Carecloud (NASDAQ:CCLD) Q3 2021 Earnings Call

0:00 Welcome to the CareCloud third quarter 2021 results conference call. Please note this event is being recorded. I will now place on the conference call over to Kim Blanche, CareCloud's general counsel. Ms. Blanche, the floor is yours. Thank you, and good morning, everyone. Welcome to the CareCloud third quarter 2021 conference call. On today's call are Mahmud Haq, our founder and executive chairman, A. Hadi Chaudhry, our chief executive officer, president, and a director, Stephen Snyder, our chief strategy officer and a director, and Bill Korn, our chief financial officer. Before we begin, I would like to remind you that certain statements made during this conference call are forward-looking statements within the meaning of Section 27A of the Security Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

1:04 All statements, other than statements of historical fact, made during this conference call are forward-looking statements, including, without limitation, statements regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook, and potential organic growth and acquisition. Forward-looking statements may sometimes be identified with words such as will, may, expect, plan, anticipate, upcoming, believe, estimate, or similar terminology, and the negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements.

2:00 These statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise these forward-looking statements in light of new information or future events. Please refer to our press release and our reports filed with the Securities and Exchange Commission where you will find a more comprehensive discussion of our performance and factors that could cause actual results to differ materially from these forward-looking statements. For anyone who dialed into the call by telephone, you may want to download our third quarter 2021 earnings presentation. Please visit our investor relations site, ir.carecloud.com, click on events, and download the earnings presentation.

2:45 And finally, on today's call, we may refer to certain non-GAAP financial measures. Please refer to today's press release announcing our third quarter 2021 results for reconciliation of these non-GAAP performance measures to our GAAP financial results. And with that said, I'll now turn the call over to our CEO, Hadi Chaudhry. Thank you, Kim. Good morning and welcome to our third quarter 2021 earnings call. I'm delighted to be here this morning and I'm excited to share with you how CareCloud continues to thrive in this large and dynamic healthcare marketplace. 2021 is certainly turning out to be another breakout year for us and remain incredibly excited and optimistic for what the future holds for us.

3:37 In terms of the third quarter 2021, I am pleased to report that we had another record-breaking quarter. As we stepped into this year, we set out to accomplish a variety of important initiatives and execute against some lofty goals. We set out to continue to achieve record revenue and profitability while maintaining our historically disciplined fiscal approach. We committed to expanding our addressable market and the types of customers we could ultimately serve. 3. We set out to launch new and innovative products. 4. It was important for us to reinforce our position as a tech company in healthcare while also crystallizing our brand and market position.

4:26 I am excited to say that we have already accomplished many of these and are on track to execute against all four of them by the end of this year. This is an exceptional accomplishment and I would like to take a moment to thank our customers and our employees worldwide for your incredible work in helping us achieve what we have thus far. I would like to take a few minutes to provide some additional color and insights into some of these for you. In terms of revenue growth, we have achieved another record quarter with $38 million in revenue. We continue to accelerate our growth and have been able to add revenue to a variety of means. It is important that we maintain a fiscally disciplined approach that has allowed us to drive adjusted EBITDA growth quarter over quarter.

5:16 I am happy to report that we once again achieved record-breaking adjusted EBITDA, $6.7 million for third quarter 2021. Our approach of constantly evaluating different revenue levers and seeking ways to expand our addressable market is key to our strategy. Whether through the addition of new innovative software products, the ability for us to pursue a digital market through partnership, or through our proven competence to source and execute on acquisitions. This combination continues to place us in a great position to succeed as an organization. This year, we had the opportunity to complete an acquisition that has done just that.

6:02 It has expanded our addressable market by allowing us to provide healthcare consulting and on-demand technical and revenue cycle staffing services and given us a far better position in the health system and hospital space. We continue to be encouraged by the great progress our MedSR team is making, the manner in which our integration efforts are progressing, and the leadership they continue to exhibit. In terms of leadership, we recently announced executive leadership appointments at MedSR, as well as the addition of dedicated resources in support of the changing and growing needs of our health system clients in this new normal they find themselves in. MedSR has appointed additional seasoned leaders that rounds out their executive team and helps us all execute across every aspect of the business.

