CareCloud Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 12 speakers on the call.

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, Natalie Garcia, CareCloud's General Counsel.

Operator

Ms. Garcia, you may begin.

Speaker 1

Good morning, everyone. Welcome to the CareCloud Third Quarter in the conference call. On today's call are Mahmood Haq, our Founder and Executive Chairman Hadi Choudhry, our Chief Executive Officer, are President and the Director and Larry Steinforden, our Chief Financial Officer. Before we begin, I would like 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 regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook And potential organic growth and acquisition.

Speaker 1

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, 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 in the 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 Q3 20 are in the 20 3 earnings presentation.

Speaker 1

Please visit our Investor Relations site, ir.carecloud.com, click on News and Events, then click IR Calendar, click on Q3 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 Q3 2023 results for a reconciliation of these non GAAP performance measures are subject

Speaker 2

to our GAAP Financial Results.

Speaker 1

With that said, I'll now turn the call over to our CEO, Hadi Chaudhry. Hadi?

Speaker 3

Thank you, Natalie, and thanks to all of you for joining our Q3 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 Q3, revenue came in at $29,300,000 and adjusted EBITDA came in at $3,200,000 Larry will dive deeper into these numbers later in the call. Overall, our recent progress on several fronts give 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 a credentialing contract with an existing Force customer that we believe has potential to be quite significant.

Speaker 3

Implementation of this is already underway, so we can expect to recognize will be a portion of that revenue before year end. This quarter, we continue to make meaningful progress on several ongoing projects and goals, including the launch of our generative AI solution The stabilization of MedAssar, our project based professional service businesses and the decisive action we took to align our cost infrastructure to deliver highest value business opportunities. Digging deeper into our progress in the Q3, I will start with an update on generative AI. We recently launched our Versiris AI solution, which incorporates generative AI technology. Just 2 weeks ago, we had the opportunity to demonstrate this solution at a Google sponsored conference that brings together thought leaders across the healthcare industry.

Speaker 3

Will be able to kick off our go to market strategy for this solution. Through the end of the year, we will be offering it to our client base free of charge. Will be able to provide a brief update on the results of this trial period will allow them time to better understand the benefits and how they can leverage them in their specific practice. Will then have the opportunity to purchase the competitively priced solutions starting in 2024. In total, we have launched 3 AI solutions, have a question and answer session.

Speaker 3

And that is just the tip of the iceberg for us. We believe That our ability to stay ahead of the curve on the latest technology will give us a competitive edge in the market by improving the commercialization of our solution are actively working on additional features. Over the past few months, we have taken effective steps towards are in the process of stabilizing our MediSAR professional services business. We have continued to strengthen our relationship with Meditech,

Speaker 2

are

Speaker 3

one of the dominant EHR provider and over the past 2 years Medisar has evolved from a consultancy firm that mainly relied on short term are conducting 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. Are optimistic for 2024 as we see a significant shift in our professional services, Med SR,

Speaker 2

have a strong pipeline

Speaker 3

mix towards RCM and tech transformation and a strong demand for these solutions. In addition, Today, we have $30,000,000 in active pipeline opportunities versus $12,000,000 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 Lastly, as we announced in an 8 ks in early October, We are actively working on improving profitability and positive free cash flow by aligning costs with 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.

Speaker 3

All of these factors just discussed give us increased confidence that we can return to profitable growth next year. Are now turning to an update on our business opportunities. As discussed earlier this year, we revamped our Web solution is live on our upgraded website and we recently launched a marketing campaign to highlight this offering. 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.

Speaker 3

We are pleased to announce in establishing the permanent presence in Dubai UAE near the Innovation and Technology Hub of Dubai Internet City. Our product teams have been ensuring that our system adhere 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 operates similarly to a health information exchange. We are also excited to present our solutions and services at Arab Health Conference in Dubai in Q1 of 2024. Arab Health is one of the largest healthcare conferences with over 100,000 expected attendees from 180 countries.

