Ekso Bionics Holdings, Inc.

Greetings, and welcome to the Exobionics Quarter 3, 2024 Financial Results 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, please press star zero on your telephone keypad as a reminder this conference is being recorded. It is now my pleasure to introduce Matt Steinberg, Finn Partners. Thank you. You may begin.

Thank you, Operator, and thank you all for participating in today's call. Joining me from Exobionics are Scott Davis, Chief Executive Officer, and Jerome Wong, Chief Financial Officer. Earlier today, Exobionics released financial results for the quarter ended September 30th, 2024. 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 include 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 EXO's businesses, please see its 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. Any forward-looking statements made on this call speak only as of the date of this call. I will now turn the call over to ExoBionics Chief Executive Officer, Scott Davis.

Thank you, Matt. The third quarter reflected a period of transition in progress, particularly within our personal line of ExoHealth devices. Notably, in August, the approval and reimbursement of the initial CMS claim for our ExoIndigo Personal represented a significant milestone for Exo and, importantly, patients with spinal cord injuries. After CMS established pricing determination for our ExoIndigo Personal in April, we immediately executed our field communication strategy to ensure that all targeted healthcare providers were made aware of the new CMS access and coverage policy that could impact thousands of Medicare and Medicaid patients living with a spinal cord injury. Additionally, we've been working closely with our extensive network of neurorehabilitation centers across the country, focused on education efforts on appropriate patient selection, screening, trialing, onboarding, and skills training for patients prescribed an ExoIndigo Personal for both at home and in community settings. I also want to highlight the success we've had with investing in various digital marketing programs and strategies designed to raise product and policy awareness, which have resulted in an influx of new qualified leads. Additionally, we continue to develop and evolve our educational access resources to support prescribing healthcare providers in navigating through the insurance process efficiently and effectively. We remain committed to enhancing our collaboration with healthcare providers by ensuring that our innovative solutions meet their needs and by streamlining our processes with their feedback. I want to emphasize that this is a program that takes time to build. We're excited to see that across all targeted sectors, our pipeline is steadily increasing, which we believe will enable us to scale this program over time. With multiple claims now submitted through our DME to Medicare, We will continue to focus our efforts on continued customer education to improve process efficiencies. We are actively engaging with new potential customers. This not only enhances our understanding of their needs, but also allows us to showcase the benefits of the XO Indigo personal device. We are committed to expanding access to our innovative XO Indigo personal technology and empowering more qualified individuals to achieve greater mobility and independence. We look forward to providing updates on our continued work with the SCI community and eventually individuals with neurological conditions who could potentially benefit from our technology once we're able to obtain the necessary indications. Now I'll share an overview of our third quarter performance. We generated quarterly sales of $4.1 million and sold 33 ExoHealth devices in the third quarter of 2024. U.S. sales were affected by fluctuations in procurement cycles for our integrated delivery network, or IDN, customers that have persisted since the start of 2024. This was compounded by several customers delaying capital purchases into the fourth quarter and into early 2025. However, our demand and pipeline for XO Health products remain strong, and we're focused on delivering our innovative devices to individual clinics and hospitals while expanding our global customer base. We believe our expanding network of leading neurorehabilitation centers recognizes the clinical and economic benefits of our innovative XONR device. Currently, XONRs are deployed in nine of the top 10 rehabilitation centers in the United States, which we believe is an indicator that our technology is becoming a standard of care for lower extremity neurorehabilitation. We plan to leverage our strong reputation to drive growth for both our ExoNR, and our ExoIndigo therapy devices. As we continue to strengthen our distribution network and expand our pipeline of opportunities, we remain confident in our ability to grow our presence among neurorehabilitation centers and enhance patient outcomes. Internationally, demand remains strong, mirroring our robust performance in the first half of the year. Sales in Europe achieve record levels in the quarter as neuro rehabilitation centers in the region are adopting our potentially life changing technology. In addition to placing more devices worldwide, we also expanded our international distribution network, which has allowed us to achieve greater operating leverage in foreign markets, which we believe positions as well for continued success on a global scale. As we look ahead, we are committed to further developing our relationships with our IDNs to secure larger multi-unit capital contracts across North America. This initiative is a key component of our ongoing commercial strategy to expand our market presence, and we are optimistic about our future prospects in the growing pipeline of potential deals. Now I'd like to provide a brief update on our industrial segment, ExoWorks. In the third quarter, sales of Exo's Evo exoskeleton were impacted by labor strikes in U.S. manufacturing industries. Nonetheless, we are committed to raising awareness about the benefits that Evo offers for workers engaged in demanding overhead tasks, including reduced fatigue, increased productivity, and fewer workplace injuries. Evo is suitable for a range of industries, notably in automotive, aerospace, construction, and renewable energy verticals, and numerous other sectors where overhead work is necessary. Now shifting to our operations, where we continue to create more efficiencies throughout our business. Our improvements in supply chain and inventory management, along with efficiencies gained in production, resulted in strong gross margins for the quarter, despite a concentration of our revenue being sold in Europe, which reflected lower ASPs, as is typical with distribution. Overall, we are pleased to have improved our operating margins in the quarter by reducing our operating expenses. In summary, this was a quarter of progress for ExoBionics, marked by the receipt of initial CMS claims reimbursement for our ExoIndigo personal device and increased global demand for ExoNR. With our total product portfolio that has the potential to reach a large addressable market in excess of $13 billion across the continuum of care, we believe we are trending in the right direction for future growth. At this time, I'd like to turn the call over to our Chief Financial Officer, Jerome Wong, to review our third quarter financial results.