6:54 We have appointed a seasoned CareCloud veteran as Chief Operating Officer and a new Chief Revenue Officer for MedSR who brings a vast amount of knowledge in the healthcare industry as seasoned executives having worked at organizations like Athena Health, Cerner, Santa Rosa Consulting, and Deloitte Consulting. These new appointments are important as we continue to integrate, help bring additional capabilities, promote the cross-pollination of ideas, and should prove transformational for our combined businesses while bringing additional depth and breadth as we look to further scale. Our company's combined integrated offerings are beginning to gain traction with clients and prospects alike in both the small hospital setting to large multi-region health systems.

7:44 These organizations are turning to CareCloud to extend their workforce and integrate their EHR and RCM platforms to optimize performance as they strive to improve access to care and the patient experience while facing an industry-wide workforce shortage and increased pressure on revenue. As I have mentioned in the past, these deals take time, but we believe that our combined strength, leadership position, and robust value proposition position us to execute well against our strategy. As we have expanded our universe of solutions through the MedSR acquisition, we made a conscious and strategic effort to focus on these non-recurring revenue deals as we believe they can provide significant upside downstream.

8:32 We are excited about these deals as we believe they set the foundation we need to have over, put in the door, so to speak, and allow us to later convert a portion of these new clients into long-term recurring revenue contracts. This gives us great confidence that it is incredibly cost-effective to bring on these types of customers on board and then focus on expanding the relationship through upsells and cross-selling opportunities. Selling into this market takes time and is incredibly difficult, but never in our history have we had such a prominent seat at the table. These types of expansion deals currently in our pipeline are transformative in nature and could present significant ACV contracts in due time.

9:23 Our sales team are hard at work in making this a reality. In fact, our sales team across all of our segments and business units continue to push hard and win in the field. In terms of overall spend, in 2019, we spent about $1.5 million in sales and marketing compared to $6.6 million in 2020 and $6.5 million in first nine months of 2021. As we have said, we will continue to spend in sales and marketing so long as we can maintain a healthy client acquisition cost. Let's now focus on some additional exciting news. I've mentioned before that addressable market expansion and continuing to notch new and innovative products remain an important focus of ours.

10:11 To that end, I am excited to announce today that later this quarter, we will be rolling out a new technology platform that does just that. It expands our market reach and adds significant technology assets to our portfolio. This new and innovative platform we will soon release give us even more capabilities in our enterprise market segments, but also as significant, it expands the type of customers we can serve. With this new product suite, we will be able to provide technology solutions and service capabilities to healthcare IT vendors, large system integrators, and other healthcare and digital health ecosystem partners, potentially even including those in the peer space.

10:57 Earlier this year, we discussed how we had been working on a new technology solution we call Conductor. We talked about how our R&D teams have been working on the problem of unifying healthcare data across multiple systems, partners, and platforms. Not only across our internal systems, but across our vast network of partners and integrations. This technology would help us as we continue to scale our current business while also assisting us when we acquire companies as it relates to our integration needs. As we continue to develop this new solution and think about its real-world usage, our thinking and strategy evolved. We now see CareCloud Conductor as a family of technologies or in other words a product suite of tools for interoperability, data exchange, transformation and connectivity rather than as a single product.

11:54 It is a suite of solutions that are designed to work well together or as standalone solutions. Later this quarter, we will be bringing to market the first of these solutions within the CareCloud Conductor Suite. We call this new product CareCloud Connector. CareCloud Connector is a platform that connects organizations to a ready-to-use integration library for healthcare IT systems, improving data management, increasing visibility and control of these interfaces, and providing more robust vendor libraries for clients and partners to manage on their own. For example, today an enterprise client or healthcare IT vendor may be required to host or manage dozens of interfaces with third-party systems, labs, proprietary software connectivity partners, and the like using several software tools and making centralized management incredibly cumbersome and expensive.

