Earnings Call Transcript - BTCY Q4 2022

Operator, Operator

Good day, and welcome to Biotricity's Fiscal Fourth Quarter 2022 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 at KCSA Strategic Communications. Please go ahead, sir.

Valter Pinto, Managing Director

Good afternoon, everyone, and welcome to the Biotricity Fiscal 2022 Fourth Quarter and Full Year Earnings Conference Call. As a reminder, Biotricity's fiscal fourth quarter ended on March 31, 2022. All figures presented for this period will reflect that end date. This morning, we issued our fiscal fourth quarter and full year 2022 financial results press release and filed our Form 10-K with the SEC and posted it on EDGAR. A copy of this press release and access to the 10-K is available in the Investor Relations section of our website. 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 any obligation 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.

Waqaas Al-Siddiq, CEO

Thank you, Valter, and thank you, everyone, for joining today. Welcome to our fiscal fourth quarter and full-year 2022 earnings conference call. Fiscal 2022 was a pivotal year for our company as we made significant strides in our product development and commercialization strategy, positioning our company well on its way to becoming the all-in-one go-to solution for cardiac diagnostics and disease management. In fiscal 2022, the majority of our revenue was derived from Bioflux, our high-precision single-unit mobile cardiac telemetry device that provides real-time monitoring and transmission of the patient's ambulatory ECG diagnostics. We are pleased not only with our revenue growth year-over-year and quarter-over-quarter but with the margin expansion we are seeing due to our model and economies of scale. Revenue year-over-year grew 126% from $3.4 million in fiscal year 2021 to $7.7 million in fiscal year 2022. Revenue for the fiscal 2022 fourth quarter grew 81% from $1.19 million for the 2021 fiscal fourth quarter to $2.15 million for the 2022 fiscal fourth quarter. Furthermore, gross profit margins increased to 60% for the full year and 67% for the fourth quarter. Our recurring revenue model provides technology to doctors and providers who can prescribe and hook up patients with our device. This creates a more streamlined process for the patient and doctor while also creating an additional revenue stream for the doctor. Despite COVID restrictions and more recently macroeconomic challenges, as of today, we have over 300 centers across 27 states, with over 1,500 cardiologists using our Bioflux product, which is a significant amount of growth in a short period of time. For moderate-to-severe cases, remote real-time monitoring is a life-saving tool. However, it is critical we capture the life cycle 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 the current gaps in cardiac care. We have recently launched two new products as a part of this comprehensive ecosystem, Biotres and Bioheart. First, after receiving FDA 510(k) clearance in January 2022, in April, we commercially launched Biotres, our FDA-approved wireless wearable cardiac monitoring device. Biotres is a revolutionary Holter technology that represents the future of remote patient monitoring and the delivery of real-time diagnostic data. It serves as a three-lead device designed to continuously record ECG data. This provides a significant advantage over a conventional one-lead patch Holter monitor, which requires longer analysis and diagnosis time. We began taking preorders for Biotres in February and are currently experiencing strong demand from new and existing customers. As important, we also launched Bioheart, a cardiac monitor now directly available to consumers. This device offers the same continuous heart monitoring technology used 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 purposefully 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 during their cardiac care journey. With three products in the market today, we have successfully increased our total addressable market from $1 billion to approximately $25 billion. More importantly, we have designed scalability with minimal costs to 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 second half of 2022, we look forward to introducing Biocare, our virtual clinic and disease management platform, enabling clinicians to provide outstanding patient care remotely, ensuring at-risk patients and those needing remote cardiac monitoring do not have to leave the safety of their home. This user-friendly platform ensures seamless integration into the clinics' current workflow, saving time and reducing costs. Monthly care is a large market opportunity, roughly $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 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. Integrating our Biokit with Biocare will provide us with the opportunity to capture this market. Biokit and Biocare capitalize on Biotricity's focus on a Technology-as-a-Service business model, creating a profitable revenue stream for cardiac care providers and ultimately driving revenue for the company. Cardiac disease often afflicts patients for the rest of their lives and is the leading cause of mortality across the globe. The current approach to care is often disjointed and unintegrated. Biotricity's technology assists the patient throughout their cardiac care journey, beginning with diagnostics, monitoring, and lifestyle management. This comprehensive and integrated approach could help solve some of the major issues in cardiac care today in an efficient and cost-effective manner. The significant progress we have made in the last year is a testament to our technological innovation. By combining AI with data and predictive capabilities, we are creating better and faster analytics for preventative patient monitoring and lifestyle management, driving the company towards its goal of becoming the largest and most comprehensive cardiac cloud platform in the world. I would now like to turn the call over to our CFO, John Ayanoglou. John?

