Biotricity Inc. Q1 FY2023 Earnings Call

Good day and welcome to the Biotricity's Fiscal First Quarter 2023 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Valter Pinto, Managing Director, KCSA Strategic Communications. Please go ahead.

Good afternoon everyone and welcome to Biotricity's fiscal 2023 first quarter financial results conference call. As a reminder, Biotricity's fiscal quarter ended on June 30th, 2022, therefore all figures presented for this period will reflect that end date. Today, we issued our fiscal 2023 first quarter financial results press release. A copy of this press release is available on the Investor Relations section of our website, additionally our financials will be filed with the SEC on Form 10-Q and posted on EDGAR. Before beginning our formal remarks, I'd like to remind listeners that today's discussion may contain forward-looking statements that reflect management's current views with respect to future events. As such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. Biotricity does not undertake to update any forward-looking statements except as required. I’d now like to turn the call over to Biotricity's Founder and CEO, Dr. Waqaas Al-Siddiq. Please go ahead.

Thank you, Valter. And thank you everyone for joining today. Welcome to our first quarter 2023 earnings conference call. During the first quarter, we continue to advance our product development and commercialization strategy in order to position our company as the all-in-one, go-to solution for cardiac diagnostics and disease management. The majority of our revenue for fiscal Q1 2023 continued to come from Bioflux, our high precision single unit mobile cardiac telemetry device, real-time monitoring and transmission of the patient's ambulatory ECG diagnostics. Revenues earned with respect to this device are value sales and technology fee revenues or technology to service revenue. During the fiscal first quarter, our revenue increased to $2.1 million. I'm pleased that our technology-as-a-service revenue increased to $1.9 million for the quarter year-over-year, which is a testament to our business model. This recurring revenue model provides doctors who can prescribe any device within the clinic. This creates a more streamlined process for the patient and doctor and while also creating an additional revenue stream for the doctor as our product is fully reimbursable. Today, we have hundreds of centers across 29 states with over 2,000 physicians using our Bioflux product. I was also pleased with our ability to maintain a gross margin of 60% during the fiscal first quarter; gross profit margins can be improved over time as we reduce discounts provided to customers. We expect that the cost of devices sold as well as cellular and other costs associated with technology fees will become lower as a percentage of revenues as our business expands. For moderate to severe cases, remote real-time monitoring is a lifesaving tool; however, it is critical we capture the lifecycle of the patient and follow them through their cardiac care journey. Through our internal innovation capabilities, we set out to build a complete ecosystem that fills in the current gaps in cardiac care. We commercially launched Biotres, our FDA-approved wireless wearable cardiac monitoring device. Biotres represents the future of remote patient monitoring and the delivery of real-time diagnostic data. It serves as a three-way device designed to continuously record ECG data. This provides a significant advantage over a conventional one-lead patch Holter monitor which requires a longer analysis and diagnosis time. Biotres is a complementary product to Bioflux. The key differentiator between these two products is the patient profile that each is designed to serve: Bioflux is for high-risk patients, which naturally and thankfully results in lower volume of patients; Biotres, on the other hand, is designed for low-risk patients, of which there are significantly higher volumes. Because Biotres is a high-volume product, we will be able to go deeper within our distribution network and also focus on hospital integrated delivery networks. These integrated delivery networks or hospital networks centralize purchasing for the largest hospital systems in the country and therefore represent an initial target market, where Bioflux is meant for clinics and specialty groups within an estimated total addressable market of $1 billion. The hospital integrated network and other large distribution outlets represent a much larger TAM of approximately $5 billion. Since the introduction, reception has been overwhelmingly positive. We are currently collecting data from our early adopters and are strategically launching the product in limited release while establishing our expansion plans. Earlier, we also launched Bioheart, a cardiac monitor now directly available to consumers. This device offers the same continuous heart monitoring technologies by physicians, allowing patients to manage heart conditions with retrospective snapshots and long-term data collection in a true state-of-the-art manner. Bioheart is currently available for purchase by consumers at www.bioheart.com for $199. We are excited to roll out our ecosystem for the first time; cardiologists will have a suite of products available for their patients all within one portal. We have purposely designed our ecosystem in a way that when we bring on new customers, they have full access to the portal, allowing seamless data collection as they adopt new devices for the entire cardiac care journey. With Bioflux and Biotres in the market today, we have successfully increased our total addressable market from $1 billion to approximately $6 billion. More importantly, we have designed scalability with minimal marginal costs into our business model, as we can now offer additional products and services to current clients for little to no increase in marketing spend. During the remainder of 2022, we look forward to introducing Biocare, our virtual clinic and disease management platform with secure HIPAA-compliant technology, enabling clinicians to provide outstanding patient care remotely, ensuring at-risk patients in need of remote cardiac monitoring do not have to leave the safety of their home. This user-friendly platform ensures seamless integration into the clinic's current workflow, saving time and reducing costs. Monthly care is a large market opportunity, roughly about $35 billion. We have seen other industries such as diabetes be very successful with this model, but no one has attempted to execute this model in the cardiac space. We are the first. We are, of course, at the beginning of this journey. Our newly expanded product portfolio, combined with the upcoming Biocare clinic platform, will enable us to enter this market in the near future. Cardiac disease often afflicts patients for the rest of their lives and is the leading health issue across the globe. The current approach to care is often disjointed and lacks integration. Biotricity technology assists the patient throughout their cardiac care journey, beginning with diagnostics, monitoring, and lifestyle management. This comprehensive data approach could help solve some of the major issues in cardiac care today in an efficient and cost-effective manner. I’ll turn the call over to our CFO, John.

