Welcome to the ReWalk corporate call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to your host, Michael Lawless, Chief Financial Officer. Mr. Lawless, you may begin, sir.
Thank you, Paul. Good morning, welcome to our conference call to discuss our announcement of the agreement for ReWalk Robotics to acquire AlterG, Inc. I'm Mike Lawless, ReWalk Robotics' Chief Financial Officer. With me on today's call is Larry Jasinski, ReWalk's Chief Executive Officer. Charles Remsberg, the Chief Executive Officer of AlterG and our future Chief Sales Officer of ReWalk once the transaction closes. Before we get started, I'd like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future events and the company's future performance may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
These forward-looking statements are based on information available to ReWalk management as of today and involve risks and uncertainties, including those noted in our press release and ReWalk's filings with the Securities and Exchange Commission. 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, whether as a result of new information, future developments, or otherwise, except as required by law. A replay will be available shortly after the completion of the call, accessible from the dial-in information from yesterday's press release. The archived webcast will be available on the investor relations section of our website. For the benefit of those who may be listening to the replay or the archived webcast, this call was held and recorded on August 9th, 2023.
Since that date, ReWalk may have made subsequent announcements related to topics discussed. Please reference the company's most recent press releases and SEC filings for the most up-to-date information. I'd also just like to point out that on this call today, we're going to be making forward-looking statements and so as a result, you should also reference the, the forward-looking statements, statement on our slide presentation. With that, I'll turn the call over to Larry.
Thank you, Mike. Could you move to the forward-looking statement slide?
I, I think I have.
Okay, good.
There we go.
Let's move to slide two. Welcome, everybody. I am excited to announce a transformative event for ReWalk Robotics. We are combining forces with AlterG to add their commercially successful Anti-Gravity systems in our portfolio of neurorehabilitation solutions. AlterG's products are based on NASA-developed Differential Air Pressure technology, known as DAP. AlterG's Anti-Gravity systems compensate for physical injury or disease and increase mobility to improve orthopedic rehabilitation, the management of neurological and chronic conditions, and athletic performance. Our strategy, which we have explained in the past, consists of two parts. First, to capitalize on the significant opportunity to provide our ReWalk Personal Exoskeleton to individuals with spinal cord injury, so they can once again experience the benefits of walking. This is the mission on which ReWalk was founded and a goal that we continue to work to deliver.
Second, our strategy is to seek to add adjacent complementary product offerings, which will aid us in our broader goal to improve the quality of life for individuals with neurological injury or disability, through innovative technologies that enable mobility and wellness and rehabilitation in daily life. In building the portfolio of offerings, we also gain scale more quickly to reduce our burn rate and to establish a defined path to profitability. This acquisition is a huge step in both parts of our strategy. It brings us new technological capabilities, commercial skill and scale, and opportunity for much greater presence with the clinics who are now key to helping us expand access to exoskeletons. I'd like to now walk you through our presentation to explain all of this in more detail. First, I'd like to provide a summary of the transaction. Next slide, please.
For an overview, we have agreed to acquire AlterG for $19 million in cash at closing, with potential future earn-out payments based on growth in revenue. Upon closing, the organization will be combined into a single operating team to leverage the talents that each side brings to the group. The combined global sales organization will be led by Charles Remsberg, who has served as the CEO of AlterG and has an extensive and very successful record in achieving revenue goals with our target market audience. He is the right person for commercial leadership for this next stage for the company. The pro forma impact is also measurable. Financially, we are completely overhauling and upgrading our profile. We are gaining significant scale. The combined company's trailing twelve-month revenue is approximately $26 million.
The growth potential from the combination of the expanded exoskeleton access and the addition of the DAP products is projected to drive the remaining business to non-GAAP profitability by 2026 on our current cash. The financing of the transaction, at closing, 19 million, subject to customary adjustments based on working capital, indebtedness and cash on hand. There are earnout payments at the end of year one and year two that are based on a % of the dollar increase in the revenue in each of these years. Post-closing, the balance sheet remains strong with no debt. Piper Sandler served as the exclusive buy-side financial advisor to ReWalk. The expected timing is a closing on August 11th, 2023. Next slide, please. I'd like to go a little deeper into the attributes of this event.
