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 second quarter ended June 30, 2023. All financial information is presented in Canadian dollars unless otherwise indicated.

Karen Adams, Chief Executive Officer of CloudMD, commented, “Our performance during the second quarter focused on driving profitable growth in the near term and executing our strategic plan to reduce costs and divest margin-dilutive businesses. With our core assets in place, we are focused on expanding our pipeline. Importantly, after the quarter, we secured a contract with a United States Hospital System customer for remote patient monitoring. This provides us with a testimonial to support new large pipeline growth opportunities in a $4.4 billion addressable market and paves the way for long term sustainable growth. The second quarter results provide confidence that we are delivering on expectations.”

Prakash Patel, Chief Financial Officer, added, “The incremental progress that’s been achieved this year sets the stage for a dynamic second half of 2023. Both Gross Margin and Adjusted EBITDA have seen continuous improvement quarter over quarter and our goal for Adjusted EBITDA breakeven in Q4 2023 is within reach. Aligning our processes and controls to build operational efficiency while continuing to support our growth becomes a greater priority now that our core assets are in place.”

Second Quarter 2023 Financial Highlights

• Q2 2023 revenue of $23.2 million, compared to $22.9 million in Q1 2023 and $26.2 million in Q2 2022. Year over year organic growth in Health and Wellness Services was 7%, normalizing for non-recurring Covid-19 contracts in the prior year. The Company divested the remaining Electronic Medical Records clinic billing business and commenced a process to divest VisionPros.
• Q2 2023 Gross Profit Margin1 was 38.2% compared to 36.9% in Q1 2023 and compared to 33.1% in Q2 2022. Gross Margin1 expansion was driven by improved operating efficiency in the delivery of care.
• Q2 2023 Adjusted EBITDA1 of ($0.7) million, compared to Adjusted EBITDA1 of ($1.4) million in Q1 2023 and compared to ($3.2) million in Q2 2022. The improvement in Adjusted EBITDA1 from both Q1 2023 and the prior year was driven by Gross Margin expansion and strong cost control across the organization.
• Net loss from continuing operations in Q2 2023 was $5.2 million compared to a loss of $11.0 million in the prior year comparative period.
• Cash balance in the second quarter was largely unchanged. Normalized cash outflow1 for the second quarter was $3.1 million. As of June 30, 2023, the Company had $18.8 million of cash and cash equivalents.

Second Quarter & Subsequent Corporate Highlights

• 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 Employee Assistance Program and Telemedicine to service industry workers.
• On June 7, 2023, CloudMD announced the appointment of Prakash Patel as Chief Financial Officer.
• On July 4, 2023, CloudMD announces the divestment of non-core Electronic Medical Records and Practice Management business.
• On July 6, 2023, CloudMD announced the results of Ontario Therapist Assisted Internet Delivered Cognitive Behavioural Therapy program.
• On August 23, 2023, CloudMD announced a contract for remote patient monitoring program with major United States hospital system.

Outlook

2022 was a transition year as the Company focused on operationalizing, aligning, and rationalizing historical acquisitions. The Company has largely completed that goal and is increasing its focus on cross-selling and winning new Health and Wellness Services customers while expanding its Remote Patient Monitoring in the United States to drive organic growth. The Company sees significant opportunities to continue improving the cost of delivery of care and efficiency across the organization to improve margins.

During Q2 2023, the Company saw positive trends continue with improving Gross Margin1, Adjusted EBITDA1, and cash usage.

The Company expects low double digit revenue growth in 2023 based on the fourth quarter of 2023 forecast compared to the fourth quarter of 2022. The Company sold $2.3 million in multi-year contracts in Q2 2023 and has a robust growing pipeline that will continue to drive revenue growth in 2023. The Company’s announcement subsequent to the second quarter of 2023, of a contract to provide Remote Patient Monitoring for a major U.S. Regional Hospital System’s Medicare patients, has the potential to change the financial profile of the organization. The Company believes that if the contract is scaled up over the initial two quarters, it can deliver an average of $3.0-$4.0 million in revenue per quarter and the opportunity to participate in the global Remote Patient Monitoring market. This growth would be incremental to the low double-digit growth target it has for its broader portfolio.

During the first half of 2023, the Company actively identified and actioned approximately $4.0 million in annual cost reductions. These synergies come with severance costs, or working notice, which will continue to impact cash flows in the second half of 2023.

The cost savings achieved in the first and second quarters of 2023 have led to improvements in the Company’s Adjusted EBITDA1. The Company expects to generate positive Adjusted EBITDA1 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.

