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spk23: Good day and thank you for standing by. Welcome to the CloudMD second quarter 2023 earnings 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 Kindersma, Head of Investor Relations. Please go ahead.
spk24: Thank you, and good morning, everyone. Thank you for joining us for our second quarter 2023 conference call and webinar. We'll start the call with our CEO, Karen Adams, followed by CFO, Prakash Patel. We'll provide a recap of the company's Q2 2023 financial results before opening for a question and answer period with our covering analysts. A reminder that today's discussion contains some 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 CR. We encourage you to review our public disclosure in 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 unless such information is considered a reasonable basis on 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 any other reason except for to the extent required by law. Now it's my pleasure to turn the call over to Karen Adams, CEO of CloudMD. Karen, over to you.
spk14: Thank you, Mark. Welcome, everyone, to CloudMD's Q2 2023 earnings call. I also want to formally welcome Prakash Patel to his first call as Chief Financial Officer. In addition, we have Nathan Lane, who leads our Health and Productivity Operating Division in the United States, who will be participating in the Q&A portion of the call. In today's call, I will give an overview of our Q2 performance and highlights from our two operating divisions with comments on market trends and themes. As we have discussed on previous calls, for the last 12 months, the leadership team has been focused on generating high-quality organic growth, identifying operational improvements with integration and cost efficiency, and improving cash management. We are pleased with the progressive results that indicate sustainable growth and a narrowing of the gap to profitability. In the second quarter, we generated consolidated revenue of $23.2 million, which represents sequential growth. This growth was led by our mental health and assessment businesses. On a consolidated basis, gross margin was 38.2%, which represents a 130 basis point improvement over the previous quarter. On a consolidated basis, we achieved a 700,000 sequential improvement in adjusted EBITDA. These results reflect the decisions we made around our priorities and focus on execution. This consecutive quarter of revenue growth was due to multiple factors. In the quarter, we crossed over 1 million subscription employees with access to our integrated healthcare navigation, which is comprised of our mental health and medical care services. These employees can engage with family members in whole person experience that is demonstrating health outcomes. Over 32% of our new contracts are existing customers buying new services. That is up from 30% in the previous quarter. The sustainable revenue growth is due to the market demand for healthcare navigation solutions that support health risk management needs. In Q2, we continued to build the pipeline, which now sits at $58 million. This is an increase over Q1 2023. In the quarter, we closed $2.3 million in ARR with a mix of large local branded clients and small clients. Customer acquisition costs are benefiting from an increase in cross-sell sales. Also of note, 25% of all new customers are buying more than one service. So consolidated pipeline does remain strong at $58 million. In Q2, we finalized the sale of our electronic medical records and practice management assets, which provides an inflection point for CloudMD. We have divested all major non-core assets that were not aligned to our go-forward strategy. Prakash will discuss vision pros in the financial section. Our focus for the last two quarters was identifying the core assets, optimization and efficiency, maximizing revenue mix, and customer profitability. These initiatives resulted in consistent improvement in our financial position. As such, our go-forward focus is on two divisions, which are our health and wellness employer services and our health and productivity technology solutions. As we reported last week, our Health and Productivity Solutions business has secured a foundational contract for remote patient monitoring in the United States. This contract will provide monthly services for a health system of 115 healthcare providers, including over 25,000 chronic health patients. This United States addressable market for remote patient monitoring is $4.4 billion, with 26 states having Medicaid coverage. This is because remote patient monitoring can reduce readmissions to hospitals, as well as provide patients with the reassurance of their health condition status. Our proprietary Healthy Life app will enable us to seamlessly add new services to support whole health, such as our ICBT and newly developed glucose monitoring program. This new market segment for CloudMD capitalizes on whole person care and an ecosystem that is technology-enabled. This organic growth, leveraged internally, developed technology to tap into a new market, providing new streams of cash flow and generating healthy growth margins. We look forward to updating you on the progress of this important market segment's growth over the next few quarters. In the last few quarters, we have focused on cost savings and optimization. In this quarter, we welcome Bram Lowski to lead our largest revenue division health and wellness services, with a mandate to build efficiency, scale, and double-digit organic revenue growth. As I previously reported, this is required to take advantage of our business model of one company with diversified services that needs to be interdependent with each other for scale and to achieve profitability. This work is in the execution phase and is demonstrating consistent improvement in gross margin and revenue growth. An example of this strategy in action is using KEY to drive operational enablement for nurses to easily manage clients, which is resulting in margin improvements. The product team introduced innovative technology-enabled tools that support a seamless experience and realize a higher revenue per customer. Our bundled service offerings such as Mental Health Coach combined with traditional EFAP and ICBT and medical care as one product solution will capture market share and support a unified, connected user experience. Our land and expand strategy will offer our 7,000 clients access to industry-leading, clinically proven health outcome solutions. In this operating division, we have reduced our core operating expenses, improved customer acquisition costs, and expanded gross margins, leading to better profitability. I want to take a few moments to talk about market trends. These market trends are important in validating our approach to support healthcare with our foundational integrated platform, Key. The first is growth in healthcare navigation and virtual care. There are two trends to note in this area. Healthcare navigation is gaining momentum as individuals with health issues struggle to identify the right resources to solve mental and physical health issues. Our customers are looking for ways to reduce patient health risks, as well as financial and liability risks. Customers are looking for ways to ensure that their group benefit costs are being deployed to improve health outcomes. In a recent poll facilitated by CloudMD, human resources buyers indicated that 90% would consider implementing a new mental health model over traditional employee assistance programs. There is growing evidence that individuals experiencing mental health issues are requiring a more whole person approach to the treatment, including how the solution is delivered. Access to coaching, digital, and in person, coupled with the ability to access psychological assessments, is a growing demand. The shift from transactional products that solve health problems to a suite of services designed to support health risk management is aligned to our approach and why we are seeing an increase in the purchasing of bundled services. Another key area of health navigation is using virtual care for chronic illness that enables remote monitoring and support. Remote patient monitoring is critical to reduce hospitalization and provide ongoing support to patients with chronic illnesses. This is a growing market that will be further amplified with hospital budget cuts and, in some cases, closures across North America. We will be looking to launch a remote patient monitoring Canada in early 2024. The second trend is consolidation of vendors to enable accountability and more effective use of spend. In the current economic condition, employers and users are focused on the financial spend of rising benefit costs. The desire to consolidate services with less vendors at the right cost is a conversation we are having with many of our customers. CloudMD was founded on whole person care and the ability to build an ecosystem of solutions that would address an individual's mental and physical health issue. This validates our approach since our inception to ensure we own the assets of health risk management. Our investment in the key platform enables bundling of services and the delivery of care making consolidation of benefit programs convenient and affordable. Key is the vehicle that ensures users are matched with healthcare professionals who can collaborate in managing healthcare with a focus on return to function. Finally, I want to address the interest in technology and artificial intelligence in supporting a user experience. It is a fact that technology and AI can accelerate more personalized experience while enabling better delivery of care. In Q2, we hired a new CTO, Dhruv Chandra, an executive with executive experience in multinational organizations specializing in cybersecurity and digital transformation. Dhruv will be working with Aida Bevich and the product team to develop technology that supports a better user experience and provides more scale for our operations. We will use AI to strengthen our products and as support tools to augment healthcare provider treatment. We want healthcare providers delivering care to patients and using technology and AI to streamline experiences. In the coming quarters, we will continue to evolve our smart nurses, continued evolution of our live healthcare chat, and integration of our services with other platforms for payment and benefit information. All of the things I have spoken about today signifies our strategy in action. I will now invite Prakash to provide an overview of our financial performance. Prakash?
