Earnings Call: Q1 2021

May 11, 2021

Good day and thank you for standing by. Welcome to the Q1 2021 ReWalk Robotics Limited Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference over to your speaker today, Ori Gon. Please go ahead. Thank you, Misty. Good morning, and welcome to ReWalk Robotics' Q1 2021 earnings call. This is Ori Gon, ReWalk's Chief Financial Officer, and with me on today's call is Larry Jasinski, our Chief Executive Officer. This morning, the company issued a press release detailing financial results for the 3 months ended March 31, 2021. This press release and a webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express the belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward looking statements as defined by the Private Securities Litigation Reform Act. These forward looking statements are based on information available to ReWalk's management as of today and involve risks and uncertainties, include those noted in this morning's press release and ReWalk's filing with the SEC. Such forward looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward looking statements. ReWalk specifically disclaims any intent or obligation to update these forward looking statements, except as required by law. A telephone replay of the call will be available shortly after completion of this call. You will find the dial in information in today's press release. The archived webcast will be available on the company's website. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 11, 2021. Since then, ReWalk may have made announcements related to the topics discussed. So please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to ReWalk's CEO, Larry Jasinski. Larry? Maury, thank you very much. Good morning, everyone. I am pleased to report that we had a solid Q1 and are on track for our goals in 2021. Now Q1 was the beginning of a transition from COVID limitations to more normal operations as our customer base is making progress towards returning to training and into the clinics. Q1 sales were $1,316,000 dollars compared to $760,000 in the prior year quarter and $1,200,000 in the trailing quarter. For our core product offering, the ReWalk 6.0, we expect continued progress with our current base of target candidates, which is at 168 qualified individuals at this time. 82 of those were in Germany, where we have the strongest coverage position as we emerge from COVID. 56 are in the U. S, which consists primarily of BA and workman's comp individuals, 30 are in the U. K. And within their litigation system. As U. S. Progress occurs with CMS, we will seek to move larger numbers of Medicare Medicaid individuals into our qualified pipeline. This current base of potential re walkers, combined with our full direct sales force in these three geographies and the expected reopening for access to these training centers provides us with a sufficient base to meet our year over year growth goals. For the Restorer product offering, the reopening has allowed the expansion of data generation and reentry into target accounts. We have worked with several of our KOLs to develop a symposium for this year's ACRM conference, which examines the role of robotic systems like the ReStore exosuit in achieving the therapeutic goals of high intensity gait training with patients post stroke. The reopening will allow reinitiating the clinical studies at Spalding in Boston, abilities lab in Chicago and at Boston University. Our parallel focus to building data is initiating placements and seeking subsequent contracts with National Change Your Accounts. We now have 7 clinics with 4 different national groups that are utilizing the ReStore device for broader use within their national programs. We are also advancing contract efforts with our Mylan offering and our Meditouch offering with the same chains and others. Our expectations for year over year growth relies on ongoing and increasing access to our clinics and customer base, and all current trends in the U. S, U. K. And Germany support our expectation to meet our growth goals. All other financial metrics are also aligned with our planning. Our gross margin landed at 54%. Our operating expenses will be level in almost all efforts beyond sales commission and travel expenses. Our cash position at the end of the quarter was $67,400,000 A combination of growth, margin management and controlled expenses leaves us with a runway to achieve breakeven operations and to consider other opportunities to build our business. At the start of the year, we identified several key milestones to watch in 2021 that will have an impact on our efforts to develop this new and emerging market. Here is a review of each. The first milestone. In the German Federal Social Court, which is the highest court for social jurisdiction in Germany, a ruling is expected to decide if an exoskeleton, which is an orthopedic aid that replaces the function of legs, enables independent walking and standing, whether it serves to directly compensate for disability. This case was filed in the local social court in May 2017, and the case was denied. It was appealed to the state social court, which overruled the local court and ruled that a WeWork must be provided. It was then appealed by the payer to the highest social court in Germany, the federal court, for a final ruling. The court does not provide a specific guideline and timing for a ruling, but our best estimate is mid-twenty 21. A positive ruling would have a significant impact on the landscape by all payers in Germany. Our second milestone, expansion of contracts in Germany. They remain highly active with 2 of the remaining large chains, but final contracts are more likely to be held until the court decision is issued. 