ReWalk Robotics Ltd. (NASDAQ:RWLK) Q2 2022 Earnings Conference Call August 9, 2022 8:30 AM ET
Company Participants
Almog Adar – Director of Finance
Larry Jasinski – CEO
Conference Call Participants
Swayampakula Ramakanth – H.C. Wainwright & Co
Martin Pollack – KMTR Holdings
Operator
Welcome to the Second Quarter 2022 ReWalk Robotics Ltd. Earnings Conference Call. My name is Richard and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions]. I will now turn the call over to Almog Adar. You may begin.
Almog Adar
Thank you, Richard. Good morning, and welcome to ReWalk Robotics second quarter 2022 earnings call. This is Almog Adar, ReWalk’s Director of Finance and with me on today’s call is Larry Jasinski, Chief Executive Officer. Today, the company issued a press release detailing financial results for the three and six months ended June 30, 2022. This press release and the webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com.
Before we get started, I would 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 and the company’s future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ReWalk management as of today and involve risks and uncertainties, including those noted in our press release and ReWalk’s filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ReWalk specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release including relevant non-GAAP reconciliations on our corporate website at rewalk.com.
A telephone replay of the call will be available shortly after completion of this call. You will find the dial-in information in today’s press release. The archived webcast will be available on the company’s website, www.rewalk.com. For the benefit of those who may be listening to the replay or the archived webcast, this call was held and recorded on August 9, 2022. Since then, ReWalk may have done announcements related to the topics discussed, so please reference the company’s most recent press releases and SEC filings. And with that, I will turn the call over to ReWalk’s CEO, Larry Jasinski.
Larry Jasinski
Thanks Almog. Good morning, thank you for joining us today. As you will see from our results, we made important progress in the quarter on our key objective of establishing a growing and sustainable market with broad community coverage. Our original mission of improving the health and wellbeing of the paralyzed community through enabling an individual to regain ambulation as a part of their daily life is in our sights. Our experiences and data on the impact on their physical health, their quality of life, and involvement in community is now extensive and remains compelling. To start, I’d like to walk through the status on the three focused areas I identified at the start of the year. As a reminder, these areas are first, progress with CMS and the status of the German court case. Second, executing on technical developments to improve our ReWalk Personal System. Third, continuing to develop processing infrastructure and support materials for training, service, reimbursement assistance, and sales coverage to grow effectively.
Starting with CMS, we were placed on the biannual Healthcare Common Procedure Coding System public meeting agenda, known as HCPCS to present the basis for a Medicare benefit category determination for the ReWalk Personal Prosthetic Exoskeleton System. On June the 8th we presented before CMS at its HCPCS meeting, detailing why CMS should properly assign the ReWalk Personal Prosthetic Exoskeleton to the artificial leg prosthetic benefit category, because this is a medically proven and necessary technology. We stress three points in this discussion. One, ReWalk meets Medicare’s statutory definition of a prosthetic device. Medicare considers artificial legs, arms, and eyes to be covered under the prosthetic device benefit category as well as devices that “place all or part of the function of a permanently inoperative or malfunctioning internal body organ”.
Two, ReWalk satisfies Medicare’s definition of a prosthetic device. ReWalk is a device as defined by the FDA in the de novo clearance. And third, ReWalk acts as a pair of artificial legs for individuals who are permanently paralyzed or otherwise disabled due to spinal cord injury. It enables functional ambulation of the lower legs where such ambulation would otherwise be impossible due to the injury of an internal body organ, the spinal cord. There are also multiple clinical and industry speakers supporting ReWalk’s benefit category assignment, which was highly encouraging. In addition, following the meeting, we provided a detailed submission to the agency. CMS is now considering their request and we anticipate guidance on this recommendation in late Q3 or in Q4. In parallel, we were advised to submit our first claims for CMS beneficiaries from the pool of patients that have been waiting for many years to regain ambulation. The initial claims are planned in the coming months and this activity will help advance this process.
Now a brief update on Germany, the pending case with the German Federal Social Court has not yet been ruled on by the court. Although timing of any ruling is up to the court, we are one of the oldest cases currently on their agenda. The second category, regarding the technical developments on the ReWalk Personal Exoskeleton System, we have submitted a 510k application in June 2022 to enable stair and curb navigation with our ReWalk Exoskeleton. These additional capabilities will significantly improve users access to more locations and environments and it will make the ReWalk Exoskeleton the first of its kind to receive FDA clearance for stair and curb functionality for personal use. This application previously received a breakthrough device designation with the FDA and is currently pending FDA clearance which is anticipated later this year. In addition, we’re developing multiple improvements to the ReWalk system with a seventh generation design that is intended to improve usability, add new features, and expand capabilities for monitoring utilization data. We believe these improvements continue to provide a significant advantage with the ReWalk as the most functional design in the marketplace.
