Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Q3 2022 Earnings Conference Call November 3, 2022 4:30 PM ET
Company Participants
Matt Steinberg – Investor Relations
Steven Sherman – Chairman and Chief Executive Officer
Scott Davis – President and Chief Operating Officer
Jerome Wong – Chief Financial Officer
Operator
Greetings and welcome to Ekso Bionics Third Quarter 2022 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Steinberg with FINN Partners. Thank you, sir. You may begin.
Matt Steinberg
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, Chief Financial Officer. Earlier today, Ekso Bionics released financial results for the third 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 law, 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 operating 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 and 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 operating projections, our regulatory outlook, or other forward-looking statements, whether because of new information, future events or otherwise, which speak only as of today, November 3, 2022.
I will now turn the call over to Ekso Bionics Chairman and CEO, Steven Sherman.
Steven Sherman
Thank you, Matt, and thank you to everyone for joining us today. We had strong execution this quarter in all our segments. We achieved a record number of quarterly EksoNR bookings generated several multiunit capital purchase orders from network operators and booked new orders internationally in both Europe and in Asia. With the recent expansion of EksoNR for MS, we are addressing patients’ needs across a larger population. Overall, the growing backlog of our Ekso health business gives us a solid momentum heading into the fourth quarter and into 2023.
Now I will turn the call over to Scott Davis.
Scott Davis
Thank you, Stephen and thanks for everyone for joining our call today. As Steven mentioned, we had a solid execution in the third quarter as evidenced by a 21% increase in EksoHealth revenue compared to the prior year period. We are encouraged with the progress of the business, primarily due to the robust demand we are seeing for EksoNR and Exoskeletons. This is evident as we exited the third quarter with a stronger backlog driven by our record 33 EksoNR unit bookings, the majority of which were capital purchases. Predominantly comprising our best booking quarter ever, were 6 multiunit customer orders, a testament to the inroads we have made with our commercial strategy. Large network operators, or IDNs, are continuing to make EksoNR their standard of care in neurological rehabilitation as they realize the patient value and benefits that it brings. Underscoring the success of our commercial strategy is the increased volume of multiunit IDN customer orders. Establishing trusted relationships with the leading network operators enabled us to secure large orders from respected hospitals such as Kindred Healthcare and Vibra Healthcare.
Our cumulative conversion and renewal rate remained strong at 81%, with approximately $2.5 million of contracted unrecognized revenue under our subscription model. While we are primarily focused on the domestic market, our revenue and bookings growth in the quarter was driven by a success achieved on the international front. And one of the strongest quarters ever, we generated robust order demand in both the EMEA and APAC regions. Notably, we booked multiunit capital purchase orders with three existing distribution partners in Europe. Additionally, we booked a 6-unit capital purchase order in Indonesia. This success internationally is a positive reflection of the investments that Ekso has made to support growth in these regions as well as continued validation that the EksoNR is providing positive patient outcomes.
As we mentioned on last quarter’s call, receiving the FDA clearance for the multiple sclerosis indication makes EksoNR the first exoskeleton device to carry this designation for rehabilitation use in patients suffering from MS. We are proud to see that some MS patients have already started to benefit from the EksoNR. Also, we continue to educate MS physicians and patients in the use of our EksoNR technology, including a webinar that we hosted last Friday by Ashley Christopher, a physical therapist currently working in outpatient neurologic physical therapy at the Cleveland Clinic Mellen Center for multiple sclerosis.
In this session, she reviewed the Cleveland Clinic feasibility study completed for use of EksoNR in individuals with MS and reviewed a short case study highlighting one individual’s improvement with use of exoskeleton gate training. We look forward to hosting more of these educational series moving forward. While our commercial team performed well and our backlog grew, deliveries were tempered in the quarter by a combination of component shortages early in the quarter, delays in contracted manufactured services and a planned shutdown of our production during our relocation. Supply chain remains challenging for certain mechanical and electrical components. We continue to order parts well in advance of when we would typically do so, but are still navigating through these various disruptions.
At the end of August, we completed our relocation to our new headquarters and manufacturing facility in San Rafael, California. Our new headquarters gives us the bandwidth needed to achieve our immediate and future administrative and manufacturing needs. However, as a result of this move, we experienced some production constraints that affected our top line and resulted in higher-than-normal operating expenses in the third quarter. That said, we’re back on track from a production standpoint and very excited to be here in beautiful Marin County, California.
To expand on our early successes with the MS population, I wanted to share a patient story from the Cleveland Clinic Mellen Center. The patient named Jane was diagnosed with MS in 2008 and has been completing physical therapy at Mellen since 2013. She was first introduced to EksoNR in 2019. And after more than 30 ONR sessions, can drastically improve her posture, strength and endurance with standing and walking. At home, she can do significantly more and is continuing to see improvements. We hope to hear more stories like Janes as our customers begin using EksoNR for the MS patient population.
