Good day, and welcome to the Myomo, Inc. Q2 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by 0 . After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then 1 on your touch tone phone, and to withdraw your question, please press Star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ms. Kim Golodetz. Please go ahead, ma'am.
Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo Q2 2022 Conference Call. Earlier today, Myomo issued a news release announcing financial results for the three and six months ended June 30, 2022. 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 in New York 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, including the impact of COVID-19. These and additional risks, uncertainties, and other factors are discussed in the risk factors and other qualifications contained in Myomo's filings with the Securities and Exchange Commission, including the Form 10-Q for the quarter ended June 30, 2022, 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 CEO, Paul Gudonis. Paul, please go ahead.
Thank you, Kim. Good afternoon, everyone, and thank you for joining us. One of my goals for 2022 is to accelerate Myomo's momentum in serving the needs of those with upper extremity impairment or paralysis. This population with chronic arm paralysis is significant and growing due to the 800,000 strokes annually just in the United States, many of whom are left unable to use their arms and hands. This patient population is joined by the thousands of accident victims who are left with arm and hand paralysis. Our addressable market is significant, it's largely untapped, and it's growing. Since we have strict inclusion and exclusion criteria, not all these individuals are candidates for our MyoPro device.
Yet for the first half of this year, we've added nearly 800 medically qualified candidates to our patient pipeline, including a record 420 added during the Q2 . We expect that in 2022, we will add the largest number of candidates to the pipeline in the company's history, and our pipeline is a good indicator of future revenue as we obtain insurance authorizations and deliver MyoPro devices to these patients. Of note, for the first time, we have more than 1,000 candidates in the reimbursement process awaiting approval for their devices. We're educating these patients to the benefits of the MyoPro through a combination of internet marketing, social media, clinical in-services, clinician referrals, and new advertising on television, which was launched early in the Q2 . By adjusting our media mix, our marketing communications are becoming more cost-effective.
We're also diversifying our advertising efforts and continue to advertise on digital platforms such as Facebook, which has resulted in lower costs per lead. In fact, our cost per pipeline ad has been cut in half since costs peaked several months ago. At the same time, our lead generation has been growing, which has contributed to the significant increase in our pipeline additions. Once a patient is in the insurance pre-authorization process, our patient advocacy team secures the payment commitment. In the Q2 , we received authorizations with a potential revenue value of $4 million from payers, including orders from VA medical centers and orthotics and prosthetics clinics in the U.S. and overseas.
Our team also added to the roster of insurance plans that now cover their first MyoPro, such as Blue Cross Blue Shield plans in Texas and Kansas, and new Medicare Advantage plans such as Highmark, Blue Cross Blue Shield, and several others across the country. We saw an increase in the number of authorizations in the Q2 from a major Medicare Advantage plan that had reduced access for some of their beneficiaries starting late last year. In addition, we saw an accelerated payment cycle with this insurer in the Q2 , and we continue to serve patients covered by this and other Medicare Advantage payers. The direct billing channel represented 83% of our revenue in the quarter, which led to a record average selling price of $46,000 per unit.
This ASP is a result of the favorable channel mix as well as our ability to negotiate higher reimbursements in certain cases. Product revenue for the quarter was $3.7 million, which is up 18% from the same period a year ago. We're still waiting for the second license payment from our joint venture in China, which has been delayed due to the COVID-19 outbreak in cities such as Beijing, where our joint venture partner, Ryzur Medical, is located. Until this payment is received, we're not providing any technology or know-how to support the JV's operational startup. Earlier this year, we began shipping the new MyoPro 2+ version of our product line. Because this product is custom fabricated in-house, we're reducing our supply chain risk, and we can ramp up production to meet the growing demand.
Our international business is largest in Germany, which is a very supportive reimbursement environment through statutory health insurance, which covers about 95% of the population. Our international business added a significant number of new patient candidates into the pipeline as well, and we expect our international revenues to double year-over-year in 2022. In June, we presented our case at the CMS public hearing to have our benefit category changed from DME rental to a brace or orthosis, which would make the MyoPro available to Medicare Part B patients who don't have access to our device today. I'm pleased with the effort our team put into what I and other industry experts believe was a very compelling case. Our expectation is to receive feedback in the coming months.
