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spk02: Greetings, and welcome to Exobionics' third quarter 2022 financial results call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Steinberg, with FinPartners. Thank you, sir. You may begin.
spk01: Thank you, Operator, and thank you all for participating in today's call. Joining me from Exobionics are Stephen Sherman, Chairman and Chief Executive Officer, Scott Davis, President and Chief Operating Officer, and Jerome Wong, Chief Financial Officer. Earlier today, Exobionics 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. EXO 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 ExoBionics Chairman and CEO, Steven Sherman.
spk03: 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 ExoNR bookings, generated several multi-unit capital purchase orders from network operators, and booked new orders internationally in both Europe and in Asia. With the recent expansion of ExoNR for MS, we're addressing patients' needs across a larger population. Overall, the growing backlog of our Exo health business gives us a solid momentum heading into the fourth quarter and into 2023. Now I'll turn the call over to Scott Davis.
spk05: Thank you, Stephen, and thanks, everyone, for joining our call today. As Stephen mentioned, We had a solid execution in the third quarter, as evidenced by a 21% increase in XO health 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 XO NR exoskeletons. This is evident as we exited the third quarter with a stronger backlog driven by our record 33 XO NR unit bookings, the majority of which were capital purchases. Predominantly comprising our best booking quarter ever were six multi-unit customer orders, a testament to the inroads we have made with our commercial strategy. Large network operators, or IDNs, are continuing to make XONR 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 multi-unit 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 Viber Healthcare. Our cumulative conversion and renewal rate remains 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 success achieved on the international front. In one of the strongest quarters ever, we generated robust order demand in both the EMEA and APAC regions. Notably, we booked multi-unit capital purchase orders with three existing distribution partners in Europe. Additionally, we booked a six-unit capital purchase order in Indonesia. This success internationally is a positive reflection of the investments that XO has made to support growth in these regions, as well as continued validation that the XONR is providing positive patient outcomes. As we mentioned on last quarter's call, receiving the FDA clearance for the multiple sclerosis indication makes XONR the first exoskeleton device to carry this designation for rehabilitation use in patients suffering from MS. We're proud to see that some MS patients have already started to benefit from the XONR. Also, we continue to educate MS physicians and patients in the use of our XONR 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 Mellon Center for Multiple Sclerosis. In this session, she reviewed the Cleveland Clinic feasibility study completed for use of XONR in individuals with MS and reviewed a short case study highlighting one individual's improvement with use of exoskeleton gait 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 Mellon Center. The patient, named Jane, was diagnosed with MS in 2008 and has been completing physical therapy at Mellon since 2013. She was first introduced to XONR in 2019, and after more than 30 XONR sessions, Jane drastically improved 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 Jane's as our customers begin using ExoNR for the MS patient population. Turning to an update on the progress with our industrial product line, ExoWorks. 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 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 XONR, illustrated by strong demand. particularly with the robust growth of multi-unit orders from network operators and the new orders we are generating internationally. We continue to see our ExoWorks 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 ExoBionics, 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 XO family for nearly seven 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.
spk04: Thanks, Scott. EXO 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 EXO NR 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 EXO Health service and supply chain costs, partially offset by higher proportion of revenues by EXO Health. As we've 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 XONR and the development of next generation products. Net operating loss in the third quarter of 2022 was $3.7 million, compared with a net offering loss of $2.8 million in the prior year period. Gain on the warrant liabilities for the quarter ended September 30th, 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 30th, 2022, revenue increased $2.2 million, or 31%, to $9.4 million for the nine months ended September 30th, 2022, compared to a $7.2 million in the same period of 2021. The increase in revenue was primarily driven by an increase in the volume of EXO-NR device sales. Gross profit for the nine months ended September 30th, 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 nine months of 2022 were $15.7 million compared to $13.6 million for the same period in 2021. During the first nine 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 nine 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 nine months ended September 30th, 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 nine 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 10Q filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.
spk02: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would 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 key. One moment, please, while we poll for questions. It appears there are no further questions at this time. I would now like to turn the floor back over to Scott Davis for concluding comments.
spk05: All right. Thank you, Maria, and thanks to everyone joining us today. To date, 2022 has been a very productive year for exobionics. We're establishing record orders for our XONR, increasing patient access after receiving 510K clearance from the FDA to market our XONR 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 XO 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.
spk02: The conference has now ended. So thank you for your participation. You may disconnect your lines at this time.
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