Earnings Call Transcript - BTCY Q2 2024

Operator, Operator

Good afternoon, and welcome to Biotricity's Second Quarter Fiscal 2024 Financial Results and Business Update Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Debra Chen with Investor Relations. Please go ahead, ma'am.

Debra Chen, Investor Relations

Good afternoon, everyone, and welcome to Biotricity's second quarter fiscal 2024 earnings conference call. As a reminder, Biotricity's second quarter 2024 fiscal year ended September 30, 2023. So all figures presented for this period will reflect that end date. Earlier, Biotricity issued its fiscal 2024 second quarter press release, which highlighted financial and operational results. A copy of the press release is available on the Investor Relations section of Biotricity's website and the full financials have been filed with the SEC on Form 10-Q and posted on EDGAR at www.sec.gov. Before beginning the company's 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. Any 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. At this point, I'm pleased to turn the call over to Biotricity's Founder and CEO, Dr. Waqaas Al-Siddiq. Please go ahead.

Waqaas Al-Siddiq, CEO

Thank you, Debra. And thank you, everybody, for joining us today. This quarter, we continue to make substantial progress, reporting double-digit sales growth. Our recurring technology fees, device sales and gross margins all demonstrated positive growth while we maintain cost control in order to make progress on our plan to achieve positive cash flow and profitability. To address the increasing interest and demand for our suite of products, we launched our new online store this September, which provides a user-friendly integrated shopping experience to showcase all of our monitoring devices, which we believe will further enhance our distribution sales and streamline our sales operations. Additionally, our sales force has amplified our geographic reach, and we're pleased to announce that as of September 30, 2023, we have customers in over 32 states in the U.S., contributing to an impressive 21.4% year-over-year revenue growth. Our gross margins have also improved significantly, rising from 54% during the same period last year to an impressive 69%. We also saw a reduction in our SG&A by 22% to $3.5 million, which was something that we said we could continue to monitor and trim in the previous quarters. Through diligent cost structure management and strong growth across the board, we achieved a reduction of our net loss by 20% year-over-year from $4.9 million to $3.9 million, or $0.446 per share. As we review our second quarter financials, I think it's important to highlight a few takeaways for why we are here and what we are trying to achieve. Since founding Biotricity, our mission has been to innovate and create transformative health care products in preventative care. Today, we deliver pioneering remote monitoring solutions to the medical, health care, and consumer markets, focusing on diagnostic and post-diagnostic solutions for lifestyle and chronic illnesses. Although it remains an unmet need, we are witnessing the paradigm shift within the health care world, from reactive to proactive and see how technology propels the emergence of solutions that contribute to improved curative therapies. We addressed the diagnostic aspect of remote patient monitoring by innovating with established business models that already have reimbursement structures in place. This method, we believe, mitigates the risks typically associated with traditional medical device development and speeds up the journey to generating revenue. In the post-diagnostics sector, we incorporate medical-grade biometrics, empowering consumers to self-manage. This approach aims to enhance patient compliance and ultimately, lower health care costs. For a full suite of products in the Biotricity platform, please visit www.biotricity.com. Turning to our Biosphere platform and complementary products, our Biocare app has garnered tens of thousands of downloads, and Biosphere continues to attract industry-wide interest among both new and existing customers. It is clear that AI has become a big component to what we are developing in our realm of remote cardiac care. We are leveraging proprietary AI technology to develop a suite of predictive monitoring tools to enhance new disease profiling, improve patient management, and revolutionize the health care industry for disease prevention. Additionally, we strengthened our partnerships with major players, including Amazon and Google. With the health care AI market anticipated to reach $208.2 billion by 2030, we've already positioned ourselves as a significant player. Our powerful proprietary cardiac AI model integrates Google's TensorFlow, AWS infrastructure, Big Data, and a continuous learning engine, allowing for rapid advancements in our cardiac technology. This has led to increasing sales of our remote cardiac monitoring devices and the ramp-up of our subscription-based service, increasing our recurring revenue over the past few quarters. Our ability to grow this type of revenue is predicated on the size and quality of our sales force to place these devices with clinically focused health care providers operating in the cardiac sector. In the coming months, we will continue to use our team to address new markets and achieve sales penetration in the markets currently served.

