Lifeward Ltd (LFWD) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 ReWalk Robotics Ltd. Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Ori Gon. Thank you. Please go ahead.

Thank you, Brandy. Good morning, and welcome to ReWalk Robotics Third Quarter 2020 Earnings Call. This is Ori Gon, ReWalk's Chief Financial Officer. And with me on today's call is Larry Jasinski, Chief Executive Officer.

This morning, the company issued a press release detailing financial results for the 3 and 9 months ended September 30, 2020. This press release and the webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com.

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 filing 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. You will find the dial-in information in today's press release. The archived webcast will be available on the company's website at 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 10, 2020. 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'll turn the call over to ReWalk's CEO, Larry Jasinski.

Thank you, Ori. Good morning, everyone. Our market development results in the third quarter continue to be very positive as we saw fundamental progress in Germany and with CMS in the United States. In Germany, the insurers are approving trainings at an increasing level, as expected, and additional insurers are moving forward with contracts. In the U.S., the procedure code K1007 was formally issued and took effect on October 1, 2020. In parallel, ReWalk achieved full accreditation to be a direct supplier to Medicare and Medicaid through the CMS review processes.

Regarding revenue, our Q3 outcome was limited by a variety of factors to $747,000. The limitations during Q3 were mostly due to limited market access with individuals and clinics as well as delayed processing by payers under the current COVID environment. When we look ahead, we are encouraged by the growing pipeline of trainings in process or completed and awaiting supply.

We have also strengthened our financial position with the addition of $9 million in gross proceeds we raised in July. Our operating costs were reduced by 6% over the prior year quarter. And our original long-term debt of $20 million continues to be paid down monthly, and we now have less than $3 million remaining, which will be completely paid off in Q1 2021.

Operationally, there are several essential measurements. Number one, German contracts are working, although more slowly than we would like. As of September 30, 2020, we had 15 active trainings and 5 completed trainings that are awaiting final decision. We are expanding the pool for training every week. COVID is limiting getting some of the patients in training, and we have found paths to move forward through using local clinics and home training. There have also been limitations in processing that we will address with direct interaction with payers and the contract administrators.

Number two, German contracts are expanding as we have achieved our first contract with a large private insurer. The others are the national public workman's compensation and 4 statutory public health groups. 2 additional major groups are in active discussions on contracts and several smaller groups are looking to join these agreements.

Number three, in the U.S., the Center for Medicare & Medicaid Services issued the HCPCS code on July 15, as we previously announced, and then became effective on October 1. This was built on data from publications, our extensive historical demonstration of successful function and very attentive detail in our submission for this code.

To build on the code issuance, we achieved CMS authorization to be a Medicare provider on October 20. This is part of our road map to establish in a U.S. Medicare coverage position. As a result of this expanding status, we have now initiated interaction with the medical directors of the DME Medicare administrative contractors, MACs, who administer the national Medicare and Medicaid plans.

Number four, infrastructure. We elected to maintain our entire commercial structure during the COVID pandemic and had this newly expanded team focus on lead development and building the pipeline for ReWalk and to prepare for our customer base and relaunch of the other 3 major product lines. In the month of October, we have begun to see that customer access is returning as we were able to conduct more in-clinic demonstrations that month than we had done from March until September. While we expect to see continuing access limitations, we see that this carefully managed reopening by the rehab centers and clinics has established standards and guidelines where we believe our team will be able to safely and effectively present these technologies to clinics and develop market for use of robotic technology in everyday life.

Last quarter, I emphasized that the creation of this new market is almost solely dependent upon the economic driver of insurance reimbursement. It's a slower process that is data-driven. This quarter demonstrates that this economic shift is occurring with the German policies, and we expect the U.S. to follow a similar path. We remain very bullish about the prospects for market creation and expansion in the coming quarters.

I'd now like to turn the call over to Ori for a review of financial details. Ori?

Thanks, Larry. Our Q3 revenue was $747,000, compared to $1.2 million in the prior year quarter. The decrease is mainly due to a lower number of units sold this quarter compared to the prior year quarter. During Q3, we have received 10 new rental approvals in Europe, which represents our highest number of rental approvals in Europe in a single quarter and 2 units converted from prior quarters. In addition, this quarter, we placed our first MYOLYN VA home user device.

