Welcome to CareCloud's Second Quarter 2022 Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. . As a reminder, today's conference is being recorded -- now like to turn the conference over to Kim Blanche, CareCloud's General Counsel. Ms. Blanche, the floor is yours.

Good morning, everyone. Welcome to the CareCloud's second quarter 2022 conference call. On today's call are Mahmud Haq, our Founder and our Chief Executive Officer, President and the Director; and Bill Korn, our 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 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 obligations 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 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. one who dialed into the call by telephone, you may want to download our second quarter 2022 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com, scroll down to News and Events, click on second 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 second 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?

Thank you, Kim and thanks to all of you for joining us for our second quarter earnings call. On today's call, I would like to discuss a deeper dive into CareCloud's record bookings that are a direct result of our newly launched products and heightened focus on organic growth; our soon-to-be launched products for remote monitoring; a revision to our outlook that is attributable solely to a delay in our acquisition playbook; and finally, an update on our sales pipeline. To start with some highlights of the quarter, annualized recurring bookings of the new contracts of $5.5 million, excluding onetime fees were the highest in the history of the company, almost double what we signed last year and compares to $1.6 million in the first quarter of 2022. Revenue of $37.2 million was up 9% year-over-year. Adjusted EBITDA of $7 million increased 24% over second quarter of last year. Adjusted net income of $5.6 million increased 23% over the prior year period. Now taking a closer look at bookings, we are especially pleased with the results this quarter, which are directly correlated with our efforts to drive the organic growth that we have been speaking about the last couple of quarters. As we have discussed, our growth strategy in recent quarters has evolved from a pure consolidation playbook to one that strikes the balance of accretive acquisitions complemented by organic growth achieved through investment in sales and . As mentioned, bookings from recurring sources were $5.5 million, up 97% year-over-year and a record for CareCloud. Additionally, nonrecurring professional services bookings of $6.7 million increased more than 3 times that of second quarter of 2021, due largely to the acquisition of medSR that was completed late in the second quarter of last year. Additionally, while we want to stop short of…

Thank you, Hadi and thanks to everyone for joining us on the call today to discuss our second quarter results. The second quarter was in line with our expectations. On today's call, I'll review the quarterly and first half results and discuss our guidance revision in more detail. the second quarter we generated recurring booking which will produce annual recurring revenue of $5.5 million, almost double what we did in second quarter last year. As Hadi noted, we do not plan to provide bookings on a quarterly basis going forward as they can be lumpy. But given our strong second quarter results, we thought you would appreciate the insight today. It is evident that our organic growth initiatives are starting to take hold as our newer products represent a significant portion of new recurring bookings. Our second quarter revenue was $37.2 million, representing an increase of $3.2 million or 9% year-over-year. Our GAAP net income of positive $2.7 million compared $227,000 last year. This represents the fourth quarter in a row where we've delivered more than $1 million in positive GAAP net income. Our GAAP net loss per share was $0.07 based on the net loss attributable to common shareholders, which takes into account the preferred stock dividends declared during the quarter. Our non-GAAP adjusted net income was $5.6 million, an increase of 23% year-over-year. Adjusted net income per share was $0.37 compared to $0.31 per share for the year ago quarter. Adjusted EBITDA of $7 million increased 24% year-over-year and set a new record. Our adjusted EBITDA margin of 19% increased 220 basis points compared to last year and increased 540 basis points sequentially to the highest level since we went public in 2014 as we continued to reduce cost and drive further efficiencies from our previous acquisitions. look…

Thank you, Bill. I would like to thank our employees, customers and shareholders for their continued support. As Hadi mentioned, we are very pleased with the expansion of our platform, organic growth initiatives, and resulting booking trends. We look forward to continuing to update you on our progress throughout the year. Thank you. Operator?

. And our first question comes from Mr. Cohen with Ladenburg. Please proceed with your question.

Hi, Hadi, Bill, and Mahmud. Can you hear me okay.

Yes, we can, good morning.

Wonderful. Couple of questions, I guess, firstly, on the back half guide and Hadi's comments about the third quarter as good or not better than the second quarter. Could you talk about the cadence of back half for modeling purposes, it looks like probably $35 million or $35.5 million for Q3 and Q4, any specific reading into the cadence on the back half from your comments?

