CareCloud, Inc. (NASDAQ:CCLD) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good morning, ladies and gentlemen. Welcome to the CareCloud Inc. First 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, Kimberly Blanche, CareCloud’s General Counsel. Ms. Blanche, you may begin.

Kimberly Blanche : Good morning, everyone. Welcome to the CareCloud First Quarter 2023 Conference Call. On today’s call are Mahmud Haq, our Founder and Executive Chairman; Hadi Chaudhry, our Chief Executive Officer, President and 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 facts 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 acquisitions.

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 of 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 first quarter 2023 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com, click on News & Events, then click IR calendar, click First 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 first 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, Kim, and thanks to all of you for joining us for our first quarter 2023 earnings call. We started 2023, building on an organic growth momentum we created throughout 2022. In the first quarter, we reported revenue of $30.1 million and adjusted EBITDA of $4.2 million. We are pleased that these numbers are in line with our internal expectations and keep us on track to deliver on our full year’s guidance. Today, we will provide you with an update on our organic bookings momentum, our progress towards converting bookings into revenue recognized during the first quarter, the emerging growth opportunities in the Middle East, our increased focus on marketing efforts to raise awareness of our comprehensive solutions and early adopters of our therapy EHR solution that I mentioned last quarter.

First, I will provide an update on the continued momentum of our overall bookings with a particularly meaningful contribution from our wellness offerings, which include chronic care management and remote patient monitoring. After about a year on the market, it continues to gain traction with our physician base. Our recurring revenue bookings for the first quarter of 2023 were over $8 million. 2022 was a record year for bookings, and debt certainly continued in 2023. We have seen good momentum in overall bookings, including wellness bookings over the last year, and I would like to share a little detail on how it’s converting to revenue. I’m going to talk first about overall bookings conversion and then break it down by tech-enabled RCM, force and wellness.

First off, the total recurring bookings we signed in 2022. 92% of the potential revenue has gone live with us in some form or fashion. In the first quarter, on an annualized basis, we recognized 44% of the potential revenue opportunity from those clients that have gone live. That said, each of the 3 businesses ranks differently. So I’m going to walk through each one of them on a stand-alone basis. For our tech-enabled RCM, we have gone live with 88% of the potential revenue we booked last year in the first quarter. On an annualized run rate, we have recognized all of those potential revenues from the live clients. As a reminder, for our RCM solution, we typically anticipate a 6-month time frame from signing bookings to going live with the business.

Force, which is our staffing augmentation solution, we have gone live with 96% of the potential revenue but recognized just 4% in the first quarter, again, on an annualized basis. This is in line with our expectations, and there are a couple of factors that will cause this to ramp over the course of the year. First, the large contract that we signed late last year with a well-known publicly traded healthcare technology company is currently in the preproduction phase. Under the terms of our agreement, we are sharing SOPs, background checks, trainings and the like before we can start recognizing revenue. Subsequent to those close to the quarter, the second largest contract went live, and the customer is very pleased with the partnership so far.

Together, these contracts represent a meaningful portion of the 96% of the potential revenue, but the first contributed minimal revenue in the first quarter, and the second will contribute to our second quarter results but is not reflected in the numbers we reported today. The second factor leading to the divergence between potential revenue that has gone live and revenue recognized is that customers typically start with just a few employees and ramp up to their desired levels over time. It is our experience that customers, especially larger, more sophisticated customers, will take between 3 and 4 quarters to reach their potential. Lastly, in our wellness solution, we have gone live with 93% of potential revenue and have recognized 7% of their potential revenue on an annualized basis.

In this business line, go-live is defined by having conducted monitoring with or provided services to at least 1 patient in the practice. We expect this to ramp over the course of the year, and there is typically a 10-month cycle of signing a physician, identifying the appropriate chronically ill patients, engaging them via mail and phone to get consent and onboarding them. Once all of these are complete, the care managers create an individual care plan and work with physicians to implement it. We continue to work closely with our physician partners so they understand the ease of working with CareCloud and the value we provide to their patients. We look forward to sharing our progress on our next few quarters’ calls. Next, I will provide an update on our efforts in the Middle East.

