Q3 2020 Myomo Inc Earnings Call
Good day and welcome to the Miami Inc. third quarter 2020 earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions.
Please note. This event is being recorded I would now like turn the conference over to Kim Golodetz. Please go ahead.
Thank you operator, and good afternoon, everyone. This is Kim Golodetz with L. <unk> welcome to the <unk> third quarter 2020, <unk> financial results Conference call.
Earlier today, my elbow issued a news release announcing financial results for the three months ended September Thirtyth 2020, if.
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 <unk> Dot com or call. It L.A.J. in New York up to 12383, 777 and speak with Carolyn Curran.
With me on the call today from my Old <unk>, Paul could Donuts, Chief Executive Officer, and Dave Henry Chief Financial Officer.
Before we begin I would 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 intent 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 may involve and are subject to certain risks and uncertainties and other factors <unk> excuse me.
That may affect my almost business financial condition and operating results, including the impact of ongoing COVID-19 I'm done.
[laughter].
These and additional risks uncertainties and other factors are discussed in the risk factors and other qualifications contained in my almost filings with the Securities and Exchange Commission, including form 10-Q for the quarter ended September Thirtyth 2020, which was filed earlier this afternoon actual.
Outcomes and results may differ materially from what is expressed in or implied by these forward looking statements except as required by bought.
<unk> 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 to Jonas CEO of my elbow. Paul. Please go ahead.
Thank you Kim and good afternoon, everyone and thanks for joining us today.
After I provide a business update Dave will review, our third quarter financial results and discuss our financial outlook following financial update I'll give some closing remarks, and then we'll take your questions.
But first I hope that you your families and colleagues are all well during this pandemic that you continue to take the necessary precautions for health and safety as you heard US discussed on previous calls this year am I always taken actions to adjust our operations and have been able to safely provide are powered aren't braces to patients.
As states opened up this year.
I'm pleased to announce that our revenues for the third quarter of 2020 were at a record level of $1.9 million, reflecting a record high number of micropro deliveries and payments during the quarter.
Q3 revenues were up more than 200% over the year ago quarter.
Year to date, our revenues are up 64% over the same period last year, which represents remarkable success in growing our business. Despite the impact of the Corona virus in fact, our revenues for the first nine months of this year are equivalent to our full year 2019 revenue.
During the quarter. We also continue to benefit from our strategic shift to direct billing our products to payers directly revenues for the third quarter increased six fold year over year and represented 68% of Q3 revenues.
The remainder of our revenues came primarily from our U.S. Oh on P. channel partners, the V.A. and Europe.
We also increased the size of our backlog, which is defined as micropross that had been authorized by payers, but are either in the process of being delivered to users or our weighty payment to us.
Our backlog stood at 162 units at the end of Q3, which is up 35% sequentially from 120 units at the end of Q2.
It's in the backlog was driven by 98, new authorizations in orders during the period another quarterly record based.
Based on our average revenue per unit. These new authorizations in orders represent more than $3 million of future revenue as we deliver and receive payment for these my approach.
And as we reported in the past our pipeline of qualified candidates is continued it can steadily grown and we've been able to successfully obtain insurance reimbursement for these patients on a case by case basis.
The pipeline of new candidates grew during the quarter with the addition of 228 qualified patients at a total number of candidates in insurance reimbursement process now stands at 756.
We've been able to continue building this pipeline with our direct to patient online marketing at screening patients by a tele health video conferencing and this approach is safer for the candidate since they can be screened at home. In addition, our field staff is safe and you'd be much more productive in terms of the number of screenings. They can conduct per day and we save.
The time expense associated with travel to perform these screenings in person.
As states began to reopen in midyear, we were well positioned to provide devices to patients during the quarter.
More specifically, we were able to deliver a record 97 micropross the patience, while we recognize revenue at 51 units. The other units are included in our backlog, while we await payments under submitted insurance claims.
Well deliveries spiked in July as states reopened we've already provided a schedule more than 50 mile pro deliveries to patients in the fourth quarter of the current quarter of this year.
We're able to bring back most staff members, who have been furloughed earlier in the year. So that we can resume deliveries and our travel related expenses are returning to more normal levels in order to fit my approach on patients and generate growth in revenues from our growing backlog.
