Q2 2023 Augmedix Inc Earnings Call
Ladies and gentlemen, greetings and welcome to the augment Inc. Second quarter 'twenty 'twenty earnings Conference call.
At this time all participants are in a listen only mode.
A brief question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host my Chesnut Investor Relations for all metrics.
I know what you yourself.
Thank you operator, joining me today are Manny Kirk Harris, Chief Executive Officer, Al Dogmatics, and Paul Ginocchio, Chief Financial Officer.
This afternoon, we released financial results for the quarter ended June 30th 2023.
We posted a copy of the press release, and an investor presentation to our website at <unk> Dot com.
We will begin our call with prepared remarks to be followed by a Q&A session. This call is also being simulcast and will be archived on our website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of the federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements that relate to expectations or predictions of future events results or performance are forward looking statements.
They are based upon our current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied.
Accordingly, you should not place undue reliance on these statements.
A list and description of the risks and uncertainties associated with our business. Please refer to the risk factors and management's discussion and analysis in our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission and similar disclosures and subsequent reports filed with the SEC.
Also during our call today, we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items.
You will find additional information regarding these financial measures and a reconciliation to GAAP measures in today's press release.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August seven 2023.
We disclaim 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.
And with that I'll turn the call over to Manny.
Thanks, Matt.
<unk> delivered another strong quarter in Q2.
We set records for revenue growing 47% year over year and dollar based net revenue retention at 148%.
Demonstrating that helped us.
Increasingly value and are adopting <unk> products.
We also expanded gross margins by 330 basis points to 47% as we are realizing the inherent operating leverage from a recurring revenue model with our increasing scale of operations.
With this strong performance in bookings and matched our best ever quarter.
We're confident in our outlook and are raising our revenue guidance for the year.
Yeah, Thomas to help the health care industry addressable clinician burnout and patient dissatisfaction sure World class medical documentation solution and that is what we are delivering.
Medics offers the broadest portfolio of products that set the standard for the level of accuracy possible.
We've accomplished this by combining years' of experience understanding clinician workflow.
<unk> stack that uniquely combines the power of automatic speech recognition proprietary natural language processing model.
Putting large language models and a vast library unstructured datasets developed for more than 6 million patient encounters.
Health system customers are increasingly adopting our products for use by growing number of new practitioners within both the ambulatory and acute care setting.
Now in partnership with these same customers, which includes some of the largest health system in the U S. Such as HCA healthcare structured data, we generate as a byproduct of our medical no generation process is being harnessed to develop innovative solutions that deliver even greater value to the health care ecosystem.
That transcends the patient encounter.
We are right on track for an important year for our company and the clinicians and health systems to be sure.
Let's now talk about some of the exciting current developments across our company.
Recall that we formalized a strategic partnership with HCA healthcare people working collaboratively with partners such as HCA, you're actively Trialing Ahmed Exco and both the ambulatory and acute care setting.
We are very pleased with the progress we are making with the automation of the product.
Optimizing the quality of the drought.
The clinician and to enhance the user interface to make it easy as possible to use.
Of medics goes on schedule for commercial launch later this year you'll.
You'll have much more to say about the rollout of this new offering let me speak to you in the fall.
Our current store performance is underpinned by our lives.
Products, which are resonating with clinicians due to their ability to generate accurate medical notes, while delivering compelling rois to health systems.
This is evidenced by our dollar based net revenue retention rate of 148%.
Which improved from an already strong 136% in the first quarter of this year.
HCA is booked.
Confidence in our technology and our approach further validates what is already a strong value proposition.
Many of our largest clients are rolling out our products on a much broader basis, which is a major factor behind our accelerating revenue growth.
Our focus is to bring unrivaled efficiency clinician.
Leaving the administrative burden by providing highly accurate medical nuts, while allowing doctors to focus more on their patients.
Mexico is the next evolution of this initiative, which we believe will appeal to an even broader segment of the healthcare market.
Importantly, we are positioning ourselves to extend our value proposition well beyond the doctor patient encounter.
