Myomo Inc (MYO) 2020 Q4 法說會逐字稿

Good day, and welcome to the Myomo, Inc. Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kim Golodetz. Please go ahead.

Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo Fourth Quarter and Full Year 2020 Financial Results conference call. Earlier today, Myomo issued a news release announcing financial results for the 3 months and 12 months ended December 31, 2020. 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 in New York 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, including the impact of the ongoing COVID-19 pandemic.

These and additional risks, uncertainties and other factors are discussed in the risk factors and other qualifications contained in Myomo's filings with the Securities and Exchange Commission including the Form 10-K for the year ended December 31, 2020, which was filed earlier this afternoon.

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 Paul Gudonis, CEO of Myomo. Paul, please go ahead.

Thank you, Kim. Good afternoon, everyone, and thank you for joining us today. After I provide a business update, Dave will review our fourth quarter and full year financial results and discuss our financial outlook. And following the financial update, I'll give some closing remarks, and then we'll take your questions.

But first, let me once again express my hope that you, your families and colleagues are continuing to take the necessary precautions for health and safety and that you've all remained well as we enter the second year of the COVID-19 pandemic.

When the pandemic began, we certainly had no way of knowing how long it will last or how quickly economies in various states and geographies would open back up. With a view towards preparing for the worst, but hoping for the best, I am so proud of the Myomo team and our O&P channel partners in the way that we navigated through what we all hope was the worst of it.

During the year, we adjusted our operations, particularly in the use of telehealth and online marketing that supported the continuing growth of Myomo during the year. This digital transformation will have a lasting positive impact on the business and our ability to grow revenues at a much faster rate than operating expenses as more of our patient-facing work is now being done online.

As states have opened up, we've worked in a diligent and careful manner to bring our powered arm braces to patients and make a mark to involve improvements in their quality of life.

Due to the success of our social media and advertising and increased recognition of the MyoPro by health care providers, we achieved record revenue in the fourth quarter and the year.

In fact, our fourth quarter revenue matched the revenue for all of 2019, an impressive achievement, even without the effects of a global pandemic. Record revenue for the fourth quarter of 2020 was $3.8 million, up 149% over the fourth quarter of 2019 and reflected a record level of MyoPro deliveries and payments.

Our strong performance throughout 2020 resulted from 2 shifts in our business strategy that began 18 months ago and were fully implemented during the past year, namely the direct billing channel and direct-to-patient marketing. Direct billing revenues increased approximately 4x year-over-year in the quarter and represented 77% of Q4 total revenue.

In addition, approximately 90% of those entering the domestic pipeline during the fourth quarter were direct bill candidates. Note that at the start of the year, direct billing revenue was just 20% of our total revenue. With the shift to direct billing, our average selling price or revenue per unit has increased significantly, while we also continue to sell our products on a wholesale basis to O&P providers for their patients. Our gross margin has also improved with the emphasis on the direct billing approach compared with other channels, as Dave Henry will describe in a moment.

Given that the vast majority of candidates are now in our direct billing channel, it's clear that this strategic shift was a success. The remainder of our revenue came primarily from our U.S. O&P channel partners, the VA and European O&P providers.

We also increased the size of our backlog over the course of the year, which is defined as MyoPro that have been authorized by payers but are either in the process of being delivered to users or are awaiting payment to us.

As Dave will explain, our backlog decreased sequentially to 131 units due to a record number of revenue units in the fourth quarter and the favorable accounting treatment of MyoPros authorized by certain payers that are revenue upon delivery due to a history of payments.

We continue to add over 200-patient candidates into the insurance pipeline during the fourth quarter, slightly fewer than in the previous quarter. We believe this was due to a combination of factors, including reduced lead generation in the latter half of 2020 and possible changes in consumer behavior due to the economic uncertainty associated with the pandemic.

