Good day and welcome to the Myomo Inc Fourth 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 Kim Golodetz. Please go ahead.

Thank you, operator, and good afternoon everyone. Welcome to the Myomo fourth quarter 2019 financial results conference call. This is Kim Golodetz with LHA. Earlier today Myomo issued a new release announcing financial results for the 2019 fourth quarter and full year. 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 the call today for Myomo are Paul Gudonis, Chief Executive Officer; and Dave Henry, Chief Financial Officer. Before we begin, I would like to caution listeners that statements made during this conference call by management other than historical facts are forward-looking statements. The words anticipate, belief, 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 other operating results. These include but are not limited to the risk factors and other qualifications contained in Myomo’s filings with the Securities Exchange Commission including the Form 10-K for the year ended December 31, 2019, which is expected to be filed today. Actual outcomes and results may differ materially from what is expressed 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 Paul Gudonis, CEO. Paul, please go ahead.

Thank you, Kim, and good afternoon everyone and thanks for joining us today. I’ll begin the call by providing a business update. Dave will then review our fourth quarter and full year financial results and discuss our financial outlook. And then following the financial update, I’ll give some closing remarks and then we’ll take your questions. During the fourth quarter of 2019, the strategic actions that we had initiated over the previous 12 to 18 months began to payoff generating important new records for the company; record revenues, record pipeline growth, record gross margin and record direct billing channel pipeline. More specifically revenues in the fourth quarter were just over $1.5 million representing a 71% increase over the same quarter a year ago. For the year revenues were $3.8 million representing a 57% year-over-year increase. We’ve now had three consecutive years of revenue growth of 40% to 60% and we expect this growth to accelerate as a result of our national rollout of the MyoPro and the success of the continued scaling of marketing operations that we initiated a year and a half ago and Dave will discuss these plans in a moment. Since we launched our direct-to-patient marketing initiatives, our reimbursement pipeline has now expanded six fold to nearly 600 cases as of December 31, 2019. Recall that our reimbursement pipeline is the number of MyoPro units that are in the process of receiving insurance prior authorization. Patients or family members, who see our ads on social media platforms and via search engines, are captivated by the opportunity to use their paralyzed arms once again. As a result, we’re adding more than three medically qualified patients into our reimbursement process every day and presuming insurance approval this represents more than a hundred thousand dollars of potential revenue each business…

Thank you, Paul. Turning now to our financial review. Revenue for the fourth quarter of 2019 was a quarterly record of $1.5 million, an increase of 71% compared with a year ago quarter. Total revenue for the year ended December 31, 2019 was $3.8 million, an increase of 57% over 2018. While fourth quarter and full year 2019 revenue growth was achieved through a combination of a higher number of units sold and a higher average selling price reflecting a record amount of direct billing revenues. More specifically revenue from the direct – from direct billing for the fourth quarter was 50% of total revenue, up from 23% of total revenue in the prior year quarter. Direct billing channel revenue for the year was 33% of total revenue compared with 15% of total revenue for 2018. We’re delighted with the progress we’ve made to increase our direct billing revenues as these sales have a favorable impact on our gross margin. We ended the fourth quarter with 331 billing – direct billing units in the MyoPro pipeline, or 56% of the total pipeline. We’ve recognized revenue on 43 units in the fourth quarter versus 32 units during the fourth quarter of 2018. Backlog, which represents insurance authorizations received but not yet converted to revenue, was 53 units as of December 31, 2019. This compares with 61 units as of September 30, 2019. More than 40% of the backlog, at the end of the third quarter, was converted into revenue during the fourth quarter and roughly 35% of our fourth quarter revenue units came from orders received in the fourth quarter. The majority of these were from our O&P, VA and international sales channels. Turning now to gross margin. Our gross margin in the fourth quarter of 2019 was a record quarterly…

