CloudMD Reports Third Quarter 2022 Financial Performance
- Q3 2022 revenue from continuing operations of $27.5 million, which does not include revenue from its Clinics & Pharmacies Division or Cloud Practice which are classified as discontinuing operations.
- Q3 2022 gross margin of 34.5% compared to 31% in Q2 2022, reflective of the higher margins of CloudMD’s continuing operations.
- Q3 2022 Adjusted EBITDA loss of $3.0 million.
- Cash and cash equivalents were $27.5 million at the end of the quarter which does not include proceeds from divestitures announced subsequent to quarter end.
- Through Q3 2022 CloudMD has signed multi-year contracts contributing to its organic growth and annual recurring revenue of $8.8 million, representing continued progress in growing its base of high-quality recurring revenue.
- During the third quarter the Company identified and actioned approximately $4 million of cost savings, a significant portion being recognized in the quarter. Subsequent to quarter end, CloudMD identified an additional $6 million of annualized cost optimization and savings with full run-rate to be recognized in early 2023.
- Recorded a non-cash impairment charge of $83.9 million.
VANCOUVER, British Columbia, November 14, 2022 – CloudMD Software & Services Inc. (TSXV: DOC, OTCQX: DOCRF, Frankfurt: 6PH) (the “Company” or “CloudMD”), a healthcare technology company revolutionizing the delivery of care, announced its financial results for the third quarter ended September 30, 2022. All financial information is presented in Canadian dollars unless otherwise indicated.
Karen Adams, CEO of CloudMD commented, “We are strengthening the business by focusing on profitability through sales of higher gross margin, recurring revenue, multi-product contracts. We are restructuring our business resulting in the ability to deliver prudent expense and cash management. We are pleased with our increasing customer base, specifically in Mental Health Support Solutions. Our business model across EHS and DHS is focused on our ability to support individuals where they are on their health journey. Our continued organic growth in our mental and physical health services reinforces this model and the need for managing health through navigation and coaching. Our financial performance in the period was impacted by the end of one-time mandates and COVID related government contracts. This overshadowed the growth and resilience of our recurring revenue core business. The Management team is committed to new client adoption and improved financial controls.”
John Plunkett, CFO of CloudMD commented, “We’ve set multiple strategic priorities for the Company to reach profitability. We are driving organic revenue growth while eliminating costs from the business. In the third quarter, we saw our use of cash reduce significantly compared to the previous quarter. We’ve identified an additional $6 million in total cost savings that we will begin to realize in the fourth quarter, with the full run-rate expected in early 2023. Subsequent to quarter end, we have improved our balance sheet from our divestiture activities and are working hard to move CloudMD to profitability. This demonstrates our disciplined and focused approach to growth within our core businesses.”
Third Quarter 2022 Financial Highlights
- Q3 2022 revenue from continuing operations was $27.5 million, compared to $28.9 million in Q3 2021. Third quarter revenue does not include revenue generated from the Clinics & Pharmacies division as well as Cloud Practice, which are classified as discontinuing operations. Including discontinued operations, revenue in the third quarter would be $38.2 million, which was impacted by the end of one-time Covid-19 testing contracts, changes to the Ontario Health contract, as well as lower Vision Pros revenue.
- Q3 2022 gross profit margin1 was 34.5% compared to 31.0% in Q2 2022 and 36.1% in the third quarter of 2021. The margin improvement from Q2 to Q3 reflects the Company’s strategy to divest non-core assets, which have lower overall gross profit margins.
- Net comprehensive loss attributable to equity holders of the Company in Q3 2022 was $94.8 million or $0.32 per share, compared to a loss of $5.8 million or $0.02 per share in Q3 2021. The larger loss per share was driven by an $84 million impairment of goodwill.
- Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)2 was negative $3.0 million Q3 2022, compared to negative $3.2 million in Q2 2022 and Adjusted EBITDA of $0.9 million in Q3 2021. The lower revenues were offset by an improving overall cost structure.
- Cash and cash equivalents were $27.5 million as of September 30, 2022, compared to $45.1 million on December 31, 2021. Use of cash in the third quarter was $2.2 million, a significant improvement from the use of cash in the second quarter of 2022.
- During the third quarter, CloudMD experienced a triggering event due to sustained decreases in the Company’s share price, prompting an accounting related impairment assessment of goodwill and long-lived intangible assets. As a result of the assessment, the Company recorded a non-cash accounting impairment charge of $83.9 million in the third quarter of 2022. The assumptions used in the impairment analysis included discount rates that reflect higher interest rates, market volatility and the company risk premium compared to our valuation as at December 31, 2021. The impairment does not reflect a change in the Company’s outlook which is focused on growth, expanding profitability and cash flow.
