Good day. And welcome to the Myomo Inc. Third Quarter 2020 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. Please also 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. This is Kim Golodetz with LHA. Welcome to the Myomo third quarter 2020 financial results conference call. Earlier today, Myomo issued a new release announcing financial results for the three months ended September 30, 2020. 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, 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 the ongoing COVID-19 pandemic. These and additional risks and 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 Form 10-Q for the quarter ended September 30, 2020 which was filed earlier this afternoon. Actual outcomes and results may differ materially from what is 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 Paul Gudonis, CEO of Myomo. Paul, please go ahead.

Thank you, Kim and good afternoon everyone, and thanks for joining us today. After I provide a business update, Dave will review our third quarter financial results and discuss our financial outlook and following the financial update, I’ll give some closing remarks and then we’ll take your questions. But first I hope that you, your families and your colleagues are all well during this pandemic and that you continue to take the necessary precautions for health and safety. As you've heard us discussed on previous calls this year that Myomo will take actions to adjust our operations and have been able to safely provide our powered arm braces to patients as states opened up this year. I'm pleased to announce that our revenues for the third quarter of 2020 were to record level of $1.9 million, reflecting a record high number of MyoPro deliveries and payments during the quarter. Q3 revenues were up more than 200% over the year ago quarter. Year-to-date, our revenues are up 64% over the same period last year, which represents remarkable success in growing our business despite the impact of the Coronavirus. In fact, our revenues for the first nine months of this year are equivalent to our full year 2019 revenues. During the quarter, we also continue to benefit from our strategic shift to direct billing our products to payers. Direct billing revenues for the third quarter increased six-fold year-over-year and represented 68% of Q3 revenues. The remainder of our revenues came primarily from our U.S. O&P channel partners, the VA and Europe. We also increase the size of our backlog, which is defined as MyoPros that have been authorized by payers, but are either in the process of being delivered to users or are awaiting payment to us. Our backlog stood at 162…

Thank you, Paul. Good afternoon, everyone. And now turning to our Q3 financial results, revenue for the third quarter of 2020 was $1.9 million, which as Paul indicated was a record and was up 218% over last year's third quarter. This was also up $1 million sequentially over the second quarter and exceeded the revenue we recorded there in the entire first half of the year. A higher average selling price, along with the sale of a record number of MyoPro units reflected success with our direct selling channel and our marketing efforts. More specifically, we recognize revenue on 51 MyoPro units in the third quarter of 2020, an increase of 132% compared to both the third quarter of 2019. Revenue from direct billing in third quarter, with 68% of total revenue more than six fold increase over last year and are up from 50% of total revenue during the second quarter of this year. We're very pleased with our success in driving direct billing revenue growth. Our backlog of units, which represents insurance authorizations received but not yet converted to revenue, was 162 units at September 30th and this is up 35% from 120 units as of June 30, 2020. Approximately 30% of the June 30, 2020 unit backlog was converted into revenue in the third quarter. Approximately 85% of the quarter end backlog is comprised of direct billing units, which compares with 70% at the end of second quarter. Gross Margin for the third quarter was 56%, up significantly from 46% for the third quarter of 2019. The increase primarily reflects a higher ASP partially offset by cost of revenue recognized in the quarter for shipments to patients that are expected to be recognized as revenue in future periods. We shipped 97 MyoPro units in the third quarter…

Thank you, Dave. Well, as you've heard us described today, we quickly adjusted our business earlier this year in response to the change personal health and economic environments. And we've been able to generate record levels of revenue, deliveries, backlog and patient pipeline during this period. And we've successfully moved a larger percentage of our business through the direct billing channel, which leads to higher revenue and higher gross margin per unit. The growth in the number of candidates considering MyoPro, and the size of the authorized backlog are leading indicators of future revenues as we continue on the path toward cash flow breakeven. This concludes the formal part of our presentation. So operator, we're ready to open the call to questions.

We will now begin the question-and-answer session. [Operator instructions]

Thank you, operator. But before we take the first question, I want to mention that we are available for virtual investor meetings and calls during this time more limited travel. So, please contact our Investor Relations firm to set up a time. Their contact information is in our news release that went out today. We also have plans to present at several upcoming virtual conferences, including the Sidoti and the AGP conferences, both being held on November 19th. All right operator, we're ready for the first question.

The first question today comes from Kyle Bauser of Colliers Securities. Please go ahead.

Great. Good evening, thanks for taking my questions and really nice results here. So, a lot of updates, I'm curious on the digital marketing efforts through Facebook and Google, for example. If you have an estimate for the cost of a patient acquisition, so kind of cost per click if you will and then separately, what percent of people who click on the advertisement end up being medically qualified for four MyoPro?

So, we are gathering data on this, I tell you it's fluctuated widely during this election season. Facebook ads are priced on an auction basis. But they typically run a couple hundred dollars for a good lead. And then we do these evaluations where a large majority of the candidates who do the clinical evaluation pass and then move into the pipeline. So, we'll have better data on that in a couple months. As we review the year, we cut back on advertising. Back in March, as the COVID lockdown started to happen, because people started changing their social media habits, obviously doing more searches about the virus and the disease. And then we picked up the advertising to increase the spend in Q3 and that led to a growth in our pipeline. So, our pipeline numbers are starting to rebound. So as I said, it's a couple hundred dollars per qualified lead and then of those, a certain high proportion of those and move into the pipeline.

