Q3 2023 Augmedix Inc Earnings Call
Yeah.
Greetings and welcome to augment next Inc 2023.
Earnings Conference call at this time, all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A minder this conference is being on a content. It is now my pleasure to introduce your host Matt Chesler Investor Relations. Thank you. Mr. Chesler you may begin.
Thank you operator.
Joining me today are Manny precarious, Chief Executive Officer of Ahmed X and Paul Ginocchio, Chief Financial Officer.
This afternoon, we released financial results for the quarter ended September 32023, we posted a copy of the press release and Investor presentation on our website at Ahmed X Dot com.
We'll 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 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.
They are based upon our current estimates and various assumptions and involve 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.
For 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 and 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.
Okay.
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'll 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 November six 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.
Thank you Matt.
Third quarter marked another period of strong progress for us as well.
We continue to be a leader in the large and rapidly growing market.
Medical documentation.
Increased adoption of wiping out Joe 50% revenue growth.
Net revenue retention of 157% and a 47% increasing average foundation service.
We expanded gross margins by 380 basis point to 49, 5% and demonstrated improving operating leverage while we continue to scale our business by building out the foundation of our emerging data platform strategy.
The strong revenue growth and improving profitability.
On track to achieve our financial goal.
Also increasing our full year revenue guidance for 2023 to $44 five.
Paul will speak to our financial outlook shortly.
It is clearer than ever that a tremendous opportunity lies in front of us.
Health care systems are leaning into our solutions to help reduce the burden on their condition and enhance operating efficiency.
Our current offering anchored by our product all makes life asynchronous product of medics notes.
Or anything increasing adoption by existing and new enterprise health systems, who are deploying one o'clock wasn't networks and a new specialty such as behavioral health.
Liven notes are now being joined by athletic as well.
Clinician controlled mobile app that users generally with AI.
Chinese to create a fully automated medical.
The old harnesses proprietary natural language processing model.
Large language models and structured dataset with no human intervention buyouts.
Go represent a highly scalable product that allows us to penetrate the largest segment of the documentation market. It has historically been served by legacy Dictation services.
The last mile and you know creation process plays out is completed by the customer.
In exchange <unk>.
Most benefit from a significant reduction in price relative to our other offerings. Additionally.
Additionally, though gives us an even wider range of products to address the dairy and unique needs of our customers.
So why do you clinicians and health systems, the flexibility to optimize their spend and thereby maximize or a lot.
We are confident that providing choice and maximum flexibility to our customers rather than a one size fits all approach is the winning strategy that will appeal to customers.
Our growth for years to come.
During the quarter, we reached a significant milestone with the early access where we could go in late September.
Initial interest and feedback has been universally positive.
Today, our technology Road map.
Developers are incorporating some of this feedback to include the product ahead of at GAA really in the coming months.
Even in the early access really initial orders for coal have been brisk.
Through our partnership with HCA healthcare. We're also in advanced stages of developing new version of <unk> designed specifically for the emergency department and its non linear workflows and challenging ambient but.
HCA is currently testing go all hospital with the intention for a broad rollout lost their network once we achieve certain agreed upon metrics.
We are very encouraged by our collaboration with HCA and the progress we are making and look forward to rolling it out across their network and introducing go or the E. R. Two other alphabetic customers.
As we pursue the apples market for ambient clinical documentation.
Also see great opportunity automatics as sort of the health care ecosystem that extends beyond document the patient encounter.
The same health systems that we serve with documentation product are increasingly looking to leverage our structured data for insights and our bidirectional communication channel to deliver vital information that can effectuate change at the point of care.
We believe we are ideally suited to serve as a conduit for such data and information.
As it pertains to HCA.
Looking to enable that to mindless structured data to improve their overall business well, it's upstream or downstream from the patient encounter.
Eating our structured data into their data Lake has the potential to drive unprecedented benefits for revenue management enhanced population to help the balance sheet and ultimately deliver better patient outcomes.
Another way, we are looking to create greater Bosch is do our open network platform strategy, We recently announced.
Starting with the strategic partnership with three innovative digital health companies Mindshare.
Ellipsis health and the solvent.
These forward thinking partner and all the health system customers realize that our bi directional communication channel at the point of care.
Cancel makes our solution, even more valuable and more effective.
We're a single platform that efficiently delivers content to the point of care customers.
Customers can enjoy the benefits of several key partners to maximize their use and impact.
Hate to follow up as an example, one of the industry leaders patient safety and medical error reduction.
Our teams are already working closely to integrate their industry standard clinical decision support protocols or E R position into our platform.
