DOC CloudMD Software & Services Inc

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 second quarter ended June 30, 2022. All financial information is presented in Canadian dollars unless otherwise indicated.

“Our Q2 results reflect the strength of our core Enterprise Health Solutions (“EHS”) business in the face of headwinds and distractions from our non-core business and overhang from previously made acquisitions. There is an incredible opportunity for our EHS division as industry trends converge with our differentiated product offering. We are taking the necessary steps to enable the performance of our core business to shine,” said Karen Adams, CEO of CloudMD. We will continue to execute on our strategic priorities of driving additional organic growth, integrating and optimizing our cost structure, and achieving financial sustainability and profitability with an emphasis on prudent cash management.”

John Plunkett, CFO of CloudMD, added, “As a team, we are focused on reaching profitability and positive operating cash flow. We are taking steps across the organization to align costs with each division’s revenue and to divest non-core assets which will provide some near-term capital. The team has made progress in cleaning up our cost structure, balance sheet, and outstanding issues from past transactions. We will continue to focus on further optimization for the remainder of the year. There is work to be done, but I’m encouraged by the steps taken to date and am pleased with the organic growth that our EHS business is starting to generate which will provide positive contributions in the second half of the year.”

Second Quarter 2022 Financial Highlights

• Q2 2022 revenue was $40.3 million, compared to $41.4 million in Q1 2022 and $15.7 million in Q2 2021. The growth was driven by the five acquisitions completed since the start of the second quarter of 2021, coupled with organic growth and customer momentum within the EHS division. The Company’s Q2 revenue was impacted by one-time COVID contracts ending, which are expected to be replaced moving forward.
• Q2 2022 gross profit margin was 31.0% compared to 32.5% Q1 2022 and 35.5% in the second quarter of 2021. The lower gross profit margin percentage was due to shift in revenue mix and performance in the IDYA4 business which is expected to return to a normal level in the third quarter.
• Adjusted EBITDA was negative $3.2 million in Q2 2022, compared to negative $1.6 million in Q1 2022 and a loss of $0.6 million in Q2 2021. Net loss in Q2 2022 was $44.2 million or $0.15 per share, compared to a loss of $6.6 million or $0.03 per share in Q2 2021. The larger loss per share was driven by a $33.0 million impairment of goodwill and $5.5 million of other non-recurring one-time costs.
• Cash and cash equivalents were $29.7 million as of June 30, 2022, compared to $45.1 million on December 31, 2021. Cash outflows4 in the second quarter were $17.2 million, which was unusually high for the Company. The normalized cash outflows4 were $6.9 million. During the quarter the Company incurred expenses related to restructuring costs, professional fees, legal and settlements from past acquisitions.

________________________1 Gross margin is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this news release for further information.2 Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this news release for further information and the “Selected Financial Information” section of this news release for a detailed reconciliation to the most directly comparable measure under IFRS.3 Net new lives include employees and dependants as per industry standards.4 Cash outflow and Normalized cash outflow are a non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section of this news release for further information and the “Selected Financial Information” section of this news release for a detailed reconciliation to the most directly comparable measure under IFRS.

Second Quarter & Subsequent Corporate Highlights

• On May 26, 2022, the Company announced the launch of Kii, Personalized & Connected Care, the new brand identity for its integrated, health services offering. Kii, is the Company’s flagship offering which integrates several of its best-in-class technologies and services into one exceptional, connected, and personalized experience for employees that will continue to disrupt the traditional employer healthcare industry.
• On June 6, 2022, the Company reported the results of an evidence-based study proving iCBT as a highly effective treatment for depression and anxiety. Over 5,000 individuals with clinical levels of depression and comorbid anxiety who completed CloudMD’s Therapist Assisted iCBT program experienced reliable symptom improvement.
• On June 15, 2022, the Company provided an update on strategic priorities to drive organic growth through new sales and cross selling. It also appointed senior customer success and sales leadership to accelerate expansion and growth.
• 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. The Company has received $3.3 million in cash from the settlement in the third quarter of 2022.
• 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. In the second quarter, CloudMD signed several multi-year contracts which will contribute new organic annual recurring revenue (“ARR”) of $4.2 million. CloudMD’s TAiCBT provider, MindBeacon, was one of two companies chosen to provide TAiCBT services for Ontario citizens under the new Ontario Health Contract. This new contract represents a reduction of approximately 85% in the number of guided iCBT cases that will be funded but is expected to expand over time. The Company is currently in discussions with the Government on how to continue to expand access to mental health services for all Ontarians.
• To offset the revenue impact of Ontario Health, CloudMD is in the process of eliminating the direct delivery costs associated with providing the services, as well as identifying further cost synergies to offset the gross contribution from the contract. Subsequent to quarter end, CloudMD has identified an additional $4.0 million annualized of optimization cost savings from continued organizational re-design and integration. This is in addition to the direct delivery cost elimination.

