Q1 2022 Semler Scientific Inc Earnings Call
Good day and welcome to the similar scientific first quarter 2022 financial results conference call.
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Before we begin Daimler scientific we'd like to remind you that this conference call may contain forward looking statements.
Such statements can be identified by words, such as May well expect anticipate intend estimate or words with similar meaning.
Such statements involve a number of risks and uncertainties that could cause that my scientific actual results to differ materially from those discussed here.
Risks include.
Continued uncertainty due to the ongoing COVID-19, pandemic and more recently, the Russian invasion of Ukraine.
Risks associated with Daimler Scientifics extension called the flow to additional cardiovascular diseases.
Distribute its distribution of insulin insight as well as other risks associated with Daimler scientific business.
Please note that these forward looking statements reflects that similar scientific opinions only as of the date of this presentation and it undertakes no obligation to revise or publicly release. The result of any revisions to these forward looking statements in light of new information or future events.
Please refer.
She sounds like Scientifics SEC's filings for a more detailed description of the risk factors that may affect the whole scientific results in these forward looking statements.
Now I would like to introduce Doug My vegetarian G O absent more scientific.
Good afternoon everybody.
Thank you for joining us.
Our first.
First quarter 2022 results call.
I'd like to introduce you to Dennis.
Brokers are.
Truth, Chief marketing officer.
It can go call for us today Dennis.
Thanks, Doug.
We are pleased to report that during the first quarter of 2022 the company's financial performance rebounded in the home testing market with higher volume of sequential revenues, which grew 67% compared to the fourth quarter of 2021.
This was consistent with our expectations regarding the pattern of seasonality in this market and our thoughts about timing of orders by large insurance plans to our health risk assessment customers.
Comparing results for the quarter ended March 31, 2022 to the corresponding period of 'twenty 'twenty. One the highlights are as follows.
Revenues were higher by 6% increasing to $14 million net income was lower by 31% decreasing to $3 $4 million cash at the end of the quarter was $38 $4 million, increasing by $11.9 million.
We believe that the relatively slower growth in the period to period quarterly comparison was due at least in part to the COVID-19 pandemic and more specifically the highly contagious omicron variant, which peaked in most parts of the United States in 2022 to date.
Our staff in many of our customers and prospects experienced a higher than normal rate of employee absence due to illness, which can have a slowing effect on our sales cycle.
That being said there were two significant milestones that we achieved so far this year that I would like to outline for you.
Previously we described to you have some customers took years to study quantum flow before deciding to use it.
We've noted that we funnel all the testing data through our servers and provided back to our customers in a confidential manner, who in turn kept the data privately within their own organizations. Therefore few new how powerful and clinically important the data actually work now.
Now a large customer has published the data underscoring why they use quantity.
We refer to this as the Nevada paper.
The Big picture, the Nevada paper quantify as risk of peripheral arterial disease or P. A D on death and other adverse outcomes.
The Nevada paper justify screening asymptomatic patients in the Medicare advantage population using quantum flow, thus supporting why CMS pays extra so that these patients can be properly cared for.
When the message permeates the medical community, we believe new customers might be attracted to us quite a flow.
The second accomplishment through our internal development efforts quantify <unk> can now be used as an aid to identify patients who would benefit from further evaluation for another underlying cardiovascular disease.
While we are not disclosing the specific disease, yet we believe this extension of quantifiable may make it even more valuable to assist the medical community in the future, including Medicare advantage providers.
We intend to sell this extension to our existing customer base and others as an upgrade to our software as a service business model.
Other key points regarding this extension or the Unserved clinical problem, maybe as important S. P. A D a.
A peer reviewed publication of clinical data has been submitted and is under review.
Our medical aid performs the tests in a primary care setting similar to how one uses quantifiable for P. E D.
And the technology is protected by trade secrets.
Now Andy Weinstein, our senior Vice President of Finance and accounting will describe our financial performance in more detail Andy.
Thanks Dennis.
Please refer to the financial results described in the press release that was distributed at market close today.
For the quarter ended March 31st 2022, compared to the corresponding period of 2021 revenue was $14 million, an increase of $800000 or 6% from $13 $2 million.
Operating expenses, which includes cost of revenue was $10 $1 million, an increase of $2 $1 million were 41% from $7.2 million.
Net income was $3 $4 million, a decrease of $1.5 million or 31% from $4 9 million.
