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

Karen Adams, Chief Executive Officer of CloudMD, commented, “Q3 was a strong quarter, which reflects our strategy in action. We have taken over $20 million in costs out of the business over the last year, resulting in achieving our goal of becoming Adjusted EBITDA positive one full quarter ahead of forecast. We generated double-digit organic revenue growth in the Health and Wellness division and plan to build on this momentum by continuing to expand our pipeline and increase client lifetime value through multi-product solutions that capitalize on the industry demand for comprehensive health solutions.”

Prakash Patel, Chief Financial Officer, added, “Our results this quarter demonstrate our consistent ability to drive improving profitability while executing our core strategy. We have identified a further $1.0 million in cost savings through improved integration and operational efficiencies. This strong operating expense control, along with positive gross margin trends and double-digit organic growth gives me confidence in our ability to drive further improvement in our operating cashflow above and beyond our nearly breakeven third quarter.”

Third Quarter 2023 Financial Highlights

• Q3 2023 revenue of $23.6 million, compared to $23.2 million in Q2 2023 and $23.5 million in Q3 2022. Year-over-year organic growth in Health and Wellness Services (“HWS”) was 10%, normalizing for non-recurring COVID-19 contracts in the prior year.
• Q3 2023 gross profit margin1 was 35.9% compared to 38.2% in Q2 2023 and 34.0% in Q3 2022. Gross margin expansion was down sequentially due to a shift in revenue mix, timing of costs and revenue recognition in the assessment business. Gross margin improved year over year, driven by efficiency gains in cost of delivery.
• Q3 2023 Adjusted EBITDA1 of $0.05 million, compared to Adjusted EBITDA1 of ($0.7) million in Q2 2023 and ($3.2) million in Q3 2022. The improvement in Adjusted EBITDA1 from Q2 2023 and the prior year was driven by continued cost control across the organization.
• Net loss from continuing operations in Q3 2023 was $4.9 million compared to a loss of $87.6 million in the prior year, which included an impairment charge of $79.9 million.
• Total cash used in the third quarter was $5.7 million, which included $1.8 million in debt paydown, $1.8 million used in paying down accounts payable and short-term liabilities, and $0.4 million in discontinued operations. Normalized cash outflow1 for the third quarter was $2.3 million, and Adjusted net cash used in operating activities was $0.4 million. As of September 30, 2023, the Company had $13.1 million of cash and cash equivalents.

Third Quarter & Subsequent Corporate Highlights

• On July 6, 2023, CloudMD announced the results of a highly successful Ontario therapist-assisted internet-delivered cognitive behavioural therapy program.
• On August 23, 2023, CloudMD announced a contract for a Remote Patient Monitoring program with a major United States hospital system.
• On October 5, 2023, CloudMD hosted a virtual investor day. The replay is available here.

Outlook

During Q3 2023, the Company saw positive trends continue with improving Adjusted EBITDA1 and cash usage. The Company was Adjusted EBITDA positive in Q3 2023, a quarter ahead of its previous forecast.

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 $2.8 million in multi-year contracts in Q3 2023 and has a robust pipeline that it expects will continue to drive revenue growth into 2024. During the quarter, the Company announced a contract to provide Remote Patient Monitoring for a major U.S. Regional Hospital System’s Medicare patients, which has the potential to change the organization’s financial profile. The Company believes that if the contract is scaled up over the initial two quarters, it can deliver approximately $3.0-$4.0 million in revenue per quarter and open the opportunity to participate in the global Remote Patient Monitoring market. The Company is currently working with the Hospital Network to educate its providers with the goal of ramping up patient participation in Q1 2024. This growth would be incremental to its low double-digit growth target for its broader portfolio.

The cost savings achieved in the first and second quarters of 2023 have led to positive Adjusted EBITDA1 in Q3 2023. The Company expects continued improvement to Adjusted EBITDA1 in the fourth quarter of 2023.