Outlook

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 the Company’s corporate governance to support the it’s growth.

For the remainder of the year, the Company will remain focused on driving profit from the core business, aligning costs to its revenue profile, and identifying further cost optimization to improve Adjusted EBITDA and gross margins. The Company is working on divesting its Clinics and Pharmacies business which will provide some near-term capital. It expects to provide an update on progress next month.

CloudMD has a robust sales pipeline and will continue to drive organic growth and client adoption, through direct sales to new clients, expanding distribution partners and cross selling its connected suite of products. The Company expects to achieve consistent double digit organic growth rates in its core business moving forward, as previously guided.

Selected Financial Information

All results were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

(In thousands of Canadian dollars, except per share amounts)		Three months ended
		June 30,
		2022			2021		(%)
Revenue	$	40,301		$	15,659		157	%
Cost of sales		(27,813	)		(10,102	)	175	%
Gross profit (1)		12,488			5,557		125	%
Gross margin (1)		31.0	%		35.5	%
Expenses		26,526			12,156		118	%
Loss before other items		(14,038	)		(6,599	)	113	%
Other items and taxes		(30,176	)		(33	)
Net loss		(44,214	)		(6,632	)	567	%
Loss per share, basic and diluted	$	(0.15	)	$	(0.03	)	400	%

Note:(1)   Gross profit and Gross margin are non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section of this news release for further information.

(In thousands of Canadian dollars)		Three months ended
		June 30,
		2022			2021		(%)
Net loss for the period	$	(44,214	)	$	(6,632	)	567	%
Add:
Interest and accretion expense		564			112		404	%
Income taxes		(32	)		115		(128	%)
Depreciation and amortization		4,723			1,452		225	%
Impairment		33,109			0		100	%
EBITDA (1) for the period		(5,940	)		(4,953	)	20	%
Share-based compensation		532			1,438		(63	%)
Financing-related costs		-			122		(100	%)
Acquisition-related, integration and restructuring costs		5,049			2,860		77	%
Litigation costs		452			(57	)	893	%
Change in fair value of liability to NCI		39			-		100	%
Change in fair value of contingent consideration		(3,315	)		11		NM (2)
Adjusted EBITDA for the period (1)	$	(3,183	)	$	(579	)	450	%

Notes:(1)   EBITDA and Adjusted EBITDA are non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section of this news release for further information.(2)   Not meaningful

The cash outflows in the second quarter of 2022 were unusually high and are not expected to recur in the third quarter or fourth quarter of 2022. The table below provides a reconciliation of the one-time cash outflows in the three months ended June 30, 2022:

(In thousands of Canadian dollars)		(unaudited)
Cash and cash equivalents as at March 31, 2022	$	46,889
Cash and cash equivalents as at June 30, 2022		29,703
Cash outflow (1)		17,196
Net Cash used in operating activities		(13,249	)
Adjustments
Net changes in non-cash working capital		3,599
Adjustments to EBITDA		5,501
Adjusted net cash used in operating activities		(4,149	)
Net cash used in investing activities		(2,121	)
Adjustments
Payment of contingent consideration		1,183
Adjusted Net cash used in investing activities		(938	)
Net cash used in financing activities		(1,818	)
Normalized cash outflow (1)	$	6,905

Note:(1)   Cash outflow and Normalized cash outflow are a non-GAAP measures. Refer to the “Non-GAAP Financial Measures” section of this news release for further information.

Second Quarter Earnings Conference Call

Date and Time: Tuesday, August 23, 2022, at 9:00am Eastern Time (6:00am Pacific Time)

Webcast link: https://edge.media-server.com/mmc/p/stmigy4p

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 six months ended June 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.

EBITDAEBITDA 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 EBITDAAdjusted 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; depreciation; amortization; share-based compensation; financing-related costs; acquisition-related and integration costs, net; litigation costs; and change in fair value of contingent consideration. 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 ProfitGross 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 MarginGross 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.

Cash outflow and Normalized cash outflowCash outflow and Normalized cash outflow are non-GAAP financial measures that do not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Cash outflow, as referenced herein, is defined as the decrease in cash and cash equivalents for the applicable period. Normalized cash outflow, as referenced herein, is defined as cash outflows, adjusted for certain unusual expenditures. For the purpose of calculating Normalized cash flow, unusual expenditures include non-operational one-time payments and payments related to EBITDA adjustments. These measures do not have a comparable IFRS measure and are used to ensure that we have sufficient liquidity to meet our liabilities as they become due.

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

“Karen Adams”Chief Executive Officer

FOR ADDITIONAL INFORMATION, CONTACT:

Julia BeckerVP, Investor Relations julia@cloudmd.ca(604) 785-0850

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 strategic priorities, new contracts, additional annualized savings, alignment of costs with revenue and divestiture of non-core assets, positive contributions of the EHS business, and the IDYA4 business returning to normal. 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.