Welcome to the Myomo, Incorporated's third quarter 2022 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal conference specialist or press the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to Ms. Kim Golodetz. Please go ahead.
Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo third quarter of 2022 conference call. Earlier today, Myomo issued a news release announcing financial results for the three and nine months ending September 30th, 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 or 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 additional risks, uncertainties and other factors are discussed in Myomo's filings with the Securities and Exchange Commission, including Form 10-Q for the quarter ended September 30th, 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's now my pleasure to turn the call over to Myomo's CEO, Paul Gudonis. Paul, please go ahead.
Thank you, Kim, and good afternoon, everyone. Thanks for joining us. Our product revenue for the third quarter of 2022 was $4 million, up 8% sequentially compared with $4.4 million last year. As I'll discuss, we made continued excellent progress in laying the foundation for solid revenue growth going forward. During our last quarterly call, I highlighted six goals for Myomo in 2022 that were introduced in my shareholder letter from this past spring. Today, I'll summarize our progress against each one of these goals. Our first objective was to accelerate pipeline growth and to do so at a lower cost per pipeline add. In Q3, we had another outstanding quarter of growth in the candidate pipeline with 419 patients moving into the reimbursement process.
Year to date, we've added more than 1,200 candidates, resulting in a record number of medically qualified patients interested in obtaining MyoPro to regain motion in their paralyzed arms. With respect to costs, earlier this year, we shifted some of our direct-to-consumer marketing activity away from Facebook to other social media platforms, and we introduced TV advertising. As a result, our cost per pipeline add has been around $2,500, which is nearly 50% below the peak from just a few quarters ago. Our second goal is to broaden the number of insurance plans covering MyoPro. So far this year, we've added 9 new insurance plans such as Blue Cross and Blue Shield of Texas and Horizon Blue Cross Blue Shield of New Jersey. In addition, several Medicare Advantage plans covered their first MyoPro this year, which facilitates approvals for future requests on behalf of those plans' beneficiaries.
In addition, 10 new VA medical centers have ordered a MyoPro for veterans in their care, increasing the number of VA hospital customers to nearly 70. We obtained a total of 130 insurance authorizations and orders in the quarter, and at the Q3 average sales price of approximately $45,600, that equates to more than $5.9 million of potential revenue upon delivery and payments. Our orders have increased sequentially each quarter this year, in line with the growth of the candidate pipeline, which has served as a really good leading indicator of future revenue. Direct billing represented 79% of our revenue in the quarter, which led to the solid ASP we're reporting.
We've had some success in raising the fee charged to payers, and in some cases, we've been able to negotiate higher pricing in our single case agreements to help offset some of the higher costs we have due to inflation. We had 87 revenue units in the quarter and our backlog is now at a record 184 units, representing over $8 million of potential revenue. Our third goal is to conduct additional clinical research in order to provide the data to insurers and to CMS if requested in support of a coverage policy. Well, it's been a very good year so far for publishing clinical research in support of the MyoPro with the Cleveland VA and the Mayo Clinic both publishing outcomes data for patients who have suffered a stroke, traumatic brain injury, or a brachial plexus injury.
Several other research projects are underway, including a retrospective review of how Medicare beneficiaries have benefited from MyoPro. Fourth, one of my objectives was to use digital technologies to reduce the cost and compress cycle time. Well, at the beginning of the year, we introduced the MyoPro 2+ and brought the custom fabrication process in-house, which has given us far more control over the manufacturing process. This new MyoPro model uses 3D printing for the custom shells that fit around the patient's arm, and we developed a remote measurement system that uses a digital camera tablet and a telehealth call to measure the patient's arm in their own home. By shipping a briefcase containing all the electronics directly to the patients, our field clinicians can be far more productive. Plus, we also save money on travel costs.
