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spk00: Good afternoon and welcome to the Semler Scientific 2022 fourth quarter and full year financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. Before we begin, similar scientific needs to remind you that certain comments made during this call may constitute forward-looking statements, 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 the impact of the CMS advance notice. 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 one by visiting the investor relations page of the website, SemlerScientific.com. Now, I would like to introduce Doug Murphy-Chatorian, CEO of Semler Scientific.
spk05: Good afternoon, everyone, and thank you for joining us for our fourth quarter, 2022, and our full year results call. Today, We announced that I have informed the board that I will be stepping down as CEO and will be assisting to a transition period. I will continue to serve as a member of the board, at least until the remainder of my 2024 term. And I'm pleased to announce that Dr. Wayne Pan will see me as CEO effective April 3rd, 2023. Wayne has served as a member of the board since May of 2014, has broad healthcare experience and confident that he will be able to lead the company into the next phase of growth and continue to make a difference every day for our customers and the patients we serve. It has been an honor to lead the team, and I'm proud of the business we built together. First quarter 2023 guidance in terms of revenue represents the highest quarterly revenue that Semler has achieved in this century. So without further ado, I want to introduce you to Dr. Pan. Wayne?
spk02: Thank you, Doug. On behalf of the board, I'd like to thank Doug for his commitment and notable contributions to Semler over the past 12 years. He's been instrumental in the evolution of the company, and I look forward to continuing to work with him as a member of our board. And I'm very grateful for the opportunity to serve as CEO of Semler Scientific and lead the company into its next phase of growth. I believe Semler has diagnostic tools that will unlock a new paradigm in cardiovascular care, as well as create value for our stockholders. Our products will increase access, promote health equity, and enable earlier diagnosis of progressive diseases that affect millions of people globally. Semla will be presenting and hosting one-on-one meetings at the Needham Virtual Healthcare Conference on April 18th, 2023. Well, I look forward to laying out my vision and meeting with the investor community. I'll now hand the call over to Renee.
spk01: Thank you, Wayne. I look forward to working with you. Good afternoon and thank you for joining us today. In addition to Doug and Wayne, with me are Andy Weinstein, SVP Finance and Accounting, and Dennis Rosenberg, Chief Marketing Officer. Doug, Wayne, Andy, Dennis, and I will be available for Q&A following today's prepared remarks. On this call, we will summarize the fourth quarter and fiscal year-end 2022 financial results, discuss the factors at play in our market, talk about the 2024 CMS advance notice, outline Q1 2023 guidance, provide details about the Quantiflow product extension, and speak about other investment activities at Semler. Now I will turn it over to Andy to describe our financial performance for the fourth quarter and full year 2022. Andy? Thanks, Renee.
spk03: Please refer to the financial results described in the press release that was distributed at market close today. We reported record high annual revenues in 2022, but our revenue growth slowed for the year compared to 2021. We were pleased to see the revenue growth accelerated in the fourth quarter of 2022 at both our fixed fee and variable fee customers compared to the fourth quarter of 2021. For the fourth quarter ended December 31st, 2022, revenue was $13.8 million, which represents an increase 20% compared to the corresponding quarter in 2021. For the full year ended December 31st, 2022, revenue was $56.7 million, an increase of 7% compared to the full year of 2021. In Q4, fixed fee revenues were $9 million, an increase of 14% period over period. For the full year, fixed fee revenues were 34 million, an increase of 11% year over year. We continue to grow revenues at our largest customer, as well as at other existing and new fixed fee customers. We saw increased interest in our products from hospitals, retail locations, and delegated medical groups, which we believe is due, at least in part, to gaining traction from the two major studies published in 2022. In Q4, variable fee revenues were 4.5 million, an increase of 30% period over period. For the full year, variable fee revenues were 21.3 million, a decrease of 1% year over year. In Q4, equipment and other revenues were 300,000, which was an increase of 96% period over period. For the full year, equipment and other revenues were 1.4 million, which was an increase of 42% year over year. Because the majority of equipment sales are to variable fee customers, we believe it is a harbinger of strength in the fee per test market. In the fourth quarter of 2022, our two largest customers, including their related affiliates, comprised 43.3% and 25.8% of quarterly revenues. For the full year 2022, our two largest customers comprised 40.4% and 29% of annual revenues. In Q4 operating expenses, which includes cost of revenue, were $10.2 million, an increase of 4% period over period. For the full year, operating expenses were $39.5 million, an increase of 18% year over year. Operating expenses increased for the full year, primarily due to increased headcount in line with our