Q3 2024 Myomo Inc Earnings Call
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Speaker Change: Good day and welcome to the MIOMO Third Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star, then 1 on a touchtone phone. To withdraw your question, please press star, then 2.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Kim Golodetz. Please go ahead.
Thank you operator and good afternoon everyone. This is Kim Golodetz with Alliance Advisors IR. Welcome to the MIOMA third quarter 2024 conference call.
Speaker Change: Earlier this afternoon, Myomo issued a news release announcing financial results for the three and nine months ended September 30, 2024.
Speaker Change: 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 myoma.com or call Alliance Advisors IR at 310-691-7100 and speak with Danny Chotok.
With me on today's call for MIOMA are Paul Gudonis, Chairman and Chief Executive Officer, and Dave Henry, Chief Financial Officer.
Before we begin, I'd like to caution listeners that statements made during this conference call by management, other than historical facts, are forward-looking statements.
The words anticipate, believe, estimate, expect, intend, guidance, outlook, confidence, target, project, and other similar expressions are typically used to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance, and may involve and are subject to certain risks and uncertainties, and other factors that may affect MIOMA's business, financial condition, and operating results.
These and additional risks and certainties and other factors are discussed in my own filings with the Securities and Exchange Commission, including on Forms 10-K and 10-Q.
Actual outcomes and results may differ materially from what's expressed in or implied by these forward-looking statements, except as required by law, MIOMA undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.
Speaker Change: Thanks Kim. Well good afternoon everyone and thanks for joining us today. We achieved another quarter of strong growth in the third quarter of 2024 building on our momentum since the Medicare fees for the MyoPro powered arm braces went into effect beginning April 1st.
We're now able to serve the many patients in the U.S. who are covered by standard Medicare Part B, and we achieve quarterly records in important business metrics including revenue, revenue units, pipeline ads, border rent pipeline size, insurance authorizations and orders, and MyoPro shipments.
Speaker Change: With the reclassification of the MyoPro into the brace category and the publication of the medical allowable, Medicare allowable, earlier this year we established three major objectives for the company.
Speaker Change: Start providing the MIOPRO, the eligible standard Medicare Part B beneficiaries, whom we had to turn away before.
Speaker Change: engage the many orthotics and prosthetics clinics across the country who would now be interested in becoming a distribution channel for us, and three, begin the process of establishing contracts with payers for in-network status of our direct provider business.
I'll provide a status report on these initiatives by reviewing the key data points across our revenue cycle from patient candidates who are interested in MyoPro through to revenue units in the quarter.
Speaker Change: We added 645 medically qualified candidates to the patient pipeline, which is up 69% from the year ago quarter as our addressable market is increased to include Medicare Part B patients that did not have access to the MyoPro in the past.
Speaker Change: We received insurance authorizations and orders for a record 225 myopros in the third quarter, including medically qualified Medicare patients, which was up sequentially and also up 44% year over year.
Speaker Change: Revenue units based on devices delivered to patients or payments received totaled 161 MyoPros, up 35% from a year ago, and the ASP, or the average selling price, increased to an adjusted $52,700 per unit as Dave, our CFO, will explain.
Speaker Change: As a result of more MyoPro volume and a higher ASP, our product revenue is a record $9.2 million, up 83% over the same period in 2023.
Speaker Change: These revenue units included 87 MyoPros delivered to Medicare Part B beneficiaries, and this is in addition to the shipments to Medicare Advantage, VA, orthotics and prosthetics clinics, and international customers.
Speaker Change: With the large number of additions to the patient pipeline, we exited the quarter with 1,263 candidates in the process of obtaining a physician's order and the necessary medical documentation for a MyoPro.
Speaker Change: And with a large number of new orders, our backlog stood at a record 316 units, which represents over $16 million of potential revenue.
Speaker Change: As for developing the O&P channel, in September we attended the American Orthotics and Prosthetics National Association Assembly, which is the largest conference for orthotics and prosthetics or O&P clinics in the U.S.
Speaker Change: With clarity on Medicare Part B reimbursement, we're now able to recruit these O&P clinics to provide the myoprobe to stroke survivors, noting that this is a patient population they already serve with ankle foot orthoses and other braces.
Speaker Change: Our team of business development managers and clinical trainers serving this OMP channel is up and running and we had a standing room only crowd of more than a hundred clinical professionals attending our Manufacturers Workshop at the conference.
