Earnings call transcript: Semler Scientific Q4 2024 beats EPS expectations

Semler Scientific Inc. (NASDAQ:SMLR) reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share (EPS) of $3.41, significantly higher than the forecasted $0.26. The company also reported revenues of $12.4 million, exceeding the expected $12 million. Despite these positive results, the stock saw modest movement, closing up 2.11% at $50.99 in aftermarket trading. According to InvestingPro data, the company maintains impressive gross profit margins of 88.05% and has received a "GREAT" financial health score of 3.18 out of 5, suggesting strong operational efficiency.

Key Takeaways

• Semler Scientific’s EPS of $3.41 significantly outperformed the forecast of $0.26.
• Revenue for Q4 2024 was $12.4 million, an 18% decrease year-over-year.
• The stock rose by 2.11% in aftermarket trading following the earnings release.
• The company continues to focus on its QuantaFlo product and Bitcoin treasury strategy.
• Potential revenue pressure is anticipated in 2025 due to CMS rate changes.

Company Performance

Semler Scientific showcased a robust financial performance in Q4 2024, with income from operations increasing by 40% year-over-year to $3.5 million. While total revenues saw an 18% decline compared to the previous year, InvestingPro analysis reveals the company maintains strong liquidity with a current ratio of 3.14 and operates with minimal debt. The company’s strategic focus on its core product, QuantaFlo, and its Bitcoin treasury strategy appears to have supported its financial outcomes. InvestingPro subscribers have access to 12 additional key insights about SMLR’s financial position and market performance.

Financial Highlights

• Revenue: $12.4 million, an 18% decrease year-over-year.
• Earnings per share: $3.41, significantly above the $0.26 forecast.
• Operating expenses: $8.9 million, a 29% decrease year-over-year.
• Net income: $29.2 million, or $3.64 per basic share.

Earnings vs. Forecast

Semler Scientific’s actual EPS of $3.41 was a remarkable 1,211% higher than the forecasted $0.26, indicating a strong performance relative to expectations. This marks a significant positive surprise, showcasing the company’s ability to exceed market predictions substantially.

Market Reaction

Following the earnings announcement, Semler Scientific’s stock rose by 2.11% to $50.99 in aftermarket trading. This movement reflects investor optimism, albeit restrained, possibly due to the broader market context or anticipated challenges in the coming year.

Outlook & Guidance

Looking forward, Semler Scientific aims to minimize revenue declines from its QuantaFlo product and maintain its infrastructure for cardiovascular disease innovation. While analysts tracked by InvestingPro anticipate some revenue pressure with a consensus target price of $71, the company’s strong return on invested capital of 22% positions it well for future growth. The company plans to continue its Bitcoin treasury strategy and explore potential expansions of its cardiovascular product offerings. For detailed analysis including Fair Value estimates and comprehensive financial metrics, investors can access the full Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

Eric Semler, Chairman, emphasized the strategic value of Bitcoin, describing it as "digital gold," while COO Jennifer Oliva Harrington highlighted cardiovascular disease as a primary concern in healthcare expenditures. These insights underline the company’s focus on leveraging technological and financial strategies to bolster its market position.

Risks and Challenges

• Potential revenue pressure in 2025 due to CMS rate changes.
• Market saturation in the cardiovascular diagnostic sector.
• Regulatory changes in cryptocurrency markets affecting Bitcoin strategy.
• Dependence on two major customers for a significant portion of revenue.
• Economic uncertainties impacting healthcare expenditures.

Q&A

During the earnings call, analysts queried the rationale behind the convertible note offering, to which the company responded that it was a cheaper funding source with less dilution. Questions about business trends for 2025 were addressed with plans to expand beyond managed care, while expectations for crypto regulations were met with optimism regarding the potential repeal of SAB 121 and bank custody of Bitcoin.

Full transcript - Semler Scientific Inc (SMLR) Q4 2024:

Conference Operator: Good afternoon, and welcome to the Semler Scientific’s Fourth Quarter and Full Year twenty twenty four Financial Results Conference Call. All participants will be in a listen only mode. After today’s prepared remarks, as time permits, management will take questions submitted prior to the call via e mail. Please note this event is being recorded. Before we begin, Similar Scientific needs to remind you that certain comments made during this call may constitute forward looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended.

These include statements regarding the expectations for expansion of the business and development and marketing of additional products, including receipt and timing of an additional $5.10 clearance from QuantaFlo and our Bitcoin treasury strategy and plans to acquire additional Bitcoin. Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and our SEC filings. The forward looking statements made today are as of the date of this call, and the company does not undertake any obligation to update the forward looking statements. If you do not have a copy of today’s press release, you may obtain one by visiting the Investor Relations page of the website simillarscientific.com.

I would now like to introduce Doctor. Doug Murphy Katorian, CEO of Simler Scientific. Please go ahead, sir.

