Myomo, Inc. 2019 Q1 Form 10-Q Summary
Business Context and Reporting Period
Myomo develops and sells MyoPro myoelectric upper-limb orthoses for people with neuromuscular disorders. Products are sold through orthotics and prosthetics providers, the Veterans Health Administration, rehabilitation hospitals, distributors, and increasingly directly to patients with insurance billing. The filing covers the unaudited three months ended March 31, 2019, compared with the three months ended March 31, 2018.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $830,066 | $313,179 | +$516,887, or 165% |
| Cost of revenue | $176,187 | $108,080 | +63% |
| Gross profit | $653,879 | $205,099 | +219% |
| Gross margin | 79% | 65% | +14 percentage points |
| Operating expenses | $3,336,674 | $2,607,996 | +28% |
| Loss from operations | $(2,682,795) | $(2,402,897) | Higher loss |
| Net loss | $(2,598,060) | $(2,345,402) | Higher loss |
| Adjusted EBITDA | $(2,453,563) | $(2,051,943) | Higher loss |
| Net loss per share | $(0.17) | $(0.20) | Improved per share |
| Cash used in operating activities | $(3,119,882) | $(2,265,360) | Greater cash burn |
Q1 2019 revenue included $650,664 from O&P providers and $179,402 from direct-to-patient sales. Management attributed the revenue increase to higher average selling prices and increased unit volume. The gross-margin improvement was primarily attributed to the higher average selling price of devices sold directly to patients.
Financial Position, Liquidity and Capitalization
- Cash and cash equivalents were $9.2 million at March 31, 2019, compared with $6.5 million at December 31, 2018. Cash, cash equivalents and restricted cash totaled $9.3 million.
- Working capital was approximately $9.1 million, compared with $6.0 million at year-end 2018.
- Total liabilities were $1.6 million, all classified as current; the filing reports no non-current debt or other non-current liabilities.
- Stockholders’ equity was $9.5 million, compared with $6.4 million at December 31, 2018.
- Accumulated deficit was approximately $48.0 million at March 31, 2019.
- The February 2019 public offering generated approximately $5.6 million of net proceeds from the sale of 4,542,500 shares. The company also issued an underwriter warrant for 363,400 shares at an exercise price of $1.75.
- Derivative liabilities increased to $157,927, primarily reflecting the February 2019 underwriter warrant, and were subject to recurring fair-value adjustments.
Material Changes Versus the Prior Comparable Period
- Revenue increased 165%, while gross margin rose from 65% to 79%.
- Research and development expense increased 44% to $535,254, primarily due to higher headcount and personnel costs.
- Selling, general and administrative expense increased 25% to $2.8 million, primarily due to higher headcount and personnel costs.
- Net loss increased to $2.6 million from $2.3 million, and operating cash burn increased to $3.1 million from $2.3 million.
- Financing cash inflow was $5.8 million, compared with $3.5 million in Q1 2018, when proceeds primarily came from warrant exercises.
- The company adopted ASC 606 on January 1, 2019 using the modified retrospective method. The adoption reduced opening accumulated deficit by approximately $123,447 and reduced opening inventory and prepaid expenses; management stated that the ongoing income-statement impact was not material.
- Weighted-average shares outstanding increased to 14.9 million from 11.9 million, reflecting equity issuances, which contributed to the lower loss per share despite the higher net loss.
Outlook, Commentary and Risks
Management expects operating losses and negative operating cash flow to continue as it expands sales and marketing, develops products, conducts clinical research, and pursues broader insurance reimbursement. Based on the filing’s operating plan, existing cash was expected to fund operations into the beginning of 2020, but not for the twelve months following issuance of the financial statements. The company expects to require additional equity or debt financing and states that failure to obtain capital could require it to curtail or discontinue operations.
- The financial statements contain a substantial-doubt going-concern disclosure. Management’s plans depend primarily on raising additional capital and achieving profitable operations, with no assurance that financing will be available on acceptable terms.
- Medicare HCPCS codes became effective in January 2019, but CMS had not yet issued coverage criteria or an allowable fee. Reimbursement remains substantially dependent on case-by-case approvals and third-party payer decisions.
- The company relies on a single contract manufacturer, Cogmedix, limited component suppliers, and a related party for custom fabrication services.
- Three customers represented approximately 15%, 13%, and 11% of Q1 2019 revenue; three customers represented approximately 20%, 20%, and 16% of accounts receivable at March 31, 2019.
- The company has significant potential dilution from approximately 5.1 million warrant shares, 723,746 stock options, restricted stock units, and restricted stock. The filing also reports approximately 5.1 million total warrant shares outstanding at March 31, 2019 in its financial statement disclosures.
- Key risks include reimbursement uncertainty, regulatory compliance, product liability and recalls, intellectual-property protection, dependence on distributors and related parties, competition, limited operating history, and continued equity dilution.
- No material litigation was pending, and the company reported no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Whether CMS ultimately establishes favorable coverage and payment terms for the new HCPCS codes.
- The timing, size, and terms of the company’s next financing and its effect on dilution and liquidity.
- Actual monthly cash burn and whether the stated beginning-of-2020 liquidity outlook remains accurate.
- Whether revenue growth and direct-to-patient sales can scale while maintaining the reported 79% gross margin.
- Customer concentration, receivable collectability, inventory reserves, and reliance on Cogmedix and the related-party fabrication provider.
- The number and exercise terms of outstanding warrants and options, including repricing or anti-dilution provisions.
- Whether the company can achieve profitability before available capital is exhausted.