Lifeward Ltd (LFWD) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ReWalk Robotics Limited Q1 2015 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 conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Lisa Wilson, Investor Relations. Ma'am, you may begin.

Thank you, Crystal. Good morning and welcome to ReWalk Robotics first-quarter 2015 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 Kevin Hershberger, Chief Financial Officer of ReWalk.

This morning the Company issued a press release detailing financial results for the three months ended March 31, 2015. This call may be accessed through the Investor Relations section of the ReWalk website 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 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 management as of today and involve risks and uncertainties, including those noted in this morning's press release and ReWalk 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 today's call completion for the next two weeks. You'll find the dial-in information in today's press release. An archived webcast will be available for one year on the Company's website at ReWalk.com.

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 7, 2015. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the Company's most recent SEC filings and press releases.

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

Thank you, Lisa. Good morning, everyone. Thank you very much for joining us. This morning we issued our financial results for the first quarter of 2015. We placed 13 systems in Q1, an increase of seven units compared to Q1 2014, but fewer than the 31 units placed in Q4 2014. The sales are less than we expected, but our long-term outlook remains positive for growth over the course of the year. Our Q1 sales were impacted by longer cycle times to complete patient evaluation, training and processing and reimbursement claims. We also have fewer self-paying users as we focus on executing our reimbursement strategy to help individuals secure insurance coverage.

We expect there will be continued quarterly variability, and as we start Q2, we have seen April commitments that are already equal to first-quarter sales. Our outlook remains positive for growth through the course of the year. Therefore, we are providing topline guidance of $7 million to $10 million for 2015. Although our expectations for the timing of the topline growth have shifted, I would like to update you on the fundamentals of the business which remain strong.

During the first quarter, we made substantial progress in building overall training infrastructure. We broadened our training position in leading US centers and added a total of 10 new centers in the US. Among the new centers are Craig Hospital in Denver and the University of Washington in Seattle. Since September of 2014, we have doubled the number of top centers that have ReWalk systems, and we are now active in eight out of the top 10 rehabilitation centers as per the U.S. News & World Report rankings for rehabilitation centers in the United States. Our 10 new training centers represent added reach to over 11% of the US population with a total population center reach of just under 40 million people.

Included within these 10 centers, we've expanded access options for users by creating a pilot program that leverages the unique design of the ReWalk for community use. This program allows users to bring their own personal ReWalk system to one of the certified training centers that have not purchased their own device. We established this program in response to leads that were generated in areas that do not yet have an active training center.

On the global stage for training and distribution, we entered the market in India with the distribution partner and expect to expand our presence in this previously untapped market in the coming months. We also expand our European presence with a distribution agreement in Denmark.

We are now nine months post FDA clearance and have worked aggressively in building market awareness and identifying the most direct paths to customers. In particular, we've increased our direct interaction with highly qualified potential users. We have built relationships with many significant SCI-related organizations. An example is the National Wheelchair Basketball Association, which has raised the profile of ReWalk within the SCI community and provided us with unique access to our target customers. The NWBA is a remarkable group of individuals that is highly motivated, highly active and largely meets our inclusion criteria. These type of groups constitute a significant percentage of our leads.

Beyond developing awareness and training, we have focused on building demand for ReWalk. As a measurement, during the first three months of 2015, we have developed more than 170 qualified leads. We are gaining experience, and our lead profile is becoming much more precise. We more than doubled our qualified leads between Q4 2014 and Q1 2015.

During the last couple of quarters, we have refined the process to better qualify our leads based on a more thorough clinical review, geographic capacity, individual capacity and then insurance and payment abilities analysis. The leads are then moved to a formal evaluation phase, followed by training, and then we begin the insurance reimbursement process. Our evaluation and training process takes 10 to 16 weeks on average. Leads constitute individuals that specifically meet our inclusion criteria and are within our geographic reach.