12:54 With CareCloud Connector, there is one centralized management console and hundreds of interface libraries to choose from. making significantly easier for these new customers to manage and scale. We know this to be true as this solution was built for our own needs internally in order to effectively manage the multitude of complex systems we need to integrate with our own business. We have that advantage versus some other competitors in that we have lived these problems and have needed to look for ways to solve it ourselves. This work is the culmination of decades of knowledge and investment and we now have an opportunity to package these offerings and bring it to market.

13:42 As part of the CareCloud Conductor Suite, we will be incorporating the new and improved CareCloud Collective IQ Rules Engine. Collective IQ is our standalone rules engine that brings an advanced collection of automated billing rules and our proprietary algorithms that help healthcare organizations improve collections and cash flow, reduce administrative costs, and stay ahead of changing healthcare regulations. Later next year, we will introduce other products within the CareCloud Conductor product suite, including a powerful, one-of-a-kind semantic translation engine and schema builder and a standalone EDI transaction transmission solution. CareCloud Conductor sets the stage for our foray into a new market.

14:31 We are very excited about these new capabilities as it relates to interoperability, data exchange and transformation, and the boundless opportunities we see as we believe it could unlock new markets for us to pursue and the revenue opportunities they represent, while giving us an advantage during our system integration phase with companies we may acquire. Lastly, I have continued to meet with investors, analysts, employees, and customers across the country. I'm truly humbled by the incredible opportunity we have as a company and the real impact we are making for our clients nationwide and see our mission come to life. Most recently, I had the opportunity to see firsthand how our RPA bots, a proprietary workflow technology solution, and our team of RCM specialists has been able to significantly improve a sizable customer's experience with us. post a recent transition and drive better metrics towards their bottom line. It is always great for me when I receive communications from clients, in this case a large enterprise customer CEO thanking our team on the hard work they perform on a daily basis.

15:42 It's interactions like this one I just mentioned that energizes us to continue to deliver leading technology-enabled solutions to the more than 40,000 providers in medical practices and health systems focused on delivering quality patient care nationwide. Our mission remains to deliver comprehensive, end-to-end solutions needed in order for our customers and prospects to thrive in today's highly complex, changing healthcare environment. And of course, we accomplish this purpose through our vast array of software platforms and services we have as part of our product portfolio, as well as Our additional capability to design and build customized solutions required to meet the unique needs of our customers.

16:30 In terms of crystallizing of market position, I will continue to ensure that we strive to emphasize and stress our leading market presence. Our truly distinct position as a leading technology company in the healthcare and work hard to discourage notions that lump us together with other companies that may look like us on the surface but are vastly different upon taking a deeper look. We are fortunate to be amongst just a small few leading technology companies in the healthcare IT market entrusted with deploying proprietary software solutions, including certified electronic health records and practice management products, patient experience management platforms, and a host of other software and services to a host of healthcare organizations of all sizes.

17:20 We do not take this for granted and will continue to forge ahead, break new bounds, and continue the legacy of making bold moves. Once again, it is my pleasure to report that GearCloud is in its strongest position ever, and I'm excited for what the future holds for us. I will now turn over the floor to Steve Snyder, our Chief Strategy Officer. Steve? Great. Thanks, Hadi. And thank you, everyone, again, for joining us on today's call. During the third quarter, we were very excited to celebrate our company's 20-year anniversary. With two decades behind us, it's truly a privilege to still have a growing universe of people who are new to our story and interested in learning more about us.

18:08 With that in mind, we'd like to take a few short minutes to step back and provide some background regarding three areas that often generate questions. amongst new investors and individuals interested in our story. Namely, our founding purpose, our heritage of technological innovation, and our entry into the public markets. After that, we'll turn to do a deeper dive into our financial performance for the third quarter. First, let's discuss our origin story for a moment. For those who are new to our company, we were founded in September 2001 as a direct outgrowth of our founder Mahmud Haq's exhaustive search for a healthcare IT and revenue cycle management partner for his wife's new medical practice.

18:57 This search revealed an unmet need in the market and Mahmud's wife became our first customer. Our mission from day one has been to empower healthcare providers to achieve their full potential by equipping them with innovative clinical, financial, and patient experience software Together with integrated, powerful business solutions. Over the last 20 years, this approach has enabled us to grow from serving one internal medicine provider in New Jersey to serving more than 40,000 healthcare providers across 50 states practicing in more than seven unique specialties and subspecialties. For our entire team, it's been a really exciting journey. And we're even more enthusiastic about the path that lies ahead.

