Shares of Semler Scientific (SMLR) are under pressure on Wednesday morning after the company reported quarterly results and the stock was downgraded at B. Riley. The analyst sees increased near-term risks associated with Semler’s variable-fee revenue as a result of CVS Health’s (CVS) acquisition of Signify Health (SGFY), which is the company’s second-largest customer.

QUARTERLY RESULTS: Semler Scientific reported third quarter earnings per share of 46c, which was better than the expected 37c and compares to 51c per share a year ago. The company reported revenue of $14M, the same as in the prior year period. Cash and cash equivalents at September 30 increased to $45.5M from $35.9M. The company added that Semler Scientific's two largest customers - including their affiliates - comprised 41% and 26% of quarterly revenues.

The company lowered its full year 2022 revenue guidance to $55.5M-$58M, from the previous $58M-$60M. Operating expenses will range from $38.8M to $40.3M, below the prior guidance of $42.5M to $44.0M. The net effect of these changes to guidance of revenues and operating expenses is that Semler Scientific expects income from operations will range from $16.7M to $17.7M.

MOVING TO THE SIDELINES: B. Riley analyst Marc Wiesenberger downgraded Semler Scientific to Neutral from Buy with a price target of $45, down from $60. The analyst sees increased near-term risks associated with Semler's variable-fee revenue as a result of CVS Health's acquisition of Signify Health, which is Semler's second-largest customer. After a 30% move up in Semler shares since early August, the near-term upside is likely capped until more clarity emerges and growth is back on sustained, upward trajectory, Wiesenberger told investors in a research note.

The analyst remains confident in Semler’s long-term opportunity to become the standard of care for PAD testing given its cost, ease, and efficiency. However, a number of industry dynamics are likely to increase near-term volatility in the business -- as evidenced by the range implied by management’s fourth quarter revenue guidance -- as well as in Semler shares, Wiesenberger added.

PRICE ACTION: In Wednesday morning trading, shares of Semler Scientific have dropped about 34% to $28.27.