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Ladies and gentlemen, greetings, and welcome to the Augmedix Inc. Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Matt Chesler, Investor Relations for Augmedix. Thank you, and over to you sir.
Thank you, operator. Joining me today are Manny Krakaris, Chief Executive Officer of Augmedix; and Paul Ginocchio, Chief Financial Officer.
This afternoon, we released financial results for the quarter ended June 30, 2023. We posted a copy of the press release and an investor presentation to our website at augmedix.com. We'll begin our call with prepared remarks to be followed by a Q&A session. This call is also being simulcast and will be archived on our website.
Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Any statements that relate to expectations or predictions of future events, results or performance are forward-looking statements. They are based on current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied.
Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors in management's discussion and analysis in our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission and similar disclosures in subsequent reports filed with the SEC.
Also during our call today, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these financial measures and the reconciliations to GAAP measures in today's press release.
This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 7, 2023. We disclaim any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.
And with that, I'll turn the call over to Manny.
Thanks, Matt.
Augmedix delivered another strong quarter in Q2. We set records for revenue growing 47% year-on-year, and dollar base net revenue retention at 148%. Demonstrating that health systems and clinicians increasingly value and are adopting our products. We also expanded gross margins by 330 basis points to 47%.
As we are realizing the inherent operating leverage of our recurring revenue model with our increasing scale of operations. With this strong performance and bookings that matched our best ever quarter, we are confident in our outlook and our raising our revenue guidance for the year. We have promised to help the healthcare industry address the dilemmas of clinician burnout and patient dissatisfaction to world-class ambient medical documentation solutions.
And that is what we are delivering. Augmedix offers a grade portfolio of products that sets the standard for the level of accuracy possible. We've accomplished this by combining years of experience understanding clinician workflows, and a technology stack that uniquely combines the power of automatic speech recognition, proprietary natural language processing models, including large language models, and a vast library of structured datasets developed from more than 6 million patient encounters.
Our health system customers are increasingly adopting our products for use by a growing number of their practitioners within both the ambulatory and acute care settings. Now, in partnership with these same customers, which includes some of the largest health system in the U.S., such as HCA Healthcare, the structured data we generate as a byproduct of our medical note generation process is being harnessed to develop innovative solutions that deliver even greater value to the healthcare ecosystem that transcends, the patient encounter. We are right on track for an important year for our company and the clinicians and health systems we serve.
Let's now talk about some of the exciting current developments across our company. Recall that we formalized a strategic partnership with HCA Healthcare in April, working collaboratively with partners such as HCA, we are actively trialing Augmedix Go in both the ambulatory and acute care settings. We are very pleased with the progress we are making with the automation of the product to optimize the quality of the draft notes that is delivered to the clinician and to enhance the user interface to make it as easy as possible to use.
Augmedix Go is on schedule for commercial launch later this year. We will have much more to say about the rollout of this new offering when we speak to you in the fall. Our current strong performance is underpinned by our Lives and Notes products, which are resonating with clinicians due to their ability to generate accurate medical notes while delivering compelling ROI to health systems.
This is evidenced by our dollar base net revenue retention rate of 148%, which improved from an already strong 136% in the first quarter of this year. HCA's vote of confidence in our technology and our approach further validates what is already a strong value proposition. Many of our largest clients are rolling out our products on a much broader basis, which is a major factor behind our accelerating revenue growth.
Our focus is to bring unviable efficiency to clinicians. We're leaving the administrative burden by providing highly accurate medical notes while allowing doctors to focus more on their patients. Augmedix Go is the next evolution of this initiative, which we believe will appeal to an even broader segment of the healthcare market. Importantly, we are positioning ourselves to extend our value proposition well beyond the doctor patient encounter.
The U.S. healthcare system has some structural idiosyncrasies that result in a less than ideal relationship, between the services that are rendered by healthcare providers and the price they are paid for those services. The function of revenue cycle management is burdened by the imperfect information leaned primarily from the medical note that is used as the basis for billing. This often results in multiple billing iterations, between provider and payer for a given encounter, which adds considerable cost to the healthcare system.
We are working closely with our largest customers to tailor our products to help address this area inefficiency, we can do more than create an accurate medical note. We can use AI and machine learning to tie this medical record to the detailed description of the clinician's activities that we already generate as a byproduct of our note creation process to enable more accurate billing records. This should result in health organizations being paid faster and more fairly, and provide the entire ecosystem with more transparency.
This expansion of our offerings will provide yet another compelling ROI to our customers. Importantly, it will extend our participation in the value chain beyond the patient encounter, which should serve as a durable competitive advantage for Augmedix. As we sit here at the midpoint of 2023. We remain very confident in our overall market positioning, which is predicated on scale and trust. We're building that trust as evidenced by our very high net revenue retention rate. And we're achieving scale as evidenced by our substantial revenue growth.
