Semler Scientific Inc (SMLR) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Semler Scientific Q1 2018 financial results conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

Before we begin, Semler Scientific would like to remind you that this conference call may contain forward-looking statements. Such statements can be identified by the words such as may, will, expect, anticipate, estimate or words with similar meaning and such statements involve a number of risks and uncertainties that can cause Semler Scientific's actual results to differ materially from those discussed here.

Please note that these forward-looking statements reflect Semler Scientific's opinions only as of the date of this presentation and undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

Please refer to Semler Scientific's SEC filings for a more detailed description of the risk factors that may affect Semler Scientific's results and these forward-looking statements. Now may I introduce Dr. Doug Murphy-Chutorian, CEO of Semler Scientific.

Good morning and thank you all for joining the Semler first-quarter 2018 financial results call. Semler is an emerging growth company that provides technology solutions to improve the clinical effectiveness and efficiency of healthcare providers. Our mission is to develop, manufacture and market innovative products that assist our customers in evaluating and treating chronic diseases. We believe that our technology and software solutions enable our customers to identify when preventive care options are appropriate and to intervene before events like heart attacks and strokes occur.

Today, I'm excited to report our second consecutive profitable quarter. Compared to the corresponding quarter from one year ago, quarterly revenue grew to $4.5 million from $2.1 million or up 117%.

Another highlight of the first quarter of 2018 is the retirement of notes outstanding and other liabilities using existing cash and cash from operations. Total liabilities were reduced by more than $1 million, which included repayment of the principal and interest on notes amounting to approximately $880,000.

Also, comparing the first quarter of 2018 to the fourth quarter of 2017, revenue increased and expense decreased. Earnings per share grew to $0.12 per basic share for the three months ended March 31, 2018 compared to $0.05 per basic share in the three months ended December 31, 2017.

On a diluted share basis, earnings were $0.10 in the first quarter of 2018 compared to $0.04 in the fourth quarter of 2017. We believe such performance in the opening quarter puts us on track for a record year. Now please refer to the financial results that are described in the press release, which was distributed this morning.

For the quarter ended March 31, 2018 compared to the corresponding quarter of 2017, revenue grew $2.408 million or 117%. Operating expense, which includes cost of revenue, increased by $845,000, or 30%. Analyzing the expense categories in the first quarter of 2018 as a percentage of quarterly revenue, costs of revenue were 16% of quarterly revenue.

Engineering and product development expense was 8% of quarterly revenue. Sales and marketing expense was 38% of quarterly revenue. General and administrative expense was 20% of quarterly revenue. Net profit was $706,000, or $0.12 per basic share, which is 16% of quarterly revenue.

As of March 31, 2018 compared sequentially to December 31, 2017, Semler had cash of $419,000, a decrease of $1.038 million primarily due to the following reasons. Total liabilities were reduced by $1.040 million, which included repayment of the principal and interest on notes due amounting to approximately $880,000. Accounts receivable grew $1.064 million as some larger invoices were paid in early April rather than in late March. The uses of cash from these items were partially offset by cash provided by operations.

We expect our cash levels to increase over the course of the year if we continue on the current trend and receive timely payments from our customers. Our quarterly report on Form 10-Q will include our cash flow statement and more discussion of our cash and liquidity. In 2018, we expect revenue to continue to grow due to the increasing number of installations of our product, higher average pricing, more usage fees and recurring revenue from the licensing business.

We continue to strive to achieve additions to our customer base and to expand orders from existing customers. We also expect revenue from usage fees to grow in 2018 compared to 2017. The magnitude of these fees in 2017 were lowest in the first quarter and grew every quarter thereafter. We currently expect the same sequential quarterly pattern in 2018, that is lowest in the first quarter and higher in remaining quarters.

We expect operating expenses will increase from quarter to quarter in 2018 and as we've stated before, it's our intent to grow revenue at a faster rate than expenses and to remain profitable. If we are able to control operating expenses in this fashion, we anticipate that 2018 will be the first full year of profitability in the Company's history.

To reiterate, although we do not give formal guidance, we are intent on continuing strong annual revenue growth and maintaining profitability during 2018. We currently anticipate continuing to meet our remaining debt repayment obligations and other liabilities using existing cash and anticipated cash generated from operations.

Current note obligations and accrued interest totals approximately $2.3 million. There is no plan to raise additional capital at this time. We reserve the right to change our financing plans as opportunity or need arises.

Our goal is to further establish QuantaFlo as the standard of care in the industry. We believe that the market for vascular disease testing is large relative to our current market penetration, so there is room for continued growth. We think Semler is well-positioned in this healthcare market because, number one, we deliver cost-effective wellness solutions for the care of patients with chronic diseases.

Number two, we may improve health outcomes for patients by identifying those who benefit from preventive health measures. And number three, we provide economics that work for the providers, the facilities, the insurance plans, the government and the patients.

To conclude my prepared remarks, in terms of both financial performance and the number of patients being tested with our products, we believe that we are going to have our best year ever. I thank you for your interest in the Company and your continuing support and now, operator, could you please open the lines for questions?

(Operator Instructions). Brian Marckx, Zacks Investment Research.

Good morning, Doug and congrats on another great quarter. It's pretty impressive. Doug, can you give me what the -- how much the usage fees were in the first quarter?