In parallel, we are continuing to advance the ReBoot Soft Exosuit program for post stroke home and community use. The team at Harvard has continued to evaluate the device for home use and has recently completed a study which force us to provide it to participants for home and community use in the Boston area to examine functionality and utilization. The study was supportive of advancing the program to the next stage of development. We’re now moving to a commercial design plan and a review of the related business plan. As the first in its kind system providing powered propulsion during walk in the home and community, this design also received a breakthrough device designation with the FDA. As a home use device, coverage and reimbursement is a key element in advancing this innovative concept to commercial use. With a breakthrough device designation, we are closely monitoring progress of the TCET Transitional Coverage of Emerging Technologies program, which could provide Medicare coverage guidance for breakthrough devices like the ReBoot. This is still an active consideration, and the comment period was recently delayed from October 2022 until April 2023. A final decision and its outcome will affect the pathway for many breakthrough technologies like the ReBoot.
The third category, processing infrastructure and support. An important element in the processing of claims with Medicare and others is the provision of data in a structure that meets the requirements for every insurer. As part of this, ReWalk has completed a comprehensive dossier that documents the extensive clinical evidence, which supports the ReWalk Personal Prosthetic Exoskeleton that has crossed the threshold to prove the prescription of the system is reasonable and necessary, and therefore satisfies the requirement for medical necessity. This dossier includes information on the disease burden via its clinical and empirical evidence, a summary of economic value modeling, and expert opinions including societal support. The conclusion in the summary states “the ReWalk Exoskeleton enables trained patients with SCI to perform core weight bearing and functional ambulation tasks such as standing, walking within home and community settings. Ambulation is beneficial in and of itself, but also produces physical and mental benefits that counter the long-term consequences of SCI”. This exhaustive document will support efforts with insurers going forward. We have it structured to be able to modify it to meet the request of each insurer.
A summary of key studies in the public hearing which included 14 studies with approximately 900 subjects covering 10 improved health outcome categories was presented with a request on the Benefit Medicare category determination. In a Stanford survey of 253 innovators, the time cycle for coverage for highly innovative technologies like the ReWalk Exoskeleton has averaged 4.7 years. With ReWalk we have demands from code creation in late 2020 through clinical evidence are now in the process of determining the benefit category, are preparing to submit our first claims to Medicare, which will also support pricing decisions, we possess supporting advocacy groups, and we have an established plan for case oversight and long-term follow-up, which is all part of moving to the final stages of coverage and reimbursement. We have also developed a detailed workflow and defined processing requirement model post coverage. We are contracting most of the required short-term resources to process the early cases and we’ll build and contract research to support growth in 2023 and beyond.
Most of our revenue base is reliant on coverage, but our cases with most insurers have been built on a case-by-case basis without sufficient definition. An important measurement for this market is that in an environment with defined and controlled reimbursement such as we see in the German contracts, our results are becoming reasonably predictable. In the United States, we have several workman’s compensation cases that continue through multiple levels of appeals occurring between the individual seeking to walk and their respective insurers. When none were lost from our pipeline, many have been delayed and the process remains unpredictable until coverage and clear definitions are in place, such as we see in places like Germany. I’d now like to turn the call over to Almog for a review of financial details. Almog?
Almog Adar
Thanks, Larry. Our second quarter revenues for 2022 closed at $1.6 million compared to $876,000 in the previous quarter and $1.4 million in Q2 2021, which represents a 9% year-over-year growth. The increase compared to last year was mainly due to higher number of ReWalk Personal 6.0 units served in Europe and the higher number of distributed product units sold in the U.S. This quarter, we have sold 14 units of ReWalk Personal 6.0. With our distributor products, we sold 15 units of MYOLYN for over $216,000, which marks our highest quarter to date for this product line.
For the six-month period ended June 30, 2022 we had record revenues of $2.4 million compared to $2.8 million in the previous year. This year the decrease is mainly due to lower number of lower number of ReWalk Personal 6.0 units sold in the U.S. during Q1 2022. As we look at our insurance progress this quarter we have five new ReWalk insurance decision to place a device for a new rental or a direct purchase and two VA decision to place a device for a new rental. Our current pipeline of actual rentals consists of 20 cases, representing a total loss of — and our overall insurance cases are currently in 71 with 54 in Germany and 17 in the U.S.
