Myomo, Inc. Q1 FY2023 Earnings Call

Hello, everyone, and thank you for joining MedAvail's 2023 First Quarter Conference Call. My name is Alicia, and I'll be your operator for today. As a reminder, this conference is being recorded. I now have the pleasure of handing over the call to your host, Steve Halper, Managing Director at LifeSci Advisors. Please go ahead.

Thank you all for participating in today's call. Joining me are Mark Doerr, Chief Executive Officer; and Ramona Seabaugh, Chief Financial Officer. Earlier today, MedAvail Holdings, Inc., referred to as MedAvail, released financial results for the first quarter of 2023. 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 the call, including statements or responses in addressing your questions that include forward-looking statements within the meaning of federal securities laws. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call in response to your questions that relate to expectations or predictions of future events, results or performance, or similar statements are forward-looking statements. All forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by those statements. Accordingly, you should not place undue reliance on these statements. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 15, 2023.

Thank you, Steve, and thanks to all of you for joining us this afternoon for our First Quarter 2023 financial and operational update. During the first quarter, we continued to make excellent progress executing on our mission to become a leading pharmacy technology company. Following our announcement in January that we were divesting the SpotRx Pharmacy Services business, which we subsequently sold to CVS during the quarter, we pivoted towards our Pharmacy Technology business that we believe can address key unmet needs in the pharmacy market, including workforce shortages and medication access challenges, especially in rural and less populated areas. With the MedCenter, we bring prescription medication dispensing to the point of care through our innovative hardware and software platforms. While it is still early, our leading indicators suggest that our strategy is working, as evidenced by our robust and growing pipeline, which consists of both existing and new partners that I will discuss in more detail shortly. Our successful integration with the Epic Willow Pharmacy Management System is providing a significant tailwind for us and is resonating with many primary care and urgent care clinics across the U.S. who utilize that system. We are closely monitoring state regulations and playing an active role where possible to create regulatory environments that favor remote kiosk pharmacy dispensing, having played a critical role in Colorado, where legislation was signed into law supporting our MedCenter technology. We believe additional states will embrace the many advantages of kiosk dispensing to both the clinic and patient. We are executing against our plan and remain on track to nearly double our footprint this year with 25 net new dispensing MedCenters in the field during 2023. Our early progress is very encouraging and gives me confidence that we have placed MedAvail on a path to success. Looking at the quarter, we generated revenue of $620,000 and installed 4 net new dispensing MedCenters. Ramona will cover the financials and guidance shortly, but we remain on track to generate total revenue of $3 million for 2023, representing more than 100% growth over pharmacy technology revenue of $1.4 million for the full year 2022. Assuming we are successful in placing 25 net new MedCenters in the field this year, we would exit the year with 57 dispensing MedCenters by year-end. We are excited about laying a foundation for future growth and profitability. On the topic of SpotRx, the planned divestiture and wind-down of that business are progressing as planned. As we indicated previously, this transaction reduced our headcount by approximately 75%, our annual operating expenses run rate by $35 to $37 million, and our cash usage by about 65%. We anticipate being substantially done by the end of the second quarter, and the majority of expenses associated with the closure, which have been lower than projected, are expected to be captured in the second quarter as well. Taking a step back for those who may be new to the story, on January 19, MedAvail announced a shift in focus from our SpotRx pharmacy services business to our emerging pharmacy technology business. The core technology of MedAvail, which includes our MedCenter, dispensing kiosks, and the associated proprietary MedDispense software, is our value proposition. The ability to remotely dispense 600 to 1,000 medications in roughly 13 square feet is a cost-effective way to bring pharmacy to the point of care, likened to having a pharmacy in a box. Through the MedAvail technology business, we offer partners the ability to purchase or lease the MedCenter and to license our software to provide point-of-prescribing dispensing solutions under their own brand. In our pharmacy technology model, partners employ their own pharmacy staff and procure their own inventory. The MedCenter allows patients to easily initiate medication therapy while avoiding an inconvenient separate trip to a retail pharmacy, potentially reducing prescription abandonment rates and leading to improved patient outcomes. Additionally, pharmacies currently suffer from a shortage of both pharmacists and pharmacy technicians, restricting or delaying patient access to medication. This persistent pharmacy labor shortage has not improved. The MedCenter is designed to enhance quality and safety through integrated barcode technology and convenience, with expeditious dispensing times averaging 5 to 7 minutes while offering access to a live pharmacist when needed. There are additional benefits for clinics that offer the convenience of point-of-prescription medication dispensing, including improved quality ratings associated with medication compliance and increased patient satisfaction that can drive potential incremental reimbursement revenue. With the wind-down of SpotRx well underway, we have continued to look for opportunities within our pharmacy technology business to manage expenses carefully and become more agile and efficient. To that end, we conducted an additional reduction in force at the end of April, mostly impacting our development and quality assurance teams. This was another difficult but necessary action that further reduced our overall headcount by approximately 27%. Prior to this action, we started a partnership with the software engineering company Encora for future development activities. Encora has significant experience in software development, specifically integrations with various pharmacy management systems used by our partners. We have integrated with Epic Willow and McKesson EnterpriseRx systems, but several other pharmacy management systems are in use in the market, and the Encora partnership will facilitate faster completion of integrations with these systems. We can complete a proof-of-concept integration in 6 to 8 weeks for partners wishing to accelerate the deployment of the MedCenter. We also terminated our agreement with our kiosk manufacturer Kitron, given the more than 100 prebuilt MedCenters we currently have in inventory and are bringing MedCenter service in-house, which previously used an external vendor. This not only improves our current expense run rate but should also enhance the experience for our partners. We are continually exploring options for service and manufacturing that align with our expansion and sales pipeline. In the second quarter, we anticipate bringing our first partner live on our cloud-based software platform, hosted on Google Cloud. This new partner will enable us to migrate all partners to the cloud before the end of the year, further reducing costs and accelerating MedCenter deployments. This migration will be primarily executed by in-house resources, minimally disrupting partners and expected to be completed by year-end. In summary, we are identifying and continue to identify areas of our core pharmacy technology business that can be executed more efficiently. Every decision is made after careful consideration of alternatives, considering the partner and patient experience in mind. We are committed to operating a lean organization capable of responding quickly to new growth opportunities as they emerge.