spk28: Thanks, Karen.
spk35: I will start by reviewing our consolidated results for the quarter, including some financial highlights of our business segments, our liquidity position, and end with my near-term priorities as CFO. On a year-over-year basis, year-to-date normalized consolidated revenue of $46.1 million increased by 7%. This increase was due to the growth in our assessments and mental health businesses, partially offset by lower than expected growth in our health and productivity solutions group. On the account of the timing of key contracts, normalized revenue excludes our health for sale assets, divested assets, and 2022 COVID-19 testing contracts and Ontario health contracts from the prior year. On a normalized basis, second quarter revenue was $23.2 million compared to $22.2 million in the prior quarter. On a reported basis, Q2 consolidated total revenue from continued operations was $23.2 million, a decrease of 11.5% year over year. Second quarter revenue does not include revenue generated from our health for sale assets vision pros. or our assets of Benchmark Systems Inc., which were divested at the end of second quarter. On a reported basis, second quarter revenues were impacted by the conclusion of COVID-19 testing revenues and the Ontario Health COVID-19 ICBT program revenues. Combined, these accounted for a decrease in revenue of 17%.
spk32: Our health and wellness services business, on a normalized basis,
spk35: contributed $21.7 million in revenues compared to $20.9 million in Q1 2023 and achieved a year-over-year organic growth rate of 7.4%. In the second quarter, we signed multi-year contracts of $2.3 million and continue to forecast a run rate growth expectation of 10% before unlocking the full potential of multi-product sales and cross-sales into our book of business. These metrics continue to signal that employers view our comprehensive offering and strong healthcare outcomes as a key differentiator in the market. Health and productivity solutions generated quarterly revenue of $1.4 million compared to $1.7 million in Q1 2023, excluding our divested and held-for-sale assets. The slightly lower revenue was due to the timing of certain client mandates. On August 23rd, 2023, subsequent to year end, we announced details of a newly signed contract to provide remote patient monitoring for a major US regional hospital systems Medicare patients. The hospital partner has approximately 115 healthcare providers with over 25,000 Medicare patients. The hospital partner will leverage our RPM and remotely monitor manage and proactively intervene for patients with chronic diseases such as diabetes, heart disease, and respiratory illnesses. We believe that the contract is scaled up over the next 12 months. It can deliver an average of 3 to 4 million in revenue per quarter, while expanding the opportunity to participate in the broader RPM market. This is a significant growth opportunity for our health and product solutions business. as the addressable market size for RPM in the U.S. alone is $4.4 billion. Profit margin from our continued operations in the quarter increased from 36.1% to 38.2%, or 8.9 million in Q1 2023. Over the last four quarters, we have improved gross margin by over 700 basis points on a reported basis. and 500 basis points on a normalized basis. Gross margin in our health and wellness services group improved quarter over quarter by 50 basis points to 37.7%, and continues to improve as we continue to see margin expansion in Quebec and advance our revenues mix with our existing clients. Gross margin in our health and productivity solutions group was 40.5%, Maintaining our margins continues to be a strong focus area for management as we continue the momentum from divesting our non-core assets and build efficiencies across our offering while optimizing our revenue mix. Our operating loss for the quarter was $5.6 million, a decrease of $8.1 million from the prior year and 10% lower than Q1. Over the past year, we have successfully identified $20 million in savings. including another $3 million of annualized cost reductions in Q2. Year-to-date, in 2023, there have been a reduction in general administration, research and development, and sales and marketing costs of $4.8 million compared to the prior year period. We continue to stay focused on ensuring we monitor these costs and right-size them as we turn our attention to growth. Adjusted EBITDA in the quarter was negative 0.7 million compared to negative 3.2 million in the prior year and negative 1.4 million in Q1. The improvement in adjusted EBITDA from the first quarter of 2023 is due to continued cost optimization efforts. I am proud to say we are getting very close to our guidance of positive adjusted EBITDA in Q4. I would like to note that adjusted EBITDA contained only minor adjustments for severance paid and M&A fees related to divestitures. I refer you to the definition of this measure in our recently released MDA. Turning our attention from earnings to liquidity and our financial position, CloudMD continues to move towards positive cash flow with the realization of healthy margins, increased ARR and organic growth, improved operating efficiencies, and reduced non-operating expenditures across the business. Cash and cash equivalents increased by $27,000 in the quarter. Normalized cash outflow for the second quarter was $3.1 million, down from $3.9 million in Q1 of this year. As of June 30, 2023, we had $18.8 million in cash and cash equivalents, and we expect our cash use and operations and activities to improve as a result of our revenue growth and cost reduction initiative. It is important to note that the closing cash balance included the benefit of $6.3 million received on the closing of our U.S.-based electronic medical records practice management and revenue cycle management assets from Benchmark. As previously disclosed, this is delivering on our strategy to realize value from non-core while focusing on longer-term, higher-gross business. During the quarter, our $17 million loan from our lender became classified as current, as it matures within the year on June 30, 2024. Subsequent to quarter end, the company commenced renewal discussions with our lender and partner, and we are confident that we will be able to renew our credit facility prior to maturity. It is important to note that our debt is currently at a floating rate and we do not anticipate a significant increase in interest costs when renegotiated. Overall, I'm excited about our Q2 results and success thus far in 2023. It is my assessment that the team focused on the right priorities. The acquisitions made prior to August 2022 were not accretive and required divestment to ensure long term financial stability. The numbers demonstrate our strategy over the past year drives value and produces results we expect. Divesting assets that are not core to our offering enables us to focus on developing our brand and driving growth in higher margin areas. Turning to my initial focus as CFO, I will highlight a few priorities that I plan to focus on while supporting our ongoing strategy and growth initiatives. My primary focus, is to continue to deliver a well-positioned company with strong liquidity. We have done a remarkable job reducing expenditures, shedding non-core assets, and identifying efficiencies across the business to date. With our core assets in place, as we begin to shift into a growth mindset, prudent spending in the light of our liquidity position is paramount in the short term and requires careful consideration. Prioritizing the operational alignment of the finance function to support growth across our two pillars is another key focus in the near term. Alignment and collaboration will provide the necessary support to build and report the appropriate KPIs needed to make timely decisions. Putting the right data in front of the right people at the right time will garner trust and provide continued transparency to drive this objective. Finally, I would like to increase investor awareness of what CloudMD is and why we matter to the market. This is a shared objective across the leadership team, and we expect to deliver on this promise at our upcoming investor day on October 5th. With that, I will pass the call back to Karen for her closing remarks.
spk16: Karen?