Over the past several quarters, we've demonstrated that now we have the operating rhythm and the foundation in place to continue to scale up our revenues to achieve our breakeven goal, which we are targeting for the fourth quarter of next year.
Since the centers for Medicare and Medicaid services, or CMS issued new codes for the microprobe that went into effect in January 29 team, we've been able to provide devices to patients covered by Medicare advantage plans, which represent 35% of seniors and this number is expected to grow overtime, owing to the popularity of these.
Plans for.
For seniors on part B Medicare we've been informed that coverage for my approach will be determined on a case by case basis optic determined upon medical necessity and we're still waiting for the first device to be approved from claims submitted by one of our own P. channel partners.
As directed by CMS claims were submitted for one of the Medicare as regional administrative building contractors, which are collectively referred to as the de me Max and these claims are currently in an appeals process to establish medical necessity based on discussions with the prescribing physician and a D. me Mac medical director.
Expected that CMS would clarify coverage and the payment them out by now, but it seems that the coal that situation has delayed action on our coach.
To be in a position to directly serve and bill for Medicare patients. During Q3, we obtain certification as a Medicare provider to do so we establish a comprehensive compliance program. Because we are a provider. In addition to being a device manufacturer. This is a prerequisite for billing Medicare part b and for entering into contracts with.
Commercial payers and state Medicaid plan.
We're starting the process of engaging with certain commercial and government payers to enter into contracts or to become an in network provider for reimbursement.
Insurance companies go through an evaluation process for new technologies, which can be likely in some cases and they often times with the Medicare as a benchmark for determining pricing, which as I mentioned earlier is not as yet set.
As a result, we expect it will take some time to contract with commercial payers and in the meantime, we'll continue to work with them in patients for a case by case approval.
I'd also like to take this opportunity to thank Dr. branded Green, who served as our Chief Medical officer for the past four years, that's a welcome Dr. Harry Kopelman to my Omo in this role Dr. Coleman brings 25 years of experience in medical devices to the company, including positions involving luxottica embraces at auto block and diners.
But.
He will oversee our department to patient advocacy for reimbursement support guide our clinical research program and manage our scientific Advisory Board.
One final comment about our progress in the quarter. We were issued two new patents one for the U.S. and one for Europe. These new patents cover our proprietary approach to my electric control multiple joints, which I assess city for a functional device for users with these additional patents we have now extended the life of our patent portfolio to the your 20.
39.
With that overview of our results and how we've adapted to the COVID-19 operating environments well move on to the financial review of the 2023rd quarter by our CFO, Dave Henry Dave.
Thank you Paul good.
Good afternoon, everyone and now turning to our Q3 financial results.
Revenue for the third quarter of 2020 was 1.9 million, which as Paul indicated was a record 218% over last year's third quarter. This.
This was also up $1 million sequentially over the second quarter and exceeded the revenue we recorded during the entire first half of the year.
Higher average selling price along with the sale of a record number of miles units you saw good success with our direct selling channel and our marketing efforts more.
More specifically, we recognized revenue on 51 mile per units in the third quarter of 2020, an increase of 132% compared with the third quarter of 2019.
Revenue from direct billing in third quarter was 68% of total revenue of more than six fold increase over last year and up 50%.
50% of total revenue during the second quarter of this year, we're very pleased with our success in driving direct billing revenue growth.
Our backlog of units, which represents insurance authorizations received but not yet converted to revenue was 162 units at September thirtyth.
This is up 35% from 120 units as of June Thirtyth 2020 approach.
Approximately 30% of the June Thirtyth 2020 unit backlog was converted into revenue in the third quarter.
Approximately 85% of the quarter end backlog is comprised of direct billing units, which compares with 70% at the end of second quarter.
Gross margin for the third quarter was 56% up significantly from 46% for the third quarter of 2019.
The increase primarily reflects a higher ASP, partially offset by cost of revenue recognized in the quarter for shipments to patients that are expected to be recognized as revenue in future periods.
We shipped 97 miles per units in the third quarter. This means we recognized cost of goods sold on 46 more devices than maybe recorded revenue.
