Hello, and welcome to the Myomo Third Quarter 2023 Earnings Conference Call. All participants will be in a 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.

Thank you, operator, and good afternoon, everyone. This is Kim Golodetz with LHA. Welcome to the Myomo second quarter 2023 conference call. Earlier this afternoon, Myomo issued a news release announcing financial results for the three and nine months ended September 30, 2023. 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 and additional risks, uncertainties and other factors are discussed in Myomo’s filings with the Securities and Exchange Commission, including the Form 10-Q for the quarter ended September 30, 2023, which is expected to be file shown 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.

Thanks, Kim. Good afternoon, everyone, and thanks for joining us. We have a lot of news to cover with you today, starting with our third quarter financial results and then last week's updates from the Centers for Medicare and Medicaid Services, CMS, about the MyoPro for patients with Medicare Part D coverage. Today, we're reporting third quarter financial results featuring more than $5 million in product revenue for the first time, which is up 28% year-over-year and up 20% sequentially. This included a record quarter of international revenues, which topped $1 million in a quarter for the first time. Importantly, we are entering the fourth quarter with 1,046 qualified patients in our pipeline, and more than $11 million in cash, which gives us optimism about our growth trajectory. I'm pleased with these results since they validate the strategic shift and the operational changes we implemented at the beginning of the year. We decided to focus on patient candidates who had insurance coverage by payers with a track record of reimbursing for the MyoPro rather than expending a lot of effort to obtain pr-eauthorizations from other insurance plans. That's led to a higher authorization rate by payers, including on appeal with some approvals happening within a few days of submission of the medical documentation to the insurance company. Assuming medical necessities demonstrated Medicare Advantage plans, which cover many of these stroke survivors or seniors age 65 and up must provide coverage if CMS is reimbursing for the device. Along with this focus on reliable payers, we reduced our operating expenses by having fewer staff dedicated to reimbursement activity and by cutting our marketing budget by $1 million. These cost savings, along with the increased revenue we generated are namely us to reduce our cash utilization year-over-year as we work through the…

Thank you, Paul, and good afternoon, everyone. Turning now to our third quarter financial results. Total revenue for the first quarter of 2023 was $5.1 million. This consists entirely of product revenue, which is almost entirely of product revenue, I should say, which is a record for the quarterly product revenue and was up 28% over the prior year quarter. This growth was driven by a record 119 revenue units, offset by a lower average selling price or ASP. The 119 revenue units in the quarter was an increase of 37% over the prior year. Of the 119 revenue units, approximately 40% resulted from fill, which is our term for authorizations and orders received and converted to revenue in the same quarter. This was a record number of few units which was aided by the addition of two insurance payers and their affiliates for which we have accumulated sufficient collection history to enable revenue recognition at the time of MyoPro delivery. Nearly half of our direct billing revenue in the third quarter was from patients with payers where we were able to recognize revenue at delivery. ASP was approximately $42,700, down 7% from the prior year, as we guided, due to payer and channel mix. The direct billing channel represented 69% of revenue in the third quarter compared with 77% in the prior year quarter. International revenue represented 20% of product revenue in the second quarter. The remaining 11% of revenue was from the VA and domestic O&P channels and sales of demo units and MyoPro control units to the JV company in China. Backlog represents insurance authorizations and orders received but not yet converted to revenue. Our backlog at the end of third quarter 2023 was 185 units, which is up 1% from our backlog at the end of…

Thanks, Dave. While we're looking to continue the momentum we've achieved so far this year, and we expect to add additional medically qualified Medicare Part B patients to our pipeline in the fourth quarter, so that we're ready to serve this population after the new brace category rule and the fees go into effect. With that overview, we're now ready to take your questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions]

Before we take the first question, I just 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. We'll also keep you informed of developments at CMS and about the status of the new brace category classification and the proposed fees, which will enable access to MyoPro by Medicare Part B patients. Okay. Operator, we're ready for the first question.

Our first question comes from Scott Henry from ROTH Capital. Please go ahead.

Thank you. Good afternoon, and congratulations. Some very well-deserved progress on the reimbursement front, so great job. A couple of questions. I guess, first, when I look at the CMS fees for, I believe, it's the G and the W, I typically think of this as 35,000, 40,000 ASP. So that 62 kind of looks higher, is that just a blend? Or how do we think about that 62 in there?

Yeah. Well, CMS has its own methodology for calculating fees for new medical devices, and they're required to follow the guidelines using the published retail pricing. So Myomo's ASP that we currently report is not the retail price, but it's a value affected by accounting calculations and other factors. And the ASP that we currently have is typically lower than the actual retail pricing. But Scott, is CMS has its own algorithms, what they call the Gap filling methods where they take retail pricing, they back it up over a period of time and then they add inflation, and that's where they come to these pricing, which is consistent, by the way, with what we presented at the June 2022 public meeting.

