CareCloud, Inc. Q4 FY2023 Earnings Call

Good morning. My name is Joel and I will be the conference operator today. I would like to welcome everyone to the CareCloud Fourth Quarter 2023 Results Conference Call. Thank you. I would now like to turn the conference over to Chantelle Melendez, Corporate Counsel. Please go ahead.

Good morning, everyone. Welcome to CareCloud's fourth quarter and full year 2023 conference call. On today's call, we have Mahmud Haq, our Founder and Executive Chairman; Hadi Chaudhry, our Chief Executive Officer, President and Director; and Norman Roth, our Interim 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 regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook, 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 fourth quarter and full year 2023 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com, click on News & Events, then click IR calendar, click on the full-year 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 fourth quarter and full year 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?

Thank you, Chantelle, and thanks to all of you for joining our fourth quarter and full-year earnings call. I have several important updates to share from the quarter end for CareCloud's path forward. During 2023, we intensified our focus on operational efficiencies with the goal of improving profitability and free cash flow. While challenges to revenue persisted in 2023, we have been aligning our costs with our revenue goals and focusing on the highest return opportunities. This transitional period is expected to continue through 2024. Our primary objective remains centered on profitability and free cash flow, underpinned by an organization-wide commitment to operating leverage and improving our competitive position. We expect modest top-line growth as we lay the foundation for sustainable long-term expansion and a pathway to a more normalized growth rate in 2025. We remain confident in our mission of empowering physicians to deliver exceptional patient care through our cloud-based technology, while delivering returns for our shareholders. Our proprietary end-to-end platform is fully integrated and designed with the flexibility to be adapted across markets and to meet the needs of our physician partners as the complexity in healthcare administration evolves. We are seeing rising demand for our tech-enabled revenue cycle management, digital health, and generative AI solutions. We remain prepared to deliver scalable outcomes to a global workforce with over 20 years of experience. Turning to our results for the full year, our revenue of $117 million and adjusted EBITDA of $15 million were in line with our expectations. Our primary objective during 2024 is to substantially increase positive free cash flow, reduce the balance on our credit line while pursuing the resumption of our preferred dividends. This goal will be achieved through a combination of top-line growth and a concerted effort to optimize our cost structure by leveraging our global workforce's expenses and implementing vendor cost optimization measures. During the fourth quarter of 2023, we developed and began executing a strategic plan aimed at enhancing liquidity within our operations by streamlining payroll and operating expenses. Once the reductions are fully implemented this year, we anticipate an improvement of approximately $18 million in annualized free cash flow, of which approximately $13 million will be realized in 2024. Moreover, ongoing efforts to optimize our cost structure will continue throughout the year, underscoring our commitment to increasing profitability and generating positive cash flow that exceeds our monthly dividends. Our suite of products continues to evolve as CareCloud stays ahead of the curve in innovating cutting-edge solutions. We recently announced the latest addition to our CirrusAI suite called CirrusAI nodes, which can run ambiently during patient visits, identifying and summarizing key parts of the visits and formatting them into a clinical note for the doctor's review. Once accepted, the note is securely saved in the patient's chart within the EHR. We are at the forefront of driving these innovative AI solutions forward, and we expect revenue from these products to be incremental to our margin profile. As these products support the generation of revenue, we can further improve our models by leveraging proprietary data collected over 20 years across the spectrum of small, medium, and large health systems. These AI solutions will improve our competitive position in the market, ultimately helping us to enhance our profit margins. As reflected in our 2024 top-line guidance, we anticipate our wellness segment to be a key driver of growth for the year ahead. Despite this business falling short of expectations in 2023, we concluded the year with strong momentum, which we expect will carry over into 2024 and further accelerate in 2025. There continues to be a strong uptake among providers and an increasing amount of interest from patients as healthcare undergoes a paradigm shift towards preventive medicine and value-based care. During the fourth quarter, patient engagements more than doubled compared to the first quarter of 2023. Regarding the industry-wide impact caused by a cybersecurity breach at Change Healthcare, the benefit of our diversified clearinghouse partners and the swift action of our team members has resulted in minimal exposure to CareCloud and our clients. Our actions taken ensured that virtually all claims submitted were cleared and that payments were remitted to our customers. The resulting liquidity benefit has been critical for our customers and further demonstrates our competitive differentiation in the marketplace. Expanding further on our diversification across our clearinghouse partners, most of CareCloud's government payer-related claims volumes were unaffected as they are directly submitted to the payers and flow through our proprietary clearinghouse. The rest of our claims volume was diversified between Change Healthcare, our proprietary linkage, and other clearinghouses. Those impacted by the breach are being rerouted expeditiously to other industry players. The minimal exposure to CareCloud is timing-related, but overall net neutral on a revenue basis. Payments from some customer-related processed claims will likely be recognized later than anticipated. There could also be some disruption to secondary reactions such as collections on patient co-insurance; however, the overall impact on the business would be minimal. I will now turn it over to Norman Roth. Norm will be serving as CareCloud's Interim CFO while we search for a full-time CFO. Norman has been with CareCloud for 10 years as Corporate Controller, and his technical know-how has been invaluable to the company. His leadership will be instrumental in navigating the company through this transitional period.