19:47 Next, let's talk for a moment regarding our history of innovation as a company. From the start, technological innovation has been our core focus. In fact, within our first three years in business, we had already launched the earliest versions of our integrated electronic health records application, practice management, and revenue cycle management platforms. And over the last 17 years, This integrated product and service portfolio evolved to include industry-leading cloud-based tools that support providers across the entire spectrum of care delivery, together with software tools that optimize the patient experience and solutions that enable health systems to gain actionable insights and drive growth.

20:37 As Hadi explained, We believe that we are still in the early innings with our sights set squarely on continuing to lead with innovation in the years to come. We have been a leading-edge innovator for two decades and will continue to launch new tech-enabled solutions that are designed to empower our users to achieve their full potential, and this, in turn, we believe will drive continued growth. Finally, for the benefit of those who are new to our story, let's briefly discuss our entry into the public markets and also explain the history of our preferred stock. We completed our IPO in 2014 and were listed on NASDAQ under the symbol MTBC.

21:22 It may not be readily apparent as you view our current five-year common stock returns, which handily outperformed the major indexes, but as a young Nanocat Company at the time, new to the public markets, it took some time to find our footing. And as we saw growth capital in 2015, our stock lingered below our IPO price. So we saw the less dilutive alternative to raising capital to our common stock. This gave birth to our 11% Series A cumulative redeemable perpetual preferred stock, which was first issued in November 2015. trades under the symbol MTBCP and is presently redeemable at a par value of $25 per share.

22:09 The initial and other follow-on issuances of this Series A preferred stock were key elements that enabled us to continue to invest in growth at what we consider to be a very attractive cost of capital in relative terms. The Series A preferred stock has played a critical role in supporting our historically and rapid growth. However, our current intention, which of course is subject to change, is to pivot over time toward a capital structure that reduces the role of our Series A preferred stock through exercising our redemption rights when and as appropriate. While the timing and manner of achieving redemption is obviously still to be determined, this will remain one of our key areas of focus as we continue to move forward.

22:59 We turn to where we started the conversation. This has been quite a journey. And we're privileged to have an amazing 20 years of innovation and growth as a company. Moreover, we believe that we are very well positioned to continue to be a disruptive innovator and market leader for many decades to come. And we are absolutely convinced that our best days lie ahead. Let's now turn our attention to our financial performance for the third quarter of 2021. And Turn the floor over to our CFO, Bill Korn. Bill? Thank you, Steve. As Hadi mentioned, third quarter 2021 was CareCloud's best quarter ever, with record revenue, record-adjusted EBITDA, record-adjusted debt income, record gap net income, and even record cash flow from operations.

23:54 Revenue for the third quarter 2021 was... $38.3 million, an increase of $6.7 million or 21% from the third quarter of 2020. Revenue was 12% above our previous all-time high set last quarter. Our annualized revenue run rate is now $150 million, which is 43% above our 2020 revenue and 133% above our 2019 revenue. This is proof that our strategy of growing through a combination of organic and strategic growth continues to allow us to grow revenue significantly faster than the industry. Third quarter 2021 gap net income was $1.5 million as compared to a net loss of $1.7 million in the same period last year and a net loss of $227,000 in second quarter 2021.

24:51 While we as a management team look at adjusted EBITDA and cash flow from operations as the primary indications of whether our business is growing in a sustainable way, achieving positive GAAP profitability of well over $1 million this quarter, even after including over $3.5 million of non-cash depreciation and amortization expenses, is a great milestone showing our progress. Our GAAP net loss was 15 cents per share based on the net loss attributable to common shareholders, which takes into account the preferred stock dividends declared during the quarter. Non-GAAP adjusted net income for third quarter 2021 was a record $6.1 million, or 41 cents per share, and is calculated using the end-of-period common shares outstanding.

