Lifeward Ltd (LFWD) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ReWalk Robotics Fourth Quarter 2016 Earnings 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 is being recorded.

I would like to introduce your host for today's conference, Ilanit Allen. Ma'am, you may begin.

Thank you, Terence. Good morning and welcome to ReWalk Robotics' fourth quarter and full-year 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 and 12 months ended December 31, 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, rewalk.com.

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on February 17, 2017. 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 and thank you for joining us. As an innovator in the early stages of creating a multi-billion dollar industry, we believe we made solid progress in 2016 to advance our goals. Notably, we placed 119 ReWalk units around the world. Revenue for the year totaled $5.9 million, an increase of 57% over the prior year. And with 199 pending commercial insurance claims at the end of 2016, our backlog of qualified insurance submissions exceeds $15 million.

To date, a total of 74 individuals have been covered by commercial and VA reimbursement. Through our efforts with the US Veterans Administration, 14 veterans were trained under the VA's SOP, which went into effect at the end of 2015. A significant number of veterans were actively enrolled in the VA's multi-year exoskeleton study, and we submitted a list of 96 pre-qualified veterans to the VA for consideration as candidates for either the study or coverage under the SOP. We are hopeful that a large portion of them will receive a ReWalk exoskeleton in the coming months.

On the reimbursement front, ReWalkers benefited from 38 favorable case-by-case decisions during the year. This brings the total number of individuals covered by commercial policies since 2015 to 60. And we expect our discussions with a Top 5 insurer in the US and one in Germany will result in a broader coverage policy as early as this year.

Our 522 post-market clinical study was initiated at Stanford University and expanded to two additional sites this past January. We anticipate adding three more sites by mid-year. This would be a multi-year study that has been expanded to include utilization patterns and quality of life measures, and we would expect to see some initial data in late 2017.

Importantly, in 2016, we invested in our R&D programs. We completed an operating next-generation spinal cord injury prototype that met size and weight reduction goals and added new features for patient control. This will allow us to deliver an enhanced market leading design. We also focused on establishing a stroke initiative that now has a fully defined and resource team. And finally, through our capital raising efforts, we successfully added $34 million in net cash to our balance sheet, enabling us to execute our plans in 2017.

So, as we move into 2017, we plan to focus on several key areas: securing broader reimbursement coverage in the US and Germany by mid-year with both corporate entities and commercial providers, working with the VA to qualify and expedite processing of an additional 100 veterans in 2017, advancing our soft exoskeleton program for stroke patients with clinical trials in 2017 and a new product launch as early as 2018, and as previously announced, we have implemented operating expense reductions for 2017 to reduce our cash burn.

It is our belief that revenue will continue to fluctuate until a broad reimbursement policy is in place. Therefore, at this time, we will not be issuing guidance for 2017.

I'd now like to turn the call over to Kevin to review our fourth quarter and full-year financial results.

Thanks, Larry. Q4 revenue was $1.6 million compared to $1.3 million for 2015. For the full-year, revenue increased $2.1 million to $5.9 million. At year-end, we had 85 pending insurance claims in the US and 114 in Germany, reflecting a potential backlog of over $15 million in revenue. During 2016, we had 51 favorable coverage decisions including 13 with the VA, and we expect these to continue to trend in our favor.

As Larry noted, it is our belief that revenue will fully ramp once broader reimbursement coverage policies are in place, both in the US and in Germany, which we anticipate will occur later this year. We expect the implementation of these broader coverage policies will occur over time and that the revenue impact will be reflected in our performance in the 12 months following initiation of coverage.

During the quarter, we placed a total of 39 units, of which 12 were in the US, five in Europe and 22 with distributors in other regions of the world. For the year, we placed a total of 119 units, up 63% over the prior year. Through the end of 2016, a total of 28 units have been purchased by the VA for its research study and 14 additional units have been placed as part of the SOP. We expect to see additional unit orders from the VA in 2017, including in Q1, but we do not have visibility into the final number or timing of these orders.

The rent-to-purchase program remains an important option for customers. We had nine rent-to-purchase units placed during the fourth quarter, including three with the VA and five units converted to full purchase. For the full year, we had a total of 38 rent-to-purchase units. Of those, 13 converted to sales, 14 are still in the rental period, and five are waiting insurance or court decisions.

