Q2 2023 Semler Scientific Inc Earnings Call

Good afternoon, and welcome to the similar scientific 40, 43 second quarter financial results Conference call.

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Before we begin somewhere scientific needs 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 provisions of the private Securities Litigation Reform Act of 1995 as amended.

These include statements regarding the expectations for expansion of the business and the development and marketing of additional products as well as expected savings from the strategic corporate streamlining.

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.

Those risks and uncertainties are described them.

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 did not have a copy of today's release you may obtain one by visiting the Investor Relations page of the website somewhere scientific dot com.

Now I would like to introduce Doug Murphy, the Torreon C E O somewhere scientific please go ahead.

Good afternoon, everyone and.

Thank you for joining us.

Our second quarter 'twenty to 'twenty three.

Cool.

True Q2 'twenty.

'twenty three.

Performance represents the highest quarterly revenue and pre tax net income.

Timber has ever achieved.

Now I would like to introduce Renee Corvair.

Our newly appointed CFO , She places front of mind.

Oh and shaping our financial strategy, all along with me.

Our board right now.

Thank you Doug.

Good afternoon, everyone and thank you for being part of today's conference call.

Excited for my new role and the future of Daimler I look forward to working closely with our senior leadership team and our board to unlock stakeholder value. We are pleased that both Eric's Daimler and little Cheng have joined our board in the second quarter of 2023, they bring deep expertise and capital allocation corporate governance.

Strategic planning and investment management further.

The board has decided to ask Doug to stay on as permanent CEO in order to bring continuity and direction to Sandler and he has agreed.

Also after 13 years with Daimler Dennis Rosenberg has retired as chief marketing Officer. However, he will continue to assist me with our Investor Relations effort. We thank Dennis for his valuable contribution and wish him a happy and fulfilling retirement.

Today I'll be presenting an overview of our second quarter 2023 financial results, providing market update and discussing recent corporate development.

Following my remarks, Doug and I will be available to address any questions you may have.

I'm excited to announce record results for the second quarter. This achievement is a testament to the hard work of our team as well as the ongoing support of our customers who continue to recognize the clinical benefits and value of our technology.

By enabling early diagnosis of both P. E. B N heart dysfunction, we are empowering health care providers to initiate preventative interventions and treatment at an early stage we.

We believe that this proactive approach not only save lives, but also lower its health care expenditure.

As we look to the future we envision the health care landscape, where our technology plays a pivotal role in shaping healthier outcomes for patients while delivering substantial economic benefits for now the specifics of our second quarter results.

Total revenue in Q2, 2023 was $18 $6 million, an increase of 25% compared to the second quarter of 2020 two.

Driven by continued sales of Qantas low to existing and new customers to test for P. E D.

We believe the promising results that were published in two large independently conducted peer reviewed studies like want to flow customers last year are having an impact.

These studies underscored the importance of identifying asymptomatic P 80 patients, enabling the implementation of preventative measures.

Fixed fee revenues were $96 million, an increase of 13% year over year.

We saw continued interest in our products from existing customers as well as new customers such as hospitals major pharmaceutical and other retail chains and delegated medical groups.

Variable fee revenues were $8 $4 million, an increase of 39% year over year, we continue to see strong demand from our home risk assessment customers using qantas flow for pag dairy in home examination.

Whitman and other revenues were $600000, an increase of 128% year over year.

The majority of the equipment sales are kept variable fee customers. We believe it is kind of strength in the fee per test market.

In the second quarter of 2023, our two largest customers, including their related affiliates comprised 37% and 34% of quarterly revenues.

Operating expenses in Q2, 2023, which includes cost of revenues were $11 $4 million.

An increase of 18% year over year.

As a percent of revenues operating expenses.

Fences decreased to 61% compared to 65% in 2022.

Operating expenses increased primarily due to increased head count wage inflation and increased professional fees.

Pretax net income was $7.7 million, an increase of $2 5 million or 48% year over year.

Net income was $5 9 million or 88 cents per basic share and 75 cents per diluted share an increase of 44% year over year.

During the quarter, we purchased outstanding warrants to acquire 76000 shares of common stock, but from our CEO at a cost of $1 $9 million.

We have $15 million remaining under the board authorized stock repurchase program we.

We had cash cash equivalents and short term investments at June 30th 2023 $51.8 million.

As of June 30th 2023, head Count was 137 employees compared to 134 at the end of the first quarter 2023.

We recently announced a strategic plan to streamline operations and reduce employee head count by approximately 30% by September 15th 2023.

This plan is meant to be proactive and seeks to drive operational efficiency, while still providing high quality service to our customer.

We currently estimate that we will incur severance costs in the range of 700 to 900000, consisting of one time termination benefits, which are expected to be paid by December 31 2023.

We anticipate this will result in a reduction in quarterly operating expenses of approximately $1.5 million to $2 million, which are expected to be realized during the fourth quarter ended December 31 2023.

Our primary objective remains steadfast to maintain and enhance our current revenue opportunities and profitability.

To achieve this we are reinvesting in emerging growth opportunities.

Really focusing on new customers for quanta flow both for P. E D N H D D.

This broadening of our customer base may prove to show the tremendous promise and exciting potential that we believe is in our company's future.

Furthermore, we're committed to maintaining our investment in research and development.

Grading existing products and data services is a priority for us as we strive to stay at the forefront of innovation and continuing to deliver.

Cutting edge solutions to our customers.

