Q4 2022 Augmedix Inc Earnings Call
Speaker 1: .... you
Speaker 2: Greetings. Welcome to Augmatics Incorporated's 2022 Fourth Quarter Earnings Conference Call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation.
Speaker 2: If anyone should acquire operator assistance during the conference, please press star zero from your telephone keypad.
Speaker 2: Please note that this conference is being recorded.
Speaker 2: At this time, we'll now turn the conference over to Matt Chesler from Investor Relations. Matt, you may now begin.
Speaker 3: Thank you and thank you all for participating in today's call. Joining me are Manica Carrot, Chief Executive Officer, and Paul Gionopio, Chief Financial Officer.
Speaker 3: Earlier this morning, Augmetics released financial results for the quarter ended December 31, 2022. A copy of the press release is available on the company's website.
Speaker 3: Before we begin, I'd like to remind you the management will make statements during this call that include forward-looking statements within the meeting of the federal security laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Speaker 3: Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. These forward-looking statements are based upon current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events.
Speaker 3: to materially differ from those anticipated or implied by these forward opening statements.
Speaker 3: Accordingly, you should not place undue reliance on these statements.
Speaker 3: For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors and management discussion and analysis of financial condition and results of operations in our most recent Form 10-K and Form 10-2 filed with the Securities and Exchange Commission. For a list and description of the risks and uncertainties associated with our business,
Speaker 3: and similar disclosures and subsequent reports filed with the SEC.
Speaker 3: Also, during our call today, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items.
Speaker 3: You will find additional information regarding these non-GAAP financial measures and the reconciliation of these non-GAAP to GAAP measures in today's press release.
Speaker 3: This conference call contains time sensitive information and is accurate only as of the live broadcast today, March 27, 2023.
Speaker 3: Augmentics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise.
Speaker 3: And with that, I'll turn the call over to Mary.
Speaker 4: Thank you, Matt. Good morning, everyone, and thank you for joining us.
Speaker 4: I'd also like to welcome Matt Chesler of the FNKIRT eugmedics team. We'd like to have you with us.
Speaker 4: Q4 2022 was another strong quarter for Arbometics as the momentum we saw building in the second and third quarters continued and accelerated in the fourth quarter.
Speaker 4: We finished a great year of bookings and revenue growth with our best ever fourth quarter bookings performance.
Speaker 4: We materially expanded our footprint with two existing enterprises and experienced continued traction with our other enterprise accounts.
Speaker 4: One enterprise substantially increased the number of physicians who use our products, and we now service more than a third of all of its physicians due to the strong ROI we deliver.
Speaker 4: In recognition of the positive impact Augmetics products have had on clinician recruitment, retention, and productivity, another major account has leaned in and adopted a policy to provide Augmetics to all its partner physicians.
Speaker 4: As a result, Augmedics will grow to serve approximately 20% of its total affiliated physician network.
Speaker 4: We won a new region of an existing enterprise and added a large cohort of doctors as part of that customer's initiative to reduce physician burnout.
Speaker 4: And importantly,
Speaker 4: Top 10 health system we won in early 2022 expanded with us in the emergency department, deepening our relationship with that customer and furthering our penetration of the emergency department market segment.
Speaker 4: Total revenue for the fourth quarter was $8.8 million, representing a 33% year-over-year growth rate, and we exited 2022 with $35 million in annual recurring revenue.
Speaker 4: The pace of our progress hasn't slowed down in 2023.
Speaker 4: We signed our largest ever cohort in March and have realized the best ever first quarter booking.
Speaker 4: There is a tremendous market opportunity in front of us.
Speaker 4: and to maintain our momentum, the Augmetics team is executing across our strategic priorities to drive enterprise customer expansion, differentiating our AI-driven core platform in flexible product solutions, and intelligently scaling our business model.
Speaker 4: We are developing the broadest product portfolio in the medical documentation space so we can meet the needs of most clinicians regardless of care setting or workflow.