Turning into our gross margin. In the second quarter of 2022, our gross margin was 48% compared to 51% in the prior year quarter. This decrease is mainly driven by higher freight and service-related expenses. Regarding the operating expenses, our Q2 2022 operating expenses landed at $5.1 million compared to $3.8 million in the prior year quarter. This increase is mainly attributed to sales and marketing, primarily due to higher contracting and expenses related to CMS progress, investments in series of trade shows, and higher personnel and personnel-related expenses. General and administrative growth, mainly due to professional services expenses related to the 2022 proxy process.
To recap the quarterly results, our net loss for the second quarter of 2022 was $4.3 million compared to a net loss of $3.1 million in the second quarter of 2021 due to the increased spend. Our non-GAAP net loss for the second quarter of 2022 was $4.2 million compared to $2.9 million in the second quarter of 2021. We ended the quarter with $78.8 million in cash. With that, I would like to turn the call back to Larry for some final remarks.
Larry Jasinski
Thank you, Almog. I’d now like to provide more short-term detail for Q2 environment and for the second half of 2022. Key events in the market in Q2 included first, both the U.S. and German markets were almost fully open for the first time since COVID in early 2020, which is now allowing training and placements for home systems. For our clinic-based products, we are seeing capital budgets that are constrained and delay in some planned purchases. Second key event, the company has attended five trade shows year-to-date after zero events in the prior two years. These remain our best source of leads. The third key event, the VA has restarted with zero patients processed in 2020 and only one in 2021. We have already sold one home system year-to-date, have five active trainings in process for the second half of 2022, and multiple evaluations in the coming weeks.
With this restart, we have also initiated interaction with local VA medical centers nationwide, along with our supporting community care networks, built an extensive contract program with policy leadership internally and at the VA headquarters in Washington, and externally with their powerful advocacy groups and increased interaction with members of Congress and staff with jurisdiction over VA policy. And the fourth key event, we gained court approval for our share buyback program of up to $8 million and have a board committee that is overseeing parameters. The process is being set up with our banking partners and we plan to start working within our parameters.
Next, I’d like to follow up on each of the annual objectives we defined in Q1 and that we review each quarter. First, revenue. We continue to expect year-over-year growth despite the slow movement of pending cases in Q1 and the partial improvement in Q2. The drivers will be the German court case conclusion and subsequent additional supply contracts, growth from the VAs reopening and our focus on training and processing, processing of workers’ compensation claims and as we move our first CMS cases forward. The timing of many of these are beyond our control and that limits our ability to provide further guidance at this time.
Second, product offering. We seek to add at least one additional commercial product line, which we believe can allow further leveraging of our organizational structure, provide growth, and help to achieve the pathway to profitability. We are focusing on opportunities where some of that may be accretive, others that may offer strategic growth, all our adjacent technologies, and each can help us build infrastructure and each could have meaningful synergy. Third, with CMS, we want to build on the expected Medicare benefit category determination. This is entirely on the track we established in 2021, and we will report as we receive guidance from CMS.
Fourth, technology development. Our goal was two device applications for improved ReWalk designs to launch in 2022 and 2023. The first submission was completed in June, and the second is on track before year-end. The timing to launch was depending on CE marking and FDA 510k processes and some supply chain considerations. Fifth, operational. Controlled but increased investment of an additional $3 million to $4 million year-over-year in reimbursement, product development, market development and access, investor relations, and new business development. We have followed through on reimbursement support in a precise manner, having able to restart market development and access programs post-COVID and have resourced the process for identifying and pursuing new business development. We are now in the process of engaging an IR team in Q3 to express our vision and progress at a high level for all investors. We will provide updates to each via press releases, quarterly earnings call, and other appropriate communications.
This remains the pivotal year for this company and this industry. Other than the slower-than-desired start for sales, all other business building activities are progressing in a positive direction, and we remain highly focused on execution for the benefit of our patients and to enhance shareholder value. Thank you for your time and interest today. I’d like to turn the call over to questions at this stage. Operator, please go ahead with the instructions.
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question on line comes from Swayampakula Ramakanth from H.C. Wainwright. Please go ahead.
Swayampakula Ramakanth
Thank you. Good morning Larry and good afternoon Almog. So just to get started, I know you don’t want to talk too much about the German courts this morning, but — just want to get an idea in terms of the German court, is the court in recess during the summer months, and when do you think is the next meeting, I understand the court decides when they wanted to look into your particular case but just trying to understand the timing of when this could happen?