John Ayanoglou, CFO

Thank you, Waqaas. During the year ended March 31, 2022, the company revenues totaled $7.7 million, a 126% increase compared to the $3.4 million of the preceding fiscal year. During this period, Biotricity incurred a net loss of $30.2 million, a loss per share of $0.665. We devoted and expect to continue to devote significant resources in the areas of sales and marketing and research and development as we build the infrastructure required to support higher sales volumes. The fiscal year ended March 31, 2022, marked the trailing 24-month period of full market release of the Bioflux MCT device, that's mobile cardiac telemetry device for commercialization, originally launched in limited market release in April 2018 after receiving its second and final required FDA clearance. To commence commercialization, we executed on our manufacturing program and ordered device inventory from our FDA-regulated manufacturer. We hired a small and captive sales force with deep experience in cardiac technology sales. Then at the right time, we expanded our limited market release after identifying potential anchor clients or key opinion leaders in the space who could be early adopters of our technology. By increasing our sales force and geographic footprint, we have since launched sales in 27 U.S. states by March 31, 2022. Gross profit for the fiscal year ended March 31, 2022, totaled $4.6 million, yielding a gross profit margin of 60%. That compares to $1.3 million for the fiscal year ended March 31, 2021, the preceding year, which had a gross profit margin of 38%. Total operating expenses for the fiscal year ended March 31, 2022, were $22.6 million compared to $14.6 million for the previous fiscal year. Our general and administrative expenses for the fiscal year ended March 31, 2022, increased to $19.9 million compared to $12.6 million during the prior fiscal year. The increase of $7.3 million was primarily due to the cost of expanding our sales force, product marketing, and promotion incurred for our go-to-market efforts as well as Investor Relations spending. This year was marked by the milestone of our NASDAQ listing last August. During the fiscal year ended March 31, 2022, we recorded research and development expenses of $2.7 million compared to $2.1 million for the prior fiscal year. The R&D activity related to existing and new products. In addition, the activity related to engineering of future product enhancement with the pipeline that continually increased during the year that just ended March 31, 2022. Biotricity ended its fiscal year with $12 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. We are building to achieve strong revenue growth. We believe the business has greater potential for that growth. We expect to continue disrupting the cardiac marketplace with our devices and Biosphere cloud-based subscription services. I would now like to turn the call back over to Waqaas for his closing comments. Thank you, Waqaas.

Waqaas Al-Siddiq, CEO

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 continued growth over the next few years as we build our cardiac ecosystem to further penetrate and monetize the patient population that we have already touched with our cardiac technologies. For our most advanced remote cardiac monitoring solutions, we expect our services will follow those customers throughout their lifetime to monitor and protect them and ensure they are provided with technologically sophisticated chronic care. Doing so within a recurring revenue business model is a powerful means to scale the business, increasing both revenues and gross margin. We are very pleased with the meaningful progress we made in fiscal 2022. Through innovation, we are now in a position to build a comprehensive cardiac cloud with new and upcoming products that complement Bioflux, providing patients and cardiologists more and better choices based on their individual needs. We are excited for what fiscal years 2023 and 2024 have in store for our company and shareholders. I would now like to open up the call for questions.

Operator, Operator

And we'll take our first question from Frank Takkinen of Lake Street Capital Markets.

Frank Takkinen, Analyst

Congrats on results. I wanted to start on the new product initiatives, exciting to hear those around the market and starting to sell. So maybe just talk a little bit about the complementary nature of Biotres as well as Bioheart to Bioflux and how those three products can work together to be the one-stop shop cardiac care clinic and how the selling has been going into some of your established accounts?

Waqaas Al-Siddiq, CEO

Excellent question, Frank. So one of the things that we've talked about previously and we really talked about the complementary nature. So if you talk about the cardiac journey, everything begins in diagnostics, right? So the Bioflux product is our flagship, you diagnose the patient. Once we've diagnosed the patient, and real-time monitoring is really a once-in-a-year usage. What ends up happening is that, that patient goes off and they either get care delivery, they get a medication, they get some interventional procedure. And then three or six months later, they're back in the office for a follow-up. So at that point, they're not going to be running diagnostics again, unless there is some sort of symptom, they go into disease management or long-term care. And so we know from the Bioflux that these patients have been diagnosed with one of maybe 15 to 20 different ailments. And so this is where the Biotres comes in. So that if they're coming back and they're feeling something, you can run a simpler diagnostic, which is a Holter solution, which is a passive recorder. And if they are stable, and it's really about disease management and managing their medication and making sure that they are stable, the Bioheart product comes in. So really, the funnel begins with the Bioflux. And then the idea is, okay, let's touch these patients in between because without those complementary products, we're really not going to see that patient for maybe six to nine months. In between, they'll be in and out of the office for sure for follow-up visits, but we didn't have a technological solution to service them. So even today, if you talk about what do we lead with, we still lead with diagnostics, we still lead with Bioflux, but now we have the subsequent products that will support the clinic and the patient once we deploy that.

