Good day, and welcome to the Myomo Third Quarter 2024 Financial Results Conference Call. [Operator Instructions]. 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 Alliance Advisors IR. Welcome to the Myomo third quarter 2024 conference call. Earlier this afternoon, Myomo issued a news release announcing financial results for the three and nine months ended September 30, 2024, 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 myoma.com or call Alliance advisors IR at 310-691-7100 and speak with Danny Chertok. With me on today's call from myoma are Paul Gudonis, Chairman and 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 on Forms 10k and 10Q. Actual outcomes and results may differ materially from what's expressed in or implied by these forward looking statements, except as required by law, my 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 Myomo CEO, Paul Gudonis. Paul, please go ahead.

Thanks, Kim. Well, good afternoon everyone, and thanks for joining us today. We achieved another quarter of strong growth in the third quarter of 2024 building on our momentum since the medicare fees for the MyoPro powered arm braces went through to effect beginning April 1. We're now able to serve the many patients in the U.S. who are covered by standard Medicare Part B, and we achieve quarterly records and important business metrics, including revenue, revenue units, pipeline ads, border rent pipeline size, insurance authorizations and orders and MyoPro shipments. But with the reclassification of the MyoPro into the brace category and the publication of the medicare allowable earlier this year, we established three major objectives for the company. [Indiscernible] provided the MyoPro the eligible standard Medicare Part B beneficiaries whom we had to turn away before engage the many orthotics and prosthetics clinics across the country who would now be interested in becoming a distribution channel for us. And three, begin the process of establishing contracts with payers for in network status of our direct provider business. I'll provide a status report on these initiatives by reviewing the key data points across our revenue cycle, from patient candidates who are interested in MyoPro through to revenue units in the quarter. We added 645 medically qualified candidates to the patient pipeline, which was up 69% from the year ago a quarter as our addressable market is increased to include Medicare Part B patients that did not have access to the MyoPro in the past. Our marketing efficiency also improved with the cost per pipeline add down 25% from last year to $1,618 per qualified ads. We received insurance authorizations and orders for a record 225 MyoPros in the third quarter, including medically qualified Medicare patients, which was up sequentially…

Thank you, Paul and good afternoon everyone. Let me start my remarks with a review of our third quarter financial results. Revenue for the third quarter of 2024 was a record $9.2 million. This consisted entirely of product revenue and was up 81% over the prior year quarters total revenue, which included a payment under our licensing arrangement with the joint venture company in China. Product revenue was up 83% over last year's third quarter. Product revenue growth was driven by a record 161 MyoPro revenue units, about 35% year-over-year. Our average selling price, or ASP, was also a record at approximately $57,200. ASP was favorably impacted by supplemental insurance payments in the third quarter on revenue units recognized in a prior period. This is the result of the transition to recognizing revenue on delivery to Medicare patients, effective July 1, 2024. Excluding these payments ASP was $52,700 in the third quarter, still a record high. For Medicare Part B and certain commercial payers were recognizing revenue at delivery in an amount expected to be paid by both the primary and supplemental insurance payer, with the exception of Medicaid. Note that Medicare Advantage payers are in most cases now reimbursing us based on the fees published by CMS. As a result 94% of third quarter product revenue was recognized at either shipment or delivery, compared with 76% in the year ago period. 55% of product revenue in the third quarter came from Medicare Part B patients up from 47% in the second quarter, reflecting our success in reaching out to and educating these patients on the benefits of the MyoPro. Revenue from patients with Medicare Advantage Plans represented 24% of third quarter revenue, and Medicare Advantage revenue was down 26% year over year. A challenging reimbursement environment with Medicare Advantage…

Thanks, Dave. We're looking forward to a strong finish to this transformational year, as the clarity of reimbursement with Medicare coverage and payments has been a significant inflection point for Myomo. In addition to the continued growth in quarterly revenues in Q4 we're continuing to build out the O&P distribution channel. In fact, this week, we're attending a major regional O&P conference in New Jersey that's being attended by several 100 clinicians, and we're scheduling more training classes. We also received a very positive comment from a hangar clinics executive after participating in one of our recent sessions, telling us that our manufacturers training was among the best clinicians have ever experienced, and I'm really proud of our team. So with that update and overview of our plans for the rest of 2024 we're now ready to take your questions. Operator?