Based on this demand qualification and reimbursement progress, we've already seen a stronger start to the second quarter. We believe that we are on course to build and lead the market globally in providing exoskeletons that fundamentally change the health and life experiences of individuals with spinal cord injury. And although we've made substantial progress in a very short timeframe, our efforts to see the market require patience. We expect fluctuation and the timing of reimbursement would be an ongoing aspect of the business for 2015, and we believe that annual growth in our business to be the more relevant indicator of performance than any single quarter.

Next, I'd like to turn the call over to Kevin to discuss our Q1 financial results. Kevin?

Thank you, Larry. As Larry just stated, our revenue was $635,000 for the first quarter of 2015, compared with $445,000 in the first quarter of 2014. We placed seven more systems than during the same period last year, but fewer devices than the 31 placed during Q4 2014. Of the total units placed during Q1, nine were placed for personal use, with the balanced placed for use in rehabilitation centers around the world. The slower ramp and timing for patients to complete the qualification to purchase cycle impacted the results in the US, reflecting a decline in placements from 15 in Q4 2014 to 10 in Q1 2015. Our placements outside of the US are largely distributor-driven and decline from 16 in Q4 to three in Q1, due to timing of purchases by distributors and reimbursement processing in Germany.

During Q1 we recorded a gross profit of $33,000 compared to gross loss of $198,000 during Q1 2014, reflecting the positive impact of moving manufacturing operations to Sanmina in the second half of 2014.

R&D expense increased to $1.5 million for the first quarter of 2015. We continue to invest in our R&D programs to advance improvements to our existing device and to develop the next generation of ReWalk devices.

SG&A expense grew to $4 million during the first quarter of 2015 compared to $1.8 million during the same period in 2014, driven by market development activities following the FDA clearance, including building our reimbursement team and the cost of being a public company following the IPO in September 2014. Net loss was $5.7 million for the first quarter of 2015 compared to a net loss of $5.1 million in the first quarter of 2014.

On a non-GAAP basis, net loss for the first quarter of 2015 was $5.1 million compared with net loss of $2.9 million in the prior year quarter. As of March 31, 2015, our balance sheet remains strong with $37 million in cash and cash equivalents and no debt.

And with that, I'll turn the call back over to Larry.

Thanks, Kevin. I believe we are in a stronger position than ever before and that our long-term view of the business will drive sustained shareholder value. As we have transitioned the Company from an R&D focused organization to a commercialization focus, we expect there will be curves along the way such as reimbursement variation as we build our foundation, particularly when we look at the business on a quarterly basis in these early days.

As we scale the business and more insurers grant coverage, we expect the pace of reimbursement decision-making will become more predictable.

We are encouraged by the level of demand and interest in our technology, and one of the key drivers of our success will be our ability to execute on reimbursement strategy. This required developing a very experienced internal reimbursement team and adding one of the leading law firms in the United States and Germany to successfully achieve our goals.

Internally, we are pleased to have attractive talents of Tom Michael to head our reimbursement efforts. Tom's broad experience with over 10 years on the payer side and then 15 years successfully establishing corporate reimbursement teams has already had a positive impact on our reimbursement efforts. The balance of the team includes a distinguished medical director, base managers with a long history of managing claims, and nursing personnel to conduct evaluations to qualify each case.

Under Tom's leadership, we have established firm protocols for user evaluation and requirements for successful reimbursement. We improved the quality of our submissions. We are collecting data for publication on the economics of life constrained to a wheelchair. We are beginning to build a pipeline with various insurers that we will work through in the months ahead. We've established a clear case-by-case strategy for the US and German sales organizations. We have established a comprehensive five-year detailed strategic plan to support the market position and potential that we see.

We've also begun working with Reed Smith, who we believe is a leading reimbursement counsel in the world. Their experience is essential for short-term contacts and in executing the correct long-term path for our strategies and implementation efforts.

We have seen some meaningful results in the past few weeks with this team. In March we had three favorable worker's compensation coverage outcomes. In April we had our first two favorable coverage decisions with US-based larger private commercial insurers.