Larry Jasinski
Yes. The court is not specifically in recess during the summer months. They had been during the COVID period but have not shown that. Their next scheduled session is on August 3rd that is published. We are not on that docket at this time or that’s actually already passed now. Then the next scheduled one will be sometime in September, but that has not yet been posted.
Swayampakula Ramakanth
Okay. Thank you for that. It is certainly encouraging on this side of the pond in terms of VA restart. You gave us a little bit of color on it. But can you give us a little bit more details as to your interactions with the VA and how are these progressing and how does the process work with VA now, just trying to make sure I’m very clear as to how the backlog could be set up and when there could be a real transaction?
Larry Jasinski
The VA varies from location to location, but overall, this is still following the original SOP except patients are now coming back into the centers again. And I would say what I have seen a change in direction in particular, is what’s called the community care networks for patients that are not living close to clinics. We’re seeing an emphasis of bringing patients through the controlling spinal cord injury center, which always should make sure that the patient is appropriate but an openness now to let them train near their home. And that is a particularly important feature that doesn’t deal with some of the access problems we’ve had in the past. In particular, we see a few VA’s that are starting to lead the way in referring patients and we’d like to see many VAs do that, but we have a decent number now that have started now that the market has reopened. So we’ve seen the engagement of say at three levels, at the local level with a greater openness through the community care network system, at a senior level with many of the other direct groups that we’ve now been able to have contact with in management of the VA, and we’re also interacting at the congressional level. There seems to be a higher level of interest now in ensuring that these patients are covered and treated in a prompt manner. So it’s been encouraging. Numbers aren’t huge yet, but they’re in the right direction.
Swayampakula Ramakanth
Perfect. And then on the HCPCS code, and trying to get the artificial legs benefit category. How does that — when it comes through how is that going to change the reimbursement dollars compared to what you have at this point, just trying to understand and how is that also going to be attractive in terms of patients?
Larry Jasinski
Well, the dollars are to be determined. That’s not yet — that’s the next stage. The most important part of this is it’s a category first that matches the product and is in a category that would have comparable products that have complex components to them in terms of motors or gears or other things that are making them function. The ability now once you have a benefit category to go to the stage of okay, getting them priced is why we will be putting in patients in parallel with this. So that will define a final price but we generally have seen the pricing in the prosthetics category to be competitive or reasonably aligned with the exoskeleton category. But I don’t have specifics on pricing until they actually give them to us.
Swayampakula Ramakanth
Okay. And then on the technical improvement, with the 510k and with the FDA now for handling stairs and curves, how much of that is actually a headwind in terms of acquiring new patients to use the ReWalk?
Larry Jasinski
It’s not a headwind. I think it’s an added benefit that will make them be able to increase utilization and I think one of the most important features and considerations by insurers is how much people actually use this on a daily basis to improve their health. And if they can use it to go to a neighbor’s house who has two steps and no ramp or they can use it to go to restaurants where they are no longer blocked on curbs to get up in areas, it makes a difference. We have found our utilization rates in Germany to be higher than the United States, and they have stair climbing, they’re already enabled so adding it to the U.S., we believe will improve utilization for the product and give it a little further differentiation as we’re the only product with the ability to go up curves and up steps and down steps.
Swayampakula Ramakanth
Perfect. Thank you very much Larry for taking all of my questions. And I will talk to you soon.
Larry Jasinski
Thank you.
Operator
Thank you. [Operator Instructions]. Our next question on line comes from Mr. Marty Pollack from KMTR Holdings. Please go ahead.
Martin Pollack
Yeah Larry, congratulations for finally the share repurchase progress. Wanted to look at that as the 10% of your shares outstanding, hopefully we will be retired. Can you tell us about when you’re actually able — market and just really the process of how you might do that with regard to price of the stock, it seems to me that the undervaluation is so significant that it would only make sense for you to be participating virtually every day, is that the kind of outlook that might actually take place once you’re — the handcuffs are off and you can actually start buying back stock? That’s first question. With regard to the CMS, it seems that basically the presumption of designation could obviously bring a lot of new patients or maybe old patients that are kind of sitting in the wings waiting for reimbursement designation. Can you tell us what might be a backlog going into 2023 of potential cases even if at this point they have not been booked? Third, MYOLYN, as you know, I was at that trade show that had the wheelchair games, clearly very, very impressive product. What is the strategy with regard to that in terms of your distribution agreement, are you focusing right now on renewing it and extending it because this becomes a very important source of revenues, clearly? And I guess, the last question, if you keep it in mind, while you’ve talked about the IR surge that you’re actually close to maybe putting a team together, describe this full search, it seems to me that still an important long-term goal you have since ReWalk has basically been reassigned so I think all this is — there are so many moving parts here that are important if you were to describe that search at this moment?