Our social media advertising was also competing with political advertising in the fall raising the cost of individual ads. Controlling advertising costs spent fewer leads and additions to the pipeline were generated which will result in fewer insurance authorizations in the short term. However, I'm very pleased to see that our leads and pipeline growth is on the upswing so far in 2021 with over 300 candidates added since the beginning of the year. So the first quarter will be a record quarter for pipeline additions. It will just take several months for these candidates to work their way through the insurance process to an authorization.

While our direct billing channel is certainly helpful in supporting the growth in revenues and margins, this would not have been possible without the use of direct-to-patient marketing. These marketing efforts are aligned with the growing trend in health care for patients and their families to seek medical information online in order to augment the recommendations that they might receive from their physicians and therapists.

Our own online activities are now being augmented by MyoPro users who are posting videos of themselves in various social media sites, helping to spread the message at no cost to Myomo. For example, Sarah, who lost the use of her right arm due to an accident by hit-and-run driver posted videos of herself on TikTok, showing how she can use both arms, to go shopping, prepare meals and even play the electric guitar. Her videos have been viewed more than 700,000 times so far. And she's just one of a growing number of influencers who want others to know about how the MyoPro has had a positive impact on their lives.

We also made progress toward our goal becoming the worldwide standard of care for upper extremity paralysis by growing our business in Europe, especially in Germany, which is the largest MyoPro market in the region. Last month, we announced that additional statutory health insurers have approved reimbursement of the MyoPro on a case-by-case basis. So now we have the foundation for reimbursement in Germany that covers approximately 40% of the population.

And after several years of meeting with potential partners for the China market, we recently announced our agreement to enter into a joint venture in a technology licensing agreement with Ryzur Medical, a provider of medical devices and rehab hospital services in China. When we receive all the necessary government approvals, which we expect later this year, the Chinese partners will fund the JV's operation to locally manufacture, distribute the MyoPro and Myomo will receive a 19.9% equity interest in the venture. We'll also receive an upfront license fee and annual license payments over the next 10 years after the venture is established.

At this time, I'll turn the call over to Dave Henry, our CFO, who will go over the financial results in more detail, and then I'll come back and provide some additional updates for you and our plans for the year ahead.

Thank you, Paul. Turning now to our fourth quarter and full year 2020 financial results. Revenue for the fourth quarter of 2020 was $3.8 million, which was up 149% over the prior year's fourth quarter, and as Paul indicated, was a quarterly record. A higher average selling price, along with the sale of a record number of MyoPro units reflected success with our direct billing channel and our marketing efforts.

More specifically, we recognized revenue on 97 MyoPro units in the fourth quarter of 2020, an increase of 126% compared with the fourth quarter of 2019. This includes 13 direct billing units, representing approximately $400,000 of revenue that were pulled into the fourth quarter from 2021 due to having sufficient collection history with certain insurers to enable us to recognize revenue upon delivery.

Our backlog of units, which represents insurance authorizations received, but not yet converted to revenue was 131 units as of December 31, 2020. Approximately 44% of the September 30, 2020, beginning unit backlog was converted into revenue during the fourth quarter. Backlog was lower in part due to the pull-in of revenue I just mentioned. The decrease was also driven by a sequential decrease in authorizations and orders in the fourth quarter. We received 86 insurance authorizations and orders in the fourth quarter compared to 98 in the prior quarter. In addition, 20 candidates dropped from the backlog in the fourth quarter.

Gross margin for the fourth quarter was 73%, up from 72% in the fourth quarter of 2019 and up from 56% in the third quarter of 2020. The increase primarily reflects the higher average selling price. There was a small negative impact on gross margin as we delivered 101 units to patients, which became cost of revenues in the fourth quarter compared with 97 revenue units.

Operating expenses for the fourth quarter of 2020 were $4.5 million. This is a 22% increase compared with the same quarter a year ago and primarily reflects higher incentive compensation accruals and advertising costs.

Operating loss for the fourth quarter of 2020 decreased to $1.7 million from $2.6 million in the fourth quarter of 2019.

