Myomo, Inc.
Q4 2020 Earnings Call Transcript

Published: 10 Mar 2021

[Operator:]

Good day, and welcome to the Myomo Inc Fourth Quarter 2020 Earnings Conference Call. Participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

[Kim Golodetz:]

Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo fourth quarter and full year 2020 financial results conference call. Earlier today, Myomo issued a news release announcing financial results for the three months and 12 months ended December 31, 2020. 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 in New York at [phone] and speak with Carolyn Curran.

[Paul Gudonis:]

Thank you, Kim. Good afternoon, everyone, and thank you for joining us today. After I provide a business update, Dave will review our fourth quarter and full year financial results and discuss our financial outlook. And following the financial update, I'll give some closing remarks, and then we'll take your questions. But first, let me once again express my hope that you, your families and colleagues are continuing to take the necessary precautions for health and safety and that you've all remained well as we enter the second year of the COVID-19 pandemic. When the pandemic began, we certainly had no way of knowing how long it lasts or how quickly economies in various states and geographies would open back up. With a view towards preparing for the worst but hoping for the best, I am so proud of the Myomo team and our O&P channel partners in the way that we navigated through what we all hope was the worst of it. During the year, we adjusted our operations, particularly in the use of telehealth and online marketing that supported the continuing growth of Myomo during the year. This digital transformation will have a lasting positive impact on the business and our ability to grow revenues at a much faster rate than operating expenses as more of our patient-facing work is now being done online.

[Dave Henry:]

Thank you, Paul. Turning now to our fourth quarter and full year 2020 financial results. Revenue for the fourth quarter of 2020 was $3.8 million, which was up 149% over the prior year's fourth quarter, and as Paul indicated, was a quarterly record. A higher average selling price, along with the sale of a record number of MyoPro units reflected success with our direct billing channel and our marketing efforts. More specifically, we recognized revenue on 97 MyoPro units in the fourth quarter of 2020, an increase of 126% compared with the fourth quarter of 2019. This concludes 13 direct billing units, representing approximately $400,000 of revenue that were pulled into the fourth quarter from 2021 due to having sufficient collection history with certain insurers to enable us to recognize revenue upon delivery. Our backlog of units, which represents insurance authorizations received, but not yet converted revenue was 131 units as of December 31, 2020. Approximately 44% of the September 30, 2020, beginning unit backlog was converted into revenue during the fourth quarter. Backlog was lower in part due to the pull-in of revenue I just mentioned. The decrease was also driven by a sequential decrease in authorizations and orders in the fourth quarter. We received 86 insurance authorizations and orders in the fourth quarter compared to 98 in the prior quarter. In addition, 20 candidates dropped from the backlog in the fourth quarter. Gross margin for the fourth quarter was 73%, up from 72% in the fourth quarter of 2019 and up from 56% in the third quarter of 2020. The increase primarily reflects a higher average selling price. There was a small negative impact on gross margin as we delivered 101 units to patients, which became cost of revenues in the fourth quarter compared with 97 revenue units. Operating expenses for the fourth quarter of 2020 were $4.5 million. This is a 22% increase compared with the same quarter a year ago and primarily reflects higher incentive compensation accruals and advertising costs. Operating loss for the fourth quarter of 2020 decreased to $1.7 million from $2.6 million in the fourth quarter of 2019. It was $1.7 million or $0.37 per share, and this compares with a net loss of $2.8 million or $4.81 per share for the same period of 2019. Adjusted EBITDA for the fourth quarter of 2020 was a negative $1.5 million, and this compares with a negative $2.4 million for the fourth quarter of 2019.

[Paul Gudonis:]

Thanks, Dave. As we look forward to the rest of 2021, we plan to increase our efforts to obtain what we believe is appropriate reimbursement for the MyoPro so that more patients have access to our devices. As you may recall, back in January of 2019, the centers for Medicare and Medicaid Services, or CMS, established two new billing codes for the MyoPro and certain Medicare Advantage plans began paying for the device on a case-by-case basis. While these Medicare Advantage plans cover about 35% of seniors, the larger portion of Medicare beneficiaries are covered under Part B, where the MyoPro is coded as durable medical equipment rental. Because the MyoPro is custom fabricated for each patient and is designed for long-term use, we continue to seek a correction in the benefit category and we recently applied for such a change with the submission of a code amendment for consideration this year. However, there's no guarantee that CMS will issue a coverage policy or an acceptable payment amount for the MyoPro, in which case, we will continue to address the large population of paralyzed individuals covered by other plans. Also a year ago, we have begun testing our new MyoPanel device, which is designed for the pediatric market. We had to put that work on hold. But as vaccinations become more widespread and parents are comfortable with our clinicians meeting with their children, we plan to restart the testing and final design work on this product later this year. This concludes the formal part of our presentation, operator. And so we're ready to open the call to questions.

