Forian Inc.

Greetings and welcome to Forian's Inc. Third Quarter 2023 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal comments and webcast. Participating today from Forian are Max Weigod, Executive Chairman and Chief Executive Officer, and Michael Vesey, Chief Financial Officer. Before we begin, I would like to remind you that management's remarks today may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements due to a variety of important factors, including those discussed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30th, 2023. Estimating financial performance accurately for future performance is difficult as it involves assumptions and internal estimates that may prove to be incorrect and is based on plans and circumstances that may change. There is therefore a significant risk that actual results could differ materially from the outlook provided today. Any forward-looking statements made on the call today represent the company's views as of this date, and the company undertakes no obligation to update them except as required by law. Words such as estimate, projected, expect, anticipate, forecast, planned, intend, believe, seek, may, will, should, future, propose, and variations of these words or similar expressions or versions of such words or expressions are intended to identify forward-looking statements. These statements include, but are not limited to, statements regarding future growth, anticipated performance, and prospects. Today's presenters were also referred to certain non-GAAP financial measures on our call, such as adjusted EBITDA, which the company believes may be important to investors to assess its cooperating performance, and should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of the comparable GAAP metric can be found in today's press release and webcast, both of which are available on the company's website. Those numbers are unaided, and any statement regarding the company's anticipated performance may be subject to change, including as a result of risks discussed in the risk factor section of the company's annual report on Form 10-K filed with the SEC on March 30, 2023. Today's call and webcast is being recorded. A copy of the recording webcast as well as the full transcript and copies of today's press release and SEC filings will be available at forian.com forward slash investors. I am now pleased to introduce the company's Executive Chairman and Chief Executive Officer, Max Weigott. Sir, you may begin.

Thank you for joining us for Fordham's Third Quarter Earnings Call. This afternoon, we are pleased to report strong third quarter performance. Our results reflect the operating scalability and strength of our young business and our success in improving our value contribution to our clients. As the healthcare landscape continues to evolve towards greater dependence on timely healthcare information solutions, stakeholders' access to comprehensive longitudinal healthcare information to drive insights built to improve health outcomes and business performance is more imperative than ever. In my prepared comments this afternoon, I have focused on two key themes that reflect the value we're delivering today and are poised to deliver in the years ahead. Our third quarter results strengthen an already solid balance sheet that distinguishes us across the industry and especially from other earlier stage companies. Second, 4N is becoming synonymous with a trusted healthcare information partner. We are taking additional concrete steps to further differentiate our business and offerings by onboarding complementary and unique new data assets while developing analytics that deliver mission-critical value to our clients. Let's begin with third quarter results. On the top line, our consolidated revenue grew 24% on a year-over-year basis in the third quarter to $5.3 million. And as a result of our continued efforts to drive margin improvements, our net income and consolidated adjusted EBITDA of $4.3 million and $755,000, respectively, continued to improve. The improvement in our adjusted EBITDA margins were driven by a combination of strong leverage over the cost structure, improved efficiency, and a contribution from recurring contracts, which we believe demonstrates the scalability that's inherent in the business model. Additionally, as previously reported, a customer euphoria in which we held an equity interest was acquired during the quarter. And as a result, 4M received approximately $5.8 million of cash proceeds in consideration for our equity interest in the customer, with the potential for incremental proceeds, as Mike will detail. These payments are in addition to the guaranteed payments we receive monthly from the February sale of BioTrack, as previously discussed. The combination of positive adjusted EBITDA and these strategic exits has improved our balance sheet. We find ourselves in an advantageous position where our cash position differentiates us from other companies that are struggling to generate a profit or raise additional funds in the currently challenged growth equity and capital markets. Furthermore, we repurchased $1 million of outstanding convertible notes during the quarter and repurchased 1.6 million shares of foreign common stock directly following the quarter. each pursuant to separate privately negotiated transactions that we believe to be in the best interest of our shareholders. We will continue to evaluate these types of transactions as opportunities arise. We will also evaluate other accretive and or strategic uses of capital, including M&A, as valuation expectations align with the market realities. In the third quarter, we saw strength across key offerings and customer types. We recorded strategic new wins across a variety of different types of clients and are happy to report that we see increased momentum within the large pharmaceutical manufacturer segment. While we don't comment on specifics of our customer contracts, we expect to see that trend continue in the fourth quarter and into 2024 and to convert these opportunities into long-term partnerships across this segment. We expect to continue to differentiate Forian from our competition through the breadth of our data science-based offerings, leading healthcare expertise, and engaging customer service. We believe there is a large market opportunity for Forian to provide and enable key insights on what is really happening in the healthcare market today, and we plan to continue to disrupt certain status quos and to win business from larger competitors. These developments tie well with my second point regarding the steps we are taking to further differentiate ourselves as a trusted partner. FOREAN is continuing to cost-effectively add breadth and scale to our unique integrated de-identified data factory. We have reported previously on our ever-growing HIPAA-compliant launch and tunnel data lake, which today includes approximately 330 million patients with history dating back to 2015. Last week, we completed our license of a new, unique closed network database containing approximately 51 million additional closed network covered lives, adding to the existing 85 million closed network covered lives we currently license. This combination of closed claims data is among the largest closed network claims data assets in the U.S. which data are fully integrated with 330 million patients within our Kronos platform. In addition, further to a license we completed during the third quarter, in the upcoming months we will add a large source of laboratory results data containing lab results for tens of millions of individuals. Collectively, these new data assets further differentiate our offerings and will lead to the development of unique information solutions in the coming quarters. The Forian Data Factory has been designed to ingest, normalize, anonymize, and enable analytic-ready information with greater quality and efficiency than our competition. In conclusion, it was a productive and efficient third quarter where we delivered solid results and added assets to further strengthen Forian's long-term business, despite operating in the same challenging macroeconomic sales environment as previously reported. While we believe the headwinds are temporary, we expect 2023 revenues to be within the previously issued guidance range of $20.5 million to $22.5 million. I am proud of our team in achieving these results. I will now hand it over to Mike to go over our financial results in more detail. Mike?

