MYOS RENS Technology Inc. (MYOS) Q1 2019 Earnings Conference Call May 9, 2019 11:00 AM ET
Matthew Abenante - Senior Vice President, Porter, LeVay & Rose, Inc.
Joseph DiPietro - Financial Controller
Joseph Mannello - Chief Executive Officer
Conference Call Participants
Brian Marckx - Zacks Investment Research
Greetings, and welcome to MYOS RENS Technology Inc.’s First Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to Matthew Abenante, Senior Vice President, Porter, LeVay & Rose. Thank you. Please begin.
Thank you, and thanks to all of you for joining us today. Welcome to the MYOS RENS Technology first quarter 2019 results conference call. Joining us on the call today is Joseph Mannello, Chief Executive Officer; and Joseph DiPietro, Financial Controller.
I would like to remind our listeners that any statements on this call that are not historical facts are forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such statements involve risks and uncertainties, including but not limited to those related to product and customer demand; market acceptance of our products; the ability to create new products through research and development; the successful results of strategic initiatives; the successful launch for our products, including Qurr, Yolked, MYOS Enteral Nutrition Formula and MYOS Canine Muscle Formula products; the success of our research and development, including the clinical studies; the results of the clinical evaluation of Fortetropin and its effects; the ability to enter into new partnership opportunities and the success of our existing partnerships; the ability to generate revenue and cash flow from sales of our products; the ability to increase the revenue and gross profit margin; the ability to achieve a sustainable profitable business; the effective economic conditions; the ability to protect our intellectual property rights; competition from other providers’ products; the continued listing of our securities on the NASDAQ stock market; risks in product development; our ability to raise capital to fund continuing operation and other factors discussed from time to time in our filings with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statements for events or circumstances after the date on which such statement is made except as required by law. The statements made on today’s call have not been evaluated by the Food and Drug Administration. Our products are not intended to diagnose, treat, cure or prevent any disease.
With that, I’d like to turn the call over to our first speaker, Joseph DiPietro, to go over financial results. Good morning, Joe.
Good morning, everyone. Thank you for joining us. I’m going to go over our first quarter of 2019 financial highlights. All the dollar figures I will be referencing will be in thousands.
For this first quarter of 2019, net revenues increased 161% to $149 compared to $57 for the first quarter of 2018. Cost of sales for the three months ended March 31, 2019, increased $30, or 97% to $61, compared to cost of sales of $31 for the three months ended March 31, 2018, primarily due to an increase in cost for our new products.
Gross profit increased 238% to $88 for the first quarter of 2019 compared to $26 for the first quarter of 2018, and gross profit margin was 59% for the first quarter of 2019 compared to 46% for the first quarter of 2018.
Operating expenses decreased 15% to $1,051 for the first quarter of 2019, compared to $1,238 for the first quarter of 2018. Our net loss decreased 20% to $975 for the first quarter of 2019, compared to $1,213 for the first quarter of 2018.
As of March 31, 2019, we had cash of $2,197 and total assets of $4,055. Net cash provided by operating activities for the three months ended March 31, 2019 was $104, an increase of $1,093 compared to $989 used in operating activities for the three months ended March 31, 2018.
Cash increased $2,182 primarily due to net proceeds provided by financing activities of $2,078 and $104 provided by operating activities during the three months ended March 31, 2019. Our working capital increased $1,152 to $4,055 as of March 31, 2019, compared to $2,903 at December 31, 2018.
Our total current liabilities decreased $484 primarily due to increase in accounts payable, accrued food expenses and other liabilities of $244 and a conversion of $250 of the promissory note payable offset by accrued interest obtained.
I’d now like to turn the call over to our Chief Executive Officer, Joseph Mannello.
Thank you, Joe. Good morning, everyone, and thank you for being on the call today. It was a very eventful first quarter for MYOS. 2019 has gotten off to a great start. Customers continue to enthusiastically respond to our products and we have our eyes firmly fixed on our mission to change the way people think about the importance of muscle health, both in humans and dogs.
It’s been nearly a year after the launch of our first veterinary product, MYOS Canine Muscle Formula, and has already contributed significantly to our top line growth from last year. Our customers range from veterinary practice to dog owners. We’ve gotten tremendous feedback and testimonials from our customers and posted many of their comments on the myospet.com website. In addition, we’ve added MYOS Canine on Amazon and the comments have been very impressive. I urge you to take a look at them.
I want to share one that I’ve received from a veterinarian in Canada, and the reason I like this so much is, because it’s a veterinarian. She got someone in New York to send her the product. We were not up in Canada yet. And she had a 12.5-year old Newfoundland. And she wrote us this, "Newfoundland has begin to experience muscle loss, weakness and arthritis. And after 2 weeks on Fortetropin, there was a noticeable increase in stamina." And the – her Newfoundland was bouncing like a puppy again.
