Myomo Q1 2023 Earnings Call Transcript

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May 10, 2023

There are 8 speakers on the call.

Operator

Afternoon, and welcome to the Myomo First Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, Please note this event is being recorded.

Speaker 1

I would now like to

Operator

turn the conference over to Kim Golubaz. Please go ahead.

Speaker 2

Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo First Quarter 2023 Conference Call. Earlier today, Myomo issued a news release announcing financial results for the 3 months ended March 31, 2023. With me on today's call from Myomo are Paul Gudonis, Chief Executive Officer and Dave Henry, Chief Financial Officer.

Speaker 2

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 the Securities and Exchange Commission, including the Form 10 Q for the quarter ended March 31, 2023 and subsequent filings. Actual outcomes and results may differ materially from what's expressed in or implied by these forward looking statements.

Speaker 2

Except as required by law, Myomo undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this call. It's now my pleasure to turn the call over to Myomo's CEO, Paul Godones. Paul, please go ahead.

Speaker 3

Thanks, Kim. Good afternoon, everyone, and thanks for joining us. As demonstrated by our Q1 financial results, we had a very strong start to the year. The decisions we made about advertising and reimbursement strategies, along with the actions to control costs, have begun to pay off while positioning us well for both Top line growth and improved bottom line in 2023. Product revenue in Q1 2023 was $3,400,000 which met our expectations of 20% year over year growth in MyoPro sales.

Speaker 3

We increased our patient pipeline with more than 400 new candidates Entering the process of obtaining a MyoPro, we expanded the use of new digital technologies in the front end of our patient conversion cycle, We now use an online waiting room where interested patients can be screened via telehealth by our licensed clinicians. Compared with the Q1 of 2022, this pipeline growth represents a 54% increase In the number of patients with previous payers, those that are reimbursed for the MyoPro in the past, and we did this while spending 33% less on direct to consumer marketing. In turn, our cost per pipeline ad is down 53% From the Q1 of 2022 and down 50% from the Q4 of 2022. These metrics are all trending in the right direction. As you may recall, earlier this year, we modified our pipeline focus to patients who have insurance from carriers that have paid for the MyoPro in the past.

Speaker 3

We received 122 authorizations and orders during the quarter, which is up 30% from a year ago. The backlog also increased to 176 units, representing over $7,000,000 in potential revenue as we complete the deliveries and or receive payment for these devices. We were able to accomplish these additions to the pipeline, the insurance authorizations and deliveries With the 12% lower headcount, which resulted in improved operational efficiencies. Our international business Generated record revenues in the quarter as we continue to add O and P provider locations in Germany and obtain insurance reimbursement, which is largely due to the favorable social court rulings over the past year. We also achieved a major significant milestone in Australia, Where the National Disability Insurance Scheme or NDIS began paying for MyoPro, and we expect this will lead to future sales in that country.

Speaker 3

The other major international development occurred in April when our China joint venture paid the remaining $1,700,000 of the initial license fee. As the COVID-nineteen lockdowns were lifted across China, our partners, Riser Medical and China Leaf Ventures, We're able to move forward and launch the JV startup activity for Jiangxi Myomo. We've begun the process of providing technical documentation and know how So the JV staff can establish its local manufacturing and distribution operations. The JV is also starting the process to obtain regulatory approval From the National Medical Products Administration to begin offering the Myomo product line to rehab hospitals and to patients. As a reminder, the JV contract calls for more than $10,000,000 in additional license payments over the next decade, and Myomo shareholders have a 19.9% Equity stake in Jiangxi Myomo with our Chinese partners putting up all of the capital to fund this business.

Speaker 3

Here in the U. S, we continue to work toward our goal of securing Medicare Part D coverage for MyoPro, ultimately as a lump sum payment, but in the interim, more likely as a rental because that's how we're currently classified by the Centers For Medicare and Medicaid Services or CMS. In January 2023, CMS issued a public notice regarding new rulemaking around defining the benefits For neck, arm, leg and back braces and newer technologies. We see this as a good sign that CMS recognizes the value of new technology driven braces, And we believe that this new rule, when published next summer, will provide CMS's official response to our benefit category change request. A change in the benefit category, if made, could lead to lump sum reimbursements.