The U S health care system has some structural idiosyncrasies that result in a less than ideal relationship between the services that are rendered by health care providers and the price. They are paid for those services.
The function of revenue cycle management is burdened by the perfect information lean primarily from the medical now that is used as a basis for billing.
Often results in multiple building iterations between provider and payer for giving encountered which adds considerable cost to the health care system.
We are working closely with our largest customers to tailor our products to help address the area efficiency.
We can do more than create inaccurate.
We can use AI and machine learning to tightened medical record to the detailed description of the clinicians activities that we've already generate as a byproduct of our note creation process to enable more accurate billing records.
This should result in health organizations being paid faster and more fairly and provide the entire ecosystem with more transparency.
This expansion of our offering to provide yet another compelling ROI to our customers.
Importantly, it will extend our participation in the value chain beyond patient encounter, which should serve as a durable competitive advantage for isomedix.
As we sit here at the midpoint of 2023, we remain very confident in our overall market positioning which is predicated on scale and trust were.
We're building that trust as evidenced by our very high net revenue retention rate.
And we are achieving scale as evidenced by our substantial revenue growth.
Our business is performing very well driven in part by some of our largest customers widely adopting our products.
On track to gain scale that we need in order to breakeven, while continuing to invest for the future.
We are excited about the next evolution of our business, which is augmenting scope and especially looking forward to helping health systems beyond the point of care in downstream areas, we see a major opportunity to deliver even more value.
With that I'll now turn the call over to Paul Ginocchio, Our Chief Financial Officer, then we'll return with closing comments Paul.
Thank you Manny I'm very proud of the financial and business accomplishments that genetics team delivered during the second quarter.
Building on the success of the first quarter of medics is generating continued strong growth and an improvement in profitability.
Further demonstrate our position as a leading health Tech company.
We also took important steps to strengthen our financial position to ensure that we have the resources required to continue to scale, our business and the capital to reach cash flow sustainability.
Let's review the quarter's financial highlights.
Revenue for the three months ended June 32023 was $10 8 million.
47% increase from the $7 3 million in the same period a year ago.
Growth was primarily driven by existing client expansion, while new clients and the growth in our notes offering also contributed.
Dollar based net revenue retention rate for the second quarter was 148% for our health enterprise customers compared to 131% in the second quarter of 2022.
36% in the first quarter of 2023.
As many of you know net revenue retention measures when a dollar of revenue at our existing clients a year ago grew into in this most recent quarter.
It includes upsells expansion and churn.
<unk> revenue for many new logos that were added during the last 12 months.
Acceleration in <unk> was primarily driven by expansion in a handful of our largest health system customers.
Although our results put us at best in class levels for SaaS companies.
Average conditions in service for the second quarter rose, 48% as compared to the second quarter of 2022.
Compared to a 43% year on year growth rate in the first quarter of 2023.
We define a clinician and surface, that's an individual doctor nurse practitioner or other health care professionals using either alive or notes service, we believe growth in the number of clinicians and service isn't an indicator of the performance of our business as it demonstrates our ability to penetrate the market and grow our business.
Adjusted gross margin for the second quarter of 2023, it was 47, 2% as compared to 44.0% in the corresponding prior year period and compares to 45, 8% in the first quarter of 2023.
This over 300 basis point improvement year on year in gross margin percentage was mainly driven by our growing scale and our strategic initiative to shift U S service clinicians to outside the U S.
Gross profit growth was 58% year on year.
Total operating expenses for the second quarter of 2023 were $10 million.
Up 5% sequentially from the first quarter of 2023, non-GAAP operating expenses, which exclude stock based compensation and one time items grew 9% year on year.
As expected.
G&A for the quarter was $4 8 million up 14% compared to $44 2 million in the second quarter of last year.
Transaction expenses, including professional fees.
Accounted for 400000 of G&A in the second quarter.
Our gross profit growth outpacing opex growth resulted in a reduction in our quarterly operating losses for the fourth consecutive quarter.
Adjusted EBITDA.
