Executive Summary / Key Takeaways

• Marpai is transitioning from an intense turnaround phase, marked by significant cost reductions and operational efficiency gains, towards a strategic focus on profitable growth, targeting cash flow positivity and profitability in 2025.
• The company's core investment thesis hinges on leveraging its technology platform and national TPA footprint to deliver cost savings and improved member experience to self-insured employers in a growing market.
• Key strategic initiatives driving the future outlook include the launch of the high-margin MarpaiRx program in H2 2025, the rollout of the AI-powered Empower member portal, and building a robust sales pipeline focused on profitable clients and strategic partnerships.
• While recent financial results show improved operating performance and reduced cash burn, the company faces significant liquidity challenges, including an accumulated deficit and negative working capital, necessitating additional capital raises and raising substantial doubt about its ability to continue as a going concern without further funding.
• Investors should monitor the execution of growth initiatives, particularly the impact of MarpaiRx and new client wins, alongside the company's ability to secure necessary financing and manage customer concentration risk.

Setting the Stage: Marpai's Ambition in the Self-Funded Healthcare Market

Marpai, Inc. (OTCQX: MRAI) operates within the dynamic and complex landscape of U.S. healthcare, specifically targeting the self-insured employer market through its role as a technology platform company and Third-Party Administrator (TPA). At its core, Marpai's mission is ambitious: to fundamentally improve healthcare outcomes and affordability for employers, their employees, and providers. This mission is pursued by combining the essential administrative functions of a TPA with advanced technology, aiming to create what the company terms the "Payer of the Future."

The self-insured model, where employers directly bear the financial risk of their employees' healthcare costs, is increasingly popular as healthcare inflation continues its ascent. This environment creates a significant demand for sophisticated TPAs capable of managing claims efficiently, providing transparent data, and implementing cost-containment strategies. Marpai estimates the U.S. TPA market to be a substantial $150 billion, with a forecasted annual growth rate of 12.1% through 2031, presenting a fertile ground for expansion.

Marpai's operational foundation rests on its wholly-owned subsidiaries, including Marpai Administrators (formerly Continental Benefits) and Maestro Health, acquired in November 2022. This acquisition was a pivotal moment, intended to merge established TPA licenses and know-how with modern technology. The company positions itself as a national independent TPA, capable of serving employers with multi-state operations, a key differentiator against many regional competitors. Its value proposition centers on driving significant savings for employers—estimated at up to 10% simply by moving to a self-funded model managed by a TPA—through cost efficiency, flexible plan design, compliance support, and crucial data transparency.

The company's technological differentiation is central to its strategy. Marpai utilizes a customized technology platform, supported by an AI-powered health engagement platform (the Empower portal), to streamline administration and enhance the member experience. This technology is designed to go beyond basic claims processing, incorporating elements like predictive analytics to potentially lower overall healthcare costs and improve outcomes. While specific, quantifiable performance metrics directly attributable solely to the AI's cost-saving impact are not detailed beyond general strategic intent, the company emphasizes its use in areas like optimizing pharmacy benefit management, enhancing utilization management, and supporting alternative payment models. The planned MarpaiRx program, in particular, intends to leverage AI and data analytics for a "total systems approach" to drive prescription cost savings and improve health outcomes.

In the competitive arena, Marpai faces a diverse set of players, from large national TPAs to smaller regional firms and increasingly, technology-focused health administration companies. While precise market share figures for all niche competitors are not publicly detailed, Marpai operates with an estimated 1-2% share in the TPA sector. Its national footprint provides an advantage over regional competitors, allowing it to service larger, multi-state employers. Against more technologically advanced peers like Oscar Health (OSCR) and Clover Health (CLOV), Marpai aims to differentiate through its specific focus on cost containment for self-insured plans and its developing AI capabilities for predictive health management. While competitors like OSCR may lead in digital user experience or scale, Marpai highlights its ability to aggressively negotiate with providers and its upcoming MarpaiRx program as key competitive levers. The company's R&D activities, while modest in absolute terms ($7 thousand in Q1 2025), are focused on enhancing its platform and developing new offerings like MarpaiRx, suggesting an intent to build out its technological moat.