First, it will broaden our reach and leadership throughout the neural rehabilitation community, which is the core focus of the company. Second, DAP is a well-established technology. It has proven commercial success and is very versatile for use in complementary applications. These can be the source of innovation and new product introductions over time. In the 10 years pre-COVID, this technology maintained a 10% CAGR, and we see additional DAP applications as a path to continued growth. Third, is creating appropriate scale for the future. This will create a comprehensive sales team with strengthened relationships in both the clinic-based and individual sales, and create pathways for the cross-generation of new sales opportunities across multiple product lines. Fourth, is having the increased market presence to be able to capitalize on CMS's anticipated decision to support ambulation for the spinal cord injury community. Next slide, please.
Here is some history on AlterG. DAP technology was developed at NASA to use the reduction of air within a bag to pull down on an astronaut in zero gravity environment. The patents were later assigned to AlterG and developed for the opposite purpose of reducing the forces of gravity to facilitate walking and running rehabilitation after disease or injury. Its use is broad, including post-surgical ambulation, ambulation for neurological patients, cardiovascular benefits, obesity, and for college and professional athletes to aid in quick recovery. The company had sales of approximately $20 million in 2022. They have about 6,000 units in the field in more than 4,000 facilities. The revenue mix is global, with 60% in the United States and includes a base of about 20% of revenue that is recurring, which includes multi-year rentals and service contracts.
AlterG has a direct sales team in the United States and long relationships with distributors in over 40 countries. They have about 50 employees and are based in California. Next slide, please. This combination is highly complementary in many aspects because AlterG has strong revenue and resources and capabilities where ReWalk may not have invested as heavily, and ReWalk has other complementary skills where AlterG may not have dedicated as much focus. As we integrate our businesses, we expect to make each stronger. We see our shared resources as a powerful commercial platform, which will enable us to grow more efficiently and achieve profitability faster than if we continued to grow on our own.
With each company contributing different skill sets, the depth of direct U.S. coverage and a broad global distribution network provides an ideal platform for commercialization of the core product lines of each company and an attractive base to launch new products. Next slide, please. If we focus a little more on the commercial team, you can see here that following the closing, we will have significant resources from both organizations. The near-term priority will be for each sales team to focus on finishing the year strong against their individual annual targets. During the fall planning cycle, we will design and formalize the new commercial structure so that we will approach the market in Q1 2024 as one unified team. Importantly, about half of our employee base is working in some facet of our commercial activities. Next slide, please.
One of the most exciting synergies in this transaction is the opportunity to consolidate our commercial infrastructure around a broader product portfolio that spans the continuum of care, from the clinic to the home, in order to drive new business opportunities across all product lines. Let's examine this structure in more detail. Historically, the AlterG team has excelled in identifying new clinical and hospital-based customers for their Anti-Gravity systems and building strong relationships. Likewise, the ReWalk team has historically specialized in identifying new patient opportunities for our personal exoskeleton and home use products. Our combined structure will strengthen our interaction with clinical customers and provide more solutions to better address the needs of a broader population of their patients. In parallel, these hospitals and clinics are working with target patients daily and are well positioned to identify candidates who would benefit from ReWalk's home use products.
Likewise, to support individual patients, our team is growing a network of certified clinical training centers to provide the appropriate physical therapy, training, and education needed to safely and successfully take the equipment for home use. Through these training relationships with clinics, we expect to identify additional opportunities for clinic sales across our combined portfolio. In this way, we anticipate that our combined sales structure will create strengthened relationships in both clinic-based and individual sales that create reciprocal pathways for cross-generation of new sales opportunities across multiple product lines. Next slide, please. Aside from the benefits to the customers and patients, one other fundamental goal of this transaction is to build the path to profitability. We expect this will be achieved through the specific growth drivers of our combined businesses and greater efficiency in utilization of resources as we build scale.
First, we expect our future growth trajectory to receive a significant boost from the addition of Medicare beneficiaries, where they have no access to exoskeletons now. The proposed rule by CMS of June 30th is now in a public comment period and will reach a final rule later this year. We have relationships with many Medicare, Medicare beneficiaries who have waited years to have access, only that is allowed presently to veterans, or those with sufficient funds, or those who have the capacity and time to fight through the appeal process to win with private insurance. CMS's proposed rule would greatly expand the % of spinal cord individuals who have health coverage, which pays for exoskeletons. We see this as a key element of growth for 2024, 2025, and beyond.
In parallel, the growing business of AlterG as a pipeline of promising new DAP products, which we will seek to launch beginning in 2024 and beyond. We also expect a higher velocity of lead generation, as I described in the previous slide, which we expect to translate into synergistic revenue from greater sales of ReWalk exoskeletons, MyoCycles, and AlterG systems, which can only occur through our strategic combination. Next slide, please. In conclusion, there are five key points. Number one, make no mistake, the combination of ReWalk and AlterG will be transformational for our customers and for our investors. We are a fundamentally different and better company than we were before we signed the agreement. Two, the Differential Air Pressure technology that the AlterG systems utilize is novel and innovative, with potential for continued growth with new applications. Third, experience and size matters.
