Myomo, Inc. (MYO) Q1 2023 Earnings Report, Transcript and Summary

Hello, everyone, and thank you for joining MedAvail's 2023 First Quarter Conference Call. My name is Alicia, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded. I now have the pleasure of handing over the call to your host, Steve Halper, Managing Director at LifeSci Advisors. Please go ahead.

Thank you all for participating in today's call. Joining me are Mark Doerr, Chief Executive Officer; and Ramona Seabaugh, Chief Financial Officer. Earlier today, MedAvail Holdings, Inc. referred to as MedAvail while the company released financial results for the first quarter 2023. 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 the call, including statements or responses in addressing your questions 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 are in response to your questions 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 the company's operating trends and future financial performance, general market and macroeconomic conditions, including the effect of inflationary pressure including any impact of adverse developments affecting the financial services industry, such as those based on liquidity constraints or concerns and events including the outbreak of war in Ukraine or the impact of COVID-19 expense management, expectations for hiring, growth in the company's organization and reimbursement, market opportunity and expansion and guidance for revenue, gross margin and operating expenses in 2023 are based upon current estimates and various assumptions. Any forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by those 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 MedAvail's business, please refer to the Risk Factors section in the company's most recent periodic reports including its annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 15, 2023. MedAvail 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 now turn the call over to Mark.

