Myomo Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 7, 2023

There are 8 speakers on the call.

Operator

Hello, and welcome to the Myomo Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would like now to turn the conference over to Kim Golodetz.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo 3rd Quarter 2023 Conference Call. Earlier this afternoon, Myomo issued a news release announcing financial results for the 3 9 months ended September 30, 2023. If you would like to be added to the company's e mail distribution list to receive future announcements, Please register on the company's website at myomo.com or call LHA at 212-838-3777 and speak with Carolyn Curran.

Speaker 1

With me on today's call from Myomo are Paul Godonis, Chief Executive Officer and Dave Henry, Chief Financial Officer. Before we begin, I'd like to caution listeners that statements made during this conference call by management other than historical facts are forward looking statements. The words anticipate, believe, estimate, expect, intend, guidance, outlook, confidence, Target, project and other similar expressions are typically used to identify such forward looking statements. These forward looking statements are not guarantees of future performance and may involve and are subject to certain risks and uncertainties and other factors that may affect Myomo's business, Financial condition and operating results. These and additional risks, uncertainties and other factors are discussed in Myomo's filings with Securities and Exchange Commission, including the Form 10 Q for the quarter ended September 30, 2023, which is expected to be filed soon and subsequent filings.

Speaker 1

Actual outcomes and results may differ materially from what's expressed in or implied by these forward Looking statements. Except as required by law, Myomo undertakes no obligation to revise or update any forward It is now my pleasure to turn the call over to Myomo's CEO, Paul Gudonis. Paul, please go ahead.

Speaker 2

Thanks, Kim. Good afternoon, everyone, and thanks for joining us. We have a lot of news to cover with you today, Starting with our Q3 financial results and then last week's updates from the Centers For Medicare and Medicaid Services, CMS, About the MyoPro for patients with Medicare Part D Coverage. Today, we're reporting 3rd quarter financial results Featuring more than $5,000,000 in product revenue for the first time, which is up 28% year over year and up 20% sequentially. This included a record quarter of international revenues, which topped $1,000,000 in a quarter for the first time.

Speaker 2

Importantly, we are entering the 4th quarter with 1046 qualified patients in our pipeline and more than $11,000,000 in cash, which gives us optimism about our growth trajectory. I'm pleased with these results since they validate the strategic shift And the operational changes we implemented at the beginning of the year, we decided to focus on patient candidates who had insurance coverage by payers with a track record Reimbursement for the MyoProbe rather than expending a lot of efforts to obtain pre authorizations from other insurance plans. That's led to a higher authorization rate by payers, including on appeal with some approvals happening within a few days of submission of the medical documentation to the insurance company. Assuming medical necessities demonstrated Medicare Advantage plans, which cover many of these stroke survivors who are seniors aged 65 and up, Must provide coverage if CMS is reimbursing for the device. Along with this focus on reliable payers, we reduced our operating expenses By having fewer staff dedicated to reimbursement activity and by cutting our marketing budget by $1,000,000 These Cost savings along with the increased revenue we generated are namely us to reduce our cash utilization year over year as we work through the timetable of Medicare Part B rulemaking and the coverage completed.

Speaker 2

For a deeper dive into our Q3, I'll start with the top line. Brian, which was nearly 1,000 qualified candidates at the beginning of the quarter, meaning they were covered by insurance plans that have consistently paid for MyoPro in the past 2, the number of units in our backlog, which represented approximately $7,000,000 of potential revenue upon delivery or collection of payment from the payer And 3, the number of new orders received and filled during the quarter for revenue based on the payer mix, what we call the fill units, which was a record number in the quarter. During our last quarterly conference call, I was a bit conservative About our revenue forecast because we had limited visibility into how many insurance authorizations we would receive and what the payer mix might be. As it turned out, we had a record 156 authorizations and orders in the 3rd quarter, which is up 20% from the year ago period. And we achieved this growth with a 27% reduction in advertising spend compared with the Q3 of 2022 And a 12% reduction in staff engaged in reimbursement activities back in January as we focused our efforts on payers with a track record of reimbursing the MyoPro.

