Earnings Call Transcript - BTCY Q2 2023

Operator, Operator

Good day, and welcome to Biotricity's Fiscal Second 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.

Valter Pinto, Managing Director

Good afternoon, everyone, and welcome to Biotricity's fiscal second quarter 2023 earnings conference call. As a reminder, Biotricity's fiscal quarter ended on September 30th, 2022, so all figures presented for this period will reflect that end date. Today, we issued our fiscal second quarter 2023 financial results press release. A copy of this press release is available on the Investor Relations section of our website, and the full financials will be filed with the SEC on Form 10-K 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.

Waqaas Al-Siddiq, CEO

Thank you, Valter, and thank you everyone for joining today. Welcome to our fiscal second quarter 2023 earnings conference call. During the second quarter, we continued 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. Our leading revenue driver in the second quarter continued to be 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 continue to grow our data set, which is comprised of billions of patients' heartbeats, allowing us to further develop our predictive capabilities relative to atrial fibrillation and other arrhythmias. Revenues earned with respect to this device are comprised of device sales and technology fee revenue, or Technology-as-a-Service revenue. For the three months and six months ending September 30, 2022, our combined device sales and technology fee income totaled $2.4 million and $4.4 million, representing an increase of 32% and 24% compared to the corresponding period year prior, showcasing our year-over-year growth and validating our recent strategic initiatives. Our business model continues to focus on providing our unique technology to a growing pool of physician hospital networks and patients. Our potential market continues to grow in parallel, with the at-risk population, with the global recurrent market for AFib expected to reach $26 billion by 2027, according to Emerson Research. In October, we launched our Biocare Cardiac disease management solution. This rollout follows two successful pilot programs that brought our technology into two facilities that provide care to over 60,000 patients combined. Biocare Cardiac is designed to expand upon Biotres' existing remote monitoring tools that are used today by over 2,000 physicians nationwide. This easy-to-use solution puts actual data at physicians' fingertips to assist them in making treatment decisions quickly. Biocare Cardiac combines chronic care management, promotes patient monitoring, cardiac diagnostics, lifestyle management, bidirectional communication and telemedicine, to help engage and manage patients better. We've partnered with leading doctors in the cardiology space to more efficiently address the unmet need for their patients, and we intend to continue our rollout of Biocare in the upcoming quarters. This quarter, we have identified key drivers towards the path to profitability in the next 18 months, including new distribution partnerships with leading distribution networks. Our new partnerships not only build out our ecosystem with leading physicians in the space but also provide expanded access to a large network of sales representatives. Earlier this month we executed an agreement with one of these major distribution networks and we intend to pursue relationships with other major distribution networks in the coming months. Earlier in 2022, we also launched Bioheart, a cardiac monitor now directly available to consumers. This device leverages our continuous heart monitoring technology, allowing patients to manage their lifestyle with long-term data on their heart activity. Bioheart changes the landscape of personal heart monitoring and has been recognized as one of the best inventions of 2022. We are thrilled to continue building on our previous product offerings and new distribution networks, and look forward to continued growth in the future. Additionally, in September, we were awarded an NIH Grant from the National Heart, Lung, and Blood Institute for AI-enabled real-time monitoring and predictive analytics for stroke due to chronic kidney failure. This is a significant achievement that broadens our technology platform, disease, and space demographic. The grant will focus on our Bioflux AI, an innovative system for real-time monitoring and prediction of stroke episodes in CKD patients. Cardiac disease is often chronic and impacts the quality of life of individuals in many ways, and it continues to grow as a leading cause of mortality globally. We expect Biotricity's differentiated approach to raise the standard of care and build a lasting relationship that carries the patient through the entire life cycle. We look forward to our future growth in our effort to alleviate key issues involved with current cardiac care today. I would now like to turn the call over to our CFO, John Ayanoglou.

John Ayanoglou, CFO

Thank you, Waqaas. During the three months ended September 30, 2022, the company earned revenues of $2.4 million. This represents a 32% increase from the corresponding quarter of fiscal 2021. Gross profit for the second quarter totaled $1.3 million, yielding a gross profit margin of 54%. Despite certain increased costs of salary including freight charges, we expect margins to improve and the cost of devices sold to become lower as a percentage of revenues as business sales volumes expand. Cellular and other costs associated with technology fees will continue to decrease on a marginal basis as our business scales. The tightening of this margin to 54% was the result of special promotions this summer intended to accelerate device sales and build a strong base of our recurring technology fee revenues. We expect gross margins to improve to about 60% over time. During the second quarter, Biotricity incurred a net loss of $4.9 million as well as a comprehensive loss of approximately $4.4 million compared to $11 million in the comparative quarter of fiscal 2021. This resulted in a net loss per common share of $0.094 per share for the period. Total operating expenses were $5.7 million compared to $6.3 million for the corresponding second quarter of the prior year. Our general and administrative expenses for the period were $4.9 million, compared to $5.7 million for the corresponding prior year period. The decrease in G&A expenses was a result of the company's continuing efforts to achieve capital efficiency as part of its path to profitability. During the second quarter, we incurred research and development expenses of $0.8 million, compared to $0.6 million for the corresponding quarter in the prior year. The increase in research and development activity is directly related to the development of new technologies for our ecosystem, as well as the development of continuous improvement and product enhancements to our existing products. Biotricity ended the fiscal quarter with $2.5 million in cash. We remain focused and more confident than ever in our fundamental business strategy to innovate, commercialize, capture market share in a fast expanding marketplace, and grow revenues. We expect to continue disrupting the growing cardiac care marketplace with our platform and technology. I would now like to turn the call back over to Waqaas for his closing comments. Thank you.