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 endedJune 30		Six months endedJune 30
	2023	2022(2)	2023	2022(2)
Revenue	$ 23,191	$ 26,210	$ 46,086	$ 53,591
Cost of sales	14,341	17,534	28,782	34,826
Gross profit (1)	$8,850	$ 8,676	$ 17,304	$ 18,765
Gross profit %	38.2%	33.1%	37.5%	35.0%
Indirect Expenses
Sales and marketing	902	1,877	1,985	3,611
Research and development	397	1,508	903	2,386
General and administrative	8,329	9,102	16,765	18,409
Share-based compensation	370	532	400	1,022
Depreciation and amortization	3,616	4,163	6,885	6,616
Acquisition and divestiture-related, integration and restructuring costs	871	5,229	1,742	7,524
Operating loss	$(5,635)	$(13,735)	$(11,376)	$(20,803)
Other income	73	120	231	271
Change in fair value of contingent consideration	-	3,273	-	6,050
Change in fair value of liability to non-controlling interest	-	(39)	(549)	(168)
Change in contingent liability	760	-	760	-
Finance costs	(406)	(601)	(1,056)	(1,026)
Income tax recovery/(expense)	58	32	313	(53)
Net loss for the period from continuing operations	(5,150)	(10,950)	(11,677)	(15,729)
Net loss after tax from discontinuing operations	(1,727)	(33,264)	(2,341)	(34,133)
Net loss for the period	$ (6,877)	$ (44,214)	$ (14,018)	$ (49,862)
Add:
Depreciation and amortization	3,616	4,163	6,885	6,616
Finance costs	406	601	1,056	1,026
Income tax (recovery)/expense	(58)	(32)	(313)	53
EBITDA (1)	$ (2,913)	$ (39,482)	$ (6,390)	$ (42,167)
Share-based compensation	370	532	400	1,022
Acquisition and divestiture-related, integration and restructuring costs	871	5,229	1,742	7,524
Litigation costs	-	454	-	454
Change in fair value of contingent consideration	-	(3,273)	-	(6,050)
Change in fair value of liability to non-controlling interest	-	39	549	168
Change in contingent liability	(760)	-	(760)	-
Net loss after tax from discontinuing operations	1,727	33,264	2,341	34,133
Adjusted EBITDA (1)	$ (705)	$ (3,237)	$ (2,118)	$ (4,916)
Loss per share, basic and diluted	(0.02)	(0.15)	(0.05)	(0.19)
Loss per share from continuing operations, basic and diluted	(0.02)	(0.04)	(0.04)	(0.06)

Summary of Results from Last Four Quarters

The following tables provides a summary of the Company’s financial results for the four most recently completed quarters. Financial results exclude all divested or held for sale assets.

		Q2 2023		Q1 2023		Q4 2022		Q3 2022		Q2 2022
		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue	$	23,191	$	22,895	$	22,134	$	23,544	$	26,210
Gross profit(1)	$	8,850	$	8,454	$	7,709	$	7,996	$	8,676
Gross profit % (1)		38.2%		36.9%		34.8%		34.0%		33.1%
Net loss	$	(6,877)	$	(7,141)	$	(9,586)	$	(88,663)	$	(44,214)
Adjusted EBITDA (1)	$	(705)	$	(1,413)	$	(2,186)	$	(3,354)	$	(3,237)
EPS, basic and diluted	$	(0.02)	$	(0.03)	$	(0.03)	$	(0.30)	$	(0.15)
Cash and cash equivalents	$	18,779	$	18,752	$	24,058	$	27,506	$	29,703

Second Quarter 2023 Conference Call and Webinar Details:

Date and Time: Monday, August 28, 2023, at 9:30 am Eastern Time (6:30 am Pacific Time)

Webcast link: https://edge.media-server.com/mmc/p/d2o59vic

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 June 30, 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, acquisition and divestiture-related, integration and restructuring costs, change in fair value of liability to non-controlling interest, litigation costs, change in fair value of contingent consideration, change in contingent liability, 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 June 30, 2023, and 2022.

	Three months ended June 30,		Variance		Six months ended June 30,		Variance
	2023	2022	$	%	2023	2022	$	%
Net loss	$ (6,877)	$ (44,214)	37,337	(84%)	$(14,018)	$ (49,862)	35,844	(72%)
Add:
Finance costs	406	601	(195)	(32%)	1056	1,026	30	3%
Income tax expense/(recovery)	(58)	(32)	(26)	81%	(313)	53	(366)	(691%)
Depreciation and amortization	3,616	4,163	(547)	(13%)	6,885	6,616	269	4%
EBITDA(1) for the period	$ (2,913)	$ (39,482)	36,569	(93%)	$ (6,390)	$ (42,167)	35,777	(85%)
Share-based compensation	370	532	(162)	(30%)	400	1,022	(622)	(61%)
Acquisition and divestiture-related, integration and restructuring costs	871	5,229	(4,358)	(83%)	1,742	7,524	(5,782)	(77%)
Litigation costs	-	454	(454)	(100%)	-	454	(454)	(100%)
Change in fair value of contingent consideration	-	(3,373)	3,273	(100%)	-	(6,050)	6,050	(100%)
Change in fair value of liability to non-controlling interest	-	39	(39)	(100%)	549	168	381	227%
Change in contingent liability	(760)	-	(760)	-	(760)	-	(760)	-
Net loss from discontinuing operations	1,727	33,264	(31,537)	(95%)	2,341	34,133	(31,792)	(93%)
Adjusted EBITDA(1) for the period	$ (705)	$(3,237)	3,086	(78%)	$ (2,118)	$(4,916)	2,798	(57%)

(1) EBITDA, Adjusted EBITDA, Gross Profit, Gross Profit Margin, Cash flow and Normalized cash outflow 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.

Annual Recurring Revenue

Annual recurring revenue is defined as average annualized contract value for closed sales. This measure does not have a comparable IFRS measure and is used by the Company to assess the impact of closed sales on future period revenue projections.

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.