Although we're confident in what we presented to CMS, we can't predict what the outcome or the timing of our appeal would be. CMS did recently issue a roadmap for states to help connect children with complex medical conditions to critical Medicaid services. While we're still awaiting the details on this program, I'm pleased to see the federal government's increased commitments to specialized healthcare for children with complex conditions. Children with cerebral palsy and other indications which may have resulted in upper extremity impairment could be served by our upcoming MyoPal pediatric device, and this program may increase access to our technology. We'll be watching for the details of this program to see how it applies to our patient population. Now I'll turn the call over to Dave Henry to review our Q2 financial results in more detail.
I'll come back and provide some additional comments before taking your questions. Dave?
Thank you, Paul, and good afternoon, everyone. Turning now to our Q2 financial results. Revenue for the Q2 of 2022 was $3.7 million, which was up 18% over the prior year quarter. Q2 revenue was comprised solely of product revenue. The direct billing channel accounted for 83% of revenue, up from 73% of revenue in the year ago period and 65% of product revenue in the Q1 . This channel shift contributed to a higher average selling price. International sales were 9% of revenue in the Q2 , with the remainder from the VA and US O&P channels. We recognized revenue on 80 MyoPro units in the quarter, unchanged from a year ago, but up 13% sequentially.
Backlog, which represents insurance authorizations and orders received but not yet converted to revenue, was 163 units at quarter end. This is up 2% over both the prior year and March 31, 2022 backlogs, both of which stood at 160 units. Gross margin for the Q2 of 2022 was 65.5%, compared with 71% in the Q2 a year ago. The decrease was driven by higher material and fitting costs in the current inflationary environment and unabsorbed overhead, partially offset by higher ASP. Operating expenses for the Q2 of 2022 were $5.3 million. This is up 10% compared with the same quarter a year ago and primarily reflects higher compensation, payroll, and advertising costs. Advertising costs of $1 million increased 34% year-over-year.
However, as Paul mentioned, our patient acquisition costs continued to improve as cost per pipeline ad declined 7% sequentially to approximately $2,470, which is approximately half the cost in the fourth quarter of 2021. In the coming quarters, our objective is to lower the cost per pipeline ad to $2,000 through expanded television and organic advertising, as well as reengaging with patients we had to place on hold in earlier periods. Our operating loss for the Q2 of 2022 increased to $2.9 million from $2.6 million a year ago. Net loss for the Q2 of 2022 was $2.9 million or $0.42 per share, compared with a net loss of $2.6 million or $0.46 per share for the Q2 of 2021.
Adjusted EBITDA for the Q2 of 2022 was negative $2.5 million, and this compares with negative $2.2 million for the Q2 of 2021. Looking at our year-to-date financial results, revenue for the six months ended June 30, 2022 was $7.5 million, up 39% compared with the same period a year ago. Excluding the partial joint venture license payment received in the Q1 of 2022, year-to-date product revenue of $6.5 million was up 20% over the same period last year. Year-to-date gross margin was 66.1%, compared with 72% in the year ago period. Again, due to higher material and other costs in the current year period, somewhat offset by higher ASP and 100% margin license revenue.
Year-to-date operating loss was $5.6 million, compared with $5.5 million for the same period a year ago. Net loss for the first 6 months of 2022 was $5.7 million or $0.83 per share, compared with a net loss of $5.6 million or $1.03 per share for the year ago period. Year-to-date adjusted EBITDA was negative $4.9 million for both 6-month periods. Turning briefly to our balance sheet. Cash and cash equivalents as of June 30, 2022 were $10.2 million, and this compares with $12.9 million as of March 31, 2022. Cash used by operations was $2.6 million in the quarter. Subsequent to the close of the quarter, we entered into a $5 million equity line of credit with Keystone Capital.