Thank you, Hadi. I'm excited in my role as the Interim CFO of CareCloud, which started in January of this year. As we navigate through this year of transition, my focus is on enhancing our financial discipline and pulling the appropriate levers to increase our operating leverage within the business. On October 2nd, 2023, the company announced that it was committed to effectively aligning its resources with business priorities and improving profitability. Cost reduction measures were implemented during the fourth quarter of 2023 to optimize efficiency, streamline operations, and enhance financial performance. Once these cost initiatives are complete, we expect to achieve approximately $18 million in annualized cost savings, of which approximately $13 million will be realized in 2024. In December 2023, we suspended the preferred stock dividend, resulting in cash savings of $1.3 million per month. This was a difficult decision, but one that we considered necessary. Again, our goal this year is to reduce costs, return the company to profitability, and generate positive free cash flow. Once sufficient cash flow is generated, our initial goal is to reduce the borrowings on the line of credit. Once our monthly free cash flow exceeds the dividend requirement for a few months, management will recommend to the company's Board of Directors to reinstate the preferred stock dividend. The GAAP net loss for 2023 includes a $42 million goodwill impairment charge, which is a non-cash charge. As a result of suspending the preferred stock dividend, there was a decrease in the company's market capitalization, which caused what is known as a triggering event, requiring the company to review the carrying value of its goodwill balance. The goodwill balance on our balance sheet has now been reduced by $42 million from the prior year. In the fourth quarter of 2023, we reported revenue of $28 million, a GAAP net loss of $44 million, and adjusted EBITDA for the fourth quarter of $4 million, representing an adjusted EBITDA margin of 14%. The GAAP net loss that I just referred to includes the goodwill impairment charge that I mentioned above. Additionally, our adjusted net income was $835,000 or $0.05 per share. For the full year, we recorded revenue of $117 million, which was in line with our guidance, a GAAP net loss of $49 million, and adjusted EBITDA of $15 million, representing a 13% adjusted EBITDA margin. We also reported an adjusted net income of $4.8 million or $0.30 per share. Turning to the balance sheet, we ended the year with $3.3 million in cash. We generated $15 million in cash flow from operations for the full year 2023, $3.7 million of which was from the fourth quarter. We are focused on growing free cash flow with the goal of reinstating the preferred stock payment. For 2024, we expect revenue to be between $118 million and $120 million and adjusted EBITDA to be between $21 million and $23 million. Our top-line guidance contemplates organic growth, including expansion of the wellness segment, which will partially offset the lost revenue associated with the loss of two customers from a prior acquisition. As previously mentioned, in 2023, our revenue from technology-enabled business solutions was adversely affected by two significant accounts. These accounts were in the process of winding down at the time of our acquisition in 2020 and represented revenue of $3.1 million in 2023. As we execute on our strategic initiatives, we expect to offset this loss in 2024. We expect the combination of operational efficiencies and returns from our investments to drive adjusted EBITDA. From a seasonal standpoint, Q1 will include the normal revenue decline the industry typically sees due to the impact of patient deductibles. And as always, since we are processing the same level of claims, this does not reduce our costs. We do not expect an impact from the events affecting Change Healthcare, but do anticipate that a small portion of what would otherwise be Q1 revenue will be recognized in Q2. Our guidance collectively reflects a mix of challenges and opportunities that will ultimately put us in a stronger position to grow sustainably. With that, I'll now turn the call over to Mahmud for his closing remarks.

Thank you, Norm. As discussed, our entire team is focused on increasing profitability and free cash flow, while supporting our sustainable growth. I would like to thank our employees, customers, and shareholders for their continued support. Operator, please open the floor for questions.

Your first question comes from Allen Klee with Maxim Group. Please go ahead.

Just wanted to go over your guidance for 2024 and where you have the revenue increasing. Could you go into that a little more? And what's your assumption for medSR, which has been somewhat challenged? So, just kind of give us your thoughts on how conservative the guidance is and what could cause it to end up lower than that. Thank you.

Good morning, Allen, and thank you for the question. First of all, before getting to your specific answer, I want to reiterate the fact that, for 2024, we are strategically directing our focus towards enhancing bottom-line profitability. While we do maintain a balanced approach that recognizes the significance of top-line growth, that remains the key priority for us. We believe that sharpening our focus on profitability is essential for long-term sustainability and value creation for our shareholders. So that's why if you look at our guidance, you can see a significant increase in our EBITDA guidance over the last year, as we are trying to focus on liquidity and profitability. From the medSR standpoint, we are in the process of stabilizing and restrengthening our relationships with key industry health system players such as APAC, Meditech, and others. We have had some successes, and it looks like we will likely have more success as we get into the year. For 2024, we believe that revenue would at least stabilize at the same level as it was in 2023, showing small top-line growth. That said, if we can successfully build these relationships with key players, we may see additional growth, but we are not accounting that as part of the guidance. From the top-line perspective, this includes our regular sales, our chronic care management and the remote patient monitoring. We've accounted for that, and that’s why we are not aiming for overly optimistic growth targets on the top line, but the focus will continue to be throughout the year on profitability, and that's where shareholders will find the true value.

Thank you very much. My follow-up question is about a product that utilizes AI to generate notes. Can you provide more details about it and how you are targeting it, as well as the benefits it offers to doctors?

Similar to many other competitors, everyone has started to introduce these products. In our space, we believe this will bring more value by improving the workflow of medical practices and how they can serve their patients better. So far, there was one product we launched last year, and then we demonstrated another. The first one was guiding the provider in terms of potential medicines or tests that could be prescribed to the patients. The other one, which we recently demonstrated, is where the AI listens to the patient-doctor conversation and then converts that into a note. Once the doctor reviews it, they can save it securely in the chart. This helps improve the time efficiency for providers, enabling them to serve their patients better. For the initial product, we are still optimizing results as AI continuously gets trained and improves its responses. We have over 100 subscriptions and haven’t yet started charging a per-license fee, and we are evaluating the right time to introduce pricing for this product. However, we have started to see progress in this product and how it adds value to the day-to-day workflow of medical practices.

There are no further questions at this time. Please proceed.

Well, if there are no more questions, then thank you everyone for joining our call. Please enjoy the rest of your day. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.