Our business is performing very well, driven in part by some of our largest customers wildly adopting our products. We are on track to gain scale that we need in order to breakeven while continuing to invest for the future. We are excited about the next evolution of our business, which is Augmedix Go and especially looking forward to helping health system beyond the point of care in downstream areas, where we see a major opportunity to deliver even more value.
With that, I'll now turn the call over to Paul Ginocchio, our Chief Financial Officer. Then we'll return with closing comments. Paul?
Thank you, Manny.
I'm very proud of the financial and business accomplishments that the Augmedix's team delivered during the second quarter. Building on the success of the first quarter, Augmedix is generating continued strong growth and an improvement in profitability. Our results further demonstrate our position as a leading health tech company. We also took important steps to strengthen our financial position to ensure that we have the resources required to continue to scale our business and the capital to reach cash flow sustainability.
Let's review the quarter's financial highlights. Revenue for the three months ended June 30, 2023 was $10.8 million, a 47% increase from the $7.3 million in the same period a year ago. Growth was primarily driven by existing client expansion, while new clients in the growth in our notes offering also contributed.
Dollar based net revenue retention rate for the second quarter was 148% for our health enterprise customers, compared to 131% in the second quarter of 2022 a 136% in the first quarter of 2023. As many of you know, net revenue retention measures when $1 of revenue at our existing clients a year ago, grew into in this most recent quarter, includes upsells, expansion and churn excludes revenue from any new logos that were added during the last 12 months.
The acceleration in NRR was primarily driven by expansion, and a handful of our largest health system customers. Our NRR results, put us at best-in-class levels for SaaS companies. Average clinicians in service for the second quarter rose 48%, as compared to the second quarter of 2022. Compared to a 43% year-on-year growth rate in the first quarter of 2023.
We define a clinician in service as an individual doctor, nurse practitioner, or other healthcare professional, using either a Live or Note service. We believe growth in the number of clinicians in service is an indicator of the performance of our business, as it demonstrates our ability to penetrate the market and grow our business.
Adjusted gross margin for the second quarter of 2023 was 47.2% as compared to 44.0% in the corresponding prior year period, and compares to 45.8% in the first quarter of 2023. This over 300 basis point improvement year-on-year in gross margin percentage was mainly driven by our growing scale, and our strategic initiative to shift U.S. service clinicians to outside the U.S.
Gross profit growth was 58% year-on-year. Total operating expenses for the second quarter of 2023 were $10 million up 5% sequentially from the first quarter of 2023. Non-GAAP operating expenses, which exclude stock-based compensation and one-time items 9% year-on-year, as expected G&A for the quarter was $4.8 million up 14%, compared to $4.2 million in the second quarter of last year.
Transaction expenses, including professional fees accounted for $400,000 of G&A in the second quarter. Our gross profit growth outpacing OpEx growth resulted in a reduction in our quarterly operating losses for the fourth consecutive quarter. Adjusted EBITDA, which we calculate by adding back depreciation, amortization, taxes, interest, one-time items, and stock-based compensation to net loss was a loss of $3.6 million in the second quarter of 2023, compared to a loss of 5.1 million in the second quarter of 2022.
Along with this improvement in adjusted EBITDA loss was a year-on-year improvement in our adjusted EBITDA margin from negative 70% in the year ago quarter to negative 33% in this most recent quarter. Cash flow from operating activities was an outflow of $6.0 million in the second quarter, compared to an outflow of $4.7 million last year. We had lighter collections at the end of June, which led to a nearly $2 million higher cash burn than expected in the quarter.
This is a timing issue, and most of that collection shortfall was corrected in the first week of the third quarter. With revenue stronger than planned and costs below plan. We are on track to reduce burn in 2023 versus 2022.
At June 30, 2023, we had $25.3 million of cash, cash equivalents and restricted cash as compared to $22.0 million as of December 31, 2022. The strengthened balance sheet initiatives include the $12 million in new equity from HCA Healthcare and Redmile Group, the extension of the term loan facility by up to 18 months and the finalization of the $5 million equity line of credit.
The equity line of credit provides further capital certainty, and gives us backstop capital access even if the markets are closed. But as we've said before, our expectation is that we can reach cash flow sustainability, without accessing this facility. In terms of share count, we have $40.8 million common shares outstanding currently.
For our weighted average share count for EPS. We show 43.6 million common shares outstanding as we include the 4.375 million prefunded warrants since the issuance on April 19. Positioning the company to reach profitability continues to be a top priority. As we have said, with the tremendous opportunity in front of us and our technology platform, we believe we can deliver both strong revenue growth and operating leverage to reach operating cash flow breakeven, before net interest expense as we exit 2024.