Speaker 2

And now for the major news updates. It was a heck of a week for seniors with Medicare Part B Fee For Service Health Insurance CMS issued 2 publications concerning the MyoProbe brace for patients with muscle weakness in paralyzed arms. On November 1, CMS stated that it was reclassifying the MyoPro in the BRACE benefit category as we had requested in the public meeting in June 20 22, instead of the original durable medical equipment DME rental category. MyoPro product line is Custom fabricated for each patient and is designed for long term home use by Medicare beneficiaries. In the brace category, The MyoPro will be reimbursed by Medicare on a lump sum basis, which is the way all other payers Medicare Advantage, the VA and commercial plans Reimburse for our devices effective January 1, 2024.

Speaker 2

That was good news number 1 for Medicare beneficiaries. Then on Friday, November 3, CMS issued the agenda for its upcoming HCPCS public meeting, which included the publication of proposed fees for the 2 MyoPro models. For MyoPro Model W, which is the elbow wrist orthosis, coded as L8701, The proposed fee is $31,745 For the MyoPro Model G, which is the elbow, wrist, hand orthosis, The proposed fee is $62,457 These fees are calculated by CMS based on their internal pricing methodology and are consistent with the presentation we made at that June 2022 public hearing. These fees will be considered at the November 29th CMS public meeting and typically determinations resulting from a public meeting are published a couple of months later and are effective in the subsequent calendar quarter, which in this case would be April 1, 2024. However, there is no guarantee that these will be the fixed fee amounts, the final fee amounts or what the effective date will be.

Speaker 2

While we're waiting for these decisions by CMS staff, we are instructed to present our latest clinical research to the DME MAC Medical Directors, Which we did this past spring. We are also advised to provide devices to Medicare Part B beneficiaries and to file claims for payment. I'm pleased to report that we now had 5 Part B claims approved and have received initial rental payments under the current HCPCS codes, which is the first time we've received such payments since our codes went into effect in January 2019. We received multiple monthly rental payments And several of these claims and importantly all 4 of the DME MAC regions have paid for the patient's MyoPro. One additional MyoPro claim is still in process with the clinical documentation in support of medical necessity still under review.

Speaker 2

Why all this is significant for Medicare beneficiaries and the company is that Medicare Part B patients should now have access to the MyoProbe Based on medical necessity and any coverage guidelines that may be issued, we've had to put these Part B patients on hold until now. So going forward, we'll be able to work with their physician and supply our Powered Arm braces to suitable candidates. We commend CMS on making these braces available to seniors Part B coverage as it is a major step towards the goal of Health Equity. I'll wrap up my opening comments with a few other highlights. Our international operations led by Germany achieved a record $1,000,000 of revenues in Q3.

Speaker 2

We have a growing pipeline of patients interested in MyoPro, A network of 100 O and P clinics across Germany who can provide the MyoPro and more wins at the German Social Court, which has ruled in favor of patients having access to MyoPro and requiring the payer to cover the cost of the device due to medical necessity. Our Chinese joint venture company made good progress during the quarter as medical device registrations were submitted to allow the sale of the MARQ units or the mobile arm to rehab hospitals in China, which would be initially used for rehab training purposes for which the hospitals could generate revenues. In addition, first, ProtoSat Mark units are expected off the production line during this Q4. Sales of MyoPro to individual patients will occur further down the road We completed our second capital raise this year in August At an 80% premium to the price of our equity offering back in January, I have publicly committed to reducing our cash burn this year Less than half the burn compared to the cash used in operations of $7,800,000 for the same period in 2022. I'll now turn the call over to Dave Henry, Myomo's CFO, who will review of our Q3 financial results.

Speaker 2

Dave?

Speaker 3

Thank you, Paul, and good afternoon, everyone. Turning now to our Q3 financial results. Total revenue for the Q1 of 2023 It was $5,100,000 This consists entirely of product revenue, which is almost entirely of product Revenue, I should say, which is a record for the quarterly product revenue and was up 28% over the prior year quarter. This growth Driven by a record 119 revenue units, offset by a lower average selling price or ASP. The 119 revenue units in the quarter was an increase of 37% over the prior year.

