Q4 2022 Semler Scientific Inc Earnings Call
Good afternoon, and welcome to the Subtler scientific 2022 fourth quarter and full year financial results Conference call all participants will be in listen only mode.
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Please note. This event is being recorded before we begin some of their scientific needs to remind you that certain comments made during this call may constitute forward looking statements are made pursuant to and within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 as amended.
These include statements regarding the expectations for expansion of the business and their development and market marketing of additional products as well as the impact of the CMS advance notice.
Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.
These risks and uncertainties are described in the press release and our SEC filings.
The forward looking statements made today are as of the date of this call and the company does not undertake any obligation to update the forward looking statements.
If you do not have a copy of today's release you may obtain one by visiting the Investor Relations page of our website similar scientific dotcom.
Now I would like to introduce Doug Murphy checked oriented CEO of semi scientific.
Good afternoon, everyone.
Thank you for joining us for our fourth quarter 2022, and our full year results.
Today, we announced that has informed the board that I will be stepping down as CEO .
We are shifting to a franchisee.
I will continue to serve as a member of the board at least into the remainder of by like 20 <unk>.
<unk> 'twenty for sure and I'm pleased to announce that we will see excuse me as CEO effective.
April .
2020.
Wayne has to executive member of the board.
With me.
14.
The board Hasnt care experience.
And I'm confident that he will it need to be able to literally company into the next phase of growth and continue to make a difference every day for our customers and of course the occasion for you sure did.
Anna.
Should we read their team.
And I'm proud of the business that we get it together.
Uh huh.
First quarter 2023 guidance.
Turns out revenue represents the highest.
What are the revenue assembly.
Assembly has it cheesy century so.
Without further Ado I won't.
She was true Doctor pad Wayne.
Thank you Doug.
On behalf of the board I would like to thank Doug for his commitment and notable contributions to similar over the past 12 years. He's been instrumental in the evolution of the company and I look forward to considering to work with him as a member of our board.
And I'm very grateful for the opportunity to serve as CEO of some of the scientific and lead the company into its next phase of growth.
I believe similar has diagnostic tools and so on.
Mark a new paradigm in cardiovascular care.
Well create value for our stockholders.
Our products will increase access.
Promote health equity and enable earlier diagnosis of progressive diseases that affect millions of people globally.
Some of them will be presenting and hosting one on one meetings at the Needham Virtual Health care Conference on April 18th 2023, well I look forward to laying out my vision and meeting with the Investor community.
I'll now hand, the call over to Rene.
Thank you Wang I look forward to working with you good afternoon, and thank you for joining us today.
Sure Tim Dugan wrong with me are Andrew Weinstein, SVP, finance and accountable and Dennis Rosenberg Chief Marketing Officer.
Well, Andy as Dennis and I will be available for Q&A following today's prepared remarks.
On this call, we will summarize the fourth quarter and fiscal year 2022 frameworks that result.
The factors that play in our market talk.
Talk about the 'twenty 'twenty four CMO, it's borne Florida.
Outline Q1, 'twenty two 'twenty three guidance.
Details about the Qantas will come forward and speak about other investment activities, but now I will turn it over to Andy to describe our financial performance for the fourth quarter and full year 2020.
Randy.
Thanks Renee.
Please refer to the financial results described in the press release that was distributed at market close today.
We reported record high annual revenues in 2022, but our revenue growth slowed for the year compared to 2021.
We were pleased to see the revenue growth accelerated in the fourth quarter of 2022 at both our fixed and variable fee customers compared to the fourth quarter of 2021.
For the fourth quarter ended December 31, 2022 revenue was $13 $8 million, which represents an increased 20% compared to the corresponding quarter in 2020 one.
For the full year ended December 31, 2022 revenue was $56 $7 million, an increase of 7% compared to the full year of 2021.
In Q4 fixed fee revenues were $9 million, an increase of 14% period over period.
For the full year fixed fee revenues were $34 million, an increase of 11% year over year.
We continue to grow revenues at our largest customer as well as at other existing and new fixed speed customers.
We saw an increased interest in our products from hospitals retail locations and delegated medical groups, which we believe is due at least in part to gaining traction from the two major studies published in 2022.
In Q4 variable fee revenues were $4 5 million, an increase of 30% period over period.
