenue guidance for the quarter.
And submitted 11, new <unk>.
Medicare claims in Q2 exceeding our original goal.
We believe these factors will continue to drive our business, allowing us to conserve capital in 2024, and 2025 and achieve profitability in 2026 relied solely on current cash reserves.
Though our call today is to report on financial performance and provide a business update on the second quarter of 2000, 2023, I'd be remiss, if I didn't start todays call revisiting our exciting and transformative acquisition of <unk> that was announced on August eight with closing planned for later today.
<unk> is a leader in transformative technology that empowers people to recover mobility improved wellness and enhanced physical performance.
The differential air pressure or D. E. P technology serves to reduce the effects of gravity allow movement in new ways with finely calibrated support and reduce pain.
We believe the technology is unique.
Well accepted replacement and over 4000 clinics around the world and has excellent growth potential to expand in a segment that is 40000 U S clinics, which can benefit from D. A pee technology.
<unk> stated strategy has for some time been and continues to be to add adjacent accretive technologies via acquisition and organic development.
So what was he can do is to increase our scale.
To build our strategic position in the clinic to expand our organizational skills and add depth for commercialization.
We believe the acquisition of Walter G with its patent patented NASA derived D E. P. Anti gravity system for use in physical and neuro Bill neurological rehabilitation is a prime example of executing on this strategy.
We believe the ultra G acquisition, Leverages, a shared market presence and creates efficiencies across all product lines.
Further we believe combining <unk> strong track record assets and skilled team with <unk> innovative leadership in exoskeleton technology and established infrastructure.
Create a formidable development.
Production and commercial enterprise poised to maximize the opportunity across the product portfolio and drive towards profitability.
Okay.
The addition of Charles Remsburg as our Chief sales officer is the right step in developing a large organization that is highly capable of capital equipment sales and placement of systems to those that come through the clinics to be trained on home systems.
Clearly you can tell we're very excited about this event and eager to update investors over the months ahead, as we buildup and realized benefit from our joint operations.
With that recap complete I will now provide a quick summary of figures from Q2.
Sales in Q2 were $1 3 million in line with prior financial guidance for 2023 are active case exoskeleton submissions are expected to convert to achieve year over year growth driven over the second half of 2023. This is spread over the V a Germany and the U S.
The revenue contribution for the addition of the Ultra G. Anti gravity systems is also expected to be added once that transaction closes.
Expenses were also in line with internal expectations and excluding the expenses related to acquisition activity declined by $300000 from Q2, Mike will address this further in the financial results section.
Our efforts with the center for Medicare and Medicare services CMS to expand the access of Exoskeletons to Medicare beneficiaries is a key element of our strategic path and will be we believe a defining point for the exoskeleton industry.
The process with the proposed rule to codify the definition of brace to include personal exoskeletons.
Is it a public comment period until August 29.
A final rule will be developed from the base proposal and the comments provided.
This final rule is expected to be issued in the November December cycle and become effective January 1st 2024.
Parallel considerations on price should occur in hick picks process with a proposed price in late 2023. They may have a public common period to follow.
Finalization may occur in early 2024.
After several years of effort a code.
A benefit category and a price point are the foundation to facilitating Medicare beneficiaries access to Exoskeletons.
<unk> is highly supportive of the CMS proposed rule and we are working extensively to support this process.
The placing of 11 CMS beneficiary claims during Q2 and continuing submissions during Q3 and Q4 supports our target to place at least 35 submissions during 2023.
Creating a repeatable process to secure payment for the rework device for Medicare beneficiaries is an essential priority.
The Medicare Sci population is the largest population segment of individuals', who could benefit from this technology and therefore, our single largest potential market segment in our single largest potential market the United States.
I am confident that our efforts will positively shape the industry in the long term.
I'd now like to turn the call over to Mike for a review of financial details Mike.
Thanks, Larry.