If we were able to recognize direct billing revenue on delivery revenue would have approached 3.5 million in the third quarter and gross margin would have approached 75%.
Importantly, we believe these shipments figures are more than simply a catch up on postpone deliveries caused by the temporary suspension.
During much of the second quarter as a result of Tobin 19, but rather they are the outcome of efforts that began several months ago to refine our marketing strategy strategy.
Focus on our relationships with insurance companies that currently reimbursed for the mild.
Please note that cost of revenue dows balance in certain fixed costs such as for our quality organization that were previously recorded in R&D. Prior year gross margin reflects these costs.
Operating expenses for the third quarter of 2020 with 3.6 million. This is a 17% increase in opex compared to the same quarter, a year ago, which supported the 218% increase in revenue.
Yes increase primarily reflects higher compensation expense associated with the addition of clinical field staff customer service and reimbursement personnel.
Nearly all employees, who were furloughed during the second quarter of 2020 returned to work during the third quarter and as a result operating expenses are expected to increase sequentially in the fourth quarter.
Operating loss for the third quarter of 2020 narrowed to 2.5 million from $2.8 million in the year ago quarter.
The net loss for the third quarter of 2020 was $2.8 million or 70 cents per share and this compares with a net loss of $2.8 million or $4.87 per share for the same period of 2018.
Net loss for the 2020 quarter includes a charge of $200000 related to the partial extinguishment of the company's convertible note.
Adjusted EBITDA for the third quarter of 2020 was a negative $2.3 million and this compares with a negative 2.7 million for the third quarter of 2019.
Please see the table in todays press release for a reconciliation of GAAP to non-GAAP results.
Cash and cash equivalents as of September Thirtyth 2020 were $13.3 million.
We utilized $1.8 million of cash during the third quarter to fund operations, which was the lowest cash utilization level since the fourth quarter of 2017.
Prior to the investments we made to scale the business.
We do expect cash utilization to increase in the fourth quarter. However, because we expect to pay a deposit to one of our contract manufacturing partners to support planned higher mile Pro volumes during 2021.
During the third quarter, we utilized our ATM facility to generate net net cash proceeds of approximately 4.4 million through the issuance of approximately 1 million shares of common stock at a weighted average sales price of 450 per share with these proceeds and considering the recent repayment in full of our convertible notes we believe.
We have sufficient cash to fund operations through the fourth quarter 2021, which is our target date to achieve cash flow breakeven on a quarterly basis.
Assuming public health and travel restrictions are not reimpose due to the spread of COVID-19, we do not expect to undertake any additional dilutive financing activities in the near term.
Turning briefly to our year to date financial results revenue for the nine months ended September Thirtyth 2020 was 3.8 million and this is up 64% over the prior year period. Despite the impact of Tobin 19 during the second quarter of 2020.
Spite COVID-19, we have as much revenue through September as we recorded for the full year of 2019.
Year to date operating and net losses were $8.8 million at 9.9 million respectively.
Loss year to date included a charge of about 700000 related to the partial extinguishment of the company's convertible.
Year to date, adjusted EBITDA was a negative 8.3 million compared with a negative $7.4 million in the same period a year ago.
Barring any reimposition of travel restrictions and public health walk Downs, we are positioned for a strong fourth quarter and as Paul noted we have already delivered more than 50 mile per units since October 1st and.
In summary, our third quarter results represented by record revenue and narrowing operating loss and the lowest cash utilization in almost three years are an important step forward on the path to scaling the business in order to reach our target of cash flow breakeven on a quarterly basis by the fourth quarter of 2021.
With that overview overview ill turn the call back to Paul.
Thank you Dave as you've heard us describe today, we quickly adjusted our business earlier this year in response to the change personal health and economic environments, and we've been able to generate record levels of revenue deliveries backlog and patient pipeline. During this period.
We successfully moved a larger percentage of our business through the direct billing channel, which leads to higher revenue and higher gross margin per unit.
The growth in the number of candidates considering them I O Pro I have the size of the authorized backlog are leading indicators of future revenues as we continue on the path toward cash flow breakeven.
