Semler Scientific second quarter 2021 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. Before we begin, Semler Scientific would like to remind you that this conference call may contain forward-looking statements. Such statements can be identified by words such as may, will, expect, anticipate, intend, estimate, or words with similar meaning, and such statements involve a number of risks and uncertainties that could cause Semler Scientific's actual results to differ materially from those discussed here. These risks include continued uncertainty due to the evolving COVID-19 pandemic, risks associated with Semler Scientific's recent investments in entities with potential complementary products and new distribution arrangements, along with other risks associated with Semler Scientific's business. Please note that these forward-looking statements reflect Semler Scientific's opinions only as of the date of this presentation, and it undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Please refer to Semler Scientific's SEC filings for a more detailed description of the risk factors that may affect Semler Scientific's results and these forward-looking statements. I would like to introduce Douglas Murphy-Chutorian, CEO of Semler Scientific. Please go ahead. Good afternoon, everybody. Thank you for joining us for our second quarter results call. I'd like to introduce Dennis Rosenberg, our Chief Marketing Officer, who will begin the call for us today. Dennis? Thanks, Doug. We always like to begin our calls with a reminder about Semler's strategy. Semler is a company that provides technology solutions to improve the clinical effectiveness and efficiency of healthcare providers. Our mission is to develop, manufacture, and market innovative products that assist our customers in evaluating and treating chronic diseases. We believe that our technology and software solutions enable our customers to identify when preventive care options are appropriate and to intervene before events like heart attacks and strokes occur. We are pleased to report that the company's financial performance during the second quarter of 2021, based on revenue and pre-tax net income, was the best quarter in our company's history. Comparing results from the second quarter of 2021 to the second quarter of 2020, the highlights of today's report are as follows. Revenues were higher by 125%, increasing to $14.3 million. Pre-tax net income was higher by 554%, increasing to $6.5 million. Net income was higher by 522%, increasing to $6.7 million. Cash increased to $28.5 million at quarter end. During the quarter, we saw increased orders and usage for our QuantaFlo product from our current insurance company customers and from our health risk assessment customers. We also received orders from new customers. Now, Andy Weinstein, our Senior Vice President of Finance and Accounting, will describe our financial performance in more detail. Andy? Thanks, Dennis. Please refer to the financial results described in the press release that was distributed at market close today. For the quarter ended June 30th, 2021 compared to the corresponding period of 2020, revenues were $14.3 million, an increase of $7.9 million, or 125%, from $6.4 million. Operating expenses, which includes cost of revenue, was $7.8 million, an increase of $2.4 million, or 45%, from $5.4 million. Our pre-tax net income was $6.5 million, which is an increase of $5.5 million, or 554%, compared to $1 million. Net income was $6.7 million, an increase of $5.6 million, or 522%, from $1.1 million. Net income per share was $1 per basic share and $0.83 per diluted share, which compares to $0.16 per basic share and $0.13 per diluted share during the same period last year. For the quarter ended June 30th, 2021, the basic share count was 6,702,258 and the diluted share count was 8,092,459. Analyzing the expense categories and earnings in the second quarter of 2021 as a percentage of quarterly revenue, cost of revenue was 7% of quarterly revenue, engineering and product development expense was 7%, sales and marketing expense was 25% of quarterly revenue, general and administrative expense was 16%, and net income was 47% of quarterly revenue. As of June 30th, 2021, Semler had cash of $28.5 million, which represents an increase of $14.8 million compared to $13.7 million at June 30th, 2020. Our stockholders' equity is $39.8 million as of June 30th. We expect to file our quarterly report on Form 10-Q on or before August 6th, 2021, and this will include our cash flow statement and more discussion of our cash and liquidity. Our two largest customers comprise 38% and 33%, respectively, of our quarterly revenues. In the second quarter of 2021 compared to the corresponding period of 2020, fixed fee software license revenues were approximately $7.6 million, which is an increase of $1.7 million or 28% from $6 million. Our variable fee software license revenues were approximately $6.5 million, an increase of $6.2 million from $300,000. Equipment and other sales revenues were approximately $200,000, representing an increase of $100,000 or 46% from $100,000. Last year, in the second quarter of 2020, Semler Scientific experienced decreased test volumes due to COVID-19 related social distancing and other executive orders mandating shelter in place or similar restrictions, which limited patient visits. As such restrictions have been lifted around the country and non-emergency medical services resumed in late 2020, Semler Scientific's business has returned to or even exceeded pre-COVID-19 levels. Although we do not provide formal guidance, we are intent on continuing annual revenue growth, continuing profitability, and generating cash during 2021. It is the opinion of the management team that customer interest in our product and services is increasing, and consequently, staffing and inventory are increasing as well. Now, I will ask Dennis to continue the discussion and then provide concluding remarks. Dennis? At the end of second quarter 2021, headcount was 115 employees, compared to 103 at the end of first quarter 2021. We continue to operate as close to normal as possible, notwithstanding the COVID-19 pandemic. We've been a virtual company for more than 