Doug Murphy-Katorian, CEO, Semler Scientific: Good afternoon, everyone. Thank you for joining us for our twenty twenty four fourth quarter and full year results call. Once again, we achieved strong performance and cash generation from our healthcare operations. In 2024, we deployed much of this cash and truly the proceeds from our ATM offering into the purchase of Bitcoin. Now I’ll hand it over to the call to Eric Semler, our Chairman, who will provide you with an update on our Bitcoin Treasury strategy.

Eric?

Eric Semler, Chairman, Semler Scientific: Thanks, Doug, and thank you all. Thank you to all of our stockholders for listening in today and for your support of our mission. 2024 was a transformational year for Semler Scientific. One of our major accomplishments was adopting Bitcoin as our primary treasury reserve asset in May 2024. In doing so, we became the second U.

S. Public company to adopt a Bitcoin treasury strategy. Since that time, we have made substantial accretive purchases of Bitcoin and we now own 3,192 Bitcoins valued at more than $300,000,000 In addition, we have generated a positive bitcoin yield of 152 since the quarter after adopting our bitcoin treasury strategy. According to bitcointreasuries.net, Semler Scientific is the tenth largest corporate holder of Bitcoin. The company’s market capitalization has grown by more than 200% since adopting Bitcoin 9 months ago.

We have accumulated Bitcoin using our operating cash flow and using the proceeds from our At The Market offering and from our recent $100,000,000 convertible senior notes offering. We also recently monetized a portion of our minority investment in Monarch Medical (TASE:PMCN) and used the $3,500,000 of proceeds to buy more Bitcoin. In our healthcare operations, we achieved record cash generation of over $24,000,000 in 2024. We also announced that we are seeking a new five ks, 10 ks clearance for product extension of our QuantaFlo technology. In addition, as Jen will discuss later, we are pursuing other revenue opportunities in the cardiovascular space that we believe will appeal to our strong and well established customer base.

We could not be more thrilled with the progress we are making in growing our Bitcoin stockpile. We were especially pleased with our successful convertible notes offering, which we completed in late January. The overnight offering had strong interest and demand from investors and was substantially oversubscribed. Given the robust demand, we decided to upsize the offering from the originally expected amount of $75,000,000 to $85,000,000 and the initial purchasers exercised in full their option to acquire additional notes resulting in $100,000,000 of notes issued. Together with the capped call transactions, the notes have a conversion premium of 75% and carry a 4.25% interest rate and they mature in February.

As an operating business, we have strategically used cash flows alongside equity and debt issuances to acquire Bitcoin. To date, we have invested $280,000,000 in Bitcoin, a move we believe is highly accretive to our equity. We have strong conviction in Bitcoin’s long term investment potential. We consider it digital gold. With this confidence, we remain committed to significantly growing our Bitcoin arsenal.

Going forward, we will act prudently with equity or other financing options when we believe it is accretive to do so. All equity and financing options will be thoroughly evaluated and pursued methodically and responsibly as we seek to maximize stakeholder value. Now, I’m pleased to introduce our COO, Jennifer Oliva Harrington to provide an overview and update of our core medical products and services business. Jen?

Jennifer Oliva Harrington, COO, Semler Scientific: Thank you, Eric. Today, I’ll be presenting an overview of our market developments and opportunities. Renee Cormier, our CFO, will be providing information about fourth quarter twenty twenty four financial results. Semler is a pioneer in developing and marketing technology products and services to healthcare providers to combat chronic diseases. Our unwavering focus on our core medical products and services business alongside our Bitcoin treasury strategy ensures that we maintain our position at the forefront of healthcare technology.

For those of you that are new to our story, our core product, QuantiFlow is a non invasive point of care device that aids clinicians in the early diagnosis of peripheral arterial disease or PAD. With a SaaS based model, we generate recurring revenue from a large under penetrated market. Summer’s mission is to improve healthcare outcomes by supporting early detection of cardiovascular diseases, which pose a significant global burden on healthcare systems. Cardiovascular disease ranks as the top concern in healthcare expenditures and global mortality, underscoring the need for early identification of cardiac conditions. We are committed to expanding our product offering and advancing research to stay at the forefront of medical innovation.

Our long term vision includes extending our reach to incorporate additional cardiovascular applications, reflecting our dedication to continuous expansion. This commitment ensures that we remain at the cutting edge of healthcare technology. As we continue to innovate, we are pursuing a new five ten clearance for an extension to our QuantaFlo product line with hopes of obtaining this clearance sometime in 2025. Additionally, we are test marketing other established FDA cleared products in the cardiovascular care space that we believe will appeal to our current customer base. Should we see any material revenues from these efforts, we will conduct a formal product introduction in the future.

In the meantime, we are actively promoting QuantiFlow as a valuable tool as an aid in the diagnosis of PAD and working to establish it as the standard of care. Our strategy includes expanding our customer base by adding new medical centers, growing within the value based care provider and targeting new markets that will benefit from testing. I will now turn the call over to Renee to discuss our financial highlights. Renee? Thank you, Jen.