spk14: Thank you, Prakash. In conclusion, all employees of CloudMD are focused on creating value for our clients and users. Our revenue is growing, growth margin continues to show improvement, cost cuts are being achieved, and we are narrowing the gap on being EBITDA positive. We are gaining momentum in the market with our partners and clients who are focused on providing services that empower healthier lives. We are laser focused on our strategic and initiative and growth pillars. We also acknowledge that this takes time. We are demonstrating 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 customers and partners who trust us to navigate the health risks of individuals. You have our commitment to continue the momentum and the path to change. I will now open the call for questions.
spk23: As a reminder, if you'd like to ask a question at this time, please press star 11 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tanvi Gabriel with Echelon Wealth Partners.
spk22: Good morning, everybody. I'll be speaking on behalf of Rob Gough, analyst at Echelon Wealth Partners. To begin with, we were very glad to see your comment with respect to a positive EBITDA for quarter four. The question is, would it be fair to look for a positive free cash flow from operations to follow by one quarter? And are there any puts and calls that we should look for for free cash flow?
spk14: Thank you very much and good morning. For cash, maybe I could direct that question to you, please.
spk35: Sure, the expectation still is to have positive free cash flow by the end of the year. We don't expect there to be much turbulence in terms of what we're projecting, but we do expect there to be positive cash flow by the end of the year.
spk22: Perfect. And are there any puts and calls that we should look out for for free cash flow?
spk35: So we do still have the trailing expenditures that we had from our cost-cutting measures that we've had in the past year, identified slightly by severance that we've had that's still ongoing, some other acquisition divestiture costs that we still have in play, as you can see in our adjusted EBITDA schedule in our MD&A. But other than that, we would expect normal course operations to take place.
spk22: Right, okay. Another question that we have is, How do you see your distribution or the go-to-market strategy for remote patient monitoring? Do you believe that it will be a branded service, or do you see it as a white labor portion?
spk14: I'm going to ask Nathan Lane, who is on the call, to answer that question for us. Nathan?
spk02: Sure. Thank you, Karen. Really, our... Current view of that is it could be a hybrid.
spk03: Certain clinics and systems may want to white label that service with their own internal branding, especially once we enter the payer market. And then in other areas, we would continue to brand that under the CloudMD umbrella.
spk22: Right. Okay. And if there's time for one more question.
spk00: Sure.
spk22: How would you describe your sales pipeline for remote patient monitoring? Would it be possible to elaborate in terms of the timeline as well as the mixture of small versus large clients?
spk15: Absolutely. Nathan, would you like to take that, please?
spk03: Sure, I sure will. So at the moment, we do have a mix of, I'd call small, medium and large size deals. Most of our focus has previously been closing the earlier reference deal with our healthcare partner. In addition, we continue to build that pipeline with deals that have smaller sales cycles. So I'd say our mix right now, we've got approximately an additional $5 million Canadian in our pipeline and that continues to grow throughout the year and the next quarter.
spk04: Okay, perfect. Thank you so much.
spk23: Thank you for your questions. Our next question comes from the line of Steve Disher with KeyBank.
spk26: Hey, thanks for taking our questions. Could you provide more detail on the operating efficiencies that drove better gross margins in the quarter?
spk09: Rakesh, did you want to take that?
spk35: Sure. From an operating standpoint, largely in our health and wellness business, we were looking at our customer mix, making sure that revenue was optimized across our customers, alignment internally in terms of our finance and our IT team to ensure that we're providing optimized service to our business. We've been looking at how do we align with our business and our product service team. Aside from that, it was largely driven by taking a harder look at our customers and identifying those that were accretive versus those that were not. But overall, it was an internal look largely in Q2 as we moved away from things that were shedding costs overall.
spk13: I think the growth margin improvement becomes also the sustainability of looking at
spk14: Our healthcare provider costs and finding more efficient ways to deliver member services and the onboarding of customers is also helping.
spk26: Got it. Thanks. And then I think last quarter you guys mentioned that the expectation was still for 40% or above on gross margin. Is that still the viewpoint?
spk39: Prakash, over to you.
spk26: I guess it's still a view. Sorry. Go ahead.
spk30: Sorry, go ahead.
spk26: You can finish your question. I think you guys said kind of over a longer term it was maybe 40% plus. So I just wanted to see if that was still the expectation. Okay.
spk35: Our gross margin is still trending positively with that expectation in mind. With the addition of our RPM business and the contract that we had just signed, we're expecting the gross margin to continue to improve. RPM is largely technological based. We don't have a large outlay in terms of cash and investment at the onset of that contract. The margins in that business are expected to be on the positive side and accretive to our business overall. And so we do expect gross margin to trend positively. Obviously that improvement takes a few quarters over time as we increase and ramp up that contract. but we do expect gross margin to improve over time from where we are at.
spk14: And it will continue to improve as we shift to more ICBT-delivered services in the U.S. and in Canada. That will also help improve our gross margin.
spk25: Got it. Okay, great. Thank you.
spk07: Nice to speak to you again. Thank you.
spk23: As a reminder, that is star 1-1 to ask a question. Our next question comes from the line of Gabriel Lung with Beacon Securities.
spk11: Gabriel, yes.
spk27: Good morning, and thanks for taking my question. Congrats on the progress. It's got a couple of things. So first, just going back to the guidance around positive EBITDA, so I guess concurrently free cash flow. Can you just talk to us about the assumptions underlying that, hitting that milestone? Are there additional costs, cutting initiatives you plan on undertaking, well, I guess in Q3? Or is it really predicated on, at this point, revenue growth? And does that revenue growth need the RPM contract to ramp up to help get there?
spk14: Thanks for the question, and thank you for attending the call. I guess I'll start and then I'll turn it over to Prakash. I think there's two things to think about. First, revenue growth is very important to us at this point. It's kind of a pivotal point for us where the more revenue we add obviously makes it easier for us on a scale perspective and to meet the EBITDA and cash flow requirements. I think the healthy pipeline we see is across North America, across health service lines in particular. occupational health in the fall is a great opportunity for us as well as the mental health solutions and of course the remote patient monitoring. I think that when we look at cost-cutting measures, we have a culture of continuous improvement. We are going to be constantly looking for ways to be efficient and integrate some of our shared services back offering, including in the finance department and in our IT department, which will give us a lift. So I would say we're not done on the cost of cutting savings, but I'd say they're more around efficiency and continuous improvement, and that we are all laser-focused on revenue at this point and our ability to drive revenue. So Prakash, I don't know if you'd add anything else.
spk35: No, I think you hit the point on operational efficiencies for sure. On the costs that are remaining from a cost-saving standpoint, as we've made these decisions in the past and they continue to trickle in as savings. I think it's a smaller component going forward, but the focus is generally on revenue growth and margin expansion, as we've talked about throughout the call.
spk11: Yeah, I think double-digit revenue growth is really the key focus for us at this point.
spk27: Gotcha. And just looking at the pipeline, I think you mentioned, Karen, I recall, $50 million right now is what you're seeing at. Does that include some of the newer RPM opportunities that have come up to include some of the larger deals? And if you can just talk a little bit about the deals that you've gone after, what has the close rate, your success rate been over the past, let's say over the past year or so?
