Welcome to the CareCloud, Inc. Second Quarter 2021 Results Conference Call. Please note this event is being recorded. At this time, I’d like to turn the conference over to Ms. Kim Blanche, CareCloud's General Counsel. Ms. Blanche, the floor is yours..

Thank you. Good morning, everyone and welcome to the CareCloud's second quarter 2021 conference call. On today's call are Mahmud Haq, our Founder and Executive Chairman; A. Hadi Chaudhry, our Chief Executive Officer, President and the Director; Bill Korn, our Chief Financial Officer, Stephen Snyder, our Chief Strategy Officer and the Director, Carl Johnson, our Chief Growth Officer and Jerry Howell, CEO of MedMatica. 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 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 second quarter 2021 earnings presentation. Please visit our Investor Relations site at ir.carecloud.com, click on Events, 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 2021 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 CEO. Hadi Chaudhry. Hadi?

Thank you, Kim, and thank you everyone for joining us on our second quarter 2021 earnings call. 2021 is shaping to be a breakout year for CareCloud. I'm pleased to report not just a strong quarter, but a record breaking revenue quarter. As a team, we are thrilled about this continued momentum and I feel great about what we have accomplished so far this year. As we charged ahead onto the back half of 2021, I'm happy to report that we are raising over fully at outlook, as we continue to integrate and cross sell over acquired assets and drive increasing levels of organic growth. The team remained focused on delivering leaning technology, enabled business solutions to medical practices and health systems nationwide. This mission is incredibly important as we empower the more than 40,000 providers reserve while they focus on delivering excellent care to patients across virtually all communities in the country. This ability to deliver comprehensive end-to-end solutions necessary for our customers and prospects to thrive in today's healthcare environment continues to be a highly differentiated strand. It is remarkably rewarding to us to work with such a cross section of our healthcare system, whether we are enabling a three doctor medical group in your neighborhood to run their businesses more effectively, partnering with a health system, to auto-mate mundane and repetitive tasks or working with complex enterprise groups in deploying other full suite of products and services. The responsibility we are entrusted with to deploy over software solutions to these incredible healthcare organizations, including our certified electronic health records products, our patient experience management platform and a host of other software applications is what fuels us to continue to innovate on their behalf in terms of continuous growth. We are pleased to see this coming from a…

Thank you, Holly. Second quarter of 2021 was another quarter of exceptional growth for care. Cloud revenue was a record $34.1 million and increase the $14.5 million or 74% from the second quarter of 2020 and 6% above our previous all time high. Our average, our annual revenue run rate is now $136 million, which is 29% above our 2020 revenue and 111% above our 2019 revenue. This is proof that our strategy of growing through a combination of organic growth and acquisitions continues to propel our growth to a level significantly faster than the industry. As a, our second quarter, 2021 gap net loss was $227,000 as compared to a net loss of $4.8 million in the same period. Last year, the 2021 net loss reflects $3.1 million of non-cash depreciation and amortization expenses. And $1.7 million of stock based compensation gap net loss was $0.27 per share based on the net loss attributable to common shareholders, which takes into account the preferred stock dividends declared during the quarter. I mentioned that our revenue grew by 74%, second quarter of 2020. Our total operating expenses grew at a much lower rate, 41% year over year, enabling us to reduce our net loss by 95% from second quarter 2020, the second quarter 2021, our non-gap adjusted net income for second quarter of 2021 was $4.5 million or $0.31 per share calculated using the end of period. Common shares outstanding by nine gap adjusted diluted net income per share is $0.26 using ends of period shares outstanding plus common shares issuable upon exercise of in the money warrants, investing of outstanding restricted stock units. Our adjusted EBITDA for second quarter 2021 was $5.7 million or 17% of revenue compared with $191,000 in the same period. Last year, our adjusted EBITDA increased…

Thank you, Bill. It truly is a pleasure to see how we continue to evolve and provide leading technology enabled business solutions to healthcare organizations across the country. There is no question in my mind that this will be yet another record breaking year for growth and profitability. I would like to thank our investors, customers, and employees for their continued support. We will now open the call to questions. Operator?

Our first question comes from Jeffrey Cohen with Ladenburg Thalmann.

Good morning. Mahmud, Hardy, Bill and Kim. How are you?

Good morning, Jeff. Good. Thank you.

So just a couple from me at the moment. So could you talk a little bit about the commercial organization and the sales force and talk a little bit about some of the pipeline that we should expect out there, how you're looking at it and where maybe coming from as far as your multiple channels for the quarter and forward. Thank you.