25:40 Our non-GAAP adjusted net income exceeds the quarterly dividend that we pay to preferred shareholders. which is a metric many investors pay attention to. Since non-GAAP adjusted net income excludes non-cash expenses like depreciation and amortization, it is a good indicator that our steady state operating cash flow exceeds our dividend payment. Our adjusted EBITDA for the third quarter 2021 was $6.7 million or 17% of revenue compared to $4.2 million in the same period last year. Our adjusted EBITDA increased by approximately $2.5 million from Q3 2020, in large part due to cost savings resulting from integrating the businesses we acquired during 2020. Adjusted EBITDA set a new record growing by 58% from third quarter last year, 18% from our last quarter, and 17% from our previous record.

26:47 Revenue for the first nine months of 2021 was $102.1 million, an increase of 40% compared to the first nine months of 2020. Revenue for the nine months of 2021 was just $3 million less than full year revenue for all of 2020, and was $37.7 million greater than full year revenue for 2019. For the first nine months of 2021, our GAAP net loss was $686,000 compared to a GAAP net loss of $9 million in the first nine months of 2020. GAAP net loss per share was 77 cents based on the net loss attributable to common shareholders. Non-GAAP adjusted net income for the first nine months of 2021 was $13.5 million or 91 cents per share.

27:39 During this period, our adjusted EBITDA was $16 million, an increase of $10.8 million or 210% from $5.2 million in the same period last year. Adjusted EBITDA for the nine months of 2021 is $5.1 million greater than full year 2020 and $7.9 million greater than full year 2019, reflecting the cost savings from previous acquisitions. With our first full quarter of revenue from MedSR, the fraction of clients directly utilizing our technology continues to grow. The vast majority of our revenue, approximately 82% for the first nine months of 2021, was driven by the use of our technology assets, including 50% of our revenue, which comes from clients using our electronic health record and practice management software, which is our core technology suite.

28:38 22% of our year-to-date revenue is from clients using one component of our technology, Thank you. Thank you. and approximately 2% of our year-to-date revenue comes from other services. You'll see this revenue breakdown when you read our 10-Q, and we believe this will better assist the market in understanding who we actually are, a technology company in the healthcare space that serves a diverse group of clients in an incredibly large addressable market.

29:37 As of September 30, 2021, the company had approximately $9.3 million of cash, including restricted cash. During the third quarter of 2021, cash flow from operations was approximately $5.1 million. Our net working capital on September 30, 2021, was approximately $9.9 million. We are proud of the way we have consistently grown our revenue year after year, achieving a 44% compound annual growth rate over the last four years. Our preferred stock was a great vehicle to finance this growth without restrictive covenants, achieving a track record few public companies can achieve. On September 30th, 2021, we had approximately 5.3 million shares of non-convertible Series A preferred stock outstanding.

30:27 These shares pay a monthly cash dividend of approximately 23 cents per share. But now that it is redeemable, We are evaluating several options to start redeeming the preferred stock in ways that are accretive to common stockholders and prepare us for the next stage of our growth. Finally, no matter how impressive our track record of growing revenue appears, our track record of consistently growing profitability is the real metric investors should pay attention to. We've grown our adjusted EBITDA at a 79% compound annual growth rate over the last four years. I'll now turn the floor over to our Chairman Mahmud for his concluding comments. Thank you, Bill. It truly is a pleasure to see how we continue to evolve and provide leading technology-enabled business solutions to healthcare organizations across the country.

31:45 We are fortunate to continue to be poised for record-breaking growth and profitability. I would like to thank our investors, customers, and employees for their continued support. We will now open the call to questions. Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. Please limit your questions to 2. You can go back in the queue if you have additional questions. Again, please press star 1 to ask a question. And our first question comes from Jeffrey Cohen in Lattenburg, Germany. Please go ahead. Oh, hello, Mahmud, Hadi, Stephen, Bill, and Kim.

32:33 How are you? Good morning, Jeff. Good morning, Jeff. Thank you. So I'm limited to two. So I guess firstly for Hadi, could you talk a little bit about this conductor suite and some of its elements and talk specifically about the new markets and new TAM that you were discussing earlier in the call, please? It's unclear to us exactly what new market and TAM. that's incremental or separate from current marketing team. Thank you, Jeff. Thank you for the question. Just to first of all to summarize this KCloud conductor, you can consider this to be a family of technologies for interoperability, data exchange, and transformation and connectivity.