Thanks, Mark. I will begin with a review of first quarter results before touching on our 2023 outlook. The following comparisons exclude discontinued operations. For the first quarter of 2023, we generated total revenue of approximately $620,000, representing growth of 134% over pharmacy technology revenue in the comparable period in 2022 of $265,000 and growth of 143% over fourth quarter 2022 pharmacy technology revenue of $255,000. Looking at gross profit, total gross profit for the first quarter of 2023 was 41.5%, in line with our expectations. We anticipate a gross margin in excess of 60% for the full year, which would represent a significant improvement from our full year 2022 gross margin of 47%. Total pharmacy technology operating expenses for the first quarter of 2023 were $5.3 million, down from $5.5 million in the first quarter of 2022. As Mark indicated, we continue to evaluate the operations of our core pharmacy technology business in search of efficiencies. Total company adjusted EBITDA for the first quarter showed a loss of $3.7 million, representing a 15.9% improvement from a $4.4 million loss in the first quarter of 2022. At the end of the first quarter of 2023, we had 80.3 million weighted average shares outstanding. In terms of our guidance for 2023, it remains unchanged from our fourth quarter update call. We anticipate adding 25 net new dispensing MedCenters throughout the year, which, in addition to the 32 dispensing MedCenters we ended Q1 with, would enable us to exit 2023 with a network of 57 revenue-generating MedCenters. We anticipate that full-year revenue will be approximately $3 million, which represents growth of well over 100% compared to pharmacy technology revenue of $1.4 million for the full year 2022. We further assume a gross margin in excess of 60%, significantly above 45%, representing a fully costed margin at current volumes and reflecting nice expansion relative to our pharmacy technology gross margin of 47% reported for full year 2022. Recapping the assumptions we provided on our last call for modeling purposes, we assume a blended average selling price of $65,000 per MedCenter kiosk. The actual price to purchase a kiosk is higher, but $65,000 reflects our current mix of business between sales and leases of approximately 50-50. Additionally, we assume $25,000 per year per machine for the software license and maintenance. In terms of cash, we ended the first quarter with cash and cash equivalents of $19.5 million, including $676,000 of restricted cash. During the first quarter, we used $2.8 million in cash to fund our operations, excluding $6 million attributable to discontinued operations of the SpotRx Pharmacy Services business and pay down of our Silicon Valley Bank debt and final payment requirements. We anticipate a full-year cash usage attributable to the divestiture and wind down of SpotRx to be approximately $6.5 million. We expect the combination of higher revenue and margin along with lower expenses will reduce our quarterly cash burn, excluding SpotRx throughout the balance of this year. We anticipate our current cash will be sufficient to fund our operations at least through 2025, at which point we believe we can achieve profitability, potentially eliminating the need for additional dilutive equity financing. That concludes the financial overview, and I will now turn the call back over to Mark.

