Biotricity, Inc. (BTCY) Earnings Call Transcript & Summary

Good afternoon, and welcome to Biotricity's Fiscal 2023 First (sic) [ Fourth ] Quarter and Full Year Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Debra Chen, Investor Relations. Please go ahead, ma'am.

Good afternoon, everyone, and welcome to Biotricity's Fiscal 2023 Fourth Quarter and Full Year Earnings Conference Call. As a reminder, Biotricity's 2023 fiscal year ended March 31, 2023. So all figures presented for this period will reflect that end date. Earlier today, Biotricity issued its fiscal 2023 fourth quarter and full year press release, which highlighted financial and operational results. A copy of the press release is available on the Investor Relations section of Biotricity's website, and full financials have been filed with the SEC on Form 10-K and posted on EDGAR at www.sec.gov. Before beginning the company's formal remarks, I'd like to remind listeners that today's discussion may contain forward-looking statements that reflect management's current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. Biotricity does not undertake to update any forward-looking statements except as required. At this point, I'm pleased to turn the call over to Biotricity's Founder and CEO, Dr. Waqaas Al-Siddiq. Please go ahead.

Thank you, Debra, and thank you, everybody, for joining us today for our 2023 fiscal year conference call. I will cover our fiscal year financial and operational highlights and then turn the call over to John for a discussion of our fourth quarter financials. I will then discuss our sales strategy and outlook and open the call for your questions. We finished the fiscal year on a strong note, driving revenue 26% higher year-over-year to $9.63 million, while our gross profit rose 19% to $5.4 million. While these solidly rising numbers show strong progress, I'm equally as pleased to report our decreasing numbers. We produced 26% robust revenue growth while reducing, yes, actually reducing, our SG&A by 5% to $17.6 million. And that disciplined cost structure management, along with the strong growth across the board, enabled us to lower our net loss by over 1/3 or 35.4%, down by $10.7 million to $19.5 million. We managed to accomplish all that while sustaining a healthy gross margin of 57%, which declined just 3% from a year ago but for important strategic reasons that I will unpack in just a minute. As you can see, we are relentlessly in pursuit of positive cash flow, and our numbers demonstrate that we are making excellent progress towards that goal. It should be readily apparent that we are scaling our business as well. Now for our revenue and margins. Our revenue sources go into 3 buckets. First and foremost, we have technology fees. This is a recurring subscription service fees generated by our diagnostics and Biosphere services. For fiscal year '23, 91% of our total revenue was comprised of technology fees, which rose a hefty 49% year-over-year at a 70% gross margin, which has been consistent at this level year-over-year for the past 2 years. In part, its strong growth reflects our extraordinary customer retention rate of 98%, which, in one simple single number, speaks volumes about our excellent customer and cardiology-friendly solutions, superior device hardware and tech services, ease of use and superior diagnostics. We are continuing to strengthen this retention rate through continuous improvement and expansion of our usage and implementation of AI to strengthen automation and enhance our cardiac disease solutions. As a side note, I recently read that the more time the CEO says AI on an earnings call, the better the share price performs. I'm not so sure about that, but for our newer shareholders, I will point out that we've been actively discussing how Biotricity is deploying AI across our company from customer service to diagnostics for well over a year, and we have been actively developing AI for several years now. The most recent occasion was during our third quarter 2023 call, which was before Wall Street blew AI up to become the next big thing. Back to revenue margins. After technology fees, our second revenue bucket is device sales. As it sounds, that is sales of our proprietary hardware, which, like our software, is all designed in-house. In fiscal 2023, device sales comprised 9% of our total revenue. We also have a third bucket called service-related and other revenue, which is entirely opportunistic. We did not book any revenue in this category in 2023 versus $750,000 a year ago, which demonstrates even further just how strong our fiscal 2023 revenue really was. As our technology fees have been so strong and our customer retention so high, we decided to lower the pricing on our devices to near and, at times, less than our cost. We do this opportunistically and to gain market share, lower the customers' net cost of entry into our Biosphere and to incrementally increase our recurring technology fees with its 70% gross margin. Like the old razor-razorblade sales strategy, it seems some principles in business are timeless. Our pricing strategy, along with solid recurring revenue gross margins and high customer retention, is continuing to produce the growth we planned. From a 70% gross margin on technology fees, our pricing strategy diluted our blended gross margin down to 57%. However, our device sales are earned and recognized upfront. Further, we anticipate the technology fee component of gross margins to continue to grow, outpacing device sales and pulling the blended gross margin higher, all while our growth continues to scale and we capture increasing market share. With that, I will turn the call over to our CFO, John Ayanoglou.