Thank you, Steve and thanks to all of you for joining us this afternoon for our First Quarter 2023 financial and operational update. During the first quarter, we continued to make excellent progress executing on our mission to become a leading pharmacy technology company following our announcement in January that we were divesting the SpotRx Pharmacy Services business which we subsequently sold to CVS during the quarter. Recall that concurrent with the sale of SpotRx, we pivoted towards our Pharmacy Technology business that we believe can address key unmet needs in the pharmacy market, including workforce shortages and medication access challenges, especially in rural, less populated areas. With the MedCenter, we bring prescription medication dispensing to the point of care through our innovative hardware and software platforms. And while it is still early, our leading indicators suggest that our strategy is working, as evidenced in part by our robust and growing pipeline, which is comprised of both existing and new partners that I will discuss in more detail shortly. Our successful integration with the Epic Willow Pharmacy Management System is providing a significant tailwind for us and is resonating with many primary care and urgent care clinics across the U.S. who utilize that system. In parallel with these activities, we are closely monitoring state regulations and playing an active role where possible, to create regulatory environments that are favorable to remote kiosks pharmacy dispensing. We played a critical role in Colorado, where legislation was just signed into law that supports our MedCenter technology and remote dispensing. We believe there will be others as additional states embrace the many advantages, kiosk dispensing to both the clinic and patient. We are executing against our plan and remain on track to nearly double our footprint this year with 25 net new dispensing MedCenters in the field during 2023. Our early progress is very encouraging and gives me confidence that we have placed MedAvail on a path to success. Looking at the quarter, we generated revenue of $620,000 and installed 4 net new dispensing MedCenters. Ramona will cover the financials and guidance shortly, but we remain on track to generate total revenue of $3 million for 2023 and representing more than 100% growth over pharmacy technology revenue of $1.4 million for full year 2022. And assuming we are successful in placing 25 net new MedCenters in the field this year, we would exit the year with 57 dispensing MedCenters by the end of this year. Again, we are in the very early stages of tapping into the numerous significant and long-term growth opportunities that we have identified for the pharmacy technology business, and we are excited about what we can achieve this year in terms of laying a foundation for future growth and profitability. On the topic of SpotRx, the planned divestiture and wind down of that business is progressing as planned. As we indicated previously, this transaction reduced our head count by approximately 75%. Our annual OpEx run rate by $35 to $37 million and our cash usage by about 65%. As part of the wind-down, we have retrieved all the MedCenters that were previously serviced by SpotRx hub pharmacy and a substantial number of the hub pharmacies have been dismantled to date. We anticipate being substantially done by the end of the second quarter and the majority of expenses associated with the closure, which have been lower than projected, are expected to be captured in the second quarter as well. Taking a step back or for those who may be new to the story, on January 19, MedAvail announced a shift in focus from our SpotRx pharmacy services business to our emerging pharmacy technology business. The underlying technology of MedAvail, which includes our MedCenter, dispensing kiosks and the associated proprietary MedDispense software is the core of our value proposition. The ability to remotely dispense 600 to 1,000 medications and roughly 13 square feet is a cost-effective way to bring pharmacy to the point of care and it's like having a pharmacy in a box. Through the MedAvail technology business, we offer partners the ability to purchase or lease the MedCenter and to license our software in order to provide point of prescribing dispensing solutions under their own brand. In the MedAvail pharmacy technology model, partners employ their own pharmacy staff and procure their own inventory. MedAvail Pharmacy Technology enables providers to dispense medications at the point of care. With the MedCenter, the patient can easily initiate medication therapy while avoiding an inconvenient separate trip to a retail pharmacy. By doing so, prescription abandonment rates can be reduced, and this can inherently lead to improved patient outcomes. Additionally, pharmacies are currently suffering a shortage of both pharmacists and pharmacy technicians, which is resulting in restricted or delayed patient access to medication. This pharmacy labor shortage has been persistent and has not been improving. The MedCenter is designed to provide patients with enhanced quality and safety through its integrated barcode technology and convenience with expeditious dispensing times that average 5 to 7 minutes while offering access to a live pharmacist when needed. There are additional benefits to the clinic that offer the convenience of point of prescription medication dispensing, such as improved quality ratings associated with medication compliance and increased patient satisfaction that can drive potential incremental reimbursement revenue. With the wind down of SpotRx well underway, we have continued to look for opportunities within the core pharmacy technology business to manage our expenses carefully and become more nimble and efficient. To that end, we conducted an additional reduction in force at the end of April, mostly impacting our development, quality assurance teams. This was another difficult but required action that further reduced our overall headcount by approximately 27%. Prior to this action, we commenced the partnership with the software engineering company, Encora for future development activities. Encora has significant experience in software development and specifically, integrations with the various pharmacy management systems that are used by our partners. We previously announced integrations with Epic Willow and McKesson EnterpriseRx systems. But there are several other pharmacy management systems used in the market. And the Encora partnership should facilitate faster completion of full integrations with these systems. MedAvail is able to complete a proof-of-concept integration in 6 to 8 weeks for partners that want to accelerate deployment of the MedCenter. We also terminated our agreement with our kiosk manufacturer, Kitron, given the more than 100 prebuilt MedCenters that we currently have in inventory. And we are also bringing MedCenter service in-house, whereas we had previously been using an external vendor to service the kiosk. This not only positively impacts our current expense run rate, but should also create a better experience for our partners. We are continually exploring options for service and manufacturing aligned to our expansion and sales pipeline. In the second quarter, we anticipate bringing our first partner live on our cloud-based software platform, which will be hosted on the Google Cloud. This is a net new partner to MedAvail and we intend to migrate all partners to the cloud before the end of the year. This will further reduce cost and accelerate MedCenter deployments. Importantly, this migration will be primarily done by in-house resources. We'll be minimally disruptive to partners and will be completed by the end of the year. In summary, we have identified and continue to work to identify areas of our core pharmacy technology business that we believe can be executed more efficiently. We make every one of these decisions after careful consideration of alternatives and with the partner and patient experience in mind. We are committed to operating a lean organization capable of responding quickly to new growth opportunities as they emerge. Turning now to our pipeline. We continue to see growing demand for the MedCenter among both existing and new partners across our current primary care and urgent care chains. Franciscan Missionaries of our Lady Health System in Baton Rouge, Louisiana, recently executed a contract for 4 MedCenters. This health system uses Epic. So our successful integration with Epic Willow was critical to securing this partnership. We expect to bring the first MedCenter online with them during the third quarter. In addition, we have 6 more contracted MedCenters with partners who are new to our company, including [ Curant Health ], who we expect to bring live next month. In addition to the 10 contracted MedCenters previously mentioned, there are an additional 5 MedCenters that have been committed to in 2023 by an existing partner. In all, based on the current contracting momentum that we are seeing. As I stated previously, we are confident with our guidance of 25 net new dispensing MedCenters in place during 2023. Bringing our total network to 57 cumulative dispensing MedCenters by December 31. In terms of a regulatory update, the current states that are open to remote dispensing or have favorable waiver rules in place, cover greater than 72% of the U.S. population. As previously mentioned, Colorado recently passed new regulations essentially opening up the state to remote dispensing as well. We were involved in this effort. Given the many benefits of remote dispensing to both patient and the clinic that I previously touched on and the worsening shortage of pharmacists and pharmacy techs. We anticipate that the regulatory environment will continue to evolve in our favor. Oregon is also currently evaluating legislation that would essentially allow remote dispensing as well. Despite these positive developments, half of the states continue to be restricted or have rules in place that we consider to be unfavorable. Over the long term, we view this as a significant opportunity to work with state lawmakers to continue to expand our serviceable market which currently stands at more than $1.3 billion, with an additional $500 million in recurring software license and maintenance revenue. It is worth recapping that if we just look at the primary care and urgent care channels. If all states were open to pharmacy kiosk dispensing, we believe our total addressable market encompasses more than 20,000 sites across the U.S. and represents more than $3.4 billion in MedCenter sales or leases with an additional more than $1.3 billion in annual recurring software license and maintenance contracts. And this analysis excludes additional channels such as federally qualified health clinics and retail pharmacies that will likely be long-term growth drivers for our company and add billions more to our addressable market. I would now like to turn the call over to Ramona to review our financials. Ramona?

