Lifeward Ltd (LFWD) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2016 ReWalk Robotics earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded today, November 3, 2016. I would now like to introduce your host for today's conference, Ms. Ilanit Allen. Ma'am, you may begin.

Thank you, Izrat. Good morning, and welcome to ReWalk Robotics' third quarter 2016 earnings call. This is Ilanit Allen 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 September 30, 2016. This can be accessed through the Investor Relations section of the ReWalk website at www.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 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'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 archived webcast will be available for one year on the Company's website, www.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 3, 2016. 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'd like to turn the call over to ReWalk's CEO, Larry Jasinski.

Thank you, Ilanit. Good morning, everyone. I'm going to start with congratulations to the Chicago Cubs for finally breaking the curse, and also a thank you to the Indians for a great World Series.

So, now, back to work. I'd like to thank everybody for joining us. I am pleased to report we had a very good third quarter. We achieved $1.4 million in revenue. We placed 23 direct units. We also added 7 SCI patients who began using the ReWalk device in various clinical studies. This includes 4 who entered the VA study, who may convert to sales at the end of the study period, and also includes 3 patients added to our study at Stanford University, who have pending insurance claims to cover the device.

We have also secured 15 (sic - see press release, "13") favorable insurance reimbursement decisions. We collaborated with leading physicians and insurers to expand the ReWalk study centered at Stanford University, which will support our reimbursement efforts. We made significant progress with our engineering teams and physician advisors in moving towards a design freeze for the soft exoskeleton project for a stroke indication, and completed a capital raise that provides us with the resources to meet the key milestones I laid out on the last call. Finally, I want to confirm our full-year revenue guidance as $6.2 million to $7 million.

We've come a long way in a short time. Since receiving CE clearance in Europe and FDA approval in the US, our users have logged thousands of miles in our devices; done 10Ks and half-marathons; enjoyed trick-or-treating with our children; and most recently [completed] in the first Cybathlon, held in Zurich, Switzerland. At this event, individuals with complete paralysis of the legs resulting from spinal cord injuries competed side by side in six demanding disciplines, using the latest assistive technologies.

Seven technologies from around the world are represented in the powered exoskeleton race. Competitors perform six tasks related to daily life on parallel tracks, with the winner performing the greatest number of tasks in the least amount of time. We were thrilled, but not surprised, that the gold medal winner of the powered exoskeleton race wore a ReWalk exoskeleton.

With that, I'd like to turn the call over to Kevin to review our third quarter financial results.

Thanks, Larry. Revenue for the third quarter was $1.4 million, reflecting year-over-year growth of 20%. Unit volume was strong, with 23 units placed, of which 12 were in the US, 5 in Europe, and 6 with distributors in other regions of the world. This included 13 favorable insurance policy decisions.

Year-to-date through Q3, we placed 80 devices, compared to 48 units during the same period in 2015. A total of 22 units have been purchased by the VA for research studies during the nine-month period. We continue to see interest in the rent-to-purchase option, both from the VA and commercial payers, with 11 rent-to-purchase units placed, including 3 with the VA, and 6 units converted to full purchase during the third quarter. We believe this option will support continued growth with commercial payers. Currently, we have 17 units in this program, many of which we expect to convert in the upcoming quarters.

At this time, we are reiterating top-line guidance of $6.2 million to $7 million for the full year. As we previously stated, while we continue to make strong progress in achieving our commercial milestones, the timing of certain key business catalysts, including timing of reimbursement decisions, rental conversions to purchases, and growth in our international markets, may impact our top line.

Total operating expenses for the quarter were $7.7 million, compared to $6.4 million in the prior-year period, reflecting our investment in product development programs and reimbursement activities. Net loss for the quarter was $7.9 million, compared to net loss of $6.4 million in the third quarter of 2015. We ended the quarter with $12.4 million in cash. Additionally, last week we announced the closing of a $12.2 million equity offering. This fundraising, along with our ATM program and the availability under our existing credit facility, position us well to advance our strategic initiatives and meet our upcoming milestones.

I'll now turn the call back over to Larry.

Thank you, Kevin. In 2011, we launched the ReWalk Rehabilitation System for use in hospitals and rehabilitation centers in the United States, Europe and Asia. At the end of 2012, we began marketing the ReWalk Personal System in Europe and received FDA clearance to market in the United States in June 2014.