Speaker Change: To train these clinicians on the MyoPro, we launched the MyoOMO Academy, which is an online learning platform specifically for OMP professionals.
Speaker Change: We're also conducting a number of in-person training sessions as part of the certification program for OFP clinics to become a MyoPro Center of Excellence.
Speaker Change: These training sessions have included many independent O&P clinic owners and CPOs, which are certified prosthodysorthotists, as well as Hanger Clinics, which is the largest nationwide operator of O&P clinical facilities.
Speaker Change: We've set a goal of recruiting and training 100 clinicians by the end of this year. I'm pleased to report that we've already surpassed that goal.
Speaker Change: These prosthetists and orthodists are now starting to evaluate patients, and after they receive the necessary medical documentation, they'll begin to place orders for a custom eye operal for their patients.
Speaker Change: We've already seen an uptick in activity from the O&P channel, so we expect that O&P orders will increase in 2025 as their patient pipelines are growing.
Speaker Change: Order can take several months for patients to see their primary care or other qualified physician and to obtain all the necessary clinical notes which are required before a mile per order can be placed.
Speaker Change: While our direct provider business with Medicare, our international operations, and our progress with the LMP channels is going well, I'm frustrated with some of the Medicare Advantage plans.
Speaker Change: Rather than following Medicare's lead in covering the MyoPro for their members, we've seen mixed results from these payers so far.
Speaker Change: It's been widely reported that some Medicare Advantage payers are making it more difficult for patients and providers to get the care they deserve, which is what we are seeing as well. As a result, more authorization requests are being denied initially, forcing us to file more appeals for pre-authorizations of some plans.
Speaker Change: On the other hand, some Medicare Advantage plans that did not cover the MyoPro in the past have started to do so, which is a good thing for their members.
Speaker Change: As for the third objective, contracts with payers, since this year's developments with Medicare, our chief medical officers have been working with private payers to begin the contracting process for myomo to become an in-network provider.
Speaker Change: While this can be a multi-year process due to the meetings required with medical directors and then the contracting staff, we recently announced we've entered into our first two contracts. One with Blue Cross Blue Shield of Massachusetts, another with Paradigm, which is a leading workers' compensation organization.
Speaker Change: Together, these two pairs represent 3 million covered lives at the Blue Cross Blue Shield plan, plus employees served by Paradigm for Workplace Injuries.
Speaker Change: We have other ongoing dialogues with other payers, which we believe will lead to additional contracts down the road.
Speaker Change: With the growth in the pipeline, orders, and channels, we've been adding capacity to meet demand. We've gone from about 100 employees at the beginning of the year to 180 now, and we'll be moving to a larger production facility in the Boston area later this year to accommodate the expected growth in shipments this quarter and in the future.
Speaker Change: Also, our China joint venture, Jiangxi Myomo, is making progress in obtaining the necessary regulatory approvals from the NMPA, equivalent of a Chinese FDA, to begin sales and production of Myomo units, in addition to undertaking a clinical trial with some key hospital partners as part of their market access plan.
Speaker Change: We don't expect much in the way of revenue from China at this point, but we're getting well positioned to capitalize on this very large opportunity. With that overview, I'll turn the call over to our CFO, Dave Henry, for a deeper dive into the quarterly financials, and I'll return with some additional comments on our business plans.
Dave Henry: Thank you, Paul, and good afternoon, everyone. Let me start my remarks with a review of our third-order financial results.
Dave Henry: Revenue for the third quarter of 2024 was a record $9.2 million. This consisted entirely of product revenue and was up 81% over the prior year quarter's total revenue, which included a payment under our licensing arrangement with the joint venture company in China.
Dave Henry: Product revenue is up 83% over last year's third quarter.
Dave Henry: Product revenue growth was driven by a record 161 MyoPro revenue units, about 35% year-over-year. Our average selling price, or ASP, was also a record at approximately $57,200.
Dave Henry: ASP was favorably impacted by supplemental insurance payments in the third quarter on revenue units recognized in a prior period. This is the result of the transition to recognizing revenue on delivery to Medicare patients effective July 1st, 2024.
Dave Henry: Excluding these payments, ASP was $52,700 in the third quarter, still a record high.
Dave Henry: Medicare Part B and certain commercial payers were recognizing revenue at delivery in an amount expected to be paid by both the primary and supplemental insurance payer with the exception of Medicaid.