[Operator:]

[Paul Gudonis:]

Before we take the first question, I want to mention that we are available for virtual investor meetings during this time of limited travel. So please contact LHA Investor Relations to set up a time. Their contact information is on today's news release. We will also be participating in several upcoming virtual conferences next week including the Virtual 33rd Annual ROTH Conference with one-on-one meetings being held March 15 through 17 and the Maxim Group Emerging Grilled Virtual conference being held March 17 and 18, with one-on-one meetings scheduled after the event. If you'd like to meet with us during any of these conferences, please contact your representative at the sponsoring investment bank. Okay. Operator, we are ready now for the first question.

[Operator:]

Our first question comes from Scott Henry with ROTH Capital. Please go ahead.

[Scott Henry:]

You almost topped your biggest year in one quarter alone. So what I wanted to dig into was the new pipeline adds because that's the top of the funnel, and it's important to the long-term trend. And it sounds like Q4 was a little low, but then Q1, could be 400. So the question is, why do you think such a discrepancy between Q4 and Q1? And where do you think the true number is there?

[Paul Gudonis:]

Yes, Scott, thank you for the question, and I'll address that. While our advertising leads, we saw a slowdown with the economic situation. I think a lot of patient candidates were a bit uncertain about whether or not they wanted to proceed, maybe when they were concerned about a job or a spouse's job or health insurance. I think the election took a lot of mindshare of people. And then we ran into the holidays, which tends to be a slowdown as well. However, during that period, especially after the election, we ramped up our advertising budget and spend and that resulted in a much larger number of leads starting in December and then continuing on in January and February. And then we also expanded our call center staff down in Texas. And so we were able to reach more patients. Our clinical team has been conducting more evaluations. And so our trajectory is definitely on the upswing, and we will have a record quarter of new patient adds here in the first quarter.

[Scott Henry:]

Okay. That's great. I appreciate the color. Just 1 international question. In Germany, how large is that opportunity? And when do you think you could see revenue?

[Paul Gudonis:]

While we're already seeing some revenue out of Germany. We've already booked more orders here in the first quarter from Germany. So we expect good year-over-year growth in Germany. It's taken a while to get statutory health insurance to approve this, but we've been working with the local O&P partners who are in network, they know the local regulations, the language. So they've been successful in getting this forward movement with the SHI payers. So that's really set the foundation for easier reimbursement going forward. We've now got a German version of our website up and running. We started doing some test marketing on Facebook, social media there in Germany. So with that, I expect we're going to keep building the pipeline, and we should have good year-over-year revenue growth in Germany. The other markets in Europe are just starting to open up again. But Germany has done the best. And also, they tend to like high-tech products like this. So we think we'll do our best international growth in the short term right there in Germany.

[Scott Henry:]

And I'll just ask one final question. Gross margins were very strong in the quarter. When we model out gross margins, is that mostly a function of just the volume you did that quarter or are there any underlying trends that are perhaps more favorable that I should factor out?

[Dave Henry:]

Yes, Scott. Yes, contribution margin, we don't have -- the only fixed costs we really have are like our maybe our quality and fulfillment organizations other than that, it's all variable cost. So the contribution margin is in the range, and we've said it's around 70% to 75%. What happened in fourth quarter is that in prior quarters, certainly, in third quarter, we -- there was a large gap between the number of units we delivered and the number of units that we actually took revenue on. That gap closed in the fourth quarter due in part to that -- to the pull-in of revenue from the -- that we were able to do because we've got enough payment history now on some of these insurers. So that helped sort of close that gap and get our -- the gap between deliveries and revenue units and allowed us to be able to realize a gross margin that was in the range of our contribution margin that we've been saying.

[Operator:]

Our next question comes from Kyle Bauser with Colliers Securities. Please go ahead.

[Kyle Bauser:]

Really nice results here. I'm curious on the digital marketing efforts. If you have any updated estimates for the cost of patient acquisition or the cost per click?

[Paul Gudonis:]

We're finance -- go ahead, Dave, please.