Well, the usage fees in the quarter, we don't really know how they are going to change over time, but they were approximately -- the number that will be in the 10-Q, I'm just looking really quickly here, is supplies and usage fees, about $750,000 and as a percentage of revenue, usage fees were 14% in 2018 first quarter. That compares to approximately 19% in the fourth quarter of 2017.

Okay. And on the Q4 call, you mentioned that you thought that revenue, or licensing revenue anyway, you expect it to increase sequentially in Q1 and then in Q2 as well. Is that still -- is that guidance that you would say is still expected?

Yes. What we said in the fourth quarter of 2017, the last call that we had in February, is exactly what we anticipate.

Okay. Let's see, what else do I have? In terms of AR, is it safe to assume that there are no issues with collectability?

Yes, historically, we have done very well in AR collections. Most of our customers just pay on a timely basis and the increase in AR during the first quarter, it seems to have been that some larger invoices were paid in early April rather than in the last days of March. We don't believe that slippage is going to be habitual and it may occur from time to time

Okay. That's it. That's all I had. I appreciate it, Doug. Thanks a lot and congrats again on the quarter.

Brian, thanks for the questions.

David Lavigne, Trickle Research.

Hey, Doug, great quarter, really, really great. Can you give me -- I think I have my arms around most of the line items and I can kind of reconcile that, but I did think that the gross margin was kind of extraordinary and I'm trying to get my arms around whether that's maybe a function of product pricing or whether there's maybe a fixed component of that that maybe I just don't understand. But is there any color you can give on just the expansion of that line item?

Sure. I think that the -- you called it the gross margin or what we call percentage of cost of revenue, I think we've indicated in the past that because we are predominantly a software product that that should continue to improve. Some of the hardware that we have placed has been depreciated over three years. Some of it is out more than three years so it goes away as a cost of depreciation. We are kind of efficient in terms of where we work with contract manufacturing and also with our internal people who do fulfillment, quality, etc.

So we would suspect that that could creep up is what we had said in the past and that seems to be what it's doing, i.e., it's continuing to improve and that's basically the thinking. Clearly, if we have installations that are using more of doing more tests, paying more money, etc., it should just improve our numbers.

There also may be a component of slightly continuing increasing in the average license revenue per installation out there because, as you remember, a couple years ago, we upgraded the whole product to the QuantaFlo and that was a more expensive product than its predecessor. So there are multiple factors but I think as I said from your standpoint probably hopefully continued improvement. It's pretty high, so I don't know how much more we can go, but it feels like it is going to get a little better.

Yes, I guess that's what I was really wondering is whether or not you feel like somewhere out there there is a ceiling to it even at scale and I guess I was just trying to get my arms around what maybe that might be. Okay, thank you.

Glenn Krevlin, GHC Capital.

Hey, good morning, Doug. I had a question regarding whether you can talk a bit about the significant R&D expenses you continue to spend, maybe give us some insight into where you are trying to drive this in terms of products, product opportunity because it still is a relatively high level. Can you hear me? Hello?

I am still here. Operator, are we on? If you can hear me, we think the business requires continued investment. We have in the past indicated that we're trying to continue to improve the product, make it responsive to customer needs and particularly into large customers, which required investments in things like cyber security, data analysis, etc. So that's what we anticipate.

Now this particular quarter was down in terms of percentage of revenue that is going to R&D at 8% versus I believe in the previous quarter it was approximately 12%. But I don't think we can anticipate a substantial decrease in R&D. In fact, we would think expenses would increase in absolute dollar terms although they may maintain around that percentage.

But we want to reinvest in the business. We want to continue to make the product the best out there and we want to in essence do the two things that I think we are trying to do here -- A, reduce avoidable healthcare costs and B, improve healthcare outcomes. And that is what we are spending R&D dollars to do.

My second question, which -- is there an international opportunity for this business once you get more penetrated into the big HMOs here?

There is certainly an international opportunity. We have at this point not pursued it.

Okay. And then, lastly, are there any ongoing studies using this product that may help us sell going forward in terms of the efficacy or the cost savings? Are there any pending studies that may be coming out?

We are really in a good position in that the studies that we thought needed to be done were done, that individual customers in fact frequently pilot the device beforehand and demonstrate for themselves the healthcare benefits and the economics. So we have seen a lot of, if you will, testing of device that way.

So unlike some companies in the healthcare industry, which are always having a next study that is ready to come out with some groundbreaking news, we predominantly have done all the work in that regard, so do not expect much. There may be publications from time to time; there are various people who are doing that, but it is not the primary focus and not the driver, if you will, in terms of news that we will present.

So it's mainly the individual plans and their own internal research that can give them confidence?

That's right. They are there and then we have done work and we have put in public -- as you may see new publications come out from some of the users, some with our help to make sure they have organized their data, etc. So we anticipate that, but we are not trying to -- there is not a definitive study that needs to be done in our opinion, so we are not putting company effort to organize a major study. We don't think that's necessary at this point in time.

Okay, I appreciate it. Extremely good quarter. Very, very well done.

Thanks again for your support.

And I am showing no further questions in the queue at this time. I'd like to turn the call back over to Dr. Doug Murphy-Chutorian for any closing remarks.

Thank you, operator and I want to thank everybody for joining us today. We are obviously very pleased with the events in the last quarter and I look forward to updating you soon on our continued progress. Have a good day. Good day.

Ladies and gentlemen, this does conclude your program and you may all disconnect. Everyone have a great day.