Speaker 4: Our SaaS product, OsmeticsGo, will directly target the largest segment of the U.S. clinician market via approximately 50 percent of U.S. doctors that historically have used dictations to produce medical notes. We are now Haven- 185 Susan East Review, potential CEO and clinical clinical surgeon George Mil poly
Speaker 4: AudmeticScope is intended to be easier to use and generate greater time savings for clinicians than legacy dictation tools.
Speaker 4: This is a significant opportunity for us and as a pure software product will be the beneficiary of higher gross margins than our other documentation products, Osmetix Notes and Osmetix Live.
Speaker 4: In addition to being easier to use and saving physicians more time than dictation tools, Augmetics Go has the added benefit of capturing and structuring patient visit data according to the specific requirements of health systems.
Speaker 4: And importantly, go provide positions to transparency into how the medical notice created and control as to its content and look and feel.
Speaker 4: We believe transparency and control are attributes to physician value highly, providing a sense of physician empowerment, and will serve as critical differentiators relative to black box approaches of competing offerings.
Speaker 4: Augmetics Go is currently being tested with a handful of clinicians at a major health system. We plan to expand this testing in the second quarter and commercially launch Go late this year.
Speaker 4: Admetics Go represents the latest in our continuing effort to effectuate behavioral change at the point of care at scale so that we can help increase patient access, improve patient outcomes, and then the cost curve across the healthcare industry.
Speaker 4: Large language models, or LLM such as Chat GPT, are dominating the popular press today.
Speaker 4: LLMs are indeed impressive models that can have a significant impact on automating parts of the medical notes. In fact, LLMs are already incorporated in our tech stack and are used in conjunction with our other NLP models and structured data sets to generate medical notes.
Speaker 4: LLMs are particularly useful in providing rapid summaries and context from transcripts.
Speaker 4: However, use of the LLMZ alone today cannot produce medical notes that meet the acuity standards or data structure requirements of our industry.
Speaker 4: A summary of the physician patient encounter in the same sequence that the conversation unfolds and which contains some of the inconsistencies that invariably cropped up in such conversation is not what the industry wants or needs. That is why we use other technologies together with LLM to deliver highly accurate and structured medical notes and is a major reason.
Speaker 4: Why our note quality is considered so high by our customers.
Speaker 4: We are also making solid progress in moving into the acute care setting with additional emergency room and acute care wins.
Speaker 4: We continue to add features to all our products to make them support and create value both in ambulatory and acute care settings.
Speaker 4: Another milestone in the fourth quarter was an EHR integration between one of our large health systems clients and EPIC. We now have multiple EHR integrations with more plans in the coming quarters.
Speaker 4: Integrating with an EHR enables to deliver medical notes to our customers even faster and it proves our operating efficiency.
Speaker 4: Finally, we continue to make impactful advancements with our proprietary note-builder platform in our pursuit of enabling fully automated medical notes.
Speaker 4: Our machine learning continues to benefit from the large volume of data about 60,000 notes a week that passes through our platform and we expect increasing levels of automation will have a positive impact on our growth margins.
Speaker 4: We are executing on these priorities, investing in product development, engineering, sales and marketing, and remain laser focused on achieving profitability and self-sustainability as rapidly as possible.
Speaker 4: The operating leverage inherent in our business model is starting to bear fruit as we realize the reduction in our operating loss is again quarter on quarter as our volume increased.
Speaker 4: We expect that trend to continue throughout 2023 and beyond.
Speaker 4: Improving operating leverage is a key theme for Augmetics in 2023 as we continue to aggressively grow our top line.
Speaker 4: In closing, the fourth quarter showed a continuation of accelerated top line growth and improving operating leverage as we made great progress on our path to profitability.
Speaker 4: Financially, and with respect to our product offering, we are well positioned in a very large and rapidly expanding market.
Speaker 4: We continue to execute on our strategic initiative and focus on delivering strong growth in proven growth margins and increasing operating leverage.