Sure. Thank you, Jeff. Thank you for the question. And I can give some color and then I'll have Karl jump in for some more details. We continue to believe and in the first half of this year we see a steady sales to up-sell and cross-sell activities. The key areas like always have included coming from RCM services to RCM to SaaS lines and incorporating BI with these RCM deals. We are still building the team further, as you mentioned, this is still a new endeavor for us. We started investing more and more in the last year and this star acquisition, this was primarily as we have explained this earlier as more strategic acquisition and the whole idea behind this was a foot in the door and opportunity or leverage the connections that they have established with the different health systems. So with that we are very excited and optimistic about the upcoming opportunities in that space. I think we are tracking very well in building team and the pipeline while we don't specifically on the granular basis, quarter to quarter talk about the numbers and in terms of the booking but based on where we are today, we believe for the full year, we will be able to increase our overall sales booking over the last year. We don't think it's unrealistic as we have mentioned earlier for us to be closing by the fourth quarter at a rate of twice the average of Q4 2020, and some of the notable ones, the new logos include a large software company that is using force to perform AR services. And it's for over 100 FTEs, we will be able to be providing from the Force CareCloud's force team standpoint and also be able to partner with Springhill as we have mentioned. That's a notable one, they have about 35 skilled nursing home and assisted living facilities and there many others new logos that we have been able to partner with. Karl Johnson, would you like to add?

I would respond to that as those expectations of where we should be by Q4 are firmly being supported by the growth in the pipeline. We've seen a very significant growth in our pipeline or opportunities, people that we're in discussions with. We've been working very hard with the sales team. We made that big investment last year and early this year in increasing the size of the sales team, they've been working very hard on cross selling services. So what I mean by that is in addition to just selling revenue cycle services or software services. Now we have the ability to add in credentialing services, coating services, robotic process automation staff augmentation, and the like, so really there's strong reasons for why we think that that sales goal is achievable. Thank you.

Got it. Would you say that in a non M&A environment which is pretty short for you, are you seeing the additional revenue coming from a bolt on and add on services and utilization? Or are you seeing the increase coming from a purely new accounts or what might be the combination there?

It's actually a combination of the two. So what we're seeing is we're seeing new logos that are coming on board, they're using a broader range of our services than they may have in the past. And we're also seeing up-sells to existing clients adding in services.

Okay. Got it. And then lastly, for me, any specific specialties to call out that you're seeing some traction in, or some more significant uptake in out there.

I think that with the acquisition of med Sr we're looking at larger multi-specialty hospital groups, but we've also had very good traction in a number of specialties to simplify it, typically looking at specialties with larger average revenue per claim, like orthopedics versus pediatrics. So we're really pushing hard on those specialties that generate more revenue for us as a company, and that, that have complexity in their, their needs where we come in and make a good fit. Is that included any ARC's today? Tangentially, yes.

Perfect. That does it for us. Thanks for taking the questions. Thank you.

Our next question comes from Richard Baldry with ROTH Capital.

Thanks. Could you maybe discuss sort of very broadly how normalized you feel the operating environment is with regard to COVID and may from a few different angles either, you know, patient volumes you're seeing, coming through how much back to normal that looks sort of the M&A environment, are you seeing people start to feel like they're getting their own businesses back in, which makes them more willing to consider?

Looking at an M&A with their operations, not so much under distress, let's say any other aspects, just so we can sort of feel like how normal this quarter felt.

Great. And thank you, Richard. Good. Very good question. So the, let me just try to answer in a few, in a couple of different ways in terms of the patient volumes. So what we are looking at it's almost back to the pre COVID levels. The, the mix might be a little different when I say mix we, we see a more and more trend towards the utilization of the telehealth services, but for us from the -- when we look at pre COVID during COVID and post COVID, now it's back to the normal, almost close to the close to where it should be with a slightly different mix and out of court, just in terms of some other talking about the telehealth we conducted an another survey earlier or later in the last year from the telehealth standpoint. And we questioned dozens of customers across our organization. So this is the participants who responded about 11% mentioned that their practice reported frequent to occasionally telehealth use during COVID. That number went up to for the same population. It was about 93% of the practices reported frequent to occasional telehealth use. And after COVID, that number is at 63%, so we can see, and even then the same thing speaks to when we actually look at it from the overall organization's telehealth numbers before COVID, then we have shared these numbers before the telehealth was 1% of one 10th of the overall appointments. And that number went up to somewhere around 25 to 30% range of the total appointments during the pandemic and post pandemic. We are tracking at somewhere around seven, 8% range. So that's from that perspective there is another survey conducted in terms of, from the do their thing that will, they will be able to survive as a medical practice organization, except for one who said they are thinking about shutting it down, either all of them are completely open or back to normal, and this is also even better. When you get a chance you can access the other practice polls survey results from the CareCloud website as well. And then would you like to add some, sorry, Richard, Steve wants to add some color.

