Good day ladies and gentlemen and welcome to the Semler Scientific First Quarter 2015 Financial Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference 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 as words such as may, will, expect, anticipate, estimate or words with similar meanings.

And such statements involve a number of risks and uncertainties that could cause Semler Scientific actual results to differ materially from those discussed here.

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 result 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 the results. Now may I introduce Doug Murphy-Chutorian, CEO of Semler Scientific..

for the three months ended March 31, 2015, compared to the three months ended December 31, 2014, revenue was $1.2 million, a sequential increase of $147,000 or 14%.

We believe that sequential revenue growth is predominantly due to our sales and marketing efforts which added new customers to an established customer base and added more units to orders from existing clients. As many of you know, we have a recurring revenue model and have been achieving month-to-month growth.

We also began generating revenue in the month of March from our new WellChec service which was recently launched. Cost of revenue was $220,000 a sequential increase of $32,000 or 17%. Total operating expenses which includes cost of revenue was $2,550,000 a sequential increase of $319,000 or 14%.

Clinical and product development expense increased by 49% due to new hires intended to drive adoption and utilization of our products and services as well as initiating additional clinical studies in a post-marketing nature. General and administrative expense increased 27% with the largest increase from salary increases and audit tax expenses.

Sales and marketing expense remained relatively flat. Net loss was $1,372,000 or $0.29 per share, a sequential increase of $172,000 compared to a net loss of $1.2 million or $0.25 per share. Weighted average number of shares is 4,763,573 compared to 4,711,894.

Cash and restricted cash of $5,161,000 was a sequential decrease of $1,095,000 compared to $6,256,000. Restricted cash was unchanged at $2.1 million. Now, Semler's in the risk assessment industry, the risk that is being assessed is to help the patients.

The parties interested in this information are insurance plans and physicians who care for these patients. The information on a patient's risk guides their management and care. It is also important for insurance plans and physicians to have this information as risk assessment affects their compensation.

Semler's entry into this market is to create proprietary-patented solutions that substantially improve risk-assessment because Semler's products are intended to be faster, more practical to use, accurate, less expensive, require less expensive personnel or a combination of these attributes.

Using proprietary solutions as the way into the risk-assessment market Semler plans to add product and service offerings to a menu of solutions for its growing base of established customers. As we have discussed, our primary focus is to expand our base of established clients who are insurance plans with Medicare Advantage patients.

To reiterate, these contracts have long lead times, but we expect them to have a high return. We’ve concentrated our efforts on these contracts from insurance companies rather than physician contracts, which were smaller, but have a quicker sales cycle.

In particular, Medicare Advantage market is dominated by larger insurance plans with the 15 largest plans enrolling over 70% of all patients in the United States who will participate in these programs. In the first quarter, our largest customer increased the size of its orders.

Presumably it realized the benefits of the Semler products in generating good medicine and more compensation for its services. Also, we reported in an earlier April press release that we now have an order from another one of the top 15, which brings our total to 4 of the top 15 insurance plans as customers.

We also announced recently that we've received an FDA 510k clearance for the next generation product for vascular or peripheral artery to these testing. This product will be launched later in the year and had broader indications than our original vascular system.

There are also added features that we believe will cater to the needs of our larger customers who want to track their utilization in their many installations and have other information technology needs. Our goal is to help physicians evaluate these patients now in order to have and save medical cost later.

Early diagnosis may lead to more prevention and lower health costs. What we have learned from our large customers is that some prefer one-stop shopping. They would like us to provide service as well as license equipment to them. To address this market need, we launched WellChec, our service program in March of this year.

WellChec is a service where we provide subcontracted personnel to perform various tests. Physicians and insurance plans need to close the gap between risk they have from patients that they are caring for and the compensation they should receive for providing such care. We provide the information that closes that gap.

In this first iteration, WellChec which is a proprietary test – a vascular test as well as basic test, which look at lung function, heart rhythms, eye disease and neuropathy that's our initial offering. The prices for these services are on a per patient basis and are substantially higher than we would receive for just providing equipment.

The gross margins on these services though should be in the range of our current business, which you see above is a relatively high number. We plan on expanding the WellChec offering in terms of the number of tests as well as the number of customers who are contracting for these services.

We are not yet providing guidance regarding the major potential growth engine this represents for our company until we have a better understanding of the success of this service rollout which just as I mentioned earlier began in March.

But, at the same time, we still offer licenses of our vascular testing equipment for those who want to provide the operators themselves and do the test themselves. It's estimated there are over about 80 million people in the U.S. all over 50 years of age, many of which should be tested annually for peripheral artery disease.

Our goal is to ensure that all patients receive the test that they need by getting interested practitioners and their vendors access to our products. The market is so large that we are happy to participate as a service provider or an equipment provider just as long as optimal health care for all is achieved at affordable prices.

