Cloud DX Inc.

Good morning slash afternoon, everyone. Thank you very much for joining us today. I'm Robert Call. I'm the founder and CEO of CloudDX. And I'm very pleased today to be sharing with you the earnings report for fiscal year 2023. and all of our numbers and stats up till December 31st of 2023, and some comments on recent announcements that CloudDX has made in 2024 as well. With me today is our investor relations manager, Andrew Reid, who will be handling the slides and also helping me with questions at the end of my presentation. I'd like to remind everyone that certain comments made or answers to questions that may occur on this call are subject to regular caveats concerning forward-looking information that is on the screen and also available in our investor presentation on our website and in our most recent MD&A. Available both on our website and at CDAR. Okay, so the agenda today is a quick review of CloudDX business model for those who are joining us and may not be fully cognizant of how CloudDX works, and then a detailed review of the 2023 financial statements and numbers, followed by a discussion of some subsequent events that have occurred in 2024, and then time permitting, time for questions. Questions may be submitted through the Q&A function at the bottom of your screen. If you can please identify who you are and where you are, or where you're from, rather, when you're asking that question, it would be most appreciated. If we don't get to your questions today, Andrew and I will follow up later in the week. Also, just to note that this presentation is being recorded and within an hour or two, it will be posted at the IR page or the investor page at clouddx.com. Okay, so just to review for everyone, CloudDx is primarily a subscription-based or SaaS-based enterprise software business. The primary source of revenue at CloudDx is subscriptions to our connected health platform. This is a platform that monitors patients remotely at home and provides a two-way link between those patients and their caregivers. I just want to share with everyone a few points about that. First of all, that monthly recurring revenue, which is the source of this subscription revenue, is high-quality revenue with high gross margins of approximately 90% or higher. We are a B2B, B2G, or B2A business, B2A being academic customers, academic medical centers. Our contracts are typically two to seven years long. They typically renew. We have an over 93% contract renewal rate. And at this point on average, our per patient or per user monthly recurring revenue is between 49 and 127 Canadian dollars. To put that into context, a good way to think about that is that we make about a thousand dollars per patient per year for annual recurring revenue, about a thousand Canadian dollars, fluctuates depending on some of the hardware costs, as you see here, also some service revenue and so on. So that number actually does change, but a good rule of thumb number is approximately a thousand Canadian dollars per user per year. In addition to that subscription revenue, we have three other revenue sources that you'll see in the financial statements. We have product revenue. The patients who use our platform are actually prescribed a kit of devices that include Health Canada licensed and FDA cleared medical devices like blood pressure cuffs, pulse oximeters, glucose meters, and also thermometers and weight scales. And they're interacting with CloudDx through an app running on a smartphone or a tablet. And that tablet is sometimes part of the kit. All of that is prescribed by the physician to the patient. The patient doesn't pay anything for that. Then they go ahead and use that technology to communicate and to, in an autonomous way, manage their health at home. In addition to the hardware revenue where we make about a 20% margin, we have a growing business of services and integrations. And that business in our financial statements is under the professional services and other revenue lines. And then the final source of cash at CloudDX is government funding. This is in addition to the revenue contracts we signed with government agencies. This is non-dilutive cash that comes to the company primarily for research and development purposes. We have received over $6 million in cash like that since we were founded. And at the moment, we're averaging a little under $500,000 a year in non-recurring, rather non-dilutive cash. And that has a separate line item on our financial statements. So let's just share quickly, why is the demand for remote patient monitoring and virtual care, why is it growing so fast? The reason it's growing so fast is because there are value propositions here for all the parties within the value chain in healthcare. Patients really, really like using the CloudDx technology. We have an over 95% patient satisfaction rate, which is the highest we're aware of in the entire industry. Because they get better outcomes at home, they feel in control of their health, And they know that they're avoiding hospitalizations, they're avoiding emergency visits, and they're, in fact, in many cases, extending their lives. But healthcare providers like doctors and nurses, respiratory therapists, and other caregivers also really like using technology like CloudDX. It makes their jobs better. It makes it more efficient. A small team of caregivers can care for a large group of patients. That efficiency means that they're getting more work done. It also makes their lives easier because it automates a lot of work that they would otherwise have to do manually. And the third benefit that flows to a member of this sort of continuum is the cost savings that comes from these efficiencies, and that goes to the payers. In the Canadian context, payers are provincial health authorities and provincial ministries of health. In the American context, payers are insurance companies. Medicare and Medicaid on the American public health care system as well. This care is more efficient. It means that the same amount of dollars is delivering better care for everyone. And that is why