We won't robotics reported revenue $1.3 million in the second quarter of 2023 down <unk> 2 million or 15% compared to $1 6 million in the second quarter of 2022.
This was in line with our guidance from the prior quarter's earnings call for.
For the six months ended June 30, we reported revenue of $2 $6 million compared to $2 4 million for the six months ended June 32022.
Zero point $2 million or 8%.
The decrease in revenue as compared to Q2 2022 for.
For the second quarter was a result of continued success exoskeleton sales performance in Germany, while the U S. Extra Skelton revenue was down slightly from the prior year's quarter, our distributed product line. The <unk> F. E. S training cycles had another strong quarter with revenue of over $500000.
Up 60% from Q2 2022.
The success of our sales effort around mile cycles is validation of our strategy to build a portfolio of complementary products that we can provide to our customers.
Turning to our pipeline metrics within the correct within the current market for reward product line. The excuse me for the <unk> product line.
Which includes individuals' covered by the veterans administration and workers' compensation insurance in the U S and by private insurance in Germany. The current pipeline of active rentals consists of 22 cases up four from last quarter, which is broken down with 18 in Germany and for VA rentals.
Our overall number of cases in process is 70 with 56 in Germany and four in the U S.
As a reminder, these pipeline figures do not include cases that would be eligible for Medicare reimbursement, if our if our progress with CMS successfully resulted in the establishment of an acceptable reimbursement mechanism in payment rate. Then we can supplement the pipeline totals with our list of already identified Medicare eligible patients.
Moving to gross profit in Q2 2023, our gross profit was zero point $6 million or <unk> 43, 1% of revenue down four four percentage points as compared to <unk> 7 million or 47, 5% of revenue in Q2 2022.
This decrease in gross margin was primarily driven by lower exoskeleton volumes.
Operating expenses in Q2, 2023 were $5 $7 million up 0.6 million or 12% compared to $5 1 million in Q2 2022 within the functions R&D spending decreased zero point $1 million or 15%, primarily due to lower spending on subcontractors and consultants due to the <unk>.
Completion of the <unk> project in the U S and the lower spend on the <unk> seven projects. Since we are in the final stages towards FDA submission.
Selling and marketing expenses increased <unk> 2 million or 7%, primarily due to higher consulting fees associated with CMS reimbursement related activity and trade show expenses.
General and administration expenses were.
0.6 million excuse me increased <unk> 6 million or 33% due to higher professional services fees related to acquisition activity. Excluding the M&A transaction related expenses G&A expenses would've been $1 5 million down zero point $3 million or 16%.
The M&A transaction, we expenses consisted of legal accounting and investment banking fees that were incurred during Q2 2023, we will incur additional transaction fees in Q3 for the due diligence and transaction processing work that continued into the current quarter.
Our operating loss for the second quarter of 2023 was $5 2 million compared to an operating loss of $4 4 million in the second quarter of 2022.
Excluding the M&A transaction related expenses, the operating loss was $4 3 million or <unk>, where a 0.1 million dollar improvement versus <unk> versus Q2 2022.
I'd like to point out that we generated $558000 of financial income in Q2.
The favorable increase in income as a result of a more aggressive yet prudent cash management policies that resulted in higher interest income.
Higher interest income contribution from our cash balance.
We ended the quarter with $58 2 million in cash and equivalents and no debt.
Our operating cash usage in Q2 was $3 $5 million.
And for the first half of 2023, it was $8 $7 million.
During Q2, we repurchased approximately $359000 to 359000 reward ordinary shares and spent $220000 in cash for these repurchases.
You may recall in February the Israeli court approved the second six months period for us to repurchase shares under our repurchase program.
This six month authorization ended on August 9th we will evaluate use of our capital for share repurchases versus other investments. If we decided the share repurchases is the best use of our capital and we will seek another six month extension.
As we announced a few days ago, we walk entered into an agreement to acquire ultra G for $19 million.
