Ekso Bionics Holdings, Inc.

Q4 2022 Earnings Conference Call


spk01: Greetings and welcome to the Excel Bionics fourth quarter 2022 financial results conference 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. And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Steinberg with Finn Partners. Thank you, Matt. You may begin.
spk03: Thank you, Operator. And thank you all for participating in today's call. Joining me from Exobionics are Scott Davis, Chief Executive Officer, Jerome Wong, Chief Financial Officer, and Jason Jones, Chief Operating Officer. Earlier today, Exobionics released financial results for the quarter and year ended December 31st, 2022. 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 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 or 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 obligation, except as required by law, to update or revise any financial or operational projections, its 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, March 28, 2023. I will now turn the call over to ExoBionics Chief Executive Officer Scott Davis. Thank you, Matt.
spk06: We're pleased to have officially closed 2022 with continued solid demand for ExoNR and the completion of our most significant transaction to date, the acquisition of Human Motion and Control Business Unit, or HMC, from Parker Hannafin. The importance of this acquisition cannot be understated as it expands our product offering across the continuum of care to home and community use markets. This is also why we are announcing our Q4 and 2022 financial results weeks later than usual, as is often typical in matters involving business combinations. I'll touch on this deal in more detail shortly, including what it means for our business and the value we are bringing to customers and patients. But first, a summary of our fourth quarter business performance. We generated revenue of $3.6 million in the fourth quarter, which included bookings totaling 27 ExoHealth devices, of which two were Indigo devices that were booked in the last few weeks of December, post-close of the acquisition. Throughout our ExoHealth segment, we continue to leverage our advanced robotic exoskeleton technology and rehabilitative programs to help patients on the road to recovery and improved health with better outcomes than the current standard of care. In 2022, we successfully executed on our commercial strategy, resulting in the placement of a substantial volume of additional devices within network operators globally and the completion of many multi-unit orders, both of which contributed to drive a solid year for XONR bookings and record revenue internationally. With XONR receiving FDA clearance for the multiple sclerosis indication, the first known exoskeleton device to carry this designation for rehabilitative use in patients suffering from MS. Enthusiasm for ExoNR continues to grow. Demand and order flow for ExoNR remained robust, with revenue in our ExoHealth segment up by more than 20% compared to 2021. Overall for the year, we recorded 100 ExoHealth device bookings. Our cumulative conversion and renewal rate is 81%, and we now have more than $2.2 million of contracted unrecognized revenue under our subscription model. Furthermore, we have made significant inroads with many of the large network operators, or IDNs, throughout the year, as they continue to make XONR their standard of care in lower extremity neurological rehabilitation. Our pipeline of new opportunities remains strong, although due to more challenging economic and market conditions, the sales timeline is taking longer than in previous quarters. Nevertheless, we remain bullish on our future growth prospects. Our integrated sales and marketing teams are executing on our overall commercial strategy, putting us in what we believe to be a favorable position heading into 2023. On the international front, we achieved record annual revenue performance in Europe and APAC, with APAC growing more than 60% year over year. We're excited by this increase and will continue to invest in our international footprint to support ongoing growth in these regions. Now turning to our acquisition of the HMC business from Parker Hannafin, which is synergistic and broadens our product portfolio in commercial health and expands our reach into home use. These products acquired include Indigo Therapy and Indigo Personal, now renamed XO Indigo Therapy and XO Indigo Personal. Both devices are FDA cleared lower limb powered exoskeletons which enable task specific overground gait training to patients with weakness or paralysis in their lower extremities. ExoIndigo Personal is a lightweight exoskeleton safe for use in most home and community environments. It's the only known exoskeleton to offer a modular quick connect