Speaker 4

In the

Speaker 3

meantime, we move forward as recommended by CMS staff to Last month, we met with the medical directors and staff of the CMS billing contractors, Referred collectively as the DME MAX, we presented new clinical evidence contained in 2 studies submitted for publication to support the reimbursement of the MyoPro for Medicare beneficiaries. While I can't go into details regarding the research until publication, Both studies add to the body of research that supports the safety and the effectiveness of the MyoPro. We also filed 2 claims for devices provided to Medicare Part B beneficiaries, and we're now going through the process of having these claims reviewed for payments. To increase these chances for success, these claims are for reimbursing MyoPro as a rental and are being processed by the DB Max. The claims are being evaluated for Medicare's policy for individual consideration and may result in the payment of the claim.

Speaker 3

Or if the initial submission is denied, we file an appeal, which triggers a manual review of the patient's medical necessity criteria and their chart notes. In addition, we're in the process of identifying and evaluating 4 additional Medicare Part B patients, and we plan to submit additional claims in the coming weeks covering all 4 of Medicare's billing regions. When we have definitive information On a few of these claims, and we begin to see a pattern among the DME MACs or if there's publicly available information from CMS, we will use Just to update investors, as I stated during our last call, we expect to have some clarity on reimbursement for Part B patients by the end of June. While there's no specific time line for the actions by CMS or its billing contractors, we believe that coverage of the MyoPro for Medicare Part B beneficiaries We'll address the issue of equitable treatment of these seniors since others with Medicare Advantage, VA patients and those covered by various private payers are able to obtain a MyoPro and improve the quality of their life and their health outcomes. Now I'll turn the call over to Dave Henry, MyoPro's CFO, for a more detailed discussion of our financial results.

Speaker 3

Dave? Thank you, Paul, and good afternoon, everyone. Let me start my remarks with

Speaker 5

a review of our Q1 financial Total revenue for the Q1 of 2023 was $3,400,000 and was comprised solely of product revenue. This was down 11% from the prior year quarter, which included the $1,000,000 partial payment of the technology license fee from our joint venture partner in China. Excluding that payment, product revenue increased 20% year over year. This growth was driven by higher number of revenue units and a higher average selling price or ASP. We recognized revenue on 80 units in the quarter, which was an increase of 13% over the prior year.

Speaker 5

ASP was approximately $43,000 Up from approximately $40,000 in the Q4 of 'twenty. The direct billing channel represented 70% of revenue in the 1st quarter compared with 65% in the prior year quarter and 70% in the Q4 of 2022. We realized record international revenue in the quarter, which represented 20% of product revenue. The remaining 10% of revenue was from the VA and domestic O and P channels. Backlog, which represents insurance authorizations and orders received but not yet converted to revenue, was 176 units at quarter end, up 10% compared with the prior year quarter and up 7% sequentially.

Speaker 5

Our patient pipeline increased to 8.55 Candidates in the Q1, up 28% from the year ago quarter, which has been revised to reflect only previous payers. As Paul mentioned, a record 4 38 patients were added to our pipeline in the Q1, an increase of 54% over the prior year. The year ago pipeline additions have also been revised to reflect only previous payers. Our pipeline was more volatile than usual in the Q1 as a large number of patients exited the pipeline. Our new virtual waiting room certainly increased pipeline additions and decreased the cycle time from lead to initial evaluation, but it's unclear if this also contributed to the higher number of pipeline drives.

Speaker 5

We'll be closely monitoring this metric in the coming months. Gross margin for the Q1 of 2023 was 67% compared with 66.7% for the prior year quarter. This increase was driven by a higher ASP and lower warranty reserves. I should also note that Q1 a year ago's Gross margin was also benefited by the $1,000,000 partial license payment. Operating expenses for the Q1 of 2023 were $5,000,000 a decrease of 6% compared with the Q1 of 2022.

