Myomo, Inc. (MYO) Q1 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the MedAvail's 2021 First Quarter Earnings Conference Call. My name is Bethany, and I'll be coordinating your call for you today. [Operator Instructions] I will now hand over to your host, Caroline Paul of Investor Relations to begin. Caroline, over to you when you're ready.

Thank you. And thank you all for participating in today's call. Joining me are Ed Kilroy, Chief Executive Officer; and Ryan Ferguson, Chief Financial Officer. Earlier today, MedAvail Holdings released financial results for the first quarter ended March 31, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance or similar statements are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization and reimbursement, market opportunity and expansion and guidance for revenue, gross margin and operating expenses in 2021 are based upon our current estimates and various assumptions. Also, management may make additional forward-looking statements in response to your questions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements and do not guarantee future performance. Accordingly, you should not place undue reliance on these statements and should not rely on them in making an investment decision without considering the risks associated with such statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section in our current report on Form 10-K filed with the Securities and Exchange Commission, SEC, on March 31, 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 12, 2021. MedAvail Holdings disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I will turn the call over to Ed.

Thank you, Caroline, and good afternoon, everyone, and thank you for joining us. We have started 2021 with a solid first quarter of 30% sequential revenue growth from fourth quarter 2020. As a reminder, our business model has 2 business segments, the operation of our technology-enabled high-touch retail pharmacy using our proprietary technology and processes, known as our Retail Pharmacy Services segment; and the sale or provision of these technologies to large customers to support their own pharmacy operation known as our Pharmacy Technology segment. During the first quarter, we again had meaningful contribution from both our Retail Pharmacy Services and Pharmacy Technology segments, and as we discussed in our last call, remain on track to open operations in Florida in July. Our double-digit sequential revenue growth was driven by the continued strong demand for pharmacy solutions that improve medication adherence and patient satisfaction as well as growth in our Pharmacy Technology business. As we have discussed on previous calls, our value proposition is fueled by our embedded onsite pharmacy model in which we are viewed as a true partner to clinics and care providers. Our onsite model consists of our propriety robotic dispensing platform called the MedCenter, a full-time clinic account manager or CAM for short, all backed by tech-enabled telepharmacy platform, including a central pharmacy. Let me give you a real-life example of the value of our onsite service in action. In one of our clinics, our onsite clinic account manager was reviewing the day's list of patients prior to the clinic opening. Many of these patients were customers of our pharmacy. So our clinic account manager through the tailored CRM platform we have deployed to them in clinic, was able to review the pharmacy's status and history of the patients. They identified that a patient had not filled one of their medications and had not responded to our pharmacy outreach. We notified the doctor, who spoke with the patient during their visit and confirmed the criticality of continuing to take the medication. While in the exam room, our team confirmed the medication was available in the MedCenter in the clinic and we were able to fill the medication for the patient prior to leaving the site. This is a great example of real-time collaboration due to the embedded nature and technology platform that traditional pharmacies, mail order or home delivery organizations simply cannot replicate. This type of value creation is what allows us to continue to expand within the clinic networks of our current clients as well as continue to recruit new patients within our installed clinic sites. When you combine this with our ongoing investments in innovation and the expansion of our footprint in new geographies, it gives us confidence that we are well-positioned for continued growth. Now let's turn to our financial results for the quarter. Our Retail Pharmacy Services revenue was $3.4 million for the first quarter of 2021, representing a 164% year-over-year increase and a 35% increase from fourth quarter of 2020. We opened 1 new site in the quarter with a number of our clinics postponing installations while they focused on COVID-19 vaccination programs. Our Pharmacy Technology revenues increased 430% year-over-year in the first quarter of 2021 to $609,000. This business segment has also experienced some delays in expected sales as some customers postponed orders while focusing on their COVID-19 response initiatives. Regarding our 2021 outlook, we now expect to reschedule a number of our SpotRx MedCenter installations towards the back half of the second quarter, as we see clinics return to normal operations once the main COVID vaccination drive has concluded and the sites begin to ramp back up to pre-COVID operations. Given that our revenue growth is dependent on our MedCenter implementation rate, we are revising our full year revenue guidance. We are now projecting full year net revenue of $27 million to $31 million. That said, we do expect