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spk01: Greetings, and welcome to the ExoBionics Quarter 3, 2023 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. I would now like to turn the conference over to your host, Matt Steinberg of FinPartners. Please go ahead.
spk02: Thank you, operator. And thank you all for participating in today's call. Joining me from Exobionics are Scott Davis, Chief Executive Officer, Jason Jones, Chief Operating Officer, and Jerome Wong, Chief Financial Officer. Earlier today, Exobionics released financial results for the third quarter of 2023. 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 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 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. EXO disclaims any intention or obligation, except as required by law, to update or revise any financial or operational projections, a regulatory outlook, or other forward-looking statements, whether because of new information, future events, or otherwise, which speak only as of today, October 26, 2023. I'll now turn the call over to ExoBionics CEO, Scott Davis.
spk05: Thank you, Matt. And thank you to everyone for joining us today. Pleased to announce that we achieved another strong quarter of sales for ExoNR and Indigo devices that propelled us to grow our quarterly revenues by a significant 38% year over year. In addition, we have established the groundwork for our ExoWorks segment, resulting in a record quarterly number of EVO unit sales. Finally, we continue to work hard to improve our bottom line by focusing on improvements in operating efficiencies and costs, resulting in a $700,000 narrowing in our operating loss compared to Q3 of 2022. Overall, our third quarter results reflect the growing adoption of our products across our target markets, as well as the continued execution of our team. We sold or recognized new revenue on a total of 41 ExoHealth devices in the third quarter, which includes devices within the ExoNR and ExoIndigo product lines. As in previous quarters, we believe a key to our growth will be our ability to continue building a strong multi-unit order pipeline with top network operators, like our 10 ExoNR device order in the quarter from a large integrated delivery network. Additionally, we remain committed to leveraging our longstanding relationships with our existing customer base to heighten awareness for individuals who can benefit from the long-term use of our personal devices in their daily activities. Our relationship with the U.S. Department of Veteran Affairs, or VA, remains a critical part of our go-to-market strategy with our XO Indigo product line. We were encouraged by the increasing adoption of our advanced technology through this relationship. The lightweight, modular design and slim profiles of both our XO Indigo personal and our exo-indigo therapy devices are compatible with many wheelchairs and can bring much needed rehabilitation support to our valued veterans in both home and community use settings. We remain committed in bringing our exoskeleton solutions to more VA hospitals and clinics in the hope of giving our veterans who have suffered a spinal cord injury better access to this potentially life-changing technology. On the international front, we secured several multi-unit orders highlighting the success of our strategic investment in our indirect partnerships. In Europe, we sold six XONR devices as part of a multi-unit order to one of our largest distributors. In APAC, in addition to an XONR order, we secured a three-unit XO Indigo personal order, which is among our first global multi-unit orders for Indigo. We remain focused on building relationships with larger customers in these regions, while raising awareness of our expanded exo-health capabilities that now stretch across the continuum of care. As mentioned on our second quarter call, the Centers for Medicare and Medicaid Services, or CMS, proposed a new rule to include personal exoskeletons in the Medicare benefit category for braces in the updated 2024 Home Health Prospective Payment Sim rate. This proposed rule is important because it would classify certain exoskeleton-type devices as braces for Medicare payment purposes. If approved, we believe this expanded coverage could significantly grow the addressable population for exoindigo personal to the estimated 164,000 individuals with a spinal cord injury who have Medicare or Medicaid coverage. Importantly, these individuals could obtain their exoindigo personal device at a fraction of the current cost. Additionally, we recently applied EXO Indigo Personal for Medicare code determination. We look forward to CMS's ruling, including level of reimbursement, which is expected in late November. Now turning to an update on our industrial product line, EXO Works. As part of our new volume pricing strategy, we secured a sharply higher number of EVO units sold compared to the third quarter of 2022, resulting in a record quarter for this product. Driven by our commercial efforts, employers are recognizing the meaningful productivity and safety benefits that Evo provides to industrial workers. With several promising opportunities in our pipeline and the implementation of our new high volume contract manufacturer, we were encouraged by this initial momentum. While revenue contributions from our industrial segment were modest, our focus remains on placing an increased emphasis on Evo's placement in large industrial settings. which consists of an addressable market opportunity of approximately $5 billion. We look forward to providing additional updates as we drive further market penetration across our industrial verticals. As we continue to scale ExoWorks for future growth, we are pleased to have recently launched an e-commerce platform that will allow customers to purchase EVOs directly from Exo. This new site provides customers with a user-friendly experience to also acquire XO branded apparel and accessories. We invite all listeners and customers to visit our site at shop.exobionics.com. Overall, we are encouraged by our third quarter performance and the progress we have made throughout 2023. Going forward, we're focused on driving greater awareness and adoption of our products. expanding market access for our customers, securing more multi-unit orders with new and existing large network operators, and on continual improvements in operating efficiencies. Achieving 38% year-over-year revenue growth and driving sustained demand in our target markets across the continuum of care is a testament to the strength of our commercial team and expanded product portfolio. Now, I will turn the call over to our Chief Operating Officer, Dave Zones.