Third Quarter & Subsequent Corporate Highlights
- On July 13, 2022, the Company added telemedicine services for primary care health navigation to Kii personalized & connected care offering. The services are led by nurses and nurse practitioners which provide fast access to a wide variety of primary care services and treatments and overall health and wellness support for employees and their family members, all from one connected offering.
- On July 22, 2022, the Company announced that it finalized the review and settlement of VisionPros, its online vision care platform. The settlement was reached with the former owners of VisionPros and reduces the purchase consideration paid for VisionPros by $12.6 million and also removes any future earnout payments.
- On July 25, 2022, the Company sold its 51% share ownership in West Mississauga Medical Ltd. (“West Mississauga”), which was acquired in February 2021.
- On August 11, 2022, the Company appointed Karen Adams as Chief Executive Officer and John Plunkett as Chief Financial Officer.
- On August 17, 2022, the Company provided a business update on customer momentum and the TAiCBT Ontario Government contract.
- On October 11, 2022, the Company announced the divestment of its primary care clinics and Cloud Practice to WELL Health for approximately $5.75 million in cash. CloudMD will retain ownership of its online patient portal, MyHealthAccess, and will retain the right (under a license granted by WELL at closing of the Transaction) to use Juno EMR, which have both been integrated into its Kii Personalized & Connected Care offering. The transaction subsequently closed on November 2, 2022.
- On October 31, 2022, the Company announced the sale of its two brick and mortar Pharmacies to Neighbourly Pharmacy Inc. for approximately $3.8 million in cash. The transaction is subject to satisfying closing conditions, and closing is expected to occur in the fourth quarter of 2022.
The Company continues to deliver on the value proposition of offering comprehensive solutions that create access to care, leading to better health outcomes. Through its team-based, patient-centric approach, CloudMD provides a connected platform for patients, healthcare practitioners, and enterprise clients to address whole-person, coordinated care.
CloudMD remains focused on its strategic priorities for the remainder of the year (1) through its strong sales pipeline, continuing to diversify and grow its client base within its EHS and DHS divisions by direct sales to new customers, enhancing relationships with channel partners and cross selling its established suite of products (2) driving continuous operational excellence and improvement across the organization to improve productivity, product quality and consistency, and lower customer acquisition costs; (3) delivering a diligent path to profitable financial sustainability and focus on delivering consistent financial performance across all divisions of the organization; and (4) continuing to develop corporate governance to support the Company’s growth.
Selected Financial Information
All results were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
|Selected Financial Information||Three months ended
|Nine months ended
|Figures below are unaudited||2022||2021||2022||2021|
|Revenue||$ 27,505||$ 28,946||$ 88,595||$ 41,943|
|Cost of sales||18,023||18,483||57,402||25,628|
|Gross profit (1)||$ 9,482||$ 10,463||$ 31,193||$ 16,315|
|Gross profit %||34.5%||36.1%||35.2%||38.9%|
|Sales and marketing||2,218||2,000||6,971||3,989|
|Research and development||1,043||828||3,618||1,745|
|General and administrative||9,638||6,932||29,725||12,531|
|Depreciation and amortization||3,721||1,991||10,639||3,410|
|Financing-related costs (1)||-||-||-||871|
|Acquisition and divestiture-related, integration and restructuring costs (1)||1,659||1,790||9,232||5,447|
|Loss before undernoted||$ (9,070)||$ (4,621)||$ (30,287)||$ (16,254)|
|Gain on fair value of contingent consideration||996||640||7,046||966|
|Loss on fair value of liability to non-controlling interests||(64)||-||(232)||-|
|Loss on sale of joint venture||(221)||-||(221)||-|
|Current and deferred income tax expense||811||(407)||742||(549)|
|Net loss for the period from continuing operations||(91,797)||(4,963)||(137,213)||(16,356)|
|Net loss after tax from discontinuing operations||(3,054)||(824)||(7,500)||(1,353)|
|Net loss for the period||$ (94,851)||$ (5,787)||$ (144,713)||$ (17,709)|
|Depreciation and amortization||3,721||1,991||10,639||3,410|
|Current and deferred income tax expense||(811)||407||(742)||549|
|EBITDA (1)||$ (7,410)||$ (2,652)||$ (20,072)||$ (12,895)|
|Acquisition and divestiture-related, integration and restructuring costs (1)||1,659||1,790||9,232||5,447|
|Litigation costs (1)||101||37||555||83|
|Loss on fair value of liability to non-controlling interests||64||-||232||-|
|Gain on fair value of contingent consideration||(996)||(640)||(7,046)||(966)|
|Net loss after tax from discontinuing operations||3,054||824||7,500||1,353|
|Loss on sale of joint venture||221||-||221||-|
|Adjusted EBITDA (1)||$ (3,034)||$ 902||$ (8,083)||$ (1,531)|
|Loss per share, basic and diluted||(0.32)||(0.02)||(0.49)||(0.09)|
(1) This is a non-GAAP measure. Refer to the Non-GAAP Financial Measures section of this MD&A for further information.
