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spk07: Good day and thank you for standing by. Welcome to the CloudMD first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Kinderswa, Head of Investor Relations.
spk03: Thank you, and good morning, everyone. Thank you for joining us for our first quarter 2023 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 Q1 2023 financial results before opening up for a question and answer period with our covering analyst. A 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 information should not be interpreted as an assurance of future performance or results. The risks related to forward-looking information are described in the company's MB&A, which is available on CEDAR. We encourage you to review our public 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 such forward-looking information that such information is considered reasonable based on information available to management as of today. However, the company disciplines any intention or obligation to update or review any forward-looking information as a result of new information, future events, or for any other reason except to the extent required by law. That is my pleasure to send the call over to Karen Adams, CEO of CloudMD. Karen, the floor is yours.
spk17: Thank you, Mark, and good morning, everyone. Welcome to CloudMD's Q1 2023 earnings call. I will provide an update on our strategic initiatives of generating high-quality organic growth and operational improvements through integration, cost efficiencies, and cash flow management. Our key financial metrics trended positively in the quarter and demonstrate our commitment to stability, profitability, and growth. In the first quarter, we generated $26.1 million in revenue, which represents sequential growth off the baseline of reoccurring revenue we saw in Q4 2022. This comes after the one-time COVID mandate revenue losses behind us, and it is the first time we have seen organic revenue growth since Q1 2022. This is attributed to a new customer acquisition and an increase in multi-service sales. Our shift in focus to health risk management, healthcare navigation, and the employer group's benefits market is resulting in sustainable, profitable revenue growth. I have spoken to you in previous calls 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-size the organization for sustainable growth that would provide shareholder value. Those initiatives were, one, generate high-quality organic growth, two, find operational improvements with integration and cost efficiency, and three, improve cash management. During Q1, the leadership team continued to work on the back office workflow integration and organizational design. As I previously reported, this is required to take advantage of our business model of one company with diversified services that need to be interdependent with each other for scale and to achieve profitability. This work is in the execution phase, and we are seeing improvement in growth margin and cash flow. We've reduced our core operating expenses by 4% sequentially and realized a $0.9 million improvement in adjusted EBITDA. These measures indicate that we are executing on our strategy. We added 228 new customers in the first quarter, and 39% were multi-product sales, which exceeded Q4. We added over 2.9 million in new ARR. We are also experiencing a shorter sales cycle over prior quarters as our brand and capabilities are gaining momentum in the marketplace. Our pipeline expanded to 57 million, which is balanced across all services from both our operating divisions. Larger opportunities with longer sales cycles are not included in the pipeline, but continue to progress well. In our health and wellness services, we continue to see strong momentum in cross-sell, new customer wins, and a growing pipeline. New customers represent a U.S. casino, manufacturing company, a municipality, a hospital, a transportation company, and a national insurer, to name a few. In Q1 and subsequent, we added three new distribution channel partnerships who are committed to providing health risk management and navigation services. We expanded our partnership with Benefits Alliance, a national group benefits consulting firm that manages over 8,000 employer benefit plans across Canada to include the availability of our full spectrum of employer health services. We also became a vendor of record for Mohawk MedBuy, a shared services group that supports hundreds of hospitals across Canada which included a first hospital customer for our employee assistance program, ICBT, mental health coach, and nurse navigation services. And we assigned an agreement with XTM, a FinTech provider to the hospitality, personal care, and service staff for EAP and telemedicine. These partnerships enable us to supplement our direct sales team with partners who are focused on high-quality clinical programs that address the needs of their workforces. Both XTM and the Mohawk partnership are aimed at supporting workplaces that have been most impacted in the last few years and require clinical support for employees' health and well-being. We expect the impact of these new partnerships to be felt gradually over the course of the year. These relationships are examples of how we are partnering with organizations that are trusted advisors to their clients in providing industry-leading programs that solve health, wellness, and well-being issues. Post-quarter, we signed a new agreement with a national insurer to provide mental health support treatment for complex claims. We were selected based on our navigation and ability to support individuals in treatment for a return to function. Product enhancements during the quarter included live chat for nurse care coordinators and new content in our resource library. In Q1, we launched ICBT in Spanish and English in the US, which can now be offered in our life and health application that we will discuss in a moment. These initiatives are aligned with our efforts to increase the lifetime value of a member and provide better delivery systems for our healthcare provider network. In our health and productivity solutions division, we continue to diversify revenue with a shift to build pipeline for our digital life and health platform, which is the primary driver of a remote patient monitoring offering. In addition, the platform helps to create interoperability between health system services in the United States. We have been successful in developing a channel partner network for distribution of this solution and expect a higher degree of traction in the market in Q2 and Q3. This platform has evolved to be our digital front door for our US customers. Our health and productivity navigation tools positively impact engagement and health outcomes in gaining market traction. Specifically, there is a large pipeline growth for our remote patient monitoring services. and we are working to convert some large opportunities. Remote patient monitoring is the key to digital delivery of patient care and the ability to show health outcomes. Telehealth is a $92 billion market in the U.S. and is expected to see a 30% KGAR to 2030. Remote patient monitoring coupled with our life and health app is a focus of our U.S. growth strategy. This provides a simple and rapidly growing revenue opportunity that when integrated with our other CloudMD offerings such as ICBT and our content management system, will provide a foundation for implementing a market-leading solution. We are realizing the customer benefits of the integration of the assets that are resulting in large pipeline opportunities. Last quarter, I spoke about our focus on operational improvement. I continue to be proud of the team's focus on aligning the cost structure of the company and the results that they have achieved. Since the beginning of 2023, we have action cost reductions, including organizational redesign to align to client needs and corporate shared services costs. Our savings going forward will focus on improved efficiency. We are effectively using our 22,000 healthcare providers through our consolidated call center. This enables the effective use of our intake personnel and the network of providers. All things I've spoken about today signifies our strategy in action. I am proud of the team as they focus on the path to profitability. Now, I will turn the call to our CFO, John Plunkett, to discuss our financial performance.
