Myomo, Inc. (MYO) Q4 2023 Earnings Report, Transcript and Summary

Hello, and welcome to the Myomo Fourth Quarter 2023 Earnings Call. All participants will be in a listen-only mode. [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. This is Kim Golodetz with LHA. Welcome to the Myomo fourth quarter 2023 conference call. Earlier this afternoon, Myomo issued a news release announcing financial results for the three months and year ended December 31, 2023. If you would like to be added to the company's e-mail distribution list to receive future announcements, please register on the company's website at myomo.com or call LHA at (212) 838-3777 and speak with Carolyn Curran. With me on today's call from Myomo are Paul Gudonis, Chief Executive Officer; and Dave Henry, Chief Financial Officer. Before we begin, I'd like to caution listeners that statements made during this conference call by management other than historical facts are forward-looking statements. The words anticipate, believe, 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 operating results. These and additional risks, uncertainties and other factors are discussed in Myomo’s filings with the Securities and Exchange Commission, including the Form 10-Q for the quarter ended September 30, 2023, which is expected to be file shown and subsequent filings. Actual outcomes and results may differ materially from what's 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's now my pleasure to turn the call over to Myomo's CEO, Paul Gudonis. Paul, please go ahead.

Thanks, Kim. Well, good afternoon, everyone, and thank you for joining us. Since we announced some very positive developments with CMS last week, I'll start today's call by discussing the new MyoPro pricing for patients covered by Medicare Part B. Then we'll review our operational results for the fourth quarter and calendar year 2023. Last week, the Centers for Medicare and Medicaid Services, or CMS, finalized the pricing for the MyoPro product line, which will go into effect for deliveries as of April 1st of this year. We issued a press release on March 1st with details of the pricing and a link to the CMS document describing the rationale. The MyoPro Model G, which is coded as L8702, is to be reimbursed as a lump sum payment of $65, 872. And the MyoPro Model W, which is coded as L8701, is to be reimbursed as a lump sum payment of $33, 481. The Model G, which includes the elbow, wrist, and grasp function, represents more than 90% of our unit volume for sales directly to patients and to orthotics and prosthetics clinics. These amounts are slightly higher than what CMS proposed back in November, as they added the Medicare inflation factor for the current year into their calculations. These amounts are the average fee to be paid by Medicare for MyoPro, and CMS will publish a more detailed fee schedule that describes the pricing for various state locations based on local cost factors. It's been a long journey to reach this point where we can serve patients with arm paralysis who are covered by Medicare Part B health insurance, and we're delighted that we've arrived. Achieving this milestone is a transformational moment for patients and the company that opens up a new world for these stroke survivors and others who've been told, will never be able to use your arm or hand again for the rest of your life. We testified at the CMS public hearing in June 2022 that the MyoPro should be correctly classified in the brace category and not as a durable medical equipment rental item like a wheelchair. And after a rulemaking procedure, CMS agreed with us and announced in 2023 that the MyoPro as a custom fabricated brace for long-term use in the home should be included in the expanded definition of the brace category. A year ago, we met with the DME MAC’s medical directors and shared our research about the valuable outcomes that were achieved by Medicare H beneficiaries, and we were encouraged to deliver MyoPros to this population and then submit claims. To date, we've had over 20 claims paid by Medicare, some as a rental, the rest as lump sum from deliveries after January 1st, where the patient's physician has ordered the device and where medical necessity for the MyoPro has been established. This was the first time that Medicare paid for MyoPro braces for seniors with standard Part B coverage, and while some of these payments from several original MAC’s was significantly less than the new fee, we expect to be paid the correct amount for new deliveries after April 1st. Then in November 2023, CMS published its proposed pricing for the MyoPro billing codes as part of its semi-annual HCPCS public meeting, and last week's publication of finalized fees is the culmination of this process so we can carefully go forward to meet the medical needs of part B patient population. We commend CMS on making these rightly available seniors of Part B coverage, and it's also a major step towards the goal of health equity. So during the fourth quarter, we could tell Part B patient candidates that they were eligible for MyoPro if they were medically qualified and had a doctor's order of supporting medical documentation to warrant the MyoPro arm brace. We began shifting our clinical resources to evaluate and gauge these candidates and had approximately 150 Medicare Part B patients in our patient pipeline as of December 31, 2023. Overall, we grew our pipeline to more than 1, 000 patients by the end of the year and our backlog, which includes Medicare Part B patients awaiting delivery of their device, due to 230 units, which is up 40% from the end of 2022. And with the Medicare Part B patients now eligible for MyoPro, we had a record 183 authorizations and orders in the fourth quarter, up 87% percent from the same period a year ago. Dave Henry, our CFO, will go over these financial details in a few minutes. When we entered 2023, we didn't know if and when Medicare reclassified the MyoPro as a powered arm brace. We didn't know if the medical directors were approved coverage for Part B beneficiaries, and we didn't know how to stay with reimbursed for the devices. So at that time, we decided to focus on reliable payers, such as certain Medicare Advantage plans, and reduce our cash burn during the year while waiting for these decisions. We took down our headcount by 12% early in the year and reduced our advertising expenses by nearly $1 million, and yet we still drew our product revenues by 20% year-over-year, we added license revenue from our China joint venture, and we cut our cash use and operations by nearly 40% down to $6.2 million for the year from over $10 million in the year before. We delivered over 400 MyoPros to patients in the U.S., Germany, and several other international markets last year, and we became more efficient with our marketing, reducing the cost for pipeline adds while operating with fewer staff members. Overall, we achieved more than $19 million in revenue in 2023, our 11th consecutive year of revenue growth. I'll now turn it over to Dave for a detailed financial review of the quarter and our 2024 outlook, and I'll come back to outline our operational plans for the rest of this year.