Thank you for the question, Jeff. And let me get started on the -- from the booking standpoint, the organic sales strategy standpoint, and I'll turn it over to Bill for the back of the year from the financial aspect. As we mentioned during the script, that second quarter, finally, we were able to hit over record booking numbers. On the recurring revenue side, it's $5.5 million and with the onetime fee it was about $5.7 million. One third of that was coming -- roughly, one third of that was coming from a recently launched product of Wellness. So based on these additional -- so on the Wellness product and our upcoming remote patient monitoring launch, which we will provide the details later in this -- in the third quarter. And also with the robust pipeline. And if I again just share the numbers for the pipeline, at the end of the second quarter, we have about $40 million in open pipeline and this is excluding our current upsell opportunity from the Wellness standpoint, even just only in the existing client base. We are actively currently working with up to with a potential possible opportunity of client generating, which could generate about $50 million in annualized revenue. Of course, we cannot close all of it, even if we are able to close, let's say, half of it over the last one year to one and half years, so that will be a good number. So with that -- with this background, I think we are very much -- and the visibility that we have in the -- at the level of the deals we are -- in the negotiation phase as we are in, we are confident that the third quarter is going to be either same or better than the second quarter in terms of the booking. And the fourth quarter, optimistically could even be better than the third quarter because we anticipate some results from the remote patient monitoring initiative as well.

Okay, I got it. It sounds like third quarter better, but yet that falls outside of your guide of up to $143 million?

So Jeff, I guess I would use our guidance for total revenue, and there's sort of two factors going into the cadence. As you know, normally for us, third quarter is our biggest quarter. However, we're getting more traction from new organic customers. And as more customers are signing up, somebody who signs up today and goes live a month from now, well, you're going to get a fraction of the quarter during third quarter, and you'll get a full quarter during Q4. So I think if I were you, I would actually spread it and contrary to normal years actually put a little bit more into fourth quarter and a little bit less in the third quarter for 2022.

Okay, I got it. And then second from our side, could you talk a little bit about CareCloud Force, I didn't hear any mention specific of that and how it's doing?

Yes, that's great. And I'll turn the floor over to in a moment to Karl Johnson, who is our President of the Force growth initiative. Yes, we continue to see more and more traction towards the Force. And if we talk about the -- our second quarter bookings, about 20% was coming -- 25% was coming from the Force bookings that we have. We continue to see more and more of the increase in our pipeline for the Force, and we are also in some active conversations with some really large opportunities from the Force standpoint. With that backdrop and background, I'll turn to Karl, would you like to just add some more?

Yes, absolutely. Thank you Hadi. Certainly, what we've seen is continued difficulties by hospitals and other large service organizations in finding employees. And I would go on to say that that's not just a U.S. problem, we've also seen that offshore. So we've been very, very pleased with the revenues, as Hadi mentioned, from Force -- the new sales, I'm sorry, were 25%, which is up from a year ago of about 15%. But it is the second quarter in a row that it's been in that range. And the pipeline with the deals that Hadi mentioned, two very substantial deals that are in final stages of legal review would certainly get us in that same range of percentage of sales. So it's really looking very optimistic, it's really kind of morphed into the core of what we're doing, and continue to push forward on new growth. Thank you.

Okay, perfect. That does it for us. Thanks for taking the questions.

Thanks Jeff.

Our next question comes from Mr. Wiesenberger with B. Riley Securities. Please proceed with your question.

Thanks, good morning. Appreciate you taking the questions. I just wanted to follow-up on a comment that was just made about tight labor market conditions domestically, and then I think internationally was said. Does that mean that you are potentially providing some of your services to international customers and is that a change or expansion from any kind of previous scope of work?

Yes, sure. Please go ahead, Karl.

What I was talking about is the services, the labor services, the workforce extension we're providing is to U.S. based customers exclusively. Many of those customers are used to utilizing offshore resources, which with the pandemic and other challenges have also been tight.

Got it, understood, appreciate that. And then maybe just actually following up on that, in the current environment, are you seeing changes in terms of your customers -- domestic customers' ability or willingness to leverage partners with OUS resources? And I guess, does that -- any potential change there in your customers' preferences open up additional opportunities going forward?

Yes, absolutely I would say you're spot on there. If we look at the bookings for Q2, a share -- a significant share of those bookings were from organizations who had had immense challenges in using offshore resources in the past. But because of the pressure that they've had to get labor in the U.S., they've not been able to do that have then turned to offshore resources. So it certainly has opened up some new opportunities for us.

Got it, appreciate that. And then as you're going to market with these expanded offerings, can you just talk about kind of the value proposition you're leading with and have you had to change that messaging at all or adapt your pricing strategy, and I guess, do you anticipate needing to do that going forward to drive accelerated adoption?

