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spk06: Good afternoon, and welcome to the CloudMD's second quarter 2021 earnings conference call and webinar. My name is Jonathan, and I will be your conference facilitator today. As a reminder, this conference call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. The company invites its covering analysts to ask questions during the conference call by pressing star, then the number one on your telephone keypad. If a covering analyst would like to withdraw their question, please press the pound key. It is now my pleasure to turn the call over to Julia Becker, Vice President, Investor Relations, with opening remarks.
spk01: Thank you, Jonathan, and good afternoon, everyone. Thank you for joining us today, August 25, 2021, for our second quarter earnings conference call and webinar. We'll start the call with a summary from our CEO, Dr. Issam Hamza, followed by our President, Karen Adams. to provide commentary on our digital health services and enterprise health solutions divisions. Our chief financial officer, Dan Lee, will then recap the company's second quarter 2021 financial results before opening up for a question and answer period from recovering analysts. A friendly reminder that today's discussion contains certain forward-looking information, which involve inherent risks and uncertainties and other factors that could cause actual results to differ materially from management's current expectations. Forward-looking statements should not be read as assurance of future performance or results. The risks related to the forward-looking information are described in the company's annual information form for the fiscal year ended December 31st, 2020, and in the management's discussion and analysis for the three and six months ended June 30th, 2021, which are now available on CDAR. We encourage you to review our disclosure in the context of all forward-looking information that you may hear today during this earnings call. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company disclaims any intention or obligation except to the extent required by law to update and revise any forward-looking statements as a result of new information, future events, or for any other reason. With that, it is my pleasure to turn the call over to our CEO, Dr. Issam Hamza.
spk05: Thank you, Julia. Good afternoon and thank you for joining us for our second quarter 2021 earnings call and webinar. We are very pleased with the company's performance in Q2, which is in line with expectations from a financial and operating perspective. CloudMD is leading the innovation in healthcare delivery by using technology to ensure a comprehensive personalized whole person approach to care. By leveraging technology, we are building a complete and connected healthcare ecosystem and platform. that addresses all points of an individual's care, including primary care, virtual care, mental health support, access to specialists, and healthcare navigation and education, to name a few. This first-of-its-kind ecosystem and proprietary platform underpins our organic and cross-selling growth strategy across all lines of our business and is showing some very early promising success. I'd like to take this opportunity to remind the audience of the three foundation principle, sorry, pillars that the company was built on and it continues to serve us quite well. Firstly, we believe that the person centric longitudinal team based healthcare is the future for our industry and the result and results in better and more efficient access to care and more importantly, improved outcomes. Secondly, we are led by a team of medical professionals, doctors and industry experts that understand the pain points and the stakeholders of this historically fractured medical system. We also understand the complications in accessing care through group benefit plans that has meaningful outcomes and share the vision for team-based whole person care. And finally, in order to execute on this vision and build a connected ecosystem, we must own our own technology solutions. Technology is the great equalizer that will enable frictionless access to care and serve to have connected experiences thereby eliminating the siloed effects many continue to feel to this day. CloudMD has made solid progress in ensuring alignment and integration of our capabilities to solidify our leadership in delivering healthcare innovation. We have organized the company into three revenue-generating operating units, and Karen will highlight how all of our divisions are interconnected and work in unison to support CloudMD's overall business. After our most recent hyper-growth phase that saw us complete 14 acquisitions, we prioritized segmenting the company into three divisions, each responsible for their own P&L. The divisions have been purposely set up to align with the market and customer segments that CloudMD serves. First, enterprise health solutions. Secondly, digital health services. And third, clinic services and pharmacies. Each of these divisions are currently undergoing thorough brand repositioning to reflect our position as a market leader in the delivery of integrated health and wellness. We believe these tactics will continue to evolve our market position and we are excited on the next phase of growth focusing on the execution of our corporate strategic plan. We have a strong Q2 delivering solid operating and financial performance. On a consolidated basis, we had a record corner with revenue of $15.7 million, a 461% increase from Q2 2020. Year to date, we recorded revenue of $24.4 million, an increase of 318% over the prior year period. We saw strong organic growth in our enterprise health solutions and digital health services divisions, along with robust revenue in our clinic services and pharmacies divisions. These financial results are largely attributable to the closing of all our outstanding strategic acquisitions, as well as strong organic growth. In the second quarter, we closed four acquisitions, adding $96 million of annual revenue. The following are the specific acquisitions that supported our growth and closed in the second quarter. RxI is a Canadian-based specialty drug wholesaler, pharmacy, and technology patient support program administrator. The company develops customized programs for a variety of clients that offer end-to-end solutions to optimize holistic disease management and clinical treatment outcomes for patients requiring complex and expensive pharmaceutical treatments. RxI is part of our clinic. Services and Pharmacies Business Unit, which offers insurers and organizations proper support for people needing specialty drugs. Secondly, Vision Pros is a North American online eyewear platform with roughly 1 million unique customer accounts. Vision Pros has a monthly subscription-based model and provides contact lenses and eyeglasses