Myomo, Inc.
Q2 2018 Earnings Call Transcript

Published: 11 Aug 2018

[Operator:]

Good afternoon. And welcome to the Myomo, Second Quarter 2018 Earnings Conference Call. All participants will be listen-only mode [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Vivian Cervantes, of Investor Relations. Please go ahead.

[Vivian Cervantes:]

Thank you, Operator. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statement. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate belief, estimate, expect, intend, guidance, confidence, target, project and other similar expressions are used typically to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance, and they involve and are subject to certain risks and uncertainties and other factors that may affect Myomo’s business, financial condition and other operating results. These include but are not limited to the risk factors and other qualification contained in Myomo’s filings with the SEC which your attention is directed. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Myomo expressly disclaims any intent or obligation to update these forward-looking statements. At this time, it is now my pleasure to turn the call over to Mr. Paul Gudonis, Chairman and Chief Executive Officer of Myomo. Paul, please go ahead.

[Paul Gudonis:]

Thank you, Vivian and welcome to all of you. Thanks for joining us on our second quarter 2018 earnings conference call. I am joined today by Ralph Goldwasser, Myomo’s Chief Financial Officer, who’ll provide a discussion of our financial results and also be available for your questions after our prepared remarks. In terms of administrative items, we issued a press release with our second quarter earnings results soon after the market closed today. And a copy of this press release can be found in the Investor Relation section of our Web site, along with a copy of the presentation I am making today. As I have outlined in our investor meetings and first quarter conference call, we’ve now begun our commercialization scale up to address this large opportunity we have to conquer upper limb paralysis. We estimate the U.S. market to consist of about 25% of the 3 million individuals who have suffered a stroke, a spinal cord injury or other neurological condition, resulting in arm and hand paralysis and are estimated 350,000 new cases each year. But we continue to deploy the capital we raised in our December 2017 follow-on offering by investing in four growth programs; one, expanding U.S. sales and marketing; two, new product developments; three, clinical studies and reimbursements; and four, our international expansion. The early results of these investments are very promising, our revenues for the second quarter of this year grew 106% over the same period a year ago and we achieved record revenues of $632,000 as shown here on the chart in blue. And Ralph will cover the financial details in a few minutes. So we have accomplished revenue growth by implementing a three step program in U.S. market to expand distribution and to use direct to patient marketing to generate demand. We’ve been opening new sales regions by hiring business managers and clinical support staff and these professionals then recruit and train or orthotics and prosthetics clinics to provide the MyoPro Orthosis. And then we launched local digital marketing campaigns and host patient screening days to evaluate patients and demonstrate how our products can change their lives. In step one, we now expanded to total of 10 sales regions, nine geographic regions and one for national accounts this year from just three at the beginning of the year as shown on this map with the staff locations highlight. And then in step two, our team has grown the number of qualified O&P locations showing with the red pin to over 80 at this time, plus enabling mobile access to its certified clinician. And we plan to recruit all key providers in the other top markets identified with the blue pin. In step three we launched localized digital marketing campaigns to educate patients and family members about this new device to invite them to a free screening date and O&P clinic or local rehab hospital. On our Web site, you can see the list of screen days that we are currently offering, and