Thank you, Waqaas. During the quarter ended June 30, 2022, the company's revenues totaled $2.1 million. During this period, Biotricity incurred a net loss of $5 million, or a net loss per common share of $0.098. For the three months ended June 30, 2022, Biotricity’s net loss included one-time expenses related to convertible note conversions as well as one-time fair value adjustments on the derivative liabilities. We are pleased that year-over-year, we saw an increase of $425,000 in technology fees this quarter compared to the prior year quarter, which corresponds to a 30% increase in technology fees. Gross profit for the fiscal quarter ended June 30, 2022, totaled $1.2 million, yielding a gross profit margin of 60%. We expect margins to improve as we reduce sales discounts provided to customers in order to generate increased volume sales. As Waqaas mentioned, we expect that the cost of devices sold as well as certain other costs associated with technology fees to become lower as a percentage of revenues as business sales volumes expand. In other words, economies of scale. Total operating expenses for the fiscal quarter ended June 30, 2022, were $5.7 million compared to $4.2 million for the fiscal quarter ended June 30, 2021. Our general and administrative expenses for the fiscal quarter ended June 30, 2022, increased to $4.9 million, compared to G&A of $3.6 million during the fiscal quarter ended June 30, 2021. The increase in G&A expenses was a result of investments made by the company in building its professional salesforce, which has been a focus. During the fiscal quarter ended June 30, 2022, we recorded research development expenses of $821,000 compared to $589,000 incurred in the fiscal quarter ended June 30, 2021. The increase in R&D activity is directly related to the development of new technologies for our ecosystem, as well as development of continuous product enhancements to our existing products. You can see these developments as we announced various clearances from the FDA that will allow us to commercialize these products. Biotricity ended the fiscal quarter with $7.2 million in cash. We remain focused and confident in our fundamental business strategy to innovate, commercialize, capture share of a fast-expanding marketplace, and grow revenues. While revenue growth has been strong, we believe the business has great potential for growth. We expect to continue disrupting the cardiac care marketplace for devices and Biospheric cloud-based subscription services. I would now like to turn the call back over to Waqaas for his closing comments. Thank you.

Thanks, John. And thank you again for everyone who has joined our call today. We're more confident than ever that our technology pipeline will produce major growth over the years as we build our cardiac ecosystem to further penetrate and monetize the patient population that we have already touched with our cardiac disease solutions; a small portion of the cardiac patients that need to be served. For our most advanced remote cardiac monitoring solutions, we expect our services will follow those customers throughout their lifetime to monitor, protect them, and ensure they are provided with technologically sophisticated and superior chronic care. Doing so within a recurring revenue business model is a powerful means to scale the business in both revenues and gross margins. We are excited for what fiscal years 2023 and 2024 have in store for our company and our shareholders. I would now like to open up the call for questions.

We will take our first question from Frank Takkinen with Lake Street Capital Markets.

Hey, thanks for taking my questions. I wanted to start with the 29 states and over 2,000 physicians using the product that seems like it ticked up a little bit since last quarter. And I sort of wanted to understand the utilization opportunity. When I say that, I'm kind of talking about depth into the accounts. It sounds like you have a lot of breadth right now. And I assume there's a really solid utilization opportunity for both Bioflux as well as new products out there, so I was hoping you could provide any commentary or metrics around that to give us a little better color.