Net income per share was 50 cents per basic share and 41 cents per diluted share, which compares to 73 cents per basic share and 60 cents per diluted share during the same period last year.
For the quarter ended March 31st 2022 basic share count was $6 million 777950, and the diluted share count was $8 million 116456.
Analyzing the expense categories and earnings for the first quarter of 2022 as a percentage of quarterly revenue.
Our cost of revenue was 7% of quarterly revenue.
Engineering and product development expense was 8% of quarterly revenue.
Sales and marketing expense was 33%.
General and administrative expenses or <unk>.
24% of quarterly revenue.
Our net income was 24% of quarterly revenue.
As of March 31, 2022, somewhere had cash of 38 $434 million, which represents an increase of $11 $9 million compared to $26 5 million at March 31st 2021.
Our stockholders' equity is $49 4 million as of March 31st 2022.
On March 14th of this year, we announced the stock repurchase program of up to $20 million.
We established this program because we are positive about the future for similar.
We expect to file our quarterly report on Form 10-Q on or around May six 2022, and this will include our cash flow statement and more discussion of our cash liquidity as well as the purchases pursuant to our stock repurchase program.
In the first quarter of 2042, our two largest customers comprised 35.4 and 31, 7% of revenues respectively.
In the first quarter of 2022 compared to the corresponding period of 2021 hour 60 software license revenues were approximately $7 $9 million, an increase of 700000 or 10%.
Variable fees software license revenues were approximately $5 $8 million, an increase of $200000 or 3% equipment.
Equipment and other sales were $300000 in both periods.
We believe a new pattern emerge during 2041 in the home testing market with higher volume of testing seen earlier in the year with the fee per test revenue.
We believe this is due to COVID-19 related timing change in the behavior of insurance plans when ordering quanta flow testing for malware health risk assessment customers.
However, this newly observed pattern may or may not continue in 2022 or in future years.
Similar as giving financial guidance for the first time in its history.
Because this is the initial guidance, we have not decided yet how often or went to update what we will be what was some tail in the future.
That being said, we believe the second quarter revenue will range from $14 2 million to $15 $2 million and operating expenses, which includes cost of revenue will range from 10 million to $10 $5 million.
We believe the annual revenue in 2022 will range from 58 million to $60 million and operating expenses, which includes cost of revenue will range from 44 million to $46 million.
Now I will ask Dennis to continue the discussion and provide concluding remarks Dennis.
Our R&D and business development goals are to continue to upgrade the existing product and data services to commercialize other internally developed services and products and to in license or distribute new services and products, which we believe can provide enhanced value to our customers.
Also we plan to share the Nevada paper results with our established and prospective customers details of which are as follows in February 2022 and independently conducted peer reviewed study was reported that use quanta flow for prospectively screening for undetected and asymptomatic.
P E D in a Medicare advantage population with three year follow up.
In this study 13971 patients were tested and 31, 6% were found to have P. E D.
In positive P E D patients versus negative patients there was an increased risk of 60% to 70% for all cause mortality or morbidity at one year and a 40% to 50% increased risk of all cause mortality or morbidity at three years.
The authors concluded that a positive screening result of previously undetected lower extremity P. E. D was independently associated with short term and long term increased risks, where mortality and major adverse cardiovascular events M. A C E in individuals' age 65.
Five years and older living in a large metropolitan area.
Furthermore, they added a positive P E D screen with Quanta flow has the potential for P. E D risk management at the population level.
Similar scientific believed that believes that this study supports the use of quantifiable and highlights the benefits that the product brings to our customers and the patients they care for.
Thus it may drive further adoption of quanta flow by existing and new customers.
Overall, we believe annual revenue will continue to grow in 2022 because of the increased numbers of installations of our product more usage of our product and recurring revenue from the licensing businesses also we have signed up several smaller customers for insulin insights the new product that we are disk.
Tribune.
Insulin insights is a software program that a health care provider can use to optimize outpatient insulin dosing of diabetic patients.
If all goes well with the beta launch we plan to market it to our established base of customers.
We began invoicing for initial sales of product licensing to some of our customers in Q1 2022.
Our goals continue to be to make new additions to our customer base expand orders from existing customers introduce additional products to our customers and further establish our quantify product as a standard of care in the industry.
In 2022 similar scientific expects continued profitability and generation of cash from operating activities at.
At the end of first quarter 2022 head count was 122 employees compared to 124 at the end of fourth quarter 2021.
