Myomo, Inc. (NYSE:MYO) Q2 2022 Earnings Conference Call August 3, 2022 4:30 PM ET
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
Ed Woo - Ascendiant Capital
Good day and welcome to the Myomo Incorporated Second Quarter 2022 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 Ms. Kim Golodetz. Please go ahead, ma’am.
Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo second quarter 2022 conference call. Earlier today, Myomo issued a news release announcing financial results for the three and six months ended June 30, 2022.
If you would like to be added to the company's email distribution list to receive future announcements, please register on the company's website at myomo.com or call LHA in New York at 212-838-3777 and speak with 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 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-Q for the quarter ended June 30, 2022 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. One of my goals for 2022 is to accelerate Myomo’s momentum in serving the needs of those with upper extremity impairment or paralysis. This population with chronic arm paralysis is significant and growing due to the 800,000 strokes annually just in the United States, many of whom are left unable to use their arms and hands, and this patient population is joined by the thousands of accident victims who are left with arm and hand paralysis. So, our addressable market is significant. It's largely untapped and it's growing.
Since we have strict exclusion and exclusion criteria, not all of these individuals are candidates for our MyoPro device. Yet for the first half of this year, we've added nearly 800 medically qualified candidates to our patient pipeline, including a record 420 added during the second quarter. We expect that in 2022, we will add the largest number of candidates to the pipeline in the company's history and our pipeline is a good indicator of future revenue as we obtain insurance authorizations and deliver MyoPro devices to these patients.
Of note for the first time, we have more than a thousand candidates in the reimbursement process awaiting approval for their devices. We're educating these patients to the benefits of the MyoPro through a combination of Internet marketing, social media, clinical in services, clinician referrals, and new advertising ad television, which was launched early in the second quarter. By adjusting our medium mix, our marketing communications are becoming more cost effective.
We're also diversifying our advertising efforts and continue to advertise on digital platforms such as Facebook, which has resulted in lower costs per lead. In fact, our cost per pipeline ad has been cut in half since costs peaked several months ago. At the same time, our lead generation has been growing, which has contributed to the significant increase in our pipeline additions.
Once the patient is in the insurance preauthorization process, our patient advocacy team secures the payment commitments. In the second quarter, we received authorizations with a potential revenue value of $4 million from payers, including orders from VA medical centers and orthotics and prosthetics clinics in the U.S. and overseas.
Our team also added to the roster of insurance plans that now cover their first MyoPro such as Blue Cross Blue Shield plans in Texas and Kansas, and new Medicare Advantage plans such as Highmark, Blue Cross Blue Shield and several others across the country. We saw an increase in the number of authorizations in second quarter from a major Medicare Advantage plan that had reduced access for some of their beneficiaries starting late last year.
In addition, we saw an accelerated payment cycle with this insurer in the second quarter and we continue to serve patients covered by this and other Medicare Advantage payers. The direct billing channel represented 83% of our revenue in the quarter, which led to a record average selling price of $46,000 per unit. This ASP is a result of a favorable channel mix, as well as our ability to negotiate higher reimbursements in certain cases.
Product revenue was $3.7 million, which is up 18% from the same period a year ago. We're still waiting for the second license payment from our joint venture in China, which has been delayed due to the COVID-19 outbreak in cities such as Beijing where our joint venture partner, Ryzur Medical is located. Until this payment is received, we're not providing any technology or knowhow to support the JV's [operational startup] [ph].
Earlier this year, we began shipping the new MyoPro2+ version of our product line because this product is custom fabricated in-house reducing our supply chain risk and we could ramp up production to meet the growing demands. Our international business is largest in Germany, which is a very supportive reimbursement environment through statutory health insurance, which covers about 95% of the population.
Our international business added a significant number of new patient candidates into the pipeline as well and we expect our international revenues to double year-over-year in 2022. In June, we presented our case at the CMS public hearing to have our benefit category changed from DME rental to a brace or orthosis, which would make the MyoPro available to Medicare Part B patients who don't have access to our device today.
I'm pleased with the effort our team put into what I and other industry experts believe was a very compelling case. Our expectations to receive feedback in the coming months, though we're confident in what we presented at CMS, we can't predict what the outcome or the timing of our appeal would be. CMS did recently issue a roadmap for states to help connect children with complex medical conditions to critical Medicaid services.
While we're still waiting the details on this program, I'm pleased to see the federal government's increased commitments to specialized healthcare for children with complex conditions. Children with cerebral palsy and other indications, which may have resulted in upper extremity impairment could be served by our upcoming MyoPal pediatric device and this program may increase access to our technology. We'll be watching for the details of this program to see how it applies to our patient population.
