MYO - Myomo Inc (MYO) Q1 2023 Earnings Call Transcript
2023-05-11 18:20:25 ET
Myomo, Inc. (MYO)
Q1 2023 Results Conference Call
May 10, 2023 04:30 PM ET
Company Participants
Kim Golodetz - Investor Relations, LHA
Paul Gudonis - Chief Executive Officer
Dave Henry - Chief Financial Officer
Conference Call Participants
Ben Haynor - Alliance Global Partners
Scott Henry - ROTH Capital
Jim Sidoti - Sidoti & Company
Edward Woo - Ascendant Capital
Presentation
Operator
Good afternoon, and welcome to the Myomo First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Kim Golodetz. Please go ahead.
Kim Golodetz
Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo First Quarter 2023 Conference Call. Earlier today, Myomo issued a news release announcing financial results for the three months ended March 31, 2023. If you would like to be added to the company's e-mail distribution list to receive future announcements, please register on the company's website at myomo.com or call LHA at (212) 838-3777 and speak with Carolyn Curran.
With me on today's call from Myomo are Paul Gudonis, Chief Executive Officer; and Dave Henry, Chief Financial Officer. Before we begin, I'd like to caution listeners that statements made during this conference call by management other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, outlook, confidence, target, project, and other similar expressions are typically used to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance and may involve and are subject to certain risks and uncertainties and other factors that may affect Myomo's business, financial condition, and operating results. These and additional risks, uncertainties and other factors are discussed in my analyst filings with the Securities and Exchange Commission, including the Form 10-Q for the quarter ended March 31, 2023, and subsequent filings.
Actual outcomes and results may differ materially from what's expressed in or implied by these forward-looking statements. Except as required by law, Myomo undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. It's now my pleasure to turn the call over to Myomo's CEO, Paul Gudonis. Paul, please go ahead.
Paul Gudonis
Thanks, Kim. Good afternoon, everyone, and thanks for joining us. As demonstrated by our Q1 financial results, we had a very strong start to the year. The decisions we made about advertising and reimbursement strategies, along with the actions to control costs have begun to pay off while positioning us well for both top line growth and improved bottom line in 2023.Product revenue in Q1 2023 was $3.4 million, which met our expectations of 20% year-over-year growth in MyoPro sales. We increased our patient pipeline with more than 400 new candidates entering the process of obtaining a MyoPro.
We expanded the use of new digital technologies in the front end of our patient conversion cycle, and we now use an online waiting room where interested patients can be screened by a telehealth by our licensed clinicians. Compared with the first quarter of 2022, this pipeline growth represents a 54% increase in the number of patients with previous payers, those that are reimbursed for the MyoPro in the past, and we did this while spending 33% less on direct-to-consumer marketing.
In turn, our cost per pipeline add is down 53% from the first quarter of 2022 and down 50% from the fourth quarter of 2022. These metrics are all trending in the right direction. As you may recall, earlier this year, we modified our pipeline focus to patients who have insurance from carriers that are paid to the MyoPro in the past. We received 122 authorizations and orders during the quarter, which is up 30% from a year ago.
The backlog also increased to 176 units, representing over $7 million in potential revenue as we complete the deliveries and/or received payment for these devices. We were able to accomplish these additions to the pipeline, the insurance authorizations, and deliveries with a 12% lower headcount, which resulted in improved operational efficiencies. Our international business generated record revenues in the quarter as we continue to add O&P provider locations in Germany and obtain insurance reimbursement, which is largely due to the favorable social court rulings over the past year.
We also achieved a major significant milestone in Australia, where the National Disability Insurance Scheme or NDIS began paying for MyoPro, and we expect this will lead to future sales in that country. The other major international development occurred in April when our China joint venture paid the remaining $1.7 million of the initial license fee.
As the COVID-19 lockdowns were lifted across China, our partners Ryzur Medical and Chinaleaf Ventures were able to move forward and launch the JV start-up activity for Jiangxi Myomo. We've begun the process of providing technical documentation and know-how to the JV staff and establish its local manufacturing and distribution operations. The JV is also starting the process to obtain regulatory approval from the National Medical Products Administration to begin offering the Myomo product line to rehab hospitals and to patients.