spk04: Thank you, Scott. In the third quarter, our operations team continued to manage operating expenses tightly, resulting in flat quarterly operating expense and narrowed quarterly operating loss both year over year, despite higher headcount and costs associated with our HMC acquisition. As part of our effort to achieve positive cash flow, we continue to look for areas where we can improve efficiency without impacting quality or growth. As I noted in our second quarter financial results call, we have been carrying higher than desired inventory to mitigate production risks due to supply chain disruptions. Over the past couple of quarters, our supply chain has normalized, which has allowed us to reduce our on-hand inventory. As evidence, our decline in inventory at quarter end was the first quarter over quarter reduction in inventory since 2020. As our updated inventory and management approach flows through the entire supply chain, we believe further reductions are possible. As Scott mentioned earlier, we are starting to see higher volume orders for EVO in response to lower pricing. This strategy is enabled by our successful transition of the product line to our contract manufacturing partner in Malaysia. In addition to significantly lower cost, outsourcing the manufacturer of EVO gives us higher capacity and the ability to respond quickly to any potential increase in demand. I look forward to providing additional operational updates on our future financial results calls. I will now turn the call over to Jerome Long, who will discuss our third quarter 2023 financial results. Thank you, Jason.
spk06: EXO generated third quarter 2023 revenue of $4.6 million compared to $3.3 million for the third quarter of 2022, an increase of 38%. This increase was comprised of a $1.2 million increase in EXO Health revenue and a $0.1 million increase in EXO Works revenue. Gross profit for the third quarter was $2.5 million, representing a gross margin of approximately 53% compared to a gross profit of $1.7 million and a gross margin of 51% for the same period in 2022. A 46% overall increase in gross profit was driven by an increase in sales in Excel Health segment. Margin expansion was primarily due to lower Excel Health device and service costs. Operating expenses for the third quarter were $5.4 million compared to $5.3 million for the third quarter of 2022. The increase was primarily due to additional headcount associated with the acquisition of HMC, partially offset by a decrease in legal expenses. Net loss applicable to common stockholders for the third quarter was $3.4 million or $0.24 basic and diluted share compared to net loss of $4.3 million or $0.33 per basic and diluted share. for the same period in 2022. Turning to year-to-date results, revenue increased $4.1 million, or 43%, to $13.4 million for the nine months ended September 30th, 2023, compared to $9.4 million in the same period of 2022. The increase in revenue was primarily driven by an increase in ExoHealth device sales of $4.7 million. Gross profit for the nine months ended September 30th, 2023 was $6.7 million, representing a gross margin of 50% compared to a gross profit of $4.5 million for the same period in 2022, representing a gross margin of 48%. The overall increase in gross margin was primarily due to lower device costs. Operating expenses for the first nine months of 2023 were $18.4 million compared to $15.7 million for the same period in 2022. The increase in operating expenses was primarily related to additional headcount and integration activities associated with the acquisition of HMC. Net loss applicable to common shareholders for the first nine months of 2023 was $12 million, or $0.88 per basic and diluted share, compared to a net loss of $11.9 million, or $0.92 per basic and diluted share, for the same period in 2022. Cash used in operating activities in the first nine months of 2023 was $10.5 million, down from $11 million in the same period of 2022. As of September 30th, 2023, the company had cash on hand of $9.9 million. Please see our 10Q filed earlier today for further details regarding the quarter. 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 one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 keys. One moment, please, while we poll for questions. Our first question is from Sean Lee with HC Wainwright. Please proceed with your question.
