Earnings Call Transcript - BTCY Q1 2022

Operator, Operator

Good day and welcome to Biotricity's Fiscal First Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Forney, MKR Investor Relations. Please go ahead.

Mark Forney, Investor Relations

Good afternoon everyone and welcome to Biotricity's fiscal 2022 first quarter earnings conference call. As a reminder, Biotricity's quarter ended on June 30th, 2021, so all figures presented for this period will reflect that end date. Earlier today, we issued our fiscal 2022 Q1 results press release which highlighted a number of financial results. A copy of the press release is available on the Investor Relations section of our website; the complete financials will be 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. 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 Waqaas Al-Siddiq. Please go ahead.

Waqaas Al-Siddiq, CEO

Thank you, Mark, and thank you everybody for joining us today. We are really excited about our start to fiscal 2022 because our results really reflected the continuous growth that we have been talking about over the last few quarters. I will leave most of the details to John for later in the call, but I will spend a little bit of time highlighting some of the metrics from our Q1 report and provide an update on the momentum in the marketplace. We previously communicated that we were going to have a great fiscal 2022 start. And I think that the results that have come out have really shown that our path, our technology, and our approach to the marketplace is continuing as expected. We still believe that we are on track to end 2021 at an $8 million to $10 million annual run rate. We are currently at a $7 million run rate which is a significant increase from the previous quarter. We will also be setting some new goals later in the year for 2022. But the main point is that we will continue this growth trajectory, and we see that this growth trajectory of triple-digit growth will continue for the foreseeable future. In terms of sequential monthly growth and our strategic plan as a company, we think that we're at a stage where execution and replication of what we've already done is the focus for us and for management. As we mentioned previously, we went from 17 states to 23 states. We are expanding our sales force. We have a product that works, reimbursement that's established, and a sales process and execution process that has shown results. That has continued as we expand from one state to another state. The future of this year and next year is to continue that process and replicate that process. Just as we have successfully gone from one state to five, to 17 states, we want to continue that success from 23 states to the goal of 50 states. I am going to shift gears a little bit and start discussing the highlights of the quarter and some of the items that we believe are the key drivers behind that. The most important point to take away is that we beat analyst revenue estimates for Q1. Northland's estimate was $1.6 million; Maxim's initiation estimate was $1.375 million and we did $1.76 million. To remind everyone from the last call, I was talking about this forward estimate of $8 million to $10 million of revenue for this year and we are standing by that statement, believing that we will achieve that. The current trailing twelve-month revenue is about $4.7 million; our current run rate is already at $7 million. This goes back to some of the points that we've made in previous calls, which I think is very interesting and reflective of our business that the run rate, because we have such high retention and reorder rate, our growth—pending nobody goes on holiday—is really based on the fact that we retain customers and continue to execute on the sales side. So what does that mean? That means if we sell in July and open up five new hospitals, then in August you'll have 50 new hospitals that are up and running or clinics. That's why, when you look at our quarter revenue, we're already set up to increase the next quarter. That momentum of quarter-over-quarter growth is expected to continue for this year, next year, and the year after. Another important point is sequential quarterly growth. From a financial perspective, we had 49% sequential quarter growth compared to 19% last quarter. In this particular quarter, our growth actually accelerated. Obviously, now we are into the summer months, but this trajectory is still going to continue. From a year-over-year perspective, it's 290% quarterly growth from the same quarter of last year, marking our ninth consecutive triple-digit year-over-year quarter. This also reflects the shift in the importance of real-time monitoring versus passive recording. Biotricity was founded on the belief that the future is in smart connected medical devices. Of course, in the pandemic, we saw that the trend and awareness of the importance of connected medical devices became even more apparent. We're directly aligned to that trend. Everything we do at Biotricity centers around real-time connectivity and monitoring. I believe this vision and alignment with where the market is going is another underlying current that is enabling our success. We also believe that we have the most competitive product offering in the market. The reason we say that is that we started at the high end of the market, with high-end acute diagnostics, and then we've developed a product portfolio that many of you have heard about through our news releases and previous conference calls. We have a pipeline of products—technology and software and hardware—that integrates into the cardiac landscape, designed to penetrate deeper into the cardiac diagnostic market, and more importantly, is driving downwards into our existing clinic network. The idea is horizontal growth, replicating what we've done in these 23 states into the next 20 states we want to expand into. But what happens with the existing network? We want to sell deeper into them. That is about vertical growth, going deeper into those accounts. That's another aspect of growth we'll focus on over the next year as we announce FDA clearances and product launches. Also, I'd like to highlight that we went from 450 cardiologists to 1,100 cardiologists using our product—an impressive 146% increase in cardiology customers in just seven months. We have 30 million Americans diagnosed with cardiac disease, but there are another 70 million at risk. Our population access ties back to the earlier point about deeper penetration into our existing network to increase our total addressable market. At the end of 2020, we had access for about 900,000 patients, and today that’s increased to 2.2 million—a 144% increase in patient population within just seven months. This is a crucial point I want to pause to emphasize because it directly connects to the horizontal and vertical growth idea. Every product launched at Biotricity drives revenue back to our core offering, the Bioflux, driving more usage and expanding our total addressable market. Biotricity alone has a $1 billion market opportunity, and as we execute on our product portfolio, that opportunity continues to increase. That’s important to note, as the products we develop are complementary to Bioflux and help drive revenue while simultaneously increasing the addressable market for the company. With that, I’d like to turn the call over to our CFO, so he can speak to the details on the financial side.