Larry Jasinski
Mark, thank you. I’ll try to answer all four of those. First, on the buyback, we also believe it’s an opportune time for us to be doing this. The parameters are set by the Board, and we’ll set both volumes in terms of what we can do within the requirements of the SEC and others in terms of what we can sell on a daily basis. And we will be into an open market shortly after — outside this blackout period prior to the earnings call. So we will be active. There will be quarterly reports issued on what we buy back but it’s a program that we — the Board has endorsed and we believe is the right thing for our shareholders. So I’ll be able to give you more public information as it occurs.
Regarding CMS and bringing back old patients, I think the most important measurement to consider is that 53% of all spinal cord injury patients in the United States wind up in Medicare and Medicaid within five years of their injury because of the nature of employment and other things that have befallen in their life. So yes, this really changes our pool, theoretically more than doubles it. And we had a lot of patients in that category that we’ve never been able to even try and process. So those are the ones that we’ve begun to rebuild and some of these early cases will be going in for people that have asked a long time ago, we couldn’t do anything with. So, this will change our available pool.
On MYOLYN, we think it’s a fabulous product. It’s working very well for us and we are very aggressively looking to expand that relationship with them because we also are helping them grow quite a bit. It’s a good fit with our company, and we wanted to stay a good fit with our company for the long term. And in the IR to describe the search, there’s two components. One is bringing in a CFO who has a significant level of experience in Investor Relations, having perhaps directly worked in that area for part of their career. So that is the first part of the recruitment, and we used a very good agency for that and are nearing conclusion. And on top of that, we’ve looked for IR teams we thought that could best represent us and complement the CFO. We also look at where we are at a point in time with CMS somewhere in our reasonable future, and we still believe Germany is in our reasonable future. It is time for us to be able to engage and give information on that at a very high level. So adding both the CFO and a contracted team to do that here in Q3 will both occur, at least that’s our current intent, and that’s the process we’ve gone through.
Martin Pollack
Larry, if I may, just one more question. Actually obviously, gain were very well utilized. Sales and marketing, SG&A, general and administrative is also going up sharply certainly from year-over-year. The productivity from that obviously has to wait until you can get a lot of the training done behind you. But I would like to know whether as you see the cash, so to speak, drain quarter-to-quarter, did you say it was $3 million to $4 million per quarter that you continue to expect? And just wondering whether at the same time as you look into the second half of the year, why did you not give us full year guidance, is there any reason to assume that year-over-year, you’re less confident that you’ll be able to show growth?
Larry Jasinski
Well, first on the selling and expenses. The biggest part of that increase is actually in reimbursement, which falls under that category. So we have invested quite a bit in the support network in working with CMS. But nonetheless so those will change a little bit to processing expenses as opposed to gaining coverage components. So that has been the bigger increase but we do need a higher sales per rep level to leverage that SG&A cost and by having coverage, we’ll be able to do that.
On year-over-year, it is still our expectation. We will have year-over-year growth driven by a few factors that should improve here in the second half for us. And specifically, the VA is one. We have real patients that are in their systems now and training. Some of those will close compared to nothing we’ve had in the past, in the last two years anyway, with COVID. We still expect the German court case to free up some cases. We have workmen comp claims, even they have made it through some of those will start to make it through and we will also see some additional contracts come through in Germany. So there are enough things to move it year-over-year. The timing of those events will affect how much it moves year-over-year, but we expect positive growth year-over-year.
Martin Pollack
Thank you very much. Keep up the good work. And obviously, the story is still developing. It seems like 2023 should be the breakthrough year.
Larry Jasinski
We believe so. Thank you for your questions.
Operator
We have no further questions at this time. I will now turn the call over to Larry Jasinski for closing remarks.
Larry Jasinski
Thank you, Richard. We opened this with the statement that we see ambulation as a part of everyday life in our sights. And we’ve called it a pivotal year, and it’s because we believe these efforts we’re putting forth on coverage are going to allow us to transition to that and the original mission of our company will begin to be met at a meaningful level. So thank you, everybody for listening, and please stay tuned to future announcements from our company. Thank you.
Operator
And thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Speakers, please stand by for your debrief.
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