Myomo, Inc. (AMEX:MYO) Q1 2024 Earnings Call Transcript May 8, 2024
Myomo, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Myomo First Quarter 2024 Earnings Conference Call. All participants are in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kim Golodetz. Please go ahead.
Kim Golodetz: Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. 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 31, 2024. If you would like to be added to the company’s e-mail 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. 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. 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 Myomo’s business, financial condition and operating results. These 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 these forward-looking statements.
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’s CEO, Paul Gudonis. Paul, please go ahead.
Paul Gudonis: Thanks, Kim. Good afternoon, everyone. 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 how this expanding opportunity to serve individuals with paralyzed arms as we go forward. On January 1, 2024, the 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 prosthetics devices that are designed for long-term use in the home. Then on April 1, the new pricing determined by CMS went into effect with reimbursement for the MyoPro Motion-G at 65,872 and the MyoPro Motion-W at 33,481. These decisions by CMS opened 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 on reimbursement, we are not able to provide a MyoPro to traditional Medicare patients and approximately half of seniors in the United States are covered by standard Part B Medicare. Most of the others are enrolled in a Medicare Advantage plan where we’ve had mixed results with the payers.
So here’s how we are operating our business based on this new Medicare access. To begin with, for the first time ever, we do not have to turn away prospects that had Part B insurance as we’ve had to do so for the last 10 years, instead we worked with our 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. Second, 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 to qualify them. As a result, we had a total of 83 qualified patients in the backlog as of March 31. 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 1, but we’ve been informed that a number have already been authorized for payments. All 4 DME MAC regions have approved MyoPro claims and are processing them on a lump-sum basis per the published pricing. We’re also pleased to learn that one of O&P channel partners has also been reimbursed at these rates for their 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.
We’ve hired approximately 20 professionals through March 31, 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. Now CMS is finalizing and publishing their reimbursement fees for the MyoPro, our revenue grew 9% over Q1 2023 to $3.8 million. Our expectation was for a slightly higher revenue number and a couple of factors affected our results. First, for some Medicare units that were delivered in Q1, the timing of payments was not as expected. Second, DME MACs paid less than the CMS proposed fee on lump sum deliveries made between January 1, 2024 and March 31, 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 DME 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. 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 patients or receipt of the claim payment. This backlog includes these Part B patients, and the overall backlog is up by 56% year-over-year. We also added a record 493 patients into the pipeline in the quarter and we ended with over 1,100 candidates in the process of obtaining a MyoPro, 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.
Dave 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 consisted entirely of 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 2023 first quarter, offset by a lower average selling price, or ASP. 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 that were lower than the published fees. The payments that pushed out are expected during the second quarter.
Revenue in the first quarter includes payments received on 17 Medicare lump sum Part B claims from deliveries after January 1, 2024. All of these paid claims were under payments compared to the final fees posted by CMS, which became effective as of April 1, 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 DME MAC regions for payments for MyoPro deliveries made after April 1, 2024, that are in line with the published fee schedule. 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 where we are able to recognize revenue at delivery compared with 70% in the year ago quarter. 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. We’re seeing a slowing in growth of authorizations from Medicare Advantage plans.
Some of this is due to reorienting our clinical capacity for Medicare Part B patients, which began in the fourth quarter of 2023 and some may be due to utilization management efforts of Medicare Advantage payers as reported by other payees across the healthcare spectrum. We’ll be watching closely in the coming quarters to see if the newly published fees by CMS increases Medicare Advantage authorizations since these plans are now required to cover the MyoPro so long as medical necessity can be established. In the first quarter of 2024, we continued efforts to fill the pipeline and backlog of 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 being qualified for delivery based on our inclusion criteria. 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 first quarter 2023. 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 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 authorizations orders and other additions to the backlog in the first quarter, which was up 48% over the prior year quarter.
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 — for 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. Gross margin for the first quarter of 2024 was 61.2% compared with 67% for the prior year quarter. A 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 completion of certain sustaining engineering projects and higher advertising expense.
Our cost per pipeline add 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. Net loss for the first quarter of 2024 was $3.8 million, or $0.10 per share. This compares to the net loss of $2.6 million, or $0.11 per share, for the first quarter of 2023. 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 prefunded 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.
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. Turning now to our cash position. Cash, cash equivalents and short-term investments as of March 31, 2024 were $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. I’ll close my comments with a review of our financial guidance. Given our backlog, we believe we’re positioned to generate in excess of $5 million of revenue in the second quarter.
We call that 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 cost of goods sold at that time while recording revenue and payment. Cash used for operations is expected to be higher in the second quarter due to 2023 incentive compensation payments that 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 target of cash flow breakeven 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 were no supply chain disruptions or other unusual events.
With that financial overview, I’ll turn the call back to Paul.
Paul Gudonis: Thanks, Dave. While 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 O&P clinics to provide the MyoPros to patients in their practices. Only 4% of our product revenue came from U.S. O&P channel partners in calendar year 2023, and 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 an ankle foot orthosis, or AFO.
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 the MyoPro in the past since these payers are required to cover Medicare covers the long as the patient meets the medical necessity and inclusion exclusion criteria. Many of these Medicare Advantage operators are under increasing scrutiny for refusing to preauthorized medical procedures, and we will be engaging with them to enact more favorable coverage policies for the MyoPro. 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 OTWorld Conference in Germany this month, to assist our team in recruiting additional O&P 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?
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