Gross margin for Q4 was negatively impacted by geographic sales mix and inventory write-offs. We expect Q1 margins to return to historical levels. Total operating expenses for the quarter were $7.9 million, compared to $7.5 million in the prior-year period. Full-year operating expenses were $31.2 million, compared to $25.4 million in 2015. And as Larry noted earlier, we have implemented initiatives to reduce operating expenses by up to 30% compared to 2016.

Net loss for the quarter was $8.5 million, compared to a net loss of $7.5 million in the fourth quarter of 2015. The full-year net loss was $32.5 million, compared with a net loss of $25.4 million in 2015. During the year, we raised net proceeds of $34 million through a combination of debt and equity, and we ended the year with $23.7 million in cash.

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

Thank you, Kevin. ReWalk is the world's leading exoskeleton company in a developing industry. Consequentially, that means our metrics are likely to fluctuate as we focus on developing the foundational building blocks of this industry. But it also means there is tremendous opportunity ahead. I'd like to focus my final remarks today on what ReWalk will be doing this year to address the market need and remain the leading exoskeleton provider around the world.

To start, we have been successful in gaining case-by-case reimbursement for ReWalkers in the US and abroad, particularly as coverage providers became more educated about the benefits of walking when using our technology. We will continue to support individual case processing as we work on securing broader coverage policies. We are in advanced discussions with two large policy providers whose coverage extends to millions of lives. We are hopeful that these ongoing efforts will result in favorable policy outcomes later this year, enabling potentially thousands of additional qualified spinal cord injury patients to benefit from the ReWalk.

Based on our discussions with these and other providers, it is apparent that the coverage decision will be based on various factors. For some, it will be on the compelling published clinical data supporting the benefits of walking and improved functionality enabled by our devices. With insurers in Germany, where our system is deemed to restore function, compliance with court rulings may expedite coverage decisions. For these reasons, we are encouraged by the progress we are making on the reimbursement front and believe one or more broader coverage policies should be secured mid-year and these coverage policies will serve as catalyst for additional providers to follow suit. The full impact of these policies on our financial performance will be realized over time.

Next, we continue to evaluate the utilization and benefits of walking in everyday life through our 522 multi-center clinical study centered at Stanford University. We've expanded the scope of the study to include utilization patterns and patient-reported quality of life outcomes. We're actively enrolling subjects and we plan to use the data from the study to quantify physical and medical improvements from the use of the ReWalk Personal system. Interim results are expected in Q3, 2017.

Continuing, on the VA front, we are committed to supporting our veterans and providing them access to our technology. Through the end of 2016, 14 veterans were trained under the VA's national policy to evaluate, train and procure ReWalk exoskeletons, and even more were trained as a part of the VA's multi-center exoskeleton study. Additionally, we have submitted the profiles of another 96 veterans eligible for exoskeleton to the VA and hope to evaluate and provide 100 more this year. We expect that some portion will be channeled through the VA's clinical study program throughout the year and they will receive additional orders to support the trial. More importantly, we expect that the combined programs will continue to expand.

We have conducted training at 20 of the 24 primary VA SEI evaluation centers, and as part of our efforts to work with the VA to expand training capacity, we have proposed including training at additional facilities so that those veterans [that are] too far from the current VA training centers can access our technology. We are encouraged by what we perceive as the new administration's eagerness to provide quality to our nation's veterans.

Finally, R&D remains at the core of what we do. We are excited about the improvements we've made in the next-generation spinal cord injury suit to make it lighter, slimmer and more efficient. And as we mentioned last quarter, we see tremendous potential in the development of a soft exo-suit that can benefit an even larger population of stroke and MS patients. Through our partnership with the Wyss Institute at Harvard University, our R&D efforts are focused on developing a lightweight nonstructural suite, designed to provide an effective rehabilitation treatment for stroke patients.

We are beginning to plan and build testing units for a pilot trial to measure improved walking speed and gait. When they're fully defined and resource program in place, we intend to begin clinical trials in 2017 and to launch our first stroke product in late 2018. With a lightweight soft exo-suit at a compelling price point, we believe this technology could potentially change the treatment protocols for stroke patients and become the new standard of care for this large population.

