Semler Scientific Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

Key Takeaways

  • Semler delivered its highest-ever quarterly revenue of $18.6M (up 25% YoY) and pre-tax net income of $7.7M (up 48%), driving EPS up 44% to $0.88/$0.75.
  • All revenue streams grew strongly: variable-fee revenues rose 39% to $8.4M, fixed-fee revenues were up 13% to $9.6M, and equipment sales surged 128% to $0.6M.
  • Management approved a 30% headcount reduction by September 2023, with $0.7–0.9M one-time severance costs and expected quarterly operating expense savings of $1.5–2M in Q4.
  • Top two customers, including affiliates, accounted for approximately 37% of Q2 revenue, highlighting potential customer concentration risk.
  • The new QuantiPro HD heart dysfunction product saw initial installations and positive early feedback, but management cautioned that market uptake will take time and provided no near-term revenue guidance.
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Earnings Conference Call
Semler Scientific Q2 2023
00:00 / 00:00

There are 4 speakers on the call.

Operator

Good afternoon, and welcome to the Semler Scientific 2023 Second Quarter Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Before we begin, Summer 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.

Operator

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 in the press release and our SEC filings. The forward looking statements made today are as of the date of this call and the company does not undertake any obligation to update the forward looking statements. If you do not have a copy of today's release, you may obtain 1 by visiting the Investor Relations page of the website, summerscientific.com.

Operator

Now I would like to introduce Doug Murphy Catorian, CEO of Semler Scientific. Please go ahead.

Speaker 1

Good afternoon, everyone. Thank you for joining us on our Q2 2023 results Q2 2023 performance represents the Highest quarterly revenue and pre tax net income that Semba has ever achieved. Now I'd like to I'll introduce Renee Cormier, our newly appointed CFO. She plays a Santo Margino's role in shaping our financial strategy all along with me and our Board. Renee?

Speaker 2

Thank you, Doug. Good afternoon, everyone, and thank you for being part of today's conference call. I'm excited for my new role in the future of Semler. I look forward to working closely with our senior leadership team and our Board to unlock stakeholder value. We are pleased that both Eric Stemmer and Will Chang have joined our Board in the Q2 of 2023.

Speaker 2

They bring deep expertise in capital allocation, Corporate Governance, Strategic Planning and Investment Management. Furthermore, the Board has decided to ask Doug to stay on as permanent CEO in order to bring continuity and direction to Semler and he has agreed. Also after 13 years with Semler, Dennis Rosenberg has retired as Chief Marketing Officer. However, he will continue to assist me with our Investor Relations We thank Dennis for his valuable contributions and wish him a happy and fulfilling retirement. Today, I'll be presenting an overview of our Q2 2023 financial results, providing market updates and discussing recent corporate developments.

Speaker 2

Following my remarks, Doug and I will be available to address any questions you may have. I'm excited to announce Our customers who continue to recognize the clinical benefits and value of our technology. By enabling early diagnosis Of both PAD and heart dysfunction, we are empowering health care providers to initiate preventative interventions And treatments at an early stage. We believe that this proactive approach not only saves lives, but also lowers health care expenditures. As we look to the future, we envision a healthcare landscape where our technology plays a pivotal role in shaping healthier outcomes for patients, While delivering substantial economic benefits.

Speaker 2

For now, the specifics of our second quarter results. Total revenue in Q2 2023 was $18,600,000 an increase of 25% compared to the Q2 of 2022, driven by continued sales of QuantaFlo to existing and new customers to test for PAD. We believe the promising results that were published in 2 large independently conducted Fixed fee revenues were $9,600,000 an increase of 13% year over year. We saw continued interest in our and Delegated Medical Group. Variable fee revenues were $8,400,000 an increase of 39% year over year.

Speaker 2

We continue to see strong demand from our home risk assessment customers using QuantaFlo for PAD during in home examination. Equipment and other revenues were $600,000 an increase of 128% year over year, Because the majority of equipment sales are to variable fee customers, we believe that it's a sign of strength in the fee for In the Q2 of 2023, our 2 largest customers, including their related affiliates, comprised of 37% 34% of quarterly revenue. Operating expenses In Q2 2023, which includes cost of revenues, were $11,400,000 an increase of 18% year over year. As a percent of revenues, operating expenses decreased to 61% compared to 65% in 2022. Operating expenses increased primarily due to increased headcount, wage inflation and increased professional fees.

Speaker 2

Pretax net income was $7,700,000 an increase of $2,500,000 or 48 percent year over year. Net income was $5,900,000 or $0.88 per basic share and $0.75 per diluted share, an increase of 44% year over year. During the quarter, we purchased outstanding warrants to acquire 76,000 shares of common from our CEO at a cost of $1,900,000 We have $15,000,000 remaining under the Board authorized stock repurchase program. We had cash, cash equivalents and short term investments at June 30, 2023 of $51,800,000 As of June 30, 2023 headcount was 137 employees compared to 134 at the end of the Q1 2023. We recently announced a strategic plan to streamline operations and reduce employee headcount by approximately 30% by September 15, 2023.