Thank you, Scott. We generated quarterly sales of $4.1 million in the third quarter of 2024 compared to $4.6 million for the third quarter of 2023. Gross profit for the third quarter of 2024 was $2.2 million, representing a gross margin of approximately 53.5 percent compared to gross margin of 53.3 percent in the third quarter of 2023. The increase in gross margin was primarily driven by cost savings in supply chain and a reduction in service costs, partially offset by lower margin sales related to increased volume through distribution. Operating expenses for the third quarter of 2024 were $4.8 million compared to $5.4 million for the third quarter of 2023. The decrease was primarily due to lower headcount, discretionary payroll, and consulting costs. Net loss applicable to common stockholders for the third quarter decreased to $2.1 million, or 10 cents per basic and diluted share, from a net loss of $3.4 million, or 24 cents per basic and diluted share, for the same period in 2023. Now, turning to our financial results for the first nine months of 2024. Revenue was $12.8 million for the nine months ended September 30, 2024, compared to $13.4 million for the same period in 2023. We sold a total of 99 ExoHealth devices in the first nine months of 2024. Gross profit for the nine months ended September 30th, 2024 with $6.8 million representing a gross margin of approximately 53% compared to a gross margin of 50% in the third quarter of 2023. The increase in gross margin was primarily driven by cost savings and supply chain and a reduction in service costs, partially offset by lower margin sales related to increased volume through distribution. Operating expenses for the nine months ended September 30, 2024, were $15 million compared to $18.4 million for the same period in 2023. The decrease was primarily due to lower headcount, discretionary payroll, accounting, consulting, and legal costs. Net loss applicable to common stockholders for the nine months ended September 30th, 2024 was $7.9 million or 42 cents per basic and diluted share compared to a net loss of $12 million or 88 cents per basic and diluted share for the same period in 2023. Cash and restricted cash as of September 30th, 2024 was $8.3 million compared to $8.6 million as of December 31, 2023. In September, we closed an underwritten public offering resulting in net proceeds of approximately $5 million. Please see our quarterly report on Form 10-Q filed earlier today for further details regarding the quarter. Operator, you may now open the line for questions.

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up a handset before pressing star keys. One moment while we poll for questions. And our first question comes from RKHCWainwright.

Good afternoon, Scott and Jerome. A few questions from me. So it's good to see that you had 33 placements during the quarter. I'd like to know of these 33 placements, how many of them were ex-U.S. because you were saying that the ex-U.S. geographies are doing pretty good.

Correct. Approximately half of those were in Europe and several of them in APAC. So I would say the majority of those placements were outside of U.S. and, you know, within, you know, those Those devices we had, in terms of revenue, we had about 20% of revenue that was reflected by the personal product.

Okay, perfect. And then in terms of claims that you filed with CMS, you were saying that you're pretty much caught up with terms of filing. So is there a way you can give us... in terms of how many have been filed and what percent of those files have been reimbursed?

Sure. You know, on the personal devices, I can give you a sense of this. We've submitted multiple claims, you know, year to date, the majority of which happened in the third quarter. And to date, our DME partner has received reimbursement on one claim. We've had two claims that have come back and required additional information for resubmittal. But in general, we almost doubled the sales of personal health products from Q2 to Q3. And we believe today that represents, as I said, about 20% of our sales for the quarter. I will say that the claims that we are submitting are taking some time to move through the reimbursement process.

Okay. And then the last question from me is regarding the buying cycles of some of your customers. You were saying that some of the folks have been pushing and they're buying into fourth quarter of this year and first quarter of 25. So based on what you're seeing, what do you think is generally the backlog now in the sense that you have a lead but has not been filled because of their pushback? And is there a way for us to kind of figure out you know, how, how that backlog is, you know, getting taken care of.

