CloudMD Finalizes Review and Settlement of the VisionPros Acquisition
Vancouver, BC, July 22, 2022 – CloudMD Software & Services Inc. (TSXV: DOC, OTCQX: DOCRF, Frankfurt: 6PH) (the “Company” or “CloudMD”), a healthcare technology and innovative health services company transforming the delivery of care, announces that it has entered into a settlement agreement (the “Settlement Agreement”) with the former owners of VisionPros (the “Sellers”) following the previously announced review (the “Review”) of the Company’s acquisition of VisionPros, its online vision care platform. The settlement reduces the purchase consideration paid for VisionPros by $14.6 million and also removes any future earnout payments.
Prior to reaching a settlement, management’s concerns on issues with VisionPros resulted in the Audit Committee undertaking the Review with the assistance of independent legal counsel and financial advisors. As a result of that review, recommendations were made to CloudMD’s Board of Directors that the Company proceed with settlement negotiations with the Sellers. The Settlement Agreement reached has been unanimously endorsed by CloudMD’s Board of Directors.
Pursuant to the terms of the Settlement Agreement, the holdback amounts of $3,000,000 and 1,090,909 common shares of the Company that were held in escrow as part of the original acquisition of VisionPros will be released to CloudMD rather than the Sellers. Additionally, another 4,909,092 of the common shares of the Company issued to the Sellers on the closing of the acquisition will be returned to CloudMD. All common shares returned to CloudMD will be cancelled upon receipt. Furthermore, the Company will not be required to make any future performance based earnout payments or other payments to the Sellers. The Company also obtained confirmation that certain trade payables of VisionPros in the approximate amount of $800,000 will now be the responsibility of the Sellers, who have indemnified CloudMD for any such payments. Finally, the Sellers have agreed to pay $350,000 in cash to the Company. The reduction in the purchase price related to the Settlement Agreement was $14.6 million.
No other payments will be made by either party to the other in connection with the acquisition of VisionPros and full releases will be exchanged by the parties.
In accordance with the acquisition agreement and as set out in the Settlement Agreement, CloudMD has confirmed to the Sellers that it will not proceed with the technology relating to online eye exams and will assign the appropriate intellectual property rights back to the Sellers, all in accordance with the terms of the acquisition agreement and at no expense to, and no future earnout payments from, CloudMD. The Company has integrated VisionPros into its Kii platform offering and will provide employers with important vision care options for their employees and their family members. CloudMD continues to develop the technology within Kii to meet the needs of its clients.
Finally, the Company is considering other avenues of recovery in connection with the VisionPros transaction.
As previously announced (on June 15, 2022), the Company initiated product sales on its vision care platform, VisionPros, in the United States, for the first time since the fourth quarter of 2021. Since learning of supplier issues while VisionPros was being run by the Sellers, CloudMD has worked diligently with its U.S. based suppliers to rectify all issues, agree to new terms of distribution and sign new contracts. With these new agreements in place, along with a new U.S. distribution centre, VisionPros is now positioned to access the U.S. market in a more efficient and compliant manner.
CloudMD was disappointed to learn of the supplier issues and other management practices while VisionPros was owned by the Sellers. This resulted in the Company being unable to sell in the United States until recently, and necessistated the negotiation and signing of new supplier agreements. In part as a result of the issues discovered and their impact on the Company’s financial projections, the Company expects to record a non-cash goodwill and intangible asset impairment charge in the second quarter of 2022 in the range of approximately $26 to $28 million. The determination of the final amount of the impairment, which will be recorded in the Company’s Q2 2022 financial statements, is subject to a number of factors. The forecast will be reviewed by valuation experts as part of the impairment charge being finalized. The Company does not expect that the impairment charge will have any impact on its liquidity or cash flows from operating activities, but it will reduce earnings for the quarter. The Company expects that the gross margins earned in the VisionPros business will be slightly lower in the near term as a result of the margin profile of U.S. sales under its new supplier agreements, including changes in supplier rebates. The Company is focused on operational improvements to increase VisionPros margins over time.
The Company is pleased that its current employees, including those at VisionPros, were able to address and resolve these operational issues and are focused on the future. The Company remains committed to the VisionPros business. In particular, the Company will be focused on growing and expanding the VisionPros e-commerce platform and realizing acquisition synergies by integrating vision care into Kii, its Personalized and Connected Care offering.
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 three main divisions: Clinics and Pharmacies, 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:
VP, Investor Relations
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Forward Looking Statements
This news release contains “forward-looking statements” and “forward-looking information” within the meaning of Canadian securities laws. 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 include, without limitation, statements regarding: the terms of the Settlement Agreement; the asset impairment charge, its impact on the Company’s liquidity and cash flows; and the gross margins earned in the VisionPros platform. Such statements 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.