Thank you, Paul, and good afternoon, everyone. Let me start my remarks with a review of our quarter financial results. Total revenue for the fourth quarter of 2023 was $4.8 million. This consists entirely of product revenue, which was up 18% over the prior year quarter. This growth was driven by a higher number of revenue units, which were up 6% over the 2022 fourth quarter, and a higher average selling price, or ASP. Revenue for the fourth quarter includes payments received on seven Medicare Part B rental plan. Of the 107 rental units, revenue units in the fourth quarter, approximately 32% resulted in fill, which is our term for authorizations received and orders converted to revenue in the same quarter. 65% of our revenue in the fourth quarter came from the direct billing channels, compared to 73% in the same quarter a year ago. A record 23% of fourth quarter revenue came from international locations, primarily Germany. Of our direct billing revenue, 68% was from patients with payers who were able to recognize revenue with delivery, compared to 44% in the year ago quarter. ASP was approximately $44, 500, up 11% in the prior year. In the fourth quarter of 2023, we undertook efforts to fill the pipeline and backlog with Medicare Part B patients, potentially because effective on January 1, 2024, Medicare Part B patients can be billed on a lump sum basis. Reported backlog now represents insurance authorizations and orders received, but not yet converted to revenue. And in the case of Medicare patients, those patients frequently collected medical records and deemed qualified for delivery based on our inclusion criteria. Our backlog at the end of quarter 2023 was a record 230 patients, which was up 40% from our backlog at the end of the fourth quarter of 2022. Fourth quarter backlog includes 44 Medicare Part B patients that have either been qualified for delivery with appropriate medical documentation, have received a MyoPro, and claims have been filed but payments have not yet been received, or those have received a MyoPro and were waiting and were receiving continuing rental payments. These additional Part B patients added to the backlog contributed to a record 183 authorizations, orders, and other additions to the backlog in the fourth quarter, which was up 87% over the prior year quarter. As of today, approximately 40 claims have been filed with the DME MAC's and 21 have been paid, either in the form of continuing rental payments from claims filed before December 31st, 2023, or lump sum payments for claims filed after January 1st, 2024. Payments have been made by all four billing regions. Remaining unpaid claims are under review by the DME MAC's. Our patient pipeline increased to 1, 042 candidates as of yearend 2023, up 18% from yearend 2022. 381 patients were added to our pipeline during the fourth quarter, an increase of 17% over the prior year. These pipeline additions included approximately 150 Medicare Part B patients. With our patient evaluation capacity in the fourth quarter consistent with prior quarters, we prioritized adding Medicare Part B patients to the pipeline. We prioritized these patients because they can be converted to revenue faster than patients with Medicare Advantage and other commercial insurance plans because there is no pre-authorization required to deliver a Medicare to a Medicare Part B beneficiary. Gross margin for the fourth quarter of 2023 was 65.3%, compared to 65% for the prior year quarter. The increase was driven primarily by higher ASP offset by some cost increases. Operating expenses for the fourth quarter of 2023 were $5.5 million, an increase of 14% compared to the fourth quarter of 2022. This increase was driven primarily by higher outside development spending to accelerate completion of certain sustaining engineering projects and higher incentive compensation accruals offset by a 17% decline in advertising expense. Our cost for pipeline add was $2, 246 which is down 16% compared with the prior year quarter. The operating loss for the fourth quarter of 2023 was $2.4 million, compared with an operating loss of $2.2 million for the fourth quarter of 2022. Net loss for the fourth quarter of 2023 was $2.5 million, or $0.07 per share. This compares to the net loss of $2.2 million, or $0.29 per share for the fourth quarter of 2022. Note that the $8.2 million pre-funded warrants outstanding from our January and August 2023 offerings are considered common stock equivalents under GAAP and are included on our weighted average shares outstanding. Approximately 479, 000 pre-funded warrants were exercised during the fourth quarter. Adjusted EBITDA for the fourth quarter of 2023 was a negative $2.1 million compared with the negative $1.9 million for the fourth quarter of 2022. To summarize our full year results, revenue for 2023 was $19.2 million, up 24% compared to 2022, while 2023 product revenue of $17.5 million was up 20%. Gross margin for 2023 was 68.5% compared with 65.9% for 2022. Gross margin on product sales for 2023 was 65.3% compared to 63.6% for 2022. Operating expenses for 2023 were $21.4 million and an increase of 2% was compared with 2022. Operating loss for 2023 was $8.2 million compared with an operating loss of $10.7 million for 2022. Net loss for 2023 was $8.1 million or $0.28 per share compared with a net loss of $10.7 million or $1.52 per share for 2022. Adjusted EBITDA was a negative $7 million for 2023 compared with a negative $9.3 million for 2022. Turning now to our cash position. Cash, cash equivalents, and short-term investments as of December 31st, 2023 were $8.9 million. Cash used in operating activities was $2.4 million for the fourth quarter of 2023 unchanged from the fourth quarter of 2022. For the full year, cash used in operations was $6.2 million compared with $10.2 million in 2022. We completed a registered direct offering in January 2024, generating net proceeds to Myomo of approximately $5.4 million. Pro forma for the offering, our cash balance entering 2024 was $14.3 million, which we believe is sufficient to fund our operations for at least the next 12 months. I'll close my comments for the review of our financial guidance. As Paul mentioned, on February 29, 2024, CMS published the final fees for our two billing codes, L8701 and L8702. We're grateful that we now have clarity on reimbursement effective April 1st. While our backlog is up 87% year-over-year, a good portion of that growth is from Medicare Part B patients. In the near term, Medicare patient revenues will be reported at the time of payment until sufficient collection history is established. As a result, we estimate first quarter 2024 revenues will be in the range of $4.1 million to $4.3 million, an increase of between 19% and 25%, compared with the year ago quarter, with growth accelerating through the remainder of 2024. We expect some gross margin pressure in the first half of 2024 as we grant deliveries to Medicare patients, recording costs of goods sold at that time, while recording revenue and payments, until we build sufficient collection history to enable recording revenue delivery. Gross margin expansion should be resumed year-over-year during the second half of 2024. We're generally on track of our plans to hire at least 50 to 60 new employees at the end of the second quarter of 2024, primarily to increase our clinical reimbursement and manufacturing capacity. Assuming we can increase capacity as planned, and assuming there's no unexpected supply chain disruptions, we believe we can achieve full year 2024 revenue of between $28 million to $30 million, an increase of 46% to 56% compared to the full year 2023. This implies more than $10 million in quarterly revenue by the fourth quarter of 2024. And at that revenue level, we believe it is achievable to be operating cash flow breakeven on a quarterly basis by the fourth quarter of 2024. Cash use for operations is expected to be higher in the first half of 2024 as we increase the cost structure in advance of meaningful Medicare property revenues and lower in the second half of the year. With that financial overview, I'll return the call back to Paul.