Speaker 3

Of the 119 revenue units, Approximately 40% resulted from fill, which is our term for authorizations and orders received and converted to revenue in the same quarter. This was a record number of fill units, which was aided by the addition of 2 insurance payers and their affiliates for which we have accumulated sufficient Collection history to enable revenue recognition at the time of MyoPro delivery. Nearly half of our direct billing revenue in the 3rd quarter was from patients with payers where we were able to recognize revenue at delivery. ASP was approximately $42,700 down 7% from the prior year as we guided due to payer and channel mix. The direct billing channel represented represented 20 percent of product revenue in the 2nd quarter.

Speaker 3

The remaining 11% of revenue was from the VA and domestic O and P channels and sales of demo units and MyoPro control units to the JV Company in China. Backlog represents insurance authorizations and orders received, but not yet converted to revenue. Our backlog at the end of Q3 23 was 185 units, which is up 1% from our backlog at the end of Q3 2022. This backlog includes 5 patients for whom we are receiving rental payments from the DME MAX. We received 100 and authorizations and orders for MyoPro's in the 3rd quarter, an increase of 20% compared with the prior year quarter.

Speaker 3

Our patient pipeline increased to 10 46 candidates as of September 30, 2023, up 28% from the year ago quarter, which has been revised to reflect only known payers. 3 The year ago pipeline additions have also been revised to reflect only known payers. Note that the pipeline does not include Medicare Part B Gross margin for the Q3 of 2023 was 68.7% compared with 66.5% for the prior year quarter. The increase was driven by improved fixed cost absorption on the higher volume, offset by a lower ASP. Operating expenses for the Q3 of 2023 were $5,500,000 an increase of 1% compared with the Q3 of 2022.

Speaker 3

This modest increase was driven primarily by higher incentive compensation accrual, offset by lower advertising expenses, which decreased 27% We're on pace to spend roughly $1,000,000 less on advertising in 2023 than we did in 2022. Our cost per pipeline add was $2,159 which is down 36% compared with the prior year quarter. Operating loss for the Q3 of 2023 was $2,000,000 compared with an operating loss of $2,800,000 for the Q3 of 2022. Net loss for the Q3 of 2023 was also $2,000,000 or $0.06 per share. This compares with a net loss of $2,800,000 or $0.40 per share for the Q3 of 2022.

Speaker 3

Note that the $8,700,000 pre funded warrants issued in our January August 2023 offerings Are considered common stock equivalents under GAAP and are included in our weighted average shares outstanding. None of the pre funded warrants have been exercised as of today. Adjusted EBITDA for the Q3 of 2023 To summarize our year to date results, revenue for the 9 months ended September 30, 2023 was $14,500,000 up 26% over the same period a year ago, while year to date product revenue of $12,800,000 was up 21%. Year to date gross margin was 69.6% compared with 66.2% in the year ago period. Gross margin on product sales for the 9 months ended September 30 was 65.5%.

Speaker 3

Operating expenses for the 1st 9 months of 2023 were $15,900,000 a decrease of 1% compared with the same period a year ago. Operating loss for the 1st 9 months of 2023 was $5,800,000 compared with an operating loss of $8,400,000 for the same period a year ago. Net loss for the 1st 9 months of 2023 was $5,700,000 or $0.21 per share compared with a net loss of $8,600,000 for $1.24 per share for the same period a year ago. Adjusted EBITDA was a negative $4,900,000 for the 1st 9 months Short term investments as of September 30, 2023 were $11,100,000 Cash used in operating was $1,700,000 for the Q3 of 2023 compared with $2,800,000 for the prior year quarter. Looking ahead, our backlog is up modestly on both a sequential and year over year basis.

