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spk05: Greetings. Welcome to the Exobionics third quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Matt Steinberg. You may begin.
spk01: Thank you, Operator, and thank you all for participating in today's call. Joining me from Exobionics are Jack Purek, President and Chief Executive Officer, Jack Glenn, Chief Financial Officer, and Bill Shaw, Chief Commercial Officer. Earlier today, Exobionics released financial results for the quarter ended September 30th, 2021. A copy of the press release is available on the company's website. Before we begin, I'd 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 contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements including our 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 and description of the risks and uncertainties associated with our businesses, please see our filings with the Securities and Exchange Commission. EXCO 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. This conference call contains time-sensitive information and is accurate only as of the broadcast today, November 2nd, 2021. I will now turn the call over to ExoBionics CEO, Jack Purack.
spk02: Thanks, Matt, and thanks, everybody, for joining us today. The third quarter reflected continued execution across our company as we reported improved revenues on both an annual and sequential basis. In the rehabilitation segment, we made significant progress with top inpatient rehabilitation network operators, and in the industrial segment, we were able to win material orders with both existing and new companies in the automotive and aerospace segments. Our flexible commercial offerings, which include capital sales and subscriptions, are giving our customers acquisition options And we are encouraged by an increasing level of customer interest and engagement as evidenced by a growing sales pipeline in all segments. For the third quarter, we generated solid revenue of $3 million, up 38% on a sequential basis. On the ExoHealth side of the business, we recorded 16 ExoNR bookings. While we continue to drive adoption of our subscription model, which provides purchasing flexibility for our customers, Nearly all of our bookings in the quarter were through capital purchases. As a result of the capital purchases this quarter, we generated two subscription bookings this quarter. On the industrial side, we are driving continued high level of customer interest via onsite evaluations. And our commercial team has produced several initial orders with leading companies, particularly in the automotive vertical with some of the newer participants in that industry. We remain focused on building greater awareness of our innovative EVO and XO-0G products. Now I will turn the call over to Bill for an update on our medical segment and global commercial strategy.
spk04: Thank you, Jack. Our commercial team continued its solid execution with our 2021 plan, an increase in customer demand from inpatient rehabilitation facilities supported by our targeted engagement strategy resulted in an influx of capital purchases for our leading ExoNR exoskeleton devices. Many of these capital purchases were driven by deferred 2020 capital for strategic investments. For the third quarter of 2021, we delivered approximately $2.7 million in ExoHealth revenue. Our rolling 12-month conversion and renewal rate is 77%. We now have more than $1.2 million of contracted unrecognized revenue under our subscription model. In the past year, we have been intensely focused on gaining traction with network operators, and we are pleased with the results. Because of our efforts, network operators have comprised 70% of our new U.S. bookings year to date, up from just 24% for all of 2020. Penetration of this market is generating multi-site, multi-unit orders, and our strong presence with the top networks in this space is enabling us to expand faster across the United States. One key in deepening these relationships is our introduction of the subscription model, and we continue to utilize subscriptions to accelerate XONR adoption, which is preferred among some of our larger network operators. We are generating closer relationships with our target customers more quickly under this model, and we expect to make additional progress utilizing this offering going forward. On the international front, Europe has been a consistent, strong performer for a number of reasons. First, we have improved strategic alignment with select partners who manage our indirect markets. Second, we developed a more efficient sales process through a virtual meeting focus, and that has opened up more opportunities in our direct markets with outpatient neuro rehab centers. And third, we continue to make progress with the BG network and occupational and healthcare operator. Specifically, we are working with BG on a continuation of care pathway for our XO and R. providing access from acute care to inpatient rehabilitation in a program for outpatient neurorehabilitation. Europe remains an important region where we see significant opportunities for future growth. Today, we want to share both the patient success story and promising research being done at the Edgerton Neuromuscular Research Laboratory at UCLA. Ignacio Montoya is an Air Force officer and former F-16 fighter pilot whose spinal cord was injured in a motorcycle accident in December of 2012. Post-injury, he not only was determined to recover, but also to help others with spinal cord injuries. Ignacio wasn't able to try EXO himself until August of 2020, but as a result of his determination, he walked down the aisle in an EXO at his wedding this July with the support of our customer, NeuroFit360. Ignacio and his wife, an EXO-trained physical therapist, have been collaborating with Dr. Edgerton at UCLA to look at combining therapies of XONR and transcutaneous spinal stimulation in the hopes of helping more patients like Ignacio improve their recovery from spinal cord injuries. In the first month of the clinical trial, Ignacio has taken more than 40,000 steps in the XONR, and his injury has been reclassified as incomplete due to the work he has put in. We are eager to see the results of this collaboration. As we near the end of 2021, we are excited about the progress of our commercial strategy. We are accelerating the sales cycle and increasing the overall size of each order. Additionally, our commitment to educate customers on the beneficial impact of our innovative devices, clinical training, and program support is a crucial component of our strategy. This includes a number of exciting upcoming in-person and virtual events. We look forward to providing new updates on our progress in the coming months. At this time, I'd like to turn the call back to our CEO, Jack Pierock.
