Executive Summary / Key Takeaways

• Semler Scientific has fundamentally shifted its strategic focus to become a "bitcoin-first" company, prioritizing the accumulation of Bitcoin as its primary treasury reserve asset.
• As of May 12, 2025, the company held 3,808 bitcoins, acquired at an average cost of $89,279, with a current value of approximately $400 million, representing a significant unrealized gain.
• Bitcoin accumulation is funded through operating cash flow from the healthcare business, proceeds from equity offerings (including a new $500 million ATM program), and convertible debt ($100 million notes issued in Q1 2025).
• The core healthcare business, centered on the QuantaFlo device for PAD diagnosis, faces revenue pressure due to CMS reimbursement changes but is being managed to generate cash and pursue new cardiovascular product opportunities and expanded indications (like heart failure, targeted for 2025 clearance).
• Recent financial results (Q1 2025 Net Loss of $64.7 million) were significantly impacted by a $29.8 million litigation contingency accrual related to a proposed DOJ settlement and a $41.8 million unrealized loss on Bitcoin fair value changes, highlighting the volatility introduced by the new treasury strategy.

The Dual Engine: Healthcare Foundation Meets Digital Gold Ambition

Semler Scientific, Inc. (NASDAQ: SMLR) has embarked on a transformative journey, recalibrating its corporate identity from a pure-play healthcare technology provider to a pioneering "bitcoin-first" company. This strategic pivot, announced in May 2024, positions SMLR as one of the few publicly traded entities explicitly leveraging its operational cash flow and capital-raising capabilities to aggressively accumulate Bitcoin as its primary treasury reserve asset. The investment narrative for SMLR is now intrinsically linked to the volatile, yet potentially high-upside, trajectory of digital gold, underpinned by the steady, albeit currently challenged, cash-generating engine of its legacy healthcare business.

Historically, Semler Scientific has been known for its QuantaFlo device, a patented and FDA-cleared non-invasive tool designed to measure arterial blood flow in the extremities to aid in the diagnosis of Peripheral Arterial Disease (PAD). Operating primarily on a Software-as-a-Service (SaaS) model through leases and fee-per-test arrangements, QuantaFlo established a recurring revenue stream within the healthcare sector, targeting physicians, clinics, and insurance plans. The technology itself offers tangible operational benefits: the test is quick, typically taking only four minutes, which management suggests can lead to 20-30% higher efficiency in clinical settings compared to alternative methods. Its simplicity and speed can potentially reduce training time by 20-30% and offer a lower per-unit cost, positioning it as a cost-effective solution, particularly appealing to smaller physician groups and value-based care providers. This technological differentiation has provided a niche competitive moat against larger, more diversified medical device giants like Abbott Laboratories (ABT), Medtronic plc (MDT), and Koninklijke Philips N.V. (PHG), who often focus on more complex, integrated systems. While these larger competitors boast significantly greater scale, R&D budgets, and broader product portfolios, QuantaFlo's specific advantages in speed and cost efficiency have allowed SMLR to carve out a presence in cost-sensitive segments of the vascular testing market.

However, the healthcare segment has recently faced significant headwinds. The Centers for Medicare and Medicaid Services (CMS) 2024 rate announcement, which phased out risk-adjusted payments for PAD without complications, directly impacted the perceived profitability of using QuantaFlo for many customers. This regulatory change has led to decreased testing volumes and a notable decline in healthcare revenues, as evidenced by the 44.4% year-over-year drop in total revenues in the first quarter of 2025 to $8.8 million, down from $15.9 million in Q1 2024. This pressure is expected to continue as the CMS changes are further phased in. The business also faces risks from customer concentration, with a limited number of large customers accounting for a significant portion of revenues and receivables.

Despite these challenges, the healthcare business remains strategically vital. Management is focused on managing this segment to minimize revenue declines while maintaining the infrastructure necessary for innovation and growth in other cardiovascular disease states. This includes pursuing a new FDA 510(k) clearance for a QuantaFlo product extension aimed at aiding in the diagnosis of heart failure, with hopes of obtaining this clearance sometime in 2025. The company is also test marketing other FDA-cleared cardiovascular products to its existing customer base and actively diversifying its customer profile beyond traditional managed care to include clinics and value-based care providers. Crucially, the healthcare business's primary strategic role under the new corporate mandate is to generate cash flow, which is then directed towards the company's overarching Bitcoin treasury strategy.

Fueling the Bitcoin Arsenal

The core of Semler Scientific's current investment thesis lies in its aggressive pursuit of Bitcoin accumulation. The company views Bitcoin as a scarce, finite asset akin to "digital gold," offering potential as an inflation hedge and a safe haven asset. Management expresses strong conviction in Bitcoin's long-term investment potential, citing growing global acceptance, increasing institutional adoption (accelerated by the approval of Bitcoin spot ETFs), and the recent repeal of SAB 121, which is expected to facilitate major banks' ability to custody Bitcoin. They believe Bitcoin is significantly undervalued compared to gold and has the potential for outsized returns.