She has recommended it to several clients who are noticing a definitive change in their senior canine friends. She is now working with us to try to get the product in Canada, and we hope to have that soon. But the notion that customers rave about it, but then we get vets rave about it is really what’s so exciting.
As I said since taking over as CEO, the success of our products is driven by our ability to research the clinical uses of our key ingredient, Fortetropin, to fully leverage its capabilities. Back in January, we announced the results of our study at the College of Veterinary Medicine at KSU, which demonstrated that Fortetropin prevents muscle loss in dogs after surgery and enhances recovery.
The full study results will be submitted for publication in a scientific journal in the coming months, which will be key for us, particularly when introducing MYOS Canine to veterinary practice. Building on this study and listening to all the customers and vets, we announced the launch of a new study at KSU to evaluate the impact of Fortetropin on quality of life and activity in geriatric dogs; dogs that are experiencing weakness, weight loss, slow or altered mobility and exercise intolerance. The results of the study will help us determine our future growth objectives in animal health.
While I’m pleased with the current progress – early progress, I should say, of MYOS Canine, I believe that the market is unlimited and the potential is unlimited in the vet market. We have yet to explore or launch the product in cats. We’ve already received positive anecdotal evidence similar to what we’ve seen in dogs. And we are working with a trainer in the equine market, in the horse market.
We believe that it has the potential to benefit people in that market. And after being and losing money at the Kentucky Derby this weekend, even having the horse that won for at least a short period of time, the amount of money that is available from trainers and owners of horses would truly be a great for MYOS.
Next, I want to turn to our NSF Certified for Sport nutrition brand, Yolked. And I’m pleased with the progress since we really went out commercially with this product December/January of this year to really launch it. I’m very excited about the name, the brand and increasing our customer base.
Fortetropin has a great customer base and they’ve stayed with us through name changes. I do think Yolked is a stronger, more defined brand. And the addition of NSF just adds and make it more powerful as we target competitive athletes at the collegiate level, professional level and their fans.
When people ask me why we partnered with Learfield/IMG and Endeavor on the collegiate marketing partnership, I’ve always weighted the cost of building an internal marketing team versus partnering with the long-establishing industry leader, such as IMG.
IMG helped us spearhead the brand switch to Yolked and, in a short period of time, has expanded our collegiate marketing program to nine universities, which include: Virginia Tech, West Virginia, Marshall, Princeton, Rutgers, University of Pittsburgh, St. John’s and University of Delaware.
Yolked is featured in the athletic department’s official website and official social media channels and has been a staple at basketball home games throughout the season as a sponsor of nightly on-court fan contest, T-shirt toss promotions, et cetera. And I invite you to visit yolked.com to view all the photos of our brand being features at these game.
And I truly don’t believe we could begin building a footprint – could have begin building a footprint so quickly without the support of IMG. And – but you should know, I’m always evaluating return on investment and I will look at all the money we spent on marketing and advertising and make sure that it leads incrementally to a good return for shareholders.
In February, we announced our first endorsement deal with NBA superstar, Aaron Gordon, of the Orlando Magic. I want to congratulate Aaron and Orlando for making the NBA playoffs for the first time in seven years. And a 23-year old, Aaron is truly a rising star in basketball and he is even a better person on the court. Aaron is serving as an endorser of Yolked to all basketball fans in the U.S. and, I guess, the way basketball is today around the world.
We’ve begun rolling out some ads featuring Aaron through social media and there’s a lot more to come. He is truly an ambassador for Yolked, and I’m very, very happy the credibility that Aaron has given us. When you go and our salespeople are out on the road or we’re talking to distributors, the fact that they see an Aaron Gordon as an endorser just gives the company and the product more credibility. So it’s an intangible that we’ve thought of that will help jump-start the Yolked brand.
As you know, we announced the sales partnership with The Vitamin Shoppe and they took product delivery this quarter. And it’s – we’re now in 75 – 775 store locations and online at vitaminshoppe.com. We also announced a major national brokerage agreement last month with National Sales Associates, NSA, as they’re called as a highly experienced sales network of eight regional offices with over 160 associates who are going to begin selling MYOS Canine and – both Yolked and MYOS Canine.
They specialize in natural, organic and specialty products, selling just some of the country’s most well-known independent natural chains, as well as large chains like Whole Foods. Combining their experience in this space, I think, is a perfect fit for Yolked and MYOS Canine, which are unique in a story. And I think we fit in the stores that NSA brokers and distributors sell to. I encourage all of you to visit their website. It’s nationalsalesllc.com and to see their lineup of retail stores.