Which we calculate by adding back depreciation amortization taxes interest onetime items and stock based compensation to net loss was a loss of $3 6 million in the second quarter of 2023.
Appeared to a loss of $5 1 million in the second quarter of 2022.
Along with this improvement in adjusted EBITDA loss was it year on year improvement in our adjusted EBITDA margin from negative 70% in the year ago quarter to negative 43% in this most recent quarter.
Cash flow from operating activities was an outflow of <unk> 6.0, a million in the second quarter compared to an outflow of $4 7 million last year.
You've got wider collections at the end of June , which led to a nearly 2 million higher cash burn than expected in the quarter.
This is a timing issue and most of that collection shortfall was corrected in the first week of the third quarter.
With revenue stronger than planned and costs below plan.
On track to reduce burn in 2023 for 2022.
At June 32023, we had $25 3 million of cash cash equivalents and restricted cash.
As compared to 22.0 million.
As of December 31, 2022.
The strengthened balance sheet initiatives include the $12 million in new equity from HCA healthcare.
And red mile Group.
The extension of the term loan facility by up to 18 months and the Finalization of the $5 million equity line of credit.
The equity line of credit provides further capital certainty and gives us backstop capital access even if the markets are closed.
But as we've said before our expectation is that we can reach cash flow sustainability without accessing this facility.
In terms of share count, we have $40 8 million common shares outstanding currently.
Weighted average share count for EPS, We show 43 6 million common shares outstanding as we include the $4 $375 million pre funded warrants since issuance on April 19th.
Positioning the company to reach profitability continues to be a top priority.
As we've said with the tremendous opportunity in front of us and our technology platform. We believe we can deliver both strong revenue growth and operating leverage to reach operating cash flow breakeven before net interest expense as we exit 2024.
Now moving onto guidance.
The positive momentum we have demonstrated during this year is continuing now.
Now expect revenue to be at least $43 5 million.
Year of 2023.
Turning to our outlook for the third quarter of 2023, given the strength of our recent bookings and the health of our current backlog, we expect revenue in the third quarter to be approximately 11 4 million to $11 5 million.
We expect GAAP gross margins to be similar to the second quarter of 2023, GAAP gross margins, we expect operating expenses to be up 5% to 6% quarter on quarter due.
Due to the hires we have made to accommodate our accelerating growth.
At this point I'd like to turn the call back to Manny for closing comments.
Thank you Paul.
I would like to thank our entire team for continuing to deliver on our promise to our customers while turning in another strong quarter for our shareholders.
We believe we are strongly position had set forth a sound strategy and are executing well against that strategy in a fast moving and growing market.
Technology, particularly generative.
Is evolving rapidly and will have an increasing impact on our industry.
Through our years of experience and understand your clinician workflows and their challenges are.
Medics is ideally poised to take maximum advantage of these advances I believe our industry is that a significant inflection point and I'm truly excited about what lies ahead. Thank you everyone.
With that we'll now open it up to questions operator.
Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session.
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Ladies and gentlemen, we will wait for a moment, while the question queue assembles.
Our first question comes from the line of Ryan Daniels with William Blair. Please go ahead.
Yes. Good afternoon. This is Jared haase on for Ryan Thanks for taking our questions and congrats on all the momentum that you continue to see in the market Manny was hoping to unpack. The comments that you made around data solutions, a little bit further and I appreciate the color around some of the inefficiencies with RCM specifically it was maybe an area.
Where you can continue to add value for partners I guess I was just curious is this something is the idea here that this is something you could theoretically kind of monetize through distinct products, where maybe you could pull data as you get more scale your across your partner base and share those insights with others in the future or are you thinking of this as more.
Sort of the idea of leveraging data just as another source of enhanced value proposition to drive stickiness and expansion with your current customer base.
Hey, Gerry.
So.
Right now.
As you May know where.
Working with Google and <unk> to build the data Lake.
Actually pretty far along in building a data lake.
For HCA to actually mine their own data.
He was referring to.
In my prepared remarks, with an extension of that concept, where we would product is.
That capability.
And allow third parties to get access to that structured data.