The Company believes its cash position of $13.1 million will provide sufficient liquidity to fund its obligations and fund organic growth. The Company will continue to prudently manage expenditures and seek further efficiencies in its cost structure. The Company’s credit facilities (“the Facilities”), totalling $16.0 million, mature on June 30, 2024, and as a result, have been presented as a current liability on the Consolidated Statements of Financial Position. The Company is in discussions with its lender about renewing the Facilities prior to maturity. Management believes there is a reasonable expectation that the Company will be able to renew the Facilities prior to maturity.

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 ended						Nine months ended
	September 30						September 30
		2023		2022(2)				2023		2022(2)
Revenue	$ 23,612			$ 23,545			$ 69,698			$ 77,136
Cost of sales		15,130			15,548			43,912			50,374
Gross profit (1)	$ 8,482			$ 7,997			$ 25,786			$ 26,762
Gross profit %		35.9%			34.0%			37.0%			34.7%
Indirect Expenses
Sales and marketing		774			1,543			2,759			5,154
Research and development		397			968			1,300			3,354
General and administrative		7,636			8,790			24,401			27,199
Share-based compensation		100			273			500			1,295
Depreciation and amortization		3,683			3,561			10,568			10,177
Acquisition and divestiture-related, integration and restructuring costs		1,071			1,659			2,813			9,183
Operating loss	$ (5,179)			$ (8,797)			$ (16,555)			$ (29,600)
Other income		374			33			605			304
Change in fair value of contingent consideration		142			996			142			7,046
Change in fair value of liability to non-controlling interest		-			(64)			(549)			(232)
Change in contingent liability		-			-			760			-
Finance costs		(472)			(515)			(1,528)			(1,541)
Impairment		-			(79,866)			-			(79,866)
Share in profit of joint venture		-			(221)			-			(221)
Income tax recovery/(expense)		213			795			526			742
Net loss for the period from continuing operations		(4,922)			(87,639)			(16,599)			(103,368)
Net loss after tax from discontinuing operations		(849)			(7,213)			(3,190)			(41,346)
Net loss for the period	$ (5,771)			$ (94,852)			$ (19,789)			$ (144,714)
Add:
Depreciation and amortization		3,683			3,561			10,568			10,177
Finance costs		472			515			1,528			1,541
Impairment		-			79,866			-			79,866
Income tax (recovery)/expense		(213)			(795)			(526)			(742)
EBITDA (1)	$ (1,829)			$ (11,705)			$ (8,219)			$ (53,872)
Share-based compensation		100			273			500			1,295
Acquisition and divestiture-related, integration and restructuring costs		1,071			1,659			2,813			9,183
Litigation costs		-			101			-			555
Change in fair value of contingent consideration		(142)			(996)			(142)			(7,046)
Change in fair value of liability to non-controlling interest		-			64			549			232
Change in contingent liability		-			-			(760)			-
Share in profit of joint venture		-			221			-			221
Net loss after tax from discontinuing operations		849			7,213			3,190			41,346
Adjusted EBITDA (1)	$ 49			$ (3,170)			$ (2,069)			$ (8,086)
Loss per share, basic and diluted		(0.02)			(0.32)			(0.06)			(0.49)
Loss per share from continuing operations, basic and diluted		(0.02)			(0.29)			(0.06)			(0.35)

Summary of Results from Last Four Quarters

The following tables provide 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.

	Q3 2023			Q2 2023			Q1 2023			Q4 2022
	(unaudited)			(unaudited)			(unaudited)			(amended unaudited)
Revenue (1)	$ 23,612			$ 23,191			$ 22,895			$ 22,318
Gross profit(1)	$ 8,482			$ 8,850			$ 8,454			$ 8,009
Gross profit % (1)		35.9%			38.2%			36.9%			35.9%
Net loss	$ (5,771)			$ (6,877)			$ (7,146)			$ (10,020)
Adjusted EBITDA (1)	$ 49			$ (705)			$ (1,413)			$ (1,743)
EPS, basic and diluted	$ (0.02)			$ (0.02)			$ (0.02)			$ (0.03)
Cash and cash equivalents	$ 13,097			$ 18,779			$ 18,752			$ 24,058