Thank you, Waqaas. Since Waqaas just covered the fiscal year numbers in his discussion of key operational matters, I will hit the fiscal 2023 fourth quarter highlights which are unaudited. Our Technology-as-a-Service subscription-based recurring revenue from our cardiac devices is continuing to ramp up. Revenue for the fourth quarter ended March 31, 2023, increased 27.6% year-over-year to $2.74 million. Exceeding the typical young company growth curve, I note that the fourth quarter revenue of fiscal 2022 also grew at practically the same rate of 27.4% over the fourth quarter of 2021. Our blended gross margin in the quarter just ended was 57%, which is lower than the 67% in the year earlier quarter, primarily due to lower pricing on our device hardware, which Waqaas just discussed. Although I also note that even so, it is still a strong improvement from the gross margin in the fourth quarter of 2021. Technology fee gross margins were steady at 71% and comprised 93% of the quarter's total revenue. As Waqaas pointed out, this bodes very well for future margins, and SaaS-based recurring technology fees will be an ever-increasing proportion of our sales mix, notwithstanding the fact that we are also engaging in efforts to contain and improve our costs in our COGS. Gross profit totaled $1.5 million, up 7% from $1.4 million a year ago. Net loss decreased 19% year-over-year to $4.9 million or $0.09 per share from net loss of $6 million or $0.118 per share in the fourth quarter of fiscal 2022. We continue to pursue our path toward positive cash flow, and as we anticipated in our third quarter call, we are now seeing the corresponding inflection in our financial growth trajectory. I will now turn the call back over to Waqaas for his closing comments.

Thank you, John, for that report. I'll cover a few highlights of our fiscal 2023 accomplishments and then provide some forward-looking guidance. As a convenience for our customers, we recently launched Android and iOS versions of our cardiac monitor smartphone apps in the Google and Apple App stores. Depending on the cardiac device to which they are tethered, these apps display and interpret the customers' data in an easy-to-understand graphics as well as providing a gateway into our secure cloud-based Biosphere portal. Back to everyone's other favorite subject, AI. In our second fiscal quarter of last year, we announced we will be conducting an NIH-sponsored Phase I study of Bioflux AI, our innovative AI system that we will now customize for predictive detection of stroke in patients with chronic kidney disease. And in February of this year, we were one of the only 8 companies selected to present at the second Annual Innovation Showcase during the American Stroke Association 2023 International Stroke Conference in Dallas, in collaboration with the National Heart, Lung and Blood Institute and the National Institute for Neurological Disorders and Stroke. We presented our ongoing work on stroke prediction in chronic kidney disease patients, supported by our previously awarded NIH grant. Our ongoing research is on optimizing our AI for predictive stroke analytics in patients with chronic kidney disease. In addition to the honor and high visibility gained from being selected to help lead an advanced AI-based clinical study under NIH, this greatly expands Biotricity's horizons with the added experience, expertise and contacts within NIH to develop similar future AI programs for other serious chronic diseases that impact cardiac health. My third point here relates to our sales strategy. We have slowly and meticulously built our national sales and sales support team one carefully considered industry professional at a time, and that is paying off handsomely. Now we have expanded our network to over 350 centers across 31 states with over 2,500 physicians, which is rather remarkable considering that we launched our first product in a competitive industry just 4 years ago. A year ago, we had a plan, but couldn't really discuss upselling our customer base because we had one product commercialized. Now we have 4. When you have 98% customer retention, upselling is a natural and seamless activity as our customers' needs evolve. For example, a patient may have a cardiac symptom and warn our Bioflux for diagnosis, and then been cleared with good heart health by the cardiologist. But with that now heightened awareness, those customers may want a simpler consumer device for basic preventative cardiac wellness monitoring to ensure their heart health is optimal, especially relative to whatever symptoms sent them to the cardiologist in the first place. Conversely, the physician of the patient wearing one of our monitors who is newly diagnosed with the potentially serious heart condition will order ongoing remote lifestyle monitoring for that patient, such as moving that patient from our Bioflux device to our Bioheart monitor. Upselling a second Biotricity product to our installed customer base reduces sales cycles, leading into the customer to input their preferred levels of services and reports. A repeat customer takes much less Biotricity time and resources than a first-time customer. The fact is our repeat customer upsells are far more bought than they are ever sold. On a final note, I'll provide some color for our outlook. Last quarter, I stated that our gross margin is an important leading indicator of our future profitability. Now as our business is advancing with a longer and stronger track record, I can tell you that even better than gross margins, our technology fee revenue is our best leading indicator of future growth. Separately, as recently as last month, we reported reaching certain annualized revenue run rate. In May, we announced we had reached a $13 million run rate in April. To clarify, that simply means we take a designated full calendar month's revenue and multiply it by 12. With a 98% retention rate, our forward-looking revenue is simply the latest month multiplied by 12, not including any additional sales or growth. New sales and growth are additive, making the last multiplied by 12 the base case outlook. That then produces an annualized revenue run rate that is the same as we use in our internal models as we strive to be more transparent and keep our shareholders informed. Looking ahead, reaching positive cash flow is a top priority which we are aiming to achieve by the end of calendar year 2024. I will qualify that by saying if we see a low-risk, high-reward opportunity for investment to produce a much greater positive impact on our value than the cost of pushing back our cash flow target, we will evaluate those competing priorities and do what's best for our shareholders in the long run. With John closing the books on our first fiscal quarter, I can report our growth steadily accelerating, if a bit unevenly, with key metrics all trending favorably. I would now like to open up the call for questions.

