Good afternoon, everybody, and 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 health care 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 pretax 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; pretax 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 30, 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 pretax 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.

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 are 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 Innovations Conference in June. We also participated in non-deal investor roadshows hosted by various brokerage firms that cover Semler stock.

During 2021, we will continue to participate in virtual conferences and virtual non-deal road shows. We do not yet have a firm point in time when we plan to uplist 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 uplift once definitive.

Pretty extraordinary quarter. I have a few questions that I'd like to ask, if that's okay.

First, I noticed that revenues were up nicely quarter-over-quarter, but the cost of revenue declined significantly quarter-over-quarter. First, I don't even know how that happens.

But could you describe what's going on there?

Andy, could you take the question? Andy may be having a difficulty with the phone because he's in a hurry came in further.

The cost of the revenue in the first quarter of 2021 was primarily increased because of onetime inventory adjustment. And essentially, this inventory, maybe in case some more hedge cut.

So it's no similar inventory adjustment was done in second quarter. So I will -- the cost of revenue improved.

I noticed, obviously, only had a few minutes to look over the numbers between when you released them in the call. But 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. But would it be fair to assume that you've purchased the $2 million of inventory from one of the private companies that you're obligated to do or again, what's going on with that big increase in other current assets?

There’s two possibilities, we make a commitment or we receive inventory, for similar commitment. So in the first , we made a commitment and we were describing the crew how much inventory we took from them.

And at the second company, we made a commitment of $2 million. And also we haven't taken any inventory where there's going to be restriction in the queue that describe more about what we're talking about.

So it is not the times yet. So this is a question where you have to wait for the crew chief to come out.

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 we -- 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.

But it's not that of money that we have. Certainly, more project.

It couldn't have a matter if we get, but more of the same. I think it’s more of the same what you're going to do.

Let me just ask one or two more, and then I'll turn it over. You commented, I think, in this release and 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?

It turns out that it is a technical point. But the Investment Act of 1940 says that if you have companies that you've invested in, you can do it up to 40% of your asset.

But they take out your tax from your assets. So that means, as you say, if the company is doing well the company we bought, we have to revalue with, and we get into a situation where we're -- and according to the investment at a municipal fund.

So we don't want to do with that. The way around it if you mind a non investor is to reduce the number of shares you have.

But for example, we bought more of the company to have to include it in our finances, the investment act . If you want more details I'm happy to do it through off line.

Let me just ask one more. I think in the past, you've described the total addressable market for peripheral artery disease testing is somewhere in the range of $1 billion or more and that you're penetration was in the range of 5%.

Do you have -- is that still kind of 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?

Well, as you know, Brooks, there's a couple of ways to look at the market and the size of the market, whether it’d 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. So 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. So I don't think there's been any drastic changes in our thinking as far as either of those pieces of data.

Thank you for all the updates and congrats on the phenomenal quarterly results here. So sales growth in the quarter, sounds like it came from new and existing clients.

But 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 to a low -- large amount. Are they becoming more constructive to the idea of bringing QuantaFlo in-house similar to your largest client or are they kind of electing to consider farming it out to the HRAs?

I'm just kind of wondering if some of these bigger private payers are becoming more willing to kind of 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 than the percent of the market that they control, it really breaks down to a lot of different suborganizations and other types of organizations.

So 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.

And I know you want to become a material multiproduct company before uplisting. And I know you don't have a firm time line 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, I mean, could it be this year still?

Well, it’s asking that of question, but in my remarks with the uplisting, it does not depend on the materiality of the other product necessarily. Dennis, can you answer the second part of the question?

Just in terms of the first part, as additional products to add to QuantaFlo are one consideration when it comes to uplisting but not strictly a gating item on that. And then 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.

And so we 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. So we can't really give you anything definitive on that.

And Dennis, to your point, maybe you could describe some of the gating items that are still on 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 kind of want to cover before uplifting?

I think we have covered all of them. So we're waiting to get later in a year to not to this thing.

But then we have no particular need to do anything else other than the -- get the application approved.

And then lastly, so 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?

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 and anticipate good things happening.

And we will hire more people to satisfy our expected needs but these are things we are considering. But the timing of which, I say to you that, we've added about 20 people in the first quarter, 20 people in the second quarter.

It may turn out to be slowed down or speed up, I can't tell you now.

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 a basic impact.

The three or four customers control about 80% of this market. So that being said, we have hopes that we are getting new customers that will be material.

But it doesn't look like there's going to be a 30% or more customers we have. So I don't know how to answer your question.

Dennis, can you add to it?

Well, 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 moving forward, and we are signing new customers quarterly.

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.

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?

Well, 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 are 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, 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. And at the same time, we're seeing additional fixed fee license systems going in.

So it's really up to them. It's hard for us to predict.

We're just fulfilling their needs as they come up.

A few more for 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 been happened yet?

Well, there's kind of these devices may take three months to generate some revenue or maybe six months. So things from the first quarter, maybe they didn’t get into a place that is not being used yet.

But 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 gain trend. And third of all, your salesmen, I'm talking about the HRAs saleman, has to go out and get the contract.

So so the thinking is maybe they could take four months or more to get the contract. Dennis can you comment on?

I think that 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. So 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. So those systems are out there, some are being utilized more than others, but it varies depending on their contracts.

And then just the last one form me. Have you formulated a marketing plan at all for your new products?

And 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 -- 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.

I thought of a couple of other things that 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?

I don't. The catch-up was in last year.

After Q1, they had to catch-up a little bit. And we may have seen the in front plans do more contracts for the HRAs in the beginning of this year.

But I tend to be more certain than that. It's looking like there's a good demand from all sides, but we can't give you a credible information than that.

We absolutely -- Dennis, can you answer this as well?

Well, I think it partially is how you kind of define catch-up. With 10,000 people a day in the US 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.

So I think that's a factor. And then as we move towards standard of care as a greater acceptance of what we're doing among our customers, current and new, there's kind of a sense of catch-up there.

So there's growth all around. In terms of trying to catch up to maybe test that were missed during the second quarter of last year, I think that's pretty well worked its way through the system.

Let me just ask one more and 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 and I know you don't want to provide guidance.

But would you call out anything that you think was unusual or nonrecurring in 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 say look at yourself and say, it's going to be about 90% -- 93% or 94% is not a possibility that you can relatively expect to be sustainable.

That being said, it's what it is.

Thank you for joining us today. And we look forward to updating you soon on our continued progress.

And that ends today's call.