to deploy a minimum of 45 new clinics with SpotRx in 2021. This is the same number of minimum installs as we had previously expected for 2021. So the only thing that has changed is the install timing. We do not expect the impact of the implementation delays on revenue to persist as we return to a normalized health care environment, and we continue to expect strong sequential revenue growth throughout the year. Despite the difficulties presented by the pandemic, as you can see, the business has continued to grow robustly. And we continue to be very excited about our opportunity to approximately double our revenue this year. Demand for our solution remains strong in the states where we currently are operating, including Arizona, California, Michigan and very soon, Florida. Turning to gross margin outlook, we project improving gross margins throughout the balance of 2021, driven by a number of specific initiatives such as reducing the cost of delivery and improved procurement terms. Our model is highly scalable and repeatable. Continuing our growth requires us to expand to additional markets within regions and new regions. As we enter a new region, we bear the cost of building out and resourcing the central pharmacy ahead of deploying MedCenters to generate revenue in that region. Gross margins then expand as we recruit customers and work to acquire their full medicine cabinet, add new sites to the market and begin to enjoy the economies of scale this brings. This trend repeats itself for every new region we enter. This geographical expansion of our network is an essential strategy to facilitate our continued growth and is expected to continue for the foreseeable future. At scale, our cost structure works to our advantage as we do not have to carry the overhead cost of the large retail store footprint that traditional pharmacy operations have. We are very excited to be entering the important Florida region in the second half of 2021 and believe this further demonstrates the highly scalable and repeatable nature of our business model and the potential for the future growth in target markets across the U.S. During our last earnings call, we had stated that we were planning to open our first central pharmacy in the state of Florida by mid-2021. Today, we are pleased to announce this facility is expected to open in the Orlando area in July. This central pharmacy should allow us to service both the Orlando and Tampa areas. We are thrilled to be bringing our SpotRx technology and concierge service to the Medicare population in Florida, our fourth target state. We are also pleased to announce we have signed 2 significant Retail Pharmacy Services customer agreements to deploy our pharmacy solutions in clinics with high volumes of Medicare patients. Cano Health, a leading provider of value-based care, has agreed to deploy our SpotRx solution in their 4 sites in the Orlando area. Second, we have signed an agreement with Access Healthcare physicians, another leading primary care network in Florida to install our SpotRx solution in an initial 4 sites in the Tampa area. Access Healthcare is a multilevel service practice with more than 110 locations in Florida. We look forward to very strong and lengthy partnerships with both Cano and Access Healthcare. Overall, the Florida market remains extremely compelling to MedAvail. In total, we have an annual market opportunity of $3.7 billion in Florida with hundreds of potential clinics for our SpotRx solution. Recent analysis conducted by LEK indicates that over 80% of physician groups with value-based care contracts do not have dispensing capabilities and most are assuming Part D risk. Our business development team in Florida continues to be extremely active in working to build a strong pipeline of value-based care clinics who operate within that market. I'll now touch briefly upon a key product initiative we are working on to position us for further sustainable long-term growth. Our team has procured technology to enable us to offer compliance packaging, expanding our full suite of pharmacy solutions. As many of you know, compliance packaging solutions bundle together different prescriptions into separate pouches labeled for each day or dose within the day. This way, the patient opens one pouch per dose containing all of their required medications instead of having to remember which pill to take when and having to manage many different bottles at once. With some patients on 10 or more medications with varied times and frequencies of dose, you can see how this could become confusing for many patients and therefore, impact adherence. A number of our current clients, especially those who provide home health services, have asked us to begin to offer compliance packaging, which has proven to help patients remain adherent to their medications. Since many of these patients are on multiple chronic medications, our new technology should enable us to bundle and clearly label their medications instead of providing them individually. We view this as an important opportunity for expansion within our enterprise customers. We expect our compliance packaging solution to go live in May. In summary, we are extremely encouraged by our progress during the first quarter and strong performance in the difficult environment presented by the pandemic. As mentioned, we expect revenue to approximately double over 2020 as a result of expansion into new geographies and customer expansions, supported by the tailwinds of value-based care initiatives and a large and rapidly growing Medicare population. With that, I'll now turn the call over to Ryan to provide a review of our first quarter financial results.

