Q3 2021 Myomo Inc Earnings Call
Good day and welcome some minor incorporated third quarter 2021 earnings conference call.
All participants will be endless nonrenewed.
Any assistance please signal conference specialist personnel Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions.
So ask the question. That's Star then one near Charleston, Keypad with Charlie a question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to MS. Kim <unk>.
Please go ahead.
Thank you operator, and good afternoon, everyone. This is Kim Golly, that's L. A J welcome to the Myanmar third quarter 2021 financial results conference call.
Earlier today in my own rule issued a news release announcing financial results for the three and nine months ended September 30 of 2021, 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 my Yamana dotcom or quote L. A change in New York at two.
1283837, 77 and speak with Carolyn Curran.
With me on today's call from my all my wife won't go down as 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.
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 certain risks and uncertainties and other factors that may affect my almost business financial condition and operating results.
The impact of the ongoing COVID-19 pandemic 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 the Form 10-Q for the quarter ended September 30th 'twenty, 'twenty, one 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 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 my almost CEO Paul Good Donna called please go ahead.
Thank you Kim and good afternoon, everyone and thanks for joining us after I provide a business update Dave will review, our third quarter financial results and discuss our financial outlook and then following the financial update I'll give some closing remarks, then we will take your questions.
I'm pleased to report that my elbow achieved record revenue of $4 4 million during the third quarter. This represents a significant gain of 128% over last year's third quarter and 190, <unk> 50, excuse me, 159% increase year to date.
Of course, 2020 was negatively impacted by COVID-19, and the ongoing pandemic has led to some labor and supply chain issues across the broader economy. Yet importantly, we believe we are successfully navigating through these effects now I'll discuss with you shortly but by and large business has been very good.
Clearly, we're benefiting from the groundwork that we laid during the past two years as we migrated our marketing approach to go directly to patients and their caregivers to establish our own clinical staff and to interact directly with their insurance companies full.
Fully 85% of our revenue during Q3 was derived from the direct selling channel, which is up from 75% of revenue last quarter. This has led to a higher average selling price and improved operating margins.
I can't stress enough that our overarching goal as a company is to improve the lives of people with upper limb paralysis.
You see an example of one of our newer Micropro clients. Please check out the let's talk stroke program on Youtube.
I participated in an interview with loose Hayes and how the myopia is restored or ability to function with their effector arm all beyond the next program with another user Tomorrow morning, which will then become available on our Youtube channel.
At the same time, our focus is on increasing my approach sales and benefiting from operating leverage as we scale the business towards cash flow breakeven and profitability.
Our three pronged approach to growth includes our own direct billing operations, where adult insurers directly and provision the myopia all with their own clinical staff second we also support orthotics and prosthetics providers in the U S and international markets, who source their own micropro candidates and our response, we're provisioning and billing and third we're focused on domestic VA.
Medical centers for veterans and their care.
We earned revenue on 102 units during the third quarter, that's double the number of units during last year's Q3, and as a result of the growth in our candidate pipeline and an increased number of insurance authorizations for my approach.
The number of authorizations in orders in the quarter was 133 valued at more than $5 million in potential revenue, which will be recorded as these orders are fulfilled and insurance payments are received of these 37 units received insurance authorizations and were delivered in the same quarter.
Our backlog is defined as <unk> ever been authorized by Payors, but are either in the process of being delivered to users or are awaiting payment to us and it stood at a record 177 units as of September 32021. This is up 11% from June 32021 and reflects the.
A larger number of insurance authorizations received during the quarter.
Our pipeline is robust and at quarter end stood at a record 900.
With 331 additions to the pipeline during Q3.
This is drew.
Direct result of success with our digital strategy, which has adapted to the new privacy features implemented by Apple for iPhone users.
So there was an initial impact on regeneration earlier in the second quarter, we successfully navigated these challenges with our advertising agency and also increased our AD spending.