Speaker 3

Assuming Quarter were filled in the range of 30% to 35% of revenue units. We believe we are positioned to deliver year over year revenue growth in the 4th Quarter and full year product revenue growth consistent with the growth through the 1st 9 months, which is within the 20% to 30% range We guided to at the beginning of the year. With that financial overview, I'll turn the call back to Paul.

Speaker 2

Thanks, Dave. While we're looking to continue the momentum we've achieved so far this year and we expect to add additional medically qualified With that overview, we're now ready to take your questions. Operator?

Operator

We will now begin the question and answer session.

Speaker 2

Before we take the first question, I just want to mention that we are available for virtual and in person investor meetings. So please contact LHA Investor Relations to set up We'll also keep you informed of developments at CMS about the status of the new brace category classification And the proposed fees which will enable access to MyoPro by Medicare Part B Patients. Okay, operator, we're ready for the first question.

Operator

Our first question comes from Scott Henry from ROTH Capital. Please go ahead.

Speaker 4

Thank you. Good afternoon And congratulations, some very well deserved progress on the reimbursement front. So Great job. Couple of questions. I guess first, when I look at the CMS fees For I believe it's the G and the W, I typically think of this as 35,000, 40 1,000 ASP.

Speaker 4

So that 62 kind of looks higher. Is that just a blend or how do we think about that 60

Speaker 2

Yes. Well, CMS has its own methodology for calculating fees for new medical devices, They're required to follow the guidelines using the published retail pricing. So Myomo's ASP that we currently report is not the retail price, but It's a value affected by accounting calculations and other factors and the ASP that we currently have is typically lower than the actual retail pricing. But Scott, CMS has its own algorithms, what they call the gap filling methods, where they take retail pricing, They back it up over a period of time and then they add inflation. And that's where they come to these pricing, which is consistent by the way with Now what we presented at the June 2022 public meeting.

Speaker 4

Okay. So it sounds like it's within your expectations And you're probably pleased with the levels there. Is that correct?

Speaker 2

Yes. It's again, it's consistent with what we have presented and It's very workable to enable access for these Part B beneficiaries.

Speaker 4

Okay, great. And I noticed you changed the patient Pipeline update, have you included Germany in the past or is that new? And what was the driver? Is Germany Likely going to be a material market for you? Just curious on that.

Speaker 2

Yes. Well, go ahead, Dave.

Speaker 3

As I say, no, Germany has always been included in the pipeline. I think over the last couple of quarters, we've seen the drop rate The pipeline decreased a bit and I think that's helped grow the overall pipeline because the ads have been in that 380 to 400 range this As we've been sort of spending a consistent amount on advertising each and every quarter. So I think that's what you're Seeing from the pipeline is that just we're seeing fewer patients are right now dropping out.

Speaker 4

Okay, great. Final question, dollars 5,000,000 in a quarter. Congratulations, that's a strong number. As well, you have the 156 orders and authorizations. When we put all that together, the question is, how do we think about Cash flow breakeven, not necessarily GAAP breakeven, dollars 7,000,000 in a quarter, do you think That gets you pretty close to breakeven.

Speaker 4

It seems like we're starting to get into that ballpark. Appreciate any color on that. Thank you.

Speaker 3

Yes. I'd like to sort of defer answer on that. I'd like to see what the final fee is published from CMS. And with the public meeting is in end of November, determinations from that meeting should be out by the end of February of 2024. So by the time we get to our Q3 our Q1, I should say, Q4 conference call in March of 2024, We might have a better idea and might be able to provide some more color on that.

Speaker 4

Okay, fair enough. Thank you for taking the questions.

Operator

The next question comes from Anthony Vendetti of The Maxim Group. Please go ahead.

Speaker 3

Thank you. Thanks, Paul and Dave.

Speaker 5

So the meeting that's going to be held On November 29, who's going to be attending that meeting? And What's the expectation post that meeting? Is that It's the payment determination. Is the exact amount going to be set then? And then, is the implementation Likely to be 1onetwenty 4?

