Q2 2024 Summary
Published Jan 16, 2025, 9:08 AM UTC- Strong Revenue Growth and Operating Leverage: Myomo's product revenues increased by over 70% in Q2 2024, while operating expenses grew only 20%, demonstrating significant operating leverage and efficient scaling of the business.
- High and Expanding Gross Margins: The company achieved a gross margin of 70% in Q2 2024 and anticipates potential for further expansion due to increasing average selling prices (ASPs) and volume growth. The asset-light manufacturing model with minimal capital expenditure requirements supports sustaining high gross margins.
- Rapid Expansion of Manufacturing Capacity: Myomo has expanded its monthly manufacturing capacity to 80 units in July, ahead of plan, and is finalizing plans to move to a larger facility to increase capacity beyond 80 units per month by the fourth quarter, with potential for further expansion next year.
- Supply chain constraints and hiring challenges could limit production capacity, as the company depends on hiring good people and managing components with longer lead times.
- Increased advertising spending in the second half may impact the company's ability to achieve operating cash flow breakeven in the fourth quarter.
- The ramp-up in the Orthotics and Prosthetics (O&P) clinic channel may be slower than expected, potentially delaying revenue contributions from this channel.
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Gross Margins Outlook
Q: Is 70% gross margin the new baseline?
A: Management believes 70% is a good baseline gross margin. They see opportunities for expansion as more Medicare Advantage plans reimburse at Medicare allowable rates, potentially increasing average selling prices and helping margins. Increased volume should also contribute, and their asset-light manufacturing model means higher volumes won't hurt margins. -
Manufacturing Capacity Expansion
Q: When will capacity exceed 80 units/month?
A: They expect to expand capacity beyond 80 units per month by the fourth quarter. They've finalized plans to move to a larger facility in the Boston suburbs, allowing them to hire more staff. Next year, they have the runway to expand further, possibly adding a second shift as orders grow. -
O&P Channel Growth Expectations
Q: When will the O&P channel be material?
A: The O&P channel is expected to start contributing materially in 2025. This year focuses on building relationships, training clinicians, and setting up infrastructure. They aim to train 80 to 100 O&P clinicians by the end of the year. -
Impact of Election on Advertising
Q: Will elections affect advertising and pipeline?
A: Yes, during election years, advertising costs rise and availability decreases due to political ads. They've increased advertising spend now to get in front of more people. They typically scale back somewhat in Q4 and ramp up again after the first of the year to maintain pipeline flow. -
Pipeline Conversion Rates Improvement
Q: Can you improve pipeline conversion rates?
A: They've seen improvement, with the authorization rate at about 19%, higher than before. This is driven by Medicare patients who progress faster through the pipeline. As more Medicare patients enter, they expect conversion rates to continue increasing. -
Seasonality Expectations for 2025
Q: What seasonality should we expect in 2025?
A: Historically, revenues are stronger in the second half of the year. The first quarter is usually the softest due to patient deductibles resetting. They aim to minimize seasonal impacts by investing now to keep momentum going into 2025. -
Scaling Up Production Capacity
Q: What will it take to reach higher production units?
A: They've balanced growth across all functions to avoid bottlenecks. By adding staff in intake, reimbursement, manufacturing, and clinical roles, they're scaling without issues. Operating expenses rose 20%, but product revenues increased over 70%, demonstrating operating leverage. -
Hanger Partnership Update
Q: Any update on the Hanger partnership?
A: They've begun training with several O&P clinics, including Hanger. Hanger has shown keen interest and committed to deploying the MyoPro. Training is expected to accelerate in the second half of the year. -
Backlog Drops Analysis
Q: Are backlog drops higher this quarter?
A: The backlog drop rate is within the 15% to 20% range they've been experiencing. Drops were around 48 units, about 18% of the beginning backlog, consistent with expectations. -
Balancing Marketing Spend and Bottom Line
Q: How will you balance increased marketing spend?
A: They acknowledge that increased marketing could impact achieving operating cash flow breakeven in Q4. However, to ensure revenue growth in 2025 and minimize seasonal impacts, they're investing now to bring more patients into the funnel.