Welcome to the CareCloud, Inc. Third Quarter 2022 Results Conference Call. I will now turn the call over to your host, Nathalie Garcia. Ms. Garcia, you may begin.

Good morning, everyone. Welcome to the CareCloud Third 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; 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 facts made during this conference 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 to 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 third quarter 2022 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com, click on News and Events, then click IR calendar, click on Third 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 third quarter 2022 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results. With that said, I'll now turn the call over to our CEO, Hadi Chaudhry. Hadi?

Thank you, Nathalie, and thanks to all of you for joining us today for our third quarter earnings call. First, to review some high-level financial highlights, we are very pleased to announce our second consecutive quarter of record bookings, driven by a strong initial reception to our Wellness offerings, namely chronic care management and remote patient monitoring. We see an enormous opportunity to expand our total addressable market and generate meaningful growth through these product introductions, and we'll go into more detail on that shortly. Our third quarter revenue and EBITDA of $33.7 million and $4.8 million, respectively, compared to $38 million and $6.7 million in the prior year quarter, which was expected and built into our projections. On today's call, I would like to discuss a deeper dive into CareCloud's record bookings that continue to grow due to our newly launched products and heightened focus on organic growth, our innovation and next generation of digital health, including the recent launch of remote patient monitoring, results from the recent class survey, which really put CareCloud on the map with respect to multiple digital health categories and finally, an update on our sales pipeline. First, with respect to bookings, we are pleased to report that the third quarter represented our highest ever bookings quarter in the history of the company, which we believe was directly correlated with the early strength of our suite of digital health solutions under our Wellness way. Recurring bookings for the third quarter were $7.1 million, up 3x that of a year ago and up 25% sequentially atop the prior record we set last quarter. CareCloud Wellness bookings represented close to 50% of total recurring bookings for the quarter. This metric tells us that there is an absolute market need for this category of products and gives…

Thank you, Hadi, and thanks, everyone, for joining us on the call today to discuss our third quarter results. Third quarter was broadly in line with our expectations, noting the reduction in revenue from 2 clients that we discussed last quarter. On today's call, I'll review the quarterly results and discuss our year-to-date performance in greater detail. Taking a look at our results for the first 9 months of 2022, revenue year-to-date was $106.3 million, an increase of 4% compared to $102.1 million in the first 9 months of 2021, with 84% of our revenue generated from our technology-enabled solutions. Year-to-date, our GAAP net income was $4.9 million compared to a GAAP net loss of $686,000 in the first 9 months of 2021. This equates to a loss of $0.45 per share after subtracting the preferred share dividends. Our non-GAAP adjusted net income for the first 9 months of 2022 and was $12.4 million or $0.81 per share. During the first 9 months of 2022, our adjusted EBITDA was $16.6 million an increase of $546,000 or 3% from $16 million in the same period last year. Our adjusted EBITDA margin year-to-date of 16% is consistent year-over-year. Our third quarter revenue was $33.7 million, representing a decrease of $4.6 million or 12% year-over-year. The year-over-year decline was due to 2 factors. The primary factor was a reduction in recurring revenues from the 2 large customers we mentioned last quarter. These customers that came to us as part of a prior acquisition are in the process of merging their operations with other health systems, which utilize a different EHR platform. We continue to see an impact from their wind down of revenue. And since they were high-margin accounts, this impacted our third quarter profitability as well. A secondary factor was a decline…

Thank you, Bill. We are very proud of our accomplishments to date, and even more with respect of what CareCloud future holds. I would like to thank our customers, shareholders and all our associates for their trust, loyalty, support of CareCloud's mission. We will now open the call to questions. Operator?

Our first question comes from Jeff Cohen from Ladenburg Thalmann.

This is Destiny on for Jeff. Congratulations on so many accolades in the last couple of months. I think that's really wonderful. I guess quickly, I'd like to start around your commentary with the Wellness platform and the cycle that you're talking about. I know that wellness is relatively new and remote patient monitoring is even newer. So I'm wondering, is there an opportunity to make that 9 to 12 months a bit faster as you gain learnings from your physicians and whatnot? Or is that going to be the cycle you're expecting for the remainder?

Thank you for joining, and thank you for your question. As you mentioned, the 2 things. As you know, we launched this under the Wellness umbrella, this first chronic management in the second quarter. We are still in the process of -- so the data that we have is only about a quarter old, or about 2 quarters old on the chronic care management side. And the data that we have for remote patient monitoring, we just launched it about the 30 days back and we signed a few contracts already, but we do not have enough data to support that -- what the final numbers are going to look like. But based on the industry averages and for the last 2 quarters of data, we anticipate this full ramp-up to be somewhere in the same time line, between 9 to 12 months. It also depends on the adaptability from the patient standpoint, because as this thing is new for the industry, this thing is competitively new from patient standpoint, too. So the adaptability, we hope, will improve over the next 1 year from the patient standpoint, but that's something we yet need to see. So for now, that's why we are anticipating a full ramp up of between 9 to 12 months.

