Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Q2 2022 Results Conference Call July 28, 2022 4:30 PM ET
Company Participants
David Carey – Head, Investor Relations
Steven Sherman – Chairman & CEO
Scott Davis – President & Chief Operating Officer
Jerome Wong – interim Chief Financial Officer
Conference Call Participants
Swayampakula Ramakanth – H.C. Wainwright
Kyle Bauser – LakeStreet Capital
Operator
Hello, and welcome to the Ekso Bionics Q2 2022 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It’s now my pleasure to turn the call over to David Carey. Please go ahead.
David Carey
Thank you, operator, and thank you all for participating in today’s call. Joining me from Ekso Bionics are Steven Sherman, Chairman and Chief Executive Officer; Scott Davis, President and Chief Operating Officer; and Jerome Wong, Interim Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the second quarter of 2022. A copy of the press release is available on the company’s website.
Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical facts should be deemed to be forward-looking statements.
All forward-looking statements, including statements regarding our business strategy, future financial or operational expectations or our expectations of the regulatory landscape governing our products and operations are based upon management’s current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.
Accordingly, you should not place undue reliance on these statements. For a list of description of the risks and uncertainties associated with our businesses, please see our filings with the Securities and Exchange Commission. Ekso disclaims any intention or obligation, except as required by law, to update or revise any financial or operational projections, our regulatory outlook or other forward-looking statements whether because of new information, future events or otherwise, which speak only as of today, July 28, 2022.
I will now turn the call over to Ekso Bionics’ Chairman and CEO, Steven Sherman.
Steven Sherman
Thank you, David, and thank you to everyone for joining us today. We achieved strong revenue growth in the second quarter, reflecting the continued execution by our team. We are successfully raising awareness of the benefits that our innovative EksoNR devices are bringing to patients. This is resulting in strong demand with inpatient rehabilitation facilities and network operators. And now with the recent clearance by the U.S. Food and Drug Administration, giving us the ability to market EksoNR with use with MS patients, we are poised to help a significantly larger patient population.
Our EksoWorks business continues to build momentum with large key customers as they more clearly understand the overhead productivity and safety benefits that our Ekso EVO devices deliver. We expect this segment to be a significant contributor to our growth in the future.
Financially, we are in a solid cash position. Our dedicated team of professionals are constantly improving efficiencies. Our commercial team is deepening customer relationships, and management team is motivated by our core responsibility, which is to maximize shareholder value.
Now I will turn the call over to our President and Chief Operating Officer, Scott Davis.
Scott Davis
Thank you, Steven. Ekso Bionics generated strong revenue growth in the second quarter, reflecting the continued positive traction we are making with network operators. This momentum resulted in year-over-year revenue growth of 57% led by our EksoHealth segment, which delivered $3.2 million of revenue.
We achieved a couple of major company milestones this quarter. First, we delivered on the largest order in Ekso’s history. This multiunit order was comprised entirely of capital purchases. We’re proud of this accomplishment and believe that it highlights our commercial team’s efforts to engage with large network operators who are now choosing to make EksoNR their standard of care in neurological rehabilitation.
Second, as Steven just mentioned, the FDA’s 510(k) clearance to market EksoNR for use with MS patients not only gives more patients in need the opportunity to rehab using our leading exoskeleton devices, but it also meaningfully expands our total addressable market. I’ll touch more on this in a moment.
Turning back to our performance for the quarter. We booked 17 EksoNR units, a majority of which were capital purchases. Demand continues to improve as capital budgets previously restricted by COVID are opening up. Our cumulative conversion and renewal rate remain strong at 82% with approximately $1.9 million of contracted unrecognized revenue under our subscription model. Additionally, we have witnessed an encouraging trend, whereby our customers are increasingly committing to multiyear subscription agreements, which indicates their confidence in the value proposition of the EksoNR. For example, Avera McKennan, a network operator in Sioux Falls, South Dakota and our first customer in the state, recently secured a multiyear EksoNR subscription.
In the international market, we’re pleased to have recorded a strong booking quarter, particularly in Europe. The strength in Europe underscores our investment in lucrative, indirect partnerships in that region. In APAC, we generated a solid number of bookings as well, adding to our optimism. We continue to see these regions as important growth drivers in the years to come.