Operating expenses are expected to increase from current levels due to wage inflation pressure in the employment market and our continuing desire to build infrastructure to support new business opportunities.
We believe that the market for vascular disease testing is larger than our current market penetration. So there is room for continued growth.
We continue to invest in R&D with the goals of providing innovative products that enhance value to our customers now and in the future.
The beginning of 2022 portends a record year for our company in terms of revenues and cash position.
There were two significant milestone milestones we achieved so far this year that I outlined for you earlier on this call number one the Nevada paper, which may further drive adoption of quanta flow by existing and new customers and to the enhanced value proposition or quantify for our.
Current customers for another cardiovascular disease.
Accordingly, we are optimistic for our future.
Thank you for your interest in the company and your continuing support.
Now operator, please open the lines, Doug Andrew and I will be happy to address your questions.
Thank you.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble at all there.
Our first question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Hi, guys. Thanks, a lot for taking my questions.
I have to confess upfront that I was distracted a little bit during some of the prepared remarks, so if I ask something that you.
Already spoken about Doug and Dennis.
I apologize.
I'm curious obviously.
The big thing that happened or one of the big things that happened last year.
To be the accelerated order pattern.
Relative to your team for.
For per test business.
And I see the growth did occur in Q1 this year, but the growth rate is more modest.
And I'm curious how you would characterize what you see in your markets and from your customers.
As it relates to the possibility that.
Accelerated order patterns or were maintained this year.
Or are going back towards more normal patterns.
Now the Covid seems to be in retreat.
I think the seasonality that we saw last year is so far are expected or as what we've seen in the first quarter weather continues for the year, we have to to see about that.
As far as the general HRA market, you know there's movement in market share between companies. So it's sometimes hard to keep track of you know exactly which way the market is going but we're seeing growth with all of our customers and we are seeing new customers come on board. So that is a continuing trend on <unk>.
The HRA a variable fee side and the fixed license side, we're seeing growth in both in both arenas.
So I think that's.
What we're expecting to see for the year I think the rates I mean, you you heard our guidance. So that's that's what we're looking for.
Okay. That's very helpful. So would you characterize.
Obviously, the very significant percentage of revenue from your two largest customers then I assume your people.
Our customers also are quite significant for you would you would you help us to get a sense for your estimate.
Tracing you'll be cheap in.
In the core P E D testing market and whether you still see significant long term upside for similar in your core business.
We we do indeed see additional penetration opportunities, we think the publication of the Nevada paper will be impactful in the market.
In terms of bringing even more people along.
We think that the penetration level of it in terms of the number of people who should be tested according to guidelines clinical.
Clinical guidelines that have been published by the American heart and others.
It's still low our penetration has a lot of opportunity for the future are the question is the timing of the adoption of our large customers and that's something we'll just have to wait and see.
Sure that makes total sense to me.
Let me just ask one other question, obviously our expense levels.
Not so much the margin on your business, but maybe.
The operating expense spending to prepare for growth in the business.
Appears to me to be elevated this year and would you would you guess.
The underlying economics of the business.
This will require you to continue elevated.
Spending to grow the business or do you think at some point.
You can leverage your fixed infrastructure and returned to some of the kind of the basic margin.
Metrics that you achieved historically.
And I'll I'll take that this is Andy.
I do think there will be some more how are you I do think there will be some more spending but you know our our head count has gone up and we are preparing for a very bright future and that's why we're keeping the head count up so you're right. I think there is a point it may flatten out, but yeah. We're looking to be prepared for all the good things that are happening in the company.
We want to make sure that we have the infrastructure in place. So that those increased expenses you see are mostly related to head count not only in wages and bonuses payroll tax and employee benefits and then there was also one of the reasons that elevated expenses was in the first quarter of last year. There were payroll tax credits due to the cares act that we were.
To take advantage of which we obviously weren't they weren't able to take advantage of in Q1 of 2022.
Okay. That's helpful.
Let me just ask you.
I guess one other question.
Historically I think one of the things that has always appealed to me about similar one of the things that I think appeal to investors.
On me about similar has been the unique dynamic of largely going.
Direct payors and leveraging making a simpler if you will I know, it's not simple to deal with some of these large payers, but a more direct sale I guess I would call it.
That doesn't require you to.
<unk> tried to convince individual doctors a doctor groups to use your product as you evaluate both the most.
Newest product you were talking about are ramping today.
And other products, you're making an effort.