For the full year variable fee revenues were 21.3 million a decrease of 1% year over year.
In Q4 equipment and other revenues were 300000, which was an increase of 96% period over period.
For the full year equipment and other revenues were 1.4 million, which was an increase of 42% year over year.
Because the majority of equipment sales are to variable fee customers. We believe it is a harbinger of strengths in the fee per test market.
Yeah.
In the fourth quarter of 2022, our two largest customers, including their related affiliates comprised 43.3, and 25, 8% of quarterly revenues.
For the full year 2022 our two largest customers comprised 44 and 29% of annual revenues.
In Q4 operating expenses, which includes cost of revenue were $10 $2 million, an increase of 4% period over period.
For the full year operating expenses were $39 $5 million, an increase of 18% year over year.
Operating expenses increased for the full year, primarily due to increased head count in line with our business expansion plans wage inflation and increased insurance and professional fees.
In Q4 pre tax net income was $4 million, an increase of $2 3 million or 132% period over period.
For the full year pretax net income was $17 7 million, a decrease of $1 8 million or 9% year over year.
In Q4 net income represented $3 2 million or 48 cents per basic share and 41 cents per fully diluted share an increase of 113% period over period.
For the full year net income was $14 3 million or $2.13 per basic share and $1 79 per diluted share a decrease of 17% year over year.
Weighted average basic share count was $6 7 million for Q4, and the full year of 2022.
And weighted average diluted share count was $7 9 million for Q4 and.
8 million for the full year of 2022.
There were no shares repurchased in the quarter during the fiscal year 2022 we repurchased $5 million worth of shares were 149000 shares.
We had $15 million remaining under the board authorized stock repurchase program.
We had cash cash equivalents and short term investments at December 31st 2022 of $43 $1 million.
Approximately 35 million of which is held in short term U S. Treasury bills at December 31st 2022.
We have banking relationships with first Republic Bank and Edward Jones, and are taking steps to diversify further.
As of December 31st 2022, head Count was 127 employees and this compares to 144 at the end of the third quarter of 2022.
We expect to file our annual report on Form 10-K, Warner around March 23rd 2023.
Yeah.
Dennis to provide more color about factors at play in our market and our business activities Dennis.
Thanks, Andy.
I first wanted to reiterate our continuing strong belief in the clinical benefit and importance of the early diagnosis of chronic diseases as a standard of care as you know last year or two large independently conducted peer reviewed studies by quantum flow customers were published that underscore strongly.
Clinical benefit of identifying asymptomatic P E D patients in order to put preventative measures in place.
First the Nevada paper was published in the journal of vascular surgery. This study as proof of our thesis that testing for ph D. In asymptomatic patients is warranted.
Study followed over 13000 asymptomatic Medicare advantage beneficiaries, aged 65 and older for three years approximately 32% of these patients had P E D.
In positive P E D patients versus negative patients there was independently associated increased risk of 60% to 70% for all cause mortality or morbidity at one year and independently associated increased risk of 40 to 50 per cent for all cause mortality.
Audi and or morbidity at three years.
The authors concluded that these findings highlight an enormous potential to realize cost savings by reducing cardiovascular event rates and deploying population based P E b risk mitigation strategies.
But the house calls studies, which was published in a D. J P. M focus in open access journal jointly launched by the American College of preventative Medicine, and the association for prevention teaching and research is another significant study. This one conducted by opt in in house.
Our schools program in the home the house calls program.
This was a major study of over a 192000 Medicare advantage beneficiaries age 65 and older.
It confirmed and expanded on many findings in the Nevada paper that identification of quantum flow positive versus negative status carries increased risk of mortality and major adverse cardiovascular events as.
As well as verified our severity scale and the worse P. E D as measured by quanta flow conferred a more dire prognosis, which might be a valid reason to retest patients more frequently.
It underscores and supports the feasibility and the use of home risk assessments by insurers with a nationwide P E D screening program.
Importantly, these studies show that was a markedly increased risk of mortality and morbidity rates in P. E positive patients, which would make them more costly to care for if they are not identified early when preventative measures can be put in place.
Or are there the American Heart Association and the American College of Cardiology guidelines, clearly recommend routine screening for P. E b in patients, aged 65 and over as well as those aged 50 to 64 with risk factors, such as smoking and diabetes.
