Welcome to the CareCloud Inc. Third Quarter 2023 Results Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to your host Nathalie Garcia CareCloud's General Counsel. Ms. Garcia you may begin.

Good morning everyone. Welcome to the CareCloud's third quarter 2023 conference call. On today's call Mahmud Haq, our Founder and Executive Chairman; Hadi Chaudhry, our Chief Executive Officer President and the Director; and Larry Steenvoorden, 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 fact made during this conference are forward-looking statements including without limitation statements recording our expectations and guidance for future financial and operational performance, expected growth, business outlook, and potential organic growth, and acquisition. 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 term. 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 2023 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com, click on News & Events, then click IR calendar, click on Third Quarter 2023 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 2023 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, Natalie and thanks to all of you for joining our third quarter 2023 earnings call. I have several meaningful updates to provide from the quarter, but first, we will start with a quick review of the quarterly results. In the third quarter, revenue came in at $29.3 million and adjusted EBITDA came in at $3.2 million. Larry will dive deeper into these numbers later in the call. Overall, our recent progress on several fronts gives us confidence that the fundamentals of our business are intact and CareCloud remains on track to return to growth next year. As an example we are pleased to report that after the close of the quarter, we signed the credentialing contract with an existing force customer that we believe has potential to be quite significant. Implementation of this is already underway, so we can expect to recognize a portion of that revenue before year end. This quarter, we continued to make meaningful progress on several ongoing projects and goals including the launch of our generative IA solution; the stabilization of medSR, our project base professional service businesses; and the decisive action we took to align our cost infrastructure for our highest value business opportunities. Digging deeper into our progress in the third quarter, I will start with an update on generative AI. We recently launched our CirrusAI solution which incorporates generative AI technology. Just two weeks ago, we had the opportunity to demonstrate this solution at a Google-sponsored conference that brings together top leaders across the health care industry. To kick off, our go-to-market strategy for this solution to the end of the year, we will be offering it to our client base free of charge. It's trying period will allow them time to better understand the benefits and how they can leverage…

Thank you, Hadi and good morning, everyone. Before I review the third quarter results I want to share a little more detail on our recent cost realignment initiative. The third quarter was my first full quarter as CareCloud CFO. I took a fresh look at our cost infrastructure and along with Hadi and the Board we made some tough but necessary decisions to pare back in certain areas of the business. As you know, transformation decisions are difficult but the goal was to ensure the company continue to invest in growth or also establishing a sustainable foundation for improvement and positive free cash flow and profitability. Most of the actuals are scheduled to take place in the fourth quarter but anticipate some will carry over into 2024. We expect these changes in our expense profile to result in approximately $10 million of annualized free cash flow improvement. Approximately $5 million related to operational expense and savings and the other half includes the completion of R&D investments. Specifically our next-generation CareCloud prime platform that Hadi just discussed. This has a twofold benefit for us. First, we will see a notable reduction in our capitalized software going forward. And second, we now anticipate realizing the ROI for these investments. Now turning to the third quarter results, revenue of $29.3 million was level sequentially and compared to $33.7 million year-over-year. The primary reason for the year-over-year decline was a loss of the two customers due to health systems mergers. Our wellness offering continues to gain traction and showing growth in the monthly sequential number of patients. Adjusted EBITDA for the quarter of $3.2 million reflects a margin of 11% this compared to an adjusted EBITDA of $4.8 million a year ago. The decline in quarterly EBITDA was a combination of lower revenue and related margins partially offset by lower selling, marketing, general and administrative costs in the current period. Turning to the balance sheet and cash flow. At the end of third quarter, we had a $6.4 million in cash and net working capital of $5.5 million. Cash provided by operations was $4.3 million and there was $3.2 million in net cash used in investing activities. Finally, we are reiterating our 2023 guidance for revenue between $120 and $122 million and adjusted EBITDA of between $15 and $17 million. The combination of factors including the credentialing contract, MEDSR's meaningful contract ramping. A continued solid execution in our core revenue cycle business provides the pathway to achieving our full year expectations. In conclusion, we have taken tough but necessary actions to realign for growth and study improvement in our financial performance. I believe will not only every year from a position of strength but be better positioned going into 2024. With that I'll now turn the call over to Mahmud for his closing remarks. Mahmud?

Thank you, Larry. As I expressed earlier, we feel that our solutions are very well positioned in the marketplace. The team is ready and fully engaged to drive future success and shareholder value. I would like to thank our employees, customers and shareholders for all they do to support CareCloud's mission. Let's open the call to questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Hello. Good morning and thank you very much for taking the questions. Just a couple from our end, I guess firstly on for Larry. Could you maybe acquaint the guidance and the adjusted EBITDA to free cash flow or cash production or net income?

We would have to put that out separately. Jeffrey, actually we can do that as a follow-up.

Okay. Perfect. And then, could you talk a little bit about the Cirrus AI arrangement with Google and which offering specifically that's going to pertain to and if that also ties over to the prior platform that you plan to introduce?

