CloudMD Software & Services Inc.

Good day and welcome to the CloudMD fourth quarter 2022 earnings conference 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 one one on your telephone. You will then hear an automated message advising that your hand has been raised. To lower your hand, press star one one again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Mark Kindersma, Head of Investor Relations. Please go ahead.

Thank you, Andrew. And good morning, everyone. Thank you for joining us on our fourth 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 view for 2022 financial results before opening the call for question and answer period with our covering analysts. A reminder that today's discussion contains 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 assurances 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 call. Investors are cautioned not to place undue reliance on such forward-looking information and that such information is considered reasonable based on information available to management as of today. The company disclaims any intention or obligation to update or review any forward-looking information as a result of new information, future events, or any other reason except to the extent required by law. With that, it 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 Q4 2022 earnings call. In the fourth quarter, we generated $25.9 million in revenue. This represents a good baseline of reoccurring or reoccurring revenue to grow from in 2023. This comes after the divestment of our clinics and pharmacies, which we viewed as not a long-term fit for the company. These assets will require significant capital grow and have low gross margins and EBITDA contributions. For the company to grow, we must focus on services that can scale efficiently. This is in our healthcare navigation and integrated employer offering that in Canada alone through employer group benefits is a multi-billion dollar industry. 2022 was a difficult year for CloudMD that overshadowed the positive momentum and forward-looking KPIs we saw across our business. In 2022, we dealt with issues related to the 15 acquisitions we completed over eight quarters. In the first half of 2022, there were significant changes in leadership at the executive and board level. Beginning in Q3, as we assumed our new roles, John and I were able to take a deep dive into the financials and an in-depth review of the acquisitions, evaluating their financials and potential for growth. In Q3, I spoke to you about the importance of strengthening the business and the balance sheet. We identified the strategic initiatives that we felt as a leadership team were important to right-sizing the organization for sustainable growth that would provide shareholder value. Those initiatives were to, one, generate high-quality organic growth, two, find operational improvements with integration and cost efficiencies, and three, improve cash management. Our team is focused on cost reductions and is working collectively to reduce our quarterly losses on a path to profitability. Generating positive cash flow is a top priority. The focus on moving from cash burn to free cash flow by the end of 2023 will be a combination of cost reductions, gross margin improvement, and organic growth. This will ensure a sustainable, scalable business. During Q4, the team worked on back office workflow integration and achieved revenue growth and key services that required alignment with the organization. The improved organizational design is required to take advantage of our business model of one company with diversified services that needed to be interdependent of each other for scale and to achieve profitability. This work is in the execution phase with a lens on improving growth margin and cash flow. We are also seeing traction in our forward-looking growth KPI. We are at a pivot point as we see momentum in cross-selling and up-selling. Multi-product sales represented 33% of new sales this quarter, a 30% increase over the previous quarter. We added 374 new contracts in Q4 representing various industries and geographies. Our top seven contracts average over 100,000 in ARR. For the full year, we signed 12.2 million in new contracts and our pipeline entering 2023 expanded to over 55 million, which is balanced across all services from both operating divisions. I would now like to address the growth of customers in 2022. In 2022, organic growth was overshadowed by three factors we have discussed before. The first being the unwinding of our COVID response business with unoccupational health and mental health capabilities. The second being the stabilization of vision pros, our vision care offering. The third was the divestment of our clinics and pharmacies that were in BC and Ontario. Outside of these, we were able to grow our mental and physical health services significantly in 2022. This growth was achieved because of our proven service deliveries and our ability to become the provider of choice for those companies that have chosen CloudMD for their physical and mental health services. Our ability to offer virtual in-person and on-site services augmented by industry-leading provider network contributed to this growth. The spend on mental and physical health by employers continues to gain momentum with the unprecedented focus on the needs for health risk management and their need to see a return on investment. In Q1 2022, we added the MindBeacon acquisition to expand our reach for mental health support while improving gross margin. The MindBeacon acquisition was also intended to diversify our offering in Canada and the U.S. through the ICBT platform. Clinical interventions must be proven when you add them to your service offering. This platform has been clinically proven to be able to improve mental health. We believe this was an important consideration in being able to offer this service to users with confidence in achieving health outcomes. The benefits of this acquisition were slower than anticipated, specifically related to gross margin. This platform is used with our