Thank you, Dave. Well, as you’ve heard us describe today, Myomo was established a multiyear track record of consistent strong growth in the business and the strategic actions we’ve taking are leading to an acceleration of the key operating metrics, namely increased patient leads, the additions to the reimbursement pipeline, a larger percentage of our business going through the direct billing channel and higher revenue and gross margin per unit. We’re also demonstrating productivity improvements that provide the foundation for scaling the business. Revenues increased 57% last year, while operating expenses increased just 11%. Deploying the new capital we raised last month, much of which will be used to support our marketing and sales programs, provides us the path to generating the revenue and increasing the operating leverage necessary for us to achieve cash flow break-even. Before we open the call to questions, I want to say a few words about COVID-19. Like other companies, we’re closely monitoring the coronavirus situation. And so far we’ve seen minimal impacts to our business at this point. Our O&P distributor in Italy is under lockdown, but we did not expect any near-term orders there. We were supposed to attend a clinical conference to meet with therapists in Boston later this month, which was canceled and an O&P conference in Germany in May, which was also canceled, has now been rescheduled to October. Our supply chain has not had any disruptions and we have inventory on hand to fulfill our orders in the coming months. However, if there is some type of infection among employees at the assembly or fabrication site, we may see some delays as product work needs to be shifted temporarily to backup locations. Our Chief Medical Officer and quality executive have provided guidance to our employees on good hygiene and…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Scott Henry with ROTH Capital. Please go ahead.

Thank you and good afternoon. A couple of questions. First, Dave, I don’t know if I heard you right, but did you give me placements for the quarter in last year’s fourth quarter? Did I hear that, I don’t know if I took that down, right?

Yes. So we had 43 revenue units in the fourth quarter. And I said that, of that 40% of those came from our backlog and that 35% of our revenue units came from orders that we took and – delivered and took revenue on inside the fourth quarter.

Okay. So the ASP and what was it a year ago? It was 32, correct?

It was 32. Yes.

Okay. So the ASP went up significantly then to get to the 15 or the 1.5 million?

Yes, it did. As I mentioned, because of the higher direct billing mix and direct billing representing 50% of total revenue in the quarter.

Okay. So I guess, that’s the main takeaway for direct billing as we should think about higher ASP and higher gross margins along with that?

Yes, that’s right. That’s why we’re doing this.

Okay, great. And then you mentioned Q1 2020, it look like Q1 2019, just to make sure my numbers are correct. I believe you did 35 units in 2019, is that correct?

Q1 2019…

First quarter of 2019.

So I got 33.

Okay. I’m sure your number is right. Okay, then I’ll keep that in mind. Typically, it seemed like you converted a lot of the backlog in Q4. Was there a reason, is that just kind of end of the year spending patterns or?

I think given my comments about our first quarter backlog conversion being lower than fourth quarter. I’m wondering, with direct billing and things like that is if – as that increases, I’m wondering if our backlog conversion rate isn’t going to be a little bit more lumpy going forward because it really does with direct billing. It depends on when we get paid and because that’s when we’re able to recognize revenue. So maybe during the fourth quarter because insurance companies were trying to clear out claims at the end of the year, who knows, I don’t really know for certain. I mean this is really starting to gather data on backlog conversion under direct billing as we go. But as of now, like I said, I can’t really give you an answer one way or the other as to what caused the higher conversion rate in fourth quarter over third and why it’s particularly going down in first quarter over fourth.

Okay, great. And then I certainly appreciate the target of breakeven by fourth quarter of 2021. I think that’s admirable goal and I think it’s great to have that out there. The question is do you think you can use the current cash runway to get there or you might just top it off a little bit? How should we think about cash in getting to that target?

Now, I mean, current market environment aside, the hope is, is that we don’t have to raise any more capital. I can’t say that we won’t, I don’t – I want to make sure I’m clear. We – as long as we’re able – we need to execute to our plan and we need the reimbursement environment to stay where it is. Don’t get worse, we’ll take it if it gets better, but don’t get worse or remain status quo. And if we do those things and we execute to our plan, we have the opportunity to get there, but it does require some execution obviously. And whether we need additional capital going forward, we do have the warrants that we issued. I mean, they’re underwater right now. Hey, everything’s underwater right now, but our stock has demonstrated, particularly during the offering period, pretty significant volatility. Maybe some of these warrants will exercise, who knows. So that could be a source of external cash. We do have the ATM that’s been suspended since last year because of the February 2019 offering we did. If we choose to, we can put that back up. We could potentially – we have a partner now that’s given some loan to us and we paid half of it back and there’s the potential to leverage that relationship as well.

