Q1 2024 Myomo Inc Earnings Call

[music].

Good day and welcome to the Mimo first quarter 'twenty 'twenty four earnings conference call.

Operator: Good day, and welcome to the Myomo First Quarter 2024 Earnings Conference. All participants are in listen-only mode.

All participants are in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then 1 on your telephone keypad. To withdraw your question, press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions.

To ask a question press Star then one on your telephone keypad.

Kim Sutton Golodetz: To withdraw your question Press Star then two.

Please note this event is being recorded.

Kim Sutton Golodetz: I would now like to turn the conference over to Kim Gala debts. Please go ahead.

Kim Sutton Golodetz: Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA.

Kim Sutton Golodetz: Thank you operator and good afternoon, everyone. This is Kim Collins, that's just that let's say welcome to the Myanmar first quarter 'twenty 'twenty four conference call.

Kim Sutton Golodetz: Welcome to the Myomo first quarter 2024 conference call. Earlier this afternoon, Myomo issued a news release announcing financial results for the three months ended March 31st, 2024. If you would like to be added to the company's email distribution list to receive future announcements, please register on the company's website at myomo.com or call LHA at 212-838-3777 and speak with Carolyn Curran.

Kim Sutton Golodetz: Earlier this afternoon, Myanmar issued a news release announcing financial results for the three months ended March 31st 2024, 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 all my dotcom or quote L. A J at two one.

Kim Sutton Golodetz: 2838377, and speak with Carolyn Curran.

Kim Sutton Golodetz: With me on today's call from Myomo are Paul Gudonis, Chief Executive Officer, and Dave Henry, Chief Financial Officer. Before we begin, I'd like to caution listeners that statements made during this conference call by management, other than historical facts, are forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, outlook, confidence, target, project, and other similar expressions are typically used to identify such forward-looking statements. Such 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 Myomo's business, financial condition, and operating results.

With me on today's call from Myanmar, Paul Douglas, Chief Executive Officer, and Dave Henry Chief Financial Officer.

Kim Sutton Golodetz: These and additional risks, uncertainties, and other factors are discussed in Myomo's filings with the Securities and Exchange Commission, including the Form 10-K for the year ended December 31, 2023, and subsequent filings. Actual outcomes and results may differ materially from what's expressed in or implied by this forward-looking statement. Except as required by law, Myomo undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. It is now my pleasure to turn the call over to Myomo CEO, Paul Gudonis. Paul, please go ahead.

Speaker Change: 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.

Kim Sutton Golodetz: The words anticipate believe estimate expect intend guidance outlook confident target project and other similar expressions typically used to identify such forward looking statements.

Kim Sutton Golodetz: These forward looking statements are not guarantees of future performance.

Involve and are subject to certain risks and uncertainties and other factors that may affect <unk> business financial condition and operating results.

Additional risks uncertainties and other factors discussed in Myanmar filings with the Securities and Exchange Commission, including the Form 10-K for the year ended December 31st 2023, and subsequent filings actual outcomes and results may differ materially from what is expressed in or implied by this.

Kim Sutton Golodetz: Forward looking statements.

Paul R. Gudonis: As required by law Miami undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this call and it's now my pleasure to turn the call over to my unless CEO Paul Mcdonough Paul. Please go ahead.

Paul R. Gudonis: Thanks, Tim. Good afternoon, everyone.

Okay.

Paul R. Gudonis: Thank you for joining us today. Since the beginning of the year, we've benefited from two major developments at the Centers for Medicare and Medicaid Services, or CMS, that have created a significant inflection point for our business. I'll briefly review these policy and pricing actions, discuss how we capitalized on them during the first quarter, and, most importantly, this expanding opportunity to serve individuals with paralyzed arms as we go forward. On January 1st, 2024, MyoPro was reclassified into the brace category rather than durable medical equipment or DME, which means that our powered arm braces would be covered for medically qualified patients and would be reimbursed on a lump sum basis rather than a 13-month rental in the DME category. This is consistent with the payment policies for other custom-fabricated orthotics and prosthetic devices that are designed for long-term use in the home.

Paul R. Gudonis: Thanks, Kim and good afternoon, everyone. Thank you for joining us today.

Paul R. Gudonis: Then, on April 1st, the new pricing determined by CMS went into effect with reimbursement for the MyoProMotion-G at $65,872 and for the MyoProMotion-W at $33,481. These decisions by CMS open a new world for stroke survivors and others with neurological injury or disease by increasing access to the MyoPro for the many patients enrolled in standard fee-for-service Medicare, or Part B. Prior to this clarity and reimbursement, we were not able to provide MyoPro to traditional Medicare patients, and approximately half of seniors in the United States are covered by standard Part B Medicare.

Paul R. Gudonis: At the beginning of the year, we benefited from two major developments at the centers for Medicare and Medicaid services or CMS and.

Paul R. Gudonis: It has created a significant inflection point for our business.

Paul R. Gudonis: I'll briefly review these policy and pricing actions discussed how we can capitalize on them during the first quarter and most importantly, all of this.

Paul R. Gudonis: This expanding opportunity to serve individuals with paralyze arms as we go forward.

Paul R. Gudonis: On January one 2024, the microprobe was reclassified into the brace category, rather than durable medical equipment, or <unk>, which means that our powered our embraces would be covered for medically qualified patients and it would be reimbursed on a lump sum basis, rather than a 13 months rental in the gaming category.

Paul R. Gudonis: This is consistent with the payment policies for other custom fabricated orthotics and prosthetics devices, they're designed for long term use in the home.

Paul R. Gudonis: Then on April 1st the new pricing determined by CMS went into effect, which reimbursement for the bio promotion G at $65872 and the micro promotion W. At 33481.

Paul R. Gudonis: These decisions by CMS opened a new world for stroke survivors, and others with neurological injury or disease.

Paul R. Gudonis: The access to the Myope role for the many patients enrolled in standard fee for service Medicare part D. Prior.

Paul R. Gudonis: Prior to this clarity on reimbursement, we were not able to provide in my approach to traditional Medicare patients and approximately half of seniors in the United States are covered by standard part D. Medicare.

Paul R. Gudonis: Most of the others are enrolled in a Medicare Advantage plan, but we've had mixed results with the payers. So here's how we are operating our business based on this new Medicare Act. To begin with, for the first time ever, we did not have to turn away prospects that had Part B insurance, as we've had to do so for the last 10 years.

Paul R. Gudonis: Most of the others are enrolled in a Medicare advantage plan, we've had mixed results with the payers.

Paul R. Gudonis: But here's how we are operating our business based on this new Medicare access.

Paul R. Gudonis: To begin with for the first time ever we did not have to turn away prospects that had part D. Insurers as we've had to do so for the last 10 years.

Paul R. Gudonis: Instead, we worked with their physicians and therapists to evaluate their medical suitability for the MyoPro and obtain the necessary medical documentation so we could provide a MyoPro to them and submit these claims to Medicare for reimbursement. Additionally, because the new CMS fee schedule did not go into effect until April 1, we were able to build a backlog of these Part B patients during the first quarter and qualify them. As a result, we had a total of 83 qualified patients in the backlog as of March 31st.

Paul R. Gudonis: Instead, we worked with their physicians and therapists to evaluate their medical suitability for the microprobe and it.

Paul R. Gudonis: The necessary medical documentation. So he can provide a micro to them and submit these claims to Medicare for reimbursement.

Paul R. Gudonis: Second because the new CMS fee schedule did not go into effect until April 1st we were able to build a backlog of these part D patients during the first quarter and you qualify that.

Paul R. Gudonis: As a result, we had a total of 83 qualified patients in the backlog as of March 31st we.

Paul R. Gudonis: We expect to be delivering MyoPros to a large number of these patients in the second quarter. Third, as we recently reported, we've had a quick turnaround on some claims filed since April 1st, but we've been informed that a number have already been authorized for payment. All four DME MAC regions have approved MyoPro claims and are processing them on a lump-sum basis per the published pricing.

Paul R. Gudonis: We expect to be delivering my approach to a large number of these patients in the second quarter.

Paul R. Gudonis: Third as we recently reported we've had a quick turnaround on some claims filed since April 1st.

Paul R. Gudonis: Been informed that a number have already been authorized for payments.

