Lifeward Ltd (LFWD) 2014 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the ReWalk Robotics Q3 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder this call is being recorded. I would now like to introduce your host for today's conference, Lisa Wilson, Investor Relations for ReWalk Robotics.

Thank you. Good morning, and welcome to the ReWalk Robotics Third Quarter 2014 Earnings Call. This is Lisa Wilson of In-Site Communications Investor Relations for ReWalk. With me on today's call are Larry Jasinski, Chief Executive Officer, and Ami Kraft, Chief Financial Officer of ReWalk.

This morning the company issued a press release detailing financial results three and nine months ended September 30th 2014. This information can be accessed to the Investor Relations section of the ReWalk Web site at rewalk.com and you can also access the webcast of this call from there.

Before we get started, I would 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 statement as defined by 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 this morning's press release and ReWalk's filings 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 for the next two weeks.

You'll find the dial-in information in today's press release. The archive webcast will be available for one year on the company's Web site rewalk.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on November 13th of 2014. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press releases in SEC filings.

And with that, I'll turn the call over to ReWalk's CEO, Larry Jasinski. Larry.

Lisa, thank you very much. Good morning everyone. Welcome to our first conference call since the successful completion of the IPO in September. We raised $38.7 million strengthening our balance sheet to fund commercialization of the ReWalk personal system in the United States to expand our infrastructure and to continue our research and development efforts.

Total revenue for the quarter increased to $1.5 million, that's up to 277% compared to the third quarter last year. We sold 26 ReWalk systems globally during the quarter up substantially from the 6 systems sold during the same period last year.

The IPO was just one several significant milestones for ReWalk Robotics during the third quarter of 2014. Importantly, we gain clearance as the only wearable exoskeleton cleared by the FDA for use in the rehabilitation lab and also for personal use in the United States. This makes us the only powered exoskeleton that can be legally marketed in the United States.

I am also pleased to report several significant accomplishments on the reimbursement front. The James J. Peters VA Medical Center, one of the largest VA rehab centers in the United States, established a policy to provide payment for FDA cleared powered exoskeletons for all veterans that qualify. And today that is only the ReWalk that has qualified VA clearance.

In Europe we now have four large German insurers that have approved coverage for the ReWalk personal device on a case-by-case basis. We feel confident that we are well-positioned to commercialize the ReWalk exoskeleton both in the United States and abroad and to fund our continued research and development.

With that, I'm going to ask Ami Kraft, our Chief Financial Officer, to review our third quarter financial results. Ami.

Thank you, Larry. As Larry just stated our revenues was up 277% to $1.5 million for the third quarter of 2014 compared with $408,000 in the third quarter of 2014 due to higher sales of ReWalk systems. This was our best sales period to date.

During Q3 2014 we sold 26 systems, more than half of the 42 systems sold during the first nine months of the year, and significantly, more than the 6 devices sold during Q3 last year. During Q3, the gross margin improved to $331,000 as compared with the loss of $20,000 in the third quarter of 2013 reflecting higher sales in the 2014 period coupled with economies of scale.

We completed our manufacturing transition to Sanmina at the end of the second quarter of 2014. As a result, all the ReWalk systems sold during the third quarter of 2014 were manufactured by Sanmina. R&D expenses during the third quarter of 2014 was $5.2 million of which $4.2 million was related to non-cash share-based compensation, this, compared with R&D expenses of $577,000 during the third quarter of last year.

Our non-GAAP R&D expenses during the third quarter of 2014 was $1 million compared with $563,000 during prior year period reflecting our ongoing investment in product development. Our non-GAAP SG&A expenses which excludes $400,000 in non-cash share-base compensation was $2.6 million during the third quarter of 2014 compared with non-GAAP SG&A of $1.6 million in Q3 2013.

We expanded our sales and marketing organization during the quarter and now have 20 full time sales and marketing employees. Net loss was $6.4 million for the third quarter of 2014 or a loss of $2.81 per basic and diluted share, this, compared to a net loss of $3.3 million in the prior year quarter or a net loss of $19.52 per basic and diluted share.

Adjusting for the $3 million net in non-cash expenses complies of share-based compensation and the re-evaluation of warrants prior to the IPO, non-GAAP net loss for the third quarter of 2014 was $3.5 million compared with non-GAAP net loss of $2.2 million in the prior year quarter. Non-GAAP net loss per basic and diluted share improved to $1.34 in Q3 2014 compared to $11.91 in Q3 2013.

