CareCloud - Q4 2022

Transcript

Operator (participant)

Welcome to the CareCloud, Inc Fourth quarter and full year 2022 post-results conference call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to your host, Kimberly Blanche, CareCloud's General Counsel. Ms. Blanche, you may begin.

Kimberly Blanche (General Counsel)

Good morning, everyone, and welcome to the CareCloud fourth quarter and full year 2022 conference call. On today's call are Mahmud Haq, our founder and Executive Chairman, Hadi Chaudhry, our Chief Executive Officer, President, and a Director, and Bill Korn, our Chief Financial Officer. Before we begin, I would like to remind you that certain statements made during this conference call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact made during this conference call are forward-looking statements, including, without limitation, statements regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook, and potential organic growth and acquisition.

Forward-looking statements may sometimes be identified with words such as will, may, expect, plan, anticipate, upcoming, believe, estimate, or similar terminology, and the negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. These statements reflect our opinions only as to the date of this presentation. We undertake no obligation to revise these forward-looking statements in light of new information or future events. Please refer to our press release and our reports filed with the Securities and Exchange Commission, where you will find a more comprehensive discussion of our performance and factors that could cause actual results to differ materially from these forward-looking statements.

For anyone who dialed into the call by telephone, you may want to download our fourth quarter 2022 earnings presentation. Please visit our investor relations site, ir.carecloud.com, click on News and Events, then click IR Calendar, click on Fourth Quarter 2022 Results Conference Call, and download the earnings presentation. Finally, on today's call, we may refer to certain non-GAAP financial measures. Please refer to today's press release announcing our fourth quarter 2022 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results. With that said, I'll now turn the call over to our CEO, Hadi Chaudhry. Hadi?

Hadi Chaudhry (CEO, President, and Director)

Thank you, Kim. Thanks to all of you for joining us for our fourth quarter and full-year earnings call. 2022 was a big year for our company on several fronts, including record bookings, redefining the tech-enabled revenue cycle solutions. Our wellness brand, which includes our Chronic Care Management and Remote Patient Monitoring, is rapidly gaining traction in our user base. Our wellness offering and another record booking quarter in the fourth quarter, ending the year with approximately $8 million of bookings. As a reminder, revenue recognized may differ from our bookings due to timings of go-lives, patient adoption ramps, or other factors. 2022 was also the first full year of operating medSR under CareCloud's umbrella, and it delivered strong performance from both a revenue and margin contribution perspective.

As a reminder, one of the key considerations of the acquisition was leveraging their 200+ hospital relationships into cross-sell RCM-related services. We acquired them in 2021, and during that year, they generated an annualized revenue of $27 million. Last year, they recorded $30 million, a 9% increase. That's not the full story. Over the last year, we reestablished and strengthened our relationships with several leading health system software vendors and confirmed our cross-selling thesis by increasing medSR RCM-related revenue by approximately 300%. We will continue to leverage our relationships for recurring revenue tech-enabled RCM deals, which will help overall growth.

Shareholders will appreciate the improvement in its contribution margin, increasing from 3% in 2021, the year we bought them, to 14% for all of 2022, and ending 2022 with a 24% run rate directly as a result of cross-selling and realizing the anticipated cost synergies. I also want to highlight our tech-enabled revenue cycle management solution, which is truly differentiated in the market as it sits on top of our industry-leading state-of-the-art software technology products to help us drive better revenue growth in this mature EHR and practice management market.

Not only is it an end-to-end solution for our physicians, but it is also vendor-agnostic. During the fourth quarter, we hosted our first analyst and investor day, where we shared details around our robust solutions, the value we provide to our clients, the depth and experience of our senior leadership, the benefits of our global workforce, and participants were also able to hear from two of our clients. I thought it was very beneficial not only in educating the investor community, but also the potential user base of our comprehensive capabilities. I'm very pleased so many of you could join us for the informative event. We also used this event as an opportunity to announce that we were changing our common stock ticker symbol from MTBC to CCLD to better align with our corporate brand. We started trading as CCLD on January 10 of this year.

I will now turn to an update on the organic growth strategy that we initiated in 2020. We are pleased to report that in 2022 we recorded our highest organic bookings growth of 94%. Over the past two years, we expanded our sales team from 13 people to over 50, which we believe is a significant factor driving this growth. Taking a closer look, we more than doubled the level of bookings from recurring revenue opportunities from 2021-2022. We also appointed new sales and marketing leadership in 2022 to better capitalize on the opportunities ahead of us. We anticipate that these trends will continue into 2023. We are laser focused on converting our 2022 booking success into revenue in 2023.