spk18: John? Thank you, Karen, and good morning, everyone. I've started each of our recent earning calls the same way, and at the risk of being repetitive, I'll say it again. Our near-term focus and number one priority is reaching profitability and demonstrating our ability to self-fund growth on an ongoing basis. We continue to close the gap towards that milestone. We actioned $1 million in net annualized cost savings in Q1 2023 and have identified a further $4 million of cost savings that we are working on executing in the second and third quarter of 2023. In the fourth quarter of 2022 and first quarter of 2023, we have discussed $6 million in annual cost savings or $1.5 million in quarterly savings. And since our Q3 2022 quarterly report, our core operational expenses, G&A, sales and marketing and R&D have declined by $1.7 million in quarterly expense. It is encouraging that the work we've done on our cost base is showing up in our income statement. Turning to the financial performance in Q1, we generated total revenue of $26.1 million compared to $25.9 million in Q4 2022. Health and wellness services contributed revenues of $21.1 million compared to $20.4 million in Q4. We saw organic growth as we started to recognize revenue from more of the new contracts we sold in 2022, offset by some attrition in our occupational health business. Looking at the remainder of 2023, we are forecasting low double-digit revenue growth off of our fourth quarter 2022 baseline based on the contracts we've already signed and our expected sales from our current pipeline. Health and productivity solutions generated revenue of $5 million in the quarter compared to $5.4 million in Q4. The decline was due to lower revenue in VisionPros. We have a strong pipeline in this division, and we expect it will yield solid growth as we progress through 2023. Growth profit in the quarter was 36.1% compared to 34.5% in Q4. Looking ahead, we are targeting mid-30% margins in the near term, with margin expansion expected as we progress through 2023. Core operating expenses, which include G&A, sales and marketing, and R&D, were 11.6 million, down 0.5 million, or 4% sequentially from Q4. In addition, our acquisition-related integration and restructuring costs were 1.2 million lower compared to the previous quarter, as there were significantly less one-time costs in the quarter. As I spoke about earlier, we've identified an additional $4 million of annual cost savings or $1 million in quarterly cost savings that will start to take effect during Q2 and should be fully included in our financials as we exit the third quarter. Adjusted EBITDA in the quarter was negative $1.6 million compared to negative $2.6 million in Q4. The improvement is related to the work we've done in the last year to align our cost structure and from increased gross profit. Looking ahead, we believe there is still more room for improvements from cost optimization in 2023. Going forward, however, more and more of the EBIT improvements will come from organic growth and operating leverage. We started the quarter with $24.1 million in cash. As we discussed on last month's call, Q1 cash use was higher than normal as we paid one-time fees related to some of our integration and cost saving actions. We used $1.7 million of cash in operations normalized for changes in working capital and one-time costs like severance. Our total normalized cash usage was $3.9 million, down from $4.6 million in Q4 2022. We are making progress, but there is still work to go for us to reach our stated objectives. We exited the quarter with $18.8 million in cash. Looking ahead, we expect cash usage to trend downwards as one-time fees become lower, and we expect incremental EBITDA improvements throughout the year as the impact of our cost savings and growth flow through our financial statements. With that, I'll pass the call back over to Karen.
spk17: Thank you, John. In conclusion, we have achieved the necessary foundational milestones that we can point to. Revenue is growing, growth margin continues to show improvement, cost cuts are being achieved, and adjusted EBITDA is improving. We are excited by our partnerships with clients as they trust us to empower healthier lives. We are laser focused on our strategic initiatives and growth pillars. We recognize that this effort takes time. I do believe that time is what will result in long-term sustainable results. I want to thank our staff and healthcare providers for their ongoing demonstration of their ability to not only support but execute on our strategic initiative. I want to thank our customer and partners who entrust us to manage the health risk of individuals. You have our commitment to continue the momentum and path to change. With that, we'll open up the floor to questions.
spk07: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
spk05: Our first question comes from Robert Goff with Echelon.
spk07: You may proceed.
spk09: Thank you very much and congratulations on the quarter.
spk14: Thank you. Thanks, Rob.
spk09: Karen, you discussed
spk17: announcements around partnerships could you talk to your sales and distribution strategy and traction that you're seeing in the US in particular yes thank you for the question I'll start with the US and circle back though on Canada because I think they're both relevant so in the US we signed a distribution partnership the US is as you know a very large market to reach that market we have been successful in in securing partnerships who represent a series of products that they sell to other organizations. And that partnership has resulted in a very good pipeline growth in a very short period of time. And so for us, it's a much more cost-effective way of distributing our products because they have the relationships with the clients that we end up servicing. And we're selective about those partnerships. And we did our due diligence and we have a very experienced salesperson in the US who has sold in this market for a large number of years and was able to screen those distribution partnerships to make sure we collected the right one that was going to produce shorter sales cycles and quicker results. In Canada, we have the same thing. We have three business models in Canada. We sell through partnerships with brokers and advisors who are agents of record for employers to distribute group benefit plans. So we've been very successful in securing those partnerships. Then insurers, we have relationships with insurers who also represent clients. And then the third is direct. And the interesting thing for CloudMD is that in the direct, there's usually an agent of record involved or an insurer involved. So we've been able to leverage those relationships to be able to secure our sales efforts across those three, which is a very cost-effective way for us of delivering sales.