These factors demonstrate the difference that quite a flow can make for patients and those who care for them.
We were encouraged to see increasing interest from a wide range of customers and the quantum flow product. We saw not only increased interest in our products from large insurance and the home risk assessment companies, but also hospitals retail locations and delegated medical groups, which we believe is due at least in part to gaining traction.
From these two major studies.
Our sales and marketing goals are to focus on growing our business. These include.
Other establish or quantify for P. E D product as a standard of care in the industry given the proven clinical benefits of early diagnosis and preventative treatment. We believe the market from vascular disease testing is larger than our current market penetration. So there is room for continued growth.
The new additions to our customer base, including diversifying our customer base further to hospitals, including the V a value based care providers and retailers.
Expand orders from existing customers introduce quite a flow as an aid to assess heart dysfunction or H D to our customers and finally, we aim to begin to more broadly market and install insulin insights.
Now I will turn it back over to Renee to discuss developments at CMS, our Q1, 'twenty twenty-three guidance quite a flow HD and other business development activities Rene.
Thank you Janet as many of you are aware in early February .
Yes.
Marty with proposed payment update for Medicare advantage program for 'twenty, 'twenty, four which included.
Changes to treatment of vascular disease under the Medicare advantage risk adjustment model.
Uncertainty, whether all identified patients with P. E D well continue to qualify for an increased capital that came off.
We have pulled many comments on the proposed update to CMS for consideration hiding published research that shows the benefit of early diagnosis and treatment of P. B.
It's premature to speculate about the impact to our customers ultimately have dogma.
CMS issued a final 'twenty 'twenty four right announcements no later than April started 2023.
Regardless of potential changes in reimbursement rate, we believe that what the flow through.
Importantly, clinical value to our customers in terms of better patient care.
Her future cost saving and identifying positive T D concerned American at each school.
We believe that earlier diagnosis.
Earlier in this notion of preventable I'm sure a bunch of them.
Treatment, which will stabilize and consequently lowered her part central part.
Now turning to guidance for the first quarter on March 31st 2021.
That revenue will range from $17 4 million plus 17.8, not want them crew cab net income which includes interest income of approximately $400000.
Range from five point.
<unk> five point.
We are on track to achieve our highest quarterly revenue ever what.
What we believe is a testament to the clinical value our customers see in using quantum cloud E. Early diagnosis, a ph D in their patient population.
In light of the CEO transition, although I'll click with Covid final yeah right now we are not issuing guidance for the year ended December 31st 2020.
Let's move on to the clinical study that was published in late February 2023, and the journal of preventative medicine, you're going to quantify each with the heart of our age group you can find our press release.
Study well known best serve them, but some portion of our website.
Health care providers now have a cleanup for low cost accurate.
Very good question until heart dysfunction in the primary care side alone for overt signs of symptoms of that.
Results were better off so quickly.
Click quickly.
Some correlation with a P value of less than zero point zero line.
With prayers pro rata Echo cardio graph.
The gold standard to diagnose heartwarming.
For those of you who have been with Formula for a long time, you may recall, the CRO long lead times for many of our current customers. What's the initial adoption of quantum CRO Cookie E D.
That's the market uptake process for H E well called crime.
Other key point regarding the Capex comes on them are.
Wanted well H E b.
They can measure hemodynamic trembling awesome.
That drum of Heartbeat, Samsung, including heart failure.
Failure Fox around $6 5 million adults in the U S.
And the lifetime risk of heart failure is estimated to be one five up 40 years of age.
The number.
Asymptomatic heart disease.
The number of patients with symptomatic heart.
Published studies have shown there are over 1 million hospitalizations heard here in the United States from heart failure, and the annual cost of care at $30 billion.
Mortality rates after hospitalization for heart failure.
1% within one year after diagnosis.
Qantas no H E b.
Whoa I hate.
He ran Coca Cola it another year.
Is it out.
Our medical system perform the test and the primary care setting similar to how one would be quite a smoker P. J D.
Life.
D E symptomatic H E R.
Not routinely particles in the current standard of care.
I thought it was not a screening.
That's okay.
Formed by referral.
Like lab requires a trained ultra sonographer took the affordable care Act.
