Augmedix, Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-40890

AUGMEDIX, INC.

(Exact name of registrant as specified in its charter)

Delaware		83-3299164
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

111 Sutter Street, Suite 1300, San Francisco, California		94104
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (888) 669-4885

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol (s)		Name on each exchange on which registered
Common Stock, $0.0001 par value per share		AUGX		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 41,363,915 shares of the registrant’s common stock outstanding as of November 6, 2023.

AUGMEDIX, INC.

Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited).	1

	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months ended September 30, 2023 and 2022	2

	Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for the Three and Nine Months ended September 30, 2023 and 2022	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2023 and September 30, 2022	5

	Notes to Unaudited Interim Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	35

Item 4.	Controls and Procedures.	36

PART II - OTHER INFORMATION		37

Item 1.	Legal Proceedings.	37

Item 1A.	Risk Factors.	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	37

Item 3.	Defaults Upon Senior Securities.	37

Item 4.	Mine Safety Disclosures.	37

Item 5.	Other Information.	37

Item 6.	Exhibits.	38

SIGNATURES		39

PART I - FINANCIAL INFORMATION

Item 1. Financial statements.

Augmedix, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

	September 30,			December 31,
(in thousands except share data)	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	21,593		$	21,251
Restricted cash		125			125
Accounts receivable, net of allowance for doubtful accounts of $134 and $102 at September 30, 2023 and December 31, 2022, respectively		9,446			6,354
Prepaid expenses and other current assets		1,906			1,820
Total current assets		33,070			29,550
Property and equipment, net		3,000			1,573
Operating lease right of use asset		3,290			1,567
Restricted cash, non-current		568			612
Deposits and other assets		905			339
Total assets	$	40,833		$	33,641

Liabilities and Stockholders’ Equity
Current liabilities:
Loan payable, current portion	$	7,500		$	3,750
Accounts payable		1,816			1,563
Accrued expenses and other current liabilities		5,472			5,321
Deferred revenue		7,993			7,254
Operating lease liability, current portion		1,434			872
Customer deposits		486			554
Total current liabilities		24,701			19,314
Loan payable, net of current portion		12,608			11,384
Operating lease liability, net of current portion		2,079			968
Other liabilities		711			509
Total liabilities		40,099			32,175
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.0001 par value; 500,000,000 shares authorized; 41,275,216 and 37,442,663 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		4			4
Additional paid-in capital		142,077			127,693
Accumulated deficit		(140,470	)		(125,791	)
Accumulated other comprehensive loss		(877	)		(440	)
Total stockholders’ equity		734			1,466
Total liabilities and stockholders’ equity	$	40,833		$	33,641

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Augmedix, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share data)	2023			2022			2023			2022
Revenues	$	11,767		$	7,864		$	32,175		$	22,182
Cost of revenues		5,937			4,274			16,894			12,277
Gross profit		5,830			3,590			15,281			9,905
Operating expenses:
General and administrative		4,568			4,136			13,535			12,355
Sales and marketing		2,729			2,304			7,941			6,944
Research and development		2,936			2,608			8,236			7,537
Total operating expenses		10,233			9,048			29,712			26,836
Loss from operations		(4,403	)		(5,458	)		(14,431	)		(16,931	)
Other income (expenses):
Interest expense		(642	)		(316	)		(1,608	)		(1,302	)
Interest income		288			59			726			68
Loss on debt extinguishment		—			—			—			(1,097	)
Change in fair value of warrant liability		(36	)		—			(105	)		—
Other income		470			244			907			452
Total other income (expenses), net		80			(13	)		(80	)		(1,879	)
Net loss before income taxes		(4,323	)		(5,471	)		(14,511	)		(18,810	)
Income tax expense		84			19			168			40
Net loss	$	(4,407	)	$	(5,490	)	$	(14,679	)	$	(18,850	)
Other comprehensive income (loss):
Foreign exchange translation adjustment		(106	)		(117	)		(437	)		(257	)
Total comprehensive loss	$	(4,513	)	$	(5,607	)	$	(15,116	)	$	(19,107	)
Net loss per share of common stock, basic and diluted	$	(0.10	)	$	(0.15	)	$	(0.35	)	$	(0.50	)
Weighted average shares of common stock outstanding, basic and diluted		45,520,893			37,426,751			42,236,063			37,412,238

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Augmedix, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(unaudited)

	Stockholders’ Equity
											Accumulated
					Additional						Other			Total
	Common Stock				Paid-in			Accumulated			Comprehensive			Stockholders’
(in thousands except share data)	Shares		Amount		Capital			Deficit			Loss			Equity
Balance at January 1, 2023		37,442,663	$	4	$	127,693		$	(125,791	)	$	(440	)	$	1,466
Exercise of common stock options		112,252		—		85			—			—			85
Stock-based compensation expense		—		—		533			—			—			533
Foreign currency translation adjustment		—		—		—			—			(33	)		(33	)
Net loss		—		—		—			(5,239	)		—			(5,239	)
Balance at March 31, 2023		37,554,915	$	4	$	128,311		$	(131,030	)	$	(473	)	$	(3,188	)
Issuance of common stock and warrants, net of issuance costs		3,125,000		—		11,845			—			—			11,845
Exercise of common stock options		82,121				93									93
Stock-based compensation		—		—		570			—			—			570
Exercise of common stock warrants		38,042		—		—			—			—			—
Foreign currency translation adjustment		—		—		—			—			(298	)		(298	)
Net loss		—		—		—			(5,033	)		—			(5,033	)
Balance at June 30, 2023		40,800,078	$	4	$	140,819		$	(136,063	)	$	(771	)	$	3,989
Reclassification of warrants		—		—		597			—			—			597
Exercise of common stock options, warrants and vesting of restricted stock units		475,138		—		56			—			—			56
Stock-based compensation expense		—		—		641			—			—			641
Issuance costs associated with common stock and warrants						(36	)								(36	)
Foreign currency translation adjustment		—		—		—			—			(106	)		(106	)
Net loss		—		—		—			(4,407	)		—			(4,407	)
Balance at September 30, 2023		41,275,216	$	4	$	142,077		$	(140,470	)	$	(877	)	$	734

Augmedix, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

	Stockholders’ Equity
										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders’
(in thousands except share data)	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at January 1, 2022		37,387,472	$	4	$	125,479	$	(101,342	)	$	(70	)	$	24,071
Exercise of common stock options		24,015		—		13		—			—			13
Stock-based compensation expense		—		—		424		—			—			424
Foreign currency translation adjustment		—		—		—		—			(9	)		(9	)
Net loss		—		—		—		(6,025	)		—			(6,025	)
Balance at March 31, 2022		37,411,487	$	4	$	125,916	$	(107,367	)	$	(79	)	$	18,474
Issuance of common stock warrants		—		—		72		—			—			72
Exercise of common stock options		12,846		—		6		—			—			6
Stock-based compensation expense		—		—		491		—			—			491
Foreign currency translation adjustment		—		—		—		—			(131	)		(131	)
Net loss		—		—		—		(7,335	)		—			(7,335	)
Balance at June 30, 2022		37,424,333	$	4	$	126,485	$	(114,702	)	$	(210	)	$	11,577
Exercise of common stock options		7,871		—		4		—			—			4
Stock-based compensation expense		—		—		477		—			—			477
Foreign currency translation adjustment		—		—		—		—			(117	)		(117	)
Net loss		—		—		—		(5,490	)		—			(5,490	)
Balance at September 30, 2022		37,432,204	$	4	$	126,966	$	(120,192	)	$	(327	)	$	6,451

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Augmedix, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended September 30,
(in thousands)	2023			2022
Cash flows from operating activities:
Net loss	$	(14,679	)	$	(18,850	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		792			607
Stock-based compensation		1,735			1,392
Non-cash interest expense		467			382
Non-cash advertising expense		—			200
Non-cash portion of loss on debt extinguishment		—			1,087
Change in fair value of warrant liability		105			—
Non-cash lease expenses		720			572
Provision for bad debt		32			15
Changes in operating assets and liabilities:
Accounts receivable		(3,125	)		2,109
Prepaid expenses and other current assets		(201	)		101
Deposits and other assets		(431	)		—
Accounts payable		(107	)		(111	)
Accrued expenses and other liabilities		321			632
Deferred revenue		739			150
Customer deposit		(68	)		(37	)
Lease liability		(768	)		(636	)
Net cash used in operating activities		(14,468	)		(12,387	)
Cash flows from investing activities:
Purchase of property and equipment		(1,912	)		(816	)
Net cash used in investing activities		(1,912	)		(816	)
Cash flows from financing activities:
Proceeds from SVB loan payable		5,000			15,000
Repayment of Eastward loan payable		—			(16,125	)
Payment of financing costs		(55	)		(142	)
Proceeds from issuance of common stock and warrants, net of issuance costs		11,809			—
Proceeds from exercise of stock options		235			23
Net cash provided by (used in) financing activities		16,989			(1,244	)
Effect of exchange rate changes on cash and restricted cash		(311	)		(143	)
Net increase (decrease) in cash, cash equivalents and restricted cash		298			(14,590	)
Cash, cash equivalents and restricted cash at beginning of period		21,988			41,587
Cash, cash equivalents and restricted cash at end of period	$	22,286		$	26,997
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	1,000		$	815
Cash paid during the period for income taxes	$	10		$	13
Supplemental schedule of non-cash investing and financing activities:
Property and equipment in accounts payable	$	375		$	184
Operating lease right-of-use asset exchanged for operating lease liability	$	2,498		$	—
Fair value of warrants issued in connection with loan	$	492		$	72

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Organization and Nature of Business

Augmedix, Inc. (the “Company”, “we” or “our”) was incorporated in 2013 and launched its commercial real-time, remote documentation services in 2014.

