CareCloud, Inc. (NASDAQ:CCLD) Q3 2023 Earnings Call Transcript

CareCloud, Inc. (NASDAQ:CCLD) Q3 2023 Earnings Call Transcript November 3, 2023

Operator: Welcome to the CareCloud Inc. Third Quarter 2023 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 Nathalie Garcia CareCloud’s General Counsel. Ms. Garcia you may begin.

Nathalie Garcia: Good morning everyone. Welcome to the CareCloud’s third quarter 2023 conference call. On today’s call Mahmud Haq, our Founder and Executive Chairman; Hadi Chaudhry, our Chief Executive Officer President and the Director; and Larry Steenvoorden, 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 are forward-looking statements including without limitation statements recording 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 term. 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 and 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 third quarter 2023 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com, click on News & Events, then click IR calendar, click on Third Quarter 2023 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 third quarter 2023 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: Thank you, Natalie and thanks to all of you for joining our third quarter 2023 earnings call. I have several meaningful updates to provide from the quarter, but first, we will start with a quick review of the quarterly results. In the third quarter, revenue came in at $29.3 million and adjusted EBITDA came in at $3.2 million. Larry will dive deeper into these numbers later in the call. Overall, our recent progress on several fronts gives us confidence that the fundamentals of our business are intact and CareCloud remains on track to return to growth next year. As an example we are pleased to report that after the close of the quarter, we signed the credentialing contract with an existing force customer that we believe has potential to be quite significant.

Implementation of this is already underway, so we can expect to recognize a portion of that revenue before year end. This quarter, we continued to make meaningful progress on several ongoing projects and goals including the launch of our generative IA solution; the stabilization of medSR, our project base professional service businesses; and the decisive action we took to align our cost infrastructure for our highest value business opportunities. Digging deeper into our progress in the third quarter, I will start with an update on generative AI. We recently launched our CirrusAI solution which incorporates generative AI technology. Just two weeks ago, we had the opportunity to demonstrate this solution at a Google-sponsored conference that brings together top leaders across the health care industry.

To kick off, our go-to-market strategy for this solution to the end of the year, we will be offering it to our client base free of charge. It’s trying period will allow them time to better understand the benefits and how they can leverage them in their specific practice. They will then have the opportunity to purchase the competitively priced solutions starting in 2024. In total, we have launched three AI solutions, two for EHR and one for RCM, embedded just the tip of the iceberg for us. We believe that our ability to stay ahead of the curve and the latest technology will give us a competitive edge in the market by improving the commercialization of our solution and are actively working on additional features. Over the past few months, we have taken effective steps towards stabilizing our MEDSR professional services business.

We have continued to strengthen our relationship with Meditech, one of the dominant EHR provider. And over the past two years, MEDSR has reward from a consultancy firm that mainly relied on short-term staffing projects for a single vendor to a more diversified and sustainable revenue model. Our RCM practice has grown by almost 300% since 2021. And we also see a strength with our technology transformation practice. We are optimistic for 2024, as we see a significant shift in our professional services MEDSR, pipeline mix towards RCM and tech transformation and a strong demand for these solutions. In addition, today we have $30 million in active pipeline opportunities versus $12 million entering 2023. We are confident because of the pipeline size and mix that we can leverage our expertise and reputation to capture opportunities and deliver value to our clients and shareholders.

Lastly, as we announced in an 8-K in early October, we are actively working on improving profitability and positive free cash flow by aligning costs with the highest return opportunities. We expect most of the positive impact will be realized in 2024. Larry will discuss this in more details in a few minutes. All of these factors just discussed give us increased confidence that we can return to profitable growth next year. Now turning to an update on our business opportunities. As discussed earlier this year, we revamped our website to enhance the user experience and highlight all of our solutions. Our next-generation end-to-end therapy solution is live on our upgraded website and we recently launched a marketing campaign to highlight this offering.

A healthcare professional using an iPad to help a patient intake process.

We are confident that this campaign along with the new website will go a long way in raising awareness of this solution in the physical therapy market. Next, I will provide an update on our opportunity in the Middle East. We are pleased to announce that we are making meaningful progress on our global expansion efforts in that region. We have been strengthening our business development and establishing the permanent presence in Dubai, UAE near the innovation and technology hub of Dubai Internet city. Our product teams had been ensuring the river system here to the UAE Health Data Law which requires that health data is stored within the country. And at the same time, we are working diligently to integrate our system with the national database, which operate similarly to our health information exchange.

We are also excited to present our solutions and services that are held in health conference in Dubai in Q1 of 2024. Arab Health is one of the largest health care conferences with over 100,000 expected attendees from 180 countries. We look forward to providing you an update on our earnings call next year. In terms of upcoming milestones, CareCloud is preparing to launch CareCloud Prime a state-of-the-art cloud-based Electronic Health Record platform, designed to meet modern physicians’ demands. Formerly known as CareCloud Go, this project was a significant goal following CareCloud’s acquisition a few years ago. CareCloud prime offers advanced features such as cloud base accessibility, seamless interoperability, user friendly design, improved patient engagement and AI powered clinical decision support.

It includes two like Cirrus chat for staff interactions, global search for navigation and unified patient records for Perficient data exchange emphasizing efficiency. It also provides health providers with customizable templates as well as provide support for value-based care model tools, such as proactive care management, remote patient monitoring and seamless telehealth integration. CareCloud prime is more than just another product in our portfolio, which represents our commitment to continually improve and innovate to better serve our clients’ evolving needs. In some way, although we face some headwinds this year, we entered the fourth quarter feeling confident after the steps we took the steps to stabilize the business and re-prioritize the cost structures.

