CloudMD Software & Services Inc.

Good day and welcome to the CloudMD Q3 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mark Kindersma, with Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us today for our third quarter 2022 conference call and webinar. We'll start the call with our CEO, Karen Adams, followed by CFO, John Plunkett, who will provide a recap of the company's Q3 2022 financial results before opening up for a question and answer period with our covering analysts. A friendly reminder that today's discussion Discussions contain 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 information should not be interpreted as assurance of future performance or results. The risks related to forward-looking information are described in the company's MD&A, which is available on CDAR. We encourage you to review our public disclosure in the context of all forward-looking information that you may hear today during this learning call. Investors are cautioned not to place undue reliance on such forward-looking information and that such information is considered reasonable based on our information available to management as of today. However, the company disclaims any intention or obligation to update or review any forward-looking information as a result of new information, future events, or for any reason except to the extent required by law. That is my pleasure to turn the call over to Karen Adams, CEO of CloudMD. Karen, the floor is yours.

Thank you, Mark, and good morning, everyone. Welcome to CloudMD's Q3 2022 earnings call. We appreciate everyone being here today. In the last quarter, we focused on strengthening the business. We undertook a number of strategic priorities that are essential to execute. The execution is making us a stronger, more transparent organization. These priorities will improve the financial performance of the company while creating sustainable growth. Today, John and I will provide an update on the priorities of generating high-quality organic growth, restructuring cost efficiency, improved cash management, and our ability to surface value from the divestment of our clinics and pharmacies. This will enable us to focus on our Employer Health Solutions Division and our Digital Health Solutions Division. Collectively, we are making good progress. However, there is still a lot of work to be done in the next few quarters to see the results in top line revenue growth, margin improvement, EBITDA contribution and positive operating cash flow. The company is in a stronger place today than it was six months ago from an operational, financial and governance perspective. As John will outline today, we have taken an analytical, disciplined approach to delivering organic growth and a path to profitability and resolving the identified challenges. Today you will hear how the management team has worked hard to improve the balance sheet to reflect the current state of the company. This is very important in order to be able to monitor our performance and deliver shareholder value. This quarter we announced $27.5 million of revenue, which does not include the revenue contributions from the entire Clinics and Pharmacy Division or Cloud Practice, which have either been sold or are in the process of being sold. The comparable revenue for last quarter would have been approximately $30 million. The commercial team is replacing short-term non-recurring contracts with long-term recurring revenue base. While total revenue from continuing operations is down $2.5 million from Q2, this is due to two known factors. The first is the end of the ungated Ontario health contract, which ended in August. and as we disclosed on our last conference call, had a $1.5 million impact in the quarter. The other decline was the loss of the COVID testing revenue, which had approximately a $900,000 impact in the third quarter compared to the second quarter of 2022. It is difficult to replace this large one-time revenue in a short period of time. These large one-time contracts ending overshadow the growth and momentum in recurring contracts being acquired in our other revenue streams. The sales close year to date are indicative of an approximate 10% organic growth rate. We have also executed on the previously identified $4 million in reductions and have identified a further $6 million to be fully executed by mid-Q1 2023. These reductions will be realized through integration of operations as we scale, as well as costs associated with one-time mandates. John will go into more detail in the financial overview. I do want to take a moment before discussing the commercial update to address the economic and social environment. I have received lots of questions about these conditions and the growth potential of the company. The past two years have shone a light on the importance of health risk management. COVID has altered the distribution of health expenditures over the past two years. The pandemic has revealed a weakness in crisis preparedness and access to care. In the United States and Canada, healthcare spending is rising on both a per-person basis and as a share of the GDP. A global healthcare survey conducted by Willis Towers Watson reveals that employer healthcare costs globally are expected to rise by 10% in 2023 and by 6.3% in Canada. The study identified poor health habits as one of the top reasons for rising costs. These statistics reinforce the need for mental and physical health coaching if people are at work, off work, or returning to work, which is why we believe there will be continued momentum in adoption of our services. This is also true in our DHS division, where focus on accessible health care through health and productivity tools will continue to be required as the focus on access to care continues to evolve. Within the current economic conditions, the demand for healthcare services will continue to rise. Employers will continue to invest in healthcare for their employees, and healthcare providers are dependent on tools to improve productivity and access to care. This is a strong tailwind for years to come, and we are well positioned to take full advantage. Looking at our employer healthcare offering, we are seeing strong momentum. Year-to-date through the third quarter, we have added $8.8 million in annual reoccurring revenue contracts across all our operating divisions. We continue to focus on winning business and executing on our strong and diversified pipeline and are confident in our team's ability to win new business. We are expecting to realize the full revenue lift from contract signed in 2022 into 2023. Contract wins in the quarter represented small, medium, and large organizations. They included multi-product, multi-year ICBT, medical second opinion, mental health coach, and employee and family assistance program. One of our key differentiators within the mental health support solution is that we have fully integrated our proprietary mental health assessment tool, SNAP Clarity, as well as ICBT, EFAP, and mental health coach into the offering. This will enable us to broaden the access to care while improving health outcomes. the combined offering will result in a better cost per case and leading to a higher gross margin. Within the quarter, there were notable contract wins across multiple geographies, including large unions, government organizations, industrial companies, and financial services. Our commercial team secured a significant win with the Teacher Association for our second medical opinion product. In the quarter, we saw a 33% increase in the number of opportunities in the pipeline. We believe that the current pipeline is aligned with our revenue expectations. Sun Life was the early adopter of our mental health navigation service. The mental health coach product is proving its value and producing measurable health outcomes, including an average of 2.8 week improvement in short-term disability length, 21% fewer casual absence hours, and higher returns to work. This directly translates into lower disability costs, more productivity and employee engagement. This program has been rolling out in a phased approach to Sun Life customers and will now be available in January 2023 as an add-on to an existing group benefit contract. We are also taking important steps to improve the quality of our revenue and prioritize generating more meaningful, higher margin revenue versus just adding to the top line. In the last two quarters, we have integrated our sales team and created a focus on national accounts. In the last two quarters, 50% of the new contracts were employer direct. These contracts have lower churn and multiple services, therefore a higher lifetime value. We've also taken a critical eye to where contracts have started to engage in some purposeful churn from legacy low margin contracts that don't meet our margin expectations. I would like to spend the last few minutes on our digital health solutions division, which we refer to as the health and productivity tools for providers. This division's growth strategy is being developed by new leadership under Nathan Lane. Nathan is focused on extracting value and growth from our offerings. As an example, we have identified additional growth market segments within IDEA 4, which offers consulting and creates access to healthcare through connecting systems. This division has started to see significant pipeline growth outside of government agencies to hospitals, clinics, and care organizations. This is a large new addressable customer base beyond our traditional work with various federal and municipal governments. In Vision Pros, we are expanding the offering to our employer customers and embedding it into other programs. We are reducing direct marketing spend and investing in ensuring a high reoccurring customer model and distribution partners. Our distribution partnership team recently signed a marketing partnership with Neo Financial to distribute Vision Pro's product. With the Vision Pro product, we expect lower direct marketing expense by using these distributors to grow the pipeline. We will be launching an innovative prescription renewal product and glasses in Q1 2023. Benchmark continues its steady progress and is growing its revenue. We are executing on our priorities and the results are starting to be realized through our financials. The management team have developed KPIs that are evolving in order to deploy a continuous improvement approach to sales and profitability. I'm going to pass it to John to discuss the other half of the equation cost optimization, and then our Q3 results. John?