Myomo, Inc. Q3 FY2021 Earnings Call

Hello, ladies and gentlemen, and welcome to today's conference call. My name is Nitasha, and I'll be coordinating your call today. I will now hand you over to Caroline Paul from Investor Relations. Over to you.

Thank you, and thank you all for participating in today's call. Joining me are Ed Kilroy, Chief Executive Officer; and Ramona Seabaugh, Chief Financial Officer. Earlier today, MedAvail Holdings released financial results for the third quarter ended September 30, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance, or similar statements are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization and reimbursement, market opportunity and expansion, and guidance for revenue, gross margin, and operating expenses in 2021 are based upon our current estimates and various assumptions. Also, management may make additional forward-looking statements in response to your questions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements and do not guarantee future performance. Accordingly, you should not place undue reliance on these statements and should not rely on them in making an investment decision without considering the risks associated with such statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section in our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 8, 2021. MedAvail Holdings disclaims any intention or obligation except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Ed.

Thank you, Caroline, and good afternoon, everyone, and thank you for joining us. We are encouraged by our strong top-line performance of 15% sequential revenue growth from the second quarter of 2021. As a reminder, our business model has two segments: Retail Pharmacy Services consists of sales from the operation of our technology-enabled, high-touch retail pharmacy and pharmacy technology revenues that are comprised of the sale or provision of these technologies to large customers to support their own pharmacy operations. Our Retail Pharmacy sales segment generated $5.4 million of revenue in the third quarter of 2021, representing 149% growth over the period in 2020 and a 21% increase from the second quarter of 2021. Our pharmacy technology revenues decreased 93% year-over-year in the second quarter of 2021 to approximately $350,000. Notably, 2020 included a one-time benefit of $4.7 million recognized in conjunction with the accounting for a nonrecurring commercial agreement from 2018. Excluding this one-time accounting adjustment, Pharmacy Technology revenues increased 51%. After a challenging first half of the year, we saw momentum return and made meaningful progress during the third quarter, signing partnerships and expanding into new sites with existing clients. We remain focused on growing with clinic operators that have large numbers of sites to maximize the potential of our land and expand strategy. We deliver a unique value proposition to our partners with our SpotRx embedded pharmacy model. These care providers are focused on improving both medication adherence and patient satisfaction, and we are delivering results to them each and every day. Our real-time operationalized data identified at-risk patients and enables tracking by patient clinic and disease state. By evaluating metrics such as the proportion of days covered or PBC scores, we are able to place patients on auto refill, work with clinicians to prevent hospitalizations, and perform a number of other operational actions that are valuable to our partners. These are important metrics to our clients in the Medicare market as we can help influence their star ratings and therefore, their level of reimbursement from CMS. To that end, beginning with new clinic installations, we had a strong third quarter. We deployed 14 new SpotRx med centers in clinic sites. The 14 new clinic deployments in the third quarter were led by clients such as Cano Health, Access Health, and CareMore as we continue to expand with our value-based care clients. Geographically, we installed 3 sites in Arizona, 2 in California, and 9 in Florida. We also remain on track with our expectation to have 45 new in-clinic deployments by year-end 2021. We continue to execute on business development, delivering expansion within our currently deployed states in the third quarter as well as forming new partnerships. We continue to work with our clients planning further geographic expansion as we grow with them. In September, we signed an agreement with IMA Medical Group, a growing network provider of medical and wellness services to embed our SpotRx pharmacy model into an initial 4 clinics with an objective to improve medication access and adherence for IMA patients. IMA serves patients in 21 medical centers across Central Florida. As announced today, we also signed an agreement with InnovaCare, a leader in transforming care delivery to offer patients access to our SpotRx kiosks, career home delivery, and support from our clinic account managers at initial 3 InnovaCare locations in the Orlando area. InnovaCare manages more than 500,000 lives, including more than 150,000 dual-eligible beneficiaries across over 30 clinics. This continued expansion in Florida, one of our key states with a large and concentrated market demonstrates SpotRx's strong value proposition to Medicare patients and value-based care providers. Importantly, with these new deployments and partnerships, we are building the foundation for scalable and sustainable revenue growth with large and growing value-based care providers. Our Pharmacy Technology segment continues to represent a significant opportunity for MedAvail. Clients such as Sam's Club, Kaiser, and Texas Health Resources continue to operate our technology in their production environments and are working closely with us as they move forward. Previously, we announced that we began the development of a full integration with the Epic electronic health record software. This capability will allow us to expedite deployments with many health customers who have Epic installed and reduce the time from signing a deal with MedAvail to deploying our Pharmacy Technology. Today, we have multiple clients such as Texas Health Resources and Providence Health that have installed or are close to running and intend to take advantage of this integration work. Most importantly, this integration work opens the market for installed Epic users to us as prospects for our Pharmacy Technology. Currently, there are approximately 350 integrated delivery networks using the Epic pharmacy software in the United States. We are also adding sales resources to accelerate the Epic opportunity. The integration work is currently scheduled to be completed in the second quarter of 2022. Turning to our 2021 outlook, we continue to expect net revenue to be at least $21 million. The timelines we are seeing from physical installation to first dispense remain unchanged from the last quarter. Further, excluding the one-time benefit previously mentioned, we continue to expect to deliver revenue growth in excess of 100% in 2021 and expect to maintain this top-line growth rate in 2022, given the demand we see for our offerings and our ongoing expansion into new geographies. Finally, as we announced in September, we are excited to have Ramona Seabaugh join our leadership team as CFO. Ramona brings over 20 years of experience with pharmacy and healthcare services organizations, leading strategic growth initiatives. Ramona's expertise will be invaluable in executing our strategy to drive strong operational and financial performance. We are pleased with our growth as we continue to build and execute against our business development strategy, and we are excited about the opportunities ahead. The Medicare Advantage market continues to grow quickly, and we are optimistic about becoming the leading on-site pharmacy partner to the top risk-bearing clinic operators in the marketplace. With that, I'll now turn the call over to Ramona to provide a review of our third-quarter financial results.

