DOC CloudMD Software & Services Inc

CloudMD Software & Services Inc. (TSXV: DOC, OTCQX: DOCRF, Frankfurt: 6PH) (the “Company” or “CloudMD”), an innovative health services company transforming the delivery of care, is pleased to announce its financial results for the first quarter ended March 31, 2023. All financial information is presented in Canadian dollars unless otherwise indicated.

“We had strong performance in our Employer Health and Wellness services with new partnerships with Benefits Alliance, Mohawk Medbuy, and XTM. This will bring our Kii service offering to potentially hundreds of thousands of new users these organizations represent,” said Karen Adams, CEO of CloudMD “Our pipeline in the United States in our Health Productivity Solutions division continues to grow with focus on remote patient monitoring which includes our life and health application technology. The combination of organic growth, operational improvement and cost efficiencies in both divisions is driving our performance in this quarter.”

“We are starting to see the improvement in our financial results because of cost optimization efforts in 2022. In Q1 2023, we saw our financial KPIs trend in the right direction with revenue growth, lower operating expenses, and improvement in Adjusted EBITDA,” said John Plunkett, CFO of CloudMD. “We are focused on continuing to drive organic growth and identifying further cost efficiencies with the target of reaching Adjusted EBITDA positive in the fourth quarter of this year.”

First Quarter 2023 Financial Highlights

• Q1 2023 revenue of $26.1 million, compared to $31.0 million in Q1 2022 and $25.9 million in the previous quarter. Compared to Q4 2022, revenue was up by $0.2 million, driven by organic growth from the start of previously announced annual recurring revenue contracts offset by lower revenues in VisionPros and some attrition in the Occupational Health business.
• Q1 2023 gross profit margin3 was 36.1% compared to 34.8% in Q4 2022, and lower compared to 36.7% in Q1 2022. Changes are due to the revenue mix in the respective periods.
• Adjusted EBITDA4 for the first quarter was ($1.6) million, in-line with the prior year comparative period. Adjusted EBITDA4 improved by $0.9 million from Q4 2022. The improvement in Adjusted EBITDA4 from Q4 2022 is due to the continued cost optimization efforts.
• Net loss in Q1 2023 was $7.1 million, or $0.02 per share, compared to a loss of $5.6 million or $0.02 per share in Q1, 2022.
• The Company identified and actioned approximately $1.0 million of annualized cost reductions in the first quarter, the impact of which was realized in part in the first quarter with the full run-rate impact expected in Q2 2023. Subsequent to the first quarter of 2023, the Company has identified approximately $4.0 million annually of cost reductions that will be realized in the second and third quarter of 2023.
• Cash outflow5 in the fourth quarter was $5.3 million. Normalized cash outflow6 for the first quarter was $3.9 million. As of March 31, 2023, the Company had $18.8 million of cash and cash equivalents.

_________________1,2,3,4 Adjusted EBITDA and Gross profit margin are non-GAAP measures. Refer to the “Non-GAAP Financial Measures” section of this news release for further information and the detailed reconciliation to the most directly comparable measure under IFRS set out above.

Fourth Quarter & Subsequent Corporate Highlights

• On February 13, 2023, CloudMD announced the launch Spanish language TAiCBT in the United States.
• On March 27, 2023, CloudMD announced that Bram Lowsky had joined the Company as the new Head of Health and Wellness Services.
• On April 3, 2023, CloudMD announced the launch of its online prescription renewal in the United States.
• On April 4, 2023, CloudMD announced its partnership with Mohawk Medbuy to offer its full suite of services to hospitals across Canada.
• On April 10, 2023, CloudMD announced that Dhruv Chandra had joined the Company as the new Chief Technology Officer.
• On April 12, 2023, CloudMD announced an expanded partnership with Benefits Alliance to offer its full suite of Kii services to employee benefits plans across Canada.
• On May 11, 2023, CloudMD announced a partnership with XTM to bring EAP and Telemedicine to service industry workers.

