Key Information Risk Factors The company faces significant risks from telehealth industry regulations, international operational challenges in Israel, and various financial and market volatilities - The company operates in the highly regulated healthcare industry and the relatively new and volatile telehealth market, facing risks from evolving regulations, competition, and the need for continuous product innovation273639 - Operations in Israel expose the company to risks from political and military instability, such as the Israel-Hamas-Hezbollah war, which could disrupt business and affect personnel474955 - Operational risks include challenges of managing a global business, dependence on key suppliers, potential data security breaches, and exposure to foreign currency fluctuations626770 - Financial and market risks include stock price volatility, potential dilution from future equity issuances, and reduced disclosure requirements as a foreign private issuer818491 - Holders of American Depositary Shares (ADSs) have different and more limited rights than direct shareholders, including limitations on voting and legal recourse9499102 Information on the Company History and Development of the Company Founded in 1986, the company has grown through international expansion, key acquisitions like Mediton Group, and listings on the SIX Swiss Exchange and Nasdaq - SHL was founded in 1986, listed on the SIX Swiss Exchange in 2000, and its ADSs traded on Nasdaq from April 2023 until a voluntary delisting in April 2025109 - In 2021, SHL acquired 70% of Mediton Group for NIS 84 million, with a subsequent disputed agreement to acquire the remaining 30%115131 Capital Expenditures | (in thousands USD) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Development Costs | 2,714 | 4,203 | 5,243 | | Property and Equipment | 950 | 1,289 | 1,661* | | Total | 3,664 | 5,492 | 6,904 | Business Overview SHL provides personal telemedicine solutions focused on cardiac monitoring, operating primarily in Israel, Germany, and the United States with its SmartHeart® platform - SHL's core business is telemedicine services with a focus on cardiac care, featuring its key product, the SmartHeart® 12-lead ECG platform120122139 - The company's growth strategy focuses on leveraging synergies with Mediton in Israel, expanding services in Germany, and driving U.S. adoption of the SmartHeart® platform148149 - Clinical trials for the SmartHeart® device have shown positive results, including significant reductions in hospital readmissions for post-heart attack patients141142143 - The company faces intense competition in all markets, where key competitive factors include ease of use, price, brand recognition, and service quality39174179 Geographic Operations The company's operations are segmented into Israel ($43M revenue), Europe ($13M revenue), and the U.S. ($1M revenue), each with a distinct business focus Revenue by Segment (2024) | Segment | Revenue (approx.) | | :--- | :--- | | Israel | $43 million | | Europe (Germany) | $13 million | | Rest of the World (U.S.) | $1 million | - In Israel, SHL provides 24/7 telemedicine services to private subscribers and offers diagnostics and preventative healthcare to institutional clients through its Mediton subsidiary128132138 - In Germany, SHL has multi-year contracts with major health insurance funds to provide remote patient monitoring and telehealth services134135137 - In the U.S., the focus is on the patented, FDA-cleared SmartHeart® platform, with efforts to gain OTC clearance and grow a direct-to-consumer program139140148 Regulations SHL operates under complex and evolving healthcare regulations across its key markets, including FDA standards in the U.S., AMR registration in Israel, and SHI system rules in Germany - In the U.S., medical devices are subject to FDA approval, and manufacturing must adhere to Good Manufacturing Practices (GMP)150167 - In Israel, medical devices must be registered in the "AMR register," and operations are subject to Ministry of Health and Consumer Protection Laws152 - In Germany, recent legislative changes are encouraging telemedicine use within the statutory health insurance system through digital health applications (DiGAs)135160162 Organizational Structure SHL Telemedicine Ltd. is the parent company of a global group with key operating subsidiaries in Israel, Germany, and the United States - SHL Telemedicine Ltd. is the parent company with a network of subsidiaries182 - Key operating subsidiaries include Mediton Medical Centers Chain