Augmedix delivers industry-leading, ambient medical documentation and data products to healthcare systems, physician practices, hospitals, and telemedicine practitioners.

Augmedix is on a mission to help clinicians and patients form a human connection at the point of care without the intrusion of technology. Augmedix’s products digitize natural physician-patient conversations and convert it to medical notes in real time, which are seamlessly transferred to the Electronic Health Record (“EHR”) system. To achieve this, the Company’s Notebuilder Platform uses Automated Speech Recognition, Natural Language Processing, including Large Language Models, and proprietary structured data sets, supported by medical documentation specialists.

Leveraging this platform, Augmedix’s products relieve clinicians of administrative burden, in turn, reducing burnout and increasing both clinician and patient satisfaction.

Augmedix is headquartered in San Francisco, CA, with offices in three (3) countries around the world.

Liquidity

The Company has historically funded its operations primarily by debt and equity financings prior to the merger with Malo Holdings and subsequently funded its operations through cash proceeds obtained as part of the listing on the OTC market and the listing on Nasdaq. As of September 30, 2023, the Company’s existing sources of liquidity included cash and cash equivalents of $21.6 million, plus up to $5.0 million in incremental capital available through the SVB Loan Agreement and an additional $5.0 million through the Equity Line of Credit with Redmile Group, LLC, which may be utilized starting in the second half of 2024. The Company has incurred negative cash flows from operating activities and losses from operations in the past as reflected in the accumulated deficit of $140.5 million as of September 30, 2023. The Company has relied on debt and equity financing to fund operations to date and expects losses and negative cash flows to continue, primarily as a result of continued research, development, and marketing efforts. The Company’s cash balance and available liquidity will provide sufficient resources to meet working capital needs for over twelve months from the filing date of the September 30, 2023 Form 10-Q. Over the longer term, if the Company does not generate sufficient revenue from new and existing products, additional debt or equity financing may be required along with a reduction in expenditures. Additionally, there is no assurance if the Company requires additional future financing that such financing will be available on terms which are acceptable to it, or at all.

Risks and Uncertainties

The Company is subject to a number of risks associated with companies at a similar stage, including dependence on key personnel, competition from similar products and larger companies, ongoing changes within the industry, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company, and general economic conditions, including ongoing economic impacts from the conflicts in Ukraine and Israel, economic volatility caused by increased interest rates, and instability within the banking system.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by the Accounting Standards Updated (“ASUs”) of the FASB. The accompanying unaudited interim condensed consolidated financial statements include the accounts of Augmedix, Inc. and its wholly-owned subsidiaries, Augmedix Operating Corporation, Augmedix Bangladesh Limited, and Augmedix Solutions Private Limited. All intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates, and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2023 and its results of operations for the three and nine months ended September 30, 2023 and 2022, cash flows for nine months ended September 30, 2023 and 2022, and stockholders’ equity for the three and nine months ended September 30, 2023 and 2022. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023. The unaudited interim condensed consolidated financial statements, presented herein, do not contain the required disclosures under GAAP for annual consolidated financial statements. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated balance sheet as of that date. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 17, 2023.

Use of Estimates

The preparation of the unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The Company’s significant estimates and judgments involve the average period of benefit associated with costs capitalized to obtain a revenue contract, incremental borrowing rate, and stock-based compensation, including the underlying fair value of the Company’s common stock for grants issued when the Company was a private company. Actual results could differ from those estimates.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment.

Foreign Currency Transactions, Translations and Foreign Operations

The functional currency of the Bangladesh and India subsidiaries are the Bangladeshi Taka and Indian Rupee, respectively. All assets and liabilities denominated in each entity’s functional currency are translated into the United States Dollar using the exchange rate in effect as of the balance sheet dates. Expenses are translated using the weighted average exchange rate for the reporting period. The resulting translation gains and losses are recorded within the unaudited interim condensed consolidated statements of operations and comprehensive loss and as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are recorded within other income (expense) in the accompanying unaudited interim condensed consolidated statements of operations and comprehensive loss. Transaction gains and losses were $0.1 million gain for both the three months ended September 30, 2023 and 2022. Transaction gains and losses were $0.4 million gain and $0.2 million gain for the nine months ended September 30, 2023 and 2022, respectively.

Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.

All of the Company’s revenue is generated in the United States and denominated in U.S. dollars.

Concentrations of Credit Risk and Major Customers

Financial instruments at September 30, 2023 and 2022 that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable.

The Company’s cash is deposited with major financial institutions in the U.S., Bangladesh and India. At times, deposits in financial institutions located in the U.S. may be in excess of the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation (“FDIC”). Cash deposits at foreign financial institutions are not insured by government agencies of Bangladesh and India. To date, the Company has not experienced any losses on its cash deposits. The Company keeps a majority of its cash in quoted and highly-liquid money market funds.

The Company’s accounts receivable are derived from revenue from customers located in the U.S. Major customers are defined as those generating revenue in excess of 10% of the Company’s annual revenue. The Company had three major customers during the three and nine months ended September 30, 2023. Revenues from these major customers accounted for 24%, 13% and 11% of revenue for the three months ended September 30, 2023 and 21%, 13% and 12% of revenue for the nine months ended September 30, 2023. The Company had three major customers during the three and nine months ended September 30, 2022. Revenues from these major customers accounted for 17%, 15% and 12% of revenue for the three months ended September 30, 2022 and 18%, 16% and 12% of revenue for the nine months ended September 30, 2022.

Two customers accounted for 10% or more of the accounts receivable, with balances of $2.9 million and $1.9 million at September 30, 2023. Two customers account for 10% or more of the accounts receivable, with balances of $1.4 million and $0.7 million at December 31, 2022.

Restricted Cash

Restricted cash represents amounts held on deposit at a commercial bank used to secure the Company’s credit card facility balances, to collateralize a letter of credit in the name of the Company’s landlord pursuant to a certain operating lease and for a post-employment savings fund established for the benefit of eligible Bangladesh employees. The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the Company’s condensed consolidated balance sheets to the total of the amount presented in the condensed consolidated statements of cash flows:

	September 30,
(in thousands)	2023		2022
Cash and cash equivalents	$	21,593	$	26,251
Restricted cash		125		125
Restricted cash – non-current		568		621
Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows	$	22,286	$	26,997

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets, less costs to sell. The Company did not record any expense related to asset impairment in the nine months ended September 30, 2023 or 2022.

Revenue Recognition

ASC Topic 606, Revenue from Contracts with Customers, outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle, involving a five-step process, of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company derives its revenue through a stand-ready recurring subscription model. The Company enters into contracts or agreements with its customers with a general initial term of one year. Customers are invoiced in advance and generally pay an upfront implementation fee. The upfront implementation fee is deferred and recognized over the period the customer benefits and customer prepayments are deferred and included in the accompanying unaudited interim condensed consolidated balance sheets in deferred revenues. Revenues are recognized over time as the professional services are provided to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The customer receives the benefit of our stand-ready scribing services as we perform them.

As permitted under the practical expedient available under ASU 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue for the amount at which the Company has the right to invoice for services performed.

The Company’s revenues are earned from customers located only in the U.S. After the initial term, contracts are cancellable by the customer at their discretion typically with a 90 day notice.

The Company determines revenue recognition through the following steps:

	●	Identification of the contract, or contracts, with a customer;

	●	Identification of the performance obligations in the contract;

	●	Determination of the transaction price;

	●	Allocation of the transaction price to the performance obligations in the contract; and

	●	Recognition of revenue when, or as, the Company satisfies a performance obligation.

Except for two U.S. state sales tax jurisdictions, applicable taxes, including local, sales, value added tax, etc., are the responsibility of the customer to self-assess and remit to proper tax authorities. Revenue is recognized net of any sales taxes.

Costs Capitalized to Obtain Revenue Contracts

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new revenue contracts are capitalized and then amortized on a systematic basis over an estimated period of benefit that the Company determined to be between the range of 12 to 24 months. The period of benefit was determined by taking into consideration the Company’s customer contracts, technology, customer life, and other relevant factors. The Company periodically evaluates whether there have been any changes in its business, market conditions, or other events which would indicate that its amortization period should be changed, or if there are potential indicators of impairment. The current portion of capitalized sales commissions are included in prepaid expenses and other current assets and the non-current portion is included in deposits and other assets on the accompanying unaudited interim condensed consolidated balance sheets. Amortization expense is included in sales and marketing expenses on the accompanying unaudited interim condensed consolidated statements of operations and comprehensive loss.

Internal-use software development costs

The Company capitalizes certain qualifying costs incurred during the application development stage in connection with the development of its internal use software. Costs related to preliminary project activities and post-implementation activities are expensed in research and development (“R&D”) as incurred. R&D expenses consist primarily of employee-related costs, software-related costs, allocated overhead, and costs of outside services used to supplement our internal staff.

Internal-use software costs of $0.2 million and $0.4 million were capitalized in the three and nine months ended September 30, 2023, respectively. All capitalized costs are related to costs incurred during the application development stage of software development for the Company’s platform to which subscriptions will be sold once the software is ready for its intended use. There were no such costs capitalized during the three and nine months ended September 30, 2022.