Sure, sure. I'd be happy to. Thanks for the question, Richard, maybe just addressing the M&A part of your question, and I think as you alluded to it, the reality is with regard to COVID, COVID-related factors have certainly added some prophylaxis to valuations. Of course that's been seen across most industries and segments of the market, including valuations within our space. Likewise, if we think about the types of companies that historically have been the targets of our acquisitions strategy, many of those companies could be classified characterized as distress companies. And for those companies, some of the governmental relief together with some of the extended credit terms from lenders and also increased grace from landlords in like have enabled some of the investors in distress companies to the never inevitable exits. But I think as your question really alluded to, we really see this, these trends normalizing as we move forward. And of course, if you're an investor in a company funny that has within the financial statements that has, there is some element of a decline in revenues or profitability has been negatively impacted by COVID related factors. And if you feel like you've turned the corner and things are progressing and turning in the right direction as a seller, if you have the ability, you probably would rather wait until you have a couple of quarters, at least of proof in your financial statements that you really turned the corner and you're back to steady state. So our belief is that for many of the companies who have the ability to hold on a little bit longer until they have the proof in the pudding, as it were in the financial statements, many of them will having said that again, for many of the distress types of companies that we really focus on there may still be opportunities.

Okay, then to follow up. If I looked into the OpEx side, the sales and marketing stepped up pretty significantly in the quarter and year over year, it's grown pretty strongly. How do you see that continuing to trend into the second half? How much more of a scale up, or change in percent allocation there and then sort of tied to that the, the R&D actually went down, which I might not have expected. No. Where do you see that trending sort of near-term long-term thanks.

So thanks, Richard. So in terms of sales and marketing, we as we've mentioned, we are continuing to put more emphasis on this. We do intend to continue increasing our investment in sales and marketing. And, and frankly, you know, we've told the sales team, there's no finite budget for what you can spend, as long as you continue to deliver results where you, where you sign up to dollars of new business, a new annual recurring revenue for every dollar that's invested, keep adding people, keep thinking about more innovative ways to grow the business. And so we'll continue to do that. So, I would anticipate that you'll see sales and marketing continue to increase as we move forward in the in the rest of the year. And frankly, Heidi mentioned the idea that we're that we're going to be growing our bookings dramatically from where they were in 2020. Well, the only way you do that is you need to be making more increased investments. So we'll continue to do that in, in terms of R&D I guess there's a, there's a couple of phenomenon going on here because you know, some of the cross of R&D are people who are who are US-based onshore employees some are our off shore employees. If you think about 2020 right after we bought CareCloud, we actually had a fair number of R&D subcontractors overseas. You know, we've largely moved all that work back to our own team. But we continue to look at tasks and say, what can get done now, leveraging washer resources, more cost-effectively if we can get the same results then, and spend a few dollars less, why not do that? You know, we will continue to keep the brain trust here in the U S the architects, the product managers, the visionaries, the folks that are that are controlling the design and integrating the various technologies that we that we have, but we'll always look to you to do that as cost effectively as possible.

Thanks. Congrats on a good quarter. Thanks. Thank you.

Our next question comes from Marc Wiesenberger with B. Riley Securities.

Thank you. Good morning. I'm wondering if you could highlight some of the, the marquee customers that med works with what percentage of the business operates under any type of recurring or repeatable relationship, and also their business model is pretty different than a lot of your prior acquisitions. So I'm wondering if you could contrast the integration and cost rationalizations going forward relative to how we thought about that with other deals.

Good morning, Marc. And thank you for the question via the CEO of Medicine, Jay, Jay, over to you.