Speaker 5

The improvement was primarily driven by our headcount reduction in January as well as lower in advertising expenses, which decreased 33% compared with the prior year quarter. We're on pace to spend roughly $1,000,000 less on advertising in 20 Which is part of the $2,000,000 in annual operating expense savings we're expecting for the year. As a result of the improved efficiency of our marketing efforts, our cost per pipeline and ad decreased to $15.79 which is down 53% compared with the prior year quarter and down 55% sequentially. Operating loss for the Q1 of 2023 was $2,700,000 compared with an operating loss of $2,700,000 for the Q1 of 2022, which included the benefit of the partial payment of the initial technology license fee. Net loss for the Q1 of 2023 was $2,600,000 or $0.11 per share compared with a net loss of $2,800,000 or 0.41 percent per share for the Q1 of 2022.

Speaker 5

Net loss in the Q1 of 2023 includes the impact of the shares issued in our offering in January. Note that the $6,800,000 pre funded warrants issued in that offering 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 Q1 of 2023 was a negative $2,500,000 compared with a negative $2,400,000 in the Q1 of 2022, which again, also included the benefit of the partial license fee. Turning to our cash position.

Speaker 5

Cash and cash equivalents as of March 31, 2023, Cash used in operating activities was $1,800,000 for the Q1 of 2023. Looking ahead, as Paul mentioned, we received the remaining initial technology license fee of $1,700,000 in April. This announcement will be recorded as license revenue in the Q2. Pro form a for the licensee payment, we entered the second Quarter with approximately $11,000,000 in cash. As a result of this payment, we expect record second quarter total revenue.

Speaker 5

With the increase in backlog in the Q1, we're in position to grow 2nd quarter product revenues both year over year and sequentially. We continue to believe that product revenue growth for the full year of between 20% 30% is sustainable. With that financial overview, I'll turn the call back

Speaker 3

Thanks, Dave. Well, as I outlined in my recent shareholder letter, this year marks 10 consecutive years of revenue growth for Myomo. We expect another year of growth based on the size of our patient pipeline, We plan to meet growing demand with increased operational efficiency and lower cash burn. Our actions earlier this year to focus on the Highest yield candidates in the pipeline to lower the cost of growing the pipeline and to reduce our operating expenses should enable us to reach these financial goals during the course of the year. With that business and financial overview, we're now ready to take your questions.

Speaker 3

Operator?

Speaker 1

We will

Operator

now begin the question and answer session.

Speaker 3

And before we take the first question, I want to mention that we'll be participating in the AGP MedTech Conference on May 23 and 24 and the Maxim MedTech Conference on June 20 21 and we're available for virtual and in person Okay, operator, we're ready for the first question whenever you are.

Operator

Our first question comes from Ben Haynor from Alliance Global Partners. Please go ahead.

Speaker 6

Good afternoon, gentlemen. Thanks for taking the question. First off for me, can you talk a little bit more about the implementation of the virtual waiting room? And maybe if I heard you right, You think that there may be some impact to the pipeline drops? Can you kind of explain why or speculate on why that may be?

Speaker 3

So we've been implementing this new technology so that when someone sees one of our ads, whether it's on television or social media, Or they go to the website and they reach out to our call center, which is in Texas, we'll have an initial discussion with the patient, understand what their insurance, their diagnosis and then ask them if they would like to participate in a free no obligation screening right then. If they say yes, we can send them a link and then on their laptop or on their cell phone, they can immediately be We'll have an available clinician, one of our certified process orthogists, who can immediately conduct A telehealth screening. We found that, that was very convenient for patients. It's been convenient for our clinical staff as well. And avoids having to try to set up an appointment, which might be the next day, might be a week or 2 later, so people can immediately We evaluate it, consider whether or not they'd like to be a candidate for the MyoPro.

Speaker 3

We explain the process they have to go through. They have to They'll get an appointment with their doctor face to face. They have to get their chart notes, a written order and so on in order for us to move forward with insurance. So a lot of people candidates have taken advantage of this really convenient approach. So we added a lot of candidates in the pipeline.