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It was $1.7 million or $0.37 per share, and this compares with a net loss of $2.8 million or $4.81 per share for the same period of 2019. Adjusted EBITDA for the fourth quarter of 2020 was a negative $1.5 million, and this compares with a negative $2.4 million for the fourth quarter of 2019.

Cash and cash equivalents as of December 31, 2020 were $12.2 million. Cash used by operations was $1.2 million in the fourth quarter. This was the lowest cash utilization level since the company's IPO in 2017, which was prior to the investments we made to scale the business. We do expect cash used by operations to increase in the first quarter to the lower anticipated revenue and the payment of a deposit for inventory to one of our contract manufacturing partners to support planned MyoPro unit volumes in 2021.

We expect 2021 cash flow to follow a similar pattern as 2020, with higher cash used by operations in the first half of the year and lower utilization in the second half, with a goal to reduce cash used by operations for the full year 2021 compared with 2020.

With that, I'll briefly recap our full year 2020 financial results. Revenue for the year ended December 31, 2020, was $7.6 million, up 98% over 2019 despite the impact of COVID-19 throughout most of the year. Higher average selling prices, driven by the increase in direct billing revenues, helped to increase gross margins of 66% in 2020 compared to 63% in 2019.

Operating expenses for 2020 were $15.5 million, an increase of 17% over 2019, primarily due to higher payroll costs, including higher incentive compensation accruals as well as higher advertising and insurance costs.

The operating and net losses for 2020 were $10.5 million and $11.6 million, respectively. Net loss in 2020 included a charge of $700,000 related to the partial extinguishment of the company's convertible note. Adjusted EBITDA for 2020 was a negative $9.8 million compared with a negative $9.8 million for 2019.

Turning to our business outlook. We expect revenue in the first quarter of 2021 to be higher year-over-year, but lower sequentially. This reflects the usual seasonality in our business as well as the pull in of revenue into the fourth quarter of 2020 as a result of the acceleration of direct billing revenue for certain insurers where we have completed delivery and have sufficient history to assume collectibility.

We expect a sequential decrease in authorizations and orders in the first quarter, which is expected to result in a sequentially lower backlog at the end of the first quarter. This expected decrease in authorizations is due to a combination of factors that Paul previously mentioned.

As Paul also mentioned, pipeline ads are approaching 300 so far in the first quarter. It's worth noting that it's going to take some time for the higher ads to the pipeline to work their way through and become backlog.

With more than $7 million in proceeds received from the exercise of warrants so far in the first quarter of 2021, we believe we have sufficient cash to fund operations well into 2022. Barring any reimposition of travel restrictions and public health lockdowns, we are positioned for a strong 2021.

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

Thanks, Dave. As we look forward to the rest of 2021, we plan to increase our efforts to obtain what we believe is appropriate reimbursement for the MyoPro so that more patients have access to our devices. As you may recall, back in January of 2019, the Centers for Medicare and Medicaid Services, or CMS, established 2 new billing codes for the MyoPro and certain Medicare Advantage Plans began paying for the device on a case-by-case basis.

While these Medicare Advantage Plans cover about 35% of seniors, the larger portion of Medicare beneficiaries are covered under Part B, where the MyoPro is coded as durable medical equipment rental. Because the MyoPro is custom fabricated for each patient and is designed for long-term use, we continue to seek a correction in the benefit category and we recently applied for such a change with the submission of a code amendment for consideration this year.

However, there's no guarantee that CMS will issue a coverage policy or an acceptable payment amount for the MyoPro, in which case, we will continue to address the large population of paralyzed individuals covered by other plans.

Also a year ago, we have begun testing our new MyoPal device, which is designed for the pediatric market. We had to put that work on hold. As vaccinations become more widespread and parents are comfortable with our clinicians meeting with their children, we plan to restart the testing and final design work on this product later this year.

This concludes the formal part of our presentation, operator. And so we're ready to open the call to questions.

