By Brian Marckx, CFA
READ THE FULL SMLR RESEARCH REPORT
On June 17th, Semler (SMLR) announced that while CEO Doug Murphy-Chutorian suffered a mild stroke following elective surgery, he continues to lead the company and the incident did not result in any interruptions to the business. While we do not have much to add to what was in the PR, we note that we spoke with a company representative this morning who reaffirmed what was conveyed in the announcement earlier this week. We wish Dr. Chutorian a swift recovery and do not anticipate that this incident will cause any meaningful disruption to the business, including the continued implementation and leveraging of their growth strategy. We are reiterating our $50/share price target.
Growth story remains intact…
The story and our outlook have remained largely intact for the last several quarters. As such, we continue to reiterate our comments from our recent earnings updates… the consistency and regularity of revenue growth and flatness of expenses lend credence to the validity of the company’s business model and strategy. Much of that hinges on the supposition that insurers have an economic interest in paying for their capitation-based insured to be tested for PAD. And with these insured tested annually, these are very sticky revenue units (somewhat analogous to an installed base but with much higher margins). Growth comes from adding new customers and additional testing from existing customers – which was the case in throughout 2018 and through the first quarter of 2019. And with SMLR’s customers (i.e. insurers) consisting of some of the largest Medicare Advantage plans and SMLR’s market penetration still in the low single-digits, this further validation of the company’s business model and insurers’ economic interests as it relates to PAD testing should signal ever-increasing confidence that revenue and profitability will continue to grow. The last several quarters have further bolstered our confidence in that regard.
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By Brian Marckx, CFA