Now moving on to guidance. The positive momentum we have demonstrated during this year is continuing. We now expect revenue to be at least $43.5 million for the full year of 2023. Turning to outlook for the third quarter of 2023, given the strength of our recent bookings, and the health of our current backlog, we expect revenue in the third quarter to be approximately $11.4 million to $11.5 million.
We expect GAAP gross margins to be similar to the second quarter of 2023 GAAP gross margins. We expect operating expenses to be up 5% to 6% quarter-on-quarter, due to the hires we have made to accommodate our accelerating growth.
At this point, I'd like to turn the call back to Manny for closing comments.
Thank you, Paul.
I would like to thank our entire team for continuing to deliver on our promise to our customers, while turning in another strong quarter for our shareholders. We believe, we are strongly positioned, have set forth a sound strategy, and are executing well against that strategy and a fast moving and growing market. Technology, particularly generative AI is evolving rapidly and will have an increasing impact on our industry.
Through our years of experience, and understanding clinician workflows and their challenges Augmedix, is ideally poised to take maximum advantage of these advances. I believe our industry is at a significant inflection point, and I'm truly excited about what lies ahead. Thank you everyone.
With that we will now open it up to questions. Operator?
Thank you. [Operator Instructions] Our first question comes from the line of Ryan Daniels with William Blair. Please go ahead.
Yes, good afternoon. This is Jared Haase on for Ryan. Thanks for taking our questions and congrats on all the momentum that you continue to see in the market. Manny was hoping to unpack the comments that you made around data solutions a little bit further and appreciate the color around some of the inefficiencies with RCM specifically as maybe an area where you can continue to add value for partners. I guess I was just curious, is this something - is the idea here that this is something you could theoretically kind of monetize through distinct products or maybe you could pull data as you get more scale across your partner base and share those insights with others in the future? Are you thinking of this as more sort of the idea of leveraging data just as another source of enhanced value proposition to drive stickiness and expansion with your current customer base?
Hi, Jared. So right now. As you may know, we're working with Google, and HCA to build a data lake - actually pretty far along in building a data lake for HCA to actually mine their own data. What I was referring to, in my prepared remarks was an extension of that concept where we would productize that capability and allow third-parties to get access to that structured data that we're now directly integrating into the data lake for HCA.
So, the idea here is to develop an ecosystem that relies on our on our structured data as the input to help them do their jobs a little bit better. And as you probably know, in the area of billing and collections in healthcare, it is a fairly archaic and complex situation, where there's a great deal of iterations that go on with many of the submissions for reimbursement, between payer and provider that result in added cost to the system.
And we feel that if we could provide good input to those parties that are responsible for that function, then we're removing some of those inefficiencies that are inherent today in the system. We haven't built the business model around it yet, still early days. But the idea is to establish an entire API ecosystem and architecture to enable these third parties to get access to that information.
Got it. Absolutely makes a lot of sense. Excuse me. And then you just - one quick follow-up from us actually, is to on the average clinicians in service metric, nice to see that kind of accelerate relative to the prior quarter, just in terms of the net sort of doctors added if I take the difference relative to the first quarter, it looks like this was pretty comfortably a high watermark just in terms of the number of docs added to the service. So, I'm curious how we should sort of feel or think about are there any kind of risks operationally, in terms of having the staffing and the resources in place to support that level of growth?
No, we don't envision any kind of constraints supporting that growth or actually growth well beyond that - level. And in fact, we've been proactive in taking the necessary steps, to expand our capacity significantly beyond, what you're seeing now. So, we keep brushing up against old thresholds that we had established for ourselves, and they keep falling. So, I think the steps we've been taking have been working.
All right. That's great to hear. And congrats again on the momentum. I'll hop back in the queue.
Thanks, Jared.
Thank you. Our next question comes from the line of Neil Chatterji with B. Riley Securities. Please go ahead.
Yes, good afternoon. And thanks for taking our questions. And congrats on a strong quarter. Maybe just on Augmedix notes. I mean, you kind of talked about kind of the growing adoption there with the larger customers is curious, you know, what you see in that yes maybe different this last quarter versus prior? And what's kind of driving that adoption there?
Sure. Hi, Neil. So - what was, what's new, with respect to notes is that prior to this quarter, and actually, it started happening sometime during the first quarter, we had been precluded from selling to some of our major, our biggest customers, because we had to go through new data security and compliance requirements, given the nature of that particular product. And that took some time, because we had to negotiate those new contracts with those entities.
And there's, you know, the standard bureaucracy that goes along with all of that. But we managed to get through most of them. And that's unlocked our ability to sell that particular product into those organizations. And that's what you see, now we're seeing the fruits of that effort. As some of those enterprise customers are seeing that, you know, one size fits all is not the right, necessarily solution for them and having the ability to pick and choose what best suits their particular physicians. Is the right way to go?
Got it. Thanks for that color. Maybe one follow-up here, just kind of flipping Augmedix Go. Just kind of curious on the feedback that you're getting on the ambulatory care setting side, and I guess how you see that evolving upon launch?