John Ayanoglou, CFO

Thank you, Waqaas, and thank you to everyone who has joined us this afternoon. Another strong quarter for Biotricity. I want to begin by highlighting our revenue, which increased from $452,000 in fiscal Q1 2021 to a little under $1.8 million in this last fiscal quarter, Q1 of 2022. Remember, we're a March 31 year-end company. This increase represents a 290% quarterly year-over-year increase and, just as importantly, marks a sequential 49% increase over the $1.2 million we posted just last quarter in Q4 of fiscal 2021. At this point in this young company's life cycle and growth trajectory, we feel that we have clearly demonstrated a winning combination—a winning product, a robust R&D pipeline, and a strong business strategy. Our technology is some of the newest in the market, and we are one of the only companies with a technology-as-a-service business model, which significantly enhances the clinical business of cardiologists. As for our accelerating growth rate, we included these figures in our press release, but I'll repeat them. Our revenue growth in successive quarters has been a 115% increase in Q2 of 2021, a 162% increase in Q3 of 2021, a 227% increase in Q4 of 2021, followed by the 290% we just posted in Q1 2022. When looking at year-over-year trends, we have a consistent increasing pattern, what I've referred to as a hockey stick growth. Encouraging about this growth is that it is primarily organic. We are close to our goal of 300% growth this quarter. We will continue to see triple-digit growth in our future quarters. During the three months ended June 30, 2021, Biotricity incurred a net loss of $5.9 million versus $3.4 million in the comparable period of fiscal 2021. We continue to be in an R&D and infrastructure development phase as we prepare for our BioTrade product launch and design our move into chronic care. Our R&D pipeline specifically aims to create a sustainable set of products; an ecosystem that will grow our addressable market from just over $1 billion with the first device to $3 billion and eventually $30 billion as we continue to expand our R&D pipeline in the next phases of our growth cycle. This product roadmap is particularly relevant as we tackle the most technologically challenging part of the market first, high-risk mobile cardiac telemetry devices, and now with our BioTrade product, while going downstream to less demanding product lines, each of which has a substantial market in the next phase of our R&D pipeline. This R&D expenditure will facilitate future vertical penetration that will bring new revenue streams directly from our existing customer base and future targets. This is purposeful R&D focused on existing product categories in existing markets, creating immediate demand from day one of release. It takes quite a few quarters before any early revenue company can be adequately judged on the efficiency of their spending, but we believe this quarter demonstrates superior revenue growth with minimal growth in expenses. Despite continuing R&D and sales team expansion, our operating expenses came in at just $4.2 million, only 17% higher than the same period last year. Our G&A of $3.7 million was just 14% higher than the $3.2 million posted last year, showing leverage in this key category. Our R&D expenses totaled $589,000, about 39% higher than Q1 of fiscal 2021. It's worth noting we're already seeing significant leverage in most parts of our business, although the R&D line could fluctuate depending on upcoming product launch cycles. Ultimately, we're not a clinical