We've also been actively supporting the Veterans Administration as they work diligently to expand access to ReWalk systems for all veterans. We have worked extensively in providing data and materials for the VA as they are completing procedures and policies that will define coverage and expanded access for a broader group of veterans. We expect to share some meaningful announcements on this front in the weeks ahead that will broaden the ability to provide these systems to veterans throughout the United States. We have been approached by 38 veterans that are seeking to obtain systems.

All coverage decisions remain on a case-by-case basis, and we've seen the process range from a few weeks to nine months to reach a decision, and it varies by insurer.

With our expanded team, our goal is twofold. First and foremost, it is to help secure additional coverage for each individual that wants this technology to improve his or her life. Equally as important, we expect to reduce the time it takes to get a positive coverage decision.

ReWalk systems remain the most used and most studied exoskeletons around the world. We have 88 units in use in rehabilitation centers and 63 used in home environments. In the May edition of topics in spinal cord rehabilitation, we had the sixth major peer-reviewed publication of the ReWalk. It was examining walking velocity and the level of assistance with use of a ReWalk exoskeleton. The study concluded that the ReWalk is safe for in-hospital ambulation and that for outdoor activity-related community ambulation, the majority of users reached a speed of 0.40 meters per second or greater.

We continue to learn about the daily impact of the system as ReWalkers are constantly sharing their experiences with us. One ReWalker proudly informed us that she wore a hole in her shoe from walking, something that would never have happened when she lived life in a wheelchair.

Another ReWalker, who walks to meet his daughter's at the bus stop every day, recently attended a father-daughter dance with his 10-year-old. While on the dance floor, he stated I do a great robot move, you know. He said the kids just saw him as another father on the dance floor, but it was the parents who really wanted to ask questions.

Based on our user experiences and our reimbursement and training efforts, we expect to see a meaningful ramp-up in the placements of ReWalk systems in the coming months. We will continue to develop a viable pipeline of leads that we believe will turn into purchases. We remain confident that the market potential for ReWalk, a new and disruptive technology, is significant. ReWalk is well-positioned to expand our leadership position in the wearable exoskeleton market for many years to come. Our outlook remains positive for 2015 and 2016.

We look forward to updating you on our progress, and thank you for your ongoing support. With that, I'd like to open the call for questions. Operator, please go ahead with the instructions.

(Operator Instructions). Matt Taylor, Barclays.

Hi. Good morning. Thanks for taking the questions. So I guess my first question is obviously with less than $1 million this quarter, can you talk about how you derived your $7 million to $10 million assumption for the year, and how much of that are you expecting in the second quarter?

Well, we elected to give annual guidance, and we based it very much on the demand that we are seeing and the pathways that we expect with the reimbursement based on the experience that we've had. So we are not really breaking it down quarter by quarter, but if we look at the total number of individuals and the expectations that we have for reimbursement based on the interaction we've had with the reimbursement groups today, that's really how we build that model. You see a range in it from $7 million to $10 million because we see $7 million as a floor and we see $10 million as an outcome that is driven by the timing.

I guess since you don't want to give quarterly guidance, can you talk about how much of a ramp that implies? Are you expecting a lot more of these sales to occur in the back half of the year as you get some more positive reimbursements coverage initially?

We believe it will ramp during the year, but we expect that it will not be a hockey stick ramp. We expect a fairly routine growth from quarter to quarter in the coming three quarters.

You've obviously had some kind of one-off reimbursement wins with Workmen's Comp and private insurers that you called out, but no really broader coverage decisions or blanket coverage decisions.

You did say some things that would imply that maybe you get broader coverage of some type with the VA. I guess when you talk about your process, the five-year plan that you laid out in terms of reimbursement strategy and whether you see yourself becoming more consistently targeting and winning those one-off approvals or you actually see some kind of a broader coverage in some form this year for that $7 million to $10 million.

Well, first, we expect the majority of our insurance will be case-by-case this year in the United States Workmen's Comp and private payers. I believe that will take more time to develop to broader coverage. But we do expect that with the VA that they will complete some of their own policy development that will allow broader coverage for veterans. As I indicated, we have had 38 veterans that have come to us about systems. But presently they only have one center to go to in the United States, and the VA is working through that process. But I can't make any formal announcement on VA. But I believe from our interaction with them, they are very focused on taking care of veterans, and we expect that that policy will develop in the short-term.