3rd milestone. In the U. S, the successful HCPCS code issuance is actively being followed with multiple activities around pricing, categorization of the exoskeletons and regarding coverage policies with contracted planned in coordination with CMS. This time line has some uncertainty, but we are pleased with the progress that has been incurred. And the 4th milestone. In the U. K, the utilization of the ReStore system in NHS evaluation centers is scheduled with patients as they return to the clinics on May 17 with a broader opening in June. I'd now like to turn the call over to Barry for a review of the financial details. Ori? Thanks, Larry. As mentioned, our Q1 revenue for 2021 closed at $1,300,000 compared to $760,000 in Q1 2020 and $1,200,000 in the previous quarter. The increase compared to last year was due to increased number of ReWalk Personal 6.0 units sold in Germany and the U. S. Regarding our insurance progress, this quarter we had a total of 6 new insurance decisions to place a device for a new rental or a direct purchase and 7 conversions of previously rented devices. Our current pipeline of active rentals consist of 18 personal fixed point of devices and 2 ReStore rentals. As Larry mentioned, we have additional active programs with different U. S. Accounts currently analyzing the ReStore device during their stroke in clinic therapy. Turning into our gross margins. In the Q1 of 2021, our gross margin was 54% compared to 49% in the prior year quarter. The increase is mainly due to our higher number of units sold, with offset due to higher inventory write off and parts used for service and warranty. Regarding the operating expenses, our Q1 2021 operating expenses landed in $3,700,000 compared to $4,000,000 in the prior year quarter. This decrease is mainly due to lower R and D spend as we have implemented cost reduction efforts in the beginning of last year with the major restore project completed and to adjust due to the COVID-nineteen impact. Looking at our operating expenses compared to the previous quarter, we see that the main change is in our sales and marketing activity, which is almost entirely due to our PPP loan forgiveness, which was booked as a reduction of sales and marketing in the last quarter. To recap the quarterly results, our net loss for the Q1 of 2021 was $3,100,000 compared to a net loss of $3,800,000 in the Q1 of 2020. This is due to our increased revenue and reduced spend. Our non GAAP net loss for the Q1 of 2021 was $2,800,000 compared to $3,600,000 in the Q1 of 2020. We ended the quarter with $67,400,000 in cash, which includes our $40,000,000 from our February equity fundraise and $13,800,000 received from warrants exercised. With that, I'd like to turn the call back to Larry for some final remarks. Larry? Thank you, Ori. I'd like to further discuss our status regarding the 4 major goals we defined at the start of the year within the context of our overarching business strategy. We've laid out the baseline for year over year growth with our existing products, which builds on coverage, market access, a fully active sales team and expansion of data. We also anticipate our path to being a sustainable and profitable independent operating entity may require a combination of growth in the base products and successful internal and external development programs. Technologies we own and could gain access to, combined with our current infrastructure and our current financial position, is an ideal mix to achieve these goals. While most focus is on short term commercial operations, we have active efforts pursuing new indications for our soft exosuit offerings paired with a parallel payer strategy. We will also examine new opportunities that fit our operating goals that could benefit in partnership with our organization. Thank you very much for your time and interest today. And your first question is from Sean Kang with H. C. Wainwright. Hi. Thank you for taking my question. So my first question is regarding insurance discussion in the state. So what is the progress you've made regarding the payer discussion after you got the CMS? And is there anything else like in terms of clinical data to kick into health Basically, we have a lot of interaction occurring with CMS, which is we find incredibly valuable in giving us guidance to answer the open elements to allow contracting, specifically establishing pricing, establishing a final categorization, and establishing a path to contracts. So these three pathways are all underway, and they're at a stage right now where they're primarily interaction with segments within CMS and with some patients. So we are in process, I guess. There's no specific short term milestone, but really good interaction moving it forward. Relative to the data, we have a very solid block of data that we believe will support coverage exactly as it is currently set up. That has been successful in Germany and has gotten us through the HCPCS code issuance. But we do have additional data, and we've outlined some of it in prior calls. The VA CO OP study, which was 160 patient randomized trial that we've discussed in the past, We have no control over when they publish it, but they will publish that sometime in the coming months or so, depending on the