As a reminder, the JV contract calls for more than $10 million in additional license payments over the next decade, and Myomo shareholders have a 19.9% equity stake in Jiangxi Myomo with our Chinese partners putting up all of the capital to fund this business. Here in the U.S., we continue to work toward our goal of securing Medicare Part B coverage for MyoPro. Ultimately, is a lump sum payment, but in the interim more likely as a rental because that's how we're currently classified by the centers for Medicare and Medicaid Services, or CMS.
In January 2023, CMS issued a public notice regarding new rulemaking around defining the benefits for neck, arm, leg, and back braces and newer technologies. We see this as a good sign that CMS recognizes the value of new technology-driven basis and we believe that this new rule when published next summer will provide CMS's official response to our benefit category change requests. A change in the benefit category, if made, could lead to lump-sum reimbursements.
In the meantime, we moved forward as recommended by CMS staff to make the MyoPro accessible to Medicare Part B patients. Last month, we met with the medical directors and staff of the CMS billing contractors, referred collectively as the DME MACs, and we presented new clinical evidence contained in two studies submitted for publication to support the reimbursement of the MyoPro for Medicare beneficiaries.
I can't go into details regarding the research until publication. Both studies add to the body of research that supports the safety and the effectiveness of the MyoPro. We also filed two claims for devices provided to Medicare Part B beneficiaries, and we're now going through the process of having these claims reviewed for payments. To increase the chances for success, these claims are for reimbursing MyoPros and rental and are being processed by the DME MACs.
The claims are being evaluated for Medicare's policy for individual consideration and may result in the payment of the claim or if the initial submission is denied, we file an appeal, which triggers a manning review of the patient's medical necessity criteria and their chart notes. In addition, we're in the process of identifying and evaluating for additional Medicare Part B patients, and we plan to submit additional claims in the coming weeks, covering all four of Medicare's billing regions.
When we have definitive information on a few of these claims, and we begin to see a pattern along with the DME MACs or if there's publicly available information from CMS, we will use this to update investors. And as I stated during our last call, we expect to have some clarity on reimbursement for Part B patients by the end of June. While there's no specific timeline for the action by CMS or its billing contractors, we believe that coverage of the MyoPro for Medicare Part B beneficiaries would address the issue of actual treatment of these seniors since others with Medicare Advantage, VA patients, and those covered by various private payers are able to obtain a MyoPro and improve the quality of their life and their health outcomes.
Now I'll turn the call over to Dave Henry, Myomo CFO, for a more detailed discussion on our financial results. Dave?
Dave Henry
Thank you, Paul, and good afternoon, everyone. Let me start on remarks a review of our first quarter financial results. Total revenue for the first quarter of 2023 was $3.4 million and was comprised solely of product revenue. This was down 11% from the prior year quarter, which included the $1 million partial payment of the technology license fee from our joint venture partner in China. Excluding that payment, product revenue increased 20% year-over-year.
This growth was driven by a higher number of revenue units and a higher average selling price or ASP. We recognized revenue on 80 units in the quarter, which was an increase of 13% over the prior year.
ASP was approximately $43,000, up from approximately $40,000 in the fourth quarter of 2022.The direct billing channel represented 70% of revenue in the first quarter compared with 65% in the prior year quarter and 7% in the fourth quarter of 2022. We realized record international revenue in the quarter, which represented 20% of product revenue. The remaining 10% of revenue was from the VA and domestic O&P channels. Backlog, which represents insurance authorizations and orders received but not yet converted to revenue, was 176 units at quarter end, up 10% compared with the prior year quarter and up 7% sequentially.
Our patient pipeline increased to 855 candidates in the first quarter, up 28% from the year ago quarter, which has been revised to reflect only previous payers. As Paul mentioned, a record 438 patients were added to our pipeline in the first quarter, an increase of 54% over the prior year. The year ago pipeline additions have also been revised to reflect only previous payers.
Our pipeline was more volatile than usual in the first quarter as a large number of patients exited the pipeline. Our new virtual waiting room certainly increased pipeline additions and decrease the cycle time from lead to initial evaluation, but it's unclear that this also contributed to the higher number of pipeline drive. We'll be closely monitoring this metric in the coming months.