Capitalized internal-use software costs are included within property and equipment, net, on the condensed consolidated balance sheets, and are amortized over the estimated useful life of the software, which is typically three years. The related amortization expense is recognized in the condensed consolidated statements of operations and comprehensive loss within the function that receives the benefit of the developed software. The Company will begin to amortize the capitalized internal-use software costs once the product is ready for its intended use and goes into general commercial release.

Contract Balances

Deferred revenue represents an obligation to render services for which the Company has received consideration, or for which an amount of consideration is due from the customer and the Company has an unconditional right to payment under a non-cancellable contract.

Changes in the deferred revenue account were as follows:

(in thousands)	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
Balance, beginning of period	$	7,254		$	6,238
Deferral of revenue		33,907			31,949
Recognition of unearned revenue		(33,168	)		(30,933	)
Balance, end of period	$	7,993		$	7,254

Stock-Based Compensation

The Company recognizes compensation expense for time-based restricted stock units (“RSUs”) over the requisite service period based on the fair value of RSUs on the date of grant. The fair value of RSUs is the closing market price of Augmedix common stock on the date of grant. We recognize compensation expense for time-based stock options based on the estimated grant-date fair value determined using the Black-Scholes valuation model over the requisite service period.

Certain stock options include service, market and performance conditions (“performance-based stock options”). The fair value of performance-based stock options is estimated on the date of grant using the Monte Carlo simulation model. Awards that include performance conditions are assessed at the end of each reporting period whether those performance conditions are met or probable of being met and involves significant judgment. For performance-based stock options, stock-based compensation expense associated with each tranche is recognized over the longer of (i) the expected achievement period for the operational milestone for such tranche and (ii) the expected achievement period for the related share price milestone determined on the grant date, beginning at the point in time when the relevant operational milestone is considered probable of being achieved. If such operational milestone becomes probable any time after the grant date, we will recognize a cumulative catch-up expense from the grant date to that point in time. If the related share price milestone is achieved earlier than its expected achievement period and the achievement of the related operational milestone, then the stock-based compensation expense will be recognized over the expected achievement period for the operational milestone, which may accelerate the rate at which such expense is recognized.

The Company does not apply an expected forfeiture rate at the time of grant and accounts for forfeitures as they occur. See Note 8 — Stock-based Compensation.

Advertising Costs

All advertising costs are expensed as incurred and included in sales and marketing expenses. Advertising expenses incurred by the Company were $0.2 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $0.7 million and $0.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of common stock outstanding during each period and pre-funded warrants outstanding because all necessary conditions to convert into common shares were met when those warrants were issued. Diluted net loss per common stock includes the effect, if any, from the potential exercise or conversion of securities, such as options and warrants which would result in the issuance of incremental common stock. Basic and diluted earnings per share were the same for both of the periods presented as the inclusion of all potential Common Stock outstanding would have been anti-dilutive due to the fact that a net loss existed for both the nine months ended September 30, 2023 and 2022.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

	September 30, 2023		September 30, 2022
Common stock warrants		4,382,235		2,801,703
Stock options		9,511,659		8,118,888
Restricted stock units		196,688		—
		14,090,582		10,920,591

Correction of Immaterial Error Related to Prior Periods

In the third quarter of 2022, the Company identified an error related to its accounting for sales commissions whereby the Company should have amortized sales commissions for new revenue contracts over the estimated period of benefit which is between the range of 12 to 24 months.

For the three and nine months ended September 30, 2022, sales and marketing expenses were overstated by $0.1 million.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on January 1, 2023, and it did not have a material impact on its consolidated financial statements upon adoption.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The goal of the standard is to simplify the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. The new standard is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of this standard but does not expect it to have a material impact on its consolidated financial statements upon adoption.

3. Fair Value Measurements

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, prepaid expenses, accounts payable, and customer deposits approximate fair value due to their short-term nature. The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The warrant liability was reclassified to stockholders’ equity as of September 30, 2023.

The following tables present information about our financial instruments that have been measured at fair value as of September 30, 2023 and December 31, 2022:

(in thousands)	September 30, 2023		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Money market funds	$	18,803	$	18,803	$	—	$	—
Total	$	18,803	$	18,803	$	—	$	—

Financial Liabilities
Loan payable	$	20,108	$	—	$	—	$	20,108
Total	$	20,108	$	—	$	—	$	20,108

Description		December 31, 2022		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Money market funds	$	18,974	$	18,974	$	—	$	—
Total	$	18,974	$	18,974	$	—	$	—

Financial Liabilities
Loan payable	$	15,134	$	—	$	—	$	15,134
Total	$	15,134	$	—	$	—	$	15,134

4. Property and Equipment

Property and equipment consist of the following:

(in thousands)	September 30, 2023			December 31, 2022
Computer hardware, software and equipment	$	8,157		$	7,229
Leasehold improvements		475			460
Capitalized internal-use software costs		388			—
Furniture and fixtures		81			73
Construction in Progress		951			163
		10,052			7,925
Less: accumulated depreciation		(7,052	)		(6,352	)
Property and equipment, net	$	3,000		$	1,573

The Company recorded depreciation and amortization expense of $0.3 million and $0.2 million during the three months ended September 30, 2023 and 2022, respectively, and $0.8 million and $0.6 million during the nine months ended September 30, 2023 and 2022, respectively.

5. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consists of the following:

(in thousands)	September 30, 2023		December 31, 2022
Accrued compensation	$	3,163	$	3,587
Accrued other		617		466
Accrued vendor partner liabilities		1,187		871
Accrued professional fees		100		118
Accrued VAT and other taxes		404		279
	$	5,471	$	5,321

6. Debt

Eastward Loan and Security Agreement

On March 25, 2021, the Company entered into the Loan and Security Agreement (the “Eastward Loan Agreement”) with Eastward Capital Partners (“Eastward”) to establish a loan facility that provided for borrowings in the aggregate principal amount of up to $17.0 million, which were available to be drawn in two tranches. The first tranche of $15.0 million was funded on March 31, 2021.

Borrowings under the Eastward Loan Agreement were repaid in full in May 2022 with the proceeds from the SVB Loan Agreement. The Company recorded the final payment of $1.1 million as both a discount and an increase to the principal amount of the debt. The Company also capitalized certain lender and legal costs associated with the Loan Agreement totaling $0.2 million, which were recorded as a discount to the loan. The aggregate discount of $1.8 million was being amortized to interest expense over the repayment term of the Eastward Loan Agreement.

SVB Loan Agreement and Amendment

On May 4, 2022 (the “Effective Date”), the Company and its subsidiary, Augmedix Operating Corporation (individually and collectively, “Borrower”) entered into a Loan and Security Agreement (the “SVB Loan Agreement”) with Silicon Valley Bank, a California corporation, as lender (“SVB”). Borrower’s obligations under the SVB Loan Agreement are secured by first-priority liens on substantially all assets of Borrower. On June 13, 2023, the Borrower entered into a First Amendment to Loan and Security Agreement (“Amendment”) with SVB, which amends certain provisions of the SVB Loan Agreement. Under the SVB Loan Agreement, the term loan facility’s initial stated maturity date was June 1, 2025, which was automatically extended to December 1, 2025 as the Company achieved certain performance milestones that were a condition to such extension. The Amendment provides for further automatic extensions of the term loan facility’s maturity date, with the possibility of automatic extension to June 1, 2027, if the Company achieves certain equity milestones as set forth in the Amendment and certain performance milestones (including with respect to revenue and net income (loss) as set forth in the Amendment. The Amendment also extends the stated maturity date of the revolving credit facility from May 4, 2024 to November 4, 2024.

Under the SVB Loan Agreement, repayment under the term loan facility was interest only until July 1, 2023, which interest only period was automatically extended to January 1, 2024 provided the Company achieved certain performance milestones. The Amendment provides for further automatic extensions of the amortization date, with the possibility of extension of the amortization date to July 1, 2025, if the Company achieves certain equity milestones and certain performance milestones (including with respect to revenue and net income (loss) as set forth in the Amendment.

The Amendment provides that interest on the borrowings under the term loan facility is payable at a floating rate per annum equal to the greater of (a) 6.00% and (b) the prime rate plus 0.00%. Additionally, the Amendment provides that interest on the borrowings under the revolving credit facility is payable at a floating rate per annum equal to the greater of (a) 6.50% and (b) the prime rate plus 0.50%.

The Amendment provides for a reduction in the prepayment fee payable in connection with a prepayment by the Company of all borrowings under the term loan facility, with the following prepayment fee payable: (a) 2.50% of the outstanding principal amount of the borrowings under the term loan facility at the time of such prepayment if it occurs prior to the first anniversary of the Effective Date, (b) 1.50% of the outstanding principal amount of the borrowings under the term loan facility at the time of such prepayment if it occurs on or after the first anniversary of the effective date but prior to the second anniversary of the Effective Date, and (c) 0.50% of the outstanding principal amount of the borrowings under the term loan facility at the time of such prepayment if it occurs on or after the second anniversary of the Effective Date but prior to the term loan facility’s maturity date.