The Turnaround and Recent Financial Performance

The period leading up to late 2023 was challenging for Marpai, marked by significant accumulated deficits and operating losses following its expansion efforts, including the Maestro acquisition. This necessitated a focused turnaround effort under new leadership, prioritizing cost control and operational efficiency to stabilize the business.

The results of this turnaround are evident in the most recent financial reporting. For the three months ended March 31, 2025, Marpai reported total revenue of $5.42 million, a decrease of $1.97 million or 26.6% compared to $7.39 million in the same period of 2024. This decline was primarily attributed to customer turnover, which management noted was on the higher end of the typical industry range (20-30%), partly due to a strategic focus on retaining and acquiring higher-margin clients while allowing less profitable business to churn.

However, the turnaround efforts significantly impacted the cost structure. Total costs and expenses decreased substantially, falling by $3.78 million or 33.0% to $7.67 million for the three months ended March 31, 2025, down from $11.45 million in the prior-year period. This reduction was driven by several factors:

• Cost of revenue decreased by $1.39 million, largely in line with the revenue decline.
• General and administrative expenses saw a significant reduction of $1.14 million, a 33.3% decrease, resulting from actions taken in 2024 to integrate the acquired TPA businesses and streamline operations.
• Sales and marketing expenses were cut by $357 thousand (59.3%), reflecting strategic realignment and headcount reductions in Q2 2024.
• Facilities expenses decreased by $322 thousand (67.9%) due to the decommissioning of unutilized facilities.
• Depreciation and amortization saw a massive decrease of $844 thousand (88.7%), primarily due to the impairment of intangibles in September 2024 and the elimination of fixed assets in November 2024.
• Information technology expenses, notably, increased by $266 thousand (23.7%), attributed to aligning core functions of certain departments with IT tasks, suggesting continued investment in the technology platform despite overall cost-cutting.

These cost reductions led to a substantial improvement in operating performance. The operating loss narrowed by $1.82 million (44.6%), from $4.07 million in Q1 2024 to $2.25 million in Q1 2025. The net loss also improved by $1.28 million (29.4%), from $4.35 million to $3.07 million over the same period. On an adjusted EBITDA basis, the loss for the full year ended December 31, 2024, was $9.1 million, a "massive improvement" from the $20.2 million loss in 2023, highlighting the impact of the cost-saving initiatives.

Cash flow from operations also showed improvement, with net cash used in operating activities totaling $115 thousand for the three months ended March 31, 2025, a significant reduction from the $3.59 million used in the prior-year period. This improvement was primarily driven by the reduced net loss. Investing activities provided $500 thousand in cash in Q1 2025, related to the sale of a business unit. Financing activities provided $1.89 million, down from $3.71 million in Q1 2024, reflecting changes in funding sources including proceeds from convertible debentures and equity issuances.

Strategic Pivot to Profitable Growth and Technological Advancement

With the initial turnaround phase showing tangible results in cost reduction and loss mitigation, Marpai's strategy is now pivoting towards driving profitable growth, with a clear target of achieving cash flow positivity and overall profitability in 2025. Management emphasizes that this is the "absolute top priority."

This growth strategy is multi-faceted, leveraging both operational efficiencies and new technological offerings:

• MarpaiRx Launch: A cornerstone of the growth plan is the planned launch of the MarpaiRx program in the second half of 2025. Leveraging the CEO's extensive background in the PBM space, this initiative is described as "game-changing." The program aims to deliver significant prescription cost savings to clients through increased transparency and innovative solutions, potentially compliant with pending legislation. Critically for Marpai, management anticipates this will be a high-margin revenue stream and a "significant driver of our profitability by the end of 2025." They note that competitors typically derive a much higher percentage of their TPA revenue from PBM services than Marpai currently does, indicating substantial potential upside for revenue growth and margin expansion from this initiative. The program will utilize AI and data analytics for a "total systems approach" to healthcare, analyzing both medical and prescription data to potentially improve outcomes and reduce overall costs.
• Empower Member Portal: The rollout of the AI-powered Empower member engagement platform is expected to be completed by the end of Q2 2025. This platform consolidates multiple legacy portals into a single, user-friendly application. Its AI capabilities allow members to get instant answers to benefit questions by analyzing plan documents, reducing call center volume. This initiative is expected to improve operational efficiencies, reduce costs in the call center, and enhance the member experience, serving as a key differentiator.
• Sales Pipeline and Strategy: The company is actively building its sales team and focusing on a robust pipeline for the second half of 2025 and the crucial January 1, 2026 benefits cycle. The strategy targets specific industries with high labor costs and tight margins, where the "Marpai Saves" approach—emphasizing cost reduction—resonates strongly. Leveraging strategic partnerships is also a key tactic to generate leads and close "blocks of business" throughout the year, not just during the typical annual enrollment cycle. Management is optimistic about the pipeline, expecting the Jan 1, 2026 cycle to be "much different" now that the full sales team is in place.
• Continued Operational Efficiency: While significant cost reductions have been achieved, management continues to pursue further efficiencies by rationalizing duplicative vendors, allowing legacy contracts to expire, and streamlining redundancies. A major project was expected to reduce TPA expenses by over 25% in Q1 2025, indicating ongoing efforts to optimize the cost structure.