Last year, we unveiled quantum flow H D to aid in the diagnosis of heart dysfunction, which is a product of our internal R&D efforts.

The results of our clinical paper published in the journal of preventative medicine demonstrated a statistically significant correlation with a P value of less than 0.01, using transco, radick echocardiographer or echo as a gold standard to diagnose heart failure.

Yeah.

A link to the paper is available on our website and our press release dated March one 2023.

Her function encompasses a broad spectrum, including heart failure, which affects around $6 5 million adults in the U S.

With a lifetime risk of one in five that 40 years of age the impact of heart failure on health care is significant with over 1 million hospitalizations per year in the United States, and then annual cost of care exceeding $30 billion.

Unlike symptomatic heart disease.

Cedric on number of patients have asymptomatic heart disease. However, they are not routinely tested for the current standard of care because echo wawa reliable is not a screening test it involves a specialized lab.

And Altra Sonographer it takes about an hour, making it practical for primary care offices or home setting.

Our goal is to a quick health care providers with a cost effective means of identifying asymptomatic heart dysfunction early.

Enabling them to encourage patients to adopt healthier lifestyles and optimize proven guideline directed medical therapies.

Ultimately this approach could improve long term health outcome.

There are C. P T reimbursement codes for Echocardiographer and HCC diagnosis codes for heart dysfunction that were not affected by this year's CMS updates.

We are in discussions with customers of all sizes and have made initial installations of quantify each day in the second quarter of 2023.

Well it used to be is showing positive early signs we expect the market uptake process will take time.

Finally, as part of our growth strategy, we will explore inorganic growth initiatives to further diversify our product portfolio guided by our four.

Ford that has deep experience in capital allocation.

By seeking new opportunities in parts partnerships.

Aim to expand our offerings and broaden our impact on the market.

Thank you for your interest in the company and your continuing support now Rocco if you could please open the line, Doug and I will be happy to address your questions.

Absolutely Matt.

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Today's first question comes from Erinn Murphy with Lake Street Capital markets. Please go ahead.

Hey, good afternoon, everyone. This is an online for Brooks here just wanted to start with by saying congrats on the strong strong quarter. Thank.

Thank you. Thank you.

So can you just give us sort of a general sense of of the reaction of your health plan and you feed your fee per test customers, just sort of the pending changes to the risk model for for ph D from CMS.

Yeah sure. So you know as you mentioned, we did have very good first half results and we're very pleased with that so and it's what it represents a really great start to the year, it's difficult to make any predictions right now given the numbers of factors that play in our market.

So now there really is no consistent pattern emerging among our customer base at this time.

And it's really too early to speculate on any potential impacts to our customers, but for now there we are seeing.

Testing at an increased rate obviously as you can see from our results.

Okay, that's fair.

And can you just want to just give us some insight into the customer reaction and interest in your heart dysfunction product you know when when when when might we see some.

Revenue related to that opportunity for you guys.

Sure. So as I had mentioned in my prepared remarks, we are in discussions with customers of all sizes and we do have initial installations of quanta flow. Each D. Right. Now so we are seeing a positive feedback from that we're.

We're not going to go into specifics of exactly you know what's out there and the customers and we do think that the market uptake process will take time, we we know that our customers want to get the product in it and test it for themselves first before they roll out.

Out so while we already have these relationships with our customers and they will need to to look at it themselves and so because of this we arent really providing guidance right now on the uptake of it.

We have revenue generating your cash now, but it's not.

For revenue as we hoped.

Sure. Okay. That's helpful. And then sort of my final inquiry here you know you mentioned, some downsizing and streamlining initiatives. You know can you just tell us what your priorities. There are you know just a little bit more color there would be nice thanks for taking the questions.

Yeah sure no problem. So on does the streamlining here and as you look back over the past few years, we've really put increased efforts towards automation and improvement of technology, both internally and with integrating with our customers.

So we do have a reduced need for certain staff areas. Because there are fewer touch points. So we're really viewing this as doing more for less.

So the realigning of the worst workforce to stream the operations, it's really to become a more nimble organization and again utilize the technology that we've been putting into place and the resources that we do have we are going to focus on capitalizing on the potential.

Emerging market opportunities such as diversifying our customer base for quad flow P. D. The customer adoption for quanta flow H D <unk>.

And within the market and our strategic initiatives and priorities within that besides focusing on our existing products are to maintain our R&D investment to upgrade the product data services.

Okay. Do you know is a lot less R&D intensive at this point than it has been in the past in each day really is moving from core R&D to more of a refinement stage and then we can also focus our R&D on potential other extensions there.

Okay Awesome very helpful. Congrats again on the quarter, we're excited to keep telling you guys.

Great. Thank you.

Thank you.

This concludes our question and answer session.

The conference back over to an equal amount for any closing remarks.

Thank you as we conclude this conference we want to reiterate our ongoing commitment to delivering clinical benefits through earlier diagnosis of chronic cardiovascular conditions.

Customers continue to recognize the value of this approach and as the health care landscape evolves. Our technology continues to play a vital role for patients physicians facilities and Payors alike. One of the unique strength of our technology is its portability accessibility, enabling us to be part of the solution.

And reducing health inequities that persistent cardiovascular disease by providing tools that can be utilized in various settings.

We contribute to breaking down barriers and ensuring that more individuals have access to early detection and intervention. Thank you for joining us today.

Thank you ma'am.

Conference call.

Thank you all for attending today's presentation.

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