Ekso Bionics Holdings, Inc. (EKSO) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello, and welcome to the Ekso Bionics First Quarter 2021 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Matt Steinberg with Lazar Finn Partners. Matt, please go ahead.
Matt Steinberg: Thank you, operator, and thank you all for participating in today's call. Joining me from Ekso Bionics are Jack Peurach, President and Chief Executive Officer; Jack Glenn, Chief Financial Officer; and Bill Shaw, Chief Commercial Officer. Earlier today, Ekso Bionics released financial results for the quarter ended March 31, 2021. A copy of the press release is available on the company's Web site.
Jack Peurach: Thanks, Matt, and thanks to everybody for joining us today. We are off to an encouraging start in 2021. During the quarter, our primary objectives were geared towards raising customer engagement levels, expanding physician awareness of our innovative exoskeleton devices in the medical community, and sharing with them our new subscription access model. I am pleased that we made great strides across each of these goals, and in doing so increased the number of multi-unit orders with top network operators globally. During the quarter, we recorded 16 NR bookings, including seven units of our new subscription offering, both up on a sequential basis. As we highlighted on previous calls, we transitioned our selling strategy to a subscription model to facilitate faster EksoNR adoption. Although this transition has had an effect on near-term revenues due to the nature of revenue generation, we're extremely pleased with the early results of this model. It has helped us drive faster adoption and earlier success with customers than we received in the past. As Bill will highlight in a moment, the subscription model also led to a higher number of units per order.
Bill Shaw: Thank you, Jack. The first quarter was a solid start to the year for our commercial team. We increased customer engagement and access levels, while making it simpler for them to adopt our leading exoskeleton solutions with our newly launched subscription model. As part of our network strategy, we are focused on launching multi-site programs with network operators, and are pleased to have closed deals with three of the top five inpatient rehabilitation operators. This includes completing a pilot program with Vibra Healthcare that was previously delayed due to COVID. For the first quarter of 2021, we delivered approximately $1.7 million in Ekso health revenue. Our conversion and renewal rate remain strong at 86%. We already have more than $700,000 of contracted revenue under our new subscription model. Our subscription offering is allowing our customers to make larger unit commitments and less time, but for the short-term will impact our top-line as revenue will be recognized monthly over the turn of the contract similar to help fast companies record revenues. Capital acquisitions often required more approval levels, including top executives sign off. With their subscription model, we are seeing less approval levels being needed, and believe this offering will be the catalyst for accelerating adoption with inpatient rehabilitation centers. Not only are we removing some of the capital barriers, but we're also shortening the sales cycle. For example, in Q1, we closed a deal in four days after an in-person validation event.
Jack Peurach: Thanks, Bill. I'd like to provide an update on the progress with our industrial segment. Our upper body exoskeleton EVO continues to receive promising feedback from customers have incorporated this innovative device into their industrial related workflows. In the first quarter, we conducted extensive evaluations, gathering feedback at the executive and worker levels. We've heard from most that EVO adds value by mitigating fatigue, making productivity more predictable and reducing the risk of injury. During our limited and targeted post-launch evaluation period, we added several new customers and have an even greater number of potential customers actively trialing EVO across different applications. We are pleased with the overwhelmingly positive results thus far, and I'd like to highlight a couple of encouraging customer testimonials, one customers, employee, who previously was unable to perform his job due to a work-related shoulder injury returned to work earlier than expected primarily due to EVO, this lightweight exoskeleton alleviated stress caused by the overhead work he was performing, enabling him to execute his tasks while reducing further risk of injury, even readily help the employee return to work safely and confidently, but also provided the customer with peace of mind the projects kid can be completed on time with less risk to their employees. Another example highlights a drywall installer, who had a labor-intensive overhead construction task that had to be conducted repeatedly. EVO supported this grueling work by lowering the time needed to complete each task from 20 minutes to 5 minutes, a 75% productivity improvement. With this remarkable increase in worker efficiency, EVO demonstrates that it can enhance productivity while also making output more predictable. Today, we are working with customers in the logistics, construction, food processing, aerospace and solar installation verticals, and our targeting applications primarily where EVO can enhance worker productivity and improve worker safety.
