Business context and reporting period
ReWalk Robotics Ltd. (now identified in the request as Lifeward Ltd.) filed this unaudited Form 10-Q for the quarter ended June 30, 2020. The company develops and commercializes robotic exoskeletons for people with mobility impairments, including ReWalk devices for spinal cord injury and ReStore for stroke rehabilitation. It also planned to begin marketing two distributed product lines in the third quarter.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise indicated.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.668 | $0.877 | $2.428 | $2.458 |
| Gross profit / margin | $1.022 / 61% | $0.435 / 50% | $1.395 / 57% | $1.361 / 55% |
| Operating loss | $(2.552) | $(4.235) | $(6.154) | $(7.810) |
| Net loss | $(2.855) | $(4.587) | $(6.695) | $(8.587) |
| Net loss per share | $(0.22) | $(0.88) | $(0.57) | $(2.03) |
| Operating cash flow | Not reported quarterly | Not reported quarterly | $(7.533) | $(7.956) |
- Q2 revenue rose 90%, primarily from higher ReWalk Personal unit sales in Europe; first-half revenue was nearly flat year over year. First-half unit-placement revenue fell to $2.061 million from $2.246 million, partly offset by higher parts and warranty revenue.
- Operating expenses declined to $3.574 million in Q2 from $4.670 million, including a 49% reduction in research and development expense, which management attributed mainly to lower ReStore development and clinical-study costs. First-half operating expenses were $7.549 million versus $9.171 million.
- At June 30, cash and cash equivalents were $14.064 million, down from $16.253 million at year-end 2019. Total cash, cash equivalents and restricted cash were $14.747 million. Current assets were $19.696 million and current liabilities $8.847 million.
- Balance-sheet long-term loan maturities totaled $4.766 million, including $4.548 million current and $0.218 million long term; this includes the $0.392 million Paycheck Protection Program loan. Management reported approximately $4.4 million outstanding under the Kreos loan. The Kreos facility is secured by substantially all company assets, subject to permitted liens.
- Shareholders’ equity was $11.899 million, versus $10.780 million at December 31, 2019. Outstanding shares increased from 7.32 million to 14.19 million during the first half, reflecting equity issuance and warrant exercises.
Material changes and financing
- Q2 gross margin improved to approximately 61% from 50%, which management attributed to more units placed and a higher average selling price. First-half margin improved modestly, to 57% from 55%.
- First-half financing cash inflow was $5.303 million, compared with $22.473 million in 2019, reflecting lower equity proceeds and higher Kreos repayments. The company raised $4.010 million net in its February 2020 offering; warrant exercises contributed $3.492 million of first-half cash proceeds.
- After quarter-end, the company agreed to issue 4,938,278 shares at $1.8225 each and warrants to purchase up to 2,469,139 shares in a July registered direct offering. The filing’s highlights describe $10.6 million in gross proceeds from Q2 warrant exercises and the subsequent July offering.
- Timwell notified the company in March 2020 that it would not fund the remaining $15 million of a planned investment. The company said it was exploring other ways to enter the Chinese market.
Outlook, risks, and contingencies
- Management expects to fund the next 12 months through existing cash, expense reductions, and future equity or debt financing. The filing states that accumulated losses of approximately $175.2 million and operating cash outflow raise substantial doubt about the company’s ability to continue as a going concern; additional financing may be required, with no assurance it will be available on acceptable terms.
- COVID-19 disrupted sales activity, customer training, repairs, deliveries, clinical activity, and rehabilitation-clinic budgets. Management said the full impact and duration were uncertain. Cost measures included personnel-cost reductions, deferred subcontractor spending, reduced employee hours in some areas, and cuts to non-critical consultants.
- Management expected sales growth to depend on ReWalk Personal reimbursement and sales of ReStore and distributed products. It expected higher sales volumes to support margins, while launch-period margins on new products and higher component costs could offset improvement. No quantified revenue or earnings guidance was provided.
- CMS issued HCPCS Level II code K1007 for ReWalk Personal, effective October 1, 2020. Management characterized this as the first such exoskeleton code and noted that it might be followed by a CMS coverage policy; the code itself does not establish reimbursement coverage.
- Material risks include reliance on a single contract manufacturer, COVID-related supply and demand disruption, ongoing financing needs and potential dilution, Nasdaq listing compliance, and FDA postmarket-study requirements. The FDA-cleared updated 510(k) submission in May 2020; the postmarket study had enrolled 12 subjects by June 30, and the company was collecting real-world evidence under a modified protocol.
- One appeal remained in a securities class-action matter; the company said it could not estimate a possible loss and had recorded no litigation reserve. Non-cancelable purchase obligations were approximately $1.005 million. The company also disclosed a contingent $1.6 million royalty obligation to the Israel Innovation Authority, payable based on relevant product sales, and total contractual obligations of $10.758 million.
Most important facts for investors to verify
- Whether the July financing closed as described, its net proceeds and full dilution from shares and warrants, and the meaning and reconciliation of the stated $10.6 million gross-proceeds figure.
- The company’s cash runway, financing availability, and progress in addressing the expressly disclosed going-concern doubt.
- Whether CMS code K1007 leads to meaningful coverage and reimbursement, and whether sales and clinical activity recover from COVID-19 disruptions.
- Progress and compliance in the FDA postmarket study, including real-world evidence collection and any further regulatory actions.
- Whether cost reductions are sustainable without impairing product development, commercialization, and growth in gross margin.