Excluding revenue from two large health system customers that we acquired and migrated to their acquirers systems, we are forecasting 12% organic growth in 2023. Bill will get into this in a more details in a minute. Our goal is to produce double-digit organic revenue growth, and we believe we have a path to achieve that. Our 2023 outlook is driven exclusively by organic growth and any acquisitions would be incremental to our forecast. Let's turn now to our physical therapy EHR solution. Subsequent to the end of the quarter, just last week in fact, at the American Physical Therapy Association's annual meeting, we launched a version of CareCloud's talkEHR that is specifically tailored to meet the demanding needs of the rehabilitation market. It includes comprehensive and easy-to-use end-to-end tools for managing patient information and tracking their progress.

In terms of the market dynamics for software solutions in the rehab space, it is fairly mature and dominated by a couple of vendors. It is our understanding that innovation has not been at the forefront for some time. That is where we see the biggest opportunity for us. Our remote product is already being used by a leading rehab practice consist of over 2,500 clinicians. This is an example of CareCloud challenging the status quo with a solution that we believe to be technologically superior. We are seeing strong interest in this offering and look forward to keeping you posted on our progress moving forward.

Finally, as we look to 2023, we feel our current established position in the industry has set us up incredibly well to capitalize on a new era of growth. We see an abundance of emerging opportunities in our future, including our first non-U.S. customers. The first area of focus for 2023 that we are actively exploring is entering the new market of the UAE, which represents a particularly attractive opportunity for CareCloud as the government will be mandating EHR adoption over the next few years. This has many parallels to the meaningful use initiatives in the U.S. that we benefited from a decade ago.

We see these opportunities in the health systems space through our medSR division, our proprietary ambulatory EHR for the private practice space, which will need to be certified with the Ministry of Health, and prevention in tech-enabled RCM space and with various other digital health initiatives. We hope to enter this new market in the upcoming year, and we'll keep you updated on our progress. The company's solid operational results in 2022 can be attributed largely to our powerful combination of the technology and services which are redefining the next generation of RCM solutions for the ambulatory setting. To summarize, first, we are optimistic about our organic growth initiatives that are starting to take hold. Our Wellness digital health offering, our medSR hospital offering, our Force workforce augmentation offering, our expansion to non-U.S. markets where we feel we have a distinctive competitive advantage.

Second, one of our top priorities in 2023 is onboarding our new clients and turning our record bookings into revenue. Finally, we feel that our work in 2022 has left us well-positioned in the industry to deliver continued growth moving forward. Now I will turn the call over to Bill for a closer look at our fourth quarter and full year results. Bill?

Bill Korn (CFO)

Thanks, Hadi. Thank you all for joining today's call. In the fourth quarter, we reported revenue of $32.5 million. GAAP net income of $499,000 and adjusted EBITDA of $5.7 million. For the full year, we reported revenue of $139 million, GAAP net income of $5.4 million, and adjusted EBITDA of $22 million. These results were in line with expectations. Approximately 88% of our 2022 revenue came from technology-enabled business solutions. Clients using our technology-enabled revenue cycle management services represented approximately 52% of our annual revenue, with over 90% of that revenue coming from clients who also utilized our EHR or practice management software as well as our services.

Let's look at the full year on a same-store basis, which is highlighted in our earnings presentation deck. You'll see we stripped out the contribution of two large customers to highlight our annual revenue performance on a consistent basis. These were each unique instances. It's important to dig into the details here. These two health systems had been acquired in 2016 and 2018 before we started servicing them after our 2020 acquisition of Meridian Medical Management. In 2022, they finally completed the migration onto their acquirers software platforms, winding down our services. We knew this was a likely outcome when we bought Meridian and adjusted our purchase price accordingly. While the timing was later than what we were originally led to expect, this meant that we earned some extra revenue and profit margin for two years.

The end of the extra revenue for these two large customers means that reported results overall look less favorable. Normalizing to remove the impact of these two customers, our revenue increased $8.6 million or 7% from 2021-2022, driven by a combination of our medSR acquisition in mid-2021 and organic growth. In 2023, we anticipate our revenue growth on a like-for-like basis will be around 12%. Without eliminating the impact of these two customers, that growth is clouded. Our GAAP net income of $5.4 million in 2022 was almost double our net income of $2.8 million in 2021 and set a new record. Our adjusted EBITDA of $22.2 million was also a record.