Okay. So it sounds like it's within your expectations and you're probably pleased with the levels there. Is that correct?

Yes. It's -- again, it's consistent with what we have presented. And is very workable to enable access for these Part B beneficiaries.

Okay. Great. And I noticed you changed the patient pipeline update. Have you included Germany in the past? Or is that new? And what was the driver? Is Germany likely going to be a material market for you, just curious on that.

Yes. Well, the -- go ahead Dave.

As I say, no, Germany has always been included in the pipeline. I think the -- over the last couple of quarters, we've seen the drop rate in the pipeline decreased a bit, and I think that's helped grow the overall pipeline because the ads have been in that $380 million to $400 million range this year as we've been sort of spending a consistent amount on advertising each and every quarter. So I think that's what you're seeing from the pipeline is that just -- or seeing fewer patients are right now dropping out?

Okay. Great. Final question. $5 million in a quarter, congratulations. That's a strong number as well, you have the 156 orders and authorizations. When we put all that together, the question is how do we think about cash flow breakeven, not necessarily GAAP breakeven, $7 million in a quarter? Do you think that gets you pretty close to breakeven? It seems like we're starting to get into that ballpark. I appreciate any color on that. Thank you.

Yes. I'd like to sort of defer answer on that. I'd like to see what the final fee is published from CMS. And with the public meeting is in end of November, determinations from that meeting should be out by the end of February of 2024. And so by the time we get to our third quarter -- or first quarter, I should say, fourth quarter conference call in March of 2024, and we might have a better idea and might be able to provide some more color on that.

Okay. Fair enough. Thank you for taking the questions.

The next question comes from Anthony Vendetti of the Maxim Group. Please go ahead.

Thank you. Thanks, Paul and Dave. So the meeting that's going to be held on November 29, who's going to be attending that meeting and what's the expectation post that meeting. Is that -- it's the payment determination is the exact amount going to be set then? And then is the implementation likely to be 01/01/24?

So the public meeting is held twice a year. And CMS just published the agenda, which is available online. And the agenda includes pricing for a number of products, including ours. We're right on the agenda item number one with this proposed pricing. So attendees or anyone that wants to submit comments about the proposed pricing or anything else about our product or anybody else's product that are in the agenda. And then after CMS reviews any of those comments, they will typically come out with then their final fees and put that into what we call the alphanumeric tables. Usually, this takes them a couple of months. So we don't expect the fees to go into effect until perhaps April 1st, maybe earlier than that, but that's our current expectation.

Okay. So you're saying April 1st and if it's earlier, great, but that April 1st is the expectation. And then just in terms of revenue recognition, does this change any of your revenue recognition expectations for 2024? Or was this built into what you were expecting?

I think as we -- if CMS publishes a fee and we start getting regularly paid that fee, then we will -- our expectation is that we'll be recognizing revenue delivery for Medicare Part B patients once we can establish collectibility, which is the requirement under GAAP. We're going to be under -- our products will likely be reviewed under what's called individual consideration, so on a case-by-case basis. And we'll see as we go forward in 2024, how they're paying. And then once we feel comfortable, then we'll go ahead and -- us and our auditors are comfortable then we'll go ahead and start recognizing revenue and delivery.

Okay, Dave. And just from history and doing this for many years, establishing collectibility, is it -- what I've learned anyway is that auditors typically want to see a full year, is that what you're expecting a full year of establishing collectibility? Or do you think it could be shorter than that?

When we establish collectibility for -- or the insurers that I mentioned in my remarks, it was really based on more of a number of patients. And time wasn't necessarily a factor. It was seeing a number of patients where if we get an authorization and we bill a claim and deliver, we get paid. We see that happening enough times regardless of time that would be the point at which we feel we can take revenue at delivery.

So more based on number of patients? And do you have a range of what you think that number would be, or hard to say at this point?

I mean it's -- I mean, I would say it's got to be a few dozen certainly.

Okay. Okay. And then based on all the good news in November, on November 1st, CMS published the final rule that reclassifies the MyoPro is a brace, and now this. Do you feel like the TAM for the MyoPro has increased in terms of what it was maybe prior to November?

It’s at least double, Anthony, because if you look at the majority of the stroke population are seniors, about 50% of seniors are covered by Medicare Advantage plans and 50% of seniors are on the standard Medicare Part B. And we've only been able to serve that Medicare Advantage population until now. And so with these Part B patients, if they're medically eligible for the device, that's half of the senior population. So the way I look at it is, effectively, our TAM has doubled.

Okay. That's helpful. All right. Great. Thanks very much. I'll hop back in the queue.