Thank you, Ramona. To sum up, I am very pleased with the significant progress we have made in the relatively short time since we announced the sale of SpotRx to CVS in January. By focusing exclusively on the pharmacy technology side of the business, I believe we can strike a balance between long-term top-line growth and profitability. I also believe we are on the right track to be a leader in pharmacy kiosk dispensing to the benefit of both clinics and patients while creating enduring value for our shareholders. At this point, we'd like to open the call for your questions. Operator?

Our first question is from Charles Rhyee with TD Cowen.

This is Lucas on for Charles. I wanted to ask about the 25 MedCenter deployments guided for 2023. Can you give us a sense of the mix of customer type between urgent care clinics and primary care clinics and where you're seeing more traction? And then on the number of expected MedCenter deployments coming from new customers compared to existing customers?

Yes, Lucas. Thank you for the question. On the mix between urgent care and primary care, we're continuing to see a pretty even mix across the two, with probably a little more coming from the urgent care market, which seems to have a little more momentum at this point. Existing customers vs new customers shows new customers representing about two-thirds of the pipeline right now, while existing customers account for about one-third based on commitments and contracted units.

Okay, great. And then you guys noted that you were part of opening up legislation in Colorado. Curious if you are focusing on states where you've already been or are you taking a broader approach in your go-to-market strategy?

Yes. We're primarily focused on the states where we've operated so we can be more effective, efficient, and quicker on a go-to-market basis. So, Texas, Florida, and Louisiana are key states for us. However, we look at opportunities to expand into new states as partners come to us. We're active in Colorado, having pushed that legislation through, and we continue to speak with potential partners in new states.

I understand that you've retrieved 100% of the MedCenters that were part of the SpotRx Pharmacy network. Has there been any conversation about reigniting that relationship following their recent acquisition?

I can't speak specifically to any dialogue that's ongoing. I will say we had a strong partnership with Oak Street, and while we've removed the MedCenters based on timing, there may be an opportunity based on the way the clinics were structured and the performance we had previously, although I can’t elaborate further on that relationship.

Regarding your cash runway due in 2025 and potential profitability, can you break down the components needed to reach profitability?

At this point, we prefer not to go through the annual expectations. This quarter, we spent about $2.8 million on technology and about $6 million on discontinued operations. We expect those discontinued expenses to cease after this year, which may help in calculating the remaining costs in subsequent years.

Can you indicate when the integrations of other pharmacy management systems are expected and whether that could open up opportunities for new clients?

We routinely track our pipeline by potential partners and their pharmacy management systems to guide our focus on full integrations. We are close to deploying with Curant, which will help open opportunities. We anticipate at least 1 or 2 more integrations by the end of the year, focusing on those like Epic and McKesson that power a significant portion of our pipeline for efficiency and effectiveness.

Thank you. We do not have any further questions at this time. So I'm going to hand it back to Mark Doerr for final remarks.

I just want to say thank you again to everyone that joined the call or webcast. We look forward to our next quarterly update in August. Have a good evening, and stay safe.

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