The five-year strategy, which I would say is going to be very incremental, we're going to continue to see increasing percentages on the case-by-case and then probably some broader decisions. But that is built mostly around data and interactions with the different insurance groups as we put a lot more time in educating and providing data to them.

Okay. Thanks for taking the question.

Raj Denhoy, Jefferies.

Hi. Good morning. I wonder if I could ask a bit about the price per unit. Doing the math, it's a little less than $50,000 per unit. I think the list price is closer to $70,000, so I'm curious to why the discount. Is that due to reimbursement or something else?

We haven't seen any discounting in our pricing as we talked about last quarter. We do place some units out on rentals, and some of those may be short-term rentals that convert to purchases over time.

ASPs are also impacted a bit by geographic mix. Some to distributors versus personal users. So we see in Q4 we talked about lower prices outside of the US, but we haven't seen any of that in this quarter.

So in the guidance you given, the $7 million to $10 million, if you want to think about the units underlying that, is the $50,000 ASP what we should be using?

Probably a little bit higher than that. I would imagine because as we shift our focus to reimbursement, we would expect more personal units to be placed.

Okay. And on that question of reimbursement, I think one of -- I guess I'm curious why you're not seeing more self-pay or other types of coverage, whether it's from insurance settlements from injury claims or other buckets that have been contemplated could be used for covering the technology. Why is that? Because it does seem like there's much more reliance now on third-party reimbursement.

We didn't necessarily see that in Q1. We do have activity in each of those areas in different parts of the world and different parts of the United States. I'll give an example where the state of Michigan has an insurance program that we have many interested groups, and that one is more of what you were talking about. So I think over the coming quarters you'll see the mix; it will just vary from quarter to quarter.

Okay. And then just on the demand side -- and I apologize but I didn't get these numbers correctly. But I think you mentioned that 170 qualified leads, was that new leads in the quarter, or is that what is in sort of that -- your total number of qualified leads at this point?

To be specific, that 170 are the leads that we generated between January 1 to March 31, and those are highly qualified leads as we have extensively worked to make sure that they match from a clinical point of view, from a geographic point of view and have also considered paper.

Because, again, if I do the math on it, you have an ASP of $60,000 for the balance of the year, given your guidance. That's something 150-ish kind of units in total for the year, which is pretty much almost all those leads. And I guess I'm curious, the pace at which you think you can continue to add qualified leads into the funnel at this point.

We will learn that in the coming quarters. We have no reason to think that we cannot add large numbers of qualified leads based on the kind of response we are getting.

The key things I tried to outline are the timing for each of these. By the time we take a lead through each phase, whether it's the initial contact evaluation and training, is significant. And then you have got the reimbursement piece behind it.

So the leads we generate in the first half of this year or so will really define our total for the year, and a lot of our leads we do in the second half will be 2016. So I think the lead numbers we feel very good about is the timing component as to how long and how many of those we will be able to convert.

Okay. And then just one last one --

I think what Larry said about how many will convert is also an important factor that we are still learning more about. We will have a dropout rate of some of those patients as they go through the process, but we just don't have visibility to that yet.

Fair enough. Sorry, one last one just on you mentioned clinical studies, and you mentioned one that had been published recently. But I think the piece that we are perhaps all looking for is that big study showing the clinical benefit to patients in being out of the wheelchair and having the robotic-assisted walking, the clinical manifestations of that. Do you have any updates on where some of those studies are, when we might start to see some of that data that will start to get insurers to more broadly cover this?

I'll break that into two. There are some that are completely independent of our company, and specifically I would identify because some of this has been presented in scientific sessions is that the VA, J&J Peters in Bronx New York, so the rate at which they are able to get that through the peer review process is out of our control, but we know that it's in the process.

So that is probably one of the larger ones that we hope will become visible very soon. And then secondarily on our own, part of our reimbursement strategy will include additional studies, and we are in the formation stage of that right now.

I'll leave it there. Thank you.