Thank you, Ed. I am very excited to be joining MedAvail and look forward to partnering with the team as we continue to execute on the business growth strategy. Turning to our third-quarter results, net revenue for the three months ended September 30, 2021, was $5.8 million, a 19% decrease from $7.1 million in the same period of the prior year. As mentioned earlier, this decrease was due to the completion of a nonrecurring commercial agreement in the three months ended September 30, 2020, with associated revenue of $4.7 million. This decrease was offset by a 149% increase in retail pharmacy services sales. As we have indicated in the past, Pharmacy Technology sales can be variable from quarter to quarter due in large part to processing patterns associated with these enterprise-level capital sales. As Ed mentioned, during the third quarter, we deployed 14 med centers in the Retail Pharmacy Services segment compared to 11 in the third quarter of 2020. Gross margin for the third quarter of 2021 was 3%, flat sequentially from the second quarter and 70% as compared to the prior year period. Gross margin in the third quarter of 2020 includes the one-time non-cash benefit of $4.7 million recognized in conjunction with the accounting of a nonrecurring completed commercial agreement from 2018. Excluding this one-time benefit, gross margin for the third quarter of 2020 was 11%. Total operating expenses for the third quarter of 2021 were $11.2 million, a 60% increase from $7 million in the third quarter of 2020. This expected increase in operating expenses was driven primarily by investments in personnel, facilities, and other expenses necessary for the continued build-out of our operating footprint, including the launch of operations in Florida. Additionally, we continue to make accelerated investments to automate additional workflows important to our customer service capabilities, including our investments in compliance packaging. Adjusted EBITDA, which we calculate by adding back interest expense, depreciation and amortization, stock-based compensation, and excluding nonrecurring expenses and other income was a loss of $10.1 million in the third quarter of 2021 compared to a loss of $5.1 million in the third quarter of 2020 reflecting the various initiatives and investments and growth you've heard us talk about. We ended the third quarter of 2021 with $35.9 million in cash and cash equivalents. We now have approximately 32.8 million shares of common stock outstanding, and we expect to have a weighted average share count in the fourth quarter of approximately 32.9 million shares. Turning to our outlook for 2021, we continue to expect at least $21 million of net revenue and 45 new in-clinic deployments this year. Regarding our gross margin outlook, we remain focused on improving our gross margins throughout the balance of 2021 as we continue to execute on the initiatives we have previously discussed. And with that, I'll turn the call back over to Ed for closing comments.