through direct consumer channels and B2B via our Enterprise Health Solutions Division right now. Vision Pros is part of our Digital Health Services Division. Thirdly, Asperia. a North American Employee and Family Assistance Program, or EFAP, offering mental health support to organizations and students. Asperia is our mental health brand in the United States and supported by our Snap Clarity platform. Asperia in Canada has been integrated with our mental health support solutions, offering clients a navigator as part of the experience. And lastly, Oncidium is a leading health management company in the employer B2B space with a loyal client base of over 500 corporate and public sector clients across various industries. The focus on Oncidium service is predominantly on reducing occupational absence by delivering solutions that improve the health and wellness of employees. Oncidium's suite of services include solutions that support absentee management, short-term and long-term disability, the management of workers' compensation claims, and mental health assessments. They also provide evaluation services that focus on prevention, accommodation, and recovery. And most recently, through the tuck-in acquisition of Sierra Health Solutions, has positioned CloudMD to be a leader in the independent medical assessments across Canada. Oncidium is part of our Enterprise Health Solutions Division. Like all our acquisitions, those completed in the second quarter are high growth, accretive and synergistic, and will support our focus on revenue expansion through cross-selling and bundling services to drive for further organic growth. In addition, the operating divisions are collaborating to share assets across businesses and are focused on delivering a whole person health and wellness platform. I now want to give an update to our audience with respect to our plans to transition our listing to a senior exchange. While this has always been an important initiative for the company, management have prioritized on other initiatives that we believe will lead to greater long-term shareholder value. These priorities include the completion of its transformational acquisitions earlier this summer with Oncidium and VisionPros, the successful debt financing secured with Bank of Montreal, the continued integration of the 14 acquisitions completed in the past 12 months, and the focus on achieving strong organic growth with profitability for the company. While we always need to evaluate our strategic priorities at all times, we are now targeting a potential listing to a senior exchange in early 2022. Lastly, during the quarter, the company was very pleased to appoint Karen Adams as president of CloudMD, and we would like to welcome her in her new role. Karen is responsible for overseeing our growth and operating plan across all three divisions and has already made great strides toward that goal. I will now pass it over to Karen to give an update on both digital health services and enterprise health solutions.
spk03: Thank you, Issam, and good afternoon. I'm very excited and proud of the performance in Q2 2021 with our operating units and that all acquisitions are now closed and leaders are aligned towards executing the company strategy. The operating units generated an impressive organic growth and were well above plan for Q2. A strong indicator of our ability to earn market share is organic growth. Organic growth in digital health services and enterprise health solutions divisions both exceeded 10% in Q2 2021 as compared to the prior sequential quarter. Revenue was also strong in all business units. Digital health services revenue in Q2 was 4 million, an increase of 1.6 million versus Q1. Enterprise health solutions delivered profitable revenue of 5 million in Q2 an increase of $2.4 million over Q1. This is attributable to multi-year contracts and the recent acquisitions that ESAN spoke of. These results are driven by the addition of unique capabilities and high client adoption. Our business units will accelerate our transformation as leadership teams enable each unit to focus on initiatives with agility to foster growth and innovation. The market is looking for access to care and connected services to ensure people receive the healthcare solutions that are necessary to enable return to function. Whereas providers are marketing technology to solve siloed, one-dimensional mental and physical health issues, CloudMD is leveraging technology to address collective mental, physical, and social healthcare. We are confident that by launching the Digital Health Services Business Unit, and owning the technology, we are positioned as an innovator and market leader in providing access to care for providers and users. Our highly regarded proprietary technology is being sold through a multi-channel approach. We are successfully marking this as direct to market and through enterprise health solutions as well as our clinic and pharmacy network. This includes supplying North American medical practitioners with clinics in a box tools such as electronic medical records, known as EMRs, automated billing solutions, patient portals, and telemedicine solutions. The technology in digital health services is the underpinning of all of our capabilities in enterprise health solutions, enabling improved health outcomes and provides a single vendor relationship for those looking for efficiency, increased engagement, and cost savings. 2021 is shining a light on the importance of health risk management for individuals, employers, governments, and society as a whole. It is important for organizations to address mental health and absence management with an understanding of collaboration for both the individual and care providers focusing on return to function. We fully recognize that this is our opportunity to take a leadership role in a rapidly growing societal problem by delivering solutions that people need in managing their health. Our differentiator is the ability to offer different modalities of care people often need to ease into treatment and access in a way that works for compliance and adherence. Our Enterprise Health Solutions mandate is to support organizations as they address growing issues. As a key part of our growth strategy, our comprehensive, complete health platform has seen significant growth. We now have over 260,000 lives covered on our mental health platform, which is a tenfold increase over Q1. This platform offers individuals the ability to access support for mental health through their preferred channel, including in-person, telephonic, and virtual. This adoption of the platform is predicated on our ability to offer the type of support the person needs for the issues they are facing. Q2 saw another first as we launched our new comprehensive complete health navigation platform with an 11,000 employee paid pilot. This pilot has resulted in an