As I indicated in my opening remarks, we are in the early stages of creating a multi-billion dollar industry. We believe we've made meaningful progress to advance our goals and that there are significant opportunities ahead. Our plan for this year is to drive expanded reimbursement coverage, both in the US and Germany, expand VA training capacity and grow the number of patients trained, and to advance key R&D initiatives to harness the potential of new markets through the development of a lightweight soft exoskeleton for stroke patients.

Thank you for your continued support. With that, I'd like us to open up the call for questions. Operator, if you could please go ahead with the instructions.

(Operator Instructions) Matt Taylor, Barclays.

The first question I wanted to ask was, when you talk about the likelihood of getting some broader reimbursement with some of these private payers, could you compare and contrast what that would look like versus the reimbursement that you have, say, at the VA? I guess, one of the concerns I have is, you do have a decision at the VA for reimbursement but it's not translating to a lot of sales. So how would these potentially be more inducive to driving revenue than the coverage decisions that you have?

I think if we got a policy with these insurers that is similar to the VA, that is actually a very good outcome. The real differences is in implementation. And the private insurers have access to more training centers as we have presently 177 training centers around the world and the majority of those are in the United States. One of our biggest limiters with the VA has been lack of access to training centers and slower implementation. So with the commercial payers, we are in much better shape relative to having training centers, and it really will depend on how effectively they implement and resource. But generally, the commercial centers, the places we work at -- and I'll give examples such as [Baldwin] here in Boston, a local place -- we have very effective active programs that we will be able to implement relatively quickly. So I think that's the distinct difference between the two that will leave us in a better position with either the German centers or the American centers, if we get coverage policy.

I know, you probably don't want to talk about the specific companies, but can you give us a sense of how many lives they cover and how many training centers their reach would stand?

Well, in both the United States and Germany, there are generally national coverage groups. What we've done with them so far, we've had multiple sessions, and they seem to have accepted the benefits of walking rather well. We provided every component of data we had, as well as some non-public data that they have requested and received through the VA. They've been focusing more on utilization. But I'm not sure what else I can give you for specifics until we actually get the contract in place. For the payers, probably the best way to characterize them is, they both are in the Top 5 coverage groups in the United States and in Germany.

And I guess, if utilization is important to these folks, what can you say about the utilization for the people that have gotten approval and are using ReWalk in the community?

For the audience that hasn't so far, we continue to have very good utilization. We have the advantage of the element of a step counter within the system. So every time we service it, we know how much they've used it. But generally, we also have a good sense of how they're using it. And virtually all users, unless there has been a health reason unrelated to the ReWalk, are using it routinely.

And the patterns vary greatly. Some use it at work, many use it in social situations, and many use it for daily exercise or walking. But at least for those who have adopted it to-date, utilization has done rather well. So will that, when you get into much larger numbers, continue? We think it will because the pattern and the impact for those that are motivated users has been compelling.

Okay. And maybe just one more question for me. Can you talk a little bit more about your cash position and your cash burn rate? You talked about these decisions, if they come through, potentially driving more revenue in 2018. So how do you sort of bridge through that with the cash that you have and the burn rate that you have?

So Matt, this is Kevin. I'll take that. So our cash burn rate has run this year between $6 million and $7 million, fluctuating based on various factors quarter-to-quarter. We announced up to a 30% reduction in spend, and that will reflect in our cash, cash burn going forward as well. But I do want to point out, we also have a credit facility, a debt facility that we are also going to be repaying some of the principal this year. So that will be offset a little bit. So cash is moving around there.

We do believe that we have sufficient resources to hit our key milestones this year. We've also been pretty open about we would look at all options to continue to fund the Company, including we have an active ATM. We would look at the equity markets as well as any credit facilities.

Matthew O'Brien, Piper Jaffray.

Hi, this is actually JP in for Matt. I guess my first one is on orders from Asia, distributor orders. I think you've got out there notably high, I think, 22 units this quarter, is there anything -- is there any reason, either more interest in a particular country or just trying to figure out what's going on there?

There were two specific elements behind that. A lot of it initially was, we were trying to see the market, specifically in Japan, because they had identified some individual users, and we wanted some public faces in there and that was a joint program that we did with our partner Yaskawa. So that was one factor, but the other major factor is, we have been working extensively in Korea and Taiwan and we anticipate a coverage in terms of KFDA clearance shortly. And the rehab centers in Korea do have the capacity to buy product. So we anticipate that upon that coverage, we'll place a number of units in Korea and we've started to see a little bit of growth in Taiwan. So that was the basis for that initial order and that we hope will also translate into some impact in 2018.

