Lifeward Ltd.

Good day, and welcome to the LifeWord Inc. 4th Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note today's event is being recorded. And now I'd like to turn the conference over to Mike Wallace, Chief Financial Officer.

Please go ahead. Thank you, Rocco. Good morning and welcome to LifeWord's fourth quarter 2024 earnings call. I'm Mike Wallace, LifeWord's Chief Financial Officer. And with me on today's call is Larry Jasinski, our Chief Executive Officer, and Almagadar, our Vice President of Finance. Earlier this morning, LifeWord issued a press release detailing financial results for the three months and full year ended December 31, 2024, which, along with this call, discuss certain non-GAAP information. I would ask you to review the full text of our forward-looking statements from this morning's press release. We anticipate making projections during this call, and actual results could differ materially due to several factors, including those outlined in our latest filings with the SEC. A replay will be available shortly after the completion of the call, accessible from the dial-in information in today's press release. The archived webcast will be available in the investor relations section of our webcast For the benefit of those who may be listening to the replay or the archived webcast, this call is held and recorded on March 7th, 2025. Since that date, LifeWord may have made subsequent announcements related to the topics discussed. So please reference the company's most recent press releases and SEC filings for the most up-to-date information. With that, I'll turn the call over to Larry.

Thank you, Mike. Welcome, everyone, and I appreciate you joining the call. I'd like to begin by commenting on my announcement in February regarding my retirement from the company later this year. I have been part of a remarkable, life-saving, changing journey with many incredibly talented people. I am proud of the team and the company I've been a part of for the past 13 years. LifeWord today is a medical technology agent of change that has given people improved health and better lives. I thank every person that has been a part of this journey. I have confidence that Lightwood's board will find an excellent leader to advance Lightwood into the next phase of growth, and I am committed to ensuring a smooth transition. I look back at 2024 as a year of meaningful achievement that defined long-term access to our technologies and launched our pathway towards profitability. The key milestones were establishment of lump sum payment and a benefit category with CMS in Q1, issuance of a CMS price of $91,032 in Q2 for the Rewalk system, gaining a meaningful contract with Barmer in Germany that sets the standard for providing exoskeletons, achieving new coverage in Hungary, beginning an initiative to expand penetration with the United States Workers' Compensation insurers for the REWOC system, initiating a national accounts program for the Alter-G line, discussions on expanding our contract to enable further penetration with the motorcycle, launching a new generation of Alter-G with the Neo product, completing FDA usability studies and the full submission for the REWOC 7, increasing operating efficiency by closing two locations, the reduction of our headcount by 35% to right-size the business for 2025, annual growth in 2024 of 85% with an $11.8 million increase over prior year sales to reach $25.7 million. It's a lengthy list that, when taken synergistically, places the company on sure footing for growth and for significantly reducing loss in 2025. We closed the year with record revenue of $7.5 million in Q4. Our parallel focus for 2025 will be maintaining reasonable growth with equal emphasis on reducing our quarterly operating loss each quarter and achieving a loss at or below $1 million in Q4 2025. The reduction in our operating loss will be driven by targeted growth towards our best margin opportunities and operating efficiencies. Examples include the increase in workers' compensation placements, which have a lower level of processing expense and that pay in a shorter cycle, and the mile cycle, where each rewalk lead we develop can also be considered for a mile cycle, which has an improved margin and where we have gained expanded distribution rights to provide home units. Specific growth targets for the Rewalk are placements with CMS, further market penetration targeting Rewalk with workers' compensation coverage, and with submissions to U.S. commercial insurers. We will also expand penetration of clinic and home sales of the MyoCycle and advancement of altergy placements in national accounts. The efficiencies are in product mix, near-term cost of goods reduction programs, and tightly controlled spend levels to match our goals. Operationally, for 2025, we have built a sustainable growth plan where we examined all aspects of the business and reduced costs to meet our goals. We also have favorable year-over-year factors that have enabled reduced expenses. They include completion of our significant investment to achieve industry coverage with the Center for Medicare and Medicaid Services, or CMS, reduced R&D expenses as we completed major R&D programs with AlterG and Rewalk7, the final consolidation activities post-merger, which results in a full year with reduced headcounts, and more efficient manufacturing programs in the U.S. and Israel. In addition, our expectations for the Alter-G and MyoCycle product offerings are that they will be accretive to our business in 2025 and beyond. Mike will now provide a financial summary, and then we can provide more color on the operational goals I have described. Mike?