over 40% active users with a 48% retention rate using ongoing care planning and high user satisfaction scores. The Complete Health Platform is gaining momentum as a very affordable solution to employers who are seeking a streamlined access to care in meeting their employees' health and wellness needs. Evidence of such momentum can be noted by the two additional contracts that will launch in Q3 in our strong pipeline of customers who see value in CloudMD's Complete Health Platform to attain better health outcomes while optimizing their spend. Our organic growth momentum is also attributed to the industry's first mental health assessment tool, SNAP Clarity, which is available within all of our mental health products, including our employee and family assistance program. People suffering from mental health require this assessment to provide guidance on the appropriate treatment and support options along a stepped care pathway. This is our proprietary gateway to our multitude of health services that CloudMD brings to market. Over 150 customers in Q2 selected our mental health solutions over our competitors due to this unique platform and approach to mental health. We have also evolved by providing members new psychosocial and precision mental health solutions to our existing products by applying human touch and technology to support problems members face with emotional, psychological and social well-being issues. We have further enhanced our offerings by allowing members to choose their modality of choice for all interactions, be it phone, digital app experience, online chat, or a virtual visit. This allows members to choose how they access our services, enabling it to be on their terms and catered to their preferences. Members will also be able to switch between methods of service and delivery at any point in their experience. This will continue to gain momentum as the focus on mental health accelerates through return to work or return to school issues, isolation, and most recently as prominent individuals in sports and entertainment share their stories. It is the ability to provide screening and coaching that increases a person's acceptance of help to start recovery. I want to also highlight that we have earned new contracts in our assessment and disability business, including three small and mid-market insurers, that has been proven to be successful in reducing disability days and focus on return to work. These specific contracts will be implemented in the coming quarters. I am also extremely pleased to welcome Oncidium to CloudMD, who will expand our ability to deliver absence management, assessment services, and occupational health solutions. We are currently working with the teams on revenue expansion to introduce clients to our innovative products from CloudMD. In addition, Oncidium's recent acquisition of CIRA Health Solutions, a leader in property and casualty assessments, solidifies our position as Canada's leader in independent medical assessments. CIRA's industry-leading proprietary software platform, ISS, has been endorsed by insurers for its effectiveness in claim management. This will enable efficiency with all of our assessments and disability operations to manage our networks, build workflow management protocols, and have a communication portal to engage with both practitioners and customers for referrals. Proven efficiency will continue to lead customer loyalty and margin expansion. The Oncidium acquisition is transformational for CloudMD in terms of our market presence and our ability to leverage our technology to be a leader in the delivery of our comprehensive healthcare solutions. To summarize, our four pillars of performance that will continue to drive our reporting of results are continued growth of solid reoccurring revenue in our core businesses, actively managed integration of the entities that are critical to our product offering and EBITDA growth, continued adoption of our technology platform built on the foundation of a modular build that aims to centralize an entire health and well-being experience as well as our capabilities through a seamless user experience. And finally, North American expansion by leveraging our health and wellness platform. The success of our integration efforts and product delivery is proving itself through market acceptance, which gives me confidence we will continue to succeed in leading the markets we serve. I will now pass it over to Daniel Lee to provide the financial update.
spk09: Thank you, Karen. As Issam and Karen touched on, it was a great quarter for the business. We are very excited by our Q2 2021 results and the framework we have built for scale and growth. I'll now walk through our fiscal 2021 second quarter results. For the quarter, total revenue was $15.7 million. compared to $8.8 million in Q1 2021 and $2.8 million in Q2 2020. The increase is primarily attributable to acquisition growth with four acquisitions completed in the quarter and 14 acquisitions completed in the last 12 months. Excluding the impact of business acquisitions, the company achieved an overall organic growth rate from our existing businesses of 9% over Q1 2021, with an organic growth rate exceeding 10% for both enterprise health solutions and digital health services. And we continue to experience robust revenue growth in clinic services and pharmacies. I do want to point out, we classified a couple of companies amongst our divisions this quarter, which includes the following. Number one, Refunction. Refunction, which was previously included in clinic services and pharmacies, have now been reclassified to enterprise health solutions as the majority of its revenues are earned from insurers, lawyers, and companies. And number two, IMD. IMD, which was previously included in enterprise health solutions, have now been reclassified to digital health services as its award-winning education platform has been integrated to the company's product and service offering in enterprise health solutions and clinic services and pharmacies. These reclassifications have been retroactively applied in comparison across prior periods. Since the business has changed so dramatically, we're not going to discuss or analyze the changes over the same year-ago period, given the number of acquisitions. However, I am going to report on the recent trend lines, specifically with respect to organic growth. With respect to Enterprise Health Solutions, we have continued to secure new multi-year customer contracts since our last earnings call, and we now expect to realize over $2 million from these contracts in fiscal 2021. In addition to the $250,000 of revenues recognized in Q1, we have recognized a further $450,000 from these new contracts in the quarter. We continue to market these solutions as standalone while advancing its integration with a broader offering to customers capturing revenues from the