Augmedix, Inc. (NASDAQ:AUGX) Q4 2022 Earnings Call Transcript

Augmedix, Inc. (NASDAQ:AUGX) Q4 2022 Earnings Call Transcript March 27, 2023

Operator: Greetings, welcome to Augmedix Incorporated 2022 Fourth Quarter Earnings Conference Call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. At this time, I’ll now turn the conference over to Matt Chesler from Investor Relations. Matt, you may now begin.

Matt Chesler: Thank you, and thank you all for participating in today’s call. Joining me are Manny Krakaris, Chief Executive Officer; and Paul Ginocchio, Chief Financial Officer. Earlier this morning, Augmedix released financial results for the quarter ended December 31, 2022. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance, are forward-looking statements.

These forward-looking statements are based upon current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors and management discussion and analysis of financial condition and results of operations in our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, and similar disclosures and subsequent reports filed with the SEC. Also during our call today, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact certain items.

You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today’s financial results press release. This conference call contains time sensitive information and is accurate only as of the live broadcast today, March 27, 2023. Augmedix disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I’ll turn the call over to Manny.

Manny Krakaris: Thank you, Matt. Good morning, everyone, and thank you for joining us. I’d also like to welcome Matt Chesler of FNK IR Augmedix team, great to have you with us. Q4 2022 was another strong quarter for Augmedix as the momentum we saw building in the second and third quarters continued and accelerated in the fourth quarter. We finished a great year of bookings and revenue growth with our best ever fourth quarter bookings performance. We materially expanded our footprint with two existing enterprises and experienced continued traction with our other enterprise accounts. When enterprise substantially increase the number of physicians, who use our products and we now service more than a third of all of its physicians due to the strong ROI we deliver.

In recognition of the positive impact Augmedix products have had on clinician recruitment, retention and productivity another major account has leaned in and adopted a policy to provide Augmedix to all its partner positions. As a result Augmedix will grow to serve approximately 20% of its total affiliated physician network. We won a new region of an existing enterprise and added a large cohort of doctors as part of that customer’s initiative to reduce physician . And importantly top 10 health system we won in early 2022 expanded with us in the emergency department, deepening our relationship with that customer and furthering our penetration of the Emergency Department of Market segment. Total revenue for the fourth quarter was $8.8 million, representing a 33% year-over-year growth rate and we exited 2022 with $35 million in annual recurring revenue.

The pace of our progress hasn’t slowed down in 2023. We signed our largest ever cohort in March and have realized the best ever first quarter bookings. There is a tremendous market opportunity in front of us and to maintain our momentum, the Augmedix team is executing across our strategic priorities to drive enterprise customer expansion, differentiating our AI-driven core platform in flexible product solutions and intelligently scaling our business model. We are developing the broadest product portfolio in the medical documentation space, so we can meet the needs of most clinicians regardless of care setting or workflow. Our SaaS product Augmedix Go, will directly target the largest segment of the U.S. clinician market the approximate 50% of U.S. doctors that historically have used dictations for these medical notes.

Augmedix Go is intended to be easier to use and generate greater time savings for clinicians than legacy dictation tools. This is a significant opportunity for us and as a pure software product will be the beneficiary of higher gross margins than our other documentation products, Augmedix Notes and Augmedix Live. In addition to being easier to use and saving physicians more time than dictation tools, Augmedix Go has the added benefit of capturing and structuring patient visit data according to the specific requirements of health systems. And importantly Go provides physicians transparency into how the medical notice created and control as to its content and look and feel. We believe transparency and control are attributes to physician value highly, providing a sense of physician empowerment and will serve as critical differentiators relative to Black Box approaches of competing offerings.

Augmedix Go is currently being tested with a handful of clinicians at a major health system and we plan to expand this testing in the second quarter and commercially launch Go late this year. Augmedix Go represents the latest in our continuing effort to effectuate behavioral change at the point of care at scale that we can help increase patient access, improve patient outcomes and bend the cost curve across the healthcare industry. Large Language Models or LLM such as ChatGPT are dominating the popular press today. LLMs are indeed impressive models that can have a significant impact on automating parts of the medical note. In fact, LLMs are already incorporated in our tech stack and are used in conjunction with our other NLP models and structured data sets to generate medical notes.

