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Semler Scientific(SMLR) - 2025 Q2 - Quarterly Report

Part I—Financial Information Item 1. Condensed Consolidated Financial Statements The company's H1 2025 financial statements show revenue decline, an operating loss from litigation, and net income driven by Bitcoin gains, with digital assets significantly increasing on the balance sheet Condensed Consolidated Statements of Operations Highlights (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $8,217 | $14,465 | $17,052 | $30,368 | | (Loss) income from operations | $(2,053) | $5,350 | $(33,156) | $12,326 | | Change in fair value of intangible digital assets | $83,761 | $(5,055) | $41,932 | $(5,055) | | Net income | $66,933 | $11 | $2,230 | $6,084 | | Net income per share, diluted | $5.04 | $0.00 | $0.25 | $0.78 | Condensed Consolidated Balance Sheets Highlights (Unaudited, in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $13,482 | $8,819 | | Intangible digital assets (Bitcoin) | $496,865 | $214,633 | | Total assets | $522,597 | $239,828 | | Accrued contingent liability | $29,750 | $— | | Long-term notes payable, net | $96,255 | $— | | Total liabilities | $139,188 | $9,078 | | Total stockholders' equity | $383,409 | $230,750 | - For the six months ended June 30, 2025, net cash used in operating activities was $1.4 million, a significant shift from $10.6 million provided by operations in the prior year. Investing activities used $237.0 million, primarily for the purchase of digital assets. Financing activities provided $243.0 million, largely from the issuance of debt and common stock30 Notes to Condensed Consolidated Financial Statements The notes detail significant corporate and accounting changes, including Bitcoin adoption as a treasury asset, issuance of $100 million convertible notes, ATM equity offerings, and a $29.75 million DOJ litigation contingency accrual - The company adopted Bitcoin as its primary treasury reserve asset, accounting for it as an indefinite-lived intangible asset remeasured to fair value each reporting period, with changes recognized in other income (expense)3366 Bitcoin Holdings as of June 30, 2025 | Metric | Value | | :--- | :--- | | Bitcoin Held | ~4,636 | | Cost Basis | $430.0 million | | Fair Value | $496.9 million | - In January 2025, the company issued $100 million of 4.25% Convertible Senior Notes due 2030. The net proceeds were approximately $96 million after issuance costs, with a portion used for capped call transactions and the remainder for Bitcoin purchases and general corporate purposes8392 - The company has an agreement in principle with the DOJ to pay $29.75 million to settle all claims related to a civil investigative demand. A litigation contingency liability of this amount was recorded as of June 30, 202599 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its dual strategy of Bitcoin adoption and healthcare operations, noting a 44% revenue decline in healthcare due to CMS changes, while Bitcoin acquisitions of 4,636 units for $430 million were funded by debt and equity, leading to positive net income despite operating losses Overview The company maintains a dual strategy, adopting Bitcoin as its primary treasury reserve asset while continuing its healthcare business, which includes the QuantaFlo product and the new CardioVanta subsidiary for future healthcare initiatives - The company's strategy is twofold: adopting Bitcoin as its primary treasury reserve asset and operating a healthcare business focused on chronic diseases with its flagship product, QuantaFlo130131 - A wholly-owned subsidiary, CardioVanta, was formed to house future healthcare business activities, focusing on early detection of heart failure and cardiac arrhythmia monitoring, with a planned SAAS business model132 Bitcoin Treasury Strategy The company actively pursues its Bitcoin treasury strategy, acquiring more Bitcoin using financing proceeds and cash, holding 5,021 Bitcoins for $475.8 million by July 31, 2025 Bitcoin Holdings Summary | Date | Bitcoins Held | Aggregate Purchase Price | Average Price per Bitcoin | | :--- | :--- | :--- | :--- | | June 30, 2025 | 4,636 | $430.0 million | $92,753 | | July 31, 2025 | 5,021 | $475.8 million | $94,772 | Results of Operations Revenues for Q2 2025 decreased 43% to $8.2 million due to lower testing volume, while six-month revenues fell 44% to $17.1 million, with operating expenses surging 178% to $50.2 million due to a litigation contingency, yet net income was positive from Bitcoin gains Revenue Comparison (in millions) | Period | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $8.2 | $14.5 | $(6.3) | -43% | | Six Months Ended June 30 | $17.1 | $30.4 | $(13.3) | -44% | - The primary reason for the decrease in revenues was lower testing volume, which management believes is a result of the 2024 CMS rate announcement137146 - For the six months ended June 30, 2025, total operating expenses included a $29.8 million contingent liability related to a potential DOJ settlement147153 - Other income for Q2 2025 was $82.6 million, driven by an $83.8 million increase in the fair value of Bitcoin holdings. For the six-month period, other income was $38.9 million, driven by a $47.0 million increase in Bitcoin's fair value143153 Liquidity and Capital Resources As of June 30, 2025, the company held $13.6 million in cash and $496.9 million in Bitcoin, with negative working capital of $14.9 million due to a DOJ liability, yet management deems liquidity adequate, supported by $100 million convertible notes and a $500 million ATM program - As of June 30, 2025, the company had negative working capital of approximately $14.9 million, primarily due to the one-time $29.8 million contingent liability for the potential