Thank you, Larry. I want to remind everyone that I'm going to discuss results on both a GAAP and non-GAAP basis, which excludes items listed in the reconciliation tables provided in today's press release. We believe that the non-GAAP results provide a means for investors to better track the underlying performance of the business. I encourage you to reference the GAAP results in the accompanying reconciliation tables as I discuss the fourth quarter 2024 financials. Moving to revenue. Lifeboard reported revenue of $7.5 million in the fourth quarter of 2024 compared to $6.9 million in the corresponding quarter in 2023. For the full year 24, Lifeboard reported revenue of $25.7 million for an increase of 85% versus the full year 2023. This is the highest quarterly and full year revenue performance in the history of Lifeboard and reflects our progress in scaling the business. Revenue from sales of traditional products and services including REWOX exoskeletons, myocycles, and restore exosuits was 2.0 million in the fourth quarter of 2024, while revenue from Alter-G products and services was 5.5 million, the highest quarterly revenue that this product line had since we acquired it in August 2023. The REWOX sales were below our expectations due to delays and some attrition of Medicare cases that we had expected we would deliver during the quarter. We're working to reduce the cycle times for vetting leads, processing claims, and scheduling deliveries. We expect that the growing volume of qualified leads that we are experiencing will bring more predictability to our quarterly performance in this product line. We delivered a strong fourth quarter for the Ultra-G product line, with particularly robust performance from international customers. Spending by clinics in the U.S. has shown stabilization, and that trend has continued thus far into the first quarter. giving us more confidence in our expectation for Ultra-G sales growth in 2025. Next are pipeline metrics for the REWOC product line. First, let's talk about cases in process. Our number of REWOC cases in process in the United States consists of more than 110 qualified candidates for future claim submissions. While in Germany, we had 44 cases in process at the end of Q4. Active rentals also represent an important pipeline metric for rewalk systems. The current pipeline of active rentals consists of 27 cases, which is broken down with 24 in Germany and three in the U.S. at VHA hospitals. These rewalk rentals, with some attrition, typically convert to sales within a three- to six-month period. Next, for Alter-G systems, we ended the fourth quarter with orders for 25 Alter-G systems in backlog. This figure shows a seasonal decline in backlog from the third quarter of 2024, from the 2024 level, as we cleared out as much as possible of the backlog and inventory to end the year. In spite of the lower backlog level at year end, we still see the market demand improving for Alter-G, and we expect to drive growth in Alter-G revenue of about 20% in the first quarter of 2025 versus the quarter of 2024. Moving to gross margin, In the fourth quarter of 2024, our GAAP gross margin was 24.4% compared to 35.5% in the fourth quarter of 2023. This variance was primarily driven by the restructuring charge for the closure of the Fremont Manufacturing Facility and related expense reduction actions. On a non-GAAP basis, adjusted gross margin in the fourth quarter was 45.4% of revenue compared to 46.9% of revenue in the fourth quarter of 2023. We finished the year with adjusted gross margins slightly below our expectations, primarily due to mix of products sold in the quarter, particularly the higher mix of international Alter-G sales, which carried a lower gross margin in the quarter. GAAP operating expenses were $17.1 million in the fourth quarter of 2024, compared to $8.6 million in the fourth quarter of 23. This variance was largely driven by a $9.8 million impairment charge on our intangible assets, recorded as required by GAAP. Under accounting standards, intangible assets with indefinite useful lives and goodwill must be tested for impairment at least annually, or in this case, the impairment was triggered by the market value of our equity compared to our book value. Importantly, this is a non-cash charge in nature and ultimately does not affect the operating performance of our business. On a non-GAAP basis, adjusted operating expenses were $6.7 million in the fourth quarter compared to $7.0 million in the fourth quarter of 2023. This improvement is primarily due to lower marketing, general, and administrative expenses resulting from prior expense reduction efforts. Our gap operating loss for the fourth quarter was 15.2 million compared to an operating loss of 6.7 million in the prior year's quarter. This variance was largely driven by the aforementioned charges. On a non-GAAP basis, adjusted operating loss was 3.3 million in the fourth quarter which improved versus the $3.8 million loss in the prior year's quarter. We ended the year with $6.7 million in cash and equivalents and no debt. Subsequent to the end of the quarter, on January 8th, we raised gross proceeds of an additional $5 million, which was added to our cash balance. As we will note in our Form 10-K, which we will file later today, we received a going concern qualification from our auditors as part of the 2024 audit process, reflecting their perception of the adequacy of our balance sheet to fund our business. We have already taken a number of actions to address this development. First, we initiated the Sustainable Growth Plan that Larry described earlier to reduce our cash outlays. We believe prioritizing investment in higher margin near-term sales will significantly reduce our quarterly non-GAAP operating losses and cash burn rate by the second half of 2025. Second, we are putting in place an ATM facility that will allow us to opportunistically raise capital should we determine that we need to shore up our capital base. We're also exploring other non-dilutive or minimally dilutive alternatives so that we can resolve this issue. Turning to our financial guidance, For 2025, Lightford expects full-year revenue in the range of $28 to $30 million, with an adjusted gross margin between 47 to 49 percent. Following our efforts to rationalize our cost structure, we expect full-year non-GAAP operating expenses of $22 to $23 million, down from $27.5 million in 2024. We expect these factors to drive a full-year non-GAAP operating loss of $7 to $9 million. For a quarterly perspective of 2025, The first quarter is our seasonally lowest revenue quarter, and we'll also have the highest operating expenses due to the timing of the phase-in of the savings initiatives under the sustainable growth plan. After the first quarter, we expect revenue to grow sequentially in each successive quarter from a combination of greater traction in delivering rewalk systems, seasonally stronger quotation and sales activity for Alter-G products, and a ramp of sales of mile cycles as we execute under the expanded distribution agreement with Myelin. We expect quarterly operating expenses decline through 2025 as the full benefit of the expense actions taken under the Sustainable Growth Plan take hold. By the fourth quarter of 2025, LifeWord anticipates that the combined effect of the growing revenue and declining operating expenses will result in an adjusted operating loss of approximately $1 million. With that, I'd like to turn the call back to Larry for further remarks.

