Myomo Inc (MYO) 2022 Q1 法說會逐字稿

Good afternoon, and welcome to the Myomo Inc. First Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

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

Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo First Quarter 2022 Conference Call.

Earlier today, Myomo issued a news release announcing financial results for the 3 months ended March 31, 2022. 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.

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, 2021, 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.

Thank you, Kim. Good afternoon, everyone, and thank you for joining us. Our first quarter product revenue was right in line with our expectations. Product revenue growth of 23% year-over-year reflects a higher number of MyoPro units sold, particularly strong results in international markets as we are starting to benefit from our overseas investments and a leveling off in ASP-related growth as a percentage of product revenue we derived from the direct-billing channel matures.

I'm pleased to report that we successfully addressed the supply chain issues that arose in the latter part of 2021, while we continue the blocking and tackling that's necessary to support our growth trajectory. As a company, Myomo is focused on 2 key initiatives, posting pipeline growth and yield improvements. And let me summarize our progress with both. We resumed growth in pipeline additions during the quarter from a combination of new leads generated by our established marketing initiatives from leads generated by new marketing activities and from a fully staffed team of intake coordinators and clinicians across the country.

At the start of 2022, we enhanced our efforts to diversify our advertising and marketing methods and reduce our use of traditional social media, and those new efforts and new mediums worked well for us during this quarter. Further diversification of our marketing efforts has been implemented this quarter, including our first television ads, which are now running in select markets. These and other previously mentioned initiatives will be ongoing and will expand or undergoing modifications we learn what works best for our business.

As we continue to adapt our marketing and patient education strategies within this dynamic online and social media environment to cost effectively introduce the MyoPro to more prospective candidates, I'm proud of our team's ability to act quickly and thoughtfully to changes in the market and to redeploy our marketing budget to maximize our ROI. [Now on] improved yield, we implemented several new ways of engaging with our patient candidates throughout the sometimes likely process of obtaining a MyoPro. Late last year, we created the patient navigator role, which is passed with guiding patients through the authorization process.

We are pleased with the initial results from this new function which we believe helped to reduce our pipeline dropout rate in the first quarter compared to the last few quarters. We are optimistic that this role will make a difference in keeping patients motivated as we work to get their MyoPro device authorized by insurance and delivered. Additionally, in insurance appeals we're emphasizing presentation of the evidence that the MyoPro is not experimental or investigational, and that it is reasonable and necessary, which has increased our reimbursement success rate for these patient cases.

Now let's drill down into few of the first quarter metrics. We added 358 new patients into our pipeline, which is up 62% from the number added in the previous quarter. During Q4, we were affected by higher social media advertising costs, competition for audience from holiday sales ads and people's focus on the COVID-19 omicron variant and other concerns. As we've done in the past, we're adapting to this evolving online marketing environment, and the changes we implemented in the first quarter contributed to this increase in pipeline adds.

The combination of new adds plus improved retention to a total of 924 candidates now in the pipeline. This is a good leading indicator of future orders and revenue growth. Our customer acquisition costs were significantly lower than the first quarter as compared to the fourth quarter for a couple of reasons. First, we diversified our advertising and marketing with less emphasis on Facebook, which has become a more costly outlet to advertise on. And secondly, we restructured our customer experience department for our intake coordinators, complete phone screens, to verify insurance schedule telehealth screenings and with our clinicians and then help clients through the front-end of the process.

We now allow that team to work remotely most of the time, and that transition helped us to grow the team and keep up with the demand during Q1, including identifying patients previously on hold that were now ready to resume their journey to obtain a MyoPro. During the first quarter, we received authorizations and orders for 94 units, which is up 42% from the same period a year ago. Historically, we've seen seasonality in our business, with Q1 typically being the slowest quarter of the year for authorizations and orders.

Our revenues for the quarter were $3.9 million in total, of which $2.9 million came from 71 MyoPro unit sales and $1 million was booked from the first payment for the technology license fee from our joint venture partner in China. The topic of interest to many of our shareholders is reimbursement from one of our larger insurance company payers. We continue to receive payments after filing an appeal for the claim after delivery. And importantly, the vast majority of the claims for this insurer are continuing to be paid, although an additional step has been added to the process.

We also continue to receive pre-authorizations from this payer, sometimes requiring appeals process by a reimbursement specialist to obtain the MyoPro order on behalf of the patients. We've continued to expand and diversify our payer base with several new Medicare Advantage plans in addition to another state Blue Cross Blue Shield plans covering their first MyoPro in Q1. This paves the way for subsequent approvals for patients with these same health plans. We're actively expanding the number of payers, and as we do so, we expect that the pathway from lead to payment will be easier and faster over time.