design which allows for portability and for users to put on and take off the device without assistance. This device allows for gait impaired individuals to stand and walk again, granting them a new level of independence at home and in the community. XO Indigo Personal is primarily sold to veterans by using existing reimbursement and relocation programs supported through the Veterans Association, but has also been funded through workman's compensation and various international programs. We believe there are future opportunities to expand to more traditional reimbursement programs, both domestically and internationally. ExoIndigo therapy is an adjustable modular exoskeleton used primarily for patients with spinal cord injury, but also stroke, complementing Exo's product offering in outpatient facilities. It can be fitted to most patients in minutes, providing the potential for high-dose therapy sessions that further enhance rehabilitation. Last month, we showcased our new ExoIndigo therapy with functional electrical stimulation, or FES, at the American Physical Therapy Association meeting. and recently filed pre-market notification 510K with the U.S. Food and Drug Administration that covers the addition of integrated FES hardware and software to ExoIndigo therapy. This added technology brings forth further patient benefits allowing for improved limb function, balance, and muscle strength. Through this acquisition, Exo added the ongoing development of intelligent robotic assisted technology designed for use in the orthotic and prosthetic or O&P industry. This potential technology is being designed to enhance the capabilities of existing industry-leading knee-ankle-foot orthotics or CAFO products to improve the standard of care. This is a large and accessible market with established reimbursement, payment, and channel models. XO is looking forward to continued development along this front. Also, along with these current and future products, This combination expands the current XO team to include the former employees of HMC comprised primarily of highly experienced engineering, operations, clinical, and sales professionals. Finally, through this acquisition, XO has added strategic relationships with key commercial and research partners, including Vanderbilt University. The collaboration with Vanderbilt is expected to provide a continued path for future research and product development. This decade-long partnership has yielded the successful Indigo product line and has promised prospects for development of future innovations. With XO's core engineering staff and experienced quality and operations team, we are thrilled to have joined forces with this elite academic partner to help power new product development. To showcase the value and benefits of our newly integrated product line, I'd like to share a story of a patient who regained mobility through the use of XO Indigo Personal. Phil was initially diagnosed with spinal ependymoma tumors. Despite numerous treatments, the tumors recurred four times, leaving him partially paralyzed from cervical vertebrae seven down. Over 20 years of increased neuropathy, Phil explored different therapies and devices in an effort to maintain his mobility. Eventually, he was chosen to participate in the VA's exoskeleton evaluation program, where, after exposure to multiple exoskeleton devices, he opted for a rehabilitation program utilizing ExoIndigo. The ExoIndigo device helps Phil with countless aspects of his daily life. For example, he no longer experiences severe physical challenges when standing and his digestive processes are much improved. Quoting Phil, beyond the physical improvements, the Indigo Exoskeleton has given me the confidence to try sports and social events that I would not have previously. We are honored to see our products improving the lives of our patients firsthand and are very grateful to Phil for sharing his story. Turning to an update on our industrial segment, ExoWorks. In 2022, our ExoWorks business refocused its product offerings and go-to-market strategies, temporarily rescaling our sales and marketing resources while refocusing and refining our market approach to larger high-volume customers. We remain encouraged by the high level of engagement with our strategic targets and customers across the aerospace, automotive, manufacturing, commercial construction, and renewable energy verticals. As we progress into 2023, we look to expand upon the execution of these strategies set in motion in 2022 and to continue to engage with potential industry partners. Now I will turn the call over to Jason Jones, our new Chief Operating Officer. to provide background on himself and an overview of the initiatives that he'll be working on to improve our efficiencies. Jason.