Fifth, we have a goal to expand our international business into new markets. Although we're building off of a small base, our international business has grown nicely this year, especially in Germany, a country with a large population, clinicians and patients who are comfortable with high-tech devices and with good reimbursement by statutory health insurance payers. In addition, we provided a MyoPro to our first patient in Austria, and a few patients in Australia and the U.K. are benefiting from the MyoPro on a trial basis. In related news, this past summer, we hosted a visit to our Boston headquarters by David Ren, who's the CEO of Ryzur Medical, our Chinese joint venture partner. He's working with Chinese government officials to forward the remaining $1.7 million license payment to us so that the joint venture can begin operations.
As you may be aware, China has suffered new outbreaks of COVID-19, and that has understandably impacted the timing of the payment approvals. We continue to communicate with our joint venture partners, and we're ready to transfer technology and launch the JV upon receipt of the remaining upfront license payments. Our sixth and final goal is to restart development of the MyoPal device for pediatric patients. Next week, we'll conduct another design testing session with several children with upper extremity paralysis due to cerebral palsy, stroke, and other neurological conditions since birth. We'll use this input in our product development planning to finalize a schedule for completing the product design work, doing all the testing, clinical research, and then followed by the commercial launch. When we do so, the MyoPal will expand both our market and revenue opportunity.
Since last year, we've had a major Medicare Advantage plan approve MyoPros for their beneficiaries and then require us to file an appeal for payment of the claim after the initial post-delivery denial. I'm pleased to report that we've been paid on 120 of these claims, and we continue to receive pre-authorizations for patients with this health insurance plan. I'll now update you on where we stand with the Centers for Medicare and Medicaid Services, or CMS. Recall that back 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.
Well, because codes and coverage requests were made by a number of new high-tech innovators, some were similar to MyoPro, although for different indications in other parts of the body, CMS has stated that they need more time to study these products. We are meeting with CMS staff to discuss the MyoPro and the associated research and the value to the patients. While I can't predict the outcome or timing of these discussions, in the meantime, we're gonna continue to focus on the patients that we are serving with Medicare Advantage plans, certain commercial plans, and the veterans covered by the VA. Now I'll turn the call over to Dave Henry to review our Q3 financial results in more detail, and 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 third quarter financial results. Revenue, which was comprised solely of product revenue for the third quarter of 2022, was $4 million and was down 9% from the prior year quarter, but up 8% over the second quarter of 2022. The sequential growth was driven by a higher average selling price or ASP. Myomo recognized revenue on 87 MyoPro units in the third quarter of 2022, down 15% from the same period a year ago, but up from 80 units in the second quarter. In our last earnings call, I highlighted the possibility of a lower ASP compared with the last quarter because of the profile of the backlog, and we did experience that in the third quarter.
Direct billing channel accounted for 79% of revenue, compared with 85% in the third quarter of 2021 and 83% of revenue in the second quarter of this year. Despite that decrease, our ASP held up well, coming in at $45,600, compared to approximately $46,000 in the second quarter. International sales were 14% of revenue in the third quarter, with the remainder from the VA and U.S. O&P channels. With respect to the VA channel, third quarter was our highest quarter ever for orders, as 20 orders were received from VA hospitals for veterans to be fit with a MyoPro.
Backlog, which represents insurance authorizations and orders received but not yet converted to revenue, was a record 184 units at quarter end, including the strong VA orders I just mentioned, well above the 163 units at the end of the second quarter. This is also up 4% over our previous record of 177 units in the backlog at September 30th, 2021. Gross margin for the third quarter of 2022 was 66.5%, compared with 74.7% for the third quarter of 2021.
The decrease was driven by higher product costs due to continuing inflationary pressures in the third quarter, partially offset by a higher ASP. Operating expenses for the third quarter of 2022 were $5.5 million, an increase of 3% compared with the third quarter of 2021, driven primarily by higher compensation and advertising costs. Advertising costs of $1 million increased 14% over the third quarter of 2021 and were consistent with the prior quarter. While year-over-year advertising expenses increased, our patient acquisition costs are much improved compared to the end of 2021, and our cost per pipeline ad was stable at approximately $2,500, which is down nearly 50% compared to the fourth quarter of 2021, as Paul mentioned.