spk09: Thank you. In your comments, you did discuss putting the one-time COVID-induced revenues behind you. Along that line of thought, could you talk to the mix of revenues for 2023 in terms of your exposure to recurring and highly reoccurring revenues for the year and how that might contrast with what it would have been back in COVID days or back in 2022?
spk17: Sure, sure. Well, let me start and then John can jump in. You know, what I would say is the business is predicated on reoccurring and recurring revenue. That is the business model for which this company was founded upon, which leads to long-term customer relationships. However, in these customers, there's also mandates where they have either health risk issues or they have specific needs related to environmental, social, where they're dependent on us to deliver some health risk management programs that are classified in our world as one-time mandates. It's kind of a strange situation for us because you want to be the partner that they can rely on to deliver on these one-time mandates. But we recognize that those one-time mandates can skew the revenue. And that really is what happened with COVID. These customers, you know, for the first time, for many of these customers, they were put in a situation where they had to manage employees in the workplace. And so they were dependent on Cloud Entity. They were all customers on our recurring or reoccurring revenue who came to the forefront and asked us to be innovative. And we responded. And I think that responsiveness led to probably unprecedented levels of one-time mandates that skewed the revenue profile of the organization. But now we have gone back to our recurring and reoccurring revenue. However, there's always one-time mandates, but the magnitude of those mandates related to COVID were unprecedented, I would say. So anytime there's a health risk issue, we will be responding to our clients with the one-time mandates as a dependency around healthcare navigation. But John, I don't know if you have any additional financial comments you'd like to make.
spk18: Yeah, for sure. So I think the only thing I would add there, Rob, is that, you know, kind of one-time mandates as a percentage of total revenue in the comparative quarter were, you know, probably about 20% of our business, where, you know, today I think the... you know, about 90% is recurring or reoccurring in nature. And I think the other piece to call out is that, you know, we had significant revenue concentration in some of these larger mandates a year ago, whereas I think our revenue is more broadly distributed today in Q1 2023. So I think the revenue profile overall looks a lot better now than it did a year ago.
spk08: Great. Thank you very much, and good luck.
spk17: Thank you for the questions, Rob.
spk07: Thank you. Our next question comes from Gabriel Leung with Beacon Securities. You may proceed.
spk06: Good morning, and thanks for taking my questions. Karen, do you mind spending a little time just talking about the remote patient monitoring platform? You've alluded to that platform and some potentially large opportunity in the U.S. So, can you just walk us through that platform itself in terms of you know, what sort of, you know, patient base is that targeted towards? Is it seniors? Is it chronic disease patients? And maybe just talk a little bit about what you expect the revenue model for that business to look like.
spk17: Sure. So this is remote patient monitoring. The target audience for this right now is hospitals or healthcare providers to manage patients. It's not intended to be a... emergency response service this is some these are people who have to manage their health and well-being over a specific time period and I think that you know the larger distribution networks which are the hospitals and the large physician networks align ourselves very well to having a large patient populations that we can depend on so the revenue model is a price per patient And for us, it's about finding those large hospitals and being able to market the product through those distribution channels to show health outcomes, whereby somebody's being able to manage a particular illness and stay out of the hospital or stay out of the doctor's office, which creates a little more momentum for the individual. And then from a paid, the way that people are paid is through the insurance or through Medicaid. And that enables, you know, reassurance, I would say, around the payment model is coming from an insurance model, which we're familiar with, as you know, in Canada and how we distribute our products. But John, is there anything you'd say on the revenue profile of this business?
spk18: I think the only other point I would add is that probably more so from a profitability profile. I think it's attractive insofar as the gross margins, even the margins of this particular product is higher than our current core business. So I think the opportunity for both the revenue and profitability standpoint is quite attractive. Good point.
spk06: I'm curious if you've actually been able to sign maybe some smaller customers for the platform yet, just to get a gauge of how rollouts for the platform might have gone. Have you had any success in signing customers?
spk18: Yeah, so at this point in time, we've had a few contracts that we've completed. In terms of the size and scale of those, that's certainly not what we're looking to achieve at this point in time. So we're starting to get a bit of traction and very optimistic that as we progress through 2023, the more meaningful opportunities will come along.
spk17: Yeah, so I think in the smaller groups, the rationale, Dave, of starting there with the smaller groups is just the familiarity of being able to have a track record of delivery and reassure ourselves on the whole delivery system as we put it together because we've added assets across CloudMD to be able to augment the offering. So we are ready for these larger distribution channels now. And I think the partnership that we find with the company who's helping us distribute also feels very confident. They've been in this market a long time and feel very confident in our ability to deliver.
spk06: Gotcha. And then just going back to your commentary around the $57 million pipeline, I'm just curious if you can talk a little bit about maybe the composition of that pipeline and sort of your confidence level in being able to close the opportunities in there right now.