Speaker 3

We're trying to assess Whether or not people need more time to consider the process, we have to provide them with additional information. So we're seeing the trade off of The convenience of it versus the effectiveness of having people in the pipeline. And there may be other factors that we're just not aware of. People may have Are there health issues going on? They may want to take their time in considering moving forward in the with the MyoPro, so we keep them in our database.

Speaker 5

Yes. Cycle time between lead and that initial telehealth evaluation decreased pretty substantially in the Q1. And what we're asking ourselves is whether that decrease in cycle time was really Time that a patient might use to that they were using maybe a quarter, 2 quarters, 3 quarters ago Think about really want to go forward, talk to their families, things like that, because patients always drop out.

Speaker 3

We can usually We used

Speaker 5

to be able to not get a hold of many patients after their initial contact and they ended up being pipeline drops that way. And so we wonder if we've now just sort of kind of increased pipeline assets and increased drops because patients that haven't had really the time Speak to their families before that initial telehealth evaluation.

Speaker 6

Okay. That's helpful and that all makes sense. And have you seen any difference in the mix of the patients' diagnosis that Or diagnoses that have come through with the virtual waiting room versus previously? Or is that kind of That hasn't changed

Speaker 4

yet. Yes, Ben. It's been

Speaker 3

pretty stable. The majority of the candidates who reach out to us have hemiparesis due to a stroke. So that remains our number one diagnosis. The next one would be brachial plexus injuries, that's the shoulder nerve And maybe 3rd would be style cord injuries.

Speaker 6

Okay, got it. And then lastly for me On the your discussions with the DME MAX, any additional feedback, any color that you can share on how those meetings went? I understand We're waiting for a month, 1.5 months or so for the potential category change. But on the DME MAC side, any more

Speaker 3

Well, I would say I thought we had a very good meeting. It was a number of participants From the D. B. Mac Medical Director staff, from what's called the PDAC, some of their professional staff, including Certified Process Ortheist Medical Director. We had quite a long discussion.

Speaker 3

We reviewed the research that I mentioned here We want to make sure that they understood that this which is one of the criteria is that will this device Be beneficial for Medicare age beneficiaries. And in our patient registry retrospective research that We pointed out that these patients did improve the relevant endpoints By having MyoPro, these are patients who are seniors, who have Medicare Advantage plans, so they fit in that over 65 category, which is important for The D and AD MAX in making their decision.

Speaker 1

Okay. Got it. Well, thanks for taking the questions, gentlemen, and I'll jump back in queue.

Operator

Our next question comes from Scott Henry from Roth Capital. Please go ahead.

Speaker 7

Thank you. Good afternoon. A couple of questions. I'm starting to look at the model through The new funnel of pairs with a history of making payment and I'm seeing some different trends and I'm curious if it's just noise or your thoughts. Not unexpectedly, You're seeing a higher percent of authorizations, which would make sense if it's a higher quality group.

Speaker 7

But I'm also seeing, at least in the Q1, I saw a higher assuming I'm looking at these numbers correct, But it looks like I saw a higher percent of backlog dropouts and a higher percent of lost patients Who are in the cumulative reimbursement pipeline. What are your thoughts on those numbers? And albeit very early at this point.

Speaker 5

Hi, Scott. It's Dave. How are you? Yes, you're right. The authorization rate did increase and it would be expected to increase and we'll see that How that trend continues as we move through the other quarters, we were just having a conversation with Ben about So the pipeline of why we thought that the churn in the pipeline was higher than normal in the first So that's something again that we'll probably be we'll be looking to validate ourselves in the coming months here to see if That trend continues.

Speaker 5

In terms of the backlog, we did have a higher percentage of people drop out of the backlog in the Q1. We did have a large number of people from the standpoint of their medical conditions changing, which was a reason for dropouts. We had a Few, I won't say it was that many, it's probably a handful that dropped out as a result of the change we made in the pipeline because we had a few patients In the backlog, there were more older patients in the backlog that were with payers that weren't Good payers anymore. And we decided to discontinue any efforts that More people were spending resources trying to are spending their time trying to collect. So we dropped

Speaker 3

a few of those. So those are the

Speaker 5

primary reasons for the change in the backlog. But aside from that, those handful that dropped That I would say that are directly related to our strategy to only focus on previous payers. The rest of the exchange was just really due to a higher number of people with medical Things going on medically than we've seen in prior quarters.