To list the goals we have accomplished as of this earnings call, we received 510k clearance for our next generation vascular testing product and that will be launched later this year. Number two, we added another major insurance plan to our growing list of customers.

Number three, we launched our WellChec service which provided revenue to us in the first quarter. Four, we continued to grow revenue quarter-over-quarter. And five, we raised close to $1 million from the sale of equity of which $498,000 came in the first quarter and the remainder in April.

We believe Semler is well-positioned to benefit from the new era of health care reform because we deliver cost effective wellness solutions for the patients, for the care of patients with chronic diseases. And we provide economics that work for the providers, the facilities, the insurance plans, the government and the patient.

And we assist providers to identify patients with chronic disease, initiate preventative measures and receive higher reimbursements for each patient. Future Semler products intend to expand upon this strategy.

So to conclude, we have a recurring revenue model, we are seeing period-to-period revenue growth, we have added a service business model, which has high margins and significant revenue potential for the company, and we are very happy with the results of this first quarter 2015. Thank you for your interest in the company.

And now, operator if you could please open the lines for questions. And we will take a few questions [indiscernible] today..

Yes, sir. [Operator Instructions] Our first question comes from Brian Marckx with Zacks Investments. Your line is now open..

Can you hear me?.

Can hear you now Brian..

Okay, good. Good morning, Doug. And congratulations on the results and all the progress and hitting all the milestones you hope to hit.

So just one quick one on the Q1 numbers, G&A was up quite a bit sequentially, can you talk about anything in there that pushed the number up and can you help us with what we should expect through the remainder of the year?.

Sure. I think the predominant number there to concentrate on is just audit expenses, last year those were an offering costs that didn't appear on the line, certainly didn't have them in the fourth quarter of 2014. So I think that was a predominant number. There were some changes away to salaries and those went up also during that.

But those are the predominant reason the G&A numbers which – in terms of R&D we did add on two personnel specifically wanting to push clinical – our clinical department, we hired a VP earlier last year in that department. And this is really for more post marketing clinical studies, things that really establish we hope the product as standard of care.

And in addition allow us to create new product. So marketing and sales are relatively flat for the quarter..

Okay. So G&A and R&D probably are going to tick up in 2015 relative to 2014, is that – that's fair to….

I think you could say that those add-ins or some add-ins for personnel, but also we do use consultants and some of those clinical studies will be completed.

So what I see there is right now operating at expense for the quarter including cost of revenue of about $2.5 million so that could vacillate a little up or little down but we are trying to keep that as steady as possible or slightly decreased as I mentioned in some of that – the items in this quarter go away..

Okay. Got you. On the new next-gen system, I think it's called [QuantaFlo] [ph], is that something that you see marketing to the existing installed base initially or do you just go or is that do you expect that to just target kind of new installations I guess..

The answer to the question is, we have not yet launched the product, so some of the decisions you are asking about will be decided finally. However, the product is an excellent product; we will probably offer it both to new customers and established customers. So it's an upgraded version of what we did in expanded broader indication.

We think it's very possible. Everybody will want to switch to the new product which should be terrific for us; should they not that's okay too, we are very happy with the current model as it stands now. So both products could stand alone..

Doug, can you kind of flush out a little bit more detail relative to what the specific advantages are of the new products relative to FloChec. And is there any anticipated I guess efficacy advantages with the new product..

The answer to that question is, yes, we - it should have as we have done with update or upgrades in the past try to enhance the efficacy in all circumstances. But also a lot of the larger companies out there, they need to know what these machines are doing. They need to kind of track utilization. So we give them an easy way to do it.

In essence, these products generally - reports in HL7 format. We encrypt them. We put them into a secure FTP server. We let people download their information and in a HIPPA compliant way and also analyzing – look at the summary statistics of how they are doing.

This all helps in the calculation for our larger customers of their ROI and why they would need, we hope to go from their beginning orders and initial orders, which are generally small and certainly not as large as the organization - to get into bigger size orders.

So we like that ability to track because that leads to the concept that we are providing a very economic and financially beneficial system. We calculate and help them calculate their ROIs and therefore expanding more systems and/or expanding into other services should be attractive. So all that is kind of some of the advantages.

In addition, the 510k is broader in terms of its indication and reads more closely on all the reimbursement, other reimbursement pathway; does it in the major ones that we use which are the uplift to compensation and Medicare Advantage or a [raft lift] [ph].

So we think we have solved if you will or improved a number of different areas and that's why this new product should have broad appeal and expand what we do. So we are very excited about it. But, we tend to get it right. We will release it when we are ready to go with it. Some of it can be done for old customers almost as a remote software upgrade.

And so that's a very interesting part of it. So it's not going to be hard for us to get it out there, in keeping with our basic kind of product is we really in certain sense are a software company in regards to this first test, so kind of excited about it.

But, I hope that gives you a little more color on what's coming and why we think it's important..

It does, appreciate it.