Now for a discussion on the FDA clearance of the EksoNR for multiple sclerosis indication and what it means for MS patients and our business. EksoNR is the first exoskeleton device to receive FDA clearance for rehabilitation use in patients with MS. With this, we are excited to bring our device to a broad group of patients in need. According to the National MS Society, there are nearly 1 million people in the U.S. living with MS and more than 2.8 million globally. Every 5 minutes, someone is diagnosed with MS. Now these patients will have access to a wearable robotic device, potentially improving their mobility and supporting them in their rehabilitation.
I’d like to share a story of how a patient with MS benefited from an EksoNR from the Kessler Foundation, one of the facilities that provided data to help us receive this clearance. Pilar Santillana was diagnosed with MS in 2006, and as the progression of the disease worsened, it impacted her ability to walk. Pilar joined a novel pilot study led by Dr. Ghaith Androwis at the Kessler Foundation, evaluating robotic exoskeleton training in MS using EksoNR. As part of the 8-week study, Pilar learned how to balance, stand up straight and improve our posture and gate mechanics. At the end of the 8-week training session, Pilar said what I had done with the exoskeleton 3 months of physical therapy could never do.
Dr. Andreas was quoted as saying initial findings suggest that robotic exoskeleton training improves mobility and cognition and may play an important role in the future rehabilitative care for people with MS. We’re proud of Pilar’s progress and hope to see many more success stories like hers.
Turning to an update on the progress with our industrial segment, EksoWorks. We’re making inroads with several large customers with sizable employee head counts who can benefit from significant workplace productivity and safety features that EVO provides. We continue to see demand primarily emerging in the automotive, aerospace and solar energy verticals.
Our current strategy is geared towards developing larger customers, which can result in a longer sales cycle like it did this quarter. For the second quarter, EksoWorks delivered approximately $237,000 of revenue. As construction, general manufacturing and green energy ramps up across the country, we remain committed to educating and expanding customer access of EVO to a wider number of industrial verticals. As we’ve previously mentioned, our target industrial verticals represent a vast addressable market opportunity of approximately $5 billion. Moving forward, our commercial team is focused on building customer awareness and engagement to ensure the success and safety of our customers’ workforce.
I’d like to take a moment to comment on the challenges associated with the global supply chain and our plans to mitigate its effect on our business. Like so many other businesses, we’re not immune to the tight supply market. Our devices are comprised of more than 600 unique components. As discussed earlier, we’re pleased with the healthy demand environment. However, with that comes a greater need for supplies, resulting in manufacturing pressures.
To ensure that we can fulfill current and future orders in a timely manner, we made the decision to order parts well in advance of when we would ordinarily do so. This has led to an increase in our use of cash and, when combined with inflationary pressures, can impact our gross margins. Nevertheless, we are well financed and well prepared to navigate through the current market environment. We have an experienced team of professionals managing our business, allowing us to prudently manage our expenses and limit our cash burn.
Finally, I’d like to briefly highlight a corporate update. We’re currently in the process of moving our headquarters across the San Francisco Bay to a new facility in San Rafael in Marin County. Our new headquarters aligns with our current management, administrative and manufacturing needs. We expect to complete this move during the third quarter.
Looking ahead to the second half of the year, our outlook remains that of cautious optimism. Driven by the strength of our commercial team, we are increasingly encouraged by the progress of our growing customer engagement levels and international opportunities. Our innovative wearable exoskeletons are among the most studied exoskeleton devices in the industry with more than 180 unique publications demonstrating significantly improved patient outcomes. Now with the EksoNR receiving FDA clearance for MS, we are excited to bring our game-changing solutions to a greater number of patients who are in need.
Before turning the call over to Jerome Wang, who will discuss our second quarter 2022 financial results, I’d like to recognize his recent appointment as our interim CFO. Jerome has served as the company’s controller since May of 2017 and brings more than 20 years of experience in finance, accounting and strategy to this role. His knowledge of our finance and accounting controls enables a seamless transition. Now I’d like to turn the call over to Jerome.
