Q2 2024 ReWalk Robotics Ltd Earnings Call
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Speaker Change: Good day and welcome to the second quarter 2024 LifeWord, Inc. earnings conference call. All participants will be in listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mike Lawless, Chief Financial Officer. Please go ahead.
Mike Lawless: Thank you, Megan. Good morning and welcome to LifeWorks' second quarter 2024 earnings call. I'm Mike Lawless, LifeWorks' Chief Financial Officer, and with me on today's call is Larry Jasinski, our Chief Executive Officer, and I'm Mal Ghadar, our Vice President of Finance.
Speaker Change: Earlier this morning, LifeWard issued a press release detailing financial results for the three and six months ended June 30, 2024. The press release and a webcast of this call can be accessed through the Investor Relations section of the LifeWard website at golifeward.com.
Speaker Change: Before we get started, I'd like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future events
Speaker Change: and the company's future performance may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Speaker Change: These four looking statements are based on information available to lifeboard management as of today and involve risks and uncertainties Including those noted in our press release and our filings with the SEC
Speaker Change: Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements.
Speaker Change: Lifert 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.
Speaker Change: A replay will be available shortly after the completion of the call, accessible from the dial-in information in today's press release.
Speaker Change: The archived webcast will be available in the investor relations section of our website.
Speaker Change: For the benefit of those who may be listening to the replay or the archived webcast, this call was held and recorded on August 15, 2024. Since that date, LifeWord may have made subsequent announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings.
Speaker Change: for the most up-to-date information. With that, I'll turn the call over to LifeWord CEO Larry Jasinski.
Larry Jasinski: Thank you, Mike.
Larry Jasinski: Welcome everybody and I appreciate your
Speaker Change: Q2 was entirely a proof-of-execution quarter.
Speaker Change: After years of strategic efforts to
Larry Jasinski: to build an infrastructure and scale to operate and essentially leading our company and our industry through a door that enables us to create an enduring operating entity, we are succeeding.
Larry Jasinski: Revenue has grown to $6.7 million in Q2, an increase of 402% over Q2 2023.
Larry Jasinski: We achieved record revenue with 20
Larry Jasinski: We have now received over $600,000 of our Medicare receivables as the payment system has started flowing.
Larry Jasinski: In the first half of 2024, we've sold more Relock systems than we have in any other prior full year.
Larry Jasinski: Our operating loss has stayed level year over year with a much larger commercial footprint in place this year.
Larry Jasinski: And multiple waves of cost efficiency will begin to flow into our expense results in the next few quarters to reduce our cash burn.
Larry Jasinski: Part 1, Revenue.
Larry Jasinski: Revenue was driven by the successful placement of the ReWalk systems and the addition of anti-gravity technology in Q2.
Lifert: The gate to Lifert's growth with simple
Lifert: We expect another record quarter for rewalking Q3 due to the successful efforts in advocating and establishing a government policy.
Lifert: The anti-gravity technology grew from improved execution as our newly combined sales team gained their footing over Q2 with a significant increase in deliveries.
Lifert: This segment also had some headwinds with high interest rates and consolidation of clinics which impacted the pace of altergy placements.
Lifert: Our new product, launched in June, is expected to increase our growth as it offers features at a price point that will allow more clinics access to this innovative technology.
Lifert: Part 2, Rewalk Record Placements and Payment
Speaker Change: A great first quarter, with 20 people gaining access to walking and everyday life once again.
Speaker Change: The infrastructure we established in working
Speaker Change: and has the capacity, is working and has the capacity to manage our growth targets.
Speaker Change: Examples of execution that are equally important to our achieved market access is that significant Medicare receivables were paid over the last few weeks.
Speaker Change: and that some of our most recent submissions have made progress from submission to payment in 45 days.
Speaker Change: The submissions prior to the final establishment of government policies are lagging but are in the process of getting paid.
Speaker Change: Part 3, Operating Loss Trajectory, is
Speaker Change: margin gains, and a series of operating their push to profitable breakeven operations.
Speaker Change: The combination of increased unit sales volumes
Speaker Change: an improved margin with a new neo-antigravity and operating changes made in late 2023 during 2024 and that will start in 2025, all are key elements in achieving lower operating costs while still growing the company overall.
Speaker Change: In summary,
Speaker Change: Q2 has proven our strategy has been well supported by our execution, following our achievement with Medicare policies as a part of our mission.