Speaker 2

This plan is meant to be proactive and seeks to drive operational efficiency while still providing high quality service to our customers. We currently estimate that we will incur severance costs in the range of $700,000 to $900,000 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 $1,500,000 to $2,000,000 which are expected to be realized during the Q4 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, particularly focusing on new customers for QuantaFlo, both for PAD and HD.

Speaker 2

This broadening of our customer base may prove to show the tremendous promise and the exciting potential that we believe is in our company's future. Furthermore, we're committed to maintaining our investments in This 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 QuantiPro HD to aid in the diagnosis of heart function, which is a product of our internal R and D efforts. The results of a clinical paper published in the Journal of Preventative Medicine Demonstrated a statistically significant correlation with a p value of less than 0.01 Using transphuratic echocardiography or echo as a gold standard to diagnose heart failure. A link to the paper is available on our website in our press release dated March 1, 2023.

Speaker 2

Heart dysfunction encompasses a broad spectrum including heart failure, which affects around 6,500,000 adults in the U. S. With a lifetime risk of 1 in 5 at 40 years of age, the impact of heart failure on health care is significant. With over 1,000,000 hospitalizations per year in the United States and an annual cost of care exceeding $30,000,000,000 Unlike symptomatic heart disease, a considerable number of patients have asymptomatic However, they are not routinely tested for in the current standard of care because ECCO, while reliable, is not a screening test. It involves a specialized lab, a trained ultrasonographer and takes about an hour, making it impractical for primary care Offices or Home Settings.

Speaker 2

Our goal is to equip 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 outcomes. There are CPT reimbursement codes for echocardiography and HCC diagnosis codes for heart We are in discussions with customers of all sizes and have made initial installations of QuantiFER HD in the Q2 of 2023. While HD 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 By seeking new opportunities and partnerships, we aim to expand our offerings and broaden our impact on the market.

Speaker 2

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

Operator

Today's first question comes from Aaron Wolfner with Lake Street Capital Markets. Please go

Speaker 3

Hey, good afternoon, everyone. This is Aaron on the line for Brooks here. Just wanted to start by saying congrats on the strong quarter.

Speaker 2

Thank you. Thank you.

Speaker 3

So can you just give us sort of a general sense of the reaction of your health plan and Your fee protect customers, there's sort of the timing changes to the risk model for PAD from CMS?

Speaker 2

Sure. So as you mentioned, we did have very good first half results and we're very pleased with that. So It represents a really great start to the year. It's difficult to make any predictions right now given the numbers 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 impact to our customers.

Speaker 2

But for now, there we are Testing at an increased rate, obviously, as you can see from our results.

Speaker 3

Okay. That's fair. And can you sort of just give us some insight into the customer reaction and interest in your heart dysfunction product? When might we see some sort of revenue related to that opportunity for you guys?

Speaker 2

Sure. So as I mentioned in my prepared remarks, We are in discussions with customers of all sizes and we do have initial installations of QuantaFlo Right now, so we are seeing positive feedback from that. We're not going to go into specifics of exactly what's out there And the customers. And we do think that the market uptake process will take time. We know that our customers want to get the product in and test it for themselves first before they roll it out.

Speaker 2

So while we already have these relationships with our customers, they will need to look at it themselves. And so because of this, we aren't really providing guidance right now on the uptake of it.

Speaker 1

We have revenue generating accounts No, but it's not it's a meaningful revenue as we hope to have.

Speaker 3

Sure. Okay. That's helpful. And then sort of my final inquiry here. You mentioned some downsizing and streamlining initiatives.

Speaker 3

Can you just tell us what your priorities there Just a little bit more color there would be nice. Thanks for taking the questions.

Speaker 2

Yes. Sure. No problem. So on The streamlining here, as we 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.

Speaker 2

So we're really viewing this as doing more for less. And so the realigning of the 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 opportunity as diversifying our customer base. For Quadflow PD, the customer adoption for Quadflow HD and within the market And our strategic initiatives and priorities within that, besides focusing on our existing Products are to maintain our R and D investments to upgrade the product data services. So, Kd now is a lot less R and D intensive at this point than it has been in the past and HD really is moving from core R and D So more of a refinement stage.

Speaker 2

And then we can also focus our R and D on potential other extensions there.

Speaker 3

Okay. Awesome. Very helpful. Congrats again on the quarter. We're excited to keep calling you guys.

Speaker 2

Great. Thank you.

Operator

Thank you. Thank you. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Renee Cormier for any closing remarks.

Speaker 2

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, our 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 payers alike. One of the unique strengths of our technology is its portability and accessibility, enabling us to be part of the solution in 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.

Speaker 2

Thank you for joining us today.

Operator

Thank you, ma'am. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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