Business context and reporting period
This is ReWalk Robotics Ltd.’s unaudited Form 10-Q for the three months ended March 31, 2017; the filing identifies ReWalk Robotics Ltd. as the registrant. The company sells ReWalk Personal and Rehabilitation exoskeleton devices. It reported 37 units placed during the quarter, versus 32 a year earlier.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $2.499 million | $2.061 million; up 21% |
| Gross profit / margin | $1.049 million / 42% | $0.493 million / 24% |
| Operating expenses | $6.704 million | $6.908 million |
| Operating loss | $5.655 million | $6.415 million |
| Net loss | $6.400 million; $0.39 per share | $6.922 million; $0.56 per share |
| Cash used in operations | $6.050 million | $6.937 million |
| Cash and cash equivalents | $17.128 million at March 31 | $23.678 million at December 31, 2016 |
Cash fell by $6.550 million during the quarter. Total liabilities were $21.932 million. The balance sheet included $8.386 million of current loan maturities and $8.492 million of long-term loan, net of current maturities. The Kreos loan bears 10.75% annual interest and is secured by company assets, including intellectual property. The filing reports $31.778 million in contractual obligations, including debt, leases, purchase commitments, and Harvard collaboration/license obligations.
Material changes and management commentary
Revenue growth was attributed mainly to more Personal-device sales covered by commercial insurance in the U.S. and Germany. Gross margin improved with higher unit sales, rental-to-purchase conversions, improved average selling price, and lower product costs. Net R&D expense declined 16%, partly reflecting a $300,000 Israel Innovation Authority grant; sales and marketing expense fell 5%, while general and administrative expense rose 12% and net financial expense rose 49%, mainly due to Kreos loan costs.
Management set a target to reduce 2017 operating expenses by up to 30% compared with 2016 through project prioritization, staffing changes, and lower corporate spending. It expects to focus on reimbursement efforts, clinical studies, sales and service, and development of a soft-suit exoskeleton. No revenue or earnings guidance was provided.
Risks, contingencies, and unusual items
The company reported an accumulated deficit of approximately $113 million, ongoing losses, and substantial doubt about its ability to continue as a going concern. It plans to fund operations with cash, expense reductions, ATM share sales, or other financing; there is no assurance financing will be available on acceptable terms. Q1 ATM sales generated $611,000 net from 307,467 shares.
FDA post-market surveillance remains a material risk. The filing says the study’s enrollment progress was inadequate in the FDA’s view; as of May 3, 2017, five patients had enrolled and three were active. Further FDA action could restrict labeling or U.S. marketing. Three securities class actions concerning alleged IPO disclosures remained pending; the company said it could not estimate potential losses and recorded no litigation reserve. One customer represented 61% of quarterly revenue and 41% of trade receivables. The company also depends on one contract manufacturer and had $1.46 million in non-cancelable purchase obligations. IIA royalty-bearing grants carried a $590,000 contingent repayment liability.
Important facts for investors to verify
- Whether expense reductions and available financing can materially extend liquidity given quarterly operating cash use and the going-concern uncertainty.
- Progress and FDA assessment of the mandatory post-market study, including enrollment and any protocol changes or regulatory action.
- Durability of reimbursement-driven unit growth and the significant concentration in one customer and U.S. sales.
- Debt repayment schedule, interest burden, security interests, and potential dilution from further ATM or other equity issuance.
- Developments in the pending securities litigation and potential exposure, which the filing does not quantify.