Outlook

2022 was a year of transition as the Company focused on operationalizing, aligning, and rationalizing the large number of acquisitions completed over the preceding two years. The Company has been focused on the integration of its previous acquisitions and products to create an innovative market leadership position and deliver profitable results.

During Q1 2023, the Company started to see positive trends in its financial KPIs, with revenue, Adjusted EBITDA and normalized cash flow all improving.

The Company expects low double digit revenue growth in 2023 from the fourth quarter 2022 baseline. The Company sold $2.9 million in multi-year contracts in Q1 2023 and has a robust growing pipeline that will continue to drive revenue growth in 2023.

During the first quarter, the Company identified and actioned approximately $1.0 million in annual cost reductions. In addition, the Company is expecting to action another $4.0 million of annual net cost savings between the second and third quarter of 2023. These synergies will come with a cost of severance, or working notice, which will impact cash flows in the first three quarters of 2023.

The cost savings achieved in the fourth quarter of 2022, in addition to the savings realized in the first quarter of 2023 and expected reductions in the second and third quarter of 2023, will bring the Company closer to adjusted EBITDA breakeven. The Company expects to achieve this milestone in the fourth quarter of 2023.

The Company believes its cash position of $18.8 million, will provide sufficient liquidity to fund its obligations and organic growth. The Company will continue to prudently manage expenditures and seek further efficiencies in its cost structure.

_________________4,5,6 Adjusted EBITDA, Cash outflow and Normalized cash outflow are non-GAAP measures. Refer to the “Non-GAAP Financial Measures” section of this news release for further information. 

Management Update

The Company announces the resignation of Chief Commercial Officer, Adam Kelly, effective June 23, 2023. Mr. Kelly’s responsibilities will be divided between Bram Lowsky, Head of Health and Wellness Services and Nathan Lane, Head of Health and Productivity Solutions.

The Company also announces the granting of stock options to purchase an aggregate of 200,000 common shares of the Company at an exercise price equal to the 5-day VWAP as of June 7, 2023 per share for a five year term. The stock options were granted pursuant to the Company’s Stock Option Plan to certain officers of the Company.

Select 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 (unaudited)	Three months endedMarch 31
		2023		2022(2)
Revenue	$	26,139		$	31,048
Cost of sales		16,701			19,643
Gross profit(1)	$	9,438		$	11,405
Gross profit %		36.1	%		36.7	%
Indirect Expenses
Sales and marketing		1,480			2,205
Research and development		590			992
General and administrative		9,175			10,012
Share-based compensation		30			490
Depreciation and amortization		3,421			2,605
Acquisition and divestiture-related, integration and restructuring costs		950			2,474
Operating loss	$	(6,208	)	$	(7,373	)
Other income		160			139
Change in fair value of contingent consideration		-			2,736
Change in fair value of liability to non-controlling interest		(549	)		(129	)
Finance costs		(661	)		(439	)
Share in profit of joint venture		-			12
Income tax recovery/(expense)		255			(85	)
Net loss for the period from continuing operations		(7,003	)		(5,139	)
Net loss after tax from discontinuing operations		(143	)		(509	)
Net loss for the period	$	(7,146	)	$	(5,648	)
Add:
Depreciation and amortization		3,421			2,605
Finance costs		661			439
Income tax recovery/(expense)		(255	)		85
EBITDA(1)	$	(3,319	)	$	(2,519	)
Share-based compensation		30			490
Acquisition and divestiture-related, integration and restructuring costs		950			2,474
Change in fair value of contingent consideration		-			(2,736	)
Change in fair value of liability to non-controlling interest		549			129
Net loss after tax from discontinuing operations		143			509
Adjusted EBITDA(1)	$	(1,647	)	$	(1,653	)
Loss per share, basic and diluted		(0.02	)		(0.02	)
Loss per share from continuing operations, basic and diluted		(0.02	)		(0.02	)

First Quarter 2023 conference call and webinar details:

Date and Time: Tuesday, May 30, 2023, at 9:30 am Eastern Time (6:30 am Pacific Time)

Webcast link: https://edge.media-server.com/mmc/p/rfdmk2tk

Financial Statements and Management’s Discussion and Analysis

This news release should be read in conjunction with the Company’s unaudited condensed interim consolidated financial statements and accompanying notes, and management’s discussion and analysis (“MD&A”) for the three months ended March 31, 2023, and 2022, 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 which are not recognized under IFRS, as supplemental indicators of the Company’s operating performance and financial position. These non-GAAP financial measures are provided to enhance the reader’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 the MD&A 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, 2022 and 2021.