Thanks, Dave. While we start this year in the strongest position in the company's history. Our investment in the high-quality clinical research resulted in Medicare coverage of our powered arm braces, and this milestone has a number of benefits. We believe our addressable market has doubled since we can now serve 50% of seniors who are covered by standard Part B Medicare. We could not provide MyoPro to these prospects in the past, and so we placed them in our database in anticipation to see a matching person. Now we can meet their medical need if there are appropriate candidates. We can now add these candidates to our patient population without increasing the marketing budget. These individuals, their families, and their clinicians are already contacting us, so our cost per pipeline add should come down over time. The other 50% of seniors in the US who are covered by Medicare Advantage plans could have an easier time obtaining approval from their health insurance plans since these payers are required to cover what Medicare Part B covers, including several large payers that have resisted covering the device in the past. Some of the Medicare Advantage plans have publicly stated that they are seeing increased medical costs post-COVID as patients seek treatments, they may have postponed, and we've seen a short-term impact out authorizations received in the last few months from these payers and what may be an attempt to manage utilization. However, with the published fee in place, we intend to start evaluating patients with any Medicare Advantage plan and submitting claims in 2024 since all Medicare Advantage plans are now required to cover the MyoPro so long as the medical necessity can be established and the patient otherwise meets our inclusion criteria. It also means for younger individuals with arm paralysis who are enrolled in commercial plans such as Blue Cross Blue Shield, Aetna, Cigna, UnitedHealthcare, we expect to see these plans follow Medicare's guidelines over time and approve coverage of the MyoPro for their beneficiaries as well. And finally, because of this Medicare Part B coverage now in place, we are seeing new interest among orthotics and prosthetics clinics around the country in supplying the MyoPro to their patients with a much clearer reimbursement path this O&P channel can develop into a significant source of product sales in the future. So we intend to increase our emphasis on this channel in 2024. In fact, several of our senior leadership team are meeting with O&P executives and owners at this week's annual Academy of O&P conference in Chicago to begin discussing how they can become a MyoPro Center of Excellence. I just returned from a trip to Germany to meet with our colleagues there. We have a growing possible business in Germany, and we should see continuing growth in international revenues as more O&P clinics become trained on how to provision MyoPro, and a larger number of the German’s cash for health insurers cover the device for their beneficiaries. And the China JV, in which our company has a 19.9% equity interest, could start production sales this year upon approval by their national regulatory agency. With this clarity from CMS to serve seniors of Part B coverage, we're now ramping up our capacity to meet anticipated demand. As Dave stated, we started the year with 104 employees, and we are planning to hire 50 to 60 more to double our clinical reimbursement manufacturing capacity by the second half of the year. With this larger market opportunity in front of us and new capital we've raised, we'll also be increasing our spending on research and development and product support as our volumes grow so that we continue to innovate, add to our IP portfolio, and build on our market leading position since the published fee often extracts competition into a product category. With CMS coverage now in place, we have the opportunity to make the MyoPro the standard of care for individuals suffering from long-term upper extremity impairment due to stroke, brachial plexus injury, or other neurological conditions. So with that overview of 2023 and a look into our plans for 2024, we're now ready to take your questions. Operator? Before we take the first question, I want to mention that we are available for virtual and in-person investor meetings, so please contact LHA investor relations to set up a time to meet with us. So, operator, whenever you're ready, we are ready for the first question.

