Semler Scientific, Inc. (SMLR) is a leading innovator in the healthcare technology industry, developing cutting-edge products and services to assist healthcare providers in evaluating and treating chronic diseases. The company has earned a reputation for its pioneering spirit, consistently pushing the boundaries of medical technology to improve patient outcomes. In a significant strategic move, Semler Scientific has also embraced the power of Bitcoin, integrating it as a core component of its treasury management strategy.

Business Overview and History

Semler Scientific was founded in 2011 with a mission to develop and market innovative technology solutions for the healthcare sector. The company's flagship product, QuantaFlo, is a patented and FDA-cleared vascular testing device that measures arterial blood flow in the extremities to aid in the diagnosis of peripheral arterial disease (PAD). QuantaFlo received its initial FDA 510(k) clearance in 2015, marking a significant milestone for the company.

QuantaFlo is a four-minute in-office blood flow test that healthcare providers can use to assess a patient's vascular condition, including the detection of PAD. The device features a sensor clamp that is placed on the toe or finger, using infrared light to construct a blood flow waveform. Both index fingers and both large toes are interrogated, which takes about 30 seconds for each.

In its early years, Semler Scientific focused on establishing QuantaFlo within its target customer base, which included insurance plans, physician groups, risk assessment groups, hospitals, and retailers. The company adopted a unique leasing model for QuantaFlo, eliminating the need for customers to make large upfront capital investments. This approach proved successful in driving product adoption and expanding the company's customer base and geographic reach.

Semler primarily utilizes a licensing model rather than an outright sales model for QuantaFlo. Customers generally pay a fixed monthly fee or a variable fee-per-test. The company estimates that routine office usage of QuantaFlo has ranged from a few tests per week up to 10 tests per day. Semler has placed QuantaFlo with healthcare insurance plans, integrated delivery networks, physician groups, hospitals, and companies contracting with the healthcare industry.

Despite facing challenges in navigating the complex reimbursement landscape for medical devices, Semler Scientific continued to grow its core healthcare technology solutions business. In 2023, the company faced a setback when changes to the regulatory reimbursement environment, particularly the CMS rate announcement, negatively impacted the perceived profitability of using QuantaFlo for PAD diagnosis. This led to decreased usage of the product among some customers.

However, Semler Scientific's resilience and focus on innovation allowed it to weather these challenges. In 2024, the company achieved record cash generation of over $24 million, setting the stage for its bold strategic move into the world of cryptocurrency.

Embracing the Bitcoin Revolution

In May 2024, Semler Scientific made a transformative decision to adopt Bitcoin as its primary treasury reserve asset. This bold move positioned the company as a pioneer among publicly traded firms in embracing the potential of digital currencies. The company's chairman, Eric Semler, cited Bitcoin's attributes as a reliable store of value and a hedge against inflation as key factors behind this strategic shift.

Since implementing its Bitcoin treasury strategy, Semler Scientific has aggressively accumulated the cryptocurrency, using a combination of operating cash flows, proceeds from an at-the-market (ATM) equity offering, and a recent $100 million convertible senior notes offering. As of February 2025, the company holds an impressive 3,192 Bitcoins, valued at over $300 million, making it the tenth-largest corporate holder of the digital asset according to bitcointreasuries.net.

The company's commitment to Bitcoin has paid significant dividends, with a remarkable 152% yield on its Bitcoin holdings since the strategy's inception in the third quarter of 2024. This performance has had a transformative impact on Semler Scientific's market capitalization, which has grown by more than 200% since adopting the Bitcoin treasury strategy.

As of December 31, 2024, Semler held approximately 2,300 bitcoins, which it had acquired for a total purchase price of $189.7 million, at an average cost of $82,540 per bitcoin. The company's bitcoin holdings were remeasured to a fair value of $214.6 million at the end of 2024, resulting in an unrealized gain of $24.9 million recognized in other income. Semler views its bitcoin holdings as long-term investments and expects to continue accumulating bitcoin going forward.

Financial Performance and Outlook

Semler Scientific's financial performance has been a testament to its operational excellence and strategic vision. In the full year 2024, the company reported total revenues of $56.3 million and net income of $40.9 million. This strong performance was driven by the continued success of the QuantaFlo product line, which generated $53.4 million in revenue, comprising $27.5 million from fixed-fee licenses and $25.9 million from variable-fee licenses.

However, the company has faced some headwinds in recent quarters due to changes in the regulatory reimbursement landscape. The final 2024 rate announcement from the Centers for Medicare and Medicaid Services (CMS) for the Medicare Advantage and Medicare Part D programs did not include risk-adjusted payments for PAD without complications. This decision has led to decreased usage of the QuantaFlo device and negatively impacted Semler Scientific's revenues.