Speaker 7

So I guess, Dave, just to follow-up on that. It sounds like a lot of these numbers, once you get used to this new virtual rating room, Should sort of revert back to where they were before, because the patients you pick up this quarter because they went through there were shorter throughput, Well, next quarter, they're not going to fall in because it was longer throughput. It sounds like it should normalize. Is that fair? And probably all of these metrics should With the exception, I would expect authorization to be higher, but it sounds like pipeline adds should kind of be where it would be regardless over time.

Speaker 7

I mean, how do you think about those?

Speaker 5

Yes. And I mean, I think that's correct. I think it will also depend on The continued success of the lead generation, we are trying to adhere to a budget. And so we're trying not to spend more than we need to generate leads. And so that will be a constraining factor, which I think will help keep the cost per pipeline add down.

Speaker 5

The question will be this, will the number of apps continue to be where they've been? So we're kind of learning as we go with this new methodology, but we're encouraged

Speaker 3

by the results so far in Q1.

Speaker 7

Okay, great. And then, Dave, I think you said you're looking for 20% to 30% revenue growth In 2023 off of, I assume, a base pulling out the one time events last year, does that reflect any benefit from CMS or Is that more of a 2024 event?

Speaker 5

Yes. No, we're not assuming anything regarding

Speaker 7

Okay. Great. I think that should do it for me right now. Thank you for taking the questions.

Speaker 3

Sure. Thanks, Scott.

Operator

The next question comes from Jim Sidoti from Sidoti and Company. Please go ahead.

Speaker 4

Hi, good afternoon and thanks for taking the questions. So it seems like you're attacking the reimbursement issue on multiple fronts. With the DME MAX, if you are approved as a rental, do you have any sense on what The length of that rental would be or what the monthly payment would be?

Speaker 3

So typically with DME Rentals, Those are paid on a monthly basis for a total of 13 months. At the end of the 13 months, the patient Owns the device. We have to make sure that the patient continues to use the device during that period of time, And then we will bill monthly. So we don't know how much they would pay. So that's why we've submitted a couple of claims.

Speaker 3

We're going to submit a couple more To see what the results are. I will say that you under the sorry.

Speaker 4

Sorry, go ahead. Sorry. Yes.

Speaker 5

I was going to say that according to the Medicare, so their billing manual, What they do under a capital program is if you look at the sum total of 13 months of rentals compared to A lump sum payment, they do give a little bit of a bump up around 5% for rental payments Because they try to take into account the time value of money. So but what so what you might get in terms of a benefit, In terms of the 13 the patient, if they go through all through 13 months, you just have to we have to work to make sure that the patient Continues to use the device, but that's why we have our MioCare coaches and things like that that we and we have people on our staff that follow-up with patients

Speaker 4

Okay. That makes sense. Is there could there possibly be a situation where you could get approved in one region, but not in another?

Speaker 3

Yes, that can happen because there are 4 regions. These have their own medical directors, and that's why we met with all 4 medical directors We're having the same data, and we're filing claims in all four regions to see if we'll get approved in each one of those regions.

Speaker 4

And do they coordinate with regard to the reimbursement amount or could those vary from region to region as well?

Speaker 3

They could vary from region to region. I know that my understanding is that the medical directors Regularly conference with each other,

Speaker 5

but I don't know

Speaker 3

if they may make distinctions between each different region.

Speaker 4

Okay. And if you do start getting reimbursed from one of the regions, will that help you With the private payers.

Speaker 3

I think it would be a good demonstration to Private payers, especially Medicare Advantage Plans that may not be covering the MyoPro today, it says, look, Medicare Standard fee for services covering this. You're obligated to cover this as well, although we are we continue to be this is individual consideration. But we do think that having some payments under Part B coverage would be a real positive with Medicare Advantage Plans.