Because of these strategic actions, we believe we have made it past our low point and are on upswing. The steps we have taken and the progress made this quarter give me confidence in reiterating our full-year guidance and our ability to return to growth in 2024. Now I will turn the call over to Larry to give you a closer look at the numbers. Larry?

Larry Steenvoorden: Thank you, Hadi and good morning, everyone. Before I review the third quarter results I want to share a little more detail on our recent cost realignment initiative. The third quarter was my first full quarter as CareCloud CFO. I took a fresh look at our cost infrastructure and along with Hadi and the Board we made some tough but necessary decisions to pare back in certain areas of the business. As you know, transformation decisions are difficult but the goal was to ensure the company continue to invest in growth or also establishing a sustainable foundation for improvement and positive free cash flow and profitability. Most of the actuals are scheduled to take place in the fourth quarter but anticipate some will carry over into 2024.

We expect these changes in our expense profile to result in approximately $10 million of annualized free cash flow improvement. Approximately $5 million related to operational expense and savings and the other half includes the completion of R&D investments. Specifically our next-generation CareCloud prime platform that Hadi just discussed. This has a twofold benefit for us. First, we will see a notable reduction in our capitalized software going forward. And second, we now anticipate realizing the ROI for these investments. Now turning to the third quarter results, revenue of $29.3 million was level sequentially and compared to $33.7 million year-over-year. The primary reason for the year-over-year decline was a loss of the two customers due to health systems mergers.

Our wellness offering continues to gain traction and showing growth in the monthly sequential number of patients. Adjusted EBITDA for the quarter of $3.2 million reflects a margin of 11% this compared to an adjusted EBITDA of $4.8 million a year ago. The decline in quarterly EBITDA was a combination of lower revenue and related margins partially offset by lower selling, marketing, general and administrative costs in the current period. Turning to the balance sheet and cash flow. At the end of third quarter, we had a $6.4 million in cash and net working capital of $5.5 million. Cash provided by operations was $4.3 million and there was $3.2 million in net cash used in investing activities. Finally, we are reiterating our 2023 guidance for revenue between $120 and $122 million and adjusted EBITDA of between $15 and $17 million.

The combination of factors including the credentialing contract, MEDSR’s meaningful contract ramping. A continued solid execution in our core revenue cycle business provides the pathway to achieving our full year expectations. In conclusion, we have taken tough but necessary actions to realign for growth and study improvement in our financial performance. I believe will not only every year from a position of strength but be better positioned going into 2024. With that I’ll now turn the call over to Mahmud for his closing remarks. Mahmud?

Mahmud Haq: Thank you, Larry. As I expressed earlier, we feel that our solutions are very well positioned in the marketplace. The team is ready and fully engaged to drive future success and shareholder value. I would like to thank our employees, customers and shareholders for all they do to support CareCloud’s mission. Let’s open the call to questions. Operator?

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen: Hello. Good morning and thank you very much for taking the questions. Just a couple from our end, I guess firstly on for Larry. Could you maybe acquaint the guidance and the adjusted EBITDA to free cash flow or cash production or net income?

Larry Steenvoorden: We would have to put that out separately. Jeffrey, actually we can do that as a follow-up.

Jeffrey Cohen: Okay. Perfect. And then, could you talk a little bit about the Cirrus AI arrangement with Google and which offering specifically that’s going to pertain to and if that also ties over to the prior platform that you plan to introduce?

Hadi Chaudhry: Hey. Good morning. Jeff, thank you thank you for the questions. And generative AI I think the most one of the biggest the highest discussed topic nowadays in any industry. So for us to as we mentioned earlier in the year we started focusing towards how we can leverage the generative AI technology into our platform to help the healthcare market segment, the healthcare industry. So we do have working on number of other various different features to be incorporated and we will keep on announcing as those features will be incorporated. But we started with for now we looked at on the board front, the back-end improvement how we can leverage the generative AI from where we can improve the revenue cycle management work by our employees, which later on will also be available in the SaaS model.

As you know that one of the complex procedure is, the appeals process where you need to appeal certain decisions of the insurance companies and especially into the out of network space or the worker comp space. So with the help of generative AI you know system can systematically generate appeals and based on the internal testing we — the results seems to be very promising. And we believe our — the payment processing cycle as well as the collection of to those appeals should improve with the help of that. On the front-end which is more important we focused on — we thought the most important thing for any physician is the clinical decision. So when the patient walks in after — in order to record the complete session where the doctor has to look at for example their medication, their prior lab history, the diagnosis so many different pieces of information the provider has to look at and then come up with the next diagnosis and the test and the like.

So think about this as the — as either is a second opinion or it just it will — system will suggest to the provider these could be the potential diagnosis procedures. These probably could be the suggestive orders the lab test the provider should order. And based on all that gives them a recommendation, now it is up to the provider to accept it as is or just look at it if there is certain aspect that needs to be changed or moved and added and complete that. And it also even suggests the medicine, the medication. So I think the thing is this is in many cases, I think about the rare diseases. They could be some instances where the provider may not be able to quickly diagnose and may have been able to diagnose after multiple visits. Now, with this helps and this Generative AI, as the model will keep learning more-and-more.