As of September 30, 2016, nearly 300 ReWalk units are being used around the world, 105 in rehabilitation centers, where it provides valuable exercise and therapy, and 182 personal units at home or in studies for community use, where it allows users to live their lives more independently. In a relatively short time, ReWalk has become the world's leading exoskeleton company, with a breakthrough product that can fundamentally change the health and life experiences of users.

To date, insurers in the United States and Germany have provided reimbursement for 64 personal ReWalk systems on a case-by-case basis. All of these users represent the growing community benefited by their insurance company. During Q3 we generated 186 qualified leads, and ended the quarter with 149 pending insurance claims, up from 109 at the end of Q2. Included in this number are 43 cases pending external appeals.

We intend to remain at the forefront of this new industry. During our last call, I outlined several key milestones that will be critical to the growth of this industry and to ReWalk's success in developing the market over the next five quarters and beyond. These milestones covered are commercial payment strategic activities, expansion [in] fulfilling the needs of the disabled community within the VA, and development of fundamentally disruptive technologies for treatment of stroke and spinal cord injuries.

On the reimbursement front, we have expanded our interaction with insurance groups in the US and Germany by proposing and discussing terms that would form the basis for broader coverage decisions. We are actively engaged in these discussions. Our target is to have broader coverage policies in place by mid-2017. While these are encouraging discussions, the full impact will be realized over time.

In parallel, ReWalk's expansion of supporting clinical data on the utilization and benefits of walking in everyday life will aid both short-term and long-term coverage decisions. Our clinical study that is centered at Stanford University is in the process of expanding to seven additional centers in the next few months as we complete IRB approvals. The core center has now enrolled 3 patients.

We've expanded the scope of the study to include utilization patterns and patient-reported outcomes for the quality of life and cost utility. These patient-reported outcome measures are used to quantify physical and medical improvements as well as economic benefits of the ReWalk Personal System.

With regard to our efforts with the VA, we see continued progress in training capacity and ReWalk placements within the VA's SOP. In December 2015, the Veterans Administration issued a national policy for the evaluation, training and procurement of ReWalk personal exoskeleton systems for all qualified veterans across the United States. As of the end of Q3 2016, we have conducted training at 19 out of 24 primary VA SCI evaluation centers. Nine of these now have patients actively enrolling and actively training, and we have placed a total of 11 units as a part of this policy.

Active requests by veterans for consideration of a ReWalk have increased from 78 in Q2 to 96 as of the end of Q3. Capacity to reach these veterans remains limited by geography, as many patients live too far from the current training centers; training capacity within individual VA locations remains limited; and the pace of processing by the VA remains somewhat slow. We continue to actively work with the VA to address these limitations.

Turning now to R&D, we have led the industry with our cutting-edge technology and we intend to continue to do so. During the quarter, we held design review sessions with leading physician advisors to ensure we fulfill the key clinical aspects in our final design. They confirmed the needs for a lightweight, nonstructural design that has variable speed for the walking needs of each user.

This design, at approximately 10 pounds, equals about 15% of the weight of the current stroke exoskeletons; uniquely provides both plantar and dorsal flexion to enable walking; has no bulky structural components on the legs; and places less than 2 pounds of weight on the lower leg. We believe this will be the most unique and effective rehabilitation treatment for stroke patients, offering a disruptive technology that changes the treatment protocols at a compelling price point.

As the only exoskeleton currently documenting use at home and in the community, we have gained valuable input from everyday experiences that shows what is possible within the spinal cord injury community, and which will help us develop future product designs.

This past Sunday, the Marine Corps Marathon was conducted in Washington D.C., with about 40,000 runners. For the first time, a paralyzed man participated in the marathon by covering the last 10K and walking across the finish line. With approximately 16,000 steps completed this past Sunday, our ReWalker is well on his way of reaching his goal of walking over one million steps in various marathons and 10Ks over the next few years.

I am encouraged by our continued progress towards the milestones that will propel ReWalk and our industry forward. With our latest financing completed, we are capitalized to continue our efforts with payers and the VA, and to invest in our next-generation technology, which includes exciting opportunities in new markets such as stroke and MS. Our focus remains on executing our strategy to deliver life-changing technology.

With that, we'd like to open the call up for questions. Operator, could you please go ahead with the instructions? Thank you.

(Operator Instructions). Matt Taylor, Barclays.

(technical difficulty) questions. I guess the first question is just regarding the Stanford study expansion. Can you talk about that in a little bit more detail? Just wondering if there's an increase in the number of patients or units that might be involved as part of that.

