SMLR - NASDAQ

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Good afternoon, and welcome to the Semler Scientific Second Quarter 2025 Financial Results Conference Call. After today's prepared remarks, as time permits, management will take questions submitted prior to this call via e-mail. Please note, this event is being recorded. Before we begin, we want 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 expressed or implied statements regarding the expectations for our Bitcoin treasury strategy, plans to acquire additional Bitcoin, opportunity for upsize in the price of Bitcoin, expansion of the health care business and the development and marketing of additional products, including the receipt and timing of an additional 510(k) clearance for heart failure and for our wholly owned subsidiary, CardioVanta, and our proposed settlement with the U.S. Department of Justice. 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 of 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 Dr. Doug Murphy-Chutorian, CEO of Semler Scientific.

Good afternoon, everybody. I want to thank you too for joining the second conference 2025 results call. I also want to take a moment to pause and pay tribute to our late co-founder, Herbert J. Semler, who passed away in July at the age of 96 years. Dr. Semler was a pioneering physician, visionary leader and a creative genius in medical devices. His teaching continues to take shape who we are and what we do. His passion for innovation and commitment to help with patient care laid the foundation for our mission and remains at the heart of what we do today. Join us in honoring a remarkable life, [indiscernible] to improving health and [ vetting ] medicine. His legacy of caring lives on. And now I'll hand the call over to Eric Semler, our Executive Chairman. Eric?

Thank you, Doug. We are super excited about the excellent progress we are making in our Bitcoin operations, and we are confident in the potential of our health care business. We believe that renewed strength in our health care business will generate meaningful cash flow in the coming years, enabling us to acquire Bitcoin in a highly accretive way. This dual-engine strategy differentiates us among Bitcoin treasury companies. During the quarter and through July 31, we purchased approximately $195 million of Bitcoin and now hold a total of approximately $586 million. In addition, during the second quarter, we took bold steps to strengthen our Bitcoin team, adding highly acclaimed Bitcoin journalist and educator Natalie Brunell to our Board. Since joining in May, Natalie has made a significant contribution to advancing our Bitcoin mission. We are thrilled to have her insights and support. In June, we further strengthened our team by hiring Joe Burnett as Director of Bitcoin Strategy. Joe is a recognized leader in Bitcoin treasury management, and having his expertise in-house is a game changer for us. His full-time focus on building and executing Semler's Bitcoin road map is already making a measurable impact. Later on, Joe will discuss our Bitcoin philosophy and strategy in more detail. In addition, in June, I went from being Chairman of the company to Executive Chairman to deepen my role in operations of the company. We are extremely proud of the progress we are making as a Bitcoin treasury company and thrilled about the opportunities ahead. Since becoming the second U.S. public company to adopt the Bitcoin standard in May 2024, we have made accretive Bitcoin purchases every quarter. The growth and profitability of our Bitcoin operations as reported today are truly remarkable. For the second quarter of 2025, we reported GAAP net income of $66.9 million or $5.04 per fully diluted share. On an annualized basis, this would imply a price to earnings multiple of only 1.7x, significantly lower than the S&P 500 average of 25x forward PE estimates. Our Board of Directors, as significant shareholders ourselves, believes the current valuation of Semler Scientific stock is disconnected from the company's underlying performance and its intrinsic value. It is clear to us that our stock is absurdly undervalued. We are committed to unlocking value for all Semler stockholders and are actively exploring accretive opportunities to do so. As I noted earlier, I strongly believe that Semler Scientific offers investors a differentiated business model among Bitcoin treasury companies. Our top priority is to provide stockholders with amplified exposure to Bitcoin using intelligent leverage. With nearly $600 million of Bitcoin holdings and only $100 million of convertible debt that doesn't mature until August of 2030, we believe we have ample room to take on more leverage to amplify stockholder returns, and we are actively exploring a wide range of financing options. Not only are we the sixth largest Bitcoin treasury company in the U.S., but we also operate a health care business with 80-plus employees that has the potential to generate free cash flow that will enable us to purchase Bitcoin in a very accretive way. In 2024, we achieved record cash generation of $24 million in our health care business. While our business has faced headwinds this year, we believe we are on the cusp of launching several new products in markets that are much larger than our current PAD market. These new businesses will be housed in a subsidiary called CardioVanta. We may seek capital for CardioVanta from outside investors to validate its long-term value and fund its relatively modest capital needs. We