Yeah. In, in terms of backlog, um, we have, uh, ordered backlog that is, um, you know, on, on the books, uh, right now, uh, for, for Q4. Um, you know, I think the, the way to think about this is that, um, We have continued strong demand in Europe, and as it relates to North America, this has been a bit of an off-cycle year for us with our IDNs. We had very strong sales in 2022 and 2023 relative to our IDN procurements, and 2024 remains impacted by being slightly off-cycle with with these customers in North America. However, we do believe that we're coming around again to renewal cycles, which we anticipate will positively impact us in 2025 and in Q4 as well. So, we have strong pipeline and demand which supports future growth. on our enterprise segment as well as in our personal segment. Okay.

Thanks for taking all my questions.

Yeah, you bet. Thank you.

Thank you. And our next question comes from Ben Hainer, Lake Street Capital.

Good afternoon, gentlemen. Thanks for taking the questions. First off, for me, just following up on the IDNs, has there been any – I know you mentioned it being off cycle, but has there been any distraction for any reason due to the CMS reimbursement for the personal units? I mean, have folks waited and tried to take a look at maybe adding some indigos to the clinics or anything like that? Are there any dynamics at play related to the personal units

Yeah, that's a great question. You know, in general, I would say the issue really isn't so much around distraction, you know, as it is, you know, a lot of these enterprise accounts are lumpy. And we had absolute record sales in North America in 2023. We're having absolute record sales in Europe this year. So some of this is just really following procurement cycles. We have certainly in Q3 in North America, we had multiple customers on the enterprise side that made the decision to delay their purchases to either Q4 or into 2025, just citing you know, some uncertainties, sort of macroeconomic uncertainties that they had, you know, perhaps even relative to politics.

Sure. That makes sense. And then, you know, Europe obviously is a bright spot here. How much insight do you have into how the remainder of the year could look on that front? You know, should we expect international to be as strong in Q4 as it was in Q3, or what's the right way to think about that to the extent you could share?

Yeah, demand in Europe remains strong for us. We've also accumulated a solid backlog coming into the quarter there. So as we look at Europe in terms Q4, we believe that we will once again have a strong quarter there.

Okay, so you don't have like a clear backlog entering Q4. It's just as strong as it was maybe entering Q3.

Yeah, we, you know, I'll say that we have, you know, coming into the quarter, we had at the end of Q3, we had more than a dozen devices in backlog. at the end of Q3.

Okay, great. That's helpful. And then on the label expansion that you mentioned earlier into more neurological conditions, you know, is there anything that investors should be on the lookout for there? Is there, you know, kind of a timeline that you can speak to on any of these things?

Nothing definitive yet, but I will say that EXO has a history of working very closely with some of the top neurological research hospitals and facilities in North America and throughout the world. And our clinical studies, which can often be quite expensive, particularly when you're looking at new FDA indications for use, we have been able to leverage those longstanding relationships with those centers. And with the new personal products, with our indigo family of products, we've had significant interest from those research hospitals to engage in those studies to expand, to potentially expand indication for use for our indigo family of exoskeletons. So this is something that we are working working on currently. And the timeframe on these sorts of endeavors is somewhat undefined, but it certainly takes some time to be able to do this. And we're lucky to have partners who can help us because it really helps us to contain the expenses that are related to gaining those clinical trials.

Okay, got it. And then lastly for me, just one point of clarification. You said 20% of the revenue was the personal product. I'm not sure if I caught that. Was that overall or was that specific to the U.S. or international or any copy up there?

In general, our top line total revenue for the quarter, approximately 20% of that was directly related to our personal products.

Got it. Okay, that's all I have, gentlemen. Thanks for taking the questions.

You bet. Thank you, Ben.

Thank you. There are no further questions at this time. I would like to turn the floor back to Scott Davis for closing remarks.

Okay, thank you, Julian, and thank you to everyone for joining us today. In closing, we are pleased with the progress we made this quarter and the strides that we've made on both the reimbursement and the operational fronts. While we recognize that there is still work to be done, the initial reimbursement approval for our ExoIndigo personal device marks an important milestone for us and the SCI community, enabling access for covered individuals at a fraction of the cost. We believe our ongoing collaboration with physicians and neurorehabilitation centers is vital to our success, and we are committed to providing the resources and educational support necessary to drive patient engagement. We believe that as more physicians become advocates for our devices, we will see a corresponding increase in submissions and approvals. In terms of our enterprise customers, we're optimistic about the future as procurement cycles with IDNs normalize in the near term. We remain focused on collaborating with our partners to ensure that we can meet demand and capitalize on the opportunities ahead. As we continue to expand our reach, we believe we are well equipped for sustainable growth ahead, And as a result of our scalable commercial strategy, we closed the quarter with a strong pipeline of future placements. Moving forward, we're enthusiastic about building upon this progress. Thank you for your continued support, and we look forward to updating you on our progress in the coming quarters.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.