Speaker 3

Will 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 are designed to meet modern physicians' demands. Formerly known as CareCloudGo, this project was a significant goal following CareCloud's acquisition a few years ago. CareCloud Prime offers advanced features such as cloud based accessibility, seamless interoperability, user friendly design, improved patient engagement and AI powered clinical decision support. It includes tools like Cirrus Chat for staff interactions, global search for navigation and unified patient records for efficient data exchange emphasizing efficiency.

Speaker 3

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. KCL Prime is more than just another product in our portfolio. It represents our commitment to continually improve and innovate to better serve our clients' evolving needs. In summary, although we faced some headwinds this year, we entered the Q4 feeling confident after the steps we took to stabilize the business and reprioritize cost structure. Because of these strategic actions, We believe we have made it past our low point and our own upswing.

Speaker 3

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?

Speaker 4

Thank you, Hadi, and good morning, everyone. Before I review the Q3 results, I want to share a little more detail on our recent cost realignment initiative. The Q3 is my 1st full quarter as CaraCloud's 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 continued investing in growth, while also establishing a sustainable foundation for improvement in positive free cash flow and profitability.

Speaker 4

Most of the actions are scheduled to take place in the Q4, But I anticipate some will carry over into 2024. We expect these changes in our expense profile to result in approximately $10,000,000 of annualized free cash flow improvement, Approximately $5,000,000 is related to operational expense savings and the other half includes the completion of R and 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.

Speaker 4

Now turning to the 3rd quarter results. Revenue of $29,300,000 was level sequentially and compared to $33,700,000 year over year. The primary reason for the year over year decline was the loss of the 2 customers due to health systems mergers. Our wellness offering continues to gain traction showing growth in the monthly sequential number of patients. Adjusted EBITDA for the quarter of $3,200,000 reflects a margin of 11%.

Speaker 4

This compared to an adjusted EBITDA of $4,800,000 a year ago. The decline in quarterly EBITDA was a combination of lower revenue and related margins, are 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 the Q3, we had a $6,400,000 in cash And net working capital of $5,500,000 Cash provided by operations was $4,300,000 And there was $3,200,000 in net cash used in investing activities. Finally, We are reiterating our 2023 guidance for revenue between $120,000,000 $122,000,000 And adjusted EBITDA between $15,000,000 $17,000,000 A combination of factors including the credentialing contract, Menasaur's meaningful contract ramping and continued solid execution in our core revenue cycle business provide the pathway to achieving our full year expectations.

Speaker 4

In conclusion, we have taken tough But necessary actions to realign for growth and steady improvement in our financial performance. I believe, will not only end the year from a position of strength, but be better positioned going into 2024. With that, I'll now turn the call over to Mahmood for his closing remarks. Mahmood?

Speaker 5

Thank you, Larry. As 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.

Speaker 5

Operator?

Operator

Thank you. We will now begin the question and answer session. To join the question The first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Speaker 6

Good morning and thank you very much for taking the questions. Just a couple from our end. I guess firstly For Larry, could you maybe equate the guidance and the adjusted EBITDA to free cash flow or cash production or net

Speaker 7

Absolutely, you can do that as a follow-up.

Speaker 6

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 Prime platform that you plan to introduce.

Speaker 8

Hey, good morning, Jeff. Thank you for the question. 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 this generative AI technology to our platform to help the healthcare market segment, the healthcare industry. So we are working on a number of Other various different features to be incorporated and we will keep on announcing as those features will be incorporated.

Speaker 8

But we started with for now, we looked at on the both fronts, 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, 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 the generative AI, our system can systematically generate appeals and based on the internal testing, the result seems to be very promising and we believe The payment processing cycle as well as the collection of through 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 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 And the like.

Speaker 8

So think about this as the as either it's 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 Order the lab test that the provider should order and based on all that gives them a recommendation. Now it's up to the provider to accept it as is or just look at it if there is certain aspect that needs to be changed, removed and added and can complete that. And it also even suggests the medicine, the medications. So I think the thing is this is In many cases, think about the rare diseases.

