Q4 2019 Earnings Call

Exchange Commission including the form 10-K for the year ended December 31st 2019, which is expected to be filed today actual outcomes and results May differ materially from what is expressed or implied by disordered looking statements except as required by law my Elmo 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 Paul go down as CEO Paul, please go ahead.

Thank you, Kim and good afternoon everyone and thanks for joining us today. I'll be in the call by providing a business update. Dave will then review our fourth-quarter and full-year financial results and discuss our financial Outlook and then following the financial update. I'll give some closing remarks and then we'll take your questions.

During the fourth quarter of 2019 the Strategic actions that we had initiated over the previous twelve to eighteen months began to pay off generating important new records for the company record. I use record pipeline growth record gross margin and record direct billing Channel pipeline more specifically revenues in the fourth quarter were just over 1 and 1/2 million dollars representing a 71% increase over the same quarter a year ago for the year revenues were three point eight million representing a 57% year-over-year increase we've now had three consecutive years of Revenue growth of forty-two 60% and we expect this growth to accelerate as a result of Our National Rollout of the mile program and the success of the continued scaling of marketing and operations that we initiated a year-and-half ago and they will discuss these plans in a moment.

since we launched our

Right to Patient marketing issues are reimbursing pipeline has now expanded six-fold to nearly six hundred cases as of December 31st 2019 recall that our reimbursement pipelines the number of Mile Pro units that are in the process of receiving Insurance prior authorization patients are family members who see our ads on social media Platforms in Via search engines are captivated by the opportunity to use our paralyzed arms. Once again, as a result, we're adding more than three medically qualified patients into our reimbursement process every day and presuming Insurance approval this represents more than a hundred thousand dollars of potential Revenue each business day.

Over the past year we augmented are Orthotics and Prosthetics provider Channel with our own direct billing Channel through this channel. We build a patient's health insurance plan directly rather than rather than through an intermediary own P facility direct billing affords us significantly higher revenue and margin per unit and the higher average payments you receive more than cover. The incremental costs that were responsible for them which include the marketing the clinical and billing costs associated with these patients this strategic shift emphasize. Our direct billing channel is Dave will detail in a moment accounts for much of dramatic expansion and gross margins combined with reductions in the cost of goods are gross margin reached 80.5% in the fourth quarter while above the 74.6% in the prior Year's fourth quarter.

As I indicated on our last conference call we expected the percentage of direct billing patients in the pipeline to increase and we ended the year with over 50% of our active reimbursement cases being submerged to payers by the company and this number is expected to increase even further in twenty-twenty even at 81% of the new patients we evaluated for my last quarter are being practiced in the direct billing channel to facilitate patient access to the product line. We signed an agreement with Homelink a national payor Network so that my Amo can build our own authority devices as an in-network provider and home link has contracts with some 1,200 payers covering Thirty million lives in the United States.

We received two new pics codes from the centers for Medicare and Medicaid services or CMS that became effective as of January 1st, 2019 and since receiving those codes a good number of Medicare Advantage claims have been processed for patients who need a mile Pro as you may know 35% of seniors on Medicare have opted for Medicare Advantage plan, which is managed by company name is United Healthcare and Humana and that number is expected to grow over time.

For the rest of the seniors on part b Medicare we have followed cms's Direction and if submitted the first of several claims for a mile Pro as durable medical equipment or DME rentals and were wage decisions on coverage criteria and payment amounts.

We also recently.

Malice progress in Germany for coverage of our product line after reviewing our clinical evidence and the medical necessity for the microprobe. We were pleased that the statutory health insurance agency issued a ruling the German citizens were medically qualified for my Approach should be approved on a case-by-case basis. Our first such claim was processed in January by bomber, which is a leading German payer that covers eight point five million lives are about 10% of the German population. We've now established myomo Europe gmbh based in Germany to expand our International revenues with a growing number of providers in selected markets and with this overview of our accelerating operational metrics. The strategies were employing to generate higher revenue and margin per unit and the progress with our reimbursement efforts will move on to the page to view of the 2019 fourth-quarter and full-year by our CFO. Dave Henry Dave.