This concludes the formal part of our presentation. So operator were ready to open the call to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
She withdraw your question. Please press Star then queue at this time, we will pause momentarily to assemble our roster.
Thank you operator, but before we take the first question I wanted to mention that we are available for virtual investor meetings and calls during this time more limited travel. So please contact our investor relations front to set up a time their contact information is in our news release that went out today. We also have plans to present at several upcoming first.
Conferences, including the Sidoti and the AGP conferences, both being held on November 19th.
All right operator, we're ready for the first question.
Our first question today comes from Kyle Bouncer of Colliers Securities. Please go ahead.
Great. Good evening, Thanks for taking my questions and really nice results here. So.
So a lot of updates I'm curious on the digital marketing efforts through Facebook and Google for example.
If you have an estimate for the cost of the page patient acquisition. So you know kind of cost per click you will and then separately.
What percentage of people who click.
On on the advertisement end up being medically qualified for for my Alpro.
So we are gathering data on this I tell you it's fluctuated widely.
During this election season.
Facebook ads are priced on an auction basis.
But they typically run a couple of hundred dollars for a good lead.
And then we do these evaluations where no.
No a large majority of the candidates who do the clinical evaluation pass and then move into the pipeline. So what better data on that in a couple of months as we review the year, we've cut back on advertising back in March as the coated lockdown started to happen because people started changing their social media habits.
Obviously doing more searches about the virus and the disease and then we picked up the advertising increased the spend in Q3 and that led to a growth in our pipeline is our pipeline numbers are started to rebound.
As I said, it's a couple of hundred dollars.
Per qualified lead and then of those.
Certain high proportion of all this and move into the pipeline.
Sure sure got it I appreciate that and remind me you know the people who qualify for mile Pro.
What is the percentage that actually end up getting converted and revenue is recognized.
So.
Hi, Dave.
Yeah, I mean so.
My question is once you once you.
Once somebody gets evaluated and and enters the pipeline when does how much how many of them ultimately turn into revenue. That's a that's a percentage work obviously, we're focused on intently and we're trying to increase people.
People.
[noise] entre into revenue a couple of ways.
First first is through whether you're.
Able to get them.
Yes, some authorized the first time.
So you know.
Evaluated we collect their medical documents they.
And then we ultimately receive insurance authorization without having to go through appeal. The vast majority they'll have to go through appeal and then we win a number of appeals so long as the.
The process is allowed to play out in full.
Probably the best way to answer your question is maybe to look at what's our success rate you know for the for the first time.
If we get an authorization from an insurance company somewhere between.
Call it maybe.
Maybe 15% of the time will ultimately go.
On a revenue unit out of that.
And then after that revenue units come from the appeals process, which is a little bit more difficult. So.
To put metrics.
Great now that's helpful. I appreciate that and then just lastly are you seeing any.
Any competition out there and I know you.
Provide an update on your IP, which which extends.
That you know quite a ways out which is great I know locally here in Minneapolis Abilitec is found some traction, though may or may not be directly competitive, but just any thoughts on the competitive landscape would be helpful. Thanks, Yes, Oh, we haven't seen anybody really have a device like this that is M.G.P.
Howard that saw a light weight and portable I know the company that you referred to from what I've seen it's something that's not based on a chair.
Sort of locked into a chair so I'm just going to have.
Samuel utility, but certainly not as useful as somebody you can take to work with you and use that both our both arms on the job for example, so no. We haven't seen anybody else that has devices that are designed for home use for portable use.
Like we have.
Okay, Great Hey, thanks for the update and congrats on the quarter. Thank you.
[music].
The next question today comes from Scott Henry of Roth Capital. Please go ahead.
Thank you good afternoon, and congratulations very strong result.
I do have a couple of questions as they go through the model.
First and Mike.
My numbers may be off a little bit, but a first pass it looks like.
In the quarter.
The percent of backlog that dropped out was closer to 4% or 5% versus you know it used to be up in the 15% to 20% a year.
Which which is a good thing my question is it my interpreting that right and do you think that numbers coming down or what what do you think about that number.
Yeah, you're correct.
The.
Than the number that drop is actually five.
Five out of the beginning backlog of 120, so that those.