Thank you, Mike. LifeWord has built a portfolio of complementary products. The technological innovations achieved with the Rewalk and the Altergy design has resulted in market leadership by addressing key unmet needs. Similarly, the MyoCycle is a more effective and easier-to-use design that we expect will also develop a leadership position. We believe the market access we have established with multiple avenues of coverage for exoskeletons, our efficient distribution channels that have now developed, and a leverageable organizational footprint developed over the past two years has LifeWorks uniquely positioned to capitalize on the market opportunity before us. We've charted the key tactical thrust for our product offering in 2025. Rewoke will build on lead programs and expand penetration through internal and external partnerships. In late 2024 and 2025 to date, We have expanded our U.S. digital media program to obtain thousands of leads. We are also building leads with educational efforts and programs with key opinion leaders and through conducting local clinic days where we demonstrate the rewalk to potential users. From these U.S.-based programs, we presently have greater than 110 leads that are qualified as a pipeline that supports our planned growth. These leads include individuals in Medicare, workers' compensation, and with commercial players. We have so far focused on Medicare and the VA. The next stages are expanded reach into workers' compensation, followed by selected submissions to commercial insurers. We announced this week our exclusive partnership with CoreLife to provide supply and support for individuals covered by workers' compensation. CoreLife has an extensive national patient-facing organization and will be managing all leads and will process claims for these patients. Rewalk will deliver the systems and provide training as necessary. In the commercial payer segment, we have qualified leads in our pipeline and will selectively submit claims to Medicare Advantage and commercial payers to request prior authorizations on a case-by-case basis. We also announced this week the expansion of our distribution agreement with Milewood. We have expanded our geographic reach and length of the agreement. The new structure allows us to directly supply systems for home referrals from the clinics we work in. Previously, we focused on sales in the VA and on VA users for home placements. In parallel, with increased volumes, we will gain a lower price and better margins. Our Altergy focus is adding a deep deeper expansion to U.S. national accounts due to the consolidation by those groups in the industry. We have established a pricing contract with one of the largest national organizations and have pilot programs now active with two other groups. Beyond our efforts in our direct markets, we have moved to reestablish distribution channels that have not yet recovered in the post-COVID period. Specific targets include Australia, Japan, and the Middle East. Our path for 2025 is clear. First, continuing sales growth with a mix that is most favorable with our margin goals. Second, implementation of the sustainable growth plan to reduce cost in all areas of the business. Third, we need to maintain our reduction expenses from a full year post-integration and no new large government policy initiatives or major R&D programs. And fourth, reduction in our loss each quarter in 2025 and at or below $1 million in Q4. This progress in 2025 and the subsequent path for 2026 is a tipping point for the company for long-term financial health that was built off the investments and successes in 2024. We look forward to presenting our results each quarter. Thank you for your time today. I'd now like to open the call for any questions. Operator? Thank you.

we'll now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then two.