this approach began with the test marketing campaign in a few mid-west markets in quarter one. So at that time, we did 12 screening events and a result of that, success there we expanded that to 25 in Q2. And this current quarter we have 75 patients screening days set up around the country. And with additional O&P locations to be added this quarter, we expect to host an even larger number of screen days in the fourth quarter. During these screening days, individuals with arm paralysis are tested for their EMG signals to make sure that the device will work for them and then we begin the process of obtaining insurance reimbursement for their custom fabricated MyoPro. Since its reimbursement process may take six to 12 months, we're building and growing patient pipeline that we expect will converted to revenue over the coming quarters. This past quarter’s results are a testament to this approach since these patients were evaluated and submitted for insurance reimbursements in previous quarters. Our second major revenue growth initiative is to expand our target patient population, and we're doing so by introducing MyoPro for adolescents for ages 12 and up, and also developing a pediatric size version for younger children that we will introduce next year. We've mounted several teenagers with our device so if they can use their affected arms again. And you can see more on our Web site under the tab labeled adolescents. Now, we begun collaborating an initial locations of major child service agencies and the countries such as Easter Seals, Shriners Hospitals, United Cerebral Palsy and we’re now contacting in Children's hospitals to set up screening days in various markets in the coming months, so we can add these individuals to our patient pipeline. To increase patient access to the MyoPro, back in December of 2017, we launched our third initiative by applying to the Center for Medicare and Medicaid Services, CMS, for unique product code known as HCPCS code for the MyoPro and we reported in May of this year that we received a favorable preliminary decision to establish two new codes for our devices. Over the next six months, we expect that CMS will determine coverage policy which will be eligible for device and setting allowable3 fee for how much they will pay for MyoPro. If all goes well, Medicare coverage would be effective in the first quarter of 2019. Now while we're cautiously optimistic about this development, I need to emphasize that there is no guarantee that CMS will actually issue code with suitable policy and allow the amount, if it does happen we’ll certainly increase the number of patients who can benefit from our technology and expect that their overall healthcare costs for these patients will be reduced. Our fourth initiative is expand into new geographic markets. We begun treating patients in Canada by Ottobock and their O&P customer in Toronto and we’ll be expanding the marketing there. And lastly, we also received the CE mark for Europe and again are working with Ottobock to fit patients starting in Germany where they will be the exclusive distributor of the MyoPro. In the photo myself with Jon Naft, Myomo’s Vice President and General Manager of International, attending the OT World Conference with Ottobock executives in Leipzig, Germany this past May. We’ve also begun to recruit distributors in other European countries and opened a business development office by engaging John Frijters, a former Ottobock and ReWalk executive to head up this effort on a consulting basis. So you can expect that we will be providing the MyoPro to patients in additional European countries and generating additional revenues over the next several quarters. And to scale up our operations, I’m very excited and pleased to have Micah Mitchell joined us last month as Chief Commercial Officer. Micah is an experienced executive in mobility solutions, such as customized wheelchairs and he has a terrific track record in rapidly growing sales organizations and direct-to-consumer marketing to scale revenues in companies such as Invacare, Alliance Seating and Mobility and Apria Healthcare Group. So with that overview of our four programs to go our revenues, I’ll now turn over the call to Ralph Goldwasser, our CFO.

