Myomo, Inc. (MYO) Earnings Call Transcript & Summary

Good morning, and welcome to the Myomo, Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I'd now like to turn the conference over to Kim Golodetz for -- please go ahead.

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 3 months and year ended December 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. these and additional risks, uncertainties and other factors are discussed in Myomo's filings with the Securities and Exchange Commission, including the Form 10-K 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.

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 and 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 just didn't justify the results that -- 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 head count 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. Then in 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. 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 rule-making 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 paralyzed 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 to 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 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. I will 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?

Thank you, Paul, and good morning, everyone. Let me start with a -- my remarks 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, or ASP, as a percentage of revenue from direct billing decreased to 73% in the fourth quarter compared with 77% in the third quarter. This was due in part to a record VA channel revenues, which comprised 11% of revenue in the fourth quarter. Recall that we anticipated this channel's shift during our third quarter call. We recognized revenue on 101 MyoPro units in the fourth quarter of 2022, down 6% in 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 costs of $1 million decreased 3% over the fourth quarter of 2021 and were consistent with the third quarter. Our cost per pipeline add 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 as in the fourth quarter. The number of pipeline adds did decrease 8% sequentially to 387 in the fourth quarter, but we are very pleased with our results versus the prior year. As Paul mentioned, we resized our pipeline at the beginning of 2023 to focus only on patients with insurers that are 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%. We stated for that resized 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 of 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 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. Proforma 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 MACs 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 plan of 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're 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.

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 head count 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 Instructions]

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. Okay, operator, we're ready for the first question.

Our first question will come from Jim Sidoti with Sidoti & Co.

First one on revenue. It seems like the key catalyst for revenue will get -- will be getting some clarity from CMS. What things could CMS do that would really help drive your revenue?

Well, the best thing you can 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 individual consideration. And that would 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 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.

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

So we've asked for a 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.

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 two expense lines continue to come down in Q1 of 2023?

Yes. Fourth quarter was a bit unusual in terms of the level of operating expenses that was in the -- the incentive compensation was lower, the bonus payouts for the company's employees are going to be down this year because revenues and the operating results weren't where we wanted them to be. So -- also, we've reversed some bonus accrual in the fourth quarter as a result of that. We also had a shutdown for all nonessential 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.

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?

Yes. Of the -- about right now, as of the beginning of March or from when we filed the 10-K, it's about 20.7 million -- 20.9 million shares, somewhere in that ballpark. There were 13.2 million shares issued are common in the offering, but 6.8 million prefunded warrants. So the prefunded warrants, as of now, they have -- none of them have exercised yet. So the common shares outstanding were about, I want to say, 20.9 or so, with -- but on a fully diluted basis, including the prefunded warrants, add 6.8 million to those.

Our next question will come from Edward Woo with Ascendiant Capital.

I just want to have a clarifying question. Did you say that revenues -- product revenues this quarter will be 15% to 20% higher, but for the year will be 20% to 30% higher?

That's correct. I remember fourth -- 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. So 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.

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?

Yes. I think the comparables on gross margin should improve in 2023. But the cost pressures haven't abated, I would say, but that 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 raise our usual and customary fee with insurer, 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 and the other channels to see what we can do to try to increase prices. So yes, actions like that are already in progress.

Our next question will come from Ben Haynor with Alliance Global Partners.

First off for me on the resized pipeline, you gave a handful of figures in terms of what it would be resize versus the prior method of counting those patients and then also the additions. It looks like you're kind of in the range of 65% to maybe 75% of whatever the prior numbers were -- the resized number. Does that sound about right, if we're just thinking about kind of historically how those numbers would have tracked?

Yes, we'll have more information for you in the next quarter with those results in terms of the comparables for the other quarters of the year. But just to reiterate for the fourth quarter of this year, out of the full pipeline of 1153, 794 was the number of -- the restated number, if you will, for the ending of fourth quarter 2022, that compares to 528 at the end of last year. And then just I gave you some changes, some breakdown of the additions. Out of the 387 pipeline additions, 294 represented additions from known payers in the fourth quarter of 2022. And then that compares to [ 160 ] in the fourth quarter of 2021. We had about 220 or so adds in the fourth quarter of 2021.

Okay. Okay. That's helpful. And then presumably with the new criteria, you're going to have lower drop off of the pipeline, but do you expect any impact on the backlog drop off as well with them being known payers?

There will be -- there might be some slight impact to the backlog because there's -- particularly where there is a patient that might have an insurance from one of those payers that has been maybe old and we've been trying to work on getting payment from without success. There could be some slight impact there. But on the whole, no, the impact is more on the pipeline than on the backlog.

Okay. That makes sense. I guess, would be expected. And just a clarification on the calculation for the cost per pipeline addition, is that under the old methodology, not the kind of known payer methodology, the new one?

Yes. And I restated that for you, too. So for the fourth quarter of 2022, under the -- for the 294 we added, that pipeline -- cost per pipeline add was about $3,500. That same number for fourth quarter of 2021 was $6,600.

Okay. I apologize. I missed that. And then lastly for me on the kind of CMS strategy. It sounds like you're kind of dual tracking. You're on the DME MAC route, but then also hoping for those reclassification and the onetime payment. I guess, do you have -- and then one of the things that we've talked about previously is the studies that you'll be bringing to CMS and -- to support those changes that you're looking for. Are all those studies published?