we're seeing such a huge spike in demand as we'll see going forward. So let's now talk about highlights from 2023. When I start with subscription revenue, we saw a 69% increase year over year in subscription revenue. So just to, again, wrap this up in a bow, every contract we sign at CloudDX grows our subscription revenue line. Every contract includes patients that come on our system that are paying that monthly recurring revenue. Contracts at CloudDX grow organically in the sense that existing customers add more patients organically every year. And then, of course, every new contract we sign adds more patients on top of that. So this subscription revenue line is the endless growing snowball rolling down the mountain that is really starting to pick up speed now. And this 2023 number of 69% increase is a good example of that. On the product side, we increased product revenue by 15.4%. Product revenue lags a little bit behind subscription revenue because product revenue is mostly new contracts. When we sign up a new client, they need a certain number of X hundreds or sometimes thousands of connected health kits to give those patients. And most of our Canadian customers pay for those kits upfront. Most of our American customers rent or lease those kits from us and amortize the cost of the kit into their contract. So this product revenue you're seeing is mostly kits delivered to mostly Canadian, brand new Canadian clients. The third item on the agenda is professional services revenue. Now, this is something that's kind of interesting because professional services is a basket of deliverables that we have. The big ones include enterprise license fees just to use the platform itself. We also charge for integrations into electronic medical record systems. And that is a growing business that we're charging more and more for every quarter. We also charge for customizations, new services, new features, things that clients ask us to do for them. And then we typically are able to do that and then turn around and sell those new features to our existing customers as well. So this is a great example of how fast this business, this part of the business is growing for us, a 436% increase in professional services revenue. And we believe as 2024 rolls around or continues on, that we're gonna continue seeing growth in this particular line item. So that means our total revenue for 2023 increased by 55.4% from 1.116 million to 1.811 million. So that's obviously a terrific number. It's great to see, but the more important number is the even higher increase in subscription revenue. And once, as you see our subscription revenue increasing faster than our overall revenue, you know that subscriptions are becoming a larger and larger part. of our overall revenue mix, which means that in the future, that snowball rolling down the mountain continues to get bigger. Just touching on government financing for a moment, as I mentioned, our government grant cash in in 2023 was about 453,000 Canadian dollars, and that was on par with 2022. We have two line items here now, inventory impairment of cost of inventory. And I want to explain this because these items together in our financial statements are being recorded as cost of sales, but they're different. Cost of inventory is the cost we have to purchase additional blood pressure cuffs and tablet computers and pulse oximeters that we ship to our clients to give to patients. Inventory impairment is an IFRS mandated condition. decrease in value of inventory in stock if it's been in stock over 12 months. We have some long-term inventory that we've kept in stock because we were able to get a good deal on buying in bulk, for example, weight scales and also pulse oximeters. We also have an inventory of parts that will eventually be assembled into a new technology device that we've invented that we are bringing to market that is the final stages of FDA and Health Canada approval. That inventory has been in our inventory for some time. And so therefore, these are non-cash inventory write downs that will one day be corrected. I say that because when you add these two together, you see a gross profit of 1.282 million. But that, in fact, is a little bit higher on the operational side because of those non-cash items. Nevertheless, from an IFRS point of view, our gross profit of 1.28 is a double in gross profit from last year. And that should be expected. As subscription revenue becomes a larger and larger part of our revenue mix, it has by far the highest margins. So over time, investors should be looking for and should see CloudDX overall profit margin continue to increase as that subscription revenue becomes more and more the dominant revenue in our revenue basket. In this case, an increase between 52% to 71% over the course of the year. We believe you're going to continue seeing that kind of profitability increase throughout 2024 and in years to come. Moving on to the expense side. We're pleased to say we were able to reduce operating expenses at CloudDX despite all this new business by 1.3 million Canadian dollars. We've done that by being very aggressive at managing costs. We were able to, in a smart way, reduce some of our salary and staffing costs, partly through right-sizing departments, partly through organic change. And in addition to that, we've pinched almost every other penny in our in our cost stack. So that is driving not only a reduction in overall costs that are long-term, which adds to profitability, but that efficiency also means that we're able to operate in a very lean way. All of this together then has led to a reduction in operating loss for CloudDX from 2022 to 2023. We've brought our operating losses down by just under $2 million. Now, I want to point out to everyone that The big changes in cost reductions began in Q1 and took several quarters in 2023 to work their way through our system. So we're seeing the full impact of those cost reductions on top of the impact in doubling of profitability, really kicking into Q4 and rolling into 2024. So this improvement in profitability is something