Speaker 4: With that, I'll now turn the call over to Paul Genopio, our chief financial officer, then we'll return with closing comments. Paul?
Speaker 2: Thank you, Manning. As stated, revenue for the three months ended December 31, 2022 was 8.8 million. A 33% increase from the 6.6 million in the same period a year ago.
Speaker 2: Growth was again driven by existing climate expansion, due clients in higher growth in our notes offering.
Speaker 2: Dollar-based net revenue retention for the fourth quarter of 2022 was 126% for our health enterprise customers compared to 136% in the fourth quarter of 2021.
Speaker 2: The fourth quarter of 2021 was when our NRR metric recently peaked.
Speaker 3: We expect NRR to stabilize or slightly accelerate from the fourth quarter.
Speaker 2: As many of you know, net revenue retention measures what a dollar revenue at our existing clients a year ago grew into this most recent quarter.
Speaker 3: It includes upsells, expansion, and churn, but excludes revenue from any new logos that we added during the last 12 months.
Speaker 2: Our strong NRR puts us at the higher end of most SaaS companies.
Speaker 3: Average clinicians and service for the fourth quarter of 2022 grossed 41% as compared to the fourth quarter of 2021 and compares to a 43% year-on-year growth rate in the third quarter of 2022.
Speaker 3: Our two-year stacked year-on-year growth rate, again accelerated to 104% in 4Q versus 85% in 3Q.
Speaker 3: We define a clinician and service as an individual doctor, nurse practitioner, or other healthcare professionals using either our live or note service.
Speaker 3: We believe growth in the number of clinicians in service is an indicator of the performance of our business.
Speaker 3: As it demonstrates our ability to penetrate the market and grow our business. Adjusted gross margin for the fourth quarter of 2022 was 46.5%.
Speaker 2: and compares to 47.3% in the corresponding prior year period.
Speaker 2: and compares to 45.9% in the third quarter of 2022.
Speaker 3: The increased exposure to clinicians serviced out of the US.
Speaker 5: Reduced our year-on-year gross margins.
Speaker 5: reduced our year-on-year gross margins, partially offset by efficiency gains.
Speaker 5: We are pleased with the progression of gross margins from the third into fourth quarter.
Speaker 5: Total operating expenses for the fourth quarter of 2022 were 9.5 million, increasing sequentially from 9.0 million in the third quarter of 2022.
Speaker 5: non-GAAP operating expenses, which excludes stock-based compensation and one-time items, grew 26% compared to the fourth quarter of 2021, a deceleration from the 28% year-on-year.
Speaker 5: operating expenses, which excludes stock-based compensation and one-time items grew 26% compared to the fourth quarter of 2021, a deceleration from the 28% year on year in the third quarter.
Speaker 5: Operating expenses increased year on year due to annual salary increases, incremental investments in sales and marketing as we expand our commercial team and extend our marketing reach.
Speaker 5: investments in the engineering team as we further enhance our technology platform, note automation capabilities, and expand our product portfolio.
Speaker 5: and increased G&A costs due to being a NASDAQ listed company.
Speaker 5: Despite the quarter over quarter growth in op-X, our growth in growth profit outpaced op-X growth, which resulted in a reduction in our quarterly operating losses for the second consecutive quarter.
Speaker 5: Adjust the data, played by adding back depreciation, amortization, taxes, interest, one-time items, and stock-based compensation to net loss.
Speaker 5: Wasn't lost at 4.2 million in the fourth quarter of 2022.
Speaker 5: compared to a loss of 3.7 million in the fourth quarter of 2021. While our adjusted EBITDA losses increased,
Speaker 5: are adjusted EBITDA margin improved by approximately 800 basis points year on year. Importantly, over the last two quarters, we have reduced our adjusted EBITDA operating losses by 20 percent or 1.1 million.
Speaker 5: from $5.3 million in the second quarter of 2022 to $4.2 million in the fourth quarter.
Speaker 5: Looking at the progress over the last two quarters, our path and trajectory to casual break even should be much clearer.