To mitigate the impact of these reimbursement changes, the company is focused on expanding its customer base beyond managed care by reaching clinics and value-based care providers who recognize the clinical importance of PAD testing. Additionally, Semler Scientific is actively pursuing a new 510(k) clearance from the FDA to expand the use of QuantaFlo to aid in the diagnosis of other cardiovascular diseases, in addition to PAD. The company hopes to obtain this clearance sometime in 2025.

Semler Scientific is also test marketing other established FDA-cleared products in the cardiovascular care space that it believes will appeal to its current customer base. This diversification strategy aims to offset potential revenue pressures in 2025 following the additional phasing of the 2024 CMS rate announcement.

Financials

Semler Scientific's financial results for the full year 2024 demonstrate the company's performance:

Revenue:

$56.3 million Net Income: $40.9 million QuantaFlo Revenue: $53.4 million

• Fixed-fee licenses: $27.5 million
• Variable-fee licenses: $25.9 million Operating Cash Flow: $24.4 million Free Cash Flow: -$165.3 million

The company's most recent quarter (Q4 2024) showed: Revenue:

$12.4 million Net Income: $29.2 million

Revenues decreased by approximately 18% year-over-year, primarily due to decreased testing volume and the introduction of volume pricing tiers for some of the company's largest customers, as well as changes to the CMS reimbursement landscape.

The adoption of the bitcoin treasury strategy has significantly impacted Semler's financial results, introducing volatility due to the remeasurement of the bitcoin holdings to fair value each reporting period. This volatility is expected to continue as Semler increases its overall holdings of bitcoin relative to its other assets.

Liquidity

Semler Scientific has maintained a strong liquidity position, bolstered by its successful Bitcoin strategy:

Cash Generation:

Over $24 million in 2024 Bitcoin Holdings: 3,192 Bitcoins (valued at over $300 million as of February 2025) Funding Sources:

• Operating cash flows
• Proceeds from ATM equity offering
• $100 million convertible senior notes offering

Cash and Cash Equivalents:

$8.95 million as of December 31, 2024 Debt/Equity Ratio: 0.0003 as of December 31, 2024 Current Ratio: 3.59 Quick Ratio: 3.54

The company's liquidity has been significantly enhanced by the appreciation of its Bitcoin holdings, which have yielded a 152% return since the strategy's inception in Q3 2024.

Risks and Challenges

While Semler Scientific's strategic pivot to Bitcoin has delivered impressive results, the company is not without its risks and challenges. The highly volatile nature of the cryptocurrency market exposes Semler Scientific's financial performance to significant swings, as evidenced by the $28.8 million unrealized gain from the change in fair value of its Bitcoin holdings in the fourth quarter of 2024.

Moreover, the regulatory landscape surrounding cryptocurrencies continues to evolve, with potential changes in taxation, custody requirements, and reporting obligations that could impact Semler Scientific's Bitcoin treasury strategy. The company's reliance on third-party custodians to safeguard its Bitcoin holdings also introduces counterparty risk that must be carefully managed.

In the healthcare technology sector, Semler Scientific faces competition from larger, well-established players, as well as the ongoing challenge of navigating the complex regulatory environment for medical devices. The company's ability to obtain and maintain the necessary regulatory approvals for its products, such as the pending 510(k) clearance for the expanded use of QuantaFlo, will be crucial to its continued success.

Additionally, Semler Scientific has been cooperating with civil investigative demands from the Department of Justice (DOJ) since 2017 related to claims for reimbursement related to the QuantaFlo device. There is a risk that the DOJ will file a complaint or complaint in intervention in a civil False Claims Act lawsuit seeking damages, which would adversely affect the company's business.

Conclusion

Semler Scientific's story is one of innovation, resilience, and a willingness to embrace transformative technologies. The company's core healthcare technology business, anchored by the QuantaFlo device, has demonstrated its value in the fight against chronic diseases. By strategically integrating Bitcoin into its treasury management, Semler Scientific has positioned itself as a forward-thinking, technologically advanced player in the healthcare industry.

As the company navigates the evolving reimbursement landscape and pursues new product approvals, its ability to adapt and capitalize on emerging opportunities will be critical. Investors will closely monitor Semler Scientific's execution of its diversification strategies, as well as its success in managing the risks associated with its Bitcoin treasury holdings. With a proven track record of innovation and a bold vision for the future, Semler Scientific remains a compelling investment proposition in the dynamic healthcare technology sector.