LLMs are particularly useful in providing rapid summaries and context from transcripts. However, use of LLMs alone today cannot produce medical notes that meet the (ph) standards or data structure requirements of our industry. A summary of the physician patient encounter in the same sequence that the conversation unfolds and which contains some of the inconsistencies that invariably cropped up in such conversation is not what the industry wants or needs, that is why we use other technologies together with LLMs to deliver highly accurate and structured medical notes and is a major reason why our note quality is considered so high by our customers. We’re also making solid progress in moving into the acute care setting with additional emergency room and acute care wins.

We continue to add features to all our products to make them support and create value both in ambulatory and acute care settings. Another milestone in the fourth quarter with an EHR integration between one of our large health system clients and EPIC. We now have multiple EHR integrations with more planned in the coming quarters. Integrating within EHR enables us to deliver medical nodes to our customers even faster and improves our operating efficiency. Finally, we continue to make impactful advancements with our proprietary note builder platform in our pursuit of enabling fully automated medical notes. Our machine learning continues to benefit from the large volume of data about 60,000 notes a week that passes through our platform and we expect increasing levels of automation will have a positive impact on our gross margin.

We are executing on these priorities, investing in product development, engineering, sales and marketing and remain laser focused on achieving profitability and self-sustainability as rapidly as possible. The operating leverage inherent in our business model is starting to bear fruit as we realize the reduction in our operating loss again quarter-on-quarter as our volume increased. We expect that trend to continue throughout 2023 and beyond. Improving operating leverage is a key theme for Augmedix in 2023 as we continue to aggressively grow our top line. In closing, the fourth quarter showed a continuation of accelerated top line growth and improving operating leverage as we made great progress on our path to profitability. Financially and with respect to our product offering, we are well positioned in a very large and rapidly expanding market.

We continue to execute on our strategic initiatives and focus on delivering strong growth, improving gross margin and increasing operating leverage. With that, I’ll now turn the call over to Paul Ginocchio, our Chief Financial Officer, then we’ll return with closing comments. Paul?

Paul Ginocchio: Thank you, Manny. As stated, revenue for the three months ended December 31, 2022 was $8.8 million, a 33% increase from the $6.6 million in the same period a year ago. Growth was again driven by existing client expansion, new clients, and higher growth in our notes offering. Dollar-based net revenue retention for the fourth quarter of 2022 was 126% for our health enterprise customers, compared to 136% in the fourth quarter of 2021. The fourth quarter of 2021 was when our NRR metric recently peaked, we expect NRR to stabilize or slightly accelerate from the fourth quarter. As many of you know, net revenue retention measures with a dollar of revenue at our existing clients a year ago, grew into this most recent quarter; includes upsells, expansion and churn that excludes revenue from any new logos that we added during the last 12 months.

Our strong NRR puts us at the higher end of most SaaS companies. Average clinicians in service for the fourth quarter of 2022 rose 41%, as compared to the fourth quarter of 2021. And compares to a 43% year-on-year growth rate in the third quarter of 2022. Our two-year stacked year-on-year growth rate again accelerated to 104% in 4Q versus 85% in 3Q. We define a clinician and service as an individual doctor, nurse practitioner or other healthcare professional using either our live or note service. We believe growth in the number of clinicians in service is an indicator of the performance of our business as it demonstrates our ability to penetrate the market and grow our business. Adjusted gross margin for the fourth quarter of 2022 was 46.5% and compares to 47.3% in the corresponding prior year period, and compares to 45.9% in the third quarter of 2022.