Our experience suggests that advertising will be much more competitive in the fourth quarter due to political and holiday ad placements. We're experiencing that now. As a result, we expect to adjust our marketing strategy to try and maximize the impact of the advertising dollars we spend and minimize an expected increase in cost per pipeline ad in the fourth quarter. We don't expect advertising expense to increase in the fourth quarter. As a result, it would be challenging to increase sequentially the number of pipeline additions in the fourth quarter.
Despite the more competitive advertising environment this time of year, our cost per pipeline ad is expected to be substantially below the $4,800 we experienced in the fourth quarter a year ago, and the ending patient pipeline is expected to be much stronger entering 2023 as compared to the pipeline at the beginning of 2022. Operating loss for the third quarter of 2022 was $2.8 million, compared with operating loss of $2.0 million for the third quarter of 2021, and slightly improved from $2.9 million in second quarter of 2022. Net loss for the third quarter of 2022 was $2.8 million, or $0.40 per share, compared with a net loss of $2.1 million or $0.36 per share for the third quarter of 2021.
Adjusted EBITDA for the third quarter of 2022 was -$2.5 million compared with -$1.7 million for the third quarter of 2021. Looking at our year-to-date financial results, revenue for the nine months ended September 30th, 2022 was $11.5 million, up 17% compared with the same period a year ago. While year-to-date product revenue, up $10.5 million, was up 7%. Year-to-date gross margin was 66.2% compared with 73.2% in the year ago period. As I mentioned, inflationary cost increases in the current year are impacting our year-to-date gross margin. Year-to-date operating expenses were $16.1 million, an increase of 9% compared with the same period a year ago.
Operating loss for the first nine months of 2022 was $8.4 million, compared with an operating loss of $7.6 million for the same period a year ago. Net loss for the first nine months of 2022 was $8.6 million, or $1.24 per share, compared with a net loss of $7.6 million or $1.38 per share for the same period a year ago. Adjusted EBITDA was -$7.4 million for the first nine months of 2022, compared with -$6.6 million for the year ago period. Turning briefly to our balance sheet. Cash and cash equivalents as of September 30th were $7.1 million. Cash used in operating activities was $2.8 million for the third quarter of 2022.
As I described during our last conference call, in early August, we entered into a $5 million equity line of credit with Keystone Capital. Under the equity line, Keystone has committed to purchase a minimum of approximately 1.4 million shares, representing approximately $1.6 million of committed capital at the current stock price. Purchasing more than this minimum amount, up to the full $5 million, will be dependent upon whether purchases are above market according to NYSE rules or we obtain shareholder approval to extend the NYSE American exchange cap. In order to enhance liquidity, the company has called for a special meeting of stockholders to be held on December 7th, 2022, to allow Keystone to purchase shares in excess of the exchange cap, up to the full $5 million that is available.
It should be noted that even though we are asking shareholders to allow us to sell shares to Keystone in excess of the exchange cap, Keystone has its own beneficial ownership cap of 4.99%, meaning they cannot hold in excess of 4.99% of outstanding shares at any one time. Under certain circumstances, they can hold up to 9.99%. We view the equity line as one of the least dilutive options available to us to raise additional capital. Keeping the company adequately funded while minimizing dilution is our highest priority. The final topic. I'll provide some forward-looking commentary. With a sequentially higher backlog, we expect modest sequential product revenue growth in the fourth quarter.
ASP is expected to be a bit lower sequentially due to higher expected VA revenue in the fourth quarter resulting from the o rders received in the third quarter. Our joint venture partner in China is representing to us that they are actively trying to get government approval to pay the remaining license fee. Given the ongoing delay, we can't provide any assurance that the remaining license fee will be paid in the fourth quarter. As a reminder, and as Paul articulated, we've continued to execute on our business plan this year. We have met and resolved earlier challenges such as supply chain issues and the transition to in-house manufacturing. We're pleased with the execution of our team so far this year.
With a record number of MyoPro candidates in our pipeline as of September thirtieth, 2022, we believe we have the capability to deliver stronger product revenue growth in 2023. With that financial overview, I'll turn the call back to Paul.