On September 30, 2023, the future minimum payments required under the SVB Loan Agreement, including the final payment, are as follows as of (in thousands):

2023 (3 months remaining)	$	—
2024		10,000
2025		10,000
	$	20,000
End of term charge		1,000
	$	21,000
Less unamortized debt discount		(892	)
Loan payable net of discount	$	20,108
Less current portion		7,500
Loan payable, non-current portion	$	12,608

The SVB Loan Agreement contains customary restrictions and covenants applicable to Borrower and its subsidiaries. In particular, the SVB Loan Agreement contains a financial covenant that provides that if Borrower fails to maintain minimum cash and cash equivalents in an amount of (a) no less than $25.0 million (prior to any Tranche B advance) and (b) $30.0 million (following any Tranche B advance), Borrower is then required to maintain certain minimum revenue requirements as set forth in the SVB Loan Agreement, which will be measured on a trailing 3-month basis and tested quarterly. If Borrower has failed to maintain the minimum cash and cash equivalents set forth in the preceding sentence, in lieu of being subject to the minimum revenue requirements, Borrower has the ability to cure such failure to maintain minimum cash and cash equivalents by delivering evidence satisfactory to SVB that Borrower has raised at least $10.0 million in net cash proceeds from the sale of Borrower’s equity interests.

In connection with the SVB Loan Agreement, the Company issued to SVB a warrant to purchase stock, dated as of the Effective Date (the “Warrant”), to purchase up to 48,295 shares of the Company’s common stock, $0.0001 par value per share, exercisable at any time for a period of approximately seven years from the Effective Date, at an exercise price of $2.38 per share, payable in cash or on a cashless basis according to the formula set forth in the Warrant.

On June 13, 2023, in connection with the Amendment, the Company issued to SVB a warrant to purchase up to 190,330 shares of the Company’s common stock, $0.0001 par value per share, exercisable at any time for a period of approximately seven years from the date of issuance, at an exercise price of $4.25 per share, payable in cashless basis according to the formula set forth in the warrant. The exercise price of the warrant was adjusted to $3.01 per share upon approval of the Company’s shareholders at the Company’s Annual Meeting of stockholders held on July 13, 2023.

The Company was in compliance with all covenants of the Lender on September 30, 2023 and December 31, 2022.

7. Common Stock, and Preferred Stock

Common Stock

The Company is authorized to issue 500,000,000 shares of common stock with a par value of $0.0001 per share. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Subject to preferences that may apply to any outstanding preferred stock, holders of common stock are entitled to receive ratably any dividends that the Company’s board of directors may declare out of funds legally available for that purpose on a non-cumulative basis. No dividends had been declared through September 30, 2023.

On April 19, 2023, the Company entered into a Securities Purchase Agreement with RedCo II Master Fund, L.P. (“Redmile”) and HINSIGHT-AUGX HOLDINGS, LLC, a wholly owned indirect subsidiary of HCA Healthcare, Inc. (the “Purchasers”), pursuant to which the Company sold to the Purchasers for aggregate consideration of approximately $12.0 million an aggregate of 3,125,000 shares of the Company’s common stock at a purchase price of $1.60 per share, pre-funded warrants to purchase up to 4,375,273 shares of common stock, at a price per pre-funded warrant equal to the purchase price per share, less $0.0001, and breakeven warrants to purchase up to 1,875,069 shares of common stock, at an exercise price of $1.75 per share, that will become exercisable on the earliest of (1) the date on which the Company closes an equity or debt financing prior to December 31, 2025, (2) December 31, 2025, if the Company cannot provide written certification that it has achieved cash flow break even from operations, excluding interest payments, for two out of three consecutive quarters between April 19, 2023 and December 31, 2025, on such date, (3) immediately prior to a change of control that occurs prior to December 31, 2025, and (4) the date on which a specified Regulatory Event (as defined in the break-even warrants) occurs; provided, however, that the breakeven warrants shall terminate on December 31, 2025 if none of the foregoing events have occurred on or prior to December 31, 2025. In no event shall the initial exercise date be prior to the 6-month anniversary of the date of issuance, and the breakeven warrants will expire seven years following the date of issuance. The pre-funded warrants have an exercise price of $0.0001 per pre-funded warrant share, became exercisable upon issuance and remain exercisable until exercised in full. On June 13, 2023, the Company and Redmile entered into a separate equity line of credit, which was subsequently approved by the Company’s stockholders on July 13, 2023. This equity line of credit permits the Company to sell shares of its common stock having an aggregate price of up to $5,000,000 to Redmile from time to time, at a purchase price of $1.60 per share, subject to certain conditions set forth in the securities purchase agreement by and between the Company and Redmile dated as of July 13, 2023. On May 19, 2023, the Company filed a registration statement on Form S-3 (File No. 333-272081), which was declared effective by the SEC on May 26, 2023, which registered for resale 9,375,342 shares of the Company’s common stock.

Common Stock Warrants

At September 30, 2023, the Company had the following warrants outstanding to acquire shares of its common stock:

Expiration Date	Shares of Common Stock Issuable upon Exercise of Warrants		Exercise Price Per Warrant
October 25, 2024		346,500	$	3.00
June 11, 2025		234	$	96.24
November 13, 2025		94,442	$	3.00
July 28, 2027		91	$	106.17
August 28, 2028		1,052	$	39.76
May 4, 2029		48,295	$	4.00
September 2, 2029		1,826,222	$	2.88
April 19, 2030		1,875,069	$	1.75
June 13, 2030		190,330	$	3.01
Perpetual		4,375,273	$	0.0001
		8,757,508

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001 per share. The Company’s board of directors are authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series. As of September 30, 2023, there were no shares of preferred stock issued or outstanding.

8. Equity Incentive Plan

At the effective date of the Malo Holdings and Augmedix merger (the “Merger”), the Company assumed Augmedix’s 2013 Equity Incentive Plan (the “2013 Plan”). Options granted under the 2013 Plan may be incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), stock appreciation rights (“SARs”) and restricted stock awards (“RSAs”). ISOs may be granted only to Company employees and directors. NSOs, SARs and RSAs may be granted to employees, directors, advisors, and consultants. The Company’s board of directors has the authority to determine to whom options will be granted, the number of options, the term, and the exercise price. No shares of restricted stock, SARs or RSUs were granted under the 2013 Plan after August 31, 2020.

Pursuant to the Merger, the Company adopted the 2020 Equity Incentive Plan (the “2020 Plan”) which serves as successor to the 2013 Plan. The 2020 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units, performance awards, cash awards, and stock bonus awards. Certain awards provide for accelerated vesting in the event of a change in control. Options issued may have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the Company’s board of directors. Vesting generally occurs over a period of not greater than four years.

The number of shares of common stock reserved for issuance under the 2020 Plan increased on January 1, 2021, and will increase each anniversary thereafter through 2030 by the number of shares of common stock equal to the lesser of 5% of the total number of outstanding shares of common stock as of the immediately preceding January 1, or a number as may be determined by the Company’s board of directors. As of September 30, 2023, 410,603 shares of common stock remained available for grant under the 2020 Plan.

The Company recorded share-based compensation expense in the following expense categories in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022:

Stock Options & SARs	Three Months Ended September 30,				Nine months ended September 30,
(in thousands)	2023		2022		2023		2022
General and administrative	$	271	$	320	$	783	$	974
Sales and marketing		57		50		179		120
Research and development		122		85		306		231
Cost of revenues		33		22		86		67
	$	483	$	477	$	1,354	$	1,392

RSUs	Three Months Ended September 30,				Nine months ended September 30,
(in thousands)	2023		2022		2023		2022
General and administrative	$	154	$	—	$	381	$	—
	$	154	$	—	$	381	$	—

No income tax benefits have been recognized in the condensed consolidated statements of operations and comprehensive loss for stock-based compensation arrangements. Stock-based compensation costs of $4,000 and $9,000 have been capitalized as property and equipment through the three and nine months ended September 30, 2023, respectively.

The fair value of options is estimated using the Black-Scholes option pricing model which takes into account inputs such as the exercise price, the value of the underlying ordinary shares at the grant date, expected term, expected volatility, risk free interest rate and dividend yield. The fair value of each grant of options during the nine months ended September 30, 2023 and 2022 was determined using the methods and assumptions discussed below.

●

The expected term of employee options is determined using the “simplified” method, as prescribed in SEC’s Staff Accounting Bulletin (SAB) No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data.

●

The expected volatility is based on historical volatility of the publicly traded common stock of a peer group of companies.

●

The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term.

●

The expected dividend yield is none because the Company has not historically paid and does not expect for the foreseeable future to pay a dividend on its ordinary shares.

For the nine months ended September 30, 2023 and 2022, the fair value of options granted was estimated using a Black-Scholes option pricing model with the following weighted average assumptions:

	Nine Months Ended September 30,
	2023			2022
Expected term (in years)		5.9			5.9
Expected volatility		57.1	%		54.6	%
Risk-free rate		3.9	%		2.0	%
Dividend rate					—

The weighted average grant date fair value of stock option awards granted was $1.52 and $1.23 during the nine months ended September 30, 2023 and 2022, respectively.

The following table summarizes stock option activity under the 2020 Plan for the nine months ended September 30, 2023:

Stock Option & SARs	Number of Shares under Equity Plan			Weighted- Average Exercise Price per Option		Weighted- Average Remaining Contractual Life (in years)
Outstanding at December 31, 2022		8,234,823		$	1.82		7.7
Granted		1,737,896		$	2.07
Exercised		(290,686	)	$	1.33
Forfeited and expired		(170,374	)	$	1.98
Outstanding at September 30, 2023		9,511,659		$	1.92		7.4
Exercisable at September 30, 2023		5,832,609		$	1.59		6.7
Vested and expected to vest at September 30, 2023		9,511,659		$	1.92		7.4

The intrinsic value of the options exercised during the nine months ended September 30, 2023 was $0.6 million. The aggregate intrinsic value of options outstanding and options exercisable as of September 30, 2023 were $30.7 million and $20.8 million, respectively. At September 30, 2023, future stock-based compensation for options granted and outstanding of $3.4 million will be recognized over a remaining weighted-average requisite service period of 2. 2 years.