The increased exposure to clinicians serviced out of the U.S. reduced our year-on-year gross margins, partially offset by efficiency gains. We are pleased with the progression of gross margins from the third into fourth quarter. Total operating expenses for the fourth quarter of 2022 were $9.5 million, increasing sequentially from $9.0 million in the third quarter of 2022. Non-GAAP operating expenses, which excludes stock-based compensation and one-time items grew 26%, compared to the fourth quarter of 2021, a deceleration from the 28% year-on-year in the third quarter. Operating expenses increased year-on-year, due to annual salary increases, incremental investments in sales and marketing as we expand our commercial team and extend our marketing reach, investments in the engineering team as we further enhance our technology platform, note automation capabilities and expand our product portfolio and increase G&A cost due to being a NASDAQ listed company.

Despite the quarter-over-quarter growth in OpEx, our growth in gross profit outpaced OpEx growth, which resulted in a reduction in our quarterly operating losses for the second consecutive quarter. Adjusted EBITDA driven by adding back depreciation, amortization, taxes, interest, one-time items and stock-based compensation to net loss was a loss of $4.2 million in the fourth quarter of 2022, compared to a loss of $3.7 million in the fourth quarter of 2021. While our adjusted EBITDA losses increased, our adjusted EBITDA margin improved by approximately 800 basis points year-on-year. Importantly, over the last two quarters, we have reduced our adjusted EBITDA operating losses by 20% or $1.1 million from $5.3 million in the second quarter of 2022 to $4.2 million in the fourth quarter.

Looking at the progress over the last two quarters, our path and trajectory to cash flow breakeven should be much clearer. Now turning to an overview of full-year results. Revenue for the full-year 2022 was $30.9 million, an increase of 40% from $22.2 million last year. Dollar-based net revenue retention for the year was 128% for our health enterprise customers, compared to 124% in 2021. GAAP gross profit grew 40% to $14 million with a 45.1% gross margin, compared to a gross profit of $10 million with a 45.1% gross margin in 2021. Adjusted gross margin for 2022 was 45.4%, as compared to 45.9% last year. Total operating expenses for the year were $36.3 million, up 32%, compared to the $27.6 million in 2021. Non-GAAP operating expenses, which excludes stock-based compensation and one-time items grew 31%, compared to 2021.

Adjusted EBITDA was a net loss of $18.6 million for 2022, compared to a loss of $15.2 million in 2021. At December 31, 2022, we had $22 million of cash, cash equivalents and restricted cash. In addition, we had $10 million of incremental liquidity be in our existing debt facility. After the FDIC takeover of SVB, we did access and take down the second term loan tranche of $5 million. So as of today, we still have $5 million of remaining incremental liquidity via the AR line of credit. As we achieved the $35 million ARR performance metric in our debt facility, our interest only period on our debt has been extended from July 2023 to January 2024, providing us with incremental operating runway. Based on our current balance sheet, capital and our expectations of declining cash burn, we still have approximately two years of operating runway.

Just a quick reminder, the first quarter is typically our largest cash burn quarter of the year due to some annual payments and bonuses. Now moving to guidance. Due to strong finish to 2022 and a strong start to 2023, we are providing revenue guidance of approximately $42 million for the full-year of 2023, implying a 36% year-on-year growth rate. Turning to our outlook for the first quarter of 2023. Given the strength of our recent bookings and the health of our current backlog, we expect revenue in the first quarter of 2023 to be approximately $9.3 million to $9.4 million. We expect GAAP gross margins to be similar in the first quarter of 2023 to the fourth quarter of 2022. Recall at scale, we’ve indicated that Augmedix Live gross margins will be in the range of 50% to 55% with Augmedix Notes gross margins in the range of 55% to 60%.

Augmedix Go gross margins will be higher than Augmedix notes. However, we don’t expect any material revenue from Go in 2023. We expect first quarter operating expenses to be slightly higher than the fourth quarter operating expenses. Importantly the increase in operating expenses will be substantially lower than the increase in revenue, which again reaffirms our inherent operating leverage in our business model. We do expect some incremental investments in 2023 and sequential OpEx growth in the coming quarters, but that growth is expected to be less than our top line growth. At this point, I’d like to turn the call back to Manny for closing comments.

