Earnings Call Transcript - FORA Q3 2023

Operator, Operator

Greetings, and welcome to Forian Inc.'s third quarter 2023 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 would like to remind you that management's remarks today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly from those indicated by these forward-looking statements due to various key factors, including those discussed in the Risk Factors section of the company's annual report on Form 10-K for the year ending December 31, 2022, filed with the SEC on March 30, 2023. Accurately estimating financial performance for the future is challenging, as it relies on assumptions and internal estimates that may turn out to be incorrect and is based on plans and conditions that could change. Thus, there is a considerable risk that actual outcomes could differ substantially from the projections shared today. Any forward-looking statements made during the call reflect the company's views as of this date, and the company does not commit to update them except as legally required. Terms such as estimate, projected, expect, anticipate, forecast, plan, intend, believe, seek, may, will, should, future, propose, and their variations are meant to identify forward-looking statements. These statements encompass, but are not limited to, comments about future growth, anticipated performance, and prospects. Today's presenters will also mention certain non-GAAP financial measures during our call, such as adjusted EBITDA, which the company believes may be significant for investors in evaluating its operating performance and should be viewed as a supplement to, rather than a replacement for, financial metrics prepared according to GAAP. A reconciliation of the relevant GAAP metric is available in today's press release and webcast, both of which can be found on the company's website. Those figures are unaudited, and any statements concerning the company's anticipated performance may change, including due to risks outlined in the Risk Factors section of the company's annual report on Form 10-K filed with the SEC on March 30, 2023. Today's call and webcast are being recorded. A copy of the recording and the full transcript, along with today's press release and SEC filings, will be accessible at Forian.com/investors. I am now pleased to introduce the company's Executive Chairman and Chief Executive Officer, Max Wygod. You may proceed.

Max Wygod, Executive Chairman and CEO

Thank you for joining us for Forian's third quarter earnings call this afternoon. We're pleased to report strong third-quarter performance. Our results reflect the operating scalability and strength of our young business and our success in improving our positive contribution to our clients as the healthcare landscape continues to evolve towards greater dependence on timely Healthcare Information Solutions. Stakeholders' access to comprehensive longitudinal healthcare information to drive insights built to improve health outcomes and business performance is more imperative than ever. In my prepared comments this afternoon, I have focused on two key themes that reflect the value we're delivering today and are poised to deliver in the years ahead. First, our third-quarter results strengthen an already solid balance sheet that distinguishes us across the industry and especially from other early-stage companies. Second, Forian is becoming synonymous with a trusted healthcare information partner. We are taking additional concrete steps to further differentiate our business and offerings by onboarding complementary and unique new data assets while developing analytics that deliver mission-critical value to our clients. Let's begin with third-quarter results. On the top line, our consolidated revenue grew 24% on a year-over-year basis in the third quarter to $5.3 million, and as a result of our continued efforts to drive margin improvements, our net income and consolidated adjusted EBITDA of $4.3 million and $755,000 respectively continued to improve. The improvement in our adjusted EBITDA margins was driven by a combination of strong leverage over the cost structure, improved efficiency, and a contribution from recurring contracts, which we believe demonstrates the scalability that is inherent in the business model. Additionally, and as previously reported, a customer of Forian in which we hold an equity interest was acquired during the quarter. As a result, Forian received approximately $5.8 million of cash proceeds in consideration for our equity interest in the customer, with the potential for incremental proceeds as Mike will detail. These payments are in addition to the guaranteed payments we received monthly from the February sale of BioTrack, as previously discussed. The combination of positive adjusted EBITDA and the strategic access has improved our balance sheet. We find ourselves in an advantageous position where our cash position differentiates us from other companies that are struggling to generate a profit or raise additional funds in their currently challenged growth, equity, and capital markets. Furthermore, we repurchased $1 million of outstanding convertible notes during the quarter and repurchased 1.6 million shares of Forian common stock directly following the quarter, each pursuant to separate privately negotiated transactions that we believe to be in the best interest of our shareholders. We will continue to evaluate these types of transactions as opportunities arise. We will also evaluate other accretive and strategic uses of capital, including M&A as valuation expectations align with the market realities. In the third quarter, we saw strength across key offerings in customer types. We recorded strategic new wins across a variety of different types of clients and are happy to report that we see increased momentum within the large pharmaceutical manufacturer segment. While we don't comment on specifics of our customer contracts, we expect to see that trend continue in the fourth quarter and into 2024, and to convert these opportunities into long-term partnerships across this segment. We expect to continue to differentiate Forian from our competition through the breadth of our data science-based offerings, leading healthcare expertise, and engaging customer service. We believe there is a large market opportunity for Forian to provide and enable key insights on what is really happening in the healthcare market today, and we plan to continue to disrupt certain segments and to win business from larger competitors. These developments tie well with my second point regarding the steps we are taking to further differentiate ourselves as a trusted partner. Forian is continuing to cost-effectively add breadth and scale to our unique integrated data factory. We have reported previously on our ever-growing HIPAA-compliant longitudinal data lake, which today includes approximately 330 million patients with history dating back to 2015. Last week, we completed our license of a new unique closed network database containing approximately 51 million additional closed network covered lives added to the existing 85 million closed network covered lives we currently license. This combination of closed claims data is among the largest closed network claims data assets in the US, with the data fully integrated with 330 million patients within our Chronos platform. In addition, further to a license we completed during the third quarter, in the upcoming months, we will add a large source of laboratory results data containing lab results for tens of millions of individuals. Collectively, these new data assets further differentiate our offerings and will lead to the development of unique information solutions in the coming quarters. The Forian data factory has been designed to ingest, normalize, anonymize and enable analytic ready information with greater quality and efficiency than our competition. In conclusion, it was a productive and efficient third quarter where we delivered solid results and added assets to further strengthen Forian's long-term business. Despite operating in the same challenging macroeconomic sales environment as previously reported, while we believe the headwinds are temporary, we expect 2023 revenues to be within the previously issued guidance range of $20.5 million to $22.5 million. I'm proud of our team in achieving these results. I will now hand it over to Mike to go over our financial results in more detail.