Weekly regeneration is now higher than it was in the second quarter, which is leading to the growth in the number of new candidates interested and medically qualified for my approach.
Our pipeline statistics are an important indicator of future revenue since it can take six to 12 months to convert a prospect into an insurance authorization deliver the customer approach and then receive payment.
Having hick picks codes for our devices has proven very helpful, especially for Medicare advantage plans, which account for approximately 40% of seniors issued approval of course is based on individual consideration by the payor. Thanks.
Thanks to the efforts of our Chief Medical Officer, working closely with the patient's Doctor we've seen a year over year increase in authorization from health insurance plans.
During our last quarterly call I reported that we had over 20 insurance plans cover their first micropro. So we've concentrated our marketing efforts and geographies served by these payers. While also continuing to add a few more new payors to the roster in this past quarter.
With a record pipeline in backlog at this point of the calendar year, we expect to enter 2022 in the strongest position in my almost history. However.
However, we are unlikely to clear as much backlog during the fourth quarter of this year as we anticipated. This is due to a temporary labor shortage at one of our subcontractors that constrained capacity in deliveries in the early part of this quarter capacity. It adds subcontractors returned nearly to normal now, but it will be difficult to make up all the delayed shipments by the end of the year.
Therefore, these orders may remain in backlog in the affected deliveries and associated revenue may be realized in early 2022.
Like many companies, we are taking steps to have more control over our supply chain as well as implementing operational improvements to the fabrication process for the microprobe. Our goals are to streamline the process accelerates cycle time and improve margins. We expect to have an announcement on this by the end of the year.
Our international business has continued to grow as well and accounted for approximately 10% of third quarter revenue.
As I mentioned international key target for growth in Germany has been a very good market for us we're more statutory health insurance payers are covering the cost of the myopia.
Now a case by case coverage for over 40% of the population.
We're excited about our joint venture in China with Riser Medical investment company, which is in the process of being funded the granting of patents around the <unk> in China and Hong Kong was a key step towards finalizing the JV with these patents being licensed by my elbow to the newly formed JV.
The next step is to execute a technology license agreement between my elbow in the JV, which is expected to occur once certain operational and financial milestones by riser and the JV are met.
At that point <unk> will receive an upfront license fee of $2 million and the JV will enter into an escalating purchase commitment for a minimum of $10 $75 million in Micropro control system units over the next 10 years subject to receipt of regulatory approvals necessary to permit sales of the products in greater China.
Why is your medical and its partners have committed to invest a minimum of $8 million and up to $20 million and the JV over five years, we believe the JV company and riser remain on track to complete their milestones to allow us to finalize this agreement by the end of the year.
As you know China represents an enormous market with a population of $1 4 billion people and an estimated one point 14 million people with chronic arm paralysis, and an estimated $2 5 million strokes each year.
Our shareholders will hold a 19, 9% interest in the joint venture company, which can result in.
Significant value creation over time.
Well now I will turn the call over to Dave Henry to review our financial results in more detail then I'll come back to provide some additional updates and comments on our plans for the rest of the year Dave.
Thank you Paul turning now to our Q3 financial results revenue for the third quarter of 2021 was $4 4 million the highest quarterly revenue in the company's history. This is up 128% over the prior year third quarter as Paul noted a moment ago, the direct billing channel accounted for a record 85% of our <unk>.
Revenues in the third quarter, which had the effect of increasing our average selling price, which together with a higher number of revenue units drove the higher year over year revenue by comparison, a direct doing channel accounted for 74% of revenue in the second quarter.
More specifically, we recognize revenue on 102 <unk> units in the third quarter of 2021, an increase of 100% compared with the third quarter of 2020.
Of the 102 revenue units 37 were filling units, which means we received orders and authorizations in the same quarter that revenue is recognized.
Our backlog of units consist of insurance authorizations received but not yet converted to revenue.
As of September 32021, our backlog was 177 units.
