Semler Scientific (ticker: NASDAQ:SMLR) reported its financial results for the second quarter of 2024, revealing a mixed performance with strong income from operations but a decline in total revenues compared to the same period last year.
The company has also made a significant strategic pivot by adopting Bitcoin as its primary treasury reserve asset. Semler Scientific's leadership discussed the rationale behind this move, citing Bitcoin's growing global acceptance and potential as an investment.
Despite the revenue dip, the company remains committed to its core medical products and services business, particularly its flagship QuantaFlo product for early diagnosis of peripheral arterial disease (PAD).
Key Takeaways
- Semler Scientific's total revenues for Q2 2024 were $14.5 million, down 22% year-over-year.
- The company reported income from operations of $5.4 million.
- Semler Scientific has invested heavily in Bitcoin, holding 929 bitcoins as of August 5th, 2024.
- The company's Board of Directors views Bitcoin as a compelling investment and a reasonable inflation hedge.
- Semler remains dedicated to its healthcare business, focusing on the QuantaFlo device for PAD diagnosis.
Company Outlook
- Semler Scientific anticipates revenue cadence for the remainder of 2024 to be similar to 2023, with the first half of the year being more heavily weighted.
- The company plans to control expenses tightly and continue implementing its Bitcoin treasury strategy.
- Semler intends to use cash flow and equity capital raises to further accumulate Bitcoin holdings.
Bearish Highlights
- The 22% decrease in total revenues from the same quarter in the previous year.
- The change in fair value of Bitcoin holdings resulted in a negative impact of $5.1 million on the net income.
Bullish Highlights
- Strong income from operations despite the decline in total revenue.
- High margin business with consistent cash generation.
- Positive market reaction to the company's Bitcoin treasury strategy.
Misses
- Net income was nil, a significant drop from the $5.9 million reported in Q2 2023.
Q&A Highlights
- The Bitcoin strategy was influenced by MicroStrategy's success and increasing institutional ownership of Bitcoin.
- The company's focus remains on tightly controlling expenses and maximizing operating income.
- Semler Scientific is awaiting SEC approval for a shelf registration that would allow for up to $150 million in security offerings, with intentions to use proceeds for general corporate purposes, including Bitcoin acquisition.
Semler Scientific's second quarter of 2024 has demonstrated a robust operational performance despite a downturn in revenue. The company's strategic investment in Bitcoin underscores its confidence in the cryptocurrency as a store of value and an inflation hedge. With a strong balance sheet and a high-margin business, Semler Scientific is positioning itself to take advantage of the growing institutional acceptance of Bitcoin. At the same time, the company continues to prioritize its medical products, with QuantaFlo playing a key role in combatting chronic diseases like PAD. The financial community will be watching closely to see how this unconventional strategy of balancing healthcare innovation with cryptocurrency investment plays out in the coming quarters.
InvestingPro Insights
Semler Scientific's recent financial disclosures and strategic moves have caught the attention of industry observers. The company's decision to pivot towards Bitcoin as a primary treasury reserve asset marks a significant shift in its investment strategy, aligning with a broader trend of cryptocurrency adoption among corporations.
InvestingPro Tips for Semler Scientific (SMLR) highlight several key aspects of the company's performance and outlook. Notably, management's aggressive share buyback initiative and the company's impressive gross profit margins, which stand at 88.67% for the last twelve months as of Q2 2024, demonstrate a commitment to shareholder value and operational efficiency. These tips, along with other valuable insights, are available on InvestingPro's platform, with over six additional tips listed to help investors make informed decisions (https://www.investing.com/pro/SMLR).
InvestingPro Data metrics offer a snapshot of Semler's current financial health:
- The Market Cap stands at 185.97M USD, reflecting the company's size and market value.
- A P/E Ratio of 12.98, which adjusts to 11.14 for the last twelve months as of Q2 2024, provides a measure of the stock's valuation relative to its earnings.