Paul R. Gudonis: All four do you mean Mac regions have a proved myocardial claims.

Paul R. Gudonis: <unk> seen them on a lump sum basis per the published pricing. We're also pleased to learn that one of our own to channel partners. There's also being reimbursed at these rates for their first micropro that they delivered to a Medicare part D patients.

Paul R. Gudonis: We're also pleased to learn that one of our O&P Channel partners is also being reimbursed at these rates for the first MyoPro that they delivered to a Medicare Part B patient. And fourth, with the addition of these Part B patients to our addressable market, we've also begun to expand our capacity to serve this larger pool of candidates. As I mentioned during our last quarterly call, we intend to hire 50 to 60 people this year to increase our clinical, reimbursement, and manufacturing capacity.

Paul R. Gudonis: And fourth with the addition of these part D patient store, our addressable market. We've also began to expand our capacity to serve this larger pool of candidates.

Paul R. Gudonis: As I mentioned during our last quarterly call, we intend to hire 50 to 60 people this year to increase our clinical reimbursement and manufacturing capacity. We've hired approximately 20 professionals through March 31st we are working very hard to achieve this target, but we can be in position to double our myopia output in the second half of the year.

Paul R. Gudonis: We've hired approximately 20 professionals through March 31st and are working very hard to achieve this target so we can be in a position to double our MyoPro output in the second half of the year. Meanwhile, while CMS was finalizing and publishing their reimbursement fees for the MyoPro, our revenue grew 9% over Q1 2023 to $3.8 million. My expectation was for a slightly higher revenue number, but a couple factors affected our results. First, for some Medicare units that were delivered in Q1, the timing of payments was not as expected.

Paul R. Gudonis: Well CMS was finalizing and publishing their reimbursement fees for my approach our revenue grew 9% over Q1 2023 to $3 8 million.

Paul R. Gudonis: Second, the DME MACs paid less than the CMS proposed fee on lump sum deliveries made between January 1st, 2024 and March 31st, 2024, which lowered our ASP. And finally, several patient fittings got pushed out into April, and many of these items are expected to self-correct in the second quarter. Overall, the first quarter can be best described as a transition quarter. The Demi-Mac contractors switched from the rental billing model to lump-sum payments, and then the finalization of the new fees occurred at the end of the quarter.

Paul R. Gudonis: Our expectation was for slightly higher revenue number a couple of factors affected our results.

Paul R. Gudonis: First for some Medicare units that were delivered in Q1, the timing of payments was not as expected.

Paul R. Gudonis: Second the D V Max paid less than the CMS proposed feed on lump sum deliveries made between January one 2024 at March 31, 2024, which lowered our asp's and finally, several patient fittings got pushed out into April and many of these items are expected to self correct in the second quarter.

Paul R. Gudonis: Overall, the first quarter can be best described as a transition quarter G. D me Mac contractors switched from the rental billing model the lump sum payments and then the finalization of the new fees occurred at the end of the quarter.

David A. Henry: While that was happening, we set the stage for strong growth in the second quarter and the rest of the year. We obtained 180 authorizations and orders during the quarter, up 48% from the same period a year ago. And our backlog at the end of the quarter was a record 275 units, which represents myopros that are awaiting delivery to the patient or receipt of the claim payment. This backlog includes Part B patients, and the overall backlog is up by 56% year-over-year.

Paul R. Gudonis: That was happening we've set the stage for strong growth in the second quarter and the rest of the year.

David A. Henry: 180 authorizations in orders during the quarter up 48% from the same period a year ago.

David A. Henry: Our backlog at the end of the quarter was a record 275 units, which represents microprose that are awaiting delivery to the patient or receipt of the claim payments.

David A. Henry: Backlog includes these part D patients and the overall backlog is up by 56% year over year.

Paul R. Gudonis: You also added a record 493 patients into the pipeline in the quarter and we ended with over 1100 candidates in the process of obtaining a microprobe up 30% from a year ago. This pipeline and backlog metrics are important leading indicators of revenue growth and both are up sharply since we can now serve these Medicare part.

Paul R. Gudonis: B patients.

David A. Henry: We also added a record 493 patients to the pipeline in the quarter, and we ended with over 1,100 candidates in the process of obtaining a myoprobe, up 30% from a year ago. These pipeline and backlog metrics are important leading indicators of revenue growth, and both are up sharply since we can now serve these Medicare Part B patients. I'll now turn the call over to our CFO, Dave Henry, for a deeper dive into the quarterly financials and our recent capital raise, and then I'll return with comments on our business plans for the rest of the year.

Paul R. Gudonis: I'll now turn the call over to our CFO, Dave Henry for deeper dive into the quarterly financials and our recent capital raise no return with comments on our business plans for the rest of the year.

David A. Henry: Thank you Paul and good afternoon, everyone.

David A. Henry: Thank you, Paul, and good afternoon, everyone. Let me start my remarks with a review of our first quarter financial results. Revenue for the first quarter of 2024 was $3.8 million. This was entirely product revenue and was up 9% over the prior year quarter. This growth was driven by a higher number of revenue units, which were up 14% over the 2020-21st quarter, offset by a lower average selling price, or ASP. However, revenue came in somewhat lower than our guidance due to pushouts of some deliveries, payments that had been forecasted which did not come in, and other payments from CMS on pre-April claims that were lower than the published fees. The payments that were pushed out are expected during the second quarter.

David A. Henry: Revenue in the first quarter includes payments received on 17 Medicare lump sum Part B claims from deliveries after January 1st, 2024. However, all of these paid claims were underpayments compared to the final fees posted by CMS which became effective as of April 1st, 2024. These payments lowered the ASP in the first quarter to approximately $41,300, which was down 5% versus the prior year quarter. As we announced earlier in the week, we've received remittances from all four DMEMAC regions for payments for Myerford deliveries made after April 1st, 2024, that are in line with the published fee schedule.

David A. Henry: Let me start my remarks, with a review of our first quarter financial results.

David A. Henry: Revenue for the first quarter of 2024 was $3 $8 million. This consists entirely of product revenue and was up 9% over the prior year quarter.

David A. Henry: Growth was driven by a higher number of revenue units, which were up 14% over the 'twenty to 'twenty three first quarter offset by a lower average selling price or ASP.

David A. Henry: Revenue came in somewhat lower than our guidance due to push outs of some deliveries payments that had been forecasted which did not come in and other payments from CMS on pre April claims were lower than the published fees.

David A. Henry: The payments are pushed out are expected during the second quarter.

David A. Henry: Revenue in the first quarter includes payments received on 17, Medicare lump sum part D claims from deliveries after January one 2024.

David A. Henry: All of these paid claims were under payments compared to the final fees posted by CMS, which became effective as of April one 2024.

David A. Henry: These payments lowered the ASP in the first quarter were approximately 41300 <unk>.

David A. Henry: It's down 5% versus the prior year quarter.

David A. Henry: As we announced earlier in the week, we have received remittances from all <unk> regions for payments, but my extra deliveries made after April one 2024 that are in line with the published schedule.

David A. Henry: The 91 revenue units in the first quarter approximately 29% resulted from Phil which is our term for authorizations in orders received and converted to revenue in the same quarter.

David A. Henry: Of the 91 revenue units in the first quarter, approximately 29% resulted from fill, which is our term for authorizations and orders received and converted to revenue in the same quarter. 59% of our revenue in the first quarter came from the direct billing channel compared with 69% in the same quarter a year ago. Of note, a record 25% of first quarter revenue came from international locations, primarily Germany. In the first quarter, we were more reliant on payments from insurers to record revenue than in prior quarters. Of our direct billing revenue, 54% was from patients with payers, so we are able to recognize revenue at delivery, compared with 70% in the year-ago quarter.

David A. Henry: 59% of our revenue in the first quarter came from the direct selling channel compared with 69% in the same quarter a year ago.

David A. Henry: Of note a record 25% of first quarter revenue came from international locations, primarily in Germany.

David A. Henry: In the first quarter, there were more reliant on payments from insurers to record revenue than in prior quarters.

David A. Henry: Of our direct billing revenue, 54% was from patients with Payors.

David A. Henry: We are able to recognize revenue was deliberate.

David A. Henry: With 70% in the year ago quarter.