[Dave Henry:]

I was just going to say that we don't really look at cost per click, but what we try to manage is the -- what we're trying to do is improve the cost per -- what we call internally a good lead. A good lead are those insurers that we believe are based on history, are more likely to reimburse for the product. And that wouldn't -- a Medicare lead, unfortunately, right now, is not a good lead. So what we're trying to do is try to -- we obviously try to manage the -- we want to balance the growth in the pipeline and also the increase in the advertising spend, but what we're looking towards, obviously, is something a cost like cut few hundred dollars and maybe in the future, drive that even lower as we get better at doing it and the things evolve and understand where the pockets of those potential patients are in a more thorough way.

[Kyle Bauser:]

And clearly seen some really nice momentum here, and we're just in the early innings. Can you help me understand your latest thinking on the addressable market? I know you've said that about one-third of the annual incidence of 800,000 patients enter the prevalence pool for addressable MyoPro patients, so, call it, 250,000 patients, and that is further reduced by other exclusion criteria like reimbursement and patient interest and sufficient shoulder strength even. So after considering all the exclusion factors, what's your sense for the true prevalence and incidence for potential MyoPro patients right now?

[Paul Gudonis:]

Yes. Thanks, Kyle. So in our recent investor presentation, which will be up on our website soon here for March. We're talking about the current chronic arm Paralysis prevalence pool in the United States is about 3 million. As you described, we narrowed down, you've got to be living at home. You're not in a nursing facility, have to have the right type of insurance plan. You have to be clinically qualified. You have to be interested in wearing a robotic device like this. So we narrowed down to about 10% of addressable markets. So our estimate, that's probably 300,000 individuals, right? And we're just serving a couple of hundred a year right now. So certainly, a lot of upside potential there. And then probably 10% of those new incidences every year. So 25,000 to 30,000 from those strokes, spinal cord injuries, new brachial plexus injuries, from traffic accidents, things like that. So that's what we identify as our target market just in the United States. And then, of course, it's probably that large in Europe and in places like China. The reason we wanted to address that market is there's 14 million paralyzed arms in China. A 2.5 million strokes a year. So another 800,000 new cases going to the chronic condition every year. So that's our view of this addressable market for us.

[Kyle Bauser:]

No, that's great. I appreciate that color. And just a couple more quick ones here. So following up on Scott's previous question. So the pipeline is very robust. We're seeing some nice new add numbers. But if I look at kind of the exits, if you will. So you've got a pipeline, you're bringing in new people, but there are people who fall out of the pipeline. Over time, it's been about 25%, and it's kind of stayed at that level. So you can typically expect about 25% of the pipeline to kind of fall out. Even as we've seen the percentage of the pipeline towards direct billing increase over time. So I'm just kind of curious what -- how could we see the percentage of exits kind of decline? Is there any sort of barrier that would help with this? Or any kind of color around that?

[Paul Gudonis:]

Well, the biggest issues that we see people dropping out from the pipeline is they've had a stroke, they have another stroke. They sort of take themselves out, they say, well, what get back to me in 6 months because I've just had a stroke. Sometimes, they change insurance, a spouse changes their job. And then they haven't disappeared totally, but we take them out of the pipeline, and then we will work with them to resubmit them into their new insurance. But that's the type of dropout, some people change their mind. One of the things that we're able to do as the direct billing provider. To the extent that we can accelerate the cycle time, the longest something drags out through an insurance authorization process, people become disinterested. So our objective is to get those documents from their physician, the of medical necessity, the other therapy notes, see if we can get an authorization as fast as possible, and that will help, I think, in terms of reduce that pipeline dropout rate over time.

[Dave Henry:]

Just in terms of numbers, Kyle, the pipeline drop is around 15% in the fourth quarter. By my math, it was about 111 folks dropped out of the pipeline in fourth quarter.

[Kyle Bauser:]

Yes. Maybe I'm looking at -- maybe there's a lag in mind. But I appreciate that color there. And just lastly, on the ASP, we're seeing a nice trend upward here. Obviously, the mix of direct billing units helps with this on back of the envelope map, I show about 39,000 for an ASP. What's the long-term goal here for modeling purposes? How should we be thinking about that?

[Dave Henry:]

Yes. I think the -- we did have -- we had some blue birds from an ASP standpoint in the fourth quarter. We had quite a number of fairly sizable reimbursements, which we're very happy with. But we're -- in terms of that, we're just -- I would assume on a go-forward basis just because I -- because of those blue birds, I would continue to model like a mid-30s ASP.