Gross margin for the first quarter of 2023 was 67% compared with 66.7% for the prior year quarter. This increase was driven by a higher ASP and lower warranty reserves. I should also note that first quarter a year ago's gross margin was also benefited by the $1 million partial license payment. Operating expenses for the first quarter of 2023 were $5 million, a decrease of 6% compared with the first quarter of 2022. The improvement was primarily driven by our headcount reduction in January as well as lower advertising expenses, which decreased 33% compared with the prior year quarter.
We're on pace to spend roughly $1 million less on advertising in 2023, which is part of the $2 billion in annual operating expense savings we're expecting for the year. As a result of the improved efficiency of our marketing efforts, our cost per pipeline ad decreased to $1,570 million, which is down 53% compared with the prior year quarter and down 55% sequentially. Operating loss for the first quarter of 2023 was $2.7 million compared with an operating loss of $2.7 million for the first quarter of 2022, which included the benefit of the partial payment of the initial technology license fee.
Net loss for the first quarter of 2023 was $2.6 million or $0.11 per share compared with a net loss of $2.8 million or $0.41 per share for the first quarter of 2022. Net loss in the first quarter of 2023 includes the impact of the shares issued in our offering in January. Note that the $6.8 million prefunded warrants issued in that offering are considered common stock equivalents under GAAP and are included in our weighted average shares outstanding. None of the prefunded warrants have been exercised as of today.
Adjusted EBITDA for the first quarter of 2023 was a negative $2.5 million compared with a negative $2.4 million in the first quarter of 2022, which again also included the benefit of the partial license fee. Turning to our cash position. Cash and cash equivalents as of March 31, 2023, were $9.3 million. Cash used in operating activities was $1.8 million for the first quarter of 2023.Looking ahead, as Paul mentioned, we received the remaining initial technology license fee of $1.7 million in April.
This amount will be recorded as license revenue in the second quarter. Pro forma for the license fee payment, we ended the second quarter with approximately $11 million in cash. As a result of this payment, we expect record second quarter total revenue, with the increase in backlog in the first quarter, we're in a position to grow second quarter product revenues both year-over-year and sequentially. We continue to believe that product revenue growth for the full year of between 20% and 30% is attainable.
With that financial overview, I'll turn the call back to Paul.
Paul Gudonis
Thanks, Dave. While, as I outlined in my recent shareholder letter, this year marks 10 consecutive years of revenue growth from Myomo. We expect another year's growth based on the size of our patient pipeline, and we plan to meet growing demand with increased operational efficiency and lower cash burn.
Our actions earlier this year to focus on the highest yield candidates in the pipeline, the lower the cost of growing the pipeline and to reduce our operating expenses should enable us to reach these financial goals during the course of the year. So with that business and financial overview, we're now ready to take your questions. Operator?
Operator
We will now begin the question-and-answer session. [Operator Instructions]
Paul Gudonis
And before we take the first question, I want to mention that we'll be participating in the AGP MedTech Conference on May 23, 24, and the [Maxim] MedTech Conference on June 20 and 21, and we're available for virtual and in-person investor meetings, so please contact LHA Investor Relations to set up a time. Okay, operator, we're ready for the first question wherever you are.
Question-and-Answer Session
Operator
Our first question comes from Ben Haynor from Alliance Global Partners.
Ben Haynor
First off for me, can you talk a little bit more about the implementation of the virtual waiting room? And maybe if I heard you right, you think that there may be some impact to the pipeline drops, can you kind of explain why or speculate on why that may be?
Paul Gudonis
So we've been implementing this new technology so that when someone sees one of our ads, whether it's on television or social media or they go to the website and they reach out to our call center, which is in Texas. We'll have an initial discussion with the patient to understand what their insurance, their diagnosis, and then ask them if they would like to participate in a free no-obligation screening right then.
If they say, yes, we can send them a link and then on their laptop or on their cell phone. They can immediately be put into this, what we call an online waiting room, and we'll have an available clinician, one of our certified process orthotists, who can immediately conduct a telehealth screening.