Since many of our patients are seniors with Medicare Advantage plans, we continue to work with our physicians and payers to obtain reimbursement of their custom MyoPros and expect to be filing claims of the DME MAC's for Medicare Part B patients in the coming months. Also, we were recently informed that CMS has added a discussion of the MyoPro to its public meeting agenda in the second week of June. We intend to take this opportunity to make the case for changing the benefit category determination from DME rental through custom fabricated brace or orthosis.

As we said in the past, with respect to CMS, we can't predict the outcome of this meeting as it relates to obtaining coverage and a fee amount for the MyoPro. We also had several new clinical studies published in the first quarter from the Mayo Clinic and the Cleveland VA, demonstrating the value of the MyoPro for patients who suffered arm paralysis due to brachial plexus shoulder nerve injury, a stroke or traumatic brain injury. These studies add to the growing body of scientific evidence to support medical use of the MyoPro and its reimbursement by government and commercial payers.

As I mentioned earlier, the supply chain constraints from the fourth quarter are now behind us. We had a smooth startup of internal manufacturing for the MyoPro 2+, our introduction of the 3D printed orthotic shells for the MyoPro 2+ is going very well, and we've been shipping devices to patients since early February. While we've seen some increases in material costs in the current inflationary environment, we expect to be able to offset those in the second half of the year as we transition more patients to full remote measurements.

We believe we're at the forefront in the O&P industry with our use of telehealth for initial patient screenings, the therapist training and online support and now with the measurement of patient's arm and hand done remotely, and we can immediately transmit to patient's measurements to our 3D component vendor, and the streamline process has helped us keep some of our costs in check.

Our international operations performed very well in Q1, representing approximately 23% of our overall revenues. We continue to see strong growth in patient interest, especially in Germany, where we're obtaining reimbursement on a case-by-case basis. We've added to our international staff and believe that this channel represents further ground for continued growth, not only in Germany, but in Italy and the U.K. Our joint venture in China is getting closer to becoming operational, with receipt of the initial $1 million payment during the first quarter, we expect to receive payment to the remaining license fee before the end of the second quarter, after which we'll begin the process of supporting the JV with training and technology.

This training includes working with the staff on how to manufacture and sell the MyoPro devices. Note, however, that the technology transfer is highly selective in retaining key intellectual property in the United States and under our direct control.

Now I'll turn the call over to Dave Henry to review our financial results in more detail. I'll come back and provide some additional comments before taking your questions. Dave?

Thanks, Paul. Turning now to our Q1 financial results. Revenue for the first quarter of 2022 was $3.9 million, which was up 66% over the prior year first quarter and included a $1 million of license revenue from our joint venture partner in China. Product revenue was $2.9 million, which was up 23% over the first quarter of 2021. International revenue accounted for 23% of product revenue, which is probably double the contribution of past quarters.

The growth in the international channel, the direct-billing channel accounted for 65% of product revenue, down from 73% of the product revenue in both the fourth quarter and the first quarter of 2021, with remaining 12% generated by the O&P and VA channels. We've recognized revenue on 71 MyoPro units in the first quarter of 2022, an increase of 9% year-over-year. Backlog, which represents insurance authorizations and orders received have not yet converted to revenue, was 160 units at quarter end, which is up 36% over the year ago backlog and up slightly from 154 units as of December 31, 2021.

Gross margin was 67% in the first quarter, excluding the license fee, gross margin on product revenue for the first quarter of 2022 was 55%, and this compares with 73.3% in the year ago quarter. The decrease reflects a timing difference resulting from a larger number of deliveries compared with revenue units. Recall that we record cost of sales upon delivery to the patient, which particularly in the direct-billing channel, occurs in advance of revenue recognition. We were able to increase deliveries in the first quarter as we successfully completed our transition to in-house fabrication of the MyoPro 2+. Gross margin was also impacted by one-time costs of approximately $100,000 associated with the contract termination of our third-party fabrication partner and by higher material costs.

Operating expenses for the first quarter of 2022 were $5.3 million, which was up 14% compared with the same quarter a year ago and primarily reflects higher payroll and advertising costs. Contrary for our plan entering the quarter, our advertising spending decreased compared with the fourth quarter as we found that our cost per lead decreased on Facebook as we reduced spending. Advertising expense was approximately $950,000 in the quarter. As Paul mentioned, we are always looking for ways to maximize the ROI of our advertising spend by shifting the allocation of resources, with television advertising in certain markets now added the social media and other online promotional activities.