Adjusted for transaction expenses, working capital indebtedness and cash on hand, with the potential for to earn out payments over the next two years based on the year over year growth that is achieved for the ultra <unk> business.
This transaction is expected to close later today.
Accordingly, <unk> financial results for Q3 would include the financial performance of Ultra G. Starting from August 11 through the end of the quarter.
With that I'd like to turn the call back to Larry for further remarks.
Thank you Mike.
We laid out our goals for 2023 at the start of the year and I'll provide progress on each of them after each quarter.
To restate the goals to achieve sales growth via our workers' compensation MBA activity, along with adding more contracts and insurers in Germany, and two to expand our portfolio of products through distribution agreements or product line acquisition.
And third to leverage these activities to move towards breakeven profitable operations with current capital.
We have made substantial progress on all three objectives.
For 2020 to revenue, we anticipate year over year sales growth with our existing mines as Germany has increased their leads and increase their submissions in the first half of the year to support growth in the second half.
And as the VA has opened up more facilities to candidate referrals and extra Telegent training, we expect to approximately double the number of exoskeleton placements from five to 10 or more veterans year over year.
We see potential upside with the CMS Max case submissions if they are paid in part in 2023.
After the closing of <unk>, we would also add four five months of anti gravity systems sales with the LPG lines to add to the 2023 results.
For our objective of growing our portfolio the acquisition of Walter G will add three new complementary products.
And the via fit and pro anti gravity systems.
He is broadly used and well accepted products grew at a CAGR of 10% for 10 years pre COVID-19 and can continue to expand penetration into clinics with current and upcoming new designs.
We're leveraging growth in expenses to reach breakeven on current capital the progress with CMS is a key driver as we seek to advance from approximately 40 exoskeletons per units per year to hundreds once available to Medicare beneficiaries.
We believe that the parallel addition of an established growing and profitable line of D. E. P products with the Altra Hugh programs systems.
We will also drive a reduction in burn rate in 2024, and 2025 and lead to profitability with a workable cash balance if we execute on our goals.
I also wish to thank our existing shareholder base and the new shareholders that have recently joined us for their commitment and supporting these life changing technologies as we expand this business in 2023 and 2024.
I look forward to providing further updates each quarter and through communication of each milestone as it is achieved.
Now I'd like to answer any questions you may have.
Yes. Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing their case to withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble the roster.
Uh huh.
And the first question comes from swine bump because a lot of them are half from H C. Wainwright.
Thank you.
This is RK from H C Wainwright, good morning, Larry and Mike.
Hum.
Yeah.
Yeah, I would just say that even though when you get the best category.
Yes.
So it's kind of debts, including the work.
Yeah.
In the November timeframe.
In terms of the hix fixed cord.
Yeah What war.
Would that change the category up and expects cord.
And what's sort of the benefit.
This expected out of that.
Well the.
There are three components, there's a code in which they apply the product and that is the K 1071007 told that exist.
That does not change that is a created code for exoskeletons.
The defined.
In particular, the moonwalk product well.
Once you have a code you have to has to be applied to a benefit category in order to be paid for and that has been our GAAP. So what's going to come out of the rulemaking process as a defined benefit category.
Which is essentially exoskeletons within a existing category abrasives.
A challenge had been there was nowhere to put us because there was nothing even remotely like what we did the product is so innovative and different it didn't fit in the CMS system and that was the frustration that why we didn't have a category by changing the definition with this rulemaking into a new category.
Our newly defined category into an existing category. It will now be able to be paid for.
So that will go under that code. It now has a defined benefit category and the brace it's the rulemaking stays on track.
And then the price the <unk> process is the establishing the final price. So theres three stages to us here to work through first one's succeeded second one is defined now by CMS and don't do comments and the pricing one is the <unk> discussion, where we believe they will propose the price here.
At the November <unk> meeting and it may or May not go through a public comment period. If it goes through a public comment period of 60 days.
David and issue a final price after so.
We will have a benefit category, we believe in this calendar year November cycle.