Frank Takkinen, Analyst

Great. Very helpful. Maybe just shifting over to gross margin. A nice snapback in margin in the fourth quarter. Could you speak to just some of the moving pieces around input prices, how you were able to snap the margin back the way it did? And how you're kind of thinking about gross margin ranges as you look into the future with some of the inflation uncertainties and other supply chain impacts that we've had?

Waqaas Al-Siddiq, CEO

Great question. We're continually assessing various aspects, so I'll break down your inquiry into segments since there are several factors involved. From a margin viewpoint, we anticipate our long-term steady-state margin to be in the high 60s, regardless of supply chain or inflation challenges. We are managing those issues, and I will address them shortly. At this stage, we expect margins to fluctuate slightly due to the introduction of new products. As we release these products, economies of scale will begin to emerge over time. For instance, when discussing the Bioflux, the cost difference between producing one device and a thousand devices is minimal because of the essential infrastructure needed for continuous cellular connectivity. As we distribute more devices, we begin to see economies of scale, allowing us to determine a specific cost per device, which influences our margins. However, as we commercialize and as our products develop further, a significant portion of our revenue shifts to service revenue, particularly in technology, where service or Software-as-a-Service revenue yields higher margins. New product launches and hardware costs will naturally impact margins. Long-term, we expect this to stabilize in the high 60s. Regarding your second question about inflation and supply chain pressures, we have a clear understanding of end-of-life products. Since hardware costs represent a small fraction of our overall expenses, inflation has a minimal effect on us, especially if we're advanced in commercialization, where 80% to 90% of our revenue comes from services, insulating us from device-level price changes due to inflation. However, supply chain issues could affect us if we encounter end-of-life products that become scarce, leading to price increases. We monitor this closely, maintaining strict control over enterprise resource planning and bond management. We identify components nearing their end of life and proactively work on new designs ahead of time to prevent any future price escalations.

Frank Takkinen, Analyst

Perfect. Okay. Maybe just one last one. You stated in the press release continuing to recruit top talent for the continued expansion of the commercial team. Maybe just talk a little bit about how the hiring environment has been out there and how you are thinking about pursuing growth? Obviously, there's a fantastic growth opportunity in front of you, but increased focus on profitability is also important. So maybe how you're weighing growth aspirations with profitability aspirations over the medium term?

Waqaas Al-Siddiq, CEO

Yes, that's a great question. I'm a strong advocate for growth, but it must be controlled. While some companies achieve growth by rapidly hiring many sales representatives and then letting go of those who underperform, that's not our method. We focus on managing our growth effectively. This means closely monitoring our cash flows, assessing our growth strategies, and determining the timing and method for adding new representatives, along with identifying other areas for enhancement. Sales enablement and the efficiency of our sales team are key aspects we work on optimizing. We aim for growth but in a way that allows us to anticipate outcomes and make informed decisions, all while managing our cash and keeping profitability in mind. Currently, we have a growth strategy set for the next 18 months, targeting a path toward breakeven and ultimately profitability. Depending on market conditions and economic factors, we can then decide whether to continue pursuing growth. Our goal at Biotricity remains to build a $1 billion company, and we recognize that growth is essential. However, we will not compromise short-term optimization for long-term growth. Our approach is careful and well-managed.

Operator, Operator

Next, we'll hear from Allen with the Maxim Group.

Allen Klee, Analyst

When you were making sales this quarter, did you notice any negative effects from COVID regarding entering doctors' offices and hospitals to engage with potential buyers? Or do you think that is no longer an issue?

Waqaas Al-Siddiq, CEO

You raised an interesting question. We have observed different dynamics. At the start of the year, there was some flu going around, which created some uncertainty about whether it was COVID. However, the situation was manageable overall. There was a cautious approach where clinics and hospitals limited the number of individuals coming in whenever someone got sick. I consider that more of a delay rather than a significant impact. As things have normalized, conditions are much better now. We've noticed changes at airports, such as the removal of COVID testing requirements across Europe and more freedom of movement in the U.S., with masks no longer needed at airports. This has led to increased mobility and more holidays, which affects our revenue. If a clinic is closed for a holiday, they remain our customer, and the revenue will return; it’s just a seasonal fluctuation. Overall, I haven’t encountered issues like those experienced during the pandemic. What we’re seeing is a return to normalcy, with possibly an increase in holiday travel, particularly noticeable during the June and summer months. Additionally, the initial apprehension about sickness being related to COVID has diminished since mask mandates were lifted.