Thank you Paul turning now to our financial review revenue for the fourth quarter of 2019 was a quarterly record of one point five million an increase of 71% compared with a year ago quarter total revenue for the year ended December 31st. 2019 was three point eight million an increase of 57% over 2018 both for a quarter and full-year 2019. Revenue growth was achieved through a combination of higher a higher number of units sold in a higher average selling price reflecting a record amount of direct billing Revenue agent.

More specifically revenue from the direct from direct billing for the fourth quarter was 50% of total revenue up from 23% of total revenue in the prior-year quarter page billing Channel revenue for the year was 33% of total revenue compared with 15% of total revenue for 2018.

We're delighted with the progress. We've made to increase our direct billing revenues as these sales have a favorable impact on our gross. Margin. We ended the fourth quarter with 331 billing direct billing units in the mire pro-pipeline or 56% of the total pipeline you recognize Revenue 143 units in the fourth quarter vs. 32 units during the fourth quarter of 2018.

Backlog which represents Insurance authorizations received but not yet converted to revenue was 53 units as of December 31st 2019 this Compares with 61 years as a September 30th, 2019 more than 40% of the backlog at the end of the third quarter was converted into Revenue during the fourth quarter in roughly 35% of or fourth quarter Revenue units came from orders received in the fourth quarter the majority of these were from our our our o&p VA and international sales channels.

Turning now to gross margin our gross margin in the fourth quarter of 2019 was a record quarterly high of 80.5% from 74.6% for the prior quarter for the full year 2019 gross margin increased to 76.1% up from 70.2% in 2018.

in addition

Into a revenue mix favoring the higher-margin direct billing revenues you realize cost reductions on the Vaio Pro that also had a favorable impact on gross margin.

Operating expenses for the fourth quarter of 2019 or 3.8 million an increase of 12% over the comparable period of 2018 operating expenses for 2009 or 13 point seven million, which was up 11% over 2018. The increase is primarily reflect higher compensation costs associated with the addition of personnel as well as higher expenses associated with marketing product development and securing reimbursement a companies operating loss for the fourth quarter of 2019 decreased in two point six million dead from 2.7 million a year ago a full year 2019 operating loss of 10.8 million Compares with ten point five million in 2018.

I almost reported a net loss for the fourth quarter of 2019 of 2.8 million or $4.81 per share this Compares with a net loss for the fourth quarter of 2018 of 2.7 million or $6.49 per share. The net loss for 2019 was 10.7 million or $19.35 per share compared with a net loss 2018 of 10.3 million or $25.18 per share. Please note that all share and per share amounts have been restated to reflect the company's 1/4 reverse stock split that was affected on January 30th 2020.

Adjusted ebitda for the fourth quarter of 2019 improved to a negative 2.4 million from a -2.5 million from the corresponding period in 2018.

Adjusted ebitda for 2019 was a -9.8 million compared with a -9.6 million for 2018. Please refer to the table reconciling net loss to adjusted ebitda contained in the press release we issued earlier this afternoon.

In February 2020. We completed an underwritten underwritten public offering raising net proceeds of approximately 13.7 million.

The offering consisted of 1660000 shares of common stock and $480,000 refunded warrants together with 2143000 investor warrants them combined offering price of $7 per share. The investor warrants have an exercise price of $750 per share.

In addition the underwriters exercise our over-allotment option to purchase 320 1450 investor warrants. All pre-funded warrants issued in the offering been exercised.

Cash and cash equivalents as of December 31st, 2019 or four point five million pro forma for the proceeds from are offering and that it re paying 50% of the outstanding balance of our Term Loan, which is required under the terms of the note. The company's cash balance as of December 31st, 2019 was approximately 16.2 million.

or cash

For the fourth quarter of 2019 was 2.7 million cash burn in the fourth quarter was impacted by a deposit made to a contract manufacturing partner to to purchase in Ventura to meet 2020 demand.

Given our pro-forma cash balance which includes the proceeds from the equity offering we believe that we have sufficient cash to meet our operating requirements for at least the next twelve months.

