CareCloud, Inc. (CCLD) on Q1 2022 Results - Earnings Call Transcript
Operator: Greetings, and welcome to CareCloud Inc. First Quarter 2022 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kim Blanche, General Counsel. Thank you, and over to you.
Kimberly Blanche: Good morning, everyone. Welcome to the CareCloud's First Quarter 2022 Conference Call. On today's call are Mahmud Haq, our Founder and Executive Chairman; Hadi Chaudhry, our Chief Executive Officer; President and a Director; Bill Korn, our Chief Financial Officer; and Karl Johnson, President of CareCloud Force. 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, estimates 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 2022 earnings presentation, please visit our Investor Relations site, ir.carecloud.com; roll down to News and Events, click on First Quarter 2022 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 2022 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?
Hadi Chaudhry: Thank you, Kim. Welcome, and thank you for joining us today to review our first quarter earnings call. First, to review our first quarter 2022 financial highlights. Revenue of $35.3 million was a record for the first quarter coming in slightly ahead of expectations and represented an increase of 19% year-over-year. Adjusted EBITDA of $4.7 million is tracking towards the full year guidance that we had presented in March when we offered our initial outlook. Adjusted net income was $3.5 million or $0.23 per share. On the call today, I would like to discuss a few key themes as we continue to advance CareCloud's mission of becoming the leading technology and solution supplier to health care providers. Namely, I'm going to discuss number one, innovation, specifically some of our new products that are forging new and adjacent markets; number two, cross-sell success via further white space penetration; number three, the health of our sales pipeline; and number four, partnering characteristics of our successful force initiative. To start us off, I want to highlight 2 more of our recently launched digital health solutions, CareCloud Remote and our chronic care management solution branded as CareCloud Wellness. Launched last month, CareCloud Remote gives us an Uber-like mobile clinician management solution with location services, allowing better scheduling for both clinicians and patients. The product is targeted to the home health market and extends our footprint beyond the clinic to the last mile of the health care, the home. The solution helps practice groups to streamline referral management, improve staff assignment for home case management and gives administrators and clinicians visibility and control over operational metrics. Our target market for this offering is the larger practice. At this level of scale, the complexities around credentialing, coding and revenue cycle require a disciplined approach to referral generation and management for which CareCloud Remote is ideally suited. CareCloud Wellness was launched recently to address the needs of our core primary care providers by supporting the treatment and care of their chronically ill patients. The Center for Medicare and Medicaid Services, CMS, through its chronic care management program has increased reimbursement for Chronic Care effectively incentivizing providers to improve connectivity with care coordination and treatment of their chronically ill patients. CareCloud Wellness is a software-enabled service that extends care to high-risk patients with multiple chronic conditions. Through their providers, patients enrolled in Wellness, receive regular communication from a team of dedicated practitioners and care managers. Care managers work in partnership with the provider to coordinate care plans that consider a holistic approach to chronic care management, inclusive of nutrition, medication and lifestyle management. We believe the solution has great appeal to the provider as there is no upfront investment to use the service. In fact, providers can drive revenue to their practice through the use of services, including e-prescribing and chart review. Our target market represents approximately 50% of the clients that are using our core solution. We believe that if half of our eligible practices use Wellness, we have the potential to generate in the millions of dollars of revenue long term. I'm incredibly pleased that 75+ customers have already expressed interest in Wellness in just the first week since the launch. We believe both Wellness and remote represents a thoughtful approach to the cutting-edge innovation that our customers have come to expect from CareCloud. Next, I would like to briefly touch on our Force partnership. As we have discussed in the past, relating to our Force program, the initiative is a powerful example of CareCloud striking mutually beneficial agreements with potential partners instead of acquiring them. As 1 example, we are working with a large national provider of revenue cycle and EHR services, augmenting their workforce and performing a series of back-office tasks, leveraging both our onshore and offshore capabilities. This relationship started off small and has increased in size and scope as a result of the quality and results we have been able to demonstrate. Since launching Force 2 years ago, the program still contributes only a small amount of revenue at this time but has enormous potential. As we are just scratching the surface here, our Force pipeline has increased exponentially, as I will explain shortly, consistent with our 3-pronged strategy of organic growth, acquire and partner, we continue to evaluate additional partnerships on an ongoing basis that would either be a strategic fit with our core business or have the potential to force new markets. As you know, we acquired medSR last year, in part to augment our capabilities in consulting and project management while creating meaningful opportunities to cross-sell our technology and RCM services. One example of our cross-sell success since acquiring medSR that I would like to share is the work we are doing for a multi-location behavioral health system in the Mid-Atlantic. medSR was initially contracted to provide consulting services for a new EMR implementation. They didn't hire us to work down the legacy accounts receivables remaining from the old system. Given our results there, the client hired us for full outsourcing of their entire billing system. So what started as a 6-month consulting assignment evolved into 100% RCM services engagement, leveraging multiple services. We are pleased with the early results of medSR and look forward to talking more about future successes. The final topic I would like to cover is the health of our sales pipeline. As we discussed in our fourth quarter earnings call, we are excited about the many solutions in our portfolio, which we have amassed both through acquisition and internal development that can move the needle for our customers. Things like telemedicine and automated tools to support the check-in process and improve patient experience to name just a few. We stated last quarter that we intend to increase sales and marketing spend by 20% to 25% to execute on the growth opportunity that our platforms present. As such, I'm pleased to report that for the first quarter, our incremental sales pipeline is up nearly 50% year-over-year to $22 million and that level of interest in our products is exceeding pre-pandemic