Forian Inc. Q2 FY2025 Earnings Call

Greetings, and welcome to Forian Inc.'s Second Quarter 2025 Financial Results Conference Call and webcast. Participating today from Forian are Max Wygod, Executive Chairman and Chief Executive Officer, and Michael Vesey, Chief Financial Officer. Before we begin, I want to remind you that management's comments today may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly from those suggested by these statements due to various important factors, which are detailed in the Risk Factors section of the company’s annual report on Form 10-K filed with the SEC on April 11, 2025. Management will specifically address an estimate of its full year 2025 revenue outlook at this time. It's important to understand that accurately predicting financial performance for the future is challenging due to the assumptions and internal estimates that might turn out to be incorrect and are based on plans and circumstances that can change. Consequently, there's a substantial risk that the actual results may differ significantly from the outlook provided today. Any forward-looking statements made during this call represent the company’s perspective as of today, and the company has no obligation to update them, unless required by law. Terms like estimate, projected, expect, anticipate, forecast, planned, intend, believe, seek, may, will, should, future, propose, and variations of these words or similar expressions are meant to denote forward-looking statements. These statements may include, but are not limited to, forecasts about future growth, anticipated performance, and prospects. The presenters will also discuss certain non-GAAP financial measures, such as adjusted EBITDA, which the company believes are important for investors to evaluate its operating performance. These measures should be viewed as supplements to, and not replacements for, the GAAP financial metrics. A reconciliation of the relevant GAAP figures can be found in today's press release and webcast, both of which can be accessed on the company's website. Those figures are unaudited, and any statements regarding the company’s expected performance may change, including as a result of the risks outlined in the Risk Factors section of the company's annual report on Form 10-K filed with the SEC on April 11, 2025. Today's call and webcast are being recorded. A copy of the recording, transcript, and the full press release along with SEC filings will be available at forian.com/investors. I am now pleased to introduce Max Wygod, the company's Executive Chairman and Chief Executive Officer. You may begin.

Good afternoon, everyone. Thank you for joining Forian's second quarter earnings call. I will provide an overview of Forian's strong second quarter performance, highlighting year-over-year growth, margin improvement and a strategic process driven by the Kyber Data Science acquisition. I will also discuss the company's expanding data capabilities, product innovation, and an update on meeting full year 2025 guidance. Forian's second quarter reflected continued strength across the organization as we achieved results that were consistent with our full year outlook. Relative to internal expectations, we are pleased with the state of our financial performance as we head into the second half of the year. Forian delivers complex healthcare information products and services by integrating one of the industry's largest longitudinal patient-level data sets sourced from a growing network of claims, electronic health records, lab results, and other real-world data streams. We use proprietary data ingestion pipelines to unify disparate multiformat data sets into the Chronos Data Lake, which tracks patient journeys for hundreds of millions of de-identified individuals. In the second quarter, we continued to see growth in delivering information products with highlights in areas such as health economics and outcomes research for life-saving therapies and the Kyber Data Science platform, which delivers alpha-generating insights for financial services clients. We have a high degree of visibility into second half performance based on the mix of contracted backlog and renewals in our pipeline, which gives us confidence in our full year growth expectations. Generally, across our customer groups, our conversations continue to reflect a mixed spending environment in our healthcare and financial services end markets. While pharmaceutical companies remain cautious, driven by a rapidly changing geopolitical and macroeconomic environment, the need for analytic-ready real-world data and longitudinal information remains to help measure effectiveness, safety, and value as well as to better understand their respective competitive markets. Similar to the first quarter, Forian's revenue growth was highlighted by key new pharmaceutical projects and analytical renewals as well as incorporating the full quarter of Kyber Data Science's financials. Forian generated second quarter revenue of $7.5 million, which represented 56% year-over-year growth. Our net income for the quarter was $224,000 and our adjusted EBITDA was $591,000, which compares to a loss of $2.5 million and a positive $78,000 year-over-year, respectively. The improvement in expenses and margin profile were primarily driven by the realization of cost optimizations and the impact of the Kyber acquisition. These improvements in expenses show the leverage in our financial model. However, we intend to continue to enter into more strategic long-term data contracts and to make investments in enhancing our product portfolio and extending sales into new healthcare-related verticals that may impact temporarily our margin profile. In the second quarter, we expanded our data coverage by securing new supply contracts and accelerating integrations with diverse clinical data sources, an initiative fast-tracked by the market disruptions of 2024. These long-term integrations, combined with our advanced proprietary data models, position us to deliver analytics-ready solutions that meet the evolving need of our clients. We believe we are able to contract, ingest, and produce differentiated information products quicker, more accurately, and cost-effectively than our competition. When ingesting new healthcare data feeds, we are experts in the normalization and cleansing that is essential to ensure the data is consistent, accurate, and usable across multiple models. As a reminder, normalization involves standardizing code sets, formats, and identifiers so that diagnosis, procedures, drugs, and facilities are mapped to common reference standards like the ICD-10, CPT, HCPCS, or NDC. This process also aligns provider and facility identifiers using entity resolution and reference databases to create unified profiles for accurate attribution. The Forian team focuses on correcting errors, filling in missing fields, removing duplicates, and harmonizing payer-specific formats, ensuring that only the final and most relevant claim versions are retained. Both processes include compliance measures such as de-identifying patient information while maintaining linkage keys for longitudinal analysis. Together, the normalization and cleansing work within the data factory transforms messy, inconsistent files into analytic-ready data sets that can be reliably linked, aggregated, and used to generate valid real-world evidence and answer some of the most complex clinical and commercial questions. We centralized this work within our data factory to enable agnostic and flexible productization, which provides Forian with the advantage in offering a wide array of data-enabled offerings. While most of our clients contract for multiyear licenses, our Chronos Data Lake and data factory enable both ongoing and project-based offerings, such as health economics and outcomes research supporting life science companies in demonstrating the value of new drugs and interventions. Through our acquisition of Kyber Data Science, we serve the financial services market with differentiated healthcare data expertise productized to meet the needs of institutional investors. Kyber offers a range of flexible solutions from platform access for advanced data science teams to SaaS products that track the key utilization metrics across pharmacy and medical channels. Its team of healthcare data specialists delivers back-tested KPIs, AI-driven insights, and predictive analytics that enable more accurate investment decisions. We see an opportunity to enhance these offerings by integrating Kyber with the Forian Data Factory and, over time, extending its advanced analytic capabilities into other TAM general markets. We are optimistic about 2025. I can reconfirm our outlook as we expect full year 2025 revenue of $28 million to $30 million, representing 39% to 49% growth year-over-year. Our adjusted EBITDA margin is expected to be in the negative $1 million to positive $1 million. Additionally, we remain committed to pursuing strategic value-enhancing acquisitions that strengthen our financial position, enhance our capital markets profile, expand our reach with pharmaceutical clients, and accelerate the commercialization of innovative products. I will now turn it over to Mike to run through the financials in detail.

