Myomo, Inc. (AMEX:MYO) Q3 2023 Earnings Call Transcript

Myomo, Inc. (AMEX:MYO) Q3 2023 Earnings Call Transcript November 7, 2023

Myomo, Inc. beats earnings expectations. Reported EPS is $-0.05753, expectations were $-0.08.

Operator: Hello, and welcome to the Myomo Third 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 second quarter 2023 conference call. Earlier this afternoon, Myomo issued a news release announcing financial results for the three and nine 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. 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 Myomo’s filings with the Securities and Exchange Commission, including the Form 10-Q for the quarter ended September 30, 2023, which is expected to be file shown 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. We have a lot of news to cover with you today, starting with our third quarter 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 third quarter financial results featuring more than $5 million 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 million in a quarter for the first time. Importantly, we are entering the fourth quarter with 1,046 qualified patients in our pipeline, and more than $11 million 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 of reimbursing for the MyoPro rather than expending a lot of effort to obtain pr-eauthorizations 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 or seniors age 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 million. 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 having the Medicare Part B rule making and the coverage completed. For a deeper dive into our third quarter, I’ll start with the top line. Year-over-year and sequential growth in product revenues is due to three factors; one, the size of the patient pipeline, which was nearly 1,000 qualified candidates at the beginning of the quarter, meaning they were covered by insurance plans that had consistently paid for MyoPro in the past; two, the number of units in our backlog, which represented approximately $7 million of potential revenue upon delivery or collection of payment from the payer; and three, 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 third quarter, which is up 20% from the year ago period. And we achieved this growth with the 27% reduction in advertising spend compared with the third quarter of 2022, and a 12% reduction in staff, engage in reimbursement activities back in January as we focused our efforts on payers with a track record of reimbursing the MyoPro. 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 as CMS issued two publications concerning the MyoPro brace for patients with muscle weakness in paralyzed arms.

On November 1st, CMS stated that was reclassifying the MyoPro in the brace benefit category as we had requested in the public meeting in June 2022 instead of the original durable medical equipment DME rental category. The 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 reimbursed for our devices effective January 1, 2024. That was good news, number one, for Medicare beneficiaries. Then on Friday, November 3rd, CMS issued the agenda for its upcoming HCPCS Public Meeting, which included the publication of proposed fees for the two MyoPro models.

The MyoPro Model W, which is the elbow-wrist orthosis coated 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 their June 2022 public hearing. These fees will be considered at 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. While we’re waiting for these decisions by CMS staff, we were 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 payments. I’m pleased to report that we’ve now had five 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 on several of these claims and importantly, all four 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. Why all this is significant for Medicare beneficiaries and the company is that Medicare Part B patients should now have access to the MyoPro based on medical necessity and any coverage guidelines that may be issued.

We plan 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 in races to suitable candidates. We commend CMS on making these braces available to seniors with 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 million of revenues in Q3. We have a growing pipeline of patients interested in MyoPro, a network of 100 O&P clinics across Germany, who can provide the MyoPro and more wins at the German social court which has rolled in favor of patients having access to a 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 market units or the Mobile Arm Rehabilitation Kits to rehab hospitals in China, which would be initially used for rehab training purposes for which the hospitals could generate revenues. In addition, first prototype market units are expected off the production line during this fourth quarter. Sales of the MyoPro individual patients will occur further down the road when the regulatory body approves the device for home use we just don’t know the timing of such approval at this stage. 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, while growing the business and working toward Medicare coverage of the MyoPro. Year-to-date, our cash used in operations is $3.8 million less than half the burn compared to the cash used in operations of $7.8 million for the same period in 2022. I’ll now turn the call over to Dave Henry, Myomo’s CFO to review our third quarter financial results. Dave?

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Dave Henry: Thank you, Paul, and good afternoon, everyone. Turning now to our third quarter financial results. Total revenue for the first quarter of 2023 was $5.1 million. 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 was 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. 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 few units which was aided by the addition of two 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 third 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 69% of revenue in the third quarter compared with 77% in the prior year quarter. International revenue represented 20% of product revenue in the second quarter. The remaining 11% of revenue was from the VA and domestic O&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 third quarter 2023 was 185 units, which is up 1% from our backlog at the end of third quarter 2022.

