Myomo, Inc. (AMEX:MYO) Q1 2023 Earnings Call Transcript May 11, 2023

Operator: Good afternoon, and welcome to the Myomo First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

Kim Golodetz: 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 three months ended March 31, 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. With me on today’s call from Myomo are Paul Gudonis, 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 my analyst 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.

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 Gudonis. Paul, please go ahead.

Paul Gudonis: 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 $3.4 million, which met our expectations of 20% year-over-year growth in MyoPro sales. 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, and we now use an online waiting room where interested patients can be screened by a telehealth by our licensed clinicians.

Compared with the first quarter 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 add is down 53% from the first quarter of 2022 and down 50% from the fourth quarter 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 are paid to the MyoPro in the past. 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 million in potential revenue as we complete the deliveries and/or received payment for these devices.

We were able to accomplish these additions to the pipeline, the insurance authorizations, and deliveries with a 12% lower headcount, which resulted in improved operational efficiencies. Our international business generated record revenues in the quarter as we continue to add O&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. The other major international development occurred in April when our China joint venture paid the remaining $1.7 million of the initial license fee.

As the COVID-19 lockdowns were lifted across China, our partners Ryzur Medical and Chinaleaf Ventures were able to move forward and launch the JV start-up activity for Jiangxi Myomo. We’ve begun the process of providing technical documentation and know-how to the JV staff and 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 million 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.

Here in the U.S., we continue to work toward our goal of securing Medicare Part B coverage for MyoPro. Ultimately, is 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 basis and we believe that this new rule when published next summer will provide CMS’s official response to our benefit category change requests. A change in the benefit category, if made, could lead to lump-sum reimbursements.

In the meantime, we moved forward as recommended by CMS staff to make the MyoPro accessible to Medicare Part B patients. Last month, we met with the medical directors and staff of the CMS billing contractors, referred collectively as the DME MACs, and we presented new clinical evidence contained in two studies submitted for publication to support the reimbursement of the MyoPro for Medicare beneficiaries. 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 two 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 the chances for success, these claims are for reimbursing MyoPros and rental and are being processed by the DME MACs. The claims are being evaluated for Medicare’s policy for individual consideration and may result in the payment of the claim or if the initial submission is denied, we file an appeal, which triggers a manning review of the patient’s medical necessity criteria and their chart notes.

In addition, we’re in the process of identifying and evaluating for additional Medicare Part B patients, and we plan to submit additional claims in the coming weeks, covering all four of Medicare’s billing regions. When we have definitive information on a few of these claims, and we begin to see a pattern along with the DME MACs or if there’s publicly available information from CMS, we will use this to update investors. And 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 timeline for the action by CMS or its billing contractors, we believe that coverage of the MyoPro for Medicare Part B beneficiaries would address the issue of actual 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, Myomo CFO, for a more detailed discussion on our financial results. Dave?

Dave Henry: Thank you, Paul, and good afternoon, everyone. Let me start on remarks a review of our first quarter financial results. Total revenue for the first quarter of 2023 was $3.4 million and was comprised solely of product revenue. This was down 11% from the prior year quarter, which included the $1 million 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 a 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. ASP was approximately $43,000, up from approximately $40,000 in the fourth quarter of 2022.The direct billing channel represented 70% of revenue in the first quarter compared with 65% in the prior year quarter and 7% in the fourth quarter 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&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. Our patient pipeline increased to 855 candidates in the first quarter, up 28% from the year ago quarter, which has been revised to reflect only previous payers. As Paul mentioned, a record 438 patients were added to our pipeline in the first quarter, 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 first quarter as a large number of patients exited the pipeline. Our new virtual waiting room certainly increased pipeline additions and decrease the cycle time from lead to initial evaluation, but it’s unclear that this also contributed to the higher number of pipeline drive. We’ll be closely monitoring this metric in the coming months. Gross margin for the first quarter 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 first quarter a year ago’s gross margin was also benefited by the $1 million partial license payment. Operating expenses for the first quarter of 2023 were $5 million, a decrease of 6% compared with the first quarter of 2022.

The improvement was primarily driven by our headcount reduction in January as well as lower advertising expenses, which decreased 33% compared with the prior year quarter. We’re on pace to spend roughly $1 million less on advertising in 2023, which is part of the $2 billion 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 ad decreased to $1,570 million, which is down 53% compared with the prior year quarter and down 55% sequentially. Operating loss for the first quarter of 2023 was $2.7 million compared with an operating loss of $2.7 million for the first quarter of 2022, which included the benefit of the partial payment of the initial technology license fee.

Net loss for the first quarter of 2023 was $2.6 million or $0.11 per share compared with a net loss of $2.8 million or $0.41 per share for the first quarter of 2022. Net loss in the first quarter of 2023 includes the impact of the shares issued in our offering in January. Note that the $6.8 million prefunded warrants issued in that offering are considered common stock equivalents under GAAP and are included in our weighted average shares outstanding. None of the prefunded warrants have been exercised as of today. Adjusted EBITDA for the first quarter of 2023 was a negative $2.5 million compared with a negative $2.4 million in the first quarter of 2022, which again also included the benefit of the partial license fee. Turning to our cash position.

Cash and cash equivalents as of March 31, 2023, were $9.3 million. Cash used in operating activities was $1.8 million for the first quarter of 2023.Looking ahead, as Paul mentioned, we received the remaining initial technology license fee of $1.7 million in April. This amount will be recorded as license revenue in the second quarter. Pro forma for the license fee payment, we ended the second quarter with approximately $11 million in cash. As a result of this payment, we expect record second quarter total revenue, with the increase in backlog in the first quarter, we’re in a position to grow second quarter product revenues both year-over-year and sequentially. We continue to believe that product revenue growth for the full year of between 20% and 30% is attainable.

With that financial overview, I’ll turn the call back to Paul.

Paul Gudonis: Thanks, Dave. While, as I outlined in my recent shareholder letter, this year marks 10 consecutive years of revenue growth from Myomo. We expect another year’s growth based on the size of our patient pipeline, and 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, the 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. So with that business and financial overview, we’re now ready to take your questions. Operator?

Operator: We will now begin the question-and-answer session. [Operator Instructions]

Paul Gudonis: And before we take the first question, I want to mention that we’ll be participating in the AGP MedTech Conference on May 23, 24, and the [Maxim] MedTech Conference on June 20 and 21, and we’re available for virtual and in-person investor meetings, so please contact LHA Investor Relations to set up a time. Okay, operator, we’re ready for the first question wherever you are.

Q&A Session

Operator: Our first question comes from Ben Haynor from Alliance Global Partners.

Operator: Our next question comes from Scott Henry from ROTH Capital.

Operator: The next question comes from Jim Sidoti from Sidoti & Company.

Operator: Our next question comes from Edward Woo from Ascendant Capital.

Operator: This concludes our question-and-answer session. I’d like to turn the call back to Paul Gudonis for closing remarks. Please go ahead.

Paul Gudonis: Thanks, operator. Well in closing, I just want to highlight what makes Myomo a special company. We have a large unmet market opportunity just to these individuals with upper extremity paralysis. And there’s a growing awareness among clinicians of the MyoPro utility. We’ve combined the use of digital technology with a targeted marketing approach, the 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 or the use of the MyoPro improved activities of daily living. We’re making good progress with CMS. We expect to have more robust reimbursement 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.

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 disconnect.