Myomo, Inc. (AMEX:MYO) Q4 2022 Earnings Call Transcript

Myomo, Inc. (AMEX:MYO) Q4 2022 Earnings Call Transcript March 13, 2023

Operator: Good morning, and welcome to the Myomo, Inc. Fourth Quarter and Full Year 2022 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 that this event is being recorded. I’d now like to turn the conference over to Kim Golodetz. Please go ahead.

Kim Golodetz: Thank you, operator, and good morning, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo fourth quarter 2022 conference call. Earlier today Myomo issued a news release announcing financial results for the three months and year ended December 31, 2022. If you would like to be added to the company’s email distribution list to receive future announcements, please register on the company’s website at myomo.com or call LHA in New York at 212-838-3777 and speak with (ph). 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 year ended December 31, 2022 which is expected to be filed today 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 is now my pleasure to turn the call over to Myomo’s CEO, Paul Gudonis. Paul, please go ahead.

Paul Gudonis: Thanks Kim, and good morning, everyone and thanks for joining us. I’ll start my remarks with a brief review of our fourth quarter results, then discuss how the changes we implemented over the past year have had a positive impact on the business, followed by a look forward to the opportunities in 2023. Revenues in Q4 2022 were $4 million, which is in line with our expectations. And during the quarter, we added nearly 400 new MyoPro candidates to the pipeline, a 75% increase compared with the fourth quarter of 2021 despite marketing competition from the elections and the holidays. We ended the year with a record number of patients in the pipeline over 1,150 who are interested in obtaining MyoPro and who have cleared our medical screening, meaning, they are appropriate candidates for the device.

Early in 2022, we shifted some of our advertising dollars from social media to television for the first time. I’m pleased to report that this approach to educating patients and their families about the MyoPro is working. Our call center in Texas is processing these inquiries and our cost per pipeline add has gone down by about 50% from its peak back in 2021. Product revenues for 2022 grew by 5%, which reflected the size of the pipeline going into the year. As we stated in previous calls, the pipeline is a good leading indicator of future revenue. We had challenges growing the pipeline back in 2021 due to Apple’s privacy changes and experienced increased cost of marketing as the pandemic was waning and more consumer oriented companies restarted advertising in social media.

Our overall pipeline was up 43% at the end of 2022, reflecting this new media mix. And at the end of the year, we completed a comprehensive review of our MyoPro insurance reimbursement and we made the decision only to serve patients who had health insurance plans with a history of covering the cost of the MyoPro. As you may recall, we had put in the effort to win MyoPro cases with new payers and while we had some success, the resources to do so justified the results of revenue created from those efforts. So in January of this year, we reduced our workforce related to these reimbursement activities and have since focused on patient cases with payers who have recognized the value of the MyoPro for their beneficiaries. We also adjusted our patient pipeline and informed several hundred candidates that we are not going to pursue reimbursement for them at this time, that brought down the pipeline to 794 candidates with good insurance as of December 31, 2022.

In 2022, we generated authorizations and orders for approximately 10% to 15% of the patients in our starting pipeline in any given quarter. Assuming the reimbursement landscape does not change materially, we expect a higher authorization rate in 2023. When we compare the quality of the pipeline at this time with the payer mix a year ago our adjusted pipeline is actually up 50% year over year. As a result of the increased number of high caliber patients in the pipeline, we expect to grow product revenues at a greater rate than we achieved in 2022 and to do so with little growth in headcount or operating expenses. We are continuing to serve patients with certain Medicare Advantage plans, which represents a large portion of our patient population.

And the good news here is that, more seniors are opting for Medicare Advantage plans over traditional Medicare. In fact, it’s now increased to 50% of all Medicare eligible beneficiaries. And patients with Medicare Advantage plans represented 60% of our product revenues in 2022. Over the past year, we made good progress with our efforts to obtain coverage for traditional Medicare Part B patients. Back in June, we presented our case for coverage of the MyoPro as a brace at the CMS public hearing. At the end of the fall, we are advised to meet with the DME MAC medical directors and submit MyoPro claims for payments under the individual consideration rules in our HCPCS codes. We expect to meet with the DME MAC medical directors in the near future to review the newest research on patient success with the MyoPro, including Medicare age beneficiaries since this is an important consideration for CMS.