Sure, sure. Got it. I appreciate that. And remind me, the people who qualify for my MyoPro, what's the percentage that actually end up getting converted and revenue is recognized?

So… go ahead Dave.

Yes, I mean, so the question is once you -- once somebody gets evaluated and enters the pipeline, when does -- how much, how many of them ultimately turn into revenue, that's a percentage. Obviously, we're focused on, intently and we're trying to increase people. They enter into revenue a couple of ways. First is through, whether if we're able to get them authorized the first time. So, they're evaluated we collect their medical documents, and then we ultimately receive insurance authorization without having to go through appeal. The vast majority, they'll have to go through appeal, and then we win a number of appeals. So long as you know, the process is allowed to play out in full. So probably the best way to answer your question is maybe to look at what's our success rate for the first time. If we get an authorization from an insurance company, somewhere between call it, it'd be 15% of the time will ultimately get a revenue unit out of that. And then after that revenue units come from the appeals process, which is a little bit more difficult to put metrics around.

Great, no, that's helpful. Appreciate that. And then just lastly, are you seeing any competition out there? And I know, you provided an update on your IP, which, which extends that quite a ways out, which is great. I know locally, here in Minneapolis, Bill tech has found some traction, though, may or may not be directly competitive. But just any thoughts on the competitive landscape would be helpful? Thanks.

Yeah, Kyle, we haven't seen anybody really have a device like this, that is EMG powered, that’s a lightweight and portable. I know, the company that you refer to, from what I've seen is something that's based on a chair, sort of locked into a chair. So it's going to have some little utility, but something that is useful, is something you can take to work with you and use both arms on the job, for example. So now, we haven't seen anybody else that has devices that are designed for home use, for portable use, like we have.

Okay, great. Hey, thanks for the updates and congrats on the quarter.

Thank you.

Next question today comes from Scott Henry of Roth Capital. Please go ahead.

Thank you. Good afternoon and congratulations, very strong results. I do have a couple questions as it goes through the model. The first and my numbers may be off a little bit. But first pass, it looks like in the quarter, the percent of backlog that dropped out was closer to 4% or 5% versus, used to be up in the 15% to 20% which is a good thing. My question is, am I interpreting that right. And do you think that numbers coming down? Or what do you think about that number?

Yeah, you're correct. The number that dropped is actually five, so five out of the beginning backlog of 120. So that was, a little under 5%. That dropped out in the third quarter. I mean, we'd like to see the number stay that way. I mean, think it's it will fluctuate from time to time just because people circumstances will be different and with such a low population, the reasons could vary wildly, widely and they can because sometimes we grew up together. But we would like to sort of stay in the 5% to 10% ballpark if we can.

Okay, thank you. And then how do you -- I mean, obviously, a great third quarter. The challenge is to try to how do we extrapolate to that into the fourth quarter? Is it a trend? Is it just a strong quarter? I mean, how are you thinking about Q4 relative to Q3?

Well, we think the quarter can be a strong quarter, as I mentioned in my remarks. If you look at the 162, I'll give you some numbers to chew on and plug into your model of the units that we took revenue on in the third quarter about the conversion rate of the backlog was a little over 30%. And then the fill rate, meaning those units that we took revenue on and received orders in the same quarter, were about 25% of the units. So and then one other number to kind of give you is that, of the 162 that are in the ending backlog at September 30, 67 of those had been delivered. And so all we have to do -- all we're doing is waiting payment on them. So there's the possibility for a good number of those to be paid in the fourth quarter. And there's probably going to be fill, but the fill percentage is coming down compared to other quarters, 25% is a -- it was indicative of that in the third quarter, it's been higher in previous quarters, and we'd expect the fill rate to continue to modulate down here as the direct billing percentage increase. But overall, you can kind of see that there's the possibility exists for revenue that would, you can easily get to revenue growth in the fourth quarter by just applying an ASP to those numbers. That's why we say it's a strong quarter that we’re positioned for. But we don't control payment by insurance companies. So that's the road.

Okay. So, now that's helpful. That's a lot of numbers in there. Now and this may help. So in the quarter, you shipped 97 and you delivered 51, for revenue purposes. So that's just doing the math that's 46 that have -- that were shipped but haven't hit the income statement yet. Do you have a cumulative number, like, if you took -- I mean how many units out there in a cumulative have been shipped, but haven't hit the income statement?

Yeah, I just mentioned 67 units of the backlog.

Okay.

Have been delivered to patients, so all we're waiting on is payment.

Okay, so that is that exact cumulative number. Okay, great. That's helped. Thank you, Dave. And then the only other question the 230 of reimbursement pipeline ads, it's a good number, but I think your breakeven is close to 300 units in a quarter. So, obviously, that pipeline ad number has to go a lot higher but this is -- there's kind of the summer, there's COVID-19. How do you think about that pipeline ad number going forward?