We will have a pricing.
As proposed and issued somewhere between the end of this year and the end of first quarter next year is probably the best way I can definitively say it but.
The timelines are up to the CMS not up to us. So that's why I'm being a little cautious on was that a better explanation okay.
Yeah, Yeah, that's good.
So one.
You can imagine where I'm heading this question to him.
Just trying to understand one.
In November once you all given the bread category.
Do you still need to wait for the reimbursement dollar to be identified.
Before.
Before reimbursement stocks are asking us to get the category.
You know you can you can get reimbursed.
Well you were supposed to be able to get paid once you havent put.
Benefit category.
We need a price.
So our challenge is.
When CMS will have to decide what price they will use.
As the processes of the Max So one of the reasons. We have filed the 11 claims in Q2 and put in 35 or more this year is they've got all these pending ones that will have met all the definitions and they'll either use the proposed price.
As a interim pricing or some other price that they can establish that in theory until there is a final approved price.
But once you have the benefit category, we've been met all requirements for it to be paid for.
They just didn't say how much yet.
That wasn't the clearest answer and Thats exactly the way I understand it.
I get it.
Yes.
So.
This leads me to the next question.
So the 11.
11th I have mentioned that you did in Q2 and expect to get there pretty quiet this year.
So it.
Is it is it really difficult for us to figure out what the lead time there'll be no because they still haven't identified.
In the process of items like that.
In Bozeman.
Amount.
Our days.
Is there any regulation that once they.
And they've taken their reimbursement.
Once you submit that as an expert at X amount of time by rent CMS has to reimburse.
There are timelines that they should be following and it will become repeatable.
Uh huh.
Our conservative approach has been even though we will have placed at least 35 products in this calendar year at the moment, we're still not planning on any revenue for them until early next year for some time. So we have a fairly large base of delivered products in the hands of people being trained.
That will get paid for at some point.
But we didn't put it in this calendar year.
Typically once the process is defined and is not a long process the submission.
It and training takes some time, but the actual cycle for payment is typically 30 to 60 days. The government is relatively good once they have a process in place.
So answering the timeline should not be extremely long once the process has established which is where we think we're going to be by Q1 next year.
Based on all the effort that has gone on with CMS and the feedback we've gotten.
Perfect.
So now switching gears to.
For the acquisition.
Hum.
Now, we know that Arthur J transaction potentially are going to complete.
It ended up today.
So.
In terms of I know you stated in your prepared remarks that you could expect the boats and four months worth of seven years from some Oh Gee.
Are you folks ready to.
Identify a dollar amount or is it too early.
To talk about.
What the upside is going to be on.
On the revenue side, and then in terms of synergies.
You know you can use it can you give us any.
Some sort of high level commentary as to what sort of synergies we could expect.
And Mike I'll, let you.
Start you can give some of the history of revenue and what our expectation what we how we think it'll develop yeah sure.
Yeah, Okay. So that.
The author G business it is.
For 2022 was a it was a $20 million revenue business.
[noise].
Yeah.
And growing.
We would expect I think for this for the current quarter for Q3 since its a partial quarter, we prefer not to provide revenue guidance, just what's roughly half a quarter's worth of revenue from them.
Obviously since it closes as we expect and in August 11 today.
You'll go on a going forward basis, when we had the benefit of putting the two management teams together and doing a quarterly forecast says as a team I think we will start to.
Consider and think about how we want to be able to provide guidance to the street. So.
The benefit of this transaction is that we will have a little bit more scale now more predictability and it'll be easier questions. Either we'll have more material to be able to forecast or are coming performance. So I think we can we can look to more more.
Definition around what what our guidance could be in future quarters, and I'll add a comment more from the way. We're managing this there has been extensive effort in the.
Pre closing integration process the sales team that has been predictable.
With Ultra G is in place and unchanged from after it closes. This afternoon till December 31. It is the exact same group that has been delivering their numbers for years. So there is completely unchanged next year, we will combine the sales forces and have a bigger one.