10 years, and we're comfortable with communicating and working out of our homes. Also, we have web-based training in place for our customers and are experienced in using it. There is also no plan to raise additional capital at this time. We reserve the right to change our financing plans as opportunity or need arises. During Q2 2021, we continued our investor relations activities by participating in the Needham Healthcare Conference in April and the virtual Raymond James Human Health Innovation Conference in June. We also participated in non-deal investor roadshows hosted by various brokerage firms that cover Semler's stock. During 2021, we will continue to participate in virtual conferences and virtual non-deal roadshows. We do not yet have a firm point in time when we plan to up-list to the Nasdaq market. However, we are working with a consulting firm which is advising us on the Nasdaq listing process and expect to communicate our plans to up-list once definitive. Our R&D goals are to continue to upgrade the existing product and data services, to commercialize other internally developed services and products, and to in-license new services and products which provide enhanced value to our customers. In our 2020 Form 10-K, filed with the SEC in March 2021, and our first quarter Form 10-Q, filed with the SEC in May 2021, we provided some limited information about our recent arrangements with three private companies. We have nothing further to report at this time. Management may give more information about these private companies and products if, in the future, they become material to our business. Overall, we believe annual revenue will continue to grow in 2021 because of increased number of installations of our product, more usage of our product, and recurring revenue from the licensing businesses. Our goal continues to be to both make new additions to our customer base and to expand orders from existing customers. Operating expenses are expected to increase from quarter to quarter during 2021. It is our intent to expand our infrastructure to accommodate anticipated future growth of the business. During the second quarter of 2021, we continued the purchase of inventory, some of which adds to our assets for lease. Our goals for 2021 are to grow annual revenue, to continue to be profitable, and to further establish our QuantaFlo product as a standard of care in the industry. We believe that the market for vascular disease testing is larger than our current market penetration. There is room for continued growth. We continue to invest in R&D with the goals of providing new products that enhance value to our customers now and in the future. The second quarter of 2021 was a record quarter for our company in terms of both financial performance and the number of patients being tested with our products. We also have our strongest cash position since inception. We are optimistic for the future. Thank you for your interest in the company and your continuing support. Operator, please open the lines. Doug, Andy, and I will be happy to address your questions. We will now begin the question- and- answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brooks O'Neil with Lake Street Capital Markets. Please go ahead. Good afternoon, guys. Pretty extraordinary quarter. I have a few questions that I'd like to ask, if that's okay. Yes. Go ahead. Thank you, Doug. First, I noticed that revenues were up nicely quarter-over-quarter. The cost of revenue declined significantly quarter-over-quarter. First, I don't even know how that happens. Could you describe what's going on there? Andy, could you take the question? Andy may be having difficulty with the phone because he's [hurrying the same in a follow-up]. The cost of revenue in the first quarter of 2021 was primarily increased because of a one-time inventory adjustment. Additionally, this inventory may be intentionally some more hedge cut. It's no similar inventory adjustment was done in the second quarter. Our cost of revenue improved. Okay. I got that. That's very helpful. Thank you very much. I noticed, obviously only had a few minutes to look over the numbers between when you released them and the call, I noticed that other current assets were up about $6 million quarter-over-quarter. You had mentioned some purchase of equipment. I think Andy mentioned that. Would it be fair to assume that you purchased the $2 million of inventory from one of the private companies that you're obligated to do? Again, what's going on with that big increase in other current assets? Two possibilities are we make a commitment or we receive inventory before the commitment. In the first company, we made a commitment, and we will describe in the Q how much inventory we took from them. The second company, we made a commitment of $2 million. Also, we haven't taken any inventory, or there's going to be a description in the Q that describes more about what we're talking about. It's not the Q times yet, so this is a question we have to wait for the Q to come out. Okay, Doug. Thank you very much. Do you have any thoughts about how you're going to use this growing pile of cash you have on the balance sheet? Well, we've been investing in new products, and also the main focus is to get enough people to satisfy the anticipated growth that we have seen and continue to think we're going to see in the future. It's not that money that we have. Certainly, it's a good amount of money, but more of the same. I think it's more of the same we're going to do. Okay. That makes sense. Let me just ask one or two more and then I'll turn it over. You commented, I think, in this release, or perhaps it was in the last quarter, about the put of the shares back to the private company and the receipt of your own shares back. Could you just describe why you did that? Oh, yeah. It turns out that it is a technical point, but t he Investment Company Act of 1940 says that if you have companies that you've invested in, you can do it up to 40% of your assets. They take out your cash from your assets. Okay That means to say, if the company is doing well, the company we bought, we have to revalue it, and we get into a situation where we're, and according to the Investment