(Operator Instructions)

Before we take the first question, I want to mention that we are available for virtual investor meetings during this time of limited travel. So please contact LHA Investor Relations to set up a time. Their contact information is on today's news release.

We will also be participating in several upcoming virtual conferences next week including the Virtual 33rd Annual ROTH Conference with one-on-one meetings being held March 15 through 17 and the Maxim Group Emerging Grilled Virtual Conference being held March 17 and 18, with one-on-one meetings scheduled after the event. If you'd like to meet with us during any of these conferences, please contact your representative at the sponsoring investment bank.

Okay. Operator, we are ready now for the first question.

Our first question comes from Scott Henry with ROTH Capital.

Congratulations. You almost topped your biggest year in 1 quarter alone. So what I wanted to dig into was the new pipeline ads because that's the top of the funnel, and it's important to the long-term trend. And it sounds like Q4 was a little low, but then Q1, could be 400. So the question is, why do you think such a discrepancy between Q4 and Q1? And where do you think the true number is there?

Yes. Scott, thank you for the question, and I'll address that. While our advertising leads, we saw a slowdown with the economic situation. I think a lot of patient candidates were a bit uncertain about whether or not they wanted to proceed, maybe they were concerned about a job or a spouse's job or health insurance. I think the election took a lot of mindshare of people. And then we ran into the holidays, which tends to be a slowdown as well. However, during that period, especially after the election, we ramped up our advertising budget and spend and that resulted in a much larger number of leads starting in December and then continuing on in January and February.

And then we also expanded our call center staff down in Texas. And so we were able to reach more patients. Our clinical team has been conducting more evaluations. And so our trajectory is definitely on the upswing, and we will have a record quarter of new patient adds here in the first quarter.

Okay. That's great. I appreciate the color. Just one international question. In Germany, how large is that opportunity? And when do you think you could see revenue?

Well we're already seeing some revenue out of Germany. We've already booked more orders here in the first quarter from Germany. So we expect good year-over-year growth in Germany. It's taken a while to get statutory health insurance to approve this, but we've been working with the local O&P partners who are in network, they know the local regulations, the language. So they've been successful in getting this forward movement with the SHI payers. So that's really set the foundation for easier reimbursement going forward.

We've now got a German version of our website up and running. We started doing some test marketing on Facebook, social media there in Germany. So with that, I expect we're going to keep building the pipeline, and we should have good year-over-year revenue growth in Germany.

The other markets in Europe are just starting to open up again. But Germany has done the best. And also, they tend to like high-tech products like this. So we think we'll do our best international growth in the short term right there in Germany.

Okay. Great. And I'll just ask one final question. Gross margins were very strong in the quarter. When we model our gross margins, is that mostly a function of just the volume you did that quarter or are there any underlying trends that are perhaps more favorable that I should factor it?

Yes, Scott. Yes, contribution margin, we don't have -- the only fixed costs we really have are like our maybe our quality and fulfillment organizations. Other than that, it's all variable cost. So the contribution margin is in the range, and we've said it's around 70% to 75%. What happened in fourth quarter is that in prior quarters, certainly, in third quarter, we -- there was a large gap between the number of units we delivered and the number of units that we actually took revenue on. That gap closed in the fourth quarter due in part to the -- to the pull-in of revenue from the -- that we were able to do because we've got enough payment history now on some of these insurers. So that helped sort of close that gap and get our -- the gap between deliveries and revenue units had allowed us to be able to realize the gross margin that was in the range of our contribution margin that we've been saying.

Our next question comes from Kyle Bauser with Colliers Securities.

Really nice results here. I'm curious on the digital marketing efforts. If you have any updated estimates for the cost of patient acquisition or the cost per click?

We're finance -- go ahead, Dave, please.