Waqaas Al-Siddiq, CEO

Thanks, John, and thank you again for everyone who has joined our call today. We made significant strides in terms of product and distribution network expansion. Our overall strategy remains to bring seamless remote cardiac monitoring solutions to patients throughout their entire lifetime, integrating our diagnostic devices in telemedicine for superior chronic care. We are excited about 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

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

Frank Takkinen, Analyst

Great. Thanks for taking my questions. Maybe just to start, a little more color on the distribution network development in the quarter. It would be great to understand how that came to be, kind of what you're thinking about growth expectations and then any margin implications we should be considering as this scales.

Waqaas Al-Siddiq, CEO

Great question, Frank. So as I had indicated, I think in the last quarter's call, I was talking about a strategy for 2022 about building out the distribution relationships. And we are successfully seeing that. We are not publicly disclosing the details of those. We plan on disclosing those in the coming weeks and months, so you'll get more color on exactly what we expect in the implications as we announce the details.

Frank Takkinen, Analyst

Okay. That's helpful. And then maybe to pivot over to the cardiac disease management and pilot programs. I think it was a press release on the tape a couple of months ago. Maybe bring us into the Oklahoma and Kentucky pilot programs, how those went. How did patients leverage the whole portfolio? And then how should we be thinking about that ecosystem on a go-forward basis?

Waqaas Al-Siddiq, CEO

Absolutely. So those pilots were really focused on three key components for us, right? One was, we wanted to make sure patient engagement, patient usability, technology, and improvements in workflow from a patient adoption and engagement perspective. And we learned a lot. We improved things and added features and deployed certain elements that we thought were very helpful, but were not utilized as always is the case when you do a pilot. And that's the purpose of the pilot. So that was successful in optimizing that and we are ready to now scale that and hence the announcement for a full-scale launch. The second piece we were evaluating was the same kind of concept but now from the nurse and the provider perspective—the workflows, making sure that it's seamless within their clinic practice and does not disrupt their environment. Again, we learned a lot and figured out where to streamline and improve and add features. That was also successful, and we saw great adoption from the nurses and understanding how that whole system works together seamlessly with the rest of our product portfolio. The last aspect was looking at reimbursement—ensuring that reimbursement across the providers works well, how information is presented as part of the reimbursement lifecycle, and verification of all that. We were successful on all three aspects. We moved the product, added features, and now it's ready for commercial launch. It's going to have a full rollout at CB Health in Kentucky, as well as a few other key sites. After that, it will be pushed through our entire ecosystem.

Frank Takkinen, Analyst

Got it. That's great color. And then, maybe last one for me. Appreciate the comments on pathway to breakeven in 18 months. Maybe speak to some of the inputs required there. Is it a cost-cutting initiative that needs to happen, more robust growth? Give us a little more color into how to bridge to profitability? And it would be helpful if you could address the balance sheet as well in the same question. Thanks.

Waqaas Al-Siddiq, CEO

Sure. In terms of our path to profitability, I think that as we see the technology landscape today and the biotech landscape, people are laying off. People are not able to grow anymore, and generally the environment is not as positive. I think that Biotricity is very fortunate. We're in a very positive position. We are very much in the opposite direction in terms of we are still growing. In fact, we've got new products that will facilitate and enhance that growth. We're expanding and hiring for key positions and reducing our expenses and costs, as per John's comments. To be in a position where we're growing, expanding, and hiring while also reducing costs—those three together are what will get us to that path. Regarding our balance sheet, I think the company has shown itself to be prudent users of cash. We're very careful in how we deploy cash in a way that facilitates growth without overspending. That will still be our path forward. We will access capital opportunistically as it makes sense for the business and relates to direct growth.

Frank Takkinen, Analyst

Okay. That’s helpful. I’ll stop there. Thanks for taking my question and congrats on the progress.

Waqaas Al-Siddiq, CEO

Thank you.

John Ayanoglou, CFO

Thank you, Frank.