Dave Henry: Note that Medicare Advantage payers are, in most cases, now reimbursing us based on the fees published by CMS. As a result, 94% of third-quarter product revenue was recognized at either shipment or delivery, compared with 76% in the year-ago period.
Dave Henry: Fifty-five percent of product revenue in the third quarter came from Medicare Part B patients, up from 47% in the second quarter reflecting our success in reaching out to and educating these patients on the benefits of the MyoPro.
Dave Henry: Revenue from patients with Medicare Advantage plans represented 24% of third-quarter revenue and Medicare Advantage revenue was down 26% year-over-year.
Dave Henry: A challenging reimbursement environment with Medicare Advantage plans continued in the third quarter, which is resulting in fewer first-time authorizations and more denials, leading to more administrative law judge hearings in order to obtain an authorization for the patient.
Speaker Change: Our success rate with ALJ hearings remains constant at around 40 to 50 percent of cases. However, as Paul mentioned, we're seeing some good news in that certain Medicare Advantage payers that were previously not reimbursing for the MyoPro have begun providing preauthorizations.
Speaker Change: Of the 161 revenue units in the third quarter, approximately 24% resulted from fill, which is our term for authorizations on orders received and converted to revenue in the same quarter.
Dave Henry: driven by revenue from Medicare Part B patients. 81% of our revenue in the third quarter came from the direct billing channel, compared with 69% in the prior year quarter.
Dave Henry: International revenue was a record 1.1 million in the third quarter representing 12% of third quarter revenue which primarily came from Germany.
Dave Henry: In the third quarter of 2024, both pipeline additions and total pipeline reached new records.
Dave Henry: The pipeline was 1,263 patients at the end of the third quarter, an increase of 21% year-over-year. There were a record 645 additions to the pipeline in the third quarter, an increase of 69% year-over-year.
Dave Henry: Of the pipeline additions in the third quarter, 30% were Medicare Part B patients, while 15% of the total pipeline at the end of the third quarter were Medicare Part B patients.
Dave Henry: This reflects the increased velocity in moving Medicare patients through the process of obtaining a MyoPro as compared with payers that require preauthorization.
Dave Henry: Reported backlog represents insurance authorizations and orders received but not yet converted to revenue and in the case of Medicare Part B patients, those patients from whom we've collected medical records and deemed qualified for delivery based on our inclusion criteria.
Dave Henry: Our backlog at the end of the third quarter was a record 316 patients, up 71% from our backlog at the end of third quarter 2023.
Dave Henry: Ending third quarter backlog includes 114 Medicare Part B patients that have either been qualified for the delivery with appropriate medical documentation or have received their MyoPro and claims have not been filed, but that's very small now in the overall percentage.
Dave Henry: A payment is not, excuse me, the Medicare portion of the backlog increased 19% sequentially. Contributing to our backlog was a record 225 authorizations and orders, an increase of 44% year-over-year.
Dave Henry: Gross margin for the third quarter of 2024, coming entirely from product sales, was 75.4 percent, compared with 68.7 percent for the prior year quarter. The increase was driven primarily by the higher ASP I mentioned, and by higher fixed cost absorption.
Dave Henry: Excluding the licensed revenue, gross margin on product sales was 68.4% in the third quarter of 2023.
Dave Henry: Operating expenses for the third quarter of 2024 were $7.9 million, an increase of 43 percent compared with the third quarter of 2023.
Dave Henry: This increase was driven primarily by the higher headcount throughout the organization to increase capacity and to accelerate completion of certain engineering projects and new product development.
Dave Henry: In addition, advertising expense of $1 million is up 23% year-over-year as we successfully undertook efforts to increase the number of patients at the top of the funnel.
Dave Henry: Cost per pipeline add was $1,618, which was down 25% compared with the prior year quarter.
Dave Henry: Operating loss of the third quarter of 2024 was $1 million, which is half the $2 million operating loss for the same period a year ago.
Dave Henry: Net loss for the third quarter of 2024 was $1,000,000 or $0.03 per share. This compares with a net loss of $2,000,000 or $0.06 per share for the third quarter of 2023.
Dave Henry: Approximately 7.7 million pre-funded warrants are still outstanding from our offerings in 2023 and in January 2024. These pre-funded warrants are considered common stock equivalents under GAAP and are included in our weighted average shares outstanding.
Dave Henry: and Justin Ivedov for the third quarter of 2024 with a negative 600,000 compared to the negative 1.7 million for the third quarter of 2023.