Third Quarter Earnings Conference Call and Webinar Details:

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

Webcast link: https://edge.media-server.com/mmc/p/pcxe7vcg

Company to Restate Annual Financial Statements and MD&A for 2022

The Company also announces that it will restate its audited consolidated financial statements for the years ended December 31, 2022, and 2021, (the “annual financial statements”) and related MD&A (as defined below). After the issuance of the audited consolidated financial statements for the years ended December 31, 2022, and 2021, additional procedures were performed by the Company’s auditors and management and a number of adjustments were identified that will require a restatement of the annual financial statements. The expected restatement impacts are summarized in the notes to the interim financial statements and reflect all known restatements as of the date such interim financial statements were approved for issuance. However, they remain subject to the completion of the audit by the Company’s external auditors. Upon completion of the audit, the Company will (i) file amended and restated annual financial statements and related MD&A, which will replace and supersede the previously filed annual financial statements and MD&A, which were filed on April 25, 2023, and (ii) refile the interim financial statements for the three and nine months ended September 30, 2023 and 2022 and related MD&A. Accordingly, the annual financial statements and independent auditor's report thereon should not be relied upon until they are restated and refiled.

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 September 30, 2023, and 2022, copies of which can be found under the Company’s profile at www.sedarplus.ca.

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, 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 September 30, 2023, and 2022.

	Three months ended September 30,						Variance					Nine months ended September 30,						Variance
(Unaudited)		2023			2022		$			%			2023			2022		$			%
Net loss	$ (5,771)			$ (94,852)			$ 89,081			(94%)		$ (19,789)			$ (144,714)			$ 124,925			(86%)
Add:
Finance costs		472			515			(43)		(8%)			1,528			1,541			(13)		(1%)
Income tax expense/(recovery)		(213)			(795)			582		(73%)			(526)			(742)			216		(29%)
Impairment		-			79,866			(79,866)		(100%)			-			79,866			(79,866)		(100%)
Depreciation and amortization		3,683			3,561			122		3%			10,568			10,177			391		4%
EBITDA(1) for the period	$ (1,829)			$ (11,705)			$ 9,876			(84%)		$ (8,219)			$ (53,872)			$ 45,653			(85%)
Share-based compensation		100			273			(173)		(63%)			500			1,295			(795)		(61%)
Acquisition and divestiture-related, integration and restructuring costs		1,071			1,659			(588)		(35%)			2,813			9,183			(6,370)		(69%)
Litigation costs		-			101			(101)		(100%)			-			555			(555)		(100%)
Change in fair value of contingent consideration		(142)			(996)			854		(86%)			(142)			(7,046)			6,904		(98%)
Change in fair value of liability to non-controlling interest		-			64			(64)		(100%)			549			232			317		137%
Change in contingent liability		-			-			-		100%			(760)			-			(760)		100%
Share in profit of joint venture		-			221			(221)		(100%)			-			221			(221)		(100%)
Net loss from discontinuing operations		849			7,213			(6,364)		(88%)			3,190			41,346			(38,156)		(92%)
Adjusted EBITDA(1) for the period	$ 49			$ (3,170)			$ 3,219			(102%)		$ (2,069)			$ (8,086)			$ 6,017			(74%)

(1)   EBITDA, Adjusted EBITDA, Gross Profit, Gross Profit Margin, Cash flow, and Normalized cash outflow are non-GAAP measures.

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 measure 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 to 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 (“ARR”)

Annual recurring revenue is defined as the 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 healthcare 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 occupational health. Kii delivers superior clinical health outcomes, consistent high engagement, and measurable ROI for payers such as employers, educational institutions, associations, governments, 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

1-647-484-1405

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 restatement of the annual financial statements, and 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.sedarplus.ca), 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, future events, or otherwise, except as may be required by applicable securities laws.

1 This is a non-GAAP measure. Refer to the Non-GAAP Financial Measures section of this news release for further information.