So Ben, one study from the Cleveland VA, a randomized controlled trial for clinic and home use, has already been published last year. Second one, which is from our patient registry of patient success in the home environment, has been written and submitted for publication. And the third one, which is a retrospective study of Medicare age beneficiaries, which is very important to CMS, is being finalized. This week, we expect to submit it for publication here this month.

Our next question will come from Jeremy Pearlman with Maxim Group.

Two questions. Number one, the Medicare Part B, how do you look at that opportunity versus your current opportunity of the payers, the high-caliber patients that are -- that you have seen coverage from insurers? What's that? Is that a small incremental increase or is that actually really significant? Will that really expand your addressable patient population?

Well, with the high-quality pipeline we have now, that's for near-term revenue over the next year because that's usually the conversion cycle. For the Part B patients, we have to turn away many individuals who do have Part B coverage who may qualify for MyoPro. So that would open up the MyoPro to that patient population, which is important, because it's about half of all Medicare beneficiaries are in Part B, as I mentioned earlier, the other half are on Medicare Advantage plans. So it opens up more addressable market. And number two, many insurance plans, whether they're Medicare Advantage or commercial plans, will often follow Medicare Part B lead. If Medicare Part B covers it, more likely that commercial plans will follow suit. So that would make it easier for patients that have these other insurance plans that may not be getting reliable coverage on to have access. So it's very significant in terms of an inflection point for the company.

Okay. Understood. And then one more, what -- do you have the average time it takes to convert a patient once it's in the pipeline after insurance to actually convert to revenue? And is there any opportunity to shorten that process?

Sure. So we've stated in the past that the typical revenue cycle from when we get a lead to actually collecting the insurance payments so that we can recognize revenue has typically been from 9 to 12 months. That's why this pipeline is really a leading indicator. There are things that we have done over the last couple of years to accelerate that. For example, we do telehealth screening, initially with patients instead of having to organize an in-person screening date. That saved several weeks. We now can do remote measurements of the patient's arm rather than having to do an in-person measurements and take a cast as in the past with our new version of the MyoPro 2+. So we've taken those steps. And we've seen some cycle times be as low as 30 days from when a patient is interested. We evaluate them quickly through our telehealth screening, and then they have to go to the doctor, get their prescription, we submit the notes and we've seen some turnarounds, as I said, within 30 days. So that's our goal is always to accelerate that cycle time so patients can get access sooner.

When you have Part B coverage too and you start submitting to Medicare Part B payers, the reimbursement process accelerates because you don't need to file pre-authorization requests. So that will take a lot of time once that all happens. And so if we -- if there's a beat to the business in the future that includes servicing Part B patients, there should be a good reduction in the revenue cycle time from that as well.

[Operator Instructions] Our next question will come from Paul Nouri with Noble Equity.

Do you have an update on MyoPal?

Yes. So we have restarted the development efforts on MyoPal. After COVID, we had -- we've progressed the development of the product. We had some patients come in for various testing and so on. And we're now focusing our attention on enhancements to the MyoPro 2+. Now that we've got several hundred of our flagship product out in the marketplace, we want to continue to keep improving that product. And then we plan to go back to MyoPal. My plan right now is to have MyoPal out in the market in calendar year 2024.

Okay. And any update on the China venture?

No. As I mentioned in my remarks, and Dave can jump in, too. We've been in touch with Ryzur Medical, which is our partner there. COVID has certainly disrupted business operations, trying to get into government offices to wire funds and so on. We had a visit from David Ren, the CEO of Ryzur Medical, back in August. He was able to visit our facilities here in Boston, went back. And then, of course, you saw what happened in China. First, everyone was locked down and everyone was allowed back out, and that created a huge spike in cases. That's all I could tell you right now. Maybe Dave, you may have some other updates from the financial side.

I think it's just hard for us to know at this point. I mean what they tell us is it's COVID and bureaucracy, but I have to believe what we've been hearing in news reports about the number of cases and things like that, and all of the lockdowns and things. The business environment to start up a new business in China is probably not ideal. And so I think that has had an impact as well. But we are pushing very hard. And at some point, I think Ryzur, they need to fish or cut bait on the joint venture here because we have -- we would -- there's other opportunities that maybe we can pursue over there as well.

And any comment for the quarter on how much of the performance came from domestic versus international?

Yes. International was about 11% of revenues in the fourth quarter. Direct billing channel was about 73% in the U.S. And then VA revenues were a record about 11% of revenue.

This will conclude our question-and-answer session. I would like to turn the conference back over to Paul Gudonis for any closing remarks.

Thank you, operator. Well, in closing, I'll just highlight what makes Myomo a special company. We have a large unmet market opportunity to assist individuals with upper extremity paralysis. Our MyoPro pipeline is gaining traction with a record number of patients in the process of obtaining one. We've got more doctors prescribing it for their patients and more rehab therapists being trained on how to work with new MyoPro users. We've developed a track record of obtaining reimbursement from a set of payers here in the U.S. and several international markets, and we're closer to obtaining coverage for Medicare Part B patients. And we continue to innovate not only in product design, but also in our business processes to basically operate more efficiently as we scale the business. So thank you all for your continued interest in Myomo and have a good day.

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