spk17: Great question. Thank you for that, Gabe. So, yeah, we're seeing, I think we've moved from $50 million closing out Q4 into our last conference call where we were providing updated numbers to 55 million to today where we're at 57 million. The pipeline is being augmented by I would say a couple things. First is larger multi-service sales. So our subject matter experts who are in the operating business are now feeling more comfortable, knowledgeable around the other service offering and are able to talk to their customers about the benefits of adding, I'll give you an example in disability management, adding our mental health treatment to be able to lower the disability days and a more wholesome return to function. So I think that the subject matter experts are now also augmenting the pipeline, which is, I think, new and different for us. Took them time to learn the products and also took them time to build their confidence and ability to deliver those products. I think the second thing is, We made a strategic decision to separate the two divisions. So we have Nathan Lane, who's leading our health and productivity tools in the US. We have Bram Lasky leading our operations here in Canada around the employer group benefits area. And I think that that segregation has led both leaders to be really thinking about how to grow their business and having the confidence in their operations to be able to onboard new customers. So they too have been augmenting the sales efforts of the direct sales team. And then finally, I'd say with the direct sales team, you know, with the addition, we have a new salesperson out in Western Canada. We have a couple of strong salespeople here in Ontario. And then we have Antoine in Quebec who is leading Atlantic Canada Quebec. I think some of those, the pipeline growth is coming from, you know, the onboarding of the salespeople and the time that it's taken them to build their pipelines. We feel very confident that that pipeline not only will grow, we're starting to measure the looking back in time against all quarters last year of sales cycle time, time from proposal through to close, and a significant reduction from proposal to close is being observed in the sales team. So huge kudos to the sales team and the account management team and subject matter experts who are working with clients collaboratively across the organization.
spk06: Gotcha. Thanks for that. Yeah, no, that's perfect. Thank you. Just one last question for me. Just wondering if you guys have a status update on the final piece of your, I guess, divestiture initiatives. I think there's just one piece left, and it's carrying a little bit of cash right now. Just wondering how close you are in terms of finalizing that divestiture.
spk18: Yeah, so I guess the piece you're referring to, Gabe, is the RxI business. It's something that we're working on right now, and we'll be able to provide an update on at our next conference call. As we've mentioned in our disclosure, we're not expecting it to yield anything significant for the organization, but understanding that there's a cash burn associated with it, so we're trying to action it as quickly as we can.
spk06: Gotcha. Well, thanks for all the feedback, and congrats on the progress.
spk16: Thank you very much, Gabe. Appreciate your questions and your feedback.
spk07: Thank you. Our next question comes from Nick Agostino with Laurentian Bank Securities. You may proceed.
spk04: Yes, thank you, and good morning, everybody. So just one quick question, just looking at the overall business as you guys refocus it. And as we look today, it looks like for 2023, again, you guys confirmed low double-digit organic growth. I think you called out mid-30s gross margins and the target to hit EBITDA break even by the end of the year. I'm just wondering if we look out three to five years, just given the pipeline and the business you're trying to build, can you maybe give us an idea as to what type of organic growth you think this business can generate in a steady state environment? What kind of gross margins are you targeting? Is it a mid-40s range? and what is the more mature EBITDA margin that we should be thinking longer term?
spk18: Yeah, sure. Let me start, Nick, and then, Karen, please feel free to add to it. So, as we mentioned in some of our disclosure this quarter, we're obviously targeting low double-digit growth in 2023. I think we've called out that there's an opportunity to continue to drive more multi-product sales. I think we're seeing an increase in multi-product sales. We're seeing an increase in cross-sell. And I think we're also seeing, besides the opportunities coming to us, that are increasing. So I think that... Certainly, increasing our growth off this low double digit is something that we're targeting. I'm not going to put a specific target out there, but I think we're going to be able to drive that growth rate up as we move through 2023 and obviously into the horizon. From a gross margin standpoint, I think it depends on whether we look at our business today. or we look at some of the opportunities that are in front of us. So I think the business today and the services that we're offering, certainly getting to 40% plus gross margin is a target, and I think it's very achievable. And I think some of the opportunities that we're using or we're looking at growing around the health and productivity tools are going to allow us to drive margins in that part of the business higher as well. So the business today, I would say 40% plus gross margins And then, obviously, as we change our revenue mix to more, you know, technology and tools, I think there's going to be an opportunity to expand further. And then, finally, from an EBITDA standpoint, you know, once again, the business today, I think EBITDA margins in sort of the, you know, high teens, 20%, is, I think, a very reasonable target off of a, you know, let's call it a 40% gross profit margin. Karen, I'm not sure if you would add anything.
spk17: Yeah, no, I think you've hit it. I think, you know, one of the things that we, Nick, we were very conscious of was when we brought Druve in to lead our technology division, we did that with a line of sight to be able to improve our delivery systems, create scale, and be able to lean ourselves more towards a SaaS-based model in some of our offerings. And I think that will dramatically help us improve our gross margin and our EBITDA. I think on the revenue side, we feel very confident in the remote patient monitoring product offering in the US. We feel very confident in the sales strategy and the leader who's leading that. So I would expect that that will contribute a lot into the revenue growth. And I would also say, as in any new product, where you have the market entry and you do it correctly, you should see a higher revenue growth pattern as it relates to that. So we are working, John and I are working hard for the next quarter to develop a little bit more succinct KPIs for you guys, where you'll be able to look at the financial metrics and link our KPIs, because we don't feel right now with the diversity of our business, we're able to give enough indicators right now that give confidence in saying, yes, we can see that trend toward a larger, as an example, revenue growth because of these things that you're talking about and they correlate to revenue. So I feel very confident in the numbers that John has provided. And thank you for that question. It's a great question, Nick.
spk04: I actually appreciate the response of a good detailed color. And just one last one, just housekeeping. Karen, can you just call it again how many customers you add in the quarter and what percentage were multi-sales?
spk17: Yes, so we added 228 customers. We had 39% of those were multi-product sales, which is up from the previous quarter, which I believe, John, was 33% multi-product sales in Q4.
spk02: Okay, appreciate it. Thank you.
spk17: Thank you, Nick, for the question.
spk07: Thank you. And this concludes today's conference call. Thank you for participating.
spk05: You may now disconnect. Thank you. you Thank you. Thank you. Thank you. Thank you. Thank you.
