Myomo Inc.

Good afternoon, and welcome to the myOMO second quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Kim Golodets. Please go ahead.

Thank you, operator, and good afternoon, everyone. This is Kim Golodets with LHA. Welcome to the MIOMO second quarter 2023 conference call. Earlier today, MIOMO issued a news release announcing financial results for the three months ended June 30th, 2023. 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 myomo.com or call LHA at 212-838-3777 and speak with Carolyn Curran. With me on today's call from myomo are Paul Godonis, 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 risks and uncertainties and other factors that may affect myMO's business, financial condition, and operating results. These and additional risks, uncertainties, and other factors are discussed in myMO's filings with the Securities and Exchange Commission, including the Form 10-Q for the quarter ended June 30, 2023, 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 is now my pleasure to turn the call over to myOMO CEO, Paul Godonez. Paul, please go ahead.

Thanks, Kim. Good afternoon, everyone, and thanks for joining us. As we reported in our earnings press release, We had a very solid quarter with year-over-year growth in revenue and in all of our key operating metrics. More specifically, we continued to increase shipments of our MyoPro device and to build our patient pipeline for future revenue growth, now including Medicare Part B patients. We received the final license payment for our joint venture in China, which has enabled the launch of the business there. And most importantly, we had a significant positive development in our efforts to secure Medicare Part B coverage for our power and arm brace so that we begin serving this large patient population. I'll start by reviewing the operational highlights during Q2 from the front end of the pipeline to the delivery and revenue. Our direct consumer marketing strategy of using TV advertising and social media to inform patients and family members about the myoprobe to restore movement in paralyzed arms is working very well. We added more than 400 medically qualified patients to the patient pipeline in the second quarter, and these candidates are all covered by insurance plans that have paid for MyoPro in the past. Earlier this year, we began focusing on payers that have a track record of reimbursing for the MyoPro, resulting in what we believe is a higher quality pipeline than in the past, and we're building it more efficiently with a smaller staff this year. We obtained authorizations and orders for 125 devices during the quarter, which is up 23% from the year-ago quarter. And with the shipments and payments we received, our product revenues were up 15% year-over-year. In addition to this product revenue, we were paid the final installment of the China Joint Venture initial license fee of just over $1.7 million, bringing our Q2 total revenue to $6 million. We've been working on this joint venture for several years now, and with the COVID-19 pandemic winding down and the resumption of economic activity in China, our joint venture partners, Ryzer Medical and China Leaf Ventures, were able to move constantly forward to fund Yanxi Myomo, and we're now in the process of setting up manufacturing and sales operations to serve the greater China market. With an estimated 14 million people with paralyzed arms and 2.5 million new strokes each year, China represents the world's largest market opportunity for the MyoPro. We have a joint venture project team that's assisting in preparing the manufacturing infrastructure, establishing a supply chain for components, and engaging rehab hospitals for distribution of the MyoPro to patients. We sent a couple of our clinical specialists to China to train the JV staff and to demonstrate the technology to rehab hospital therapists. We've also received a total of about $300,000 in orders for the clinical version of our product called the Mobile Arm Rehab Kit to be used for demos and training and for the MyoPro Control System chips and software, which will be used in the initial production run by the JV. The MyoPro Control System order represents the initial purchase commitment under the guaranteed minimum payment provision of the JV contract. And this contract provides for a total of $10.75 million in MyoPro control unit purchases over the next 10 years. I also want to note that these components are manufactured in the U.S. and our IP stays firmly with Myomo. And then on June 30th, the Centers for Medicare and Medicaid Services, known as CMS, issued a proposed rule that if adopted, would reclassify the MyoPro as a covered benefit in the brace category with a lump sum payment. In addition, CMS stated its intention to post a fee for the MyoPro at an upcoming public meeting. This is a very significant development because it will allow us to serve patients in the U.S. who are covered by standard Medicare or Part B fee for service. and would allow the MyoPro to be reimbursed on a lump sum basis the way all the other payers in the U.S. currently pay for the MyoPro. We currently provide the MyoPro to seniors with certain Medicare Advantage plans, yet half the seniors in the U.S. are covered by Part B, so our addressable market is poised to increase substantially. For those of you who are new to MyoMo, here's a quick summary on Medicare. In January 2019, CMS made unique product billing codes referred to as HCPCS codes effective for the MyoPro. However, CMS classified the MyoPro as durable medical equipment, or DME, which classified it as a device that paid on a monthly rental with coverage on a case-by-case basis. While this opened up the large Medicare Advantage patient population to us, our position has been that the MyoPro is a custom-fabricated brace for long-term use, and that it should be classified in this benefit category. Discussions with the CMS staff got delayed due to COVID, and then we were invited to make our case at the CMS public hearing in June of 2022. At that presentation, we made that presentation, and we had follow-up meetings with the CMS staff and with the medical directors of the DVMAX, the Medicare Administrative Contractors. The most recent of these meetings was this past April, when we presented compelling new research about the patient outcomes and the value of the MyoPro to individuals of Medicare age. We were encouraged to file claims for Part B patients, so we've now fit six patients and submitted six claims for payment. These claims are under review at this time, Now, it's unclear how the proposed rule that's now come out would affect the processing of these claims that were submitted to DMA Max before the publication of that proposed rule. So what's next? CMS is accepting public comments on this proposed rule until the end of August, and then they'll hold a public hearing on this topic, as well as propose the allowable fee for our devices. While