Semler Scientific (SMLR -9.56%), a medical device maker, released its earnings report for the third quarter on Nov. 4. Its diluted earnings per share (EPS) of $0.72 significantly exceeded the analyst forecast of $0.48. However, this achievement was driven significantly by a combination of non-cash gains from the company's Bitcoin holdings and cost-cutting measures. Its revenue declined to $13.5 million from $16.3 million in the same period last year, reflecting ongoing struggles with customer base expansion.
| Metric | Q3 2024 | Q3 2024 Analyst Estimate | Q3 2023 | % Change YOY |
|---|---|---|---|---|
| EPS (diluted) | $0.72 | $0.48 | $0.71 | 1.4% |
| Revenue | $13.5 million | $13.1 million | $16.3 million | (17.2%) |
| Income from operations | $5.1 million | N/A | $6.3 million | (19.6%) |
| Pre-tax income | $6.4 million | N/A | $7.0 million | (8.8%) |
Source: Analyst estimates for the quarter provided by FactSet.
Overview of Semler Scientific
Semler Scientific produces the QuantaFlo -- a non-invasive device designed to test for peripheral artery disease. The company follows a business model focused on licensing rather than outright equipment sales, providing recurring revenue. QuantaFlo's competitive advantages include being user-friendly and eliminating the need for blood pressure cuffs, which traditional ABI (Ankle Brachial Index) tests require.
The company has been concentrating heavily on obtaining more comprehensive FDA clearances for QuantaFlo, aiming to extend its usage beyond peripheral artery disease and into additional cardiovascular conditions. This is part of a broader strategy to diversify the company's product range and explore potential acquisitions for strategic growth. It's also following a strategy of acquiring Bitcoin with its operating cash flow.
Quarter's Notable Developments
During the third quarter, Semler Scientific invested in expanding its Bitcoin holdings, buying 47 Bitcoins for a total of $3 million. It now owns 1,058 bitcoins. This approach, while innovative, adds significant variability to the company's earnings results, potentially overshadowing its core healthcare offerings. In the third quarter, the cryptocurrency's unrealized gains added $1.1 million to Semler's pre-tax income of $6.4 million.
QuantaFlo's revenues declined noticeably from $16.3 million in Q3 2023 to $13.5 million in Q3 2024. This indicates challenges in both market expansion and customer retention. The company's two largest customers contributed 44% and 29% of these revenues, respectively -- a significant concentration risk.
Its efforts to maintain a competitive edge for QuantaFlo center around calculations to expand FDA approvals. However, the revenue trajectory highlights persistent barriers to market adoption that need to be addressed.
Semler is experiencing challenges related to reimbursement issues and regulatory hurdles. These challenges imply the necessity for strategic dialogues with key payers and regulators.
As part of its financial strategy, the company cut its operating expenses. Total Q3 operating expenses amounted to $9.1 million, down from $11.4 million in Q3 2023.
Looking Ahead
Management has expressed its intention to continue expanding its Bitcoin acquisitions, and it's actively seeking new financing avenues that would allow it to purchase the crypto more aggressively. Additionally, the company remains focused on obtaining regulatory advancements that would enhance QuantaFlo's market applicability. Such enhancements will be crucial for offsetting the ongoing revenue decline.
In the quarters ahead, investors should keep an eye on Semler's customer base diversification strategies and monitor the evolving impact of its Bitcoin strategy. The emphasis on gaining more comprehensive regulatory approvals will remain a pivotal element for sustaining and potentially increasing QuantaFlo's market presence.