But making sure clinicians have the right information at the right time, using real time clocks somehow ambient tool.
This capability has the potential to improve patient outcomes and reduce costly errors.
We believe the value of our structured data and our ability to timely deliver critical information to the point of care will benefit other large health care organizations beyond that yet.
Finally.
I'd like to underscore the importance of generating a two hour offering and our commitment to utilizing the technology.
Cool and responsible manner.
Get rid of AI supports our bi.
Especially our soapbox.
During the quarter, we hosted our inaugural AI Advisory Council meeting.
This group includes distinguished academics governance experts and customers and is already providing invaluable insight and guidance as we can.
NASA development use of generative AI in all genetics solutions.
Our AI Council recognizes the unique and delicate balance augments This war between technology and human.
In our particular field.
Generally the AI in its current state does a good job of summarizing a transcript of the patient encounter.
However.
I'm pretty happy to have been accurate medical documentation required historical patient data.
Is this your preferences structured dataset.
And independently derived modeled that surface guardrail to supplement it.
And for more complex encounters it may be necessary to provide the higher levels of service inherent in our buy and build offerings.
We believe this portfolio of solutions, all of which utilize the best generative AI can offer will be a winning formula in the burgeoning medical documentation market.
At the same time regulatory requirements and our customers demand compliance with rigorous data security standards.
Osmotic recently achieved certified status by the High Trust Alliance for information security.
Hi, trusted champion program to safeguard sensitive information and manage information ready for global organizations across all industries.
The third party supply chain.
This prestigious certification validates our commitment to safeguard sensitive patient information data.
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.
Let's review the quarter's financial highlights.
Revenue for the three months ended September 32023 was $11 8, million% to 50% increase from the $7 9 million in the same period a year ago.
Growth was driven by growing adoption of why the notes by existing customers.
Dollar based net revenue retention rate for the third quarter. It was 157% for health enterprise customers compared to 130% in the third quarter of 2020% to 148% in the second quarter of 2023.
Net revenue retention measures when a dollar of revenue at our existing clients a year ago into in this most recent quarter.
It includes upsells expansion and churn, but excludes revenue from any new logos that were added during the previous 12 months.
Acceleration of it or was driven primarily by expansions at a handful of our largest health system customers.
Our inner our results put us best in class levels for SaaS companies.
Average questions in service in the third quarter was 47% as compared to the third quarter of 2022.
And compares to a 48% year on year growth rate in the second quarter of 2023.
We defined the clinician service as the individual doctor or nurse practitioner or other health care professional.
Using either or Libra notes surface going forward will also food users would go.
We believe growth in the number of questions and service is 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 third quarter of 2023 was 49, 8% as compared to 45, 9% in the corresponding prior year period and compares to 47, 2% in the second quarter of 2023.
With nearly 400 basis points improvement year on year in gross margin percentage was mainly driven by our growing scale and efficiency.
And our strategic initiative to shift U S service conditions outside the U S which continues.
Gross profit growth was 62% year on year.
Total operating expenses for the third quarter of 2023.
Were $10 2 million up only 2% sequentially from the second quarter of 2023.
non-GAAP operating expenses, which exclude stock based compensation and one time items grew 12% year on year.
Our gross profit growth outpaced opex growth resulted in more than a half million dollar reduction in our operating losses quarter on quarter over a 1 million dollar reduction year on year.
Adjusted EBITDA, which we calculate by adding back depreciation amortization taxes interest one time items and stock based compensation to net loss was a loss of <unk> 1 million in the third quarter of 2003 compared to a loss of $4 5 million in the third quarter of 2022.
What would this improvement in adjusted EBITDA loss was it year on year improvement in our adjusted EBITDA margin.
Negative, 57% in the year ago quarter, and negative 26% and was most recently.
Cash flow from operating activities was an outflow of $2 3 million in the third quarter compared to an outflow of $3 5 million last year.
At September 32023, we had $22 3 million of cash cash equivalents and restricted cash as compared to 22.0 million as of December 31 2022.
During the quarter, we qualified for a six month extension of our interest only period under 20 million term loan facility with FCB.
Exceeded certain financial hurdles within the agreement.
The interest only period now extend through July 24.
In terms of share count we have nearly 41 million common shares outstanding currently.
Our weighted average share count for EPS, We show a $45 5 million common shares outstanding as we include the $4 $375 million pre funded warrants that are fully vested in the money.
Assuming all the warrants outstanding our net exercise and all of our employee options and Sars that are vested in the money or that exercise, we have approximately 50 million shares outstanding.