spk02: Thanks, Bill. I'd like to provide an update on the progress with our industrial segment, ExoWorks. First, we are pleased that our commercial team has generated greater awareness of Evo, which has in turn more than doubled ExoWorks' revenue compared to Q3 last year. EVO is quite appealing to prominent large industrial companies, as it enables customers to mitigate employee fatigue, regulate productivity, increase worker retention, and reduce the risk of injury. Since launching EVO, we have made considerable progress with the automotive vertical, particularly with exciting new vehicle manufacturers. We also have seen strong progress in the construction vertical, most recently with solar panel installation. As you can see, EVO's value proposition and our strong awareness efforts have enabled us to deepen penetration across several industrial markets. Our commercial team has produced a number of successful initial evaluations with large prospective industrial customers in recent months, and we are excited about the potential for strong future relationships. I will now turn the call over to Jack Lin to review our third quarter financial results.
spk06: Thank you, Jack. EXO generated third quarter revenue of $3 million compared to $2.9 million for the third quarter of 2020. Our gross profit for the second quarter was $1.8 million, representing a gross margin of approximately 59% compared to gross margin of 63% for the same period a year ago. The decline in gross margin was primarily the result of an increase in EXO health service parts and labor costs and changes in product mix. As a reminder, gross margin tends to fluctuate from quarter to quarter based on channel and product mix. Operating expenses for the third quarter of 2021 were $4.6 million compared to $4.2 million for the third quarter of 2020. Net operating loss in third quarter of 2021 was $2.8 million compared with a net operating loss of $2.4 million in the prior year period. The increase in net operating loss is primarily a result of higher general and administrative expenses as a result of increased employee headcount and compensation expense. Gain on warrant liabilities for the quarter ended September 30, 2021 was $1.1 million from the revaluation of warrants issued in 2019, 2020, and 2021 compared to a $4.5 million gain associated with the revaluation of warrants issued in 2015, 2019, and 2020 for the same period in 2020. Now turning to year-to-date results. Revenue for the first nine months of 2021 was $7.2 million compared to $6.6 million for the same period in 2020. Gross profit for the first nine months of 2021 was $4.3 million an increase of 17% from gross profit of $3.7 million for the same period in 2020. Gross margin for the year-to-date period increased to 60% from 56% for the first nine months of 2020. Operating expenses for the first nine months of 2021 were $13.6 million, a decrease of about 3% from $14 million for the prior year period. Net operating loss for the first nine months of 2021 narrowed to $9.3 million from $10.3 million for the comparable period of 2020, reflecting higher year-to-date revenues and a leaner cost structure. For the first nine months of 2021, we recorded a gain on warrant liabilities of $2 million associated with the revaluation of warrants issued in 2019, 2020, and 2021. compared to $1.6 million loss 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 nine months of 2021 was $8.1 million. As of September 30, 2021, we had a strong cash balance of $43.4 million. Please see our 10-Q filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.
spk05: At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from RK with HC Wainwright. Please proceed with your question.
spk03: Thank you. Good afternoon, Jack and Jack and Bill. Obviously, an excellent quarter, you know, compared to what we have seen in the last two quarters of 21. And I really love the upswing in numbers. Just a little bit additional commentary, if you could, on the 16 bookings in the third quarter. I mean, I tried to write down as much as I could from what you were saying. So were all the 16 bookings capital purchases, or most of them were capital purchases, including two subscriptions within those 16? I'm just trying to get those things straight in my head.