[Operator Instructions].

Before we turn to your questions, I want to mention that we've participated in several conferences in the past 60 days, including the HC Wainwright, Lake Street and Maxim Conferences, and we will be attending the 15th Annual Craig Hallam office select conference in New York City on November 19. We're also available for virtual and in person investor meetings, to arrange a meeting, contact the conference organizer or call Alliance Advisors IR who can assist you to schedule one. Okay. Operator, we're ready for the first question if you are.

Okay, the first question comes from Chase Knickerbocker of Craig Hallam.

Good afternoon. Thanks for taking the questions and congrats on the great progress here. Just first, just around ASP, what percentage of Part B patients is supplemental insurance or Medicaid kicking in to kind of pay that last 20% and then I think, kind of just backing up, how are you thinking about ASPs? You know, obviously, almost 53,000 very strong right around that max allow 80% of your max allowable. Do you think we still have room to go higher on kind of portfolio ASPs? Or should we think about this being pretty close to the ceiling? Thanks.

Yeah, the 527 was based on, as I mentioned, the fact that the supplemental payments were received in third quarter off revenue units in the second quarter. Now, when we recognize revenue, you're going forward or recognizing revenue in the amount that's expected to be paid. So there are some supplemental insurance plans that we believe that we've made the assessment that they're going to pay us. So if it's a motion G, we will go ahead and recognize $64,000 roughly, of revenue at delivery. Now, in the case of Medicaid, where we don't have Medicaid coverage yet, something we're working on we will only recognize $51,000 whether secondary coverage is Medicaid. So in all overall, I would say about 20% to 25% of our patients so far have supplemental insurance coverage, or we will take that incremental revenue at delivery. As to whether the 52,700 represents something? You know, could there be ASP growth in the future? I think that mix of whether these patients have supplemental insurance or not will depend on that and then once the O&P channel kicks in, I think then we might we'll probably start to see a lowering of the ASP as that mix changes but that's more of a 2025 issue.

Makes sense, and maybe just kind of going there on the O&P side. Great to hear about the progress thus far and what you kind of have planned through the rest of the year. How do you think, as far as kind of how quick those O&P providers can start generating revenue? Do you have kind of an idea yet? And then any early thoughts on next year, Paul, as far as what that channel can contribute from a standpoint of kind of your overall volume? Thanks.

In our experience with these O&P clinicians, they'll first go through the initial training to evaluate patients, then maybe over the next month or two, they'll have the right patients come into their clinic or an AFO and they may be a MyoPro candidate, and then I'll evaluate if they're suitable candidate. They will send that patient to their physician to get the written order, to get all the medical documentation. Our experience with that is it's typically six to eight weeks for patients to get those appointments come back to the documentation, and that O&P provider has got arranged to do the measurement of that patient's arm, to send us the order. So it's a three to four month process after getting that initial training, before we will see those initial orders. And then my experience with this channel too is that they'll want to first fit that first patient, so it might be another 30-40, days later when they fit that patient. They want to see how the patient does. They'll want to make sure they got that payment, whether it's from Medicare or one of the other private payers, so we'll probably see an initial order from these providers over the first six months, and then we'll see another order, in other words, so we'll start to pick up after that. It's not going to be a step function, but we are bringing a lot of these O&P clinics into the fold, so I expect we'll start to see an uptick in orders, especially in the first quarter of 2025.

Got it, and then just, you know, kind of following up on those comments, going to the manufacturing side, you just confirm that you're still at about kind of 80 units a month, as far as production capacity, what you're kind of churning out in your current facility. And then kind of, how quickly do you think you can get up and running in the new facility? And then, I guess, how quickly do you think you'll need that expanded kind of capacity from that new facility? And what do you think you can kind of get out of one shift at this new facility? Thanks.