Overall, the third quarter marked another strong period of revenue growth and improving profitability.
Now moving onto guidance.
The positive momentum that we demonstrated during the years containment. We now expect revenue to be approximately $44 5 million for the full year of one country.
With one quarter to go in the year. This implies approximately $12 3 million of revenue for the fourth quarter of 2000.
'twenty three.
We expect GAAP gross margins to be similar to third quarter 2000.
[noise] twenty-three GAAP gross margins, we expect operating expenses to be up 7%, 8% quarter on quarter due to the hires we have made and will make the comedy or accelerating growth.
A number of investors have asked us about goes contribution to our revenue growth.
We anticipate revenue to be modest during the first half of 2024.
We're only one month into the early access release of go forward visibility is going to sharpen as we reached general availability and commercially launch go from here.
At this point I would like to turn the call back to Manny for closing comments.
Thank you Paul.
<unk> committed to playing an essential role in Unburdening Foundation, and improving the operating efficiency of health care organizations.
We are building out our product portfolio and working hard to establish athletics as an effect of information and data delivery platform and to the point of care.
This unique positioning will help ensure we continue our rapid growth well into the future.
I've never been more excited about the opportunities in front of us.
Thanks.
And want to thank our team and our customers for helping us deliver another quarter of strong financial results.
Thank you very much.
With that we'll now open it up to questions operator.
Thank you, Dave and I'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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But I stopped to if you would like to move your questions from the queue.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please poll for questions.
Yeah.
Our first question comes from the line of Jared Haase.
William Blair. Please go ahead.
Yeah, Hey, guys join us here for Ryan Daniels, Thanks for taking our questions incorrect. Congrats again on another small another solid quarter.
Maybe you talked a little bit about the H C. A partnership to develop a go project E.
And I'm curious I think you mentioned there are a couple of kind of kpis that you're tracking that you need to hit before that you'll get guess because were available in that system are you able to provide a little bit more color. Just you know what those metrics are and how close you are to achieving that I mean should we think about that potential expansion of the 'twenty 'twenty four events.
Longer term and then just as it related question here I think you've spoken to this in the past, but can you just remind us.
When you do have an E version of co.
Are there any sort of exclusivity related to HCA that would prevent you from being able to sell that into other systems.
Great question, so with respect to the first one we really are at Liberty to discuss that Arthur requested HCA. What those metrics are but you can assume that they're going to be ones that are objectives are measurable and impactful.
And we feel very confident that this H D by the way that we will be able to obtain those those metrics and we have we have some historical empirical data by which to you.
Gauge our confidence in that is in a pilot program and granted the dignity hospital.
Years ago in Southern California.
Where we were able to achieve that.
The results that each year is looking for.
Okay.
Okay.
Good question.
Yeah go ahead.
But.
I was just going to say on the second one there there.
The agreement with HCA, they're gonna get at first but they're all new certain exclusivity you said they are that we have to deal with we were allowed to sell to other your system or your Oh.
Okay, Yes.
Not an exclusive deal correct.
Understood. Thank you for that and then just one follow up from us.
Nice to see the updated full year guidance here, if I look at the implied revenue number for Q4. It does suggest a slower Q on Q sequential growth rate relative to what you've experienced in prior year fourth quarters.
I am curious if you could just touch on any nuances, we should think about from a seasonality perspective, or maybe a timing perspective that we might be missing there because obviously what their net revenue retention. It seems like the momentum in bookings and those sort of forward looking metrics seem to be very strong. So just curious if there's any kind of nuances, we should read into that Q on Q.
<unk>.
Our growth rate for the fourth quarter. Thanks.
Sure Jerry Good question. So historically, the fourth quarter has seasonally been a little bit slower in terms of bookings go lives and some of our doctors take longer extended breaks and we give them credits for those.
Extended break so you didn't really see it last year, we had some except for any big orders in the fourth quarter coming into the fourth quarter. So you just you know where you're going to see a more normal seasonal quarter this quarter than we have.
What's typical.
Yeah.
Okay, perfect that makes sense, thanks for the color and I'll hop back in the queue.
Thank you next.
Next question comes from the line of Needham Chad to Chi.
These securities. Please go ahead.
Hey, guys. Good afternoon, thanks for taking my questions.
I mean, maybe just sticking with without medical go I mean.
Realizing that the HCA rollout is initially when the emergency room. So maybe just how should we think about the kind of the rollout beyond that emergency rooms in terms of what type of utilization we would see.
Hey, Neal.
You broke up a little bit, but I think your.
Your question is do.