Now, I'll turn the call over to Dave Henry to review our Q2 financial results in more detail, then I'll come back and provide some additional comments before taking your questions. Dave?
Thank you, Paul, and good afternoon everyone. Turning now to our second quarter financial results. Revenue for the second quarter of 2022 was 3.7 million, which was up 18% over the prior year quarter. Second quarter revenue was comprised solely of product revenue. The direct billing channel accounted for 83% of revenue, up from 73% of revenue in the year ago period and 65% of product revenue in the first quarter. This channel shipped contributed to a higher average selling price.
International sales were 9% of revenue in the second quarter, but the remainder from the VA and U.S. O&P channels. We recognized revenue on 80 MyoPro units in the quarter, unchanged from a year ago, but up 13% sequentially. Backlog, which represents insurance authorizations and orders received, but not yet converted to revenue, was 163 units at quarter-end. This is up 2% over both the prior year and March 31, 2022 backlogs, both of which stood at 160 units.
Gross margin for the second quarter of 2022 was 65.5%, compared with 71% in the second quarter a year ago. The decrease was driven by higher material and fitting costs in the current inflationary environment and unabsorbed overhead, partially offset by high ASP. Operating expenses for the second quarter of 2022 were $5.3 million. This is up 10%, compared with the same quarter a year ago and primarily reflects higher compensation, payroll and advertising costs. Advertising costs of $1 million increased 34% year-over-year.
However, as Paul mentioned, our patient acquisition costs continued to improve as cost per pipeline add declined 7% sequentially to approximately $2,470, which is approximately half the cost in the fourth quarter of 2021. In the coming quarters, our objective is to lower the cost for pipeline ads $2,000 through expanded television and organic advertising, as well as reengaging with patients we had to place on-hold in earlier periods.
Our operating loss for the second quarter of 2022 increased to 2.9 million from 2.6 million a year ago. Net loss for the second quarter of 2022 was 2.9 million or $0.42 per share, compared with a net loss of 2.6 million or $0.46 per share for the second quarter of 2021. Adjusted EBITDA for the second quarter of 2022 was a negative 2.5 million and this compares with a negative 2.2 million for the second quarter of 2021.
Looking at our year-to-date financial results, revenue for the six months ended June 30, 2022 was 7.5 million, up 39%, compared with the same period a year ago. Excluding the partial joint venture license payment received in the first quarter of 2022, year to date product revenue of 6.5 million was up 20% over the same period last year.
Year to date gross margin was 66.1%, compared with 72% in the year ago period, again due to higher material and other costs in the current year period, somewhat offset by higher ASP and 100% margin license revenue. Year-to-date operating loss was 5.6 million, compared with 5.5 million for the same period a year ago.
Net loss for the first six months of 2022 was 5.7 million or $0.83 per share, compared with a net loss of 5.6 million or $1.03 per share for the year ago period. Year-to-date adjusted EBITDA was a negative 4.9 million for both six-month periods.
Turning briefly to our balance sheet. Cash and cash equivalents as of June 30, 2022 were 10.2 million and this compares with 12.9 million as of March 31, 2022. Cash used by operations was 2.6 million in the quarter. Subsequent to the close of the quarter, we entered into a $5 million equity line of credit with Keystone Capital. Under the equity line, Keystone is committed to purchase a minimum of approximately 1.4 million shares, representing approximately 2.3 million of committed capital at the current stock price.
Purchasing more than this minimum amount, up to the full $5 million will be dependent on whether purchases are above market according to New York Stock Exchange rules or we obtained shareholder approval. As part of our due diligence activities, Keystone was highlighted to us as an excellent long-term financing partner. The purpose for entering into the equity line is to ensure we have sufficient cash, plus committed capital to fund operations for at least the next 12 months.
In conjunction with entering into the equity line, we reduced our capacity under our ATM to $300,000 in order to stay within limits set forth under the so-called Baby Shelf Rules. As a result, our capacity to raise additional capital under our existing shelf registration statement is unchanged. In effect, we substitute a capacity under our ATM for the equity line.
As a final topic, I'll provide some forward-looking commentary. Given the size of the backlog, we have the opportunity to grow revenue on a sequential basis in the third quarter. However, our expectation is that product revenue in the third quarter will be lower on a year-over-year basis.
Profile of the backlog suggests lower ASP in the third quarter, compared to the second quarter, therefore, sequential revenue growth is expected to be volume driven through a combination of higher backlog conversion and a higher number of fill units. We're pleased with the execution of our team so far this year.