Okay. That's really helpful. And then I'm wondering if you could just talk a bit more about that pipeline you discussed kind of outside of Wellness. I think you said it was about $28 million, if I'm not mistaken. Can you just talk about the composition of that pipeline a bit?

Great question, Destiny. And as I mentioned, that this pipeline excludes the Wellness. And if you think about the third quarter bookings, about 50% of those bookings are coming from Wellness. So when you're looking at $28 million pipeline, it's the rough between -- first of all, it does not include Wellness. And for the rest, about 50% of that is from the enterprise line, about 20% to 30% is midsized and the rest are the smaller practices. So we still see a lot more attraction towards the enterprise clients, which we consider about a 25-provider plus practices. Wellness, which is, in addition to that, which is a whole different story. We are not specifically sharing the numbers in terms of the pipeline dollar because in the first phase, we are extensively focusing towards our existing client base. And the way we are looking at it, this Wellness, chronic care management and remote patient monitoring together, we anticipate from our existing top client base to be able to generate up to $50 million in annualized revenue over the next, let's say, 1 to 2 years' time frame. So there's a level of opportunity that we see from the existing client base. And we are planning on, during the second phase, announcing more extensively for the overall marketplace from the new logo standpoint, using these 2 services, these 2 products as a driving force to sign more business. And we're going to share those on or around our Investors Day in December.

Okay. That makes sense. And I guess that kind of leads into my next question, which is how are you leveraging some of these cross-selling opportunities as we're now in one of the busiest quarters typically from a seasonality standpoint?

Maybe Destiny, you might have to elaborate the question a little bit more. But -- so whether it's the third or the fourth quarter, the Wellness is -- that's right now where major -- though we are still keeping the Wellness as a separate line item, so we can track it more effectively. But that's kind of an upsell for us as well. So keeping that aside, our numbers for upsell, if I just take the example of this last quarter, was, year-to-date numbers, about 5% to 10% between that number of the new bookings were coming from our upsell activities during the quarter. And this is, again, excluding the Wellness.

Okay. Got it. Yes, that was exactly my question. And then I guess last one for me and then I'll jump back in queue here. I didn't hear much about Force. So I'm just wondering if that's still a focus and if you're still seeing interest there or if that's kind of gone more towards the back burner as you focus on organic developments and the like.

Destiny, I'll start the answer, and then we happen to have Karl who is our Division Head for Force, the CareCloud Force and he can give some -- a little more color. Now we absolutely continue to focus on Force as well. And year-to-date, if we still look at it, about 20% of our bookings are coming from the Force. And now, along with the help of the Med SR division, as we have started to work more leveraging the existing health-based relationships. We are seeing more and more opportunity towards that. And Karl, would you like to jump in, please?

Absolutely. Thank you Hadi, and an excellent question. I always enjoy talking about Force. Certainly, what we saw in Q3 was 4 substantial hospital clients which is kind of new territory for us that have come through the relationships at Med SR, which is continued proof of concept. In addition to that, the pipeline being full for our routine organic growth has been exceptionally full for Force. In fact, we have some opportunities out there with household names that you all know. Too early to announce that yet, but super excited about where that's going and our ability to kind of leapfrog from the hospital deals, then into the big larger companies where we can provide those workforce extension opportunities. So it's been going extremely well. Thank you, Hadi.

Thank you, Destiny.

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

Yes. For your 2 large hospital customers that churned, can you give us a sense of what the quarterly revenue is associated with them? And are we -- is it fully churned off? Or is there like a little more that's to come?

Thank you, Allen, for the question. I'll start the answer, then I'll hand it over to Bill for any -- for the numbers or the impact quarter FX perspective. Just first of all, from the -- and zooming out 10,000 feet, these 2 customers are sort of unknown during the due diligence. We looked at it, there was a certain level of risk and more as they were being acquired by larger groups as well as a different implementation of the health systems. So this was factored into the valuation of those acquisitions. We kept them even more than what we were anticipating. There is a small -- very small fraction of revenue we may anticipate coming from I think one of those 2 clients in the next year. But that, in the whole scheme of things, is negligible. So I won't factor that too much into how much the 2023 outlook is going to be based on these 2 customers. But Bill, would you like to add any comments from your side?