This backlog includes five patients for whom we are receiving rental payments from the DME MACs. We received 156 authorizations and orders for MyoPros in the third quarter, an increase of 20% compared with the prior year quarter. Our patient pipeline increased to 1,046 candidates as of September 30, 2023, up 28% from the year ago quarter, which has been revised to reflect only known payers. 381 patients were added to our pipeline during the third quarter, an increase of 22% over the prior year. The year ago pipeline additions have also been revised to reflect only known payers. Note that, the pipeline does not include Medicare Part B patients, which we’re tracking separately for now, we made progress growing the Medicare Part B pipeline in the third quarter.

Gross margin for the third quarter 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 third quarter of 2023 were $5.5 million, an increase of 1% compared with the third quarter of 2022. This modest increase was driven primarily by higher incentive compensation accrual, offset by lower advertising expenses, which decreased 27% compared with the prior year quarter. We’re on pace to spend roughly $1 million less on advertising in 2023 than we did in 2022. Our cost per pipeline ad was $2,159 and which is down 36% compared with the prior year quarter. Operating loss for the third quarter of 2023 was $2 million compared with an operating loss of $2.8 million for the third quarter of 2022 Net loss for the third quarter of 2023 was also $2 million or $0.06 per share.

This compares with a net loss of $2.8 million or $0.40 per share for the third quarter of 2022. Note that, the $8.7 million prefunded warrants issued in our January and August 2023 offerings 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 third quarter of 2023 was a negative $1.7 million compared with a negative $2.5 million for the third quarter of 2022. To summarize our year-to-date results. Revenue for the 9 months ended September 30, 2023,was $14.5 up 26% over the same period a year ago, while year-to-date product revenue of $12.8 million 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 nine months ended September 30th was 65.5%. Operating expenses for the first nine months of 2023 were $15.9 million, a decrease of 1% compared with the same period a year ago. Operating loss for the first nine months of 2023 was $5.8 million compared with an operating loss of $8.4 million for the same period a year ago. Net loss for the first nine months of 2023 was $5.7 million, or $0.21 per share compared with a net loss of $8.6 million or $1.24 per share for the same period a year ago. Adjusted EBITDA was a negative $4.9 million for the first nine months of 2023 compared with a negative $7.4 million for the year ago period. Turning to our cash position, cash, cash equivalents and short-term investments as of September 30, 2023, were $11.1 million.

Cash used in operating activities was $1.7 million for the third quarter of 2023 compared with $2.8 million for the prior year quarter. Looking ahead, our backlog is up modestly on both a sequential and year-over-year basis. Assuming a typical quarter where fills in the range of 30% to 35% of revenue units, we believe we are positioned to deliver year-over-year revenue growth in the fourth quarter and full year product revenue growth consistent with the growth through the first nine 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.

Paul Gudonis: 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 Medicare Part B patients to our pipeline in the fourth quarter, so that we’re ready to serve this population after the new brace category rule and the fees go into effect. With that overview, we’re now ready to take your questions. Operator?

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

Paul Gudonis: 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 a time. We’ll also keep you informed of developments at CMS and 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.

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Q&A Session

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

Scott Henry: Thank you. Good afternoon, and congratulations. Some very well-deserved progress on the reimbursement front, so great job. A 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, 40,000 ASP. So that 62 kind of looks higher, is that just a blend? Or how do we think about that 62 in there?

Paul Gudonis: Yeah. Well, CMS has its own methodology for calculating fees for new medical devices, and 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, is 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 what we presented at the June 2022 public meeting.

Scott Henry: Okay. So it sounds like it’s within your expectations and you’re probably pleased with the levels there. Is that correct?

Paul Gudonis: Yes. It’s — again, it’s consistent with what we have presented. And is very workable to enable access for these Part B beneficiaries.

Scott Henry: 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.

Paul Gudonis: Yes. Well, the — go ahead Dave.

Dave Henry: As I say, no, Germany has always been included in the pipeline. I think the — over the last couple of quarters, we’ve seen the drop rate in the pipeline decreased a bit, and I think that’s helped grow the overall pipeline because the ads have been in that $380 million to $400 million range this year 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 — or seeing fewer patients are right now dropping out?

Scott Henry: Okay. Great. Final question. $5 million 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, $7 million in a quarter? Do you think that gets you pretty close to breakeven? It seems like we’re starting to get into that ballpark. I appreciate any color on that. Thank you.

Paul Gudonis: 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. And so by the time we get to our third quarter — or first quarter, I should say, fourth quarter conference call in March of 2024, and we might have a better idea and might be able to provide some more color on that.

Scott Henry: Okay. Fair enough. Thank you for taking the questions.

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

Anthony Vendetti: Thank you. Thanks, Paul and Dave. 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 01/01/24?