Semler Scientific, Inc.

Good afternoon and welcome to the Similar Scientific's fourth quarter and full year 2024 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 email. 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 meeting 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 $510K clearance from Quantaflow 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 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 I would now like to introduce Dr. Doug Murphy-Kotorian, CEO of Similar Scientific. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us for our 2024 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 the next update on our Bitcoin Treasury strategy. Eric.

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 Similar 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 million. In addition, we have generated a positive Bitcoin yield of 152% since the quarter after adopting our Bitcoin Treasury strategy. According to BitcoinTreasurys.net, Similar Scientific is the 10th largest corporate holder of Bitcoin. The company's market capitalization has grown by more than 200% since adopting Bitcoin nine months ago. We have accumulated Bitcoin using our operating cash flow and using the proceeds from our -the-market offering and from our recent $100 million convertible senior notes offering. We also recently monetized a portion of our minority investment in Monarch Medical and used the $3.5 million of proceeds to buy more Bitcoin. In our healthcare operations, we achieved record cash generation of over $24 million in 2024. We also announced that we are seeking a new -$10K clearance for a product extension of our Quantaflow 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 million to $85 million and the initial purchasers exercised in full their option to acquire additional notes resulting in $100 million of notes issued. Together with the capped call transactions, the notes have a conversion premium of 75% and carry a .25% interest rate and they mature in August of 2030. As an operating business, we have strategically used cash flows alongside equity and debt issuances to acquire Bitcoin. To date, we have invested $280 million 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.

Thank you, Eric. Today I'll be presenting an overview of our market development and opportunities. Renee Cormier, RCFO, will be providing information about fourth quarter 2024 financial results. Semmler 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 SAS-based model, we generate recurring revenue from a large under-penetrated market. Semmler'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 510K clearance for an extension to the Quantiflow 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 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 revenues in Q4 2024 were $12.4 million, which was down about 18% compared to the fourth quarter of 2023. We expect we may see some further pressure on revenues in 2025 following the additional In the fourth quarter of 2024, our two largest customers, including their related affiliates, comprised 39% and 31% of quarterly revenues respectively. Operating expenses in Q4 2024, which includes cost of revenues, were $8.9 million, a decrease of 29% -over-year. Income from operations was $3.5 million, an increase of 40% compared to $2.5 million in the prior year. Other income net was $29 million and included a gain of $28.8 million from the change in fair value of our Bitcoin holdings. 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. 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 $29.2 million, or $3.64 per basic share and $3.41 per fully diluted share, compared to net income of $4.2 million, or $0.62 per basic share and $0.55 per fully diluted share in Q4 2023. Cash, cash equivalents, and restricted cash at December 31, 2024 was $8.9 million. Outside of working capital needs, we intend to use our liquid assets, including operating cash generation, to acquire more Bitcoins. Last year, we filed a $150 million shelf registration statement on Form S3 and related ATM offering and prescriptus covering the offering, issuance, and sale of common stock. As of December 31, 2024, we sold approximately 2.2 million shares for net proceeds of approximately $119.6 million. In late January, we completed a convertible senior notes offering with a $100 million aggregate principal amount of 5.5 year .25% notes due in August 2030, including the exercise in full of the initial purchaser's option to purchase up to an additional $15 million in principal amount of the notes. Together with cap call 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 delusion. 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 2024, we purchased 1,280 Bitcoins for an aggregate cost of $121.3 million. Subsequent to quarter end, we purchased an additional 894 Bitcoins for an aggregate cost of $90.7 million and now hold 3192 Bitcoins with an average cost basis of $87,854 per Bitcoin. Now, we will begin our Q&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.

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 million, but because of outside demand for the offering, we were able to increase the total offering size to $100 million, including the exercise and full of the initial purchaser's option to buy up to an additional $15 million of notes. In addition, with the cap call, we were able to create a conversion premium 75% higher than where our stock was trading at the time of the announcement of the offering.

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 Quantiflo 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 Quantiflo revenue while maintaining sufficient infrastructure to support, innovate, and grow our operations related to other cardiovascular diseases.

Renee? Yep, our next question. What are your expectations from the new government in Washington, D.C. regarding crypto? Eric, you can take that one.

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 for 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.

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. Operator?

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