Thanks, Max. Today, I will provide an overview of 4EN's financial results for the quarter ended September 30th, 2023. As previously disclosed in our SEC filings, 4EN completed the disposition of BioTrack on February 10th, 2023. Through this transaction and the previous dispositions of our Ingenie and security-grade businesses, 4EN no longer provides software solutions to the cannabis industry, representing a strategic shift which has a significant impact on operations. Accordingly, we have accounted for the operations of the disposed of businesses as discontinued operations effective with our first quarter in 2023 and have reclassified previous reported operating results on a consistent basis. My discussion today will reference comparative results for our continuing operations for the quarter ended September 30th, 2023, unless otherwise noted. The press release issued today presents 4N's financial results on a gap basis. As in prior quarters, we have also reported adjusted EBITDA, which management uses as a measure to track the performance of the business. As noted, the press release and these presentation materials include a detailed reconciliation of adjusted EBITDA to net income or loss. Our consolidated revenues of $5.3 million for the quarter were up 1 million, or 24%, compared to the same quarter last year. The growth in revenue over the same quarter of last year was driven by both new customers and increased revenues from our existing relationships. As a reminder, the majority of our information contracts provide for continuing information deliverables to our customers over a multi-year period, providing a predictable recurring revenue stream on a going forward basis. Net income from continuing operations for the quarter increased $8.4 million from the same quarter last year to $5.4 million. The increase in net income was primarily driven by a $5.8 million gain on sale of investment and a decrease in loss from continuing operations of $2 million, which was partially offset by changes in other income items such as interest and income taxes. The improvement in loss from continuing operations resulted from the $1 million of revenue growth discussed above and a $1 million reduction in costs and expenses. The decrease in costs and expenses was primarily due to lower G&A and research and development expenses resulting from the streamlining of our operations after the vestiture of BioTrac. The gain on sale of investment related to a minority interest we held in one of our customers. The investment was sold for net proceeds of $5.8 million, which was recognized as a gain this period. We may receive up to $3.6 million in additional earn-out payments in 2025 and 2026 if certain conditions are met. Adjusted EBITDA from continuing operations, which excludes the stock-based compensation, depreciation, amortization, and certain other non-recurring items, was positive $800,000 compared to negative $1.2 million in the same quarter last year, again demonstrating the operating leverage in our streamlined business. While we intend to make incremental investments in our information infrastructure to enhance and expand our product offerings, we also expect our capital-efficient business model to allow us to continue to leverage those investments with a lower level of expense growth relative to revenue over the long term. As noted earlier, a reconciliation of our net income or loss to adjusted EBITDA, along with an explanation of the reconciling items, is included in today's earnings release. Turning to our balance sheet, we ended the period with $49 million of cash and marketable securities and $24.7 million in convertible notes and accrued interest, with no maturities prior to September 2025. As Max previously noted, we redeemed approximately $1 million of our convertible notes during the quarter at a discount to face value, and we purchased approximately $3.6 million of our common stock in a private transaction with an investor in October 2023. With the improvements in our operating cash flow achieved in 2023 and cash proceeds received from the sale of Biotrack and a minority investment, We feel we are well positioned to capitalize on incremental growth opportunities as they arise. Our healthcare information revenues were $16.4 million in 2022. We expect 2023 revenues to be within the previously issued guidance range of $20.5 to $22.5 million, reflecting an increase in excess of 25% over the prior year healthcare information revenues. Having achieved a positive EBITDA contribution in the last two quarters, we also expect to report a positive EBITDA contribution for the year as we continue to leverage our infrastructure. And with that, I will turn the call over to the operator, who will open the line for questions.

Thank you. And as a reminder, ladies and gentlemen, if you do have a question, press star 1-1 on your telephone and wait for your name to be announced. To withdraw the question, simply press star 11 again. One moment while we compile the Q&A roster. One moment for our first question. And it comes from the line of Mark Hagan with Lake Street Capital Markets. Please proceed with your questions.

Hi, thanks for taking my call. In June, you guys estimated you had about $17 million of remaining performance obligations over the next 12 months. Have you given any update or is there any color on how that looked at the end of the quarter?

Yeah, hey, this is Mike. Yeah, Mike. Yeah, the performance obligations stayed the same as they were in the previous quarter.

Gotcha.

Yep. Mm-hmm.

And just also, have you guys experienced any new attrition due to some customers being acquired? I know that in the past that's been something you have to work through.

This is Max. There hasn't been any notification of new clients, but what we notified last quarter takes place several months later. So we see that impact starting in Q1 of 24, but there's no new meta terminations due to that.

Gotcha. Well, that's all I had. Thank you, guys.

Thank you. Thank you. Again, if you have a question, press star 11 to get in the queue. I don't see any further questions in the queue, sir.

Great. Thank you, everybody. That concludes the earnings call today. Take care.

Thank you, everyone. You may now disconnect. Thank you for joining.