Ending backlog that reflects 133 authorizations in orders in the third quarter, and 14 patients who exited the backlog without converting to revenue.
Approximately 77% in the third quarter ending backlog is comprised of direct billing candidates compared with 88% at the end of the second quarter. This primarily reflects a stronger VA backlog entering the quarter.
As Paul mentioned, the reimbursement pipeline as of September 30th was 920, <unk> units, which reflects 331 additions to the pipeline during the quarter and 176 drop outs, representing about 20% of the pipeline entering the third quarter. This.
This is consistent with what we've experienced in the last few quarters.
As a result of our marketing efforts and continued success in obtaining authorizations from new insurers more than 80% of the patients in the pipeline at the end of the third quarter are covered by insurers, who have previously reimbursed or agreed to reimburse for the micro.
Gross margin in the third quarter of 2021 was <unk>, 75%. This is up from 56% in the year ago quarter. The.
The year over year increase primarily reflects a higher average selling price, which is tied to the increase in the direct billing channel revenue and improved fixed cost coverage, resulting from higher unit volume.
There were 180 <unk> delivered to patients in the third quarter on which we recorded cost of goods sold compared with 102 revenue units.
Gross margin also increased four percentage points over the second quarter of 2021, despite higher warranty reserves and some material price increases on certain constraint components, whose impacts were more than offset by the increase in average selling price.
Operating expenses for the third quarter of 2021 or $5 3 million. This is up 47% compared with the same quarter a year ago, and primarily reflects higher payroll costs supporting growth in the companys clinical and reimbursement head count and higher advertising costs as spending is being increased to generate more leads and pipeline.
<unk> will add competition is driving up spend as well.
Our operating loss for the third quarter of 2021 was $2 million and this continued to narrow from $2 5 million a year ago and $2 6 million in the second quarter of this year.
Net loss for the third quarter of 2021 was $2 1 million or <unk> 36 per share. This compares with a net loss of $2 8 million or <unk> 70 per share for the third quarter of 2020, and with $2 6 million or <unk> 46 per share for the second quarter of this year.
Adjusted EBITDA for the third quarter of 2021 improved to a negative $1 7 million, which compares favorably with a negative $2 3 million for the third quarter of 2020, and a negative $2 2 million for the second quarter of 2021.
Turning briefly to our year to date financial results revenue for the nine months ended September 32021 was $9 8 million up 159% over the prior year period.
Year to date revenues are higher than the revenue we achieved for all of 2020.
The year to date operating loss and net loss attributable to common stockholders were each $7 6 million compared with an operating loss of $8 8 million and a net loss attributable to common stockholders of $10 5 million for the nine months ended September 32020.
Net loss attributable to common stockholders for the 2020 period includes a charge of approximately 700000 for a deemed dividend on the price reset of certain warrants.
Year to date, adjusted EBITDA approved improved to a negative $6 7 million compared with a negative $8 3 million in the same period a year ago.
Turning to the balance sheet cash and cash equivalents as of September 32021 were $12 6 million cash.
Cash used by operations was $2 2 million in the third quarter.
Accounts receivable increased to $2 2 million compared to $1 1 million in the second quarter.
The increase was driven by both an increase in revenues as well as an aging of accounts receivable from a major insurance payer.
We can report that more than 800000 has been collected from this payer so far this quarter and the aging is improving accordingly.
However, the same insurer has begun to deny claims made after receipt of authorization and delivery to the patient.
We filed appeals on a number of these claims and are awaiting a response, though we are optimistic we will prevail adverse decisions on these appeals could signal a change in the payors reimbursement practice with respect to the mile Pro we're monitoring the situation closely.
The aging of receivables I mentioned earlier impacted cash burned in the third quarter as a result of that and our plans to further increase advertising spend to generate more leads and grow our pipeline and support of our growth strategy. We undertook some financing activities in order to maintain an appropriate cash balance during the third.