Do we anticipate or envision a deployment of go beyond the emergency room is that was that the question.
Yeah, or what that would look like at least with like that you'd see it rollout.
Well, we're actually going to be releasing our G. The ambulatory version go before the emergency Department version of go.
And that's in response to demand we received for that particular version of go from other enterprises.
We also anticipate that when it comes to HCA that HCA will want to deploy the product beyond the merge department. We've already been told that there is interest in expanding the.
The areas, where within HCA that they believe could benefit the organization.
Great and then maybe just on the kind of the open network strategy.
Our strategy in terms of those.
Related to ships with the digital health companies leveraging a P is I mean on that how should we think about you know potential impact from that on the top line in 'twenty four and beyond.
Yeah.
Personally I don't think we're going to we're going to provide much guidance on the revenue impact.
Those partnerships.
Right now I think about those as strategic relationships that we're really going to strengthen our positioning in the marketplace.
Prices are going to look to us for more than just the medical now.
We're going to look to us as a means.
Making changes upstream and downstream to their operations that is beneficial to them.
We are ideally suited to do that just based on our bidirectional communication channel to the point of care.
And these three partnerships are leveraging that capability.
We're really excited about that we have built into our agreement.
With one of these companies already.
Hey, a revenue at or if you will for including their particular products.
Products in our platform.
But I don't anticipate that to be material, we have not factored into our projections for 'twenty four.
Great. Thanks for that I'll hop back hop back in the queue.
Yeah.
Thank you Matt.
Question comes from the line of I'm sorry.
Maxim Group. Please go ahead.
Hi, Good afternoon could you for augment X go help us understand how the go to market sale.
Sales process works like for example, with HCA or are you, making the sale or as HCA you involved in that and with.
You know the other parties that you're trying to sell to.
Hey, Alan Manny your good question, so with HCA are the way, it's going to work and they're going to bring us the hospitals that they want us to deploy and that's how the first for work.
We didn't go out and seek them they brought them to us.
They put in all of the processes necessary to deploy within those particular hospitals from the ground floor, all the way up to the C.
Senior management levels within those particular hospitals. So the same process will apply to the other hospitals that we deploy it.
With respect to other organizations it really depends on how they're structured a summer highly centralized like HCA in which case the similar process would likely be followed for the more decentralized organization I would suspect that it would be more like a license to hunt.
Enter into and we would have to use our team our CSM team in particular.
To go in and secure interest.
Within those particular business units of those decentralized organization.
And.
You recall a.
Part of what Paul mentioned was our net revenue retention rate it's 157%.
This last quarter, so we generate most of our revenue.
From those enterprises, and I would anticipate that that would remain the case going forward.
That's great. Thank you very much.
Yeah.
Thank you.
Next question comes from the line off Island.
With Lake Street capital markets. Please go ahead.
Hey, Good afternoon, guys. This is Aaron on the line for Brooks again, congrats on the great quarter.
I guess to start I'd love to hear your assessment on the competitive environment. You know have you been seeing anything new especially from Microsoft a nuance and do you sort of expect any significant new competition to enter your markets in the near future I guess, especially in relation to the E. R. With go since that's been the topic of discussion here. Thanks.
A good question, yes, obviously that the.
The market is very very large and it's starting to grow quite rapidly and so those conditions would conspire to stimulate competition and new entrants coming into the market and we're seeing that today.
When it with respect to nuance I think they're there, it's Microsoft and it's a huge company and Theyre very aggressive.
But one thing to note about every company that we've encountered in the market.
They are focused on the medical note itself the flat file that is the outcome of the no accretion process there no accretion processes, we do much more than not.
Not only do we deliver a medical Mal this flat file, but we deliver.
Traditional databases.
Structured data that is mineable, so that our customers can perform like kinds of analytics they need to.
To better their operations.
That is not something that our competitors do today. They may try to do that down the road I don't know.
But we also have the advantage of having this bidirectional communication channel that we spoke of which is central to our long term strategic vision.
As well as the broadest portfolio of products, we have a synchronous product didnt have asynchronous products in both the ambulatory and acute care.
They're fungible for our customers. So there's a lot of things that we do differently from competition that I think sets us up really well.
Going forward.
Aaron I just add to that that you know that were also high trust compliant and have seven of the top 20 health system. So we really like our positioning we feel like we're you know we're already have a strong leader in the space. So everything that all of this competitive advantage I mean, it just talks about just make us feel very comfortable not not restaurant.
But very comfortable with where we are currently.
Yeah.