Well, the good news is, our manufacturing team has worked really well to get more efficient. We even exceeding that 80 units per month right now during our Boston facility in downtown, and we've got a very good plan to start a parallel facility set up in a new Burlington workspace. So we'll start manufacturing there, in addition to what we've got here in Boston, and then we'll finally migrate all of it by the end of the year. So I expect that, you know, over the next six months, we ought to be able to double capacity based on all the workstations we're putting in place, and then after that, we can either add more first shift workstations or consider a second shift. So this new space that gives us plenty of flexibility to keep expanding capacity to meet the growing demand.

Well actually and one other thing too, sorry, we'll also get initially we're going to move in and we'll occupy about 27,500 square feet for office and manufacturing. And then come June, around June of 2025 we will get another 7500 square feet of manufacturing space. So I think we'll have plenty to meet our needs here as we go to 2025 and beyond.

And we've got a total of 13,500 here in Boston. So you see, we're basically tripling the space with most of that expansion for manufacturing.

Our next question is from Scott Henry of AGP.

Congratulations on continued, strong momentum. I'll start at the top of the funnel. New candidate adds 645, obviously a very large number. Do you think you can grow it much from there, or you're just trying to get a sense of what capacity is for the top of the funnel?

The answer is that yes, and our plan is to keep growing it by advertising expenditures. We did spend more in advertising in Q3 as Dave mentioned, but we typically cut back on some of the advertising in Q4 just because we're competing until yesterday with the election advertising. All the Medicare Advantage plans are still advertising till mid-December, and you've got holiday spending there as well. So we can serve some of our spending, but we will continue to grow that pipeline. We've also added in our own direct billing operation, more certified process orthotist. We have a dedicated team to evaluate patients online for that initial screening. So, Scott, yeah, we're planning to continue growing, because, again, we're in a very early stage of market penetration, given the huge number of people that need this MyoProlitosis.

Okay, fantastic. And then you're thinking about 2025 if you take your for Q number, annualizing it, you're already at 40 million. Any thoughts as to what kind of growth we could see from '24 to '25 and also, for Dave, should we factor in kind of what Q1 tends to be seasonably, a little weaker for a multitude of reasons. Just trying to get your thoughts on that year.

Yeah, I think you know, part of what we were doing with spending the money we did on advertising was to try to mitigate, if you will, some of that season, that first quarter seasonality by getting patients into the pipeline so that we can overcome what we typically see is, which is, as Paul mentioned, in the fourth quarter, you know, that we don't spend as much on advertising the pipeline ads are usually down in the fourth quarter, but we wanted to have sort of build up a pipeline to try to compensate for some of that. So it's a little bit early to tell in terms of what if we can, we'll actually be able to do that. I think we'll have our the metrics that we're able to generate, the ads and things like that, and the authorizations and orders, I think I'll need to wait to see on that before I give any color as to whether we think we can overcome some of that seasonality in the first quarter. And I think in terms of the full year I'll wait to give guidance until March on that. But I certainly sit here believe that if we exit fourth quarter on $10 million which is the midpoint of our guidance. I think we'd be disappointed if we had less than $40 million of revenue in 2025.

Okay, thanks. I appreciate that color. Final question just on the O&P channel. I think Medicare, we thought of as kind of a degree of magnitude relative to your base business, almost kind of doubled it. How should we think about the peak impact for that O&P channel.

You see the peak impact meaning over time. I mean, it could be a large business, because most orthotic prosthetics products are actually delivered through the O&P channel. If you look at other manufacturers of whether it's the sea [ph] leg or upper extremity prosthesis and so on. But no, we're very optimistic about building this channel up over time. In the meantime, though, we're going to continue to invest in our own direct provider business, because we've shown that we have really, over the last five years, built a really good commercial engine. Is very getting more and more efficient all the time in terms of the cost per pipeline add going to move these patients through the process to deliver high quality patient care. So it's a dual growth strategy, the O&P channel plus our direct provider business.