DOJ settlement156 - Financing activities in the first six months of 2025 provided $243.0 million, primarily from $100 million in convertible notes and $156.9 million from ATM stock offerings164 - In April 2025, the company entered into a Master Loan Agreement with Coinbase, allowing it to borrow cash or digital assets collateralized by its Bitcoin holdings, though no amounts have been borrowed to date174 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is the extreme price volatility of its $496.9 million Bitcoin investment, where fluctuations significantly impact financial results as changes in fair value are recognized in net income - The main market risk is the significant price volatility of Bitcoin. As of June 30, 2025, the fair value of the company's Bitcoin investment was $496.9 million178 - For the six months ended June 30, 2025, the company recognized a $41.9 million increase in fair value from the remeasurement of its Bitcoin investment, which is recorded in 'other income (expense), net'178 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during Q2 - Based on their evaluation as of June 30, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were effective180 - No changes in internal control over financial reporting occurred during the second quarter of 2025 that have materially affected, or are reasonably likely to materially affect, internal controls181 Part II—Other Information Item 1. Legal Proceedings The company reached an agreement in principle with the DOJ to pay $29.8 million to settle civil claims, but a final agreement is not guaranteed, risking a potential False Claims Act lawsuit for higher damages - The company reached an agreement in principle to pay the DOJ $29.8 million to settle all claims from a civil investigative demand. This amount excludes potential relators' counsel fees183 - A final agreement is not guaranteed. If a settlement is not reached, there is a risk the DOJ will file a civil False Claims Act lawsuit seeking damages that could exceed the proposed settlement amount183 Item 1A. Risk Factors The company faces extensive risks, primarily from Bitcoin's extreme price volatility, regulatory uncertainty, and custody issues, alongside healthcare business challenges like CMS reimbursement changes, customer concentration, and potential litigation, compounded by convertible debt risks Risks Related to Our Bitcoin Treasury Strategy and Holdings This section details substantial risks of the Bitcoin treasury strategy, including extreme price volatility, regulatory uncertainty, potential security classification, counterparty and custody risks, and competition for investor capital from spot Bitcoin ETPs - Bitcoin is a highly volatile asset, and its price fluctuations are likely to significantly influence the company's financial results and common stock price186197 - The availability of spot Bitcoin ETPs may adversely affect the market price of the company's common stock, as investors may prefer ETPs for direct Bitcoin exposure213214 - The company faces risks related to the custody of its Bitcoin, including the loss or destruction of private keys and the risk that custodially-held Bitcoin could become part of a custodian's insolvency estate in a bankruptcy237251 Risks Related to Our Healthcare Business The healthcare business faces significant headwinds from the 2024 CMS rate announcement, negatively impacting QuantaFlo's profitability and revenue, alongside risks from limited products, high customer concentration, and reliance on a small number of suppliers - The 2024 CMS rate announcement, which phases out risk-adjusted payments for PAD without complications, has negatively impacted the perceived profitability of using QuantaFlo and is causing decreased usage and revenue259261 - The company has a high concentration of revenue and accounts receivable, with two customers accounting for 44.9% and 31.0% of revenues, respectively, for the three months ended June 30, 2025283 - The business relies on a small number of independent suppliers for the manufacturing of QuantaFlo, and any disruption could negatively impact operations284 Risks Related to Our Legal and Regulatory Environment The company is subject to extensive FDA regulation and healthcare fraud laws, with uncertainty regarding reimbursement policies and the ongoing DOJ investigation potentially leading to a civil False Claims Act lawsuit if a final settlement is not reached - The company is subject to extensive FDA regulation and cannot assure that new devices, or new uses for QuantaFlo, will be cleared in a timely or cost-effective manner, if at all294 - There is a risk that the DOJ will file a civil False Claims Act lawsuit seeking damages for tests performed using the company's device if a final settlement is not reached, which would adversely affect the business308309 Risks Related to Our Indebtedness The company's $100 million senior convertible notes and future debt could limit cash flow and increase vulnerability, with a risk of default if funds are insufficient to settle conversions or repurchase notes upon a fundamental change - The company's indebtedness from its $100 million convertible notes could limit cash flow for operations and expose it to risks that could adversely affect its financial condition320 - The company may not have the ability to raise the funds necessary to settle conversions of the notes in cash or to repurchase the notes upon a fundamental change, which could lead to a default322 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities in the reporting period367 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, the sales agreement for the At-the-Market offering, and certifications from the Principal Executive Officer and Principal Financial Officer