(Operator Instructions). William Plovanic, Canaccord.

Good morning. Can you hear me okay? Thanks, Larry. So a qualification question or a clarification question to start out. I think what we're trying to figure out is this demand issue: is this a reimbursement kind of processing issue in terms of just the slower ramp and how do we fix that? You gave us some clarity on the leads in Q4. What did that look like or Q1? What did the leads look like in Q4, and then how do you define a qualified lead?

The number of leads were about half that in Q4, so to give you sort of a number, but the depth of qualification was different. And I'll step back to define a qualified lead for us. We have to rely on factors that allow us to turn it into a commercial closure, so that is sort of where we are putting it on.

So at the beginning is, does the patient meet the inclusion-exclusion criteria? So we've added nurses that are doing a lot of the screening of these leads now before we put them into our system. That is the first requirement.

The second requirement is they are in a geography where we can actually train them. We have a lot of leads where we are in the past, particularly in 2014, that we simply couldn't train. And our definition of geographic is the person lives within 75 miles of the training center. So anybody of these 170 meet these two qualifications.

And then our third area of qualification is, do they have some level of means to be able to get the product, whether it's self-pay, whether it's different types of insurance? And that is something we're trying to qualify as well before we put them into the qualified bucket. That is the first part of the process. And then we actually go through physical evaluations and training to follow, and if that is successful, we would move on to reimbursement submission.

So it's a process that will take time. So to your question at the beginning of the long answer, we do not believe or have a concern on demand right now. We believe it is strong. Timing to refine the demand and timing to get reimbursement are the two things we have to do well and have to execute on.

And just a clarification point there. The physical evaluations are not part of the qualified lead. You're just trying to figure out -- the 170 is, yes, they met the inclusion-exclusion, and they buy a center, and they can pay for it. So now let's start putting them through the process of are they physically qualified because you can actually take a patient that isn't and they might become if you can do some rehab on them. Is that kind of how I should think about it?

That would be correct. What we're doing in the lead process, we at least evaluate them with the questions about the medical things that we can get by telephone. But a physical exam and physical time is a stage that occurs just after we qualify the lead.

Perfect. And then I've got a bunch of questions, so I'm just trying to look at them here. I think historically you have the training centers, and those have translated into personal sales.

I'm just curious, as you talked about placement in personal and training center rehab facilities in your prepared remarks, just one, are you still at the point where you're focusing on getting those training centers? It sounds like you were successful in getting some more of the top 10. And two, have you seen that translate to sales of personal units?

We do see that translate. The cycle of time for many of these new centers is six to nine months. Our focus on training centers in major areas where there's good volume, we have sought to get them to acquire a system. But, as I also pointed out, we have run into some areas where we simply have leads that didn't have a training center. So we partnered with centers that we certified on training but then the user would bring in their own unit. So we have a few of those as well, and that is sort of a pilot program for us to expand the training center access to regions where we didn't have it.

Okay. Next up, just what's different about the Workmen's Comp in the private insurance you saw in March and April that led to positive reimbursement? That went well. So what's changed on that?

Well, the Workmen's Comp seems to have been more receptive and quicker, frankly, than the private commercial, and I think a lot of this has been driven by the desire to allow people to reenter the life prior to their injury. You go back to work and things like that.

So we've seen them a little more aggressive than the private commercial insurers. But the private commercial insurers, we had our first two that they came through just in the past few weeks. But they were of individuals that they had been paying for training for some time and they had watched for some time, and I think that was their basis for a conclusion that it was there. But they just been much more deliberate in the Workmen's Comp side.

So, as they get the experience, it sounds like you're getting the favorable responses from them in terms of the coverage.

On the two that we got, yes, that would be the specific outcome, yes.

And then of the 170 leads in the funnel, can you delineate which ones are Workmen's Comp versus private insurance or self-pay?

I don't have that to give out to you at this point, and we have certainly tried to do that internally because what we are also doing in our program is prioritizing. So the groups that we believe are more favorable would be the ones that we will pursue more aggressively.