These changes are designed to drive pipeline growth while operating within our budget and lowering our cost per pipeline add. In the first quarter, our cost per pipeline add was approximately $2,700, which was up 22% from the same quarter a year ago, which was before the Apple privacy change was implemented, but down 45% from the prior quarter. Our operating loss for the first quarter of 2022 decreased to $2.7 million from $2.9 million a year ago. Net loss for the quarter was $2.8 million or $0.41 per share compared with the net loss for the first quarter of 2021 of $3 million or $0.57 per share. Adjusted EBITDA for the first quarter of 2022 was a negative $2.4 million, which has slightly improved from a negative $2.7 million a year ago.

Turning briefly to our balance sheet. Cash and cash equivalents as of March 31, 2022, were $12.9 million, and this compares with $15.5 million as of December 31, 2021. Cash used by operations was $2.3 million in the quarter. With cash expected from the payment for the remaining China JV license fee during the second quarter, we believe that our current cash position is sufficient to fund operations for at least the next 12 months.

Turning to our forward-looking commentary. We entered the second quarter having resolved our supply chain challenges and continuing to manage post-delivery denials at a large insurance payer. As a result, our revenue recognition practice with this payer remains unchanged. Assuming receipt of payment, the remainder of the China license fee will be recorded as revenue in the second quarter. With a slightly higher backlog compared to the beginning of the first quarter, our second quarter product revenue will reflect how much of the roughly $6 million of potential revenue in backlog we are able to convert along with our ability to generate new fill orders from the O&P, VA and international channels.

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

Thanks, Dave. Our goal Myomo is to assist more paralyzed individuals regain function of their upper limbs with the MyoPro and to increase our market penetration in this new product category. To do that, to generate continued revenue growth and to drive operating leverage, our key operational focuses for 2022 are to grow the pipeline of MyoPro candidates at a reduced cost for pipeline add and to increase the yield of candidates who were added to and remain in the insurance process.

We serve a large and growing market, and I recently received a research study from the European Stroke Organization that forecast that the number of patients living with stroke will grow over 25% in the next 25 years due to the aging population, which has a higher incidence of stroke. And this aging of the population with chronic stroke is happening in many countries around the globe, leading to an even greater need for assistive technology like ours.

This concludes the formal part of our presentation. So operator, we're now ready to open the call for questions.

(Operator Instructions)

Before we take the first question, I want to mention that we're available for virtual and in-person investor meetings, so please contact LHA Investor Relations to set up a time. We'll also be attending the Sidoti Virtual Small Cap Conference in June. Okay, operator, we're ready for the first question.

And the first question comes from Scott Henry with ROTH Capital.

Just a couple of questions. First, the pipeline adds, I think it was 378, if I recall correctly, was a pretty nice number. How should we think about that number going forward? Do you think that you got that on track to regenerate numbers up in that range for the rest of the year?

Scott, yes, thanks for pointing that out. So it's 358 pipeline adds in Q1, up from 221 in Q4. I think the things we're doing with social media, diversifying our advertising, for example, one of our ads has been running on YouTube and at over 500,000 views. So shifting to other media, doing more organic content like vlogs and other posting plus we're testing TV advertising in a few pilot markets around the country. I think that should lead to continued pipeline growth this year. That's our plan.

Okay. That's great. And then I also noted the $6 million in backlog, how does that compare to prior quarters? And how should we think of that numerical figure as it relates to the next couple of quarters?

We just took an ASP of around, I think, $38,000 as multiply that times the 160. Hopefully, what we'd like to see is that our focus on growing the pipeline is going to translate into growth in backlog, which we've not, I think, pretty definitively shown is then translates into revenue growth. And so that's really the focus, but it starts with getting the pipeline up to a number that we would like to see that.

Okay. And the final question, just on the CMS meetings in June. What are the types of outcomes that could come out of those meetings? And what sort of time line are we typically looking at for that to impact the revenues?

Scott, CMS has now moved to doing this public meeting twice a year. So we've been invited to the June 8 meeting as an agenda item to discuss our benefit category determination and also our recommended pricing based on a variety of analyses. And so, what we'll present there ourselves, some other subject matter experts. And then CMS will deliberate among itself. So there are 3 possible outcomes. One, they could do nothing; two, they could kick the can down the road; or three, they could change our benefit category determination to the custom-fabricated orthosis on some basis or just keep it as a DME rental. So those are the outcomes that would happen before the end of the calendar year.