Ltd. (70% owned) in Israel, SHL Telemedizin GmbH in Germany, and SHL Telemedicine USA, Inc. in the US183184 Property, Plants and Equipment The company's principal facilities, including its head offices and telemedicine centers in Germany and Israel, are all rented - SHL rents all its principal office and telemedicine center facilities in Germany and Israel185 Operating and Financial Review and Prospects Operating Results In 2024, revenue remained stable at $56.8 million, but net loss widened significantly to $27.8 million due to major goodwill and development cost impairments Key Financial Results | (in thousands USD) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenue | $56,779 | $57,075 | $58,998 | | Gross profit | $25,793 | $25,261 | $27,189 | | Operating (loss) | $(26,793) | $(9,006) | $(5,166) | | Net profit (loss) | $(27,753) | $(6,855) | $215 | - Revenues remained flat year-over-year, with a $1.4 million increase in Israel offset by a $1.4 million decrease in Germany204 - A significant increase in 'Other expenses' to $19.7 million was the main driver of the increased operating loss, including a $13.5 million goodwill impairment for the German unit212 - Net financial income decreased drastically to a $21 thousand expense in 2024 from a $3.0 million income in 2023, which had benefited from investor option modifications214 Liquidity and Capital Resources The company's liquidity weakened, with cash decreasing to $18.0 million in 2024, and management believes existing capital is sufficient for the next twelve months - Cash and cash equivalents combined with short-term bank deposits totaled approximately $18.0 million at year-end 2024, down from $26.0 million at year-end 2023226 Cash Flow Summary | (In millions USD) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in) operating activities | (0.4) | (1.5) | | Net cash provided by (used in) investing activities | 6.0 | (9.3) | | Net cash provided by (used in) financing activities | (4.9) | 13.7 | - Cash used in financing activities in 2024 was $4.8 million, contrasting with $13.7 million provided in 2023, which included $20.0 million from the exercise of investor options235236 - The company has a long-term loan of NIS 59 million ($18 million) obtained in 2021 and was in compliance with its financial covenants as of December 31, 2024243244 Research and Development, Patents and Licenses SHL focuses heavily on R&D for advanced telemedicine, protecting its intellectual property with key patents for its monitoring systems and trademarks for its SmartHeart® brand - Gross research and development costs were $5.3 million in 2024, down from $6.7 million in 2023250 - The company holds key patents for its "Electrocardiographic Monitoring System" with expiration dates extending to 2032252 - The SmartHeart® trademark is registered and protected in multiple jurisdictions, including the USA, Europe, China, and Japan253 Critical Accounting Estimates The company's financial statements rely on significant management judgments, particularly for goodwill impairment testing and the recognition of deferred tax assets - Impairment of goodwill is a critical estimate, requiring management to project future cash flows and determine a suitable discount rate257 - Recognition of deferred tax assets for carry-forward losses involves significant judgment regarding the likelihood of future taxable profits258 Directors, Senior Management and Employees Directors and Senior Management The company's leadership includes Chairman Dr. Itamar Offer and CEO David Arnon, heading a six-member board and an experienced executive team - Dr. Itamar Offer has served as Chairman of the Board since September 2024262 - David Arnon was appointed Chief Executive Officer in August 2024269 - Lior Haalman was appointed Chief Financial Officer in March 2025270 Compensation Aggregate 2024 compensation for directors and executives was $1.2 million, governed by a shareholder-approved policy and supplemented by a share option plan - Aggregate compensation for directors and executive officers for 2024 was approximately $1.2 million, excluding share-based compensation273 - As of May 1, 2025, executive officers and directors held outstanding options to purchase up to 867,124 ordinary shares274 - The company adopted a new Compensation Policy, approved by shareholders on May 9, 2024, in accordance with Israeli law287 - The Share Option Plan allows for the grant of options to executives, directors, and key employees, with exercise prices based on the 30-day average share price295 Board