John Ayanoglou, CFO

Thank you, Waqaas. As Waqaas has already addressed the fiscal year second quarter numbers at a high level and the market and the industry and key operational matters, I will not delve into the unaudited highlights of the second quarter and some of the details for the second quarter of fiscal 2024. Our Technology-as-a-Service subscription-based recurring revenue from our cardiac monitoring device, Biotres, and our FDA-cleared Bioflux device continue to see demand and market adoption. Biotricity has previously announced that they have monitored over 2 billion heartbeats for Afib, atrial fibrillation, a primary contributor to strokes. Over the past few years, this initiative has positively impacted well over 14,000 patients diagnosed with Afib and continues to do that, offering them the potential for earlier medical intervention. This not only enhances patient outcomes but also underscores the substantial health care cost savings for both individuals and the broader health care system. Revenue for the second quarter ended September 30, 2023, increased by 21.4% year-over-year to a stable level of $2.9 million, just under the $3 million mark posted for the immediately preceding quarter, but on higher quality of earnings. The months of August and December have traditionally been slower months as patients and doctors go on vacation or otherwise reduce office hours over the vacation and holiday periods. However, there is more going on here. This quarter, we continued to transition our Houston-based customers to our subscription-based service, ramping up our efforts to do this. While this shift to a higher quality of earnings may result in an initial dip in revenues, it lays the groundwork for quality in the form of increased, recurring, and predictable revenue and benefits us in the long term while helping us chart a clearer path to profitability. This quarter is a testament to the improvements in our business as a direct result of those efforts. Our gross profit percentage was 69.1% for the quarter ended September 30, 2023, as compared to 53.8% in the corresponding prior year quarter and 63.5% in the immediately preceding quarter. This increase in gross margin is due to our expanding recurring technology fee revenue base and proportion of our sales mix in that component, which has consistently stayed above 70%. We also gained efficiencies in using AI and data processing and improved our monitoring cost structure. This is in line with our expectations on improving both performance and margins as our recurring business grows. Looking ahead, we anticipate continued improvement in an overall blended gross margin over time. Technology fee revenue comprised 94.5% of the quarter's total revenue for the 3-month period ended September 30, 2023. Gross profit totaled $2 million, up 56.2% from the $1.28 million, comparatively for the same period in the prior year. We have expanded our sales efforts across a broader geographic footprint with the intention to expand further and compete in the broader U.S. market using an in-sourcing business model. Our technology has a large potential total addressable market, which can include hospitals, clinics, and physicians' offices as well as other independent diagnostic testing facilities, known in the industry as IDTF. I want to remind you that cardiac is the number 1 chronic care condition, not only in the U.S. but all around the world, and our connected technology is useful across the globe. But there's more. Our sales expenses decreased or improved by 1% and our R&D decreased or improved by 2% this quarter, such that we reduced our loss from operations by $140,000 this quarter. With respect to sales expenses, we've been able to do this through the retooling of our sales force, focusing on hunters rather than farmers in terms of the profile of each of our salespeople, our professional salespeople, thereby leading to a variable sales compensation for our external and more senior salespeople that is more direct-driven and aligned to growing our recurring profitability while we've taken the job of maintaining our customer accounts and improving their satisfaction levels, by using a focused internal sales team that is less expensive. This is a good news story because we've been able to earn our higher-quality revenue with a smaller professional sales force that is less expensive thereby reducing our overall sales expense, while at the same time, managing cash and putting our product that will enhance our hospital and strategic footprint. Our efforts to improve the quality of our earnings and our cost structure are visible in this quarter's results. Despite the slight dip in revenues, we've improved margins, reduced sales and operating costs and improved our loss from operations to under $2.2 million, reducing operating losses by over $1.8 million from the corresponding prior year quarter and $131,000 from the immediately preceding quarter. Net loss attributable to common shareholders for the three months ended September 30, 2023, was $3.9 million compared to a net loss of $4.9 million during the comparable quarter in the prior year. When compared to the immediately preceding quarter, our net loss to common shareholders degraded by $280,000 due to increased interest costs, rising rates on variable term loan interest caused that and accretion expense. Earnings per share was $0.441 versus $0.411 compared to the preceding quarter. Adjusted EBITDA improved by about $66,000 such that adjusted EPS was an improved $0.23 per share versus $0.24 per share in the immediately preceding quarter. Underpinning all of these improvements in the quality of our earnings and our cost structure is the fact that month-to-date, November is shaping up to be an excellent month, perhaps, our best month of device sales ever. As we advance the commercialization of Bioflux, Biotres, and Biocare products, we anticipate a continuing growth trajectory. And we've just launched our Biotres Pro, which our sales force tells us is going to be a groundbreaking product that will have a lot of demand. The market's growing interest and demand for our suite of products dedicated to chronic cardiac disease prevention and management reinforces our confidence in our market position and our focus on commercialization and development has resulted in significant advancements in remote monitoring solutions for both diagnostic and post-diagnostic products, bringing us closer to achieving positive cash flow.