Sure. So, we're getting feedback all the time, every day, from the physicians who are testing it right now. And we're incorporating the feedback into the design and development of that particular product. It's still on track to be released commercially this year. So, we feel very confident about that. All we're doing right now is really making it better and better based on the feedback we're getting. So like I said, we feel very good about our ability to release this commercially this year.
I mean, maybe just - any nuance there as far as - versus the acute care setting and kind of the progress with HCA just on that ambulatory sorry care side?
Well. Okay. We do anticipate commercially releasing ambulatory version of Go, before the acute version, acute care setting version of Go. It's not going to be a big gap. But maybe a few weeks, maybe a month or so. But there will be a staggered release between the two versions of Go.
Got it. Thanks. I'll hop back in queue.
Sure.
Thank you. Our next question comes from the line of Brooks O'Neil with Lake Street Capital Markets. Please go ahead.
Hi. Good afternoon, everyone. This is Aaron Wukmir on the line for Brooks. Congrats on the print. So just curious sort of the reaction that you guys have been getting from other customers and potential products as a result of the relationship with HCA?
Hi, Aaron, sorry, could you repeat that? You broke up a little bit.
Sure. Apologies. So just curious about the reaction that you've been seeing from other customers and potential prospects as a result of the relationship with HCA?
Well, as you would suspect, it's been pretty positive. The HCA partnership just adds another level of credibility to the company and our approach to how we go about incorporating Generative AI into our technology stack. So as far as the people who are making the purchasing decisions at these big enterprises, they are aware of it, and they applaud it. And we're just - at this point, they're waiting to see how that - the release goes for Go, and then we're poised to sell to those organizations.
I think the only - Aaron, the only thing I would add is that the launch of Go was a fully tech solution has really probably elevated the conversations, we have with most of our existing customers. And probably brought us into the higher level with potentially new customers. So it's been having that on the road map, that's coming out in the back half of the year, has been really good for our overall conversations with clients.
Sure. Yes. Okay. Very helpful. And then just a quick follow-up on. How do you feel about the resources you have to advance your technology and products? And do you feel that you need more resources to compete effectively with maybe Google, Amazon or really any other player in your market?
Well, we're not really competing with Google. They're our partner. Amazon's recent announcement about their partnership with 3M and M Modal is an interesting one. We haven't really seen anything in the market yet from them, but we don't take that lightly that announcement. So, we feel like we're on solid ground here based on our positioning, our product portfolio, the strategy we have in place to compete pretty much against anybody.
And the testament up to that, of course, is the traction we're getting with some of the biggest enterprises in the U.S. So we feel - like I said, we feel pretty good about, where we are in the marketplace today.
Aaron, it's Paul Ginocchio. Just add - we did guide to growth, cost growth up Q-on-Q, and we continue to make growth investments and investing for the - that we keep growing nicely. And so, we're investing to continue to be able to grow at that rate, if not better, and to obviously continue to build out the product set. So, you're going to continue to see us add cost, but certainly not at the level that gross profit grows at.
Sure. Sure. Okay. Very helpful. Thanks for taking the questions guys.
Sure. Thank you, Aaron.
Thank you. Our next question comes from the line of Allen Klee with Maxim Group LLC. Please go ahead.
Good afternoon. Could you talk a little about the AI Advisory Council that you set up of kind of what you're thinking about some directions that could go into?
Hi Allen, great question. So when we started using Generative AI large language models last year, well over a year ago, we realized that they weren't a panacea. There's all sorts of issues that they - that cropped up from their use in our particular use case. And we thought that we're going to actually need to get some guidance on how we apply that technology in a responsible and thoughtful manner for our customers. So, we started putting together this AI Council a couple of months ago.
It's pretty much set. We'll make an announcement about the composition of that Council shortly. But the idea is to collect perspectives from different areas of healthcare and from academia, the technology side to learn about the latest developments, number one. And number two, figure out what some of the challenges are before they hit us to make sure that we reflect those in how we develop, design our products. So it's just being - us being proactive in terms of how to properly use this technology. And we feel really good about, the people that we've been able to attract to join this council.
That's great. Thank you.
You bet.
Thank you. As there are no further questions, I would now hand the conference over to Manny Krakaris, Chief Executive Officer, for closing comments.
Thank you, operator. Well, I just want to thank everybody for jumping on this call. We're very pleased with the second quarter's results, building up - building on a momentum we shared with you over the last several quarters. Our goal remains to become cash flow positive, by the end of next year.
In so doing, we will also maintain our leadership position in the industry, catering to the varying needs of big healthcare enterprises, because we recognize that one size fits all is not the right approach. So, thank you very much and we'll keep you updated on our progress. Thank you.
Thank you. The conference of Augmedix, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.