Liquidity, Risks, and the Path Ahead

Despite the notable improvements in operating performance and reduced cash burn, Marpai's financial position remains challenging. As of March 31, 2025, the company had an accumulated deficit of approximately $101.9 million, unrestricted cash and cash equivalents of $729 thousand, and negative working capital of approximately $6.9 million. Long-term debt stood at approximately $23.3 million.

Management explicitly states that the company's liquidity condition raises substantial doubt about its ability to continue as a going concern through the next twelve months from the May 14, 2025 filing date. The company projects needing additional capital to fund operations and investments until it reaches cash self-sufficiency. Future funding is anticipated through the sale of equity, issuance of debt, or potentially the sale of non-strategic assets. Recent financing activities include receiving $3.0 million from a JGB investment held in escrow in January 2025 and entering into a securities purchase agreement to sell 730,000 shares at $1.00 per share in a private placement on May 13, 2025. The inability to secure sufficient additional capital remains a significant risk that could force the company to scale back operations or divest assets.

Beyond liquidity, key risks highlighted include:

• Customer Concentration: While no single customer accounted for more than 10% of revenue in Q1 2025, two customers represented a significant portion of accounts receivable (35.4% and 28.1% as of March 31, 2025). The loss of major customers could significantly impact revenue.
• Strategic Alternatives Review: The company is exploring strategic alternatives, including potential investment, business combination, or sale. There is no guarantee this process will be successful, yield additional shareholder value, or avoid disruption and costs.
• Macroeconomic and Industry Factors: Inflationary pressures on costs, supply chain disruptions, regulatory changes, and geopolitical tensions are monitored as potential impacts on the business.

Management's stated outlook for achieving cash flow positive and profitability in 2025 is contingent upon the successful execution of its strategic initiatives, particularly the ramp-up of MarpaiRx and the conversion of the sales pipeline into new, profitable business, alongside securing the necessary interim funding. The expected significant reduction in cash burn in Q2 2025 and the positive outlook for the second half of the year are critical milestones to watch.

Conclusion

Marpai is navigating a critical juncture, having successfully implemented significant cost controls to dramatically reduce losses and improve operational efficiency. The narrative is now shifting towards a strategy focused on leveraging its technology platform and national TPA capabilities to drive profitable growth. The planned launch of the high-margin MarpaiRx program and the rollout of the AI-powered Empower portal are central to this effort, aiming to differentiate Marpai in a competitive market by delivering enhanced cost savings and member experience.

The company's stated target of achieving cash flow positivity and profitability in 2025 represents a clear goal for investors to measure progress against. However, the significant liquidity challenges and the explicit going concern warning underscore the immediate need for successful capital raises to bridge the gap until operational cash flow turns positive.

The investment thesis for Marpai rests on its ability to execute this pivot to growth, capitalize on the expanding self-funded market, and realize the potential of its technological initiatives, particularly MarpaiRx, to drive both revenue and margin expansion. While risks, notably liquidity and customer concentration, remain substantial, the improvements demonstrated in cost structure and operational efficiency provide a foundation. Investors will need to closely monitor the company's progress in securing funding and converting its strategic pipeline into tangible, profitable growth throughout 2025.