Our total number of SCI pending insurance cases was 96 at the end of the quarter, compared to 98 in the previous quarter, with 84 of them in Germany and 12 in the U.S. This shows we have stable demand from the end customer population to our Personal 6.0 product.

Our quarterly gross margin in the third quarter of 2020 was 52% and remained generally flat compared to the prior year quarter. On the operating expense side, we had a total of $3.5 million this quarter, compared to $3.7 million in the prior year quarter and $3.6 million in the previous quarter. The main decrease compared to the third quarter of 2019 was in the R&D where we have decided to reduce our spending with the ReStore development completion and invest a higher portion of our spending on commercialization efforts.

To recap the quarterly results, our net loss for the third quarter was $3.3 million, compared to a net loss of $3.4 million in the third quarter of 2019. Our non-GAAP net loss for the third quarter of 2020 was $3 million, compared to a non-GAAP net loss of $3.1 million in the third quarter 2019.

We ended the quarter with $18.1 million in cash, and our long- and short-term loan balance was $3.4 million as of September 30, 2020.

With that, I'd like to turn the call back to Larry for some final remarks. Larry?

Thank you, Ori. I'd now like to discuss activities for each of our 4 product franchises and close by reviewing the results compared to our stated objectives for the second half of 2020. For the ReWalk community and home walking system, I'd like to step back and review what we now believe about the market potential and the path to achieving meaningful market penetration.

The promise and benefit of allowing the paralyzed community walk again has both captivated and disappointed the financial markets. The experiences and data from walking to get have been well reported and are very positive. The disappointment in the market has been because only a few of those that could walk in these systems are actually able to get one. The primary limiting factors have been data and subsequent coverage policies and contracts. The data expanded significantly over these past 6 years, and that has supported the recent actions by governments issuing codes and the completion of contracts by insurers.

For reference on the potential from 2021 forward, if we examine the most up-to-date market information on applicable patients in Germany and the U.S., along with CMS insurance coverage established in a similar fashion as in Germany, these markets are in the range of $90 million in annual revenue, with achieving about a 3% market penetration rate. These coverage accomplishments and goals are the next step in achieving true commercial development of this sizable market. The tedious detail of building acceptance of reimbursement has been lengthy. Germany has set the standards, and they're now implementing. The U.S. and Medicare system has moved forward with the code. And in parallel, the VA already has a coverage policy in place.

Now looking at the process of the relaunch for ReStore and the launch of the MyoCycle for exercise with the SCI community and the MediTouch glove, leg and arm balance systems, they have all become active in October as we were finally able to engage a portion of the clinics regarding our 2 technologies. We are finding interest from the national account chains in the U.S. and in the EU for each of these products and, in some cases, for bundled offerings. We have previously presented the clinical value of each of these franchises and been able to restart over these past 6 weeks. We look forward to presenting more in the quarters ahead.

On our Q2 call, we provided 6 measurements and objectives for the second half of 2020. Here's our status. Number one, expansion of contracts in Germany. We have expanded from 4 to 5 contracts effective in Q3 and have 2 additional contracts presently being negotiated. Here, we are progressing as well or better than planned.

CMS progress, number two. In Q3, the code was formally established, and we have achieved accreditation as per our stated goal. We also submitted supported materials for pricing, and we're subsequently informed that due to COVID, pricing will be done with the local MACs, the Medicare administrative contractors, for the time being.

As a result of these prior steps and due to the data that we have, we have now initiated interaction on contracts and have the first meeting scheduled. We cannot forecast the results or time line for any level of coverage but we are satisfied we have met our goals for the second half of 2020.

Number three, expansion of supporting data with ReWalk. We are building upon 6 years of experience and have gained access to multiyear data on the users' health pre- and post injury. This ongoing review of medical records and historical data pre-SCI injury and post their provision of an exoskeleton, it will examine the economic cost of treating SCI health care in the period before and after the user was able to walk again. IRB approval for the data -- review of the data of about 45 exoskeleton users was received, and we are presently sorting and analyzing elements of the data. This will continue to progress and hopefully will result in a future publication.

Number four, expansion of data for ReStore. ReStore has formal studies ongoing from 2 of our original U.S. study sites, and we have evaluations underway with national and regional chains in the U.K. and the U.S. These new evaluations will build our experience and allow for data and consideration of future contracts.

