SMLR: Solid Q4 With Revenue Up 35%
NASDAQ:SMLR Q4 2014 Results: Revenue Up 35% yoy, 18% Sequentially and 11% Ahead of Our Estimate Semler Scientific (SMLR) turned in a strong Q4, particularly on the top line, extending their streak of sequential revenue growth to at least eight quarters. Revenue was ahead of our estimate as was gross margin and, coupled with in-line OpEx (as a % of sales) resulted in a slight beat on the bottom line as well. Q4 revenue of $1,055k was up 35% yoy, up 18% sequentially and 11% better than our $951k estimate. Two new Medicare Advantage plans went live in Q3 which likely help facilitate a nice tailwind in late 2014 but we think this momentum will continue as the company brings on additional plans and order sizes continue to increase from existing accounts. In fact management noted on the Q4 call that they continue to see increasing orders from existing customers, specifically noting their largest account recently increased their order size. Pipeline customers may also come online during the year. In addition, SMLR is now in beta testing of an unnamed / unspecified “service-oriented, multi-test product”. While potential timelines have not been offered, it’s conceivable that this could contribute during the current year as well (although we do not account for it in our model). Gross margin at 82% (vs. 80% estimate) was relatively strong compared to historical levels which was attributed to economies of scale from higher production volumes. Management indicated on the call that this level, or higher, should persist with growing unit placements and ever-increasing production. Operating expenses, at 194% of revenue were mostly in-line with our 205% forecast. Net loss and EPS were $1.2M and ($0.25), slightly better than our $1.3M and ($0.27). We have made some adjustments to our model following Q4 results. This includes a reduction in our projected o/s share count as a result of the recent significant upside move in the share price and our assumptions regarding pricing and share count issuance of potential future capital raises. We are maintaining our Outperform rating. Our per share target price has moved from $6.00 to $6.50. HHS Moves to Accelerate Shift Towards Pay for Performance Semler’s commercialization strategy, which largely targets Medicare Advantage plans, leverages the shift by public and private payers from a fee-for-service to a pay-for-performance reimbursement model. The shift has been underway since the implementation of the Affordable Care Act but just recently got a big push for more widespread and accelerated implementation. On January 26, 2015 the U.S. Department of Health and Human Services announced a new goal to increase the percentage of health care payments that go to quality rather than quantity of care. Per the news release….”Health and Human Services Secretary Sylvia M. Burwell today announced measurable goals and a timeline to move the Medicare program, and the health care system at large, toward paying providers based on the quality, rather than the quantity of care they give patients.” Specifically, HHS’s goal is for 30% (~20% today) of fee-for-service payments to be tied to quality care through alternative payment models by 2016 and 50% by the end of 2018. In addition HHS has a goal to tie 85% of traditional fee-for-service payments to quality through certain purchasing programs and by reducing hospital readmissions by 2016 and for this to be 90% by 2018. We view this and similar measures by government and private organizations as not only a benefit to helping reduce healthcare spending but also a significant benefit to healthcare companies such as Semler, which has a lower cost and similar (or better) performance (versus traditional methods) device. We expect the continued move towards more healthcare dollars being spent on quality instead of quantity of care to help fuel further demand for FloChec in the diagnosis of PAD. READ THE LATEST FULL RESEARCH REPORT HERE SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.