spk14: Okay, great. So let me start with the pipeline and say that the pipeline is, never included the large deals. So that's why we didn't have a big drop in the pipeline right after we closed the US contract. And we're very cognizant about that because we like pipeline to be about sustainable revenue growth to give us an indicator of how well we're doing in the market. The second thing I would say with regards to pipeline, the largest, if we were to look on a percentage basis right now, the largest percentage of our pipeline falls into our healthcare navigation. and into our remote patient monitoring. The split on that I'm not 100% sure about. With regards to our close rate, I would say in our close rate, we are currently this year, and I can't go back, I don't have it in my head at this point for last year, we're at over a 30% close rate on pipeline. So I feel like that's great in the neighborhood of where we should be. It's a competitive marketplace with a number of our competitors in buying for business. And so I feel like we're accomplishing quite a bit both on the revenue growth as organic growth and on the pipeline close rate. Nathan, would you have anything to add about the pipeline in the remote patient monitoring specifically?
spk03: Thanks, Karen. As far as tracking the deal, approximately $5 million that's currently in the pipeline is outside of some other larger deals for the same reason. These are our smaller to medium-sized deals that we're currently looking at and to execute. As far as the closure rate, it is a little early to say, as we've really been pushing this service, you know, over the past six months. And due to our distributor network, we don't have a lot of insight into deal closures from that perspective at this time.
spk09: Did that answer your question, Gabe?
spk27: Yeah, no, that's perfect. Appreciate that. And then just shifting over to the RPM contract, Can you just walk us through what you're expecting in terms of the rollout of that contract over the course of this calendar year, number one? And number two is, can you talk about some of the assumptions underlying that $3 to $4 million per quarter sort of run rate that you expect to get to, I believe it's over the next couple of quarters?
spk14: I'm going to turn it over to Nathan and her staff for that, because they can tag team that answer, I think, because they've been talking about this, as you can imagine, on a lengthy basis daily. So, go ahead, you guys.
spk03: Would you like to start? Nathan, do you want to start? Sure, I'll start out. So in terms of assumptions and how the deal will roll out, so this health system has approximately 20 or so clinics with somewhere between up to 115 providers spread out over those clinics. So the onboarding starts with the individual practitioners referring or quote-unquote prescribing the services. So there is an onboarding phase, part education, showing the patient how to measure their vitals, et cetera, and then providing the service so that we can then bill for those services. We'd expect over the next six months to get to a point where we can onboard upwards of a couple thousand patients going into next year, which really then lends itself to the growth that we're looking for going into next year with that average of three to four million in revenue per quarter.
spk35: Yeah, Nathan, I think you answered the question. The average of $3 to $4 billion really depends upon the ramp-up and the take-up. It's only a matter of time.
spk20: We've conservatively forecasted the ramp-up to be marginal for Q3 this year and then ramping up thereafter as we continue our efforts in the RPM space.
spk14: Yeah, I think the only other thing, if I may add to that, the key component for us and if we think about remote patient monitoring as a product line, the differentiation for us really is our ability to help navigate and as over time, outside of this specific contract, as we add remote patient monitoring contracts to the platform, the ICBT and some of the other services we'll be adding is a real differentiator for us versus traditional remote patient monitoring products. we will be able to report on a quarterly basis patients on the platform. So that will help, I think, signal some of the revenue projections as well.
spk27: Gotcha. And maybe just two follow-ups on that RPM, on the RPM side. Number one is, so the three to four million per quarter is just a conservative assumption around what the average revenue could be. But ultimately, the contract itself could be bigger, I presume, number one. If you can confirm that, that'd be great, number one. Number two is, what should we assume around, you know, costs that might incur around maybe upfront hardware, maybe around deployment resources you may require? How should we think about that as the contract ramps up?
spk14: So, Prakash, do you want to start on the revenue projection on the conservativeness, and then maybe Nathan can take it from the second part of the question, please.
spk35: Sure, so as Karen just described, the forecast includes two components. One is the contract itself, and the second component is as the contract ramps up, the inclusion of our cross L across our business, which allows a tremendous upside once we are fully ramped up. Some of the assumptions there are largely around the ramp-up period. We've made conservative forecasts in Q2, Q4, sorry, Q3, Q4 of this year, but expect that the contract ramps up In terms of our cost outlay, at the onset, we didn't put a lot of costs as pertaining to the contract generally. You'll note that the RPM delivery is not dependent upon specific hardware that we need to develop. We do have other products that are in the pipeline, like our glucose monitoring software, et cetera, hardware in that space, but those are already developed as well. The RPM contract largely is using a person's cell phone, for example. So there is no hardware outlay at the onset. So the cost in that is largely around distribution, marketing, et cetera, that we would incur, but they're not significant compared to the revenues that we would earn. Nathan, anything else to add?
spk03: No, I think you answered the second part of that question as well, Prakash, as far as additional cost outlays for hardware. smartphone focused initially. And then as we need to integrate with other devices, that will be on the health system to acquire those devices and distribute. So that will not be a cost absorbed by CloudND.
spk27: Gotcha. Just one last question, and I apologize if you're going to talk to us. But on the Vision Pro side, Prakash, can you just confirm that this Vision Pro is now out of the continuing operation results that you reported, number one? And number two is? You know, from a range perspective, can you give us a range of what you think you might be able to get for Vision Pros as you get closer to the ultimate divestiture of the assets?
spk35: Okay, so two-part question. Vision Pros is definitely out of the results. You'll see that it's a discontinued operation. Sorry, not discontinued, held for sale asset. Sorry, my apologies. It's held for sale asset on our reported earnings. So you can see how we've carved out that part of the business. In terms of the range, it's a process in terms of the sale. And so we are in discussions with companies that are interested. But it is going to be a process. We do want a range just yet until we have full conversations with the parties that are involved.
spk27: Gotcha. And maybe one last thing on Vision Pros. I haven't run through all the financials, but are you comfortable providing a sort of guest bit on what Vision Pros are? It's sort of generating right now in terms of revenues and growth margins. I know there's been volatility in the results in that division, but do you have a sense of what the business today is doing?
spk35: Vision Pro is in Q2, generated about $1.5 million. In terms of margin, again, this is kind of consistent with our strategy of divesting our non-core assets. Vision Pro is not a core asset in our mind. I don't know if Karen wants to add any color on that front, but Vision Pros is not a core asset, and our intention to divest is largely around how do we position Cloud ID moving forward in the market and cross-sell the services that we intend to offer.
spk14: Yeah, I think with Vision Pros, Gabe, the problem is that it takes a lot of money to acquire customers. We actually, you know, contrary to when we purchased Vision Pros, we actually are seeing a rising rate of subscribers in Canada. We've got quite a good following now in Canada from a subscriber base, which is very different than the profile of what we purchase. The big problem with Vision Pro is it's a highly competitive industry where prices matter, so you need volume. And to get volume, you have to use cash to attract users. And that demand gen is very expensive, for which a company in our current state where cash flow is king for us right now, it makes it difficult to be seriously in that business, and it has a much larger, a much smaller gross margin impacting our gross margin portfolio on a long-term basis.
spk40: Is that okay, Gabe?
spk27: Yeah, no, gotcha. That's fantastic. I appreciate all the feedback and what's been addressed in progress.
spk10: Thank you very much. Thank you for your support.
spk23: Thank you. That concludes today's question and answer session. Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect. you Bye. So,
spk12: Thank you.
