Q3 2022 Semler Scientific Inc Earnings Call
Hello, and welcome to the solar scientific third quarter 'twenty to 'twenty two financial results call.
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I would now like to turn the conference over to your host today at those Smart French Terry. Please go ahead Sir.
Good afternoon everybody.
And thank you for joining us for our.
Third quarter 2022 video call.
I'd like to introduce when they come there.
Hey, Joe.
But communication strategy.
Strategy.
B B.
Even for us today Brittany.
Thank you Doug good afternoon, and thank you for joining us.
They shouldn't have done with me are D Weinstein SVP finance.
Our county, and the County, and Dennis Rosenberg, Chief Marketing Officer.
Yeah, Andy Dennis and I will be available for Q&A following today's prepared remarks.
Before we begin I need to remind you that certain comments made during this call may constitute forward looking statements and are made pursuant to and within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995 as amended.
These include statements regarding our expectation for expansion of our business and additional products as well as our updated financial guidance.
That's forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.
Risks and uncertainties are described in the press release and our SEC filings.
Forward looking statements made today are as of the date of this call and we do not undertake any obligation to update our forward looking statements.
If you did not have a copy of today's earnings you may obtain one by visiting the Investor Relations page of our website.
Life Sciences at Dotcom.
During the third quarter of 2022, the company recorded continued quarterly income and cash generation.
We have updated our guidance for both revenues and operating expenses.
Is that the net effect is too late fiscal year 2022 expected income from operation compared to our previous guidance of revenues and operating expenses.
We will provide more color about guidance after Andy describe our financial performance for the third quarter Andy.
Thanks, Renee please refer to the financial results described in the press release that was distributed market close today.
For the quarter ended September 30th 2020, So revenue was $14 million the same as the corresponding period of 2021.
Fixed fee revenues were $8 6 million, an increase of 10% year over year.
We continue to grow revenues at our largest customer as well as at other existing and new fixed fee customers, where we saw good revenue growth during the quarter.
We believe we're continuing to see traction from the Nevada paper that was published in June 2022 in its final form.
Variable fee revenues were 4.9 billion, a decrease of 16% year over year.
Revenues declined in part two of volume pricing discount reached by a large customer.
As well as market share shifts from higher priced customers to lower priced customers.
Equipment and other revenues were $500000, an increase of 79% year over year.
In the third quarter of 2022, our largest two customers, including their related affiliates comprise 41% in 'twenty one 'twenty.
26% of revenues.
Operating expenses, which includes the cost of revenue were $9 $6 million, an increase of 10% year over year from $8 $7 million.
Operating expenses increased over the prior year period, primarily due to increased head count in line with our business expansion plans wage inflation increased insurance and professional fees.
Net income was $3 $7 million, a decrease of 11% year over year from $4 $2 million.
Net income was 46 cents per diluted share, which compares to 51 cents per diluted share during the same period last year.
For the quarter ended September 30th 2022.
Weighted average basic share count was $6 7 million and weighted average diluted share count was 7.9 million.
We repurchased 47 5000 shares for $2 million during the quarter at an average price of $43.
Per share.
We had cash and cash equivalents at the end of the quarter of $45 $5 million.
At the end of the third quarter 2022 head Count was 124 employees compared to 121 at the end of the second quarter of 2022.
We expect to file our quarterly report on Form 10-Q on or around November 4th 2022.
Now I'll turn it back to Renee to discuss our guidance for the remainder of the year in more detail.
Yeah.
Thanks, Andy.
Steve mentioned, we have updated our guidance for both revenues and operating expenses such that the net effect is to raised fiscal year 2022 expected income from operations compared to our previous guidance of revenues and operating expenses.
We now expect annual revenue will be in the range of $55 5 million to 58 million versus our previous guidance of 58 million to 69.
We have changed our guidance for annual revenue due to continued growth in fixed fee license revenue offset by lower than expected variable fee revenue.