Under the equity line, Keystone is committed to purchase a minimum of approximately 1.4 million shares, representing approximately $2.3 million of committed capital at the current stock price. Purchasing more than this minimum amount up to the full $5 million will be dependent on whether purchases are above market according to New York Stock Exchange rules or we obtain shareholder approval. As part of our due diligence activities, Keystone was highlighted to us as an excellent long-term financing partner. The purpose for entering into the equity line is to ensure we have sufficient cash plus committed capital to fund operations for at least the next 12 months. In conjunction with entering into the equity line, we reduced our capacity under our ATM to $300,000 in order to stay within limits set forth under the so-called baby shelf rules.
As a result, our capacity to raise additional capital under our existing shelf registration statement is unchanged. In effect, we substituted capacity under our ATM for the equity line. As a final topic, I'll provide some forward-looking commentary. Given the size of the backlog, we have the opportunity to grow revenue on a sequential basis in the Q3 . However, our expectation is that product revenue in the Q3 will be lower on a year-over-year basis. Profile of the backlog suggests lower ASP in the Q3 compared to the Q2 . Therefore, sequential revenue growth is expected to be volume driven through a combination of higher backlog conversion and a higher number of fill units. We're pleased with the execution of our team so far this year.
The results of supply chain challenges we experienced in the Q4 and the transition to in-house manufacturing has gone well. Use of our remote measurement capability is increasing in frequency. With respect to reimbursement, the large insurance payer that unexpectedly started denying claims post-delivery and required us to utilize the appeals process for reimbursement began paying these claims faster during the Q2 , and authorizations are picking up, as Paul mentioned. Finally, our revised marketing strategy is starting to bear fruit, resulting in record pipeline adds for significantly lower patient acquisition costs versus the start of the year.
Our focus for the remainder of the year, as it has been for the first six months, is on growing the pipeline at a lower cost per pipeline add and increasing yield to realize a greater number of revenue units per lead that we generate in order to position the company for stronger revenue growth in 2023. With that financial overview, I'll turn the call back to Paul.
Thank you, Dave. In my shareholder letter this past spring, I laid out six goals for the company in 2022. Number 1, accelerate our pipeline growth and do so at a lower cost per pipeline add. Number 2, broaden the number of insurance plans that will cover MyoPro. Number 3, conduct additional clinical research in order to be in position to provide this data to insurers and CMS, if requested, in support of a coverage policy. In the case of commercial insurers, contracts to provide the MyoPro to their beneficiaries. 4, utilize digital technologies to reduce costs and cycle time. Number 5, expand our international business into new markets. 6, restart development of the MyoPal device for pediatric patients.
I'm pleased to inform you that we are executing on each of these initiatives as we build upon our position of market leadership and grow Myomo into a larger, profitable company that will ably serve this large and growing patient population for years to come. This concludes the formal part of our presentation. Operator, we're now ready to open the call to questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press Star then 1 on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then 2 . At this time, we'll pause momentarily to assemble our roster.
Before we take the first question, I want to mention that we are available for virtual and in-person investor meetings, so please contact LHA Investor Relations to set up a time. Okay, operator, we're ready for the first question whenever you are.
Yes, sir. The first question will come from Ben Haynor with Alliance Global Partners. Please go ahead.
Good afternoon, gentlemen. Thanks for taking the question. First off for me, you mentioned in the prepared remarks the goal to lower the cost per pipeline add to about $2,000. You also talked about part of that improvement being due to re-engagement of patients. How much of the reduction is, do you think, going to be due to re-engagement versus, you know, just kinda better conversion rates, you know, et cetera?
Ben, it's Paul here. Most of the new pipeline is coming from the new advertising that we're doing. As I mentioned. We diversified the advertising beyond Facebook, Google Ads and kind of those traditional digital media platforms, and have started TV advertising in selected metro markets. We're now starting to pilot national cable TV in certain channels. We're seeing that has led to an increase in number of leads that we're getting, the number of hits to the website. We still engage past patients who have contacted us maybe last fall during the holiday season. They weren't ready to engage and go through the process of going to their doctor, getting a letter of medical necessity and so on. We do engage with some of those. You know, most of the patients come from the new lead flow that we're generating every week.