VA. Secondarily, within our control is we have established a study looking at economic results for a patient who's been able to have the ability to walk again compared to a patient or that patient prior to their walking and what effect it had on their health. So we will have more data on a consistent basis around ReWalk and obviously with the ReWalk as well. But we don't believe they are absolutely necessary for coverage. We think they're very helpful. I see. That's helpful. One more question for me is, so from the press release, I saw that your cash position you said your cash position could allow you to explore further opportunities for growth. Was it more like a more general statement? Or is there any specific potential product you have in mind? We split that into internally, our success with the programs at Harvard University and the associated groups they work with are products we would like to move forward with and bring to market. So part of that is development of internal technology that we own, specifically targeting home use of stroke, which is a large unmet need for a low cost type system of that type. But also, we examine every possibility. We'll also look at outside possibilities as a pathway if we find something attractive. I see. So home use for stroke, so it would have been basically a home use version of, Vittor, I guess, right? Well, conceptually the same, but the difference would be a much simpler, less expensive device that can be easily handled at home by an individual. Restore a product is designed specifically for the clinic, and it can help higher volumes of patients. You put in X number of patients per day. So it's used repeatedly and has to be set up differently and is a lot different in terms of durability requirements. A home use product would be for a single individual at a much lower cost because you don't have to have the level of design for clinic and clinical use. So it's a simplified version of it, but it is offering the one primary feature that the Restore offers that no other product has been able to achieve and which seems to make a major difference in the success of regaining and relearning patterns, and that's propulsion or lifting the heel forward. That is the key feature of the reboot program, as we call it, which is a significantly different product, but the same concept as Restore. I see. That's very helpful. Thank you. Your next question is from Swayampakula with H. C. Wainwright. Thank you. This is RK from H. C. Wainwright. Good morning, Larry and Ori. Certainly, a very encouraging quarter and a good start for 2021. So thinking about your backlog, you stated you have 82 cases pending in Germany. And at the same time you're also waiting for the federal court to issue its decision. How many of these 82 cases are actually entangled within that decision in the sense because you have had previously, I think, 3 or 4 insurance groups that had had contacts with your folks, correct? Right. Ori, do you want to pick up that one? So RK, the question is how many of the 82 is subject to the social cause case or is within a social cause case? Yes. Okay. Let me pull it up. I think I believe it's in the neighborhood of 30 cases, but I want to verify that. So give me one minute. I'm just opening it up. Okay. So yes, it's 30 cases. 30 cases of the 82 are currently in social code and they will be affected by it at the end of the day. Yes. Okay. Perfect. And then similar question for the 56 months in the U. S. Too, because you potentially have some of these folks go through the VA system which does not get impacted by the CMS or the HCPCS code. So I was just trying to figure out where you are with not only with the VA study and also I would think potentially the folks who are going through the VA system have a better chance to get through and acquire the product. Is that is my thinking correct or not so correct? No. I think your thinking is correct, and it's similar to ours. The VA's national policy has provided these systems routinely to patients who qualify. So of those 56, the majority are VA. Or we might have the specific number, and I'll grab it quickly in a minute. But the key element is the VA is being open. They're running about, depending on region of the country, about 25% to 50% open. So we were sitting at 0 most of last year with this group. So we've made really good progress, particularly in the southeastern and central part of the United States. We're a little behind in the what we see in the western and northeastern part of the United States relative to the VAs being as active. So that pipeline should open up, and those patients do have a coverage policy. So if we can get them trained and they have a successful training, we can provide them systems. Perfect. Certainly encouraged by the Restore getting a relaunch. So should we think of ACRM conference being the place where you would potentially put all your energies into getting that relaunch started? And also also, in the past 1 year, what have you kind of learned as you are getting prepared for this relaunch of the ReStore product? First, our efforts and plans on relaunching prior to that symposium, the ACRM Conference is in September. And we think that's a very meaningful one because the data continues to be very positive. And to have those discussions and presentations of further data, I think, are valuable for other sites. But we our main focus on our launch in the short term has been with national accounts As we have evaluations now