spk02: Sure. Thanks, R.K. Let's hear from you. The 16 bookings we had, Of those 16, I might call on Adam for some support here, were all capital. We had, is that right, Adam, all capital?
spk01: 14 capital and two subscriptions makes up the 16.
spk04: Yeah, I can add some color jacks, it'll help.
spk02: Please.
spk04: So RK, yeah, if you look at it, we actually had 14 capital, in the quarter, we also had two subscriptions. So it was a little unique for us in the sense that most of the purchases did come from deferred capital, what we consider some hold on capital for 2020. We also had a few donor scenarios. But as we mentioned, the subscription offering has opened up a lot of new opportunities. So we do expect this to remain a viable option, especially if you look at the network partners we've been working with. If we just look at year to date, 80% of the units they've acquired, at least from our top five networks, have been through subscription. So again, it was a little bit unique, but I'd just say purchasing methods will vary quarter to quarter. So I wouldn't think about subscription as the only option we're focused on. Obviously, capital business is great for us to have, too. But that was the majority of what we saw this quarter.
spk03: Thank you very much for that call, Bill. And actually, that is very interesting because going into 21, or late 21, my thinking was capital purchases would be less in number, especially with budgets being weak or used up in other things other than buying capital purchases. Having said that, what is your feelings on what is still left in the capital budgets For 2021, are people dipping into a little bit of that 22 budget just because they need to ramp up the business which they had lost in 2020?
spk04: Yeah, it's a good question. So from our perspective, if we look at both businesses on the healthcare side, what we've experienced is some holdover capital from 2020 that had to be spent by the end of this year. We may see more of that, but I still expect to see subscription mixed in as well. And then on the industrial business, we've also seen some experiences where customers have to spend a certain amount of capital by the end of the year as well. So I think more of it from our experience is holdover capital that needs to be spent by year end versus new capital being pulled forward.
spk03: One last question from me before I jump back into the queue. Having said what you just said, and also having a month and some days into the fourth quarter, what are the trends that you are seeing, just to get a feel for what we could be seeing in the fourth quarter?
spk04: Yeah, I think for us, obviously, we talk a lot about networks, and we have a dedicated team focused on networks. It's obviously a very important part of our strategy, which is working. And I think our relationship has significantly improved this year with our customers, which I think is partially due to the talent we've brought into the organization and our strategy of how we have aligned with them. So one example of something we're doing and we're working with them on is what I call multi-unit, multi-year agreements. Obviously, if we can start to move on those type of opportunities, that's going to give us greater predictability into our future. So that's something we're trying to accomplish. But I'd also just add that, you know, being a mission-driven company, we believe every center should have access to our technology and the benefit of our technology. So we also have a group focused on regional networks, academic centers, standalone facilities. So these are all important because they obviously contribute to our overall success. So obviously we don't give a lot of guidance, but what I would say is that we expect to have a pretty solid mix between networks and independent centers.
spk03: Thank you, Bill. Thanks, Jack. Sure. I'll get back into the queue.
spk02: Thanks, Sergey.
spk05: Thank you. We have reached the end of the question and answer session, and I will now turn the call over to Jack Pierrock for closing remarks.
spk02: Thank you, operator, and thanks to everyone for joining us today. To recap, we had a solid third quarter in what is shaping up to be a strong 2021. Our team is focused on delivering three key value drivers. First, deepening relationships with top inpatient rehab operators. Second, create greater order flow through our subscription model. And third, expand EVO sales by capturing new customers across a focused set of industry verticals. By capitalizing on our momentum with top inpatient rehabilitation operators, it's becoming increasingly clear that they recognize the value that XONR can bring to their patients. Activity in the US and Europe has risen significantly this year, and we remain optimistic as we close out 2021. Our focus on inpatient rehabilitation network operators is working, as this customer segment is making up an increasing percentage of our sales. Our subscription offering is also well received, as it gives customers flexible acquisition options, allowing us to increase our pipeline and bring our solutions to a broader set of customers. And finally, on the industrial front, we are increasing market penetration, particularly with leading large employers. Our commercial team continues to add new customers and our opportunity pipeline is growing. We look forward to providing updates on our continued progress. Thank you and have a great day.
spk05: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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