business expansion plans, wage inflation, and increased insurance and professional fees. In Q4, pre-tax net income was $4 million, an increase of $2.3 million, or 132%, period over period. For the full year, pre-tax net income was $17.7 million, a decrease of $1.8 million, or 9% year over year. In Q4, net income represented $3.2 million, or $0.48 per basic share, and $0.41 per fully diluted share, an increase of 113% period over period. For the full year, net income was $14.3 million, or $2.13 per basic share, and $1.79 per diluted share, a decrease of 17% year-over-year. Weighted average basic share count was $6.7 million for Q4 and the full year of 2022, and weighted average diluted share count was $7.9 million for Q4 and $8 million for the full year of 2022. There were no shares repurchased in the quarter. During the fiscal year of 2022, we repurchased $5 million worth of shares or 149,000 shares. We had $15 million remaining under the board authorized stock repurchase program. We had cash, cash equivalents and short-term investments at December 31st, 2022 of $43.1 million. approximately $30.5 million of which is held in short-term U.S. Treasury bills at December 31st, 2022. We have banking relationships with First Republic Bank and Edward Jones and are taking steps to diversify further. As of December 31st, 2022, headcount was 127 employees, and this compares to 124 at the end of the third quarter of 2022. We expect to file our annual report on Form 10-K on or around March 23rd, 2023. Now I'll ask Dennis to provide more color about factors at play in our market and our business activities. Dennis?
spk06: Thanks, Andy. I first want to reiterate our continuing strong belief in the clinical benefit and importance of the early diagnosis of chronic diseases as a standard of care. As you know, last year, two large independently conducted peer-reviewed studies by Quantiflow customers were published that underscore strongly the clinical benefit of identifying asymptomatic PAD patients in order to put preventative measures in place. First, the Nevada paper was published in the Journal of Vascular Surgery. This study is proof of our thesis that testing for PAD in asymptomatic patients is warranted The study followed over 13,000 asymptomatic Medicare Advantage beneficiaries aged 65 and older for three years. Approximately 32% of these patients had PAD. In positive PAD patients versus negative patients, there was independently associated increased risk of 60 to 70% for all-cause mortality and or morbidity at one year. and independently associated increased risk of 40 to 50% for all-cause mortality and or morbidity at three years. The authors concluded that these findings highlight an enormous potential to realize cost savings by reducing cardiovascular event rates and deploying population-based PAD risk mitigation strategies. The Housecall studies, which was published in AJPM Focus, an open access journal jointly launched by the American College of Preventative Medicine and the Association for Prevention Teaching and Research, is another significant study, this one conducted by Optum's in-home house calls program. This was a major study of over 192,000 Medicare Advantage beneficiaries age 65 and older. It confirmed and expanded on the many findings in the Nevada paper that identification of Quantiflow positive versus negative status carries increased risk of mortality and major adverse cardiovascular events, as well as verified our severity scale in the worst TAD as measured by QuantaFlow, conferred a more dire prognosis, which might be a valid reason to retest patients more frequently. It underscores and supports the feasibility and the use of home risk assessments by insurers with a nationwide PAD screening program. Importantly, these studies showed there was a markedly increased risk of mortality and morbidity rates in PAD-positive patients. which would make them more costly to care for if they are not identified early when preventative measures can be put in place. Further, the American Heart Association and American College of Cardiology guidelines clearly recommend routine screening for PAD in patients age 65 and over, as well as those aged 50 to 64 with risk factors such as smoking and diabetes. These factors demonstrate the difference that Quantiflow can make for patients and those that care for them. We're encouraged to see increasing interest from a wide range of customers in the Quantiflow product. We saw not only increased interest in our products from large insurance and home risk assessment companies, but also hospitals, retail locations, and delegated medical groups, which we believe is due at least in part to gaining traction from these two major studies. Our sales and marketing goals are to focus on growing our business. These include further establish our quantiflow for PAD product as a standard of care in the industry, given the proven clinical benefits of early diagnosis and preventative treatment. We believe the market for vascular disease testing is larger than our current market penetration, so there is room for continued growth. to make new additions to our customer base, including diversifying our customer base further to hospitals, including the VA, value-based care providers, and retailers. Expand orders from existing customers. Introduce Quadaflow as an aid to assess heart dysfunction, or HD, to our customers. And finally, we aim to begin to more broadly market and install Insulin Insights. Now I will turn it back over to Renee to discuss development at CMS, our Q1 2023 guidance, Quantiflow HD, and other business development activities. Renee?