It's about an hour and must be interpreted by a cardiologist.
Cause, especially cookie jar, Luckily, it's not practical to be performed in primary care offices or in the home setting.
The sensitivity.
And accurate a quantify H D all were greater than 88% compared to using echo with strain as the gold standard is the methodology for identifying heart failure.
Patients that have been identified as positive with Qantas no H D well he had additional diagnostic catheters.
He's determined the underlying type of part and parcel.
The goal is for health care providers will have a better chance of encouraging Kristen.
To adopt healthier lifestyles and optimize proven guidelines are back with medical therapy earlier with the potential of improving long term health outcome.
Currently either C P T reimbursement or echo cardio Grassi and HTC diagnostic code for heart function.
Moving onto R&D God he continues to be.
Great existing products embedded service, though.
To commercialize other internally developed services and product.
And find other potential investments to diversify our product pipeline.
The recent investments we have made on the diabetes space.
As you know diabetes is a large market with over 35 million people diagnosed in the United States growing at 45% a year.
In addition, 96 and I hope people have pretax.
To date, our diabetes portfolio includes investment in it.
Termination agreement with Nellix.
Platform.
<unk> offers an algorithm that helps primary care physician quietly insulin type two diabetic patients.
This partnership gives us exclusive marketing rights in the United States and Puerto Rico.
And missile installation and new sales continues to make progress.
Revenues have started but are not yet material to date.
Type two diabetics on insulin represented difficult difficult patient population.
And these patients often more pounds oral therapy alone is not really not adequately controlled their blood glucose.
Insulin it incorrectly dose can cause complications that can lead to an emergency room visits and unplanned hospitalization CRO.
Near term transition find value with excellent insight because by approximately.
He's a really adjusting insulin levels and type two diabetic patients.
Patients will have less COVID-19 advert complication with Glenn who haven't.
Have improved control of their blood glucose levels, which leads to fewer complications from diabetes and overall better clinical outcome.
In addition plan had the chance to save on total cost of care and medication cost as well as achieving higher heated star quality measures.
I've included H E b level, demonstrating that the diabetes is under good control.
In December 2022, we announced a commitment to invest up to $5 million in monarch.
Privately held company through the purchase of a senior secured convertible promissory note.
Repayment of the note is secured by first priority interests in all of my life.
Monarch is a digital health company, whose proprietary and O'toole glucose management system I think the technology enabled approach to inpatient glycine Mcmahon with smoke.
Software as a service solution is FDA five 10-K cleared patent protected and installed in more than 100 health systems across the United States.
As of December 31, 2022 monarch Homebuyer, three five now one out of five.
5 million committed principal amount at the mill.
In addition, 500000 Hudson John Coursera.
Although we do not have any distribution agreement in place with monarch. We believe our recent investments provides us the opportunity to round out our diabetes portfolio and complement our outpatient diabetes management tool with its approach to improve inpatient diabetes monitoring.
In closing I want to reiterate that regardless of policy changes affecting reimbursement and other market forces beyond our control our fundamental value to our customers is and always has been the clinical value of earlier diagnosis.
Chronic progressive cardiovascular condition and improve simpler management of diabetes.
Right the changes that will always exist in health care reimbursement.
Most every patient physician.
Empire.
Our offerings have a strong clinical value that all of these stakeholders will need in order to improve clinical outcomes and reduce health care costs.
We have developed technology that is affordable and accessible. We are also part of the solution to reduce health in equity that currently exists in cardiovascular disease.
Our management team has the experience and resilient can make appropriate adjustments to our ongoing growth strategy as market conditions change.
We also understand that changes in government policy may take time to be fully implemented.
We are confident that our mission to improve clinical outcomes and reduce total cost of care in patients with cardiovascular disease and diabetes will remain relevant to our stakeholders for the foreseeable future.
As Wayne mentioned, we'll be presenting and taking one on one meeting at the upcoming twenty-second annual Needham Virtual Health care Conference on April eight 2023.
Thank you for your interest in the company and your continuing support and now operator. Please open the line, Doug when Andy Dennis and I will be happy to address your question.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Thank you and good afternoon, Doug Dennis where they Andy and Wayne I think this might be the first call I had to say hi to five different people, but I think its dramatically so.
Doug I wanted to just say.