Okay, that makes sense. Do you have kind of a sense of what the cost for, you know, a TV lead versus a Facebook lead versus, you know, whatever channel lead is at the moment, or is it too early to tell?
It's still a couple weeks early. We've just been doing it for, you know, 6-8 weeks, you know, starting in the beginning of the Q2 . I would tell you, we're really pleased that we're seeing a lot of pickup by patients and family members 'cause the product shows so well visually. Somebody sees a video of a patient that looks like them, who's had a stroke or other type of injury, moving their arm, carrying objects, cooking for their family and so on. We've got a 24/7 call center that picks up those leads. We're pretty pleased with the cost per lead from TV advertising so far.
Okay, great. Then on the cost front, you know, just, you know, are there more levers that you can pull there? I mean, I know the ASP was a record here in this quarter, but, you know, it wasn't a gross margin record. Or is it, you know? Are there certain components that you don't expect the price to decline on or labor? What's the right way to think about potential for greater gross margins in the future?
Yeah, I think Ben, this is Dave. I think you know, it's heartening that we are seeing costs increase for many components, you know, what comes to top of my mind is like you know, we provide a laptop with every MyoPro that includes our MyConfig software on it, you know, for the patient. It allows them to track the progress. You know, laptops are more expensive. It's more expensive for our clinicians to go out and see patients and fit the device. You know, I mean, travel costs, you know. There are things I don't think a lot of these increases are permanent.
I think that as you know the economy ebbs and flows, I think we'll start to receive relief on some of these things. But we're also you know we're constantly working on you know improvements and things that we can do thinking about other ways to make the device cheaper. To answer your question, I don't believe that a lot of the cost increases we're seeing are permanent. They're just sort of as a result of the environment. As this environment sort of normalizes itself you know and things and the demand side of things and the supply side of things start to even out a bit more, I think we'll start to receive some relief on that.
Okay. That makes sense. That's it for me, gentlemen. Thanks for taking the questions.
The next question will come from Scott Henry with Roth Capital. Please go ahead.
Thank you and good afternoon. You know, just looking at the numbers, what jumps out at me is the authorization rate from the cumulative pipeline, you know, converting it to authorizations had been 15% in Q2 and Q3 of last year, dipped down to, I think, 11%, depending what numbers you use, 12% Q1 and 11% in Q2. Do you think that number, is it low right now? Do you expect it to bounce back or, you know, is that the right number? It just seems like that has a pretty big factor in, you know, where the numbers are gonna be in the next several quarters. Thank you.
Well, one way to look at, Scott, one way to look at that is, you know, you're looking at the numerator, the number of authorizations, compared to the denominator being the size of the pipeline at the end of the previous quarter. As that denominator grows, and you can see it's been growing very much so in the last six months, you know, basically getting authorizations, the division is being looked at over a larger denominator, which then reduces that percentage. My way of looking at it is putting more into the pipeline, you know, by getting our historical authorization rate over time, more pipeline turns into more overall net authorizations.
Okay. Now, that's all true, but, you know, when we model it, we wanna think about converting, because obviously, if that denominator just keeps getting bigger, you know, perhaps some of those leads aren't as fresh. I mean, I guess I'll go back to the original question. Do you think that true number is gonna be closer to 15% or 11%?
Yeah, Paul or Scott, this is Dave. It's been hovering in the range of 10%-15%, and I think, you know, what we're trying to do through these yield improvement efforts, which are, you know, just, you know, I would term them sort of, you know, we're six months into the year, and there's a lot of things that we're working on to try to improve that number.