Speaker 8

There 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 help and this generative AI, As the model will keep learning more and more, the results will keep on improving. So we should be able to diagnose or treat those The disease is much earlier than they would have. So from the business standpoint, so one is the adaptability. We need to Make sure that the doctors and the users understand and realize the importance of such features.

Speaker 8

So we are turning it on at least For now until the end of the year, free of cost, there won't be any charge. It will be a risk free trial. The clients can start using it, get accustomed to it. And then entering into the next year, we have a plan to start pricing it out on the license basis. We will announce the price once that gets finalized.

Speaker 8

And of course, the second thing is the market positioning, the marketability of our product. If you look at our competitor, I think all the competitors, everyone is trying to come up with some solution. So this is at the high level and any further questions I can I'll be happy to even connect with you offline to explain further.

Speaker 6

Thank you, Hadi. That's helpful. And then lastly for us, could you give us a sense of your OUS business now And give us a sense of what you may anticipate going forward on growth or aggregate revenue for OUS.

Speaker 8

Okay. So probably you're referring to our Middle East The Middle East opportunity that we are focusing on. So we are making continuous progress. And for this year, Even on the last call I mentioned, our goal is to at least being able to sign at least a contract or few contracts And recognize some revenue into the next year. We will incorporate that, include that when we issue the guidance for the next year On the next earnings call, but in terms of our progress, so if you think about it on the UAE side, there are a number of steps.

Speaker 8

1 is incorporating the entity. We have completed that. 2nd thing is getting the license to conduct the business in different categories. So we have completed that. 3rd step is on boarding at least the management employees and certifying them, so they should be able to transact the business in the UAE.

Speaker 8

So we are in this 3rd process. On the other side, 2 other fronts. 1, we are actively working on at least 3, 1 large and 2 smaller opportunities there. And on our technical side, the IT side, they have to make sure that our product certify to the local requirements, such as making sure the data stays within the UAE. And secondly, once we have a client, we have to start working with authorities to get the EHR and the different other items off the platform certified.

Speaker 8

I hope that answers the question.

Speaker 6

Yes, perfect. Thanks for taking our questions.

Speaker 3

Thank you, Jeff.

Speaker 9

The next question comes from Neil Chatterjee with B. Riley. Please go ahead. Good morning and thanks for taking our questions. Just maybe just on the quarters, maybe just wanted to just See if you can talk more about any seasonality you might have seen in 3Q and what kind of gives you the confidence and And I guess that kind of the sequential ramp or strength at the 4th quarter with reaffirming the full year guidance.

Speaker 9

Was there any Med SR projects Impact that might have shifted from 3Q to 4Q?

Speaker 7

Yes. Hi, Neil. It's Larry. So thanks As we look at Q3 to Q4, the Q3 seasonality is similar Q3 of last year, again, the big impact just year over year comparison was the 2 large health system mergers. As we look at Q4, a couple of key factors.

Speaker 7

1 certainly is the professional services, Med SR, Really great developments there on some of the contract wins. Also, we put out the press release about the credentialing and the revenue that we're going are to recognize a portion of that in Q4. So we

Speaker 2

Can you hear us?

Speaker 9

Yes. Sorry, I wouldn't interrupt you're done. Okay. Yes. Okay.

Speaker 9

No, sorry. Great.

Speaker 8

It looks like our phone went off.

Speaker 7

Yes. Now we are off. So just complete that. So yes, the metastar is really the key driver in in Q4. And then also just our core RCM business will with the solid execution will also Support the confirmation for the full year guidance.

Speaker 7

So all that has really come together and it just gives us the confidence Going into 2024 with our backlog, we commented on the where we are also with the professional services Going into the next year, so really come together. And as we look at 2023, it's a transformation year from the Health system mergers and just setting us up for growth into 2024. But we want to get there for the Finish strong and then go into the next year from that same position of strength.

Speaker 9

Great. And just maybe just one follow-up on that. Just in terms of kind of on that MedAssar business, I mean, just looking at the chart with kind of the mix, It look like Meditech and RCM had kind of thrown in the mix. What's driving some of that traction you're getting on that side?