[Operator Instructions] Our first question comes from Kevin Dede with H.C. Wainwright.

I'm curious -- curious, Waqaas, if you could just peel back the onion a little bit more on the fee contribution revenue given the 4 product lines. It'd be interesting to hear how your customers transition right through that upselling process and may -- and how that reflects on your service fee income.

Yes, for sure. So great question, Kevin. In terms of our product line, so a couple of those products are very new, right? So let's focus on the one that we launched in May of last year, right, with Biotres. So Biotres, as a product, it has grown, and we expect it to be at a $2 million run rate within 15 months of launch. We launched in May. So we're probably another 2, 3 months. So maybe I should say 15 to 16 months, it will be at a $2 million run rate. Now if you compare that to Bioflux, it took us 30 months to get to a $2 million run rate on the Bioflux. And that business is already at a $12 million run rate today. So we're -- it's certainly -- the strategy of taking a new product and adding it to our ecosystem and selling it into the ecosystem as a vertical strategy to go deeper into the accounts is certainly bearing fruit. The speed of acquisition in our statement and -- that we've been talking about and saying that it's going to be faster, that's also true. And the cost of the sales since it's already an existing customer and the onboarding process and everything related to that is pretty minimal. So all of those things, if you take this trend for this product and you apply that to the other 2 products that we're now -- we have launched in the early part of this year, we expect a similar thing to happen. But every product has its own uptake rate. They have their own reimbursement and business model. And generally, our business model is always the same technology. What I mean is like reimbursement rates are different, right? Our Bioflux reimbursement rates are significantly different than our Biotres reimbursement rate in terms of what reimbursements are linked to that technology. So adoption rates can be different, but the strategy of selling into the account, the strategy of that generating an additional revenue line item and going deeper into the accounts and reducing that cost of onboarding the customer, that is all holding true.

Okay. Waqaas, can we take a step back then? And aside from Bioflux and Biotres, what are the other products that encompass your full product line? And give us an update on where you're going on kidney disease detection given you've done a lot of work on the AI side in predicting stroke based on kidney function.

Yes, absolutely. So answering the first part of your question. So we have Bioflux, which is our smart cardiac monitor, right, that is analyzing ECG data while you -- [ Biotres ] is our passive recording product, which is more of the Holter space. And those are our 2 diagnostic solutions. And those products are used -- they're prescribed by the physician, and they're rotational. So they go on patient A, they come back, they get cleaned up, they go and they're put on patient B. Then we shift into Biocare, which is our chronic care management and remote patient monitoring platform. So this is about, okay, you get diagnosed on the Bioflux or the Biotres. Now you have to be managed. So just as a diabetic is managed, right, for the rest of their life, cardiac disease has no cure. You have to manage that patient. So that is a cardiac disease management platform that also has additional biometrics that you can record like blood pressure cuff, weight information, other metrics related to the patient. But ultimately, it's about the doctor tracking the patient month-over-month, making sure the patient is taking their medications, collecting their data, and they're not deteriorating. And that is a per-patient concept, right? So instead of rotating between patients, it's a per patient. So you diagnose the patient and then you go into a Biocare ecosystem, and now you manage that patient. That is also reimbursable, but it's a lot less from a reimbursement perspective, right? So it's reoccurring versus recurring type of -- one is rotational, one is a per month, per patient, but it's significantly less. We're talking the doctor's billing $50 to $100 per patient, per month. So whereas with Bioflux and Biotres, you can get to economies of scale and profitability from a clinic perspective very quickly. The Biocare requires investment in time from the clinic perspective to get economies of scale and they get enough patients onboarded. The last solution that we have is Bioheart, which is a lifestyle consumer product really targeted for stable cardiac patients. So again, Bioflux, Biotres, you identify the patient and you say, hey, this patient is stable or unstable. If they're unstable, you want to put them into disease management. If they're stable, you still want to see them, but you don't need to see them as regularly so the doctor can recommend the Bioheart product. And that is a lifestyle solution that the patient can use on a personal basis and use it to manage themselves efficiently and effectively in between physician visits. So those are the 4 products, right? So we've got the Bioheart, the Biocare ecosystem for chronic disease management, the Biotres for Holter monitoring and for smart monitoring. And then the last part of your question -- sorry, go ahead, go ahead.