The next question is from Ben Haynor with Alliance Global Partners.

First off for me, good to see the advertising, the customer acquisition costs come down from last quarter. And I was kind of curious about the TV ads that you're running in select markets. Is that something where they're kind of test markets? And as you see success in those types of markets, you roll it out more broadly? Or are there areas of the country where there's more potential patients for you guys?

Those are the kinds of questions we're trying to answer. So for example, we are testing 30 second, 60 and 120 second commercials. We've trying a different variety of markets, some larger MSAs, some smaller markets [epidosin] right now. And based on the results, we have a 7/24 call center now to take these direct response inquiries, and then pass them on to our intake coordinators and then our clinical staff. We also see how we're doing based on websites that they go to, to find out more about Myomo. So the whole idea is to engage the patient or their family member. And we'll see if it works for us, we'll certainly be expanding that as the year goes on.

Okay. And have you reached any tentative conclusions on that yet? Is it better to advertise on MTV or lifetime or HGTV or anything -- any color on what's working for you?

Ben, it's only started about 2 weeks ago, but still it's premature to make any conclusions, because we need to -- I have those -- you're going to have multiple exposures, we have to see after we get the phone calls or the web leads that come in. We're going to see how cloudy are the leads in terms of their insurance and medical conditions. So still early going, but so far, we're pretty optimistic.

And as you can imagine, you just mentioned, we just started this, and you were just mentioning all those various channels. Does that means there's almost infinite permutations of how we could go and to test. And so we're really only in the early stages.

Okay. But I guess it's fair to say if you only started a couple of weeks ago that it didn't have any impact during Q1, obviously.

Yes, there was no impact during Q1.

Okay. That's fair enough. And then you had a nice international number. What -- how should we be thinking about international going forward the rest of the year?

Our goal is to grow our -- all of our revenues in 2022 and international will be a big part of that. We haven't given any specific guidance, but we have added to our headcount that are in Germany. We've got -- and we're trying to grow that business as rapidly as we can. But we don't have -- we haven't put out any guidance on what that number we expect for this year.

Okay. But I mean, would it be fair to say it's going to be a bigger proportion of revenue than it was last year? Or is that...

I mean, the intent of what we're trying to do is to not grow the proportion of it, we're looking to grow everything. And so the percentage is almost sort of a -- is the end result of what we do, but not the driving foreskin on what we're doing.

Okay. That's fair enough. And then lastly for me, I apologize if I missed this more of a housekeeping question. Did you give the number of fill orders during the quarter?

It was about 17 fill orders of the 71 revenue units, 17 were filled about 50, 54-ish came out of the backlog.

The next question is from Jim Sidoti with Sidoti & Company.

Can you say again what was the percentage of direct billing units in the quarter?

65% of the product revenue was direct billing.

Okay. And part of that is because you had strong international growth in the quarter. But as you look out over the next 7, 8 quarters, where do you think that number falls?

I still think that direct billing is going to be in the 70s. Longer-term, as we progress forward here, our intention is to grow revenues in all geographies. And we obviously -- most of our focus is in the U.S., and I would expect that, that will continue to be that kind of a number here in the near future.

And you're becoming quite a marketing company, and I've listened to some other calls and heard that cost for social media has definitely gone up the past couple of months, so you've switched to television. But are there other options you have to reach out to patients beside television advertising?

Well, we've diversified what we're doing online. As I mentioned, there is YouTube, there is Instagram, we're also doing more vlog content. We've got other influencers who, for example, have a MyoPro getting the word out there. So between that, plus organic search, and then you have the TV, which we are piloting, that's broadened our channels to the patients and their families, which used to be primarily just Facebook and the Google ad network.

We also have -- I mean, and I think our first quarter results demonstrate that, we have a valuable asset ourselves, which is the database of patients that we have collected over these many quarters that we've been doing now direct billing. And numbers of them went on hold at various points, and we're always able now to go in and resurrect some of those patients because they've changed insurance or what have you, and they're in a better position to move forward in the process. And so that's a cost free way of generating pipeline adds as well.

Okay. All right. And can you -- I don't know if you mentioned it or not, but can you say how many units you actually shipped in the quarter not how many that you got paid for?

We delivered was 99.

99. So there were approximately 20 units delivered that -- I'm sorry, 30 units delivered that you were not paid for in this quarter?

That's right. And we have to wait for the insurance payment to recognize the revenue on those units, Jim.

So there's a possibility that in the second quarter, you could actually get paid for more units than you placed.