Turning to an update on the progress with our industrial product line, EksoWorks. During the quarter, we continued to transition our focus toward large customers that have the needs and capacity to execute volume purchases. While we are gaining excellent traction, the sales cycle is longer than with our previous go-to-market approach. With these larger customers, there is a requirement for more detailed technical evaluations, including the administration of pilot programs and more internally complex decision processes. Our team is confident that we have a successful strategy in place. We’re seeing strong interest from marquee customers across the construction, general manufacturing, green energy, automotive, and aerospace verticals. Our strong interest pipeline gives us conviction that we can increase sales, giving us a better path to taking share from the large addressable market opportunity. And additional volume will give us better economies of scale to support larger sales volumes.
Now looking ahead to the fourth quarter and beyond, our commercial team is excelling at raising customer awareness of EksoNR illustrated by strong demand, particularly with the robust growth of multiunit orders from network operators and the new orders we are generating internationally. We continue to see our EksoWorks segment as a long-term growth opportunity as we are making inroads with several large customers across multiple industry verticals. It’s an exciting time for the team at Ekso Bionics, and we’re looking forward to helping patients and supporting workers alike.
Before turning the call over to Jerome Wong, who will discuss our third quarter 2022 financial results, I’d like to recognize his recent promotion as our CFO on a non-interim basis effective last week. Jerome’s been part of the Ekso family for nearly 7 years and most recently has done a great job as interim CFO. His experience, drive and financial expertise will be invaluable as we continue to execute on our growth plan. Over to you, Jerome.
Jerome Wong
Thanks, Scott. Ekso generated third-quarter 2022 revenue of $3.3 million compared to $3 million for the third quarter of 2021, an increase of 9%. This increase in revenue was primarily driven by an increase in the volume of EksoNR device sales. Our gross profit for the third quarter was $1.7 million, representing a gross margin of approximately 51% compared to a gross margin of 59% for the same period in 2021. The overall decrease in gross margin was primarily due to the increase in EksoHealth service and supply chain costs, partially offset by a higher proportion of revenues by EksoHealth.
As we have noticed 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 expenses for the third quarter of 2022 were $5.3 million compared to $4.6 million for the third quarter of 2021. During the third quarter of 2022, the company incurred increased general and administrative expenses associated with our move to our new headquarters and manufacturing facility in San Rafael, California. The company also recorded an increase in research and development expenses related to sustaining engineering activity for the EksoNR and the development of next-generation products. Net operating loss in the third quarter of 2022 was $3.7 million compared with a net operating loss of $2.8 million in the prior year period. Gain on the warrant liabilities for the quarter ended September 30, 2022 associated with the revaluation of warrants issued in 2019, 2020 and 2021 was $0.1 million compared with a gain of $1.1 million due to the revaluation of the same warrants for the same period in 2021.
Turning to our 2022 results through September 30, 2022, revenue increased $2.2 million or 31% to $9.4 million for the 9 months ended September 30, 2022, compared to $7.2 million in the same period of 2021. The increase in revenue was primarily driven by an increase in the volume of Ekso and our device sales. Gross profit for the 9 months ended September 30, 2022, was approximately $4.5 million, representing a gross margin of approximately 48% compared to a gross profit of $4.3 million for the same period of 2021, representing a gross margin of 60%.
Operating expenses for the first 9 months of 2022 were $15.7 million compared to $13.6 million for the same period in 2021. During the first 9 months of 2022, the company incurred increased general and administrative expenses primarily due to an increase in non-cash stock-based compensation expense, severance expense, and costs related to the company’s headquarters and manufacturing facility move.
The company also incurred higher research and development expenses due to an increase in product development activities. Net operating loss in the first 9 months of 2022 was $11.1 million compared with $9.3 million for the comparable period of 2021. Gain on warrant liabilities was $1 million for the 9 months ended September 30, 2022, and was associated with the revaluation of the warrants issued in 2019, 2020, and 2021 compared with a gain of $2 million due to the revaluation of the same warrants for the same period in 2021. Cash used in operating activities in the first 9 months of 2022 was $11.1 million. As of September 30, 2022, the company had a strong cash balance of $29.2 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
Scott Davis
Alright. Thank you, Maria and thanks to everyone joining us today. To-date, 2022 has been a very productive year for Ekso Bionics. We are establishing record orders for our EksoNR, increasing patient access after receiving 510(k) clearance from the FDA to market our EksoNR for use in patients with MS and building momentum internationally with a strong third quarter. Finally, against the challenging market environment due to supply chain constraints and inflationary headwinds, we remain prudent in managing our finances and will continue to do so moving forward.
In closing, I’d like to thank our Ekso team, who continue to do great work as well as our valued shareholders. We look forward to providing additional updates in the coming months. Thank you, all and have a great day.
Operator
The conference has now ended. So thank you for your participation. You may disconnect your lines at this time.
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