- Lastly, the Revenue Growth shows a decline of 4.5% for the last twelve months as of Q2 2024, indicating recent challenges in increasing top-line sales.
The combination of Semler's high gross profit margins and the recent stock price performance, with a one-week total return decrease of 23.38%, suggests a potential opportunity for investors. The company's liquid assets exceeding short-term obligations and the expectation of profitability this year, as noted by analysts, provide further confidence in its financial stability.
Semler Scientific's bold move into Bitcoin and its robust operational metrics underscore a company navigating through a transformative phase, balancing innovation in healthcare with strategic financial management. The financial community will undoubtedly continue to monitor how these strategies impact Semler's performance in the dynamic market landscape.
Full transcript - Semler Scientific Inc (SMLR) Q2 2024:
Operator: Good afternoon, and welcome to the Semler Scientific 2024 Second Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's prepared remarks, as time permits, management will take questions submitted prior to this call via email. Please note this event is being recorded. Before we begin, Semler 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 Security Litigation Reform Act of 1995 as amended. These include statements regarding the expectations for expansion of the business and the development and the marketing of additional products, including receipt and timing of an additional 510(k) clearance for QuantaFlo and our recently adopted 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 release, you may obtain one by visiting the investor relations page of the website semlerscientific.com. Now, I would like to introduce Doug Murphy-Chutorian, CEO of Semler Scientific. Please go ahead.
Doug Murphy-Chutorian: Good afternoon, everybody. Thank you for joining our second quarter 2024 results call. Once again we achieved strong income from operations and used most of our cash and cash equivalents to purchase bitcoin. We may now hold 929 bitcoins as of August 5th, 2024. Now I'd like to hand the call over to Eric Semler, our Chairman, who will discuss our bitcoin strategy in more detail. Eric?
Eric Semler: Thank you, Doug. It's great to be on the call today. In May, we announced that our Board of Directors adopted bitcoin as our primary treasury reserve asset. We are very encouraged by the strong positive reaction to this announcement. We are in the fortunate position of being a company with a strong balance sheet, driven by a high margin business that has consistently generated cash. We are also fortunate that our board members and executive officers collectively beneficially own approximately 30% of the company's outstanding shares and are intensely focused on maximizing shareholder value. Our board and senior management have spent extensive time examining potential uses of cash, including acquisitions and stock repurchases. But after studying various alternatives, we decided that holding bitcoin would be the best use of our cash. We view bitcoin as a compelling investment. We are encouraged by the growing global acceptance and institutionalization of bitcoin, which has been accelerated by the SEC's approval in January 2024 of 11 Bitcoin spot ETFs. These ETFs have reported tens of billions of dollars of net inflows with investments from a large number of institutions, including global banks, pensions, endowments, and registered investment advisors. It is currently estimated that more than 10% of all bitcoins are now held by institutions. We believe bitcoin has unique attributes as a scarce and finite asset that can serve as a reasonable inflation hedge and safe haven amid global instability. Bitcoin is often compared to gold, which has been viewed as a dependable store of value throughout history. Like gold, bitcoin is viewed as a scarce asset. The ultimate supply of bitcoin is limited to 21 million coins and approximately 94% of its supply already exists. We believe that bitcoin's finite, digital, and decentralized nature, as well as its architectural resilience make it preferable to gold, which has a market capitalization more than 16 times higher than the market cap of bitcoin. Given our view that bitcoin is a comparable and possibly better store of value than gold, we believe that bitcoin will approach or exceed the value of gold over time. In light of the substantial gap in value between gold and bitcoin, we believe that bitcoin has the potential to generate outsized returns as it gains increasing acceptance as digital gold. We are highly committed to our bitcoin strategy. As an operating company, we intend to use our cash flow as well as proceeds from equity capital raises to accumulate bitcoin. Now I'm pleased to introduce our COO, Jennifer Oliva Herrington to provide an overview and update of our core medical products and services business. Jen?