Okay, great. I appreciate all that color. Final question because I think in the past we’ve talked, it seems like a key component of the business plan is getting a large contribution coming in from Medicare. Can you talk about that? And what are the data points that I should be focusing on to gauge how progress is going on the Medicare front and reimbursement?

Sure. I can jump in and cover that, Scott. So we’ve got the new codes. And as a result of those codes being effective last January, we’re now getting paid for Medicare advantage claims. And as I pointed out, about 35% of seniors are covered by Medicare advantage, and from some industry forecasts I’ve seen, they expect that to grow significantly over the coming years. As far as the Part B Medicare claims, we decided to follow the CMS’s direction after many discussions over the last 12 months about whether this custom fabricated orthosis should be billed as a lump sum just like other orthotics and prosthetic devices are or be treated as a DME rental. So we decided to work with an O&P provider, who’s now submitted the first claims as DME rentals, which then gets paid over 13 months at which time the patient receives the device and all the payments have been made by Medicare, those claims been filed a couple of months ago and those are still pending. So when that comes clear, let’s say, fall through and put out the coverage criteria and allowable amounts, then that opens up that Medicare population, which would be then covered as a DME rental over 13 months. But I don’t have any particular dollar values on that and so we hear something back from Medicare on this.

And when would you expect to hear back on that?

Well, I thought I’d hear back by now, but now I’m expecting in Q2. I mean, the claims have been there, there’s been back and forth discussion with provider relations what’s called the DME MAC, that’s the medical contractors. They’ve been very helpful in terms of how these O&P providers should be billing these rental claims. And so hopefully we’ll hear something during the second quarter.

Okay, great. All right guys, thank you for taking the questions.

All right. Thank you, Scott.

Our next question comes from Jim Sidoti with Sidoti and Company. Please go ahead.

Hi, good afternoon. Can you hear me?

Yes.

Yes.

Great. I just want to go over the unit’s shift in the quarter. Again, I know you said you were able to bill for 43 versus 32 a year ago, but is that the actual number of units that were shipped or is that just the ones that were you got paid for it?

Those are the revenue units. We don’t really talk about units shipped. It’s not really a relevant number per se. It’s more because we can’t take revenue until we – in many cases under direct billing until we get paid, so 43 revenue units.

Okay. But because it’s taken a little longer to get paid now that you’re using direct billing, can I assume that there are percentage increase in actual units shift to deploy is higher than what you reported?

We do have direct billing claims that are outstanding and that is a number that’s greater than – obviously than the units that have been shipped, under direct bill – or the number of units billed I should say. Under direct billing, we’re required to deliver to the patient first and then we bill insurance. And so those claims that are open and outstanding, those are part of the backlog.

Okay. But I guess what I’m trying to get at is the number of units that you actually deployed in the quarter I assume was higher than 43. And with the percentage increase of units deployed in the quarter comparable to the revenue increase or was it higher?

I don’t know the exact number of units that were deployed during the quarter off the top of my head, but I’m pretty sure it was greater than 43, but I don’t know the exact number, but I’ll try to look that up and get you that number.

Okay. All right. And then the relationships that you established now with HOMELINK here in the U.S. and with the German reimbursement, that’s already – none of that existed in the fourth quarter. Can you give us some sense on what contributions they have in the first quarter or is that something that’ll take two or three quarters to really build up?