David A. Henry: That equates to a 29% year over year decrease in revenue from these payers, which was primarily from Medicare Advantage payers, in the first quarter of 2024 compared to the first quarter of 2023. Additionally, we're seeing a slowing in growth of authorizations for Medicare Advantage plans.

David A. Henry: That equates to a 29% year over year decrease in revenue from these payers, which were primarily from Medicare advantage payers in the first quarter of 2024 compared to the first quarter of 2023.

David A. Henry: We're seeing a slowing in growth of authorizations for Medicare advantage plans. Some of this is due to a reorienting our clinical capacity toward Medicare part D patients.

David A. Henry: Some of this is due to reorienting our clinical capacity toward Medicare Part B patients, which began in the fourth quarter of 2023, and some may be due to utilization management efforts at Medicare Advantage payers, as reported by other payers across the healthcare spectrum. We'll be watching closely in the coming quarters to see if the newly published piece by CMS increases Medicare Advantage authorizations since these plans are now required to cover MyoPro so long as medical necessity can be established.

David A. Henry: Which began in the fourth quarter of 2023, and some may be due to utilization management efforts have Medicare advantage payers as reported by other pay ease across the healthcare spectrum.

David A. Henry: We'll be watching closely in the coming quarters to see if the newly published piece by CMS increases Medicare advantage authorizations.

David A. Henry: These plans are now required to cover the micro so long as medical necessity and be established.

David A. Henry: In the first quarter of 2024 and continued efforts to fill the pipeline and backlog with Medicare part B patients as the published fees are now effective.

David A. Henry: In the first quarter of 2024, we continued efforts to fill the pipeline and backlog with Medicare Part B patients as the published fees are now effective. Reported backlog now represents insurance authorizations and orders received but not yet converted to revenue, and in the case of Medicare patients, those patients for whom we have collected medical records and are qualified for delivery based on our inclusion criteria.

David A. Henry: Our reported backlog now represents insurance authorizations that orders received but not yet converted to revenue and in the case of Medicare patients those patients for whom we've collected medical records and being qualified for delivery based on our inclusion criteria.

David A. Henry: To summarize Paul's comments, our backlog at the end of the first quarter of 2024 was a record 275 patients which was up 56% from our backlog at the end of the first quarter 2023.

David A. Henry: To summarize Paul's comments, our backlog at the end of the first quarter of 2024 was a record 275 patients, which was up 56% from our backlog at the end of the first quarter of 2023. This ending first quarter backlog includes 83 Medicare Part B patients that have either been qualified for delivery with appropriate medical documentation or have received a MyoPro, and claims have been filed but payment has not yet been received. These additional Part B patients added to the backlog contributed to 180 authorization orders and other additions to the backlog in the first quarter, which was up 48% over the prior year quarter.

David A. Henry: This ending first quarter backlog includes 83, Medicare part b patients that have either been qualified for the delivery with appropriate medical documentation or received a mile Pro and claims have been filed that payment has not yet been received.

David A. Henry: These additional part D patients added to the backlog contributed to 180 authorizations orders and other additions to the backlog in the first quarter, which was up 48% over the prior year quarter.

David A. Henry: Our patient pipeline increased to 1112 candidates as of March 31, 2024 up 30% from a year ago.

David A. Henry: Our patient pipeline increased to 1,112 candidates as of March 31, 2024, up 30% from a year ago. A record 493 patients were added to our pipeline during the fourth quarter, or the first quarter, I should say, an increase of 12% over the prior year. Our pipeline of Medicare patients increased to approximately 230 at the end of the first quarter.

David A. Henry: Record 493 patients were added to our pipeline during the fourth quarter or the first quarter I should say an increase of 12% over the prior year.

David A. Henry: Our pipeline of Medicare patients increased to approximately 230 at the end of the first quarter.

David A. Henry: Gross margin for the first quarter of 2024 was 61, 2% compared with 67% for the prior year quarter. The decrease was driven primarily by lower asps and some off some cost increases including materials.

David A. Henry: The gross margin for the first quarter of 2024 was 61.2% compared with 67% for the prior year quarter. The decrease was driven primarily by lower ASP and some cost increases, including materials, offset by lower royalty expense as the MIT license expired in November 2023. Operating expenses for the first quarter of 2024 were $6.2 million, an increase of 24% compared with the first quarter of 2023. This increase was driven primarily by higher headcount as we are adding clinical and reimbursement capacity in order to grow revenue in the second half of the year. Higher engineering headcount and outside development spending to accelerate the completion of certain sustaining engineering projects, and higher advertising expenses.

David A. Henry: Set by lower Laura royalty expense as the <unk> license expired in November 2023.

David A. Henry: Operating expenses for the first quarter of 2024 were $6 2 million, an increase of 24% compared with the first quarter of 2023.

David A. Henry: This increase was driven primarily by higher head count as we are adding clinical and reimbursement capacity in order to grow revenue in the second half of the year higher engineering headcount and outside development spending to accelerate completion of certain sustaining engineering projects and higher advertising expense.

David A. Henry: Our cost per pipeline ad was $1,597, which is up 1% compared with the prior year quarter and down 29% sequentially. The operating loss for the first quarter of 2024 was $3.9 million compared with an operating loss of $2.7 million for the first quarter of 2023. The net loss for the first quarter of 2024 was $3.8 million, or $0.10 per share. This compares to a net loss of $2.6 million, or $0.11 per share, for the first quarter of 2023.

David A. Henry: Our cost per pipeline that was $1597, which is up 1% compared with the prior year quarter, but down 29% sequentially.

David A. Henry: The operating loss in the first quarter of 2024 was $3 9 million compared with an operating loss of $2 7 million for the first quarter of 2023.

David A. Henry: Net loss for the first quarter of 2024 was $3 8 million or <unk> 10 per share. This compares with a net loss of $2 6 million or <unk> 11 per share for the first quarter of 2023.

David A. Henry: Operating and net losses increased year over year due primarily to added headcount to increase clinical reimbursement and manufacturing capacity in advance of the revenue growth we expect later in 2024. Note that the 8.5 million pre-funded warrants outstanding from our offerings in 2023 and January 2024 are considered common stock equivalents under GAAP and are included in our weighted average shares outstanding. Just to debid off, for the first quarter of 2024, was a negative $3.5 million compared with a negative $2.5 million for the first quarter of 2023.

David A. Henry: Operating and net losses increased year over year, due primarily to added headcount to increase clinical reimbursement and manufacturing capacity in advance of the revenue growth. We expect later in 2024.

David A. Henry: Note that the $8 5 million pre funded warrants outstanding from our offerings in 2023 in January 2024 are considered common stock equivalents under GAAP and are included in our weighted average shares outstanding.

David A. Henry: Adjusted EBITDA for the first quarter of 2024 was a negative $3 5 million compared with a negative $2 5 million for the first quarter of 2023.

David A. Henry: Turning now to our cash position cash cash equivalents and short term investments as of March 31, 2020 for $11 million.

David A. Henry: Turning now to our cash position, cash, cash equivalents, and short-term investments as of March 31st, 2024, $11 million. Cash used in operating activities was $3.2 million for the first quarter of 2024 compared with $1.8 million for the first quarter of 2023. We completed a registered direct offering in January 2024, generating net proceeds to Myomo of approximately $5.4 million. We believe our cash is sufficient to fund our operations for at least the next 12 months from today.

David A. Henry: Cash used in operating activities was $3 2 million for the first quarter of 2024, compared with $1 8 million for the first quarter of 2023.

David A. Henry: We completed a registered direct offering in January 2024, generating net proceeds to <unk> of approximately $5 4 million.

David A. Henry: And believe our cash is sufficient to fund our operations for at least the next 12 months from today.

David A. Henry: I'll close my comments with a review of our financial guidance.

David A. Henry: I'll close my comments with a review of our financial guidance. Given our backbone, we believe we're positioned to generate in excess of $5 million of revenue in the second quarter. We call them in the near term, Medicare patient revenues will be recorded at the time of payment until sufficient collection history is established. We continue to expect gross margin pressure in the second quarter of 2024 as we ramp up deliveries to Medicare patients, recording the cost of goods sold at that time, while recording revenue at payment.

David A. Henry: Given our backlog, we believe we're positioned to generate in excess of $5 million of revenue in the second quarter.

David A. Henry: All of them in the near term Medicare patient revenues will be recorded at the time of payment until sufficient collection history is established.