Yes, excellent question, Frank. So what I will do is, I will speak to it in terms of an opportunity. So, of course, we're expanding the network, and the Bioflux mobile cardiac telemetry is as I indicated in the call, higher-risk patients, there's a smaller percentage of them in these clinics and in the network. So if you're talking about a typical doctor who's got about 2,000 patients, how many of them are high risk on a monthly basis, it's going to be 1% to 2%. It's a small percentage. But as we build our product portfolio, that product portfolio is complementary and designed to touch the profiles within that clinic. And so that's where we get that depth. And that increase in utilization and, to your point, how does that utilization and what does that opportunity look like? So, when we look at the Biotres product and we're talking about early adopters, those early adopters are existing customers who have lower risk patients, and we are now offering them Biotres. The same thing is going to happen as we build out our chronic disease management and chronic solutions. Now, in terms of me giving you numbers and ideas on utilization rates, it's early days right now; probably you'll hear us talk about that in one or two quarters. As I mentioned in my earlier remarks, with Biotres, we just launched it. So we're collecting data with our early adopters; what are those utilization rates going to look like across the network? How much better usability penetration do we get in terms of patient profiles within existing customers? I think within a quarter or two, we will be able to really nail it down. What I can say is the premise of this product development approach was to go deeper and to increase utilization by creating complementary product portfolios. Biotres was the first of that. And what I can say is based on our early data that is holding true, as well as the interest from existing customers. So we had a strategy, we tested that strategy through our surveys and through contacting customers; we implemented a product, we launched that product, we're now bringing in some revenue from that project, but all of it has lined up with our initial assessment. So I think that that's a positive outcome, and we will provide more insight on that coming down over the next couple of quarters.

Okay, that's great color. And then I wanted to ask my next one on the commentary around IDNs. It sounds like it's a great opportunity too, so maybe just dive a little bit deeper into that opportunity and how you're thinking about these contracting conversations as you're looking out over the next year or two.

Yes, absolutely. So IDNs, as you know, for those who are not familiar, they are hospital and purchasing groups, where they are purchasing across multiple network systems. Of course, the sales cycles on these things are much longer, and they do take a long time. But when you go into higher volume products, and when you go into something like Biotres or a Holter solution, just anecdotally, I'm going to get a little technical in the world of cardiac. So when you talk about Holter monitoring within a hospital system, it's not just a cardiologist and electrophysiologist that utilize that product. In fact, the bigger users are the internists, the general practitioners, the family medicine doctors. And so what ends up happening is that the volume in a hospital system generally is not actually coming from the cardiac specialty group; it's actually coming from the family medicine and the general practitioner internists. Now, they have a much less patient population in terms of demographics, but there are so many more of them. And so when you go to the hospital system opportunity, this is why you really need a Holter-specific solution for that network. With Biotricity, we have that, and so that's why we are now really focusing on the Biotres product, which is specifically designed for the IDN in the hospital system network, just because of the way the physician-patient relationship is set up there. The contracting process is indeed very long, but our products are unique in terms of what is out there in the Holter market today, and we are able to provide results much faster. And another thing that we have done is we've used standardized, disposable elements that the hospitals are already purchasing. So it's not like they have to purchase our device plus the consumable; the consumable electrodes that they're already purchasing are a good ally. So I think all of these factors actually reduce the barriers. Of course, the IDN strategy is a longer-term strategy. We have actually a couple of people that are dedicated solely to building that channel out at Biotricity; this has been a big shift for us. We expect to see fruits from that longer down the line. But with our existing network, we can provide the data and the evidence to show the importance and efficacy of our product, because that's another thing IDNs want to see regarding your footprint today. I think all that works together to really put us in a very strong position. But I will say, as anyone in healthcare knows, that the IDN strategy is a longer-term play. So we will continue to focus on building out our existing network with our salesforce. This is an add-on strategy that will be worked on in parallel.

Okay, and then maybe just the last one, gross margin looks really solid again for the quarter. Maybe provide any additional commentary on how new products are going to impact that gross margin profile on a go-forward basis?

Yes, and I think you'll see that there's always a little bit of trade-off whenever we're bringing in new products; there's a little bit of that upfront hardware cost, call it hardware light. But as we get to a steady state on these products and as we achieve economies of scale, it works in favor of improving our margins. More of our revenue will shift into the software as a service and technology as a service models. So I expect our margins to remain where they are and improve a little bit; however, I expect them to settle around a steady state of 60 to mid-60 range depending on what mix of products we end up selling in terms of percentages. For instance, if you have 25% Bioflux, 25% Biotres, and disease management, that mix will indicate what our steady-state margins are. But I believe they will really stabilize around here because I know we saw some fluctuation before, but now what has certainly happened is that we are becoming more service-oriented in terms of software as a service.