Yes, it’ll really be the latter, Jim, because again, the HOMELINK does offer the advantage of patients who contact us. Now, if – when we do their insurance verification, if we find out they are through the HOMELINK payer network, then we will submit those claims through HOMELINK and then they will get authorized at some point. So that might be another three-month process. And then we have to fit the device on the patient, send that delivery ticket in to get paid. So that’s more of a second half revenue for any of those patients that may be covered by HOMELINK payer network. And over in Germany we do have a robust pipeline there in Europe because we have a number of these O&P providers that we have recruited directly. And so they have claims pending in front of different insurance companies. And it’s very helpful now to be able to point to the statutory health insurance directive that says, hey, if the patient is medically qualified and there is medical necessity, each of these insurance companies should fairly evaluate these cases on an individual patient basis. So hopefully that will lead into, again revenue in the rest of 2020.

Okay. So then if we look at the quarterly revenue for the year, looking at 2019, the fourth quarter was almost double the first quarter’s revenue. It sounds to me like for 2020 that fourth quarter could be even a larger increase than it was in 2020 because of all these things that should be kicking in, in the back of the year.

Well, also we have a much larger pipeline starting in the year, about 600 patients compared to about 300 a year ago. And at the pace at which we were adding, in Q4 we were adding 60 patients a month into the pipeline and that number we expect is going to be increasing here in 2020.

So it sounds like you agree with what I said that by the fourth quarter you should be even higher than you were – that difference should be even higher in 2020 than it was in 2019?

I’ll turn it to our CFO for an explanation, our view.

You’re talking about the revenue in absolute dollars or in percentage?

Both.

Yes. So…

Because it sounds like in absolute dollars they’re going to be pretty close, Q1 2020 versus Q1 2019.

Yes, but you’re more interested in Q4 2020 versus Q4 2019, right?

Well, yes, I’m trying to understand with all these things going on that in 2019 you were basically able to double revenue by that fourth quarter. In 2020, it sounds like you should be able to do even better than that.

So I mean, we haven’t given guidance by quarter, but what I will say is that, we are guiding as we did last year to significant revenue growth in 2020. And if we’re to be executing to our plans to get to cash flow breakeven and remember, we’ve talked about our breakeven point in the past at $25 million to $30 million of revenue or roughly 85 units a quarter. If you use a $30,000 ASP, that’s our ultimate end objective. And so if we’re to get there, that’s a quarterly run rate of call it, somewhere in the 7-ish kind of a number per quarter, maybe a little bit less. So to get there – if we’re going to be in a position to be at that kind of a number by fourth quarter, we need to be well on our way by the fourth quarter of 2020.

Yes. Okay. I think we’re saying the same thing.

Yes.

Okay. All right. Thank you.

Our next question comes from Ed Woo with Ascendiant Capital. Please go ahead.

Yes. Thank you for taking my question. My question, I know you’ve mentioned about some of the impacts to your investor schedule and also to some of the academic conferences. But have you considered changing your marketing plan this year, either in Europe or in the U.S.?

No. At this point, most of our marketing is the direct-to-patient online advertising. And so that’s generating a continued lead flow. Because I look at all the leads that come in every day and that number continues to increase as we keep targeting people with stroke, brachial plexus injuries and so on. And then as I mentioned, we initiated online patient evaluation. So in the past we used to do screening days at rehab hospitals and O&P clinics around the country, where you had to gather people together and then spend a day, maybe evaluating four to eight patients. We’re now able to do it much more quickly. So if a lead comes in today, I could arrange for a telehealth evaluation within the next 24 hours or maybe in the next few days and no one has to travel to do it. And then that puts that patient into the insurance pipeline. We do online collection of their medical documents with their permission and then submit them to the insurance company. So we haven’t really changed our marketing plan at this point because of the COVID-19 situation.

Great. And then, touching up a little bit about your continue move towards direct billing and higher ASPs. Should we see continued improvement in ASPs as we move through the year?

Well, we are adding a greater percentage. As Dave mentioned, in Q4 about 50% of our revenue was direct billing in Q4 of last year. In this quarter 81% of our new patients that we added into the pipeline are direct billing cases. So depending – if there’s no change on the ASP that we’re getting paid by the various payers then we should see again more direct billing percentage of the units that are sold. More units during the year and a higher percentage is all this being direct billing.

That sounds good. Well, thanks for answering my questions and wish you guys good luck.

