When I used to be very younger – earlier than I began kindergarten – my household lived subsequent door to a different household with some youngsters my age, and we turned quick mates for some time, and even saved in contact for a time after each households moved to completely different neighborhoods. I did not actually give it some thought as a preschooler, however my childhood pal’s mom obtained round with the help of a walker. At the time, I merely assumed she was older than my very own mom, only a kid’s perspective, however as I obtained older, my very own mom defined to me that she had a number of sclerosis, a illness that would make it troublesome for her to stroll. It has been a long time since I’d have seen her, so I do not know how her well being is right this moment, however she was the primary individual I considered once I examine Ekso Bionics (NASDAQ:EKSO) getting the FDA clearance for using its EksoNR exoskeleton for therapeutic therapy of individuals with MS.
I’ve not chimed in with any replace on the nano cap med-tech firm Ekso Bionics since I final wrote about it close to the tip of January, and there are positively enough modifications to benefit taking a contemporary look. To format a fast sketch, Ekso Bionics is an American designer of robotic exoskeleton fits which are used primarily in a rehabilitation setting to assist certified sufferers be capable of stroll higher. The FDA has authorized the corporate’s major product, the EksoNR, to be used with sufferers having suffered spinal wire damage, mind damage, and now the a number of sclerosis indication as properly. Ekso Bionics additionally has smaller division, supplying an enhanced vest for these doing bodily labor by which they have to maintain their arms elevated. The vest is meant to assist forestall damage to the employees from fatigue or pressure.
Update on Developments at Ekso Bionics
The extra FDA approval for a number of sclerosis is a major enlargement from the unique approval for spinal wire damage granted in 2016, and the approval for mind damage given in 2020. The alternative right here is appreciable, as a number of sclerosis impacts round 1 million sufferers within the United States, a lot of whom reside with the sluggish degeneration that may accompany the illness over a span of a long time. Physical therapy will be a part of the continued therapy over that span, making an attempt to maintain the physique from succumbing any sooner. For Ekso Bionics, I count on that in a brief period of time any marginal price related to gross sales efforts on the MS indication will likely be outweighed by the gross sales outcomes.
The different change is the rising proof that the gross sales method flexibility is bearing some fruit. Prior to late 2020, gross sales of the EksoNR to rehab services had been primarily capital purchases, which was typically an obstacle to gross sales given a reasonably stiff price tag for an exoskeleton. When Ekso Bionics started providing the gadgets both as a capital buy or on subscription, it was not clear if that technique would make a serious distinction in bettering general gross sales volumes, and the reply appears to be rising that it does assist. For proof, Q2 of 2022 the corporate positioned 17 items, damaged down as 5 subscription and 12 capital purchases, sufficient of a mixture to be worthwhile, and there are a number of quarters now with related metrics to help the change.
If there was one space that has didn’t develop once more as hoped, it’s the Ekso Works division, with its EVO upper-body help vest. This product line, supposed to help folks whose jobs could require preserving their arms elevated for prolonged durations, would appear to have all kinds of benefits for Ekso Bionics. The EVO just isn’t a medical product, so it has decrease regulatory hurdles; its use instances and advantages are fairly clear, and it isn’t as advanced or costly a machine because the EksoNR. Yet whether or not it has been under-resourced by way of getting an inner deal with gross sales progress or for another unknown set of causes, the EVO nonetheless lingers round 10% of the general income image.
Finally, it’s definitely price noting that 2022 has introduced appreciable turnover in C-suite stage positions at Ekso. Jack Peurach, the earlier CEO, left the agency in January, adopted by William Shaw, the chief business officer in March, and lastly John F Glenn, the CFO, left in June. I can not consider one other individual’s motives for leaving, however I do not assume it’s both an excellent look or a useful to the steadiness of the corporate. In Ekso’s case, board member and former board chair Steven Sherman has taken the reigns as CEO, and Jerome Wong obtained an interim appointment as CFO. From what I can see on the corporate’s website right this moment, there’s no one listed as a chief business officer.