We’ve already had a teach-in with them, April – mid-April, where we spoke to their 110 reps who are going out with the product. And I expect to start seeing the benefit of that in the fall. This is a long time lag when you’re getting into these specialty stores or retail large boxes.
I also mentioned in last night’s press release that the litigation between MYOS RENS and RENS Technologies in the state of Nevada has been dismissed, and we are currently in settlement discussions regarding the litigation in the state of New York. All these efforts I’ve discussed today are working towards the goal of building and growing shareholder value.
We managed to reduce costs from a year ago, which I’m very proud of, particularly when you consider we were only selling one brand – a product last year. We also successfully raised the necessary capital to ensure our financial runway for our business without having to use what I consider toxic warrants or options.
I personally invested in a recent private placement offering, as well as private offerings, because I believe management should always have skin in the game and more importantly, because of what we’ve built today and the growth opportunities we have over the long-term. We have to continue to execute our growth plans and continue to build shareholder value, but know I’m in this boat with you.
I’ve covered a lot of territory this morning. It’s an exciting time for the company, and things have never looked better. I want to thank our loyal shareholders for their continued support.
And I’ll now turn over the call to Q&A. Thank you.
Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] And thank you. Our first question comes from the line of Brian Marckx with Zacks Investment Research. Please proceed.
Good morning, guys, and congrats on the quarter and all the progress. Joe, I wanted to ask you about gross margin. I don’t know if this is too early in the game to be asking this question or not. The margin was 59% as you guys mentioned, which is up quite a bit from every quarter the prior year. Is that something that is, I guess, significant in terms of anything relevant that’s going on in the business, or is it product mix related, or is it something else? And is that something that we can look at as potentially a basis for going forward?
I don’t think it is, Brian. I think it’s way too early in the game. And as we move into more of the brick-and-mortar and that will probably get to a more normal level. I don’t – I do believe it’s too early in the game to look at that.
Yes, okay. Okay.
I’ like to say we could keep it there and it’s going to be phenomenal, but I’m being realistic.
Yes, yes, totally understand. The – so the feedback for MYOS Canine sounds extremely encouraging. I was wondering if there’s key opinion leaders in the veterinarian community like there are in the human medical community. And if there are – if that’s something that you’ve considered addressing in terms of potentially using key opinion leaders as essentially references for the product?
The answer is yes. We think our best key opinion leaders are the people, the veterinarians, who have experience with the product. For example, Ken Harkin, who is doing a research; Leilanie Alvarez at Animal Medical Center, who did – she did research basically giving it to geriatric dogs and dogs with neuromuscular disorders over a three-month period. She is a key opinion leader for us.
We have other vets that are spreading the word as they get their product. We have canine rehab centers that – so word of mouth there is tremendous. I do agree if we could find that one key opinion leader or multiple that are unique to the space – we have not yet found them. We’ve gotten some great writeups in some of the vet magazines, which have really helped spur sales and get vets interested.
Let me just give you an idea of how we’re approaching vets through a distributor on the East Coast. We added a vet tab on our website. And through social media and other methods, we reach out to vets and give them an easy way to become part of the MYOS Canine Muscle Formula team.
We will – because vets don’t have the time, they’re not great at managing their business often. So we have made it easier for them, and the response has really been good and we just launched this. It’s basically a way for us to send them marketing material, manage their business, we will deliver it, and we get better margins, and they get a check, and they get their customers.
One of the issues a lot of brick-and-mortar as well as vets have is, they sell a product and then people come home and go and buy direct from Amazon or Chewy or some other service. We’ve set up a way where their customers could get it at a better price to them. The vet can get paid, we can ship it and we get better margins. So it’s a program that we tested. We got a great response and we’re going to continue to roll out.
So again, I left your question about key opinion leaders. But word of mouth in that area, for example, Ken Harkin, are – goes and speaks to vets. We’re going to have him at a vet conference, another large one, and we’ll continue to do that and use people who have experience with the product as our spokespeople.
Okay. In terms of the Kansas City’s – or the Kansas State University quality-of-life study, that sounds like that would be – yes, it could be compelling just for the fact that a lot of dog owners, as their dogs get old, they can – they have experience with that. So what was – do you know kind of what the timeline is or the status of one that might start when that could finish?
I expect it to start soon. If I had a put – a timing, I think that I expect it to finish in the fourth quarter or first quarter of 2020. These are always guesses. I do expect that to be a quicker study, because I’m optimistic that we’ll see results quicker from all the anecdotal evidence.