spk07: Good day and thank you for standing by. Welcome to the CloudMD first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Kinderswa, Head of Investor Relations.
spk03: Thank you, and good morning, everyone. Thank you for joining us for our first quarter 2023 conference call and webinar. We'll start the call with our CEO, Karen Adams, followed by CFO, John Plunkett. We'll provide a recap of the company's Q1 2023 financial results before opening up for a question and answer period with our covering analyst. A 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 information should not be interpreted as an assurance of future performance or results. The risks related to forward-looking information are described in the company's MB&A, which is available on CEDAR. We encourage you to review our public 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 such forward-looking information that such information is considered reasonable based on information available to management as of today. However, the company disciplines any intention or obligation to update or review any forward-looking information as a result of new information, future events, or for any other 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.
spk17: Thank you, Mark, and good morning, everyone. Welcome to CloudMD's Q1 2023 earnings call. I will provide an update on our strategic initiatives of generating high-quality organic growth and operational improvements through integration, cost efficiencies, and cash flow management. Our key financial metrics trended positively in the quarter and demonstrate our commitment to stability, profitability, and growth. In the first quarter, we generated $26.1 million in revenue, which represents sequential growth off the baseline of reoccurring revenue we saw in Q4 2022. This comes after the one-time COVID mandate revenue losses behind us, and it is the first time we have seen organic revenue growth since Q1 2022. This is attributed to a new customer acquisition and an increase in multi-service sales. Our shift in focus to health risk management, healthcare navigation, and the employer group's benefits market is resulting in sustainable, profitable revenue growth. I have spoken to you in previous calls 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-size the organization for sustainable growth that would provide shareholder value. Those initiatives were, one, generate high-quality organic growth, two, find operational improvements with integration and cost efficiency, and three, improve cash management. During Q1, the leadership team continued to work on the back office workflow integration and organizational design. As I previously reported, this is required to take advantage of our business model of one company with diversified services that need to be interdependent with each other for scale and to achieve profitability. This work is in the execution phase, and we are seeing improvement in growth margin and cash flow. We've reduced our core operating expenses by 4% sequentially and realized a $0.9 million improvement in adjusted EBITDA. These measures indicate that we are executing on our strategy. We added 228 new customers in the first quarter, and 39% were multi-product sales, which exceeded Q4. We added over 2.9 million in new ARR. We are also experiencing a shorter sales cycle over prior quarters as our brand and capabilities are gaining momentum in the marketplace. Our pipeline expanded to 57 million, which is balanced across all services from both our operating divisions. Larger opportunities with longer sales cycles are not included in the pipeline, but continue to progress well. In our health and wellness services, we continue to see strong momentum in cross-sell, new customer wins, and a growing pipeline. New customers represent a U.S. casino, manufacturing company, a municipality, a hospital, a transportation company, and a national insurer, to name a few. In Q1 and subsequent, we added three new distribution channel partnerships who are committed to providing health risk management and navigation services. We expanded our partnership with Benefits Alliance, a national group benefits consulting firm that manages over 8,000 employer benefit plans across Canada to include the availability of our full spectrum of employer health services. We also became a vendor of record for Mohawk MedBuy, a shared services group that supports hundreds of hospitals across Canada which included a first hospital customer for our employee assistance program, ICBT, mental health coach, and nurse navigation services. And we assigned an agreement with XTM, a FinTech provider to the hospitality, personal care, and service staff for EAP and telemedicine. These partnerships enable us to supplement our direct sales team with partners who are focused on high-quality clinical programs that address the needs of their workforces. Both XTM and the Mohawk partnership are aimed at supporting workplaces that have been most impacted in the last few years and require clinical support for employees' health and well-being. We expect the impact of these new partnerships to be felt gradually over the course of the year. These relationships are examples of how we are partnering with organizations that are trusted advisors to their clients in providing industry-leading programs that solve health, wellness, and well-being issues. Post-quarter, we signed a new agreement with a national insurer to provide mental health support treatment for complex claims. We were selected based on our navigation and ability to support individuals in treatment for a return to function. Product enhancements during the quarter included live chat for nurse care coordinators and new content in our resource library. In Q1, we launched ICBT in Spanish and English in the US, which can now be offered in our life and health application that we will discuss in a moment. These initiatives are aligned with our efforts to increase the lifetime value of a member and provide better delivery systems for our healthcare provider network. In our health and productivity solutions division, we continue to diversify revenue with a shift to build pipeline for our digital life and health platform, which is the primary driver of a remote patient monitoring offering. In addition, the platform helps to create interoperability between health systems services in the United States. We have been successful in developing a channel partner network for distribution of this solution and expect a higher degree of traction in the market in Q2 and Q3. This platform has evolved to be our digital front door for our U.S. customers. Our health and productivity navigation tools positively impact engagement and health outcomes in gaining market traction. Specifically, there is a large pipeline growth for our remote patient monitoring services. and we are working to convert some large opportunities. Remote patient monitoring is the key to digital delivery of patient care and the ability to show health outcomes. Telehealth is a $92 billion market in the U.S. and is expected to see a 30% KGAR to 2030. Remote patient monitoring coupled with our life and health app is a focus of our U.S. growth strategy. This provides a simple and rapidly growing revenue opportunity that when integrated with our other CloudMD offerings such as ICBT and our content management system, will provide a foundation for implementing a market-leading solution. We are realizing the customer benefits of the integration of the assets that are resulting in large pipeline opportunities. Last quarter, I spoke about our focus on operational improvement. I continue to be proud of the team's focus on aligning the cost structure of the company and the results that they have achieved. Since the beginning of 2023, we have action cost reductions, including organizational redesign, to align to client needs and corporate shared services costs. Our savings going forward will focus on improved efficiency. We are effectively using our 22,000 healthcare providers through our consolidated call center. This enables the effective use of our intake personnel and the network of providers. All things I've spoken about today signifies our strategy in action. I am proud of the team as they focus on the path to profitability. Now I will turn the call to our CFO, John Plunkett, to discuss our financial performance. John?