that is ongoing. We're gonna continue seeing that moving forward. During 2023, we raised a substantial sum in the form of convertible debt. The convertible debt at CloudDX is now being managed. We'll touch on that in just a minute. But I want to point out that the interest line item in our financial statements is a non-cash item. All of our convertible notes are accruing interest, not paying cash interest. That interest is expected to be paid in the form of equity when those convertible notes convert. So from a non-cash plus cash point of view, our net loss rather is flat from last year, but a much larger portion of that is now non-cash and is expected to be converted. Okay, so those are really great numbers, really excited about that. Let's look to the next slide and just summarize for a quick second. We've seen an increase in revenue of 55.4% to just under 2 million Canadian dollars in revenue. But more importantly, we saw a doubling in gross profit margin by 112% up to the amount noted. We've also seen that subscription revenue increased by 69% faster than our total revenue, meaning that percentage of the overall revenue basket that is subscription revenue is increasing. And lastly, we were able to reduce our operating expenses by 20%. So all of this is moving in the right direction and bringing climate tax closer and closer to cashflow positive. And that rate of change is increasing. Okay, so now let's just quickly touch on some of the announcements we've made since January 1st of 2024. If you've had a glance at some of the press releases CloudDX has put out, when we add up the contract value that we've announced so far this year, it's $5.1 million. 10 new contracts and 14 renewed contracts for a total of 26 contracts either renewed or initiated. That has increased the number of patients that we currently cover by all of our existing contracts by 52%. That's the group of patients we're currently selling into. Our subscription line item, the number of subscriptions producing that monthly recurring or annual recurring revenue has increased approximately 50% since January 1st. We have, as I mentioned earlier, a near perfect contract renewal rate. In fact, only one contract has paused so far. And as the next few weeks rolls around, there'll be even additional data being added to that pile. One more point that's very important to note for investors. As we grow and as we become the dominant provider of remote patient monitoring in Canada, we're in a position to raise our prices. And so we're happy to say that over the course of 2023, we were able to raise the monthly recurring revenue on our Canadian contracts by approximately 45%. In other words, in 2022, the average monthly recurring revenue on a Canadian contract was $35 Canadian dollars. In 2023, that increased to 49, sorry, in 2024 rather, that increased to 49 Canadian dollars. So that is a substantial increase in profitability because the cost to deliver those contracts has remained the same. And there's one more piece of good news when it comes to gross margins from profitability. In our U.S. contracts specifically, I mentioned earlier that most of our U.S. customers are renting the connected health kits from CloudDX rather than paying for them up front. Now, on the one hand, that means that that initial upfront product revenue doesn't flow through the financial statements. But on the other hand, it means that the margins on those particular US accounts is higher overall. Because once that kid is amortized, we don't change the price. So obviously 58 American dollars or 74 Canadian dollars per patient per month in the US is our highest revenue line, our highest margin line rather. But the change we're talking about here is the fact that more and more of our U.S. clients are able to adopt a BYOD or bring your own device strategy. And all that means is that because the patient already has a smartphone or a tablet, we're not required to include that tablet in the kit that's provided by the doctor. That means that that tablet cost is no longer part of the amortization of that kit. And in the first year of those rentals, it raises the margin on those rentals by 30%. All of this means that from the point of view of profitability, CloudDX has turned a massive corner from 2023 into 2024. Please, next slide. Now I want to discuss some important news that we announced in March of 2024. As I mentioned earlier, CloudDX has raised substantial new capital in the form of convertible debt. And in 2024, we have begun converting that debt into shares. This transaction in particular is noteworthy because the convertible notes that converted on March 19th converted early. These are notes that are expected to mature in May, July, October, and January of 2025. But $4.2 million of those notes converted early at a premium to market. price that those nodes converted at is 15.4 cents on average. And then 26 million shares that were converted under those conversions joined a voluntary escrow pool for two years. So this is a group of investors who is extremely long in our story, recognizes that they're not interested in selling their stock, agreed to convert early at the price of conversion that was agreed to in their convertible node agreements, and then agreed to escrow their shares to make sure those shares did not hit the market and reduce CloudDX's share price. Next slide, please. So this combines now into two different important investor-related notes. The first is that the business itself is growing very quickly. We've seen sales increase dramatically in 2024. Our new contracts are larger. We've seen that we have higher monthly recurring revenues now, plus lower costs, meaning higher profitability for every single contract we sign. We have extremely satisfied customers. And the evidence of that is not only surveys that we announced periodically, but also the sheer fact that the vast majority of our customers renew their contracts every year. And our subscription growth line item is growing faster than overall revenue. Then you take into account the share escrow. That means that that