Thank you, Ramona. Thank you for joining the call today. With the return of momentum in the third quarter, we look forward to updating you on our progress as we continue to execute in this expanding market. And with that, we will now open it up for questions. Operator?

We take our first question from Charles Rhyee of Cowen.

Maybe, Ed, if I could first ask, obviously, a strong number of deployments here in the third quarter. Can you give an update on where we're at so far here in the fourth quarter? Clearly, getting to 14 here, you need less deployments, it's looks like about 18 to get to your target of 45. Any update where we're at here sort of mid-quarter?

I would just say, Charles, that we are on track to deliver the 45 for the full year as we outlined, and we have a good line of sight into those as you would fully expect. We will be deploying throughout the quarter. And so they’re happening on a monthly basis. So again, we are reconfirming the 45.

Okay. Great. Another question is about the changes in the board of pharmacies from last quarter that caused some delays in getting sites operational. Any updates on that? I recall you mentioned 8 to 12 week delays. Have any of those timelines improved?

We haven't seen any changes, Charles, and I don't anticipate any for the remainder of the year. We consider that as we move forward and deploy right now. Just as a note, in Florida, there isn't the Board of Pharmacy inspection like there are in California, Arizona, and Michigan. So we can move a little quicker in Florida, but there hasn't been any change in the other states we mentioned earlier.

Great. I have two quick questions. First, regarding utilization. The revenues were better than we anticipated. Have you noticed any increase in volumes? I've heard other companies mention delays in elective procedures and possibly higher COVID-related expenses. I'm interested in your observations on that. Secondly, Ramona, as you begin working with the team, what would you identify as your priorities for advancing MedAvail?

So thanks, Charles. From a clinic volume perspective, I’ll say patient visits have improved quarter to quarter. I expect to see those to continue into the fourth quarter as well. You commented on the board of pharmacy approvals, which we continue to see similar timelines as we've discussed previously. Obviously, we've taken that into consideration in any planning. But what we are seeing is the traffic patterns improve which is very encouraging again as we come into the back half of the year, or last part of the year, I should say. Ramona?

Thanks, Ed. Charles, yes, coming into the role, I see some key areas for us to focus on will be to clearly our continued top line growth in both segments of our business. We'll want to continue to drive programs around our efficiency and productivity within our operating units. An example, we have an agreement with McKesson to start deploying to fulfill by the end of this year. And then finally, we will continue to focus on improving our overall financials with the company and reducing our overall cash burn. So those probably are the three buckets that we will spend the majority of our time.

That's great. If I could just follow up on partnering with McKesson. Would that alleviate the need for your central pharmacies to do some of the refill work and that would leave that to McKesson? What would your central pharmacy be doing more first-fill prescriptions then?

We will continue to concentrate on enhancing our overall financial situation and minimizing our cash burn. Those are the main areas we will focus on. That's great. If I may follow up on the partnership with McKesson, would that reduce the need for your central pharmacies to handle some of the refill work, allowing McKesson to take over that responsibility? Would your central pharmacy then focus more on first-fill prescriptions?

Yes, go ahead, sorry.

What McKesson is going to be doing for us, Charles, is packaging the medication into, say, 30-, 60-, 90-day vials. We would then process that order in our pharmacy. So what it's doing is saving us the pill counting into the breakdown by customer and also the inventory management because they would be managing the inventory at their end.

I see. Okay. What kind of financial...

This is just a labor reduction.

Right. So will that be more next year?

Yes. Yes, you would because we're just beginning to roll it out. We're evaluating right around a percent of our refills that will be driving through that process. Obviously, we want to maximize it, but I don't have a specific number right now on dollar savings, but we certainly are counting on this to improve our productivity as we move into 2022.

We take our next question from Brooks O'Neil of Lake Street Capital Markets.

This is Travis Spangler filling in for Brooks. I see that InnovaCare signed to open 3 SpotRx locations in Florida. Given that InnovaCare operates more than 30 clinics, can you discuss the opportunity to get into the other 27 clinics or so?

I would say that we are in discussions with all of our enterprise customers with regards to continued growth. I can't speak for InnovaCare's internal plans, but we believe that the offering we have can have a direct impact on patient adherence and satisfaction, which is very important to them as a business. So we are going in there with an expectation that we will have the right to earn that business.