[Ralph Goldwasser:]

Thank you, Paul. Welcome and thank you for joining us for our second quarter 2018 earnings conference call. As Paul noted, total revenue for the quarter ended June 30, 2018 of $632,000 increased by over 100% versus the comparable period in 2017; more significantly, product revenues in the second quarter of $628,000 increased by almost 160% over the comparable period of 2017. Rents revenue for the quarter declined by 60,000 as various projects were completed. Revenue for the six-month period ended June 30, 2018 of $946,000 increased by over 80% versus the comparable period in 2017. Gross margin was consistent at 68% for the quarter ended June 30, 2018 and 2017. For the six-month period June 30, 2018 to 2017, gross margin was 67% and 66% respectively. Research and development expenses for three months in June 30, 2018 were $487,000, a decrease of $222,000 as compared to the three months ended June 30, 2017. The decrease is primarily due to an incentive bonus of $300,000 coming to new executives in the second quarter of 2017. Selling, general and administrative costs for the three months ended June 30, 2018 were $2,627,000, an increase of $1,194,000 or 83% as compared to the same period in 2017. The increase was primarily due to increases in personnel costs of $635,000, which includes $442,000 for additional sales and marketing personnel hired. This was offset by a reduction in share-based compensation expense of $145,000. Other administrative costs increases, including professional fees and office related expenses of $407,000. During the three months ended June 30, 2018, we had an operating loss of $2,682,000 as compared to an operating loss of $1,933,000 million during the three months ended June 30, 2017. During the three months ended June 30, 2018, the Company generated interest income of $50,000 as compared to interest expense of $146,250 in the same period in 2017. We did not incur interest expense during the three months period June 30, 2018 due to the pay-off of our outstanding debt and our convertible promissory notes being converted into common stock upon the closing of our IPO on June 9, 2017. The Company's net loss for the quarter ended June 30, 2018 amounted to $2,630,000 million compared to a net loss of $7,382,000 million for the corresponding period in 2017. The net loss for the quarter ended June 30, 2017 included $5,172,000 charge for debt discount of convertible notes. Adjusted EBITDA for the quarter ended June 30, 2018 was a loss of $2,512,000 compared with a loss of $1,656,000 for the corresponding 2017 period. Cash on hand at June 30, 2018 was $11.7 million compared to $13 million at December 31, 2017. During the six-months ended June 30, 2018, we received $3.6 million in cash proceeds from the exercise of warrants. Cash used in operating and investment activities was $4.7 million. Finally, the past two weeks we've got quite a few inquiries regarding our S3 shelf registration. It is in place for public companies when they become eligible to file a short form S3 to put up a universal shelf registration statement, so they can be opportunistic in raising capital in the least dilutive manner possible, if and when appropriate. While there can be no assurance that we will pursue or complete a transaction, we nevertheless believe is good practice to be prepared. We established our [14.45] [indiscernible] [SM office] facility with B. Riley FBR as our banker. Under the requirements of using the S3, we are currently limited to the amount that we can sale in the 12 month period, namely one third of our public float of about 10 million shares. Paul?

[Paul Gudonis:]

Thank you, Ralph. So in summary, we have a number of catalysts of growth underway. We're confident in our initiatives to scale the business and overtime we expect to see a continuation in revenue growth. As I previously noted, these initiatives include adding more MyoPro certified O&P locations and conducting increasing number of marketing campaigns and screening days to generate demand from these patients, introducing additional products for younger patients to expand our target markets, obtaining a Medicare code to either expand our ability to address the needs of more paralyzed individuals and with distribution partners in other geographic regions, we can further grow the patient population that can benefit from our technology. This concludes the formal part of our presentation. Operator, we're now ready to open the call for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Our first question today will come from Jim Sidoti with Sidoti and Company. Please go ahead.

[Jim Sidoti:]

So pretty impressive top line performance and more than double the revenue from a year ago. Would you attribute that mostly to the new O&P finish you put on or the direct sales force, or maybe you can tell me what would you attribute it to?

[Paul Gudonis:]

Well, after we raised capital, we increased number of our sales people we have there plus O&P locations, and also began to direct to patient marketing, because our goal there is to inform the many millions of people who can benefit from our technology. We also had a higher proportion of direct sales where we’re selling directly to O&P providers and for the VA. And so our average sales price also increased during the first half of the year.

[Jim Sidoti:]

And 68% margin is that something you think you maintain going forward or will that bounce back and forth quarter to quarter depending on the mix?

[Paul Gudonis:]

Well, that depend on price mix, which products which the last quarter we sold a lot of the Motion-G, which is our flagship product with the graft, so that is a higher selling price. And we said our target margin is 65% and looks like we've been able to exceed it the last couple of quarters.

[Jim Sidoti:]

And the SG&A expense around 2.6, up from about 2.2 in the March quarter. I assume that's the additional salespeople you brought on?

[Paul Gudonis:]

Yes, that's for the additional sales people we brought on in different regions around the country, and also increased the expenditures on the direct-to-consumer marketing as well.

[Jim Sidoti:]

So I assume we shouldn't estimate SG&A up above that level going forward. I would think that if that number just goes up as you add sales people. Correct?