Waqaas Al-Siddiq, CEO

Thank you, John. In looking at the near-term and long-term prospects for Biotricity, there is a lot to be excited about. We recently announced a patent application for our groundbreaking Biotres device. This filing is part of our broader strategy of expanding our IP portfolio with trade secrets and patents. As we consistently innovate and expand our IP and FDA 510(k) portfolios, we are not only winning market share and protecting our IP, but continuously increasing the barriers to entry. We also filed a patent application for our innovative wearable heart monitoring device, Bioheart, which is recognized by Time Magazine as one of the best inventions of 2022. Finally, we just expanded our current product portfolio with the release of our Biotres Pro, with critical capability of cellular backup for offline connectivity. This is a game-changing product to our current product, the Biotres, which is our three-channel technology for preventative and comprehensive cardiac care. Previously, we actually offered up to 30 days of recording and automated data offloading while connected wirelessly. But with the addition of Biotres Pro's innovative cellular connectivity, there are no longer delays in data retrieval that may have occurred previously due to low connectivity. This marks a significant leap forward as our Biotres Pro offline data storage established it as the leading solution for cardiac monitoring. With the addition of Biotres Pro, Biotricity now has the most comprehensive remote cardiac monitoring portfolio in the market. That concludes our opening remarks. I will now turn the call over to the operator for questions. Thank you.

Operator, Operator

And the first question comes from Kevin Dede with H.C. Wainwright. Please proceed with your question.

Michael Davin, Analyst

Thank you, operator. This is Michael Davin, speaking on behalf of Kevin Dede. Congratulations, Waqaas. Regarding the Biotres Pro, could you elaborate on the cellular backup for connectivity feature? I'm interested in understanding how it benefits patients as well as clinics. Please provide more details on that aspect.

Waqaas Al-Siddiq, CEO

I appreciate it. Yes, sure. So the cellular backup – I mean, sometimes when you have these patients who might forget to charge their cellphone or the connectivity is interrupted because the Biotres is a Bluetooth-based device. In that case, data may not be fully uploaded by the time the device is returned. So when the device is returned, the clinic may have to plug it in and it will charge, and while it's charging, it might take 10 minutes to upload the data. So to remove that, having cellular backup means that even if connectivity is interrupted, it will continue to upload in the background.

Michael Davin, Analyst

Okay. Great. Appreciate that. Now what are you guys seeing? You mentioned hospitals, clinics, independent labs, where are you seeing the most demand right now? Is there one segment that is producing more demand for you guys?

Waqaas Al-Siddiq, CEO

Demand for us is pretty much across the board. I think the way to look at it is more about where we are focusing our time. So previously, we were spending a significant amount of our time on the independent market, like the specialty cardiac center groups, and about 10% of our time on the hospital market. As we've built the business and driven revenue now, what we are looking at is creating a more blended mix. Currently, 60% of our time is still focused on the independent market, but 40% of our time is now spent on the hospital markets. We understand that the sales cycles are longer with hospitals, but once you close the system, you generally have multiple orders and a long-term relationship, as well as a much bigger order in the long run. So we want to continue to close business on a monthly basis and quarterly basis, and now we have this blended mix, as opposed to what we were doing before. Now we've taken a chunk of our commercial team and have focused it on going after the hospital.