Got it. And then when you talk about these 199 pending commercial clients, I mean the qualified backlog, is that something that does not include the 96 veterans that you think are qualified as well? Is that correct?

That is correct. Yes, the 199 claims is with commercial and government non-VA insurers and then the VA is separate. So there's a full box between the two of them.

So if you take the 199 qualified leads, I think you quantified that around $15 million and then just say the 96 VA leads is another $6 million or $7 million, is it fair to say there is $22 million out there, just qualified leads in your current capacity without additional and a commercial coverage?

That is correct. They're more than qualified leads at this point, they're qualified with full applications in with the insurers. So we've done all the further checking, and the 199 claims are comprehensive submissions. So lead is probably a step before that. This is a step much later.

On the VA side, they're a little more like a lead. We've already qualified them at a lower level, but the whole process has to be worked by the VA there, so it comes out of our hands. So we can't do the -- some of the letter of medical necessities, prescriptions and things at the same level in the VA. So they're not quite as far long, but they apply equally for patients. Does that answer your question, JP?

Yes, definitely. And then the last one from me is on this whole dynamic of rent-to-own. I think I get why insurers are doing it. I'm trying to -- when I look out for 2017 and I hope we get some commercial payers mid-year, I assume a part is your rent-to-own as well. So I'm just trying to figure out when we look at the models for 2017, even if we get coverage in mid-year which should be a huge one, but this [huge one not having to do] a rent-to-own anyway, then certainly the revenue impact could even be there in 2017, is that fair?

There certainly will be the -- not the (inaudible) from an outright purchase. The rental prices have been reasonably attractive to us, so we will get the monthly rentals for it. But that is correct. I think what we're seeing and what the VA has done and what we're hearing from some of the other groups, we may see a greater number of these rent-to-buy, but it will be a steady stream of revenue that we'll be able to track pretty well.

I think the key element for us for rental is not just the rental rate, but it's going to be the conversion rate, how many of those renters go on to buy it or if they decide to rent it for four or five years, so we know what we're getting for income. We are still learning about that. Our estimate right now, in our own perspective, is that about 70% of these should convert. And today, for what we have out there -- Kevin has run through some of the numbers and I already ran through -- we have a good number of people just waiting on their systems, and that's sort of a decision by the VA in terms of getting their paperwork done and by some of the other insurers in terms of how quickly they move.

And JP, that's why we're trying to give the breakdown on rent-to-purchase units, the number converted and the number still out there so that you have more visibility as you're building your models. To Larry's point, it is a very attractive business for us. It's a good way to get the patients into the unit and using the unit on a regular basis and then have the opportunity to convert. It's another reason why we've also said that the -- once we get a coverage policy, the coverage policy will be implemented and then the revenue impact would be -- it's not going to be a very next quarter thing, that it would be spread over the next 12 months as they implement the policy.

Steven Lichtman, Oppenheimer.

Larry, you mentioned that the pathway to a broader commercial coverage may differ from payer to payer. I was curious, as look at the large payers that you're in discussions within the US, is the pathway likely being influenced more by the high volume of case-by-case coverage that's occurring today, or is that some of the data that they are favorable? I'm just curious in terms of the US payers, what the discussions are more focused on to-date.

The US discussions so far have been focused more on the basic data of a submission. So we literally have provided them a few thousand pages of data in multiple sessions with them. But they've really focused more on utilization. The case-by-case fees, while it's relevant, hasn't it really been a big component there. They're aware of some specific cases in their system for example.

So in the United States, they've been much more traditionally data-driven and I think case-by-case is brought into their attention, but not forced it. I know your question was US. In Germany, I've seen the other side of this. We have a couple of insurers that have a large number of pending cases and in parallel, they had some court decisions that made it very clear, they would have to pay for these. So that brought then to the table to negotiate it because I think they essentially anticipate the future is that the court will continue to do the same thing it's done in every case so far. So I think there they are for a different reason. They feel they're going to lose the court decisions, so better off doing a negotiated program with us, and that seems to be where that one is. So they are very different between the two continents. But US is pretty much a traditional data-driven approach.

Got it. Thanks for that. And then you mentioned that we could see some early data out of the Stanford study as soon as 3Q here. What would some of that initial data revolve around? What are some of the early metrics that we could be seeing?