Great question, Marc. So our core offering, that remains the same. But if you think about it, the future of the healthcare as more and more the whole -- the industry is moving towards the digital health, the telemedicine or more going towards the risk management or pay for performance models or more proactive health management models. There has been a significant push from the CMS side as well on the care -- the CCM point of view. And then we believe that after the chronic care management, the remote patient monitoring is going to get a lot more attraction. And if you think about it, more and more devices are now becoming available. The wearable devices significantly have been advanced from the technology standpoint. So it will become more and more easier for the vendors to collect the data proactively from the patient symptoms point of view and then crunch that data, analyze the data, and then raise the red flag and alerts into the EHR system. So we have started to step in into the same -- the next level, the next generation initiatives. Yes, we even from internally, if we talk about chronic care management, we saw a lot of tremendous excitement from our existing client base only. And there is an external too. So we have launched initially from the upsell standpoint just into our existing client base because of the tremendous opportunity that was already there. And then these new products have become part of our overall offering. So from the pricing standpoint, from these two services, if I talk about the chronic care management and the remote patient monitoring, we are providing not only just the services and the technology but also the resources, the care managers, for example, who will pick up the phone and talk to the patient. So the pricing structure for chronic care management and remote patient monitoring is slightly different than our rest of the offering, but there is a comprehensive pricing model that exists for that. And of course, these two come with the higher revenue models because it's, as an example, for remote patient monitoring, the devices will also be involved. If it's an FDA-approved device, it will be reimbursed by the Medicare, as an example. So that will also become part of our revenue model.

Very helpful with all that details. Appreciate it. And then just two more for me I guess. Love to hear about the medSR kind of activity and ability to convert project-based revenues to recurring revenue? And then -- just the other one would be, I guess, as you think about the economy and if it should deteriorate a little further in the back half of the year, maybe into the beginning of next year, how should we think about what parts of your business might be impacted the most kind of thinking about exposure maybe to elective procedures or more discretionary spending from patients? Thank you.

Thanks, Marc. On your first question, if I just take as an example, if I talk about it, before the acquisition or before we acquired medSR, an year before the acquisition, their RCM-related revenue was, let's say, about $1 million recurring -- $1 million roughly revenue. And this year, so far, we already have closed more than twice of that number through the medSR help, whether it's coming directly as an upsell RCM deal or with the help of the -- our CareCloud Force. So we already have started to see the results and that's why about the reason our bookings are up, it's a combination of all of those pieces. Some have some support from that upsell through the medSR relationships, our existing core technology and the services that we have been offering, and the new products that we are in the process of launching or have already launched as a chronic care management. So we do see that medSR -- through the help of medSR more and more sales coming in. To the second question, the -- from -- if you think about it from the medSR standpoint only, that is more like a project-based revenue in terms of the consultancy or health system implementation and configuration. So that would continue to be the same. We do not see any impact on that revenue. And towards if you just talk about the patient from the elective surgeries and those standpoints, there were some down force, some changes during the COVID, but even that backlog is coming back now. So for the -- from the -- at least in the early future, if you look at that timeframe, we do not see any impact from either one of those things, or the two concerns.

Thank you very much.

Our next question comes from Mr. Klee, Maxim Group. Please proceed.

Yes, good morning. Just following up on Remote Care and Well Health. Just to understand it a little better. When you talked about launching remote patient monitoring this quarter, is this new from your Well offering in addition to that? And then you mentioned also some new CMS going to have some new rates, can you go into a little more color on that also? Thank you.

Good morning and thank you for the question. So there's a slight difference between the -- in the overall context, whether we talk about chronic care management or remote patient monitoring, both are towards -- one is the digital health and the second thing is a preventative health management or the proactive management or the well-being of the patient. In chronic care, so the patients that have one or more chronic conditions, those are being proactively managed with the help of the care providers, the caregivers who connect with the patient, go through their medical records, talk to the patient for a certain number of minutes each month, and provide them the guidance what they should be doing during the month. For example, for diabetic patients, where they can be half an hour call where the caregiver will get on the phone with the patient, looking at the chart of their diabetic results, and can guide the patient whether the patient should be doing whether it's the exercises, whether it's the change in the diet plan or whatever or if there is some change in the medication that needs to be done. So that's how that chronic care management is handled. From the reimbursement standpoint, CMS and the insurances are reimbursing the time of -- provided by the caregivers to the patient under their chronic care management guidelines. So in the bigger picture, so this will reduce the hospitalization rates, and we already have started to see the change in the hospitalization rate. So this was the first step towards that preventative, the futuristic health management. Now the next level is going to be the remote patient monitoring where the devices will be involved. If you think about the chronic care, it's just only that you are talking to the…

Thank you. My last -- that is very helpful, very informative. My last question has to do with churn. And I think the really key question here is, what should we think that normalized churn is because as you talked -- I mean, if you did $5.5 million of bookings, if we think about that, if that's like $22 million a year, and let's say, you recognize half of that as revenue, $11 million and you divide that by like around $140 million of revenue, that's like 7% organic growth, but you haven't -- but that's before churn. So we recognized that there were two big events that happened. But just going forward, what should we think a normalized churn should be so that -- how we should think about net organic growth? Thank you.