Two develop.
Do you still see that direct channel as viable and attractive and available to you.
As you grow the company over the next year or two or three.
We do we see that market as being a very viable. It's one of the the match points that we wanted to make sure any products we bring in.
Our part of as well and we also see an expansion in that kind of leveraged approach to the market as we expand from not only the large payers, but also to delegated medical groups and and on to other types of organizations that are making.
Mark and we'll be making a future mark in primary care up to including the large retail players.
And others. So so we think its viable this leveraged approach to the market and we think it has the opportunity to continue to grow.
Great perfect. Thank you very much and I'll drop back into queue.
Thank you Brooks thank you.
Our next question comes from Mike, We've been Baker with B Riley FBR. Please go ahead.
Thanks, Good afternoon, and appreciate you taking my questions. If you could talk about the data from the Nevada paper and specifically how that has maybe helped evolve some of your conversations with existing or new customer and kind of any specifics there would be helpful.
Sure well the publication of the data is still fairly new just a month or two so it'll it'll take time for this to disseminate out into the marketplace, but that's going to be a focus of our sales and marketing activities through this year and on into future years.
This is a large and important study independently conducted that.
That really underscores quite dramatically the benefits of a P. E D testing with quantum flips. So we think it's going to have an impact in the market. It's still early.
Say, it's only a month or two old but.
But it certainly will be part of all of the conversations we were having with customers and prospects going forward.
Okay fair enough.
Based on the guide it actually looks like the Stephanie second half of the year is going to be stronger than the first half which.
It seems a little different than obviously the recent commentary we've heard previously about seasonality. So wondering if you could unpack that a little bit and then.
You talked about some billing for installing inside I'm wondering.
Should how much of that is baked into the full year guide.
So maybe Andy you can cover the guidance question, specifically, but in terms of insulin insights.
We would anticipate not a material amount of revenue from this year, although that could pick up we just have to see the progress of the beta launch and the adoption by customers in these things. So you know what.
We're just gonna have to see as the year progresses. It's it's why we have a range in there in terms of the guidance.
And then Andy you may want to cover what Mark was asking as far as the specifics of the year.
Yeah, I mean, we do see we do see increases we think that both feet per test out of license fee revenue will continue to increase during the year. So it is it is baked in that there will continue to be increases and we don't see anything slowing.
Slowing down and we could see.
Quarters in the future quarters being better than the first quarter are as good as the first quarter, but I think on both sides of the business things are going to increase also I do agree with Dennis It there's not a lot baked in for the new products hopefully we will but that is again why we have the range.
Got it okay. It looks like this might be like the best or pretty close to the best gross margin for the company. If you could talk about those dynamics and how sustainable is this level move and.
Throughout the year.
We don't anticipate pressure in terms of that for the for the year. You know, we'll have to see how things develop but we are we feel as though that's a pretty solid number.
Okay.
When we're thinking about the new application for quanta flow, how should we think about the target patient population relative to that for Quantico being used for P. E D.
Well, if we as we said in the in the text this maybe as important or more important market. Ultimately obviously this will be a lot easier to discuss in detail. Once we're talking more specifically about the application for this which should be in upcoming quarters, but.
We do believe this is a significant market and can definitely play a role in expanding the value proposition for quantum flow.
So where we're enthusiastic about what the future holds for this it's a E.
It should be a major market.
One of the things Pan out as we expect.
Okay looking at the share count from the 10-K that was filed at the end of February and then the account that was in the release today. It actually doesn't look like you bought back any shares since the buyback was announced just just wanted to confirm that and then maybe understand how you deploy.
Because the capital for that purpose.
And do you want to take that or Doug.
Oh, Yeah, you are correct that there was there was not significant significant repurchases that will be addressed in the.
Form 10-Q , when we file that a little bit later this week, but your assumption is accurate.
Okay, and just maybe just talk about the thought process on how youre going to look to deploy that.
Considering you said that you can kind of thought chairs were depressed and its a pretty bright outlook. It would it would seem like maybe it's an opportune time to deploy that.
We haven't made any decisions about that yeah, yeah got it.
We see it.
We'll try to make the shareholders.
Yeah.
Precision.
In the shareholders' interest.
Understood. Okay. Thank you very much appreciate it.
This concludes our question and answer session I would like to turn the conference back over to Dennis Muilenburg for any closing remarks.
Thank you for joining us today, and we look forward to updating you soon on our continued progress.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.