And don’t – when we look at – and I know – I could make a case that they shutdown everything but the pet product, because it – it’s just doing so well and very little competition, if any, and build it through other pets. But what’s beautiful about the Kansas State study on TPLO surgery and now this.
Is there clinical studies for humans? Just don’t forget we have a sarcopenia study at Berkeley coming out. There’s always risk with studies. But hopefully, those results will come out sometime soon. And geriatric, if we see good results with a geriatric study with dogs, think of those markets, sarcopenia market, think of the geriatric market. And if our products can have the same benefit we see in dog, in humans scientifically, we see it anecdotally.
But if we can prove that scientifically, think of the power of Fortetropin or the value to get in the market of 50 to 100 and people looking at – for a product as they experience rapid muscle atrophy. We proved in the Kansas State study with these dogs have reduced less muscle atrophy than dogs who are on a placebo.
So we can make the statement that our product, Fortetropin, has been scientifically proven to reduce muscle atrophy. That’s not big for someone who is 25, it’s very big for someone who is 55, 65, 75 and up. So there’s a message to our science madness that I’m incredibly excited about.
Are you marketing with a claim relative to that, or do you have it planned for on the label of the product?
We’re – there are plans. We are working on it right now about the marketing, because we can say, like I said, – we can say clinically proven to increase lean muscle mass and size and scientifically proven to decrease muscle atrophy. Both of those are scientifically accurate.
So we could say – because clinically proven is stronger than scientifically proven. But we can say, scientifically proven to build lean muscle mass and size and scientifically proven to decrease muscle atrophy. We can make those things and we are working on the marketing plan for that.
So if we went to Amazon potentially in the future, when you look at the description of the product, it may in the future have a ballpoint saying something to that effect. Is that right?
We could say it now. Like I said, we are – I can’t give you forward-looking things. But I can tell you we’re planning on soon addressing the 40-and-older crowd in a more – we have numerous customers in that crowd who have experienced great benefits. But Yolked is a – the Yolked name and the – what we’re doing with IMG is really focused on the younger athletes, the CrossFit, et cetera, et cetera, et cetera.
We are putting more energy and more focus on that 40, 50 and older and we hope to do it. We have science already, but we hope to add more science to that. And that, that market is huge, because people are looking at longevity there. They’re thinking about it very differently.
Okay. In terms of your distribution – your U.S. distribution, specifically in retail, you got the NSA deal going. You have the Vitamin Shoppe. You have a couple of other things. Are – is this a continued progress – process, where you are continuing to look for other potential retailers or distributors?
Yes. We have three salespeople who also are targeting brick-and-mortar. And we – there are so many avenues here for our product. But like I said, we have salespeople who continue to look at the retail area, and we do have other retail customers whether they’re small nutrition stores, medium size. It amazes me not being from this business how many, 5, 10, 15 store – small chains are out there in the nutrition space. So the answer is yes.
We’re targeting the armed forces. We’re targeting testosterone clinics, and we’re targeting chiropractors through a relationship with the distributor. We’re targeting fitness centers. So – I mean muscle is – you need muscle. So there’s tremendous opportunities around it.
So we are trying to reach – it’s very targeted, don’t get me wrong, but we have plans for all different areas. But we’re using distributors and brokers to get us there, as well as our three salespeople. I don’t want 100% sales force. I’d rather pay for it, because I can walk away if they stink.
Yes. Last one on the Rutgers University study. Do you know what the status of that is or the – there was a – you had a collaboration with Rutgers University. Just kind of wonder where that stands?
It’s ongoing. We speak to them every two weeks. Again, that is – as I said, it’s longer-term to really work on potentially different aspects of our product, the mechanism of action. So it’s not one day where we’ll say, "Oh, we concluded X." That’s really a discovery study for us for different ways to use the product, formulated, et cetera. And so I can only tell you, it continues to – it’s – I’m happy with where it’s at. And like I said, it’s not something that I have an end date in mind.
Yes. Yes, I understood. Thanks, Joe. I appreciate it.
Thank you, Brian.
Thank you. [Operator Instructions] Thank you. We have reached the end of our question-and-answer session. I’d like to hand the floor back over to management for closing remarks.
Hi, everyone. I want to thank everyone for being such loyal shareholders for being on the call, and just know that everyone here at MYOS is committed to creating shareholder value. If you have any questions, any thoughts, we’d love help from our shareholders. If you know vets, if you know trainers, if you have ideas, I will tell you just being in this seat for a short period of time, I’ve gotten great ideas from people who are stakeholders in the company. So always call me. I’ll always make time available for our shareholders. So again, thank you, enjoy, and we’ll speak to you in a couple of months. Take care.
Thank you. This concludes today’s conference. You may disconnect your lines at this time, and thank you for your participation.