Dave Henry: Looking at our year-to-date financial results, revenue for the nine months ended September 30th, 2024 was $20.5 million, up 41% compared to the same period a year ago, and product revenue increased 61%.
Dave Henry: Here today, gross margin was 71.1%, compared with 69.6% in the year-ago period, or 65.4% excluding license revenue.
Dave Henry: Operating expenses for the first nine months of 2024 were $20.5 million, an increase of 29% compared with the same period a year ago.
Dave Henry: Operating loss for the first nine months of 2024 was $6 million, compared with an operating loss of $5.8 million for the same period a year ago.
Dave Henry: Net loss for the first nine months of 2024 was $5.9 million or $0.16 per share compared to a net loss of $5.7 million or $0.21 per share for the same period a year ago.
Dave Henry: Adjusted EBITDA was a negative 5.3 million for the first nine months of 2024, compared with a negative 4.9 million for the year ago period.
Dave Henry: Turning now to our balance sheet and cash flows. Cash, cash equivalents and restricted cash as of September 30th 2024 for seven million.
Dave Henry: Cash used in operating activities was $1.5 million for the third quarter of 2024 compared with $1.7 million for the third quarter of 2023.
Dave Henry: Offering cash flow in the third quarter was impacted by a payment delay from CMS in the last few weeks of the quarter due to a transition from check payments to electronic payments.
Dave Henry: As of today, we're being paid electronically by all of the billing regions, and they have caught up and paid the outstanding claims from September.
Dave Henry: Restricted cash of $375,000 consists of funds held by our bank to collateralize a letter of credit, which represents the security deposit for our new headquarters building. We expect to occupy the building by the end of the year.
Dave Henry: We have an accounts receivable line of credit with Silicon Valley Bank that provides for borrowing of up to $4 million based on 80% of eligible accounts receivable as defined in the agreement. As of today, we have not drawn on the credit line.
Dave Henry: We believe our cash and cash equivalents are sufficient to fund our operations for at least the next 12 months.
Dave Henry: turning to our financial guidance.
Dave Henry: Given our backlog, we believe we are positioned for a third consecutive quarter of record revenue. We expect revenue for the fourth quarter to be in the range of $9.5 million to $10.5 million. This represents between 100% and 121% year-over-year growth.
Dave Henry: As a result, we're raising our full-year revenue guidance to $30 million to $31 million, up from our previous guidance range of $28 million to $30 million.
Dave Henry: We are also reiterating our expectation that based on this revenue guidance, operating cash flow break-even is still achievable in the fourth quarter.
Dave Henry: We also expect to approach adjusted EBITDA rate even in fourth quarter. However, in order to achieve these targets
Dave Henry: We assume no supply chain disruptions, no delays in the receipts of expected payments, including a contractual reimbursement from the landlord of our new facility, and no increase in day sales outstanding.
Dave Henry: With that financial overview, I'll turn the call back to Paul.
Paul Gudonis: Thanks Dave. Well we're looking forward to a strong finish to this transformational year as the clarity of reimbursement with Medicare coverage and payments has been a significant inflection point for my IOMO.
Dave Henry: In addition to the continued growth in quarterly revenues in Q4, we continue to build out the O&P distribution channel. In fact, this week we're attending a major regional O&P conference in New Jersey that's being attended by several hundred clinicians and we're scheduling more training classes.
Dave Henry: We also received a very positive comment from a Hangar Clinics executive after participating in one of our recent sessions, telling us that our manufacturer's training was among the best their clinicians have ever experienced, and I'm really proud of our team.
Dave Henry: 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: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: If you are using a speakerphone,
Dave Henry: Please pick up your handset before pressing the keys.
Dave Henry: If at any time your question has been addressed,
Dave Henry: and you would like to withdraw your question.
Dave Henry: please press star then 2.
Dave Henry: At this time, we will pause momentarily.
Speaker Change: Before we turn to your questions, I want to mention that we've participated in several conferences in the past 60 days, including the H.C. Wainwright, Lake Street, and Maxim conferences, and we will be attending the 15th annual Craig Hallam Alpha Select Conference in New York City on November 19th.
Speaker Change: We're also available for virtual and in-person investor meetings, so to arrange a meeting, contact the conference organizer or call Alliance Advisors IR, who can assist you to schedule one. Okay, operator, we're ready for the first question, if you are. Okay. The first question.