sale of multiple solutions. With respect to digital health services, we achieved an organic growth rate exceeding 10% from Q1 2021 to Q2 2021, where we signed and executed on new customer contracts and added to our strong recurring revenue base. CloudMD realized a 26% organic growth rate over Q2 2020, the same year ago period, by integrating cloud practice to clinic services and pharmacies, and we will continue to integrate the broader digital health services to its other divisions and realize continued organic growth and cross-select synergies. While CloudMD does not disclose the exact revenues for each business, we can share that all of our existing digital health services companies grew from Q1 to Q2. With respect to clinic services and pharmacies, we achieved a continued organic growth revenues from Q1 2021 to Q2 2021. We continue to see growth in telemedicine visits where we experienced a 23% growth rate in Ontario, and an overall increase of 13% over Q1 2021. During the quarter, there was an accounting adjustment for West Mississauga Medical Clinic, where the company reviewed its investment and reassessed it as a joint venture. Going forward, the company will recognize its pro rata share of profits generated by West Mississauga Medical Clinic included in other income, and they will not contribute to revenues going forward. Had the accounting adjustment and reassessment of the investment not occurred, CloudMD would have reported $7.1 million of revenues for clinic services and pharmacies and $16.1 million in overall revenues for Q2. On a prospective basis, CloudMD expects 50% of its revenues to be earned from enterprise health solutions, 27.5% from digital health services, and 22.5% from clinic services and pharmacies. For the quarter, gross margin was 36% in Q2 2021 compared to 41% in Q1 2021 and 37% in Q2 2020. The company expected its gross margin to decline versus Q1 2021 due to its revenue mix as the company completed the acquisitions of RxI Vision Pros, and Oncidium, and they all traditionally operated below the 41% gross margin we realized in Q1. For Q2 versus Q1, reduced further than originally anticipated due to the strong revenue growth of our patient support programs. A high volume and currently low margin business where this revenue stream represented approximately 20% of overall revenues for the three months ended June 30, 2021, much higher than originally forecasted. If we exclude the contributions from patient support programs, Q2 gross margin would have been approximately 42%. The company anticipates its gross margin will operate in the low to mid-30s for the next couple of quarters due to the revenue mix we're witnessing, with the view that this will increase over time as we continue to integrate our acquisitions and we expect our margins to expand in 2022. I do want to remind our audience that our gross margin is a function of several factors, such as the margin profile of each business its sales volumes, as well as product and customer mix. For the quarter, adjusted EBITDA was a loss of $700,000 in Q2 2021, compared to a loss of $1.5 million in Q1 and a loss of $1.3 million in Q2 2020. The company improved its adjusted EBITDA position with an increased focus on integration and profitability. Through the company's integration efforts, we realized approximately $150,000 of cost savings in Q2. We now expect to realize approximately $750,000 of annual cost savings going forward. These cost savings were realized from the rationalization of headcount, software, marketing, and IT costs. The company expects to continue improving its adjusted EBITDA performance in the coming quarters, and we expect to be profitable in Q3 2021. Turning now to the balance sheet. Cash-in-cash equivalents were $61 million at June 30, 2021, compared to $99 million at March 31, and $16 million at December 31, 2020. In Q2, the company paid $59 million for four acquisitions, net of cash acquired in the quarter. Two of the four acquisitions represent the largest acquisitions of the company to date. Furthermore, in the quarter, the company secured a debt facility of up to $62 million, primarily for the acquisition of Oncidium, but also for future acquisitions as well. The debt facility leverages the strong adjusted EBITDA that we expect from Oncidium, and this debt facility helps preserve the company's cash and equity position. Lastly, given our Q2 2021 financial performance, we reiterate that CloudMD's annualized revenue run rate exceeds $140 million. We calculate our annualized revenue run rate based on a combination of one the last 12 months of revenues from our existing businesses, and two, 2020 annualized revenue run rate for acquisitions completed since October 2020. CloudMV's annualized revenue run rate is intended to serve as a baseline for the business. This baseline does not include the organic growth that we're currently generating within our divisions, post-acquisition cross-selling synergies we're seeing in our businesses, or acquisitions or growth opportunities the company are contemplating, which serves as an upside to our numbers. We are well positioned for growth, and this is why we're very excited about the future of CloudMD. I'd like to thank everyone for their time, and I will now turn the call back to Issam for closing remarks of another very successful quarter.
spk05: Thank you very much, Daniel. That's great. Everyone at CloudMD is proud of the work we are doing to transform the delivery of healthcare and the momentum we are seeing in the market. I would personally like to take a moment to thank our incredible team at CloudMD for their hard work and dedication to our vision. We have made significant strides this year and now have a revenue run rate, as Dan mentioned, of over $140 million and are on track to achieve positive EBITDA for the next quarter. The company is well-funded to execute on its growth strategy, and our integration efforts are going very well and remain on track. Our comprehensive employer healthcare platform has proven successful with very impressive early adoption rates. And with a robust sales pipeline, we are excited for the remainder of the year and expected additional new contract wins in the coming quarters. Not only have we seen hyper-growth through acquisitions, we've also achieved quarter-over-quarter organic growth of 9%, driven by cross-sell synergies and new contract wins. Our mission of providing access and improved healthcare outcomes to patients is being realized as we continue to see great progress on our connected healthcare ecosystem, and we are very excited about the growth of CloudMD in the coming quarters and years. I would also like to thank the shareholders and Alice for their continued support, and operator, we can open up to questions and answers here.
spk06: Certainly. Our first question comes in the line of Rob from Echelon. Your question, please.