With AlterG's commercial talents, we are in a much better position to deliver on the significant commercial opportunity presented in the new proposed Medicare rule that will formally establish a benefit category for personal exoskeletons. Fourth, it's synergistic. There's a large investment required to build these markets and to drive utilization to the long term. It's more efficient in a larger organization. Fifth, it's a base to scale and to accelerate timing to profitability. We have stayed true to the path of development we have outlined over the past 18 months of investing to provide access to exoskeletons for the long term and with thorough, comprehensive diligence of making an acquisition that meets the goals presented over these past six quarters. We are excited and succeeding in our plans. Let's open this up to questions.
My counterpart and future colleague, Charles Remsberg, CEO of AlterG, and Mike and I are available to provide the answers. Operator, please.
If you would like to ask a question, please press star one on your telephone keypad now. You'll be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star one on your phone now. Our first question comes from Swayampakula Ramprasad of H.C. Wainwright. Your line is open.
Good morning, Larry and Mike, thank you for taking my questions. First of all, congratulations on this, what appears to be a great deal. I would like to, if you could help us understand the business of AlterG a little bit better, that would be great. I think in the prepared remarks, you mentioned that about only about 20% of AlterG's revenues come from new device sales, while the rest comes from recurring revenue. What exactly does this recurring revenue entail?
Okay, this is Larry. I'll moderate some of these. Just a correction, the current AlterG sales are about 80% new device and about 20% recurring revenue, to get back to you. I think it's important probably for both Charles and I to comment on the business philosophy that we each see. We have spent two years talking about this and saw a combined mission that had the same shared pathways, and we see an ability to grow this better together.
I'll let him start with some comments, perhaps on how he sees this laying out as he will take on the commercial role of of providing this for both of our expanded customer bases for the clinic, and our existing customer base in ReWalk for individual patients. Charles?
Good morning. First of all, I'd like to thank ReWalk for putting in the hard work to assess our business and ultimately arrive at this place where we're working together. I think the combination is unique, and the combination provides a footprint unmatched in the neuro rehab space. AlterG's traditional business is calling on clinics and hospitals, selling in a B2B capacity, where we're very good at covering the entire United States and many of the largest global markets. ReWalk's skills are at training the potential users and users for ReWalk systems and connecting with those, those individuals in their communities. The AlterG sales organization will take on the responsibility of evangelizing the benefits of the ReWalk system and bringing other capital products brought by ReWalk into the hospitals and clinical settings.
At the same time, that awareness that is, that is, being raised by our sales team, will flow down to the ReWalk sales team and ultimately provide us with an opportunity to sell both B2B and B2C. I think this is a very unique position with two bookend key products that really support each other and provide the opportunity to, to provide products both to the clinic and into the home.
Great. Thank you. Thank you for the additional color. That was very helpful. In the prepared remarks, you also mentioned that AlterG has over 6,000 units placed already. I was just wondering, regarding these placements, how much overlap is there between which centers have AlterG systems versus what centers have ReWalk systems placed?
Well, I'll start a little bit. We, to some extent, have worked in different universes because we have ReWalk has focused so much on the homes, and getting products there. A key component for ReWalk has been the training centers, and this is the real connection with AlterG, and I'll let Charles pick up from here, because when with the number of clinics they're in, it broadens our footprint dramatically.
Rather than thinking about the overlap in terms of individual patients, I think the real question we're focusing on is, how much overlap will we be able to create between hospital clinics who use and prescribe our equipment for their caseload of patients? While an individual patient may not, may not be using all of our solutions, the same clinic that treats a patient with spinal cord injury may also be treating patients post-stroke or patients recovering from orthopedic injury. The broader portfolio allows us to offer multiple solutions to those same clinics where we already have a relationship, and to educate those clinicians on how to identify patients who may benefit from their own individual equipment for home use.
I think you can see the continuum, and, and it goes back to the slide that Larry presented about how the, the, the leads are generated by each organization, really providing a, a, what I like to call a virtuous cycle of lead generation, both into the clinic based on the experience of ReWalk, and also from the clinic to the home, based on the experience of AlterG.
Great. Thank you for that. My last question is just maybe a thought for longer term. Is there any opportunities to combine the DAP technology of AlterG with ReWalk's robotic technology to develop new products?