Speaker Change: The next question comes from Chase Knickerbocker of Craig Hallam. Go ahead, please.
Chase Knickerbocker: Good afternoon. Thanks for taking the questions and congrats on the great progress here. Just first, just around ASP,
Chase Knickerbocker: What percentage of Part B patients is supplemental insurance or Medicaid kicking in?
Chase Knickerbocker: to kind of pay that last 20%.
Speaker Change: And then I think, kind of just backing up, how are you thinking about ASPs? You know, obviously, almost 53,000, very strong, right around that 80% of your max allowable. Do you think we still have, you know, room to go higher on, kind of, portfolio ASPs? Or should we think about this being, you know, pretty close to the ceiling? Thanks.
Speaker Change: The 52-7 was based on, as I mentioned, the fact that the supplemental payments were received in third quarter off revenue units in the second quarter. Now, when we recognize revenue,
Speaker Change: You're going forward or recognizing revenue and the amount that's expected to be paid
Speaker Change: So there are some.
Speaker Change: believe, and we've made the assessment, that they're going to pay us. So if it's a Motion G, we will go ahead and recognize $64,000 roughly of revenue at delivery. Now in the case of Medicaid, where, you know, we don't have, you know, Medicaid coverage yet, which is something we're working on,
Speaker Change: We will only recognize $51,000.
Speaker Change: where their secondary coverage is Medicaid. So, in all, overall, I would say about 20 to 25%
Speaker Change: of our patients so far have supplemental insurance coverage where we'll take that incremental revenue at delivery.
Speaker Change: as to whether the 52,700 represents something
Speaker Change: Could there be ASP growth in the future? I think that mix of whether these patients have supplemental insurance or not will depend on that. And then once the ONP channel kicks in,
Speaker Change: I think then we might most probably start to see a lowering of the ASP as that mix changes, but that's more of a 2025 issue.
Speaker Change: Makes sense and maybe just kind of going there on the O&P side, you know, great to hear about the progress thus far and what you kind of have planned through the rest of the year. How do you think as far as kind of how quick those O&P providers can start generating revenue? Do you have kind of an idea yet? And then any early thoughts on next year, Paul, as far as what that channel can contribute from a standpoint of kind of your overall volume? Thanks.
Speaker Change: So then maybe over the next month or two they'll have the right patients come into their clinic.
Speaker Change: for an AFO, and they may be a MIOPRO candidate.
Speaker Change: And then I'll evaluate if they're a suitable candidate. They will send that patient to their physician to get the written order, to get all the medical documentation. Our experience with that is it's typically six to eight weeks for a patient to get those appointments, come back for the documentation.
Speaker Change: and that O&P provider has got arranged to do the measurement of that patient's arm to send us the order. So, you know, it's a three to four month process after getting that initial training before we will see those initial orders.
Speaker Change: And then my experience with this channel 2 is that they'll want to first fit that first patient So it might be another 30-40 days later when they fit that patient I want to see how that patient does, they'll want to make sure they got that payment whether it's from Medicare or one of the other private payers
Speaker Change: And so we'll probably see an initial order from these providers over the first six months.
Speaker Change: And then we'll see another order, another order. So we'll start to pick up after that. It's not gonna be a step function, but we are bringing a lot of these OMP clinics into the fold. So I expect we'll start to see an uptake in orders, especially in the first quarter of 2025.
Speaker Change: Got it, and then just you know kind of following up on those on those comments going to the manufacturing side You just confirm that you're still at about kind of 80 units a month as far as production capacity what you're kind of Turning out in your current facility and then kind of how quickly do you think you can get up and running in the new facility?
Speaker Change: And then, I guess, how quickly do you think you'll need that expanded kind of capacity from that new facility, and what do you think you can kind of get out of one shift at this new facility?
Speaker Change: Thank you.
Speaker Change: and we've got a very good plan to start a parallel facility set up in the new Burlington workspace. So we'll start manufacturing there in addition to what we've got here in Boston and then we'll finally migrate all of it by the end of the year.
Speaker Change: So, you know, I expect that, you know, over the next six months, we ought to be able to double capacity based on all the workstations we're putting in place.
Speaker Change: And then after that, we can either add more first shift workstations or consider a second shift. So this new space gives us plenty of flexibility to keep expanding capacity that needs to grow in demand.
Speaker Change: Great, thanks Paul. Well actually, and one other thing too, sorry, we'll also get...