[Ralph Goldwasser:]

Yes, but it's not going to go as up as much as it has in the first half of the year. As Paul pointed out, once we raise follow-on offering, we deploy the capital and you can see the impact. Going forward, the way of growth of SG&A is not going to be as good as it was in the first half.

[Jim Sidoti:]

And similar question on the R&D, that was up almost little over $100,000 from Q1. Is that a number that stays around this level or will that bounce around depending on the timing of projects?

[Ralph Goldwasser:]

It does depend some on some of the projects but it's going to be growing at a more moderate rate.

[Jim Sidoti:]

And then the third question on everyone's mind is one look at an announcement from Medicare -- from CMS on the reimbursement. Is there a meeting scheduled with at this point or is this something they're evaluating and it could happen anytime in the fourth quarter or the first quarter 2019?

[Ralph Goldwasser:]

There is no specific meeting, Jim. Their process is to publish preliminary decisions, which they did in the spring and then the medical directors convene to discuss coverage policy, discuss internally with the committee on pricing or allowable. So that transpires in the second half of the year and we’ll get notified just like everyone else.

[Operator:]

[Operator Instructions] Our next question will come from David Solomon of ROTH Capital Partners. Please go ahead.

[David Solomon:]

So just want to get start, I’m sure you mentioned ASPs may have been up. How did they compare to last quarter? I’m just trying to get a sense of units. I’m currently estimating you put out 29 units. Is that seen reasonable to you?

[Paul Gudonis:]

The units for the quarter, this quarter were -- 22 for this quarter. And the ASP was mentioned is a significant increase in the ASP from Q2 of 2017.

[David Solomon:]

29, it’s a big jump. So is that what -- do you think the mix is going to continue to stay in that ratio in the near-term or how does the adolescent model impact that in just our assumption?

[Paul Gudonis:]

The adolescent model, it’s more what we’re selling through our direct sales organization and through the VAs. So we expect -- and also the product mix, we’re getting a really good reception. Last year about this time, we introduced the MyoPro 2 and that version is getting well received by patients and clinicians, the grafts capability o that is sold at a higher -- a wholesale price. And so also this year we’ve had more direct sales versus channel sales as we recruit distributors in Europe that may change the revenue mix a bit. But we still think we’ll have a lot of direct sales in terms of the type of ASP we can generate.

[David Solomon:]

And then just on the current patient pipeline, I know with all these screening days, it continues to grow. How has it been as far as obtaining reimbursement recently? Have you improved upon success rate or timing? Or does it still continue to be something where the main catalyst, if it occurs, would be an announcement in the fall?

[Paul Gudonis:]

Well, we’ve expanded our reimbursement team under our Chief Medical Officer, Dr. Brandon Green. They’re doing a good job of winning these cases, case-by-case basis, for the patients and the O&P providers. It just takes time. Some happen as early as 30 to 60 days. Some others may stretch out to six to 12 months. So what we see is this patient pipeline grows to the screening days and then over the next several quarters, we expect that that will convert to revenue.

[David Solomon:]

And just lastly on the international [fund], we discussed your expectations and for which countries do you anticipate contribution near-term?

[Paul Gudonis:]

Well, Ottobock has already gotten started in Germany. So I’d expect that in the second half of this year, we should see more revenue from Ottobock in Germany. As far as the other countries, we just started meeting with these potential distributors at the OT World Conference in May. I expect that we’ll sign some of these up in this second half of the year. And revenue generation for those new distributors and then they have to recruit O&P providers, it’d be sometime in 2019.

[Operator:]

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Paul Gudonis for any closing remarks.

[Paul Gudonis:]

I'd like to thank all of you for joining us on today's call. In summary, we're following through on the growth programs we've outlined and are starting to shows results and increased unit volumes and revenue. We have a strong balance sheet. And with the growth capital now available to us to significantly scale up our commercial operations in that we can create long term value for our shareholders. So thank you for your time this afternoon, and have a good day.

[Operator:]

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