company—we're a technology company, and we'll be investing significantly in our R&D pipeline. One major item secured this quarter was an accretion expense, including day one derivative loss, totaling $2.3 million, which accounted for about 40% of our net loss. That’s a non-cash item in our P&L, making our results appear somewhat skewed this quarter, tied to previously issued convertible notes. Overall, due to that debt discount and amortization costs, our total comprehensive loss was $5.9 million—a 68% increase over Q1 of fiscal year 2021. Using our total operating expenses as a measure of consistency is a more effective metric for tracking leverage and efficiency within our model. Like other early-revenue technology companies, we currently operate at a loss, but we’re directing most of our capital into revenue-boosting projects and sales territory expansion. A unique feature of our model is our very minimal inventory as we deploy our devices quickly to our customers, where those devices stay throughout their useful life. This quarter, our inventory was only $180,000, which is 66% of what we held last year despite much higher sales. This characteristic allows us to carry little to no inventory risk. A differentiator in our model is that the upfront cost for each revenue-generating device is relatively stable but yields thousands of different revenue streams depending on each device's usage based on cardiologist office volumes. With an approximate three-year useful life and high visibility following each sales win, we have excellent oversight into our equipment capital costs. As we grow, we also have the opportunity to lower device costs, which is a simple indicator of how our forward strategy will really benefit from scale. Regarding our gross margins in the most recently completed quarter, we achieved a gross margin of 70% compared to 69% in the prior quarter, and we anticipate continued cost rationalization as we grow. A crucial focus for us for the remainder of 2021 is to continue expanding our sales force. We made the decision during our formative years to build an in-house sales team, a strategy that has been employed by many successful med tech firms. This process requires time, and we strategically layered our geographic expansion based on the quality of talent available in those new markets. Today’s numbers demonstrate we have the right formula for success. We expect similar results as we enter high-profile markets such as California, Illinois, and several key states in New England, the South, and Upper Midwest. Given the successes of some of our seasoned salespeople, we're attracting excellent new sales reps to help fuel our entry into our next targets. We continuously monitor billing trends and the impacts COVID and other industry headwinds have posed to many med tech companies. We believe our model and technology have afforded us insulation from many of these challenges. Thus, we're maintaining our current forecasts for both near-term and long-term growth. We operate in a market characterized by a growing patient population and chronic conditions, leading to a strong commitment from each new doctor we sign. As we advance further into this industry, we'll require more resources and personnel, along with increased R&D. We're following a well-established path leading us toward a long-term goal of over $1 billion valuation. Based on our recent results, we are more encouraged than ever that we are on the right track toward sustained success. Now, I'd like to turn the call back to Waqaas for his closing comments.