At this time, we'll pause for just a moment to assemble our roster. And today's first question comes from Yale Jen at Leighton Law & Company.

Please go ahead.

Good morning, and thanks for taking the questions, and Larry did a great job. Congrats, and the best wishes for things after a rework. My first question is that for the 2025 guidance, how do you see the growth of each component, and is the guidance generally more conservative, Well, you think that's okay. So that's my first question. Then I have a follow-up.

Yeah, hi, y'all. This is Mike Wallace. Thanks for the question.

And I'd say, for the most part, the guidance reflects across-the-board growth across our three major product lines, the REWOC, the Alter-G, and the Myocycles. In general, I'd have to say that the contribution is relatively consistent in terms of the three areas. The mile cycles are the smallest contributor right now to our revenue and probably going to show the biggest percentage growth because of this expanded distribution agreement. We're going to see, but we will definitely see growth in the other two product lines as well. Probably because of the sustainable growth strategy that we've taken, we try to strike a little bit more of a balance between the top line growth and applying more spending discipline. Given that the spending was heavily oriented around driving the growth in the rewalk business, I'd say that the growth in rewalk is going to be concentrated more heavily on some of the segments of the business where we think we're going to get paid more quickly. and where we're going to have higher return and lower resource consumption. But in general, I would say across the board, we're seeing growth in all three product lines. And I think it will be more profitable and more efficient growth from those three product lines.

Okay, great. That's very helpful. Maybe just one follow-up here. which is for the core life partnership you just consummated a few days ago, the question is that what do you think the impact of that may have on the worker compensation part is just to increase the process, reduce the cost, or maybe even increase the lead? I just wanted to see any kind of sort of quantifiable way to look at this partnership in terms of the benefits? And thanks.

Yeah, this is Larry. Thank you. The Coraline program for us was very important because historically we had limited access to this really important and attractive segment. And given their size and scope, They have great depth and experience in treating and working to this population. So it's a great opportunity for us to have a much larger conduit into workers' compensation. And they also can process these very efficiently, so we don't have the expense of that, and we'll get paid in a reasonable cycle. They're probably a 30- to 45-day payer. Overall, the workman's compensation market is about 6% of all spinal cord injuries and it's a group we didn't have access to. So we're very excited about this agreement and to get underway.

Okay, maybe just attach one more question that I remember the prior conversation that you will have the next-gen rework to be introduced this year. Would that still be the goal for this year and any colors on that as well? And thanks.

We believe it will be a go for this year. We're ready with the product. It's been through all testing. The final submission after some questions from the FDA in one of the rounds were all completed. So that submission went in early in this quarter. And we anticipate our clearance sometime in the first half of this year. So that next generation product, our seventh generation, we're proud of that. should be on the market sometime this year. We would hope no later than mid-year.

Okay, great. Thanks again. Congrats on all the progress. Thank you.

Thank you. And our next question today comes from Ben Hainor with Lake Street Capital Markets. Please go ahead.

Good morning, guys. Thanks for taking the questions. Just going back to the revenue guidance and some of the recent announcements, the core life being one, the mile-in-mile cycle being another, is there much factored in to the revenue guidance from those recent announcements, or what's the right way to think about those?

I think Mike and I have both addressed it a little bit. I'll start... We have factored them in, but we factored them in conservatively because with CoreLife, it's a new arrangement for them and for us, but we think it has very good potential growth for us over the course of this year, and particularly as we go into future years. And I'm a mile and one. We've sold that product for years, but we've been very limited where we could go with it. And it has been a great partnership for us with that product, and by having access to to sell in all of the places in the clinics where we're trying to place units, we now have the rights to go and sell to the people in those clinics at home, which is a bigger market. Eighty percent of the market is home, about 20 percent of it is clinic. So we believe there's growth in both those areas. As Mike, when he related, we expect growth in all of them. We will learn how fast the uptake is for each of them as we go.

I would just echo Larry's comments to say, too, that for the workers' comp market, we have historically had some access but very limited access in that marketplace.

And pardon me, everyone. It does appear that we have lost our speaker connection. Please stand by.

We'll reconnect our line here momentarily, and we will get the call back underway. Thank you.