I would say that we're not satisfied with 11%, and we're looking to get, you know, the range, as you mentioned, you know, it's been in the 10%-15% range, and we would like to see that number go up through as a result of some of those things that we've been working on and some of the changes that we've made, you know, adding, you know, putting, you know, patient navigators into, you know, defining that role in the company and, you know, which I kinda term as a Sherpa for the patient to guide them through the process and help to keep them engaged longer so they don't drop out. All of those things, those are other things that we're working on, and our objective is to see that number grow, that authorization rate grow over time.
Okay. All right. Thank you. That's helpful. It gives me a sense of how I should think about it. A couple other numbers were pretty strong this quarter, and I just wanted to get your sense of, you know, was it a blowout quarter or should we expect them to continue? The two numbers being, obviously, the pipeline adds of 420 was very big. How should we think about that relatively going forward? Number two, the ASP was higher than it's ever been. You know, for the most part, that number trends up and to the right. But you know, is there any reason to think that it may. You know, that might have been a spike in that quarter?
I'll talk to the ASP first, and off the top of my head. I think in our prepared comments, you know, we got an uplift in ASP because we had a higher mix of direct billing revenue in the quarter is 83% of our revenue is direct billing. Last quarter was like 65%. Direct billing mix does have an impact. I mentioned in the prepared remarks that based on the profile of the backlog, you know, it's my belief that we'll probably see a lower ASP in the Q2 or, sorry, in the Q3 compared to the Q2 .
I think ASP will depend on the profile of the backlog and how much we ultimately realize in a quarter, you know, when we look at, you know, the channel mix, direct billing versus the other channels. You know, we are doing you know we have every time you know every time we discuss with an insurance company a single case agreement, particularly with newer payers, you know, we're trying to obtain as much reimbursement as we can. You know, we've got a you know a reimbursement team, a payer relations team that's all they do, is tasked with trying to increase the ASP. Now, having said all that, what was the first thing? The additions, the pipeline additions?
The $4.20.
Yeah.
How should we think about that going forward? I know you have this, you know, this crazy November election, which is gonna kind of probably create some issues as well.
Yeah. I mean, we're gonna do our best to continue to grow the pipeline additions and the pipeline itself because, you know, that correlates to future revenue growth. We're looking ahead to 2023, and we wanna set ourselves up for a strong 2023. The things that we're doing now are what's gonna define what 2023 looks like.
Okay, great. I did have a couple other questions. Have you had any meetings with commercial insurers about contracting for the device?
No, not yet, Scott. We have requested meetings. A lot of the insurers wanna see, well, what is CMS, Medicare Part D gonna do? That's why that was a very important meeting that we attended, a public meeting on June 8 . We're waiting for an outcome of that meeting because, as you know, a lot of the commercial contracting often follows Medicare. We haven't been able to have any of those meetings, and that's why we're waiting for this Medicare Part D decision.
Okay. Thank you. And then the final question, just on the gross margin. Or, I might ask one more after this, but, and I know you hit this in your prepared remarks a little bit, but, maybe I might ask it a little different. Gross margin in the second half of 2021 was kind of in the mid-70s%. In the first half of 2022, it was in the mid-60s%. You know, what do you think is the better go forward gross margin? What do you think is more indicative?
Yeah, I would say, you know, gross margin in the 65%-70% range. You have to remember, too, that in Q1 , we had a larger number of deliveries to patients than we actually recognized revenue on. That has a negative effect on backlog. There'll be quarters when that happens, and there'll be quarters when the reverse happens, when we have more revenue units than deliveries, just the way the timing works out. There is some, you know, variability to gross margin that is built in because of that.
I think if you strip that away and just look at, you know, the entitlement gross margin on a quarter-to-quarter basis, assuming that we continue to, you know, improve operations, grow revenues, which will improve absorption. You know, I think, you know, 65%-70%, you know, the way the business is right now with the cost structure right now is, I think, a good way to think about it.
Okay. Thank you. That's helpful. Now the final question. Shares outstanding, and I know you talked about this, but I didn't get it all. This Keystone ELOC, how is that gonna hit the income statement, you know. When is that gonna hit the income statement, and about how many shares did you say they were gonna take down?