Thank you, Dave. Well, as our results demonstrate, we are able to provide a MyoPro to a growing number of individuals with upper limb paralysis. We've been expanding our pipeline through cost-effective marketing programs. We continue to innovate in product developments and also innovations with product, process improvements by utilizing digital technologies. Well, this concludes the formal part of our presentation, operators. Now we're ready to open the call to questions.
At this time, we would now like to begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster.
Before we take the first question, I just wanna mention that we are available for virtual and in-person investor meetings. So go ahead and please contact LHA Investor Relations to set up a time. Okay, operator, we're ready for the first question whenever you are.
All right. Our first question comes from Ben Haynor of Alliance Global Partners. Please go ahead.
Good afternoon, gentlemen. Thanks for taking the questions. First off for me on the benefit category change and CMS saying that they're gonna provide more information in the near future. I was just kinda wondering if you have, you know, anyone within the company or any consultants or other folks that you rely upon that have a sense on when that, you know, what the definition of near future is and what you could hear from them.
We do have regulatory and reimbursement counsel here in Washington, D.C., where I am today. I had a meeting with a member of CMS staff, and we are gonna have a continued ongoing dialogue to provide them what other information they need to basically cover us as a brace. Those meetings are going on, Ben. I just don't have a timetable from them in terms of what, when and what type of decision they would make.
On those meetings, is they're ongoing as in, you know, you've already had them or do you have more, you know, scheduled in the near future or what's the? How would you characterize that?
Yeah. We've had some, and we are planning to have more with them because the dialogue has to continue to make sure that they, you know, fully understand our position. We presented a really good case at the June 8th meeting. As they pointed out in their September publication, they said, "It's a complex issue with these new technologies," and they want more time to study them. We will follow up and, you know, give them whatever data they need to make that type of decision.
Okay. Have they asked you for any sort of data thus far?
No. We are in the process of setting up meeting with the right staff so that we can find out exactly what they're looking for.
Okay. That's helpful. I appreciate the color there. Then, you know, on the adjustment of the marketing strategy to deal with, you know, the elections that have just taken place and the holiday season, you know, what do those adjustments entail? I mean, can you give us an example of, you know, okay, well, we're shifting over to do more, you know, TV advertising or what have you. Where does the marketing spend go on the adjustments that you've made or plan to make?
Yeah. Well, we've been tuning our advertising strategy. You know, every week our team meets with our various agencies. You know, we shifted from some local marketing advertising on TV where we specifically targeted specific metro markets to more national cable channels. That's been really helpful. Now that the election is over, I think that you know, reduces the cost per ad. Also opens up more slots. Again, it's very dynamic between this election and this you know, holiday season years. We learned a lot from last year and, as Dave said, we've really tuned our approach here to grow that pipeline, but do it in a cost-effective way.
Okay. That makes sense. Thanks for taking the questions and, congrats on the good quarter.
Great. Thanks, Ben.
Our next question comes from Jim Sidoti of Sidoti and Company. Please go ahead.
Good afternoon, and thanks for taking the question. If you do get reimbursement from CMS, can you just remind us, you know, what would be your preferred classification, and how would it affect your sales to the insurance companies or your negotiations with the insurance companies?
Our preference, Jim, would be to be reclassified as a brace or an orthosis rather than durable medical equipment rental, which is typically sort of off-the-shelf items that are standard. They're, you know, they're used for a short period of time. They're brought back, cleaned up, and then refurbished and sent back out in the market by the supplier. In our case, these are custom fabricated for long-term use, very similar to a custom fabricated prosthesis for an amputee. The evidence we presented is that we do meet the brace definition that's in the Program Integrity Manual and in the statutes, and so therefore, this should be covered in that brace category. It also should be paid on a lump sum basis rather than a monthly rental.