RSUs	Number of Shares under Equity Plan			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2022		263,155		$	1.90
Granted		203,988		$	4.45
Vested		(263,155	)	$	1.90
Forfeited and expired		(7,300	)	$	4.15
Outstanding at September 30, 2023		196,688		$	4.47

The aggregate intrinsic value of RSUs outstanding as of September 30, 2023, was $1.01 million. At September 30, 2023, future stock-based compensation for RSUs granted and outstanding of $0.7 million will be recognized over a remaining weighted-average requisite service period of 1.8 years.

Performance and Market-Based Options

In March 2021, the Company granted 727,922 stock options to the Company’s Chief Executive Officer (“CEO”) under the 2020 Plan with an exercise price of $3.00 per share. The options vest based on the CEO’s continued service in addition to the following terms:

●

317,688 options vest in full when the closing price of the Company’s common stock reaches or exceeds $9.00 per share for a minimum of 20 out of 30 trading days after the Company became listed on Nasdaq. These options expire on March 3, 2031.

●

46,273 options vest in full when the closing price of the Company’s common stock reaches or exceeds $9.00 per share for 20 out of 30 trading days after the Company became listed on the New York Stock Exchange or Nasdaq. Since the listing on Nasdaq, these options expire on March 22, 2031, instead of 2026.

●

363,961 options vest in full when the closing price of the Company’s common stock reaches or exceeds $13.50 per share for 20 out of 30 trading days after the Company became listed on the New York Stock Exchange or Nasdaq. Since the listing on Nasdaq, these options expire on March 22, 2031, instead of 2026.

The grant date fair value of the options was determined using a Monte Carlo simulation model. The Company’s assumptions, for the options expiring on March 3, 2031, for expected volatility, closing price and risk-free rate were 50.0%, $3.00 and 0.77%, respectively. For the options expiring on March 22, 2031, the assumptions for expected volatility, closing price and risk-free rate were 50.0%, $3.00 and 0.87%, respectively. The aggregate estimated fair value of the options was $0.4 million. The Company recognized $0.1 million and $0.1 million in stock-based compensation expense for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, there was $0.1 million of unrecognized compensation costs which the Company plans to recognize over a weighted average period of one year. If the market conditions are achieved, any remaining unrecognized compensation cost associated with those options will be immediately recognized.

9. Commitments and Contingencies

Leases

Effective January 1, 2022, the Company adopted ASC Topic (ASC 842) using the modified retrospective approach by applying the new standard to all leases existing on the adoption date. The results for reporting periods beginning after January 1, 2022 are presented in accordance with ASC 842.

The Company leases its office facilities in San Francisco, California under a non-cancelable operating lease agreement that expires February 2025. The Company entered an office lease in India commencing January 1, 2023 which expires December 2027. In addition, the Company’s subsidiary has several operating lease agreements for office space in Bangladesh, which expire at various dates through December 2028. The Bangladesh lease agreements allow for early cancellation without penalty upon providing the landlord advance notice of at least nine months. The Company elected to recognize leases less than one year under short-term lease exemption under ASC 842.

The Company subsequently decided to enter an office lease in Bangladesh commencing May 1, 2023 which expires July 2028.

Supplemental lease information related to leases for the periods of three and nine months ended September 30, 2022 and 2023 is as follows (in thousands):

	Three Months Ended September 30,				Nine months ended September 30,
(in thousands)	2023		2022		2023		2022
Operating lease cost	$	309	$	189	$	855	$	571
Short-term lease cost		107		88		282		263
Total lease cost	$	416	$	277	$	1,137	$	834

Other information related to the operating lease where the Company is the lessee is as follows:

	Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022
Weighted-average remaining lease term		3.4			2.5
Weighted-average discount rate		6.9	%		4.0	%

Supplemental cash flow information related to the operating lease is as follows (in thousands):

		Nine Months Ended September 30, 2023				Nine Months Ended September 30, 2022
Cash paid for operating lease liabilities		$	882			$	635

As of September 30, 2023, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows (in thousands):

2023 (remaining three months)	$	360
2024		1,464
2025		753
2026		614
2027		657
Thereafter		193
Total	$	4,041
Less: imputed interest		(528	)
Operating lease liability		3,513
Less: Operating lease liability, current portion		(1,434	)
Operating lease liability, net of current portion	$	2,079

Cloud Computing Services

In June 2021, the Company entered into a non-cancelable three-year contract to obtain cloud computing services. The minimum contractual spend over the three-year term is $1.8 million. As of September 30, 2023, the Company has spent approximately $0.5 million against this contract.

Legal

In the normal course of business, the Company may receive inquiries or become involved in legal disputes regarding various litigation matters. In the opinion of management, any potential liabilities resulting from such claims would not have a material adverse effect on the Company’s condensed consolidated financial position or results of operations or cash flows. As a result, no liability related to such claims has been recorded at September 30, 2023 or December 31, 2022.

Indemnification Agreements

From time to time, in the normal course of business, the Company may indemnify other parties when it enters into contractual relationships, including members of the Company’s board of directors, employees, customers, lessors and parties to other transactions with the Company. The Company may agree to hold other parties harmless against specific losses, such as those that could arise from a breach of representation, covenant, or third-party infringement claims. It may not be possible to determine the maximum potential amount of liability under such indemnification agreements due to the unique facts and circumstances that are likely to be involved in each particular claim and indemnification provision. Management believes any liability arising from these agreements will not be material to the unaudited interim condensed consolidated financial statements. As a result, no liability for these agreements has been recorded at September 30, 2023 or December 31, 2022.

10. Related Party Transactions

Operating Leases

In 2015, the Bangladesh subsidiary entered into agreements to rent office facilities under 10-year operating lease agreements (Note 9), with a company owned by relatives of the Company’s Director and Chief Strategy Officer. The Company paid $0.1 million to the related party during each of the three months ended September 30, 2023 and 2022, respectively, and $0.2 million to the related party during each of the nine months ended September 30, 2023 and 2022, respectively, which is included as rent expense. At September 30, 2023, the amounts owed to the related party were $10,000 and included in accounts payable in the accompanying consolidated balance sheet. At December 31, 2022, the amounts owed to the related party were $4,000 and included in accounts payable in the accompanying consolidated balance sheet.

11. Employee Benefit Plan

The Company has a 401(k) plan to provide defined contribution retirement benefits for all eligible employees. Participants may contribute a portion of their compensation to the 401(k) plan, subject to the limitations under the Internal Revenue Code. The Company’s contributions to the 401(k) plan are at the discretion of the Company’s board of directors. During the three months ended September 30, 2023 and 2022 the Company made contributions of $31,000 and $33,000, respectively, and $0.1 million and $0.1 million for the nine months ended September 30, 2023 and 2022, respectively, to the 401(k) plan.

Effective October 2021, the Company established a savings fund for permanent employees of the Bangladesh subsidiary named Augmedix BD Limited Employees’ Gratuity Fund (“Gratuity Fund”), as per local requirements. Employees will be entitled to cash benefit after completion of a minimum of five years of service with the Company. The payment amount will be calculated on the basic pay and is payable at the rate of one month’s basic pay for every completed year of service. The Company expensed $0.1 million and $50,000 related to the Gratuity Fund during the three months ended September 30, 2023 and 2022, respectively, and the Company expensed $0.3 million and $0.2 million related to the Gratuity Fund during the nine months ended September 30, 2023 and 2022, respectively. The Company has accrued $0.7 million and $0.5 million in other liabilities in the accompanying consolidated balance sheet as of September 30, 2023 and December 31, 2022, respectively.

Similar to the Bangladesh subsidiary, the Company established Gratuity fund for India subsidiary as per local requirements effective April 2023. The Company expensed $4,000 and $25,000 related to the Gratuity Fund during the three and nine months ended September 30, 2023, respectively. At September 30, 2023, $24,000 was accrued in other liabilities in the accompanying consolidated balance sheet.

12. Subsequent Events

On October 17, 2023 the Company’s board of directors approved, for a subset of employees of the Company, the issuance of 107,000 RSUs with an issuance cost of $5.72 and 61,550 SARs with an exercise price of $5.72 per share.

On October 30, 2023, SVB confirmed and extended the interest-only period on the $20 million term loan from January 1, 2024 to July 1, 2024 as the Company met both the revenue and net loss requirement outlined in the amendment to the SVB Loan Agreement.

On October 31, 2023, Augmedix Operating Corp., a wholly-owned subsidiary of the Company, entered into an amendment (the “Amendment”) to an office sublease with Turo, Inc., a Delaware corporation, for the property located at 111 Sutter Street, Suite 1300, San Francisco, California. The Amendment extends, among other things, the term of the original sublease until January 31, 2027, unless earlier terminated, and reduced the per square foot cost of the lease.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10-Q, should be read together with the unaudited interim condensed financial statements and related notes included elsewhere in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2023.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements relate to, among others, our plans, objectives and expectations for our business, operations and financial performance and condition, and can be identified by terminology such as “may,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “will,” “could,” “project,” “target,” “potential,” “continue” and similar expressions that do not relate solely to historical matters. Forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management. Although we believe that the expectations reflected in forward-looking statements are reasonable, such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements.