spk10: Thank you very much for taking my question, and congratulations on the quarter and more particularly the outlook. Thank you. My question would be on the AAC. EHS side where you talk to the momentum of it and that's part of a product of the comprehensive services you have, but could you also talk to the role of some of the KPIs that you've talked to when you're responding to RFPs, i.e. the stat that were put in the MD&A, 20% reduction in disability, 420, 400, 100% ROI, satisfaction, just How do those play out in the RFPs, and how do you see that in Elementum?
spk05: Yeah, no, thank you for the question, Rob. So EHS, or Enterprise Health Solutions, and I will send it over to Karen to answer.
spk03: Thank you for that question. So I think the good news story for us is that Currently, we're not seeing a lot of RFPs out there for this service. So it's basically, at this point, a great opportunity for us to introduce this to clients. But the KPIs we are citing to encourage clients to measure health outcomes, which is what we are all about. We start at the top, which is how many people have access to the program, how many people engage with the program, how many people use our assessment tools, how many people engage in therapy. And then because the complete platform allows for a variety of programs to be integrated into that, the KPIs then fall as a function to the off-ramps as we have spoken to often, which would be if they're using us for disability and our navigators are navigating for somebody who's on disability, there are specific KPIs for the disability that you just highlighted, which would be how long is somebody off work and how fast can we get them back to work. So each of the off-ramps have specific KPIs, but the platform in and of itself, the KPIs that we are using right now are number of people who have access, number of people who engage, number of people who use the service, and satisfaction numbers.
spk10: Is that good? That's very good. Perhaps if you could give us any additional color with respect to the large pilot.
spk03: Yeah, so I think we're very excited about the pilot because it's the first of its kind that we're aware of. We saw a large uptake on the people who engaged in the platform. And then as we reported in the results, we were very pleased with the people who stayed engaged with that platform. So the 48% number that I cited was people who are using the platform and staying engaged over time. And that's a high number when you think of the total available population. The number I did not cite to you is the user satisfaction number, which is 73%. And we're very pleased with the 73%, because remember, people are using this for very extreme health issues, mental health issues, physical health issues. So the SLAs we had in this particular pilot... were predicated on people who engaged with the platform, so were above what was expected. People who stayed engaged were well above. And the client satisfaction number, which we are above. So we will be reporting in Q3 the outcomes of the pilot, but ourselves are all happy with the results that we are getting on those SLAs.
spk10: Thank you for the call. Cheers.
spk06: Thank you. Our next question comes from the line of Scott Schoenhaus from Stevens. Your question, please.
spk04: Hi, team. Congrats on the nice results, and thanks for taking my questions. My first question is on COVID and the impacts of the accelerating Delta variant having on your business, both in Canada and your expansion to the U.S., particularly given the spread is occurring more rapidly down here in the U.S. rather than in Canada, I believe. Has this driven increased demand for any of your specific product offerings, maybe on your more digital offerings, mental telehealth offerings? Thank you.
spk05: No, thank you very much, Scott, for the question. Yeah, maybe I'll back up a second before I hand it over a little bit. But with regards to what we built and how we built it, this is many years in the making. And to give you kind of a background of what happened when COVID first came into play, last year it was seamless for us because we already had built an infrastructure a platform that was it didn't really matter where the patient was being seen so the electronic medical record and the doctor could be in the office or at home and the patient could be in the office or at home and so there's no downtime when um when covet hit and so people doctors would continue seeing patients and actually expanded their practices under our platform Now, moving forward, as things changed in different geographical locations and some places opened and not, the different mix of in-person versus virtual fluctuated a little bit. I think we made a little bit of reference last quarter to how many telemedicine visits, and I think Dan can give an update on the telemedicine visit revenue for those doctors. But the good thing about it, again, is that it's seamless. It really does not matter. And what we're seeing internally within our own clinics is is the ability for doctors to now actually work a lot more efficiently. So a lot of them are actually working in the clinic maybe one or two days a week, and the rest of the time they're seeing their patients from home. So we're often seeing 75% or 73% of their visits being virtual because now they don't have to come into the clinic for every single case. They only need to come into a clinic to touch a patient that needs to be touched. Otherwise, they're able to do most of the stuff efficiently through our platform virtually. I'm going to hand it over to two people. So first, I'm going to hand it over to Daniel to talk a little bit about our telemedicine visits. And then I would like to hand it over to Karen to talk about how COVID has impacted and what we're seeing with regards to enterprise health going forward. So maybe Daniel first. Sure.
spk09: Great. Thank you, Sam. So in terms of our telemedicine visits, so out of all of our clinic or patient visits, We have historically and we continue to see that 72% are coming through telemedicine. So whether that is online, virtual, or over the telephone, that comprises of 72%. And I think what we're very excited about here is that we're just continuing to see great adoption of our CloudMD app. So BC, the numbers in British Columbia continue to be quite robust and continue to grow. And what we're witnessing in the last quarter was a much more exponential growth as it relates to Ontario, where we now have a roster of physicians and a network and a platform to enable further visits. And so for the quarter itself, we did realize 23% growth in Ontario patient visits from Q1 to Q2.