The main things that we'll have data and be able to publish in the interim data will be around utilization, which is what we want to show to the market that how they're being used, and then primarily, quality of life measurements. That will be interim quality of life, but at that point, you've at least got enough time on the early patients to where we will be able to report the scores on -- the impact on the patients using the SF-36 scoring system, which is a validated and accepted measure for quality of life.

And then lastly, Kevin, in your press release last month in terms of the reduction in operating expenses, one of the buckets was just a realignment reduction in staffing. What in general -- what are some of the areas you're looking to cut back on from an operating perspective this year?

We've really looked across the board. There is not really one area that we have singled out to reduce, more on the overhead side, I would say. But what we're really focused on are the three objectives that Larry laid out, delivering on revenue with the product that we have; so getting reimbursement, building the pipeline and expanding coverage through the VA, so our commercial aspects of that we're staying focused on. And then on the R&D side, it's really development of the stroke product. So those are our priorities, and areas that are not aligned with those priorities is where we've actually looked to take cost out.

Steven, I'll elaborate just a little more, that may help. Some of the things that we have been doing to build the Company shift around and to be specific, we already have 177 active training centers. So we don't have to go out and open as many new training centers, so that allowed us to look at that. And we had a number of smaller projects that were primarily a combination of product improvement in terms of production, in terms of cost, that generally are completed. So it allowed us to shift our resources more towards the stroke and also to reduce some of the resources in areas where we had really achieved what we needed.

Christian Moore, Jefferies.

Maybe just one the cadence of VA placements they are seeing, in terms of when these placements will come over the quarters of 2017 and then beyond and when you'll be able to get more visibility in terms of a quarter-by-quarter rate there?

The VA, we have a good ability to see what's going on in the standard operating procedures. So someone who is outside the clinical study -- so it will start to emerge, I think, into a pattern, but our big challenge right now is, we've trained 21 of the 24, but many of them need more resource, and I can't yet forecast when the VA will be able to hire PTs to be able to do this. I'll give an example of one VA in particular, I know they have six people that would like the system, but they can only train one at a time.

The other one is, we have proposed to the VA that they consider more localized training, keep control to make sure patients fully qualify before you begin down the path. But instead of leaving some one that's five hours away where they can't get to the training, hopefully a local VA or even some other facility could do the training for them. That is something that if the VA decides to do, that I think would expand things, but that's a key one.

On the co-op study, that's the data that is really contained within the VA. We know that they plan to purchase between 40 and 60 systems and that they've done about 26 to-date, but that's generally confidential data within the VA, so we don't have access to each patient they put in. And to some extent, the ones we're feeding into VA, some can go to the left into the co-op and some can go into the right into the stroke -- into the SOP program.

And one thing I also want to add, I mean even if the patients are diverted to the research study, it helps us. I mean, they would potentially get a ReWalk device, a personal ReWalk device through the SOP at the end of their portion of the study. So the revenue would still come through in that case. It would just be delayed by a bit as they participate in the study.

And then maybe just more broadly in terms of visibility of the business, obviously securing an [MCD] is crucial there. But do you ever expect to be giving guidance for the year, even just around units, not even revenue going forward, or is that just something you're evaluating each quarter?

Well, for 2017, I think it's something we would evaluate each quarter, but until those are in place, I don't think we have as predictable a model as we want. We still anticipate we will see year-over-year growth, but the magnitude of it is just too hard to predict right now.

Okay. And then last one just on the soft suit for these stroke victims, is the timeline around that in terms of getting the second revenue stream still five years plus away, or what's kind of the range of where we could actually see that business making impact for our models as we go out into the out years?

Well, we believe the project status is certainly shorter than five years. At this point, we believe we would be able to begin commercialization around the end of 2018, early 2019, depending on success in our clinical studies, followed by the FDA and CE Mark submissions. But we should see meaningful revenue on this in a two-year plus cycle, from what we can expect today, and that's one of the shifts in resource. We've increased our resource into the program where this is now in a full development and commercialization mode to allow us to do that. So we're somewhere around two years out.

And at this time, I'm showing no further questions.

Well, I would like to thank everybody for joining us today and I look forward to talk to you in the calls in the future and any other questions you may have along the way. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, you may now disconnect. Everyone have a great day.