That we're now directly integrated into the data Lake for HCA.
So the idea here is to.
Develop an ecosystem.
That relies on our on our structured data as the input.
To help them do their jobs, a little bit better.
And as you probably know.
The area billing and collections in healthcare it is a fairly archaic and complex situation.
Ware.
There's a great deal.
Iteration that go on with many of the submissions for reimbursement.
Between payer and provider that result in added cost to the system.
And we feel that if we could provide.
Good input to those parties that are responsible for that function. Then we're removing some of those inefficiencies that are inherent today in the system.
We haven't built a bit small rebate, yet still early days, but the idea is to establish its entire API ecosystem.
And architecture to enable these third parties to get access to that information.
Got it absolutely.
Absolutely makes a lot of sense excuse me.
And then you just one quick follow up from Us actually Sue on the average clinicians and service metric are nice to see that kind of accelerate a relative to the prior quarter. Just in terms of the net sort of doctors added if I take the the the difference relative to the first quarter. It looks like this was pretty comfortably a high watermark just in terms.
So the number of docks out of the service. So I'm curious, how we should sort of feel or think about are there any kind of risks operationally in terms of having the staffing and the resources in place to support that level of growth.
No, we don't envision any kind of constraints.
Fortinet growth or actually growth well beyond that that that level and in fact, we.
<unk> been proactive in.
Taking the necessary steps to expand our capacity significantly beyond what youre seeing now.
So we keep the keep brushing up against old thresholds that we had established for ourselves and they they keep falling so.
I think the steps we've been taking.
He had been working.
Alright, that's great to hear and congrats again on the momentum I'll hop back in the queue.
Thanks Jared.
Thank you.
Our next question comes from the line of Neil Chatterji with B Riley <unk> Securities. Please go ahead.
Yes. Good afternoon, thanks for taking my questions and congrats on the strong quarter.
Maybe it's an automatic nodes I mean, you kind of talked about kind of the growing adoption there with the larger customers just curious.
What you've seen.
It may be different is last quarter versus prior and whats kind of driving that.
Adoption there.
Sure Hey, Neil.
So.
What was what's new.
With respect to notice that.
Prior to this quarter.
And actually.
It started happening sometime during the first quarter, we had been precluded from selling to some of our major our biggest customers because.
We had to go through new data security and compliance.
Requirements.
Given the nature of that particular product and that took some time, because we had to negotiate those those new contracts with those entities and there's the standard bureaucracy that goes along with all of that.
But we managed to get through most of them.
And that's unlocked our ability to sell.
That particular product into those organizations and that's what you see now we're seeing the fruits of that effort.
As some of those enterprise customers are seeing that.
No one size fits all it's not the right necessarily solution for them in and having the ability to.
Pick and choose what best suits their particular positions.
Is is the right way to go.
Got it.
Got it great thanks for that color.
Maybe one follow up here, just kind of flipping to augment it.
So just kind of curious on the you know the feedback that you're getting on the ambulatory care settings side.
I guess, how do you see that evolving upon launch.
Sure. So we're getting feedback all the time every day from the physicians who are testing it right now.
And we're incorporating that feedback into the design and development of that particular product.
It's still on track to be released commercially this year.
So we feel very confident about that.
All we're doing right now is really making a better better based on the feedback we're getting so like I said, we feel very good about.
Our ability to release those commercially this year.
I mean, maybe just you know any nuance there as far as you know versus the acute care setting and kept all the progress with with HCA, just an alert towards care side.
Well okay.
We do anticipate.
Commercially releasing ambulatory version of go before the acute versus.
Acute care setting version of gout.
It's not going to be a big gap, but you know maybe a few weeks, maybe a month or so.
But there will be a staggered.
Lease between the two.
Versions that go.
Yeah.
Got it thanks, I'll hop back back in queue.
Sure.
Thank you.
Our next question comes from the line of Brooks O'neil with Lake Street Capital markets. Please go ahead.
Hey, good afternoon, everyone. This is an walking around the line for Brooks Congrats on the print.