We found that, that was very convenient for patients. It's been convenient for our clinical staff as well and employees having to try to set up an appointment, which might be the next day, it might be a week or two later, but people can immediately be evaluated and consider whether or not they like to be expanded for the MyoPro.
We explain the process they have to go through. They have to get an appointment with their doctor face-to-face.
They have to get their chart notes, they written order and sell on in order for us to move forward with insurance. So a lot of people candidates have taken advantage of this really convenient approach. So we added a lot of the candidates in the pipeline.
We're trying to assess whether or not people need more time to consider the process. We have to provide them with additional information. So we're seeing the trade-off of the convenience of it versus the effectiveness of having people in the pipeline.
And there may be other factors that we're just not aware of thought. People may have other health issues going on and they want to take their time and considering moving forward with the MyoPro. So we keep them in our database.
Dave Henry
Cycle time between lead and that initial telehealth evaluation decreased pretty substantially in the first quarter. And what we're asking ourselves is whether that decrease in cycle time was really time that a patient might use to -- that they were using maybe a quarter, two quarters, three quarters ago to think about where they want to go forward, talk to their families, things like that. Because patients always drop out, we used to be able to not get a whole of many patients after their initial contact, and they ended up being pipeline drops that way. And so we wonder if we've now just sort of kind of increased pipeline assets and each increased drops because patients that haven't had really the time to speak to their families before that initial solid healthy valuation.
Ben Haynor
Okay. That's helpful, and that all makes sense. And have you seen any difference in the mix of the patient's diagnosis that or diagnoses that have come through with the virtual waiting room versus previously? Or is that kind of hasn't changed...
Paul Gudonis
Yes, Ben, it's been pretty stable. I mean the majority of the candidates who reach out to us have any places to add you to a stroke. So that remains our #1 diagnosis. The next one would be brachial plexus injuries. That's the shoulder nerve and maybe third would be spinal cord injuries.
Ben Haynor
Okay. Got it. And then lastly for me on the -- your discussions with the DME MACs -- any additional feedback? Any color that you can share on how those meetings win? I understand we're waiting for 1 month, 1.5 months, or so for the potential category change.
But on the DME MAC side, any more color that you can provide there?
Paul Gudonis
Well, I would say I thought we had a very good meeting. There was a number of participants from the DME MAC Medical Director staff from what's called the PDAC, some of their professional staff, including certified process orthotist medical director. We had quite a long discussion. We reviewed the research that I mentioned here because we want to make sure that they understood that this -- which is one of the criteria is that will this device be beneficial for Medicare age beneficiaries.
And in our patient registry retrospective research that is underway to be published, we plan out that these patients did improve the relevant endpoints by having MyoPro. These are patients who are seniors who have Medicare Advantage plans. So they fit in that over 65 category, which is important for the DME MAC in making their decision.
Ben Haynor
Okay. Well, thanks for answering the questions, gentlemen. I'll jump back in queue.
Operator
Our next question comes from Scott Henry from ROTH Capital.
Scott Henry
A couple of questions. I'm starting to look at the model through the new funnel of pairs with a history of making payment. And I'm seeing some different trends. And I'm curious if it's just noise or your thoughts, not unexpectedly, you're seeing a higher percent of authorizations, which would make sense if it's a higher quality group.
But I'm also seeing, at least in the first quarter, I saw a higher -- assuming I'm looking at these numbers correct, but it looks like I saw a higher percent of backlog dropouts in a higher percent of lost patients who are in the cumulative reimbursement pipeline. What are your thoughts on those numbers?
And albeit early...
Dave Henry
Thanks Scott, it's Dave. Yes, you're right. The authorization rate did increase, and we expected to increase, and we'll see if that -- how that trend continues as we move through the other quarters. We were just having a conversation with Ben about sort of the pipeline and why we thought that the churn in the pipeline was higher than normal in the first quarter. And so that's something, again, that will probably be will be looking to validate ourselves in the coming months here to see if that trend continues.