Got it. And one more question. Do you guys see a shift in your home delivery option? Or do patients like the opportunity to pick up the medications at the end of the clinic visit?

It's a little of both. When we have patients that are on chronic medications, some of them choose to pick it up when they're visiting the clinic. Others prefer to have it courier home delivered. Certainly, when we see first fills, we do see a large number of those filled at the site itself, but with chronic medications, the patients can choose either channel to receive their refills.

We also have a follow-up question from Charles Rhyee of Cowen.

Ed, I want to talk about the commitment here kind of seeing 100% growth in revenue for next year. When you look at that number, where do you think the puts and takes are to kind of achieving that? And clearly, it looks like we're tracking at least in line if maybe not a little better on deployments, which means some of those sites can be generating revenues ramping sooner than maybe we had been expecting. What do you think are kind of swing factors that we should think about as we kind of round out this year and then into next year?

I believe the rollout of the 45 sites we are launching this year is very significant. The timing of these launches will be crucial, along with the regular quarterly deployments planned for next year. While we haven't given any guidance for next year's site volume yet, it’s worth noting that most of the sites deployed in the first half of this year were done in late June, so we didn't see much benefit from them. We are optimistic that as we enter 2022, we will have a more consistent rollout based on our client base and the regions we operate in. This will be a critical factor for us in 2022, but the key driver will be the continued scaling of the sites we're exiting this year.

Is it reasonable to think that this year, most of the deployments are concentrated in the second half due to the change in the contract manufacturer? Can you provide a quick update on that? And do you anticipate that the pace of deployments will become more consistent throughout 2022 and beyond, or is there any seasonal pattern you might expect from your clinic partners regarding deployments?

The contract manufacturing is progressing well, so that will not be an issue as we move into 2022. Regarding seasonality, we don't perceive any significant trends, although it's common for people not to deploy much at the end of the fourth quarter as they tend to slow down. This is primarily due to the holiday season and hours of operation. Other than that, we do not observe any notable seasonality from a deployment standpoint. As I mentioned, we have not issued guidance for next year, but we do anticipate a smoother deployment rhythm as we progress through 2022.

Great. And then maybe if I could just ask one more here. Obviously, a lot of efforts here in Florida sounds like a very fertile ground to be making inroads in. I know Texas has been on the radar for you guys. Any update on how you're thinking about further state expansions?

You're absolutely correct. Florida is a very significant market for us. Based on the signings that we've done in Florida so far, we've got a very large footprint within that state. Looking at the sites that our current clients have, there's a significant opportunity. Most of those clients, certainly not all, but most of the Florida clients, as well as other clients, we have a presence in Texas. That is a state that we are having discussions with our customers about, that state, but there’s also a couple of others that are in play as well. We need to think about the growth path that we're on and how many states we want to open at one time. But we're certainly having very active discussions on a number of states, with Texas certainly being one of the key ones, as we've talked about before.

Great. And sorry, if I could just ask one more here. If we think about the deployment schedule and sort of the cadence of it, assuming that all your partners were willing to deploy quickly. What is right now your sort of your capacity maybe in a quarter to be able to deploy? Because clearly, you did 14 this quarter; I think you did 12 basically at the end of the second quarter. What do you consider your max capacity in terms of resources to be able to deploy currently and maybe your plans for expansion of that capacity?

I'm not going to specify a maximum capacity because it really depends on the installation of the technology at each site. The installation itself is not usually the longest part; it's primarily about educating the clinic staff and our hiring and training of clinic account managers. We have improved our recruiting and training capabilities, but it ultimately depends on how quickly the client wants to proceed. As demand increases, we will need to enhance our internal skills accordingly. This is less about physical installation and more about hiring and training our personnel to support the clinics. As you mentioned, we completed 14 deployments, and we exceeded that in the fourth quarter, reaching a total of 45 for the year.

Is it possible to exceed 45? Or is that just more of a timing issue on the roadmap you have with your partners? Because it seems like you did a little more here in the third quarter than you were indicating last quarter. Does that free up space to do a few more? Or is this kind of set here?

What I would say, Charles, is we're not changing the 45 guidance right now.

We have no further questions, so I will hand back to Ed for any closing remarks.

Thank you all for taking the time and joining us, and we look forward to updating you on our next call. Have a nice evening.

This concludes today's call. Thank you for joining. You may now all disconnect your lines.