Thank you, Ed. Turning to our Q1 results, net revenue for the 3 months ended March 31, 2021, was $4.0 million, a 185% increase from $1.4 million in the same period of the prior year. These results were driven by a 164% increase in Retail Pharmacy Services sales and a 430% increase in our Pharmacy Technology sales. As Ed mentioned, during the first quarter, we deployed one MedCenter into the Retail Pharmacy Services segment compared to 5 in the first quarter of 2020. Gross margin for the first quarter of 2021 was 8% as compared to negative 1% in the corresponding prior year period. Improvement in gross margin was driven by improved purchasing and lower DIR fees, partially offset by higher utilization of our delivery service and continued reimbursement volatility. Total operating expenses for the first quarter of 2021 were $10.0 million, an 81% increase from $5.5 million in the first quarter of 2020. This expected increase in operating expenses was driven primarily by investments in personnel, facilities and other expenses necessary for continued build-out of our operating footprint, including the launch of operations in Florida. Additionally, we made accelerated investments to automate additional workflows important to our customer service capabilities, including the investment in compliance packaging, as discussed by Ed earlier on this call. Adjusted EBITDA, which we calculate by adding back depreciation and amortization, stock-based compensation and exclude nonrecurring expenses and other income to net loss was negative $8.9 million in the first quarter of 2021 compared to negative $5.2 million in the first quarter of 2020, reflecting the various initiatives and investments in growth that you have heard us talk about. We ended the first quarter of 2021 with $47.6 million of cash and cash equivalents. We now have approximately 31.9 million shares of common stock outstanding, and we expect to have a weighted average share count for the second quarter of approximately 32.6 million shares. Turning to our outlook for 2021, we remain cautiously optimistic about the remainder of the year. As Ed mentioned, we expect to reschedule a number of our SpotRx MedCenter installations towards the back half of the second quarter as our clinic partners continue their important vaccination work. As a result, we now are expecting net revenues in the range of $27 million to $31 million compared to our previous guidance of $27 million to $34 million. We continue to expect our SpotRx deployments to be weighted toward the second half of 2021, given the recent focus of our clinic customers on COVID-19 vaccination program. Nonetheless, our expectation of 45 in-clinic deployments for 2021, which we had factored into our prior guidance for 2021, remains unchanged. Regarding our gross margin outlook, we expect to see continued gross margin improvement over the course of the year as the health care delivery environment begins to return to more normal operations, and as we continue to execute on our gross margin initiatives. And with that, I'll turn the call back over to Ed for closing comments.

Thank you, Ryan. In summary, we are pleased with our first quarter performance. This was a strong quarter financially and operationally. Our team has continued to perform very well. And as we grow, we are bringing in some excellent new people who are adding important depth and additional skills and experience to the organization. It is an exciting time for us, and we remain extremely enthusiastic about our company's future and our growth prospects. We are committed to continue to deliver growth and make the necessary investments to maximize long-term value for all stakeholders. With that, we will now open it up to questions. Operator?

[Operator Instructions] The first question comes from Charles Rhyee from Cowen.

Congratulations, guys, on the announcements today. Just wanted to ask really 2 questions. First on the guidance here, Ed, you kind of said in terms of total deployments, you expect it to be the same as originally intended, but it's a matter of timing here. But the quarter itself outperformed relative to what we were expecting here. Maybe you can touch on sort of what you think where we are in terms of getting back to more normalized levels as we kind of exit the pandemic here, maybe some sort of the trends that you're seeing given there was commentary the other week from some companies reporting that -- talking about pockets of weakness in terms of certain types of utilization. Just curious if you're seeing any of that or is that just kind of a different market segment compared to the Medicare population? And so I'm just trying to put 2 and 2 together between sort of the guidance and sort of what per-unit per-deployment kind of revenue is.

Sure. Thanks, Charles. A couple of comments. So first of all, as we've talked about before, with the challenges that our clinics have had with regards to COVID, they've done a number of things. One is they've altered some of the workflow within the clinic itself and the number of face-to-face visits. And secondly, as you can imagine with the Medicare population, there's a level of -- at the time nervousness about going into clinic. What we have seen over the past number of weeks and a little -- I'm going to say months but more weeks is -- the volume in the clinic's face-to-face visits is climbing, although it's ramping back up to where we would have expected it to be, and that will take a little bit of time, but it's climbing. And then the second thing is that, as we mentioned, that a number of our clinic partners have now stepped forward and want to begin the planning process to deploy new sites, both our current customers with additional sites and some new customers with new sites. So that's encouraging as well. But again, it's -- I'm going to say, on a ramp back up, it's not a switch that's being just flipped on.