A little under 5% that a.
That dropped out in the.
That dropped out in third quarter, I mean, we'd like we'd like to see the number stay that way I mean it.
Thank you.
It will fluctuate from time to time, just because people circumstances will be deferred and with such a.
Low population.
The reasons could vary wildly widely and they can sometimes be grouped together, but we would like to sort of stay in the 5% to 10% ballpark if we can.
Okay all right. Thank.
Thank you and then.
How do you I mean, obviously, a great third quarter.
The challenge is is to try to how do we extrapolate that into the fourth quarter is that a trend is it just the strong quarter. I mean, how are you thinking about Q4 relative to Q3.
Well.
We think the quarter can be can be a strong quarter as I mentioned in remark in my remarks.
If you look at the 162 I'll give you some numbers to two one and.
And plug into your model of the.
Of the units that we took revenue on in the <unk> in the third quarter.
About the conversion rate of the backlog was a little over 30%.
And then the fill rate meaning those.
Units that we took revenue on and received orders in the same quarter.
We're about 25% of the units.
So and then one other number to kind of to kind of give you is that the.
The 162.
There are.
That are in the ending backlog at September Thirtyth.
67 of those had been delivered.
And so all we have to all we're doing is waiting payment.
So there's the possibility for a good number of those.
Should be paid in the fourth quarter and I was there is there is probably going to be Phil.
The fill percentage is coming down compared to other quarters, you know 25% as it.
It was indicative of that in the in the third quarter, it's been higher in previous quarters, and we'd expect to still rate to continue to.
Modularly down here as the direct billing percentage increase but.
But.
Overall, you can kind of see that there's the the possibility exists for revenue that would you.
You can easily get to revenue.
Growth in the fourth quarter by just applying an ASP to those numbers. That's why we that's why we say its a strong quarter.
That were that were positioned for but you know we.
We don't control payment by insurance companies. So that's the that's the rough.
Okay. No that's helpful, but that's a lot of numbers in there now in.
In in this may help so in the quarter you shipped 97.
And you.
You delivered 51 for revenue purposes, so that.
You know just doing the math that's 46.
That have that were shipped.
But but haven't hit the income statement yet yeah do you have the cumulative number like that.
If you took all I mean, how many units.
They're in a cumulative have been shipped but haven't hit the income statement.
Yes, I just mentioned 67 units okay cool.
Have been delivered to patients. So all we're waiting on its payment.
Okay. So that that's that is that exact cumulative number okay. Great. That's helpful.
Thank you Dick and then.
The only other question the.
The 230 of reimbursement pipeline adds.
It's a good number but I think your break even is close to 300 units in a quarter. So you know obviously that that pipeline add number has to has to go a lot higher but this is the kind of the summer there's covidien 18.
How do you think about that pipeline add number going forward.
I can address that Scott. So we have fine tuned our advertising. We've also increased the advertising spend this quarter. So we expect that that number is going to trend upward here in Q4 because.
As you know we have to get to a certain number of units per quarter per month out 12 months from now and because of the revenue cycle, which can go from six to 12 months on a unit is fee front end pipeline building, we're doing it this quarter and in Q1, which really set the stage for that breakeven point next year.
Okay. So so we should look for that number to just sequentially Cline <unk> as it was I think it you had 300 in Q1.
Yeah. It was up over 300 in Q1 as I mentioned, yeah, we cut back because we like everyone else to know what this environment is going to be like once decoded restrictions came on and then we were able to open that back up Bob in the.
The summer months.
Okay, great. Thank you for taking the question.
Q.
Sure.
The next question comes from Edward Woo of Ascendiant capital. Please go ahead.
Yes, congratulations on the strong quarter. My question is how does international doing how is Europe market for you guys.
So in Europe, as you know they've gone to a more locked down.
Because the Corona advice cases have jumped significantly now we're getting some orders.
I have a couple of the countries are mostly from Germany.
Germany was doing better in the summer time. So you know we said you know international would probably be in the range of maybe 10% to 15% of our overall revenues.
Just because we're seeing so much stronger growth side in terms of units and the advertising here in the U.S.
Great and then on you know you mentioned that you were going to spend more and fine tune some of your advertising spending.