Speaker Change: I think we'll have plenty to meet our needs here as we go into 2025 and beyond. And we've got a total of 13,500 here in Boston, so you see we're basically tripling the space with most of that expansion for manufacturing.
Speaker Change: Operator, do we have another question?
Speaker Change: we do. Our next question is from Scott Henry of AG.
Speaker Change: Peay.
Scott Henry: Thank you, good afternoon, congratulations on continued strong momentum. I'll start at the top of the funnel. New candidate adds 645, obviously a very large number.
Speaker Change: Do you think you can grow it much from there, or you're just trying to get a sense of what capacity is for the top of the funnel?
Speaker Change: The answer is yes, and our plan is to continue growing it.
Speaker Change: by advertising expenditures. We did spend more in advertising in Q3, as Dave mentioned. But we typically cut back on some of the advertising in Q4 just because we're competing until yesterday with the election advertising.
Speaker Change: All the Medicare Advantage plans are still advertising until mid-December and you've got a holiday.
Speaker Change: Spending there as well, so we can serve some of our spending, but we will continue to grow that pipeline
Speaker Change: We've also added in our own direct billing operation, you know, more certified process orthotists.
Speaker Change: We have a dedicated team to evaluate patients online for that initial screening. So Scott, yeah, we plan to continue growing because again, we're at a very early stage of market penetration given the huge number of people that need this myoprolithosis.
Speaker Change: if you take your 4Q number, annualizing it
Scott Henry: You're already at 40 million.
Speaker Change: Any thoughts as to what kind of growth we could see from 2024 to 2025, and also for Dave, should we factor in kind of, you know, Q1 tends to be seasonably a little weaker for a multitude of reasons. Just try to get your thoughts on that year.
Speaker Change: if you will, some of that first quarter seasonality by getting patients into the pipeline so that we can overcome what we typically see is, which is, as Paul mentioned in the fourth quarter, you know, that we don't spend as much on advertising. The pipeline ads are usually down in the fourth quarter, but we wanted to have
Speaker Change: to build up a pipeline to try to compensate for some of that. So it's a little bit early to tell in terms of what...
Speaker Change: If we can actually be able to do that, I think we'll have to go to our...
Speaker Change: and the metrics that we're able to generate, the ads and things like that, and the authorizations and orders. I think I'll need to wait to see on that before I, you know, give any color as to whether we think that we can overcome some of that seasonality in first quarter. And I think, you know,
Speaker Change: In terms of the full year, I'll wait to give guidance until, you know, until March on that, but I certainly sit here and believe that, you know, if we, you know, if we exit fourth quarter on, you know, $10 million, which is the midpoint of our guidance, I think that, you know,
Speaker Change: I think we'd be disappointed if we had less than $40 million of revenue in 2025.
Speaker Change: Thanks, I appreciate that color. Final question, just on the OMP channel, I think Medicare we thought of as kind of a degree of magnitude relative to your base business almost kind of doubled it. How should we think about the peak impact for that OMP channel?
Speaker Change: You say the peak impact, meaning over time? I mean it could be a very large percentage of our total business, because the most orthotic prosthetics products are actually delivered through the O&P channel.
Speaker Change: So, no, we're very optimistic about building this channel up over time. In the meantime, though, we're going to continue to invest in our own direct provider business because we've shown that we have really, over the last five years, built a really good commercial engine that is getting more and more efficient all the time in terms of, you know, the cost per pipeline ad, the ability to move these patients through the process, to deliver high-quality patient care. So, it's a dual growth strategy, the L&P channel plus our direct provider business.
Speaker Change: This question reminds me of a comment you made regarding Hanger.
Speaker Change: because I think you had a conversation and they mentioned how many AFOs they might deliver in a year.
Speaker Change: There's a good number of those people who get AFOs from Hangar that may be candidates for a mile trial. And I think that could be a very sizable number, you know, that could be in the thousands per year, just from Hangar. That's right.
Speaker Change: Okay, great. Appreciate the color on that. And thank you for taking the questions.
Speaker Change: Thank you, Scott.
Speaker Change: The next question comes from
Speaker Change: This question comes from Anthony Vendetti of Massachusetts.
Speaker Change: some group. Go ahead, please.
Anthony Vendetti: Sure, thank you. You have 316 units in backlog as of September 30th, which is up.
Anthony Vendetti: and then, you know, when it should be recognized, approximately, over what time period.