That happens in various quarters. I wouldn't say that it's going to happen in the second quarter. But it will happen at that -- at relationship [slips] yes.

When that does happen, we'll see the gross margin swing the other way.

That's right.

(Operator Instructions) The next question is from (inaudible) with Ascendiant Capital Markets.

This is (inaudible) on behalf of Edward Woo of Ascendiant Capital. Are there any changes on the competitive landscape?

No. We have not seen anybody else have a comparable product to ours. We're still the only commercially available upper extremity myoelectric orthosis that enables you to move your arm, your hand, registered with the FDA, CE-marked in Europe. There are a variety of sort of small niche sort of rehab-oriented products like glasses and things like that, but nothing that is a full device like this to restore arm function.

Okay. Great. And can you talk about the impact -- is inflation have any impact on the business or the supply chain?

I don't have a quantifiable number to give you. But I mean, it is having somewhat of an impact. We're seeing it in material costs, things like laptop, computers, for example, that are provided to each patient. Also, things like when we go and visit a patient, there are -- there's costs that are -- that we add to the cost of goods sold for the cost to fit that patient, all those was travel costs that going up. And so it's kind of throughout the business. I wouldn't say it has had a material impact on the business, but it does have -- it has had somewhat of an impact.

And we would hope that as we get into the second half of this year, we'll be able to offset some of that and realize some savings as we move to more fully doing the remote measurement of patients' arms, that will cut out an in-person visit and reduce costs.

The next question is from Paul Nouri with Noble Equity.

Are you expecting a rebound in gross margin in the coming quarters or would that be longer-term?

So as I mentioned earlier in the call, gross margin was impacted. It was probably somewhere in the neighborhood of pushing 1,000 basis points, 10 percentage points from just the timing difference of deliveries in advance of revenue units. And so that timing difference will happen from time to time as it happened in the first quarter. But I still think the nature of the business overall is still -- we still are more likely than not to have gross margins on a more routine basis going forward, the 70-ish kind of a number. So this is just a unique quarter given the one-time charges that we had and also just the timing difference on deliveries. There was a substantial number of deliveries in excess of revenue units.

Okay. And then I guess as a concern Internet advertising, have you noticed any change in conversion rates once you get people on to the site in terms of whether they go through and actually try to make a purchase? And I guess I'm thinking more over the past month or so with the volatility in markets and inflation and what not.

Well, I can look back to Q4 where we had a number of leads come in as patients were interested. I would say they saw an ad on Thanksgiving Day, they would tell us, yes, I'm interested, but let's have a follow-up telehealth evaluation after the 1st of the year. So we saw some of that. I can't tell you that it's changed much, I mean it was very positive in terms of Q1. I haven't seen any decrease in that here in the last couple of weeks with the macro environment that we're in.

Okay. And as you've done well in the direct channel, has it resulted in a pickup of, I guess, doctors noticing and maybe more orders from the O&P channel?

It's actually been more referrals from the rehab hospitals and clinics, because when we fit a patient with a device, we send them to one of the rehab hospitals in their area. Sometimes there is a trained therapist already there, because the patients have to go through a training protocol to learn how to use their arm again for the first time, let's say, 10 years. And those therapist are increasingly as they see the results of these patients say, hey, I've got another patient here for you. So we're starting to see more of that as we've broadened our base over time.

Okay. And any update on MyoPal, any progress you're making there?

Yes. Well, we have restarted development of the MyoPal, we've been -- we've got an occupational therapist panel that is assisting us with this. I've seen some early prototypes of this in terms of the really interesting redesign to make it very lightweight, miniaturize. We've got a project plan here where we've got next month, we're going to be testing it on some kids. And then we'll continue for -- on a plan that we have at commercial sometime in 2023 after we do all the required clinical testing, electronics testing, ISO certification and the like. But I'm pleased that, that is moving forward.

Okay. And then last question. Do you think that you'll inform the street, whether through a press release or an 8-K whatever Medicare decides and the open meeting that there are nothing?

I think it would be a material event. I mean if there is something to announce that's something other than we're doing nothing. And I would expect that we would say something, because I think that would be material.

Showing no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to Paul Gudonis for any closing remarks.

Well, thank you. Just in closing, I'd remind you, we provide an essential product that people suffering from neurological disorders and upper limb paralysis. We're confident in our ability to continue to reach patients, receive buy-in from a greater number of payers, and ultimately from Medicare Part B and additional state Medicaid plans as well. So once again, thanks for your time and interest in Myomo. Have a good evening.

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