Operator, Operator

We will take our next question from Kevin Dede with H.C. Wainwright. Please, go ahead.

Michael Donovan, Analyst

Hello. Thank you for taking my question. This is actually Michael Donovan calling in for Kevin Dede. First question, how will Bioflux AI upgrades be implemented with current Bioflux versions?

Waqaas Al-Siddiq, CEO

Sorry, you broke up there, Michael. You were saying something about Bioflux AI upgrades being implemented in Bioflux?

Michael Donovan, Analyst

Yes. So—yes, exactly. So you discussed a bit about Bioflux AI. Now, how are the AI upgrades going to be implemented with your current Bioflux platform?

Waqaas Al-Siddiq, CEO

So we have a couple of different ways of implementing our AI. Our AI works on two key components. On the device itself, those algorithms we don't really touch, because there, you don't have the processing power on the device. We are really talking about the cloud. In the cloud, we're looking at two things. First, how do we show the most meaningful data at the forefront? We clean out data that is not relevant or actionable. The other piece is, to make the workflow and the automation from an operational perspective more efficient. So creating the data summaries in a way that is faster so that you can scale up your ability. As we collect more devices and more data, how do you make it more accurate and automated? We're looking at AI in terms of an operational exercise for the Bioflux, managing that data stream and how to present it. Additionally, we focus on the accuracy of it. That essentially leads to our ability to grow and handle more patient data and more clinics and physicians without having to scale up as much on the operational side.

Michael Donovan, Analyst

Okay. That makes sense. And for Biotres, now that you have more data with Biotres, how are physicians responding to the three-channel patch versus one to two lead patch Holters? Is this translating to sales as you would expect?

Waqaas Al-Siddiq, CEO

Absolutely. On the sales side, we are seeing that uptake in sales and we are very happy with the launch that has happened so far. In terms of the three-channel and how the physicians are receiving the device, there are three areas. We did a head-to-head comparison. We’ve had vascular surgeons use it, heart surgeons, electrophysiologists, cardiologists, and interventional cardiologists. Each of them has a slightly different opinion on what is most valuable for them. First and foremost, because it's a connected device, they're able to get the data summary within three days, which is a huge change from waiting two weeks—this matters significantly for anyone who is an interventionalist or on the surgical side because they need to make timely interventions. Moreover, because it's a connected device, if the patient has an app, you can actually pull the data. However, that isn't widely used but it remains an available feature. The second piece that we are finding on the EP side is they appreciate the three channels, as electrophysiologists work within the world of electrical activity and having that data available is very important. The last piece we're observing on the cardiology side is the appreciation for not using a custom electrode. The device can use a standard electrode, so they can switch the type of electrode based on patient skin sensitivity. Older patients may have sensitive skin or some skin allergy; you can use a different kind of sensor and still service that patient where other Holter patch solutions aren't so flexible.

Michael Donovan, Analyst

Thanks, Waqaas. And one last question. So how is Bioheart being positioned against other retail heart monitors?

Waqaas Al-Siddiq, CEO

So Bioheart is positioned for two categories: people who are deeply engaged with health monitoring, particularly those with a family history of heart disease who want to proactively manage their health and lifestyle. The second group consists of individuals diagnosed with cardiac issues who require a personal device. Similar to using a blood pressure monitor or weighing scale for managing health, patients with kidney issues or those who are diabetic, often engage with specialized monitoring. So Bioheart targets these populations for self-management to provide necessary feedback on their conditions. We're intentionally focusing away from the personal heart monitoring context of fitness and exercise, and redirecting attention towards those diagnosed with cardiac conditions who need to monitor their progress carefully. That's how Bioheart is positioned, and it integrates with our lifestyle management approach under Biocare cardiac, providing supplementary support alongside other monitoring devices like a blood pressure cuff.

Michael Donovan, Analyst

Okay. Perfect. And actually one final question. This is the actual last one. I want a little bit more clarity on the distribution partnerships. In addition to these partnerships, will you be increasing your sales force as well?

Waqaas Al-Siddiq, CEO

We have always strategically increased our sales reps, adding them as opportunities in the market arise. In this particular case, we will continue to add reps, but we will be very focused on partnering closely with distribution networks. That will create a strategic hiring for us for a couple of people working very closely with those networks to help drive revenue from those partnerships. Again, much of that will be discussed publicly in the coming weeks and months.

Michael Donovan, Analyst

Perfect. Thank you, and congrats on the quarter.

Waqaas Al-Siddiq, CEO

Thank you.

Operator, Operator

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

Waqaas Al-Siddiq, CEO

Thank you, everybody, for joining the call. We appreciate you coming in and taking the time to listen to our story as always. If there are any other questions that come up that were not answered, please feel free to reach out to us directly or through [email protected]. Thank you.

Operator, Operator

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