The next question comes from Edward Woo with Ascendant Capital. Please go ahead.

Yes. Congratulations on the quarter and especially on international. Should we expect that continued growth rate -- high growth rates in Germany? And is there any possibility that it could increase even faster? And what about possibly or going outside beyond Germany and the rest of the EU?

Well, we've been really pleased with the consistent year-over-year growth of Germany. As I said, it was a record quarter here in recent in Q3. We've been building up the distribution network. We've been very successful in getting statutory health insurance payers to cover this. So we can expect we'll have continued growth there in Germany. We're looking at other markets, especially in EU, where we have CE Mark, and we meet the EU MDR rules. Now the question will be reimbursement. It takes often a year or 2 to establish reimbursement in some new markets. And so right now, we're basically doubling down and saying, look, Germany is a big country, over 80 million population. So let's keep serving the patients in Germany right now is our first priority for Europe.

Is there a possibility to push to gas pedal a little faster to take advantage of the opportunity in Germany? Or do you feel like you're at a very comfortable pace?

Well, we've had a good growth clip over there. It requires more marketing spend, more business development staff, more clinical trainers and so on. So we want to go at a good pace, but also do it in a quality manner because we want to make sure, we're medically qualifying patients, getting all their documentation and following up for good outcomes. So, we'll continue to see a good pace of growth there in Germany.

Great. Well, thank you and congratulations again.

Thank you.

Our next 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 mix between the MyoPro Motion W and Motion G, where does that sit with your typical -- in your typical quarter? And do you expect there to be any sort of difference with the Part B population?

Over -- excuse me, over 90% of our orders are for the MyoPro G. That's the more expensive unit because it includes the glass, enables greater functionality of ADLs. And as far as we expect, it should be pretty similar for the Part B population as well as other seniors.

Okay. Great. And then on the payers that may not be covering MyoPro, would you expect them to kind of fall in line now that Medicare has made these changes or CMS has made these changes?

We expect that, that will happen over time. Certainly, Medicare Advantage plans are required to provide whatever Medicare standard Part B does. So we think that will open up additional Medicare Advantage plans to the MyoPro. And then as you are aware, often commercial plans will follow what Medicare does as well. So over time, we'll be having meetings with various medical directors of these plans, the commercial side as well about contracting. But certainly waiting for this Medicare Part B sort of blessing, I think it was very important for the overall reimbursement strategy with these other payers.

Okay. That makes sense. And then on the Part B patients that you have in your database right now, I guess, this maybe is more of a mechanics question. But when might you start including those in the pipeline is that something that you just closed to investors? Is that something that we would probably look to hear about kind of in the Q1 report? Or could it be after that before that? What's the right way to think about that as you look at it today?

Yes, I think that's a good question. I think after everything gets finalized at CMS, the price category rules in place, these are published and so on. And as we continue to build up a patient pipeline or Part B patients, we can be discussing that as well at that time.

Okay. Got it. And do you think you go and expand the team given these updates, the benefit category change the promos fee schedule it seems like there's a lot of opportunity for you to go after if this falls into place like it looks like it's going to. Any thoughts on that front?

Well, we've already been working on how do we scale up the business cost effectively we've got some core infrastructure with about 110 people now inside the company. But certainly, to gear up for the additional volume, we're going to need additional manufacturing staff, maybe a second shift in our current facility -- less the order additional inventory for the builds. We'll have to add additional clinical staff in the field, whether it's the CPOs that do the evaluations and fittings, the mild care coaches that follow up. So yes, we've been working on a plan, but we should get operating leverage because we've already invested in the core infrastructure of the team.

Okay. Got it. That's it for me, gentlemen. Hello start to November?

Thanks, Ben.

Thank you.

[Operator Instructions] Since there are no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Paul Gudonis for any closing remarks.

Thanks, operator. I want to thank the new investors that participate in our capital raises this year. We've been able to attract well-regarded fundamental health care investors, who see the long-term potential of this business where we've had a number of executives and Board members also increased their stock holdings as well. And while forecasting quarterly revenues is always a challenge due to the factors I mentioned earlier, such as the number and the timing of insurance authorizations and the payer mix. We are poised for our 11th consecutive year of revenue growth. We continue to add roughly 400 new candidates into our patient pipeline each quarter, and we entered Q4 with a record number of patients in the pipeline, and we'll be including Part B beneficiaries as we go forward. So we're looking forward to the finalization of the CMS fee schedule and MyoPro in the brace category with an anticipated effective date the ability to expand our addressable market to include almost 50% of seniors in the US with the standard Medicare Part B coverage, a growing international business, especially in Germany and China, and scaling the business with operational efficiencies so that we can achieve cash flow breakeven at higher volumes in the future. Well, thanks for your continued interest in Myomo, and have a good day, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.