In terms of the backlog, we did have a higher percentage of people drop out of the backlog in the first quarter. We did have a large number of people from the standpoint of their medical conditions changing, which was a reason for the drop out. We had a few -- I don't say it was that many -- call it a handful that dropdown as a result of the change we made in the pipeline because we had a few patients in the backlog. They were more in older patients in the backlog that were with payers that were considered good payers anymore. And we decided to just continue any efforts that more people were spending resources trying to -- are spending their time trying to collect.
So we dropped a few of those. So those are the primary reasons for the change in the backlog. But aside from those handful that drop that I would say that are directly related to our strategy to only focus on previous payers.
The rest of the change was just really due to a higher number of people with medical things going on medically than we've seen in the prior quarters.
Scott Henry
So I guess, Dave, just a follow-up on that. It sounds like a lot of these numbers, once you get used to this new virtual rating room should sort of revert back to where they were before because the patients you pick up this quarter because they went through -- there were shorter throughput, well, next quarter, they're not going to fall in because it was longer throughput. It sounds like it should normalize. Is that fair? And probably all of these metrics should --with the exception, I would expect authorization to be higher, but it sounds like pipeline ad should kind of be or it would be regardless over time?
I mean how do you think about those?
Dave Henry
Yes. And I mean, I think that's correct. I think it would also depend on the continued success of the lead generation as we are trying to appear to a budget. And so we're trying not to spend more than we need to generate leads. And so that will be a constraining factor, which I think will help keep the cost of the pipeline to add down.
But the question will be is, well, the number of that continue to be where they've been. So we're kind of learning as we go with this new methodology, but we're encouraged by the results so far in the first quarter.
Scott Henry
Okay. Great. And then, Dave, I think you said you're looking for 20% to 30% revenue growth in 2023 off of, I assume, a base pulling out the onetime events last year. Does that reflect any benefit from CMS? Or is that more of a 2021?
Dave Henry
No, we're not assuming anything regarding CMS...
Scott Henry
Okay. Great. I think that should do it for me right now.
Dave Henry
Thanks, Scott.
Operator
The next question comes from Jim Sidoti from Sidoti & Company.
Jim Sidoti
So it seems like you're attacking the reimbursement issue on multiple fronts. With the DME MACs, if you are approved as a rental, do you have any sense on what the length of that rental will be or what the monthly payment would be?
Paul Gudonis
So dealing with our DME rentals, those are paid on a monthly basis for a total of 13 months. At the end of the 13 months, the patient owns the device. We have to make sure that the patient continues to use the device during that period of time, and then we bill monthly. So we don't know how much they would pay. So that's why we've submitted a couple of claims.
We're going to submit a couple more to see what the results are...
Dave Henry
I will say that...
Jim Sidoti
Sorry, go ahead...
Dave Henry
Yes. I was going to say that according to Medicare, so they're building manual. What they view under a capital program is there, if you look at the sum total of 13 months of rentals compared to a lump sum payment, they do give a little bit of a bump up around 5% for rental payments because they try to take into account the time value of money. So what you might get in terms of a benefit, in terms of the 13 -- the patient if they go through all through 13 months, you just have to -- we have to work to make sure that the patient continues to use the device, but that's why we have our MyoCare coaches and things like that, and we have people on our staff that follow love with patients post-delivery to try to make sure that their outcomes are maximum.
Jim Sidoti
Okay. That makes sense. Is there -- could there possibly be a situation where you could get approved in one region, but not another?
Paul Gudonis
Yes, that could happen because there are four regions. Each have their own medical directors, and that's why we met with all four medical directors returning the same data, and we're filing claims in all four regions to see if we'll get approved in each one of those regions.
Jim Sidoti
And do they coordinate with regard to the reimbursement amount? Or could those vary from region to region as well?
Paul Gudonis
They could vary from region to region. I know that my understanding is that the Medical Directors regularly conference with each other. But I don't know if they may make distinctions between each different region.
Jim Sidoti
Okay. And if you do start getting reimbursed from one of the regions, will that help you with the private payers?
Paul Gudonis
I think it would be a good demonstration to the private payers, especially in Medicare Advantage plans that may not be covering the MyoPro today that says, look, Medicare standard fee-for-service is covering this, you're obligated to cover this as well, although we continue to be this is individual consideration. But we do think that having some payments under Part B coverage would be a real positive without Medicare Advantage points.