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Within a few months, we should understand whether Medicare Part B patients will be eligible for MyoPro under the current coding guidelines. On a parallel path, CMS announced that it is undertaking a new rulemaking process for the brace benefit category, including newer technologies, which we see as a very good sign that CMS recognizes the value that power braces like the MyoPro can offer to paralyze individuals. Importantly, although we removed patients from our pipeline who didn’t have reliable insurance coverage, these patients and those with Medicare Part B coverage may be in a better position to receive a MyoPro, should CMS start paying the claims that we submit and achieve the goal of more equitable access of the MyoPro by seniors who have Medicare Part B insurance.

On the international front, we’ve made significant reimbursement progress. The German Social Court has ruled that the MyoPro is reasonable and necessary for patients covered by statutory health insurance companies. And further in Australia, a patient won the first approval of the MyoPro by the National Disability Insurance Scheme, which opens the door to future MyoPro deliveries in that country. As to our joint venture in China, there’s been little progress. COVID has had a severe impact on the country since restrictions were lifted in the fall and we’re in touch with our partner to determine when operations can get started there. And we’ll keep you posted on this situation as things move forward. Now, I’ll turn the call over to Dave Henry, Myomo’s CFO for a more detailed discussion of our financial results and an update on our banking relationships, including Silicon Valley Bank.

Dave?

Dave Henry: Thank you, Paul, and good morning, everyone. Let me start with my marks with a review of our fourth quarter financial results. Revenue for the fourth quarter of 2022, which was comprised solely of product revenue, was $4 million, this was up slightly from the prior year quarter and was up 2% over the third quarter of 2022. The sequential growth was driven by a higher number of revenue units, offset by a lower average selling price for ASP as a percentage of revenue from direct billings decreased to 73% in the fourth quarter compared with 77% in the third quarter. This was due in part to record VA channel revenues, which comprised 11% of revenue in the fourth quarter. Recall that we anticipated this channels shift during our third quarter call.

We recognized revenue on 101 MyoPro units in the fourth quarter of 2022, down 6% from the same period a year ago, but up from 87 units in the third quarter. The record VA revenue resulted in a sequential 12% decline in ASP to approximately $40,000 in the fourth quarter. International sales were 11% of revenue in the quarter with the remainder from the U.S. O&P channel. Backlog, which represents insurance authorizations and orders received, but not yet converted to revenue, was 164 units at quarter end, up 6% compared with 154 units at the end of 2021. Gross margin for the fourth quarter of 2022 was 65% compared with 77.4% for the fourth quarter of 2021. The decrease was driven by higher product costs due to continuing inflationary pressures, partially offset by a higher ASP.

Operating expenses for the fourth quarter of 2022 were $4.9 million, a decrease of 17% compared with the fourth quarter of 2021, driven primarily by lower product development expenses, incentive compensation and advertising costs. Advertising cost of $1 million decreased 3% over the fourth quarter of 2021 and were consistent with the third quarter. Our cost per pipeline adds increased sequentially to $2,665 in the fourth quarter, but was down 45% compared with the fourth quarter of 2021 as the number of pipeline adds was up 75% year over year. Recall that we expected a lower sequential number of pipeline adds in the fourth quarter. The number of pipeline adds did decrease 8% sequentially to 387 in the fourth quarter, but we’re very pleased with our results versus the prior year.

As Paul mentioned, now we resized our pipeline at the beginning of 2023 to focus only on patients with insurers that have reimbursed for the MyoPro in the past. Out of the 387 pipeline additions in total, 294 patients represented pipeline additions from known payers in the fourth quarter of 2022. This compares to an adjusted number of 160 in the fourth quarter of 2021, an increase of 84% Restated for that re-sized pipeline, cost per pipeline add in the fourth quarter of 2022 was approximately $3,500, compared with approximately 6,600 in the fourth quarter of 2021. Operating loss for the fourth quarter of 2022 was $2.2 million, this has improved from an operating loss of $2.7 million for the fourth quarter of 2021 and an operating loss of $2.8 million for the third quarter of 2022.