spk04: Thank you, Scott, and thank you for having me join today's call. I am excited to stand my role as EXO to include operations in addition to product development. As background, I've been with EXO since 2018, previously serving as Senior Vice President of Product Development. My goal as COO is to leverage my experience in engineering, product development, and supply chain management to build exo-insulate platforms with the capacity to design, produce, distribute, and service a broadening range of products that amplify human motion and mobility. Improving our operational efficiency is critical to enabling us to scale our business both organically and through strategic initiatives. As a case in point, the recent acquisition of the Indigo product line represents the next step in leading the way for patient rehabilitation. While we are well on our way to successfully integrating the business, we are also using this as an opportunity to improve or upgrade systems and processes. As one example, we now have a second R&D and manufacturing facility in Macedonia, Ohio. Currently, we are using space provided by Parker Hannison for continued operations. We plan to move the facility to a separate nearby location within the next 12 to 16 months and are evaluating how to optimally utilize our Ohio presence. Additionally, as mentioned earlier, we are starting the process of combining our engineering and product development teams while also working with Vanderbilt in an effort to accelerate our technology innovation. We believe the combined expertise of these teams is unmatched in the field of exoskeleton R&D, which helps to further strengthen our position as industry leaders. On the ExoWorks side, in 2022, we began the process of adding external manufacturing capability for our EVO product line at a contract manufacturing partner located in Malaysia. We believe this will help us to expand capacity, lower cost, and improve quality. Our current expectation is for production from Malaga to begin in the first half of 2023. Moving forward, as part of our executive leadership team, I am intent on ensuring the successful execution of our strategy and supporting our corporate development activities. I look forward to contributing to the company's success. At this time, I'd like to turn the call over to our Chief Financial Officer, Jerome Wong to review our fourth quarter and full year financial results.
spk05: Thank you, Jason. EXO generated fourth quarter 2022 revenue of $3.6 million compared to $4.1 million for the fourth quarter of 2021. Our gross profit for the fourth quarter was $1.7 million, representing a gross margin of approximately 47% compared to a gross margin of 59% for the same period in 2021. The decrease in gross margin was primarily driven by an increase in service and supply chain costs, elevated labor costs, and lower average selling prices of device sales due to sales channel mix. Operating expenses for the fourth quarter of 2022 were $6.1 million compared to $7 million for the fourth quarter of 2021. The 14% decrease was primarily due to lower legal and consulting expenses. Net operating loss in the fourth quarter of 2022 was $4.4 million compared with a net operating loss of $4.7 million in the prior year period. Gain on warrant liabilities for the quarter ended December 31, 2022 was $0.3 million from the revaluation of warrants issued in 2019, 2020 and 2021 compared to a $2 million gain associated with the revaluation of warrants issued in 2019, 2020 and 2021 for the same period in 2021. Turning to our full year results for the year ended December 31, 2022, revenue increased by 15% to $12.9 million compared to $11.2 million for the same period in 2021. Revenue growth was primarily driven by an increase in the volume of XONR device sales. Gross profit for the full year ended December 31, 2022 was $6.2 million, representing a gross margin of approximately 48%. compared to a gross profit of $6.7 million for the same period in 2021, representing a gross margin of 60%. The decline in gross margin is primarily due to an increase in service and supply chain costs, elevated labor costs, and lower average selling prices of device sales due to sales channel mix. Operating expenses for the 2022 full year were $21.8 million compared with $20.6 million for the prior year period. The increase was primarily due to one-time severance costs associated with management changes, costs related to the relocation of our corporate headquarters and manufacturing facility, and acquisition and operating costs of HMC. These increases were partially offset by a decrease in legal and consulting expenses. Net operating loss in the 2022 fiscal year was $15.6 million, compared with $13.8 million for the comparable period of 2021. For the year ended December 31, 2022, we recorded a gain on warrant liabilities of $1.3 million associated with the revaluation of warrants issued in 2019, 2020, and 2021 compared to a $4 million gain associated with revaluation of warrants issued in 2019, 2020, and 2021 for the same period in 2021. Cash used in operating activities in the 2022 fiscal year, $14.7 million. As of December 31, 2022, the company had a strong cash balance of $20.5 million. Please see our 10-K filed earlier today for further details regarding the quarter and full year. Operator, you may now open the line for questions.
spk01: Thank you. We will now 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 two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. And the first question comes from the line of RK from HC Wainwright. Please proceed with your question.
spk02: Yeah, thank you. Good afternoon, Scott.
spk06: Hi, RK.
