Welcome to the CareCloud, Inc. Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to your host, Kim Blanche, CareCloud's General Counsel. Ms. Blanche, you may begin.

Good morning, everyone. Welcome to CareCloud's second-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 Larry Steenvoorden, our Chief Financial Officer. In addition, Bill Korn, our Chief Strategy Officer, will be available for the Q&A portion of the call. 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 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 second quarter 2023 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com, click on News & Events, then click IR calendar, click on Second 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 second quarter 2023 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results. And with that said, I'll now turn the call over to our CEO, Hadi Chaudhry. Hadi?

Thank you, Kim, and thanks to all of you for joining our second quarter 2023 earnings call. Before I jump in, I would like to take a minute to introduce Larry Steenvoorden, who joined us in July as our new Chief Financial Officer. Larry brings with him extensive experience and has spent time as a CFO in several different areas of the healthcare space. Our team is looking forward to working with him as Bill transitions into his new role as Chief Strategy Officer. He will be working closely with Larry to get him up to speed quickly. We have several meaningful developments that will contribute to our long-term success to discuss today. But first, I will start by providing a quick overview of our quarterly results. The second quarter revenue came in at $29.4 million, and adjusted EBITDA came in at $3.8 million. This compares to revenues of $37.2 million and adjusted EBITDA of $7 million in the second quarter last year. Taking a step back and looking at the quarter as a whole, there were a few main areas that contributed to these numbers coming in lower than the prior year period, which include softness in medSR professional services, a slower conversion ramp for wellness revenue, and the loss of revenue from two large customers due to health system mergers, as previously announced. Larry will go into further details on these developments and provide insight into the results. Despite these short-term challenges, our core tech-enabled RCM offering is performing well and meeting the evolving needs of our providers. We believe that we have taken the necessary actions to address the near-term issues we are facing, and over the long term, we are focused on several emerging avenues of growth that include our generative AI offering powered by our relationship with Google, our Wellness solution, which is gaining attention in the market, and what could be a meaningful opportunity in the Middle East. Turning now to the launch of our new generative AI product. I want to provide more detail on our recently announced partnership with Google Cloud. The goal is to make it easier for doctors and clinicians to access essential information. We are actively working on integrating Google Cloud's advanced generative AI and enterprise search technology into CareCloud solutions. Once launched, our AI model will assist physicians with data-informed personalized treatment decisions. One of the major advantages of this collaboration is CareCloud's nearly 20 years of de-identified clinical and financial data, which will be used in a HIPAA-compliant fashion to train Google's generative AI models within CareCloud solutions. This valuable data includes insights from small and medium-sized medical practices that haven't previously been utilized for generative AI. Current healthcare AI models have been trained primarily using health system data. Our partnership allows us to fill an important gap in the industry and create more comprehensive AI-generated information for our target market. The first CareCloud solution using generative AI will focus on clinical applications and is set to launch in the coming months. We will start by training Google's generative AI models with our clinical data. This will enable our solutions to use a patient's current and past clinical data to create personalized care plans for that specific patient, enabling physicians to make more informed decisions. These plans will be tailored to each patient's medical history and current symptoms, including medication recommendations, lab orders, diagnoses, and procedures. Eventually, the offering will also enable the system to give patients personalized estimates of their insurance coverage and out-of-pocket expenses, helping them make informed decisions about their healthcare. We plan to charge a reasonable license fee for this smart assistant addition and are exploring different licensing models or user fees similar to Microsoft's recent launch of Copilot. The overarching goal of this partnership with Google Cloud is to transform healthcare delivery through generative AI technology for the broader market beyond just CareCloud's ecosystem. I now want to provide you an update on our UAE opportunity. As we discussed last quarter, we are continuing to explore opportunities for expansion in the Middle East. We previously mentioned that we were close to completing the establishment of an entity in the UAE to capitalize on the opportunities in this market. I am pleased to report that we have successfully established a branch office in Dubai and received our license to conduct business in the UAE. In May, we attended the Precision Med Conference at Dubai World Trade Center and then the MENA Hospital Project Conference in June to start building relationships with our partners. We are now in the process of recruiting the best local talent for our business development team, with the primary goal of developing new business relationships within the Gulf Cooperation Council, which is comprised of six countries. CareCloud is uniquely aligned to take advantage of the opportunities in this market. I also want to highlight that on the marketing front, we recently revamped our entire corporate website. We updated the site to include all of our brands, solutions, and services, but also optimized it by end market and category to make it easier for our customers and partners to navigate. We believe this will enhance the user experience. Next, I would like to provide an update on the progress we have made on bookings conversions and new customer go-lives. For our core tech-enabled RCM, we have gone live with 95% of the potential revenue we booked last year compared to 88% last quarter. On an annualized run rate, we have recognized 94% of that potential revenue from the live clients. In our Wellness solution, we have gone live with 93% of the potential revenue, also in line with last quarter, while the percentage of annualized run rate revenue increased from 7% to 23%. We still believe this is a meaningful opportunity for us, but the ramp is taking significantly longer than we initially anticipated. Our Wellness offering represented a paradigm shift in how people treat chronic illnesses, getting them into a monthly virtual check-up routine to proactively manage their illness. Lastly, in Force, which is our staffing augmentation solution, we have gone live with 96% of the potential revenue, the same as last quarter, but the percentage of annualized run rate revenue has increased from 4% to 65% at the end of the second quarter. The increase was driven by one of the contracts we noted last quarter going live, with a new client starting to ramp. Overall, out of the total recurring bookings we signed in 2022, 95% of the potential revenue has gone live with us in some form or fashion, up from 92% last quarter. In the second quarter, on an annualized basis, we recognized 62% of the potential revenue opportunity from those clients that have gone live, compared to 44% last quarter. Turning to 2023 bookings, we are experiencing further bookings growth with a meaningful increase in first half 2023 bookings compared to the first half of last year. Notably, we are signing that new business more efficiently as we have seen a year-over-year decline in our customer acquisition cost. In summary, during the quarter, our core tech-enabled RCM business is performing well, but we did experience some softness in two of our newer innovative business lines, Wellness and medSR professional services. As we look to the second half of the year, we face continued headwinds in those businesses and have adjusted our 2023 guidance accordingly. We believe that we are past the low point and I think we have taken the right steps to stabilize those business lines in the second half. Now I will turn the call over to Larry for a deeper look into our second quarter results and annual guidance. Larry?