As discussed last quarter, we remain committed to pursuing the emerging growth opportunities in the Middle East. We set our sights first on the UAE, given the government’s plan to mandate EHR adoption in the next few years, similar to the meaningful use initiatives in the U.S. a decade ago. We have started making progress in this area and are very close to complete setting up an entity in the UAE to capitalize on this potential opportunity. We are continuing to pursue the certification process and plan to hold a groundbreaking at the Precision Med Expo in the UAE at the end of May. We have already begun the process of getting over solution certified in filing for required attestations. In terms of these international opportunities, we feel CareCloud is uniquely positioned for success for a couple of reasons.

Our status and reputation as a publicly traded company in the U.S., our over 2 decades of experience in the EHR, professional services and tech-enabled RCM businesses, the cost-effectiveness of our scaled operations and our cultural familiarity with this part of the world. We look forward to keeping you posted as these potentially meaningful opportunities unfold. I will now turn to an update on our marketing efforts. First, we are proud to report that for the second straight year, we were recognized in the best-in-class report under the category of small practice ambulatory EHR and practice management. This year, we are focused on continuing to raise awareness of CareCloud’s offerings in the market to fuel our organic growth. We have had a meaningful presence at many of the industry conferences this year, such as WIFE and HMS.

These conference does not only provide many leads for new customers. They also create opportunities to showcase our comprehensive solutions to the market. For some additional context, at the time of the IPO, we spent just 1% of revenue on sales and marketing. As of last year, that number had grown to 7%, and this year, it is on track to reach 8%. This current marketing campaign seeks to bring attention to our innovative solutions, including tech-enabled RCM solution, which is truly differentiated in the market as it sits on top of industry-leading, state-of-the-art software technology products to help us drive better revenue growth in this mature EHR and practice management market. Our telecom solution, which was ahead of the curve, launched a year before the pandemic and quickly became an integral part of health care practices.

AI has been a hot topic in the news lately. But for CareCloud, it is nothing new as we have been leveraging AI from its very early stages. Our first AI-based product launched in the early few years of the company was a scrubbing engine, and we have since launched several others over the last few years. Since then, we have layered in robotic process automation bots, or RPAs to automate mainline tasks and streamline back-office processes in addition to being leveraged by our clients. It’s been never believed that open APIs of AI will be the next wave of innovation in health care, similar to many other sectors. So we are evaluating ways we can effectively and safely use solutions like OpenAI and ChatGPT in a compliant and secure manner for our medical providers.

We see this as a further opportunity to leverage AI to improve workflow in EHR and practice management systems as an avenue to reduce cost, increase profitability and improve patient outcomes. We are still in R&D phase and not yet ready to make it provider-facing. Finally, an update on our therapy market opportunity I mentioned last quarter. We are making progress with 2 early adopters who are already gone live. We are supporting our thesis that our end-to-end solution is a welcome change to outdated solutions prevalent in the market today. Wrapping up, CareCloud’s first quarter results represent a strong start to the year and leave us well-positioned to focus on our numerous opportunities for growth throughout 2023, keeping us on track to meet our full year’s expectations.

With that, I will turn the call over to Bill to review the financials. Bill?

Bill Korn : Thanks, Hadi, and thank you all for joining our call today. I’d like to start by reiterating Hadi’s sentiment that we are pleased to report the first quarter results were in line with what we expected, and we are on track to achieve our full-year goals. In the first quarter, we reported revenue of $30 million. While down year-over-year, the decline can be largely attributed to 3 factors. First, the loss of revenue from 2 customers due to healthy demergers. Approximately $2.6 million of the decrease in first-quarter revenue was due to these 2 clients who completed migrating to their acquirer’s platforms in mid-2022. Second, some softness in Med SR, which is a project-based professional services business that tends to fluctuate.