So just curious sort of the reaction that you guys have been getting from other customers and the central products as a as a result of our relationship with HCA.
Hey, Aaron I'm, sorry could you repeat that you broke up a little bit.
Sure apologies I'm, just curious about the reaction that you've been seeing from other customers and potential prospects as a as a result of the relationship with what they see it.
Well as you would suspect it's been pretty positive.
The HCA partnership just adds another level of credibility to the company.
And our approach to.
How we go about incorporating <unk>.
Generally of AI into our technology stack.
So as.
As far as the.
The people, who are making the purchasing decisions that at these big enterprise. They they are aware of it and they applauded.
And you know we're just at this point, they're there they're waiting to see how that.
The release goes for go and then where we're poised to sell to those organizations.
I think the only.
Eric the only thing I would add is that the launch would go with a fully <unk>.
<unk> solution is really probably elevated the conversations we have with most of our existing customers.
And probably you know.
Brian This is at a higher level with potentially new customers. So it's been.
Having that on the roadmap that's coming out in the back half of the year has been really good for our overall conversations with clients.
Sure Yeah, Okay very helpful. And then just a quick follow up you know how do you feel about the resources you have to advance your technology and products and you know do you feel that you need more resources to compete effectively with with maybe a Google or Amazon or really any other player in your market.
Well, we're not really competing with Google they're a partner.
You know Amazon's recent announcement about their partnership with three of them and modal is an interesting one we haven't really seen anything in the market yet from them, but we don't take that lately that announcement.
So we feel like we're on we're on solid ground here based on our positioning our product portfolio.
Strategy, we have in place.
So you compete pretty much against anybody.
And the Testament to that of course is the traction we're getting with some of the biggest enterprises in the U S.
So we feel like I said, we feel pretty good about.
Where we are in the marketplace today.
Okay.
It's called Nokia I'll, just add that we do we did guide to gross cost growth Q on Q and we continue to make.
Growth investments are investing for the you know, we keep growing nicely and so we're investing to continue to be able to grow at that rate if not better into obviously continued to build out the product set so youre going to continue to see us add cost, but certainly not at the level that gross profit goes up.
Sure sure Okay very helpful. Thanks for taking the questions guys.
Sure. Thank you.
Thank you.
Next question comes from the line of Allen Klee with Maxim Group LLC. Please go ahead.
Good afternoon could you talk a little about Hum AI Advisory Council to set off of kind of what you're thinking about some directions that could go into.
Hey, Alan Great question.
So when we when we started using.
Yeah.
Generative AI L large language models last year, well over a year ago.
We realize that.
You know.
They weren't a panacea, there's there's all sorts of issues that.
The that cropped up in their use in our particular.
Use case.
And we felt that we're going to actually need to.
To get some guidance on how we apply that technology in a responsible and thoughtful manner.
For our customers.
So we started.
Putting together this this AI council.
Couple of months ago.
It's pretty much set we'll make an announcement about the composition of that council shortly.
But the idea is to collect perspectives from different areas of health care and from academia the technology side.
Learn about the latest developments number one and number two did you have.
Out what some of the challenges are.
Before they hit us to make sure that we reflect those in how we develop design our products.
So it's you know, it's just being us being proactive in terms of how to properly use this technology.
And we feel really good about the people that we've been able to attract to join this council.
That's great. Thank you.
You bet.
Thank you.
As there are no further questions I would now hand, the conference over to many crackers.
Chief Executive Officer for closing comments.
Yes.
Thank you operator, well I just want to thank everybody for jumping on this call.
We're very pleased with the second quarter's results building up building on the momentum we see.
We.
Shared with you over the last several quarters, our goal remains to become cash flow positive by the end of next year.
And.
In so doing we will also.
Maintain our leadership position in the industry are catering to the varying needs of big health care enterprises, because we recognize that one size fits all is not the right approach.
So thank you very much and we will keep you updated on our progress.
Thank you.
The conference off Ahmed zinc has now concluded. Thank you for your participation you may now disconnect your lines.
Yeah.
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