Good afternoon, everybody, and thank you for joining the Semler Scientific fourth quarter and year-end financial results call. I would like to introduce you to Dennis Rosenberg, our Chief Marketing Officer, who will begin the presentation today.

Dennis?

Thanks, Doug. We always like to begin our calls with a reminder about Semler 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.

Number one, annual revenue grew 52% or $11.3 million. Number two, annual net income was $15.1 million compared with $5.0 million.

Number three, annual earnings were $2.34 per basic share and $1.88 per diluted share, which compares to $0.82 per basic share and $0.66 per diluted share. And number four, cash was $7.7 million at year-end compared to $3.3 million 1 year ago.

Please note that in the third quarter of 2019, we released a tax valuation allowance that resulted in an income tax benefit of $4.4 million for the full fiscal year.

During the year, we saw increased orders and usage for our QuantaFlo product from our current insurance company customers and from our home risk assessment customers. We also received orders from new customers.

Now I'd like to turn the call over to Andy Weinstein, our Senior Vice President of Finance and Accounting, to describe in more detail the ongoing improvement in financial performance. Andy?

Thanks, Dennis. Please refer to the financial results described in the press release that was distributed at market close today.

For the year of 2019 compared to 2018, annual revenue amounted to $32.8 million, which is an increase of $11.3 million compared to $21.5 million last year.

Operating expense, which includes cost of revenue, was $22.1 million, an increase of $6 million compared to $16.1 million. Net income reflecting the income tax benefit was $15.1 million compared to $5 million last year.

Comparing the annual results for 2019 to 2018, revenue increased 52% and operating expense increased 37%. Earnings improved as net income increased to $2.34 per basic share and $1.88 per diluted share compared to $0.82 per share and 66% -- $0.66 per diluted share last year.

In 2019, earnings per share was calculated using a basic share count of 6,440,724 shares and a diluted share count of 8,029,909 shares. Analyzing expense categories and 2019 earnings as a percentage of annual revenue, the cost of revenue was 11% of annual revenue.

Engineering and product development expense was 8%, sales and marketing was 27%, general and administrative expense was 21% of annual revenue, and net income was 46% of annual revenue or 33% on a pretax basis.

For the quarter ended December 31, 2019, compared to a corresponding period in 2018, revenue was $9.2 million, which was an increase of $3.2 million or 53% from $6 million last year. Operating expense, which includes cost of revenue was $6.1 million, an increase of $1.6 million or 35% from $4.5 million.

Net income was $2.8 million, an increase of $1.4 million or 104% of $1.4 million last year. Net income per share was $0.43 per basic share and $0.35 per diluted share, and that compares to $0.22 per basic share, $0.17 per diluted share for the same period last year.

For the quarter ended December 31, 2019, the basic share count was 6,529,831, and the diluted share count was 8,055,675. Analyzing the expense categories and earnings in the fourth quarter of 2019, as a percentage of quarterly revenue, the cost of revenue was 10% of quarterly revenue, engineering and product development expense was 8%, sales and marketing 26%, general and administrative expense amounted to 24% of quarterly revenue, and net income was 31% of quarterly revenue.

As of December 31, 2019, Semler had cash of $7.7 million, which is an increase of $4.4 million that being compared to $3.3 million at December 31, 2018. The change was primarily due to the cash provided by operations from net income and adjusted for accrued expenses and deferred revenue, was also partially offset by cash used for the reconciliation of net income to net cash provided by operations, which decreased cash by $3.2 million; warrant purchases and option exercises, which had a net cash usage of $6.5 million; the purchase of inventory and capital expenditures amounting to $1.7 million; and accounts receivable with cash usage of $734,000.

As a result of these items, our stockholders' equity is now $13.1 million at the end of 2019. Our annual report on Form 10-K will be filed on or before March 16, 2020, and that will include our cash flow statement and more discussion of our cash and liquidity.

Our 3 major customers comprised 49.4%, 13.2% and 12.5% of annual revenues. Fixed price license revenues were approximately $22.9 million.