strongly believe that our health care business has substantial optionality and that its outsized potential upside is not reflected in our market valuation. We are extremely pleased with the value we have created by our consistent accretive accumulation of Bitcoin. Since adopting the Bitcoin standard just over a year ago, we've strategically and assertively acquired 5,021 Bitcoin now valued at approximately $586 million with a cost basis of $476 million, resulting in an unrealized gain of $110 million. So far in 2025, we have acquired 2,723 Bitcoin and generated a BTC yield of 31%. This resulted in BTC gain of 719 Bitcoin and a BTC dollar gain of $84 million as of July 31. Since adopting the Bitcoin standard in May 2024, we have achieved a 300% positive Bitcoin yield. This has resulted in BTC gain of 1,747 Bitcoin and a BTC dollar gain of $195 million through July 31, 2025. We remain confident in our long-term goals for accumulating Bitcoin. We are targeting 10,000 Bitcoin by year-end 2025, 42,000 by year-end 2026 and 105,000 by year-end 2027. We are exploring a wide range of options to meet our Bitcoin targets. Historically, to buy Bitcoin, we've used operating cash flow from our health care business, monetized a portion of one of our health care investments and issued convertible bonds and accretively issued common stock through our ATM offerings. In our recent proxy filing, we included 2 proposals, proposals 3 and 4, on the agenda for our upcoming annual meeting on September 5. These proposals are vital to our strategic direction as they provide the financial flexibility to raise capital efficiently and to pursue our long-term Bitcoin acquisition strategy. This includes enabling access to a broader range of capital instruments such as preferred equity. We strongly encourage stockholders to vote for all proposals outlined in the proxy statement. Our Bitcoin strategy has significantly expanded our investor base. We now have more than 32,000 stockholders, up from approximately 11,000 in 2023. We're honored by your support and enjoyed meeting many of you at BTC 2025 in Vegas and BTC Prague in June. In closing, thank you for joining us today. Your continued support means a great deal for us. Now I'll turn the call over to Joe, our Director of Bitcoin Strategy.

Thank you, Eric. I'm going to discuss Bitcoin, our Bitcoin strategy and how Semler Scientific is positioned to amplify Bitcoin's future returns. But first, it's important to understand the fundamentals of Bitcoin and why it has historically delivered such a remarkable compound annual growth rate and outperformed traditional asset classes. Bitcoin is the first form of money with these monetary properties: absolute scarcity, portability, durability, divisibility and fungibility. In contrast, the U.S. dollar has experienced consistent inflation. Over the past 50 years, the supply of U.S. dollars measured by M2 money supply, has grown at an average annual rate of roughly 8%. My thesis has always been money is being debased. As a result, nearly all smart investors are relentlessly buying a diversified portfolio of financial assets, often regardless of valuation, because they know that holding cash over any meaningful period of time is a losing proposition. This creates a perpetual bid under asset classes like real estate, stocks, bonds and gold, not necessarily because they're undervalued, but because people feel uncomfortable holding dollars. In this way, a monetary premium has been embedded into these asset classes. They're bid up beyond what their fundamentals might otherwise justify simply because investors are looking for somewhere to store wealth. The Bitcoin thesis flips that dynamic. Instead of the U.S. dollar growing at 8% per year, Bitcoin supply is growing at less than 1% annually today. And over time, that number will trend towards 0. So to summarize my thesis in 5 simple points: one, the money is broken; two, people save in real estate stocks and fixed income; three, Bitcoin is good money; four, the monetary premium from other assets is getting siphoned into Bitcoin; and five, we believe there is a possibility that Bitcoin could ultimately become a $300 trillion asset. Now on top of the bullish case for Bitcoin, here's the key institutional reality. Many institutions can't buy Bitcoin directly. Approximately 97% of institutional capital, a $95 trillion market, is restricted by mandate to owning only equities and credit. In other words, they can't own Bitcoin the commodity or Bitcoin ETFs. They, in essence, are forced to own Bitcoin proxies like Bitcoin treasury stocks should they want exposure to Bitcoin as an asset class. This represents a huge opportunity for Semler Scientific. Our shares are already owned by several of the most highly regarded institutional investors and funds. In addition, brokerage houses and sell-side research firms are launching coverage of our company. In July, Cantor Fitzgerald, Benchmark Equity Research and Maxim Group all initiated research on Semler Scientific with buy ratings. Now of course, Bitcoin holders can buy and self-custody Bitcoin themselves. That's a great strategy. Every Bitcoin holder should own some spot Bitcoin directly. But BTC equity, public companies like Semler Scientific, are uncommon. Through our status as a public Bitcoin treasury company, we can amplify Bitcoin exposure through intelligent leverage that public companies can access. Specifically, we can issue low-interest, long-duration debt, like our outstanding convertible note, to