Thank you. And a great question. Let's go back and if I talk about the last three years, excluding these two outliers, the two clients that we talked about, those were more like a calculated risk. There's a high level of risk and the visibility at the time of acquisition, and we baked that into our valuation when we are acquiring the company. So excluding those two outliers, our 2020 churn was about 10%, and we highlighted that. And then in 2021, we improved it down to about 8-point-some percent for the year in terms of the revenue. And for 2022, right now, we are on track to hit somewhere between 8% to 9% as well. So that's our churn, excluding these outliers. And I think in this industry, anything around 1% a month is a norm. And it seems like we have been doing better than 1% a month for the last few years, and it's continuously improving. And again, this one outlier side. Now towards your other question, yes, that is right in terms of the organic growth. So far, if you look -- if you think about it, we have been entirely focused on growing through the acquisition or most of -- if you talk about the balance, it was mostly acquisitive growth and very small focus on or no focus on the organic growth -- the organic sales. Over the last few years and primarily the last two years and then the last and this year in the second half of the last year, we finally have started to see some results over organic growth activities, whether it's the marketing or the sales. We increased the number of employees on the sales and marketing, we hired the leadership, we started focusing on other marketing and brand recognition activities. So those have started to bear fruit. And that’s why the second quarter is the highest one, a record in our history. And with all that I mentioned earlier, our third and fourth quarter looks like that it's going to be even better than that. So the 2023, the way we are looking at it, and we will provide the guidance towards the -- at the beginning of the next year, we believe with everything on the horizon and our visibility, the next year should come as a full organic growth, at least in the single-digit organic growth year for us, excluding any acquisition.

That’s really helpful. Thank you so much.

Great, thank you.

. And our next question comes from Mr. Larsen with BTIG. Please proceed.

Hi, with CMS' proposed physician fee schedule, they talk a lot about shifting everybody into value-based care and all of the major health plans are talking about digital-first products that have value-based care wrapped around them. So with this Wellness solution and the remote patient monitoring solution, first of all with that $5.5 million in bookings, over what time period is that going to get recognized, is that like -- can we think about that on an annual basis? And then secondly, like can you give a sense for what the in-sell potential is into your existing customers, so if every one of your existing clients purchased the Wellness platform, just any sense or color around what that total dollar revenue potential could in theory be?

Hey, thanks David for the question. Good morning. Yes, you're right, from the CMS that's the digital-first, and that is the reason I think we were focused at the same time in addition to our core offering, whether it's the practice management or the EHR as a revenue cycle, we already have started to invest in that technology. From the revenue ramp-up standpoint, if I -- excluding Wellness or remote patient monitoring, typically for small practices, it's about 30 to 60 days for 1 to 5 practices that we start recognizing the revenue. From a midsized practices for up to 25 providers, it could be somewhere between three to six months and over between six months to close to an year on an enterprise client, 25-plus provider clients. And this is also based on the type of service they have -- they are looking forward to get from us. So I think the average time frame comes down to about six months for us, where we are able to start recognizing the revenue out of these bookings. For Wellness, though, we do not have much data with us right now because it's just hardly three months we are into this, but we already have made alive the clients who would generate about close to $600,000 plus in annualized recurring revenue out of one third of the bookings that we had in the last year -- I'm sorry, the last quarter. So my whole point is that literally within the first three months, we were able to make about roughly five clients live within the three months' time frame. So that should help in giving you some color on the ongoing live perspective. For -- same case from the remote patient monitoring standpoint, we yet need to see in the fourth quarter after the launch that how much time it would take. It could be slightly more than the Wellness because in this case, the hardware devices will be involved, those needs to be sent to the patient. Patient needs to be trained to do it. They need to be convinced to use it. So the going live time can be slightly -- that's what we are predicting -- but we yet need to see as we get into the next year.

And then any sense for the in-sell potential, if all of your customers purchased the Wellness --?