We'll take our next question from Kevin Dede with HC Wainwright.

Thanks. Hi, Waqaas and John. If I may, can I just expand on where I think Frank was going? Is there, I mean, I understand obviously 29 states, 2,000 physicians. But is there any other quantitative measure you can offer in suggesting the success that you've had in selling through to physicians?

So I guess, what are you exactly trying to ask? I'm unsure I can speak to like, what is our percentage of shelf control within those physicians. So once we deploy, let's say, they're doing mobile cardiac telemetry, we have basically, I would say, in most cases, in most physician cases, we have 100% of their mobile cardiac telemetry business. Right now, with the Holter solution, Bioflux could be used as a Holter product, but many of these doctors were still using their commodity Holter devices because those devices are not capable like mobile cardiac telemetry comes in. They had already invested or were using some other Holter provider just because they weren't generating a lot of revenue from the Holter service itself. And so the Biotres really provides the same type of model where it actually becomes a profit center. So, my expectation is that we will have control of that shelf with our customers. So if you're asking about what is the success rate of mobile cardiac telemetry for a doctor, I’d say that if you have 2,000 physicians, more than 85% of those doctors, in their clinic, we control that shelf right now. It takes time, right? For example, one of our customers, it took us six months to convert them, simply because it was a very large group. We launched with them, and it was about 10-15% initially. But over six months, we gained control of the shelf. So now, any mobile cardiac telemetry they do, they do with us. They were still doing Holter, but if you're not using the Bioflux for Holter, realistically, the economics didn't work for them on that device. And so now with the Biotres, they are piloting the Biotres, and they're moving to take on that shelf, so I can speak to that. If you're asking me about how much we can conceivably touch those patients, well, that all depends on which products and what that mix looks like. And have we made that product available across the board? I can speak very openly and candidly about Bioflux because we've been in the market long enough and we have sufficient data. I can say, listen, 85% of those customers we have 100% control of the mobile cardiac telemetry for them. Will that stand true for Biotres? I suspect it will, but it's early days.

Okay, can we expect that you might share the number of physician doors you open at some point? I mean, in specific terms, possibly not monthly, but certainly within the quarter.

So as we get bigger, I think we will certainly disclose that information. The problem with us today is that I think that is just competitive intel that we should be cautious about revealing in terms of how many doctors I'm reaching out to. Or what does my comp plan look like? Someone could come in and offer a better compensation plan.

Oh, no. I wouldn't be targeting that. No, I just wanted some color on how they're targeted. How you're weaponizing them?

How I'm weaponizing my reps. Yes, for sure. So what I can say is the clinic I was telling you about, for six months, we transferred; it’s a great example, right? We went to them, and we said, 'Well, Bioflux is Holter capable. Why won’t you use Bioflux?' The reimbursement for Holter for us, I think, is around $100 where they are. They said, 'So we have to invest in your device, right? Then we have a technology fee. And realistically, with the flow of the patient, how long it takes for the patient to go and come back and go back and whatnot, essentially, they can do two Holters, right, on a monthly basis. And so the economics for them here, and this is very specific to this clinic just because of where they're located and how far patients are, but it's a good example. They were using different versions of Holters; they used the Bioflux in certain cases for Holter. They were also using some legacy devices that they had already bought and purchased, and they were also utilizing a third-party service provider. When we introduced Biotres, suddenly, they said, 'Oh, wow! This is a much cheaper device from a purchasing standpoint,' and so, they were able to validate their economic model. They ended up making one; I think they were the first or second customer that came in, and so that became a very complementary approach for them, where they have got a Bioflux, they're already using the portal, and the clinic is already familiar with our ecosystem. The Biotres operates all within the same system, the same environment, but now that device changes the economic play in terms of the cost of the device plus reimbursement they’re receiving, all of that started aligning perfectly just as Bioflux had with the MCD. That’s an early example of something that we received from a complementary customer who offered us all of their business on mobile cardiac telemetry and was even using Bioflux in some cases for Holter. But that last mile, without having a Holter-specific product was not possible until now.

As there are no further questions at this time, I'll turn the conference back over for any additional or closing remarks.

Thank you, everybody for joining the call. As you all are aware, John and I are always available for questions. If you have any questions that we did not address or did not come up on this call, please feel free to reach out to the company. We will get back to you and be happy to set up a call. Thank you.

Thank you. That does conclude today's conference. We thank you for your participation. You may now disconnect.