spk03: So we're very pleased with that. Thank you for the questions. I'm going to answer it two ways. I think the sustainability of health risk management is becoming a focal point for employers. And that's whether they deal with the public or whether they deal with employees. And I think one of the benefits of the acquisition of Oncidium is they have been incredibly, they pivoted to use their expertise, which is doctors and nurses and relationships with clients, to become strategic consultants to employers and doing health screening and health risk management. And that has been a great revenue generator for us, but also a very trusted resource for clients in building the relationship with clients as we help them through these tough times. And I think that's not going to go away. We are constantly going to be on guard from a health risk and governance management perspective. I also think, though, that the flip side of that is the increase in mental health cases. I mean, it is well documented globally that mental health has become a real... issue for people from an isolation perspective, even psychologically, going back to work, going back to school. So we will continue to see people engage with us. And I talked a little bit about our differentiation in that we help people ease into mental health. It's very hard for people to put their hand up and just jump right into counseling. So we have created a pathway for people to get help that I think has been widely adopted now and why we're seeing those increases in clients who are choosing our mental health solution program over the competitors because of the way we're treating people with mental health. Everything from how we see them virtually in person, telephonically, to the app that does the assessment. So we see that continuing. And I would say then lastly, as we think about the assessment business, disability continues to be a concern for employers, short-term disability, long-term disability, as people deal with COVID. So we really are fortunate to have a lens on this through both an impact in specific programs and initiatives geared towards COVID that we believe is going to be a long, sustaining approach to health care in the workplace, but also a momentum around mental and physical health with regards to our assessment business and mental health. So I don't know if that answered your question specifically, but that's really how we're looking at it.
spk04: No, that was a lot of great color, very thorough, and I appreciate that. I'll hop back in the queue, but great results, and thanks for the question, team.
spk06: Thank you. Next question comes from the line of Gabriel Leong from Beacon Securities. Your question, please.
spk08: Good afternoon, and thanks for taking my questions, and congrats on all the progress. Karen, you mentioned in your preamble two new contracts that will be starting up. with your complete healthcare platform in Q3 on the enterprise side. I was wondering if you can provide more color around those wins specifically. You know, are these also sort of pilots like your large employer pilot? And is this being set up as a potential displacement of an incumbent provider within these two accounts?
spk03: That's a fabulous question. So they are not pilots. So they are actually multi-year contractual agreements. And they are beyond just mental health. It actually includes a more holistic view of the health care of the individual and connecting them to finding a family doctor, connecting them to vision wear if they have some eye issues. So it is a complete platform rollout, which we have used all of our iterations in our pilot to feel confident in rolling this out in Q3. So I would say, and then your second question around are we displacing? So our parameters have always been, and I alluded to it in the script, is this is affordable for two reasons for employers. Number one, when an employer trusts us with this program, what they are getting is that they are getting somebody who is doing a proper assessment to ensure people aren't trying out two or three different programs to solve their issue. We're really spending the time no differently than when you go into a doctor's office to really do that in-depth questions to get the people to the right help. So what we're doing is they're collapsing programs and providing, you know, where in some cases we own the program by way of example, the mental health, but they could have an HRA, a health risk assessment, where we have to build that into the program. So in one instance, we're consulting with their other programs that they still want to keep and use, and we're referring people to use those effectively. And in another case, it's all of the solutions that we offer. And they don't have anything outside of the traditional programs in their group benefits that we don't currently offer. So the premise here is that they can have the reassurance. Their spend is correct, and the CFO can understand that the spend was actually for health care issues. Does that answer your question?
spk08: No, that's great. And just as a follow-up to that, are you able to provide a number around, sorry, what the total number of employees are within these two accounts? That's the first follow-up question. The second follow-up question is, are you able to talk a bit more about what your current pipeline looks like on the enterprise side for a similar sort of exclusion set?
spk03: Yeah, so I'm going to take the pipeline first and then back into the second one. So the pipeline is a very – we have two ways we look at the pipeline. We have pipeline, which is customers we don't currently do business with in any of the organizations that we work with. And we have two numbers that we use. We use pipeline, which is where we're having engagements and conversations with all kinds of clients. and a weighted pipeline. I don't have those numbers in front of me right now, but I can tell you that we look at the pipeline on a weekly, monthly, and quarterly basis. So all business units report up their pipeline, and that pipeline gets consolidated into one number at the end of the month, and we use that pipeline to measure closing rates and to determine are we on track. And I think what you're seeing in the organic growth numbers that we're highlighting, which is the double-digit organic growth numbers, is because we're managing the pipelines. Your second question is, I would say that the life-size groups, we want to be in a position to issue press releases on these as they come to market. They are great client brands for us, and I would say they are, together collectively, probably just slightly over 1,000 employees.
spk08: Gotcha. That's great feedback. Thanks for that, and congrats on the progress.
spk03: Thank you very much. Appreciate that.
spk06: Thank you. Our next question comes from the line, Nick Agostino from McBank Securities. Your question, please.