Jennifer Oliva Herrington: Thank you, Eric. Today, I will be presenting an overview of our market developments and opportunities. Renae Cormier, our CFO, will be providing information about second quarter 2024 financial results. Semler is a pioneer in developing and marketing technology products and services to health care providers to combat chronic diseases. In conjunction with our bitcoin treasury strategy, we will continue to focus on our core medical products and services business. We remain dedicated to our customers and our goal of operating a growing and profitable healthcare company. Our main product, QuantaFlo, is a medical device that is a non-invasive point of care test that measures arterial blood flow in the extremities to aid clinicians in the early diagnosis of peripheral arterial disease, or PAD. Our technology brings cardiovascular testing to the front lines of medicine. We have a high leverage distribution model as QuantaFlo was sold on a SaaS basis with a high recurring revenue stream from this subscription-based licensing model that has a large and under-penetrated TAM. Semler's operating focus remains supporting the identification of chronic diseases by our customers, which continues to burden our healthcare system. Cardiovascular disease ranks as a top concern in healthcare expenditures and global mortality, underscoring the imperative for early identification of cardiac conditions. We remain committed to research and development as we prioritize the enhancement of existing products and data services to stay in the forefront of innovation and consistently deliver cutting edge solutions to our customers. Our long-term vision includes extending our reach to encompass additional cardiovascular applications, reflecting our dedication to continuous expansion. In the interim, we continue the promotion and selling of QuantaFlo as a valuable aid in the diagnosis of PAD. We continue seeking to further establish QuantaFlo as standard of care for our PAD diagnosis, leveraging the demonstrated clinical benefit of early detection and preventative care. We believe this approach holds the potential to not only save lives, but also to lower healthcare expenditures. We will continue diversifying our customer base by adding new medical centers, expanding our reach within value-based care providers, and growing opportunities within additional markets that will benefit from PAD testing. I will now turn the call over to Renee to discuss our financial highlights.
Renae Cormier: Thank you, Jen. I'll cover our second quarter financial results and then speak more about our bitcoin holdings and recently filed S3. Following our remarks and as time permits, we will answer questions that have been submitted via email. Total revenues in Q2 2024 were $14.5 million, which was down about 22% compared to the second quarter of 2023. For the remainder of 2024, we anticipate our revenues could follow a similar cadence that we saw in 2023, with H1 more heavily weighted versus H2. In the second quarter of 2024, our three largest customers, including their related affiliates, comprise 44%, 27%, and 11% of quarterly revenues, respectively. Operating expenses in Q2 2024, which includes cost of revenue, were $9.1 million, a decrease of 20% year-over-year. Income from operations was $5.4 million compared to $7.2 million in the prior year. For the remainder of the year, we are focused on tight expense control as we continue to implement our bitcoin treasury strategy. Other expenses net was $4.2 million and included the change in fair value of our bitcoin holdings of negative $5.1 million. We have elected to early adopt ASU-2023-08, which is the new standard issued by the FASB for accounting for and disclosure of crypto assets. ASU-2020-308 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 for 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 with nil or $0 per basic share and $0 per fully diluted share compared to net income of $5.9 million or $0.88 per basic share and $0.75 per fully diluted share in Q2 2023. We ended the first quarter of 2024 with $62.8 million in cash and cash equivalents. In the second quarter of 2024, we had a strong quarter of cash generation of nearly $5 million. As of August 5, 2024, we have acquired 929 bitcoins at an aggregate purchase price of $63 million, inclusive of fees and expenses. Cash, cash equivalents, and restricted cash at June 30th, 2024 was $7.5 million. Outside of working capital needs, we intend to use our liquid assets, including operating cash generation to acquire more bitcoin. In early June we filed a shelf registration statement on Form S-3 with amendments filed on July 11th and July 31st 2024, under which we may, from time to time, offer, issue, and sell debt securities, common stock, and our warrants with a total value of up to $150 million, once the registration statement is declared effective by the SEC. At the same time, we filed a $50 million at the market or ATM offering prospectus covering the offering issuance and sale of common stock. The S-3 is not yet effective. When effective, we intend to utilize the ATM when market conditions are favorable, and we'll use the proceeds primarily for general corporate purposes, including the acquisition of bitcoin. That concludes our prepared remarks. We'll now begin our Q&A.
