ReWalk Robotics Ltd. (RWLK) CEO Larry Jasinski on Q3 2020 Results - Earnings Call Transcript
Nov. 10, 2020 11:40 AM ET | About: ReWalk Robotics Ltd. (RWLK)
Company Participants
Ori Gon - Chief Financial Officer
Larry Jasinski - Chief Executive Officer
Conference Call Participants
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 ReWalk Robotics LTD Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Ori Gon. Thank you. Please go ahead.
Ori Gon
Thank you, Brandi. 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 three and nine months ended September 30, 2020. This press release and a 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 statement 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. 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.
Larry Jasinski
Thank you, Ori, and good morning, everyone. Our market development results in the third quarter continue to be very positive and 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 measures. Number one, German contracts are working although more so even we would like. As of September 30, 2020 we have active trainings and five 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 to 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 four statutory public help groups. Two additional 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 and 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 was part of our roadmap to establishing a U.S. Medicare coverage position. As a result of this expanding status, we have now initiated interaction with the medical directors of the BME 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 developments and building the pipeline for ReWalk and to prepare for our customer base and relaunch of the three major product lines.
In the month of October, we have begun to see that customer access is returning as we are able to conduct more in-clinic demonstrations that month than we’ve done it 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 we believe our team will be able to safely and effectively present these technologies to clinics and develop multiple 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 reimbursements. 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 somewhere perhaps. We remain very bullish about the prospects from our association and expansion in the coming quarters.
I’d now like to turn the call over to Ori for a review of the financial details. Ori?
Ori Gon
Thanks, Larry. Our Q3 revenue was $747,000 million compared to $1.2 million in the prior year quarter. The decrease is mainly due to a lower number of units hold this quarter, compared to the prior year quarter.
During Q3, we have received ten new rental approvals in Europe, which represents our highest number of rental approvals in Europe in a single quarter and two 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 is 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’s 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 the 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?
Larry Jasinski
Thank you, Ori. I’d now like to discuss activities for each of our four 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 together 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 more.
The primary limiting factors have been data, and subsequent coverage policies and contracts. The data expanded significantly over these past six 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 are 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’ve all become active in October as we were finally able to engage a portion of the clinics regarding our two 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 six weeks. We look forward to presenting more in the quarters ahead.
On our Q2 call, we provided six measurements and objectives for the second half of 2020. Here is our status. Number one, expansion of contracts in Germany. We have expanded from four to five contracts effective in Q3 and have two 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 goals. We also submitted supporting materials for pricing and we are 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 interactions on contracts and have the first meeting scheduled. We cannot yet forecast results or timeline for any level of coverage where we are satisfied that we have met our goals for the second half of 2020.
Number three, expansion of supporting data with ReWalk. We are building upon six years of experience and have gained access to multi-year data on the users’ health pre and post-injury. This ongoing review of medical records and historical data, pre-SCI injury and post the provision of an exoskeleton, it will examine the economic cost of treating SCI Healthcare in the period before and after with 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 amongst 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 two of our original U.S. study sites and we have evaluations underway with national and regional chains in the UK and the in U.S. These new evaluations will build our experience and allow for data in considerations 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 outcomes in this process.
The market appears to be reopening to this breakthrough, compact, light weight, less expensive exosuit technology.
Number six, measureable placements of the MyoCycle and MediTouch. It’s still work in progress where we are now achieving placements of the MyoCycle due to the VA contract and 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 to realize volume, it 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 three new product lines; the ReWalk growth will be based on the current German product line in pipeline; the U.S. growth rely on workman’s comp and VA focus combined with CMS activities that allow placements will start match segments.
The other lines of growth actively 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.
Question-And-Answer Session
Operator
[Operator Instructions] Your first question comes from the line of Sean Kane [Ph] with H.C. Wainwright.
Unidentified Analyst
Hi. Thank you for taking my question. Hello.
Larry Jasinski
Hi, Sean.
Unidentified Analyst
Hi. Yes. So, you have shown us the code has been - it’s effective now right. If there is – it was – it hasn’t been standing with the dollar amounts?
Larry Jasinski
The code is effective as of October 1st. So, yes it is effective. The dollar amount, which we have looked to be set up in a similar cycle that had made a submission, due to COVID, they did not complete the pricing. So, they have left us with pricing will be done with a local MAC. 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.
Unidentified Analyst
I see. So, how are you – the investment talks are progressing private payers, now that we have as the CMS code is effecting. Is it helping anyway?
Larry Jasinski
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 these supporting materials 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.
Unidentified Analyst
I see. So – and what is your prompted relaunch or respreads. So it’s entirely a 2021 event like do you have a ballpark timeline for that?
Larry Jasinski
We’ve actually started here in October.
Unidentified Analyst
Alright. Okay.
Larry Jasinski
Yes. So, we’re – and we are fortunate we have accounts that have broadened 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 – we are not taking on any new technology.
We are holding in a stay with active products, because they didn’t want to train their physiotherapist on a new technology, because in many cases, those physiotherapists were either furloughed or with COVID, they simply weren’t seeing new technologies.
So, we are 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 three product lines being able to be effectively launch since they were put on hold with COVID.
Unidentified Analyst
One last one. Could you provide a commentary on cash runway and operating expenses going forward 4Q and maybe beyond?
Larry Jasinski
Ori, would you take it?
Ori Gon
Yes. No problem. So, as mentioned, we entered 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, 3.6 depending on specific quarters. This is currently – this is the current structure of the company. We’ll 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, we – 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 to previous quarters and a year before that. So we’ve done a very significant effort there and with the growth that we hope would come in the future, we can even take it lower.
Unidentified Analyst
Thank you. Very helpful. Thank you all.
Operator
[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.
Larry Jasinski
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 are in a period where we are 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.
Operator
This concludes today's conference call. You may now disconnect.
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