I think they're, they're fairly different technologies in terms of the fundamentals. And there are many applications we see for DAP that will expand our reach into other neurological indications. In parallel, we also see, as you, you know, our ReWalk product and our ReStore product, we see products like our, our ReBoot, which we've talked about in the past, which our technologies is also expand. I, I think we eventually could see some of these working together. You're using a Differential Air Pressure technology, but you're wearing a ReBoot as a stroke patient. Those two could work together remarkably well in the reestablishing neural pathways in a way that it can be done safely with the offloading effects of the AlterG system.
There, there is synergy, but it's not a direct product-to-product synergy as much as it is offering-to-offering synergy for what we're trying to do. Charles, would you add anything?
I would completely agree. The AlterG provides a level of bodyweight support and comfort that no other system that provides this level of rehabilitation can offer. When you combine some of the ReStore and the ReBoot products with the AlterG, I think you have an ideal combination of assistance from the robotic system, combined with the Differential Air Pressure and support of air in the AlterG.
... I also think there's other opportunities down the road as we talk about new product introductions, where we'll be able to leverage each organization's development experience to develop products that are addressing unmet needs in the, the growing space of neural rehabilitation.
Great. Thank you. That's all I have. Thanks. Congratulations again on this great deal.
Thank you, sir.
Thank you.
Thank you. As a reminder, if you do have any additional questions, please press star one on your phone now. Our next question comes from Marty Pollack from KMTR Capital Management. Your line is open.
Yeah, gentlemen, excellent, well, you got some, some news on a combination, so I, I think this seems like a fantastic deal. What's missing in the communication here, Larry and, and Mike, it's really a discussion of what, what happens to the cash burn? What is potentially the redundancies that become pretty clear in this combination? That is reducing costs at ReWalk on its own, and the contribution of what you say is a pre-, you know, a profitable company as AlterG. If you can give us an idea of the way this cash burn declines, and you need to be a little bit more detailed. I, I think we're not getting the kind of detail that would allow us to understand where the net cash continues. You know, after this acquisition, clearly that number comes down significantly.
What does happen, if you can go into 2024 and describe that decline and that cash burn? Additionally, can you tell us what, whether AlterG on its own can grow or has a growth path even without this acquisition? What is its sort of CAGR growth today, and point out about its EBITDA as opposed to EBIT profitability?
Thank you, Marty. I mean, you know, we clearly will see an impact both on the revenue side, which will affect the past cash burn as well as the efficiency side. I'd like to hand this off to Mike to give you a picture of of the information we can give out today.
Yeah, sure. Marty, we expect that this, this transaction is going to enable us to substantially reduce our cash burn on a year-over-year basis for 2024. Then into 2025, you know, ultimately realizing cash flow positivity and operating profit in 2026. At least initially, our focus is going to be around, you know, once the transaction closes, of course, which it hasn't closed yet, is to continue to deliver on our individual company goals through the rest of this year, while at the same time integrating our businesses and building an operating plan for growth for next year.
I think that you're going to see that the, the drivers of the reduction in the cash burn are going to be coming from a combination of the growth that we expect to be able to generate through the collective resources that we talked about on the, you know, in, in the slide presentation earlier today. Then as well, there are going to be some redundant service providers and vendor costs and things of that nature that you always find whenever you bring organizations together. Another benefit that we're going to see from this transaction is that as, as we grow, we have shared resources that each of the two organizations can provide to the other organization.
There's going to be an opportunity for the AlterG product line to be able to grow through the benefit of some of the resources on the ReWalk side and vice versa. That's going to eliminate the need for AlterG to have to go out and spend on those resources themselves, and vice versa for ReWalk. I think we're going to be able to grow much more efficiently and much more effectively because of the combined resources that we're bringing together, which are very complementary. We've spent a lot of time planning this out, and I think we've. We're very encouraged by the opportunity that we have to put these businesses together and to grow them. I think, you know, we're going to have more detail on that, that growth plan as we move through the rest of this year.
But clearly we think that a big element of bringing that, that cash burn down is a result of the, the growth and the, the collective resources that we're able to put together.
Mike, nevertheless, I think one of the things investors really will, will want to understand is when you talk about significant cost reductions in that cash burn, that becomes a more critical number to at least have a way to gauge that. When you say, let's say, it takes you a quarter to, a quarter to integrate to the two companies, but when you talk about 2024, is there any reason why you can't spell out some kind of number that says, this is clearly where we can see some reduction in SG&A? These are some of the redundancies we do see, you know, in the ReWalk side. You're currently burning in high teens, annual cash burn.