acquire additional Bitcoin. And importantly, we're supported by a valuable health care business that has enabled us to allocate operating profits into more Bitcoin. So the logic is straightforward. If you expect Bitcoin to outperform fixed income over the long run, and we do, it's rational to borrow in dollars at low interest and long duration to accumulate more Bitcoin. And the results are already showing up. On the Bitcoin treasury's leaderboard, Semler Scientific is currently ranked 15th globally among public companies holding Bitcoin on their balance sheet. But if you narrow the list to only companies truly operating on a Bitcoin standard, that is companies that actively measure progress with the BTC yield KPI, we believe Semler ranks sixth in the U.S. In short, we are already one of the largest public Bitcoin treasuries in the world, and we plan to continue climbing. Our long-term target is to reach 105,000 Bitcoin by year-end 2027. Lastly, I'd like to share that we are launching the Semler Scientific merch store where you'll be able to purchase hats, shirts, jackets and more. As of today, the store is officially live at semlerscientific.com/store. Now I will turn the call over to Renae Cormier, our Chief Financial Officer.

Thank you, Joe, and thank you, everyone, for joining us today for our call. I'll cover our second quarter financial results, Bitcoin and capital markets activity as well as more details on our plans for our health care business. Total revenues in Q2 2025 were $8.2 million, which was down compared to the second quarter of 2024 due to the continued phase-in of the 2024 CMS rate announcement that impacted reimbursement for positive PAD patients, and which is resulting in decreased usage of our device at some of our customers. Operating expenses for Q2 2025, which includes cost of revenues, were $10.3 million and loss from operations was $1.2 million. Operating expenses in Q2 2025 included $1.9 million in noncash stock-based compensation expense and $0.5 million of legal expenses related to the DOJ settlement agreement in principle pertaining to a civil investigative demand. The DOJ settlement process is progressing smoothly and on track. Further details are laid out in our press release and the appendix to our second quarter presentation. We recorded a net unrealized gain of $83.8 million from the change in fair value of our Bitcoin holdings during the second quarter calculated using $170,176 price per bit coin. Accounting standards require Bitcoin assets to be measured at fair value with gains and losses from the changes in fair value to be recognized in net income in each reporting period. While this may introduce volatility into our reported net income, it does not impact our cash flow from operations. For the second quarter 2025, our net income was $66.9 million or $5.71 per basic share and $5.04 per fully diluted share. Cash, cash equivalents and restricted cash at June 30, 2025, was $13.6 million. On to our Bitcoin highlights. We acquired 1,444 Bitcoin in Q2 at a total cost of $149.6 million or $103,581 per Bitcoin. At June 30, 2025, we held 4,636 Bitcoin valued at $496.9 million. Subsequent to quarter end, we acquired 385 Bitcoin at a total cost of $45.8 million or $119,090 per Bitcoin. As of July 31, 2025, we held 5,021 Bitcoin with total market value of $586.2 million based on the 4 p.m. Eastern Time price per Bitcoin as reported on Coinbase of $116,758. Capital markets activity in Q2 2025 revolved around equity issuances under our ATM offering. In Q2, we issued approximately 4.1 million shares for net proceeds of $156.6 million. Subsequent to quarter end and through July 31, 2025, we issued approximately 1.1 million shares for net proceeds of $47.8 million. As of July 31, 2025, we have a little over $300 million remaining in our $500 million ATM. Year-to-date through July 31, 2025, we generated a 31.3% Bitcoin yield. This translated into a Bitcoin dollar gain of $84 million. As you know, we maintain a Bitcoin dashboard at ir.semlerscientific.com, where investors are able to go to find our Bitcoin-related statistics in one location. We encourage investors to check back often as it will track additional Bitcoin purchases as we announce them and provide a real-time snapshot of our market and Bitcoin metrics. In June, we announced the formation of a wholly owned subsidiary, CardioVanta, to unlock the value of our future health care business opportunities focused on early detection of heart failure and cardiac arrhythmia. It will be as structured as a high-margin Software as a Service or SaaS business model. It will seek capital from outside investors to validate its long-term value and fund its relatively modest initial capital needs. The markets for early detection of heart failure and cardiac arrhythmia monitoring are estimated to be in the multibillion-dollar range and are projected to grow substantially due to rising cardiovascular disease, technology advancements such as artificial intelligence and the aging population and increasing adoption of wearable and remote monitoring solutions. According to the Centers for Disease Control and Prevention, heart failure affects more than 6 million Americans and cost the U.S. health care system more than $30 billion annually. While CardioVanta will focus on cardiac technology and care systems, Semler Scientific will continue marketing its QuantaFlo device and software for early detection of peripheral artery disease. Now I'll turn it back over to Joe to begin the Q&A.