I was just going to say that we don't really look at cost per click, but what we try to manage is the -- what we're trying to do is improve the cost per -- what we call internally a good lead. A good lead are those insurers that we believe are based on history, are more likely to reimburse for the product. And that wouldn't -- a Medicare lead, unfortunately, right now, is not a good lead. So what we're trying to do is trying to -- we obviously try to manage the -- we want to balance the growth in the pipeline and also the increase in the advertising spend, but what we're looking towards, obviously, is something a cost like cut few hundred dollars and maybe in the future, drive that even lower as we get better at doing it and we -- the things evolve and we understand where the pockets of those potential patients are in a more thorough way.

Okay. Got it. And clearly seen some really nice momentum here, and we're just in the early innings. Can you help me understand your latest thinking on the addressable market? I know you've said that about 1/3 of the annual incidence of 800,000 patients enter the prevalence pool for addressable MyoPro patients, so, call it, 250,000 patients, and that is further reduced by other exclusion criteria like, reimbursement and patient interest and sufficient shoulder strength even. So after considering all the exclusion factors, what's your sense for the true prevalence and incidence for potential MyoPro patients right now?

Yes. Thanks, Kyle. So in our recent investor presentation, which will be up on our website soon here for March, we're talking about the current chronic arm Paralysis prevalence pool in the United States is about 3 million. As you described, we narrowed down, you've got to be living at home. And you're not in a nursing facility, have to have the right type of insurance plan. You have to be clinically qualified. You have to be interested in wearing a robotic device like this. So we narrowed down to about 10% of addressable markets. So our estimate, that's probably 300,000 individuals, right? And we're just serving a couple of hundred a year right now. So certainly, a lot of upside potential there. And then probably 10% of those new incidences every year. So 25,000 to 30,000 from those strokes, spinal cord injuries, new brachial plexus injuries, from traffic accidents, things like that. So that's what we identify as our target market just in the United States. And then, of course, it's probably that large in Europe and in places like China, the reason we wanted to address that market is there's 14 million paralyzed arms in China. 2.5 million strokes a year. So another 800,000 new cases going to the chronic condition every year. So that's our view of this addressable market for us.

No. That's great. I appreciate that color. And just a couple more quick ones here. So following up on Scott's previous question. So the pipeline is very robust. We're seeing some nice new ad numbers. But if I look at kind of the exits, if you will. So you've got a pipeline, you're bringing in new people, but there are people who fall out of the pipeline. Over time, it's been about 25%, and it's kind of stayed at that level. So you can typically expect about 25% of the pipeline, it kind of fall out. Even as we've seen the percentage of the pipeline towards direct billing increase over time. So I'm just kind of curious what -- how could we see the percentage of exits kind of decline? Is there any sort of barrier that would help with this? Or any kind of color around that?

Well, the biggest issues that we see people dropping out from the pipeline is, they've had a stroke, they have another stroke. They sort of take themselves out, they say, well, what get back to me in 6 months because I've just had a stroke. Sometimes, they change insurance, as spouse changes their job. And then they haven't disappeared totally, but we take them out of the pipeline, and then we will work with them to resubmit them into their new insurance. But that's the type of dropout, some people change their mind. One of the things that we're able to do as the direct billing provider, to the extent that we can accelerate the cycle time, the longest something drags out through an insurance authorization process, people become disinterested. So our objective is to get those documents from their physician, the letter of medical necessity, the other therapy notes, see if we can get an authorization as fast as possible, and that will help, I think, in terms of reduce that pipeline dropout rate over time.

Just in terms of numbers, Kyle, the pipeline drop is around 15% in the fourth quarter. By my math, it was about 111 folks dropped out of the pipeline in fourth quarter.

Okay. Got it. Yes. Maybe I'm looking at -- maybe there's a lag in mine. But I appreciate that color there. And just lastly, on the ASP, we're seeing, nice trend upward here. Obviously, the mix of direct billing units helps with this. I'm back of the envelope map, I show about 39,000K for an ASP. What's the long-term goal here for modeling purposes? How should we be thinking about that?

Yes. I think the -- we did have -- we had some blue verds from an ASP standpoint in the fourth quarter. We had quite a number of -- it's fairly sizable reimbursements, which we're very happy with. But we're -- in terms of that, we're just -- I would assume on a go-forward basis just because I -- because of those blue verts, I would continue to model like a mid-30s ASP.