As of September 30, 2014 ReWalk had $47.7 million in cash, cash equivalent and short-term deposits. During the third quarter of 2014, we substantially strengthened our balance sheet. We successfully raised $38.7 million net from our IPO, $12.8 million from our pre-IPO financing round and $1.1 million from the exercise of warrants to purchase convertible preferred shares.

With loan to third quarter of 2014 with $49.3 million in shareholder's equity and no debts, and with that, I'll turn the call back over to Larry.

Ami, thank you very much. ReWalk is a wearable robotic exoskeleton that provides powered hip-and-knee motion to enable individual's spinal cord injuries to stand upright and walk. The system allows independent, controlled walking by simulating the natural gate pattern of the legs. In addition to the ability to stand and to walk independently, clinical studies of the ReWalk rehabilitation system shows significant potential physiological benefits that reduce medical complications associated with paralysis.

ReWalk is truly more than walking. It is fundamentally changing the health and life experiences of individuals that have a spinal cord injury. In the US alone, there are 270,000 people living with spinal cord injury and 12,000 new cases every year. The cost of complications related to SCI can exceed $500,000 in the first year with significant ongoing expenses over a lifetime.

Secondary medical consequences of paralysis can be quite extensive, including difficulty with bowel and urinary tract function, osteoporosis, loss of lean mass, gain of fat mass, insulin resistance, diabetes, and heart disease. And with 87% of SCI patients at the private non-institutional residences following hospital discharge, there is an increased need for an in-home personal device.

In the United States, ReWalk was the only exoskeleton cleared by the FDA for personal use and community use outside of rehabilitation facility. While other exoskeletons were designed for rehabilitation use, the ReWalk was designed with the independence of the ReWalker in mind. The ability to use our device independently at home and in the community is a key differentiator of the ReWalk system.

And we estimate that we have a significant advantage over competing technologies with regard to FDA clearance for personal use. Globally, ReWalk is the most used, most studied exoskeleton technology of its kind with over 100 systems worldwide, the ReWalk have covered more miles than any other technology including the London Marathon, the Tel Aviv 10K, two 7Ks in Italy, and the first ever exoskeleton competitive event held in New York City last November with seven entrants covering one mile each.

We have covered more miles in everyday life than any other exoskeleton technology. Our advanced technology combined with the FDA and CE clearances provides us with a strong platform to sell directly to customers and importantly to assist them with reimbursement. In fact, the ReWalk is the first exoskeleton to sell directly in US and Europe, the first to receive reimbursement from major insurers including four of Germany's largest insurance providers and also from the United States Veterans' Administration.

We are investing in and adding an experienced direct reimbursement team to support our patients and gain further favorable coverage decisions. We have a multifaceted commercialization strategy that will allow ReWalk to penetrate and lead the market for personal systems. This strategy is predicated on getting the customer survey and working in parallel to develop reimbursement wins on their behalf.

The first step is penetrating rehabilitation facilities, hospitals, and similar facilities that treat patients with spinal cord injury. We are currently in approximately 80 facilities worldwide including the largest VA centers in the US and we continue to build momentum to expand to additional centers.

We have successfully ReWalk as an integral part of the spinal cord injury rehabilitation process with these centers. Once an individual is trained on the ReWalk system, those users can get a prescription for the ReWalk personal device. We supplement our rehabilitation training program by laying a foundation that includes direct outreach to spinal cord injury groups, data generation, market education, and awareness, lead building and other referral efforts.

In the United States, we will continue to expand our direct sales force. In the EU, we are working with our direct sales force in Germany and have partnerships with key distributors in Europe leveraging our German service and training capability.

For Asia, we have a strategic alliance with Yaskawa Electric Corporation, a multi-billion dollar leader in the global robotics and automation. Yaskawa will serve as the exclusive distributor of ReWalk in selected Asian markets. We also have the opportunity to apply their expertise to our R&D efforts and quality improvement.

For the rest of the world, we are working with distributors and selected geographies.

For production, we are confident that our manufacturing partner, Sanmina, a well established turnkey manufacturer with expertise in the medical device industry provides us with a scale-up capacity required to meet worldwide demand today and in the future.

As I've mentioned earlier, a key prong of our commercialization strategy is reimbursement. We expect to generate revenues from a combination of sell payers and third-party payers. Our near-term focus has been on penetrating the third-party payer market which we believe offers the best sustainable near-term business model.