Mike Vesey, CFO

Thanks, Max. Today, I will provide an overview of Forian's financial results for the quarter ended September 30, 2023. As previously disclosed in our SEC filings, Forian completed the disposition of BioTrack on February 10, 2023. Through this transaction and the previous dispositions of our Engeni and Security Grade businesses, Forian no longer provides software solutions to the cannabis industry, representing a strategic shift, which has a significant impact on operations. Accordingly, we have accounted for the operations of the disposed businesses as a discontinued operation effective with our first quarter in 2023 and have reclassified previously reported operating results on a consistent basis. My discussion today will reference comparative results for our continuing operations for the quarter ended September 30, 2023, unless noted otherwise. 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 $5.3 million for the quarter were up $1 million or 24% compared to the same quarter last year. The growth in revenue over the same quarter of last year was driven by both new customers and increased revenues from our existing relationships. As a reminder, the majority of our information contracts provide for continuing information deliverables to our customers over a multiyear period, providing a predictable recurring revenue stream on a going-forward basis. Net income from continuing operations for the quarter increased $8.4 million from the same quarter last year to $5.4 million. The increase in net income was primarily driven by a $5.8 million gain on sale of investment and a decrease in loss from continuing operations of $2 million, which was partially offset by changes in other income items such as interest and income taxes. The improvement in loss from continuing operations resulted from the $1 million of revenue growth discussed above and a $1 million reduction in costs and expenses. The decrease in cost and expenses was primarily due to lower G&A and research and development expenses resulting from the streamlining of our operations after the divestiture of BioTrack. The gain on sale of investment related to a minority interest we held in one of our customers. The investment was sold for net proceeds of $5.8 million, which was recognized as a gain this period. We may receive up to $3.6 million in additional earn-out payments in 2025 and 2026 if certain conditions are met. Adjusted EBITDA from continuing operations, which excludes stock-based compensation, depreciation, amortization, and certain other nonrecurring items, was positive $800,000 compared to negative $1.2 million in the same quarter last year, again demonstrating the operating leverage in our streamlined business. While we intend to make incremental investments in our information infrastructure to enhance and expand our product offerings, we also expect our capital-efficient business model to allow us to continue to leverage those investments with a lower level of expense growth relative to revenue over the long term. 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. Turning to our balance sheet, we ended the period with $49 million of cash and marketable securities and $24.7 million in convertible notes and accrued interest with no maturities prior to September 2025. As Max previously noted, we redeemed approximately $1 million of our convertible notes during the quarter at a discount to face value and repurchased approximately $3.6 million of our common stock in a private transaction with an investor in October 2023. With the improvements in our operating cash flow achieved in 2023, cash proceeds received from the sale of BioTrack, and to make minority investments, we feel we are well-positioned to capitalize on incremental growth opportunities as they arise. Our healthcare information revenues were $16.4 million in 2022. We expect 2023 revenues to be within the previously issued guidance range of $20.5 million to $22.5 million, reflecting an increase in excess of 25% over the prior year healthcare information revenues. Having achieved a positive EBITDA contribution in the last two quarters, we also expect to report a positive EBITDA contribution for the year as we continue to leverage our infrastructure. And with that, I will turn the call over to the operator, who will open the line for questions.

Operator, Operator

One moment for our first question. It comes from Mark Hagen with Lake Street Capital Markets.

Mark Hagen, Analyst

Hi, thanks for taking my call. So, in June, you guys estimated you had about $17 million of remaining performance obligations over the next 12 months. Have you given any update or is there any color around how that looked at the end of the quarter?

Mike Vesey, CFO

Yeah, hey, this is Mike. Yeah, firm subrogation stayed about the same as they were in the previous quarter.

Mark Hagen, Analyst

Got you. Have you experienced any new attrition due to customer acquisitions? I know that's something you have to work through.

Max Wygod, Executive Chairman and CEO

This is Max. There hasn't been any notification of new clients, but the notice that we were notified last quarter takes place several months later. So we see that impact starting in Q1 of '24, but there's no new terminations due to that.

Mark Hagen, Analyst

Got you. That's all I had, thank you guys.

Max Wygod, Executive Chairman and CEO

Thank you.

Operator, Operator

Thank you. I don't see any further questions in the queue, sir.

Max Wygod, Executive Chairman and CEO

Great. Thank you, everybody. That concludes the earnings call today. Take care.

Operator, Operator

Thank you, everyone. You may now disconnect. Thank you for joining.