Myomo, Inc. (MYO) Q2 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the Myomo Incorporated Second Quarter 2019 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 Vivian Cervantes, Investor Relations. Please go ahead.

Thank you, operator. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate belief, estimate, expect, intend, guidance, confidence, target, project and other similar expressions are used typically 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 uncertainty and other factors that may affect Myomo’s business, financial condition and other operating results. These include but are not limited to the risk factors and other qualifications contained in Myomo’s filings with the SEC to which your attention is directed. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Myomo expressly disclaims any intent or obligation to update these forward-looking statements. After the market closed today, we issued a press with our second quarter results, a copy of this press release can be found in the Investor Relations section of our website. Representing the Company on this call today is Paul Gudonis, Chairman and Chief Executive Officer; and Dave Henry, Chief Financial Officer. At this time, it is now my pleasure to turn the call over to Paul Gudonis. Paul, please go ahead.

Thank you, Vivian, and welcome to all of you. Thanks for joining us on our second quarter of 2019 earnings conference call. I'll begin this call by providing a business update. Dave will then discuss our second quarter financial results and provide a guidance update. And following the financial update, I will give some closing remarks and then we’ll be available to take your question. Over the past 12 months, we've increased our sales and marketing activities and significantly grown the number of MyoPro units that are in the reimbursement process. I'm pleased to report that our second quarter revenue was up 39% compared to the second quarter of 2018 and for the six months ended June 30, 2019 revenue was up 81%. A year ago, we had 92 MyoPro units in the reimbursement pipeline and since then we built out a national sales team, recruited and trained orthotics and prosthetics practices to fit patients with our MyoPro braces in the top 50 metro markets in U.S. and we organized hundreds of screaming days to evaluate patients for our devices. We also launched our direct-to-patient online marketing effort to reach the many individuals who may need our powered braces for their paralyzed arms. And as a result of these efforts, we ended the June quarter with 453 units in the pipeline including 20 in Europe, which is almost a 5x increase from a year ago. We started the quarter with 354 pending cases of which 40 were approved for reimbursement, 43 exited the pipeline due to medical issue, a changed insurance or other factor and we added 182 new candidates as a result of the screening days in the U.S. and in several international markets leading to a total of 453 MyoPros in the pipeline. The 182 adds into the reimbursement process is a new record and it is up 64% sequentially from the 111 new cases that were added in the first quarter. So year-to-date, a total of 293 patients have been added to the pipeline. Of the 453 units in the pipeline, 316 were either awaiting response from the insurance companies or they were in the appeals process. This represents a 56% increase over the 203 cases that were in this stage of the process at the end of the first quarter, while the others are in the process of having their pre-authorization paperwork prepared. This increases not only reflective of the accelerated pace of additions to the pipeline, but also operational improvements inside the company designed to get cases into the hands of the insurers faster. In the U.S., we've continued to expand our direct to patient marketing efforts, which we'll expect we'll increase the number of ads to the pipeline in the second half of the year compared to the first half. Last year, we also initiated our direct billing program whereby Myomo is a provider of record and we invoiced the insurance companies directly on behalf of the patients. We partnered with local O&P clinicians, who evaluate candidates at the screening days, they fit the custom fabricated brace when we receive the insurance authorization, and then they provide local support if necessary. Roughly 30% of the total pipeline and 40% of the additions to the pipeline are now being derived from the direct billing program. We're also introducing a new metric in this call to provide additional visibility into our future revenue. Our historic pipeline metric represents the number of patients in the process of having their claims submitted to insurance for reimbursements. A new metric we've added is backlog patients for whom the insurance company has authorized reimbursement, but have not yet turned into revenue for one of two reasons. The approved device is still pending delivery or we haven't received payment yet depending on how the revenue is recognized. For example, we may have recognized – received an authorization in June and the delivery to the patient may occur in July or August and so we had to arrange for a cash theme followed by custom fabrication and then the patient fitting. Dave will provide more color on this metric during his comments. As of the end of the second quarter, there are 50 MyoPros in backlog and we expect majority of these cases will convert into revenue over the next two quarters. Turning next to the state of our discussions with CMS, we'd hoped we could have some progress report regarding Medicare coverage and reimbursement for the MyoPro and time for this earnings call. New allowables for other coded products were published in June to the effect of July 1st and prices for our proof codes were not provided as we continue to be in discussions with CMS. These discussions largely centered around payment methodologies, whether the MyoPro reimbursed this capped rental durable medical equipment, in other words, rent to own for the patients or pay for like other braces, which are reimbursed as a lump sum payments to the clinical provider. Our Chief Medical Officer, Dr. Brandon Green, participated in the CMS public hearing in June to reiterate that the MyoPro is a custom fabricated brace, which meets an important need for Medicare beneficiaries and our objectives in these discussions are to obtain reasonable coverage policy and obtain a fair allowables. So there's been some turnover among the staff in this division of CMS, so we continue to follow up with these administrators and we hope to have progress to report in the near future. Of course, I must remind investors that we cannot guarantee that the MyoPro will ultimately be reimbursed by the government-run Medicare plan. In the meantime, patients with Medicare advantage plans, which are administered by commercial insurance companies, are obtaining reimbursement for their MyoPros, including reimbursements from the largest Medicare advantage insurer. We're pleased to be able to serve these Medicare eligible patients, who have purchased these alternative plans. Well, I'll wrap up my opening remarks by summarizing the new business developments that we've announced over the past few months. Initial reimbursements in new country markets such as Denmark from their version of Medicare, the government-run payment system, several in Germany, in fact, we just received another order from a German O&P partner for a pair of MyoPros for bilateral patients. These O&P providers across Europe are starting to use digital marketing and social media as we have in the U.S. and our plan to conduct 50 screening days this year to build their pipelines. We've also engaged a number of children's hospitals in the U.S. for the introduction of the upcoming pediatric MyoPro for their young patients. Prototype testing is underway and we expect to begin marketing this new product later this year. Our team recently attended a national brachial plexus injury camp for children and adolescents. It will be following up with them and their families, who are interested in having a formal evaluation for a device. At our most recent board meeting, we had a seven-year-old boy, who has been unable to use his right arm since birth. He demonstrated how he can use both arms for the first time in his life with his MyoPro prototype after his brachial plexus injury at birth. So with that overview of our expanded sales and marketing efforts are growing the business, we'll move on to the financial review of the quarter and the year by our CFO, Dave Henry.