Overview of latest outcomes
One of the extra exceptional issues about Ekso’s share value YTD has been its fall and restoration, though long-time observers of this firm will probably concentrate on its volatility. After spiking up in March, then dropping quickly in May and staying low via a lot of the summer season, shares have now turned again up once more in August, and the shares are at present buying and selling in the identical vary as close to the beginning of the yr.
But even when the share value is similar, there are many new developments over the previous couple of quarters, so I’ll begin with a normal replace.
Ekso Bionics reported Q2 earnings on July 28, with clear progress developments in income after the difficulties of 2020, though additionally beginning to undergo use money in operations at a better charge once more. For the quarter, gross sales had been a complete of $3.5 million, the overwhelming majority of which got here from the 17 items of the EksoNR placements at $3.25 million, and about $0.25 million for the EVO, or about 7% of gross sales. In addition to the gross sales acknowledged inside the quarter, there’s an extra $1.14 million in present deferred revenues from the subscription mannequin gross sales, and practically an equivalent quantity in long-term deferred income that ought to circulation in over the approaching quarters (it will not actually circulation to the asset aspect of the stability sheet, however kind of shift over from liabilities to retained earnings / shareholder equity, all else remaining equal on the asset aspect of the ledger from the money obtained upfront).
With some greater inflationary pressures and provide chain disruptions, the corporate did pre-order part elements at a better charge than in earlier yr, resulting in a rise in inventories of $1.0 million in comparison with year-end of 2021, contributing some to the general uptick in money burn from operations.
Having raised $40 million in money in February 2021 with extra shares issued, the stability sheet well being stays comparatively stable. Cash burn is continuous, however for the second there’s loads of runway, with round $30 million internet money as of 6/30/2022 ($32 million money, $2 million in notes payable). With a money burn common traditionally round $3 million per quarter, there’s round 10 quarters of buffer, or extra if the money burn slows down.
Thoughts on Valuation
Estimating a good worth on an organization like Ekso Bionics is a problem because of the excessive diploma of uncertainty as whether or not or not it is going to ever change into worthwhile. To my information no one disputes the worth of expertise nor its capability to legitimately assist folks via a restoration course of, however shareholders need to separate out these questions from the financial worth. So more and more on this specific business at this juncture in its improvement, I’ve been beginning with the money readily available per share relative to the market value of the shares.
In the case of Ekso Bionics, because it occurs, the shares are primarily valued within the market as being equal to the corporate’s money readily available per share. With round 13 million shares and $30 million in internet money, the money per share is on the order of $2.30. With the caveat that because the money burn continues the market worth and money per share values will probably diverge sooner or later, as for the second the market is awarding no current worth in any respect to the operations. One’s opinion on whether or not or not that may be a credible assumption in regards to the future is what finally makes a market, however I feel there are specific developments price noting.
The basic unit economics on the corporate’s merchandise as high-end expertise has been fairly secure over a sturdy interval, proven within the ~47% gross margin over 5 years, with minimal variation, and I’d not count on to see main enhancements there creating shortly. However, the working margin reveals fairly a unique historical past over the identical interval, massively bettering (although nonetheless unfavorable) between 2018 and 2020, earlier than settling in round -110%. With the onset of Covid-19 across the similar time that issues began leveling off for working margin, whereas the corporate has sure mounted prices to take care of, I feel there’s alternative right here to begin to see if the trajectory of working margin can resume its earlier course.
Management is aware of it must maintain as tight a lid on working bills as attainable, and there are some indicators that it’s actively making some changes. For instance, throughout Q3 the corporate is altering its bodily location, shifting right into a extra dimension and price acceptable headquarters. There was no particular steerage offered or reaffirmed with the Q2 outcomes, however moderately administration expressed broad confidence for persevering with gross sales progress with a number of unit orders and a technique to implement for getting the EVO product line unstuck. With a lot of the working margin tied to mounted prices that will not essentially scale up in a linear relationship with gross sales, finally income progress might be enough to generate sufficient working margin to show worthwhile.