Speaker 5: Now turning to an overview of full year results. Revenue for the full year 2022 was $30.9 million, an increase of 40% from $22.2 million last year.
Speaker 5: Dollar-based net revenue retention for the year was 128% for our health enterprise customers Compared to 124% in 2021
Speaker 5: Gap gross profit grew 40% to $14 million.
Speaker 5: With a 45.1% gross margin compared to a gross profit of 10 million with a 45.1% gross margin in 2021.
Speaker 5: Adjusted gross margin for 2022 was 45.4% as compared to 45.9% last year. Total operating expenses for the year were $36.3 million, up 32% compared to the $27.6 million in 2021.
Speaker 5: Non-GAP operating expenses, which is glued stock-based compensate compensation and one-time items, through 31% compared to 2021.
Speaker 5: Adjust EBITDA was a net loss of 18.6 million for 2022 compared to a loss of 15.2 million in 2021.
Speaker 5: At December 31, 2022, we had 22 million cash, cash equivalents, and restricted cash. In addition, we had 10 million of incremental liquidity via our existing debt facility.
Speaker 5: After the FDIC takeover of SBB, we did access and take down the second term loan transfer of 5 million. So as of today, we still have 5 million of remaining incremental liquidity via the AR line of credit.
Speaker 5: As we achieve the 35 million ARR performance metric,
Speaker 5: In our debt facility, our interest only period on our debt has been extended from July 2023 to January 2024, providing us with incremental operating runway.
Speaker 5: Based on our current balance sheet capital and our expectations of declining cash burn, we still have approximately two years of operating runway.
Speaker 5: Just a quick reminder, the first quarter is typically our largest cash burn quarter of the year due to some annual payments and bonuses.
Speaker 5: Now moving to guidance. Do the strong finish to 2022 and a strong start to 2023, we are providing revenue guidance of approximately 42 million for the full year of 2023, implying a 36% year-on-year growth rate.
Speaker 5: Turning to our outlook for the first quarter of 2023, given the strength of our recent bookings and the health of our current backlog, we expect revenue in the first quarter of 2023 to be approximately $9.3 million to $9.4 million.
Speaker 5: We expect gap gross margins to be similar in the first quarter of 2023 to the fourth quarter of 2022.
Speaker 5: Recall at scale we've indicated that Augmentics Live gross margins will be in the range of 50 to 55 percent.
Speaker 5: With Armedics No Scroce Marginz in the range of 55 to 60%.
Speaker 5: Augments go gross margins will be higher than Augments notes. However, we don't expect any material revenue from go in 2023.
Speaker 5: We expect first quarter operating expenses to be slightly higher than the fourth quarter operating expenses.
Speaker 5: Importantly, the increase in operating expenses will be substantially lower than the increase in revenue, which again, reaffirms our inherent operating leverage in our business model.
Speaker 5: We do expect some incremental investments in 2023 and sequential off-ex growth in the coming quarters, but that growth is expected to be less than our top line growth.
Speaker 5: At this point, I'd like to turn the call back to Manique for closing comments.
Speaker 5: I'd like to turn the call back to Manny for closing comments. Thank you, Paul.
Speaker 4: I am proud of our team's commitment to enable physicians to see the patient and not be distracted by the technology that generates the medical note.
Speaker 4: In the process, we are addressing the largest pain points in the U.S. health care system, physician burnout, staffing shortages, and labor inflation.
Speaker 4: I'd like to personally thank the entire op-medics team for the strong results he delivered in the fourth quarter and over the course of the year.
Speaker 4: I'd also like to take this opportunity to welcome Rotto Riley as our new chairman of the board.
Speaker 4: His long tenure, multiple successes in healthcare IT and his extensive industry relationships will no doubt help us realize our vision of changing behavior at the point of care to increase patient access, improve patient outcomes, and boost the industry's financial performance.