Jerome Wong
Thank you for those kind words, Scott. Now on to a summary of our second quarter 2022 financial results. Ekso generated second quarter 2022 revenue of $3.5 million compared to $2.2 million for the second quarter of 2021, an increase of 57%. This increase in revenue was primarily driven by an increase in the volume of EksoNR device sales. Our gross profit for the second quarter was $1.6 million, representing a gross margin of approximately 47% compared to a gross margin of 58% for the same period in 2021. The overall decrease in gross margin was primarily due to the increase in EksoHealth service and inventory costs due to the continued global supply shortage partially offset by a favorable change in product mix. As we noted on previous calls, gross margin tends to fluctuate from quarter-to-quarter based on channel and product mix, as was the case this quarter.
Operating expense for the second quarter of 2022 were $4.9 million compared to $4.6 million for the second quarter of 2021. During the second quarter of 2022, the company incurred increased expenses related to increased sales and marketing activities and higher research and development expenses due to sustaining engineering activity for the EksoNR and the development of next-generation products.
Net operating loss in the second quarter of 2022 was $3.2 million compared with a net operating loss of $3.3 million in the prior year period. Gain on warrant liabilities for the quarter ended June 30, 2022, associated with the revaluation of warrants issued in 2019, 2020 and 2021 was $1 million compared with a gain of due to the revaluation of warrants issued in 2019, 2020 and 2021 for the same period in 2021.
Turning to our 2022 first half results. Revenue increased $1.9 million or 46% to $6 million for the 6 months ended June 30, 2022, compared to $4.1 million in the same period of 2021. The increase in revenue was primarily driven by an increase in the volume of EksoNR device sales and the recognition of previously deferred prepaid royalties associated with a license and distribution agreement that expired.
Gross profit for the 6 months ended June 30, 2022, was approximately $2.9 million, representing a gross margin of approximately 47% compared to a gross profit of $2.5 million for the same period in 2021, representing a gross margin of 61%. Operating expenses for the 6 months of 2022 were $10.3 million compared to $9 million for the same period in 2021. During the first half of 2022, the company incurred increased general and administrative expenses primarily due to noncash stock-based compensation and severance expense and higher research and development expenses due to an increase in product development activities.
Net operating loss in the first half of 2022 was $7.5 million compared with $6.5 million for the comparable period in 2021. Gain on warrant liabilities for each of the first half of 2022 and 2021 was $0.9 million in each case from the revaluation of warrants issued in 2019, 2020 and 2021. Cash used in operating activities in the first half of 2022 was $8.5 million. As of June 30, 2022, the company had a strong cash balance of $31.9 million. Please see our 10-Q filed earlier today for further details regarding the quarter.
Operator, you may now open the line for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question today is coming from R.K. from H.C. Wainwright.
Swayampakula Ramakanth
Okay. A couple of quick questions from me. It’s great to see that most of your sales came from the multiyear subscription. So in terms of — I mean, sorry, multiunit orders. So in terms of that, of the 17 units that got sold under this, can you give us a little bit more color on that? And also when you start doing trials with some of these potential clients, do you gravitate more towards the multiunit orders clients or you’re going to be agnostic at this point?
Scott Davis
Okay. RK, thank you for your question. So really a two-part question, talking about the ’17 bookings that were made in the quarter. And of those bookings, we had a mix of both capital as well as subscription, 11 of those — I’m sorry, five of those being subscription and the balance being capital of that — of the orders that we had.
In terms of selling into IDNs relative to some of the smaller clinics that are out there, our sales team is really — has a focus and with focused sales professionals that are targeting the larger IDNs and then also the slightly larger regional IDNs, but we still have a sales focus on some of the smaller clinics as well. We have a portion of our sales team that is — continues to work with those network providers.
So — but if you look at the bulk of what we’re really working on is really the larger customers, and that is absolutely paying off as we’ve seen a significant increase over the years in sales to those larger IDNs. From 2019 and ’20, somewhere around 30% of sales and now upward of 70% in 2021 and 2022.
Swayampakula Ramakanth
Perfect. And then you also said in ex-U.S., especially in APAC, you had solid numbers. So I would like to understand what that solid number means.