Jack Glenn: Thank you, Jack. Ekso generated first quarter revenue of $1.9 million, compared to $1.5 million for the first quarter of 2020. Our gross profit for the first quarter was $1.2 million representing a record gross margin of approximately 65%, compared to a gross margin of 60% in the fourth quarter of 2020 and 43% for the same period a year ago. The increase in gross margin was primarily due to higher average selling prices EksoNR an increased proportion of medical device sales, lower production cost of the EVO compared to the previous generation best and higher service margins. Our actions to preserve our cash and align our cost structure enabled us to lower our operating expenses. Operating expenses for the first quarter of 2021 were $4.4 million, compared to $5.4 million for the first quarter of 2020, a reduction of approximately 19%. Net operating loss in the first quarter of 2021, fell to $3.2 million from $4.8 million in the prior year period, reflecting our increased revenues and leaner cost structure. Gain on warrant liabilities for the quarter ended March 31, 2021 was de minimis from the revaluation of warrants issued in 2019, 2020 and 2021 compared to a $2.5 million gain associated with the revaluation of warrants issued in 2015, 2019, and 2020 for the same period in 2020. Cash used in operating activities in the first quarter of 2021 was $2 million. As of March 31, 2021, we had a strong cash balance of $49.5 million, which included gross proceeds of approximately $40 million from a public offering, strengthening in our cash position in extending our cash runway to execute on our growth strategy. Please see our 10-Q filed earlier today for the further details regarding the quarter. Operator, you may now open the line for questions.
Operator: Thank you. Our first question today is coming from RK from H.C. Wainwright. Your line is now live.
RK Ramakanth: Thank you. Good afternoon, Jack and Jack. A few questions from me, to start off on the top line, certainly it's good to see that you got 30% increased revenue compared to the first quarter. But, however, when you look against the fourth quarter of last year this is a dip. But on the flipside, you've placed more units, and the increase in the number of units placed is basically coming from the subscription units, which obviously says that the subscription system is working right. So, I want to understand your thoughts on is that because, partly it being the first quarter is there some amount of seasonality involved?
Jack Peurach: Yes. Hey, RK, nice to hear from you, and thanks for the question. You're generally spot-on. And as we've communicated in the past, we really shifted our focus on to the subscription offering. And as a result of that a lot of deals, which would otherwise have been capital or not existing, have come in as subscription. So, we really think that this is a great offer, for both our customers and for the company, because it gives us a lot more predictability and we believe is going to drive a lot faster adoption. But it will have a short-term impact in revenue. And the second thing I want to just maybe correct a little bit on this, is that unlike the offer we had in the past that was really a bridge to the capital purchase, we view the subscription offer, and certainly we're always sell -- capital sale, but we view this as something that we would renew over time as being a large majority of what happens, versus converting to a capital purchase. We'll see how that plays out, but we're going into it with that expectation. And Jack Glenn or Bill Shaw, if you want to add anything to that, feel free.
Bill Shaw: Well, the only thing I would add, RK, is that, again, that we really look to the subscription program to really accelerate unit growth, and that's going to be our key. Obviously, as you mentioned, it's going to have the top line effect in the near-term. But it's really about getting units out there and growing the units.
RK Ramakanth: Yes, I mean it's not a bad thing to have a decline in the sales, but to have a decline in the sales for the right reason is A-okay at least as far as I'm concerned. And then, in terms of talking about multiple unit sales, can you elaborate a little bit more as to what is the appetite, especially when you go the subscription route, for some of the centers to subscribe multiple units rather than compared to previous times, where it would have been a little bit of a battle even to get one capital sale done?
Jack Peurach: Yes, great question. I think we're starting to see evidence of that right now. Our belief is that we will be able to drive more multiunit commitments. We were able to do that in Q1, obviously, with a network operator. And we've been able to have fairly significant discussions with multiple other network operators around more of a programmatic approach to deployment. Or everyone is going to do it differently, but it's certainly, from our perspective, a very effective way. And I think we're starting to see, on that side, interest in doing more programmatic central decision-making moves. And -- but it'll be a combination of one by one versus central decision making, I'm going to ask Bill to fill in a little more color on that.
Bill Shaw: Yes, the only thing I'd add is just that in the past, right R.K., we would do a rent to own kind of pilot program, the customer would still have to budget dollars to be able to convert or acquire that technology over time, right with the subscription offering, they seem to be very pleased that they can actually roll this out to multiple sites at one time, whether they want to pilot the technology in different markets, or maybe hit one specific market a little bit harder. They don't have to necessarily have this budgeted from a capital perspective, because they can just take it out of an operational budget. And then with the success of the program, if they do decide to acquire it, they could do that. But the reality is they would just renew it and extend it. And so that's why we're seeing a lot of interest in multi-units.