Okay. And then I think Raj asked a question on pricing and rental, and so at $20,000 a system in Europe, that's got to be a lot of rentals I would assume. But is there anyway you can qualify or quantify what today how many of these systems are actually in a rental program? And have you seen the rentals transfer or transition over to purchases yet? I know it's early, but -- and would you expect those rentals to become purchases or just to remain rentals?

The rental efforts to date are primarily I would call pilot, so it's not a large scale program. And I believe all of them at this time were done specifically with a rent to purchase intent, and if it's working well, they would move to purchase. That has to occur. So I can't give you specific examples that it has successfully occurred, but it clearly is the intent right now.

And then just lastly, as you think about the training program that you are set up, so go back, you had to go into facilities, train them, you go back to some facilities that were used in your rehab products and retrain them, kind of what have you learned from your experience in all of that. And then actually on a separate topic, I have one more after that, which is in the world of medical devices, your first gen is with each iteration of the device you always see improvements of the technology and the user interface features and benefits. When could we see that next-generation product out of you that might make it easier to switch between the rehab and personal markets?

Thanks. That's all I have.

First, in the training centers, you're correct. We all gain expertise. In particular, we built a very talented internal team that is now sharing best practices with all clinics and are constantly rising standards. So we see more efficiency in training as centers get more use. So kind of a logical number there and we can see it in some of the outcomes that we had. So that really is the development we've seen on the training side.

The one other part (multiple speakers) -- the guidance on the R&D side. We very aggressively have invested in building several additional iterations of our product. We are not going to announce the timing of those until we have it complete and ready to go, so I can't give you the guidance on that immediately today. But we are quite excited about what we are working on.

Is this something we should expect in 2015, 2016, 2017, just general timing? Thanks.

We're going to have things in a different point in time, but we are not going to give any time today, if you don't mind.

That's all I had.

Matt Taylor, Barclays.

Thanks. I just had a follow-up. I wanted to know if you could break out a couple things. One was the proportion of rehab versus personal in the quarter, and then you added 10 centers. Can you talk about how many centers you are in now and how many you expect to be in by the end of the year?

So we had nine personal units, and then the remaining four were in rehab centers. I think at the end of the year, I think we had somewhere around 94 training centers total globally.

93.

93.

I thought somewhere around 94. And at this point, we expect the majority of our growth this year to be in personal units. But we will add some additional training centers over the course of the year, so to your question, we're at 93.

This program we are calling all access may allow us to reach to smaller geographies where we will train groups, but then individuals can bring in their own units. So that may actually allow us to expand a little more than we have, but I don't have a specific number I can give you of how many places we will do that as of yet.

I guess I'm a little confused. If you added 10 new training centers, why did you only sell four rehab units?

Four of them were specific units. The other six were this all-access program. So we had centers that are now training individuals, but their training individuals in units that are either being provided by the insurance company or that the user is providing. So that's the delta.

And then I guess do you have any -- what do we call them, like super user centers, so any centers where you're seeing kind of a majority of your personal conversions, or is it pretty well distributed across your center base?

We certainly have some larger centers that are putting a lot more through. It's almost like the customer base of any company has certain groups that were effective. We are not necessarily identifying them by center, but there's clearly a top 20% for us that have been more active. There's a little bit the more you do it, the better you get at it. So the centers that have been busier I think have been more effective.

And then the last one, when and how should we look out for the data that you are developing internally or the VA data?

For the VA data, I can't again tell you the exact dates. I do know that they are working on it. We will be doing some internal data over the course of this year that we will be putting out some in terms of the white paper and some in terms of some sponsored research. So there would be some stuff on the Company directly over the course of the calendar year. And the other stuff I hope is cleared through the peer review process, but that's just something not in our control.

Okay. Thanks a lot.

I'm showing no further questions at this time. I would now like to turn the call back over to Larry Jasinski for any closing remarks.

Okay. First, I'll thank everybody for being on the call, and I would like to comment that we look forward to continuing to update you on the progress that we are making, and we thank you for your support. So thank you very much for joining us this morning, and have a great day.

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