Sure. The study at Stanford is at 60 patients. We'll be following each patient for 12 months post their obtaining the product. I think the total duration is anticipated to be about three years between setup, enrollment, conducting the study, and closure.

The endpoints -- probably the most important, we're focusing on utilization, really looking at the number of steps and daily use patterns; quality of life measurements using some standardized industry measurements that will document it and be well-accepted by both the publishing community as well as, we believe, the insurance industry; we're looking heavily at cost utility, so the individuals will measure and self-report all of the changes in their expense profile; and with all studies, you always pay great attention to safety, so any measurement of adverse events that possibly could occur.

So, those are the primary endpoints. We will publish interim results in the cycles that we can. Based on the timing we see with the IRBs and the timing to sufficient enrollment, we expect the first publication will probably be in late 2017. Anything further you'd like, Matt?

Oh, this is Young. No, that's helpful. I guess the follow-up question -- just, you mentioned 186 qualified leads. Can you maybe talk about the funnel and the leads, and your ability to convert them to sales down the line? Any changes in the cadence?

Well, the -- yes, the leads -- I'd point out, for a year-over-year comparison, in three quarters we've already achieved essentially the same number we did all of the prior year. So, with the fourth quarter, we'll have a pretty good year-over-year increase in leads.

I think the best way for us to measure the conversion to pending insurance claims is probably most important, and we've gone from 94 claims in Q1 that were pending, to 109 in Q2, to 149. And of course, you can net out the ones that have been paid for. So, we're getting a reasonably good conversion rate at this point. We'd like to pick up the pace of it, is probably the biggest component, if we can keep moving a little faster. But those have been the primary focus points on -- both on demand generation as well as leads.

The only other comment I would add is, when we look at what's happening in our referral patterns, we are seeing a few increases in important areas. And one is, we've focused a lot more on key opinion leaders to increase referral rates. So, we see that as an improvement. We have seen an additional number of leads coming from the ReWalker community. An example would be a police officer [who's] injured has sent several other police officers to us, based on their own experiences, and those are things that I think are helping with our numbers quite a bit.

Okay. Great. Thank you.

Matt O'Brien, Piper Jaffray.

This is JP in for Matt. Thanks for taking the questions. I just want to clarify so that I'm thinking apples to apples from last year. If you've done 86 systems placed for the first nine months compared to 48 last year, how many of those are going to be VA? Is that 11 through the SOP or is that 33 when you combine the 22 and 11 for the study?

It's going to be 33. Last year we also sold -- in Q4 we had 6 units sold to the VA.

Sure. So, basically, if you net out the first nine months, you net out the 33. You placed 47 kind of ex VA systems, compared to 48 last year? Is that the right way to think about it?

Not entirely, because some of the systems that we wound up placing and being used in the study are patients that otherwise would have probably gone through the SOP. So, some of the patients are clearly diverted from our one point in revenue to a different one, when they enter either the Stanford study or the VA study.

Got it. And then you've talked about, mid-2017, you expect some other insurers or more broader coverage policy to come online. What gives you confidence or visibility into that?

Our confidence and visibility is primarily based on interaction with specific insurers. They have not given us a specific timeframe and date, but we have been engaged at a high enough level to where we're discussing, in the same way we did with the VA SOP. We can see what the VA was doing, and the kinds of questions, and the reaction they were getting to a potential policy. But this is also -- very much like the VA, we didn't know when they were going to issue that SOP, and the same is true of the commercial ones. But the pattern has been the same.

Got it. And then you talked about I think 96 veterans who want to get a system through the SOP program. Given your experience thus far, year-to-date, what's the -- I don't think lead time's the right word, but what's the timeframe for those who, they apply, to actually closing that as a sale? Are we talking six months? Nine months? And then, what percent of that 96 do you think are actually qualified?

Well, the timeframe is partially defined by the -- they have three months between training and -- both at the rehab center and at home, and then the time it takes to get them into it. So, the timing, macro, is about six to nine months. That part is correct.

Generally, most of these patients have been qualified relative to inclusion/exclusion criteria at a high level. Other physical exams and components can't be determined by our Company; they really need to determined by the VA, so it will be the centers at the VAs that will go through each of these patients and make sure that there are no other possible exclusions. And once it's in the VA system, we lose visibility to an extent. We know how many have inquired, but once it's a VA patient, per se, then they have confidentiality requirements, so they don't give us all the feedback. But, to answer your question on the 96, initially those are the ones that meet all known criteria to the -- that we've been able to ask in the evaluation process.