Results [indiscernible] challenges we experienced in the fourth quarter and the transition to in house manufacturing has gone well. Use of our remote measurement capability is increasing in frequency. With respect to reimbursement, the large insurance payer that unexpectedly started denying claims, post-delivery and required us to utilize the appeals process for reimbursement began paying these claims faster during the second quarter and authorizations are picking up as Paul mentioned.
Finally, our revised marketing strategy is starting to bear fruit, resulting in record pipeline ads for significantly lower patient acquisition costs versus the start of the year. Our focus for the remainder of the year as it has been for the first six months is on growing the pipeline at a lower cost for pipeline adds and increasing yield to realize greater number of revenue units per lead that we generate in order position of the company for stronger revenue growth in 2023.
With that financial overview, I'll turn the call back to Paul.
Thank you, Dave. In my shareholder letter, this past spring, I laid out six goals for the company in 2022. Number 1, accelerate our pipeline growth, and do so at a lower cost for pipeline ad. Number 2, broaden the number of insurance plans that will cover MyoPro. Number 3, conduct additional clinical research in order to be in position to provide this data to insurers and CMS if requested in support of a coverage policy. In the case of commercial insurers, contracts to provide the MyoPro to their beneficiaries. Four, utilize digital technologies to reduce costs in cycle time. Number 5, expand our international business into new markets, and six, restart development of the MyoPal device for pediatric patients.
I'm pleased to inform you that we are executing on each of these initiatives as we build upon our position of market leadership and grow Myomo into a larger profitable company that will ably serve this large and growing patient population for years to come.
This concludes the formal part of our presentation. Operator, we're now ready to open the call to questions.
Thank you. [Operator Instructions]
And before we take the first question, I want to mention that we are 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 whenever you are.
Yes, sir. The first question will come from Ben Haynor with Alliance Global Partners. Please go ahead.
Good afternoon, gentlemen. Thanks for taking the question. First off for me, you mentioned in the prepared remarks the goal to lower the cost per pipeline add to about 2,000, but you also talked about part of that improvement being due to reengagement of patients. How much of the reduction is – do you think is going to be due to reengagement versus just, kind of better conversion rates, etcetera?
Ben, it's Paul here. So, most of the new pipeline is coming from the new advertising that we're doing. As I mentioned, we diversified the advertising beyond Facebook, Google Ad Networks, and kind of traditional digital media platforms and have started TV advertising in selected metro markets.
We're now starting to pilot national cable TV and certain channels. And we're seeing that has led to an increase in number of leads that we're getting, the number of hits to the website. And we still engage past patients who have contacted us and maybe last fall during the holiday season, they weren't ready to engage and go through the process of going to their doctor, getting the letter of medical necessity and so on. So, we do engage with some of those, but most of the patients come from the new [indiscernible] flow that we're generating every week.
Okay. That makes sense. And do you have kind of a sense of what the costs for TV lead versus a Facebook lead versus whatever channel lead is at the moment or is it too early to tell?
It's still a couple of weeks early. We've just been doing it for six to eight weeks starting from beginning the second quarter. I would tell you we're really pleased that we're seeing we're getting a lot of pickup by patients and family members because the product shows so well visually. Somebody sees a video of a patient that looks like them, who's had a stroke or other type of injury, moving their arm, carrying objects cooking for their family and so on. And then we've got a 7/24 call center that picks up those leads. So, we're pretty pleased with the cost per lead from TV advertising so far.
Okay, great. And then on the cost front, just are there more levers that you can pull there? I mean, I know the ASP was a record here in this quarter, but it wasn't a gross margin record or is it – are there certain components that you don't expect the price to decline on or labor? What's the right way to think about potential for greater gross margins in the future?
Yes, I think the – Ben, this is Dave. I think the, I mean, we are seeing costs increase for many components, what comes to the top of my mind is like is, we provide a laptop with every mile throw that includes our MyConfig software on it. The patient allows them to track the progress. Laptops are more expensive. It's more expensive for our clinicians to go out and see patients and fit the device.
I mean, travel costs, there are things – I don't think a lot of these increases are permanent. I think that as the economy ebbs and flows, I think we'll start to see relief on some of these things, but we're also – we're constantly working on, you know, improvements and things that we can do is that thinking about other ways to make the device cheaper.
So I'm – so to answer your question, I think, I don't believe a lot of the cost increases we're seeing are permanent. They're just, sort of as a result of the environment. And has this environment, sort of normalizes itself and things. And the demand side of things and the supply side of things start to even out a bit more, I think we'll start to receive some relief on that.
Okay. That makes sense. That's it for me, gentlemen. Thanks for taking the questions.
The next question will come from Scott Henry with Roth Capital. Please go ahead.