Net loss attributable to common stockholders for the fourth quarter of 2022 was $2.2 million or $0.29 per share, compared with net loss attributable to common stockholders of $3.4 million or $0.52 per share for the fourth quarter of 2021. Net loss available to common stockholders for the 2021 fourth quarter and full year includes a deemed dividend on the discounting and repricing of certain warrants about $600,000. Adjusted EBITDA for the fourth quarter of 2022 was a negative $1.9 million compared with a negative $2.4 million for the fourth quarter of 2021. Looking at our full year financial results, revenue for 2022 was $15.6 million, up 12% compared with 2021. Excluding license revenue of $1 million in 2022, product revenue of $14.6 million increased 5% compared with 2021.

Gross margin in 2022 was $65.9% compared with 74.4% in 2021. As I mentioned earlier, inflationary cost increases impacted our 2022 gross margin. Operating expenses in 2022 were $20.9 million an increase of 2% compared with 2021. Operating loss for 2022 was $10.7 million compared with an operating loss of $10.3 million in 2021. Net loss attributable to common stockholders for 2022 was $10.7 million or $1.52 per share compared with a net loss attributable to common stockholders of $11 million or $1.89 per share for 2021. Adjusted EBITDA was negative $9.3 million for 2022 compared with a negative $9 million for 2021. Turning briefly to our balance sheet, cash and cash equivalents as of December 31, 2022 were $5.3 million. Cash used in operating activities was $2.5 million for the fourth quarter of 2022 and was $10.2 million for the full year 2022.

In January 2023, we completed an equity offering for an aggregate of 20 million shares of common stock and prefunded warrants. Net proceeds from the offering were approximately $5.7 million. Pro forma for the offering, we entered 2023 with approximately $11 million in cash. Our objective is to make this cash last as long as possible to allow CMS and the DME (ph) time to provide some clarity on coverage and reimbursement as that is the major growth catalyst for the company. We’re executing on our plans to reduce the burn rate including the reduction in force we completed in January. That action combined with other planned actions is expected to reduce 2023 expenses by $2 million compared with 2022. Finally, the FDIC closed Silicon Valley Bank on March 10, 2023.

Our commercial banking was conducted through Silicon Valley Bank. Last night, the FDIC announced that all depositors have access to all of their funds today. We are working expeditiously to open new bank accounts. We’d like to thank the banks we’ve been in contact with for moving so quickly to get new accounts established. Looking ahead, given our backlog entering the first quarter and our progress quarter to date, we’re on track to grow product revenue between 15% and 20% compared with the first quarter of 2022. So total revenue is expected to be lower due to the partial payment of the China JV license fee last year. With the growth in the 2022 — with the growth in the patient pipeline in 2022, we believe that 2023 product revenue growth of between 20% and 30% is attainable.

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

Paul Gudonis: Thanks, Dave. As you may have heard, our key themes for this year are increased operational efficiency and lower cash burn. I’ve described how we fine-tuned our marketing strategy to generate a record number of candidates in our patient pipeline. We’ve done so at a lower cost per candidate. We’re concentrating on the highest yield patients with the right insurance coverage and we expect to have a year of record revenues while we’re able to reduce our headcount at the beginning of the year. These actions in total should enable us to reduce our cash utilization as these efficiencies kick in. 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.

Paul Gudonis: And before we take the first question, I want to mention that Dave Henry is representing Myomo at the 35th Annual ROTH Conference, which started today. In addition, both of us are available for virtual and in-person investor meeting, so please contact LHA Investor Relations to set up a time. Hey, operator, we’re ready for the first question.

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Q&A Session

Operator: Our first question will come from Jim Sidoti with Sidoti & Co. You may now go ahead.

Jim Sidoti: Hi, good morning. Thank you for taking the questions. First one on revenue. It seems like the key catalysts for revenue will get — will be getting some clarity from CMS. What things could CMS do that would really help drive your revenue?