Working remotely when feasible and in our interactions with patient candidates, we implemented Telehealth online screenings last year. So we've been able to use video conferencing to Value life growing number of candidates. So our reimbursement pipeline continues to increase at this time, however, no one can predict what other effects on the economy or travel and health this virus May and how it's going to evolve in terms of the numbers of people and locations. So we'll do our best to take precautions and be prepared to adjust our plans accordingly before we take the first question should mention the status of several investor conferences in which we had planned to participate in the coming weeks our participation at the Roth 2020 conference, which was to be held March 16th through Thursday. It's in Laguna Niguel California has become a one-on-one virtual conference now, so if any of you had arranged meetings with us a trough will keep these meetings, but do them virtually. Yep.

To learn today that the sidonian company spring investor conference that's which we were to have presented on March 26th has been postponed with sidoti adding a second day to their fall conference off now on September 24th and 25th at this time. We still plan to be at an investor Summit March 25th in New York City, but we're going to wait for any pending news about that so often we would like to speak with you virtually whenever we can to keep you updated and now I guess the operator we're ready for the first question.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing them to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Scott Henry with Roth Capital, please go ahead. Thank you and good afternoon a couple of questions first David. I don't know if I heard you right but give me placements for the quarter and last year's fourth-quarter. Did I hear that? I don't know if I took that down, right? Yeah, so we had 43 Revenue units in the fourth quarter, and I said that of the 40% of those came from our backlog.

And that 35% of our Revenue units came from orders that we took and delivered and took revenue on inside the fourth quarter off, okay.

So the ASP in in what was it a year ago? It was 32, correct?

It was 32. Yes. Okay. So the ASP up significantly then to get to the 15 or the 1 and 1/2 million I did as I mentioned because of because of the the higher direct billing mix and direct billing representing 50% of total revenue in the quarter. Okay. So I guess that's the main takeaway for direct billing is we should think about higher ASP and the higher gross margins along with that. Yeah. That's right. That's why we're doing oh, okay. Great. And then you mentioned you look like you 119 just to make sure my numbers are correct. I believe you did thirty-five units and 2019. Is that correct?

Q114 the third quarter of night. I got 33,000. Okay. I'm sure your number is right. Okay, then I'll keep that in mind, we talked about it seemed like you converted a lot of the backlog in in Q4 was there a reason is that just kind of end of the year spending patterns or I you know, I think you know given my comments about our first quarterback long conversion being lower than fourth quarter. I'm wondering, you know, you know, it was a direct billing and things like that is you know, if as that increases I'm wondering if our backlog conversion rate isn't going to be a little bit more lumpy going forward because it really does with direct billing address is on when we get paid and uh, cuz that's when we're able to recognize Revenue. So maybe during the fourth quarter because you know insurance companies. We're trying to clear out dead.

you know, you know claims that were at the end of the

You're who knows? I don't really know for certain. I mean, this is really starting to gather data on backlog conversion under direct billing as we go off as of now. Like I said, I can't really give you an answer one way or the other is to you know, what what caused the higher conversion rate and forth quarter over third and you know why it keeps going down in first quarter over for okay great. And then I certainly appreciate the the target of break-even by fourth quarter of 2021. I think that's admirable goal. And I think it's great to have that out there. The question is do you do you think you can use the current cash Runway to get there or do you might just top it off a little bit? How should we think about cash in in getting to that Target? Don't worry, I mean

Current, you know current market environment decide, you know, the hope is is that you know, we don't have to raise any more capital. I can't say that we won't I don't don't I don't want to make sure I'm clear. We you know, as long as we're able, you know, we need to execute to our plan.

And you know, we need the reimbursement environment to you know to stay where it is not yet. You know don't get worse, you know, we'll take it if it gets better but, you know don't get worse or remain status quo and you know, if we do those things and we execute to our plan, we have the opportunity to get there, you know, but it does require some execution obviously off and and whether we need additional Capital going forward, you know, we do have we do have with the warrants that that we issued. I mean, they're underwater life now everything's underwater right now. But you know, our our stock is demonstrated particularly during the offering. You know, pretty significant volatility, you know, maybe maybe some of these warrants will exercise who knows, you know, so, you know, that could be a source of external external cache. We do have the ATM that's been suspended since last year B.