EBITDA

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, 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

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, depreciation, amortization, share-based compensation, financing-related costs, acquisition and divestiture-related, integration and restructuring costs, change in fair value of contingent consideration, change in fair value of liability to non-controlling interest, and net loss after tax from discontinuing operations. 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.

The following table provides a reconciliation of net loss for the periods to EBITDA and Adjusted EBITDA for the three months ended March 31, 2023, and 2022.

	Three months ended March 31,						Variance
		2023			2022		$		%
Net loss	$	(7,146	)	$	(5,648	)	(1,498	)	(27	%)
Add:
Finance costs		661			439		222		51	%
Income tax expense/(recovery)		(255	)		85		(340	)	400	%
Depreciation and amortization		3,421			2,605		816		31	%
EBITDA(1)for the period	$	(3,319	)	$	(2,519	)	(800	)	32	%
Share-based compensation		30			490		(460	)	(94	%)
Acquisition and divestiture-related, integration and restructuring costs		950			2,474		(1,524	)	(62	%)
Change in fair value of contingent consideration		-			(2,736	)	2,736		(100	%)
Change in fair value of liability to non-controlling interest		549			129		420		326	%
Net loss from discontinuing operations		143			509		(366	)	(72	%)
Adjusted EBITDA(1)for the period	$	(1,647	)	$	(1,653	)	6		-	%

(1) EBITDA and Adjusted EBITDA are non-GAAP measures. Refer to the Non-GAAP Financial Measures section of the MD&A for further information.

Gross Profit

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 is defined as revenues less cost of 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

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.

Cash outflow and Normalized cash outflow

Normalized cash outflow is a non-GAAP financial measures that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Cash outflow, utilized in the calculation of normalized cash outflow, is defined as the decrease in cash and cash equivalents for the applicable period. Normalized cash outflow, as referenced herein, is defined as cash outflow, adjusted for expenditures that are not expected be recurring, net of changes in non-cash working capital, discontinuing operations, payment of contingent consideration, and net proceeds from business divestitures. For the purpose of calculating Normalized cash flow, expenditures that are not expected to be recurring include cash related adjustments to EBITDA. Management believes that normalized cash outflow, in addition to other conventional financial measures prepared in accordance with IFRS, provides information that is helpful to understand the financial condition of the Company. The objective of using normalized cash outflow is to present readers with a view of the Company from management’s perspective by interpreting the material trends and activities that affect the Company’s use of cash. 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 an innovative North American healthcare service provider focused on empowering healthier living by combining leading edge technology with an exceptional national network of healthcare professionals. Every day, our employees and health care providers live our values of delivering excellence, collaboration, connected communication and accountability to solve complex health problems. CloudMD’ s industry leading workplace health and wellbeing solution, Kii, supports members and their families with a personalized and connected healthcare experience across mental, physical and occupation health. Kii delivers superior clinical health outcomes, consistent high engagement, and measurable ROI for payers such as employers, educational institutions, associations, government, and insurers. CloudMD is also a market leader in workplace absence management through data-driven prevention, intervention and return to work programs.

In addition, the Company sells health and productivity tools to hospitals, clinics, and other healthcare service providers to empower them to deliver better care. Visit www.cloudmd.ca to learn more about the Company’s comprehensive healthcare offerings.

“Karen Adams”Chief Executive Officer

FOR ADDITIONAL INFORMATION, CONTACT:

Investor Relations

Investors@cloudmd.ca

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 “forward-looking statements” and “forward-looking information” within the meaning of Canadian securities laws, including statements about the Company’s growth strategy and profitability. 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.