Thank you and good afternoon. Just looking at the numbers, what jumps out at me is the authorization rate from the cumulative pipeline converting it to authorizations, had been 15% in Q2 and Q3 of last year, dipped down to I think 11% depending on what numbers you use. 12% Q1, you know 11% in Q2, do you think that number – is it low right now? Do you expect it to bounce back or is that the right number? It just seems like that has a pretty big factor, and where the numbers are going to be in the next several quarters? Thank you.
Well, one way to look at – Scott, one way to look at that is, you're looking at – a numerator is number of authorizations, compared to the denominator being the size of the pipeline at the end of the previous quarter. And as that denominator grows and you can see it's been growing very much so in the last six months, basically getting authorizations, it's coming – the division is, it's being looked at over a larger denominator, which then reduces that percentage.
And so, my way of looking at it is putting more into the pipeline by getting our historical authorization rate over time, more pipeline turns into more overall net optimizations.
Okay. No, that's all true, but when we model it, we want to think about converting because obviously if that denominator just keeps getting bigger, perhaps some of those leads aren't as fresh. I mean, do you – I guess I'll go back to the original question. do you think that true number is going to be closer to 15% or 11%?
Yes, Paul or Scott, this is Dave. It's been hovering in the range 10% to 15%, and I think what we're trying to do through these yield improvement efforts, which are just – I would turn them sort of we're six months into the year and there's a lot of things that we're working on to try to improve that number. So, I would say that we're not satisfied with 11% and we're looking to get the range as you mentioned.
It's been in the 10% to 15% range and we would like to see that number go up through as a result of some of those things that we've been working on and some of the changes that we've made, adding putting patient navigators into defining that role in the company, which I kind of term as a [indiscernible] for the patient to guide them through the process and help to keep them engaged longer, so they don't drop out.
So, all of those things – those and other things that we're working on, and our objective is to see that number grow, that authorization rate grow over time.
Okay. All right. Thank you. That's helpful. It gives me a sense of how I should think about it. A couple other numbers were pretty strong this quarter and I just wanted to get your sense of was it a blowout quarter or should we expect them to continue in the two numbers being obviously the pipeline adds of 420 was very big. How should we think about that relative going forward? And number two, the ASP was higher than it's ever been. And for the most part, that number trends up into the right, but is there any reason to think that it may – that might have been a spike in that quarter?
I'll talk the ASP first and I'll – that's on top of my head. And I think in our prepared comments, we, you know, we got some, we got an uplift in ASP because we had a higher mix of direct billing revenue in the quarter, is 83% of our revenue is direct billing. Last quarter was like, it was 65. So, direct billing mix does have an impact. I mentioned in the prepared remarks that the – based on the profile of the backlog, it's my belief that we'll probably see a lower ASP in the second quarter or in sorry in the third quarter, compared to the second quarter.
So, I think it – so ASP will depend on the profile of the backlog and how much we ultimately realize in a quarter when we look at the channel mix direct billing versus the other channels. And we are doing, we are, you know, every time, you know, every time we discuss with an insurance company, a single case agreement, particularly with newer payers. We're trying to obtain as much reimbursement as we can.
So, we've got a reimbursement team, a payer relations team that is – that's all they do, is [tasked] [ph] with trying to increase the ASP. So, now, actually, having said all that, what was the first thing? The additions, the pipeline additions?
The 420, how should we think about that going forward? And I know you have this crazy November election, which is going to, kind of probably create some issues as well?
Yes. I mean, we're going to do our best to continue to grow the pipeline additions and the pipeline itself because that correlates to future revenue growth. We're looking ahead to 2023 and we want to set ourselves up for a strong 2023 and the things that we're doing now are what's going to define what 2023 looks like.
Okay, great. And I did have a couple other questions. Have you had any meetings with commercial insurers about contracting for the device?
No, not yet, Scott. We have requested meetings. A lot of the insurers want to see what is CMS Medicare Part B going to do? And that's why that was a very important meeting that we attended, a public meeting on June 8, and we're waiting for an outcome of that meeting. because as you know a lot of the commercial contracting often follows Medicare. So, we haven't been able to have any of those meetings and that's why we're waiting for this Medicare Part B decision.
Okay. Thank you. And then the final question just on the gross margin or I might ask one more after this, but I know you hit this in your prepared remarks a little bit, but maybe I might ask you a little different. Gross margin in the second half of 2021 was kind of in the mid-70s in the first half of 2022 was in the mid-60s, what do you think is the better go forward gross margin? What do you think is more indicative?