Thank you, Hadi, and hello, everyone. I appreciate the kind words from those of you that have already reached out, and I'm excited about getting started in this new role. CareCloud's strategy is focused on being the frontrunners in the market, and it's an exciting time to join the company with a very motivated and passionate team. With that, let me turn to the financials. Revenue in the quarter was $29.4 million compared to $37.2 million in Q2 2022. The year-over-year decline is primarily a result of the factors Hadi mentioned: softness in medSR, a slower conversion ramp for Wellness revenue, and the loss of revenue from two large customers due to health system mergers. Regarding medSR, after the acquisition, a large EHR vendor stopped allowing their clients to contract with us for professional services because they viewed CareCloud as a direct competitor in the EHR space. We saw the impact of this play out in the last quarter. In light of this, our team started to establish stronger Meditech relationships and leverage more RCM cross-selling opportunities. The expectation was that through these relationships and with organic sales, we could bridge the gap to deliver growth as originally projected. However, this did not materialize. We still believe this is the right approach to get us back on track, and in light, we anticipate that medSR's MediTech-related revenue and RCM revenue will increase for the full year, but it will not be enough to offset the decline in professional services this year. The second area identified was in Wellness. The real live ramp did not pan out as steeply as the initial forecast predicted. Now that we have a year of experience and more data is available, it is becoming clear that it will take longer to migrate into revenue. Going forward, we are now able to use this real live data in our forecasting and are confident about this patient population opportunity, but the ramp will take longer. Adjusted EBITDA of $3.8 million reflects a 13% margin for the quarter. This compares to $7 million and 19% in Q2 2022. The decline in quarterly EBITDA was a combination of lower revenue and related margins as we continue to invest in sales and marketing and R&D to drive future growth. We ended the quarter with $7.7 million in cash and net working capital of $8.2 million. Cash provided by operations was $6.4 million, offset by cash used in investing and financing activities of $7.1 million. In addition, we ended the second quarter the same as the first quarter, with $10 million drawn on our $25 million line of credit. Now turning to guidance. As mentioned earlier, there are a few areas in which results differed from expectations. For medSR, we expect the impact will be approximately $12 million deviation from our projected plans on an annualized basis. As I discussed earlier in more detail, for Wellness, we anticipate it will be approximately $4 million short of our original forecast. We now have real live data to help us project its contributions in a more conservative and accurate way. And lastly, it was planned to backfill approximately $8 million of revenue from the previously mentioned customer health system mergers organically, but this is not materializing at the expected rate. Additionally, I'd like to provide an update on Force, our staffing augmentation service, which was discussed last quarter. The large contract that we signed late last year with a well-known publicly traded healthcare technology company was delayed in the preproduction phase due to the customer focusing on other priorities. While this led to a slower-than-expected timeline, we are pleased to say that we went live on August 1. Taking into account all of these variables, we will be adjusting our annual guidance accordingly. We now expect full-year revenue of $120 million to $122 million and adjusted EBITDA of $15 million to $17 million. While the fundamentals of the business are solid, we have undertaken a deep dive into expenses and capital spending to scale the business accordingly and improve profitability for the second half and into 2024. We still see plenty of opportunity for our solutions moving forward, and we'll use our steady core RCM business as well as developing projects such as physical therapy, our AI solution, the opportunity in the Middle East, and the Wellness ramp as a strong foundation from which to grow. That concludes my prepared remarks. In closing, I want to reiterate that like the entire team, I'm very motivated to be in this role and see the vision the company has in sight.