Practices The six-member Board of Directors includes two external directors as required by Israeli law and maintains independent audit and compensation committees - The Board consists of six directors, including two external directors, complying with Israeli law; three directors are considered independent under SEC standards302308 - The company has an Audit Committee and a Compensation Committee, both comprised of three independent directors314320 - Mr. Yehoshua (Shuky) Abramovich serves as the Audit Committee's financial expert314457 - The company has an internal auditor, Mr. Michael Gilinsky, appointed in May 2021 as required by Israeli law330 Employees SHL's full-time employee count decreased to 526 in 2024, with the majority located in Israel and working in operations Employees by Division and Location (as of Dec 31, 2024) | Division | Israel | Germany | U.S.A. | Total | | :--- | :--- | :--- | :--- | :--- | | Operation | 284 | 88 | - | 372 | | Research & Development | 16 | 16 | - | 32 | | Sales & Marketing | 39 | 8 | 3 | 50 | | General & Administrative | 52 | 19 | 1 | 72 | | Total Employees | 391 | 123 | 4 | 518 | - The total number of full-time employees was 526 as of December 31, 2024, down from 583 at the end of 2023332 Share Ownership Significant beneficial ownership is held by directors through affiliated investment groups, while the CEO and CFO hold substantial option packages - Director Ido Nouberger beneficially owns 8.6% of ordinary shares through his affiliation with Value Base Ltd335339 - Director Nir Rotenberg beneficially owns 4.9% of ordinary shares through his affiliation with Danbar Finance Ltd335339 - CEO David Arnon holds options for 400,000 shares (2.4% of class) and CFO Lior Haalman holds options for 320,000 shares (1.9% of class)335 Major Shareholders and Related Party Transactions Major Shareholders As of May 2025, the largest shareholder group held 36.4% of shares, though their voting rights are suspended, with several other funds holding significant stakes Major Shareholders as of May 1, 2025 | Identity of Person or Group | Amount Owned | Percent of Class | | :--- | :--- | :--- | | Mrs. Mengke Cai and Kun Shen (1) | 5,969,413 | 36.4% | | More Provident Funds | 2,111,576 | 12.9% | | Value Base Group | 1,406,236 | 8.6% | | Yariv Alroy | 801,456 | 4.9% | | Danbar Finance Ltd. | 791,405 | 4.8% | | Sphera Funds Management | 632,456 | 3.9% | - The voting rights of the largest shareholder group (Mengke Cai and Kun Shen) are suspended by the Swiss Takeover Board342 Related Party Transactions The company has an employment agreement with its CEO that includes a significant option grant and leases office space from an affiliate of a former shareholder - CEO David Arnon's employment agreement includes a NIS 90,000 monthly salary, an annual bonus potential, and a grant of 400,000 options348349 - The company leases office space for its Mediton subsidiary from an affiliate of a former shareholder of Mediton, with a monthly rent of approximately $43,000353 Financial Information Consolidated Statements and Other Financial Information The company is not involved in any material legal proceedings and has not paid dividends since 2019, lacking a formal dividend policy - The company is not currently party to any legal disputes expected to have a significant effect on its financial condition356 - The company does not have a dividend policy and did not pay a dividend in any year from 2020 to 2024357358 Additional Information Taxation The company is subject to a 23% Israeli corporate tax rate and believes it was not a Passive Foreign Investment Company (PFIC) for U.S. holders in 2024 - The corporate tax rate for Israeli resident companies is 23%367 - Dividends paid to non-Israeli residents are generally subject to a 25% withholding tax, which may be reduced by an applicable tax treaty373374 - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the 2024 taxable year, but its status is subject to annual determination401 - If classified as a PFIC, U.S. Holders would face adverse tax consequences, including higher tax rates on certain distributions and gains402 Quantitative and Qualitative Disclosures About Market Risk Market Risk Disclosures The company is exposed to financial market risks including credit, foreign currency (NIS, USD, Euro), interest rate, and liquidity risk - Credit risk is concentrated in cash deposits with major banks and trade receivables from customers in Germany and Israel420421 - The company is exposed to foreign currency risk from holding cash and making