spk23: Good day and thank you for standing by. Welcome to the CloudMD second quarter 2023 earnings 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 Kindersma, Head of Investor Relations. Please go ahead.
spk24: Thank you, and good morning, everyone. Thank you for joining us for our second quarter 2023 conference call and webinar. We'll start the call with our CEO, Karen Adams, followed by CFO, Prakash Patel, who will provide a recap of the company's Q2 2023 financial results before opening for a question and answer period with our covering analysts. A reminder that today's discussion contains some 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 CR. We encourage you to review our public disclosure in 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 unless such information is considered a reasonable basis on 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 any other reason except for to the extent required by law. Now it's my pleasure to turn the call over to Karen Adams, CEO of CloudMD. Karen, over to you.
spk14: Thank you, Mark. Welcome, everyone, to CloudMD's Q2 2023 earnings call. I also want to formally welcome Prakash Patel to his first call as Chief Financial Officer. In addition, we have Nathan Lane, who leads our Health and Productivity Operating Division in the United States, who will be participating in the Q&A portion of the call. In today's call, I will give an overview of our Q2 performance and highlights from our two operating divisions with comments on market trends and themes. As we have discussed on previous calls, for the last 12 months, the leadership team has been focused on generating high-quality organic growth, identifying operational improvements with integration and cost efficiency, and improving cash management. We are pleased with the progressive results that indicate sustainable growth and a narrowing of the gap to profitability. In the second quarter, we generated consolidated revenue of $23.2 million, which represents sequential growth. This growth was led by our mental health and assessment businesses. On a consolidated basis, gross margin was 38.2%, which represents a 130 basis point improvement over the previous quarter. On a consolidated basis, we achieved a 700,000 sequential improvement in adjusted EBITDA. These results reflect the decisions we made around our priorities and focus on execution. consecutive quarter of revenue growth was due to multiple factors. In the quarter, we crossed over 1 million subscription employees with access to our integrated healthcare navigation, which is comprised of our mental health and medical care services. These employees can engage with family members in whole person experience that is demonstrating health outcomes. Over 32% of our new contracts are existing customers buying new services. That is up from 30% in the previous quarter. The sustainable revenue growth is due to the market demand for healthcare navigation solutions that support health risk management needs. In Q2, we continued to build the pipeline, which now sits at $58 million. This is an increase over Q1 2023. In the quarter, we closed $2.3 million in ARR with a mix of large local branded clients and small clients. Customer acquisition costs are benefiting from an increase in cross-sell sales. Also of note, 25% of all new customers are buying more than one service. So consolidated pipeline does remain strong at $58 million. In Q2, we finalized the sale of our electronic medical records and practice management assets, which provides an inflection point for CloudMD. We have divested all major non-core assets that were not aligned to our go-forward strategy. Prakash will discuss vision pros in the financial section. Our focus for the last two quarters was identifying the core assets, optimization and efficiency, maximizing revenue mix, and customer profitability. These initiatives resulted in consistent improvement in our financial position. As such, our go-forward focus is on two divisions, which are our health and wellness employer services and our health and productivity technology solutions. As we reported last week, our Health and Productivity Solutions business has secured a foundational contract for remote patient monitoring in the United States. This contract will provide monthly services for a health system of 115 healthcare providers, including over 25,000 chronic health patients. This United States addressable market for remote patient monitoring is $4.4 billion, with 26 states having Medicaid coverage. This is because remote patient monitoring can reduce readmissions to hospitals, as well as provide patients with the reassurance of their health condition status. Our proprietary Healthy Life app will enable us to seamlessly add new services to support whole health, such as our ICBT and newly developed glucose monitoring program. This new market segment for CloudMD capitalizes on whole person care and an ecosystem that is technology-enabled. This organic growth, leveraged internally, developed technology to tap into a new market, providing new streams of cash flow and generating healthy growth margins. We look forward to updating you on the progress of this important market segment's growth over the next few quarters. In the last few quarters, we have focused on cost savings and optimization. In this quarter, we welcome Bram Lowski to lead our largest revenue division health and wellness services, with a mandate to build efficiency, scale, and double-digit organic revenue growth. As I previously reported, this is required to take advantage of our business model of one company with diversified services that needs to be interdependent with each other for scale and to achieve profitability. This work is in the execution phase and is demonstrating consistent improvement in gross margin and revenue growth. An example of this strategy in action is using KEY to drive operational enablement for nurses to easily manage clients, which is resulting in margin improvement. The product team introduced innovative technology-enabled tools that support a seamless experience and realize a higher revenue per customer. Our bundled service offerings, such as Mental Health Coach combined with traditional EFAP and ICBT and medical care as a one-product solution, will capture market share and support a unified, connected user experience. Our land and expand strategy will offer our 7,000 clients access to industry-leading, clinically proven health outcome solutions. In this operating division, we have reduced our core operating expenses, improved customer acquisition costs, and expanded gross margins, leading to better profitability. I want to take a few moments to talk about market trends. These market trends are important in validating our approach to support healthcare with our foundational integrated platform, KEY. The first is growth in healthcare navigation and virtual care. There are two trends to note in this area. Healthcare navigation is gaining momentum as individuals with health issues struggle to identify the right resources to solve mental and physical health issues. Our customers are looking for ways to reduce patient health risks as well as financial and liability risks. Customers are looking for ways to ensure that their group benefit costs are being deployed to improve health outcomes. In a recent poll facilitated by CloudMD, human resources buyers indicated that 90% would consider implementing a new mental health model over traditional employee assistance programs. There is growing evidence that individuals experiencing mental health issues are requiring a more whole person approach to the treatment, including how the solution is delivered. Access to coaching, digital, and in person, coupled with the ability to access psychological assessments, is a growing demand. The shift from transactional products that solve health problems to a suite of services designed to support health risk management is aligned to our approach and why we are seeing an increase in the purchasing of bundled services. Another key area of health navigation is using virtual care for chronic illness that enables remote monitoring and support. Remote patient monitoring is critical to reduce hospitalization and provide ongoing support to patients with chronic illnesses. This is a growing market that will be further amplified with hospital budget cuts and, in some cases, closures across North America. We will be looking to launch a remote patient monitoring Canada in early 2024. The second trend is consolidation of vendors to enable accountability and more effective use of spend. In the current economic condition, employers and users are focused on the financial spend of rising benefit costs. The desire to consolidate services with less vendors at the right cost is a conversation we are having with many of our customers. CloudMD was founded on whole person care and the ability to build an ecosystem of solutions that would address an individual's mental and physical health issue. This validates our approach since our inception to ensure we own the assets of health risk management. Our investment in the key platform enables bundling of services and the delivery of care making consolidation of benefit programs convenient and affordable. Key is the vehicle that ensures users are matched with healthcare professionals who can collaborate in managing healthcare with a focus on return to function. Finally, I want to address the interest in technology and artificial intelligence in supporting a user experience. It is a fact that technology and AI can accelerate more personalized experience while enabling better delivery of care. In Q2, we hired a new CTO, Dhruv Chandra, an executive with executive experience in multinational organizations specializing in cybersecurity and digital transformation. Dhruv will be working with Aida Bevich and the product team to develop technology that supports a better user experience and provides more scale for our operations. We will use AI to strengthen our products and as support tools to augment healthcare provider treatment. We want healthcare providers delivering care to patients and using technology and AI to streamline experiences. In the coming quarters, we will continue to evolve our smart nurses, continued evolution of our live healthcare chat, and integration of our services with other platforms for payment and benefit information. All of the things I have spoken about today signifies our strategy in action. I will now invite Prakash to provide an overview of our financial performance. Prakash?