To support overall growth, we are encouraged to see increasing customer interest in the product and a robust pipeline, which we believe is due at least in part to the Nevada paper gaining traction.
We added a number of new customers during the quarter, including some launching brand new pilot program.
Revenues from fixed fee customers other than our largest customer so good positive growth in the quarter further diversifying our customer base.
Despite an increase in variable fee units purchased in Q2, and Q3 testing at a large variable key customer did not materialize as we anticipated.
In addition, we are seeing market share shifts.
From higher price customers to lower price customers.
We believe this shift in market share will not be as pronounced in Q4 as it was in the first nine months of the year.
Our guidance does include lower pricing for a large customer who achieved a volume pricing milestone.
We do not expect revenue from the Quantico product extension or insulin insight to be material in 'twenty to 'twenty two.
We now expect fiscal year 2022, operating expenses, which includes cost of revenue to be in the range of $38 8 million to $40 3 million.
None of our guidance last quarter of $42 5 million.
So 44 now we.
We improved our guidance for operating expenses due to better expense management and better than expected efficiency of our sales force.
The net result of the changes to guidance of revenues and operating expenses is to raise the expected income from operations compared to our previous guidance of revenues and operating expenses.
Income from operations is expected to be in a range of $16 7 million to $17 7 million.
We plan to give annual 2023 guidance with our fourth quarter and fiscal year 2022 earnings.
To date, we have had stock repurchases of $5 million or 149000 shares.
Given the volatility in the markets, we remained cautious when buying back shares during the quarter.
We have $15 million remaining on the board authorized stock repurchase program, the timing and amount of any future transaction will be subject to artist question based upon market conditions and other opportunities that we may have for our.
Our investment of cash balances we.
We believe there may be good opportunity for us to pursue our goal of diversifying our product range through licenses or acquisition.
Our goal is to maximize stockholder value.
Now I'll ask Dennis to continue the discussion and provide concluding remarks Dennis.
Thank you Rene our R&D goals continue to be to upgrade the existing products 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.
Yes.
Our business development goals are to make new additions to our customer base expand orders from existing customers introduce additional products to our customers both through upgrades to existing product and data services and new products.
And further establish our quantum flow product as a standard of care in the industry.
We also announced earlier this year the quanta flow can now be used as an aid to identify patients who would benefit from further evaluation for another cardiovascular disease.
As previously mentioned, we have submitted the data to a peer reviewed journal, which was accepted the manuscript for review.
Because of the peer review and publication date are controlled by the publisher the timing is not under our control.
We will provide an update as soon as the papers published.
We believe this extension of quantum flow through our internal development efforts 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.
Our medical aid performs the test in a primary care setting similar to how one uses quantify for P. E D.
It uses the existing F D. A clearance as we anticipated this extension many years ago.
The technology is protected by trade secrets.
We've made progression in discussions with a handful of customers because routine testing is something that has never been done before we believe it will take time to roll out we anticipate customers will choose to run pilots prior to full implementation.
These pilots are less likely to happen. This year given organizations typically did not choose to start a new program in the fourth quarter because of the need to inform and trained staff that have limited time.
Regarding insulin insights initial installations and new sales continue to progress. The new sales include small pilots that have the potential to grow over time.
There was minimal revenue included in our fiscal year 2022 guidance for insulin insights.
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.
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 Andi, Rene and I will be happy to address your questions. Yes.
Yes, Thank you and as mentioned at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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This time, we will pause momentarily to assemble our roster.
And the first question comes from Brooks O'neil with Lake Street capital markets.
Oh, good afternoon, everyone I have a couple of questions I guess I'd like to start off by.
Just asking.
Sounds good to me as we talked at.
The second quarter.
Like you guys expected, perhaps more normal seasonality.
The.
Business this year compared to last year, and if I was listening correctly.
This afternoon, it sounds like maybe that didn't really materialize could you just talk.