Med SR revenue was down $1.2 million from first quarter 2022. Our professional services business continues to be strong. And while our expectation is that second-quarter professional services revenue will be similar to the first quarter, we have a number of major projects in our pipeline for the second half of 2023. And finally, the first quarter of 2022 included approximately $1.2 million of revenue from revenue cycle management for services, which were COVID related. This was not present during the first quarter of 2023. Despite these three factors, we still remain confident of the full-year picture. Of the first quarter revenue, approximately 87% came from our tech-enabled business solutions and professional services. We reported a GAAP net loss of $401,000 and adjusted EBITDA came in at $4.2 million.

As a reminder, our first quarter revenue is typically down 5% to 8% from Q4 due to insurance deductibles resetting at year-end. While it is typical for our revenue to be back half weighted, in 2023, it will be more so than usual because of record bookings from new clients who are ramping up over the year, and our wellness solution, which we expect will build and become a bigger contributor in the second half of 2023. And as Hadi mentioned, we expect that our new CareCloud Force clients who signed with us last year and were in preproduction during the first quarter will start generating significant revenue in the second half. Between the growing adoption of Force, more new clients continuing to go live every quarter and wellness visits that continue accelerating as more patients start taking advantage of this new capability, we are projecting rapid organic growth during the third and fourth quarters.

As for profits, the majority of our costs are fixed, a typical adjusted EBITDA cadence closely mirrors the revenue seasonality, provide another level of granularity. In the first quarter, we processed a similar number of claims as in the fourth quarter of 2022, but recognized lower revenue due to deductibles. With the same fixed cost structure, as revenue goes down, GAAP net income and adjusted EBITDA decreased as was the case this quarter. Turning to the balance sheet. We ended the quarter with $8 million in cash. I’d like to reassure everyone that our credit relationship with Silicon Valley Bank, which is now a division of First Citizens is down, and they are honoring our agreement to the fullest. We ended the quarter with $10 million drawn on our $25 million line of credit, and SVB has assured us that the terms of our credit agreement are unchanged.

I’ll close my comments by reiterating our 2023 guidance. We expect revenue of $142 million to $146 million and adjusted EBITDA of $24 million to $27 million. As a reminder, we believe that 42% to 44% of total revenue will come in the first half of 2023 and 56% to 58% will flow through the back half of the year. As we benefit from additional revenue with the same overhead structure, we expect the adjusted EBITDA distribution will more likely look like 30% in the first half and 70% in the back half of the year as our newer offerings ramp up over the course of 2023. In terms of Med SR’s quarterly cadence over the course of the year, we are seeing great traction with projects, which will result in a strong second half of 2023. So we’re all going to need to be patient in the second quarter.

First quarter results put us on good footing for the year ahead. We’re happy with our progress on the organic growth front and look forward to updating you later in the year. With that, I’ll turn the call over to Mahmud for his closing remarks.

Mahmud Haq : Thank you, Bill. We are pleased with a strong start of 2023, and we are proud of the work that the CareCloud team has done to set us on the right path for a successful year. As always, I would like to thank our customers, shareholders, and all of our employees for their continued support of the CareCloud mission. Let’s open the call to questions.

Q&A Session

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Jeffrey Cohen at Ladenburg Thalmann.

Operator: Your next question comes from Allen Klee at Maxim Group LLC.

Operator: Your next question comes from Neil Chatterji at B. Riley Financial.

Operator: Your next question comes from William Sutherland at the Benchmark Company.

Operator: [Operator Instructions] Your next question will come from Constantine Davides at EF Hutton.

Operator: There are no other questions. So I will turn the conference back to Kimberly Blanche for any closing remarks.

Kimberly Blanche : On behalf of the company, I’d like to thank everyone who 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 next quarter. Thank you all, and have a great day.

Hadi Chaudhry : Thank you.

Operator: Ladies and gentlemen, this does conclude your conference call for this morning. Again, thank you all for participating, and we ask that you please disconnect your lines.