If I could on the WellChec service, is this sort of similar I guess to in sort of a broad sense, CVS' Minute Clinic offering and more kind on the business model I guess, is there - you said it’s charge revenue per test, I assume that there is essentially little economic or financial business risk to you guys if that's the case.

You just order a bunch of tests I assume that is – if it doesn't essentially paying out, it's just the cost of the test that you are paying and a little bit of overhead relative to the personnel, is that right?.

Yes. Largely, they are true. You have asked a bunch of questions there, so to taking in order maybe difficult. Let me just make these comments and I think it will answer them. You have a group of insurance plans larger customers. In essence they have a problem. The problem is they would like certain things done certain tests.

But the people who have to do that are primary care doctors. We all know there is a primary care doctor shortage. They don't have time to do anything.

So we are using our licensed model – the insurance plan would let's say license the product, or an independent delivery network will license the product and then have to convince physicians and/or instruct physicians to work with the product.

They might prefer and this is the feedback we got, a one-stop shopping, a turnkey solution, a solution where they all have to say, yes, these are the patients I want you to test. These are the tests I want you to do, these are the options -- locations I want them performed, and the final thing is could you schedule the patients for me.

That's a turnkey solution. So that's what WellChec is. And it starts off by saying well, you want our vascular disease testing product because that makes it practical to test for vascular disease.

But, while we are there, since we are going to be doing the test for you, so to speak, would you like us to do a test of lung function, a test for heart arrhythmias, would you like us to be looking at eyes and your diabetics or looking for nerve disease.

And that's just an example of the beginning of the menu we have and there are others you can imagine that we turn in. Those tests may be basic other than the vascular test which is proprietary but we are mixing proprietary and non-proprietary test.

And then just as you suggested, the price per test which we are delivering is substantially higher than a license price. I think you guys know that our license price is approximately $500 a month, or $6000 a year for use of the equipment. If you use the equipment 1000 times let's say for sake of argument, that represents about $6 a test.

Now on the other hand, if you take a look at the providers who are doing these tests just looking to CPT codes for example, then they would be getting paid $80 to $135 a test. So if we are providing that test that’s a substantial upside and the possibility of $6 per test.

For one test, all the test that we are using now should increase the same uplift if you will to payment for these people to the extent to chronic disease is found. So you are looking at a substantial multiple more than in order of magnitude that we can make on a per test basis if you think about it compared to the license model.

On the other hand, there are many more practitioners to think that for example there is 80 million people over 50, if they need two or three test each that's a large number, what is that 240 million test a year, it would be presumptuous to think that a company of our size is going to do 240 million tests.

If our mission is to make sure that everybody who needs this test gets them, then it behooves us on the proprietary test side to make sure that we are making that available to other vendors and to other providers or physicians so that indeed we might do that on a per test basis or on a license basis.

So we anticipate that WellChec is a – obviously, much, much bigger potential revenue source for us. But, the base business is also an excellent business. And we will not just do one or the other.

They are very complementary in our attempt to succeed in our mission, test all the people that need to be test, make sure that they are getting preventative medicine and bring down the cost of medicine while increasing its quality..

Okay.

So the WellChec service will be layered on top of the installed base, correct?.

And that's the advantage to be able to go back to the installed base and say hey, you have been working with us for some period of time, take a look at your ROIs and what we do, we are the guys to understand your business and provide you with business solutions, would you like to add this on. It does more of the same and it does it in a faster way.

Your rate of returns are going to be excellent and your ability to get the patients tested without having to deal with the primary care doctor shortage, we hope what will be favorable..

Okay, perfect. Thanks Doug. I appreciate it..

Thanks so much Brian..

Thank you. And our next question comes from the line of Yi Chen with HC Wainwright. Your line is now open..

Hi. Thank you for taking my questions.

For the next generation test, will you charge a higher per unit rental price compared to the existing model?.

There is a substantial value on what we have because we haven't launched it. We haven't affirmed up that pricing. It will certainly be no less than we currently charge..

Okay. Got it.

And also at this moment, I don't know if the company can provide any visibility regarding plan to achieve profitability or break even status?.

I know we haven't given guidance, so I think you have to take a look at our operating expenses which we are really trying to hold at a level this year.

Take a look at the quarter-over-quarter increases in revenue which you will anticipate for us and I think that the WellChec program is too new to even determine how much we are going to do we have to see that take home we have appetite for that.

We have certainly a funnel of people interested in it but we are not here saying, oh, we are going to march forward and do a ton of WellChec and so we have better visibility on that. So we will hopefully report that to you on the next call..

Thank you..

Thank you so much..

Everybody unless there are any other questions in queue you can certainly contact me separately after the call as well. I would like to thank you all for joining us today. I look forward to updating you soon on our progress and continue in the way that we have quarter-to-quarter to-date. Thanks so much for your attention. I appreciate it.

Have a good day..

Thank you, ladies and gentlemen. Have a great day..