Allen Klee, Analyst

In your 10-K, you outline your revenue in three categories. It appears you are experiencing year-over-year growth. I don't have the quarterly figures for device sales and technology fees. You also have service-related and other revenue, which I believe might include consulting, amounting to $750,000 this year. Could you provide some insights on what you're doing in that area and its potential?

Waqaas Al-Siddiq, CEO

One of the key points I previously mentioned is our focus in 2022 on developing more strategic relationships and partnerships. While we are primarily U.S.-focused, we are exploring opportunities to collaborate internationally. A significant part of this effort involves knowledge transfer since our company must maintain its focus. This knowledge transfer aims to assist partners in establishing similar distribution channels for cardiac monitoring and solutions in their regions. This is where our revenue from these initiatives has originated, and we will continue to pursue international expansion. We will also explore consulting opportunities and work with complementary technologies that could enhance our ecosystem and support the Bioflux system for cardiac patients, who often face multiple health challenges. As we expand into new markets, it is expected that revenue will increase from this segment of our business. We will ensure that potential partners are financially viable and capable of executing our joint objectives. This approach represents a new direction for us and is a natural progression as our business evolves.

Allen Klee, Analyst

My next question looks ahead, so you may not be able to answer it. I'm trying to understand the growth potential regarding the number of doctors. Has that somewhat stabilized sequentially? Is the growth primarily coming from increased utilization of your current providers? Additionally, with Bioflux launching in April and chronic care coming out this year, is it fair to consider the revenue potential for them in the first year, similar to how Bioflux ramped up in its first year? Or are there reasons to think that might not be accurate due to the absence of an already established base? Could you provide some insight on this?

Waqaas Al-Siddiq, CEO

Yes, it's important to have a forward-looking perspective. I would suggest considering what Bioflux achieved. Although there will be some variations since each product is unique, this product typically has lower revenue per usage but increases volume. Despite the large ecosystem we have, the marketing costs have already been incurred, so deploying the product has little to no additional costs. The challenge lies in the adoption phase. You can introduce the product to every doctor, but you need to actively work with them to ensure they are trained and engaged with this new solution, including the nurses. If a nurse leaves, the new nurse will also need training, which requires more time. This training and integration time is standard whenever a new product is introduced. Once we fully integrate into the ecosystem, it becomes part of the standard operation, but achieving full utilization takes time. It involves identifying the right patients and ensuring they are set up properly. From our experience with Bioflux, we know it typically takes four or five months to become a smooth operation, where the team knows which patients to target. I expect similar patterns to occur with these new products, although the process may be quicker since the network and sales force are already established. As we open new accounts, we are not just promoting Bioflux; we are presenting the entire product portfolio. Existing customers will need to be introduced to the new products and encouraged to adopt them, while new customers will already be familiar with our full range from the start.

Allen Klee, Analyst

What feedback have you received from doctors regarding chronic care? How do they perceive your competitive positioning?

Waqaas Al-Siddiq, CEO

One significant difference is that chronic care has not been closely examined in the context of cardiac health, and we are taking a forward-looking approach. Although we have received strong feedback, it's still early in the process. When comparing our offerings to other chronic care solutions, our focus on diagnostics and collaboration with cardiologists makes our solutions distinct. Others largely focus on generic chronic care, mainly addressing medication adherence and lifestyle changes without being linked to specific diagnoses. What we are doing is innovative and sets us apart, as no one else is approaching it this way.

Allen Klee, Analyst

Great. My last question. In April, you announced a $50 million at-the-market potential issuance thing in March. Can you comment on whether you have used any of that?

Waqaas Al-Siddiq, CEO

We have not used any of it. It was more about ensuring we had an option in place so that if bonds were being dropped and the world was entering uncertainty, we would be well capitalized. We set that up as a backup, but we haven't utilized any of it. It would have appeared in our year-end report, so we haven't touched any of that.

Operator, Operator

And next, we'll hear from Kevin Dede of H.C. Wainwright.