Comment on what you did see in it.
Why do you think.
The result was.
What you saw this quarter.
Yeah, Hi, Brad.
I can start with answering that so when we are looking at the back half of the year, but we wanted to get away from talking about seasonality because when we were looking at are variable fee revenues, while we don't like to talk specifically about India.
Dual class are we do we did notice that our business at certain large customers did not materialize as we anticipated based on discussion throughout the year. So we believe there may be some disruptions going on the business internally, but we don't have solid evidence of this so we don't want to speculate.
We're also seeing some market share shifts within the HR eight industry, including at our clients. So we're seeing some larger customers increasing their share of the market and taking share of smaller customers, which to me has been higher price.
And also as we mentioned in our comments before we did see a large customer that reached the volume pricing milestone in the quarter.
So I. Although this was anticipated these pricing tiers are relatively Brian and we don't expect new milestones to be reached often.
Okay. That's all very helpful. I appreciate that where they I'm curious I totally understand you don't like to talk about specific customers.
However, I guess, it's fair to say there was potentially a material M&A transaction right now.
During the quarter and I'm curious if you feel that that was disruptive to the business.
And as they kind of turned out.
Yeah. So we don't have specific insight into specific customers. We believe there may be some disruption going on internally, but we don't have solid evidence on this and so we don't want to speculate on that but I guess, we can see you know when when do we get some more information from other customers.
Yep.
Okay and.
I appreciate the commentary about your line extension for quanta flow and what's going on there with the.
With the publication of data, but would you say you're encouraged by the response of customers you're discouraged by the response can you give us any color with regard to what your what would your.
The nature of the responses I understand you're going to you you expect some testing by those customers, but are they excited are they cautious what how would you characterize it.
Yeah sure I think we've made progression in the discussions with customers and customers are interested but.
Because it is a testing that has never been done on a routine basis before we.
We think that our customers are being cautious and they want to make sure that when they have this project and if they want to roll it out that they do have a you know all the information and they know how it will look in their system and that they they will be able to treat these patients without overwhelming that.
Sure, Okay, I get I get all that I'll just ask you one more question.
I can't remember specifically you commented about this in the past, but obviously.
One of the features that appears to be.
Key selling point.
For the pad testing is the availability of incremental premiums for Medicare advantage health plans.
Can't remember, whether you commented about the possibility of incremental premiums or the new test that your.
Working on it.
Contemplating for the future.
Whether those incremental premium reserve available at attractive or sort of what's the status with that.
Yes, there would be incremental premium there could be an incremental premium available to our customers where for the extension.
So on the order of the incremental premium per pad or.
Is it more or less or about to say.
It could be as much if not more.
Okay, great. Thank you I appreciate all the color and.
You know I continue to be optimistic about your future. Thank you very much.
Correct.
And the next question comes from Mark Weisenberg with B Riley Securities.
Thank you good afternoon.
If you could talk a little bit more about the volume and pricing dynamics that factored into the third quarter variable fee revenue.
Both with your second largest customer and the other H aerie providers and we'd love to hear kind of about the price discrepancies.
That you're talking about between those customers.
And then also.
Writing the the change in the market share and if you are essentially the only supplier of this portable P. E. D test why can you not maintained more pricing discipline, especially in terms of the oral why do you provide for these HRE providers.
Sure. So I can start with answering some of that so we did reach a pricing or volume heightening milestone with a large customer. So again the pricing tiers. We think are relatively broad. So we don't expect to have them.
Often but we do believe that incentivizing the large customers to increase volume is good for our business and our product stickiness.
The market share shifts that I was referring to our shifts with and the H R E industry and.
And within our clients are we do have.
Many clients within the HRE industry, and we are seeing some market share shifts and some of these shifts that have been occurring are going from smaller clients, who don't have the volume or the volume pricing discount that some of the larger clients have that may be gaining share.