In fact, CMS was very transparent in the way they said they are going to be pricing products going forward and setting payment amounts is by using a set of existing codes. In our June presentation, we laid out how, you know, our device has certain brace codes and also certain myoelectric prosthetic code attributes, and therefore we presented, you know, a recommended payment amount to CMS as well. That'd be our preference. If it goes that way and they accept that logic, then it really helps us with the commercial payer universe because many of them, as you know, will often sort of cut and paste what Medicare does for its Part B patients. That's why this is such a critical, you know, decision, and an effort we're putting a lot of work into here. You know, been presenting a very good case for that coverage.
The other thing that being able to serve Medicare patients is that the revenue cycle is much quicker because we don't have to. You know, we may have to do so in the beginning, but oftentimes you don't have to get prior authorizations to ship to a Medicare beneficiary. You don't, you know, since you're talking about CMS here, the time to revenue in terms of, you know, when you recognize it, in terms of waiting for payment versus not goes away as well, 'cause you're talking about a government entity. The revenue cycle decreases substantially.
One other benefit too, Jim, is that our marketing costs will go down because right now, you know, we get thousands of people contacting us after seeing the social media advertising or TV or, you know, other social media posts. They contact us, and if they're Medicare Part B, all we can do is say, "We'll just hold on to your name and contact information and be in touch in the future, but right now I can't serve you." There are many more patients that really could use the MyoPro that we can't serve that are on Medicare Part B right now.
Right. As far as the timing goes, it sounds like, you know, that that's kind of a TBD type thing. It could be relatively soon or it could take several months. Is that right?
Yes. I mean, they have no specific timetable that they have to follow. As you know, they're busy with a lot of projects. We just continue to stay in front of them because they understand that look, this has been in the marketplace for a number of years. A lot of other plans, Medicare Advantage plans, commercial plans, VA, are covering this on a case-by-case basis. You know, we made the point in our June 8th hearing that it's a health equity issue, which is also very important to the Biden administration. Beneficiaries who have these other plans are getting access to this technology. Medicare Part B patients are not at this point. From a health equity perspective, it's important to get this coverage for these patients.
All right. Any update on supply chain or any of these issues starting to improve or do you think this will still be a headwind for 2023?
I think we're [crosstalk]
Go ahead, Dave. Yeah.
I think we're status quo. I mean, we're still living with cost increases. We're living with cost increases that have occurred in the past. The costs, you know, aren't really materially continuing to increase. Lead times are still stretched out in a number of cases. We're not really seeing anything, you know, improving there materially. I would say, you know, the supply chain is status quo, but it continues to be manageable.
All right. Thank you.
Pardon me. Once again, if you have a question, please press star then one. Our next question from Edward Woo of Ascendiant Capital . Please go ahead.
Yeah, thanks for taking my question. My question is, you know, how much has the strong dollar impacted your European business and how do you think it's gonna impact it, next year?
Yeah, it's had an impact. You know, the euro's down about at least what, 15% compared to the dollar. When we sell to an O&P provider in Germany, you know, we do it in euro. You know, that's where the contracting occurs. The value of those euro sales is less, has been less in dollar terms this year. I think in terms of what will happen in 2023, we're not expecting to change the way we do business. We will continue to sell to German O&P providers in euro, and we'll see what happens with exchange rates here going forward. I think that depends on how much you know, the Fed continues to ratchet down the – r atchet up, I should say, the interest rates.
Do you guys have very many costs in euros?
Payroll. That's, you know, payroll and then maybe associated travel costs. Those act as a natural hedge. Anything else we like to do intercompany, we do in U.S. dollars.
All right, great. Well, thanks for answering my question. I wish you guys good luck. Thank you.
Thank you.
It looks like at this time's up. This concludes our question and answer session. I would now like to turn the call back over to Mr. Paul Gudonis for any closing remarks.
Well, thank you, operator. Well, in closing, Myomo provides an essential product to people suffering from neurological disorders and upper limb paralysis, and we look forward to serving more patients in the U.S. and overseas to expand the coverage by health insurance plans and ultimately from Medicare Part B, and then additional state Medicaid plans as well. Once again, thanks for your time and your interest in Myomo, and have a good evening.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.