David A. Henry: We continue to expect gross margin pressure in the second quarter of 2024, as we ramp up deliveries to Medicare patients. According to cost of goods sold at that time, all recording revenue at payment.

David A. Henry: Cash used for operations is expected to be higher in the second quarter due to 2023 and second incentive compensation payments is expected to be lower in the second half of 2024.

David A. Henry: Cash use for operations is expected to be higher in the second quarter due to 2023 incentive compensation payments, but it is expected to be lower in the second half of 2024. We continue to believe that both full-year 2024 revenue of $28 million to $30 million and our targeted cash flow break-even on a quarterly basis by the fourth quarter of 2024 are achievable. Assuming we have the required clinical reimbursement and manufacturing capacity by the end of the second quarter and there are no supply chain disruptions or other unusual events. With that financial overview, I'll turn the call back to Paul.

David A. Henry: We continue to believe that both full year 2020 for revenue of 28 million to $30 million and our target of cash flow breakeven on a quarterly basis by the fourth quarter of 2024 are achievable.

David A. Henry: Assuming we have the required clinical reimbursement and manufacturing capacity by the end of the second quarter and there were no supply chain disruptions or other unusual events.

David A. Henry: With that financial overview ill turn the call back to Paul.

David A. Henry: Okay.

Paul R. Gudonis: Thanks, Dave. Looking ahead, we plan to increase the number of qualified patients entering our pipeline since we can now engage with Part B beneficiaries, which should lead to accelerated revenue growth as we obtain the necessary physician orders and the supporting medical documentation. Since CMS published these new fees, and one of our O&P partners has also received payments, we have seen a significant increase in interest from orthopaedic clinics to provide the MyoPro to patients in their practice. However, only 4% of our product revenue came from U.S. O&P Channel partners in calendar year 2023.

Paul: Thanks, Dave looking ahead, we plan to increase the number of qualified patients entering our pipeline since we can now engage with part D beneficiaries, which should lead to accelerated revenue growth as we obtained the necessary physician orders and the supporting medical documentation.

Paul: Since CMS published these new fees and one of our own P. Partners is also receive payments we have seen a significant increase in interest from one P clinics to provide the micropro to patients in their practices.

Paul: Only 4% of our product revenue came from U S. OTT channel partners in calendar year 2023, and we are building our program to recruit train and certify support these clinicians who already see a large number of stroke patients or other braces such as an ankle foot orthosis R. A F O with.

Paul R. Gudonis: We are building our program to recruit, train, certify, and support these clinicians. We already see a large number of stroke patients for other braces, such as ankle foot orthoses or AFOs. With reimbursement clarity, we expect that these O&P providers will become a much larger percentage of our business, even as we invest in expanding our own in-house direct provider and billing operations. We've also started to submit claims to those Medicare Advantage plans that have been reluctant to cover MyoPro in the past, since these payers are required to cover Medicare Part D so long as the patient meets the medical necessity and inclusion-exclusion criteria.

Paul R. Gudonis: Reimbursement clarity, we expect that these LNP providers will become a much larger percentage of our business, even as we invest in expanding our own in house direct provider in billing operations.

Paul: We are also starting to submit claims to those Medicare advantage plans that had been reluctant to cover the micropro in the past since these payers are required to cover Medicare covers so long as the patient meets the medical necessity and inclusion exclusion criteria.

Paul R. Gudonis: Many of these Medicare Advantage operators are under increasing scrutiny for refusing to preauthorize medical procedures, and we will be engaging with them to enact more favorable coverage policies for the MIO program. We also expect continued growth in our international business as we expand our European team and the China joint venture begins production and sales. In fact, I'll be attending the influential OT World Conference in Germany this month to assist our team in recruiting additional OMP partners to our distribution network. So with that update and overview of our plans for the rest of 2024, we're now ready to take your questions. Operator.

Paul: Many of these Medicare advantage operators are under increasing scrutiny for refusing to preauthorize medical procedures, and we will be engaging with them more favorable coverage policies for my approach.

Paul R. Gudonis: We also expect continued growth in our international business as we expand our European team and the China Joint venture begins production in sales in fact there'll be attending the influential O T World Conference in Germany. This month to assist our team in recruiting additional OLED partners to our distribution network.

Paul: So with that update and overview of our plans for the rest of 2024, we're now ready to take your questions operator.

Speaker Change: Thank you.

Operator: We'll begin the question and answer session. To ask a question, press star then 1 on your telephone keypad. Please note, if using a speakerphone, you may need to pick up your handset before pressing the keys.

Speaker Change: We will begin the question and answer session.

Speaker Change: To ask a question press Star then one on your telephone keypad.

Speaker Change: Please note, it's using a speakerphone you may need to pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, press star then two. And our first question... Before we turn to your questions, I just want to mention that we will be attending the Alliance Global Partners Virtual Healthcare Showcase on May 21st and the Sidoti Small Cap Virtual Conference on June 12th and 13th. We're also available for virtual and in-person investor meetings, so please contact LHA Investor Relations to set up a time. Operator, we're ready now for the question. Thank you. Our first question today comes from Scott Henry with AGP.

Operator: If at any time. Your question has been addressed and you would like to withdraw your question.

Speaker Change: Press Star then two.

Speaker Change: And our first question.

Speaker Change: But before we turn to your questions I just wanted to mention that we will be attending the alliance global partners virtual healthier showcase on May 21, and the Sidoti small cap virtual conference on June 12th and 13th.

Speaker Change: We're also available for virtual and in person Investor meeting. So please contact <unk> Investor Relations decided at the time, so operator, we're ready now for the questions.

Speaker Change: Thank you. Our first question today comes from Scott Henry with AGP.

Speaker Change: Yeah.

Scott Robert Henry: Thank you and good afternoon. Exciting time for you guys. I guess I'll start with the top of the funnel. 493 is a big number for pipeline ads in Q1. How should we think about that number going forward? Is that sustainable? I know sometimes you get a little stronger numbers in Q1. Or do you think you expect it to grow near-term?

Scott Robert Henry: Thank you and good afternoon.

Scott Robert Henry: Adding time for you guys.

Scott Robert Henry: I guess I'll start with the top of the funnel.

Scott Robert Henry: 493 is it's a big number for pipeline adds.

Scott Robert Henry: In Q1.

Scott Robert Henry: How should we think about that number going forward is that sustainable I know, sometimes you get a little stronger number in the Q1.

Scott Robert Henry: Or do you think you'd expect it to grow near term.

Speaker Change: Thanks, Scott, we expect that pipeline growth number to increase as we add more capacity, we're hiring intake coordinators.

Paul R. Gudonis: Thanks, Scott. We expect that pipeline growth number to increase as we add more capacity. We're hiring intake coordinators, more people in our reimbursement and clinical staff. So we should see an increase in pipeline additions over time because now we can actually engage with these Part B patients who, in the past, I had to say, sorry.

Scott Robert Henry: Our people in our reimbursement and clinical staff. So we shouldnt see a increase in that pipeline additions overtime, because now we can actually engage with these part D patients who in the past I had to say sorry can't serve you.

Scott Robert Henry: Yeah, and just which I guess spring makes it a lot more efficient and as he commented brings down that cost per pipeline at <unk>.

Paul R. Gudonis: Yeah, and just, which I guess Spring makes it a lot more efficient, and as you commented, brings down that cost per pipeline add. You know, in the past... Yeah, and we're not...

Paul R. Gudonis: Yes.

Paul R. Gudonis: Sorry, Scott. We're not, just as a reminder, we're not increasing our advertising spending because, you know, we're already generating, I think, sufficient leads given the fact that, you know, we were setting aside all those Medicare Part B patients. Now we're able to start to engage with them. So that's why I should expect that cost per pipeline ad to continue to come down.

Scott Robert Henry: Sorry.

Paul R. Gudonis: Just as a reminder, we're not to.

Scott Robert Henry: Increasing our advertising spending because.

Scott Robert Henry: Yes, you're already generating I think sufficient leads given the fact that we were setting aside all of those Medicare part D. Patients now who are able to start to engage with us. So.

Scott Robert Henry: So that's sort of that's why I should expect that cost per pipeline that they continue to come down.

