10-Q: Semler Scientific Q3: Bitcoin Gains Mask Core Business Decline

Semler Scientific reports a 45% revenue drop in its core healthcare business, offset by significant Bitcoin fair value gains, alongside a pending merger and major legal settlements.

Summary

• Total revenues for the three months ended September 30, 2025, decreased by 45% to $7.5 million, down from $13.5 million in the same period of 2024.
• Net income for the three months ended September 30, 2025, increased by 201% to $16.9 million, up from $5.6 million in the prior year, primarily driven by a $28.5 million increase in the fair value of Bitcoin holdings.
• For the nine months ended September 30, 2025, revenues decreased by 44% to $24.5 million, compared to $43.9 million in 2024.
• Net income for the nine months ended September 30, 2025, rose by 63% to $19.1 million, from $11.7 million in 2024, largely due to a $70.4 million positive change in the fair value of Bitcoin.
• Operating expenses for the three months increased by 52% to $12.9 million, and for the nine months, increased by 138% to $63.1 million, including a $29.8 million DOJ settlement.
• The company settled allegations with the U.S. Department of Justice for $29.75 million plus $0.5 million in interest, related to alleged False Claims Act violations for Medicare Part B claims using QuantaFlo and FloChec devices.
• A merger agreement with Strive, Inc. was entered into on September 22, 2025, where Semler stockholders will receive 21.05 shares of Strive Class A common stock for each Semler share.
• Two significant customers, representing over 60% of Q3 2025 revenue, ceased using the QuantaFlo device as of October 1, 2025.
• The company anticipates Q4 2025 revenues to be at least 60% lower than Q3 2025 due to customer cessation and the impact of CMS reimbursement changes and the DOJ settlement.
• As of September 30, 2025, the company held 5,048 Bitcoins (including 315 pledged as collateral) with a fair value of $575.8 million, acquired at an average price of $94,877 per Bitcoin.
• A $20.0 million cash loan was secured from Coinbase Credit, Inc. on September 25, 2025, collateralized by 315 Bitcoins, with proceeds used to pay the DOJ settlement.
• The company issued $100.0 million in 4.25% senior convertible notes due 2030 in January 2025, with net proceeds of $88.3 million used for Bitcoin purchases and general corporate purposes.
• A new wholly-owned subsidiary, CardioVanta, has been formed to focus on early detection of heart failure and cardiac arrhythmia monitoring, aiming for a high-margin, software-as-a-service (SAAS) business model.
• The company is seeking new FDA 510(k) clearance for expanded use of QuantaFlo to aid in the diagnosis of other cardiovascular diseases, such as heart failure, having ceased marketing for heart dysfunction.

Sentiment

Score: 3

Explanation: The company faces significant headwinds in its core healthcare business, marked by substantial revenue declines, customer losses, and a large regulatory settlement. While net income is boosted by Bitcoin's fair value appreciation, this introduces extreme volatility and regulatory risks. The pending merger with Strive, Inc. adds another layer of uncertainty, and the overall outlook for the traditional business is negative, requiring expense alignment. The reliance on a volatile asset for financial performance and ongoing legal challenges contribute to a high-risk profile.

Positives

• Net income significantly increased by 201% for the three months and 63% for the nine months ended September 30, 2025, primarily due to the appreciation in Bitcoin's fair value.
• The fair value of intangible digital assets (Bitcoin) increased by $28.5 million in Q3 2025 and $70.4 million for the nine months ended September 30, 2025.
• Successfully raised $100.0 million through senior convertible notes and $20.0 million through a Coinbase loan, demonstrating access to capital.
• The company has a clear strategic direction with its Bitcoin treasury strategy and the formation of CardioVanta for its healthcare business.
• The conversion of a secured convertible promissory note into Monarch Medical Technologies Class B units resulted in a capital gain of $0.803 million.

Negatives

• Revenues from the core healthcare business decreased significantly by 45% in Q3 2025 and 44% for the nine months, indicating a substantial decline in operational performance.
• Operating expenses increased by 52% in Q3 2025 and 138% for the nine months, largely due to the $29.8 million DOJ settlement and increased general and administrative costs.
• The company shifted from an operating income of $5.1 million in Q3 2024 to an operating loss of $5.4 million in Q3 2025.
• Two major customers, accounting for over 60% of Q3 2025 revenue, ceased using the QuantaFlo device, leading to an anticipated Q4 2025 revenue decline of at least 60%.
• The DOJ settlement and associated Corporate Integrity Agreement impose significant financial and compliance burdens.
• The investment in Mellitus Health, Inc. (Insulin Insights) was fully written off, indicating a failed product diversification effort.
• The company expects further revenue declines and will need to align expenses with the revenue decrease, suggesting ongoing operational challenges in the healthcare segment.