I will cover our fourth quarter financial results and then speak more about our Bitcoin holdings, use of our ATM and convertible notes offering. Following our remarks and as time permits, we will answer questions that have been submitted via email. Total (EPA:TTEF) revenues in Q4 twenty twenty four were $12,400,000 which was down about 18% compared to the fourth quarter of twenty twenty three. We expect we may see some further pressure on revenues in 2025 following the additional phase in of the 2024 CM centimeters

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Jennifer Oliva Harrington, COO, Semler Scientific: centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters centimeters S rate announcement. In the fourth quarter of twenty twenty four, our two largest customers, including their related affiliates, comprised 3931% of quarterly revenues, respectively. Operating expenses in Q4 twenty twenty four, which includes cost of revenues, were $8,900,000 a decrease of 29% year over year. Income from operations was $3,500,000 an increase of 40% compared to $2,500,000 in the prior year. Other income net was $29,000,000 and included a gain of $28,800,000 from the change in fair value of our Bitcoin holdings.

We have elected to early adopt ASU twenty twenty three-eight, which is the new standard issued by the FASB for accounting for and disclosure of crypto assets. This accounting standard update requires Bitcoin assets to be measured at fair value with gains and losses from changes in the fair value to be recognized in net income in each reporting period. While this may introduce volatility into our reported net income, it will not impact our cash flow from operations, which we intend to invest in additional Bitcoin purchases. Net income for the fourth quarter was $29,200,000 or $3.64 per basic share and $3.41 per fully diluted share compared to net income of $4,200,000 or $0.62 per basic share and $0.55 per fully diluted share in Q4 twenty twenty three. Cash, cash equivalents and restricted cash at 12/31/2024 was $8,900,000 Outside of working capital needs, we intend to use our liquid assets, including operating cash generation to acquire Merbit clients.

Last year, we filed a $150,000,000 shelf registration statement on Form S3 and related ATM offering prospectus covering the offering, issuance and sale of common stock. As of 12/31/2024, we sold approximately 2,200,000.0 shares for net proceeds of approximately $119,600,000 In late January, we completed a convertible senior notes offering with $100,000,000 aggregate principal amount of five point five year four point two five percent notes due in August 2030, including the exercise in full of the initial purchaser’s option to purchase up to an additional $15,000,000 in principal amount of the notes. Together with KatzCall transactions, the conversion premium is 75%, leading to an initial effective conversion price of similar stock of approximately 107 per share, which significantly reduces potential conversion dilution. We use net proceeds from the ATM and convertible note issuances as well as cash from operations to purchase additional bitcoins. During the fourth quarter of twenty twenty four, we purchased $12.80 bitcoins for an aggregate cost of $121,300,000 Subsequent to quarter end, we purchased an additional $8.94 bitcoins for an aggregate cost of $90,700,000 and now hold 3,192 bitcoins with an average cost basis of $87,854 per bitcoin.

Now, we will begin our Q and A. We received some questions ahead of the release that we tried to address in the prepared remarks. We do have some time for some additional questions. The first one, why did you decide to do the convertible note offering? Eric, I’ll let you take that one.

Eric Semler, Chairman, Semler Scientific: Thanks, Renee. We decided to raise capital in the convert market because we believe it is a cheaper source of funding for us and thus less dilutive to our stockholders and because it gave us the opportunity to raise a large amount of capital in a very short amount of time. We intended to raise $75,000,000 but because of outsized demand for the offering, we were able to increase the total offering size to $100,000,000 including the exercise in full of the initial purchaser’s option to buy up to an additional $15,000,000 of notes. In addition, with the capped call, we were able to create a convergent premium 75% higher than where our stock was trading at the time of the announcement of the offering.

Jennifer Oliva Harrington, COO, Semler Scientific: Thanks, Eric. Jen, you can take our next question. What’s driving the underlying trends in the business and what do you expect for 2025? Thank you, Renee. Despite the government decision about payment for risk adjustment for PAD, we continue to add new clients for software licenses relating to our quantifil product.

We’re expanding our customer base beyond managed care by reaching clinics and value based care providers who recognize the clinical importance of PAD testing. Our priority for 2025 is to minimize the declines to QuantiFLU revenue while maintaining sufficient infrastructure to support, innovate and grow our operations related to other cardiovascular diseases. Our next question, what are your expectations from the new government in Washington DC regarding crypto? Eric, you can take that one.

Eric Semler, Chairman, Semler Scientific: Thanks, Renee. We are excited about the strong government support Bitcoin is finally getting. We are especially encouraged by the repeal of SAB 121 and the opportunity that creates some major banks to custody Bitcoin. We believe that the expansion of custody to the world’s top banks may substantially increase the chances that large public companies will add bitcoin to their balance sheet. We do not believe that the benefits of the repeal of SAB 121 are fully reflected in the current price of Bitcoin.

Jennifer Oliva Harrington, COO, Semler Scientific: Thank you, Eric, and thank you everyone for your questions. As we wrap up this conference call, we want to emphasize our ongoing commitment to our medical software licensing business and continued execution of our Bitcoin Treasury strategy. We appreciate your participation in today’s discussion and thank you for your ongoing support.

Conference Operator: Operator? Thank you everyone for joining. This now concludes the conference call. You may now disconnect and have a pleasant day. Thank you.

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