Paul R. Gudonis: Okay, and just thinking about prior quarters, you used to have to turn away some patients because of their provider or their classification. You know, how many patients do you currently have to turn away versus who you previously had? What should we think about that?

Speaker Change: Okay and just.

Speaker Change: In prior quarters I used to have to turn away.

Scott Robert Henry: Some patients.

Scott Robert Henry: Because of their provider or are the classification.

Paul R. Gudonis: How many patients do you currently have to turn away versus who you previously had to yeah.

Scott Robert Henry: How should we think about that.

Paul R. Gudonis: Well, we always screen patients for their insurance coverage, and we've had to turn away people who had payers, such as most of them state Medicaid plans, for example, and certain Medicare Advantage plans, which were recalcitrant and were denying this coverage for their beneficiaries. So we can now engage with some of those plans. In addition, remember that half of the seniors are on Medicare Part B. Two-thirds of strokes happen in people age 65 and older. So we've got a significant increase in our adjustable market now that we can serve Part B.

Speaker Change: Well, we always screen patients for their insurance coverage and we saw that in turn away people, who had payers where essentially most of the state Medicaid plans for example, certain Medicare advantage plans.

Speaker Change: Which were recalcitrance and we're denying this coverage for beneficiaries. So we can now engage with some of those plans and in addition, I remember half of the seniors are on Medicare part D. Two thirds of strokes after people, aged 65 and older. So we've got a significant increase in our addressable market.

Scott Robert Henry: With now that we can serve part D.

Speaker Change: Okay, great now.

Paul R. Gudonis: Okay, great. Now, just a couple quick questions. When we look at the model going from the pipeline ads to the backlog, there's that authorization percent, which you said declined a little bit sequentially. Would you expect, I mean, it would seem that with more definitive reimbursement, rates would increase over time because of the standardized reimbursement or clear reimbursement?

Paul R. Gudonis: Just a couple quick questions.

Speaker Change: We look at the model going from the pipeline adds to the backlog.

Speaker Change: There's that authorization percent.

Scott Robert Henry: Which he said declined a little bit sequentially would you expect I mean, it would seem that with more definitive reimbursement.

Scott Robert Henry: That I think it was 16% in first quarter would you expect that.

Scott Robert Henry: Rate to increase over time because of the.

Scott Robert Henry: Standardized reimbursement or clearer reimbursement.

Paul R. Gudonis: I would expect that as we move forward, the velocity of things that go through the pipeline into the backlog will increase. And so I think that will end up, actually, holding down the pipeline at the ends of quarters and things like that because there are a faster number of patients that are moving through, particularly Medicare patients. But if those people are moving through because they turn into authorizations, then that percentage that you're talking about should continue to tick up over time.

Speaker Change: I would expect that.

Paul R. Gudonis: As a as we as we move forward the velocity of things that go through the pipeline into the backlog.

Paul R. Gudonis: Will increase.

Paul R. Gudonis: And so.

Scott Robert Henry: I think that will and that could end up actually.

Paul R. Gudonis: Holding down the pipeline at the ends of quarters and things like that because there's a there's a faster amount of patients that are moving through particularly the Medicare patients, but most people are moving through because they turn into authorizations.

Scott Robert Henry: That percentage that you are talking about should continue to tick up over time.

David A. Henry: Okay, great. And final question: the CMS rate for reimbursement was pretty strong relative to what you're currently realizing for price. Forgetting about the noise short-term, long-term, should we expect to see a price increase given that reimbursement rates are perhaps higher than the current price out there?

Speaker Change: Okay, Great and final question.

Speaker Change: The CMS rate for reimbursement was pre.

Scott Robert Henry: Pretty strong relative to what you're currently realizing for for price.

Speaker Change: You know forgetting about the noise short term long term should we expect to see price increase.

Scott Robert Henry: Given that reimbursement rates are or perhaps higher than the current price out there.

David A. Henry: Yeah, I mean, the allowable for the highest selling product of Motion G is almost $66,000, and Medicare will pay 80% of that. And we said that Medicare for the payments that we received in April on deliveries made in April, they were made at the published fees and in accordance with those published fees. So if we're getting, you know, call it, $50,000, $51,000 for each of those, and our average ASP has been in the range of $42,000, Medicare will continue to be a larger part of our revenues going forward.

Scott Robert Henry: Yeah, I mean, so the allowable for further for the highest selling product promotion G is almost $66000 Medicare will pay 80% of that and we've said that.

Scott Robert Henry: Medicare for the payments that we received in April.

Scott Robert Henry: On deliveries made in April.

Scott Robert Henry: They were made at the <unk> piece and in accordance with those published fees.

Scott Robert Henry: If we're getting you know call it $50 $51000.

David A. Henry: For each of those that are average asps has been in the range of 42, Medicare will continue to be a larger part of our revenues going forward and so that should result in a higher ASP I think.

David A. Henry: And so that should result in a higher ASP. I think an ASP, you know, somewhere in the mid to high 40s is where we should land as we, you know, as the beat of the business takes hold in terms of our ultimate mix between Medicare and Medicare Advantage and others. Okay, great.

Scott Robert Henry: Yeah.

Scott Robert Henry: ASP somewhere mid to high <unk> is where we should land.

Scott Robert Henry: As we as the beta of the business.

Scott Robert Henry: It takes hold in terms of our ultimate mix between Medicare and Medicare advantage and others.

Scott Robert Henry: Okay, great. Thank you for taking the question.

Speaker Change: Okay, great. Thank you for taking the question.

Scott Robert Henry: Sure.

Scott Robert Henry: Thank you. Our next question comes from Anthony Vendetti with Maxim Group.

Operator: Thank you. The next question comes from Anthony Vendetti with Maxim Group.

Scott Robert Henry: Thanks.

Anthony V. Vendetti: Thanks. Some of the questions have been answered, but in terms of the capacity, as you ramp up now with the greater demand, as the backlog grows, can you just remind us? What your manufacturing capacity is................ How many of these devices can you manufacture per year? And do you have the ability to increase that capacity at the current site, or are you looking at additional manufacturing? Would you consider using the contract? manufacturer outside the organization.

Anthony V. Vendetti: Some of the questions have been answered but.

Anthony V. Vendetti: In terms of the capacity.

Anthony V. Vendetti: As you ramp up now with the greater demand as the backlog grows.

Anthony V. Vendetti: Can you just remind us what your manufacturing capacity is.

Anthony V. Vendetti: <unk>.

Scott Robert Henry: How many how many of these devices can you manufacture per year end.

Scott Robert Henry: And.

Scott Robert Henry: Do you have the ability to increase that capacity at the current site or are you looking at additional manufacturing facility.

Scott Robert Henry: What would you consider using a contract.

Scott Robert Henry: Manufactured outside the organization.

Scott Robert Henry: Yeah.

Paul R. Gudonis: Hi Anthony, it's Paul. So we do the final assembly and inspection here, and we've been averaging about 40 to 50 units per month, and our plan is to double that to 80 to 100 units per month in Q3, Q4 so that we can get to that 10 million dollar revenue quarter. So for us, it's a very asset-light type of manufacturing. We subcontract out the robotic motor unit kits, we subcontract out the 3D printing of the orthotic shelves, and we do the hands-on assembly work up here at our current facility.

Anthony V. Vendetti: Hi, Anthony it's Paul So we do the final assembly and inspection here.

Paul: And we've been averaging about 40 to 50 units per months.

Paul: And our plan is to double that to 80 to 100 units per months Q3, Q4, so that we can get to that $10 million revenue quarter. So far.

Speaker Change: For us, it's a very asset light type of manufacturing, we subcontract out the well.

Paul: Motor unit kits, we subcontract out the three D printing of the orthotic shells and we do the hands on assembly work here at our current facility, we've been using more space here and the ability for manufacturing and we are looking at other sites. So that we can continue to expand that manufacturing.

Paul R. Gudonis: We've been using more space here in the building for manufacturing and we are looking at other sites so that we can continue to expand that manufacturing and along the way too we're also that front end from the intake coordinators to the reimbursement staff and fitting staff we're also expanding those positions as well.

Paul: Along the way too also that front end from the intake coordinators.

Paul: <unk> staff and fitting staff, we're also expanding those physicians as well.