Our fourth quarter revenue of $32.5 million was down year-over-year. Excluding those two customers, the revenue from our core business would have been essentially flat from the fourth quarter of last year. Our adjusted EBITDA of $5.7 million was down 7%, which is less than our top-line decline as a result of improving margins in our medSR business. Turning to the balance sheet and cash flow, we ended the year with $12.3 million of cash. We generated $21 million of cash flow from operations for the full year 2022, $6 million of which came from the fourth quarter. In terms of our outlook for 2023, we are reiterating the guidance we provided at our December Investor Day.

We expect revenue of $142 million-$146 million, which represents 12% organic growth when we strip out those two large customers from both 2022 and 2023. We have only included organic growth in our guidance, so if we complete an acquisition, even a small tuck-in, it will bring incremental revenue. We expect adjusted EBITDA of $24 million-$27 million, which implies 15% growth at the midpoint. Our quarterly revenue distribution will look a little different this year for two primary reasons. First, the loss of the two customers which contributed revenue in the first half of 2022, and second, the timing of new revenue from our wellness offering, which is expected to ramp up in the back half of this year.

In 2023, revenue will be weighted with approximately 44% in the first half and the remaining 56% in the second half of the year. This compares to 2022 results, with 52% generated in the first half and 48% in the back half. Our profitability will also be impacted by the seasonality of our business. First quarter revenue is always hurt due to deductibles in most medical insurance plans, which typically depresses revenue by 5%-8% without impacting our costs since we process the same value of claims. Payments are lower since individuals pay their deductibles much more slowly than insurance making primary payments. This year will be no different.

As we continue to focus on lowering our costs, we are forecasting improvement in our margins throughout 2023, despite the loss of the two customers who are generating higher than average gross margins by the time they exited. To conclude my remarks, I'll reiterate Hadi's sentiment that we have built out our solution to meet the changing needs of our physician partners while sticking to our true roots as a world-class RCM provider. I believe 2023 will be a pivot point for our business where organic growth really begins to accelerate. Our overarching goal is to deliver double-digit organic growth, and we believe we have built the foundation to achieve it in the future with the combination of new customers and cross-selling. I thank you all for your participation in our call today and look forward to updating you throughout the course of the year.

I'll now turn the floor over to our Chairman, Mahmud, for his concluding remarks.

Mahmud Haq (Founder and Executive Chairman)

Thank you, Bill. 2022 gave us our strongest year of organic sales activity, both new customers and new services for existing customers. We are proud of this accomplishment and look forward to seeing this new business turn into revenue during 2023. I would like to thank our customers, shareholders, and all our associates for their trust, loyalty, support of CareCloud's mission. Let's open the call to questions. Operator?

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. We take our first question from the line of Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen (Managing Director and Director of Equity Research)

Hello, Hadi, Bill, and Mahmud. How are you?

Hadi Chaudhry (CEO, President, and Director)

Good morning, Jeff.

Jeffrey Cohen (Managing Director and Director of Equity Research)

just to clarify, Bill, the two customers' contribution to 2022 revenue was... Was that $86 I heard you call out?

Bill Korn (CFO)

Jeff, I think, I think we said that 86 was the revenue growth that we, that we would have had if you exclude those customers. Their contribution was actually in total a little closer to $10 million.

Jeffrey Cohen (Managing Director and Director of Equity Research)

Okay. Got it. Perfect. Could you talk about bookings and trends on that front or perhaps any backlog related to your funnel? Do you anticipate that the growth you'll see in 2023 is gonna come from new customers, new accounts, new territories? Will that be amped up by increased offerings on EHR practice management and wellness?

Hadi Chaudhry (CEO, President, and Director)

Great question, Jeff. I think if you just look at the overall booking, as we mentioned, that for 2022, we grew our booking numbers by about roughly 94%. One-third of those approximately are about, we mentioned $8 million we closed under the wellness offering during 2022. We absolutely seen the similar trend going forward. We probably should be closing somewhere close to the same 1/3, at least for the foreseeable future quarters in terms of the wellness. There were overall, the growth, the booking should be coming from all of these places, whether it's the different EHR offering, our tech-enabled RCM services sitting on top of our technology suite, our Force offering, and by leveraging through our medSR relationships and selling into that space, the recurring revenue RCM deals.

Jeffrey Cohen (Managing Director and Director of Equity Research)

Okay.