Jim Sidoti
Okay. All right. And then switching to the international sales, 20%, which is, I think, the highest I've seen in a while. Is that all from Germany?
Paul Gudonis
Yes. Most of this from journey, we actually had -- we had -- we talked about the National Disability Insurance Scheme approval that was revenue in the first quarter, and we also -- we don't really talk about it, but there was a -- we did a sale to another European country. It was more from a research standpoint. So it's not one that we're expecting to continue at least in the near term sort of more a well.
Dave Henry
Yes, the bulk of the sales come in Germany. We've been expanding our team of business development managers and clinical trainers and O&P locations that note the MyoPro in Germany, and that's been working well.
Jim Sidoti
And do you think Australia could be -- could ramp up similar to the way Germany did? Or do you think Australia would be a smaller piece of the pie?
Dave Henry
I think while Australia is a smaller country than Germany. We don't have staff on the ground in Australia, like we do in Germany. And I think that presence that we have, both business development and clinical support has been a big part of why the German market has grown so well.
Jim Sidoti
Got it. And were you surprised at all to receive the $1.7 million payment from the Chinese joint venture? Because I know on the last call, you seemed a little hesitant regarding that one.
Paul Gudonis
Surprised well, I don't think is the right word. I think we're -- I think we were pleased. So we're glad that they're finally able to move forward. I think I think they just needed to -- I believe that they needed the government just to -- the conditions to be right, I think, for them to start up a new business venture.
Jim Sidoti
Right. Okay. All right. Well, it seems like revenue is going up, expenses are going down. So I mean, it seems like things are moving in the right direction. So hopefully, those trends continue.
Paul Gudonis
Thanks, Jim.
Operator
Our next question comes from Edward Woo from Ascendant Capital.
Edward Woo
On the China joint venture, is there any timeline for the next process? And when would you possibly get additional revenue from the joint venture?
Paul Gudonis
So we are having team calls of our engineering and operations team, regulatory, clinical team, with the China joint venture staff. Their next steps are really to obtain NMPA approval. That's the equivalent of the Chinese FDA to be able to market the devices there. We don't know exactly on that would happen. And the other key activity in parallel is to establish, especially the manufacturing operations and the supply chain. So we are working with them to identify the equipment they need to purchase like 3D printers, test fixtures, assembly equipment, and then they have to order the various parts, including the motors, the electronics, the batteries and so on.
So that is underway. We don't have a time frame when production would start yet because it's only been about 30 days since we kicked off this joint venture project.
Dave Henry
The key gating item is the NMPA approval. I don't -- we don't expect that they'll get risk manufacturing before knowing that they're going to get an NMPA approvals to proceed.
Edward Woo
Great. And my last question is, as a reminder, where does the joint venture have their distribution rights? Is it only in China?
Paul Gudonis
It's China, Hong Kong, Taiwan and Macau.
Edward Woo
Great. Thanks for answering my questions. Wish you guys good luck.
Paul Gudonis
Thanks, Ed.
Operator
This concludes our question-and-answer session. I'd like to turn the call back to Paul Gudonis for closing remarks. Please go ahead.
Paul Gudonis
Thanks, operator. Well in closing, I just want to highlight what makes Myomo a special company. We have a large unmet market opportunity just to these individuals with upper extremity paralysis. And there's a growing awareness among clinicians of the MyoPro utility. We've combined the use of digital technology with a targeted marketing approach, the lower the cost of providing the MyoPro to these patients.
Our international sales are growing, as you heard today, helped by the recognition from payers or the use of the MyoPro improved activities of daily living. We're making good progress with CMS.
We expect to have more robust reimbursement in the U.S. in the near term, while at the same time, we developed an excellent track record of obtaining reimbursement from other health plans in the U.S., and we continue to innovate in product design and our business processes to operate more efficiently as we scale the business. Again, thanks for your continued interest in Myomo, and have a good rest of your day.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Myomo, Inc (MYO) Q1 2023 Earnings Call Transcript