We recently achieved several significant milestones on this front. In July the James J. Peters VA Medical Center in the Bronx New York established the policy to provide payment for FDA cleared powered exoskeletons for all veterans that qualify with the ReWalk, the only FDA cleared powered exoskeleton.

Notably, this VA was the first hospital to research the health-related benefits of an exoskeleton device for people with a spinal cord injury. And in September, a major German insurance company was the first to reimburse the ReWalk system for personal use. Three other German insurers also reached positive coverage decisions thereafter.

These coverage decisions are important endorsements for the ReWalk personal system and we expect they will pave the way for additional reimbursement wins toward the system in the future. More importantly, these reimbursement decisions represent a significant development for people with spinal cord injury who wished to use an exoskeleton system at home and in their community.

Although we expect reimbursement decisions will continue to be on a case-by-case basis in the near term, acceptance of exoskeleton is growing. As the only technology FDA cleared designed for personal use, ReWalk is uniquely positioned to lead this market.

I am very pleased with the milestones we have achieved during and since the third quarter of 2014. We have made a lot of progress in a very short time and we expect to build in that momentum going forward. We see tremendous opportunities for ReWalk to continue as the market leader in exoskeletons.

Our team is actively working in product enhancements and we anticipate that today's ReWalk technology, we will serve as a platform for multiple other indications including quadriplegia, stroke, multiple sclerosis and cerebral palsy. As I've just outlined, ReWalk is very well positioned to continue building and delivering shareholder value. We look forward to updating you as we make progress on these and other initiatives and thank you for your ongoing support.

With that, I'd like to open the call for questions and then ask the operator to please go ahead with the instructions.

Thank you. (Operator instructions) Our first question comes from Raj Denhoy with Jefferies. Your line is open.

Hi, good morning.

Good morning, Raj.

I wonder if I could start a little bit on the 26 units you sold in the quarter, is there anything more you can provide in terms of whether those are for rehab or personal units and also geographically whether those are sold in the United States or into Europe?

Well the units, we are going pretty equally and fast in all regions. So the mix is primarily personal and we expect overtime that the larger volume of users as 87% of them are going to home -- are going to be personal units, but we saw growth in all regions at about the levels we expected.

Okay. And then if you think about at the end of fourth quarter and into 2015, I'm curious if any if you could provide again in terms of the funnel, how many units you think you could sell and any sort of guidance you want to provide and maybe you can give us in terms of the interest in the systems since you received FDA approval?

Okay. Well we -- on the announcement of the FDA clearance, we have gotten a lot of leads and a lot of interest globally because it was a big enough event on a worldwide scale. I think a lot of people with spinal cord injury began to reach to us.

Our expectation is we're going to see strong sequential growth quarter-over-quarter. We feel the underlying demand is very solid, so we should be able to expand the user base at this point.

And no, nothing in particular, no specifics you want to give us in terms of units you think you might be able to place in the fourth quarter?

At this stage, we're basically going to continue to build our base, but we don't see any fundamental changes from where we've expected to be.

Okay. And maybe I'll just ask one last one and get out. But the Bronx VA reimbursement continues to be pretty intriguing. Is there anything on that front, whether that site has now being fully trained and able to release patients with the system at this point or whether there's still some gaining factors to that institution getting more active?

I have some fantastic news there. They invested a lot of time and effort to get their clinical site completely trained and ready to take care of patients and they are now fully operating. They've just sent someone home just about two weeks ago after a full training, so they have built the infrastructure.

And importantly I believe the VA network is paying very close attention to the local work at the James J. Peters and will consider this more broadly I expect overtime.

Great. Thank you.

Our next question comes from Matt Taylor with Barclays. Your line is now open.

Hey, good morning. Thanks for taking the questions. Can you hear me okay?

Good morning, Matt.

Hi. So first question I would just wanted to ask in the 26 units that were sold in the third quarter, were those all self pay or can you give us a break down in terms of how many were approved through insurance companies either in Germany or here in the US?

So they broke into three categories. Through the reimbursement, we succeeded in getting in Germany and at the VA. Those were obviously government paid or insurance paid depending on where they were. The second category, we had a group of people that did sell pay and the third category, we had a group that successfully paid through fundraising.

Right now, our expectation over time is that the group is going to grow the most, will be the third party insurer base.

Okay. I understand that there are three categories. How many were in each category?