Hadi Chaudhry (CEO, President, and Director)

Consecutively, the last three quarters were, the consecutive quarters were better than the previous one. We foresee, yes, it has to stabilize. It has to just stay at a certain average. It cannot just be that every other quarter can be better than the next one. Overall, if you look at it, our goals are for this year, even higher than the 2022, overall booking numbers.

Jeffrey Cohen (Managing Director and Director of Equity Research)

Got it. That's helpful, Hadi. I guess lastly, we hear you on cadence and on seasonality. Could you talk about, are you taking any price out there? Could you also talk about inflationary pressures that you're seeing anywhere, any effect, particularly on your labor costs? Thank you.

Hadi Chaudhry (CEO, President, and Director)

Great. I can start the answer, Bill, please feel free to jump in. I think you probably would be referring to some of the conversion, the rupee to dollar conversion or the foreign currency conversion cost and the inflation factors there. I think it's because all the revenue for us being generated at so far on the U.S. side. Even there is a devaluation of the foreign currency that goes in the short term to our favor. Long term, because of as inflation starts kicking in, it still goes back to a normalized at the same level. We do not see anything in the long run. Short term, there could be some additional benefit to us because of that change.

In the long term, it should again, goes back to our overall thesis, our overall model of the leveraging the offshore team. Bill, anything, you would like to add?

Bill Korn (CFO)

I mean, I think we are fortunate that we're operating in labor markets where there's still lots of people who want to work. When we look for new employees, fortunately, as we look overseas, we get plenty of really qualified applicants. Again, I don't have scientific data, but I'd say anecdotally, I hear from people who are using India for offshore that they're under a lot of pressure. I'd say we're doing fine. You know, we're treating our employees well. We're helping them keep pace with inflation. We're not seeing, you know, overall dollar-denominated costs going up, and we're not seeing positions going unfilled.

We're fortunate that we're open for business and if we get new contracts and we're easily able to staff up to do the work.

Jeffrey Cohen (Managing Director and Director of Equity Research)

Okay. Got it. That's helpful. Thanks for taking our questions.

Hadi Chaudhry (CEO, President, and Director)

Thank you, Jeff.

Operator (participant)

Thank you. We take the next question from the line of Allen Klee with Maxim Group. Please go ahead.

Allen Klee (Managing Director and Senior Research Analyst)

Yes, good morning. You talked about one of your goals for this year is, translating your bookings into revenues. Can you give some I think specifically on the Remote Patient Monitoring and Chronic Care programs of what you're planning to do to execute on that? Thank you.

Hadi Chaudhry (CEO, President, and Director)

Good morning, Allen, and thank you for your question. First talking about the non-wellness offering bookings, that's continued to be as we have mentioned before to us, it's six months average because large clients could be between six to eight or 10 months. Smaller could be within three months. At an average, it's about six months go-live time for non-wellness bookings. For wellness bookings, whether it's the Chronic Care Management or Remote Patient Monitoring, that adds another layer of complication, which is the adoption by the patients. I think what we are looking at right now, where we close about $8 million bookings in 2022 for under the wellness, we anticipate in the first half of this year. Actually, let me just step back.

Roughly 70% of that already have been moved in production. When I say moved in production, it's not that we have started to generate the revenue. Some of that could be that we are reviewing the eligibility of the patients. We may have been establishing the connections with the patient to bring them on board that would they be interested in participating in Chronic Care Management and Remote Patient Monitoring. In terms of the revenue recognition, we anticipate that roughly 25% of the 70% that we have moved in production will be realized or we will be able to realize in the first half of this year. The rest will be towards most of it will be towards the second half of the year, and some percent probably could even be pushed into 2024.

This adoption absolutely will improve as there will be more and more awareness on the patient side as the more and more value-based care models will pushed in. I think that awareness will improve the patient adoption rates. This is how we are forecasting, this is how we are looking at it right now.

Allen Klee (Managing Director and Senior Research Analyst)

Thank you. My last question is, you talked about expanding internationally. Could you just educate us a little bit on what the regulatory environment or what the other incentives are that in those countries to adopt what you're offering? Thank you.

Hadi Chaudhry (CEO, President, and Director)

Thanks, Allen. Just talking about the high level, first of all, this is for us, a work in progress. We are still in discussion and talking to even wherever possible, the government officials as well in that area. It will take us couple of more months to be able to exactly understand all the different incentives. In terms of an opportunity, as I mentioned during the opening remarks, that it's similar to how the EMR adoption was conducted at the beginning of in the first around the 2000 time, after the Obamacare and the meaningful use and those implementations started to take place.