I can address that, Scott. So we have fine-tuned our advertising, we've also increased the advertising spend this quarter. So we expected, that number is going to trend upward here in Q4, because, as you know, we have to get to a certain number of units per quarter, per month out 12 months from now. And because of the revenue cycle, which can go from six to 12 months unit is the front end pipeline building we're doing this quarter and in Q1, which really set the stage for that breakeven point next year.

Okay. So we should look for that number to, to just sequentially climb. As it was, I think you hit 300 in Q1?

We saw over 300 in Q1. As I mentioned, we cut back, because we like everyone else to know what this environment is going to be like once the COVID restrictions came on. And then, we were able to open that back up in the summer months.

Okay, great. Thank you for taking the questions.

Thank you.

Sure.

Next question comes from Edward Woo of Ascendiant Capital. Please go ahead.

Yeah. Congratulations on a strong quarter. My question is, how is international doing? How is Europe market for you guys?

So in Europe, as you know, they've gone to more lockdowns, because the Coronavirus cases have jumped significantly. Now we're getting some orders out of a couple of countries that are mostly from Germany. Germany was doing better in the summertime. So, we said international probably be in the range of maybe 10% to 15% of our overall revenues, just because we've seen so much stronger growth in terms of units and the advertising here in the U.S.

Great. And then you mentioned that you're going to spend more and fine tune some of your advertising spending. How much cynically more than you will increase your spending over the next couple of quarters? Is it just marginally or talk about like multiples of what you're spending now?

Dave, you want to address that?

Yes. I would expect the advertising spend to increase, because as we've pulled a number of folks we're tracking towards metrics that we're trying to work backward, backward from the number of units that we need to have in backlog by the fourth quarter of next year, in order to be able to be in position to recognize the revenue on the units required to get to cash flow breakeven. So we're working backward from that point in figuring out how many insurance authorizations we need. And then from there how many patients we have to evaluate and how many leads we have to generate? And so, the expectation is that the number of leads that we have to generate will continue to increase as we move through 2021. The news is there we know what that, we know what we have to do. It's a matter of executing at this point.

Great, well, thanks for the color and good luck. Thank you.

[Operator Instructions] The next question comes from Jim Sidoti of Sidoti & Company. Please go ahead.

Hi, good afternoon. Can you hear me?

Yes, sure.

Great. So I just want to make sure I have all my numbers straight. You said you recognized 51 units in the quarter? So based on that, it seems like the average selling price is around$38,000 is that right?

That's right.

And how does that compare to a year ago?

A year ago the ASP was, let me to get my reading glasses on because my piece of paper is far smarter than I'm capable. ASP last year was a little over $27,000.

Okay, so it seems like the shift to direct billing is really paying off.

Yes. That's right, Jim. Yes it's up about 50% over the last 12 to 18 months as we've made this shift to direct billing. Because again, we're directly billing to payers and fulfilling the devices ourselves, so we have two things working here simultaneously. We're getting more pipeline, more authorizations, quarter by quarter. If you look at our numbers in Q3, we had 2.5 times the number of authorizations we had just six months earlier in Q1 of the year. So we've got more units being authorized, and we're getting a higher revenue per unit. And so that's why we're getting this amplification effect with our revenue growth.

And you have 162 units that you ship that you haven't gotten paid for, is that right?

That's 162 units in backlog, they can be the backlog starts where the insurance is authorized. But -- so that backlog includes units that have been delivered and units that have not been delivered? Q - Jim Sidoti Okay, so -- sorry it was 67 was the number then, that have been delivered?

Of the 162, yeah.

So if you didn't ship a unit in the fourth quarter, you just got delivered -- you just got paid for the units that were delivered. You're looking at revenue around $2.5 million for the fourth quarter?

If you had an ASP, I'm not sure what ASP you used. But I guess I would caution that we said that the revenue cycle payment from insurance companies can be anywhere from 90 to a 120 days.

Okay, so there's no guarantee you get paid for all those units in Q4?

That's right.

So that's sometime in the next six months, you should recognize that $2.5 million in revenue to net to be $38,000.

That's right.

And then, last question for me. Do you think that some of the units that were shipped this quarter were units that were not pulled from the second quarter? And that this is artificially high? And if so, any idea how to quantify them?

Yeah. So yeah, as I mentioned earlier, so of the 51 units that were shipped or recognized revenue on in the third quarter, 38 of them came from the beginning backlog. And then, 13 of them were are about 25% were 4 units meaning orders that came in and that we are able to ship and take revenue on in the same quarter. Those are primarily VA, O&P and international orders.

Got it. All right. Thank you.

Yep.

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're closely monitoring the COVID-19 situation, as long as restrictions are eased across the country and we're able to deliver MyoPro’s to patients in our backlog and continue our strong revenue growth. At the same time, we're increasing the number of cases in the reimbursement pipeline, obtaining a record number of insurance authorizations, increasing the percentage of the direct billed patients and delivering a greater volume of product orders. We're addressing a large unmet need with a very valuable unique product line while continue along the path to our next milestone of cash flow breakeven. Once again, thank you for your time today everyone and for your interest in Myomo. Have a good evening.

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