Speaker 4: We remain confident that the need for our products will continue to accelerate given the massive size and unmet needs of the market and the compelling ROI our offerings deliver to our customers. We remain confident that the need for our products will continue to accelerate given the massive size and unmet needs of the market and the compelling ROI our offerings deliver to our customers.
Speaker 4: We look forward to 2023 and beyond and to generating long-term value for our stakeholders.
Speaker 2: Thank you. With that, we will now open it up to question. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star one from your telephone key pad and a confirmation tone indicate your line is in the question queue. Thank you.
Speaker 2: With that, we will now open it up to questions. Operator? Thank you. We will now be conducting a question and answer session. If you would like to ask a question today, please press star 1 from your telephone keypad and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker 2: From just when choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker 2: One moment please so we poll for questions. Thank you. Our first question is from the line of Ryan Daniels with William Blair. Please receive your questions. Good morning. This is Jared Hostin for Ryan. Thanks for taking our questions. Congrats on all the sales moments.
Speaker 2: key variables we should think about that could drive the actual performance in year sort of above or below that that outlook.
Speaker 5: Yes, sure, Manny. No problem. Hey, Jared. Thanks, everybody. Thanks, everybody.
Speaker 5: Thanks for the question. So, you know, we exited the year at 35 million of ARR. We had a very strong backlog entering the year. So, you know, that backlog plus the exit ARR of 22 gave us really good disability into that 42 million.
Speaker 5: You can see what our first quarter revenue guidance looks like and sort of the incremental progression of...
Speaker 5: ARR added Q on Q and we feel good about that, achieving that $42 million.
Speaker 2: Okay, perfect. And then I guess just as a follow up here, maybe you talk a little bit about some of the large client expansions in recent quarters. You'll curious, is any of that momentum been driven by data sharing where you're able to really help systems identify which doctors could benefit the most from your solution? I guess just any color more broadly around what you think is really...
Speaker 4: experience after we've done an initial co-order too with those enterprises. I think there's other secular issues that are stimulating demand and in particular demand for our services. Demand in general is being driven, as you probably know, by Dr. Burnow, stacking shortages, labor inflation.
Speaker 4: but choosing us.
Speaker 4: in particular to grow is predicated.
Speaker 4: I think on the high ROI that we're able to deliver to those enterprises and by incorporating
Speaker 4: it's pretty easy for those enterprises to see the impact we're having on their financial performance.
Speaker 2: We will leave it there and not back in the queue.
Speaker 2: We will leave it there and not back in the queue. Thank you, Jared.
Speaker 2: The next question comes from the line of Neil Chatterjee with B-Reilly Securities. This is just you for your questions.
Speaker 5: Good morning and thanks for taking the questions. Maybe just first off, I'm just curious how the beta testing and any feedback is going so far with the preparation for the Aug Maddox Go launch later this year and how you envision that getting kind of the foundation through your enterprise platform.
Speaker 4: Hey, Neil. Smanny. Good question.
Speaker 4: It is beta testing. So we're the point of this is to get as much feedback as possible, um, from users, uh, to, um, make sure that when we commercially launch, uh, the service, uh, the product that, um, it will satisfy the needs of the target market that we're going after.
Speaker 4: So far the feedback has been good, but it's still early days, so I don't want to commit to the nature of that feedback other than it's been productive. And we're making changes and improvements to the product as we get that feedback, which is what you'd expect.
Speaker 4: And, you know, we're still, our time table is still, you know, exactly what we indicated earlier. We will go to extended beta testing in the next quarter with another enterprise as well. And we're deeply with this one particular enterprise that we're testing today.
Speaker 4: and all indications are that we will be launching the product commercially towards the end of the year.
Speaker 5: Great, thanks for that update. And then you did mention the one example earlier. It's just curious if you just talk a little bit more about the option of expanding more into the ERs. Sure. So we went into the ER a while ago.
Speaker 6: at uh
Speaker 4: And a West Coast facility just to kind of cut our teeth on that, because the workflows as you can imagine are very different from the ambulatory clinical.