Thanks, Mark. I will begin with a review of the first quarter results before touching on our 2023 outlook. The following comparisons exclude discontinued operations. For the first quarter of 2023, we generated total revenue of approximately $620,000 representing growth of 134% and over Pharmacy Technology revenue in the comparable period in 2022 of $265,000 and growth of 143% over fourth quarter 2022, Pharmacy Technology revenue of $255,000. Looking at gross profit. Total gross profit for the first quarter of 2023 was 41.5%. This was in line with our expectations. We continue to anticipate a gross margin in excess of 60% for the full year, which would represent a significant improvement from our full year 2022 gross margin of 47%. Total Pharmacy Technology operating expenses for the first quarter of 2023 were $5.3 million down from $5.5 million in the first quarter of 2022. As Mark indicated, we continue to evaluate the operations of the core Pharmacy Technology business in search of additional efficiencies. Total company adjusted EBITDA for the first quarter was a loss of $3.7 million, representing a 15.9% improvement from $4.4 million loss in the first quarter of 2022. At the end of first quarter 2023, we had 80.3 million weighted average shares outstanding. In terms of our guidance for 2023, it remains unchanged from our fourth quarter update call. We anticipate adding 25 net new dispensing MedCenters throughout the course of this year, which, in addition to the 32 dispensing MedCenters we ended Q1 with would enable us to exit 2023 with a network of 57 revenue-generating MedCenters. We anticipate that full year revenue will be approximately $3 million, which represents growth of well over 100% as compared to Pharmacy Technology revenue of $1.4 million for the full year of 2022. We further assume a full year gross margin in excess of 60%, well above 45%, which represents a fully costed margin at current volumes and representing nice expansion relative to our pharmacy technology gross margin of 47% as we reported for full year 2022. Recapping the assumptions we provided on our last call to assist with modeling purposes, we assume a blended average selling price of $65,000 per MedCenter kiosk. The actual price to purchase a kiosk is higher, but $65,000 reflect our current mix of business between sales and leases of approximately 50-50. We further assume $25,000 per year per machine for the software license and maintenance. In terms of cash, we ended the first quarter with cash and cash equivalents of $19.5 million, including $676,000 of restricted cash. During the first quarter, we used $2.8 million in cash to fund our operations, excluding $6 million attributable to discontinued operations of SpotRx Pharmacy Services business and pay down of our Silicon Valley Bank debt and final payment requirements. Recall that we anticipate full year cash usage attributable to the divestiture and wind down of SpotRx to be approximately $6.5 million. Further, we anticipate that a combination of higher revenue and margin together with lower expenses will reduce our quarterly cash burn, excluding SpotRx throughout the balance of this year. We anticipate our current cash is sufficient to fund our operations at least in 2025, at which time we believe we can achieve profitability and therefore, potentially eliminating the need for additional dilutive equity financing. That concludes the financial overview, and I will now turn the call back over to Mark.

Thank you, Ramona. To sum up. I am very pleased with the significant progress we have made in the relatively short time since we announced the sale of SpotRx to CVS in January. By focusing exclusively on the Pharmacy Technology side of the business going forward, I believe we can strike a balance between long-term top line growth and profitability. I also believe we are on the right track to be a leader in the field of pharmacy kiosk dispensing to the benefit of both clinics and patients while creating enduring value for our shareholders. At this point, we'd like to open the call for your questions. Operator?

[Operator Instructions] Our first question is from Charles Rhyee with TD Cowen.

This is Lucas on for Charles. I wanted to ask about the 25 MedCenter deployments guided for 2023. Can you give us a sense of the mix of customer type between urgent care clinics and primary care clinics and where you're seeing more traction? And then on the number of expected MedCenter deployments coming from new customers compared to existing customers, yes.