Thank you, Paul. Turning to our financial review, revenue in the second quarter of 2019 was approximately $880,000, an increase of 39% versus the second quarter of 2018. Total revenue for the six months ended June 30, 2019 was approximately $1.710 million, an increase of 81% versus the comparable period of 2018. Our revenues, the three and six months ended June 30, 2019, were impacted by higher unit volume, which was partially offset by a lower ASP, particularly in the second quarter, which includes some lower ASP sales to Ottobock. We sold 38 units in the second quarter, which represented a 73% increase over the 22 units sold during the second quarter of 2018. As Paul mentioned, we have 50 units in backlog at the end of the second quarter for units and backlog, which will be delivered to our O&P partners, generally revenue will be recognized upon delivery. The backlog generated by our direct billing efforts as well as from cases where payment from the O&P provider is contingent on their receipt of insurance reimbursement first. Revenues for that portion of backlog will be recognized upon receipt of payment. Our expectation is that the majority of our backlog will convert into revenue within six months. Gross margin was 72% and 68% for the quarters ended June 30, 2019 and 2018 respectively. The increase in gross margin was primarily due to realizing cost reduction benefits in the second quarter of 2019 on the MyoPro. Year-to-date, gross margin is 75% compared to 67% for the comparable period a year ago. Operating expenses were approximately $3.336 million for the three months ended June 30, 2019, an increase of 7% versus the comparable period of 2018. Operating expenses were approximately $6.673 million for the six months ended June 30, 2019, an increase of 17%. The increases in our operating expenses primarily reflect higher compensation costs associated with the addition of personnel, particularly supporting reimbursement, marketing and product development efforts. The company's net loss for the quarter ended June 30, 2019 amounted to approximately $2.565 million, or $0.15 per share, compared with a net loss of $2.630 million or $0.21 per share for the corresponding period of 2018. Net loss for the six months ended June 30, 2019 was approximately $5.163 million, or $0.32 per share compared with a net loss of approximately $4.975 million, or $0.41 per share for the corresponding period of 2018. Adjusted EBITDA for the quarter ended June 30, 2019 was a loss of $2.486 million compared with a loss of $2.512 million for the corresponding period of 2018. Please see our press release issued today for our reconciliation of net loss to adjusted EBITDA. Cash on hand at June 30, 2019 was approximately $6.669 million compared to approximately $6.541 million at December 31, 2018. Cash burn in the second quarter of 2019 slowed to $2.6 million compared to $3 million in the first quarter of 2019. Turning to our forward-looking guidance. As a reminder, our previous guidance for full year 2019 is that revenues will grow significantly year-over-year and that we will see operating leverage in the business in 2019. Meaning, incremental year-over-year gross profit dollars in 2019 would exceed the growth in year-over-year operating expenses. And finally that our cash balance was sufficient to fund our operations in 2019, we continue to reiterate that guidance. We ended the quarter with 453 units in our reimbursement pipeline including 316 units, which have been submitted to approval to insurance companies as of June 30, 2019 with an additional 50 units in backlog. Year-to-date revenues were up 81% compared to the same period of 2018 and our pipeline and backlog support our expectation that revenue in the second half of 2019 will be greater than the first half, resulting in significant revenue growth in 2019. With respect to operating leverage, our year-to-date operating loss is slightly higher than the comparable period a year ago. Our expectation is that while operating expenses are expected to grow in the second half of 2019, revenues are also expected to increase in the second half as I mentioned earlier. As a result, we continue to expect to generate operating leverage in the business in 2019. Finally, our cash burn in Q2 supports our expectation that our available cash is sufficient to fund our operations and capital expenditure requirements through the end of 2019. Beyond 2019, we expect to need to raise additional capital in order to reach breakeven. Now, I'll turn the call back over to Paul.