Speaker 2

So the public meeting is held twice a year, and CMS just published the agenda, which is available online. And the agenda includes Pricing for a number of products, including ours, we're right on the agenda item number 1 with this proposed pricing. So attendees or anyone that wants to submit comments about the proposed pricing or anything else About our product or anybody else's products that are in the agenda. And then after CMS reviews any of those comments, They will typically come out with then their final fees and put that into what we call the alphanumeric tables. Usually, this takes them a couple of months.

Speaker 2

So we don't expect the fees to go into effect until perhaps April 1, Not maybe earlier than that, but that's kind of our current expectation.

Speaker 3

Okay. So you're saying April 1, and if it's earlier, great, but that April 1 is the expectation.

Speaker 5

And then just in terms of revenue recognition, Does this change any of your revenue recognition sort of expectations for 2024? Or was this kind of

Speaker 3

built into what you were expecting? I think as we if CMS Publishers of the fee and we start getting regularly paid that fee, then we will our expectation is that we'll be Recognizing revenue delivery for Medicare Part B patients once we can establish collectability, which is the requirement under GAAP. We're going to be under Our products will likely be reviewed under what's called individual consideration, so on a case by case basis. And we'll see as we go forward in 2024, how they're paying. And then once we feel comfortable, then we'll go ahead And us and our auditors are comfortable, then we'll go ahead and start recognizing revenue on delivery.

Speaker 5

Okay, Dave. And just from history And doing this for many years, Ray, establishing collectability, is it what I've learned anyway is that auditors Typically want to see a full year. Is that what you're expecting a full year of establishing collectibility?

Speaker 3

Or do you think it could be shorter than that? When we establish collectibility For the insurers that I mentioned in my remarks, it was really based on More of a number of patients and time wasn't necessarily a factor. It was seeing a number of patients where if We get an authorization and we bill a claim and deliver, we get paid. We see that happening enough Times, regardless of time, that would be the point at which we feel we can take revenue at delivery. No more based on number of patients.

Speaker 3

And do you have a range of what you think that number would be or hard to say at this point? I mean, it's I mean, I would say it's got to be a few dozen certainly. Okay. Okay.

Speaker 5

And Based on all the good news in November, right? On November 1,

Speaker 3

CMS published the final rule that reclassifies the MyoPro as a brace and now this. Do you feel like the TAM For the MyoPro has increased in terms of what it was maybe prior to November?

Speaker 2

It's at least doubled, Anthony, Because if you look at the majority of the stroke population are seniors, and about 50% of seniors are covered by Medicare Advantage Plans, 50% of seniors are on the standard Medicare Part B and we've only been able to serve that Medicare Advantage population until now. And so with these Part B patients, if they're medically eligible for the device, that's half of the senior population. So Well, I look at it is effectively our TAM is doubled.

Speaker 3

Okay. That's helpful. All right, great. Thanks very much. I'll hop back in the queue.

Operator

The next question comes from Edward Wu with Ascendant Capital. Please go ahead.

Speaker 6

Yes. Congratulations on the quarter and especially on international. Should we expect that continued growth rate high growth rate in Germany? Is there any possibility that it could increase even faster and what about possibly for going outside beyond Germany and the rest of the EU?

Speaker 2

Well, we've been really pleased with the consistent year over year growth of Germany. As I said, it was a record quarter here in recent Q3. Now we've been building up the distribution network. We've been very successful in getting statutory health insurance payers to cover this. So we can expect we'll have continued growth there in Germany.

Speaker 2

We're looking at other markets, especially in EU, Where we have CE Mark and we meet the EU MDR rules, the question will be reimbursement. It takes often A year or 2 to establish reimbursement in some new markets. And so right now, we're basically doubling down and saying, look, Germany is a big country, over 80,000,000 population. So let's keep serving the patients in Germany right now as our first priority for Europe.

Speaker 6

Is there a possibility to push to gas pedal a little faster to take advantage of the opportunity in Germany? Or you feel like you're at a very Comfortable pace.