Thanks, Max. Today, I will provide an overview of Forian's financial results for the quarter ended June 30, 2025. My discussion today will reference comparative results for the quarter ended June 30, 2024, unless noted otherwise. As previously noted, we completed the acquisition of Kyber Data Science on October 31, 2024. As a result, our operating results for 2025 include the operations of Kyber as of that date. The press release issued today presents Forian's financial results on a GAAP basis. As in prior quarters, we have also reported adjusted EBITDA, which management uses as a measure to track the performance of the business. As noted, the press release and these presentation materials include a detailed reconciliation of adjusted EBITDA to net income or loss. Our consolidated revenues of $7.5 million were up $2.7 million or 56% compared to the same quarter last year. The impact of the Kyber acquisition contributed approximately $1.9 million or 39% to the growth, with the remaining increase resulting from organic growth in our life sciences data business. Operating income was approximately $50,000 compared to a loss of $3 million in the same quarter last year. The increase in operating income was primarily due to the aforementioned higher revenues and lower stock-based compensation, partially offset by higher expenses related to the inclusion of Kyber operations and increased data costs. Net other income decreased $0.1 million from the prior year from $0.4 million to $0.3 million due to lower interest income and expense resulting from the utilization of our cash and marketable securities balance to retire convertible notes in 2024. During 2024, we retired $17 million in principal value of our convertible notes, which were due in September 2025 for a gain, resulting in a lower interest-bearing cash and marketable securities balance in the current year. Adjusted EBITDA, which excludes stock-based compensation, depreciation, amortization, costs related to litigation, and certain other nonrecurring items, was $0.6 million compared to $0.1 million in the same quarter last year. The increase in adjusted EBITDA resulted primarily from the higher revenues and incremental expenses related to the inclusion of Kyber and higher data costs noted above. As noted earlier, a reconciliation of our net income or loss to adjusted EBITDA, along with an explanation of the reconciling items, is included in today's earnings release. Now turning to our balance sheet. We ended the period with $35.6 million of cash and marketable securities and $6.8 million in convertible notes and accrued interest maturing in September 2025. After the planned maturity of the remaining notes next month, we will continue to maintain adequate capital to operate our business and capitalize on incremental growth opportunities as they arise. Reviewing our financial outlook, we ended 2024 with revenues of $20.2 million and adjusted EBITDA of $0.5 million. Our outlook for 2025 is for revenue of $28 million to $30 million, reflecting growth of 39% to 49% over the previous year and adjusted EBITDA between negative $1 million and positive $1 million. Now I will turn the call over to the operator, who will open the line for questions.