spk03: Good afternoon, Scott and Jerome, and thanks for taking my questions. So I just have a couple questions. First, on the CMS front, with the meeting coming up next month, assuming everything goes well, when would the new rules come into effect? And on your basis, how much of an impact would you say they'll have on your sales in the U.S.?
spk05: Sean, thank you for your question. We're really excited about the potential that exists with CMS. The end of November is the timeframe for notification that we've been given. The process from there is a bit complicated as we begin to process patients through the Medicare program. Medicaid process. So that, but we could, you know, assuming this happens, we could start to see a positive impact on the, you know, on the business starting in the first quarter of 2024. There's, you know, there's a lot of moving pieces around this. This is a rather complicated process, but, you know, the first major step in it would be approval of this lump sum reimbursement and treating the exoskeleton as a brace. That will open up the market potential and the ability for folks to access this technology to a much wider population of individuals. Currently, there are approximately 164,000 individuals who have suffered a spinal cord injury who also have Medicare or Medicaid coverage.
spk03: Great. Thank you for the additional color. My second question is on the process improvements. It's great to see that you guys are getting better operating margins from your current And that's translating into greater volumes, especially in the excellent works side. So I was wondering, speaking on the medium to longer term, say, next two to four years, where do you see these margins could improve to?
spk05: Okay, Sean, specifically on the overall margins, or you had also made a reference to the works business as well. Are you specifically talking about works or just margins in general?
spk03: Both for overall and for works, please.
spk05: Okay. Yes. So we have been doing a lot of work. Jason and his team in operations have been doing a lot in supply chain to really improve our performance there. Certainly the additional volume that we have is helping as well. We anticipate that as we go forward, As volumes continue to increase and as we continue to work on these improvements, we are optimistic that the margins will continue to improve. On the works side of the business, this was really the contract manufacturing relationship that we put in place now for high volume. As volumes increase, You know, we have the mechanism within this relationship to maintain good margin as we continue to increase our volume. So, and again, as that starts to blend into our, in a meaningful way into our overall margins, we see room for continued margin improvement as we go through the next several years.
spk03: Great. My last question is on the international business. It's good to see that you guys are getting multi-orders even from the Asia-Pacific region. So I was wondering, where do you expect the international market to grow to in terms of your overall revenues?
spk05: Well, thank you. So the international market, We have certainly a strong presence in Europe and a growing presence in Asia Pacific region. In Europe, we have a very strong team that's located in Germany, cross-disciplined, everything from sales to clinical to support. And we've built very strong relationships with distribution partners throughout that region, as well as some larger hospital networks. that exist in regions. So we are anticipating and believe that there will be good growth, good continued growth in Europe year over year on our enterprise business, enterprise health business, and on the personal devices. That is an area that internationally we are just really starting to grow. We placed three devices in APAC. this last quarter. So we see that as also a great opportunity as there are mechanisms within various countries for offering some level of reimbursement to spinal cord injury individuals. So we are anticipating continued growth in these regions relative to the North American growth that we see today. So I think overall you know it's a we see a positive outlook there um great uh thanks and uh thanks for taking my questions thank you sean there are no further questions at this time i would now like to turn the floor back over to scott davis for closing comments thank you maria before closing today's call i'd like to reiterate some key takeaways as we enter the final quarter of 2023. First, we're building growth momentum with another strong quarter of XO, NR, and indigo device sales. We continue to elevate the standard of care for neurorehabilitation across the continuum of care. Second, the proposed rule for CMS, if adopted in November, could potentially expand coverage for XO indigo personal to thousands of spinal cord injury patients. We fully support the proposal to further enhance potential access for Medicare and Medicaid beneficiaries. Third, we're starting to see promising results from our commercial strategy for Evo with a record unit sales quarter. Supported by our new contract manufacturer, we're poised to take the next step in bringing these innovative devices to customers worldwide. And finally, we continue to execute on our plan to achieve scale and positive cash flow through revenue growth, product line expansion, and operational improvements. We look forward to updating you on our progress ahead. We want to thank you all for joining us today.
spk01: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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