Speaker Change: We reaffirm our revenue guidance of $28 to $32 million for the year and believe our directional targets for real systems expansion in the coming years will be achieved.
Speaker Change: We continue to see a path with our models that get us to cash flow break-even and adequate working capital with our current cash.
Speaker Change: The rate of market growth and uptake is both our opportunity and our risk. I'd now like to turn the call over to Mike for more financial details. Mike?
Mike Lawless: Thank you, Larry. Before I review the financial results of the quarter, I want to remind everyone that our GAAP results for the three and six months ended June 30, 2024, contain financial elements that can obscure investors' visibility into the underlying operational performance of Lifeward.
Mike Lawless: In order to facilitate the understanding of both the GAAP results and the operational results of LIFEWORD, I'm going to discuss the results of the second quarter on both a standard GAAP basis as well as a non-GAAP basis, which excludes the items listed in the reconciliation tables provided in today's earnings release.
Mike Lawless: I encourage you to reference the gap results in the reconciliation tables as I discuss the financials.
Mike Lawless: Lightford reported revenue of 6.7 million in the second quarter compared to 1.3 million in the second quarter of 2023, up 5.4 million or approximately 400 percent.
Mike Lawless: Revenue from the sale of our traditional products and services, including ReWalk exoskeletons and myocycles, was $3.1 million in the second quarter of 2024.
Mike Lawless: of 1.8 million or 72% from the second quarter of 2023.
Mike Lawless: driven primarily by an increase in rewalk system revenue from the expansion of access through Medicare coverage.
Mike Lawless: Revenue from Alter-G products was 3.6 million in the second quarter, which was a sequential increase of 0.8 million from the first quarter of 2024.
Speaker Change: We're encouraged with the improvement of Altergy sales as compared to the first quarter and we expect further sequential improvement of revenue in the third and fourth quarters as our sales effectiveness continues to improve from the integration of our commercial resources.
Speaker Change: Our pipeline metrics continue to show healthy activity in the second quarter across our two major product lines.
Speaker Change: For Rewalk Systems, at the end of the second quarter, our overall number of Rewalk cases in process was 89, with 54 in Germany, consisting of 29 pending insurance claims and 25 court cases, and 35 in the U.S., many of which are for Medicare beneficiaries.
Speaker Change: The current pipeline of active rentals consists of 30 cases, which is broken down with 26 in Germany and four in the U.S. in VHA hospitals.
Speaker Change: For AlterG Systems, we ended the second quarter of 2024 with orders for 63 AlterG Systems in backlog.
Speaker Change: Subsequent to the end of the quarter, we saw a pickup in order activity, and our Alter-G backlog currently stands at 104 units, which represents orders that will ship primarily in either the third or the fourth quarter of this year.
Speaker Change: Gross profit. Moving to gross profit, in the second quarter of 2024, our GAAP gross profit was $2.8 million, or 41.1% of revenue, compared to $0.6 million, or
Speaker Change: 43.1% of revenue in the second quarter of 2023. Non-GAAP gross profit was $3.1 million or 46.9% of revenue in the second quarter as compared to $0.6 million or 43.3% of revenue in the second quarter of 2023.
Speaker Change: The primary factor that contributed to the improved gross margin in the second quarter of 2024 on a non-gap basis was the higher volume of rewalk product sales, which resulted in greater absorption of operations and overhead costs.
Speaker Change: GAAP operating expenses were $7.2 million in the second quarter of 2024 compared to $5.7 million in the second quarter of 2023. Non-GAAP adjusted operating expenses were $6.9 million in the second quarter compared to $4.5 million in the second quarter of 2023.
Speaker Change: The increase is primarily attributable to the acquisition of AlterG, which added headcount and outside spending, and investment in additional commercial resources to process Medicare claims for REWOC.
Speaker Change: We continue to take action to achieve further decline in operating expenses in the second half as these actions take effect.
Speaker Change: Our GAAP operating loss in the second quarter was $4.4 million compared to an operating loss of $5.2 million in the second quarter of 2023.
Speaker Change: Non-GAAP operating loss was $3.7 million in the second quarter as compared to $3.9 million in the prior year's period.
Speaker Change: We expect our quarterly operating loss to narrow further as we move through the second half of the year as our sales volume continues to grow.
Speaker Change: We ended the quarter with $15.1 million in cash and equivalents and no debt. Our cash usage in Q2 was $5.6 million, which was an improvement from the first quarter, but higher than we expected.
