Semler Scientific, Inc.

Q2 2024 Earnings Conference Call

8/5/2024

spk01: Good afternoon, and welcome to the Semler Scientific 2024 Second Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 510K clearance for Quantiflow 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-Katorian, CEO of Semler Scientific. Please go ahead.
spk00: Good afternoon, everybody. Thank you for joining our second quarter 2024 results call. Once again, we achieved a strong interim from operations and used most of our cash and cash equivalents to purchase Bitcoin. We 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?
spk02: 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 these announcements. 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 chairs 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 Harrington, to provide an overview and update of our core medical products and services business. Jen?
spk03: Thank you, Eric. Today, I will be presenting an overview of our market developments and opportunities. Renee Cormier, our CFO, will be providing information about second quarter 2024 financial results. Semmler is a pioneer in developing and marketing technology products and services to healthcare 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, Quantiflow, 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 Quantiflow is sold on a SAS basis with a high recurring revenue stream from this subscription-based licensing model that has a large and under-penetrated TAM. Semmler'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 QuantiFlow as a valuable aid in the diagnosis of PAD. We continue seeking to further establish QuantiFlow 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.
spk04: 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, comprised 44%, 27%, and 11% of quarterly revenues, respectively. Operating expenses in Q2 2024, which includes cost of revenues, 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 holding of negative $5.1 million. We have elected to early adopt ASU-202308, which is the new standard issued by the FASB for accounting for and disclosure of crypto assets. ASU-202308 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 was nil or $0 per basic share and $0 per fully diluted share compared to net income of 5.9 million or 88 cents per basic share and 75 cents per fully diluted share in Q2, 2023. We ended the first quarter of 2024 with 62.8 million in cash and cash equivalent. In the second quarter of 2024, we had a strong quarter of cash generation of nearly $5 million. As of August 5th, 2024, we have acquired 929 Bitcoin, 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 stocks. The S3 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. 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?
spk02: Thanks, Renee. 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 advisors. We believe that Bitcoin's unique attributes, including its ultimate finite supply, its discounted value versus gold, its decentralized structure, and it's growing global acceptance, differentiate it from fiat money and also from other cryptocurrency assets. And we have no plans to purchase cryptocurrency assets other than Bitcoin.
spk04: 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 quantitative product. We're seeing continued testing and are obtaining new customers outside the managed care space, including at clinics and also at 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 our S3. So where are we in the S3 process and what capital instruments do you intend to use? We did initially file our self-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've replied to their questions and comments and filed an amended S3 on July 11th. And after reviewing, we're receiving further questions regarding our Bitcoin strategy. We did file another amended S3 on July 31st. So we're waiting for the SEC to confirm that it has no further comments on the S3 and declare our S3 effective. So once effective, we do plan to tap our $50 million ATM offering to issue equity, assuming, of course, that 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 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?
spk02: 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 a 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. Um, 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 us senators and congressmen. And I was amazed by the outpouring of support that we received at the conference for our treasury reserve strategy. Some more scientific has truly been embraced by the Bitcoin community and we are thrilled.
spk04: 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?
spk01: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-