Speaker 2

Well, we've got a good growth clip over there. It requires more marketing spend, More business development staff, more clinical trainers and so on. So we want to go at a good pace, But I'll also do it in a quality manner because we want to make sure we're medically qualifying patients, getting all their documentation and following up for good outcomes. So we'll continue to see a good pace of growth there in Germany.

Speaker 6

Great. Well, thank you and congratulations again.

Speaker 2

Thank you.

Operator

Our next question comes from Ben Haynor of Alliance Global Please go ahead.

Speaker 7

Good afternoon, gentlemen. Thanks for taking the questions. First off for me on the mix between the MyoPro Motion W and Motion G, where does that sit with your typical In your typical quarter, and do you expect there to be any sort of difference with the Part B population?

Speaker 2

Over 80% over excuse me, over 90 And of our orders are for the MyoPro G. That's the more expensive unit because it includes the grasp, Enables greater functionality of ADLs. And as far as we expect, it should be pretty similar for the Part B population as well as other

Speaker 7

Okay, great. And then on the payers that may not be covering Paul, would you expect them to kind of fall in line now that Medicare has made these changes

Speaker 2

We expect that that will happen over time. Certainly Medicare Advantage Plans are required to provide whatever Medicare Standard Part B does. So we think that will open up additional Medicare Advantage Plans To the MyoPro, and then as you are aware, often commercial plans will follow what Medicare does as well. So Over time, we'll be having meetings with various medical directors of these plans, the commercial side as well, about contracting. But Certainly, waiting for this Medicare Part B, sort of a blessing.

Speaker 2

I think it was very important for the overall reimbursement strategy with these other payers.

Speaker 6

Okay. That makes sense. And then on the Part B patients that you have in

Speaker 7

your database right now, I guess this maybe is more of a mechanics question, but when might you start including those in the pipeline? Is that something that you Close to investors, is that something that we would probably look to hear about kind of In the Q1 report or could it be after that, before that? What's the right way to think about that as you look at it today?

Speaker 2

Yes, I think that's a good question. I think after everything gets finalized at CMS, the brace category rules in place, the front cheese are published and so on. And as we continue to build up a patient pipeline or Part B patients, we can be discussing that as well at that time.

Speaker 6

Okay. Got it.

Speaker 7

And do you think you're going to

Speaker 6

expand the team given these updates The benefit category change, the proposed fee schedule, I

Speaker 7

mean, it seems like there's a lot of opportunity for you to go after if this falls into place like it looks like it's going to. Any thoughts on that front?

Speaker 2

Well, we've already been working on how do we scale up the business cost effectively. We've got some core infrastructure with about 110 people now inside the company. But certainly to gear up for the additional volume, we're going to need Additional manufacturing staff, maybe a second shift in our current facility. We'll have to order additional inventory for the builds. I'll have to add additional clinical staff in the field, whether it's the CPOs that do the evaluations and fittings, the mild care coaches that follow-up.

Speaker 2

So yes, we've been working on a plan, but we should get operating leverage because we've already invested in the core infrastructure of the team.

Speaker 7

Okay, got it. That's it for me gentlemen. Hello start to

Speaker 2

November. Thanks, Ben.

Speaker 7

Thank you.

Operator

As there are no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Paul Godonis for any closing remarks.

Speaker 2

Thanks, operator. I want to thank the new investors that participate in our capital raises this year. We've been able to attract well regarded fundamental healthcare investors who see the long term potential of this business, and we've had a number of executives and board members Also increase their stock holdings as well. And while forecasting quarterly revenues is always a challenge due to the factors I mentioned earlier, such as The number and the timing of insurance authorizations and the payer mix, we are poised for our 11th consecutive year of revenue growth. We continue to add roughly 400 new candidates into our patient pipeline each quarter and we entered Q4 with a record number of patients in the pipeline We'll be including Part B beneficiaries as we go forward.

Speaker 2

So we're looking forward to the finalization of the CMS fee schedule MyoPro in the brace category with an anticipated effective date, the ability to expand our addressable market to include those 50% of seniors in the U. S. With the Well, thanks for your continued interest in Myomo and have a good day everyone.

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