levels. Our total pipeline stood at approximately $40 million at quarter end. Taking a more granular look, not only was our pipeline up meaningfully year-over-year, it accelerated as the quarter progressed. Namely, we increased the pipeline by $4.6 million in January and by $11.2 million in March, an increase of 142%. I'm pleased that these positive dynamics have followed through in the second quarter as well, accentuated by our new product releases. A closer look into the composition of our pipeline reveals that enterprise accounts, which we define as 25 or more providers represented 36% of the pipeline improvement in Q1 of 2021 and increase to 50% as of the latest quarter. Conversely, small group, which we define as 1:5 providers was about 35% of the pipeline creation in the year-ago quarter and declined to 28% in Q1 2022. This shift is deliberate and represents a pivot towards larger enterprise deals. Full-service technology-enabled solutions remain the largest component of the pipeline increase, increasing from 30% in Q1 of 2021 to 55% this quarter. And a little more color around Force. Force represented just 2% of the pipeline growth in the year-ago quarter and accelerated to 10% this quarter, representing a fivefold increase year-over-year. We realized that the pipeline is just that a probability-weighted set of opportunities in various stages and that there is work to do to bring these deals to completion. But given the exponential increase in deal activity and positive early read-through the first quarter, we have confidence in achieving our 2022 targets and a high degree of optimism regarding our emerging organic growth opportunities. To conclude my prepared remarks, we are pleased to report a solid start to the year by exceeding our revenue expectations and tracking toward our full year outlook for both revenue and EBITDA. We released 2 new digital health solutions to the market to improve practice efficiency and drive revenue that is getting strong reception from our customers. Our sales and marketing efforts are ramping up as planned, demonstrated by the improvement in our pipeline and nearly evident of cross-sell success. On the acquisition front, we continue to execute against a robust pipeline of both small and large potential acquisitions. We look forward to keeping you posted on our progress throughout the year. At this time, I will turn the call over to Bill for a closer look at our first quarter results. Bill?
Bill Korn: Thank you, Hadi. And thank you, everyone, for joining the call today and for your interest in the CareCloud story. I believe that we are off to a great start for 2022 and our first quarter results demonstrate that our solution set is meeting the needs of the market today. On today's call, I'm going to review our first quarter financial results and reiterate our 2022 outlook. For the first quarter, we generated revenue of $35.3 million, which increased 19% compared to a year ago. Taking a closer look, revenue from our technology-enabled solutions represented 85% of total revenue and consisted of 48% from clients using our core technology suite of electronic health records or practice management solutions, 15% from clients using 1 or more components of our technology like our business intelligence software and 22% from clients where we are providing IT services, utilizing our technology processes and know-how. Our remaining revenue is derived from 4% from clients using just revenue cycle management services, 9% from managing several clients' entire medical practices and the other 2% from other services. All of these breakouts can be found in our 10-Q. Revenue growth in the quarter was driven by strong results from medSR, the company we purchased in mid-2021 to give us a larger presence in the hospital space. medSR achieved record revenue during Q1 and signed more business than the revenue they recognized, increasing their backlog and positioning themselves for additional revenue growth during Q2. GAAP net income of $1.1 million, compared very favorably to a net loss of $2 million last year, despite a $500,000 increase in sales and marketing expenses. We have now reported at least $1 million of GAAP net income for 3 quarters in a row. Non-GAAP adjusted net income of $3.5 million represented a 20% year-over-year increase. Adjusted net income was $0.23 per share. Adjusted EBITDA of $4.7 million, increased 28% compared to $3.7 million last year. Our adjusted EBITDA growth was driven primarily by our increasing revenue and reduced expenses as a percent of revenue. Our adjusted EBITDA margin increased to 13.4% compared to 12.4% a year ago. 100 basis point year-over-year improvement was a result of a decrease in our G&A and R&D expenses as a percent of sales, offset by a small increase in our sales and marketing as a percent of sales. Now turning to the balance sheet and cash flow. We ended the first quarter with $10.1 million in cash, including restricted cash and $6 million drawn on our SVB line of credit. We generated $3.1 million in cash flow from operations during the quarter and net working capital of $8.7 million. Finally, for guidance, we are reiterating our outlook at this point in the year. We continue to expect revenue to be in a range of $152 million to $155 million, which represents 10% growth at the midpoint and adjusted EBITDA to be between $24 million and $26 million, reflecting an adjusted EBITDA margin of 16.3% at the midpoint. During the quarter, we issued $26.6 million of Series B Preferred Stock and redeemed $20 million of Series A, swapping an 11% coupon for 8.75%. Our goal is to continue lowering our cost of capital, so you can expect to see further redemptions of Series A Preferred Stock in the future. Our Series A preferred is redeemable at $25 per share anytime going forward. We continue to evaluate creative approaches to retiring our Series A with a keen eye on minimizing dilution to our existing common shareholders. To wrap up, our strong first quarter results give me good confidence that we will achieve our full year goals. Additionally, we are making progress on all of our growth initiatives, setting the foundation for sustainable above-market growth. With that, I'll turn the call over to Mahmud for his closing remarks.
Mahmud Haq: Thank you, Bill. I am thrilled that our year is off to such a great start, setting us up for another strong year. I would like to thank our customers, shareholders, and all our associates for their trust, loyalty and support of CareCloud's mission. We will now open the call to questions. Operator?
Operator: [Operator Instructions]. The first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.
Operator: The next question comes from the line of Allen Klee with Maxim Group.
Operator: The next question comes from the line of Marc Wiesenberger with B. Riley.
Operator: [Operator Instructions]. The next question comes from the line of Richard Baldry with ROTH Capital Partners.
Operator: The next question comes from the line of Bill Sutherland with Benchmark.
Operator: Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. And I would like to turn the call back to Kim Blanche for closing remarks.
Kimberly Blanche: Thank you to everyone who's joined us today. We appreciate your participation and your interest in us as a company. We look forward to speaking with you again next quarter. Thank you all, and have a great day.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