Paul R. Gudonis: And you saw some results from that capacity increase in terms of our pipeline ads in the first quarter. We had some additional ability to take on more of that volume, and so that resulted in, you know, we had a record number of pipeline ads. You know, last year, we were kind of, you know, what I would say capped in terms of our capacity to add pages to the pipeline, and those pipeline ads sort of ranged, and they were maybe in the range of 380 to 430 for most of 2023, and so we exceeded that in the first quarter.

Scott Robert Henry: You saw some you saw some results from that capacity increase in terms of our <unk>.

Scott Robert Henry: Client adds in the first quarter, we had some we had some additional ability to.

Scott Robert Henry: Take on more of that volume and so that resulted in it we had a record number of pipeline as last year.

Scott Robert Henry: Yep.

Scott Robert Henry: I would say capped in terms of our capacity to add agents in the pipeline that was pipeline as sort of a range.

Scott Robert Henry: They were in the range of 380 to 430 for most of 2023, and so we exceeded that of the first quarter.

Paul R. Gudonis: And as Paul mentioned, we're looking to continue to add capacity to increase those ads to the pipeline in the coming quarters. Okay, and so you're doing about 40 to 50 units per month now, and now you're looking to get to 80 to 100. What time frame will you be at that at that run rate by the end of the year, sooner than that, and then you know in terms of looking to expand beyond that, are you having negotiations with other contract manufacturers or other ways to get to that number above and beyond 80 to 100 a month if the demand is there for that?

Speaker Change: As Paul mentioned, we're looking to.

Scott Robert Henry: <unk> continued to add capacity to increase those adds to the pipeline in coming quarters.

Paul R. Gudonis: Okay.

Scott Robert Henry: You're doing about 40 to 50 units.

Scott Robert Henry: Per month, now you're looking to get to 80 to 100.

Scott Robert Henry: What's the time frame will you be at that at that run rate by the end of the year sooner than that.

Scott Robert Henry: And then.

Scott Robert Henry: In terms of looking to expand beyond that.

Scott Robert Henry: Having negotiations with other contract manufacturers or other ways to get to that.

Paul R. Gudonis: Did that number above above and beyond 80 to 100 a month.

Scott Robert Henry: If the demand is there for that.

Paul R. Gudonis: Well, we're hiring people now. We're training them so that by the fourth quarter, we're at that 80 to 100 unit run rate. Our contractors, we've engaged with them, with our supply chain managers, you know, they can handle the increased volume. We've placed orders for those long-lead-time components such as motors and so on. So we continue to plan to expand capacity and revenue going forward here as well.

Paul R. Gudonis:

Paul R. Gudonis: Hiring people now we're training them so that by fourth quarter. We're at that 80 to 100 unit run rate our contractors, we've engaged with them with our supply chain managers you know they can handle increased volume we've placed orders for those long lead time components, such as motors and so on so.

Paul R. Gudonis: That plan to expand capacity and revenue.

Paul R. Gudonis: Going forward here as well.

Paul R. Gudonis: Yeah.

Speaker Change: Okay, and then just lastly on the guidance to $28 million to $30 million. So as you mentioned.

Anthony V. Vendetti: Okay, and then just lastly on the guidance, still $28 to $30 million, so as you mentioned, you know, some of the reasons... The first quarter was a little bit light, but it sounds like... whatever that you were late for in the first quarter got pushed into the second quarter, but you believe that revenue will materialize in the second quarter and continue to have confidence in the pipeline for the remainder of the year, correct?

Anthony V. Vendetti: Some of the regions.

Anthony V. Vendetti: First quarter was a little bit light.

Anthony V. Vendetti: But it sounds like.

Anthony V. Vendetti: Whenever you were light in the first quarter got pushed into the second quarter, but you believe.

Anthony V. Vendetti: That revenue will will materialize in the second quarter and continue to have confidence in.

Anthony V. Vendetti: And the pipeline.

Scott Robert Henry: The remainder of the year correct.

Speaker Change: Yes, I think in some cases, we said much of that will come across I think.

Anthony V. Vendetti: Yeah, I think in some cases, you know, we said much of that would come across. I don't know how easy it will be, for example, to get additional payments from CMS on some of those underpayments we got in the first quarter. That could be a bit of a slog. But, but other than that, you know, for things that we expected to come in that didn't, and for deliveries we expected to make, but we held off on them until the second quarter.

Anthony V. Vendetti: I don't know how easy it will be for example to it yet.

Anthony V. Vendetti: To get additional payments from CMS on some of those underpayments, we got in the first quarter that could be a bit of a slog.

Anthony V. Vendetti: But other than that for things that for payments would be expected to come in that didn't and for deliveries we expected to make but.

Scott Robert Henry: We have offered them held off on them until second quarter.

Anthony V. Vendetti: Those should come through. Okay, great. That's helpful. Thanks for that call. I'll hop back in the queue.

Those should come through.

Speaker Change: Understood. Okay, great. That's helpful. Thanks for that color I'll hop back in the queue.

Anthony V. Vendetti: Yeah.

Anthony V. Vendetti: Thank you. Our next question comes from Sean Lee with H C. Wainwright.

Operator: Thank you. Our next question comes from Sean Lee, with HC Wainwright.

Sean Lee: Good afternoon, guys and thanks for taking my questions.

Sean Lee: Good afternoon, guys, and thanks for taking my questions. My first one is on the sales cycle. So, as you mentioned in the prepared remarks, quite a few of the orders in the first quarter came in and were filled in the same quarter. So, I was wondering, with additional Medicare patients coming in, do you expect that proportion to grow?

Sean Lee: My first one is on the <unk>.

Sean Lee: South cycle. So as we mentioned in the prepared remarks are quite a few of the orders during the first quarter came in were filled in the same quarter. So I was wondering with additional Medicare patients coming in do you expect that proportion to cool.

Sean Lee: So we expect again more Medicare part D patients greater to a greater proportion of the pipeline as Dave mentioned, there's a higher velocity with those patients because there is no need to go through a pre authorization process like we have to do with commercial and Medicare advantage plans.

Paul R. Gudonis: So we expect, again, more Medicare Part B patients to be a greater proportion of the pipeline. As Dave mentioned, there's higher velocity with those patients because there's no need to go through a pre-authorization process like we have to do with commercial and Medicare Advantage plans. So that can add 30 to 180 days of delay before an authorization. So if we can evaluate a Medicare patient today, they're a suitable candidate, they can go to their physician, let's say it takes them a month or two to get the medical documentation, they submit it to us, we review it, and we can immediately place an order with our operations to develop and build a device for them and fulfill it. So that's where we're compressing that revenue cycle by having these Part B patients now as part of our marketing target.

Paul R. Gudonis: That can add 30 to a.

Paul R. Gudonis: 180 days of delayed before an authorization. So if we can evaluate on Medicare patients to date.

Paul R. Gudonis: Both candidates they can go to their physician and let's say it takes them a month or two to get the medical documentation is submitted to US. We review it we can immediately placed an order with our.

Paul R. Gudonis: Operations to develop.

Paul R. Gudonis: Develop and build a device for them and fulfill it so that's where we're compressing that revenue cycle I, having these part D patients now as part of our marketing target.

Paul R. Gudonis: My second question is on the proportion of the device types that you are seeing from these Medicare patients. Are you, I think previously you mentioned the mix was something like 90 to 10 for Model G versus Model W. I was wondering, now that you have quite a few of these orders coming in, do you still see the same proportion?

Speaker Change: Great. Thanks for that my second question is on <unk>.

Scott Robert Henry: A portion of the device device types that you are seeing from these Medicare patients are you I think previously you mentioned is the mix was something like 90%.

Paul R. Gudonis: Then Ford model T versus model W. I was wondering now that you have quite a few of these orders coming in do you still see the same proportion.

Paul R. Gudonis: Yes, I mean it really isn't that distinctive by Medicare or Medicare Advantage coverage, so yeah, that's a pretty good mix of product lines.

Speaker Change: Yes, I mean, it really isn't that distinctive by Medicare or Medicare advantage coverage. So yes, that's a pretty good.

Paul R. Gudonis: The mix of product line, Yeah. Overall overall is probably between 90 and 95% motion G.

Paul R. Gudonis: Yeah, the overall score is probably between 90% and 95% motion.