Can you just elaborate a little bit on what that potential gap is between a.
More preferential pricing versus more kind of stock pricing.
Yeah. So for competitive reasons, we don't want to talk about the gap in between pricing I Hope you understand that.
Okay is there.
Potential risk that there is a shift from it.
We're selling from variable fee pricing to a fixed fee pricing regime.
And we're just kind of digesting some of that right now until that.
There's more broadly rolled out or plays out.
I I don't think that that would actually be a risk are shifting from variable to fixed fee.
When thinking about that because the fixed fees are a standard set fee per month, and it's not dependent upon test I think that actually in the long term that could be beneficial to us because again it is more of a recurring and studying.
Nature.
I agree with that but that will cause some volatility in the near term.
Possible that we are experiencing some of that volatility right now.
You know from what we're seeing there is there's been some minimal shifts from variable to fixed fee, but I do not believe that the variability of what we're seeing right now is due to that.
Got it and then you talked about a potential large customer are doing a beta test.
That ultimately didn't materialize.
Why would they not why would they choose not to move forward following that test.
Are you talking about for the product extension.
Yeah.
I just thought I heard you maybe.
Have you sold equipment I believe in the second and third quarter and then.
There was no aspect didn't materialize.
Yeah, no that was not related to a beta test. So when we look at our equipment and other revenues in Q2 and Q3, we actually saw quite an increase from the prior year and so that typically will portend.
An increase in variable fee revenues post the increase in equipment sales and we just did not see that materialize in this quarter as we had expected.
Got it so that it's not that it will not materialize. It just maybe it didn't materialize on the timing that was expected.
That's right and it's not it wasn't related to to a pilot or a beta test.
Got it Okay I've got a few more here.
Could you talk about the with regards to lowering expenses, where are those cuts coming from and is there a potential that if you're not making some of the investments. You. Initially thought you were going to that maybe there's a potential impact to growth going forward.
Yeah sure so we didn't necessarily cut expenses.
But it was that we were able to manage expenses better than we had expected and we did get some sales force efficiency that we weren't expecting a we do not anticipate that.
There's going to be any impact to future revenue growth because our feeling is that we want to invest in the business and we will invest in the business. If we see that it will give us the potential for growth.
But and as we look into where areas are are expanding and we see how it's going with customers and we are able to book and.
And the expenses going forward and modify our.
Spending as we seek that.
Got it okay. Two more for me can you help us understand the dynamics that would need to play out in the fourth quarter.
In order to either be at the lower bound or the upper bound of your your new guide because.
So it's two extremes are either at the lowest quarter of the year or the highest quarter of the year. So just would love to hear kind of what needs to happen under those different scenarios.
Yes so.
We realize that we had put a wide band out there and that was on purpose because while we do have discussions with customers are just in case. They don't materializing in Q4 as we saw in Q3, we wanted to put that out there are we have also as we mentioned.
On the fixed fee side, we have been had some positive growth and 60 licenses both at new and existing customers. So we do have some customers that had started pilots and were just unsure of how those deals for new customers will ramp into.
The future and so that's part of that that range on the higher end.
Got it Okay and then just a final one for me I think synapse D X had a really nice released today that their skin test to detect alzheimers.
Become the only autopsy validated test to accurately identify Alzheimer's.
The presence of mixed dementia with their biomarker specific and sensitivity of it like 100% when compared to the NIH gold standard criteria. So can you remind us your invest about your investment in synapse, Dx and what potential rights or options you have there going forward.
Yeah sure. So we actually do really likes the technology, there, but our investment there is.
Purely an equity investment so we don't have any sort of right nor do we have a distribution agreement at this time.
Okay, great. Thank you very much.
Thank you.
Thank you and this concludes our question and answer session I would like to turn the call then Renee cornea for any closing comments.
Thank you for joining us today, we remain optimistic about our future and look forward to updating you soon on our continued progress have a good afternoon.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.