Third Quarter 2022 conference call and webinar details:
Date and Time: Tuesday, November 15 at 9:30 am Eastern Time (6:30 am Pacific Time)
Webcast link: https://edge.media-server.com/mmc/p/7veqjm22
A link to the live event, as well as the financial statements and MD&A will be available on the Financial Statements page of the Company’s website.
Financial Statements and Management’s Discussion and Analysis
This news release should be read in conjunction with the Company’s condensed interim consolidated financial statements and related notes, and management’s discussion and analysis (“MD&A”) for the three and nine months ended September 30, 2022 and 2021, copies of which can be found under the Company’s profile at www.sedar.com.
Non-GAAP Financial Measures
In addition to the results reported in accordance with IFRS, the Company uses various non-GAAP financial measures and ratios which are not recognized under IFRS, as supplemental indicators of the Company’s operating performance and financial position. These non-GAAP financial measures and ratios are provided to enhance the user’s understanding of the Company’s historical and current financial performance and its prospects for the future. Management believes that these measures provide useful information in that they exclude amounts that are not indicative of the Company’s core operating results and ongoing operations and provide a more consistent basis for comparison between quarters and years. Details of such non-GAAP financial measures and ratios and how they are derived are provided below as well as in conjunction with the discussion of the financial information reported.
Since non-GAAP financial measures do not have any standardized meanings prescribed by IFRS, other companies may calculate these non-IFRS measures differently, and our non-GAAP financial measures may not be comparable to similar titled measures of other companies. Accordingly, investors are cautioned not to place undue reliance on them and are also urged to read all IFRS accounting disclosures presented in the audited consolidated financial statements and the related notes for the year ended December 31, 2021 and 2020.
EBITDA is a non-GAAP financial measure that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. EBITDA referenced herein relates to earnings before interest, taxes, impairment, and depreciation and amortization. This measure does not have a comparable IFRS measure and is used by the Company to assess its capacity to generate profit from operations before taking into account management’s financing decisions and costs of consuming intangible and tangible capital assets, which vary according to their vintage, technological currency, and management’s estimate of their useful life.
Adjusted EBITDA is a non-GAAP financial measure that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Adjusted EBITDA referenced herein relates to earnings before interest, taxes, impairment, depreciation, amortization, share-based compensation, financing-related costs, acquisition and divestiture-related, integration and restructuring costs, litigation costs, gain or loss on fair value of liability to non-controlling interest, gain or loss on fair value of contingent consideration, net loss after tax from discontinuing operations and loss on sale of joint venture. This measure does not have a comparable IFRS measure and is used by the Company to assess its capacity to generate profit from operations before taking into account management’s financing decisions and costs of consuming intangible and tangible capital assets, which vary according to their vintage, technological currency, and management’s estimate of their useful life, adjusted for factors that are unusual in nature or factors that are not indicative of the operating performance of the Company.
Gross Profit is a non-GAAP financial measure that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Gross Profit referenced herein relates to revenues less cost sales. This measure does not have a comparable IFRS measure and is used by the Company to manage and evaluate the operating performance of the business.
Gross Margin is a non-GAAP financial ratio that has Gross Profit, which is a non-GAAP financial measure as a component. Gross Margin referenced herein is defined as gross profit as a percent of total revenue. This measure does not have a comparable IFRS measure and is used by the Company to manage and evaluate the operating performance of the business.