33:29 Think about it like the Google workspace or Microsoft Office, like there's a whole suite of products and there are small other elements such as Microsoft Word, Microsoft Excel, you can even you can buy the entire suite and or you can buy one piece of it. So this is the same, the whole suite of technology and the conductance and we keep on launching the product and the first one is the connector. From the go-to-market perspective, we are still working on some of the, to finalize the strategy in terms of the pricing and the website launch and the communication and we'll be doing later in this quarter. But what it does is, and I can share a simple example with you, maybe that can help you understand what this will work.

34:14 Let's say there is a vendor, an ABC EHR company. They need to create an interface with Lab on one side, with, for example, LabCorp, with Quest. At the same time, have to connect and create another interface with another billing system or another different vendor. So in the today's world, they need to be developing individually with LabCorp, with Quest, different specification and requirement for LabCorp, different specification and requirement for Quest, and so on and so on. So with Conductor, based on the last 20 years of experience, we have created a lot of interfaces with different labs. We have created a lot of interfaces with many other software vendors. All those we have created and packaged in the library.

35:00 And then we have created an application which will give a user interface. Thank you for watching. It already knows what specification is needed, if it's an HL7, if it's a proprietary edits that are needed, or it's a FHIR that's needed. So it cuts the time significantly to establish those interfaces. An interface is just one example. It can be, and then other, as we keep on adding other pieces of it, that would be our rule-based system, collective IQ, that will come with a similar context and concept.

35:50 So that's the whole rationale and the pieces behind it. Our experience, the things which we used and succeeded over time and internally have optimized the processes and helped us in acquiring and integrating companies, all those now have been converted into a library, and we're going to make it available for other healthcare vendors in this industry. Okay, that's very helpful. So it sounds like there's a whole lot of ancillary software teams. associated with the offering. So with that, would that be focused on your current customers or do you see a different set of an audience out there as far as larger facilities or more pronounced platforms?

36:39 From the existing customer's point of view, it can be useful for some enterprise level clients who have their own software or they focus on creating their own some piece of the software internally. More focus towards the other healthcare IT vendors, which can include the EHR companies, the practice management companies, and in some cases, even the RCM companies. And if you think about even the large system integrators, companies such as Cognizant, Infosys, and many, many, many, many others in that space. Digital health ecosystem partners, new healthcare or digital health startup or solutions that don't want to build all this connectivity by themselves.

37:26 So this is changing the addressable market for us completely and staying still in the healthcare space, but a different audience and different prospects that we will be shooting for. Super. Thanks for taking our questions. Thank you. Thanks, Jeff. Your next question comes from Alan Klee in Maxim Group. Please go ahead. Yes, hi. Can you talk a little about, with your revenue growth this quarter, how to think about how much was organic and how bookings are going? Great, thank you. Thanks for the question, Alan. Good morning.

38:12 Good question, Alan. In terms of, as you know, we do not specifically disclose the number on the quarter-to-quarter basis from the sales organic or the booking perspective, but it is a combination of our organic growth and the regular revenue from our clients. from the Case Cloud group of companies that we kept acquiring and integrating. Bill, would you like to give some more color? Sure, Hadi. So, yeah, Alan, we had a great quarter, and I think as you'll start to see as you read the 10Q that comes out this afternoon, We've got a full quarter of revenue from MedSR, which was certainly a contributor to the growth. But I think we saw increases in revenue throughout.

39:09 Our general perspective is that in the first quarter or two of the year, We all saw that practices were seeing a few less patients than usual. We saw a lot of practices back to full strength, even achieving record volumes of patient billings. So that's been an important aspect of the revenue growth in the quarter. And then just to add one quick small thing, so a small fraction could also potentially be a catch-up for those some of the practices as well. Let's say some of the surgeries that were on board, now those surgeries are conducted, have been performed now. So in this quarter, the number of practices we see have seen additional revenue in this quarter due to a part of it or a fraction of it is even a catch-up there.