Because of the of the of the February 2019 offering we did, you know, if we choose to we can you know, we can put that back up we could potentially dead. Yeah, you know, we have a partner now that's you know, given some you know, you know a loan to us and you know, we paid half of it back and there's the potential to be leveraged that relationship is called as well.

Okay, great. I appreciate all that color final question because I think when in the past we talked, it seems like a key component of the business plan issue getting a a large contribution coming in from Medicare. Can you talk about that in in? What are the data points that I should be focusing on to gauge how progress is going down Medicare front in in reimbursement. Sure. I can jump in and cover that Scott. So we got the new codes and as a result of these codes being effective last June we're now getting paid for Medicare Advantage claims. And as I pointed out about 35% of seniors are covered by Medicare Advantage and from some industry forecasts. I've seen they expect that to grow significantly over the coming years as far as the part b Medicare claims. We decide to follow cms's Direction after many discussions over the last twelve months.

It's about whether this custom.

Fabricate orthosis should be billed as a lump sum just like other orthotic and prosthetic devices are or be treated as a DME rental. So we decided to work with a known people who who's is now submitted the first claims as rentals which then gets to be paid over 13 months at which time the patient is receives the device and all the payments have been made by my thoughts are those claims been filed a couple of months ago and they those are still pending. So when that comes clear if they follow through and thoughts put out the coverage criteria and and allowable amounts. Then that opens up that Medicare population which would be then covered as a rental or thirteen months, but I don't need any particular dollar values on that until we hear something back from Medicare on this and when would you expect to hear back on that? Well, I thought I'd hear back by now, but now I'm akong

In Q2, I mean, the claims have been there has been back and forth discussion with provider relations and what's called the max. That's the medical contractors. They've been very helpful in terms of how long these own P providers should be billing these rental claims. And so hopefully we'll hear something during the second quarter.

Okay, great. All right guys, thank you for taking the questions. All right. Thank you Scott.

Our next question comes from Jim sidoti with sidoti & Company, please go ahead. Hi. Good afternoon. Can you hear me? Yes. Yes. I just want to go over the age units shipped in the quarter again. I know you said you were you were able to bill for $43 versus $32 a year ago, but is that the actual number of units that were shipped or is that just the one that you you got paid for it? Those are the those are the revenue units. We don't really talk about, you know unit shift. It's not it's not a it's not really a relevant number per se but it's more because we can't take Revenue until we you know in many cases on under direct billing until we get paid. So 4043 Revenue units.

Okay, but because it's taking a little longer to get paid now that you using direct billing. Can I assume that the percentage increase in actual units shifted deployed is wage higher than what you reported. We do have direct billing claims that are outstanding and and that is a that is a number that's greater than you obviously then the then the units that have been shipped under under direct the number of units build. I should say under direct billing, you know, we're we're required to deliver to the patient off and then we Bill insurance so and so those claims that are that are open and outstanding. Those are part of the back one.

okay, but I guess when I'm

Trying to guide is the number of units that you actually deployed in the quarter. I assumed was was higher than 43 and was the percentage increase number of units the point in the quarter comparable to the revenue increase or was it higher?

I don't I don't know the exact number of of unistore deployed during the quarter off the top of my head, but I'm pretty sure it was greater than 43, but I don't know the exact number but I'll I'll try to look that up and get you that number. Okay? All right, and then the the relationships that you you know established now with Homelink here in the US wage the German the German reimbursement that's already none of that existed in the fourth quarter. Can you give us some sense of what contributions did have in the first quarter or is that something that will take two or three quarters to to Really build up? Yeah, it'll really be the latter gym because again the home link does the authors of patients who contact us now if when we do their insurance verification if we find out they are through the home link their Network then we will submit those claims through home link dead.