How much a significantly more do you think you will increase your spending over the next couple of quarters is it all just marginally or talking about like multiples of what you're spending now.
Dave you want to address that yes.
No.
I would expect the advertising spend to increase because as we have.
Hold on a number of folks where we're tracking towards metrics that we're working back where we're trying to work backlog work backwards from the.
The number of units that we need to have in backlog by the fourth quarter of next year.
In order to.
Be able to be in position to recognize the revenue on the units required to get to cash flow breakeven. So we're working backwards from that point and figuring out how many insurers authorizations we need.
Then from there.
How many patients we have to evaluate and how many leads we have to generate and so the expectation is that the.
The number of leads that we have to generate will continue to increase as we move through 2021.
The news is that we know what that we know we have to do.
It's a matter of executing at this point.
Great well, thanks for the color and good luck.
Thank you.
As a reminder, if you have a question. Please press Star then one.
The next question comes from Jim Sidoti of Sidoti and company. Please go ahead.
Hi, Good afternoon can you hear me.
Yes, Jeff.
Right.
So I just want to.
Make sure I have all my numbers straight you said you recognized 51 units in the quarter. So.
Based on that it seems like the average selling price is around $38000 in there right.
That's right.
And how does that compare to a year ago.
A year ago. The NSP was let me get my reading glasses on because my.
A piece of paper here it is.
[noise] thoughtful smarter than I am capable of ASP last year was a little over 27000.
Okay. So it seems like the shift to direct.
Hey loss.
Yeah, Yeah, that's right Jim it's yeah, it's up about 50% over the last 12 to 18 months as we've made the shift to direct billing because again were directly going to payers and fulfilling the devices ourselves. So you got two things working here simultaneously, we're getting more pipeline more authorizations quarter by quarter. If you look at our new.
Numbers in.
In Q3, we are two and a half times the number of authorizations, we had Ah.
Just six months earlier in Q1 of the year. So you've got more units being authorized and you're getting a higher revenue per unit guidance. So that's why you're getting this amplification effect out with our revenue growth.
All right and I think you said you have 162 units that you shipped that you haven't gotten paid for is that right.
Well, it's a 162 units in backlog they can be the backlogs starts for the insurance has authorized but.
But is it so that backlog concedes units that have been delivered and units that have not been delivered.
Okay I'm sorry. It was 67 was the number that we yeah that'd be great.
Little bit of good.
Of the 162, yes.
So if you did.
Shipping units in the fourth quarter you just got delivered you just got a taste of the units that were delivered.
Looking at revenue around two and a half million so the fourth quarter.
If you had a you had an S T a.
Not from an ASP you used but I guess I would caution that we said that the revenue cycle pain.
Payments from insurance companies can be anywhere from 90 to 120 days.
Okay. So there's no guarantee you get paid for all those units in Q4, that's right. That's right sometime in the next six months you should recognize that two and a half million revenues that $38000.
That's right all right and then and then last question from me.
Do you think that some of the units that we ship. This quarter were units that were not pulled from the second quarter and that this is artificially high and if so can any any idea how to quantify that.
Yeah, So yeah as I mentioned earlier so of the.
The 51 units that were shipped are recognized revenue on in the <unk>.
Third quarter 38 of them came from the beginning backlog.
And then third 13 of them were.
More about 25% were still units meaning.
Orders that came in and that we were able to ship and take revenue on in the same quarter those are primarily D.A.
Oh, MP and international orders.
Got it all right. Thank you.
Yep.
This concludes our question and answer session I would like to turn the conference back over to calls agenda for any closing remarks.
Thank you operator.
Closing, we're closely monitoring the COVID-19 situation as long as restrictions are used across the country, we're able to deliver my approach to patients in our backlog and continue our strong revenue growth at the same time, we're increasing the number of cases in the reimbursement pipeline obtaining a record number of insurance authorizations, increasing the percentage.
The direct all patients and delivering a greater volume of product orders.
Addressing a large unmet need with a very valuable unique product line, while continuing along the path to our next milestone of cash flow break even once again. Thank you for your time today, everyone and for your interest in my almost have a good evening.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.