Forward-looking statements include, but are not limited to, statements about:

●

anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;

●

our ability to further penetrate our existing customer base;

●

our estimates regarding future revenues, capital requirements, general and administrative expenses, sales and marketing expenses, research and development expenses, and our need for or ability to obtain additional financing to fund our operations;

	●	our intent to continue investment of additional resources in our platform infrastructure;

	●	our expectations around our optimization efforts and investment in technology to expand the efficiency and capability of our platform, including with respect to our cost of revenues;

	●	our ability to interoperate with the EHR systems of our customers;

●

our ability to attract and retain key personnel;

●

developments and projections relating to our competitors and our industry, including competing dictation software providers, non-real time medical note generators, and real time medical note documentation services;

●

the competition to attract and retain Medical Documentation Specialists (“MDS”);

●

our reliance on independent third parties (the “Vendors”) who operate certain of our MDS operations centers;

●

our expectations regarding changes in regulatory requirements;

●

our ability to protect and enforce our intellectual property protection and the scope and duration of such protection; and

●

the impact of current and future laws and regulations.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

Overview

Augmedix, Inc. was incorporated in 2013 and launched its commercial synchronous, remote, ambient documentation services in 2014. Since then, we have supplemented those services with other, asynchronous products and data services. Our applications are accessed by clinicians through mobile devices, predominantly smart phones. Once accessed, the client application provides clinicians with a secure communication channel to our Notebuilder Platform which contains our note creation software that digitizes the natural conversation between clinician and patient and converts it into a medical note. Our note creation software includes automatic speech recognition, proprietary natural language processing (“NLP”) models, large language models (“LLMs”) and proprietary structured data sets to generate the note. The note creation process is overseen by our Medical Documentation Specialists (“MDSs”) to provide quality assurance. Completed notes are uploaded via integration or manually into the patient’s chart in the electronic health record (“EHR”) system. The EHR system (e.g. Epic, Cerner) is third-party software licensed by the healthcare clinic or system to manage patient charts.

Patient care in the United States is principally provided in ambulatory clinics, specialty care centers and hospitals. We serve several care settings, including but not limited to, ambulatory, acute care, telemedicine and veterinary. Roughly 85% of the physicians who subscribe to our service are employed directly by, or are affiliated with, a healthcare enterprise. The remaining 15% consists of group practices and individual practitioners.

During the third quarter of 2023, we delivered an average of nearly 60,000 notes to our customers each week. We estimate that our products save doctors two to three hours each day, which is time that they can redeploy to see more patients or improve their work-life balance. We believe the principal benefits to healthcare enterprises from our products are increased clinician productivity, higher clinician and patient satisfaction, and more accurate and comprehensive medical documentation with structured data.

The COVID-19 pandemic and resulting safety protocols served as a catalyst for the industry’s adoption of virtual products such as ours. The pandemic required modifications to how we deliver our service. While our general business model is for MDSs to work from centralized operating centers, local shelter-in-place orders and safety restrictions required us to temporarily shift to work-from-home for most employees and contracted employees. for a period of time. Further, we instituted additional administrative, technical, and physical controls to ensure compliance with our privacy practices. In 2022, we started to shift back to central operating centers to the extent that local conditions allowed. In the first half of 2023, we brought back to the office substantially all of our MDSs in Bangladesh and a vast majority of our MDSs at our Vendors in India and Sri Lanka.

Due to the success of our Bangladesh MDS operation center and the need to support additional growth, we began the launch of our own Indian MDS operation center in the second half of 2022. In December 2022, we signed a lease for office space and started training new MDSs and supporting clinicians onsite in February 2023. The Indian MDS operation center has grown consistently in 2023 and now services a mid-single digit percentage point of our providers.

Our technology vision is to automate as much of the medical note creation process as possible by combining artificial intelligence technologies, such as automated speech recognition, natural language processing and large language models, with structured data models. While the unstructured nature of a conversation between physician and patient creates challenges to fully automating the process, we believe that increasing levels of automation generate significant benefits including improved operating efficiencies, higher-quality medical notes, a more uniform level of note quality and structured medical data.

Our automation approach is based upon our belief that harmonizing human interaction with technology generates the highest note quality. We train our MDSs to be experts at using our technology tools to ensure it consistently and efficiently delivers high-quality, structured medical notes.

Key metrics

We regularly review the following key metrics to measure our performance, identify trends affecting our business, formulate financial projections, make strategic business decisions, and assess working capital needs.

	Three Months Ended September 30,						Nine Months Ended September 30,
Key Metrics	2023			2022			2023			2022

Average clinicians in service headcount		1,650			1,121			1,517			1,041
Average annual revenue per clinician	$	28,300		$	27,800		$	28,000		$	28,100
Dollar-based net revenue retention		157	%		130	%		147	%		130	%

Average Clinicians in Service Headcount: We define a clinician in service as an individual doctor, nurse practitioner or other healthcare professional using our services. We average the month end number of clinicians in service for all months in the measurement period and the number of clinicians in service at the end of the month immediately preceding the measurement period. We believe growth in the average number of clinicians in service is a key indicator of the performance of our business as it demonstrates our ability to penetrate the market and grow our business. Most of our customer contracts contain minimum service levels that range from a low of 60 hours per month to a high of 200 hours per month. Higher hours per month equate to higher revenue per clinician. The average number of clinicians in service grew 47% to 1,650 from 1,121 for the three months ended September 30, 2023 and 2022, respectively, and grew 46% to 1,517 from 1,041 for the nine months ended September 30, 2023 and 2022, respectively.

Average Annual Revenue Per Clinician: Average revenue per clinician is determined as total revenue, excluding Data Services revenue, recognized during the period presented divided by the average number of clinicians in service during that same period. Using the number of clinicians in service at the end of each month, we derive an average number of clinicians in service for the periods presented. The average annual revenue per clinician will vary based upon minimum hours of service requested by clinicians, pricing, and our product mix. The average annual revenue per clinician increased to $28,300 in the three months ended September 30, 2023, slightly growing from $27,800 in the three months ended September 30, 2022. The average annual revenue per clinician decreased to $28,000 in the nine months ended September 30, 2023, marginally down from $28,100 in the nine months ended September 30, 2022.

Dollar-Based Net Revenue Retention: We define a “Health Enterprise” as a company or network of doctors that has at least 50 clinicians currently employed or affiliated that could utilize our services. Dollar-based net revenue retention is determined as the revenue from Health Enterprises as of twelve months prior to such period end as compared to revenue from these same Health Enterprises as of the current period end, or current period revenue. Current period revenue includes any expansion or new products and is net of contraction or churn over the trailing twelve months but excludes revenue from new Health Enterprises in the current period. We believe growth in dollar-based net revenue retention is a key indicator of the performance of our business as it demonstrates our ability to increase revenue across our existing customer base through expansion of users, products and price, as well as our ability to retain existing customers. Our annual dollar-based net revenue retention increased to 157% in three months ended September 30, 2023 compared to 130% in the three months ended September 30, 2022. Growth from existing clients has historically represented a majority of our total revenue growth. Our annual dollar-based net revenue retention increased to 147% in the nine months ended September 30, 2023, up from 130% in nine months ended September 30, 2022.

Components of Results of Operations

Revenues

Our revenues primarily consist of service fees we charge customers to subscribe to our ambient medical documentation and clinical support solutions. We generate subscription fees pursuant to contracts that typically have initial terms of one year, automatically renew after the initial term and are typically subject to a 90 day cancellation notice after the initial one year term. Customer attrition, as it pertains to our Enterprise clients is infrequent. In fiscal 2022, 2021, 2019, 2018, and 2017, we did not lose any of our Health Enterprise clients. We lost one Health Enterprise, client, one of our smallest clients, in the first quarter of 2023. We lost three Health Enterprise clients in fiscal 2020, with the economic strain caused by the COVID-19 pandemic on those clients being the main contributing factor for these losses, but we also won three new Health Enterprise clients during the same year. Subscription revenue is driven primarily by the number of clinicians using our services, the minimum number of hours contracted per month, and the contracted monthly price. We typically invoice customers one to three months in advance for subscriptions to our services. For customers who use more than the minimum number of monthly hours, we have the ability to bill for the additional hours utilized at a prescribed contractual price. We also perform upfront implementation services such as Wi-Fi assessments of the clinician’s facilities, shipping devices and accessories to the clinician, testing, selecting and assigning MDSs, obtaining EHR systems credentials for MDSs, and clinician orientation. Revenues associated with implementation efforts are deferred until we go live with our service and then recognized ratably over the initial term of the contract.

Cost of Revenues and Gross Profit

Cost of Revenues. Our cost of revenues primarily consists of the cost of MDSs, some of whom are employees of our Vendors and some of whom are our employees, their direct supervisors, clinician support, and technical support. Cost of revenues also consists of infrastructure costs to operate our SaaS-based platform such as hosting fees and fees paid to various third-party partners for access to their technology, plus hardware depreciation and cost of shipping for the devices and accessories we provide to our clinicians.

Gross Profit. Our gross profit is calculated by subtracting our cost of revenues from revenues. Gross margin is expressed as a percentage of total revenues. Our gross profit may fluctuate from period to period as revenues fluctuate and as a result of the mix of MDS centers from which service is provided, operational efficiencies, product mix, and changes to our technology expenses and customer support.

Our gross profit varies by MDS center. We plan to focus on and grow the operations of the MDS centers with the best quality and highest gross margin. We intend to continue to invest additional resources in our platform infrastructure. We will also continue to invest in technology innovation, such as Notebuilder, to reduce the level of effort required by MDSs and the number of MDSs needed overall to deliver our services. We expect these optimization efforts and our investment in technology to expand the efficiency and capability of our platform, enabling us to improve our gross margin over time. The level and timing of investment in these areas, the mix of MDS centers, and the mix of our products, could affect our cost of revenues in the future.