Sure. So Allen, these 2 clients together were a good chunk of revenue. Most of that decline has occurred in Q3, but I would say there will still be a little additional decline, because as you would expect, when a large hospital system goes through a multiyear project of implementing an EHR like an Epic, it's a long process. It doesn't go all units within the hospital at one time. And as they've been turning on to Epic, they weren't using our EHR, but there was -- they had an initiative to essentially move the ERCM business. So you'll see a little bit of a headwind from that in Q4. And one -- as Hadi said, one of these clients will remain a client next year, but they won't be a top client. They won't be one of the top 5, they'll be a small client. So we're fortunate that we were able to get a lot of revenue and a lot of profit out of them during the time that we served them.

And my last question is, so tell us a little about how you're thinking about the M&A environment with valuations pulling back. Could that be creating maybe more potential opportunities?

Sure, Allen. So we are always looking for good M&A deals. And sometimes, people will say, Bill, it's been 15 months since you guys bought something, what are you doing? And the answer is, every week, we're looking at one or more deals. Now as you know, we've got certain criteria. We look at an investment and say, we want to get a return on that investment in 3 or 4 years. So even though public market valuations have declined a lot over the last 12 months, unfortunately, there's a lot of private companies who haven't raised money for a while, and they turned down raising money because they didn't like the terms. And so if you ask them, they'll say, well, gee, last time I raised money, it was at 5x revenue. I'm hoping to have my first year of profits next year. So I think I'm worth 5x revenue. And we'll look at that and say, if you're 5x revenue and you have no profit, how long does it take me to get a payback on that investment? It doesn't even make sense. So we're always looking. We're always hopeful. We're fortunate that we have many available sources of capital, so we're not letting that be a constraint in terms of doing deals. But we're also not willing to do a deal on terms that we don't think are going to be accretive to shareholders. So there's nothing to talk about today. Hopefully, when we have conversations down the road, we'll have some exciting things to tell you about. But rest assured, we're always looking for things. And if you know if somebody who you think would be a good fit, please feel free to give us their name.

And our next question comes from Marc Wiesenberger from B. Riley Securities.

Drilling down a little bit more on the bookings and pipeline. Of the $7 million in new bookings, what percentage was from new customers versus kind of upsells to existing customers? And of the pipeline, what percent does Med SR represent in there?

Thank you, Marc. So if you break it down, the $7 million, so first of all, out of the $7.1 million that we closed in annualized recurring bookings in the third quarter, about 50% of that is coming from Wellness. And virtually all of this Wellness is -- it's a successful sell into the existing customer base. And separate to that, in addition to -- for the rest of the -- so about 22% was the new bookings, the new sales that we have done. And the upsell number, just for the quarter, other than the Wellness, was about close to 3%, between 2% and 3%. So -- but I think the way you should look at it, there is a tremendous excitement in the industry and opportunity, and this is just even just looking at the existing client base towards the services such as chronic care and remote patient monitoring, and we yet to see the results for the remote patient monitoring. We continue to grow in -- separate to the Wellness from the new logos and still some upsells or expansion of the services within the existing client base. And this $7.1 million does not include any of the Med SR revenue because that's a onetime project-based revenue.

Understood. So is Med SR not included in that $28 million pipeline as well?

Yes, that is not included in $28 million pipeline. This $28 million pipeline is just for our end -- the recurring business that we are anticipating, that we are trying to sign. Med SR is a separate pipeline.

Understood. And then year-to-date, it looks like sales and marketing spend is up about 13% over last year. I thought maybe the company was kind of targeting closer to 20% based on some of the returns you are seeing? So is it possible that bookings could have potentially grown faster if you spent more? And has your thoughts on kind of allocation to those expenses changed at all?

Great question, Marc. If you think about it from the headcount perspective, the headcount has significantly increased. But the sales and marketing spend, as you were saying, has not increased as much as we were initially forecasting or budgeting. We were able to much more effectively ramp up the sales and marketing team of offshore as well in addition to onshore. So that's helping us up to a certain extent in managing our -- this expense base in a much better -- in a more effective way. So today, roughly between sales and marketing together, now we had about 50% headcount offshore and the rest of the 50% onshore. So that's contributing up to a certain extent in that initial number forecast that we were -- we presented. We still are running on the CAC basis, close to somewhere between the same $0.40 to -- between $0.40 to conversion into a dollar revenue, between $0.40 to $0.50 number. So I think we are on track from the CAC perspective, we are on track in terms of the ramping of the sales and marketing team and we already have started to see the results. If you look at the last 2 consecutive quarters in terms of the final booking, 5.2, 5.3 in the second quarter, record booking quarter, third quarter even further up to 7.1. And we are anticipating similar results for the fourth quarter as well in terms of the bookings.