spk28: Thanks, Karen.
spk35: I will start by reviewing our consolidated results for the quarter, including some financial highlights of our business segments, our liquidity position, and end with my near-term priorities at CFO. On a year-over-year basis, year-to-date normalized consolidated revenue of $46.1 million increased by 7%. This increase was due to the growth in our assessments and mental health businesses, partially offset by lower-than-expected growth in our health and productivity solutions group. On the account of the timing of key contracts, normalized revenue excludes our health for sale assets, divested assets, and 2022 COVID-19 testing contracts, and Ontario health contracts from the prior year. On a normalized basis, second quarter revenue was $23.2 million compared to $22.2 million in the prior quarter. On a reported basis, Q2 consolidated total revenue from continued operations was $23.2 million, a decrease of 11.5% year over year. Second quarter revenue does not include revenue generated from our health for sale assets vision pros. or our assets of Benchmark Systems Inc., which were divested at the end of second quarter. On a reported basis, second quarter revenues were impacted by the conclusion of COVID-19 testing revenues and the Ontario Health COVID-19 ICBT program revenues. Combined, these accounted for a decrease in revenue of 17%.
spk32: Our health and wellness services business, on a normalized basis,
spk35: contributed $21.7 million in revenues compared to $20.9 million in Q1 2023 and achieved a year-over-year organic growth rate of 7.4%. In the second quarter, we signed multi-year contracts of $2.3 million and continue to forecast a run rate growth expectation of 10% before unlocking the full potential of multi-product sales and cross-sales into our book of business. These metrics continue to signal that employers view our comprehensive offering and strong healthcare outcomes as a key differentiator in the market. Health and productivity solutions generated quarterly revenue of $1.4 million compared to $1.7 million in Q1 2023, excluding our divested and held for sale assets. The slightly lower revenue was due to the timing of certain client mandates. On August 23rd, 2023, subsequent to year end, we announced details of a newly signed contract to provide remote patient monitoring for a major US regional hospital systems Medicare patients. The hospital partner has approximately 115 healthcare providers with over 25,000 Medicare patients. The hospital partner will leverage our RPM and remotely monitor managed and proactively intervene for patients with chronic diseases such as diabetes, heart disease, and respiratory illnesses. We believe that the contract is scaled up over the next 12 months. It can deliver an average of 3 to 4 million in revenue per quarter, while expanding the opportunity to participate in the broader RPM market. This is a significant growth opportunity for our health and product solutions business. as the addressable market size for RPM in the U.S. alone is $4.4 billion. Profit margin from our continued operations in the quarter increased from 36.1% to 38.2%, or 8.9 million in Q1 2023. Over the last four quarters, we have improved gross margin by over 700 basis points on a reported basis. and 500 basis points on a normalized basis. Gross margin in our health and wellness services group improved quarter over quarter by 50 basis points to 37.7%, and continues to improve as we continue to see margin expansion in Quebec and advance our revenues mix with our existing clients. Gross margin in our health and productivity solutions group was 40.5%, Maintaining our margins continues to be a strong focus area for management as we continue the momentum from divesting our non-core assets and build efficiencies across our offering while optimizing our revenue mix. Our operating loss for the quarter was $5.6 million, a decrease of $8.1 million from the prior year and 10% lower than Q1. Over the past year, we have successfully identified $20 million in savings. including another $3 million of annualized cost reductions in Q2. Year-to-date, in 2023, there have been a reduction in general administration, research and development, and sales and marketing costs of $4.8 million compared to the prior year period. We continue to stay focused on ensuring we monitor these costs and right-size them as we turn our attention to growth. Adjusted EBITDA in the quarter was negative 0.7 million compared to negative 3.2 million in the prior year and negative 1.4 million in Q1. The improvement in adjusted EBITDA from the first quarter of 2023 is due to continued cost optimization efforts. I am proud to say we are getting very close to our guidance of positive adjusted EBITDA in Q4. I would like to note that adjusted EBITDA contained only minor adjustments for severance paid and M&A fees related to divestitures. I refer you to the definition of this measure in our recently released MDA. Turning our attention from earnings to liquidity and our financial position, CloudMD continues to move towards positive cash flow with the realization of healthy margins, increased ARR and organic growth, improved operating efficiencies, and reduced non-operating expenditures across the business. Cash and cash equivalents increased by $27,000 in the quarter. Normalized cash outflow for the second quarter was $3.1 million, down from $3.9 million in Q1 of this year. As of June 30, 2023, we had $18.8 million in cash and cash equivalents, and we expect our cash use and operations and activities to improve as a result of our revenue growth and cost reduction initiative. It is important to note that the closing cash balance included a benefit of $6.3 million received on the closing of our U.S.-based electronic medical records practice management and revenue cycle management assets from Benchmark. As previously disclosed, this is delivering on our strategy to realize value from non-core while focusing on longer-term, higher-gross business. During the quarter, our $17 million loan from our lender became classified as current, as it matures within the year on June 30, 2024. Subsequent to quarter end, the company commenced renewal discussions with our lender and partner, and we are confident that we will be able to renew our credit facility prior to maturity. It is important to note that our debt is currently at a floating rate and we do not anticipate a significant increase in interest costs when renegotiated. Overall, I'm excited about our Q2 results and success thus far in 2023. It is my assessment that the team focused on the right priorities. The acquisitions made prior to August 2022 were not accretive and required divestment to ensure long-term financial stability. The numbers demonstrate our strategy over the past year drives value and produces results we expect. Divesting assets that are not core to our offering enables us to focus on developing our brand and driving growth in higher margin areas. Turning to my initial focus as CFO, I will highlight a few priorities that I plan to focus on while supporting our ongoing strategy and growth initiatives. My primary focus, is to continue to deliver a well-positioned company with strong liquidity. We have done a remarkable job reducing expenditures, shedding non-core assets, and identifying efficiencies across the business to date. With our core assets in place, as we begin to shift into a growth mindset, prudent spending in the light of our liquidity position is paramount in the short term and requires careful consideration. Prioritizing the operational alignment of the finance function to support growth across our two pillars is another key focus in the near term. Alignment and collaboration will provide the necessary support to build and report the appropriate KPIs needed to make timely decisions. Putting the right data in front of the right people at the right time will garner trust and provide continued transparency to drive this objective. Finally, I would like to increase investor awareness of what CloudMD is and why we matter to the market. This is a shared objective across the leadership team, and we expect to deliver on this promise at our upcoming investor day on October 5th. With that, I will pass the call back to Karen for her closing remarks.
spk16: Karen?