spk01: Thank you, Dennis. As many of you are aware, in early February, CMS issued an advance notice with proposed payment updates for Medicare Advantage programs for 2024, which included some potential changes to treatment of vascular disease under the Medicare Advantage risk adjustment model, creating uncertainty whether all identified patients with PAD will continue to qualify for an increased capitated payment. We have submitted comments on the proposed updates to CMS for consideration, citing published research that shows the benefit of early diagnosis and treatment of PAD. It is premature to speculate about the impact to our customers and ultimately our business as CMS will issue the final 2024 rate announcement no later than April 3rd, 2023. Regardless of potential changes in reimbursement rates, we believe that Quantiflow provides important clinical value to our customers in terms of better patient care and potential for future cost savings in identifying positive TAD patients and those with HD. We believe that earlier diagnosis will lead to earlier initiation of preventative interventions and treatments which will save lives and consequently lower healthcare expenditures. Now turning to guidance for the first quarter ended March 31st, 2023. We expect revenue will range from $17.4 million to $17.8 million in pre-tax net income, which includes interest income of approximately $400,000 to range from $5.6 million to $5.8 million. We are on track to achieve our highest quarterly revenue ever, which we believe is a testament to the clinical value our customers see in using Quantiflow to aid in the early diagnosis of PADs in their patient population. In light of the CEO transition and the anticipated final CMS rate announcement, we are not issuing guidance for the year-ended December 31st, 2023 at this time. Let's move on to the clinical study that was published in late February 2023 in the Journal of Preventative Medicine. using Quantiflow as an aid to assess heart dysfunction, or HD. You can find a press release with a link to this study in the investor relations portion of our website. Healthcare providers now have a point-of-care, low-cost, accurate means for detecting potential heart dysfunction in their primary care setting before overt signs or symptoms present. Results were that our tests showed a statistically significant correlation with a p-value of less than 0.01 with transthoratic echocardiography, which is the gold standard to diagnose heart failure. For those of you who have been with Semler for a long time, you may recall the prolonged lead times for many of our current customers with the initial adoption of Quantico for PAD. We expect the market uptake process for HD will take time. Other key points regarding this extension are, Quantiflow HD can be used as an aid to measure chemodynamics related to heart dysfunction. The spectrum of heart dysfunction includes heart failure. Heart failure affects around 6.5 million adults in the US, and the lifetime risk of heart failure is estimated to be 1 in 5 at 40 years of age. The number of patients with asymptomatic heart disease exceeds the number of patients with symptomatic heart disease. Published studies have shown there are over 1 million hospitalizations per year in the United States from heart failure, and the annual cost of care exceeds $30 billion. Mortality rates after hospitalization for heart failure are 31%, within one year after diagnosis. QuantiFlow HD uses the existing FDA 510K clearance as we anticipated its use many years ago. A medical assistant performs the test in a primary care setting similar to how one uses QuantiFlow for PAD. Like PAD, asymptomatic HD patients are not routinely tested in the current standard of care, because ECHO is not a screening test. This test is performed by referral in a specialized lab, requires a trained ultrasonographer to perform the test, takes about an hour, and must be interpreted by a cardiologist. As a specialized procedure, ECHO is not practical to be performed in primary care offices or in the home setting. The sensitivity specificity and accuracy of Quantiflow HD, all were greater than 88% compared to using echo with strain as a gold standard as the methodology for identifying heart failure. Patients that have been identified as positive with Quantiflow HD will need to have additional diagnostic tests to determine the underlying type of heart dysfunction. The goal is for healthcare providers to have a better chance of encouraging patients to adopt healthier lifestyles and optimize proven guideline-directed medical therapies earlier with the potential of improving long-term health outcomes. Currently, there are CPT reimbursements for echocardiography and HCC diagnostic codes for heart dysfunction. Moving on to our R&D goals, it continues to be to upgrade the existing products and data services, to commercialize other internally