Thank you, Dave. As you've heard us described today, our transition from a controlled introduction to scaling up our commercial operations during the past year is generating strong revenue growth and the increasing number of MyoPro units in the reimbursement pipeline and now a backlog of authorized units that are pending payments. Before opening up the call to your questions, I'd just like to highlight our key milestones for the second half of the year. Significant year-over-year revenue growth from our expanded pipeline backlog, a growing number of new MyoPro candidates entering the reimbursement process, obtaining appropriate coverage and payment policies for Medicare beneficiaries, launching the marketing of the new pediatric sized device with initial patient evaluations and reduce cash burn as we continue to generate operating leverage. This concludes the formal part of our presentation. So operator, we're now opening up the call to questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jim Sidoti of Sidoti and Company. Please go ahead.

Good afternoon everyone. Can you hear me?

Yes.

Great. So you talked a little bit about the discussion – the discussions you've had with CMS. Is there anything you can give us regarding a timeline? And when you expect to get some kind of a part from them?

Jim, we have ongoing discussions. As I mentioned, there has been some turnover of the other staff administrators in that division. So we've had to restart some of those discussions. I'd like to see us get through a decision by the end of the year, but they don't have any specific timetable, but our expectation is we should get this resolved between now and the end of the year.

Okay. And can you give us a little color on the number of screening days in the quarter and where you expect that to be for the remainder of the year?

Well, we had 138 screening days in Q2, which was up from the number in Q1. We are aggressively expanding the advertising, the digital marketing to the patient population. And so, we're offering screening days across the country and we're also not waiting for specific screening days. So we're accelerating the cycle time. So if someone is interested, let's say, in New York, instead of posting let's say a September 15 date, we can get them in screen on August 15, we'll do that instead. So I think you'll see more screenings overall happening because we expect we're going to be generating more leads based on – we're accelerating what we're doing, putting a little bit more into marketing because we know this is working. And so that's why we’ll have more screenings here in the quarter.

And the units just through Ottobock, was that primarily in the U.S. or is that outside the U.S.?

Well that's purchased through their North American operation. So those are units that they sell either to U.S. VA customers or to O&Ps in Canada. So they had purchased inventory about a year and a half ago. They have gone through a lot of that inventory and so are they restock with some additional units.

Okay. And then the last one for me, internationally, have you begun to accelerate the number of screening days there as well? And is that something that you're doing? Or is that your distributors that are doing that?

So during the first part of the year, we recruited these distributors. We did training. We conducted initial evaluation screening days with them. They saw good results. It's still on their own initiatives. They basically looked at what we were doing in terms of social media, digital marketing, search engine, advertising and they've now designed their own screening days. So, overall, these O&P partners are planning 50 screening days in the second half of the year.

Okay, thank you.

You're welcome.

[Operator Instructions] The next question comes from Ed Woo of Ascendiant Capital. Please go ahead.

Yes, congratulations. And then my question is on international screenings and as you're working with distributors who's paying for those screenings?

The distributors are O&P providers in these countries, so they are paying for the advertising and they cover the cost of their own personnel for the screening days.

Great. And then my follow-up question I have is, you know, are you targeting specific areas within Europe? I don't hear much you mentioned about UK, I don’t know if there is any impact from Brexit?

So, we have been building up our distribution networks so far: Germany, Italy, Denmark, also UK. So we work with our Dorset Orthopaedics in the UK in Hobbs, which is a neuro-rehab hospital with 10 clinic locations around the country there. We don't think Brexit is going to have any real impact on this. So, those are the initial countries and we have discussions going on with several other leading O&Ps in different countries there as well.

Great, well, thank you and good luck. Thank you.

Yes, thank you.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Gudonis for closing remarks.

Well, thank you operator. Well before we wrap up today, I want to speak to the stock price, which has declined over the past year, something that frustrates all of us who are shareholders. During this time, we've made significant progress in commercializing the MyoPro prize line across the U.S. and in selected international markets as you've heard. We've increased the patient pipeline 5x over the last 12 months to a record level. We obtained a growing number of insurance reimbursements. And as you’ve seen, we've improved margins with our direct billing program and reduced cost of goods sold. So while we don't control today the stock price, I expect that this growth, the progress toward profitability, and the company's strong position in addressing a large unmet medical need will ultimately be reflected in our stock price. So thank you again for being shareholders and for your time today. Have a good day, everyone.

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