The following table provides a reconciliation of net loss for the periods to EBITDA and Adjusted EBITDA for the three months and year ended June 30, 2022 and 2021:
|Unaudited||Three months ended
|Variance||Nine months ended
|Net loss||$ (94,851)||$ (5,787)||(89,064)||1,539%||$ (144,713)||$ (17,709)||(127,004)||717%|
|Interest and accretion expense||621||737||(116)||(16%)||1,592||855||737||86%|
|Current deferred and income tax expense||(811)||407||(1,218)||(299%)||(742)||549||(1,291)||(235%)|
|Depreciation and amortization||3,721||1,991||1,730||87%||10,639||3,410||7,229||212%|
|EBITDA(1) for the period||$ (7,410)||$ (2,652)||(4,758)||179%||$ (20,072)||$ (12,895)||(7,177)||56%|
|Acquisition and divestiture-related, integration and restructuring costs||1,659||1,790||(131)||(7%)||9,232||5,447||3,785||69%|
|Litigation costs and loss provision||101||37||64||173%||555||83||472||569%|
|Change in fair value of liability to non-controlling interests||64||-||64||100%||232||-||232||100%|
|Change in fair value of contingent consideration||(996)||(640)||(356)||56%||(7,046)||(966)||(6,080)||629%|
|Net loss from discontinuing operations||3,054||824||2,230||271%||7,500||1,353||6,147||454%|
|Loss on sale of joint venture||221||-||221||100%||221||-||221||100%|
|Adjusted EBITDA(1) for the period||$ (3,034)||$ 902||(3,936)||(436%)||$ (8,083)||$ (1,531)||(6,552)||428%|
(1) EBITDA, Adjusted EBITDA, Financing-related costs, Acquisition and divestiture-related and integration costs, litigation costs and loss provision are non-GAAP measures. Refer to the Non-GAAP Financial Measures section of this MD&A for further information.
About CloudMD Software & Services
CloudMD is transforming the delivery of healthcare using technology and by providing a patient-centric approach, with an emphasis on continuity of care. By leveraging healthcare technology, the Company is building one, connected platform that addresses all points of a patient’s healthcare journey and provides better access to care and improved outcomes. Through CloudMD’s proprietary technology, the Company delivers quality healthcare through a holistic offering including hybrid primary care clinics, specialist care, telemedicine, mental health support, healthcare navigation, educational resources, and artificial intelligence (AI). CloudMD’s business is separated into two main divisions: Digital Solution and Enterprise Health Solutions, the Company’s fastest growing division. CloudMD’s Enterprise Health Solutions Division has built a leading employer healthcare solutions, including its Comprehensive Integrated Health Services Platform, which offers one comprehensive, digitally connected platform for educational institutions, corporations, insurers, and advisors to better manage the health and wellness of their students, employees, and customers.
CloudMD currently services a direct ecosystem of over 5,700 clinicians including, 1,800+ mental health practitioners, 1,600+ allied health professionals, 1,400+ doctors and nurses and covers 12 million individual lives across North America. For more information visit: https://investors.cloudmd.ca.
ON BEHALF OF THE BOARD OF DIRECTORS
Interim Chief Executive Officer
FOR ADDITIONAL INFORMATION, CONTACT:
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward Looking Statements
This news release contains certain statements that may constitute forward-looking information under applicable securities laws. All statements, other than those of historical fact, which address activities, events, outcomes, results, developments, performance or achievements that CloudMD anticipates or expects may or will occur in the future (in whole or in part) should be considered forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements formed in the future tense or indicating that certain actions, events or results “may”, “could”, “would”, “might” or “will” (or other variations of the forgoing) be taken, occur, be achieved, or come to pass. Forward-looking statements in this news release include, but are not limited to, statements regarding trends in certain financial and operating metrics of the Company, and expectations relating to the financial performance and the financial results of future periods. These statements are based upon information currently available to CloudMD’s management. All information that is not clearly historical in nature may constitute forward‐looking statements. In some cases, forward‐looking statements may be identified by the use of terms such as “forecast”, “assumption” and other similar expressions or future or conditional terms such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and “should”. Forward-looking statements contained in this news release are based on certain factors and assumptions made by management of CloudMD based on their current expectations, estimates, projections, assumptions and beliefs regarding their business and CloudMD does not provide any assurance that actual results will meet management’s expectations. While management considers these assumptions to be reasonable based on information currently available to them, they may prove to be incorrect. Such forward‐looking statements are not guarantees of future events or performance and by their nature involve known and unknown risks, uncertainties and other factors, including those risks described in the Company’s MD&A (which is filed under the Company’s issuer profile on SEDAR and can be accessed at www.sedar.com), that may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward‐looking statements. Although CloudMD has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward‐looking statements, other factors may cause actions, events or results to be different than anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such forward‐looking statements. Accordingly, readers should not place undue reliance on forward‐looking information. CloudMD does not undertake to update any forward-looking information, whether as a result of new information or future events or otherwise, except as may be required by applicable securities laws.
1 Gross profit margin is a non-GAAP ratio. Refer to the “Non-GAAP Financial Measures” section of this news release for further information.
2 Adjusted EBITDA is a non-GAAP measure. Refer to the “Non-GAAP Financial Measures” section of this news release for further information and a detailed reconciliation to the most directly comparable measure under IFRS.