going on in some fairly large chains, that if those evaluations go as we would expect, we can see expansion in those chains. So the launch is really already underway by virtue of the evaluations that have been started in at least 4 major groups, 3 in the U. S, 1 in U. K. So the ACRM is supportive for us, and also we hope to see more published papers from the original study sites as it has been restarted at in Spalding, abilities, and at BU. Thank you, gentlemen, and talk to you soon, and good luck. Okay. Thank you, RK. And your final question is from the line of Martin Polak with Cantor Holdings. Yes, gentlemen, I don't know if you can hear me. Yes, we do. Yes, we can hear you. Can you hear you well? Yes. Just want to ask a few questions here. They're somewhat different, but they're related to a couple of things that have been happening in the quarter. But among the most important, it seems, additions to your Board took place in November. You hired what would seem to be a specialist in the whole CMS area, Randall Richner. Can you talk about her and what value does she bring to the Board considering that this is a targeted addition towards what appears will be the most important part of the growth of your business, the emerging U. S. Market and obviously getting the coding right. Tell us a little bit about her because I think it seems that this addition is different than what you've had on the board in the past is the first question. Second one, it seems based on the baseline of your comments already on the Q1, quite a positive surprise. Can you give us a hint what second half may shape up in terms of the upside beyond even what you would say is your baseline of expectations? And again, I'll go straight to the 3rd question. The share activity in the stock has been very unusual. It seems that the stock has just basically been seeing a massive oversupply of shares. There was obviously this offering that came through back in March. Do you think we're almost done with that oversupply? And it seems it's really a matter of not demand on the demand side. Stock looks incredibly cheap, and yet there's consistent selling. What have you heard from H. C. Wainwright? And what do you know about that? Well, let me answer the first two, and I'll ask Ori to address the third one. Regarding our Board and our ability to successfully recruit Randall Richner to join us, was really a strong belief by everybody on the management team as well as the Board that the biggest limiter to these innovative technologies has been reimbursement. And Randall Richner has extensive experience. She had headed up all health care policy at Boston Scientific for many years, successfully building that program from the ground up. She had subsequently started her own company with expertise in reimbursement, successfully sold that company after it had grown. And then she's been highly involved at the University of Michigan School of Public Health. So her background and knowledge base is high, but also particularly important is her personal knowledge and up to date interaction with CMS. She has been quite active with the Medical Device Manufacturers Association and has helped guide many companies through this pathway. So her joining our Board was a recruiting effort on our part, frankly. I think there's she benefited many companies. We're fortunate she joined us. But she's helped us solidify our policy and in the pathways we're pursuing has been advising us and leading us to the right people to ask questions. So it was a very specific, intentional, targeted filling of a gap, and we're very happy to have her on the Board. To your second question, second half, we haven't given a specific forecast at this point. COVID has made the world a little bit too uncertain for that. But we've talked extensively this morning about expecting year over year growth as the year progresses because there are many patients, whether the ones in the German courts or the VA that we have been that are fully qualified that we'd like to move through the system. The cycle time to move those individuals through is about 6 months on average from every successful setup of training, conducting the training, getting the unit. So the growth from those patients will really depend on how open the markets are here in Q2 and in Q3. That will sort of define our calendar year level of success. But we should have a good second half of the year is our expectation. But COVID has had multiple waves. So we have to be a little cautious on that. Corey, do you want to pick up on share activity? Yes. I can we don't have insight into the different activities that has been going on as we don't obviously control it. The only thing I will state is that the public domain maybe you can also take a look. On March 11, we filed an S-one that was related to the February fundraising. It took an effective it took effective by the SEC on March 2019 that might have pushed some shareholders that have participated to sell some of their shares in the open market. But we don't control that. So I don't have anything to add besides that. I see. Thank you very much. Thanks. Any other questions for today? There are no further questions. I will now turn the call back over to Larry. Okay. Thank you very much. For everyone who joined today, we appreciate your time and your interest. Please stay tuned to our upcoming information and publications, and have a good day. Thank you very much. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.