developed services and products, and find other potential investments to diversify our product pipeline, such as the recent investments we have made in the diabetes space. As you know, diabetes is a large market with over 35 million people diagnosed in the United States, growing at 4% to 5% a year. In addition, 96 million people have prediabetes. To date, our diabetes portfolio includes investments in a distribution agreement with Melatis, whose platform, Insulin Insights, offers an algorithm that helps primary care physicians titrate insulin for type 2 diabetic patients. This partnership gives us exclusive marketing rights in the United States and Puerto Rico. Initial installations and new sales continue to make progress. Revenues have started but are not yet material to date. Type 2 diabetics on insulin represent a difficult patient population to manage, as these patients often have found oral therapy alone has not been enough to adequately control their blood glucose. Insulin, if incorrectly dosed, can cause complications that can lead to emergency room visits and unplanned hospitalizations. Primary care physicians find value with insulin in diets because by approximately easily adjusting insulin levels in type 2 diabetic patients, patients will have less risk of adverse complications with insulin use, have improved control of their blood glucose levels, which leads to fewer complications from diabetes and overall better clinical outcomes. In addition, plans have the potential to save on total cost of care and medication costs as well as achieving higher KETUS star quality measures as patients have improved HbA1c levels, demonstrating that their diabetes is under good control. In December 2022, we announced a commitment to invest up to $5 million in Monarch, a privately held company, through the purchase of a senior secure convertible promissory note. Repayment of the note is secured by first priority interest in all of Monarch's assets. Monarch is a digital health company whose proprietary EndoTool glucose management system offers a technology-enabled approach to inpatient glycemic management. The software-as-a-service solution is FDA 510 cleared, patent protected, and installed in more than 100 health systems across the United States. As of December 31, 2022, Monarch had borrowed $3.5 million out of the $5 million committed principal amount of the note. In addition, $500,000 has been drawn post-year end. Although we do not have any distribution agreement in place with Monarch, we believe our recent investment provides us the opportunity to round out our diabetes portfolio and complement our outpatient diabetes management tool with its approach to improve inpatient diabetes management. In closing, I want to reiterate that regardless of policy changes affecting reimbursement and other market forces beyond our control, our fundamental value to our customers is and always has been the clinical value of earlier diagnosis of chronic progressive cardiovascular conditions and improved simpler management of diabetes. Despite the changes that will always exist in healthcare reimbursement, There will still be patients, physicians, facilities, and payers. Our offerings have a strong clinical value that all of these stakeholders will need in order to improve clinical outcomes and reduce healthcare costs. Because we have developed technology that is portable and accessible, we are also part of the solution to reduce health inequities that currently exist in cardiovascular disease. Our management team has the experience and resilience to make appropriate adjustments to our ongoing growth strategy as market conditions change. We also understand that changes in government policy may take time to be fully implemented. We are confident that our mission to improve clinical outcomes and reduce total cost of care in patients with cardiovascular disease and diabetes will remain relevant to our stakeholders for the foreseeable future. As Wayne mentioned, we'll be presenting and taking one-on-one meetings at the upcoming 22nd Annual Needham Virtual Healthcare Conference on April 18th, 2023. Thank you for your interest in the company and your continuing support. Now, operator, please open the line. Doug, Wayne, Andy, Dennis, and I will be happy to address your questions.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.
spk04: Thank you, and good afternoon, Doug. Dennis, Renee, Andy, and Wayne. I think this might be the first call I had to say hi to five different people, but I think it's tremendous. So, Doug, I want to just say, I think you've done a tremendous job as CEO. You've laid the foundation under what I believe is today and will ultimately become a fantastic company. I believe Sembler is going to play a key role in the future of healthcare diagnosis and treatment, and I just wish you every congratulations for all you've accomplished as CEO of this company.