Yes, Lucas. Thank you for the question. On the mix between urgent care and primary care, we're continuing to see a pretty even mix across the 2 with probably a little bit more coming from the urgent care market, which seems to have a little more momentum in it at this point. When we look at existing customers versus new customers, new customers represent probably about 2/3 of the pipeline right now versus existing customers or about 1/3 of the pipeline based on commitments and contracted units.

Okay. Great. And then you guys noted that you were part of opening up legislation, Colorado. Curious are you guys -- I'm sorry, when it comes to your go-to-market strategy, are you guys focusing on states that you've already been in? I know you guys have presences in Florida and Arizona or are you more taking a broad-based approach? If you can give us some details on your go-to-market strategy in terms of region, that would be helpful.

Yes. We're focused primarily on the states where we've operated in where we can be a little bit more effective, more efficient and quicker on a go-to-market basis. So Texas, Florida, Louisiana, our 3 key states for us as we build out those markets, and again, can go a little bit faster. But we take a broad approach to all the states that allow for the dispensing technology. And again, there's a predominant number of states that have favorable regulations or waiver processes in them such that we believe we can cover about 72% of the population. So we're going to stay focused where we're at, but we'll also look at opportunities to expand in the new states when partners come to us. And when you bring up Colorado, again, we were active with a partner there to help push that legislation through, and we continue to speak to potential partners in new state like Colorado as an example.

Okay. And then I wanted to ask about Oak Street. I understand that you've retrieved 100% of the MedCenters that were a part of the SpotRx Pharmacy network. Has there been any conversation about potentially reigniting that relationship, given they were recently acquired, I understand there's probably a lot of moving pieces on their side, but have you gotten a sense of whether or not that relationship could return?

I can't speak specifically of any dialogue that's going on. I will say that with Oak Street, we had a very strong partnership. We did remove all the MedCenters based on the timing. I know the Oak Street acquisition was just fully completed in the last couple of weeks. And a lot of those sites were built, right, constructed from the ground up with placement for the MedCenters. So we anticipate that there could be an opportunity there based on the relationship we had based on the way that the performance was going and really the way that the design was done with the clinics, but can't elaborate any further on that particular relationship at this time.

All right. I understand. In terms of you guys having cash runway due 2025, at which point you could see being profitable. Is there any way you could kind of break down the moving pieces in terms of what we need to see to reach profitability in 2025?

I don't think at this point, we want to go through the annual expectations, but as you know, this quarter, we did spend about $2.8 million on the technology side of the house and about $6 million on the discontinued operations. We do expect largely that the expenses for the discontinued will cease after this year. So with that, perhaps you can calculate what you would expect the remaining cost to be in the further years.

Okay. Great. And then regarding the potential to see more pharmacy management system integrations in 2023. Can you give us an indication on when you expect this may take place? Should we expect it in the back half of the year? And I guess in terms of integrations translating into MedCenter deployments, can you give us a sense of whether an integration for other pharmacy management systems is opening up the opportunity to sell to new clients? Or are you having conversations with potential clients who are on pharmacy management systems that are not yet integrated into your platform that kind of warrant having to integrate with new platform or new systems?

Yes. So we routinely track in our pipeline by partner, potential partner of their pharmacy management system when we use that to guide us on where we want to focus on what I'd call full integrations. We mentioned in the prepared remarks that we were pretty close to deploying Curant. That would be a new integration that we did. And so that will help us open up to other locations with them. I would say that we're mainly focused on where we have integrations already like Epic, which is powering a pretty significant portion of our pipeline as well as McKesson EnterpriseRx Solutions just because it's more efficient and more effective. We do anticipate that we'll build out at least 1 or 2 more integrations before the end of the year. Do anticipate that will be the back half of the year given where we're at today and how we're setting up our pipeline and seeing the MedCenters come into the year and into the sales cycle. And I would say that we mentioned we did the relationship and engage on core software development company to help us along with our development and our quality assurance and they have experience working with several of the large pharmacy management systems in the industry today. And so we think that's going to help us build out those integrations in an efficient manner.

Thank you. We do not have any further questions at this time. So I'm going to hand it back to Mark Doerr for final remarks.

I just want to say thank you, again, to everyone that joined the call or webcast. We look forward to our next quarterly update in August. Have a good evening, and stay safe.

This concludes today's call. Thank you for joining. You may disconnect your lines.