spk18: Thank you, Karen, and good morning, everyone. I've started each of our recent earning calls the same way, and at the risk of being repetitive, I'll say it again. Our near-term focus and number one priority is reaching profitability and demonstrating our ability to self-fund growth on an ongoing basis. We continue to close the gap towards that milestone. We actioned $1 million in net annualized cost savings in Q1 2023 and have identified a further $4 million of cost savings that we are working on executing in the second and third quarter of 2023. In the fourth quarter of 2022 and first quarter of 2023, we have discussed $6 million in annual cost savings or $1.5 million in quarterly savings. And since our Q3 2022 quarterly report, our core operational expenses, G&A, sales and marketing and R&D have declined by $1.7 million in quarterly expense. It is encouraging that the work we've done on our cost base is showing up in our income statement. Turning to the financial performance in Q1, we generated total revenue of $26.1 million compared to $25.9 million in Q4 2022. Health and wellness services contributed revenues of $21.1 million compared to $20.4 million in Q4. We saw organic growth as we started to recognize revenue from more of the new contracts we sold in 2022, offset by some attrition in our occupational health business. Looking at the remainder of 2023, we are forecasting low double-digit revenue growth off of our fourth quarter 2022 baseline based on the contracts we've already signed and our expected sales from our current pipeline. Health and productivity solutions generated revenue of $5 million in the quarter compared to $5.4 million in Q4. The decline was due to lower revenue in VisionPros. We have a strong pipeline in this division, and we expect it will yield solid growth as we progress through 2023. Growth profit in the quarter was 36.1% compared to 34.5% in Q4. Looking ahead, we are targeting mid-30% margins in the near term, with margin expansion expected as we progress through 2023. Core operating expenses, which include G&A, sales and marketing, and R&D, were 11.6 million, down 0.5 million, or 4% sequentially from Q4. In addition, our acquisition-related integration and restructuring costs were 1.2 million lower compared to the previous quarter, as there were significantly less one-time costs in the quarter. As I spoke about earlier, we've identified an additional $4 million of annual cost savings or $1 million in quarterly cost savings that will start to take effect during Q2 and should be fully included in our financials as we exit the third quarter. Adjusted EBITDA in the quarter was negative $1.6 million compared to negative $2.6 million in Q4. The improvement is related to the work we've done in the last year to align our cost structure and from increased gross profit. Looking ahead, we believe there is still more room for improvements from cost optimization in 2023. Going forward, however, more and more of the EBIT improvements will come from organic growth and operating leverage. We started the quarter with $24.1 million in cash. As we discussed on last month's call, Q1 cash use was higher than normal as we paid one-time fees related to some of our integration and cost saving actions. We used $1.7 million of cash in operations normalized for changes in working capital and one-time costs like severance. Our total normalized cash usage was $3.9 million, down from $4.6 million in Q4 2022. We are making progress, but there is still work to go for us to reach our stated objectives. We exited the quarter with $18.8 million in cash. Looking ahead, we expect cash usage to trend downwards as one-time fees become lower, and we expect incremental EBITDA improvements throughout the year as the impact of our cost savings and growth flow through our financial statements. With that, I'll pass the call back over to Karen.
spk17: Thank you, John. In conclusion, we have achieved the necessary foundational milestones that we can point to. Revenue is growing, growth margin continues to show improvement, cost cuts are being achieved, and adjusted EBITDA is improving. We are excited by our partnerships with clients as they trust us to empower healthier lives. We are laser focused on our strategic initiatives and growth pillars. We recognize that this effort takes time. I do believe that time is what will result in long-term sustainable results. I want to thank our staff and healthcare providers for their ongoing demonstration of their ability to not only support but execute on our strategic initiatives. I want to thank our customer and partners who entrust us to manage the health risks of individuals. You have our commitment to continue the momentum and path to change. With that, we'll open up the floor to questions.
spk07: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
spk05: Our first question comes from Robert Goff with Echelon.
spk07: You may proceed.
spk09: Thank you very much and congratulations on the quarter.
spk14: Thank you. Thanks, Rob.
spk09: Karen, you discussed announcements around partnerships. Could you talk to your sales and distribution strategy and traction that you're seeing in the U.S. in particular?
spk17: Yes. Thank you for the question. I'll start with the U.S. and circle back though on Canada because I think they're both relevant. So in the U.S., we signed a distribution partnership. The U.S. is, as you know, a very large market. To reach that market, we have been successful in in securing partnerships who represent a series of products that they sell to other organizations. And that partnership has resulted in a very good pipeline growth in a very short period of time. And so for us, it's a much more cost-effective way of distributing our products because they have the relationships with the clients that we end up servicing. And we're selective about those partnerships. And we did our due diligence and we have a very experienced salesperson in the US who has sold in this market for a large number of years and was able to screen those distribution partnerships to make sure we collected the right one that was going to produce shorter sales cycles and quicker results. In Canada, we have the same thing. We have three business models in Canada. We sell through partnerships with brokers and advisors who are agents of record for employers to distribute group benefit plans. So we've been very successful in securing those partnerships. Then insurers, we have relationships with insurers who also represent clients. And then the third is direct. And the interesting thing for CloudMD is that in the direct, there's usually an agent of record involved or an insurer involved. So we've been able to leverage those relationships to be able to secure our sales efforts across those three, which is a very cost-effective way for us of delivering sales.