There needs to be something that you can point to that we see this combination, not only synergistically on the revenue side, but we see we can take that burn down. Some number, maybe down from 18-20, down to 8-10, but at least by 2024. We need to have those numbers. I'm surprised that in this presentation, you really didn't get into that detail. I know that detail exists because it took you a very, very long time to close this deal. You have that information, but you're not sharing it with investors.
Again, the reduction in the cash burn is a result of the operating leverage from growing the business. With every dollar of revenue that we grow the business, a certain percentage of that is going to be falling to the bottom line. With the combination of the growth that we expect to experience from the expansion of Medicare coverage, combined with the natural growth of AlterG, combined with their new product introductions that we have on the horizon, combined with all the benefits that we talked about with the increasing velocity of patient identification and lead generation, we think that we have a very powerful growth engine here, and so we're focused on growth.
Mike, I was wondering if you could tell us, or perhaps, as we look at AlterG, what are the kind of numbers that it has in terms of things like gross margin and its own EBITDA on this revenue base? I would think that that's an important way for us to understand at least what AlterG might contribute separately to the reduction of that, you know, of, of that cash burn. I'd appreciate if you can talk about that for a minute.
Yeah, sure. On a going-forward basis, we expect AlterG to be generating gross margins in the high 40s, which would be accretive to our present level of margin. We would expect that to continue to grow as we, as we build volume, partially due to some new product introductions and some, some cost, value engineering projects that are going on, but also just a result of the benefit of volume across a, you know, a fixed cost base, which also aids in your margin improvement. Presently, the EBITDA margins are in the single digits, but those will as well be growing as we generate more volume.
It, it's, it's really a, a situation where volume is going to be very, very, advantageous for us and, and very, very, very profitable for, for shareholders.
EBITDA would be something along the lines of less than $2 million per year at the moment, and growing. Is that what you're suggesting?
That's correct.
I see. On, on its own, AlterG standalone, what is -- has been its, its historical CAGR has been about, 10%. What is it growing today? Or let's say, again, on its own, what could it be growing, per year here? So that we know whether, you know, AlterG is, while it's complementary, does it have its own growth engine standalone?
Marty, I'll pick up a little bit there. They, they certainly, as we identified, had a historical CAGR of about 10% over the decade prior to the COVID interruption. We see some additional new products which will pick that up in some years, and it'll be less as those products penetrate. But we're not giving out specific forecasts for either of the product lines or guidance yet at this time. Mike, would you add anything to that?
No, I think, I think we're very confident about the growth of the future. We think, you know, history is a good guide for what a business can do. I think we believe we could probably do better, I mean, we haven't even closed on this transaction yet, I think some of this is just, you know, premature in terms of, of getting into this level of detail.
Last question. With regard to, the cash levels and how you see your future finance requirements, do you see any reason why you need to have additional funding going into 2025 or 2024 later in the year, just to make sure that your cash, levels are at comfortable, you know, that you're comfortable with those cash levels? How do you see future financing required?
We, we believe our cash levels and our, our capital resources are, are more than adequate for, for the growth plan that we have, that we're, we're working on. We don't anticipate the need for further financings in order to reach profitability and fund the growth of this, this combined business.
It doesn't suggest then that the cash burn must really be going down quite a bit in this combination. It seems that you will probably be in the $40 million range after this quarter in terms of net cash. I assume that we're going to be looking for a significant reduction in that cash burn. It really is somewhat puzzling to myself and perhaps other investors, that you just have not spelled out some kind of number. Where does it go down from 20 million down to 10 million or something like that, and yet I'm sure you have that in your back pocket. It took you so long to close this acquisition, so I just don't know why you have not shared that with investors. That's it.
Thank you.
Okay. Thank you.
If there are any final questions, please press star one on your phone now. Seeing no final questions, I'll turn the call back over to our host.
Paul, thank you very much. Thank you, Charles, for joining us today, and we look forward to working with you and being to present the numbers that develop as they occur quarter-over-quarter. Mike, thanks for your input as well today. For the community, we appreciate the support. We are very excited about this transaction and the impact it's going to have on this company and this business, and we look forward to providing those results to you as they occur, where you'll be able to measure both the growth and what it's doing to our cash position. We will look forward to that on future calls. With that, I conclude for today. Thank you, everybody, for joining us.
The meeting has now concluded. Thank you for joining, and have a pleasant day.