After we sold 107500 shares under our ATM facility at an average selling price of 12 O two per share, which generated net proceeds of approximately $1 3 million.
There have been no sales under the ATM, so far in the fourth quarter.
In October we announced agreements with select warrant holders from our 2020 follow on offering to exercise their warrants at a discounted exercise price of $5 per share.
Aggregate net proceeds from that exercise were approximately $4 8 million after deducting financial advisory fees the.
The only dilution to shareholders and from these financing activities was the shares sold under the ATM, which represented less than 2% of the outstanding shares.
Pro forma for the warrant exercise transaction, our third quarter, ending cash balance was $17 4 million, which represents just under two years of cash at our current annual burn rate.
As a result, we believe our existing cash is sufficient to fund operations for at least the next 12 months.
Turning to our near term expectations, we entered the fourth quarter with a record backlog, but also some near term challenges as Paul mentioned, our fabrication subcontractor experienced a labor shortage early in the fourth quarter, which impacted their capacity and deliveries to us while capacity has nearly returned to normal the shortfall on deliveries.
It will be difficult to overcome given the upcoming holiday period.
In addition should the post authorization and delivery appeals with this major payer I mentioned earlier be unsuccessful that may cause us to reassess the timing of revenue recognition for this major payer, which is currently recognized at delivery the.
The ability to assert that payments will be made once we receive a preauthorization and provide the devices that a patient is required to continue to recognize revenue at delivery.
While we were highly successful winning appeals with this insurer if we can no longer assert that payments after delivery our forthcoming this would entail a return to waiting until payment to recognize revenue for this major payer.
Revenues from patients associated with this payer comprised 32% of total third quarter revenues.
This insurer continues to provide us with pre authorizations as.
As a result, we're cautiously cautiously optimistic that these denials are more of a processing issue inside the insurer as opposed to some kind of reimbursement policy change.
That being said these factors make it difficult to provide either quantitative or qualitative guidance on revenues in the fourth quarter. We can assure you that we're doing everything possible to maximize deliveries in the fourth quarter and the status of the Appeals I've mentioned is being closely monitored with that overview I'll turn the call back to Paul.
Thank you Dave So now.
Our strategic goal just to remind everyone is to assist more paralyzed individuals regained function with a biofuel and to increase our market penetration in this new product category.
The pillars of this growth strategy are to increase our marketing activity to generate additional patient Kansas from Io probe to increase the number of insurance authorizations by working with payers and physicians to expand access to the <unk> deemphasize, our domestic direct billing channel for greater revenue and margin and to expand into international markets to tap into.
Additional patient demand.
To handle this growth we've added to our professional staff during the past nine months, where clinicians in the field working with patients more reimbursement specialists for the increased volume and an increased number of mild care coaches to support a new micropro user with their therapist. We've done this while demonstrating strong operating leverage with revenues growing much faster than <unk>.
Operating expenses as we continue our march toward larger scale and eventual cash flow breakeven operations.
Adding to these growth initiatives is our investment in product development as well as our investment in clinical research to demonstrate the positive health outcomes of using my approach, we're expecting several independent studies to be published and additional studies are underway that will further support our marketing and reimbursement efforts. These include a patient outcomes registry and.
Additional rct's, which will build upon our body of scientific evidence. We also look forward to a number of near term catalysts, including announcements about the adult version of the <unk> and resuming development and launch of the mile Pal Orthosis for children.
This concludes the formal part of our presentation, operator, and we're now ready to open the call to questions.
Well now begin the question session to ask a question maybe for Star then one on the telephone keypad.
Please pickup your handset before pressing the keys.
With Charlie a question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And before we take the first question I want to mention that we are available for virtual and in person investor meetings. So please contact <unk> investor relations to set up a time.
We plan to be in San Francisco and meeting with investors and analysts the second week of January concurrent with the annual JP Morgan Healthcare conference. So please contact L. A J if you plan to be there and we'd like to meet with us in person their contact information is on today's news release.