In this UAE market, and more specifically initially talking about the Dubai market, the UAE government is similarly pushing the implementation of adoption of the electronic health record systems. We see our the opportunity being three areas. One is leveraging our medSR division and providing an opportunity for implementation, activation of these health systems in that space, UAE initially, and then we anticipate expanding to the other the GCC region, could be Qatar, it could be Saudi Arabia in that area. The second opportunity is our own ambulatory EHR, which we need to get it certified first, but then we can start offering it in that area. The third thing is the revenue cycle.

We understand the revenue cycle of that area is different than the definition of RCM is different than that of U.S. because everything there is one standard platform. The practices will have to log on to the same platform to create the claims, the insurances, and the government authorities have to log on to the same portal to pull the claim for processing. Our U.S.-based medSR trained staff and positioning and our workforce, the global workforce, primarily based out of Pakistan, these two combination together, we believe, set us in a very unique position there, and that set us up for success in that area. There are a lot of initiatives from government. We are initially reviewing, and again, once we get it finalized, we will communicate.

There's a Health City there. We probably may end up opening an office in the Health City because that gets us connected with all the different players in the industry, in the market there.

Allen Klee (Managing Director and Senior Research Analyst)

That's very helpful. Thank you so much.

Hadi Chaudhry (CEO, President, and Director)

Thanks, Allen.

Operator (participant)

Thank you. We take the next question from the line of Michael Donovan with H.C. Wainwright. Please go ahead.

Michael Donovan (Equity Research Associate)

Thank you, Bill, Hadi, and Mahmud. I'm calling on behalf of Kevin Dede. He's on the road. Hadi, you mentioned, leveraging relationships to drive recurring revenue. Can you talk more to recurring revenue and how customers expand- services with CareCloud once they're onboarded.

Hadi Chaudhry (CEO, President, and Director)

Thank you, Michael. Good morning. Yes, there are a couple of different ways we can look at it. One, I specifically made that comment from the medSR divisions perspective. One of the reasons for the acquisition of the medSR business was because of their 200+ relationships into the health system space, into the hospitals. Their connections, whether it's with the right decision makers, whether it's the CFOs or the head of the revenue cycle or the CIOs there. With their help, we are able to now leverage those relationships and started to offer RCM recurring revenue deals in that space. As we explained earlier and build it too, that this is a one-time project-based revenue, most of the revenue of the medSR.

Because of this connection now we are able to leverage those relationships and start selling our tech-enabled RCM solution. The proof has already started to come in because this year in 2022, the RCM related revenue of medSR division has grown by over 300%. That's already have set us up for success in that area. We would be anticipate even growing further in 2024. Actually I have Dwight with me, who heads over medSR division. Dwight, would you like to give some more color?

Dwight Garvin (EVP)

Sure, I'd be more than happy to. To highlight Hadi's point, you know, we saw several of our clients this year start out with something as simple as, you know, a technology system selection process. That ramps right into staffing an interim CIO, right into taking over a lot of their RCM components, denial management, and doing things around, you know, where we really get true recurring RCM revenue. We've seen that in several of our clients this year.

Michael Donovan (Equity Research Associate)

Okay, great. I appreciate it. To get better understanding on international expansion. The UAE is trying to position itself to also be a medical tourism hub. Is this something you take into consideration when looking for new markets?

Hadi Chaudhry (CEO, President, and Director)

You hit the nail on the head, Michael. Absolutely. That's one of our reasons in, on the digital health space. Because based on the different studies we looked at in places, that there's one consistent number that that market is expected to grow by 25% CAGR in the digital health space over the next few years. Once we started a small project or initiative, I think probably two years back, for the telehealth under creating a platform or providing a platform on which we can connect on one side, the doctors, and the other side, the patients. With this introduction or with stepping into this, the Middle East side, we are planning on or thinking about trying to get that live.

Which coming back to your point, yes, that is one of the reasons the medical tourism there.

Michael Donovan (Equity Research Associate)

Okay. Thank you. I appreciate the added color.

Hadi Chaudhry (CEO, President, and Director)

Thank you.

Operator (participant)

Thank you. A reminder to participants, if you wish to ask a question, please press star followed by one on your touch tone phone now. Again, to ask question, please press star one. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, I'd now like to turn the call back over to Kimberly Blanche for closing remarks. Over to you.

Kimberly Blanche (General Counsel)

We'd like to thank everyone who's joined us today. We appreciate your interest in us as a company and your participation on today's call. We look forward to speaking with you again next quarter. Thank you all and have a great day.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.