A - Renae Cormier: We received a lot of great questions ahead of the release, and I will address a few of these that we did not address in the prepared remarks already. We do have the first question here, it’s for Eric. How did you decide to embark on your bitcoin strategy? And do you plan on purchasing cryptocurrency other than bitcoin?
Eric Semler: Thanks, Renae. We've had a successful medical technology operating company with high cash generation and minimal capital needs. And along the way, we've accumulated a large cash balance of nearly $63 million. And as we have been looking for ways to deploy this cash to maximize shareholder value, our Board and our senior leadership decided that buying bitcoin made sense as an investment. Our decision was influenced by MicroStrategy's success and the increasing institutional ownership of bitcoin as we've seen with the tens of billions of dollars of inflows into the bitcoin ETFs and investments in them by pension funds, endowments, banks, investment advisers. We believe that bitcoin's unique attributes, including its ultimate finite supply, its discounted value versus gold, its decentralized structure and its growing global acceptance, differentiated from fiat money and also from other cryptocurrency assets. And we have no plans to purchase cryptocurrency assets other than bitcoin.
Renae Cormier: Thanks, Eric. I can take our next question. What's driving the underlying trends in the business? And what do you expect for the remainder of the year? So we are still experiencing demand for software licenses related to our QuantaFlo product. We're seeing continued testing and are obtaining new customers outside the managed care space, including clinics and also value-based care providers as the clinical value of testing really remains important. So our focus for the rest of the year will be to tightly control expenses and to maximize operating income. So outside of ensuring adequate working capital to run and grow our operating business, we do intend to deploy the remainder of our operating cash generation into additional bitcoin purchases. So the next question here that we have is around S-3. So where are we in the S-3 process? And what capital instruments do you intend to use? We did initially file our shelf registration on June 6th with the SEC. So once this becomes effective, it will allow us to issue up to $150 million in debt securities, common stock and our warrant. The SEC responded with questions primarily regarding our new bitcoin strategy and disclosures around the same. We replied to their questions and comments and filed an amended S-3 on July 11. And after reviewing -- we're receiving further questions regarding our bitcoin strategy. We did file another amended S-3 on July 31st. So we're waiting for the SEC to confirm that it has no further comments on the S-3 and declare our S-3 effective. So once effective, we do plan to have our $50 million ATM offering to issue equity, assuming, of course, the market conditions are favorable. We plan to use the ATM proceeds for general corporate purposes, including buying more bitcoin. So, given that we are an operating company, and we do have solid cash generation, and we're seeking to do additional financing, we do believe that we are in a strong position to build our bitcoin arsenal over time. So it looks like we do have time for one more question. So Eric, this one is for you again. Can you talk about your long-term strategy related to bitcoin and initial reaction to your strategy?
Eric Semler: Sure. Great question. We're among a small number of public companies leading institutional bitcoin adoption and the establishment of bitcoin as a primary treasury reserve. And given our strong conviction in bitcoin as store of value and as a compelling investment, we intend to hold bitcoin for the long term. We strongly believe that institutional adoption of bitcoin will gain continued traction and drive overwhelming demand for it. I recently attended and spoke on a panel at Bitcoin 2024 in Nashville. There were 35,000 attendees at the conference, including two presidential candidates, several U.S. senators and congressmen. And I was amazed by the outpouring support that we received at the conference for our treasury reserve strategy. Semler Scientific has truly been embraced by the bitcoin community, and we are thrilled.
Renae Cormier: Thank you, Eric, and thank you, everyone, for your questions. As we wrap up this conference call, we wanted to emphasize our ongoing commitment for a 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. Operator?
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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