Okay. Great, and then just another question on Cano and Access Healthcare here. What is the timing? Because I think when you talk about 45 deployments, if I remember correctly, that was not -- that didn't really include these Florida clients, did it? And if so like you're announcing it today and the central pharmacy starts in July. Are there deployments from these 2 new accounts going to be in the back half of this year? Or should we think of it more as a 2022 start, really?

Well, when -- so when we think about -- with regards to who is in or out, we had a view of we'd be entering Florida this year. And we had an assumption in the 45 of how many sites we thought we could do in Florida. We haven't obviously disclosed down to that level. But you can assume that in our 45, we had an assumption that a handful of sites would be going into Florida. With regards to the deployment of the 2 announcements we made today. I would say that I'm going to use our Michigan site as an example. We opened the pharmacy in the middle of December, and we deployed the first clinics really went live towards the end of January. That's the approximate timing we attempt to have with some of the clinics we've signed. So you can expect us to begin to deploy some of these new clinics approximately that time frame after we open our central pharmacy in July.

Okay, and then just a last question. You talked about how some of your existing clients are now talking to you about expanding, adding potentially new sites. Any of those within the 45 that we're talking about for this year? Or is it really -- these will all be additive to next year?

They would be in the 45 for this year. So we do have clients who have now come back and said, okay, we want to start planning for additional new sites in their network, which is really our model of entering an enterprise customer, deploying, being successful and then expanding throughout their network. That's really, as you know, our model, and we're seeing that resurgence as well. But it's in our expectation of the 45 for this year.

The next question comes from Brooks O'Neil of Lake Street Capital.

I was hoping -- and maybe I missed it, but can you just talk a little bit about what you're seeing in the 7 key target markets that you've been in? Is it more or less the same? Are the customers in those markets, are they experiencing the same kind of impact from COVID and response to COVID that you were talking about to an extent in the Florida market?

So Brooks, I would say the answer is yes, that as we look across our fleet of installs in the 4 states we're active in right now most of our clients had changed workflows or clinic processes during COVID, but have begun to ramp out of it. So what I mean by that is beginning to see more patients face-to-face, because that really is a big part of their business model. So we're seeing -- starting to see more activity in the clinic, which is encouraging for us. So I think things are returning. But as I was saying to Charles, it really is a ramp back up again. It's not a switch going off. So we'll expect that to continue to improve in the third and fourth quarters.

All right. All that makes total sense. And then you mentioned, I think one of the things that you're seeing, which is totally understandable, is more utilization of your drive-to-home service versus in-clinic. And I was curious if you have data or you're seeing any difference in terms of adherence, which I think is one of the key elements of the benefit of the MedCenter deployments and whatnot.

So with regards to adherence, we continue to operate at above a 5-star rating for adherence, so extremely high. It's one of the major reason why our clients want to do business with us. Whether we're doing home delivery or in-clinic dispensing, we're still delivering the same level of compliance. What I would say is that a number of our clinic partners, as we talk to them, we are putting some initiatives in place to align our dispensing with the patient's visit. So get more of the patients coming in the clinic, walking out the door with their refills in hand, not just first fills. And so that's important because there's been a number of different studies over time that have been done that pointed to filling your prescription at your point-of-care can have a positive impact on adherence. And so that really is again, one of the reasons why people like our models because we can service the patient with both home delivery and in-clinic dispensing.

Sure. All that makes sense. Let me just ask one more. I'm excited about the compliance packaging opportunity. I see that as a big opportunity. I'm just curious if you feel like you can deploy that in the dispensing machines in the same way you do with medications today, or will it require some change in the way you handle dispensing those packs?

No. In fact, we -- the way it's packaged because they're packaged and then usually put in a box that's sent to the customer. Those boxes we can easily dispense in our MedCenter. Now as you would know, since its compliance packaging, it's specific to an individual, but that's a really good example of patients coming into the clinic for a visit. We ensure their medication that is compliance packaged is in the MedCenter ready for them, and they can pick it up when they leave the appointment. So absolutely, we can handle it, and we absolutely will be doing that as we go forward.

We have no further questions registered. So I'll hand the call back to Ed to conclude.

Thank you very much, operator. And I'd just like to thank everyone for joining us today, and I wish everyone a great evening, and we'll talk to you at our next earnings call. Have a good evening. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect your lines.