General and Administrative Expenses

General and administrative expenses consist primarily of employee compensation costs for operations management, finance, accounting, information technology, compliance, legal and human resources personnel, board of director costs, and our business support team in Bangladesh. In addition, general and administrative expenses include non-personnel costs, such as facilities, legal, accounting, software implementation fees, compliance testing, investor relations, insurance premiums, and other professional fees, as well as other supporting corporate expenses not allocated to other departments. We expect our general and administrative expenses will increase in absolute dollars as our business grows, but we expect general and administrative expenses to decrease as a percentage of revenues in the coming years.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of employee compensation costs related to sales and marketing, including salaries, benefits, bonuses, and stock-based compensation, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead. Sales and marketing expenses also include onboarding costs for new clinicians and costs for advertising and other marketing activities. Advertising is expensed as incurred. We expect our sales and marketing expenses will increase in absolute dollars as we expand our sales and marketing efforts and onboarding capacity.

Research and Development Expenses

Research and development expenses consist of costs for the design, development, testing, and enhancement of our products and services and are generally expensed as incurred. These costs consist primarily of personnel costs, including salaries, benefits, bonuses, and stock-based compensation for our development personnel. Research and development expenses also include direct MDS training costs, product management, third-party partner fees, and third-party consulting fees. We expect our research and development expenses will increase in absolute dollars as our business grows.

Interest Expense, net

Interest expense, net, consists primarily of the interest incurred on our debt obligations and the non-cash interest expense associated with the amortization of debt discounts. Interest expense is offset by any interest income we earn on our cash balances held in our interest-bearing savings account or money market funds.

Other Income (Expense)

Other income (expenses) consists primarily of Bangladesh government grant income and also foreign currency gains and losses due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency.

The following table summarizes the results of our operations for the periods presented:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share data)	2023			2022			2023			2022
Revenues	$	11,767		$	7,864		$	32,175		$	22,182
Cost of revenues		5,937			4,274			16,894			12,277
Gross profit		5,830			3,590			15,281			9,905
Operating expenses:
General and administrative		4,568			4,136			13,535			12,355
Sales and marketing		2,729			2,304			7,941			6,944
Research and development		2,936			2,608			8,236			7,537
Total operating expenses		10,233			9,048			29,712			26,836
Loss from operations		(4,403	)		(5,458	)		(14,431	)		(16,931	)
Other income (expenses):
Interest expense		(642	)		(316	)		(1,608	)		(1,302	)
Interest income		288			59			726			68
Loss on extinguishment		—			—			—			(1,097	)
Change in fair value of warrant liability		(36	)		—			(105	)
Other income		470			244			907			452
Net loss before income tax		(4,323	)		(5,471	)		(14,511	)		(18,810	)
Income tax expense		84			19			168			40
Net loss	$	(4,407	)		(5,490	)		(14,679	)		(18,850	)

Comparison for the three months ended September 30, 2023 and 2022:

Revenues

	Three Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Revenues	$	11,767	$	7,864	$	3,903		50	%

Revenues increased $3.9 million to $11.8 million during the three months ended September 30, 2023, as compared to $7.9 million during the three months ended September 30, 2022. The increase was primarily attributable to a 47% increase in the average number of clinicians in service in addition to a 2% increase in ARPU. The increase in clinicians in service was driven predominantly by our existing Health Enterprises adding physicians. Dollar-based net revenue retention was 157% in the three months ended September 30, 2023. Increases in revenue were also attributable to growth coming from new physician practice groups and growth of our Notes business.

Cost of Revenues and Gross Margin

	Three Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Cost of revenues	$	5,937	$	4,274	$	1,663		39	%

Cost of revenues increased $1.7 million to $5.9 million during the three months ended September 30, 2023, as compared to $4.3 million during the three months ended September 30, 2022. The increase was primarily attributable to the $1.5 million increase in MDS costs to support the clinicians in service growth. Additionally, cloud hosting costs and depreciation and amortization from hardware spend grew $0.1 million as we have utilized more Automatic Speech Recognition (“ASR”), consumed more cloud hosting as our clinician count increased, and purchased more devices. As a result of operating efficiencies in our MDS operations, cloud hosting, and customer support, our gross margin was 49.5% during the three months ended September 30, 2023, as compared to 45.7% during the three ended September 30, 2022.

General and Administrative Expenses

	Three Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
General and administrative	$	4,568	$	4,136	$	432		10	%

General and administrative expenses increased $0.4 million to $4.6 million during the three months ended September 30, 2023, as compared to $4.1 million during the three months ended September 30, 2022. The increase was attributable to a $0.4 million increase in higher salary and salary-related costs both from current employees as raises were delayed until July and from growth in headcount. In addition, there was a $0.1 million increase of facilities costs due to increased rent costs from the expansion into a new building in Bangladesh. Lastly there was a $0.1 million increase in software expenses driven by additional users of existing software and more software applications. Increases were offset by $0.1 million of savings from lower insurance premiums and $0.1 million decline in recruiting fees.

 Sales and Marketing Expenses

	Three Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Sales and marketing	$	2,729	$	2,304	$	425		18	%

Sales and marketing expenses increased $0.4 million to $2.7 million during the three months ended September 30, 2023, as compared to $2.3 million during the three months ended September 30, 2022. An increase of $0.2 million was attributable to added headcount of our Customer Success team to support expansion sales and support of our growing customer base, while the growth of our customer onboarding team contributed another $0.1 million increase to expenses. The remaining $0.1 million of growth was driven from increased spending on advertising and public relation expenses.

Research and Development Expenses

	Three Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Research and development	$	2,936	$	2,608	$	328		13	%

Research and development expenses increased $0.3 million to $2.9 million during the three months ended September 30, 2023, as compared to $2.6 million during the three months ended September 30, 2022. Research and development expenses increased by $0.3 million mainly due to additional investments in engineering and product plus an incremental $0.1 million of spend on training. This was offset by a $0.2 million capitalization of software expenses from the application development of Augmedix Go.

Other Income (Expenses)

	Three Months Ended September 30,						$			%
(in thousands)	2023			2022			Change			Change
Interest expense	$	(642	)	$	(316	)	$	(326	)		103	%
Interest income		288			59			229			388	%
Change in fair value of warrant liability		(36	)		—			(36	)		100	%
Other income		470			244			226			93	%
	$	80		$	(13	)	$	93			(715	)%

Our interest expense increased $0.3 million to $0.6 million during the three months ended September 30, 2023, compared to $0.3 million during the three months ended September 30, 2022. The increase was attributable to a higher interest rate on our debt due to the higher Federal Funds rate combined with an increase in our total debt outstanding. Our interest income increased by $0.2 million to $0.3 million during the three months ended September 30, 2023 compared to $0.1 million during the three months ended September 30, 2022, due to higher interest rates and the increased use of money market funds.

Other income increased $0.3 million to $0.5 million in the three months ended September 30, 2023 compared to $0.2 million during the three months ended September 30, 2023. The increase was primarily due to a $0.3 million incentive payment received by the Company from the Bangladesh Government for investments made in Bangladesh.

Comparison for the nine months ended September 30, 2023 and 2022:

Revenues

	Nine Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Revenues	$	32,175	$	22,182	$	9,993		45	%

Revenues increased 45%, or $10.0 million, to $32.2 million during the nine months ended September 30, 2023, as compared to $22.2 million during the nine months ended September 30, 2022. The increase was primarily attributable to a 46% increase in the average number of clinicians in service and slightly offset by a nominal decrease in ARPU driven by a larger mix of emergency department shift-based clinicians. The increase in the average number of clinicians in service was driven predominately by our existing Health Enterprises adding physicians, as well as growth in the number of clinicians using Augmedix Notes, and the addition of new customers. Dollar-based net revenue retention was 147% in the nine months ended September 30, 2023.

Cost of Revenues and Gross Margin

	Nine Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Cost of revenues	$	16,894	$	12,277	$	4,617		38	%

Cost of revenues increased $4.6 million to $16.9 million during the nine months ended September 30, 2023, as compared to $12.3 million during the nine months ended September 30, 2022. The increase was primarily attributable to a $4.3 million increase in MDS costs driven by additional clinicians in service. In addition, cloud hosting costs increased by $0.2 million due to the addition of new clinicians, and higher spend on consumption-based technology to drive automation. Lastly, there was a $0.2 million increase in hardware depreciation due to the growth of clinicians. Gross margin for the nine months ended September 30, 2023 was 47.5%, as compared to 44.7% in the nine months ended September 30, 2022.

General and Administrative Expenses

	Nine Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
General and administrative	$	13,535	$	12,355	$	1,180		10	%

General and administrative expenses increased $1.2 million to $13.5 million during the nine months ended September 30, 2023, as compared to $12.4 million during the nine months ended September 30, 2022. The increase was attributable to a $0.3 million increase in legal fees associated with the debt amendment and equity raise. There was also a $0.3 million increase associated with higher Board of Director fees and our HITRUST certification costs, as well as $0.2 million of facilities costs associated with the new building in Bangladesh. The remaining $0.4 million was attributable to an increase in salary and salary-related expenses both from growth in headcount and from raises implemented for US employees in July 2023.

