Myomo, Inc. 2018 First-Quarter 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 primarily through orthotics and prosthetics practices, the Veterans Health Administration, hospitals, and distributors including Ottobock. The filing covers the three months ended March 31, 2018, compared with the three months ended March 31, 2017.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $313,179 | $216,231 | Up 45% |
| Gross margin | $205,099 | $137,662 | Up 49% |
| Gross margin percentage | 65% | 64% | Up 1 percentage point |
| Operating expenses | $2,607,996 | $1,501,351 | Up 74% |
| Loss from operations | $(2,402,897) | $(1,363,689) | Loss increased |
| Net loss | $(2,345,402) | $(1,556,400) | Loss increased 51% |
| Net loss per share | $(0.20) | $(1.55) | Lower loss per share due primarily to higher share count |
| Adjusted EBITDA | $(2,051,943) | $(1,341,381) | Loss increased |
| Cash used in operating activities | $(2,265,360) | $(1,161,758) | Use increased |
At March 31, 2018, cash and cash equivalents were $14.1 million, restricted cash was $52,000, working capital was $13.8 million, and total liabilities were $1.2 million. The filing states that the Company had no outstanding debt following the conversion or repayment of prior notes in 2017. A common-stock warrant liability of $24,623 remained outstanding.
Material changes versus the prior comparable period
- Product revenue increased 56%, or approximately $111,000. Total revenue benefited from increased product sales, while grant revenue declined to approximately $4,500 from $18,400.
- Q1 2017 included approximately $37,000 of revenue from remaining minimum purchase commitments under the prior Össur distribution arrangement.
- Gross margin remained broadly stable at 65% versus 64%. The 2018 period benefited from a $28,000 decrease in inventory reserves, partly offset by higher warranty costs associated with the newer product line and its three-year warranty.
- Research and development expense increased 4% to $372,359. Selling, general and administrative expense increased 95% to $2.2 million, driven by additional personnel, higher stock-based compensation, professional and consulting fees, travel, office costs, and marketing.
- Stock-based compensation increased to $336,355 from $20,139, primarily affecting selling, general and administrative expense.
- Financing activities provided $3.5 million, principally from the exercise of warrants. In Q1 2017, financing proceeds primarily came from a convertible note offering.
- Common shares issued increased substantially, including 1,203,556 shares issued upon warrant exercises. Shares outstanding were approximately 12.4 million at March 31, 2018 versus approximately 11.1 million at December 31, 2017.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects product revenue to grow through increased selling and marketing efforts, particularly through orthotics and prosthetics channel partners. The filing does not provide quantitative revenue or earnings guidance.
- Ottobock has no guaranteed minimum purchase requirement for 2018; management expects Ottobock revenue to decline significantly compared with 2017. The Company currently sells almost exclusively in the United States despite having obtained CE Mark and Canadian regulatory clearance.
- The financial statements contain a going-concern disclosure. The Company incurred a $2.3 million quarterly net loss, used $2.3 million in operating cash, and had an accumulated deficit of $37.3 million. Management states that existing cash may not support currently planned operations beyond the next 12 months and that additional financing is required.
- Management expects to seek additional equity or debt financing, warrant exercises, or other capital sources, but provides no assurance that financing will be available on acceptable terms. Failure to obtain capital could require curtailing or delaying operations.
- Reimbursement remains a central risk. MyoPro reimbursement is obtained primarily case by case, and the Company has not established broad Medicare or private-payer coverage. The outcome and timing of its HCPCS code application are uncertain.
- The Company relies on third parties for manufacturing, component supply, and custom fabrication, including Cogmedix and a related-party fabrication provider. Disruptions, quality issues, regulatory actions, or capacity constraints could affect sales and margins.
- Two customers represented approximately 41% of Q1 2018 revenue, including approximately 24% from a related party. Four customers represented approximately 91% of accounts receivable at March 31, 2018.
- Clinical research contracts had approximately $182,600 remaining at March 31, 2018. No material litigation was pending.
- Subsequent events included minor stock issuances, adoption of a proposed 2018 equity incentive plan subject to stockholder approval, and additional warrant exercises.
Important facts for investors to verify
- Whether revenue growth can continue after the loss of Ottobock minimum purchase commitments and the expected decline in grant revenue.
- Actual cash-burn rates, financing availability, and the timing and terms of any future equity or debt financing.
- Progress toward broad reimbursement coverage, including the HCPCS code application and payer decisions.
- Customer concentration, related-party sales and service transactions, and collectability of accounts receivable.
- Potential dilution from approximately 5.1 million outstanding warrant shares, approximately 573,500 stock-option shares, restricted awards, and future equity offerings.
- Manufacturing, supply-chain, regulatory, warranty, clinical, and intellectual-property developments affecting the MyoPro product line.