Manny Krakaris: Thank you, Paul. I am proud of our team’s commitment to enable physicians to see the patient and not be distracted by the technology that generates the medical note. In the process, we are addressing the largest pain points in the U.S. Healthcare System, physician burnout, staffing shortages and labor inflation. I’d like to personally thank the entire Augmedix team for the strong results we delivered in the fourth quarter and over the course of the year. I would also like to take this opportunity to welcome Rod O’Reilly as our new Chairman of the Board. His long tenure, multiple successes in healthcare IT and has extensive industry relationships will no doubt help us realize our vision of changing behavior at the point of care to increase patient access, improve patient outcomes and boost the industry’s financial performance.

We remain confident that the need for our products will continue to accelerate given the massive size and unmet needs of the market and the compelling ROI our offering delivered to our customers. We look forward to 2023 and beyond and to generating long-term value for our stakeholders. Thank you. With that, we will now open it up to questions. Operator?

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Q&A Session

Operator: Thank you. We’ll now be conducting a question-and-answer session. Thank you. And our first question is from the line of Ryan Daniels with William Blair. Please proceed with your questions.

Jared Hasson: Yes, good morning. This is Jared Hasson for Ryan and thanks for taking our questions and congrats on all of the sales momentum. Yes, just one on the guidance, is there a comfort level there? How much of that $42 million outlook is visible to you to stay in terms of — I guess, what is under contract versus what would reflect new sales that you’re hoping to close this year. Really just trying to get a sense of any, kind of, key variables we should think about that could drive the actual performance in year, sort of, above or below that outlook?

Manny Krakaris: Paul, do you want to take that?

Paul Ginocchio: Hey, Jared. Yes, sure, Manny, no problem. Hey, Jared. Thanks for the question. So we exited the year at $35 million of ARR, we had a very strong backlog entering the year. So that backlog plus the exit ARR of €˜22 gave us really good visibility into that $42 million. You can see what our first quarter revenue guidance looks like and sort of the incremental progression of ARR added Q-on-Q and we feel good about that achieving that $42 million.

Jared Hasson: Okay, perfect. And then I guess just as a follow-up here. Maybe you talked a little bit about some of the large client expansions in recent quarters. I’m curious, has any of that momentum been driven by data sharing where you’re able to really help systems identify which doctors could benefit the most from your solution? I guess just any color more broadly around what you think is really driving the success in terms of client expansion?

Manny Krakaris: Great question, Jared. So it definitely has the data-driven approach that we use with many of our big enterprise customers definitely has an impact on the expansion experience after we’ve done an initial cohort or two with those enterprises. I think there’s other secular issues that are stimulating demand and in particular demand for our services. Demand in general is being driven as you probably know by doctor burnout, staffing shortages, labor inflation, but choosing us in particular to grow is predicated. I think on the high ROI that we’re able to deliver to those enterprises. And by incorporating data-driven approach, it’s pretty easy for those enterprises to see the impact we’re having on their financial performance.

Jared Hasson: Okay, perfect. We’ll leave it there and hop back in the queue, but congrats again on all the success.

Manny Krakaris: Thank you, Jared.

Operator: The next question comes from the line of Neil Chatterji with B. Riley Securities. Please proceed with your questions.

Neil Chatterji: Good morning and thanks for taking the questions. Maybe just first off, just curious how the beta testing and any feedback is going so far with the preparation for the Augmedix Go launch later this year? And how you envision that being, kind of, the foundation for your enterprise platform?

Manny Krakaris: Hey, Neil, it’s Manny. Good question, so it is beta testing, so we’re — the point of this is to get as much feedback as possible from users to make sure that when we commercially launch the service, the product that it will satisfy the needs of the target market that we’re going after. So far, the feedback has been good, but it’s still early days. So I don’t want to commit to the nature of that feedback other than it’s been productive, and we’re making changes and improvements to the product as we get that feedback, which is what you’d expect and we’re still — our timetable is still exactly what we had indicated earlier. We will go to extended beta testing in the next quarter with another enterprise as well. And more deeply with this one particular enterprise that we’re testing today. And all indications are that we will be launching it — does the product commercially towards the end of the year.

Neil Chatterji: Great, thanks for that update. And then you did mention the one example earlier, just curious if you just talk a little bit more about the opportunity of expanding more into the ERs?