other physical health navigation services to improve wellbeing. In Q4, we launched the Spanish version of MindBeacon platform while also integrating the offering into our employee family assistance program. In our mental health and services division, the pace of new business has not been able to offset the impact of the COVID related revenue resulting in a decline quarter over quarter. However, The clients with those one-time mandates are still existing clients using other services. It is important that during a major health pandemic, these clients turn to CloudMD to support the risk management of their employees. Our ICBT is now available province-wide as a service offering through the Ontario Structured Psychotherapy Program, following a competitive process through Ontario Health funded by the Government of Ontario. This comes on the heels of CloudMD's ICBT work, also funded by the Government of Ontario, which helps support the mental health needs of some of the 65,000 people in the province during the pandemic, with health equity benefits, broader and more timely access to care, and reduced stigma. Both of these initiatives provide innovative, made-in-Canada virtual services that can serve as an effective and cost-effective model for the rest of the country. They can also continue to help address burnout, better use of the healthcare system, and economic recovery. There is momentum in forward-looking KPIs and client adoption of our full suite of services. We are seeing increased cross-sells, strong new customer wins, and a growing pipeline. After the quarter end, we won a few noteworthy contracts, including a new vendor of a record agreement with Mohawk MedBuy, which included a first hospital customer to provide EFAP, ICBT, mental health codes, and nurse navigation services. Mohawk MedBuy supports hundreds of its Canadian hospitals, and this agreement gives its members access to a broad array of CloudMD services to support the growing needs of healthcare workers and their families. In addition, we expanded our partnership with Benefits Alliance, a national group benefits consulting firm that manages over 8,000 employee benefit plans across Canada. Both partnerships are for the full suite of key services, including employee and health and family assistance program, mental health, physical health navigation, occupational health assessments, and absence management, all accessed via 24-7 phone line or a fully integrated digital platform. Benefits Alliance is a good example of how we are supplementing our direct sales team with high-quality sales partners that lower fixed costs and overall customer acquisition costs while expanding our addressable market. We expect the impact of this new partnership to be felt gradually over the course of the year. In our absence management services, revenue growth saw slower return in our onsite occupational health services and assessment services. In fiscal 2023, we expect to see continued momentum in this market as customers are looking for alternatives to solving their individual health issues and better return on their investment of group benefits spent. We continue to see high adoption rates given our ability to address the preferences of treatment where our provider network offers in-person, virtual, and on-site. As mentioned, for employers, this is a multi-billion dollar industry that expected proven solutions that will accelerate the return on investment. Turning to our health and productivity tool segment, revenue has declined this year due to the previously discussed issues at VisionPros. Volumes have been lower in vision care due to distribution issues, as well as a purposeful decreased spend on customer acquisition costs as we focus on cash flow. The commercial team is looking for alternative ways to leverage our client base to increase volumes without the acquisition cost. The launch of online prescription renewals is part of the steps we are taking to improve customer lifetime value and the operating margins in vision care. In our technology services operating segment, the pace of revenue has been delayed by signed government contracts. These delays are a result of work tasks outlined in the contracts. However, in order to reduce dependency on government, we are diversifying our revenue from government contracts with consulting services to our newly launched digital life and health platform that creates interoperability between health services in the United States. This platform evolved from the key platform and developed as a digital front door for our U.S. customers. The pipeline for this product is growing rapidly, and we anticipate accelerated growth in 2023 in this very attractive market space. Finally, remote patient monitoring pipeline continues to grow as we work to monetize our technologies to solve a variety of health and wellness needs. We will continue to focus on operational improvement. I'm proud of the team's focus on the need to realign the cost structure of the company and the results we have been able to achieve. Every single member of this company is laser focused on profitability and reaching cash flow positive. Since the start of 2022, we have auction cost reductions of 16 million and made significant reductions to our cost base. To date, we have accomplished these savings primarily through reductions in multiple areas, including duplicate rules, deployment of technology, and real estate. We still have a little more savings to come from the integration and believe there is a significant opportunity in improved efficiency across the business. This signifies our strategy in action as we begin you to execute on the plan for organic growth and cost savings. I'm proud of the team for being able to identify these cost savings in 2022. And then as we migrate to more back-end office consolidation, we've identified a further $5 million for 2023. We are focused on paths to free cash flow and EBITDA positive. Now I will turn the call to John Plunkett to discuss our financial performance, cash flow balance sheet, and our guidance outlook for fiscal 2023.