Speaker 4: care setting.
Speaker 4: And that helped us.
Speaker 4: kind of figure out how to deal with those challenging workflows because the workflow is not linear as it is in the ambulatory setting. And we figure that out.
Speaker 4: decided to market it more aggressively and that effort is beginning to pay off. And it's not just with a regional hospital on the West Coast. This is with some major healthcare enterprises.
Speaker 4: So we're really excited about that opportunity. And it's not very well represented, as you probably know, in the virtual documentation space, because it's so hard to do. But we feel we've cracked that nut and looking forward to greater expansions in that segment.
Speaker 1: Great, I left it for me. I'll jump back in here. Yeah.
Speaker 1: Great. That's it for me. I'll jump back in the queue.
Speaker 7: To ask your question today, you may press star 1. We'll move to the next question. It's from the line of Alan Cleese, maximum. Please proceed with your questions.
Speaker 2: Good morning. Two questions. One, just the run rate on operating expenses is what we've been seeing year over year for the third and fourth quarters. Is that kind of what you're kind of targeting going forward? And then second, on the GO offering,
Speaker 7: The feedback you get from doctors of basically what would make them switch to what you have versus dictaphone, if you could dig into that a little more. Thank you..
Speaker 5: Hey, Alan, it's Paul. I'll take that first question. As you look at year-on-year OPEX growth as we get into 2023, it will not be at the same levels of growth year-on-year that we saw in the third or fourth quarter of 2022.
Speaker 5: we expect a more moderate growth rate. I hope that's that we're not going to give any more specific currently, but you should expect a deceleration in your growth. Just before we move on to Manny's question around the relative benefits of our products versus dictation, I just want to call out that the 1,300 clinicians in service we
Speaker 5: your end. Thank you.
Speaker 4: Yeah, Alan, to answer your 2nd question.
Speaker 4: the objective criteria that we use.
Speaker 4: objective criteria that we use to evaluate.
Speaker 4: the value proposition for GO.
Speaker 4: are one, the
Speaker 4: the amount of savings in time for physicians.
Speaker 4: It's really important that the product is capable of saving more time in preparing a medical note than a dictation solution.
Speaker 4: Second, it has to be a lot easier to use.
Speaker 4: And second, it has to be a lot easier to use.
Speaker 4: With dictation there's a lot of work that has to be done.
Speaker 4: beyond just dictating the commentary that you need or wanna see in the medical note, there's a lot of navigational steps that have to be taken by the physician to place.
Speaker 4: specific content in specific fields within the EHR and that is obviated by our product.
Speaker 4: There's a couple of intangible criteria as well that we think are really important. One is transparency, which I talked about in our comments.
Speaker 4: We will expose through physicians how the medical note is built.
Speaker 4: That's baked into the user interface.
Speaker 4: And we think that's important. It's important to show the sausage making to the.
Speaker 4: Physician so they have an appreciation for what the steps are and then they can see where there's areas where they might want to
Speaker 4: do something differently than what the models are doing. And that leads to the second intangible point, which is empowerment. They have the ability to do something differently than what the models are doing.
Speaker 4: to control the look and feel and specific content that they want to see in that medical mode without a lot of effort.
Speaker 4: And that's the elegance of that particular product. And I think it's our view that many physicians value that control and transparency. They go beyond the more objective metrics that we look at.
Speaker 5: Thank you. Can I ask one other question? Do you think that in 23 that gross margins have the potential to improve over 22? Hey Alan, it's Paul. Good question. Absolutely. Obviously, 2022 was impacted.
Speaker 5: over time.
Speaker 8: Thank you so much.
Speaker 7: Thank you. At this time I'll hand the floor back to management for any further remarks.
Speaker 4: Well, we appreciate everybody coming online and listening to our earnings calls and we'll take.
Speaker 4: call back later today and tomorrow with those that are interested in more in-depth questions and answers. Thank you all and we'll keep you posted on our progress.
Speaker 7: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Thank you. Thank you.