Very helpful. And then just a final one for me. As you scale the Wellness offering, I guess, and maybe specifically related to the CCM, what does your capacity to scale that look like? Is that something that has more of a linear trajectory? Or can it materially accelerate if the appropriate resources are in place? And what do those resources look like?

Thanks, Marc. If by the increasing -- maybe I may not be able to understand the question exactly. What we are -- we took a conservative estimate by -- we took the patients, find out the patient that are eligible today for a practice A, for chronic care management, and we are taking at about 40% to 50% adoption rate. Yes, you're right, this can improve. But with this thing being competitively new in the industry, this is -- there is a similar level of the patient adaptability aspect that's coming in. Let's say, if you're thinking about for the very first time in the entire life history of a patient, if the call comes in trying to explain, can you or would you be willing to give us 20 minutes or 40 minutes each month over the phone call, and we can help improve your overall health condition. So it takes us some time to convince the patient. So this, we believe, this will keep on improving because the same patient may now start receiving calls from a couple of other payers as well. So they will start -- awareness will keep on improving, but we yet need to see over the next 12 months, how do things improve. But this is how we are looking at it at this point. There is an opportunity, but it's hard to exactly forecast how it's going to look like over the next 12 months.

And Marc, I'd say right now, it's really driven more by the demand from the patients. It's not necessarily supply constrained, because initially, as we started providing this in addition to having people of our own, we're using a third party. And we've got the capability to continue to ramp up supply and demand as demand grows. So right now, I wouldn't forecast any constraints on our ability to service these customers. I look at it as how fast is the new market going to take off.

And our next question comes from Kevin Dede from H.C. Wainwright.

This is , I'm calling on behalf of Kevin Dede. So in terms of standards in place for the Internet of Medical Things and remote monitoring devices that are added to CareCloud's Wellness product suite, are there any constraints to which devices your platform can interface with?

That's a great question, Michael, and thank you. No, there is no limitation or a capability issue in terms of our system can integrate with. And just to elaborate further there, today there are 2 separate, I would say, group of devices. One would be, which are FDA approved and can be used under -- for this remote patient monitoring reimbursable claim. So that's the one way. So even if we are giving a device to the patient, we know that even for the device of the cost, the patient will be reimbursed, so they will get the reimbursement. So the patient -- it's not going to cost anything for -- to the patient. So that's the one way. There's a whole other set of devices. Even if you are thinking about, as an example, an iOS or Android smart watches, they can collect a lot of data, but most of those things are today not FDA approved. We still can use those to collect data and give the guidance to the provider to take the next actions or the next best steps. For example, if the patient's temperature levels are not at the right level, the blood pressure level is not at the right level and they are using a non-FDA approved device, the doctor can still schedule an appointment with that patient, which can result into the well-being of the patient as well as the increase in the revenue for the practice. So those are the 2 differences. To summarize the answer, no, there is no limitation, we can connect to an FDA-approved device or any other devices. There will be 2 different tracks of strategy in terms of the patient wellbeing and the revenue recognition for the client as well as for us.

Okay. Great. And next question, so patient adherence to appointments is an issue for health care providers. Does CareCloud's data suggest that appointments initiated by health care providers instead of patients may be improving adherence?

Very good point, Michael, that you highlighted. And this is what -- how we are looking at it as moving towards the -- we started calling it the next generation of health care system. There has been a shift from -- we are seeing this shift from a transition from patient-driven appointments versus towards the appointments being driven by the health care provider. And like anything else, then maybe in the next few years, next 5 years, probably most of the appointments will be driven by the health care providers, as more and more of these technology is becoming available as well as a shift towards value-based care, accountable care organizations and the like. We do not have the specific numbers today that how much shift we see today. But yes, there has been a gradual shift. And this curve will keep becoming more steeper, and there will be more adaptability down the road.

Okay. Much appreciated. And one final question. How do demographics among patients affect their acceptance rates for using tech-driven services and CareCloud Wellness? And how is this influencing your marketing and BD efforts?

Thanks, Mike. And unfortunately, we did not look at that number today. But to your point, as an example of remote patient monitoring, most of that adaptability, because of the coverage from Medicare or the CMS is coming from the elderly patients, because the chronic conditions for diabetic patients or high blood pressure, most of that is towards the elderly patient. It also exists on the chronic care, but on the chronic care today, because those encounters are, today, reimbursable for commercial as well as the government payers, so they are -- you will see -- we can see the patients of different age groups there. But we yet need to run and have a better result. And we will have some more better results as we started to see more of the implementation or the clients being ramped up on the remote patient monitoring.

And at this time, there appears to be no further questions.

We would like to thank everyone who's 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.

This concludes today's conference call. Thank you for attending.