Go through some training and so that will get even more reps that can sell it.
But having the same team in place that makes us feel pretty good that they will be a continuous in the revenue results.
Great.
Also with this acquisition, because you're going to get additional points of contact.
Especially in the clinic, so what are your thoughts about <unk>.
Launching the clinic.
Walk.
Isabela.
Any commentary on cross selling some of the products that you sell in the clinic.
A clinic point of sale.
I think Mike and I, both give comments said also on the synergies for both the growth and expense, but from a strategic and going into the clinics with a much deeper and larger team that has established relationships is going to benefit us.
Most easily with a mile cycle product lines, because it's a very well established and designed clinical product.
With the rebar product line. The primary area. We see this really helping us is more of the clinician level because if we have CMS, we need these clinicians to write prescriptions for the right patients.
So we need the and this gives us a base to our synergistic approach is more towards selling personal units using those relationships.
Than anything else. So those are the strategic ways, we're approaching it.
Relative to the reward clinic model. It is not a large expectation here because most of the training is done in the unit that they're going to eventually take home.
As planned for this on a lump sum the clinic will use the product that they that fits that specific patient.
So we believe that will work well for it.
Perfect. Thank you. Thank you for taking all my questions.
Okay well.
There is two O at EM restore also is a product that we have not really been able to push them to clinic. So we will reignite some effort around that and you would ask a little bit on the synergy I gave you the revenue strategic synergy micro to comment a little on the expense side. Yeah. So yeah. So on the expense side as you can imagine there's there's some duplicate vendor.
And subscription costs and things like that which are.
We're gonna be working through and.
You're able to eliminate relatively quickly.
There's also the opportunity as we grow that both businesses is in their business plans had the need for future hires as we grew to support.
More of the resources.
In the larger businesses that we would have and because of the talent, we're bringing together theres the opportunity for us too.
To avoid those new hires because we are gaining some of those talents through the combination with with our our peer company. So.
Overtime, we expect to see annualized savings of about $1 million from this transaction.
Resulting from from the combination of those two fab.
Factors, but I would say that's that those are going to be things that phasing over time, and so I would expect it would within.
Within a year's time will be will be experiencing those million dollar savings.
Okay perfect. Thank you for taking walnuts.
Please go ahead.
Thank you and once again. Please press Star then one if you would like to ask a question.
All right as there is nothing else at the present time I would like to touch on a Florida management for any closing comments.
Thank you Keith and thank you everybody for joining us today.
We work today is a bigger better company.
That is better positioned to grow bigger.
Bigger and better because it's a combination of rewards and ultra G.
Simple addition is there but.
But also positioned to grow is because of the progress with CMS.
As we go here into Q4 are extreme highly high level of focus will be on integration.
We put an extensive amount of planning and detailed time on every step of the integration process pre closing.
Closing this we are very well prepared in the next few months will be a very significant period to effectively make this work by doing the integration process correctly and we understand the importance of that this is how you make these things work and work well and we have a team that's experienced in it and we also.
Have outside expertise that has helped us make sure. We are getting every detail right. So that that is a very important measurement for us and we're laser focused on it.
Second and we're just as focused on this is the CMS process is still in process. So we are highly active in working to provide support in the comment period, obviously with our own positive comments, because we believe CMS is going the right way in educating.
Our political leaders and educating.
The societies.
That would support this and encouraging them to also provide comment.
We are also working to provide support on pricing.
And why the pricing that we have established is the best for the industry. The best for the patient the best for the beneficiary.
And reasonably.
Established with what we already have with the VA and others. So there's a extensive amount of work in this quarter, which were.
Really excited about and be able to report on as we get to our next earnings call.
Thank you again for your time today.
Thank you that was about 10. This concludes our question and answer session and the call. Thank you for so much for attending today's presentation. You may now disconnect your lines.
Thank you.