Speaker Change: The two major drivers of the cash burn in the second quarter were an increase in receivables of $1.8 million and an increase in inventory of $1.1 million. I will cover each of these separately.
Speaker Change: First, with accounts receivable, at the end of the second quarter, we had built up $2.6 million in receivables for Medicare claims that we had submitted in 2023 and the first half of 2024. This represents about half our balance of accounts receivable at the end of the second quarter.
Speaker Change: Based on our experience, we've learned that the Medicare Administrative Contractors require significant lead times to set up and begin initial claims payments, especially for entirely new products like the ReWalk.
Speaker Change: As a consequence, at the end of the second quarter, we had received a very small amount of payments for Medicare claims.
Speaker Change: The good news is, since the end of the second quarter, the pace of payments from the max has accelerated and we have received over $600,000 against those receivables during the third quarter so far.
Speaker Change: We expect these catch-up payments to continue as the MACs work through the backlog of claims and that a significant majority of these payments will be received by us by the end of the year.
Speaker Change: Also important, since the payment mechanism has been established, future Medicare claims should be paid on a more typical 30-45 day cycle from the date that the claim is approved.
Speaker Change: Both of these factors have positive implications for our second half cash flows as the excess receivables are collected.
Speaker Change: 2nd Inventory
Speaker Change: During the second quarter, inventory increased by 1.1 million due to two factors. First, in light of the continuing conflict in Israel, we are in the process of building an additional 25 rewalk systems that we will have on hand in the U.S. in case there are any temporary disruptions in our Israel-based supply chain.
Speaker Change: Second, with the filing of our 510k We have begun procuring material for the inventory bill in advance of the commercial launch, which will follow the FDA clearance. Over time, inventory levels will normalize as the inventory is sold and we convert this to cash.
Speaker Change: As Larry discussed earlier, we continue to expect full year 2024 revenue of between $28 to $32 million. The third and fourth quarter revenue should show sequential growth from the second quarter.
Larry Jasinski: with the higher revenue we expect continued margin expansion with adjusted gross margin reaching approximately 50 percent by the fourth quarter
Speaker Change: Operating expenses should continue to decline slightly over the next two quarters. The combination of these factors should reduce our non-gap operating loss by almost half by the fourth quarter, which will, combined with the collection of the Medicare receivables, translate into much lower quarterly cash burn.
Speaker Change: With that, I'd like to turn the call back to Larry for further remarks. Thank you, Mike.
Larry Jasinski: I'd now like to provide more detail on our market development and financial goals that I had laid out for the year in our Q1 call.
Larry Jasinski: Our stated goals were, number one, execution of sales, number two, organizational implementation of infrastructure to support Medicare claim submission to successfully penetrate this new emerging market.
Larry Jasinski: Number three, market development in terms of filling the funnel with appropriate potential users of the Reebok system.
Larry Jasinski: Number four, managing the reduction in our operating loss, Q over Q, to demonstrate a path to break-even operations. And number five, launch of the new Alter-G product at about mid-year and preparation for the launch of the latest generation of the ReWalk.
Larry Jasinski: post-FDA clearance.
Larry Jasinski: Let me expand on each of these five objectives for the year.
Larry Jasinski: First, sales.
Larry Jasinski: a record wheeler quarter, and another one on the horizon.
Larry Jasinski: Demand is building from our digital
Larry Jasinski: The education occurring with physicians with our field-based team and the spinal cord injury centers that are beginning to implement exoskeleton supply programs based on our support program.
Larry Jasinski: We have presented our supply program to
Larry Jasinski: Second, capacity to implement.
Speaker Change: The Medicare requirements are extraordinarily complex and require extensive infrastructure with skills to process volume and get paid.
Speaker Change: We have supported our active spinal cord injury centers in multiple ways.
Speaker Change: They include a dedicated REWOC clinical screening group to properly qualify REWOC users.
Speaker Change: Next, as patients are qualified, we provide WeWALK trial systems with our direct physical therapist to determine whether a user is fully ready for delivery of a personal system.
Speaker Change: If successful, we then mobilize our reimbursement team to guide the process of completing the Comprehensive Medicare Submissions.
Speaker Change: During training in the clinic, we provide support as needed and once the re-walker goes home with our system, we have a full service warranty and service team for the user.
Speaker Change: Third objective, market development.