Okay, operator, we're ready for the first question.
Our first question today comes from Colin Bowser, a caller your securities. Please go ahead.
Hi, Thanks for taking the question.
Alright.
I guess first off as far as average selling prices.
How should we model that going forward should they stay steady.
With Jack Obrien.
Well I think the.
One of the things that we did say is that.
Revenue or the average selling price was high this quarter because of the.
The record amount of a record percentage I should say a direct billing revenue as a percentage of total revenue. We did say that the backlog, though comprised 77% of patients that were under direct billing and that was compared to <unk>.
88% last quarter so.
That would kind of say that I think that the ASP would be expected to be lower in the fourth quarter compared to the third quarter.
Okay. Thanks, and then.
Sure.
Looking at marketing are you using third party.
Targeted JAK mechanism.
Can you talk about how you're targeting here.
Nations.
Well sure we use a digital AD agency here in Boston, and then we use social media platforms like Facebook Google display network.
To basically put our message out in front of our target audiences on different websites. So that's that's the way we generate awareness.
To all of these are prospects finding us and then becoming a lead at the front end of the pipeline.
Great. Thank you.
<unk>.
How should we think about that moving forward.
Thanks.
We're seeing as I mentioned advertising spending is increasing.
That's our one of our own volition, because we're looking to increase the adds to the pipeline, but we're also seeing increased competition out there amongst other companies for digital advertising space and so those costs are going up and we're having to compete with others and so for those two reasons certainly the advertising.
Spend was going to go up.
And then.
As it relates to the rest of the Opex roughly <unk>.
50% of our operating expenses constitute payroll so as we're looking to grow the pipeline that creates.
A lot of work inside of our.
Various organizations as we continue to process those patients through the pipeline. So as if we're successful in growing the pipeline and adding to our backlog that I would expect the payroll would go up as well to support that.
Great. Thanks for all the color.
Our next question comes from Ben Hayner of Alliance Global Partners. Please go ahead.
Good afternoon, gentlemen, can you hear me okay.
Yes, Ben Hello.
Alright.
On the.
The preauthorization that this insurers providing but.
Apparently not providing reimbursement.
Once you once you build them.
The appeal process that youre going through is that something that you see.
Statutory where you know when when a resolution might take place or.
Is it kind of up in the air.
Well, there's no specific timeline on that Ben.
We have filed appeals on those because.
Standard practice in the industry is that you've got a preauthorization you deliver device filed a claim and then you receive payment.
To be denied payment after delivery can only.
From a patient no longer being eligible for example, if they change their insurance plans.
We always verify insurance before we deliver device. So we think it's more of a system glitch.
And the process because we continue to get new pre authorizations and we also got the payments on a number of our older receivables from the same payer so.
We hope to resolve this.
Quickly, but again, they don't have a specific timetable on that.
Yes.
Do you have kind of.
Charlie Brown, and Lucy and the football situation, where they give you.
The prior authorizations.
The device the football game.
Yes, Scott.
It's even a little bit worse than that because like I said, we're being denied after preauthorization and then delivery. So we've.
So, but we also concentrated on the existing good payers just further market penetration of patients that already are covered by those health insurance plan. So we're balancing.
To get a new pair to pay for device requires a longer period of time to go through the medical review and so on and.
So it's a balance.
Continue market penetration with payers that are already covering the device, while adding a few more new ones each quarter.
Okay, Great and then.
Any updates.
Sorry, if I missed this on my old Pal should we be expecting to hear more on that in the near future.
We expect to make an announcement about that by the end of the year. So nothing new at this time.
Okay, well, thanks for taking the questions gentleman I'll jump back and cute.
Alright, Thanks you.
Our next question comes from Edward Blue.
Sending them capital please god.
Yeah can you talk about inflation or any impact on your margins.
We are seeing some price increases on some of the components as we've had.
And we're also seeing extended lead times, but.
So far with the with the success and increasing the.