Paul Gudonis: Well, that’s do is, right now start paying on claims, we’re going to be filing a few claims here and meet with the DME MAC medical directors to justify their payment under an individual consideration and that will enable us to then start serving other medically qualified Part B patients. And then if we can get a correct coding guideline published and from CMS putting us into the brace category with a lump sum payments being issued then it creates clarity for patients that they can get access to this and plus it reopens the O&P channel for us because then they’ll be confident in providing the MyoPro to their patients knowing that they can get reimbursed for medically qualified patients that meet the criteria from Part B Medicare?

Jim Sidoti: Okay. So it sounds like you could begin right away to file claims on CMS for the first part. As far as the coding guidelines go, I think I heard you say that, should happen in the next few months. Do you have any meeting scheduled with them prior to that?

Paul Gudonis: So we’ve asked for meeting with the DME MAC medical directors And so, we’re planning to have that hopefully within the next month or so. As far as timing on any correct coding guidelines, that’s entirely up to them. So, Jim, I really can’t forecast when they might do so or if they would do so.

Jim Sidoti: Got it. And then on the expense side, it looks like both R&D and SG&A came down in the fourth quarter. And then assuming as a result of your cost cutting initiatives that you’ve implemented, should we see that trend continue? Should we see those to expense wise continue to come down in Q1 of 2023?

Dave Henry: Yes. Fourth quarter was a bit unusual in terms of the level of operating expenses that were in the — the incentive compensation was lower, the bonus payouts for the company, for the company’s employees are going to be down this year because of revenues and the operating results were where we wanted them to be. So we reversed some bonus accrual in the fourth quarter as a result of that. We also had a shutdown for all non-essential employees at the end of the year that reduced the vacation liability, which also benefited the operating expenses. So some of those things aren’t going to recur as we move into the first quarter. So I would expect that a more realistic annualized rate is probably between $5 million to $5.5 million a quarter, somewhere in that ballpark with the expenses.

Jim Sidoti: Got it. And then just to confirm, share count as a result of the offering around 27.5 million. Is that a good number for 2023?

Dave Henry: Yes. Of the — it’s about — right now as of the beginning of March or when we filed the 10-K, is about 20.7 million or 20.9 million shares, somewhere in that ballpark. There were 13.2 million shares issued of comment in the offering, but 6.8 million pre funded warrants. So the prefunded warrants as of now, they have none of them have exercised yet. So the common shares outstanding were about 20 point — actually 20.9 million or so with — on a fully diluted basis, including pre funded warrants add 6.8 million to those.

Jim Sidoti: Got it. All right. Thank you.

Operator: Our next question will come from Edward Woo with Ascendiant Capital. You may now go ahead.

Edward Woo: Thanks for taking my question. I just want to have a clarifying question. Do you say that revenues — product revenues this quarter will be 15% to 20% higher? But for the year will be 20% to 30% higher?

Dave Henry: That’s correct. I remember first quarter a year ago had $1 million of license revenue. So when we say the 10% to 15% higher, we’re referring to the product revenue. Product revenue last year was about, I want to say, $2.8 million $2.9 million, and so we would be — the increase would apply to that number, not the full quarter revenue, that includes the license fee.

Edward Woo: Great. And then my next question would be on — you mentioned that gross margins were impacted by inflation and higher product costs this year. Are you still seeing the same inflation impacting this year? And are you able to raise your prices to be able to protect your margin?

Dave Henry: Yes. I think the comparables on gross margin should improve in 2023. But the cost pressures haven’t abated, I would say, but they haven’t — they don’t continue to increase at the rate that they did in 2022. And we actually have — we have raised prices where we can. Remember, insurers, we can — we can raise our usual and customary fee of insurers, but they’re only going to pay what they pay. And we’re trying to — we’re looking at that where we can for some of the non-insurance payers in the other channels to see what we can do to try to increase prices. So yes, actions like that are already in progress.

Edward Woo: Great. Thanks for answering my questions and I wish you guys good luck. Thank you.

Dave Henry: All right. Thank you.

Paul Gudonis: Thanks, Ed.

Operator: Our next question will come from Ben Haynor with Alliance Global Partners. You may now go ahead.