spk06: Thank you.
spk04: So with that, of course, of course. It's been a pleasure to work with you, and I look forward to continuing to work with you going forward. Now, I have a couple of quick questions. I guess the first one, and I understood all that you all said in the prepared remarks, but I'm curious if you can or will offer any color with regard to customer reaction to the advance notice. I mean, I know it's premature. We haven't seen the final notice, and there's still a long time before the ultimate implementation of whatever pricing people put in place, but in general, can you say anything about how your customers have responded as it relates primarily to using a QuantaFlow going forward?
spk01: Sure, Brooks. I can start with that. So as you know, and what we've discussed, it really is too early to speculate at this time. what will happen because we don't even know what the final rates will come out as. But as you can see from our Q1 guidance, our customers are continuing to use our products. And we believe that our customers use our products because of the clinical benefits and potential cost savings in addition to any risk adjustment payment they may receive. Because in general, prevention is very important, as you know. So we actually continue to work closely with our customers, remain in contact with them, and committed to providing the reliable and accurate testing. Also, as we have talked about this quarter and also prior quarters, we do have many customers that don't participate in the Medicare Advantage program where we can shift resources to. And on top of that, we do have Quantiflow HD and Insolent Insights to market.
spk04: Sure. Great. Thank you for that color, Renee. So second question, and again, I recognize you spoke to this to some degree in the prepared remarks, but as we try to think about how quickly you might be able to begin recognizing revenue related to the heart failure indication. Can you give us any sense? Is it at all reasonable to think you might see some revenue in 2024 related to that opportunity?
spk01: We're not giving guidance for 2023 level. I know, I know. But we are in contact with our customers of all sizes, and we have gotten very positive initial feedback on that. We aren't talking specifically about what implementations may be starting or tests that are going on. But we do believe that it may take time to roll out. Again, you've been with us for a long time. Obviously, we do have customers in place, but we do anticipate that it could take some time to roll out at a significant level.
spk04: Sure. Okay, I'm just going to ask one more, and I'm just curious about this. Obviously, one of the unique and special things approaches that similar has taken to the marketplace is primarily working with Medicare Advantage market participants, and that's worked incredibly well and, in my opinion, been a brilliant strategy. Now, with the advance notice and some indication of how our friends in the United States government are thinking about taking good care of these patients, Have you considered sort of going a more traditional route, at least maybe as a complement, where you might seek to establish some kind of reimbursement code for doctors who perform your test or hospitals or health systems, whatever? I'm just curious if you've considered that and if you have, how you think about that.
spk01: Sure. Maybe I can, if I can, hand that over to Dennis, how we've handled that historically and where we might go in the future.
spk06: Yeah, we've certainly looked at that, Brooks. And the other thing that we're doing, even prior to the advance notice that we are, you know, see as a favorable situation is the general broadening of our customer base. So we remain strong in the Medicare Advantage health plans. and directly with the insurers, but also this broadening to the other areas that we've mentioned, hospitals and delegated medical groups and others, retail, for example. So we think that there's a big opportunity to continue to install Quantiflow in the healthcare system in general, despite any changes that may or may not occur with the current reimbursement scenario. Yeah, we certainly have looked at all the options and are actively exploring what we think are the best opportunities to continue the growth. And as you know, the move to what we always talk about, making Quantiflow standard of care.
spk04: Absolutely. Makes sense. Thank you for taking my question.
spk03: Sure.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Renee Cornier for any closing remarks.
spk01: Thank you for joining us today. Doug, I wanted to express my sincere gratitude for the opportunity to work with you and get to know you better over the past year. Your vision, determination, and leadership have been truly impressive, and it is amazing to see the business you've built. I will always be grateful for the mentorship and guidance you have provided me, and I know this marks the end of an era for similar. I will miss your contributions and leadership, but I'm excited to continue working with Wayne to build on the foundation you've laid. On behalf of the entire similar team, we wish you all the best in this next chapter of your life.
spk05: Thank you for the kind words, Renee.
spk01: Thank you, everyone. This concludes our call.
spk04: Thank you. Bye.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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