Yes, yes, yes. So as you talk about kidney disease, maybe you can refresh my memory on where Biotricity stands on delivering products to monitor kidney disease?

Yes. So what we're doing on the kidney disease side is -- so think of it from our strategic perspective, right? So we came out, you've known us for a few years, right? We said, hey, we're going into cardiac diagnostics, but we really want to build a platform company, right, and deal with the cardiac patient holistically through that entire condition, right? So now we've completed that journey, right? And then during that process, we also said, hey, what else are we looking at? Well, we're looking at where our cardiologists are getting referrals from, right? So what does that mean? That means another patient whose primary doctor is not the cardiologist, it's some other specialist, but that patient now has -- they also have a risk for cardiac issues. So we get a lot of referrals from nephrologist, which are kidney dialysis patients that also have a heightened risk of cardiac issues, right? But they're not getting cardiac screenings because nephrologists don't necessarily have access to the technology, or they don't always have a referral setup for a cardiologist. They're just openly setting it up. And these patients, if you're dialyzed, you're getting -- you're in and out of the clinic 3 times a week. So the last thing you want to do is then go to another doctor's office. So the idea was, and the idea we were focusing on is, take our existing monitoring devices, so we think Bioflux and Biotres. We improve and specialize our cardiac algorithms and apply them for a specific demographic, in this case, patients suffering from ESRD and CKD, and modify our algorithms for that. And then deliver the same monitor, right, but now tailored for their nephrology. So the hardware and all of that is already there. So it would be the same Bioflux and Biotres, now tailored for a nephrologist. They do the cardiac screening inside of the dialysis center and then refer a diagnosed patient to the cardiologist. So we actually already have the monitor. We're not building a new monitor. We're tailoring all of the software to apply for that, and then the idea is to commercialize. And so whereas we're not just selling to the cardiologist, we're grabbing the nephrologist so that when they come to our cardiologist customer, the cardiologist already knows what's going on with that patient. So -- and the same kind of perspective that we're looking at. We're always looking at comorbidities, right? So CKD patients have high risk for cardiac, that's where we get referrals from. Same thing, [indiscernible] patients, they have higher risk for cardiac so we get referrals from pulmonologists. So these are all areas that, as we grow and as we look at, we look at what are complementary spaces where we can either add sensors or tailor our existing technology to capture patients a little bit earlier in the disease progression state.

So just to finish sort of the line of logic here for my little brain, fill in the kidney disease AI quotient that your team has been working so heavily with AI on.

So what we've been doing is we've been looking at dialysis patients and how they are -- so arrhythmia detection in cardiac patients and arrhythmia detection in patients with kidney disease is significantly different because kidney patients have like a bunch of mineral deficiencies and whatnot. So where our AI has been tailored for a general person without a bunch of other challenges and issues going on, we are basically adjusting all of our AI and algorithms to basically look at predictive ability to find out what's going on with that kidney patients. Are they going to actually have a stroke or not stroke? Are they progressing? Is their heart actually deteriorating? And then we can identify that, quantify that piece, highlight that information, and then alert the nephrologist. So the same thing that we're doing in the cardiology, but just tailoring the algorithms for an individual that has very, very different biometrics and very, very different data, right? So that means that the -- our algorithms will still work in the same way, and they would work on an nephrology patient. But since they're sicker, we can actually move a little bit faster, and we can augment and improve by focusing and tailoring the algorithms to a specific patient population, right? So it's customizing our algorithms as opposed to using just general cardiology algorithms.

All right. So last question on this line is how you package that AI with your Biocare platform and market it to nephrologists.