Number five, an effective relaunch of ReStore. We have had a number of recent placements in October and have begun to present the product in key accounts again. The potential with the larger chains is encouraging, but we must get them fully trained and have them achieve excellent clinical data and outcomes in this process. The market appears to be reopening to this breakthrough, compact, lightweight, less expensive exosuit technology.

Number six, measurable placements of the MyoCycle and MediTouch. It's still a work in progress, but we are now achieving placements of the MyoCycle due to the VA contract and our work with workman's comp groups. We should achieve our goals with the MyoCycle. The MediTouch has excellent potential, particularly in the field of telehealth. We now have a telehealth package and have recently presented it to our first accounts. We anticipate placements for both offerings in 2020 but realize volume may take a little longer for the new technology and capital processes for the industry. We see these as an important portion of our 2021 growth.

The pathway of building the company for the end of 2020 and for 2021 is through careful financial management, growing the ReWalk home product by a substantive amount in 2021, gaining significant 2021 growth through our 3 new product lines. The ReWalk growth will be based on the German -- current German product pipeline. The U.S. growth will rely on a workman's comp and VA focus combined with CMS activities that will allow placements to start in that segment. The other lines will grow effectively as clinics are open to new technology as COVID is managed and controlled.

Thank you for your time and interest today. I'd like to turn the call over to the operator for questions at this stage. Operator, please go ahead with the instructions.

(Operator Instructions) Your first question comes from the line of Sean Kang with H.C. Wainwright.

Yes. So you have seen code -- has it been -- it's in -- it's effective now, right? It means it has been assigned a dollar amount?

The code is effective as of October 1. So yes, it is effective. The dollar amount, which we had looked to be set up in a similar cycle and had made a submission, due to COVID, they did not complete pricing. So they have left us with -- pricing will be done with the local MACs. So each of the individual Medicare contractors will work with us on the pricing. And those are some of the meetings that we have now set up.

I see. So how are you -- yes, reinvestment talk are progressing with private payers. Now that you have a CMS code using effectively, is it helping in any way?

In the short term, it has not affected us greatly. I would note some of the private payers did support the issuance of the code, which is very important. And we are going to try to set up specific contracts with private payers in parallel with working with CMS. But our immediate focus, at least for the past few months, has been specifically with CMS, to get everything aligned, accreditation as well as all of the supporting material to move that towards the contract. And we'll be doing similar follow-ups with the private payers subsequently, but we haven't done any yet.

I see. So -- and what is your plan for relaunch of ReStore? So it's probably a 2021 event. Like do you have a ballpark time line for that?

Well, we've actually started here in October. So -- and we fortunately have accounts that have brought in the product. And our focus initially has been a little more national accounts. So we at least have a couple of national chains that have brought the product in for evaluation. During the COVID period, they were simply -- were not taking on any new technology, were only going to stay with active products because they didn't want to train their physiotherapists on a new technology because, in many cases, they were -- those physiotherapists were either furloughed or, with COVID, they simply weren't seeing new technologies.

So we're starting that here in October, and that obviously runs well into 2021. But we see a significant amount of our growth next year from those 3 product lines being able to be effectively launched since they were put on hold with COVID.

I see. Sounds good. One last one, quick. Could you provide a commentary on cash run rate and operating expenses going forward 4Q and maybe beyond?

Ori, would you take that one?

Yes. No problem. So as mentioned, we ended the quarter with $18.1 million in cash. You can see that our operating expenses are pretty much stable in the last couple of quarters and about $3.5 million, $3.6 million, depending on specific quarters. This is the current structure of the company. We will obviously always monitor and see if we can find other specific segments to be a little bit more efficient. But currently, that's generally the ballpark.

And on the cash flow side, I think it's also, again, important to note that we are almost done with the Kreos loan. So on the cash burn side, it will be reduced at the end of Q1. So this is something we will be over with soon.

On the operating cash flow side, you see this quarter landing at about $2.6 million in operating cash burn. So that's also a very positive improvement if you compare it to previous quarters and years before that. So we've done a very significant effort there. And with the growth that we hope will come in the future, we can even take it lower.

(Operator Instructions) There are no further questions at this time. I would now like to turn the call back over to Larry Jasinski for closing remarks.

Thank you, operator, and thanks, everybody, for joining us today. We look forward to continuing providing information on the growth and development of our markets going forward. And we're in a period where we're finally starting to see these markets reopen, which is really important to all of us.

So thanks for your time today. Have a great day.

This concludes today's conference call. You may now disconnect.