Great Yeah. That's super helpful. Thanks for that and then I guess a quick follow up you know you might have mentioned this a little bit in the prepared remarks, but I'm just curious on how the interest from either the existing clients or prospect of sort of changed since you announced the HCA project.
Oh good question, so since we announced the partnership with HCA, we've received several inbound inquiries.
This started right away.
From some high level executives from some major health care process, I think if I'm going to speculate here that the partnership announcements serves as validation that augment X can deliver on these complex <unk>.
And so we've been fielding those inquiries.
Since the announcement so yeah. It is definitely help for sure.
Awesome. Thank you so much and again congrats on a great quarter.
Thanks Aaron.
Thank you next question comes from the line of Quinn Sutherland.
The benchmark company. Please go ahead.
Thank you, Hey, guys, Hey, called one or two for you.
But the.
Move up in gross margin quarter on quarter was pretty impressive was the main factor there just more resources moving offshore or was it a mix.
It's a good question.
Bill. Thanks, Yeah, we've been really pleased with the gross margin developed over the last few quarters a lot of the hard work the operations team has been doing to.
To gain efficiencies is starting to pay off obviously, we are being helped by the shift in revenue from servicing some clinicians onshore to offshore that gives us a nice lift theres still more to come on that.
Not that much more but there is more to come so we're excited about that.
And I think you know just forgetting a notes is going becoming more efficient with all the AI and automation, we're adding to that product and with the product growing you know growing larger.
And we continue to gain scale and efficiencies.
Overall delivery of augment its life. So it's it's a it's a number of factors.
A big for you know a good factor is the U S O U S, but there's more to it than that.
Okay.
That's helpful.
Hum.
Noted that our revenue per average clinician was.
Our quarter on quarter, or sorry up year over year.
And I thought the mix the mix of notes was because it would be a little bit of a weight on that number is or can you give us just color on that move this quarter.
Sure we've had a couple handfuls.
Handful of clients have historically been really pleased and happy with automatic flight, which is obviously great. When you're some of your biggest clients love your premium products they've made some significant investments over the last year in that products.
Worked with them to use nodes to penetrate deeply but they're still going deeper with life and so we just had a little bit about positive mix shift from from notes alive in this quarter.
I think also our.
Our RFP for for notes went up.
And I think that was also a contributing factor.
Good.
Are you here.
Okay.
And you guys were you guys are kind of happy with the direction of operating cash flow as well in the quarter.
We're making good progress there, we we kind of had a little collections in the second quarter that came through in the third.
I think we're making good progress and.
Keeping cost control Titan collections are we're doing some additional work on collections were trying to reduce our DSO. So all of that I think is as you're starting to see good good progress on change.
Change in cash.
Yeah.
Hey, guys nice quarter. Thanks, so much.
Thanks, Bill Thanks Bill.
Thank you.
Question comes from the line of that.
Rapids JMP. Please go ahead.
Oh, great. Thank you.
Paul starting with you I mean, obviously you guys haven't guided for 2024, but are there any points that you would want investors to keep in mind as we think about next year.
Okay.
Hey, Pat and thanks for joining day.
We continue to you know I think if you look at our longer term plan and our longer term guidance, we're talking about revenue growth in the 30% to 45% range.
And you know continued improvement in gross margins and we would expect in.
2024 to fall within that sort of most large parameters, we've talked about continuing to reduce cash burn also.
Yeah.
Alright, great and Manny you got a lot going on what are the one or two most important things for you to make sure that get done over the next 12 months.
Well first first of all of our businesses to.
Go.
For both the ambulatory and E R departments and that is coming.
Coming up soon.
And then to continue to iterate products to make sure that we satisfy as many customers as possible with that product.
And then after that once you get go are you talking about you know we're looking at adding features to our products suite.
And then leveraging the open platform that we've been talking about making sure that those partnerships.
[noise] materialize and that they are.
We start they start generating.
Sunday impact with our customers.
We're really excited about that that's that's going to be really central to our long term history.
<unk> positioning in the market.
Great. Thank you both.
Thanks Pat.
Yeah.
Thank you.
This concludes today's question and answer session I would now like to turn the floor over too many catalysts for closing comments.
Thank you operator, so thank you everybody for listening in we look forward to.
Getting back together to discuss fourth quarter results with you.
We're really excited as I mentioned in my closing comments about what lies ahead drag medics.
And hopefully you'll stay tuned.
Talk to you soon thank you.
Thank you.
Concludes today's teleconference. You may disconnect your lines at this time, thank you for your participation.
Okay.
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Okay.
Yes.
Okay.
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