Well the largest category in Q3 was the fund raising group, or actually patient going forward is that -- that will become more of the insurance group based on what we're seeing from the reimbursement trends.

Okay. But you don't have the numbers of the categories in the third quarter? Or you aren't willing to share them?

I don't have every individual. The specific reimbursement ones are seven, and those tied directly to the VA and the German reimbursement. The balance of our mix between fund raise and self pay.

Okay, great. And then just in looking into the fourth quarter, you said you expect strong sequential growth. Can you define that a little bit better or more quantitatively? Can you talk about what that means?

And how do you expect the mix to develop sequentially? Do you think there'll be a lot more insurance coverage or do you think the mix will be similar?

Well, as I said before, we feel that the sequential growth will be very good because we like what we see in the demand side of it. The pattern of payment timing is something that we have a lot to learn about. The VA made a decision in 10 days and some of the other insurance groups took several months.

So that's something that isn't completely predictable to us yet as to what their level will be. But fundamentally, everything that we got looks that we're going to have the strong growth and demand at the level that we laid out in our business plans.

Okay. And then maybe one final one for me. Are you able to predict with any position, I guess how quickly the VA reimbursement may roll out to more centers, or nationally next year?

I can't. I can only look back. Originally, I thought it would have taken them several months. And they made the first decision in 10 days, but I can't predict the next decision made. I think that's harder. We clearly see a great level of interest in exoskeletons at the VA and we've just recently seen the new head of the VA, using exoskeleton as one of his examples of leading technologies for the VA. And I think that should only help us.

Okay, great. Thanks a lot for taking my questions.

Operator: (Operator Instructions) Our next question comes from Bill Plovanic with Canaccord Genuity. Your line is open.

Great. Thank you. Good morning. Can you hear me okay?

Yes we can, Bill.

Perfect. So a couple of questions. First, just as you look at the setting up the whole training program at all the different facilities, where are you today in terms of the US? How many centers are fully trained, willing, and able to you know, get new patients today in the US?

On a global basis, we're about 80. And roughly half of those are in the United States at this point. Some of them are ahead of others relative to the amount of resource they have available, but they're all in the direction we trend, and start to go.

As you remember, we have added a direct sales force that is being able to work directly with these centers to help prepare them and have them up into a global training, and a global service standard.

And we pretty much canvassed it, but we're sort of at the beginning. So the rate for all of them, we will really know well over the coming quarters.

It was my understanding -- as part of the labeling that the centers had to go through advanced training before you could sell a system through that center in the US, at least. My question to you is, how many of those centers have gone through the advanced training and are actually willing or actually able by label to sell with patient in the US?

There's two standards. For the FDA, basically all of them at this point would meet the standards for what we've set up or internal training programs. We have trained a little over two-thirds of the US centers at the level that we want. And those are all the higher -- activity centers such as the VA Bronx, or the University of Maryland or University of Oklahoma, places like that.

So we've hit our targets in the priority we set them out. And at this stage, we're in pretty good shape for when someone is calling and is asking for a center to go to that they could take through to a personal prescription. We can basically cover all the major regions of the country now.

So when you say two-thirds, so that 's 25 to 30 number has been trained and can put a patient on a personal unit in the US?

That is correct.

Okay. Perfect. Next question, you know, I can appreciate that you don't want to give us detail -- the granularity down to you know, US personal versus rehab versus Europe and Asia, but my question is, just globally, how many of the systems, the 26 you placed, were personal, and how many were rehab, in the quarter?

Well the number of personal users were ultimately about 90% in the quarter, we've had some rehab centers by personal units to use for training and other individuals. So it changes a little bit. But as a general rule, it's somewhere between two-thirds and 90% depending on how you categorize it.

So the trend is exactly what we'd expect. The majority of placements are becoming personal users because that's the bigger market, the rehab centers have surprised us slightly and that some of them decided to own a personal unit for training as opposed to ordering a rehab unit for training, for example the VA in the Bronx, New York.

Okay. That's all I have. Thank you.

Okay. Thank you, Bill.

Thank you. I'm showing no further questions at this time. I would now like to hand the call back to Larry Jasinski for closing remarks.

Okay. At this point, I'd like to thank everyone for joining us. And I'm looking forward to doing these calls in the future. And so I think we will all see the exoskeleton industry as referenced in several articles recently as an area that will offer a lot to people with spinal cord injuries and other types of injuries or disease states.

So thank you for your time this morning.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.