Waqaas Al-Siddiq, CEO

Thank you, John. Off the back of what John just spoke about and in terms of the market opportunity and where we're headed, I wanted to talk a bit about comps and what's occurring in the industry, especially with a few notable buyouts. We've seen that BioTelemetry was acquired for $2.8 billion and Proventus for $1.25 billion. As we grow our company and market share, we're noticing our growth efficiency is surpassing that of our peers at a similar stage in their trajectory. When we look closely at the margins and cash burn, it’s clear that even though expenses are rising, the growth in expenses isn’t keeping pace with overall growth. This all underscores the efficiency with which we operate across departments—not just sales and operations or finance, but also engineering. We are highly efficient in capital deployment. This also leads to another point—John mentioned some oddities about this quarter. As CEO, I always monitor net cash or net cash burn. In the quarter ended June 30, we earned about $3.9 million, suggesting an annualized cash burn of around $12 million, but our run rate is $7 million. Thus, there’s a clear path to organic growth, accelerated growth, and breakeven, which everyone is striving for. If we consider companies in a similar light to Biotricity, I've raised approximately between $45 million and $55 million since inception. Comparatively, Irhythm raised about $250 million dating back to 2007; despite a recent selloff due to reimbursement issues, they now hold a market cap of $1.35 billion. Boston Scientific acquired Preventer for a couple of hundred million but their valuation reached $1.2 billion during a loss phase. InfoBionic had about $100 million in metro funding since 2011. Compared to Biotricity, we are being far more capital-efficient as we can acquire capital at 25% to 50% of what these companies had to raise. This trajectory and path closely track similar valuation methods John discussed, aimed towards the ambitious $1 billion valuation mark. Moreover, Biotricity has adopted a technology-as-a-service model; therefore, our revenue perspective differs fundamentally from that of a BioTelemetry or Proventus. Simply put, if we convert to that business model, our revenue projections could close to $30 million rather than the current run rate of $7 million. However, as a technology company, we're taking a different approach and prioritize widespread access to our technology. We focus on opening accounts horizontally while leveraging vertical growth for revenue increase. Furthermore, our industry insight allows us to adapt our approach to billing practices, which positions Biotricity to be insulated from industry pressures. Importantly, we assess the reimbursement landscape before committing R&D funds. Consequently, our model safeguards us against reimbursement concerns; we recognize that if our device costs and usage remain viable, we sustain profitability even with significant reimbursement cuts. This contrasts sharply with other companies like iRhythm, whose fluctuating business model exposes them to reimbursement vulnerabilities. Our strategy allows us to thrive through changing reimbursement landscapes by offering durable technology and solutions. Ultimately, we want to be with the cardiac patient throughout their care journey. Our goal is comprehensive management, effectively transitioning from diagnosis to active management of patients. In looking forward, we appreciate the continued need for NASDAQ uplisting and diligently advance that objective. Our focus remains on expanding our sales force and territories, replicating and executing our proven models. We understand what is effective and what type of sales representatives and accounts we seek. The U.S. market still presents immense opportunity, and we intend to pursue it. Additionally, we have crucial R&D initiatives aimed at leading technology advancements within the cardiac space. In the coming year, Biotricity will appear significantly different from today, with new products and revenue increases on our horizon. In three years, our growth ecosystem will be pervasive across various product lines, and in five years, we’ll explore integrating with other companies within adjacent health care spaces relevant to cardiac patients. In summary, we possess a functional product, established reimbursement pathways, and a well-understood sales process. We currently operate in 23 states and aim to expand to 50. We foresee multi-year growth potential with ample opportunity to execute our strategy efficiently and sustainably. Overall, I think we have a direct path towards a billion-dollar valuation, which energizes our team. We are excited to enhance our product portfolio over the next six months and into the next year. Thank you for your engagement, and we are available for questions.

Operator, Operator

Thank you. At this time, we will open the floor for your questions. Our first question will come from David Larsen with BTIG.

David Larsen, Analyst

Hi. Congratulations on the great quarter. I was wondering if you could talk a little bit more about your R&D efforts and your sort of vision for the business. And over the next one, two, three years, what other products and therapeutic areas might you be most excited about getting into? Is it diabetes? Is it sleep? Any color would be really helpful.

Waqaas Al-Siddiq, CEO

Yes, for sure. From a product portfolio perspective, we are focused on completing the cardiac diagnostic and management portfolio. This is our vision, and the products will be derivative to that offering, driving further utilization of the Bioflux. We are also continually evaluating opportunities in areas such as sleep apnea and hypertension, analyzing who operates in those spaces that provide remote diagnostics. Much of our integration with these technologies will be partnership-based; we'll explore revenue share arrangements where we can integrate their technology into our ecosystem. Our strategy aims to create a robust service model for hospitals and doctors, driving technology adoption through adequate revenue incentives. We’re keen on exploring new markets but won’t jump until our current portfolio is complete.

David Larsen, Analyst

Okay. Would you partner with existing vendors in that space? Is that how you would potentially enter these markets?

Waqaas Al-Siddiq, CEO

Exactly.