spk14: Thank you, Prakash. In conclusion, all employees of CloudMD are focused on creating value for our clients and users. Our revenue is growing, growth margin continues to show improvement, cost cuts are being achieved, and we are narrowing the gap on being EBITDA positive. We are gaining momentum in the market with our partners and clients who are focused on providing services that empower healthier lives. We are laser focused on our strategic and initiative and growth pillars. We also acknowledge that this takes time. We are demonstrating 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 customers and partners who trust us to navigate the health risks of individuals. You have our commitment to continue the momentum and the path to change. I will now open the call for questions.
spk23: As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your touch tone telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tanvi Gabriel with Echelon Wealth Partners.
spk22: Good morning, everybody. I'll be speaking on behalf of Rob Gough, analyst at Echelon Wealth Partners. To begin with, we were very glad to see your comment with respect to a positive EBITDA for quarter four. The question is, would it be fair to look for a positive free cash flow from operations to follow by one quarter? And are there any puts and calls that we should look for for free cash flow?
spk14: Thank you very much and good morning. For cash, maybe I could direct that question to you, please.
spk28: Sure.
spk35: The expectation still is to have positive free cash flow by the end of the year. We don't expect there to be much turbulence in terms of what we're projecting, but we do expect there to be positive cash flow by the end of the year.
spk22: Perfect. And are there any puts and calls that we should look out for for free cash flow?
spk35: So we do still have the trailing expenditures that we had from our cost-cutting measures that we've had in the past year, identified slightly by severance that we've had that's still ongoing, some other acquisition divestiture costs that we still have in play, as you can see in our adjusted EBITDA schedule in our MD&A. But other than that, we would expect normal course operations to take place.
spk22: Right, okay. Another question that we have is – How do you see your distribution or the go-to-market strategy for remote patient monitoring? Do you believe that it will be a branded service, or do you see it as a white labor portion?
spk14: I'm going to ask Nathan Lane, who is on the call, to answer that question for us. Nathan?
spk02: Sure. Thank you, Karen. Really, our... Current view of that is it could be a hybrid.
spk03: Certain clinics and systems may want to white label that service with their own internal branding, especially once we enter the payer market. And then in other areas, we would continue to brand that under the CloudMD umbrella.
spk22: Right. Okay. And if there's time for one more question.
spk00: Sure.
spk22: How would you describe your sales pipeline for remote patient monitoring? Would it be possible to elaborate in terms of the timeline as well as the mixture of small versus large clients?
spk15: Absolutely. Nathan, would you like to take that, please?
spk03: Sure, I sure will. So at the moment, we do have a mix of, I'd call small, medium, and large size deals. Most of our focus has previously been closing the earlier reference deal with our healthcare partner. In addition, we continue to build that pipeline with deals that have smaller sales cycles. So I'd say our mix right now, we've got approximately an additional $5 million Canadian in our pipeline and that continues to grow throughout the year in the next quarter.
spk04: Okay, perfect. Thank you so much.
spk23: Thank you for your questions. Our next question comes from the line of Steve Disher with KeyBank.
spk26: Hey, thanks for taking our questions. Could you provide more detail on the operating efficiencies that drove better gross margins in the quarter?
spk09: Rakesh, did you want to take that?
spk35: Sure. From an operating standpoint, largely in our health and wellness business, we were looking at our customer mix, making sure that revenue was optimized across our customers, alignment internally in terms of our finance and our IT team to ensure that we're providing optimized service to our business. We've been looking at how do we align with our business and our product service team. Aside from that, it was largely driven by taking a harder look at our customers and identifying those that were accretive versus those that were not. But overall, it was an internal look largely in Q2 as we moved away from things that were shedding costs overall.
spk13: I think the growth margin improvement becomes also the sustainability of looking at
spk14: Our health care provider costs and finding more efficient ways to deliver number services and the onboarding of customers is also helping.
spk26: Got it. Thanks. And then I think last quarter you guys mentioned that the expectation was still for 40% or above on gross margin. Is that still the viewpoint?
spk39: Prakash, over to you.
spk26: I guess it's still a view. Sorry. Go ahead.
spk30: Sorry, go ahead.
spk26: You can finish your question. I think you guys said kind of over a longer term it was maybe 40% plus. So I just wanted to see if that was still the expectation. Okay.
spk35: Our gross margin is still trending positively with that expectation in mind. With the addition of our RPM business and the contract that we had just signed, we're expecting the gross margin to continue to improve. RPM is largely technological-based. We don't have a large outlay in terms of cash and investment at the onset of that contract. The margins in that business are expected to be on the positive side and accretive to our business overall. So we do expect gross margin to trend positively. Obviously, that improvement takes a few quarters over time as we increase and ramp up that contract. but we do expect gross margin to improve over time from where we are at.
spk14: And it will continue to improve as well, Scott, as we shift to more ICBT-delivered services in the U.S. and in Canada. That will also help improve our gross margin.
spk25: Got it. Okay, great. Thank you.
spk07: Nice to speak to you again. Thank you.
spk23: As a reminder, that is star 1-1 to ask a question. Our next question comes from the line of Gabriel Lung with Beacon Securities.
spk27: Gabriel, you're up.
spk11: Yes.
spk27: Good morning, and thanks for taking my question. Congrats on the progress. It's got a couple things. So first, just going back to the guidance around positive EBITDA and also, I guess, concurrently free cash flows. Can you just talk to us about the assumptions underlying that, hitting that milestone? Are there additional costs, cutting initiatives you plan on undertaking, well, I guess in Q3? Or is it really predicated on, at this point, revenue growth? And does that revenue growth need the RPM contract to ramp up to help you get there?
spk14: Thanks for the question, and thank you for attending the call. I guess I'll start and then I'll turn it over to Prakash. I think there's two things to think about. First, revenue growth is very important to us at this point. It's kind of a pivotal point for us where the more revenue we add obviously makes it easier for us on a scale perspective and to meet the EBITDA and cash flow requirements. I think the healthy pipeline we see is across North America, across all service lines in particular. occupational health in the fall is a great opportunity for us as well as the mental health solutions and of course the remote patient monitoring. I think that when we look at cost-cutting measures, we have a culture of continuous improvement. We are going to be constantly looking for ways to be efficient and integrate some of our shared services back offering, including in the finance department and in our IT department, which will give us a lift. So I would say we're not done on the cost cutting savings, but I'd say they're more around efficiency and continuous improvement and that we are all laser focused on revenue at this point and our ability to drive revenue. So Prakash, I don't know if you'd add anything else.
spk35: No, I think you hit the point on operational efficiencies for sure. On the costs that are remaining from a cost saving standpoint, as we've made these decisions in the past and they continue to trickle in as savings. I think it's a smaller component going forward, but the focus is generally on revenue growth and margin expansion as we've talked about throughout the call.
spk11: Yeah, I think double-digit revenue growth is really the key focus for us at this point.
spk27: Gotcha. And just looking at the pipeline, I think you mentioned, Karen McCall, $50 million right now is what you're seeing at. Does that include some of the newer RPM opportunities that have come up to include some of the larger deals? And if you can just talk a little bit about the deals that you've gone after, what has the close rate, your success rate been over the past, let's say over the past year or so?