You remind me of -- this question reminds me of a comment you made regarding hanger, because I think you had a conversation that they mentioned how many AFOs [indiscernible] they might deliver in a year. And there's a good number of those people who get AFOs from hangar that may be candidates for a mile travel. And I think that could be a very sizable number, that could be in the 1000s per year just from hangar.

The next question comes from Anthony Vendetti of Maxim Group.

You have 316 units in backlog as of September 30, which is up 71% which is great. Can you talk about the value of that backlog and then when it should be recognized approximately over what time period?

Yes, so as you know the 316 some of those will patients will drop out of backlog. It always happens, typically, that percentage is somewhere around 15% to 20% will drop out. And so you know that that will leave you know, being conservative, I guess if you take 20% that maybe 250 remain, and if the value of that backlog of the ISP, just say $50,000 so you have the net value, I'll say, of over $10 million.

Usually gets realized over the next month.

Yeah sorry. And then the, typically, the way our backlog will be realized about 35% to 40% is will turn into revenue one quarter out, and then, you know, decreasing percentage from there it depends on the number of Medicare Advantage payers that are in the backlog and how long it takes to get reimbursed from them and things like that.

Okay, no, that's helpful. And then, as you've been ramping up how many direct sales people do you have now, and how many do you hope to have by the end of this year?

Well, remember, as a clinical services provider ourselves, we really don't have direct sales people. We have clinicians. So these are licensed CPOs who will then evaluate interested patients. We generate that patient demand primarily through the social media, from television advertising, clinical referrals from doctors and therapists. So they're not really sales people, they're just clinicians who are evaluating those patients. And then after we get the green light to go ahead and fit them, they will do the fitting, and then we'll just fill those patients. On the O&P channel side, we've got two business development representatives, and so their job is to recruit these O&P providers, get them excited about becoming a certified Center of Excellence.

Okay, so you have two of those on the O&P side. How many clinical specialists?

Yeah. So we've got 10, plus we just hired a couple more. So call it a dozen right now, and in the field across the country.

Excellent. And then obviously you have, you know, a huge opportunity here in the U.S. Can you talk about your international plans, whether that's, you know, something you're looking at ramping now, or, you know, sometime in '25 or is that more like a '26 plan?

What we can see in plan to ramp up, especially operations in Germany, because we are succeeding there, it's a good size market reimbursement is good with the statuary health insurance companies. We've got a network of over 100 O&P providers already trained there. So we're adding our own staff there to support these O&P providers, and we're basically doubling down there in Germany. We're looking at other markets. It's typically a two to three year process with a new market, let's say a France, for example, Italy, you'd have to you have to put some boots on the ground, you have to meet with the regulators. You have to meet with the insurance company medical directors, similar to what we had to do in Germany, originally, what we have to do here in the U.S., with payers and CMS. So I think we're going to defer that so, you know, we're in a bigger position revenue wise, they can afford to make that investment, which again, pays off but it's about two to three years of investment to get there.

Okay, so the focus, because you've been in Germany, will be to continue to build that out in the U.S., and then it sounds like maybe France and Italy would be next, but that's a two to three year process to get that built out and ready to go

Right. And meantime, we're cheering on our China joint venture partners, they're starting to get the necessary NMPA approval, so hopefully they'll start generating revenue 2025, and then associated license fees back to us.

Okay. And then last question on the R&D front any particular developments, there any improvements or modifications to the current brace that's out there?

Yes, we've been expanding our R&D staff, and we've been working on new enhancements, in my approach to [indiscernible]. We've taken them out in at home, trials with patients, and we got some good feedback to, Hey, make these other changes. So I said, you know what? Rather than introducing product enhancements right now, let's push that out a bit, because I'd rather put in those additional features. It also broadens the number of people who might be qualified for MyoPro, and so you'll see some announcements to that probably Q1 of 2025.

The next question comes from Ben Haynor of Lake Street Capital Markets.

First off, congrats on getting the 100 O&P clinicians trained up. And you know, obviously the high praise that you received there that's definitely encouraging. Can you talk a little bit about maybe what the demand looks like for more O&P clinicians to get trained. I mean, how quickly can you train the next 100 and the next 100 beyond that. You know, just any thoughts there would be helpful.