spk07: Yes, sorry. Good afternoon, everyone. I just want to dig in on the gross margin side of things. I think, first of all, if I heard correctly, For the next couple of quarters, I think you're suggesting low to mid-30s as far as gross margin. So can you just talk to, I guess, first of all, what impact or has your gross margin profile expectations by segment changed as a result of the reclassifications that you called out and that are in your MD&A? And secondly... what impact do you anticipate with the onboarding of the two acquisitions, you know, on CDM in particular? How do we look at that, or what impact is that going to have on gross margins in the second half?
spk05: Great. Thanks, Nick. Yeah, I'll hand it over to Dan here. Great.
spk09: Thanks, Nick. So just with respect to gross margin, so we don't – disclose our gross margin by division, where we are not at this time. So it is blended overall. And so as part of my prepared remarks, we had our patient support programs that, you know, really their revenues came in much higher than originally anticipated, you know, which you see in terms of the strong revenues. But that did have, you know, a short-term impact as relates to our Q2 gross margins. with respect to future or sorry, with respect to the most recent acquisitions of, uh, on Citium and vision pros, um, and even with RXI, um, as part of my prepared remarks, uh, these companies operate, um, lower than the 41% gross margin from Q1. Um, I think in terms, so in terms of the guidance of the third, you know, the low to mid thirties that is in consideration of both of all three companies and actually the mix of revenues that we expect in Q3 and in Q4. So I think, and I believe for Oncidium, I believe it's publicly disclosed. I believe the gross margin that we had publicized was between 34 to 30, 34 to 35%. So hopefully that gives you a bit of color. as you think about how to model that for the balance of the year.
spk07: Okay, I guess a similar question on a relative basis. After all these shuffling, do you still expect enterprise to be your highest gross margin business? And should we, even though as you integrate in the second half and see gross margins coming down, when we continue to model and look out into 2022, given the enterprise announced contracts and you're highlighting, should we expect your gross margins as a result to kind of tick upwards, assuming that your enterprise gross margins in general still remain your highest contributors?
spk09: Right. So I think what I would say to that, Nick, is that both digital health services and our enterprise health solutions, the gross margins are, you know, quite healthy. There is, you know, there is scalability, you know, with respect to our cost base. And so there are some cost efficiencies and volumes that we can realize from that regard. We do expect over time for our margins for both digital services and our enterprise to increase, especially with Oncidium, where there are a lot of synergies with respect to their product offering and the ability. So as an example, their independent medical assessment business, we have a similar business with Refunction, and there's going to be synergies where there's going to be margin expansion from that regard. As it relates to just in terms of the shuffling of some of the companies that you had mentioned, that doesn't negatively impact the margin profile for those companies. We do, in terms of clinics and pharmacies, that is a bit of a lower margin profile, just given the nature of clinics as well as patient support programs, but our margins, uh, overall will, you know, continue to remain strong. And, you know, we are working on the background in terms of expanding those margins, um, you know, uh, that we should start realizing in, um, beginning of 2022. Uh, does that help answer your question on it?
spk07: Um, sure. Sure. Um, I guess, uh, you saw a question for you is, um, M&A, obviously you guys have done a large amount over the last year. You still have some capacity to continue to do so. I know on the last call you highlighted areas where you wanted to increase your footprint in both Ontario and Alberta, possibly look at Europe. I think there were some products you looked at. So just a whole bunch of stuff. I guess my question simply is, have you advanced any talks to the point where you've signed some LOIs alongside some of those initiatives?
spk05: Kind of expanding on what we said before, we do have an incredibly strong pipeline of acquisitions. It's shifted a little bit from The historically, you know, these types of acquisitions where we're bringing in capabilities we didn't have to now we have pretty much all the capabilities we need or a lot of the ones we need anyways. And those puzzle pieces are basically that we talked about before. And now we have the ability to do two things. One is expand those capabilities to other geographical locations. So you're right. We are looking at other geographical locations in the U.S. as well as other jurisdictions. But also the ability to tuck in, and you see that with the Sierra acquisition that we did right before we closed on Stadium, and the ability to now use the strong talent that we have and the infrastructure and tuck in these acquisitions at relatively good prices a lot more efficiently. So we're going to be able to use our capital a lot better now and expand further. So the revenue run rate that we talked about, as Dan mentioned, does not include any organic growth or any other acquisitions that we might make. but we're in the driver's seat now. We're not needing to do anything if we don't want to, but there are some very good things that we're looking at within our pipeline that do add to other jurisdictions and, again, expand our capabilities outside of where we are right now. So we will continue to look at that. In terms of whether we signed anything or not, we don't really refer. If there's anything material that we signed, we always do publicize it.
spk07: And then my last question, I guess, some clarity. I'm not sure. I think you said something along the lines of the debt facility signed with BMO was contingent, if I heard correctly, on Oncidium. EBITDA, I'm not sure if I heard correctly. And if so, is that what's driving the covenant? It's the Oncidium performance. And adding to that, I believe you alluded to that although the facility was backed by Oncidium, you can use that facility for acquisitions outside of Oncidium? Can you just confirm all that?
spk05: Yeah, I'm going to hand it over to Dan if you get some more clarity on that.