[Operator Instructions] The first question will come from Anthony Vendetti from Maxim Group.

Yes, thank you. I wanted to focus on the increase in capacity, the manufacturing capacity, to get to the $28 million to $30 million. Obviously, this is great news with the reimbursement coming in at the levels that it came in at and the backlog and pipeline growing. So Paul, I think you said you're planning to double capacity. How are you going about that and what limiting factors or roadblocks do you see to getting that done in time to meet this guidance for 2024? Thanks.

Well, thanks, Anthony. Well, last year I hired a very experienced manufacturing executive in Colin Anderson. And he's been expanding our team here in our Boston facility. So we've been adding more workstations, training more manufacturing assembly folks, quality folks. We just had a meeting with Cogmedix, one of our suppliers this week. So we're getting prepared to double our output between now and the second half of the year. And then going forward, we're going to be looking at expanded facilities as well to continue to expand because, again, we've got such a large market of opportunities from this now.

And then just the ramp that is going to be in the second half, that ramp is mostly to serve the Medicare Part B. I mean, obviously you'll be serving the other commercial patients as well. But the ramp that you're talking about is going to be driven largely by Medicare Part B, correct?

Yes, the additional volume will be coming from these Medicare Part B patients because it essentially doubled our addressable market, Anthony. So we'll continue to see growth in our Medicare Advantage, commercial plans. Our international team will continue to grow. And on top of that, add the Medicare Part B patients who we can now serve.

And lastly, the 50 to 60 new employees approximately how many of those will be on the reimbursement side?

It's a smaller number, a few people we call patient navigators to work with patients, members of our clinical reimbursement team to collect medical documents, but most of the growth will be in our call center, customer experience operation, intake coordinators, more of CPOs, certified process orthotist in the field who evaluate and then deliver the product to patients, the manufacturing inspection team, and then our follow-on mild care coaches and clinical specialists to follow up with patients. So the majority will be folks that are in the field operations and line manufacturing operations and you look at 50% to 60% growth in headcount, yet we're going to be doubling capacity and revenue volume. So that's where we get some really good efficiencies because we've already built the infrastructure for the company.

So most of the headcount add, it's driven by increasing clinical, manufacturing and reimbursement capacity. So it's everything else is like the overhead and things like that is secondary so we want to make sure that's the first priority as we're adding headcount.

The next question comes from Edward Woo from Ascendant Capital.