Great. Thank you, Renae. Our first question is, are you concerned about a potential supply glut of public companies pursuing similar Bitcoin treasury strategies? No, we're not concerned. As I mentioned earlier on the call, we believe Bitcoin is on track to become a multi-hundred trillion-dollar market by absorbing monetary premium from traditional asset classes like real estate, equities and fixed income. Given that outlook, companies operating as Bitcoin treasuries with intelligent leverage effectively long Bitcoin and short the dollar are simply positioning themselves to outperform, if this thesis proves correct. Rather than viewing them as competition, we see them as peers accelerating Bitcoin adoption and helping monetize the asset globally. In fact, we believe this trend will benefit all early movers. The more credible companies that adopt Bitcoin as a treasury reserve asset, the faster the monetization process accelerates and the more valuable our own Bitcoin becomes. Our second question, do you plan to make more regular Bitcoin acquisition announcements? We do not currently plan to make weekly announcements like some other Bitcoin treasury companies. However, we do expect that our Bitcoin acquisition announcements may increase in both regularity and size over time. That said, we may also strategically choose to announce acquisitions with a less frequent cadence. Just because we have not announced an acquisition does not mean we are actively accumulating Bitcoin during the quarter. As we explore additional ways to issue securities and acquire more Bitcoin, the pace of our announcements could naturally accelerate. Our focus remains on executing our strategy in a disciplined, accretive and stockholder-aligned way. Last, our final and third question, how does management think about the mNAV multiple at which Semler trades at relative to its peers? I think there's been confusion about Bitcoin treasury companies because there are actually 2 different games to play. The first is the fast money game. This occurs when a Bitcoin treasury company trades at a substantial premium to its Bitcoin net asset value or mNAV. At this level, the company can tap its common equity ATM, issue additional shares and immediately use the capital to acquire more Bitcoin. This instantly generates a positive BTC yield, increasing Bitcoin holdings per share. That process can repeat rapidly compounding returns, provided the premium to mNAV doesn't collapse. The inherent risk, of course, is the potential compression of this premium. The second strategy is the more sustainable, slow money game. This strategy is available to all Bitcoin treasury companies of a certain size, and it even works at 1x mNAV. In this scenario, the company intelligently leverages its balance sheet using fixed income liabilities to enhance its exposure to Bitcoin. If Bitcoin appreciates significantly and the mNAV ratio stays stable at 1x, the leverage amplifies returns. Essentially, as long as Bitcoin's appreciation outpaces the interest cost of the liabilities, the Bitcoin treasury company should logically outperform Bitcoin itself. In my opinion, the presence of this lower, slower sustainable strategy actually underpins and fuels the faster premium-driven game. The attractiveness of the intelligently leveraged position sets the foundation. Whenever market sentiment for leverage Bitcoin exposure strengthens, even slightly above 1x mNAV, the premium-driven fast money strategy becomes viable again, allowing for rapid value creation. In short, the slow money game is likely where -- why premiums develop in the first place, offering the best way to amplify the future returns of Bitcoin. Semler's balance sheet currently uses intelligent leverage. This enables the potential for Semler to amplify the future returns of Bitcoin, and it enables the potential for future mNAV expansion. The only thing better than Bitcoin is more Bitcoin, and the premiums on Bitcoin treasury companies may exist because the market loves more Bitcoin. Thank you, everyone, for your questions. As we wrap up this conference call, we want to emphasize our ongoing commitment to continued execution of our Bitcoin treasury strategy and our health care business. We appreciate your participation in today's discussion, and thank you for your ongoing support. Operator, you can conclude the call.