Speaker Change: identifying and educating the correct potential users.
Speaker Change: expansion of the MD referral base with our feet on the ground, creation of practice guidelines with the medical societies,
Speaker Change: broadening product labeling and establishing payment policies in multiple payer systems are the key pillars of our market development strategy during 2024 and 2025.
Speaker Change: We understand these requirements and have the team to build a long-term business.
Speaker Change: We will report on these activities in a summary fashion as we progress.
Speaker Change: Adoption of life-changing and disruptive technologies takes time and focused development efforts. In simplest terms, we must fill the funnel and we'll present metrics for the market to measure the progress as they mature.
Speaker Change: Fourth, reducing our operating loss. Top line growth for 2024 is trending to expectations.
Speaker Change: The major thrust on efficiency is occurring from actions we initiated in 2023 and that are in process throughout 2024.
Speaker Change: We will identify the areas of cost reduction as they occur. We continue to forecast a 2024 loss in the low double-digit millions and operating at break-even on current cash by 2026.
Speaker Change: The revenue growth slope and the expense reductions levels provide some risk that we must manage in the process.
Speaker Change: and our fifth objective, new product launches.
Speaker Change: Our new anti-gravity product was successfully completed with the launch of the new NEO anti-gravity model on June 25th at the National Athletic Trainers Association, known as NATA.
Speaker Change: This design has features and pricing specifically designed to address the needs of smaller clinics.
Speaker Change: Also in June, we submitted our FDA 510-K for the seventh generation of the ReOrg design as we had planned.
Speaker Change: Each of these innovative designs will impact our sales and our operating results.
Speaker Change: Our leadership of our markets is an advantage of being first and in having the most extensive base of field experience.
Speaker Change: [inaudible]
Speaker Change: Our demonstrated results in these first three months that's being placed in the federal fee schedule are very encouraging.
Speaker Change: While we focus on short-term measurements today,
Speaker Change: It is now time to open the door to the potential magnitude of payment coverage that has started with Medicare and the long-term vision for building upon it with all payers.
Speaker Change: It is time to envision a market of 1,000 systems a year with proper market development and investment.
Speaker Change: The potential benefits of exoskeleton utilization can now be realized on a wide scale to help walking again and should be highly valued.
Speaker Change: I opened with our belief that we have proven the first steps in execution.
Speaker Change: We are on the right road and we have the team in place to execute this.
Speaker Change: There is every reason to be optimistic about our progress.
Speaker Change: Thank you all for your time today, and operator, I'd like to open it up to questions, please.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your hands up before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: Our first question comes from R.K. with H.C. Wainwright. Please go ahead.
R.K.: Thank you. Good morning, Larry and Mike.
R.K.: Congratulations on a very positive quarter.
Speaker Change: So let's start with the receivables.
Speaker Change: Mike, you said that after closing the second quarter, you did receive...
Speaker Change: are part of the receivables, about 600,000 has been taken, has been recognized. And, you know, based on your conversations or, you know, your dealings with the CMS...
Speaker Change: How long do you think it will take for normalization in terms of time? And, you know, it looks like there's another $2 million worth of receivables left.
Speaker Change: and do you think most of it would come through in the in the third and the fourth quarter or some of that could spill into
Speaker Change: into 25.
RK: Hi RK, good morning. That's a good question, we have limited visibility to that but our expectation is that there should be the majority that gets paid during the calendar year 2024, so through Q3 and Q4.
Speaker Change: Okay, and then on the Alter-G business, you know, it's nice to see that growth of almost a million dollars in the third quarter compared to the previous quarter.
Speaker Change: How much of that R&G is pent-up business because of the change of ownership and how much of it is organic?
Speaker Change: And, you know, how should we think about sustenance of that growth from here onwards?
Arcade Flurry: Arcade Flurry, I'll answer this one. This is really all organic growth. We have begun to build with the team we had in place. Mike noted what we have seen in our backlog.
Speaker Change: that we've gone from the, I forgot where we ended last year at, but we've gone
Mike Lawless: more recently from the mid-60s to over 100 in our backlog and this is from our field team knocking on doors and doing their job.
Mike Lawless: Perfect. And my last question is regarding Germany.
Speaker Change: I would like to understand how business is progressing in Germany since the court has
Speaker Change: the court case settlement that you received last year.
Speaker Change: and, you know, is that a slow growth business or, you know, how are the insurers responding to those decisions?