Got it. And then last one for me, shift gears over to the soft suit, you said you were going to have a design freeze, and then I assume you should prepare to submit that to the FDA. So, I'm just looking for maybe some timing around when we should expect a submission and then ultimately generate some revenue base from there.

Well, when we originally did the agreement with Harvard University and the Wyss laboratory, we made a broad statement that we would launch some time before 2019. What we've had the ability to do since this was completed in May -- we've spent most of this year deeply involved in integrating what they were doing and our own technical teams.

So, what we will wind up doing is probably putting out more definitive dates, but we haven't given anything out publicly yet. We'll finish the design freeze. To the point of an FDA submission, there will be some clinical work initially, so a study at some level, followed by a submission, and a timeline will be something we'll lay out in the future.

Okay. Thanks for the questions.

Kyle Rose, Canaccord Genuity.

Thank you for taking the question. Can you hear me all right?

Yes.

So, there's a couple of quick questions here. One, I wanted to talk about the rental business. Can you just remind us what the rental backlog was in the Q2 and then how that compares to the Q3 here?

So, the rental backlog in Q3 -- I think at the end -- or, I'm sorry, at the end of Q2, was about 17 units. So -- and we're still about 17 units here. We did convert. We had 11 go in. We had 6 fully convert. Now, we did see a couple drop off in the quarter, but I'm not -- it's too early to tell, but I wouldn't really characterize those as fully dropped off. We had, for example, a couple individuals that were in the rental program that had other -- that got sick. Okay? So, they dropped out. They had some medical issues. They dropped out. We would expect them to come back in at a later period of time.

Okay. Is that kind of a consistent pattern that you guys have seen in the past? I'm just wondering, is that -- if we should think about that type of potential issues within the funnel, or extraordinary circumstances that would kind of prevent some of those conversions moving forward. And I guess, second part to that question is, can you just break down where the backlog looks now, relative US, OUS, and then the type of revenues that you feel that represents on a forward basis?

Okay. I'll do the first part of that. It's early on the -- to really know what the conversion rate is, but the individuals that have spinal cord injuries also frequently have other health issues, and those can present themselves even if they're unrelated. Our early data -- and I think it's too early to use it heavily as a trend, but it's what we've got -- we're converting in the 70% to 75% range, if you look at the Q2 and Q3. But I think you -- we've got to have a few more quarters to really settle on what that conversion percentage will be.

So -- and in terms of the breakdown, it's a little bit more heavily weighted towards the US, just slightly. I mean, it's like 8 or 9 -- or, I think it's about 9 in the US and 8 in Europe. Primarily because the -- in the US, you've got the VA, and some commercial payers. In Europe, we're seeing more commercial payers looking for the rent-to-own program.

Okay. Great. I appreciate the color there. And then, just lastly, I understand you're not giving formal guidance for 2017 and beyond, but just, we've -- consensus contemplates a pretty big step up there, just as far as 2016 to 2017, and just, I think the number consensus is looking for is somewhere in the $19 million to $20 million range for 2017 revenues. Just from a high level, when you think about that, I mean, are the pieces in place to drive to that type of revenue growth year over year, and just, how do you feel about how the Street's modeling 2017? And I'll hop back in the queue. Thank you.

I think -- are the pieces in place? To that part of the question, yes. I think I'd characterize this a little bit the way the VA SOP has developed. The timing of that will affect it, whether it's the VA or whether it's commercial carriers in the United States or Germany. But the pieces are there for the long term. We just can't definitively give the timing of coverage in Europe or the US. We can see growth with the VA, both through the SOP and the clinical study, and we're also seeing some growth at this point in rest of world. So, the foundation's there. The question of timing is something that is not completely in our control.

Great. Thank you very much.

(Operator Instructions) Christian Moore, Jefferies.

Thank you for taking my call. Just looking at some of the moving pieces in the US. So, for the quarter it would be 3 SOP units placed for research, and then 5 non-VA placements in the US. That's the number that we've kind of been expecting to tick up and drive growth there. What's the trajectory or strategy of driving the core market in the US outside of the VA, and how many rental units did you have in the US in the quarter, and is that becoming a bigger portion of your business there?

Do you want to cover the -- so --

Yes. Well, go ahead and start with the number and I'll come back.

Yes. So, the number of trials in the -- I mean, we went through the number of placements. So, we had a total of -- for the quarter, we had, 12 of the units were in the US, 5 in Europe, and 6 in the rest of the world. Okay?