I think you've done a tremendous job as CEO , you've laid the foundation under what I believe is today and will ultimately become.
Fantastic Company.
I believe similar is going to play a key role in the future of health care diagnosis treatment.
And I just wish you every congratulations for all you've accomplished as CEO of this company.
And so with that.
Of course of course, it's been a pleasure to work with you and I look forward to continuing to work with you going forward.
Now I have a couple of quick questions I guess, the first one and I understood.
Oh did you all said in the prepared.
Remarks, but I'm curious if you can or will offer any color with regard to customer reaction.
The advance notice so I mean, I know, it's premature we haven't seen the final notice and Theres still a long time before the ultimate implementation of whatever our price.
<unk> people.
People put in place but.
In general can you say anything about.
How your customers have responded as it relates primarily to using quite a flow going forward.
Sure Brooks I can start with that.
So as you know and what we discuss it really is too early to speculate at this time, what will happen because we don't even know what the final rates will come out of that but as you can see from our Q1 guidance.
Our customers are continuing to use our products and we believe that our customers use our products because of the clinical benefits and potential cost savings. In addition to any risk adjustment payment they may receive because in general.
Prevention is very important as you know.
So we we actually will continue to work closely with our customers remain in contact with them in and committed to providing the reliable and accurate testing and also as we have talked about this quarter and also prior quarters, we do have many customer.
Or is that don't participate in the Medicare advantage program, where we can shift resources to and on top of that we do have quanta flow H D and insulin insights to market.
Sure.
Thank you for that that color Renee. So second question and again I recognize you spoke to this to some degree in the prepared remarks, but.
As we try to think about how quickly you might be able to begin recognizing revenue related to the heart failure.
Indication can you give us any sense is it at all reasonable to think you might see some revenue in 2024 related to that.
Totally.
So I'm we're.
We're not giving guidance for 2023 live I know I know [laughter], we are in contact with our customers of all sizes and we have gotten very positive initial feedback on that we arent talking specifically about what is.
Meditation, maybe starting or tests that are going on but we do believe that it may take time to roll out again, you've been with us for a long time, you know obviously, we do have customers in place, but we do anticipate that it could take some time to roll out of a significant level.
Sure.
Hey, I'm, just going to ask one more.
I'm just curious about this obviously one of the unique and special approaches that similar is taken to the market place is.
Medicare advantage market participants and that's worked incredibly well in my opinion been a brilliant strategy.
Now with the advanced notice as some indication of how our friends in the United States government or thinking about taking good care of these patients.
Have you considered.
Sort of go in a more traditional route at least maybe as a complement where you buy.
To establish some kind of reimbursement code for doctors, who perform your test or hospitals or health systems or whatever I'm. Just curious if you've considered that and if you have.
How you think about that.
Sure maybe I can if I can hand that over to Dennis how we've handled that historically and where he might go in the future.
Yeah, we certainly looked at at that Brooks and and the other thing that we're doing even prior to the advance notice that we are.
You now see is a favorable situation is the general broadening of our customer base.
So we remain strong in the Medicare advantage health plans.
And the directly with the insurers, but also this broadening too.
The other things we've mentioned hospitals.
And delegated medical groups and others Retails for example, so we think that there's a big opportunity to continue to install quantum flow.
In the health care system in general despite any changes that may or may not occur with the current reimbursement scenario. So yeah. We we certainly have looked at all the options are.
<unk> actively exploring what we think are the best opportunities to continue the growth in and as you know the move to what we always talk about making quantum of flow standard of care.
Absolutely makes sense. Thank you for taking my questions.
Sure.
This concludes our question and answer session.
I would like to turn the conference back over to Rene cornea for any closing remarks.
Thank you for joining us today.
Doug I wanted to express my sincere gratitude for the opportunity to work with you and get to know you better over the past year. Your vision determination and leadership have been truly impressive and it is amazing to see the business you've built.
I will always be grateful for the Mentorship and guidance. He has provided me and I know this marks the end of an era for semi.
This year contributions and leadership, but I'm excited to continue working with Wayne to build on the foundation is laid on behalf of the entire Sandler team.
Wish you all the best in this next chapter of your life.
Thank you for that.
Try and where should it Brendan.
Right. Thank you everyone. This concludes our call.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.