Speaker Change: Yeah, so...
Speaker Change: Thank you.
Speaker Change: As you know, the 316, some of those patients will drop out of backlog. It always happens typically.
Speaker Change: that percentage is somewhere around 15-20% will drop out.
Speaker Change: 250 remain and if the value of that backlog is the ASP just say $50,000 so you're you know you have a you have a value sort of a net value I'll say of over ten million dollars
Speaker Change: And it usually gets realized over the next three to six months.
Speaker Change: typically the way you know our backlog will be realized about 35 to 40 percent is will turn into revenue one quarter out.
Speaker Change: and then you know decreasing percentage from there. It depends on you know the number of Medicare Advantage payers that are in the backlog and how long it takes you know to get reimbursement and things like that.
Speaker Change: You know, as you've been ramping up, how many direct sales people do you have now and how many do you hope to have by the end of this year?
Speaker Change: Well remember as a clinical services
Speaker Change: We really don't have direct sales people.
Speaker Change: We have clinicians, so these are licensed CPOs.
Speaker Change: who will then evaluate an interest in patients. We generate that patient demand primarily through the social media, some television advertising, clinical referrals from doctors and therapists.
Speaker Change: So they're not really salespeople, they're just clinicians who are evaluating those patients.
Speaker Change: And then after we get the green light to go ahead and fit them, they will do the fitting and then we'll just build those stations. On the O&P Channel side, we've got two business development representatives.
Speaker Change: So their job is to recruit these OMP providers, get them excited about becoming a certified center of excellence.
Speaker Change: Okay so you have two of those on the OMP side and how many clinical specialists? Yes we've got ten plus we just hired a couple more so I'll call it a dozen right now and in the field across the country.
Speaker Change: Excellent. And then obviously you have a huge opportunity here in the U.S.
Speaker Change: Can you talk about, you know, your international plans, whether that's, you know, something you're looking at ramping now or, you know, sometime in 25, or is that more like a 26?
Speaker Change: plan.
Speaker Change: Well, we continue to plan to ramp up, especially our operations in Germany, because we're succeeding there. It's a good-sized market. Reimbursement is good with the statuary health insurance companies. We've got a network of over 100 O&P providers.
Speaker Change: already trained there, and so we're adding our own staff there to support these O&P providers. We're basically doubling down there in Germany. We're looking at other markets. You know, it's typically a two- to three-year process with a new market. Let's say France, for example.
Speaker Change: Italy you'd have to you have to put some boots on the ground you have to meet with the regulators you have to meet with the insurance company medical directors similar to what we had to do in Germany originally what we have to do here in the US with payers and CMS
Speaker Change: So, I think we're going to defer that until we're in a bigger position, revenue-wise, and can afford to make that investment, which again, it pays off, but it's about two to three years of investment to get there.
Speaker Change: Okay, so the focus, because you've been in Germany, will be to continue to build that out, the U.S., and then it sounds like maybe France and Italy would be next, but that's a two to three year process to get that built out and ready to go.
Speaker Change: In the meantime, we're cheering on our China Joint Venture partners. They're starting to get the necessary NMPA approval, so hopefully they'll start generating revenue in 2025 and then associated license fees back to us.
Speaker Change: Okay and then last question on the R&D front, any...
Speaker Change: or modifications to the current brace that's out there.
Speaker Change: Yes, we've been expanding our R&D staff.
Speaker Change: and we've been working on new enhancements in Myo Pro 2 Plus.
Speaker Change: We've taken them out in all at-home trials.
Speaker Change: with patients, and we got some good feedback to, hey, make these other changes. So I said, you know what, rather than introducing product enhancements right now, let's push that out a bit because I'd rather put in those additional features. Also, it broadens the number of people who might be qualified for Myochrome. And so you'll see some announcements of that probably in Q1 of 2025.
Speaker Change: Excellent. Thanks for all that color. I appreciate it. I'll hop back in the queue. Thanks Anthony.
Speaker Change: The next question comes from Ben Hanor of Lake Street Capital Markets. Go ahead, please.
Ben Hanor: Good afternoon, gentlemen. Thanks for taking the questions. First off, congrats on getting the 100 O&P clinicians trained up and, you know, obviously the high praise they received there, that's definitely encouraging. Can you talk a little bit about maybe what the demand looks like for more O&P clinicians to get trained? I mean, how quickly can you train, you know, the next 100 and the next 100 beyond that? You know, just any thoughts there would be helpful.