David A. Henry: Okay, great. And my last question is on gross margin. So you mentioned we expect to see a bit more pressure this year due to production expansions. So I was wondering, looking a bit further ahead and with the Medicare payments coming in more steadily, where do you see the gross margin ending up being?

Speaker Change: Okay great.

David A. Henry: And my last question is on the gross margin. So you mentioned, we expect to see a bit more pressure this year due to.

David A. Henry: I assume it's in production expansions. So I was wondering looking a bit further ahead and with the Medicare payments coming in more steady where do you see the gross margin to end up being.

Speaker Change: Yes, I mentioned that.

David A. Henry: Yeah, I mentioned that, to clarify, I mentioned that the second quarter gross margin could see pressure because of the fact that we are, you know, accelerating. There's a dislocation between, until we develop sufficient collection history with Medicare, there's a dislocation between when we record cost of goods sold and when we take revenue. We take cost of goods sold upon delivery, and we wait until payment to take revenue. And so there could be, what my expectation is, is that at the end of the second quarter, there are going to be units delivered but unpaid for Medicare patients, and that will hold down the gross margin.

David A. Henry: Clarify that I mentioned that the second quarter gross margin could see pressure because of the fact that we are.

David A. Henry: Accelerating delivery.

David A. Henry: A dislocation between until we develop a sufficient collection history with Medicare.

David A. Henry: A dislocation between one of my record cost of goods sold and when we take revenue we take cost of goods sold of delivery and we wait until payment to take revenue.

David A. Henry: So there could be what my expectation is as at the end of the second quarter, there's going to be units delivered but unpaid for Medicare patients and that will hold down the gross margin, but that will correct itself later in the year as I expect that we'll be able to switch to being able to record revenue at at delivery for medic.

David A. Henry: But that will correct itself later in the year as I expect that we'll be able to switch to being able to record revenue at delivery for Medicare patients, and that will fix itself. And so, longer term, I would expect that, you know, we should be able to get to, you know, gross margins in the 70% range.

David A. Henry: Care patients.

David A. Henry: Fix itself and sold out in longer term.

David A. Henry: Would expect that we should be able to get to gross margins in the 70% range.

Sean Lee: Thank you; that's all I have.

Speaker Change: Thank you that's all I have.

Speaker Change: Alright, thank you.

Sean Lee: And our next question comes from Ben Hayner with Lake Street capital markets.

Operator: And our next question comes from Ben Haynor of Lake Street Capital Markets.

Benjamin Haynor: Good afternoon, gentlemen, thanks for taking the questions.

Benjamin Haynor: Good afternoon, gentlemen. Thanks for taking the questions. First off, for me, on the increased velocity that you're going to see from, you know, pipeline to authorization to delivery, does that automatically kind of improve the pipeline quality in that there's less time or less opportunity for patients to drop out as well?

Benjamin Haynor: First off for me on the increased velocity that youre going to see from pipeline to authorizations to delivery does that automatically kind of improve the pipeline quality in that.

Benjamin Haynor: There is less time or less opportunity for patients to drop out as well.

Paul R. Gudonis: Yes, Ben, that's a very good point because the longer that cycle extends, the more chances that a patient will change insurance, some of them suffer another medical issue like another stroke. Also, with the pipeline quality being more Part Bs, we're not that dependent on these pre-authorizations because, as we said in the past, our success rate on the Medicare Advantage pre-authorizations has ranged typically between 40% to 50% of those pipeline ads So having Part Bs, which are medically qualified, will have a much higher success rate of turning those into actual deliveries.

Speaker Change: Yes, Ben Thats, a very good point, because the longer that cycle extends more chances that a patient will change insurance some of them suffer another medical issue like another stroke also with the pipeline quality being more part B's, we're not that dependent on these pre.

Paul R. Gudonis: Authorizations, because we've said in the past our success rate on the Medicare advantage Preauthorizations as range typically.

Paul R. Gudonis: 40% to 50% of those pipeline adds.

Paul R. Gudonis: So having a card fees, which are medically qualified well have a much higher success rate is turning those into actual deliveries.

Speaker Change: Got it.

Paul R. Gudonis: Got it, and that's helpful, and then on the Part B's that you've had to turn away historically, have you undertaken any activity to try and sort of, I guess, reactivate and add some of those folks to the pipeline that, you know, you have their contact information from, you know, previous leads?

Ben: That's helpful and then on the.

Paul R. Gudonis: Part B is that you've had to turn away historically have you undertaken.

Paul R. Gudonis: Undertaken much activity to try and sort of I guess reactivated maths on the slopes of the pipeline.

Paul R. Gudonis: You have their contact information from.

Paul R. Gudonis: Previously.

Paul R. Gudonis: Yes, these people are in our CRM system, and we're following Medicare regulations as far as how far back you can go out to reach out to them. I'm trying to reach out to them. I've got to add more people to my clinical and call center team to be able to reach all those patients that may be eligible for a MyoPro. That's why we're hiring these people right now, under Medicare regulations.

Speaker Change: Yes. These people are in our CRM system and we're following Medicare regulations as far as how far back you can go out to reach out to them.

Paul R. Gudonis: Im trying to reach out to them I've got to add more people in my clinical and our call center team to be able to reach all those patients that may be eligible for them.

Paul R. Gudonis: That's why we're hiring these people right now.

Paul R. Gudonis: Under Medicare regulations, we have 15 months to reach back and be able to contact those people again. So we have some time here. Okay, got it. So then, the right way to think about it is if, you know, whatever the portion of Medicare non-Part B patients that enter the pipeline, you kind of double that figure over the last 15 months, and that gets you roughly to the number of folks that you could be contacting, if that makes sense.

Paul R. Gudonis: On your Medicare regulations, we have yes.

Paul R. Gudonis: 15 months to to reach back end to be able to contact those people again. So we have a we have some time here.

Speaker Change: Okay got it. So then is the right way to think about it.

Paul R. Gudonis: Whatever the portion of.

Paul R. Gudonis: Of.

Paul R. Gudonis: Medicare part D.

Paul R. Gudonis: Patients that entered the pipeline you kind of.

Paul R. Gudonis: Double that figure over the last 15 months and that gets you roughly.

Paul R. Gudonis: What the number of folks that you could be contacting if that makes sense.

Paul R. Gudonis: Well, given that our addressable market has about doubled because of these Part B patients, assuming we can evaluate all those patients and get them into the pipeline, yes, that pipeline should increase again, over time.

Paul R. Gudonis: Or given that our addressable market has doubled.

Paul R. Gudonis: Doubled because of these part D patients assuming that we can evaluate all those patients and get them into the pipeline.

Paul R. Gudonis: That pipeline should increase again over time.

Speaker Change: Okay got it and then lastly for me.

Benjamin Haynor: Okay, got it. And then lastly, for me, you know, I'm just with the US OMP channel being 4% last year, you know, with this year being a bit of a... kind of transition year, getting people back engaged on that channel. What do you think that that could ultimately look like over time? You know, whether it's a year from now or, you know, even several years from now? Is that going to be a third of your business, half of your business? What does that look like in terms of U.S. revenue?

Benjamin Haynor: On P channel, 4% last year.

Benjamin Haynor: This year being a bit of.

Benjamin Haynor: Yeah.

Benjamin Haynor: Kind of a transition year and getting people back engaged on that channel. What do you think that that could ultimately look like over time, whether it's a year from now.

Benjamin Haynor: And several years from now is that going to be.

Benjamin Haynor: <unk> business half of your business, what does that look like in terms of U S revenues.

Paul R. Gudonis: I think it could be a significant part of our business just because there are about 3,000 of these O&P clinical offices around the country. Now, not all of them specialize in upper extremity or myoelectric devices like this, but there's certainly been keen interest at the various O&P conferences we've already been to. We're already planning a schedule of classes to certify these CPOs later this year. So I think we'll see the O&P channels start to kick in for the latter part of the year and then start to grow next year and the years beyond. But it could be the majority of our business over time.

Benjamin Haynor: Yes, I think it could be a significant part of our business just because there are about 3000 of these old preclinical offices around the country now not all of those specialized in upper extremity or my electric devices like this but theres certainly been keen interest.

Paul R. Gudonis: Various on T conferences, we've already been too.

Paul R. Gudonis: Already planning a schedule of classes to certify these of <unk>. Later this year. So I think we will see the OTT channels start to kick in for the latter part of the year and then start to grow next year and the years beyond but it could be.