Thank you, Larry. As Hadi expressed earlier, we feel that our solutions are well positioned in the market. We are executing on the plan to overcome our short-term challenges, and there are several opportunities that will benefit us over the long term. I would like to thank our employees, customers, and shareholders for all they do to support the CareCloud mission. Thank you.

Thank you. We will now begin the question-and-answer session for analysts. Our first question comes from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.

Hey. Good morning. Hi. Hadi, Larry, and Bill. How are you?

Good morning, Jeff. Yes, we are very well. Thank you. How are you?

It's fine. So I know that Larry went through a few of the shortfalls in some of the contracts on time, and congrats on buying up the Force contract. But Larry, I guess the question is: any macro themes that you're seeing over the past quarter as far as position or organization spending patterns that you can talk about?

Can you elaborate a little further, Jeff, please?

Just from a macro standpoint, are you seeing any themes out there as far as your space with utilization or orders that are out there in North America the past quarter?

Not exactly, but we do see from the medSR perspective, like any other consultancy businesses, some impact. But I think for us, it's not primarily driven by the overall advisory and consultancy business impact. For us, at least it's that large vendor-driven. Because as you all understand, there are a couple of vendors, just three, that cover about 80% of the market share in that space. So if the largest one thinks that they should not be working with us, there will be a significant impact. But other than that, no, we have not.

Okay. And anything to speak of as far as utilization recently, or any geographical strength or weakness to call out as far as specific specialties or specific geographies that you can talk about?

No. Again, Jeff, we have not seen any such occurrence. I think we do see a lot of discussions more towards the upcoming technologies, I would say, between the confusion of the people and waiting for the next and right technology to be used and more referring to these AI-based upcoming technological tools and the movement towards value-based care, how the two pieces will come together for preventative medicine as well. But not anything specific that we have seen at least yet.