We have a question from Richard Baldry with ROTH Capital.

Congrats on the good organic growth. Can you talk about what in the second half will really be the driver of the delta between whether you hit the top or the bottom line of the guidance that you've got? Is it ramping existing contracts that you have some visibility into or newer wins? Or is there some go-get on things that are in the pipeline that still have to close?

Sure. Thank you, Richard. With the Kyber acquisition, the typical contract is an annual license versus the multiyear contract that we had previously with the life science part of the business. So we have a good portion of renewals that come in the back half of the year, and that has a large impact on hitting the guidance range. We feel confident, but we still have to hit those renewals.

Got it. Can you talk a little bit about the acquisition environment, what you're seeing out there in terms of pipeline you have to look at, realism on the sides of the sellers, valuations, just so we get an idea because even after you pay down the converts, there's still a pretty significant cash balance left, right?

Yes, we're noticing that valuations have decreased from the highs we experienced about a year ago, particularly in the high-growth equity or venture-backed sectors. Many companies that initially invested in AI have adjusted their expectations, except for the leading firms. This situation has created opportunities in the smaller market that align well with our company's size. In terms of public valuations, there's a mix; many relatively small merger or acquisition candidates still have premiums over our valuation, which may be specific to our stock's volume economics. However, we observe a greater openness among companies to explore various strategic discussions. We are actively evaluating both opportunities to pursue something that could enhance our position. This remains a key focus for management as we continuously seek out the right partners or acquisition targets to effectively utilize our cash.

And last for maybe moving back to the organic growth side of the table. Can you talk about sort of where the strengths were there that drove that number? How sustainable or extensible you view that in the second half and longer term out to '26 and beyond?

Sure. I mentioned a couple of things in my prepared remarks, our health economics outcomes research studies have really been a strong point for Forian. We have been able to repeatedly show that we are experts in putting together these services for the high-value areas of life sciences and pharma in particular. So we see that pipeline as growing and a high win rate, and we expect that to be one of the primary growth indicators going into 2026. Outside of that, the Kyber Data Science has been growing as we hoped it would into the financial service markets where complex questions for our hedge funds are really getting answered with really accurate models and offerings from that division. So those two areas are really leading our organic growth.

Maybe one more for me. Your second half guidance implies sort of stable top line and you just posted a pretty good adjusted EBITDA number. So sort of similar to my revenue question to start, what would be the delta between a positive $1 million versus the negative? Is it really sort of discretionary spend on strategic initiatives? Or is it whether the revenue comes in at the upper or lower end?

Yes. It's both. Obviously, we have strong incremental margins. But from the bottom line, if we decide to invest in more data assets, or to invest in tangential businesses that I believe can generate more revenue, the cost profile might hit the back half of this year where the revenue might be following. So that's really the largest impacts on cost. Revenue is really tied to your previous question, where if we can get the renewals as expected and hit our kind of historical go get, we should be at the top end of the range.

Can you discuss the internal cost aspect of your data engine in relation to the work you're doing? Are you experiencing a notable improvement in productivity through new AI technologies, similar to what other companies are reporting, particularly regarding your engineering costs? Over the medium to long term, how significantly do you believe this could affect your cost of goods sold or the speed at which you can develop new offerings?

Happy to. We're currently investigating that. It is closer to our R&D line than our COGS. Our engineering using new AI agents or tools that will make them be more efficient is something that we believe all technology companies will need to embrace. I think the scrutiny of dealing with the large data that we deal with and the sensitivity around HIPAA and other areas that we really excel in has been a limiting factor in just adopting more experimental AI engines on the ingestion side. Though we do constantly look at it and do believe that we can get more output per employee using the right AI support. And then on the delivery and product side, we do see AI as being part of offerings going forward. Our first step of that is in the Kyber offering that is highly predictive using AI that cannot be matched by normal machine learning. So we're very excited for that to be our first touch into it, but it's still a small percentage of our total offering.

And this concludes our Q&A session and program for today. Thank you all for participating. You may now disconnect.