Yes. So I mean, we've already commercialized the same way that we have our cardiologist, right? We have the sales force. Now we've signed up some distribution relationships, and we go and we sell to these clinics and hospitals from a direct sales perspective. So same thing we would do with the nephrology, right? So dialysis centers are out there. You have a nephrologist that either owns it or they're part of the group. They're specialty groups. It's the same concept, right, direct sales to them. And as those algorithms get finalized and FDA cleared, et cetera, all of that just gets built into our ecosystem. So if we know that the nephrologist is the customer, and we can basically hit a tab on it, then the system will dynamically tell that [ device ] to go into kidney mode versus cardiac mode. So it will load up. It will, of course, have both algorithms running on the device, but it will load up the different AI interface that is focused on kidney patients because the cloud is essentially telling it, hey, this is a dialysis patient, not a general cardiac patient.

So you'll need FDA approval for that algorithm to run? You can't run it in the background and, I guess, use it as an indicator?

So we want to go a step further. So as an indicator, we are okay. But what we want to do is we want to predict, right? So we're moving -- we're moving from -- so if you look at what we're doing in kidney, it's not -- we're not using it as a leading indicator. We're building things that are now into prediction. Like you're going to have a stroke and we're telling you 5 days before it happens. For that type of sophistication, you need FDA approval. So on AI-related items, I mean we've been swimming in this for years now, right? So FDA has a different positioning depending on what you're trying to do, right? And predicting mode, it's looking at it more. And for us, that's a much better aspect is if we get it cleared from that perspective, that's actually a very, very valuable asset because not every nephrologist is close to a cardiology clinic or something like that, right? So it provides much better access and much better support from a commercialization standpoint and it also creates another barrier to entry. So -- and in the FDA's perspective, when it comes to AI, they're saying, look, we're happy to look and approve AI. We're happy to also say in certain cases, we don't want to look at it because this is not really driving any clinical decision-making. But once you get into clinical decision making, which is what we're trying to do, then you have to have another layer of accuracy and another layer of oversight, which is where FDA steps in.

Makes perfect sense. A quick question for John. As discussed in prepared remarks, targeting all things being equal, cash flow positive quarter? Months? That's the first question. And then what revenue level have you sort of penciled out your models on?

We intend to have to bring in enough revenue and to -- because we're ramping our revenue month-over-month-over-month and to improve our expense and cost structure, particularly on the monitoring side and in the selling commissions to be able to get to breakeven, what we've announced by the end of calendar '24, but I actually believe it's going to happen quite a bit earlier than that. So I look forward to actually beating that estimate.

I see. So -- but obviously, not cash flow positive for the entire year, but some period of 2024? And then I guess...

I personally think that we're going to get there -- I personally think we're going to get there probably towards the end of the first fiscal quarter of the next year. But we haven't given that guidance. So I look forward to doing better and better on the cost structure side as well as on the revenue side. We've got quite a few things and projects that we're handling that are under our belt and new technologies that we're rolling out as well as new distribution relationships. So there's a lot to digest and work through during this period, and we don't know how everything is going to exactly perform. But even at conservative levels, I'm quite comfortable that we're going to get there.

Thank you. There are no further questions at this time. Gentlemen, we'll turn the conference back over to you for any additional or closing remarks.

Thank you, and thank you, everybody, for attending our 2023 year-end conference call. Some closing things. I think it's an exciting time for us. And what we've got going forward, we've shown that the strategy of developing additional products that are complementary not only increases our TAM, but also allows us [ to get ] additional revenue that is complementary. And each of these business lines [indiscernible] are bigger than our core and flagship product, Bioflux. So that's an exciting place to be especially with the climate out there. We are in a market that is growing. We are in a market and have technology that is focused on health care, which is a recession-resilient market. And I think that from a business fundamental perspective, I'll leave this one closing statement for you guys, which I think is very important for investors, which is when we look at how a company is going to achieve cash flow, positive cash flow, we look at, is top line revenue growing? Top line revenue is growing. Are expenses in control? Expenses are in control. Is margin being sustained? And in our case, margin is actually direct line improving. And the reason we know that is because more and more of our technology fee is becoming the larger and larger percentage of our revenues. So if you take a state 2 or 3 years from now, where 99% of our revenue up from today's 93% of our total gross revenue being technology fees, then effectively, our margin becomes what our technology fee margin is, or at least very close to it. That has been solid between 69% and 71% for 2 years now. So I think that's an exciting place to be, and I think that's where John was talking about. We really -- from a base case perspective, we expect to reach positive cash flow by end of calendar year 2024. But there are a lot of opportunities and a lot of levers that will allow us to get there faster. And I think that's an exciting place to be, and I think that's an exciting opportunity for investors and something that we are looking forward to. And with that, thank you, everybody, and I hope you guys all enjoy your long weekend, and happy July 4th.

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