Mm-hm.

What was the second part of that question?

That was just -- well, if you take out the VA, then you're left with 5 non-VA units in the US. Is that correct way of thinking about it?

No, we had a total of 8 non-VA units in the US.

Okay. But 3 of those are Stanford as well, right?

Yes. We had 3 --

(Inaudible) Stanford's on top of that.

At Stanford. Stanford's on top of that. The 3 at Stanford and the 4 in the VA study are not included in the 23 units.

Got it.

Those are in addition.

Okay. And then, moving forward, what's the trajectory of business in the US as a mix of rental versus full sales per quarter?

In the US, I mean, I think it would be -- as we grow the VA, the VA will always be rentals. And the -- we're seeing fewer commercial payers in the US asking for the rent-to-purchase option. But we do see -- I mean, we have seen a slight tick-up this quarter. In Europe, we're seeing more of the rent-to-purchase requests.

And Christian, I think a part of your -- the bigger part of your question at the beginning was, how do we speed it up? Because the numbers are growing and the backlog is growing, and what we need to do is to continue to grow the execution. And on a year-over-year basis, if we land on the guidance as we expect, we wind up with somewhere [of] between a range of 58% to 78% year over year, all included. That includes the study units as well.

But the things we're focusing on to speed it up -- primarily, it's getting as much data to the market as we can. So, case studies, as well as publishing the Stanford data that we can will help.

Winning appeals. We have had a 100% success rate in our efforts with external appeals, and a pretty good success rate on regular appeals as well. Those seem to be helping us. Particularly if you think of the court case in Germany, that seems to be causing a bit of a change.

And what do we do with these pieces, and how do we work it? We basically are working the education side heavily with both the US carriers as well as the German groups, as we have a lot of effort going into each of the major insurers to provide them this -- all the data we've done. [Another one] is pursuing contracts -- so, to move away from a case-by-case to a contractual approach. And those the proposals that we're putting on the table with the insurers at this point. So, we think each of those help speed this up, because the base numbers at least have grown at levels that we're pretty happy with.

Thank you. And then maybe one on the backlog. I think that the qualified vet backlog is growing well. But is the right comparable number to the 186 qualified leads this quarter, 316, I think you gave in Q2? And if so, what's causing that slowdown? I think there were even more incremental leads in 2015. So, just maybe dynamics of where you're focusing your attention with the different initiatives; but just if that's the right comparison, and then what's the reason for that.

Okay. Yes. Leads do wind up affected a little bit by major events. And specifically, there's a very large trade show in Germany which occurred at the end of September, and two here in the United States that have occurred in October, and those tend to drive it. So, if you look last year, our total number of qualified leads between Germany -- or Europe and the United States was 801. And year-to-date, through three quarters, we're already at 757.

And what you'll see is a significant pickup in Q4 because of the -- specifically, the REHACARE meeting in Germany is the largest meeting in the world, with 45,000 attendees; the Physical and Rehabilitation Medicine meeting occurred two weeks ago; and the ACRM is occurring in Chicago today, or this week. All of those will drive our Q4 number. So, I think you'll see a year-over-year increase of about 25% or more in leads for where our final number is. And that's just a little bit of variability. We also saw similar variability last year, with our biggest quarters right around the trade shows.

Right. Okay. That's helpful. So, 4Q should just be -- we should be expecting large lead numbers there; and then translating to more pending insurance claims as well?

That is our plan, yes.

Great.

And I think, as Larry indicated earlier, I mean, I think one of the things as we're looking at leads, too, is that we are getting more leads from key opinion leaders -- from physicians, and from other ReWalkers. So, it's -- as we develop these programs, we get more efficient.

Great. And then, last question, just on the guidance for the year, maintaining it at that -- the range that you gave last quarter. Is most of the step-up there from the general run rate of this year and this quarter going to be in VA SOP? I'm assuming that's where most of it's coming from.

Yes. Well, I did note in my comments that it's a pretty wide range, and I recognize that. But it really does -- it's going to come down to the timing of certain events. Rental conversions; pickup by the VA; as well as the insurance reimbursement decision.

Great. Thank you.

Thank you. And I'm not showing any further questions at this time, and I would now like to turn the call over to Larry Jasinski for any closing remarks.

Thank you, operator, and for everybody who joined us today, thank you for the time, and we look forward to providing information for you. So, thanks for joining us, and have a very good day.

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