purchases in U.S. dollars and Euros, while its functional currency is the NIS423425 - Interest rate risk is primarily related to a long-term loan with a floating interest rate (prime + 1.05%)433 - Liquidity risk is managed via a recurring planning tool that considers financial asset maturities and projected operational cash flows437 Controls and Procedures Disclosure Controls and Internal Control Management concluded that disclosure controls were ineffective as of year-end 2024 due to material weaknesses in IT General Controls, with a remediation plan in progress - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024449 - Material weaknesses were identified in Information Technology General Controls (ITGCs), specifically in user access, segregation of duties, and program change-management450451 - A remediation plan is underway, which includes implementing a new ERP system (expected by end of 2025) and improving IT policies453455 Cybersecurity Cybersecurity Governance and Risk Management Cybersecurity is overseen by an external CISO and a Board Cyber Committee, with a strategy based on Israeli and international standards and no reported incidents in 2023-2024 - The company has an external Chief Information Security Officer and follows the Israel Cyber Defense Doctrine 2.0 and standards like ISO 27001 and HIPAA465466 - A Board-level Cyber Committee, established in 2020, oversees the company's information technology security measures469 - The company conducts regular risk assessments and penetration tests, with no cyber incidents or data breaches occurring in 2024 and 2023467468 Financial Statements Notes to Consolidated Financial Statements The notes detail key financial events including a significant goodwill impairment in Germany, a dispute over the Mediton acquisition, and the status of tax loss carryforwards Note 11: Goodwill and Intangible Assets In 2024, the company recorded a $13.45 million goodwill impairment for its German unit and a $2.77 million impairment for capitalized development costs - Recognized a goodwill impairment loss of $13,450 thousand in 2024 for the German cash-generating unit, citing lower-than-expected business performance603608 - Recognized an impairment loss of $2,765 thousand for intangible assets, mainly capitalized development costs for unprofitable service applications603610 Goodwill Allocation by CGU (in thousands USD) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Israel - Telemedicine | 3,109 | 3,126 | | Israel – Mediton | 16,022 | 16,111 | | Germany | - | 13,728 | | Total | 19,131 | 32,965 | Note 19: Taxes on Income The company has significant carryforward tax losses of $119.7 million, but a large portion of the related deferred tax assets have not been recognized on the balance sheet - As of Dec 31, 2024, the company has carryforward tax losses of approximately $66.6 million in Israel, $33.4 million in Europe, and $19.7 million in the U.S.225658 - Deferred tax assets amounting to $26,188 thousand related to these losses were not recognized because their realization is not considered probable659 Note 20: Liability for Acquisition of Non-Controlling Interests A liability of NIS 31.1 million has been recorded for the acquisition of the remaining 30% of Mediton, though the transaction is stalled due to a dispute over offset claims - The non-controlling interests (NCI) of Mediton exercised their put option in September 2024 to sell their 30% stake to the company663 - An arbitrator's binding decision set the exercise price at NIS 31.1 million ($8,540 thousand), which is now recorded as a current liability663 - The closing of the acquisition has not been completed due to a dispute, with SHL seeking to offset the payment against alleged misrepresentations by the sellers663700 Note 26: Segment Information In 2024, the Israel segment was profitable ($8.3M), while the Europe (-$4.1M) and ROW (-$4.2M) segments recorded losses, contributing to the overall operating loss Segment Revenues by Customer Type (2024, in thousands USD) | Segment | Individuals & communities | Institutions & payers | Others | Total | | :--- | :--- | :--- | :--- | :--- | | Europe | - | 12,673 | - | 12,673 | | Israel | 20,325 | 23,126 | - | 43,451 | | ROW | - | - | 655 | 655 | | Total | 20,325 | 35,799 | 655 | 56,779 | Segment Profit (Loss) (in thousands USD) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Europe | (4,139) | (5,347) | (3,044) | | Israel | 8,346 | 8,424 | 8,641 | | ROW | (4,158) | (3,622) | (2,972) |
SHL Telemedicine .(SHLT) - 2024 Q4 - Annual Report