giant block of 26 million shares is not on the market. It's not expected to impact the share price. And that is a massive vote of confidence from those investors that took part in that escrow pool. 14 out of 17 of those investors are arm's length investors. And three of them are related parties. So we are in a very, very strong position now to return value to shareholders, which is why an investment in CloudDX is pretty exciting right now. Demand for water services are increasing across both Canada and the US. We know that because both our phone has started to ring and because obviously we've had a huge burst in sales in 2024. We have more published peer-reviewed proof of efficacy than any provider in our space. We have the highest satisfaction scores of anyone we know of, both patient satisfaction scores and provider satisfaction score. We're by far the Canadian leader in remote patient monitoring with a footprint from coast to coast to coast, all the way from the Yukon Territory to New Brunswick, all the way to the West Coast as well. And we still have Some very powerful partnerships with news and exciting stuff coming on the partnership side. As many of you may know, we're exclusive partners with Medtronic, which is the largest med device company in the world. We have ongoing projects with Medtronic that are coming to fruition and will lead to exciting news in 2024. We're also integrated partners with Teladoc Health. We have more news coming about that partnership in 2024 as well. And we announced a new partner, a global partner, during the first quarter of 2024, which is a company called Sanray International. Sanray International is the distributor of medical technology all over the global south with distributorships and dealerships in 65 countries. We've immediately begun work with them to begin bringing CloudTX to partners outside of North America. So it's been an extraordinary year in 2023, and it's been an even more extraordinary four months in 2024. But CloudDX is absolutely in a terrific place to grow very quickly in the coming quarters. So that is now the end of my presentation, and I'm going to just pop into the slides. app here and see if there are any questions anyone wants to ask. Again, please go to the bottom of your screen, click on the Q&A button if you want to ask a question. We'll give it just a couple minutes for everyone to figure out how to use the question button. Just to reiterate again, the recording of this presentation will be live on our website later on today. Also, if you are in our email database, we'll email you a link to the recording so you can share it with others or take a look at it again. And if any questions do occur to anyone having had a chance to review the published financial statements on CDAR or the management the MD&A, the management questionnaire, please email Andrew or myself. We'll be happy to answer your questions going forward. This is good. Here we go. A question regarding one of our new products, which is a product called Vitality. During the first quarter of 2024, we announced that an academic research center had placed the initial order for our Vitality wearable, which is a Small device that's used by clinicians to monitor all the vital signs in the body, including blood pressure, for multiple days at a time, completely remotely, and in a way that allows the patient to move around very easily. It's a tiny little device that just adheres to the chest with an earpiece that pops in your ear to monitor heart rate, ECG, respiration rate, core body temperature, and so on. Vitality has been under development since 2017 when it formed the nucleus of our award-winning tricorder that won the Qualcomm Tricorder X Prize competition in that year. And the institution that's worked with us the most on validating vitality is McMaster University and Hamilton Health Sciences and the Population Health Research Institute. We've published papers on the efficacy of Vitality and we have begun the work to get Vitality licensed by Health Canada and cleared by the FDA. In the meantime, Vitality has been purchased for a very large multi-site post-surgical academic study. The study is called Vision 2. It's going to monitor 20,000 patients over the next four years for 30 days after surgery using the Vitality system sent home with each patient. Now, this type of giant academic study is common with brand new technology. And we're able to actually deliver this technology under what's called an investigational testing authority from Health Canada. So this is technology that's being used by clinicians to study the impact of technology like this. It's being used to monitor patients under strict academic scrutiny. And for that reason, we're able to proceed with this project even ahead of Health Canada license and FDA clearance. But let's be clear, there's no risk to the patient because the entity that is actually delivering this technology to the patients has been studying it for five years and has conducted a whole series of tests including tests that have been published to prove the accuracy of our measurement of blood pressure and tests to publish the accuracy of the CloudGDX system versus the systems that are commonly used in hospitals. Those papers are now either public or in the process of being published. So this is an ongoing project that will become bigger and bigger over the next few quarters and years and will eventually lead to both full-scale studies approval of these technologies by regulators, but also a much larger deployment throughout the entire multi-site system that is currently adopting it for academic use. So that is the story with regards to Vitality and its first initial deployments under the Investigational Testing Authority for Academic Research, Canada and the United States. Okay, second question. And then I think at this point, well, if there are no more questions, we'll start wrapping it up. So just quickly, the question is asking for more detail about the concept of patients on our system and that subscription number, subscriber number. So when CloudDx signs up patients, we