Hey. Good morning. Jeff, thank you thank you for the questions. And generative AI I think the most one of the biggest the highest discussed topic nowadays in any industry. So for us to as we mentioned earlier in the year we started focusing towards how we can leverage the generative AI technology into our platform to help the healthcare market segment, the healthcare industry. So we do have working on number of other various different features to be incorporated and we will keep on announcing as those features will be incorporated. But we started with for now we looked at on the board front, the back-end improvement how we can leverage the generative AI from where we can improve the revenue cycle management work by our employees, which later on will also be available in the SaaS model. As you know that one of the complex procedure is, the appeals process where you need to appeal certain decisions of the insurance companies and especially into the out of network space or the worker comp space. So with the help of generative AI you know system can systematically generate appeals and based on the internal testing we -- the results seems to be very promising. And we believe our -- the payment processing cycle as well as the collection of to those appeals should improve with the help of that. On the front-end which is more important we focused on -- we thought the most important thing for any physician is the clinical decision. So when the patient walks in after -- in order to record the complete session where the doctor has to look at for example their medication, their prior lab history, the diagnosis so many different pieces of information the provider has to look at and then…

Thank you, Hadi. That's helpful. And lastly for us could you give us a sense of your OUS business now and give us a sense of, what you may anticipate going forward on the growth or aggregate revenue for OUS?

Okay. So you're probably referring to our Middle East, the Middle East opportunity that we are focusing on. So we are making continuous progress. And for this year as -- even on the last call, I mentioned our goal is to at least being able to sign at least a contract or few contracts and recognize some revenue into the next year. We will incorporate that include that when we issued the guidance for the next year. On the next earnings call, but in terms of our progress if you think about it on the UAE side there are a number of steps. One is incorporating the entity we have completed that. Second thing is getting the license to conduct the business in different categories, so we have completed that. Third step is on-boarding at least the management employees and certifying them so they should be able to transact the business in the UAE. So we are in this third process. On the other side two other fronts. One, we are actively working on at least three one large and two smaller opportunities there. And on our technical side -- IT side they have to make sure that our product certified to the local requirements such as making sure the data stays within the UAE. And secondly, once we have a client we have to start working with authorities to get the EHR and the different other items off the platform certified. I hope that answers the question.

Yes. Perfect. Thanks for taking for our questions.

Thank you, Jeff.

Next question comes from Neil Chatterji with B Riley. Please go ahead.

Hi. Good morning and thanks for taking our questions. Just maybe some quarters maybe just wanted to just see if you talk more about any seasonality might have seen in 3Q and what kind of -- gives you the confidence and I guess that kind of the sequential ramper strength until fourth quarter with reaffirming the full year guidance was there any MEDSR projects impact that might have shifted from 3Q to 4Q?

Yeah, Neil, it's Larry. Thanks for the question as we look at Q3 to Q4, the Q3 seems now really similar to Q3 of last year getting a bigger impact just year-over-year comparison with the two large health system mergers that we've achieved for couple of key factors. One certainly is the professional services MEDSR. Really great developments there on some of the contract wins, also with our press release about the credentialing and the revenue that we're going to start to recognize a portion of that -- Q4, so we reiterated our full year guidance.

Can you hear?

Yes. Sorry I wasn't certainly done.

It looks likes the phone went off.

So just to complete that the MEDSR really the key driver in Q4. And then also just as our core RCM business will with the solid execution will also support the confirmation for the full year guidance. So, all that is really come together and it just gives us confidence is also going into 2024, with our backlog we commented on where we are also with the professional services going into the next year really come together and he as we look at 2023 as a transformation year from the health system mergers and just seven years of for growth into 2024. But we want to get there were for finish strong and then go into the next year from that same position of strength.

Great. And just maybe just one follow-up on that. Just in terms of kind of on that medSR business. Just looking at the chart, we're kind of the mix look like Meditech in RCM we're getting thrown in the mix. What's driving some of that traction you're getting on that side?

I think and we have Dwight Garvin, who's heading the medSR businesses that I can start, and then he can finish the question. If you think about it the overall industry the largest players in the health system space is, let's say, over between somewhere between 40% to 50% market share. So that's the relation we lost so until we acquaint medSR the primary focus of the organization was from -- in terms of bringing the business and in was that one the topmost player in the market. Once the lost that opportunity, so we started working towards the next in line and Meditech is among the top three I would say in that space. So all the time over the last one year, we have been able to reestablish not enabler of our relationship with Meditech. But in addition to that, our marketing strategy was more oriented towards finding the opportunities for Meditech. So that's one. The second one is the RCM. Once when we acquired medSR, their RCM related revenue was hardly $1 million out of $30 million roughly that they were doing that has improved by multiple fold now because that was also if you remember one of the reason for the acquisition. That these health system relationships, we should be able to leverage those because those relationships we cannot talk to the CEO, the CFO's there and should be able to cross sell and upsell our RCM services. So those two are seems to be are becoming the primary drivers of our medSR or our updated medSR business. Those are the two major contributors but Dwight if you would like to add anything please go ahead.