there's no specific timeline for implementing the new rule or holding a public hearing, The next viewing is usually in the fall, and then coverage and pricing go into effect sometime after that. Although I'd love to have a definite answer for you this time, the process of the MyoPro covered as a powered arm brace is closer than ever to the goal line. In the meantime, we're not sitting still. Since many Part B patients contact us each month about a MyoPro for the paralyzed arm, we're proceeding to screen these patients for medical eligibility, and we're building a pipeline of Part B patients so that we can serve them after coverage and a fee are established. With that overview, I'll turn the call over to Dave Henry, our CFO, for a more detailed discussion of our financial results and operational metrics. Dave? Thank you, Paul, and good afternoon, everyone. To add to Paul's comments regarding coverage by CMS, if the proposed rule is adopted and the MyoPro is reimbursed by CMS on a lump-sum basis, The working capital required to grow our business to a level that supports cash flow breakeven is expected to be less than if the mile pro were reimbursed as a rental. The reason for that is because under the proposed rule, we wouldn't have to wait 13 months to be fully paid for the manufacturing and patient provision costs that we would extend up front. Turning now to our second quarter financial results, total revenue for the second quarter of 2023 was $6 million. That includes revenue from the payment of the remaining initial license fee by our joint venture partner in China. As a result, total revenue was up 62% compared with the prior year quarter. Excluding that payment, product revenue of 4.2 million increased 15% year over year. This growth was driven by a higher number of revenue units offset by a lower average selling price, or ASP. We recognized revenue on 97 units in the quarter, which was an increase of 21% over the prior year. AST was approximately $43,700, down 5% from the prior year due to payer and channel mix. The direct billing channel represented 79% of revenue in the second quarter, compared with 83% in the prior year quarter. International revenue represented 12% of product revenue in the second quarter, The remaining 9% of revenue was from the VA and domestic O&P channels. The backlog represents insurance authorizations and orders received have not yet converted to revenue. Our backlog at the end of second quarter 2023 was 179 units, up 10% compared with the end of the second quarter of 2022. We received 125 authorizations and orders from IOPROs during the second quarter, an increase of 23%. compared with the prior year quarter. Our patient pipeline increased to 969 candidates at the close of the second quarter, up 27% from the year-ago quarter, which has been revised to reflect only known payers. 408 patients were added to our pipeline during the second quarter, an increase of 28% over the prior year. The year-ago pipeline additions have also been revised to reflect only known payers. Gross margin for the second quarter of 2023 was 71.8%, compared with 65.3% for the prior year quarter. Excluding the impact of the license revenue, gross margin on product revenue was 60.5%, a decrease of nearly 500 basis points compared with the prior year quarter. The decrease was due to a lower ASP and higher inventory and warranty reserves. Operating expenses for the second quarter of 2023 were $5.4 million, an increase of 2% compared with the second quarter of 2022. A modest increase was grown primarily by a higher incentive compensation accrual offset by lower advertising expenses, which decreased 18% compared with the prior year quarter. We're on pace to spend roughly $1 million less on advertising in 2023 versus 2022, which is part of the $2 million in annual OpEx savings we're expecting for the year. Our cost per pipeline add decreased to $2,074, which is down 57% compared with the prior year quarter. As a result of the license revenue, operating loss for the second quarter of 2023 was $1.1 million compared with an operating loss of $2.9 million for the second quarter of 2022. Net loss for the second quarter of 2023 was $1 million, or $0.04 per share. This compares to the net loss of $2.9 million, or $0.42 per share, for the second quarter of 2022. Note that the $6.8 million pre-funded warrants issued in our January 2023 offering are considered common stock equivalents under GAAP and are included in our weighted average shares outstanding. None of the pre-funded warrants have been exercised as of today. Adjusted EBITDA for the second quarter of 2023 was a negative $0.8 million, compared with a negative $2.5 million for the second quarter of 2022. To summarize our year-to-date results, revenue for the first six months ended June 30 of 2023 was $9.4 million, up 25% compared with the same period a year ago, while year-to-date product revenue of $7.7 million was up 17%. Year-to-date gross margin was 70.1% compared with 66.0% in the year-ago period. Year-to-date gross margin on product sales for Q2 of 2023 was 63.4%. Operating expenses for the first half of 2023 were $10.4 million, a decrease of 2% compared with the same period a year ago. Operating loss for the first six months of 2023 was $3.8 million, compared with an operating loss of $5.6 million for the same period a year ago. Net loss for the first six months of 2023 was $3.7 million, or $0.14 per share, compared with a net loss of $5.7 million, or 83% per share, for the same period a year ago. Adjusted EBITDA was a negative $3.2 million for the first six months of 2023, compared with a negative $4.9 million in the year-ago period. Turning to our cash position, cash cash equivalents and short-term investments as of June 30, 2023 were $9 million. Cash used in operating activities was $300,000 for the second quarter of 2023, compared with $2.6 million for the prior year quarter. The reduction was driven by the license payment and cash generated by changes in working capital primarily due to an increase in incentive compensation liabilities. Looking ahead, While our backlog entering the third quarter is higher compared with the prior year quarter and is slightly higher sequentially, the potential ASP in the backlog is lower due to payer mix. As a result, we believe that slight year-over-year revenue growth is attainable, while sequential revenue growth will be challenging. Our ability to deliver product revenue in 2023 that meets our target of 20% to 30% year-over-year growth will depend on the number of insurance authorizations and orders we receive over the next few months. With that financial overview, I'll turn the call back to Paul. Thanks, Dave. Well, I hope we've conveyed our readiness to spring into action once Medicare Part B becomes a reality for us, while continuing to demonstrate excellent progress with the business in the meantime. So with that overview, we're now ready to take your questions. Operator?