Sure. Well, one of the reasons we invested in creating the Myomo Academy as an online learning platform so that clinicians who are interested, they sign a contract with us, they have access to that. They can start to do this learning online, and we do online classes for these individuals so they can start that evaluation process. We'll team up by sending our clinicians to go with them to evaluate patients, to do in service presentations at various rehab hospitals, and we have a plan for a number of classes in the new year. So as we see more and more demand, our team, as I said, is in New Jersey at this original conference this week. If there's more and more demand, we can keep growing the team that's associated with that O&P channel, because I really want to develop it.

Makes sense. And then what goes into them ultimately becoming the center of excellence, you know, the initial training online, you know, then kind of, what's the procedure what happens after that, to get to that center of excellence sort of level?

Well, it's important investment from them, because it takes three days for one of these CPOs to become qualified to deliver a MyoPro. So they learn about the evaluation process, about the medical documentation that's required by Medicare or other payers. Then they learn to do what we call a shape capture, to measure the arm and hand, because again, every patient is unique and then after they place their order, we'll make sure that we assist them in terms of the delivery of the product. So if they then hands on training with the patient as well. And then there's the follow up care. So it's a three day program, which means they have to be out of clinic for three days. So you know, they understand that that's the investment they have to make, but in return, you know, they can earn that Medicare allowable for every Medicare patient that they see and put into a MyoPro.

Perfect. Yeah, that's helpful. And then lastly, for me, on the Q4 guidance, does that have anything factored in from the O&P channel, or is that, would that be kind of pure upside?

Yes. I think the assumption is sort of the typical rate that we see the O&P channel is only the 3% of revenue in the third quarter. So we've talked about the O&P channel being more of a 2025 thing, and so that's what our assumption is in the fourth quarter.

The next question comes from Edward Woo of Ascendiant Capital.

Yes. Congratulations on the quarter. My question is, as you guys move into the new facility, how much more operating leverage can you get in your business?

I think, I mean, we'll have, we will have to pay a higher rental, of course, so we'll have to sort of absorb that before we just more space and more lease dollars, but so we'll have to absorb that before we get leverage. But that's, you know, that shouldn't be too hard and if we're doubling the capacity, I think that if we can get up to that, those kinds of numbers that sure we'll be generating a fairly good incremental operating income from what we're doing, particularly, I think as we were looking to see that O&P channel grow, because there will be more leverage, I think from even though the ASP will be lower, because we don't have to spend incremental advertising dollars and clinical dollars for an O&P patient. We'll be really looking to see that channel grow as well, in combination with the following, what the volume growth to really drive that leverage that we're looking for.

As you expand your volume and capacity, is there opportunities for gross margin expansion?

I think, as I mentioned with the O&P channel as that grows and becomes a bigger part of our revenue, I think we see the gross margins where they're in the mid-70s now low to mid-70s, it might go down below 70% as the O&P channel becomes more prevalent because the ASP will be lower but then again, I think there shouldn't be as much incremental OpEx required to serve that channel. So I think it's possible that that channel is operating margin accretive as we go forward, and so that's sort of the operating model that we would like to see. So again, I think with the channel, you could see gross margin loosen a bit with that channel, but potentially operating margin accretion.

We are out of time, and therefore this concludes our question and answer session. I would like to turn the conference back over to Paul Gudonis, Chairman and CEO, for any closing remarks.

Well, thank you. Operator, well, in closing, I'd like to remind you that we are in the business of patient care. There's no better proof to that than success stories. One of our recent MyoPro recipient is a 50 year old female who suffered a stroke in 2020. She lost the ability to use her dominant right arm and hand, and she was evaluated for MyoPro back in August 2023. After receiving an insurance denial, our patient advocacy team successfully appealed this decision, and she was fit with the MyoPro this past August, and in just two months, she's become a rock star user who performs many activities of daily living, such as cooking, feeding yourselves, doing the laundry more thanks to her MyoPro. By continuing to assist more individuals like her, we're going to build a growing and profitable company. So thanks again for joining our call today and have a nice evening.

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