sign up patients in two really broad, different categories. Chronic disease patients who use the CloudDx platform typically use that platform from the day it's prescribed for the rest of their life. The longest running deployment of PlaidDx technology is with a partner, Markham Stovall Hospital, which has been using our technology for six years. They are using our technology for complex chronic disease patients, including patients with COPD, which is obstructive pulmonary disease, heart failure, emphysema, uncontrolled hypertension. The longest running patients on that platform have been using the system that entire six years, and the oldest of them is over 100 years old. So that is a long-term deployment where the same patient uses our technology day after day, year after year for literally their entire life. The second type of deployment we do is in hospitals that are using our technology for patients after surgery. These post-surgical kits are sent home with the patient for anywhere from two weeks to 30 days, and are then returned to the hospital, sterilized, and reused for a different patient. So the kit is in constant use. However, it's being used for different patients. So what we've done is we've established the metric of active subscription, which combines these two different types of deployments. An active subscription could mean one patient using our technology for years and years, or a hospital using our technology for different patients every month, but still using that same kit for years and years. All of that bundled together is an active subscription. Back to what I said earlier, a typical active subscription at ClydeDX generates approximately $1,000 per year in annual recurring revenue. And that's a blended revenue from the hardware and the subscription. That blend depends. It's about the same whether or not the patient is... or the doctor rather is renting the kit or whether the kit was paid for upfront by a Canadian province or a Canadian health authority. So that's a very, it's a broad bucket, but it's a, it's a rule of thumb number. What that means is every thousand patients on our system generates a million dollars in revenue. Every 10,000 patients is 10 million. Every a hundred thousand patients is a hundred million and so on. So it's an easy way to keep track of CogDX recurring revenue going forward. At the end of 2023, we had approximately 1,500 patients on our system. And that means a run rate of about 1.5 million Canadian dollars. And that number has increased now. It's about to increase in Q2. By the end of Q2, we expect that number to be approximately 2,200 patients. By the time we reach approximately 9,000 patients, that recurring revenue, just going back to our financial statements, you'll see it's is covering our operating expenses, which puts CloudDX in the position of being operationally profitable. So that's a good rule of thumb for investors to think about. Okay, one more point. 2023 was a year of Canadian contracts. Most of the provinces in Canada during 2023 published a request for proposal or RFP to choose a vendor to provide RPM for multiple years going forward. GladDx won the vast majority of those. In fact, we won eight out of nine of those RFPs in 2023, including all the largest ones for Alberta Health Services, the entire province of Alberta, Alberta Primary Care Network, which is the primary care network in Alberta, and most importantly, Mohawk MedBuy, And when you look at our financial statements and you look at the MD&AOC, we discussed the Mohawk MedBuy contract, but essentially Mohawk MedBuy is the largest hospital procurement agent in Canada. Over a hundred hospital systems and provinces purchase everything they buy from bedpans and bedsheets to syringes to remote monitoring under a master contract with Mohawk MedBuy. We won that RFP to become the sole vendor of RPM for that entire group of hospital systems in Canada, which gives us coast-to-coast coverage And it means that if any hospital system in Canada chooses to deploy RPM, they have the choice of just purchasing it from Mohawk MedBuy, or they have to do their own RFP, which is a very time consuming and costly endeavor. So Canadian business dominated 2023. American business is liable to grow much faster in 2024. We've turned our sales and marketing efforts to the US. We already have US clients in five states, but there are much larger potential clients in our pipeline in the United States. And we expect to see organic growth in the Canadian market. We want all of those Canadian customers to continue growing their footprint and buying more from us. We want more and more hospitals under Mohawk MedBuy to order RPM from us. That is an organic growth process, but we can imagine exponential growth in the US because there is no dominant player in the US market. There are many, many companies there, but we are considered one of the more important players. And in fact, a company that measures these things called Class, K-L-A-S, considers CloudDX to be one of the top seven providers of remote monitoring in all of North America. So we expect to see more growth in the US and you'll hear more and more about that in future earnings calls and in future press releases. Okay, so that seems to have wrapped up our questions, but if there are any further questions, please send us an email. In the meantime, I want to thank everybody for joining us today. And again, remind everyone that this is being recorded and you will see the recording on our website shortly. Thank you for your interest in CloudDX. Please go to our website, clouddx.com at any time to see what's new. And please, if you're not already on our mailing list, please give us your email because we'll be emailing news to all of our email database and on our social feeds on LinkedIn and Facebook and Twitter as more and more news rolls out in the coming days. CloudDX is in a fabulous position right now. We're growing extremely quickly and your support is important to that growth as well. So thank you for your time today, everyone, and have a great rest of your afternoon.