Sales and Marketing Expenses

	Nine Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Sales and marketing	$	7,941	$	6,944	$	997		14	%

Sales and marketing expenses increased $1.0 million to $7.9 million during the nine months ended September 30, 2023, as compared to $6.9 million during the nine months ended September 30, 2022. The increase was attributable to a $0.5 million of additional costs due to a larger customer onboarding team to support the growing number of clinicians launching our services, $0.2 million of additional spending in marketing and public relations, and a $0.4 million increase in the combined salaries of the Customer Success Management and the Analytics & Insights teams, partially offset by a $0.2 million decrease in salaries of the sales team.

Research and Development Expenses

	Nine Months Ended September 30,				$		%
(in thousands)	2023		2022		Change		Change
Research and development	$	8,236	$	7,537	$	699		9	%

Research and development expenses increased $0.7 million to $8.2 million during the nine months ended September 30, 2023, as compared to $7.5 million during the nine months ended September 30, 2022. The increase was primarily attributable to a $0.7 million investment into engineering and product headcount along with higher salaries, offset by $0.4 million of capitalization of application development costs for Augmedix Go. The remaining $0.4 million expense increase was driven by higher training costs to grow our MDS capacity to meet the service needs of our larger base of clinician users.

Other Income (Expenses)

	Nine Months Ended September 30,						$			%
(in thousands)	2023			2022			Change			Change
Interest expense	$	(1,608	)	$	(1,302	)	$	(306	)		(23	)%
Interest income		726			68			658			968	%
Loss on debt extinguishment		—			(1,097	)		1,097			(100	)%
Change in fair value of warrant liability		(105	)		—			(105	)		(100	)%
Other		907			452			455			101	%
	$	(80	)	$	(1,879	)	$	1,799			(96	)%

Our interest expense increased $0.3 million to $1.6 million during the nine months ended September 30, 2023, compared to $1.3 million during the nine months ended September 30, 2022, The increase was attributable to a higher interest rate on our debt due to the higher Federal Funds rate combined with an increase of our total debt outstanding. Our interest income increased by $0.7 million to $0.7 million during the nine months ended September 30, 2023 due to the increased use of money market funds and higher interest rates. There was a $1.1 million decrease in loss on debt extinguishment in the nine months ended September 30, 2023 versus September 30, 2022 due to the refinancing of our debt facility last year. There was a $0.1 million decrease in the nine months ending September 30, 2023 versus September 30, 2022 due to change in fair value of our warrant liability.

Other income increased $0.5 million in the nine months ended September 30, 2023 mainly due to a $0.2 million increase in Bangladesh government incentive payments received by the Company for investments made in Bangladesh and a $0.3 million gain on foreign exchange.

Additionally, there is no assurance if we require additional future financing that such financing will be available on terms that are acceptable to us, or at all.

Liquidity and Capital Resources

Our primary sources of liquidity are cash raised from sales of common stock, preferred stock previous to 2020, and cash from equity financings and borrowings under various facilities, which are further described below. As of September 30, 2023, we had cash resources of $22.3 million which includes $0.7 million of restricted cash to secure our credit card facility balances, to collateralize a letter of credit in the name of our landlord pursuant to an operating lease, and for a post-employment savings fund established for the benefit of eligible Bangladesh employees. Since Augmedix’s inception in 2013 until today, we have financed our operations primarily through the private and public sale of approximately $205 million of preferred and common stock and from various debt arrangements. As described in Note 1 of our unaudited interim condensed consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at September 30, 2023 of $140.5 million. We have relied on debt and equity financing to fund operations to date and we expect losses and negative cash flows to continue, primarily as a result of continued research, development and marketing efforts. Our cash balance will provide sufficient resources to meet working capital needs for over twelve months from the filing date of the September 30, 2023 Form 10-Q. Over the longer term, if we do not generate sufficient revenue from new and existing products, additional debt or equity financing may be required along with a reduction in expenditures.

The following table summarizes our sources and uses of cash for each of the periods presented:

	Nine Months Ended September 30,
(in thousands)	2023			2022
Cash (used in) provided by:
Operating activities	$	(14,468	)	$	(12,387	)
Investing activities		(1,912	)		(816	)
Financing activities		16,989			(1,244	)
Effects of exchange rate changes on cash and restricted cash		(311	)		(143	)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	298		$	(14,590	)

Operating Activities

Cash used in operating activities was $14.5 million and $12.4 million for the nine months ended September 30, 2023 and 2022, respectively. Cash used in operating activities during the nine months ended September 30, 2023 principally resulted from our net loss of $14.7 million, which includes non-cash charges of $3.9 million, and increase in working capital of $3.6 million.

Cash used in operating activities during the nine months ended September 30, 2022 principally resulted from our net loss of $18.9 million, which includes non-cash charges of $4.3 million, and decreases in working capital of $2.2 million.

Investing Activities

Cash used in investing activities was $1.9 million and $0.8 million for the nine months ended September 30, 2023 and 2022, respectively. Cash used in investing activities resulted from capital expenditures of property and equipment for both periods presented.

Financing Activities

Cash provided by financing activities during the nine months ended September 30, 2023 of $17.0 million principally resulted from $11.8 million from issuance of common stock, and warrants, net of issuance costs, $5.0 million in debt proceeds, and $0.2 million from the exercise of stock options.

Cash used in financing activities during the nine months ended September 30, 2022 of $1.2 million principally resulted from $15.0 million of debt proceeds which was offset by $16.1 million in repayment of an existing debt agreement, and exit fees and $0.1 million in payments for financing costs related to the new debt arrangement.

Contractual Obligations and Commitments

The following summarizes our significant contractual obligations as of September 30, 2023:

	Payments due by period
			Less than						More than
(in thousands)	Total		1 year		1-3 years		4-5 years		5 years
Long-term debt obligations (excluding interest)		21,000		10,000		11,000		—		—
Operating lease obligations		4,041		360		2,831		850		—
Cloud computing obligation		1,300		1,300		—		—		—
Total	$	26,341	$	11,660	$	13,831	$	850	$	—

Off-Balance Sheet Arrangements

As of September 30, 2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Other than as described under Note 2 to our unaudited interim condensed consolidated financial statements, the Critical Accounting Policies and Significant Judgments and Estimates included in our Form 10-K for the year ended December 31, 2022, filed with the SEC on April 17, 2023, have not materially changed.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We have elected to early adopt certain new accounting standards, as described in Note 2 of our consolidated financial statements. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited financial statements appearing elsewhere in this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of September 30, 2023, as required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective at the reasonable assurance level as of such date, due to the material weakness in our internal control over technical accounting analyses, and the regular review and application of accounting policies, as the Company grew and its operations changed. Notwithstanding the identified material weakness, management has concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations, and cash flows for the periods disclosed in accordance with GAAP.

Remediation Efforts to Address the Material Weakness

A material weakness in our internal control over the application of accounting policies was identified as of September 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. The material weakness identified was a lack of sufficient resources in our finance function to meet our financial reporting requirements. This material weakness resulted in insufficient management review of accounting policies as our company grew. Management continues to review and make necessary changes to the overall design of our internal control environment, including implementing additional internal controls over the annual review of all relevant accounting policies, particularly in areas where our operations have changed. We will add additional resources and expertise to our finance function to enhance the effectiveness of internal controls over financial reporting. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Although we plan to complete this remediation process as quickly as possible, we cannot estimate at this time how long it will take.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2023, there have been no changes in our internal control over financial reporting as such term is defined in Rule 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material pending legal proceedings. From time to time, we may become involved in lawsuits and legal proceedings that arise in the ordinary course of business.

Item 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on April 17, 2023. There have been no material changes in reported risk factors from the information reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Item 2. Unregistered sales of equity securities and use of proceeds.

None.

Item 3. Defaults upon senior securities.

Not applicable.

Item 4. Mine safety disclosures.

Not applicable.

Item 5. Other information.

During the three months ended September 30, 2023, none of our directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

Item 6. Exhibits.

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.

Exhibit Number		Description
2.1		Agreement and Plan of Merger and Reorganization among Malo Holdings Corporation, a Delaware corporation, August Acquisition Corp, a Delaware corporation, and Augmedix, Inc., a Delaware corporation (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on October 9, 2020).
3.1		Restated certificate of incorporation, filed with the Secretary of State of the State of Delaware on October 5, 2020 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on October 9, 2020)
3.2		Restated Bylaws (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed with the SEC on October 9, 2020)
10.1*		Fourth Omnibus Amendment, entered into on July 11, 2023, by and among Augmedix Operating Corp. f/k/a Augmedix, Inc., Dignity Health, Dignity Health Medical Foundation, and Pacific Central Coast Health Centers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on July 14, 2023).
10.2*		Fifth Omnibus Amendment, entered into on October 10, 2023, by and among Augmedix Operating Corp. f/k/a Augmedix, Inc., Dignity Health, Dignity Health Medical Foundation, and Pacific Central Coast Health Centers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 13, 2023).
10.3		Amendment to Sublease, by and between Augmedix Operating Corp. and Turo Inc., dated October 31, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on November 6, 2023)
31.1+		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1#		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2#		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C Section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

+	Filed herewith.

*	Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the SEC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AUGMEDIX, INC. (Registrant)

Date: November 13, 2023	By:	/s/ Emmanuel Krakaris
	Name:	Emmanuel Krakaris
	Title:	President, Chief Executive Officer and Secretary
		(Principal Executive Officer)

Date: November 13, 2023	By:	/s/ Paul Ginocchio
	Name:	Paul Ginocchio
	Title:	Chief Financial Officer
		(Principal Accounting and Financial Officer)