Scott Davis
Okay. So in APAC, we had two bookings that were in Hong Kong. And in Europe, we had 8 total bookings that were capital and driven through distribution in that market this quarter. All of them were actually through distribution in Europe.
Swayampakula Ramakanth
Perfect. And then in terms of multiple year subscription, and you said that there is increasingly more interest in having multiyear subscriptions, obviously, it’s good news on one end and on the other side, how are these setup? In the sense, what is a multiyear? Is it more than 2 years? And if so, is there a clause as to conversion to a capital purchase at the end of the second or the third year whatever is the term?
Scott Davis
Sure. Great question. In general, when we talk about a multiyear subscription, we’re selling 24-month subscription within our program. Typically, if it’s reaching beyond that, we would consider capital procurement options, whether through a direct capital purchase or through a capital lease for the customer. 24 months has — part of the reason for that is as our — as clinics are rolling out new programs with Ekso, we want to give them sufficient time to really realize the benefits of implementing a neuro rehab program using the EksoNR.
And what we found is within a 12-month period, certainly, they can experience those benefits. But it really takes 18 months to really start to enjoy the benefits of that. And as a result, we anticipate that driving customers who will resubscribe at the end of that term because they’ve had successful programs.
Swayampakula Ramakanth
Then moving to the new indication, MS, you gave us the number of patients in terms of annual incidents. But how — what is the real market opportunity for you in terms of rehab? And when your commercial folks go out there, is that a different call point? Or is the same rehabilitation unit handles both stroke from other patients along with MS? Or are they 2 different places that they need to go to?
Scott Davis
Yes. Great question. We are very excited over our MS indication, largely because we can help an entirely new segment of patients with these great outcomes. One of the things that’s quite different about an MS patient relative to some of the other neuro patients that we have with SCI or acquired brain injury is that these patients will have a continuation of sort of degradation over the period of having their — this disease.
So we like to say that with Ekso, patients walk out of an Ekso. And with MS, this is something that can be used as a treatment to prolong and preserve their health and fight against this illness and give them all the health benefits from that. To that end, yes, there’s a large addressable market that exists for this.
There is crossover. For some patients who have acute spells of this, certainly inpatient rehabilitation is an area that they would use it, but this expands our reach into outpatient rehabilitation. We have crossover into outpatient right now, but this is effectively bringing us down the continuum of care into outpatient as well.
Swayampakula Ramakanth
Very good. Then my last question here before other folks can jump in. On the supply chain, I know you talked about this during the last quarter call. And it looks like you have a handle on this right now. What is the status in terms of managing the supply chain? And I also see that your inventories number has gone up quite a bit more like a 50% than last quarter — I mean, then December rather. So does that mean, over time, your gross margin should improve because some of these inventories that are currently on books will get reduced?
Scott Davis
That’s correct. As we’ve talked about for the last couple of quarters, supply chain challenges have been just something that’s been plaguing not only us but everybody. Anyone who’s dealing with circuit boards or even mechanical parts, it’s been challenging. So we did place orders much more aggressively than we ordinarily would have to ensure that we maintain the supplies necessary to meet our growing demand.
As you can see, the inventory — the result of that is that our inventory is up. And yes, of course, it also is having an impact on margins. So what we expect over time, as we’ve gotten ahead of this and assuming at least consistency and no further degradation in the supply chain environment. We expect that, over time, that will begin to normalize. And we are obviously looking for ways to improve those costs as we move through the crisis and get us back to a margin position that is more along what we expect.
Operator
Our next question is coming from Kyle Bauser from LakeStreet Capital.
Kyle Bauser
Thanks, Steven, Scott, and Jerome for all the updates here. Congrats on a really strong quarter. Maybe I’ll follow up on the MS opportunity, and sorry if I missed this. Scott, but can you talk just a little bit more about maybe the broader opportunity as you kind of outlined it in terms of incidents, but also prevalence? I mean, is there an opportunity to treat the prevalence pool here?
And then separately, if that’s the broader opportunity, in your assessment, what would be kind of the smaller, more focused near-term opportunity, whether that’s in terms of number of patients or facilities? Just kind of curious on how you plan on kind of attacking that new opportunity?