Kevin Dede, Analyst

I thought I'd first piggyback off of where Allen was going in your response and sort of a competitive light. Would you mind giving us a few examples of where you see your competitors falling short, specifically in the technology that they're bringing to market? I understand you're not alone on the Holter side either. So maybe you could explain how the combination of your products differs from what you're seeing your competitors offer?

Waqaas Al-Siddiq, CEO

Absolutely. Let's discuss the Holter product, which is a new addition. Bardy, acquired by Hillrom, offers a one-channel Holter product but lacks real-time monitoring and diagnostics. This means if you're a hospital or cardiologist who requires Holter and real-time monitoring, which most do due to varying patient risk levels, you'll end up using products from two vendors. This complicates things, requiring nurses to be trained on different systems. With our solution, you only need one vendor, simplifying workflow and training. Bardy also does not handle chronic care or disease management, adding yet another vendor to the mix. We combine all these functionalities into one ecosystem. From a technology standpoint, Bardy's model is structured as an outsourced service. If a doctor uses a Bardy monitor, they send the patient home, and Bardy manages billing, with the doctor receiving only $25 for report analysis. This is similar to what we did with Bioflux, which proved effective. iRhythm operates in a similar manner but has its own connectivity issues, requiring devices to be mailed back and processed at their headquarters, leading to a lengthy two-week turnaround for reports after a seven-day study. In contrast, Biotres is connected, allowing us to reduce turnaround time from three weeks to three days. Even for a longer study, we still maintain a three-day turnaround compared to iRhythm's two weeks. Bardy has improved their turnaround time somewhat by allowing data downloads directly from the device, reducing it to about one week, but that's still not as efficient as our three days, which is better for patient safety. We also allow providers to bill directly, creating a profitable avenue for them. Regarding competition, Bardy and iRhythm are currently arguing over the superiority of their respective technologies, with Bardy touting their P-wave detection and iRhythm claiming they detect more arrhythmias. However, these debates arise because they only offer a one-channel product. Our Biotres, being a three-channel product, encompasses both P-wave and broader arrhythmia detection capabilities, making it clinically and technologically superior. Furthermore, unlike iRhythm, which isn't currently profitable, and Bardy, which has faced profitability challenges leading to their attempted acquisition withdrawal, our reusable product has a two-year lifespan and is intended for frequent use by doctors. If a doctor uses it monthly, that's 24 uses in a year, giving us a competitive advantage in terms of cost and overall value. This, along with our comprehensive ecosystem and product portfolio, sets us apart.

Kevin Dede, Analyst

Okay. Good detail there. On technology development and the supply chain, Waqaas, can you talk a little bit about the end-of-life products and the two-year lifespan? Can you explain how Bioflux has evolved over the past two years and how you've been able to secure product availability, where it's manufactured, and ensure that you will receive the necessary components for your manufacturing?

Waqaas Al-Siddiq, CEO

We continuously assess the end-of-life of products and constantly upgrade our chips. Over the last couple of years, we've replaced various components in Bioflux, such as resistors and chips, with newer versions or smaller packages, subjecting them to additional safety testing. Each modification could influence safety, requiring documentation to ensure specifications are met, followed by independent testing before we replace the chips. You seem to be hinting at the supply chain shortage, which I've mentioned in previous calls. We've effectively managed this by maintaining six months' worth of inventory through proactive measures. However, as we've recently announced triple-digit growth and expect to replicate that, the question arises about how we'll maintain our inventory. The solution lies in building our inventory based on projections plus an additional buffer. Currently, if the supply completely dried up, I have already secured enough inventory to support our entire growth plan for fiscal 2023. This situation won't impact our growth strategy until March 31, 2023. Looking beyond that, we are actively engaging with our suppliers and chip manufacturers to determine when their inventory issues will be resolved. For instance, we've identified that Texas Instruments, a supplier of silicon chips, is experiencing a shortage of the plastic packaging component, which is expected to improve in November. We are delving deep into the details of their assembly and manufacturing capabilities. As I look ahead to 2024, I am confident that even without sourcing any additional components, we possess sufficient inventory across all product lines to achieve our triple-digit growth targets, along with a significant buffer well beyond 20% for the period leading up to March 31, 2023. This gives me confidence in our ability to execute our growth plans.

Operator, Operator

Thank you, Mr. Al-Siddiq. There appears there will be no further questions at this time. We'll turn the conference back over to you for any additional or closing remarks.

Waqaas Al-Siddiq, CEO

Thank you, everyone, for joining the call. Please call anytime if you have any further questions. I hope you were able to listen in and get the answers to any questions that you may have. If there was anything that was left unanswered, please reach out to us. We're always available. Thank you, and have a great day.

Operator, Operator

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