Speaker 4

Okay. All right. And then switching to the international sales, 20%, which is I think the highest I've Is that all from Germany?

Speaker 5

Yes. Most of this from Germany, we actually had we had We talked about the National Disability Insurance Scheme approval. That was revenue in the Q1. And we also We don't really talk about it. There was a we did a sale to another European country.

Speaker 5

It was more from a research standpoint. So Not

Speaker 3

that we're expecting to continue at least in

Speaker 5

the near term, so it's more of a well off.

Speaker 3

Yes. The bulk of the sales come from Germany. We've been expanding our Team of business development managers and clinical trainers and O and P locations that Northern MyoPro in Germany, and that's been working well.

Speaker 4

And do you think Australia could be could ramp up similar to the way Germany did or do you think So Australia would be a smaller piece of the pie.

Speaker 3

I think well, Australia is a smaller country than Germany. We don't have staff on the ground in Australia like we do in Germany. And I think that presence that we have, both business development and clinical support, It's been a big part of why the German market has grown so well.

Speaker 4

Got it. Got it. And Were you surprised at all to receive the $1,700,000 payment from the Chinese joint venture? Because I know on the last call, You seem a little hesitant regarding that one.

Speaker 5

Surprise, I don't think it's the right word. I think we were pleased. So we're glad that they're finally able to move forward. I think they just needed I believe that they needed the government just to the conditions to be right, I think, for them to start up a new business venture.

Speaker 4

Right. Okay. All right. Well, it seems like Revenue is going up, expenses are going down. So I mean, it seems like things are moving in the right direction.

Speaker 4

So hopefully those trends continue. Thanks, Jim.

Operator

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

Speaker 1

Yes. Thank you for taking my question. On the China joint venture, is there any timeline for the next process and when you would you possibly get additional revenue from the joint venture?

Speaker 3

So we are having weekly team calls of our engineering and operations team, regulatory, Clinical team with the China joint venture staff, their next steps are really to obtain NMPA approval, that's the equivalent of the Chinese FDA, to be able to market the devices there. We don't know exactly when that would happen. And the other key activity in parallel is to establish Especially the manufacturing operations and the supply chain. So we are working with them to identify the equipment they need to purchase like 3 d printers, test fixtures, assembly equipment, and then they have to order the various parts, including The motors, the electronics, the batteries and so on. So that's underway.

Speaker 3

Don't have a time frame when production will start yet because it's only been about 30 days since we've kicked off this joint venture project. Yes. The key is the key

Speaker 5

item is the NMPA approval. I don't we don't expect that they'll be getting risk manufacturing

Speaker 1

Great. And my last question is, As a reminder, where does the joint venture have their distribution rights? Is it only in China?

Speaker 3

It's China, Hong Kong, Taiwan and Macau.

Speaker 1

Great. Well, thanks for answering my question. I wish you guys good luck. Thank you.

Speaker 4

Thanks, Ed.

Operator

This concludes our question and answer session. I would like to turn the Question I'd like to turn the call back to Paul Gudonis for closing remarks. Please go ahead.

Speaker 3

Thanks, operator. Well, in closing, I just want to highlight what makes Myomo a special company. We have a large unmet market opportunity This is just these individuals with upper extremity paralysis, and there's a growing awareness among clinicians of the MyoPro's utility. We've combined the use of digital technology with a targeted marketing approach to lower the cost of providing the MyoPro to these patients. Our international sales are growing, as you heard today, helped by the recognition from payers of the use of the MyoPro to improve activities of daily living.

Speaker 3

We're making good progress with CMS. We expect to have more robust reimbursements in the U. S. In the near term, while at the same time, We developed an excellent track record of obtaining reimbursement from other health plans in the U. S, and we continue to innovate in product design and our business processes to operate more efficiently as we scale the business.

Speaker 3

Again, thanks for your continued interest in Myomo, and have a good rest of your day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now

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