Sure. Thank you. I appreciate the call. I'm very pleased to be involved with CareCloud and merge our business in with CareCloud. So just probably the best background I can give you just the, we have, we have four primary service areas and they're around system implementation of healthcare systems and that includes clinical revenue cycle and ERP business. We support all vendors equally. Second is strategic services around it, planning, operational consulting some business intelligence and analytics. Third is it managed services whereby organizations are turning over some of their, it support to us. And then the lastly revenue cycle, we had a revenue cycle practice that now has a significantly more capabilities, but we've always been involved with operations consulting in the revenue cycle space as well. Our clients include a wide variety of academic health systems, larger health systems community hospitals, as well as some large physician groups. They include on the on the hospital side, on the system side organizations like Penn medicine in Philadelphia, NYU medical center in New York City. Some of those are two of our bigger clients. Kaleida health system in Western New York. We've got a strong group of community hospitals that we're providing primarily Meditech services to in and around the Boston area. DCH health and in Alabama is a big Meditech client of ours. So it's a pretty wide variety of organizations coast to coast that are using our services. We have moved rapidly within the last two months to integrate. I think you asked about integration and cost of delivering services. We've moved aggressively to integrate our back office systems with CareCloud corporate. So we've taken significant steps to streamline our operations and finance, human resources, payroll, and it, and that that's all gone all gone very well…

Yes it did very helpful. Thank you. I think the, the final rule associated with the, the no surprises act was recently passed, and it goes into effect in early 20, 22. I'm wondering how that could impact CareCloud, RCM business, and if you've done anything to potentially quantify potential impacts.

Okay. Thanks. Thanks for the question Marc. We are currently just reviewing the details. And I don't think we have a good material information right now to share but we can -- we will look into it and I think we have the capability to address any and all of those.

Got it. Okay. And then one final one for me, cyber crime ransomware across the health system has obviously been a big topic lately. Wondering if you talk about CareCloud, current capabilities to ensure customers are protected, and if maybe there's additional investments might be needed and potential opportunities for any new verticals in the future. Thank you.

Great question. And you're right. It's continuously been on the rise, especially on the health system side or the healthcare sector across the world. Recently over the last six months, in addition to over internal data security and the compliance team who makes sure that all the best in the industry standards and the best practices have been implemented, we contracted with another external security firm who basically monitor across the network locally and internationally, and keep on monitoring the traffic. In addition, in addition to just the conventional way of making sure that the computers and the knowledge and the other servers are protected. So if there is any abnormality, even at the network traffic level, the alerts are raised, and then they quickly jump in. So the, their approaches, basically they eliminate, if there is anything too much suspicious automatically, and if there's anything that needs to be blocked and a concern is raised to us, they do it, but our team is closely working with them. And now the entire organization's network is actively monitored internally. I hope that answers the question. Thank you very much. Thank you very much. Thank you.

And our next question comes from Allen Klee from Maxim Group.

Hello. You've mentioned that in the hospital market, a challenge is getting challenged. It's getting to the decision maker. A big challenge is also of all the different doctors and nurses involved that they can integrate all the information correctly. And often if you don't have a family member, who's an advocate, who's there. Mistakes happen and there's a lot of problems. So is there anything that said that you're looking or doing that that can try to work on that?

Thanks for the question and good morning. I mean great question. I think in terms of the day-to-day operations from the existing RCM standpoint or smaller technology solution standpoint, we have been working with different health systems for the, for the last 20 years. And especially since the IPO by acquiring some of these bigger companies, the number of hospitals, number of health system, who became part of our, so we have to be a partner with them. So we have sort of figured out many of these operational issues that how we best need to deal with an almost literally and virtually in every single case. And we have examples of, for example, where we are significantly improved the overall performance of their of their health systems from the RCM, from the revenue standpoint, we go back to them to improve their, from the denial rates perspective to improving the AR and so on and so on. And that's where our technology helps. We look at the many disintegrated systems within the hospital, and yes, it's a, it's a bigger task for any hospital to come to come to a decision of implementing one consolidated full system, but where we provide the help is okay, we can look at the disintegrated pieces and we come up with a customized solution, which can sit in between and try to eliminate many redundancies. We just very basic things. Single example of an NFC here system being used. There is a cardio system being used. Both of them are generating a different stream. So we take the stream, consolidate it, using a very small piece of software custom developed from that specific area. Create a for example, if there is a surgery conducted a procedure, they have to be two claims, one coming from anesthesia and other coming from cardiology. So if either one of those two is missing our system flags it, and that's how we start to add value. This is a very, very simple basic example. Our earlier point was, even though we have lot of these capabilities, the problem is finding that opportunity to be standing in front of them, that we have these capabilities. And so the decision maker can hear from us from our sales team, that these are the things that we can do. So that's where we believe this made Sr relationships will be really,

How do you look if I might there's Keri answered or that would just a little bit of color on the on the med ISR side?