Our next question comes from Jim Sidoti with Sidoti & Company.

Can you hear me?

We can, Jim.

Great. So your revenue for the quarter exceeded even your preannounced -- your updated guidance in early January. Is that a function of the direct billing and the fact that you were able to collect or it's more reliable collections to these insurance companies?

Well, I think it's more of a -- we wanted to make sure we were conservative when we -- if you're going to preannounce, don't miss it. So I think there's nothing that -- nothing happened in the time frame between when we preannounced in the time that we -- and today, there was anything different. It was -- I would just chalk it up to. We wanted to make sure we gave a conservative yet realistic estimate.

Okay. And then that 39 pay per unit for the quarter. How does that compare to a year ago?

Significantly higher. I think the ASP, bear with me a second here. Some -- the ASP last year was around 35, I want to say. Let me -- my advertise is too small.

Yes. It was -- it 30...

35 last year.

Jim, it's increased significantly over the last 18 to 24 months. As we developed our hybrid channel and shifted more of our business to our direct billing to the insurance providers, and we're getting the full payments from the payer instead of a wholesale amount from channel partners, and that now is 77% of our total revenue mix.

Right. Okay. All right. And then with regard to lead generation, what were the specific changes you made to make that improve? And how long do you think it will take for those to turn into actual orders?

Yes. Well, we were looking at the lead situation and always looking to figure out, okay, what can we do better. We changed agencies in the fall. Now we selected a local agency here that was really a specialist in digital marketing. So they looked at the different algorithms that are used by Facebook and some of the other search engines to optimize the keywords, things like that.

So we did that, plus they increased spending. And also, when you advertise on the social media platforms, we -- I would say a fixed budget, and you're basically bidding for ad space against other advertisers. And as you know, there's a lot of advertising going on with the whole election campaigns. So when that's decided, we were able to get more bang for our buck, so to speak. So a combination of that, looking at new places to advertise. For example, we're now in AARP. We -- on their online sites, in addition, we are using print advertising, we're in their latest top print magazine issue, which goes out to millions of members, 50 years of age and older. So that is raising brand awareness as well here in this first quarter.

We have time for one more question. Our last question will come from Edward Woo with Ascendiant Capital.

Yes. Congratulations on the quarter. As you guys are looking forward to trying to grow your international business, especially in Europe and Germany, what -- how should we view ASPs in those regions?

Dave, you want to address that?

How do you view ASPS, I'm sorry...

Yes. You could get the selling price similar to what it is in the U. S., obviously, the channels are different, but do you think the selling prices can be similar?

It will be. It probably be in the middle of our channels. It's going to be lower than the direct billing ASP in the U.S., but we think it can be a bit higher than the ASPs that we get through the U.S. O&P channel and the VA as well.

Great. And then going into Asia, congratulations on the joint venture in China, is that only for China? Or does it include other Asian areas? And what are your plans for those other Asian markets?

That joint venture is designed just and restricted to just the China markets, to manufacture just for the China market and to distribute to patients in China. However, that could serve as a model for other Asian joint ventures. Because in the Asian countries, it's often good to have a local partner to help navigate the regulatory and government environments. So we'll see as COVID recedes. We may get other parties interested into other geographies, but the Ryzur joint venture is totally focused on the large China market.

All right. Well, thank you, Edward, and thank you, operator. So in closing, we're hopeful that the economy here and in other country markets open up this year and that the pandemic continues to abate over the course of this year.

In that case, we'll be able to continue to deliver the MyoPros to patients in our backlog, continuing to accelerate our patient pipeline growth and demonstrate strong annual revenue growth for the fifth year in a row. We're addressing a very large unmet need with a life-changing solution while continuing along the path toward our next milestone of cash flow breakeven. So once again, thank you for your time and your interest in Myomo today, and have a good evening.

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