Speaker 8

I think and we have just FYI, we have Dwight Garvin, who is heading the Medisar business. So that I can start and then he can finish the question. If you think about it, the overall industry, the largest players in the health system space is, Let's say, over between somewhere between 40% to 50% market share. So that's the relation we lost. So until we acquired MedAssar, the Primary focus of the organization was from in terms of bringing the business in was that one, the top most player in the market.

Speaker 8

Once we lost that opportunity, so we started working towards the next in the line and Meditech is among the top 3, I would say, in that space. So over the time, over the last one year, we have been able to reestablish not only our relationship with Meditech, but in addition to that, our strategy was more oriented towards finding the opportunities for Meritek. So that's one. The second one is the RCM. Once when we acquired Amerisar, their RCM related revenue was hardly $1,000,000 out of $30,000,000 roughly that they were doing.

Speaker 8

That has improved by multiple fold now because that was also, if you remember, one of our narrative or one of our reason for the acquisition That these health system relationships, we should be able to leverage those, because those relationships, we can now talk to the CEO, the CFO there and should be able to cross sell and upsellable RCM services. So those 2 are Seems to be becoming the primary drivers of our MedAssar or updated MedAssar, the business. Those are the 2 major contributors. But Dwight, if you would like to add anything, please go ahead.

Speaker 10

Sure. Thank you, Hadi. And just to kind of expand upon what Hadi said, what we're seeing in our RCM space is really moving from that advisory model, Where you have short term engagements and moving those advisories into more of a managed services. So now we can take Our relationships established throughout all the other practices, sell them to RCM advisory services and turn those into Long term recurring revenue managed services model. And that's really what we're kind of targeting.

Speaker 10

And then at the same time, expanding on our Meditech business, Really making some very key hires in the business development side this year and those have allowed us to really strengthen that partnership within Meditech.

Speaker 4

I hope that answered your question.

Speaker 9

Yes, great. Thanks for that and I'll hop back in the queue. The next question comes from Allen Klee with Maxim Group. Please go ahead.

Speaker 2

Yes. Good morning. For the CareCloud Prime offering that's coming, Talk about how that compares to what you have today, and how you think about would this be an upsell to existing Clientele or new customers and would there be a price differential? Just help us understand a little more about that. Thank you.

Speaker 8

Thanks, Aaron. Good morning. Thanks for the question. So there are a couple of aspects, a couple of ways we need to look at. One is, Every time and if you go back, our first system was in 2,004, 2,005, we were first generation of our the entire solution.

Speaker 8

And then we kept bringing the new next generation solutions after every couple of years. And the reason that triggers is, one is the compliance requirement or the regulatory requirements or the market expectation, what are the new features that's needed. And the other side is the technology platforms. This is a very rapidly changing the world where every after 5, 6 years, the technology become almost obsolete. And in order to have a more viable, reliable and effective product, you need to bring the products

Speaker 3

So this on one on

Speaker 8

the technological perspective, this will be on the new back end technology. The second thing is, it will have more features. We are focusing to have it more features towards value based care models, preventive medication, The preventive healthcare and the like and number of other things more effective, better chart sharing model versus The previous model, so I think all of those things together. And another key aspect is When we acquired CareCloud Health, they were working on this platform for the last number of years. And for us, we had another platform, which we call TalkEHR.

Speaker 8

So, Dave, both of those platforms are in today's world are active. We can sign up the client. They can service the client. They have the both the platform or the certified platform. So this is going to be our next generation, but ultimately over the next number of years, Both of those two sets of clients we expect we foresee would be transitioned into this futuristic platform.

Speaker 8

We're not planning on doing it starting next month. Whoever would like to transition at their own, we would love to bring them on to this new platform as a seamless transition no additional and extra cost for them. So this will become our flagship platform going forward with the next generation of

Speaker 2

Thank you. My other question is, if you could just talk a little bit about the credentialing contract and What you're doing and how you think about the opportunity there?