I would say gross margin in the 65% to 70% range. You have to remember two that in first quarter, we had a larger number of deliveries to patients that we actually recognized revenue on. That has a negative effect on backlog. And there's going to be – there'll be quarters when that happens and there'll be quarters when the reverse happens when we have more revenue units and deliveries just the way the timing works up.
So, there is some variability to gross margin that is built in because of that, but I think if you took that away, and just look at the entitlement gross margin on a quarter-to-quarter basis assuming that we continue to improve operations, grow revenues, which will improve absorption, I think 65% to 70%, the way the business is right now with the cost structure right now is I think is a good way to think about it.
Okay. Thank you. That's helpful. Now the final, final question. Shares outstanding, and I know you talked about this, but I didn't get it all. This Keystone ELOC, how is that going to hit the – when is that going to hit the income statement and about how many shares did you say you were going to – they were going to take down?
Well, the commitment is for up to 19.99% of our outstanding, which is about [1.4 million] [ph]. We have just over 7 million shares outstanding. Under the ELOC, I know you know how these things work. You know, it's a, you know, Keystone. is committed to purchase, but the company is not required to sell, so we pick and choose the timing at which we sell.
You know, we haven't sold anything with them yet. We just we just entered into it. We haven't sold under the ATM anything so far this year. The stock price is too low for us, and so we’re hoping that as we continue to execute and we continue to do the things we're saying, we're trying to do by growing the pipeline and ultimately that translates into a higher backlog and higher revenues that the stock price will take care of itself. And then if you – CMS helps us out with changing our benefit category to a brace that will help things as well.
So, right now, we're not committed to doing anything other than we have ELOC in place, but we're not required to use it at any given time.
Okay, great. Thank you for taking all the questions.
Thank you, Scott.
The next question will come from Jim Sidoti with Sidoti & Company. Please go ahead.
Hi, good afternoon. Thanks for taking the question. Just one for me. How are international sales in the quarter? relative to total sales and how did that compare to a year ago? International revenue was 9% sales. It was roughly the same, I would say. The international [had] [ph] setting aside first quarter last first quarter, which was 20%. International has historically been in sort of the 10% range, and so, we've returned to that need in the second quarter, which is fairly consistent with where we were a year ago.
Jim, as I mentioned in my remarks…. [Multiple Speakers]
Revenue did grow year-over-year, just in dollars.
Yes. And we expect, Jim, as I said, that the international business and coming off with a smaller base, should double this year, based on the pipeline we have there, primarily in Germany.
Right. Okay. All right. That was it for me. Thank you.
[Operator Instructions] Our next question will come from Ed Woo with Ascendiant Capital. Please go ahead.
Yeah. Congratulations on the quarter. Just following up on international sales. Congratulations on being able to expect to double revenue this year. What are you guys doing that's really driving the growth? And do you think that you guys have a long runway to continue this over the next several years?
Well, I think the international market is very promising for us. If you look at Germany alone, with a population of over 80 million, it's a market about 30% of the size of the United States. So – and it's very much a good reimbursement market. They really like to take care of their citizens with the statutory health government insurance plans. They like high-tech products and we've got a good team on the ground.
We've actually expanded that team to provide more business development capability, more clinical trainers. We have 52 Orthotics & Prosthetics clinics that are in network with these insurance companies there. And so, we work through them. And again that business is growing well.
We just added a new distributor, sales agent up in the U.K., Australia is starting place orders after coming out of COVID lock down. And then I'm looking forward to getting the second payment from China, so we could get that part of the business going as well.
Just to be clear, or just to make sure everyone's aware. So, international revenue line, as I mentioned, was about 9% of revenue in second quarter. Year-over-year, international revenue was up about 12%.
Great. So, obviously you're having a lot of traction in Germany, are there other EU countries that are very similar or are the markets unique to Germany?
We're focusing on Germany just because we've got the best distribution system there, the best reimbursement environments. We're always talking to other potential O&P, our Orthotics & Prosthetics partners. When you enter a new country, you've got to make sure you can get any regulatory approvals that are required, but also the reimbursement process, you know, as we've seen in the U.S. and in Germany, it can take a couple of years to get the product established in those markets.
And so, what we've decided to do is, since we're well established now in Germany with reimbursement, let's just do more of that in Germany and serve more patients there primarily.
Great. Well, thanks for answering my questions and I wish you guys good luck. Thank you.
Thank you, Ed.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Paul Gudonis for any closing remarks. Please go ahead.
Thank you, operator. Well in closing, Myomo provides an essential product to people suffering from neurological disorders and upper limb paralysis and we're confident in our ability to continue to reach these patients, receive buy-in from payers, and ultimately from Medicare Part B and additional state Medicaid plans as well. So, once again, thank you 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.