Sure. Thank you, Hadi. And just to kind of expound upon what Hadi said. And what we're seeing in our RCM space is really moving from that advisory model where you have short term engagements and moving those advisories into managed services. And now we can take our relationships established through all the other practices Sylvan or some advisory services and turn those into long-term recurring revenue managed services model. And that's really what we're trying to targeting and here is the same time expanding on our Meditech business really making some very key hires in the business development side this year. And those have allowed us to really strengthen that partnership within Meditech. I hope that answers your question.

Yes, great. Yes thanks for that and I'll hop back in the queue.

Thank you.

[Operator Instructions] The next question comes from Allen Klee Maxim Group. Please go ahead.

Yes. Good morning. For the Carecloud Prime offering that's coming, talk about how that compares to what you have today how do you think about what this been the upsell to existing clientele or new customers and with to be a price differential just help us understand a little more about that. Thank you.

Thanks Allen. Good morning. Thanks for the question. The couple of -- couple of ways we need to look at. One is every time and if you go back our first system was in 2004 2005 over first generation of our -- the entire solution. And then we kept bringing the new next-generation solutions after every couple of years. And the reason that traders is one is the compliance requirement or the regulatory requirements or the market expectations what are the new features that's needed. And other side is the technology platforms. This is a very rapidly changing the world, every after five six year the technology become almost obsolete. And in order to you have a more viable, reliable and effective product you need to bring the products to the next technology platform. So this on one on the technological perspective this will be on the new back-end technology. The second thing is it will have more features. We are focusing to have with more features towards value-based care models, preventive medication, the preventive health care and the like and number of other things more effective, better chart sharing model versus the previous model. So I think all of those things together. And another key aspect is when required CareCloud help, they were working on this platform for the last number of years. And for us we have another platform, which recorded talkEHR. So both of those platforms are in today's world are active. We can sign up the client. They can service the client. They have the serve -- both the platform are the certified platform. So this is going to be our next generation with ultimately over the next number of years. Both of those two sets of clients, we expect, we foresee would be transitioned into this a futuristic platform. We're not planning on doing at the starting next month. Whoever would like to transition at their own, we would love to bring them onto this new platform as a seamless transition, no additional and extra cost for them. So this will become our flagship platform going forward with the next generation of healthcare features and capabilities and the technology platform.

Thank you. My other question is if you could just talk a little bit about the credentialing contract and what you're doing and how you think about the opportunity there?

Great question Neil, and credentialing and we have Karl with us too and he is the one who was working on this relationship. I can get started and then hand it over to Karl. So from the service or the product, when we talk about end-to-end revenue tech-enabled revenue cycle management services, the first piece into the revenue cycle we believe it start to begin with the credentialing. So if you do not credential a client effectively, you won't we won't be able to generate the revenue even if the provider -- see the patient, the reimbursement either will not happen or will not come at the optimal level it should come. We have been working on our site internally on building up a platform, which can help us at the back end, help us track systematically, more effectively the applications that we have find wherever the electronic submission is possible system has the capability to do that. Now it flags the application that needs to follow-up. And also with the help of the different AI, many of the applications can be completed systematically without any human intervention, which improves the accuracy level and also the staff time. That's one. We also have been and I mean we mentioned in one of the last one of the -- when we announced this as part of that earning – as part of that release we are working on delegated credentialing certification like establishing the CBO think about the CBO as -- the insurance company has delegated their credentialing role to the company. So hypothetically talking if a commercial insurance stake at an average 20 days to credential a provider we believe internally we should be able to credential the same provider at let's say five days instead of the 20 days. So this is our overall credentialing capability, it has become very much strengthened and we think that we can go out and start marketing the credentialing more effectively. So, with that this is our first large contract we have been able to sign. Why don't you, Karl share some details please.

Yes. So the relationship in need of the customer to make sure that their clients were credentials, so that when they were doing revenue cycle work, they were getting paid for those services. So we were able to command a price point than our cost structure was incredibly attracted to them along with our existing resources that are trained and up to speed. And then Hadi mentioned the delegated credentialing piece is huge and takes a long time to care. We have really leveraged our offshore resources, so that doing credentialing for own clients for many, many years. And this happened to really fill a need and have gone further. And that's actually opened up some doors for some additional discussions with some other large companies that need this on a back-end. So we really think that there's an untapped market for this to come at it in a way that is much more cost-effective than those companies that are dedicated credentialing companies. Also has the distinct advantage of having one stop shopping, so the before helping with RCM services, or software services credential use a very natural add on functionality.

And I will just give you some idea in terms of the revenue from this opportunity, as we mentioned that this is a tens and thousands of providers that we will be positioning or presenting this solution to with their help. And at only 5% penetration into that client base we are expecting, I would say, in something over $1 million in annualized revenue. So that 5% penetration. So there is a big opportunity there. And as Carl mentioned, this will become a good first case study or a model for us to go and sell the similar with other larger opportunities.

Thank you very much.

This concludes the question-and-answer session. I would like to turn the conference back over to Nathalie Garcia for any closing remarks.

On behalf of the company, I'd like to thank everyone who has joined us on today's call. We appreciate your participation and your interest in us as a company, and we look forward to speaking with you again. Thank you everyone and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.