Okay. Great. Then lastly for us, any commentary on the generative partnership with Google Cloud as far as rollout, and talk about which specific offerings of yours that are being embedded in and how you would expect that to play out over the coming months or quarters? Thank you.

Sure. Thanks, Jeff. And if we just zoom out to give you, first of all, the perspective of how this partnership has come together. I was able to meet earlier this year in a meeting with the CEO of Google Cloud. The idea was that if you think about CareCloud or previously known as MTBC when started in 1999, our focus was—I mean, how we started was how to focus on small to medium practices primarily and bring innovation and technology, converting them from conventional medical billing to more tech-enabled RCM and providing them with the tools such as EHR and all of those. Fast forward over these last 20 years; we now have the data, clinical and financial, as a result of our proprietary software and technology. We started investing in establishing our own AI or data science department to see what we could achieve with our skilled personnel. It has never been enough to reach the level where AI technology exists today. So when Google launched their product, and whether ChatGPT launched their product on generative AI, if you step back from that perspective and think about it, Google launched their Vertex AI, which is their AI-trained model and engine. They started focusing on the health sector, and they’ve called it the Med-PaLM model, an AI trained specifically for the healthcare industry. But when we talk about it, that model is trained only on the health system side space and larger practices. For smaller practices, whether with Google or someone else, it's a highly regulated industry, so reaching out to many of those small practices to take their data and train their AI model is not simply feasible. This partnership combines Google’s technological expertise and CareCloud's 20 years of data. Together we aim to produce the product. For us in the short term, as I mentioned, we will provide a form of a smart assistant in our EHR in the practice management product. It's going to be like the Microsoft recent launch of their Copilot—first of all, the copilot is an assistant; it won’t be flying the plane, but it'll be assisting. So our product will also assist and suggest to the doctor, leaving the responsibility with the doctor. The decision-maker remains with the doctor, while ensuring HIPAA compliance and regulatory requirements for patient safety. That assistant will be able to suggest a treatment plan, a full comprehensive care plan utilizing generative AI. This can help in rare disease cases and provide recommendations for preventive medicine, potentially suggesting tests that a doctor might otherwise miss. From the revenue generation perspective, we will charge a license fee for one user. In the bigger picture, once the proof of concept is completed, and our model is trained with our small to medium-sized practice data, we hope to provide the trained AI model to other vendors in this space, which could represent another opportunity for us. Overall, we hope to launch this product by the end of the third quarter or early fourth quarter and will monitor the attention and attraction from our existing client base as they adapt to generative AI. We believe this could significantly help us in the bigger picture moving into 2024.

Okay. Perfect. Thanks for taking our questions.

Thank you. The next question comes from Neil Chatterji of B. Riley. Please go ahead.

Hi. Thank you. This is Anderson on for Neil. You called out the weaknesses in Wellness and Professional Services in Q2. How do you see those recovering going forward in the second half and in 2024?

I can talk about it from the business perspective. And Larry, if you want to add any other color to it. Just let’s address Professional Services first. If you think about it with the largest vendor I’ve been discussing, to put things in perspective: one activation project for that largest health system could potentially yield around $1 million in revenue, while the average activation with Meditech might only yield about $200,000. So for us to bridge that gap, it's taking time to get there. The second major line of business where we anticipate recovery is leveraging those relationships in the health system space to sell our RCM services. As you may recall, last year we presented numbers showing a 300% increase in revenue for the RCM division compared to prior to the acquisition. Both of these two lines—while we may not see a similar 300% increase this time—it is reasonable to expect a decent increase in RCM revenue compared to last year as well. Our RCM business line under MedSR is growing, and the Meditech business line is also increasing, further opening doors for partnered RCM arrangements with Meditech and our Middle East opportunities. We believe between the two, we can continue growing. Our goal is that by the end of next year, we should be able to get back to where we should be. Again, that is our goal, and we will see how things play out until the end of this year. However, we do see many potential opportunities on the horizon.

Great. Thank you. And then on your Middle East expansion, congrats on the UAE trade license. When do you anticipate recognizing revenues there?