Paul R. Gudonis: <unk> of our business overtime.

Paul R. Gudonis: And we don't think that, you know, any, that the growth and the OMP channel that we realize will really significantly degrade what we're doing as our own direct provider to patients because we, you know, when we do our advertising, we're primarily advertising towards people that are in that population of people that have had their stroke probably years ago. They're out of the health care system for their stroke, whereas...

Paul R. Gudonis: And we don't think that the.

Paul R. Gudonis: The growth in the A&P channel that we realize will really significantly degrade.

Paul R. Gudonis: What we're doing on as are being our own direct provider.

Paul R. Gudonis: Two patients because we know when we do our advertising work primarily advertising towards people that are in that population of people that have their stroke probably years ago.

Paul R. Gudonis: They're out of the health care system for their stroke.

Paul R. Gudonis: As you.

Paul R. Gudonis: The O&P Channel is seeing people that are a bit more recent, soon after they've had their stroke, and so it's a different type of people that they're seeing as opposed to whom we're advertising to. And so that's why we think that a good portion of the growth that we expect to experience going forward in the O&P Channel should be incremental growth and not be substituted by a corresponding decrease in direct billing.

Paul R. Gudonis: <unk> P channel are seeing people that are a bit more recent.

Paul R. Gudonis: Yes.

Paul R. Gudonis: Soon after they've had their stroke and so it's a different type of people that theyre seeing as opposed to who were been advertising too.

Paul R. Gudonis: And so that's why we think.

Paul R. Gudonis: Good portion of the growth.

Paul R. Gudonis: We expect to experience going forward in the RFP channel should be incremental growth and not be substituted by a corresponding decrease in direct billing.

Paul R. Gudonis: Okay.

Speaker Change: Okay that makes sense. So you guys are going more after the prevalence.

Benjamin Haynor: Okay, that makes sense. So you guys are going more after the prevalence group rather than the incidence. We have been, yes. Got it. Okay, great. Well, thanks for taking the questions, gentlemen, and congrats on the progress.

Benjamin Haynor: Group, rather than the instruments group.

Benjamin Haynor: We have been yes.

Speaker Change: Got it.

Speaker Change: Okay, great well, thanks for taking the questions gentlemen, and congrats on the progress.

Speaker Change: Thanks Pat.

Speaker Change: Thank you again as a reminder to the audience if you'd like to ask a question press Star and then one.

Operator: Thank you. Again, as a reminder to the audience, if you'd like to ask a question, press star and then one. Our next question comes from Edward Woo with Ascendiant Capital.

Operator: Our next question comes from Edward Woo with <unk> capital.

Edward Moon Woo: Yes, congratulations on the quarter and definitely congratulations on your international growth again can you talk about what Youre doing there that's maybe different or the same as in the U S to be able to have that momentum and can you talk about the overall market opportunities on.

Edward Moon Woo: Yeah, congratulations on the quarter and definitely congratulations on your international growth again. Can you talk about what you were doing there that's maybe different or the same as in the US to be able to have that momentum? And can you talk about the overall market opportunities on, you know, how much more growth there can be in this channel?

Edward Moon Woo: How much more growth can there be in this channel.

Paul R. Gudonis: Sure, well, I'll speak to Germany specifically because that's our best international market at this time. It's got a significant population of over 80 million, a good economy, they like high-tech products, and we have developed a network of O&P channel partners in over a hundred different locations now. So our clinical team goes in there, trains them. These O&P providers, you know, see the patients.

Speaker Change: Sure well I'll speak to our jewelry, specifically because that's our first international market at this time, it's got a significant population over $80 million with economy, there like high Tech products and we have developed a network of one key channel partners over 100 different locations now so our clinical team.

Paul R. Gudonis: And they're trained them.

Paul R. Gudonis: These OTT providers see the patients they work with the insurance companies that they already are contracted with so that approach is working also using social media there to generate demand.

Paul R. Gudonis: They work with the insurance companies that they already are contracted with, so that approach is working. They are also using social media there to generate demand, but I think it may be a good example of what you can do through an O&P channel, and that's what's driving the business there in Germany. So we've said we're doubling down. We're basically investing more resources and hiring more people in Germany because, again, that's a big untapped market opportunity. And then we'll see over time whether we may enter other selected markets based on the reimbursement environment there.

Paul R. Gudonis: I think it may be a good example of what you can do through one P channel and.

Paul R. Gudonis: We're growing the business there in Germany, So we've said brogan doubling down, but basically putting more resources hiring more people in Germany, because again thats, a big untapped market opportunity.

Paul R. Gudonis: And then we will see over time, we may.

Paul R. Gudonis: Enter into others selected markets based on the reimbursement and reimbursement environment there.

Paul R. Gudonis: Yeah.

Speaker Change: Great. So you know the population almost.

Edward Moon Woo: Great. So, you know, the population of almost, you know, 20% of the U.S. Do you think the market there can reach about 20% of the size that you expect in the U.S.?

Edward Moon Woo: 20% of the U S. You think the market there Ken reached about 20% of the sites that you expect in the U S.

Paul R. Gudonis: Yes, it could very much do so, and in fact, it was 25% of our revenue in this first quarter, but now we'll see accelerated U.S. revenue with the addition of the Part D patient. Great. Well, thank you, and good

Edward Moon Woo: Yes, it could.

Paul R. Gudonis: Very much do so and in fact, it was 25% of our revenue in this first quarter, but now we will see accelerated U S revenue with the addition of the part D patients.

Speaker Change: Great well, thank you and good luck.

Edward Moon Woo: Great, well, thank you, and good luck.

Speaker Change: Thanks, guys.

Speaker Change: Thank you.

Paul R. Gudonis: This concludes our question and answer session. I would like to turn the conference back over to Paul Gudonis for any closing remarks.

Speaker Change: This concludes our question and answer session.

Paul R. Gudonis: I would like to turn the conference back over to Paul <unk> for any closing remarks.

Paul R. Gudonis: Well, thank you, Operator. Well, as you all know, we've had a long journey to establish these reimbursement policies and pricing for the standard Medicare Part B patient population. It's very gratifying to see these patients have the same equitable access as other patients with other health insurance plans. At a recent fitting of a MyoPro for a stroke survivor, her husband said, "Thank God for Medicare because a year ago we just couldn't get this device." As we discussed today, we're investing in the resources necessary to serve this larger pool of potential MyoPro candidates, and we're also increasing our R&D investment to build upon our market-leading position.

Paul R. Gudonis: Well, thank you operator.

Paul R. Gudonis: Although we've had a long journey to establish these reimbursement policies and pricing for the standard Medicare part D patient population is.

Paul R. Gudonis: Very gratifying to see these patients have the same equitable access.

Paul R. Gudonis: Other patients with other health insurance plans at a recent fitting of a micro for stroke survivor for husbands said, thank God for Medicare because a year ago, we just couldnt get this device for her.

Paul R. Gudonis: As we discussed today, we are investing in the resources necessary to serve this larger pool of potential myopia, Kansas and we're also increasing our R&D investment to build upon our market leading position there.

Paul R. Gudonis: So with growth in volume and revenues, we can achieve our target of cash flow break even on a quarterly basis by the end of the year if we're able to add the expanded delivery capacity as we planned and Medicare reimbursement continues on a timely basis. These actions will also position us well as we head toward a much larger profitable company addressing this large unmet medical need and improving the lives of many more patients in selected markets worldwide. So, thank you for your participation today and have a good evening, everyone.

Paul R. Gudonis: So with growth in volume and revenues, we can achieve our target of cash flow breakeven on a quarterly basis by the end of the year, but we're able to add the expanded delivery capacity as we planned and Medicare reimbursement continues on a timely basis.

Paul R. Gudonis: These actions will also position us well as we head toward a much larger profitable company addressing this large unmet medical need and improve the lives of many more patients in selected markets worldwide.

Paul R. Gudonis: You for your participation today and have a good evening everyone.

Speaker Change: Thank you the conference has concluded thank.

Operator: Thank you. The conference has concluded. Thank you for attending today's presentation.

Speaker Change: Thank you for attending today's presentation.

Operator: Okay.

Operator: [music].

Operator: Yes.

Operator: [music].

Operator: Okay.

Operator: [music].