Speaker 8

That's a great question, Neil. And Credentialing and we have the Carl with us too and he is the one who was working on this relationship. I can get started and Both hand it over to Carl. So from the service or the product perspective, when we talk about our end to end revenue, tech enabled revenue cycle The first piece into the revenue cycle we believe is start or begin with the credentialing. So if you do not credential a client Effectively, we won't be able to generate the revenue or provide even if the provider see the patient, the reimbursement either will not happen or will not come at the level, the optimal level it should come.

Speaker 8

We have been working on our side internally on building up a platform which can help us The Bow system has the capability to do that. Now it flags the application that needs the follow-up. And now also with the help of the different AI, many of the applications can be completed systematically without any human intervention, which improves the accuracy level and also The staff time, that's one. We also have been and I mentioned in one of the last one of the when we announced this as part of that earning As part of that release, we are working on delegated credentialing certification like establishing a CBO. Think about that CBO as The insurance company has delegated their credentialing role to the company.

Speaker 8

So hypothetically talking, if a commercial insurance take at an average 20 days to credential our provider. We believe internally we should be able to credential the same provider at, let's say, 5 days instead of the 20 days. So this is our overall credentialing capability has become very much strengthened, and we think that we can go out And start marketing this, the credentialing more effectively. So with that, this is our first large contract we have been able to sign. Why don't you call?

Speaker 8

Just share some details, please.

Speaker 10

Yes.

Speaker 11

So the relationship met a need of the customer To make sure that their clients were credentialed so that when they were doing revenue cycle work, They were getting paid for those services. So we were able to come in at a price point and a Cost structure was incredibly attractive to them along with our existing resources that are trained and up to speed. And then as I even mentioned the delegated credentialing piece is huge and takes a long time to take care. We've really leveraged our Resources have been doing credentialing for our own clients for many, many years. And this happened to really fit a need And have gone further and that's actually opened up some doors for some additional discussions with some other large companies That need this on the back end.

Speaker 11

So we really think that there's an untapped market for this, to come at it in a way That is much more cost effective than those companies that are dedicated credentialing companies. It also has the distinct advantage of Having one stop shopping, so if we're helping with RCM services or software services, Credentialing is a very natural add on functionality.

Speaker 8

And Aaron, just to give you some idea In terms of the revenue from this opportunity, as we mentioned that it's the tens and thousands of providers that we will be positioning or presenting I would say, something over $1,000,000 in annualized revenue. So it's a 5% penetration. So there's a big opportunity there. And as Carl mentioned, this will become a good first Case study or a model for us to go and sell the similar with other larger opportunities.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Natalie Garcia for any closing remarks.

Speaker 1

On behalf of the company, I'd like to thank everyone who has joined us on today's call. We appreciate your participation and your interest in us as a company, and we look forward to speaking with you again. Thank you, everyone, and have a great day.

Operator

Thank you for participating and have a pleasant day.

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Key Takeaways

  • CareCloud reported Q3 revenue of $29.3 M and adjusted EBITDA of $3.2 M, reaffirming full-year 2023 guidance of $120 M–$122 M in revenue and $15 M–$17 M in adjusted EBITDA, and expects to return to growth in 2024.
  • Launched the Versiris AI generative AI solution with a risk-free trial through year-end, planning to introduce a competitively priced licensing model in 2024 as part of three AI offerings aimed at enhancing clinical decision-making and revenue-cycle efficiency.
  • Stabilized and diversified the MedAssar professional services business by deepening the Meditech partnership, growing RCM practice nearly 300% since 2021, and building a $30 M pipeline for RCM and technology transformation engagements.
  • Initiated a cost realignment program expected to deliver approximately $10 M in annualized free cash flow improvement—split between $5 M in operational savings and lower R&D capitalization—primarily in Q4 and into 2024.
  • Preparing to launch CareCloud Prime, a next-generation cloud-based EHR platform offering seamless interoperability, AI-powered clinical decision support, and value-based care tools, which will become the company’s flagship solution.
AI Generated. May Contain Errors.
Earnings Conference Call
CareCloud Q3 2023
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