spk09: Great. So in terms of the debt facility, Nick, so the debt facility was a large component of that was based on the EBITDA earnings of Oncidium. And so There are debt covenants as it relates to the EBITDA performance of Oncidium. And so the Oncidium component of the debt facility took care of up to $25 million of the cash consideration on closing. And it does cover up to 80% of the contingent consideration or the earn-out as it's achieved in the next three years. And then lastly, there is, call it a $10 million acquisition line that is made available to CloudMD. So we can make those acquisitions outside of Insidium. However, we do see there's a lot of opportunities within EHS. And certainly, just as an example, in terms of the strategic tuck-in of CIRA Health Solutions, we're looking for you know, continue to look for certain assets, that's going to continue to bolster our, you know, product and service positioning within EHS.
spk07: Okay, great. That was great. Appreciate that, Culler. And that's it for me. I'll pass it on.
spk06: Thank you. Our final question for today comes from the line of Yuema from Research Capital. Your question, please.
spk02: Hi. Thanks for taking my questions. First, just to follow on that M&A question, so in terms of valuation of digital health companies, we saw the public sector is under some pressure. So did you observe the same trend in the private sector, and how does that impact CloudMD's acquisition strategy going forward?
spk05: Yeah, great question. Last year, I think there was a big rush with regards to a lot of these different companies that came out during COVID, and the valuations were quite high. The good news is we were able to bring everything in-house that we needed, like I said, those puzzle pieces, and create that infrastructure that we need. And we're in the driver's seat now to basically pick and choose good value acquisitions that are either tucked in or expanded. either our customer base or our capabilities as we need it. But the good thing is we're in the driver's seat now. In terms of what we're seeing in terms of valuations, it's all over the map. So we are seeing valuations going down in the private sector where they're a lot more reasonable. And I think that is a good trend to see as we continue with our kind of large war chest and the ability to kind of pick and choose and continue adding value. both the, like I said, the customer base, the capabilities, but also the geographical expansion that we're going to be looking for. So, yes, we have seen the valuations come down.
spk02: Okay, thanks, Ethan, for the color. My next question may be for Karen. So for the digital and enterprise segments, in terms of potential revenue growth going forward, How should we think about sales from cross-selling to existing clients versus sales to new clients?
spk03: Yeah, so that's a great question. So, you know, the cross-selling, I would say, is very predicated on an account management approach to each client. We have a process for we've educated the account managers in our company on the different products, and then we are systematically going to customers and creating the value proposition. When you think about the market, we have different people who are salespeople, direct sales team, who have sales targets, who are out doing client acquisition, which are customers that we don't currently have today. We have recently just put somebody in a role where they are doing the cross-pollination and selling in the marketplace to customers we currently don't have to do that. So we see, you know, as far as if you're asking specific targets for each, we are in the process of figuring that out. And it really comes down to on cross-selling customers where their current contracts are coming up, customers where it makes sense from them from a timing perspective. We want to be respectful of them with their current products and building it in with a value proposition and education. The acquisition market is totally different and has a totally different approach for us. So were you asking specifics on numbers or were you asking specifics on the how?
spk02: Yeah, just the general comments on how we should do that.
spk03: And we see a nice balance between both. If that's what you're asking, we see a nice balance between both because we think it's important for client acquisition outside of the clients we currently have. And then obviously Oncidium with their blue chip clients are very important to us both from... testimonials from the work they do. They're loyal clients. We have great client satisfaction levels from them with the current products that they use. So it's a nice segue for us. But we do have a laser lens on both with specific internal targets and KPIs for salespeople as it relates to both.
spk02: Yeah, thanks, Karen. And that's the question for Toby.
spk09: Sorry, it's Daniel here. And I just wanted to just kind of add, because I think this will be helpful, you know, for modeling purposes, as you kind of just think through in terms of organic growth rates. And so, you know, certainly right now it's still a bit early, given the pace of the acquisitions. But how we're seeing it is that, you know, we are, or at least how I'm seeing it, is that, you know, we are expecting that you know, an overall annualized organic growth rate of between 8% to 10%. And the reason for that is that, you know, we've added $96 million of annualized revenues in the quarter just through the four acquisitions. And so, you know, repeating a 9% quarter-over-quarter growth rate from Q1 to Q2 towards the future over a significantly larger revenue base, it's just going to be very difficult to – uh, to be, to attain. So we are, it's still very early on, uh, but I do want to just make sure that we temper expectations that, uh, uh, although we're seeing a lot of growth opportunities within, uh, the company organically, um, the growth rate will be reducing, uh, because there's a lot, a lot more revenues, uh, that we've added very recently and we're still digesting some of these acquisitions. And, uh, as Karen has been mentioning that, uh, There are a lot of cross-selling opportunities, but these things just will take a little bit of time.
spk02: Yeah, that makes sense. Thanks, Dan. Yeah, just my last question also for you. So there's the acquisition-related cost on the income statement, which was $2.9 million. I just want to confirm this is a one-time expense. Is that correct?
spk09: Yes, that's correct, Toby. So those are one-time expenses. I believe it's in the MD&A where we do detail out that the majority of that is primarily due to the finder fee associated with the acquisition of Vision Pros. So if we don't have any further acquisition-related work, those costs will go away or go down.
spk02: Okay, perfect. Thank you. I'll stop here.
spk06: Thank you. This does conclude the question and answer session as of today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.
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