Scott Davis
Sure. Understood. And so using EksoNR for MS is not a new thing. We’ve had our customers and researchers using the product for that purpose, sort of out of band. Historically, what the new MS indication gives us is the ability to market this. And so what that means is we can go back into our existing customers that we have, and we’ve already started this with our sales and our clinical teams to go back into our existing customers and let them know about the great potential outcomes that they can have with MS patients.
So near term, this is something that we’re doing is just getting the word out to our existing customers. As we move a little bit further out, again, this expands our reach into a broader continuum of care and allows us to knock on the doors of some of the outpatient facilities as well as this better aligns with their patient population.
So it’s — from a resourcing perspective, one of the strengths that Ekso has is our great commercial team, including our sales and our clinical teams and as well as our marketing team, and we are basically leveraging those teams and getting them out there to be able to spread the good word of how we can help more patients.
Kyle Bauser
Got it. And maybe following up on that, now that you are able to market this on label, it sounds like you’ve already kind of deployed marketing and commercialization resources towards this. So I guess the question is, in terms of OpEx and incremental overhead and potentially changing any sort of marketing strategy, how should we think about kind of the run rate of SG&A going forward for the balance of the year?
Scott Davis
We don’t anticipate any changes relative to this indication. We’ve anticipated this for some time.
Kyle Bauser
Sure. Got it. And then just lastly, housekeeping, if it’s handy, what was depreciation stock comp in the quarter? Just back into EBITDA.
Scott Davis
One moment. We are just digging up the detail on that now. One moment. .
Kyle Bauser
And then maybe while we’re digging that up, Scott, just lastly, in terms of the new headquarters, sorry, what did you say about Q3? I mean is that — maybe you could just outline briefly again the timing of that.
Scott Davis
Sure. So timing — so we have been in a long-term lease over here in Richmond and rather interesting and sizable facility, and we are extremely excited over finding our new location in San Rafael. So we’re in Richmond. Currently, San Rafael is just over the Richmond Bridge not far from where we are. We went from one side of the bay to the other side of the bay over in Marin County. So the facility is rightsized for our organization. It just fits our needs much better than the facility that we’ve been in. And on top of all that, it represents a savings to us as well. So it’s a positive move for us, but we are making this relocation and we’re doing this in Q3. So we’ll be officially in before the end of Q3.
Does that answer your question, Kyle? .
Kyle Bauser
That’s perfect.
Scott Davis
Okay. And now back to your depreciation question, Jerome can answer this.
Jerome Wong
So depreciation is about $125,000 and then stock comp was 519, and it’s all for Q2.
Kyle Bauser
Excellent Okay. Great. And congrats on the quarter.
Scott Davis
We appreciate it, Kyle. Thank you.
Operator
We reached the end of our question-and-answer session. I’d like to turn the floor back over to Scott for any further or closing comments. .
Scott Davis
Thank you, Kevin, and thanks to everyone for joining us today. We’re thrilled with the progress and milestone achievement in our second quarter, highlighted by the largest multiunit capital purchase order in our company’s history. We’re pleased to have accelerated our revenue growth in the quarter.
Additionally, receiving 510(k) clearance from the FDA to market our EksoNR for use in patients with MS not only gives us a greater pool of patient access — to access but it allows them to have this as part of their rehabilitative solutions. And it also significantly expands our market opportunity.
Underscoring our success is our ability to execute under difficult market challenges that continue to impact the broader macro market. We’re doing this for the patients. We desperately need treatment options and are pleased that we develop — that we have helped elevate the standard of care for neurorehabilitation.
Strengthening relationships with top network operators, we are generating more multiunit deliveries that have yielded a stronger pipeline to support our future growth. Combined with deeper customer relationships across a variety of industrial verticals for EVO and proactive management of supply chain constraints, we are poised to sustain our momentum for the second half of 2022 and beyond.
In closing, I’d like to express my gratitude to the entire Ekso team and our valued shareholders. We look forward to providing additional updates throughout the year. Thank you all, and have a great day.
Operator
Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
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