Yes, congratulations on the quarter. My question is, was that correct that you said that European international revenue was 23%? Is that a seem like a very high amount? Do you anticipate international being that high or more growing forward?

I think 23% was correct that was the percentage of revenue in the fourth quarter and as Paul just mentioned I think we're looking at growth in international revenue is continuing into 2024.

Great is it mainly in the German market where you guys have had a lot of your growth previously or have you guys considered expanding to the rest of Europe?

This is primarily in Germany, Edward. We built up a really good business development a clinical team now. We've recruited a 100 orthotics and prosthetics clinic locations. I met with some of them last week and we're getting good reimbursement progress there in Germany. So we said, look, let's double down in Germany because it's a large market over 80 million population, so large prevalence and new strokes so that's our best market right now and we may look at other international market expansion later on but we go where the reimbursement is and the reimbursement is in Germany right now.

The next question comes from Ben Haynor from Alliance Global Partners.

Good afternoon, gentlemen. Thanks for taking the questions. First off for me, you mentioned the O&P clinics becoming more excited with the Medicare reimbursement amount being announced and coverage being in place for Part B. Can you talk a little bit about how those folks look at the product and maybe a little bit more color on the sorts of people you're meeting with at the upcoming conference here, Paul, for the O&P folks?

Well, the O&P channel is very well positioned to provide the MyoPro to patients, what's been a barrier to adoption has been the reimbursement process and that's why we integrated forward with our own direct billing clinical team in the field. But O&P clinics, it's approximately 3, 000 locations in cities all across the country. They see a lot of stroke patients already for what are called ankle foot orthosis, AFOs. So patients are already coming into their clinical facilities requiring an orthosis for example, foot drop. And many of these patients will also have upper extremity weakness. So we think it's very natural for these O&P clinicians to look at these patient candidates walking in saying, look, you might be a candidate for MyoPro. Let's get a prescription from your doctor if you're a medically appropriate candidate. So that's why we think it's a good opportunity for them. They're certainly interested in growth, and this is the largest growth opportunity in the field of orthotics and prosthetics. And there are a number of meetings going on this week in Chicago at that conference with a number of companies from the largest to some of the individual clinics that, I've known the MyoPro, they know our team for a number of years, and now they've seen the green light that they can go out and serve these patients.

Okay, that's definitely helpful. And then on, you mentioned the MyoPro Centers of Excellence or MyoPro becoming a MyoPro Center of Excellence for these O&P clinics. What does that entail? Does that exist now? Help me out with that a little bit more.

Yes, we have such a program. You have to go through a certain amount of clinical training by our staff. We will assist you with the evaluation and fitting of initial patients. And once you pass that certification, then you are what we call a center of excellence, and then you can start with sick patients, and we may even refer patients to you depending on different geographies.

Okay, that's helpful. And then, do you need to hire folks to do that training? Is that part of 50, 60 people you're hiring?

Yes, it includes some O&P channel managers, as well as expanding our clinical training staff to be able to train these additional channel partners.

Okay, got it. And then just on the guidance for Q1 and the remainder of the year, I mean, is the step up kind of a function of waiting on shipping some of these things out to Medicare patients until the reimbursement was set? So instead of shipping the last week of March should moving and maybe shipping the first week of April, what's the right way to think about that?

That's the right way to think about it.

Okay, fair enough.

Yes.

Okay, it makes complete sense. And then, lastly, for me on the guidance, you mentioned Q4 potentially getting to cash flow breakeven. Where do you, and you also mentioned the step up in gross margin in the second half. Where should we be looking at exiting the year in terms of gross margin? I mean, does that get into the 70s?

I do think with volume increases and probably an opportunity to increase our ASP a little bit now that we have the Medicare fees in place, I think it's possible certainly to be more than 70% in the five and fourth quarter.

Okay. Got it. I think that's all I have. Thanks for taking the questions and congrats on all the progress in getting the reimbursement in place.

Seeing that there are no further questions, I'd like to turn the call back over to Paul Gudonis for closing remarks.

Thanks operator. Well, I want to thank the new investors. They had faith in us in our products and participate in our capital raises over the past 15 months. You've been able to track well-regarded fundamental healthcare investors who see the long-term potential of this business. And we've had a number of executives and board members increase their stock holdings as well. We're now focused on scaling the business with operational efficiencies so that we can meet this increased demand, achieve our goals of cash flow breakeven by the end of the year under the various assumptions that Dave pointed out. We're delighted to put this major reimbursement issue behind us and 2024 will be a transformational year for Myomo. We're thrilled to be in a position both to grow the company significantly and to improve the quality of life for a larger number of patients. Thanks for your continued interest in our company and have a good day.

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