Great. And I’ll answer that. Just to mention that Dwight, who is heading our MedSR as well as Middle East division, also joined us for the Q&A session. In the current phase, we are finding the right personnel on the ground who have the knowledge to help us sell in that market. We have several activities projected, and our internal goal is to sign a few deals this year, which will allow for revenue recognition for us into next year. However, there’s always a time component—by the time we sign the deal, align resources, and initiate projects, the revenue recognition will probably take around six months after signing the deal. But Dwight, would you like to provide a little more color on the Middle East side for Neil and the others listening?

Sure, absolutely. Good morning, and thank you for your time. Yes, in the UAE, we’re excited about the opportunities there—not just in the UAE, but across the GCC. We are seeing a lot of exciting possibilities as we work through several conferences and events this year. We're in the process of strengthening our business development team and getting them operational. Our goal is to utilize the Arab Health Summit in January 2024 as a pivotal moment to showcase all our solutions, with nearly 65,000 attendees expected. This also allows us a great opportunity for building momentum and relationships as we approach the summit.

Great. Thank you so much for taking my question.

Thank you.

Thank you. The next question comes from Derek Greenberg of Maxim Group. Please go ahead.

Hi. Good morning. I wanted to touch on Wellness a little bit more and possibly discuss some things you’re learning as that process continues to roll on and some actions you may be taking to improve onboarding for the product?

Thank you, Derek, and thanks for your question. First and foremost, it’s important to remember that for our clients—doctors or providers—this is a transitional journey. The doctors are trying to adapt to this new preventive care approach and accept the technologies and opportunities available. For patients, this is a paradigm shift, moving from the need to see a doctor only when unwell to proactively managing chronic conditions. This change is taking time to convince patients that this is beneficial for their long-term health. We continue to adapt by determining the best times to reach patients, making use of automated text messages, and ensuring that we are reminding them about calls ahead of time to reduce missed appointments. Our technology adequately supports these initiatives, but it involves continually fine-tuning our approaches. Long term, we anticipate that the industry will shift as more insurance companies start to cover these deductible costs, incentivizing doctors to encourage patients towards proactive care. For the past year, we had to adjust our guidance using real-world data, and we're attempting to surpass those expectations while improving through various technologies. We plan to dive into more details regarding specific KPIs later this year, but overall, this is a positive outlook.

Okay. Great. Thanks for the color. And then my other question is just about what the bookings in the quarter were and how that compared to last year? And then maybe if you could just touch on the therapy offering trial, how that's progressing?

Sure. For the booking standpoint, if you compare the first half of 2022 to the first half of 2023, we have performed better compared to last year. I think our last quarter saw bookings around $7 million for Q2 2022. The two quarters combined for last year are around 8 million. This year, we plan not to provide quarterly booking numbers but, just to give you an idea, we experienced growth in bookings compared to the first half of last year. The sales mix has shifted slightly. We see more traction towards chronic care management and remote patient monitoring, resulting in an approximate 70% of bookings for digital health and 30% for our tech-enabled core RCM and SaaS bookings. However, while the bookings may be higher, this will lead to different revenue recognition timelines. Tech-enabled typically recognizes revenue within 6 months while for chronic care and remote patient monitoring, it might take more than a year for full ramp-up. As for therapy, we have identified early adopters—a couple of our top clients are actively involved in the trial. We’re making strides assisting them, optimizing our product based on these early experiences. The market is competitive, however, with many established players. Even with interest in our product, transitions from existing solutions take time as they typically operate on lengthy contracts. Our product has received positive feedback, and we’re hoping to see traction grow across new logos as we ramp our marketing efforts. We're excited about the developments and confident this will add significant value over the years.

Okay. Great. Thanks for answering my questions.

Thank you.

Thank you. There are no further questions. I will turn the call back to Kim Blanche for closing remarks.

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 next quarter. Thank you, everyone, and have a great day.

Thank you.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.