Semler Scientific is funding its Bitcoin acquisition strategy through a multi-pronged approach. Operating cash flow generated by the healthcare business is a foundational source. Supplementing this are proceeds from capital markets activities. The company has actively utilized its at-the-market (ATM) equity offering programs, including a new $500 million program that became effective in April 2025, issuing shares to raise capital. In January 2025, SMLR also successfully completed a private offering of $100 million aggregate principal amount of 4.25% convertible senior notes due 2030. A significant portion of the net proceeds from both the ATM offerings and the convertible notes has been deployed directly into purchasing Bitcoin. As of May 12, 2025, the company had acquired a total of 3,808 bitcoins at an aggregate cost basis of $340.0 million, representing an average purchase price of $89,279 per bitcoin. The fair value of these holdings stood at approximately $400 million as of that date, reflecting an unrealized gain of $59 million.

The accounting treatment for Bitcoin, following the company's early adoption of ASU 2023-08, requires measuring holdings at fair value each reporting period and recognizing changes in net income. This introduces significant volatility to reported earnings, as seen in Q1 2025, where a $41.8 million unrealized loss on Bitcoin contributed substantially to the reported net loss. Conversely, Q4 2024 saw a $28.8 million gain from fair value changes. While this impacts reported profitability, management emphasizes that it does not affect cash flow from operations. The company tracks "BTC Yield" as a key performance indicator, measuring the percentage change in the ratio of Bitcoin holdings to assumed diluted shares outstanding, reporting a 22.2% yield year-to-date in Q1 2025 and 152.8% since adopting the strategy in May 2024. Management believes their financing strategy, particularly the convertible notes, has resulted in the highest leverage ratio among publicly traded Bitcoin treasury companies, positioning them for amplified upside if Bitcoin prices appreciate. They have ambitious goals for further Bitcoin accumulation in 2025, intending to utilize the full capacity of the new $500 million ATM and exploring additional financing avenues.

Financial Snapshot and Key Risks

Semler Scientific's financial results for Q1 2025 reflect the impact of both the healthcare business headwinds and the new treasury strategy. Total revenues were $8.8 million, down significantly from the prior year. Total operating expenses surged to $39.9 million, primarily driven by a $29.8 million accrual for a contingent liability related to the agreement in principle to settle the DOJ civil investigative demand. This, combined with the $41.8 million unrealized loss on Bitcoin, resulted in a net loss of $64.7 million for the quarter.

Liquidity as of March 31, 2025, showed cash, cash equivalents, and restricted cash of $9.9 million. The contingent liability led to negative working capital. However, the subsequent financing activities (new ATM program, potential Coinbase (COIN) loan facility) provide significant potential funding sources for continued Bitcoin purchases.

Investing in SMLR carries distinct risks tied to both its healthcare operations and its Bitcoin treasury strategy. Bitcoin's inherent price volatility is a major factor; significant price declines would negatively impact the company's balance sheet and potentially the market price of its stock. Regulatory uncertainty surrounding digital assets, including the risk of Bitcoin being reclassified as a security (potentially impacting SMLR's status under the 1940 Act if holdings exceed certain thresholds), poses a material risk. Counterparty risk related to Bitcoin custodians is also present, as highlighted by recent insolvencies in the crypto industry. On the healthcare side, continued pressure from CMS reimbursement changes remains a significant challenge to revenue generation. The finalization of the DOJ settlement, while agreed in principle, is not guaranteed, and failure to reach a final agreement could result in a lawsuit seeking damages exceeding the accrued amount. Customer concentration also leaves the company vulnerable to the actions of a few key clients.

Conclusion

Semler Scientific presents a unique investment proposition, fundamentally centered on its strategic pivot to Bitcoin accumulation. The company is actively leveraging its established, cash-generating healthcare technology business and accessing capital markets through equity and debt to build a substantial Bitcoin treasury. While the healthcare segment faces challenges from regulatory changes and customer concentration, it continues to serve its purpose as a funding source, with potential upside from new product introductions and expanded indications. The investment thesis is a direct play on the potential appreciation of Bitcoin, amplified by the company's financing structure. Investors must weigh the potential for significant returns from Bitcoin against the inherent volatility of the asset, the regulatory uncertainties surrounding digital assets, and the operational headwinds and risks within the healthcare business. SMLR's story is one of strategic transformation, betting its future on the long-term value of digital gold while maintaining a core operational business to help fuel that ambition.