Growing interest in non-medical applications
Ekso Bionics Holding (OBB:EKSO) showed continued strength in Q4 both in medical applications and in Engineering services. 18 units were placed in the period, bringing the total number of units in use to 110 with 17m steps taken. Encouragingly, management also reports strong interest in Ekso’s non-powered exoskeleton for industrial applications. We have lowered our forecast ASP from $120k to $110k to be consistent with the implied ASP over FY14, which has reduced our FY15 and FY16 revenue forecasts by 10% and 12% respectively, but we remain optimistic about the outlook. The opportunity in non-medical applications in particular does not appear to be fully priced in. FDA clearance, continued unit sales growth and further development of non-medical devices are key catalysts.
Renting model could accelerate unit sales growth
One of the reasons for the lower-than-forecast implied ASP is the increase in the number of units that are rented. Management reports that some hospitals prefer to be able to rent devices rather than purchase and it could be a method to accelerate growth. A rental model would increase the working capital requirement for Ekso, but the potential for accelerated unit sales could help it achieve a strong foothold in the medical device market and boost long-term earnings potential.
Big-picture remains highly attractive
Although we have lowered our revenue forecasts and increased our operating loss forecasts from $11.4m to $15.2m in FY15 and $9.4m to $13.7m in FY16, we remain optimistic about the long-term outlook. We are encouraged by Ekso’s work on phase two of the TALOS project, on the DARPA Warrior Web contract with Google (NASDAQ:GOOGL) Dynamics and the unpowered supportive exoskeleton that is being demonstrated to a number of global industrial companies. The financial structure of the business will continue to evolve but at this stage in the business development, the key metrics for investors should be units in use, steps walked and development agreements signed.
Valuation: Significant upside from other applications
Our changes to forecasts do not substantially change our DCF valuation sensitivity analysis, which we see as the key valuation tool. The updated table in Exhibit 4 suggests peak unit sales of 7,053 are now required to justify the share price, compared to 5,292 in our last update note. This represents a small proportion of the possible addressable market if Ekso can be successful in both medical and non-medical applications.
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