spk02: So, you know, at the start of the call, you said, I think you said, There were two Indigo installs in the fourth quarter. Is that part of the backlog that you received when you went through the acquisition? And if that is true, you know, what sort of backlog is out there now going into 23?
spk06: So, RK, thank you for your question. Those were not backlog units. Those were units that were actually orders received in the last three weeks of December post-close. So with the acquisition, we did not receive a backlog of orders. However, we do have a strong pipeline.
spk02: Okay, that's good. And then, so for the NR business, You know, you're saying that the demand is robust, the pipeline is strong, but at the same time, you're saying the lead time is becoming longer. So I don't know how you define long. And also, is there a possibility that, you know, some part of the backlog, I don't know, because you know oh yeah because if if the backlog becomes longer do you do you do you foresee any loss in terms of the demand as well because you know nobody wants to wait forever you know to get the product in yeah understood so um you know in terms in terms of our our backlog i think
spk06: As we came through 2022, we managed backlog pretty well, certainly as we pushed to the close of 2022. So generally speaking, we're not carrying a huge backlog of orders with us. To answer the first part of your question, which is regarding the lead time, Generally speaking, we are experiencing slightly longer times to close, maybe a couple of months, generally speaking, anywhere from 30 to 60 days that we're seeing as we have seen more of our customers beginning to use some third-party financing options that we offer, and it simply takes a bit longer to work through that process. But in general, we have a strong pipeline going forward. And it looks good. And Jason would like to elaborate just a little bit.
spk04: RK, this is Jason Jones. Good to meet you. Just to clarify on lead time. When we say lead times in this context, we're really talking about deal close time. Our actual lead time on shipment is quite short. Usually, I'm not going to say it's immediate, but it's between four and eight weeks probably was where I would estimate it. I don't think that once the order is in, the lead times are pretty short. I think Scott's referring to the deal cycle time as opposed to lead time for shipment.
spk02: Okay, thank you for that. And then the last question from me is, now that you have had Indigo for a few months, when do you think Indigo will be completely integrated within the XO business such that you can actually start seeing synergies not only on the sales end but also on the operating end?
spk06: Well, I think that's a two-part question. And from a sales and go-to-market standpoint, the integration has been progressing quite well. We have aligned our commercial team, and we have great synergies with that. In many ways, XO's sales team all carry with them the Indigo product line. as well and we have a slightly different method for sales methodology for selling the personal unit that has also been aligned to work in conjunction with our sales team. So I would say that overall that side of the business and integration has been going very well. There's a second part of the integration which involves looking for synergies in operating and engineering, and maybe Jason would be best to answer those.
spk04: Yeah, sure. So maybe just a quick update on integration. From a systems perspective, ERP and accounting systems, those are fully integrated already. So that integration is complete. On the R&D side, we have a plan that includes integrating some systems there that really is going to take through the remainder of the year. This year it's kind of incremental. And then the last area is kind of on pure operations manufacturing and supply chain. Those are separate functions today, and I think that's a longer process because the business units are kind of operating as is already. But over the next maybe 12 to 18 months, I think we'll probably see some more integration on the supply chain and operations side.
spk02: Thank you both. Thank you both for taking my question.
spk06: Thank you, RK.
spk01: There are no further questions, and I would like to turn the floor back over to Scott Davis for any closing comments.
spk06: All right. Thank you, John, and thanks to everyone for joining us today. 2022 was a transformational year for exobionics. It was highlighted by the successful acquisition of the Indigo product line, FDA clearance to market exonR for rehabilitation use in patients with MS, and a strong number of exoHealth bookings. Complementary acquisition of the HMC business was critical to our future growth, principally as it expands our product offering across the continuum of care to home and community use markets. We can now reach more patients in need across the larger market opportunity. We believe that the smooth integration of the HMC business combined with the continued strong demand for our industry-leading products has us well positioned to continue our momentum into 2023 and beyond. We look forward to providing updates on our continued progress. Thank you and have a great day.
spk01: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

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