Act, a mutual fund. We don't want to do that. The way around it, if you're a minor non-entity investor, is to reduce the number of shares you have. If we, for example, bought more of the company to have to include it in our finances, the Investment Act does not exist. If you want more details or to mention, I'm happy to do it offline. Okay. That's good. Let me just ask one more. I think in the past, you've described the total addressable market for Peripheral Arterial Disease testing as somewhere in the range of $1 billion or more, and that your penetration was in the range of 5%. Is that still the way you think about it, or would you say either your share of the addressable market has grown or the TAM has changed? Dennis, can you answer the question? Sure. Well, as you know, Brooks, there's a couple ways to look at the market and the size of the market, whether it be the number of patients who should get PAD testing or as we look at the number of different primary care physicians and nurses that there are and the addressable market is units in those placements. That number that you quoted is probably a good number to work with. We believe that our market share is increasing, but we're still in early innings. Probably still in single digits in terms of penetration, with a lot more of the market yet to go. I don't think there's been any drastic changes in our thinking as far as either of those pieces of data. Okay, that's great. Doug, Dennis, congratulations on a great quarter. Thank you for taking my question. Thank you very much, Brooks. Thank you, Brooks. The next question comes from Kyle Bauser with Colliers Securities. Please go ahead. Hi. Thank you for all the updates, and congrats on the phenomenal quarterly results here. Sales growth in the quarter sounds like it came from new and existing clients. As it relates to new business opportunities, I guess within the larger private payers that aren't clients, or maybe they are clients, but they don't contribute a large amount, are they becoming more constructive to the idea of bringing QuantaFlo in-house, similar to your largest client, or are they electing to consider farming it out to the HRAs? I'm just wondering if some of these bigger private payers are becoming more willing to bring it in-house themselves. Dennis? I think we're seeing both of those things. Although as we've talked about, it's a concentrated market in terms of the large players and the percent of the market that they control, it really breaks down to a lot of different sub-organizations and other types of organizations. We're seeing growth in both areas. We're seeing these as synergistic to each other, whether they start with fixed-fee license systems or whether they start with an in-home program. Both of them are growing, and I wouldn't say there's a strong trend either way in terms of new customer uptake. Got it. It's helpful. I know you want to become a material multi-product company before up-listing. I know you don't have a firm timeline in place based on your prepared remarks, but maybe asked another way, based on the inventory that you purchased or have of other products and the traction you're seeing in the marketplace, any sense as to when you think you'll have material sales from non-QuantaFlo products? Could it be this year still? I will let Dennis answer that question, but my remarks were that the up-listing does not depend on the materiality of the other product necessarily. Dennis, can you answer the second part of the question? Sure. Absolutely. Yeah. Just in terms of the first part, because additional products to add to QuantaFlo are one consideration when it comes to up-listing, but not strictly a gating item on that. In terms of when we're going to see something material, it's hard to say. It really could happen in shorter term, or it could take longer. We're in the process of developing the marketing plan and also in conversations with a number of our accounts, new accounts, existing accounts. It really, as it is with QuantaFlo, very much up to their decision-making process and what the timing is and how this fits, if at all, with their plans. We can't really give you anything definitive on that. Sure. Dennis, to your point, maybe you could describe some of the gating items that are still in place before an uplisting. I know you have the shareholders' equity on the balance sheet. Presumably, you have enough shareholders. You've got a diverse and complete board. What are some other considerations that you want to cover before uplisting? I think we have covered all of them. We're waiting to get later in the year to announce these things. Anyway, we have no particular need to do anything else other than get the application approved. Got it. Appreciate that. Lastly, I think headcount, you mentioned 115 versus 103 in Q1. Any sense to how you anticipate this trending perhaps over the balance of the year? Thanks so much. I think that we don't give guidance on this point. I think that management believes that we're getting more and more of the market. The market is getting bigger. Our main customers are getting bigger as well. We anticipate good things are happening, and we'll hire more people to satisfy our expected needs. These are things we are considering. The timing of which, I say to you that we've added about 20 people in the first quarter and 20 people in the second quarter. It may turn out to be slowed down or speed up. I can't tell you now. Understood. Well, thanks so much for taking my questions, and congrats on the results. Thank you. Thank you, Kyle. As a reminder, if you have a question, please press star, then one to be joined into the queue. Our next question comes from Marc Wiesenberger with B. Riley Securities. Please go ahead. Thank you. Our thesis has been that as payers continue to see the ROI that their peers are generating from the QuantaFlo, that would stimulate further adoption. I'm wondering if you signed any new customers in the second quarter that could have a material impact in the future? We've signed more customers, so I think that the biggest customers make the biggest impact. Three or four customers control about 80% of this market. That being said, we have hopes that we're getting