Risks

• Bitcoin is a highly volatile asset, and fluctuations in its price are likely to influence financial results and the market price of common stock.
• The Bitcoin treasury strategy has not been tested over an extended period or under different market conditions, and some investors may disagree with it.
• Exposure to counterparty risks, particularly with custodians, where custodially-held Bitcoin may become part of the custodians' insolvency estate.
• Security breaches or cyberattacks on the company or third-party service providers could lead to loss of Bitcoin or adverse financial/reputational impact.
• Regulatory changes reclassifying Bitcoin as a security could lead to the company's classification as an investment company under the 1940 Act, imposing significant regulatory controls.
• The proposed merger with Strive, Inc. is subject to various closing conditions, including stockholder and antitrust approvals, and delays or abandonment could negatively affect the stock price and business.
• The merger agreement contains provisions that limit the company's ability to pursue alternatives and could discourage competing transaction proposals, with a potential $49.0 million termination fee.
• Business uncertainties during the pending merger may negatively impact the ability to attract and retain personnel.
• Changes in the regulatory reimbursement landscape, such as the 2024 Medicare Advantage and Part D Final Rate Announcement, have negatively impacted the perceived profitability and usage of QuantaFlo.
• The company relies on a limited number of FDA-cleared testing products, and these may not achieve broad market acceptance or commercial success.
• Inability to obtain new FDA 510(k) clearance for expanded use of QuantaFlo could limit market opportunities.
• Heavy reliance on a small number of key personnel, the loss of whom could severely damage the business.
• Customer concentration risk, with a limited number of customers accounting for a significant portion of revenues and accounts receivable, exacerbated by recent customer losses.
• Reliance on a small number of independent suppliers and facilities for manufacturing QuantaFlo, with potential for delays or disruptions.
• Exposure to product liability risk, which may not be sufficiently covered by insurance.
• Potential for product recalls or voluntary market withdrawals due to defects or modifications, increasing costs.
• Operating in an intensely competitive and rapidly changing business environment, with a substantial risk of products becoming obsolete or uncompetitive.
• Subject to various healthcare fraud and abuse laws and regulations, with the DOJ settlement exposing the company to additional litigation and scrutiny.
• Risks related to intellectual property, including patent challenges, trade secret misappropriation, and the need to license third-party IP.
• Indebtedness from convertible notes and the Coinbase loan could limit cash flow, expose the company to adverse risks, and dilute existing stockholders.
• Provisions in corporate charter documents and Delaware law could make an acquisition more difficult and prevent attempts by stockholders to replace management.
• The price of common stock has been and may continue to be volatile, leading to substantial losses for investors.

Future Outlook

The company anticipates fourth-quarter 2025 revenues to be at least 60% lower compared to the third quarter of 2025, with further declines expected as more customers cease using QuantaFlo due to CMS reimbursement changes and the DOJ settlement. Management expects to undertake measures to align expenses with the projected revenue decline. The company aims to strategically acquire additional Bitcoin, targeting 10,000 Bitcoins by the end of 2025, 42,000 by the end of 2026, and 105,000 by the end of 2027. The newly formed CardioVanta subsidiary is expected to seek outside capital to fund its initial needs and validate its long-term value, focusing on early detection of heart failure and cardiac arrhythmia monitoring. The proposed merger with Strive, Inc. is expected to close, subject to various conditions, by March 22, 2026.

Management Comments

• "We are experiencing and expect to continue to experience decreased usage of our QuantaFlo device due to the CMS 2024 Medicare Advantage and Part D Final Rate Announcement."
• "While revenues have been gradually decreasing period over period in light of the CMS reimbursement landscape, two significant customers who represented more than 60% of revenue in the third quarter of 2025 have ceased use of their respective QuantaFlo devices."
• "In light of this development, we now currently anticipate fourth quarter 2025 revenues will be at least 60% lower as compared to third quarter 2025 revenue."
• "Further revenue declines over the quarter are anticipated as other customers cease use of QuantaFlo in light of the CMS reimbursement landscape as well as the recent DOJ settlement."
• "Accordingly, in the future, we anticipate that we will need to undertake measures to align expenses with the revenue decline."
• "We believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following the date of this report on Form 10-Q, as well as in the long-term."

Industry Context

The healthcare industry is undergoing significant changes driven by government regulations, particularly the CMS Medicare Advantage and Part D programs, which have impacted reimbursement for diagnostic tools like QuantaFlo. This shift has reduced the perceived profitability for providers, leading to decreased usage of the company's products. The broader digital assets industry, while experiencing increased investor attention and the approval of spot Bitcoin ETPs, remains highly volatile and subject to evolving legal, regulatory, and technical uncertainties. The company's dual strategy of a declining healthcare business and a volatile Bitcoin treasury positions it uniquely, but also exposes it to distinct risks from both sectors. The trend of other companies adopting Bitcoin treasury strategies could lead to new regulations or interpretations, further impacting the company's approach.