Michael Davin, Analyst

Great. Understood. And in terms of focusing our time and efforts, are you planning to expand beyond these 32 states? Or is your sales force kind of focused on those clinics and those hospitals, in those 32 states, prior to further expansion?

Waqaas Al-Siddiq, CEO

We are always looking at opportunities and are always looking to expand. A lot of our customers have colleagues, friends that they went to medical school with, or they've moved from a different state. So we go into our existing network and look for referrals. And as opportunities arise in other states, we absolutely go after them. So it's not something that we are specifically saying, hey, we don’t want to go into other states. It's more about we have a footprint that is primarily driven by where we have representatives and the geography where our representatives are based. The secondary aspect of where we are is really based on opportunities that are coming in from our referral network. The goal is to be in 50 states, but we are not chasing a particular state. We are focusing on building the most powerful commercial team that we can. It's really about finding the right types of representatives and expanding our commercial team and capability. As time goes on, I think we will see ourselves going to have a full national footprint across all 50 states.

Michael Davin, Analyst

Okay. Great. Now in terms of your aim to enhance patient compliance. Is there a way to quantify that at this stage?

Waqaas Al-Siddiq, CEO

So patient compliance is tough. We are looking into that. We've implemented an app to track how many patients are downloading and following the rules. We've seen a good impact on that. We've seen a significant percentage of patients download the app. We are going to be looking into analyzing that data and are looking to put out an impact report, and part of that will be looking at patient compliance.

Michael Davin, Analyst

Okay. Okay. And last question. Can you expand upon your partnership with Amazon and Google in terms of what TensorFlow means to overall operations as well as with Amazon's infrastructure? And given that Biotricity has this proven track record, do you see any potential for further opportunities between you and Amazon or Google?

Waqaas Al-Siddiq, CEO

Yes. So what we've done is we've built our proprietary analytics and data cloud using the technologies within Amazon's automation and scaling infrastructure and Google's AI and deep data systems. We've taken the elements that are most powerful and applicable to our product category and use case, and built our own proprietary data cloud. I think you can see the measurable improvements in our financials. Our margins are improving, and expenses are going down. A big part of this is our proprietary systems becoming more automated, smarter, and better at dealing with data efficiently, allowing us to do more with less. I think that this will continue to come through over the next couple of quarters, showcasing margins improvement, data costs coming down, and our cost of servicing and maintaining data. We expect economies of scale as we collect more information and devices get out there. We are very mindful of the fact that these costs can rise quickly if you're not proactively thinking about automating and developing efficiencies, especially in predictions. So our next move is to really focus on prediction, as that can save time and improve efficiency.

Michael Davin, Analyst

Great. Thank you, Waqaas. One final question. For Biotricity's online store, could you kind of give some reasoning for launching this? And does this help Biotricity with reimbursements versus your devices on Amazon? What are the pros of having your store versus the other online avenues for acquiring Biotricity devices?

Waqaas Al-Siddiq, CEO

Yes. So our model is a subscription-based model. So Amazon is really a platform for one-time purchases, and it is not set up for subscription models. You can do it, but it's incredibly complicated. So that’s not the right platform for us. The main reason we built the store is that it simplifies operations for us in terms of anyone being able to purchase and buy our technology. More importantly, we get inbound interest on occasion, and allowing people to purchase the technology streamlines our ability to operationally manage the entire sales and ordering process. Thank you, everybody, for joining us on this quarterly call. I would like to just leave one parting remark; the key takeaway for this quarter was really the execution and what we've been talking about for the last couple of quarters where we're going to continue to focus on top line growth but also expense management and margin improvement. Last quarter, we discussed how we made changes and implemented new optimizations. We enhanced our AI technology, and the result of that was going to be margin improvement in the coming quarters, and we showed that this quarter. I believe we will continue to see this focus on revenue growth while managing and optimizing how the business works. Thank you, everybody.

Operator, Operator

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