Jeremy: Jeremy's having a good year. It's the best way I could measure it, including Barmer, who was in the court case, who has processed a good number of cases.
Speaker Change: So we're progressing equally well, frankly, in both Germany and the United States. The United States are bigger numbers just because of the size of our insurance group and size of our country. But we're seeing growth in both markets that we're quite happy about.
Speaker Change: Thank you. Thanks for taking my questions.
Speaker Change: Again if you have a question please press star then 1. Our next question comes from Ben Hainer with Lake Street Capital Markets. Please go ahead.
Speaker Change: I'd say that part of that is indicative of the higher volumes, we were generating on the <unk> side that we haven't we have a factory in California, where we manufacture and we were able to leverage all of those production costs much more effectively with the topline that we generated in the second quarter relative to what we did in the first quarter.
Speaker Change: Okay. That's helpful makes sense so.
Speaker Change: Just generally speaking, we probably should expect gross margins doing.
Speaker Change: To improve.
Speaker Change: Through the balance of the year as some of the Medicare payments begin flowing through and with.
Speaker Change: With the new launch hopefully more ultra <unk> revenue.
Speaker Change: That's correct, yes, as I mentioned by by Q4, we expect our gross margins too.
Speaker Change: Reached 50%.
Speaker Change: Okay. Okay, Okay, and then on the R&D expenses, what should we expect there now that you submitted the seventh generation version.
Neal: <unk> launched Neal.
Speaker Change: I think that we expect that.
Speaker Change: I would expect them to be roughly flat to maybe slightly down a little bit I mean, theres still ongoing activity that we have it take.
Speaker Change: Taking place so.
Speaker Change: But I would expect that we'd be sort of flat to down slightly over the next couple of quarters relative to the Q2 levels.
Speaker Change: Okay got it that's helpful. And then just curious you know.
Speaker Change: Any more color you can kind of share on the reaction that Neil in the early days here.
Speaker Change: Okay.
Speaker Change: Well, we launched on June 25th So you've got about six weeks.
Neil: We sold the model right on the floor at the Tradeshow, we took that as a very good reaction.
Neil:
Neil: It is resonating as intended or at least in the early results.
Speaker Change: Okay Fair enough and then on the solar generation.
Speaker Change: Can you kind of refresh our memories on what the enhancements are there and.
Speaker Change: Is there is it more.
Speaker Change: Cogs enhancements as a product enhancement just refresh our memories there please.
Speaker Change: This is a very user based improved design, we've got the experience with hundreds of users of what they'd like not like in the monitor to see the device offer.
Speaker Change: So what we've done is add in features that came from our customers and I'll give you a few examples.
Speaker Change: One is having multiple fleets so if youre walking down a busy street, you've gotta go slower because the people in front of you aren't going fast enough you could slow year re walk down.
Speaker Change: And we've done other real fundamental things to bring more up to date off the shelf battery systems that you can use now to power of the system as opposed to the custom batteries that we had before.
Speaker Change: We've added a lot of data components and connectivity to the system through a smartwatch and that is really important we believe for the users to communicate for us to know about utilization. So those are just examples of some of the features our customers told us what they like we did at those basically what.
Speaker Change: A real acceptance.
Speaker Change: Okay, great so looking forward to that.
Speaker Change: All I have to adopt gentlemen, thank you very much.
Ben Hainer: Thank you Ben.
Ben Hainer: This.
Speaker Change: Our question and answer session.
Speaker Change: I would now like to turn the conference back over to Larry Jason <unk> CEO for any closing remarks.
Larry Jason: Well first I appreciate everyone's attendance today and I encourage you to come to US if you have other questions about the business.
Speaker Change: I close the scripted part of the session with talking about the magnitude of this market.
Now that we see real execution, and we've achieved it and it's growing.
Speaker Change: Thinking about the ultimate size of this market is something that I would encourage all of us to think about.
Speaker Change: Because we've talked about it in tens and twenties it.
Speaker Change: It is not unreasonable given the total addressable market for this to be 1000 systems a year now that takes time to build it's not easily done, but it's a value that the vision of our company with our founders started with widespread ability for people to walk again and that's what this industry now.
Speaker Change: Has in front of it.
Speaker Change: Proven out I think by the success. We've had in this first 90 days after gaining in the United States coverage with Medicare. So thank you everybody for your time today, and we look forward to speaking to you in the future.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.