David Larsen, Analyst

Can you remind me how many salespeople you have now? Are they all commission-motivated? Where would you expect that figure to be a year from now?

Waqaas Al-Siddiq, CEO

We haven't disclosed the exact number of our sales representatives; we prefer to navigate that carefully. What I can say is, we seek top sales representatives—those not working on commission alone but receiving a base salary plus commission. We aim to recruit those with experience in launching medical devices. Our ultimate goal is to build a full-time sales force of about 40 to 50 reps, supported by inside sales clinical representatives ranging between 25% to 35%. So, overall we foresee a sales force scaled to between 65 and 75 personnel.

David Larsen, Analyst

Great. Can you give us insight into the potential in-fill opportunities for existing clinics and doctors? If they leverage your technology to the fullest, what sort of incremental revenues can we expect? Also, how much of the organic growth this quarter is coming from new clinics versus greater usage from your existing clients?

Waqaas Al-Siddiq, CEO

To address your first question: if we focused on our existing accounts utilizing our full product portfolio, I estimate we could easily triple from our current $7 million run rate, but this requires executing the portfolio. Regarding organic growth, historically we find it takes existing clinics about four to six months to stabilize after integrating our product. A rough estimate would show about one-third of our organic growth comes from existing customers, while another third stems from new acquisitions. This combination reflects our growth strategy's versatility, tapping into both avenues effectively.

David Larsen, Analyst

Thanks so much, and congratulations on a good quarter.

Waqaas Al-Siddiq, CEO

Thank you.

Chet White, Analyst

Hi guys. Waqaas and John, I have to also congratulate you on a big quarter. Fantastic work. I have a couple of quick questions; could you share some visibility into potential impacts from the new COVID variant this summer? Any insights into how this has affected your business?

Waqaas Al-Siddiq, CEO

Absolutely. I'd break down the impact into three parts. Regarding the Delta variant, we are noticing some clinics and doctors anticipating potential lockdowns, which has led them to take holidays—they’ve been overworked for long periods. Our model’s advantage is that we are functioning across a wide network of accounts—23 states, so although growth might be slowed by some holiday absences, it’s not drastically affected thanks to our distribution strategy. If lockdowns were imposed again, we’ve proven that our execution continues effectively even during challenging phases. Lockdowns would limit growth but it's essential to note we expect to maintain growth consistently.

Chet White, Analyst

Excellent. Just two follow-up questions. You mentioned acquisitions of two primary competitors recently—have you noted changes in their business practices or tactics? Finally, any updates on the status of Biotres at the FDA?

Waqaas Al-Siddiq, CEO

Regarding competitive changes, any acquisition typically brings some restructuring—some sales personnel experience layoffs or transitions. Consequently, while we haven’t seen direct impact, we view potential hiring opportunities for talented individuals as they relocate, but operations largely remain stable. Regarding the FDA, we've complied with all required documentation and information requests from them. There are certain steps to achieving a 510(k) clearance, and we've completed all necessary actions. Our progress is subject to FDA response timeliness amid their current backlogs; therefore, we're maintaining communication and are optimistic about an approval shortly.

Chet White, Analyst

Thank you, Waqaas and John, and congratulations on another good quarter.

Operator, Operator

At this time, there are no further questions. I'll turn it back to today's speakers for closing remarks.

Waqaas Al-Siddiq, CEO

Thank you. I have reiterated earlier comments, emphasizing the sustained growth trajectory and consistency of our expansion. Our solid base across 23 states positions us well for replication and increased execution effectiveness. Our focus remains on growth, not just for Bioflux but across our entire portfolio. Our expectations are to uphold this trend not only this year but also into subsequent years. I believe our investors should feel confident knowing we are in a position that facilitates continued scaling and revenue growth, aligning us closely with major players in this space. Our firm commitment to incrementally growing our presence in both domestic and international markets will further solidify our goal of becoming a $1 billion company. Thank you for joining us today, and we look forward to answering any further inquiries at investors.biotricity.com.

Operator, Operator

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect your phone lines.