new customers that will be material, but it doesn't look like they're going to be 30% or more customers like we have. I don't know how to answer the question. Dennis, can you add to it? I think the thesis is correct, that we are seeing additional, not only specific adoption, but moving towards that standard of care. Generally, it may be a slower movement than we all would like, but it is movement forward and we are signing new customers quarterly. Got it. That's great. Thanks. Any change in the churn or cancellations from fixed-fee customers as a result of restrictions or change in utilization patterns that you would like to highlight? No, it's quite nice that we're going. Okay. Maybe relative to the first half of the year, can you help frame the trends that you see for fixed-fee and the variable-fee segments and maybe what are some of the puts and takes that go into your expectations for the back half of the year? Dennis? We've described before that we're agnostic towards which side of the business grows faster, et cetera. As long as the people who should be tested are getting tested, we're leaving that in the hands of the large insurance companies that are our customers who are making these decisions as far as how they best reach their members. We've seen ever since now a year ago when the home testing market essentially disappeared for a period of time due to COVID-19. We're now a year later, that's bounced back, as we've described, significantly by the end of last year. We're continuing to see very robust home testing market. At the same time, we're seeing additional fixed-fee licensed systems going in. It's really up to them. It's hard for us to predict. We're just fulfilling their needs as they come up. Got it. A few more from me. There was a build or a higher level of equipment sales in the fourth quarter and the first quarter, fourth quarter of 2020 and the first quarter of this year. Have all those devices been deployed into the market and started generating revenue, or is there still some potential additional benefit or monetization from those devices that hasn't happened yet? They kind of will. These devices maybe take three months to generate some revenue or maybe six months. Things from the first quarter, maybe they didn't get into a place or it is not being used yet. It's important to understand what the equipment is used for. First of all, you have to get equipment. Second of all, you have to get trained. Third of all, your salesman, I'm talking about the HRA salesman, have to go out and get a contract. The thinking is maybe they take four months or more to get the contract. Dennis, can you comment at all? Yeah. I think that's the basic way in which this works, is that there is delays of varying amounts of time between when we ship some of these units to HRAs and when they actually start being productive for us. There's variability there. It's hard to say, in our case, when the variable fee license business picks up for a given customer. It's really dependent on when they get those contracts. Those systems are out there. Some are being utilized more than others. It varies depending on their contracts. Very helpful. Got it. Thanks. Just the last one from me. Have you formulated a marketing plan at all for your new products? Are there any special credentials that might be needed for the actual care provider in order to administer the diagnostic or therapeutic? I think that- We're work- Yeah. Dennis, please. The marketing plan is being worked on at the same time as we're introducing this to our customers and really guiding how we ultimately are going to bring these to the wider market. In terms of special credentials, no. Okay. Very helpful. Thank you very much. Congrats on a good quarter. Thank you, Marc. Thank you, Mark. Our next question is a follow-up from Brooks O'Neil with Lake Street Capital Markets. Please go ahead. Thank you. I'm sorry, I thought of a couple other things I was hoping to ask about. Was there anything in Q2 that led you to think there's some catch-up demand being satisfied in either side of your business? And if not, would you anticipate seeing any catch-up activity in Q3 or Q4? The catch-up was in last year. After Q1, they had to catch up a little bit. We may have seen the insurance plans do more contracts for the HRAs in the beginning of this year. I can't be more certain than that. It's looking like there's a good demand from all sides, but we can't give you any credible information than that. Absolutely. Dennis, can you answer this as well? Sure. Well, I think it partially is how you kind of define catch-up. With 10,000 people a day in the U.S. turning age 65, with Medicare Advantage programs growing as quickly as they're growing, I think a lot of these companies are in perpetual catch-up mode to satisfy the growing demand. I think that's a factor. As we move towards standard of care, as there's greater acceptance of what we're doing among our customers, current and new, there's kind of a sense of catch-up there. There's growth all around. In terms of trying to catch up to maybe tests that were missed during the second quarter of last year, I think that's pretty well worked its way through the system. Okay, good. Let me just ask one more. I kind of asked a little bit about this, but maybe from the other side. Obviously, 93% gross margin in the quarter is just fantastic. I know you don't want to provide guidance. Would you call out anything that you think was unusual or non-recurring this quarter, or do you think all else being equal, which of course it never is, but is 93% sustainable? For the meantime, it is sustainable. You get over 90%, and you have to look at yourself and say, "It's going to be about 90%." 93% or 94% is not a possibility that you can reasonably expect it to be sustainable. That being said, it is what it is. Yeah. Okay, that's great. Thank you very much. Thanks, Brooks. This concludes our question and answer session. I would like to turn the conference back over to Dennis Rosenberg for any closing remarks. Thank you for joining us today, and we look forward to updating you soon on our continued progress. That ends today's call. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.