Perfect, and so if we think about it, I mentioned in the second quarter for Wellness, we already have an -- booking of 5.5%. We closed one third of that was coming from the Wellness. There is roughly the same number and actually slightly higher, which is already out for signatures. And so far our wins out of when the contract is out for signature is virtually 100%. So we anticipate that to be close. In addition to that, out of our existing client base after reviewing everything, crunching over the data and the numbers, there is a roughly $50 million in annualized recurring revenue we can get if every single existing client signs up on for Wellness. So that's roughly the number. And we all understand all $50 million is not going to get signed, but that's the full potential for opportunity in the existing client base. Now in terms of the remote patient monitoring, just because of the adoption rate, all this $50 million virtually would also be eligible for the remote patient monitoring and even more than that beyond that because it's not necessary that you would only go for remote patient monitoring in the case, which is, at this moment, reimbursable by the insurance or the Medicare. We can -- the doctors can still monitor the patient and can call them for a different appointment based on that monitoring. So we think -- we believe that even that potential is going to be more than the $50 million that we will at this moment, we are going after for Wellness program.

Great, thanks very much. And then one more quick one. In the Wellness solution, can you talk a little bit about your costs, so if you have like an Uber-like model, where a member can basically access a home health, individual or a nurse or docs through an Uber-like solution, are you paying those providers on like a per hour basis so that the revenue is matched with the cost or are those sort of full-time salaries that you're covering?

Another great question, thank you. So one is the devices and patients will get our branded devices through our provider, through the practices we will then sign up for remote patient monitoring. And FDA -- some of the features, some of the devices are and will be FDA-approved, so those will even get reimbursed by the Medicare. So the patient won't even have to pay for those devices. The second part is, of course, our technology and the third case -- the third thing, which I talked about was the care managers. So one, that the practice can opt to have their own providers where they can provide -- can reach out to the patient and provide those services or they can just keep working as it is without a change. And we step in, we provide them a full turnkey solution, devices, platform, revenue cycle and also the caregiver the care managers. So care manager can take the first step by connecting to the patient if there is a problem and then can hand it over at a certain point to the provider. All guide the provider, then this is an alert that we have received all through a chronic care management call. This is a concern, and then the provider can take the next step. So yes, in this scenario, we will be paying those care managers, and that will be part of the overall pricing package for the client.

Great, thanks very much. Appreciate it.

Great, thank you.

Our next question comes from Mr. Dede with H.C. Wainwright. Please proceed.

Hi, thanks. Hadi, just real quick back on the care manager part of the Wellness solution. I understand that you'll be bringing the First Touch, but I'm just wondering if those people are medical professionals or just relationship managers and where are you in building your staff to support that activity?

Good morning Kevin, good question. Thank you for the question. It's the combination, Kevin. There has -- it could be nurse practitioner under the supervision of a doctor or just the relationship managers under the supervision of the nurse practitioners. So there is a clear guideline from the CMS and those care managers have to be compliant with those requirements. And that's exactly what it is. In some cases, we may be using some external help wherein if needed. And we already have that staff available up and running, and that's why I mentioned that already five clients have gone live, and we already have started to take -- start to take care of the chronic conditions of the patients.

Okay. Thanks Hadi. The $40 million pipeline, I know you've talked to this a little bit, but -- could you -- I guess it just hasn't gelled for me. Could you just sort of review how long you think it will take to convert it all, understand a certain percentage short-term but I'm just wondering if you expect to convert it all or if it -- and it's absolutely solid sign business or is it just feedback from sales on prospective business?

Great. Kevin, the $40 million that we are talking about has already gone through the prospecting phase. So the initial connection has been made. So we know that we are at some stage of active conversations, with like if there's any company who are doing the sale, not all of them can be converting and for us. Of course, our initial conversion rate was not great, which every quarter are continuously improving as our organic growth engine is getting further matured. And you can already see the results in the second quarter. So I think the way I would look at it is, if we are able to hit that $5.5 million, $5.7 million in the annualized recurring revenue closing or the bookings for the quarter, the record quarter, and we believe that the third quarter based on the visibility that we have, we have good reasons to believe that third quarter is going to be either same or better than the second quarter. And then based on these additional -- the products, the fourth should even be better than that. So I would just consider those numbers versus -- instead of at this point, the conversion rates because that conversion rate is continuously improving as we are evolving and maturing our sales engine.

Okay Hadi, thank you very much for the additional color. Appreciate it.

Thank you Kevin.

Ms. Blanche, I'll turn the call back to you for closing remarks.

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

Thank you, everyone. Thanks, bye-bye.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.