Speaker Change: Sure. Well, one of the reasons we invested in creating the Myomo Academy is an online learning platform.
Speaker Change: So that clinicians who are interested, they sign a contract with us, they have access to that, and they can start to do this learning online. And we do online classes for these individuals so that they can start that evaluation process.
Speaker Change: We'll team up by sending our clinicians to go with them to evaluate patients, to do in-service presentations at various rehab hospitals.
Speaker Change: and we have a plan for a number of classes in the new year. So as we see more and more demand, you know, our team, as I said, is in New Jersey at this regional conference this week. You know, if there's more and more demand, you know, we can keep growing the team that's associated with that O&P channel because I really want to develop it.
Speaker Change: makes sense. And then what goes into them ultimately becoming Center of Excellence, you know, the initial training online, you know, then kind of what's the procedure, what happens after that to get to that Center of Excellence sort of level?
Speaker Change: Well, it's an important investment from them because it takes three days for one of these CPOs to become qualified to deliver a MyoPro, so they learn about the evaluation process.
Speaker Change: Then they learn to do what we call a shape capture to measure the arm and hand because again every patient is unique.
Speaker Change: And then after they place their order, we'll make sure that we assist them in terms of the delivery of the product so they have that hands-on training with the patient as well. And then there's the follow-up care. So it's a three-day program, which means they have to be out of clinic for three days.
Speaker Change: So, you know, they understand that that's the investment they have to make, but in return, you know, they can earn that Medicare allowable for every Medicare patient that they see and put into a minor program.
Speaker Change: That's helpful. And then lastly for me on the Q4 guidance, does that have anything factored in from the ONP channel or would that be kind of pure upside?
Speaker Change: Yeah, I think the assumption is that sort of the typical rate that we see the ONP channel is only
Speaker Change: with 3% of revenue.
Speaker Change: in the third quarter. So, you know, we've talked about the O&P Channel being more of a 2025 thing, so that's what our assumption is in the fourth quarter.
Speaker Change: Okay, got it. Well, thanks for taking the questions, gentlemen, and congrats on all the progress.
Speaker Change: The next question is,
Speaker Change: Wu of Ascendian Capital. Go ahead, please.
Wu: Yeah, congratulations on the quarter. My question is, as you guys move into the new facility, how much more operating leverage can you get in your business?
Speaker Change: I think I mean we'll have we will have to pay a higher rental of course so we'll have to sort of absorb that before we and just more space you know and more more more lease dollars but so we'll have to absorb that before we get
Wu: leverage, but that shouldn't be too, too hard. And if we're doubling the capacity, I think that if we can get up to those kinds of numbers, then sure, we'll be generating a fairly good incremental operating income from what we're doing. Particularly, I think as we,
Wu: You know, there will be more leverage, I think, from...
Wu: Even though the ASP will be lower, I think because we don't have to spend incremental advertising dollars and clinical dollars for an O&P patient, we'll be really looking to see that channel grow as well in combination with the volume growth to really drive that leverage that we're looking for.
Speaker Change: As you expand your volume and capacity, is there opportunities for gross margin expansion?
Speaker Change: The gross margins, where they're in the mid-70s now, low to mid-70s, they may go down below 70% as the O&P channel becomes more prevalent because the ASP will be lower. But then again, I think there shouldn't be as much incremental OPEX required to serve that channel. So I think it's...
Wu: It's possible that that channel is operating margin accretive as we go forward.
Wu: And so that's sort of the operating model that we would like to see. So again, I think with the channel, you could see gross margin dilution a bit with that channel, but potentially operating margin accretion.
Wu: Great, well thanks for answering my questions and I wish you guys good luck. Thank you. Thank you. Thanks, Edward.
Speaker Change: We are out of time, and therefore this concludes our question and answer session. I would like to turn the conference back over to Paul Gudonis, Chairman and CEO, for any closing remarks.
Paul Gudonis: Well thank you operator. Well in closing I'd like to remind you that we are in the business of patient care. There's no better proof to that than success stories.
Speaker Change: One of our recent MyoPro recipients is a 50-year-old female who suffered a stroke in 2020. She lost the ability to use her dominant right arm and hand, and she was evaluated for MyoPro back in August 2023.
Speaker Change: She's become a rockstar user who performs many activities of daily living such as cooking, feeding herself, doing the laundry, and more, thanks to her MyoPro.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.