Our variable price license revenues was approximately $8.9 million, and equipment and other sales were $927,000. Although we do not provide formal guidance, we are intent on continuing annual revenue growth, continuing profitability and generating cash during 2020.

It is the opinion of the management team that customer interest in our products and services is continuing to increase.

Now I will ask Dennis to continue the discussion and provide concluding remarks. Dennis?

We believe annual revenue will continue to grow in 2020 as a result of increased numbers of installations of our product, more usage of our product and recurring revenue from the licensing business. Our goal is to both make new additions to our customer base and to expand orders from existing customers.

In 2019, Semler again expanded its infrastructure and head count. We now have 67 employees.

Operating expenses are expected to increase from quarter-to-quarter during 2020. It is our intent to expand our infrastructure to accommodate anticipated future growth of the business.

During 2019, we continued to add to our assets for lease with purchase of inventory. These increases are indicative of management optimism for future growth in installations and may include stocking of key components of the product and/or replacement inventory for sensors sold to licensed customers.

The amount of purchases made in the year will be disclosed in the Form 10-K to be filed on or before March 16.

We often get asked about uplisting to the NASDAQ exchange. Our position has not changed.

We will update you if and when our plans are amended. There is also no plan to raise additional capital at this time.

We reserve the right to change our financing plans as opportunity or as need arises.

Our goals for 2020 are to grow annual revenue 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.

So 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.

We believe Semler Scientific is well positioned in the current health care market environment because we deliver cost-effective wellness solutions for the care of patients with chronic diseases, we may improve health outcomes for patients by identifying those who benefit from preventive health measures. We provide economics that work for the providers, the facilities, the insurance plans, the government and the patients.

In conclusion, 2019 was an achievement record for our company in terms of both financial performance and the number of patients being tested with our products. Thank you for your interest in the company and your continued support.

Now operator, please open the lines. Doug, Andrew and I will be happy to address your questions.

Thank you for the extensive overview of the business and your performance. I'm hoping you guys might talk a little bit about the infrastructure investment that we see going on around the United States.

I'm kind of curious sort of what the strategy is? Or why you feel compelled to hire representatives in various markets across the country?

And sort of what you hope to get out of that as you seek to grow the business?

Thanks, Brooks. This is Dennis.

We're hiring in different areas of the country to support continued growth. And the specific areas we're hiring in may or may not apply to exactly what's going on in that particular area.

So it's a general increase in our support capabilities throughout the country for people both traveling and in those locations to support continued growth of installations and more testing.

Are you hiring sales people with the intent of bringing in new customers? Are you hiring trainers with the intent to support customers as they seek to implement more stations, more utilization of your product?

How do you guys think about those 2 parameters? And anything else you think is significant as it relates to supporting the growth of the company?

Dennis?

So we're hiring primarily support people, which would include trainers, IT people, clinical support people in the pursuit of both increasing penetration in our current accounts as well as opening new accounts. So it's not dedicated salespeople that we're hiring, it is support people that we're hiring primarily.

Okay. And then, obviously, you mentioned that your top 3 customers currently compose about 75% of, at least Q4 sales.

Would you expect that number to increase in the future? Or do you think you can bring in new customers at a rate fast enough to perhaps grow the new customers into a bigger percentage of your total revenue?

We don't discuss the future growth because we don't give guidance. We have for many years gotten a stable number.

So new customers come in all the time. But the larger customers or [ starter ] customers are also ordering more product.

So I can't predict. [ Whether ] it changes or not, I don't want to predict now.

Okay, Doug. That's very helpful.

As you have grown the company, there's been some speculation that you perhaps might see opportunities for a second product line, do you have any comments on that? And if so, can you tell us anything about what areas they might be in or one or more might be in?

Well, we are definitely putting resources to develop a second product or a third product. We may develop it internally or may get to -- get a partnership or other situation with an [ external ] person.

We have tried in our developing -- distribution network. So you have to understand, we're not going to talk about this anymore than I said before because we have many opportunities and we don't want to tip our hand too early.

So you have to be patient with us to hear the full answer.

Okay. Thank you, everybody, for joining us today.

We look forward to updating you soon on our continued progress, okay. Have a good day, and I thank you, again.

Bye.