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Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Could Be A Nice Revaluation Play

Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) Could Be A Nice Revaluation Play
Written by
Chris Sandburg
Published on
May 23, 2017
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Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) has taken a hit on its most recent announcement, with the company currently trading at a close to 10% discount to its session open pricing. The decline comes on the back of the news that management is implementing some cost cutting initiatives, targeting a monthly spend reduction of around 25%. In any company, in any industry, the necessity to cut costs will generally be seen as a bad thing. However, in a number of instances, that interpretation is not always accurate – especially when you look at the situation from a shareholder's perspective, and even more so when said perspective is in the biotechnology sector.As such, we think the recent decline might be an opportunity to pick up an exposure ahead of a market revaluation and rebalancing to reflect the implications of the restructuring as opposed to the drivers.Here's what we're thinking.For those new to this company, Ekso is a healthcare play that has developed a device that – initially and primarily – it's using to help patients that have suffered from strokes or spinal injuries. It's an exoskeleton type device and it's designed to get individuals in the population walking and mobile quicker, and more effectively, than current standard of care phsyio/machine combinations.There's a whole host of evidence that the exoskeleton – called Ekso GT – works in this target population and it's approved in the US. The problem is, however, that it's expensive. Not only that, but with the system, Ekso is essentially trying to force decades of standard of care therapies, very well established therapies, to pivot towards a new way of thinking.Sure, it's product might be superior to the treatment offered as standard today, but educating physicians to this fact, and additionally, getting the decision makers at healthcare facilities to sign off on a purchase order, is a long and costly process. Management has made strides towards clearing hurdles on both these counts over the last twelve months, and we've looked at these advanced on a couple of occasions in the past. It's not there yet, however, at least not to a degree that it can become cash flow positive on the sale of the Ekso GT system alone in the US healthcare space.So that's where the latest announcement comes into the equation.The company announced plans to streamline its operations and reduce its workforce by approximately 25% to lower operating expenses and reduce cash burn. It's going to have to shoulder one time costs (severance, that sort of thing) of $1 million as it affects the cost-cutting efforts.This time a couple of weeks ago, management reported a first-quarter loss of $8.3 million on revenues of $1.4 million. Cash came in at $9.4 million at the end of March and the company added just short of $12 million to this on the back of an April financing. Cash outflow during the first quarter was $7.3 million. There's the potential for revenues to ramp up near term as we've outlined previously, with the company's sale funnel likely to start reaching revenue collection in a number of centers throughout the latter half of 2017. Take all these inputs into account, and management basically has two choices – cut operational costs or continue to tap shareholders for additional cash. Assuming the cuts don't impede sales efforts, the latter is a far more attractive option for shareholders from a dilution potential perspective.The sales efforts comment there is a big assumption, but we expect that the vast majority of the cuts have come from the development side of the company (as opposed to marketing).And that's where things stand. We need to see topline increase in line with the cuts to justify this move and – by proxy – our revaluation thesis.We will be updating our subscribers as soon as we know more. For the latest updates on EKSO, sign up below!Disclosure: We have no position in EKSO and have not been compensated for this article.

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