Marpai - Earnings Call - Q2 2025

Executive Summary

• Q2 results show aggressive cost takeout with operating expenses down ~70% YoY ($9.9M) and operating loss down 71% to $3.6M, while revenue declined to $4.656M (down ~$2.5M YoY); EPS improved to ($0.28) from ($1.23) YoY but worsened sequentially from ($0.21) in Q1.
• Management shifted profitability timing from “2025” to “Q1 2026,” added a planned “major infrastructure investment” in Q3, and highlighted a strong Jan 1, 2026 pipeline, reframing the near-term narrative toward build-out ahead of 2026 profitability.
• Gross margin compressed sharply to ~16.0% vs ~35.7% in Q1 and ~28.0% in Q2 last year as cost of revenue stayed elevated versus a lower revenue base; improvements were driven by SG&A/opex reductions, not gross profit expansion.
• No S&P Global consensus EPS or revenue estimates were available for Q2, limiting beat/miss framing; focus turns to execution on MarpaiRx relaunch (H2 2025) and Empara platform integration as revenue stabilizers into 2026 (profitability).
• Liquidity remains tight (cash $0.619M, restricted cash $7.661M) with stockholders’ deficit ($32.367M) and meaningful debt/interest expense, keeping financing and cash burn discipline in focus as catalysts/risks.

What Went Well and What Went Wrong

• What Went Well

  • Operating expenses reduced ~70% YoY (~$9.9M), driving operating loss improvement to ($3.607M) from ($12.273M) YoY; net loss improved to ($4.371M) from ($13.026M) YoY. CEO: “turnaround is real and accelerating… on track to deliver a profitable company in the first quarter of 2026.”.
  • Strategic initiatives advancing: comprehensive relaunch of MarpaiRx (transparent PBM) to be actively offered H2 2025; Empara unified engagement platform targeted to be live by end of Q2 2025, aligning product roadmap with cost discipline.
  • Continued operating discipline: sequential opex ex-COGS remained tight (~$4.35M in Q2 vs ~$4.18M in Q1), underscoring structural cost reset.

• What Went Wrong

  • Revenue pressure: Q2 revenue fell to $4.656M, down ~$2.5M YoY; sequential decline from $5.418M in Q1, reflecting “transitional impacts” cited by management.
  • Gross margin compression: Gross margin fell to ~16.0% vs ~35.7% in Q1 and ~28.0% YoY, as cost of revenue stayed high relative to a smaller revenue base, muting P&L leverage despite opex cuts.
  • Profitability timeline pushed: Earlier guidance implied 2025 profitability; management now targets Q1 2026, extending the path and introducing Q3 infrastructure investment that likely delays near-term margin expansion.

Transcript

Operator (participant)

Good morning and welcome to the Marpai Second Quarter 2025 Earnings Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Steve Johnson, Chief Financial Officer. Please go ahead.

Steve Johnson (CFO)

Thank you and welcome this morning to our Marpai Second Quarter Earnings Release. With me this morning is Damien Lamendola, Director and CEO of Marpai. Before we begin, I'd like to draw your attention to the forward-looking statements included in this presentation. All right, everybody have a chance to read all that? Good. We'll move on. We found it helpful, especially for our new investors, to begin with outlining what exactly is a third-party administrator, or commonly referred to as a TPA. TPAs are organizations that handle the claims processing and reporting components of a self-funded health benefit plan. As an employer considers or maintains a self-funded health program plan, they typically will engage the services of a TPA. TPAs offer standard services such as plan design and claim administration, but the real benefits come from the value-added solutions that a TPA can provide.

Marpai offers a suite of cost-containment products bundled under the umbrella of Marpai Saves. We also provide in-depth data analytics, giving employers valuable insights into the workforce's health trends. These insights help identify services that would be most impactful for their members. A key advantage TPAs offer is transparency. Unlike traditional fully funded insurance solutions, our TPA model gives employers direct access to data and information they wouldn't otherwise have, empowering them to make better decisions. In looking at the TPA market, the TPA industry has a massive total addressable market of over $150 billion. Healthcare is complex, and the demand for services and technology solutions to navigate the complexity is growing, with TPA services forecasted at a compounded annual growth rate of 12.1% through 2031.

TPAs also enjoy a recurring revenue model whereby our clients pay a monthly administrative fee based on a per employee per month, or what we refer to as a PEPM basis. Finally, the TPA market is highly fragmented, which provides an attractive opportunity for a national independent TPA like Marpai to scale and realize the benefits of operating leverage. I'll turn it over to Damien to address the Marpai advantage.