With the health system work that we've done for the last 20 years, we've really focused on services and technology enabled solutions. We, have not traditionally provided the technology, but our experts are working with our clients to use the technology more effectively and within our market segment, certainly over the last 10 years, for sure, with the wide adoption of physician order entry and automated clinical documentation, our consultants have worked with all of our leading clients on using that technology more effectively in coordinating care and the different segments in the health system, and also providing for better, better clinical outcomes and better patient experience. One project I think is good representation that we're just kicking off now with a large health system in the Virginia, Maryland area. They've, they've been a long-term user of a leading clinical information system, but they feel that their clinical and business processes are not aligned with the effective use of technology. So you're having patients waiting for, for too long to get responses back from a contact center, et cetera. So we will be working with them to use that technology more effectively, but also help them modify their processes to again, improve the patient experience. So I think we're working right at the forefront of that of that critical need.

Thank you very much. Thank you. Our next question comes from Kevin,

Put you in a better position to partner with other firms and addressing hospital systems. Could you elaborate on that? Maybe give us a few examples of how you see that growing, I guess, that CareCloud brand within that endeavor.

Okay. Thank you. Thank you, Kevin. And I'll let Jay take it over, but I can just recreate the same point. I just mentioned that these in, in this hospital space, one challenge always, we, we historically have to deal with is getting in front of the decision makers, but I believe it is the J&J, but I want to jump in please. Sure. so what we are working with our sales force who have relationships across the health systems that we've traditionally called on. So we have traditionally called on the chief information officer and it executives now with the CareCloud association, we are working actively with our sales teams to call on chief financial officers, vice president of revenue cycle, and discuss with them the capabilities that now the new med has around hands-on staff supplementation for AR management, operational consulting about optimizing the revenue cycle, and then the ongoing the ongoing challenges of revenue cycle management outsourcing. So one of our one of our clients that has been a good it client of ours, we got the got the introduction to move from the fine from the it area into the financial space, has some discussions with the CFO and the VP of revenue cycle and introduced our CareCloud services to them. So we're in the process of crafting an agreement where we help them do AR wind down on some old accounts that they had put in some processes to ensure that their AR performance continues to improve as well as on an ongoing basis. And this is still in the discussion part discussion phase to have them move there, or move their revenue cycle operations in its entirety or in, or in parts to CareCloud RCM relationship. So we believe it's a, it's a model for you know, success with a lot of our clients. A lot of our community hospitals in rural settings or, or singles sites within a community are all struggling on the revenue cycle performance aspect. So this, this solution or this combination of services and technology definitely enables them to take advantage of our capabilities at a at a reasonable, at a reasonable cost. So it's something that we can, that we believe is going to fuel a significant growth for us. And how do you ask the question? Yes.

That certainly helps Kerry. Thank you. Hi. Hi, you're obviously in sales and marketing growth, you've added head count, right? That's clear, but given that, that CareCloud brand and the fact that you've embraced it across the entire operation, I'm curious to see how you're promoting it or advertising it across the country at this point. Can you speak to that sales and marketing budget? That's not specific to head count and perhaps more specific to advertising.

Sure. Great. Thanks for the question, Kevin, and now I'll hand the floor over to bill in a minute for, in terms of this specific to the numbers. I think Tony, your point is absolutely right. The first thing was for us to change the name earlier in the year. And the reason was the rationale was this is that CareCloud name better represents who we are today and our commitment to providing all the cloud-based solutions and to the customers segments we serve. I think now we are feeling to your point, it's very important that we get this message across very clearly to the industry. And, and even if you think about it today, as bill mentioned even from our revenue line description perspective we have, we have changed. We have merged from the revenue cycle and SaaS, we avoid any confusion and bill can talk about the details of those little further. We are also in the process of engaging with an PR firm. So when it comes, if so from, from the PR from to help from our IRP people to changing making the appropriate changes to the website, to making the changes and different filings from 10 QS to all others and helping address through these earnings calls, we right now hitting on all the different areas to get this message across, but ESP have changed over time. And it's, it's time now for us to crystallize who we are. It's not just not the merely the name change. And as a, as a matter of fact, if I talk about in terms of numbers for the first half of the year, if I look at the overall revenue, 52% of the revenue is coming from the client who utilizes our core technology components. And…

Great. Well, thank you, gentlemen. Thanks for entertaining the questions.

And that concludes today's question and answer session. At this time, I would like to turn the conference back to Kim Blanche for any additional or closing marks.

Hey, everyone, who's joined us on today's call. We appreciate your participation and your interest in us as a company. And we look forward to speaking to you again next quarter. Thank you all, and have a great day.

That does conclude today's conference. We thank you for your participation.