And then they will get authorized at some point. So, you know that might be another three-month process and then we have to fit the device on the patient send that delivery ticket in to get paid. So, you know, that's more second half revenue for any of those patients that may be covered by at Homelink pair Network and over in Germany. We do have a robust pipeline there in Europe because we have a number of these own providers that we have recruited directly and sell they have claims pending in front of different insurance companies and it's very helpful in order to point to the statutory health insurance directive that says okay if the patient is medically qualified and there is medical necessity each of these insurance companies should fairly evaluate cases on an individual patient basis. So hopefully that will lead into again Revenue in this, you know, the rest of 2020.

Okay. So then if we look at the the quarterly revenue for the year, you know, we're going a 2019 the fourth quarter was almost double the first quarter's Revenue. It sounds to me like for 2020 that fourth-quarter could be even even a larger increase and it was in 2020 because of all these things that should be kicking and in the back of the Yale. Well also a larger pipeline starting the year about 600 patients compared to about $300 a year ago and at the pace at which we're adding in Q4, we were adding sixty patients a month into the pipeline. And that number we project is going to be increasing here in in 2020.

so

Like you agree with what I said that by the fourth quarter, you should be even higher than you were you know, that that different should be even higher in 2020 than a month in 2019. I'll turn off the phones different explanation or view you're talking about the you're talking about the revenue in absolute dollars or in percentage both so cuz it sounds like an absolute dollars. They're going to be pretty close to 1:20 versus q1 nineteen. Yeah, but your top but you're more interested in queue for 20 versus Q4 nineteen, right? I'm trying to understand with all these things going on that, you know in 2019 you were basically able to double Revenue by that fourth-quarter in 2020. It sounds like you should be able to do even better than that. So I mean the way we haven't given guidance by quarter, but what I will say is that we we are guiding as we did last month.

Just significant Revenue growth in 2020. And if we are to be if we're to be executing to our plans to get to a cash flow break-even and remember that we've talked about our break-even point in the past it twenty-five to Thirty million of Revenue or roughly eighty-five units a quarter if you if you using a $30,000 ASP, that's that's our that's our ultimate end objective. And so if we're able to get there and you know, that's a quarterly run real life call it, you know somewhere, you know in the in the 7 ish kind of a number, you know per quarter maybe a little bit less. So, you know to get there if we took the position to be at that kind of a number by fourth quarter, you know, we need to be well on our way by the fourth quarter of 2020.

Yes, okay. I think we're saying the same thing. Okay. All right. Thank you.

Our next question comes from with ascendant Capital, please. Go ahead. Yeah. Thank you for taking my question my question. I know you mentioned about you know, some of the impacts to your investor schedule and not you know, some of these academic conferences, but have you considered you know, uh changing your marketing plan this year either in Europe or in you know us know that it's this point. Most of our marketing is the direct patient online advertising and so that's generating continued lead flow cuz I look at all the leads to every day and that number continues to increase as we keep targeting people with stroke brachial plexus injuries and so on and then as I mentioned we initiated online a patient evaluation, so in the past we used to do screening days at rehab Hospitals and Clinics around the country and where he had to gather people together and then spend the day and maybe wage

Evaluating 4 to 8 patients. We're now able to do it.

Much more quickly solve a lead comes in today. I could arrange for a Telehealth evaluation within the next 24 hours or maybe the next few days and no one has to travel to do it and then that puts that page into the insurance pipeline. We do online collection of their medical documents with their permission and then submit them to the insurance company. So we haven't really changed our marketing plan at this point because of the whole situation.

Great, and then, you know touching up a little bit about you know, your continued move towards direct billing and higher asps should we see continued Improvement in asps as we move through the year off?

Well, we are adding a greater percentage as Dave mentioned in queue for about 50% of our Revenue was direct billing office last year in the quarter 81% of our new patients that we added into the pipeline our direct billing cases. So depending if there's no change on the m s p that we're getting paid by the various payers, then we should see again more direct billing percentage of the units that are sold more units during the year and a higher percentage of those being direct billing.

That sounds that sounds good. Well, thanks for answering my questions then wish you guys. Good luck. Thanks. Thank you. Our next question comes from Kyle Bowser with a company, please go ahead.