spk09: Thank you. In your comments, you did discuss putting the one-time COVID-induced revenues behind you. Along that line of thought, could you talk to the mix of revenues for 2023 in terms of your exposure to recurring and highly reoccurring revenues for the year and how that might contrast with what it would have been back in COVID days or back in 2022?
spk17: Sure, sure. Well, let me start and then John can jump in. You know, what I would say is the business is predicated on reoccurring and recurring revenue. That is the business model for which this company was founded upon, which leads to long-term customer relationships. However, in these customers, there's also mandates where they have either health risk issues or they have specific needs related to environmental, social, where they're dependent on us to deliver some health risk management programs that are classified in our world as one-time mandates. It's kind of a strange situation for us because you want to be the partner that they can rely on to deliver on these one-time mandates. But we recognize that those one-time mandates can skew the revenue. And that really is what happened with COVID. These customers, you know, for the first time, for many of these customers, they were put in a situation where they had to manage employees in the workplace. And so they were dependent on Cloud Indy. They were all customers on our recurring or reoccurring revenue who came to the forefront and asked us to be innovative. And we responded. and i think that responsiveness uh led to you know probably unprecedented levels of one-time mandates that skewed the revenue profile the organization um but now we have we have gone back to our recurring and reoccurring revenue however there's always one-time mandates but the magnitude of those mandates related to covet were unprecedented i would say so you know anytime there's a health risk issue we will be responding to our clients with the one-time mandates as uh as a dependency around healthcare navigation. But John, I don't know if you have any additional financial comments you'd like to make.
spk18: Yeah, for sure. So I think the only thing I would add there, Rob, is that, you know, kind of one-time mandates as a percentage of total revenue in the comparative quarter were, you know, probably about 20% of our business, where, you know, today I think the... you know, about 90% is recurring or reoccurring in nature. And I think the other piece to call out is that, you know, we had significant revenue concentration in some of these larger mandates a year ago, whereas I think our revenue is more broadly distributed today in Q1 2023. So I think the revenue profile overall looks a lot better now than it did a year ago.
spk08: Great. Thank you very much and good luck.
spk17: Thank you for the questions, Rob.
spk07: Thank you. Our next question comes from Gabriel Leung with Beacon Securities. You may proceed.
spk06: Good morning, and thanks for taking my questions. Karen, do you mind spending a little time just talking about the remote patient monitoring platform? You've alluded to that platform and some potentially large opportunity in the U.S. So, can you just walk us through that platform itself in terms of you know, what sort of, you know, patient base is that targeted towards? Is it seniors? Is it chronic disease patients? And maybe just talk a little bit about what you expect the revenue model for that business to look like.
spk17: Sure. So this is remote patient monitoring. The target audience for this right now is hospitals or healthcare providers to manage patients. It's not intended to be a... emergency response service this is some these are people who have to manage their health and well-being over a specific time period and I think that you know the larger distribution networks which are the hospitals and the large physician networks align ourselves very well to having a large patient populations that we can depend on so the revenue model is a price per patient And for us, it's about finding those large hospitals and being able to market the product through those distribution channels to show health outcomes, whereby somebody's being able to manage a particular illness and stay out of the hospital or stay out of the doctor's office, which creates a little more momentum for the individual. And then from a paid, the way that people are paid is through the insurance or through Medicaid. And that enables, you know, reassurance, I would say, around the payment model is coming from an insurance model, which we're familiar with, as you know, in Canada and how we distribute our products. But, John, is there anything you'd say on the revenue profile of this business?
spk18: I think the only other point I would add is that probably more so from a profitability profile. I think it's attractive insofar as the gross margins, even the margins of this particular product is higher than our current core business. So I think the opportunity for both the revenue and from a profitability standpoint is quite attractive. Good point.
spk06: I'm curious if you've actually been able to sign maybe some smaller customers for the platform yet, just to get a gauge of how rollouts for the platform might have gone. Have you had any success in signing customers?
spk18: Yeah, so at this point in time, we've had a few contracts that we've completed. In terms of the size and scale of those, that's certainly not what we're looking to achieve at this point in time. So we're starting to get a bit of traction and very optimistic that as we progress through 2023, the more meaningful opportunities will come along.
spk17: Yeah, so I think in the smaller groups, the rationale, Dave, of starting there with the smaller groups is just the familiarity of being able to have a track record of delivery and reassure ourselves on the whole delivery system as we put it together because we've added assets across CloudMD to be able to augment the offering. So we are ready for these larger distribution channels now. And I think the partnership that we find with the company who's helping us distribute also feels very confident. They've been in this market a long time and feel very confident in our ability to deliver.
spk06: Gotcha. And then just going back to your commentary around the $57 million pipeline, I'm just curious if you can talk a little bit about maybe the composition of that pipeline and sort of your confidence level in being able to close the opportunities in there right now.