Excuse me the percentage of direct billing as a percentage of total revenue in the result of the increase in ASP, we're kind of those those two effects are kind of offsetting each other and were able to maintain our gross margins in the mid seventies.
Great. Thank you for answering my questions and good luck.
Thank you.
As a reminder, if you have a question please press star one.
Next question comes from the gym severity of civilian company and please go ahead.
Hi, good afternoon, and thank you for taking my questions.
Can you just say again, how much revenue.
With with that ensure where you are.
Having the appeals now.
Patients who have that ensure as their primary insurer represented 32% of third quarter revenue.
And how much what percentage of revenue was that insure.
For the year is it about the same.
I don't I actually didn't calculate the number for the full year, but I can I can try to get that to you.
It's going to be somewhere in the range of 20% to 30% I think.
For the full year.
And with the the supply issue how long was it four or five weeks. When you were out of commission or can you screw with any sense on how many units you think you have to make up.
Well there are a couple of our technicians that had part of that great resignation that reduced capacity you didn't go to zero those diminished.
Fortunately, our subcontractor was able to hire some new qualified staff is training them in their back up to normal capacity now, but that gap there for a couple of weeks slowed down our deliveries while we had.
A very large number of new castings to take a patient measurements due to the large number of authorization. So during the backlog and when we tried to catch up as much as we can this quarter gym.
So I mean, if we look at these tuitions are you fairly confident that the both issues will be resolved.
And the year that you'll be back to.
Normal growth rates in the two.
2022.
The I think the the supply chain issue has been for the most part resolved now the issue is how how quickly can we catch up and how much residual effect will there be by the end of the quarter and how much.
Well, we all sort of bleed into the early 2022.
On the other issue on the on the.
The appeals issue I think we'll know more once we hear back from.
Start hearing back on the results of those appeals right now it's it's difficult to say all I can say is if you're sort of in.
And the optimistic case it's.
Nothing it's just a delay in getting the and getting payment.
And the.
And we move forward with our existing revenue model and we continue with what we've been doing in the in the not.
Not optimistic scenario it means.
Insurance continues to deny it.
They're they're changing something with respect to the reimbursement that we may have to say well, we can't recognize revenue on delivery anymore, we have to wait until payment that will add.
60, 90 days back to the revenue cycle time for that insurance so.
It would be more of a timing issue be more of a timing issue yes.
Thank you.
Alright.
Okay.
At this time is the farmer monitoring if you have a question. Please press star one.
Okay. We have another question from a band painter.
Please go ahead.
Hey, guys. Thanks for taking the follow up here.
Just one more on the insurer issue.
Are there any kind of commonality use amongst the patients that you guys can see that.
Denied the claims on.
Well there is a commonality in terms of the denial. The denial reason was that we.
Is that the device. They believe is experimental an investigational but.
We have.
We have.
Successfully many times won on appeal with this insure overcoming that that denial reason so.
We're not sure why.
We're not sure why it's come up again.
Because it's it's and and the fact that it's unusually happening after we've delivered.
Instead of while we're trying to get an authorization just.
Makes us gives us pause and we're.
Monitoring the situation closely as I mentioned now we continue to get new authorizations from the same player.
It's kind of a kind of a bizarre situations.
Asked whether there is anything that was.
August the patients, but okay that.
That makes us appreciate the follow up.
That's the last reminder, if you have a question. Please press star one.
At this time it looks like we have no further questions or now is turn it back over to pause it on us.
God.
All right well, thank you well and just in closing we're optimistic that the economy here in in developed countries around the world Junior to open up and then hopefully the worst of the pandemic is behind us in my own will provide an essential products to people suffering from neurological disorders.
We're confident in our ability to continue to reach patients had received by and from payers and eventually from Medicare and Medicaid as well. So it once again, thanks for your time and interest in my <unk> have a good evening.
Conference does not include thank you for turning today's presentation and then I'll disconnect.