Hi. Yeah, this is actually Jacob Berry calling in for Kyle. Thanks for taking my questions though. First off. Can you guys talk about how your backlog is feeling wage in a nice ramp up in the pipeline. So perhaps you can speak to how you've been able to accomplish this and the actual size of the current backlog.

Well, let me tell you how we fill up the the pipeline and backlog and Dave can talk about you know, how we convert that to revenue. So what happens is these patients are coming in or getting evaluated online. We're submitting their medical necessity cases to insurance companies through our reimbursement team headed by our chief medical officer. Dr. Green upon getting an authorization that goes into our backlog and then Dave you can take it from there in terms of converting the backlog the revenue.

Yes, so we as I mentioned in the call, we had fifty three units in backlog at the end of the quarter and the backlog begins when something exit off the the pipeline so we get an insurance authorization. That's when that's when that's when the a candidate will enter the backlog and then they leave the back obviously what it's when it's sold and and when delivered and we collect from the insurance company.

So there was fifty three units of backlog at the end of the fourth quarter that compared to 61 units at the end of the Third.

Great. Okay. Thank you for that and we've heard a little bit about direct billing and your extended reimbursement staff to drive increased Insurance authorizations, Um, so that end, can you provide any more color on the progress in this area and any new update as they relate to CMS and the Medicare opportunity?

While we continue with our own reimbursement team, which is continue to grow by a couple additional headcount because the volume is just increasing so significantly off with find those with the commercial payers with Medicare Advantage plans workers compensation. We also are approved by the VA. So some of that mix is Veterans Day for the part b Medicare patients. Again, we are have been waiting and working with CMS on what the coverage criteria and payment allowable would be under a rental because that's a a different payment model. So now, you know all the Medicare Advantage and the commercial payer and VA the orders have been paid for as one-time payment amount what's called lump sum and the only industry which is way other Orthotics and Prosthetics are paid for waiting to hear what that rental amount will be and then now that opens up

The market for those other part b Medicare patients, but I can't tell you what the timetable for that would be or guarantee that there would be you know that they will they will they will actually come back device in which case we can appeal and continue discussions there with us CMS, but it was a good sign that they did Issue new codes for us which one into effect a little over a year ago.

Right. Yeah, awesome. Thank you. And then just lastly having closed the recent $15 financing. What are the primary uses for the cash and how far out. Capital get the company? So yeah, so I the first thing we did with the cash as we were required to repay 50% of the outstanding balance of our Term Loan. So that was about a million nine that we repaid and that included a 15% success fee for the for the lender so that was done with that. So, you know when you that leaves off call it a little over twelve million of net proceeds that are being added to the existing cash that we had at the end of the year and that cash is going to you know, go to wage continuing to scale up primarily is going to be for working capital in General Corporate purposes to continue to fund the digital advertising to grow the leads to age.

And increases in headcount to evaluate patients and to seek reimbursement on a case-by-case basis with insurers and then home along the way we we can get some help, you know from like CMS, for example, which will make things a whole lot easier on the on the reimbursement front because we don't have to walk approval to be able to Bill and get paid. We just you know, all we need is a, you know, a written order from a physician and and as soon as assuming that we're credited or we have a number of Provider the bills in our behalf, you know, we can then collect revenue and and start building a presumably it's going to be a a rental DME reimburse for Medicare.

All right. Perfect. Thank you. That's that's all the questions I have. Thanks for your thanks for all the all the responses. All right. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Paul gudonis for any closing remarks. Well, thank you operator. So we remain confident in our outlook for growth is we continue to improve the metrics that relate to our reimbursement pipeline the insurance authorizations, and the product orders are focused. As you've heard today about increasing direct boss is driving our Revenue per unit and our gross margins higher and will allow us to begin to benefit from operating leverage as we continue down the path to achieving our next major Milestone of cash flow break-even month. So once again, thank you for your time this afternoon and goodbye everyone.

This concludes our conference. Thank you for attending today's presentation. You may now disconnect.