spk17: Great question. Thank you for that, Gabe. So, yeah, we're seeing, I think we've moved from $50 million closing out Q4 into our last conference call where we were providing updated numbers to 55 million to today where we're at 57 million. The pipeline is being augmented by, I would say, a couple things. First is larger multi-service sales. So our subject matter experts who are in the operating business are now feeling more comfortable, knowledgeable around the other service offering and are able to talk to their customers about the benefits of adding, I'll give you an example in disability management, adding our mental health treatment to be able to lower the return to, lower the disability days and a more wholesome return to function. So I think that the subject matter experts are now also augmenting the pipeline, which is, I think, new and different for us. Took them time to learn the products and also took them time to build their confidence and ability to deliver those products. I think the second thing is We made a strategic decision to separate the two divisions. So we have Nathan Lane, who's leading our health and productivity tools in the U.S. We have Bram Lasky leading our operations here in Canada around the employer group benefits area. And I think that that segregation has led both leaders to be really thinking about how to grow their business and having the confidence in their operations to be able to onboard new customers. So they too have been augmenting the sales efforts of the direct sales team. And then finally, I'd say with the direct sales team, you know, with the addition, we have a new salesperson out in Western Canada. We have a couple of strong salespeople here in Ontario, and then we have Antoine in Quebec who is leading Atlantic Canada Quebec. I think some of those, the pipeline growth is coming from, you know, the onboarding of the salespeople and the time that it's taken them to build their pipelines. We feel very confident that that pipeline not only will grow, we're starting to measure the looking back in time against all quarters last year of sales cycle time, time from proposal through to close, and a significant reduction from proposal to close is being observed in the sales team. So huge kudos to the sales team and the account management team and subject matter experts who are working with clients collaboratively across the organization.
spk06: Gotcha. Thanks for that. Yeah, no, that's perfect. Thank you. Just one last question for me. Just wondering if you guys have a status update on the final piece of your, I guess, divestiture initiatives. I think there's just one piece left and it's during a little bit of cash right now. Just wondering how close you are in terms of finalizing that divestiture.
spk18: Yeah, so I guess the piece you're referring to, Gabe, is the RxI business. It's something that we're working on right now, and we'll be able to provide an update on at our next conference call. As we've mentioned in our disclosure, we're not expecting it to yield anything significant for the organization, but understanding that there's a cash burn associated with it, so we're trying to action it as quickly as we can.
spk06: Gotcha. Well, thanks for all the feedback, and congrats on the progress.
spk16: Thank you very much, Gabe. Appreciate your questions and your feedback.
spk07: Thank you. Our next question comes from Nick Agostino with Laurentian Bank Securities. You may proceed.
spk04: Yes, thank you, and good morning, everybody. So just one quick question, just looking at the overall business as you guys refocus it, and as we look today, it looks like for 2023, again, you guys confirmed low double-digit organic growth. I think you called out mid-30s gross margins and the target to hit EBITDA break-even by the end of the year. I'm just wondering if we look out three to five years, just given the pipeline and the business you're trying to build, can you maybe give us an idea as to what type of organic growth you think this business can generate in a steady state environment? What kind of gross margins are you targeting? Is it a mid-40s range? and what is the more mature EBITDA margin that we should be thinking longer term?
spk18: Yeah, sure. Let me start, Nick, and then, Karen, please feel free to add to it. So, as we mentioned in some of our disclosure this quarter, we're obviously targeting low double-digit growth in 2023. I think we've called out that there's an opportunity to continue to drive more multi-product sales. I think we're seeing an increase in multi-product sales. We're seeing an increase in cross-sell. And I think we're also seeing, besides the opportunities coming to us, that are increasing. So I think that... Certainly, increasing our growth off this low double digit is something that we're targeting. I'm not going to put a specific target out there, but I think we're going to be able to drive that growth rate up as we move through 2023 and obviously into the horizon. From a gross margin standpoint, I think it depends on whether we look at our business today. or we look at some of the opportunities that are in front of us, right? So I think the business today and the services that we're offering, certainly getting to 40% plus gross margin is a target, and I think it's very achievable. And I think some of the opportunities that we're using or we're looking at growing around the health and productivity tools are going to allow us to drive margins in that part of the business higher as well. So the business today, I would say 40% plus gross margins And then, obviously, as we change our revenue mix to more, you know, technology and tools, I think there's going to be an opportunity to expand further. And then, finally, from an EBITDA standpoint, you know, once again, the business today, I think EBITDA margins in sort of the, you know, high teens, 20%, is, I think, a very reasonable target off of a, you know, let's call it a 40% gross profit margin. Karen, I'm not sure if you would add anything.
spk17: Yeah, no, I think you've hit it. I think, you know, one of the things that we, Nick, we were very conscious of was when we brought Druve in to lead our technology division, we did that with a line of sight to be able to improve our delivery systems, create scale, and be able to lean ourselves more towards a SaaS-based model in some of our offerings. And I think that will dramatically help us improve our gross margin and our EBITDA. I think on the revenue side, We feel very confident in the remote patient monitoring product offering in the US. We feel very confident in the sales strategy and the leader who's leading that. So I would expect that that will contribute a lot into the revenue growth. And I would also say, as in any new product, where you have the market entry and you do it correctly, you should see a higher revenue growth pattern as it relates to that. So we are working, John and I are working hard for the next quarter to develop a little bit more succinct KPIs for you guys where you'll be able to look at the financial metrics and link our KPIs because we don't feel right now with the diversity of our business, we're able to give enough indicators right now that give confidence in saying, yes, we can see that trend toward a larger, as an example, revenue growth because of these things that you're talking about and they correlate to revenue. So I feel very confident in the numbers that John has provided. And thank you for that question. It's a great question, Nick.
spk04: I actually appreciate the response, a good detailed color. And just one last one, just housekeeping. Karen, can you just call it again how many customers you add in the quarter and what percentage were multi-sales?
spk17: Yes, so we added 228 customers. We had 39% of those were multi-product sales, which is up from the previous quarter, which I believe, John, was 33% multi-product sales in Q4.
spk02: Okay, appreciate it. Thank you.
spk17: Thank you, Nick, for the question.
spk07: Thank you. And this concludes today's conference call. Thank you for participating. You may now disconnect.
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