spk14: Okay, great. So let me start with the pipeline and say that the pipeline is, never included the large deals. So that's why we didn't have a big drop in the pipeline right after we closed the US contract. And we're very cognizant about that because we like pipeline to be about sustainable revenue growth to give us an indicator of how well we're doing in the market. The second thing I would say with regards to pipeline, the largest, if we were to look on a percentage basis right now, the largest percentage of our pipeline falls into our healthcare navigation. and into our remote patient monitoring. The split on that I'm not 100% sure about. With regards to our close rate, I would say in our close rate, we are currently this year, and I can't go back, I don't have it in my head at this point for last year, we're at over a 30% close rate on pipeline. So I feel like that's right in the neighborhood of where we should be. It's a competitive marketplace with a number of our competitors in buying for business. And so I feel like we're accomplishing quite a bit both on the revenue growth as organic growth and on the pipeline close rate. Nathan, would you have anything to add about the pipeline in the remote patient monitoring specifically?
spk03: Thanks, Karen. As far as tracking the deal, approximately $5 million that's currently in the pipeline is outside of some other larger deals for the same reason. These are our smaller to medium-sized deals that we're currently looking at and to execute. As far as the closure rate, it is a little early to say, as we've really been pushing this service, you know, over the past six months. And due to our distributor network, we don't have a lot of insight into deal closures from that perspective at this time.
spk09: Did that answer your question, Gabe?
spk27: Yeah, no, that's perfect. I appreciate that. And then just shifting over to the RPM contract, Can you just walk us through what you're expecting in terms of the rollout of that contract over the course of this calendar year, number one? And number two is, can you talk about some of the assumptions underlying that $3 to $4 million per quarter sort of run rate that you expect to get to, I believe it's over the next couple of quarters?
spk14: I'm going to turn it over to Nathan and for Cass for that, because they can tag team that answer, I think, because they've been talking about this, as you can imagine, on a lengthy basis daily. So, go ahead, you guys.
spk03: Would you like to start? Nathan, do you want to start? Sure, I'll start out. So in terms of assumptions and how the deal will roll out, so this health system has approximately 20 or so clinics with somewhere between up to 115 providers spread out over those clinics. So the onboarding starts with the individual practitioners referring or quote unquote prescribing the service to the patient. And so there is an onboarding phase. part education, showing the patient how to measure their vitals, et cetera, and then providing the service so that we can then bill for those services. We'd expect over the next six months to get to a point where we can onboard upwards of a couple thousand patients going into next year, which really then lends itself to the growth that we're looking for going into next year with that average of three to four million in revenue per quarter.
spk35: Yeah, Nathan, I think you answered the question. The average of $3 to $4 billion really depends upon the ramp-up and the take-up. It's only a matter of time.
spk20: We've conservatively forecasted the ramp-up to be marginal for Q3 this year and then ramping up thereafter as we continue our efforts in the RPM space.
spk14: Yeah, I think the only other thing, if I may add to that, the key component for us and if we think about remote patient monitoring as a product line, the differentiation for us really is our ability to help navigate and as over time, outside of this specific contract, as we add remote patient monitoring contracts to the platform, the ICBT and some of the other services we'll be adding is a real differentiator for us versus traditional remote patient monitoring products. we will be able to report on a quarterly basis patients on the platform. So that will help, I think, signal some of the revenue projections as well.
spk27: Gotcha. And maybe just two follow-ups on that RPM, on the RPM side. Number one is, so the three to four million per quarter is just a conservative assumption around what the average revenue could be. But ultimately, the contract itself could be bigger, I presume, number one. If you can confirm that, that'd be great, number one. Number two is, what should we assume around, you know, costs that might occur around maybe upfront hardware, maybe around deployment resources you may require? How should we think about that as the contract ramps up?
spk14: So, Prakash, do you want to start on the revenue projection on the conservativeness? And then maybe Nathan can take it from the second part of the question, please.
spk35: Sure, so as Karen just described, the forecast includes two components. One is the contract itself, and the second component is as the contract ramps up, the inclusion of our cross L across our business, which allows a tremendous upside once we are fully ramped up. Some of the assumptions there are largely around the ramp-up period. We've made conservative forecasts in Q2, Q4, sorry, Q3, Q4 of this year, but expect that the contract ramps up In terms of our cost outlay, at the onset, we didn't put a lot of costs as pertaining to the contract generally. You'll note that the RPM delivery is not dependent upon specific hardware that we need to develop. We do have other products that are in the pipeline, like our glucose monitoring software, et cetera, hardware in that space, but those are already developed as well. The RPM contract largely is using a person's cell phone, for example. So there is no hardware outlay at the onset. So the cost in that is largely around distribution, marketing, et cetera, that we would incur, but they're not significant compared to the revenues that we would earn. Nathan, anything else to add?
spk03: No, I think you answered the second part of that question as well, Prakash, as far as additional cost outlays for hardware. smartphone focused initially. And then as we need to integrate with other devices, that will be on the health system to acquire those devices and distribute. So that will not be a cost absorbed by CloudND.
spk27: Gotcha. Just one last question, and I apologize if you agree to talk to us. But on the Vision Pro side, Prakash, can you just confirm that this Vision Pro is now out of the continuing operation results that you reported, number one? And number two is? You know, from a range perspective, can you give us a range of what you think you might be able to get for VisionPros as you get closer to the ultimate divestiture of the assets?
spk35: Okay, so two-part question. VisionPros is definitely out of the results. You'll see that it's a discontinued operation. Sorry, it's not a discontinued health for sale asset. Sorry, my apologies. It's a health for sale asset on our reported earnings. So you can see how we've carved out that part of the business. In terms of the range, it's a process in terms of the sale. And so we are in discussions with companies that are interested, but it is going to be a process. We do want to arrange just yet until we have a full conversations with the parties that are involved.
spk27: Gotcha. And maybe one last thing, are you, I haven't run through all the financials, but are you, are you comfortable providing a sort of guest spit on what vision pros are It's sort of generating now in terms of revenues and growth margins. I know there's been volatility in the results in that division, but do you have a sense of what the business today is doing?
spk35: Vision Pro is in Q2, generated about $1.5 million. In terms of margin, again, this is kind of consistent with our strategy of divesting our non-core assets. Vision Pro is not a core asset in our mind. I don't know if Karen wants to add any color on that front, but Vision Pros is not a core asset, and our intention to divest is largely around how do we position cloud and be moving forward in the market and cross-sell the services that we intend to offer.
spk14: Yeah, I think with Vision Pros, Gabe, the problem is that it takes a lot of money to acquire customers. We actually, you know, contrary to when we purchased Vision Pros, we actually are seeing a rising rate of subscribers in Canada. We've got quite a good following now in Canada from a subscriber base, which is very different than the profile of what we purchase. The big problem with Vision Pros is it's a highly competitive industry where prices matter, so you need volume. And to get volume, you have to use cash to attract users. And that demand gen is very expensive, for which a company in our current state where cash flow is king for us right now, it makes it difficult to be seriously in that business, and it has a much smaller gross margin impacting our gross margin portfolio on a long-term basis.
spk40: Is that okay, Gabe?
spk27: Yeah, no, gotcha. That's fantastic. Listen, I appreciate all the feedback, and once again, congrats on progress.
spk10: Thank you very much. Thank you for your support.
spk23: Thank you. That concludes today's question and answer session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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