RK Ramakanth: Okay, perfect. So, one more question on the EksoNR part of it, in terms of onsite demonstrations, as the pandemic rather as more and more people getting vaccinated, I don't know what the status of the pandemic, it can vary from day to day to state to state. How are you seeing the trends in terms of inviting your folks onto the site to conduct on site demonstrations? Is that kind of giving you some kind of a clarity, and also act as a leading indicator as to the number of units you could place in the coming quarters?
Jack Peurach: Yes, Bill, I'm just going to ask Bill to take that. Go ahead, Bill.
Bill Shaw: Yes, well, I talked about being cautiously optimistic. I think we believe that there is a steady recovery starting to emerge, and we're hopeful to see increased spending in the back half of 2021. But engagement levels are definitely much better than they've been in the past. So as we've shared in the past, right in the middle of the pandemic, we had to pivot to a virtual selling strategy. And that really helped us navigate the COVID planet pretty well. But now that we're seeing things start to come back, I'd say we're executing more of a hybrid approach, where we're trying to do as much of our selling process virtually as possible. But the reality is, with this type of technology getting on site and doing a validation event, or a demo with the right people in the room is really important. And so to answer your question directly, yes, we're seeing centers being open to having us come back on site, but we're being very strategic with where and how we're doing things, we're still doing virtual demos as well. But there's really no better path and being on site with customers seeing our technology in real time. So we're going to try to do as much of that as possible going forward.
RK Ramakanth: Okay, so for the last question, regarding EVO, I know you made some comments about some of the industrial verticals that are trying to test EVO. So could you highlight a couple of them and can you comment on like when this could become a little bit more meaningful as far as revenues go? And from what you have seen, which industrial verticals, do you think they'll be ready to absorb this?
Bill Shaw: Sure. So I did mention generally some verticals. I'll just highlight like maybe a couple where I think there's really a great match. The first would be in construction, but narrowing down a little bit to drywall insulation. We have a number of customers right now, we're doing drywall insulation, and there's a lot of overhead work involved in doing that, not just placing the sheetrock but also finishings muddied and sanding. And we've done some evaluations where we see really great productivity improvements as a result of that. And that's a fairly standard activity that we think is our product is very well suited to support, so that would be one. A second area that we're quite optimistic about is for the same reason as in solar field installations where there's a awful lot of overhead faceting and wiring associated with that installation. Again, we've got trials running in that area. And again, it's quite large appetites for this given if we can demonstrate productivity improvements. So there are some others but I take for a couple of highlights, those would be two of them. In terms of one is, we really see some traction taking off from a revenue perspective. A couple things about that, so first, it was very deliberate about going a little bit slowly to make sure the product was fitting into the application and the economics worked out with the customer. I think we've gotten pretty far down that path in at least in some of these verticals. So we're now in a position that we can invest a little bit more into driving volume in that and driving more sales. So I think in the second-half of this year, we should start to see some growth out of that. The second thing I would say about that is that we're also offering that as a subscription. So, again, we'll have the same effect from a revenue perspective as revenues with unit delivery.
RK Ramakanth: Great, thanks. Thanks for taking all my questions.
Bill Shaw: You bet, R.K.
Jack Peurach: Thank you, R.K.
Operator: Thank you, we reached the end of our question-and-answer session, I'd like to turn the floor back over to management for any further closing comments.
Jack Peurach: Thank you all for joining us today. To briefly recap, the first quarter of 2021 was an encouraging start to what we believe will be a solid year, we expect to continue to focus on network operators who realize the benefits of our technology, and can help bring it to more patients more quickly. Our subscription model is helping us achieve this goal by breaking down capital barriers, increasing adoption levels and shortening the sales cycle. Although this may impact revenues in the near-term, we believe this provides us with inroads to expand our installed base and support our path to sustainable future growth. We're also pleased with the continuing positive feedback on EVO and the remarkable customer stories and evaluation results that we received to-date. We believe there's a large market opportunity for EVO with a number of verticals that we can penetrate. As I stated in the past, the proceeds received from our February public offering are critical to our success and executing on our growth goals. Our focus remains on expanding our customer base in both medical and industrial segments and bringing new game changing technologies that will improve the lives of patients and industrial workers. We look forward to providing updates on continued progress throughout the year. Thank you and have a good day.
Operator: Thank you. This 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.