That problem is a tall order, as SG&A bills at present price the corporate 40% greater than income alone, with $8.4 million in SG&A in comparison with $6.0 million in income over six months. On the one hand, a portion of those is “non-cash” stock-based compensation to administration, on the order of $1 million via the primary half of 2022. However, loads of money is tied up in operations, because the money circulation assertion reveals $8.45 million utilized in operations, according to the SG&A bills from the P&L assertion, with a couple of 90% correlation between the 2 since 2021.
However, I count on there to some synergies in gross sales efforts associated to the MS indication, as any additional price associated to presenting the EksoNR use for treating MS sufferers is incremental to the present prices of presenting the items for spinal wire damage and mind damage. While there could be completely different medical employees concerned it the therapies of the completely different affected person teams even inside the similar facility, finally there’s overlap between the services that serve these sufferers, typically permitting for a single gross sales name that covers all three use instances. An analyst particularly picked up on this line of questioning, and COO Scott Davis made certain to reply clearly:
There is crossover. For some sufferers who’ve acute spells of [MS], definitely inpatient rehabilitation is an space that they might use it, however this expands our attain into outpatient rehabilitation. We have crossover into outpatient proper now, however that is successfully bringing us down the continuum of care into outpatient as properly.
Picking up extra gross sales to account for the MS indication will take a while. I don’t essentially see this making a serious influence on revenues for the rest of 2022, however there might be some profit, with probably higher readability on the importance of this beginning in 2023. Regardless of the timing, the broader level is that’s that for gross sales taking place to account for MS are prone to occur alongside gross sales that occuring for spinal wire and mind damage, decreasing the general price associated to the gross sales.
Is top-line progress on observe once more? The first half of 2022 outcomes are displaying some promise. H1 gross sales had been up 46%, on a income run charge of $12 million for the yr. However, that doesn’t account for any H2 potential for incremental gross sales from the a number of sclerosis indication, or getting the EVO again on observe. I’ve beforehand criticized the shortage of readability on plans for the EVO, and there nonetheless is not a depth of element on the plan, however I feel administration is pushing tougher. Scott Davis addressed it this fashion in his remarks:
We’re making inroads with a number of massive clients with sizable worker head counts who can profit from important office productiveness and security options that EVO offers. We proceed to see demand primarily rising within the automotive, aerospace and photo voltaic vitality verticals. Our present technique is geared in direction of creating bigger clients, which may end up in an extended gross sales cycle prefer it did this quarter. . . As development, normal manufacturing and inexperienced vitality ramps up throughout the nation, we stay dedicated to educating and increasing buyer entry of EVO to a wider variety of industrial verticals.
Though Ekso has beforehand gotten a little bit of a toe-hold with its office product line on manufacturing facility flooring for manufacturers like Ford (F) and Boeing (BA), these appear to have been on a small scale trial with out resulting in main orders. Based on the Mr. Davis’s feedback, I take him to imply that Ford, Boeing, and different employers in these business sectors are nonetheless main candidates for producing gross sales leads. However, I’m conscious that each of those specific companies have their very own points in the meanwhile, with Ford announcing layoffs of three,000 contract and white-collar workers because it tries to pivot to a sharper deal with electrical automobiles. The means of getting in deeper with such shoppers is understandably a sluggish one, however with correct help, the EVO might have a promising spurt of progress on the horizon.
One issue to acknowledge right here is that the gross sales prices related to the EVO could properly offset any profit from the synergies of the MS use case, at the least within the short-term. Selling industrial employee vests requires a completely completely different pitch than promoting machines to rehabilitation services.
I’ve beforehand thought of Ekso Bionics to be a maintain at greatest, both as a consequence of issues over dilution, or not having a clearly outlined path for shifting ahead (or a failure of the administration to speak its technique). I feel that’s altering considerably on each counts – shareholder dilution is off the desk for the quick future until valuation actually jumps, and general gross sales are trending again in direction of the expansion line that had been evident earlier than Covid-19. While I don’t see a break-even level taking place anytime over the subsequent two years, at this stage within the firm’s evolution, it’s extra about re-establishing the clear development once more of rising gross sales at a charge sooner than the rise in SG&A / use of money in operations. With different latest optimistic developments, I’m shifting to think about Ekso Bionics as an appropriate speculative purchase on general progress prospects not being totally factored into its present valuation.