Thanks.

Our next question comes from Kyle Bauser with Dougherty & Company. Please go ahead.

Hi. Yes, this is actually Jacob Barrie calling in for Kyle. Thanks for taking my questions though. First off, can you guys talk about how your backlog is filling? We’ve seen a nice ramp up in the pipeline. So perhaps you can speak to how you’ve been able to accomplish this and the actual size of the current backlog.

Well, let me talk about how we fill up the pipeline and backlog, Dave can talk about how we convert that to revenue. So what happens is these patients are coming in, they’re getting evaluated online, we’re submitting their medical necessity cases to insurance companies through our reimbursement team headed by our Chief Medical Officer Dr. Green, upon getting an authorization that goes into our backlog. And then Dave, you can take it from there in terms of converting the backlog to revenue.

Yes. So as I mentioned in the call, we had 53 units in backlog at the end of the quarter, and the backlog begins when something exits the pipeline. So we get an insurance authorization. That’s when a candidate will enter the backlog and then they leave the backlog, obviously when it’s sold. And when delivered and we collect from the insurance company. So there was 53 units of backlog at the end of the fourth quarter that compared to 61 units at the end of the third.

Great. Okay. Thank you for that. I know we’ve heard a little bit about direct billing and your expended a reimbursement staff to drive increased insurance authorizations. To that end, can you provide any more color on the progress in this area? And any new updates as it relate to CMS and the Medicare opportunity?

Well, we continue with our own reimbursement team, which is continued to grow by a couple of additional headcount, because the volume is just increasing so significantly. We’re finding those with the commercial payers with Medicare Advantage Plan, workers compensation. We are also approved by the VA, so some of that mix is veterans. And then for the Part B Medicare patients, again, we had been waiting and working with CMS on what the coverage criteria and payment allowable would be under DME rental, because that’s a different payment model. Up till now, all of the Medicare Advantage and the commercial payer and VA, the orders have been paid for as a one-time payment amount, what’s called lump sum in the O&P industry, which is way other orthotics and prosthetics are paid for. We’re waiting to hear what that rental amount will be. And then that opens up the market for those other Part B Medicare patients. But I can’t tell you what the time table for that would be or guarantee that there would be – they will actually cover this device in which case we can appeal and continued discussions there with CMS. But it was a good sign that they did issue new codes for us, which was into effect a little over a year ago.

Yes, awesome. Thank you. And then just lastly having closed the recent $15 million financing, what are the primary uses for the cash and how far out does that capital get the company?

Yes. So the first thing we did with the cash is, we were required to repay 50% of the outstanding balance of our term loan. So that was about $1.9 million that we repaid. And that included a 15% success fee for the lender. So that was done with that. So that leaves call it a little over $12 million of net proceeds that are being added to the existing cash that we had at the end of the year. And that cash is going toward continuing to scale up primarily it’s going to be for working capital and general corporate purposes to continue to fund the digital advertising, to grow the leads, to fund increases in headcount, to evaluate patients and to seek reimbursement on a case by case basis with insurers. And then hopefully along the way, we can get some help from like CMS for example, which will make things a whole lot easier on the reimbursement front, because we don’t have to seek approval to be able to bill and get paid. All we need is a written order from a physician. And assuming that we’re accredited or we have an O&P provider that bills on our behalf, we can then collect revenue and start building a – presumably it’s going to be a rental DME reimbursement from Medicare.

All right, perfect. Thank you. That’s all the questions I had. Thanks for all the responses.

All right. Thank you.

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

Thank you, operator. So in closing, we remain confident in our outlook for growth as we continue to improve the metrics that relate to our reimbursement pipeline, the insurance authorizations and the product orders. Our focus, as you’ve heard today about increasing direct billing is driving our revenue per unit and our gross margin is higher and will allow us to begin to benefit from operating leverage as we continue down the path to achieving our next major milestone of cash flow breakeven. So once again, thank you for your time this afternoon and goodbye everyone.

This concludes our conference. Thank you for attending today’s presentation. You may now disconnect.