Damien Lamendola (Director and CEO)

Good morning. Marpai has a national footprint, allowing us to service employers with multi-state locations, which many of our regional competitors can't do. Marpai also offers significant cost-saving programs with the relaunch of our pharmacy benefit management company called MarpaiRx. This will be game-changing. As a leading independent TPA, we put our clients first. With a robust arsenal of services, Marpai assists with benefit plan design and aggressively negotiates on our clients' behalf to manage costs. A quick reminder in case you are new to Marpai, I founded years ago a pharmacy benefit management company called WellDyneRx and sold it to a private equity firm called Carlyle back in 2017. My passion for healthcare and knowledge of the PBM space drove our strategy to relaunch MarpaiRx. MarpaiRx delivers savings for health plans and members.

We will be slashing specialty drug costs for our clients, and our real-time technology will deliver better outcomes. Steve, we'll now cover our second quarter results.

Steve Johnson (CFO)

Thank you, Damien. In the second quarter, net revenues were $4.7 million for the three months ended June 30, 2025. $2.5 million are approximately 35% lower than the second quarter in 2024. Operating expenses were $4.4 million for the three months ended in Q2, $9.9 million, or a 70% improvement over the second quarter of 2024. As you look in the details of our 10-Q, you will see that we did have a $7.6 million goodwill impairment in the second quarter of 2024. You see there, even excluding that, we maintained significant reductions in operating expenses. Our operating loss was $3.6 million in Q2, $8.7 million, or a 71% improvement over the second quarter in 2024. Our net loss was $4.4 million for Q2, $8.7 million, or a 66% improvement over the same period of last year.

Again, excluding the $7.6 million goodwill impairment, we're still showing a $1.1 million improvement in our net loss year over year. Basic and diluted loss per share was $0.28 for the three months ended June 30th, 2025, an improvement of $0.95 per share from the second quarter in 2024. Now we'd like to provide a little bit of an update for the second half of 2025 and early indications for 2026. Our year-over-year revenue decline reflects the successful execution of our strategic initiative to right-size the business by exiting unprofitable legacy contracts. We've been sharing that information over the last probably four or five earnings calls and sharing with that, and we continue to move forward with that. Cost of revenues was higher as the company invested in new member engagement tools and system enhancements. We expect this to continue in Q3 but taper off in Q4.

These enhancements will help to further reduce costs and improve member experiences. Sales pipeline remains strong with a few deals already signed for Q4. We are moving into the busy season. If you recall, it is probably roughly, you know, 75% to 85% of employers out there renew their benefits on a calendar basis. January 1st is our Super Bowl. It's a little bit earlier than the NFL from that side. We expect to provide a more significant update in our next earnings call as we shared last quarter. Our next earnings call will probably be in early to mid-November, and we will have a much more solid report to share with our investors. The comprehensive relaunch of MarpaiRx is proceeding well with nearly 2,000 lives transferred to the program thus far in August.

With the continued execution of operating cost reductions and anticipated net gain in lives for 2026, we expect that Marpai will be profitable in Q1 of 2026. I will now turn it over to Damien to share his final thoughts.

Damien Lamendola (Director and CEO)

Marpai delivered strong second quarter results. Despite a year-over-year reduction in revenue, we believe the company is now much better positioned for substantial growth. This transformation was nothing short of extraordinary. We've evolved from a simple TPA into a technology powerhouse, leveraging industry-leading innovations to elevate the member experience. The journey is far from over, but we're already excited about what we're expecting for the next wave of enhancements for the second half of 2025. Leveraging my deep experience in pharmaceutical services, we now have operational MarpaiRx, a PBM platform that is now not just an addition but a true differentiator in the TPA space. This is more than a company, it's a movement. Our story has only just begun, and our mission is clear: to spearhead the market-wide revolution that will dramatically reduce healthcare costs for America's self-funded employers, all while building a profitable enterprise.

At this time, I'll turn it back over to the operator to open the line for questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star, then one. That concludes our question and answer session. I would like to turn the conference back over to Steve Johnson for any closing remarks.

Steve Johnson (CFO)

Thank you very much. I appreciate everyone's participation and continued support. Feel free to visit our investor relations website at ir.marpaihealth.com. We look forward to speaking again and highlighting our third-quarter results. Thank you very much.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.