Comparison to Industry Standards

• The filing does not provide specific comparisons to comparable companies, projects, or results within the medical device or digital asset industries. However, the company notes that it became the second publicly traded company in the United States to adopt a Bitcoin treasury strategy in May 2024, indicating an early mover status in this specific corporate treasury approach.
• The company mentions that the availability of spot Bitcoin ETPs, approved on January 10, 2024, offers investors alternative direct exposure to Bitcoin, which could affect the market's perception and valuation of Semler Scientific's common stock compared to a 'pure play' Bitcoin investment vehicle.

Management Changes

Corporate Governance

Legal Proceedings

• DOJ Settlement: Effective September 10, 2025, settled alleged civil violations of the False Claims Act for $29.75 million plus $0.5 million interest, related to improper Medicare Part B claims for tests using FloChec and QuantaFlo devices. Also entered into a 5-year Corporate Integrity Agreement with HHS OIG.
• Krishnamoorthy Class Action: Filed August 29, 2025, alleging violations of Sections 10(b) and 20(a) of the Exchange Act against the company and three current/former officers, challenging the timing and extent of DOJ claim disclosure. Seeks unspecified damages, interest, and attorneys' fees.
• Merger-Related Litigation (Tran v. Semler Scientific, Inc., et al.): Filed October 14, 2025, alleging violations of Sections 14(a) and 20(a) of the Exchange Act against the company and four directors, concerning disclosures related to the proposed merger with Strive. Seeks injunctive relief, rescission, unspecified damages, and attorneys' fees.
• Other purported stockholders have submitted demand letters concerning the merger disclosures.

Stakeholder Impact

• Shareholders: Face significant dilution risk from future equity offerings and convertible notes. The value of their investment is highly exposed to Bitcoin price volatility and the success/failure of the Strive merger. Potential for substantial losses due to declining core business and legal costs.
• Employees: Uncertainty regarding future roles and retention, particularly with the pending merger and the need to align expenses with revenue declines. Stock-based compensation is a significant expense.
• Customers: Two major customers have ceased using QuantaFlo, significantly impacting future revenue. Other customers may also cease use due to CMS reimbursement changes and the DOJ settlement, affecting patient care and provider choices.
• Suppliers: Potential for disruptions due to reliance on a small number of independent suppliers and manufacturing facilities, and impacts from tariffs.
• Creditors: The company has issued $100.0 million in convertible notes and a $20.0 million Coinbase loan, increasing its indebtedness and exposure to interest rate risk. Bitcoin collateral for the Coinbase loan introduces additional asset volatility risk for lenders.

Next Steps

• Convene a stockholder meeting to obtain approval and adoption of the Merger Agreement with Strive, Inc.
• Strive, Inc. will take actions to cause Eric Semler to be appointed to its board of directors upon merger completion.
• Seek a new FDA 510(k) clearance for expanded use of QuantaFlo to enable expanded labeling as an aid in the diagnosis of other cardiovascular diseases, such as heart failure.
• CardioVanta, Inc. will seek capital from outside investors to validate its long-term value and fund its initial capital needs.
• Undertake measures to align expenses with the anticipated revenue decline in the healthcare business.
• Continue to strategically acquire additional Bitcoin, with stated goals of 10,000 Bitcoins by end of 2025, 42,000 by end of 2026, and 105,000 by end of 2027.
• Vigorously defend against the Krishnamoorthy Class Action and Tran v. Semler Scientific, Inc. lawsuits.

Key Dates

Recommendation

The core healthcare business is in a severe decline, evidenced by a 45% revenue drop in Q3, the loss of two major customers representing over 60% of Q3 revenue, and a projected 60% revenue decrease in Q4. This operational deterioration is masked by significant, but highly volatile, unrealized gains from Bitcoin holdings. The company faces substantial legal liabilities from the DOJ settlement and ongoing class-action lawsuits, which will incur significant costs and management distraction. The proposed merger with Strive, Inc. introduces further uncertainty and potential termination fees. Given the fundamental business challenges, high operational risk, reliance on a speculative asset for profitability, and ongoing legal and merger-related uncertainties, a seasoned investor would likely recommend a strong sell to mitigate exposure to these significant downside risks.

Keywords

Bitcoin treasury strategy, SEC 10-Q, Semler Scientific, SMLR, Quarterly Report, Healthcare technology, QuantaFlo, Peripheral Arterial Disease (PAD), Strive Inc. merger, DOJ settlement, Digital assets, Convertible notes, Medical devices, Corporate Integrity Agreement, CardioVanta, CMS reimbursement, Stock volatility, Financial results