Well, the commitment is for up to 19.99% of our outstanding, which is about 1.4 million. We have just over 7 million shares outstanding. Under the ELOC, I know you know how these things work. You know, it's Keystone is committed to purchase, but you know, the company is not required to sell. You know, we pick and choose the timing at which we sell. You know, we haven't sold anything with them yet. We just entered into it. We haven't sold under the ATM anything so far this year. You know, the stock price is too low.
We're hoping that as we continue to execute and we continue to do the things we're saying we're trying to do by growing the pipeline and ultimately that translates into a higher backlog and higher revenues, that the stock price will take care of itself. If CMS helps us out with changing our benefit category to a brace, you know, that will help things as well. Right now we're not committed to doing anything other than we you know we have the ELOC in place, but we're not required to use it at any given time.
Okay. Great. Thank you for taking all the questions.
Yeah. Thank you, Scott.
The next question will come from Jim Sidoti with Sidoti & Company. Please go ahead.
Hi, good afternoon. Thanks for taking the question. Just one for me. How are international sales in the quarter and, you know, relative to total sales, and how did that compare to a year ago?
International revenue was 9% of sales. It was roughly the same, I would say. You know, the international half, setting aside Q1 , last Q1 , which was 20%, international has historically been in sort of the 10% range. We've returned to that mean in the Q2 , which is fairly consistent with where we were a year ago.
Jim, as I mentioned in my remarks.
With the overall revenue higher, international revenue did grow year-over-year, just in dollars.
Yeah. We expect as, Jim, as I said, that the international business, coming off of a smaller base, should double this year based on the pipeline we have there, primarily in Germany.
Right. Okay. All right. That was it for me. Thank you.
Again, if you have a question, please press star then one. Our next question will come from Ed Woo with Ascendiant Capital. Please go ahead.
Yeah. Congratulations on the quarter. Just following up on international sales. You know, congratulations on being able to expect to double revenue this year. What are you guys doing, you know, that's really driving the growth? Do you think that, you know, you guys have a long runway to continue this, you know, over the next several years?
I think the international market is very promising for us. If you look at Germany alone, you know, with a population of over 80 million, you know, it's a market about 30% of the size of the United States. It's very much a good reimbursement market. They really like to take care of their citizens with the statutory health government insurance plans. They like high tech products, and we've got a good team on the ground. We've actually expanded that team to provide more business development capability, more clinical trainers. We have 52 orthotics and prosthetics clinics that are in network with these insurance companies there. We work through them. And again, that business is growing well.
We just added a new distributor, sales agent up in the U.K. Australia is starting to place orders after coming out of COVID lockdown. I'm looking forward to getting the second payment from China so we can get that part of the business going as well.
Just to make sure everyone's aware. International revenue, as I mentioned, was about 9% of revenue in the Q2 . Year-over-year, international revenue was up about 12%.
Great. Obviously, you're having a lot of traction in Germany. Are there other EU countries that are very similar or are the markets unique to Germany?
Well, we're focusing on Germany just because we've got the best distribution system there, the best reimbursement environment. We're always talking to, you know, other potential O&P, orthotics and prosthetics partners. You know, when you enter a new country, you've got to make sure you can get any regulatory approvals that are required, but also the reimbursement process. You know, as we've seen in the U.S. and in Germany, it can take a couple of years to get the product established in those markets. What we've decided to do is, since we're well established now in Germany with reimbursement, let's just do more of that in Germany and serve more patients there primarily.
Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you.
Thank you, Ed.
This concludes our question- and- answer session. I would like to turn the conference back over to Mr. Paul Gudonis for any closing remarks. Please go ahead.
Yeah. Thank you, operator. Well, in closing, Myomo provides an essential product for people suffering from neurological disorders and upper limb paralysis, and we're confident in our ability to continue to reach these patients, receive buy-in from payers, and ultimately from Medicare Part B and additional state Medicaid plans as well. Once again, thank you for your time and interest in Myomo. Have a good evening.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.