[Operator:]

Our next question comes from Jim Sidoti with Sidoti & Company. Please go ahead.

[Jim Sidoti:]

Can you hear me?

[Paul Gudonis:]

We can, Jim. Hello.

[Jim Sidoti:]

Great. So your revenue for the quarter exceeded even your preannounced -- your updated guidance in early January. Is that a function of the direct billing and the fact that you were able to collect or it's more reliable collections to these insurance companies?

[Dave Henry:]

Well, I think it's more of a -- we wanted to make sure we were conservative when we -- if you're going to preannounce, don't miss it. So I think there's nothing that nothing happened in the time frame between when we preannounced in the time that we were -- and today, there was anything different. It was I would just chalk it up to. We wanted to make sure we gave a conservative yet realistic estimate.

[Jim Sidoti:]

Okay. And then that 39 pay per unit for the quarter. How does that compare to a year ago?

[Dave Henry:]

Significantly higher. I think the ASP, bear with me a second here. So the ASP last year was around 35, I want to say. Let me -- my advertise is too small. Yes, it was 35 last year.

[Paul Gudonis:]

Jim, it's increased significantly over the last 18 to 24 months. As we developed our hybrid channel and shifted more of our business to our direct billing to the insurance providers, and we're getting the full payments from the payer instead of a wholesale amount from channel partners, and that now is 77% of our total revenue mix.

[Jim Sidoti:]

And then with regard to lead generation, what were the specific changes you made to make that improve? And how long do you think it will take for those to turn into actual orders?

[Paul Gudonis:]

Yes. Well, we were looking at the elite situation and always looking to figure out, okay, what can we do better. We changed agencies in the fall. Now we selected a local agency here that was really a specialist in digital marketing. So they looked at the different algorithms that are used by Facebook and some of the other search engines to optimize the keywords, things like that. So we did that plus the increased spending. And also, when you advertise on the social media platforms, we -- I would say a fixed budget, and you're basically bidding for ad space against other advertisers. And as you know, there's a lot of advertising going out with the whole election campaigns. So when asset sided, we were able to get more bang for our buck, so to speak. So a combination of that, looking at new places to advertise. For example, we're now in AARP. We -- on their online sites. In addition, we are using print advertising, we're in their latest stop print magazine issue, which goes out to millions of members, 50 years of age and older. So that is raising brand awareness as well here in this first quarter.

[Operator:]

We have time for one more question. Our last question will come from Edward Woo with Ascendiant Capital. Please go ahead.

[Edward Woo:]

Yes. Congratulations on the quarter. As you guys are looking forward to trying to grow your international business, especially in Europe and Germany. What -- how should we view ASPs in those regions?

[Paul Gudonis:]

Dave, do you want to address?

[Dave Henry:]

How do you view ASPS, I'm sorry?

[Edward Woo:]

Yes. You could get the selling price similar to what it is in the U.S.? Obviously, the channels are different, but do you think the selling prices can be similar?

[Dave Henry:]

It will be. It probably be in the middle of our channels. It's going to be lower than the direct billing ASP in the U.S., but we think it can be a bit higher than the ASPs that we get through the U.S. O&P channel and the VA as well.

[Edward Woo:]

Great. And then going into Asia, congratulations on the joint venture in China, is that only for China? Or does it include other Asian areas? And what are your plans for those other Asian markets?

[Paul Gudonis:]

That joint venture is designed just and restricted to just the China markets to manufacture just for the China market and to distribute to patients in China. However, that could serve as a model for other Asian joint ventures. Because in the Asian countries, it's often good to have a local partner to help navigate the regulatory and government environments. So we'll see as COVID recedes. We may get other parties interested into other geographies, but the Riser joint venture is totally focused on the large China market.

[Paul Gudonis:]

Well, thank you, Edward, and thank you, operator. So in closing, we're hopeful that the economy here and in other country markets open up this year and that the pandemic continues to abate over the course of this year. In that case, we'll be able to continue to deliver the MyoPros to patients in our backlog, continuing to accelerate our patient pipeline growth and demonstrate strong annual revenue growth for the fifth year in a row. We're addressing a very large unmet need with a life-changing solution while continuing along the path toward our next milestone of cash flow breakeven. So once again, thank you for your time and your interest in Myomo today, and have a good evening.

[Operator:]

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