40:02 Thank you, and my second question is how do you feel about your pipeline of potential M&A? Thanks, Alan. Go ahead, Steve. Okay, sorry about that, Hadi. Thanks, Alan, for the question. You know, if we step back and think about the thesis that initially drove us to begin focusing on M&A 15, 16 years ago, We think that thesis really holds true, which is that the market, the healthcare IT and also revenue cycle management markets are both highly fragmented. They continue to be ripe for consolidation today, just like they were 15 years ago. And of course, we've been on the leading edge as one of the most active acquirers in this space.

40:54 So from an overall kind of positioning perspective in terms of our approach, It continues to be a very proactive approach. So as always, we review dozens of companies before we select one that we move forward with. But by the same token, we continue to also be patient and disciplined in our approach. We really do our very best to avoid overpaying for acquisitions, which I think is a key reason we've been able to to really identify creative acquisitions and been able to acquire them at really attractive valuations. So while we, of course, continue not to publicly disclose the acquisition pipeline details and while we continue to really remain focused on the tech innovation, integrating companies we've acquired and continuing to improve overall efficiencies and profitability, we continue to be focused proactively on identifying those acquisitions.

41:56 From the perspective as we think about the market today, we really feel really good about what we're seeing in the market in terms of overall opportunities. But again, we'll wait for the right opportunity. We don't have one that's at a point in time where we will disclose it today and we'll continue to be patient but diligent as we're looking for it. Thank you. Our pleasure. Thank you. Next question comes from Mark Wiesenberg in B-Ride Securities. Thank you. Good morning. Can you talk about some of the dynamics of the U.S.

42:41 labor market and physician and other clinical personnel burnout and then the opportunity with your overseas workforce to address that? Great question, Mark. Good morning. And we have Carl with us, too, who works mostly with the booking when it comes to the force, the CareCloud force deal. And I'll turn the floor over to him in a minute. But to your point, yes, we do see the more and more opportunities in that space, too, especially within the health system space after the Medisar acquisition as we have started to work with more opportunities there. We do see not only from the burnout perspective, even during the COVID era and the post-COVID era, the lack of or the shortage of some of the resources that has opened up a more door for us in this forest deals where we can plug in a right combination of onshore and offshore resources to provide the services on the FTE basis.

43:43 Carl, would you like to add some more details here, please? Thank you, Hadi. Happy to add a little more color here. So certainly what we've seen in large integrated delivery systems is people are looking for employees to return back to the office physically. Hospitals are requiring, across the board, vaccinations. Many people are choosing not to be vaccinated and thus not returning to work. The second thing that's played into it is just an increased opportunity for people to work remotely. and where hospitals, large organizations are looking for people to be on site has created a big interest in force. So we've already been picking up a number of opportunities where we're able to come in and backfill.

44:33 We're able to, number one, work on people's host systems and that can be everything from Epic on the high end to eClinical Works on the lower end to our own systems. On top of that, we can provide that workforce that can start in The last deal we did started in less than 10 days. And so we're able to provide FTEs that are already trained, already working in their system, and able to provide that. So we think that that has been a big plus for force. But I would also take it a step further and say that it's a similar problem in smaller and medium-sized practices who are unable to find revenue cycle people, medical billers, and that's created an increased interest in our RCM back office services, both in the CareCloud product line and in other people's systems. Thank you. Hope that helps.

45:29 Very helpful. Thank you. And then, Bill, I didn't hear any commentary on kind of an updated revenue guide for the fourth quarter. With the real strong performance in the third quarter, how should we think about the fourth quarter relative to what you previously provided as the top-line range? Thank you. Good question. We've decided at this point not to specifically talk about the updated revenue guidance. I say we feel really strong. We had a great set of results for the quarter. We're confident we're going to have a blowout year, but we felt like this close to the end of the year, we didn't really need to adjust specific numbers.

46:24 Got it. Thank you. Congrats on a good quarter. Thanks, Mark. Thank you. Thank you. Next question from Richard Baltry in Roth Capital. Thanks. I'm sort of curious, I'm not sure if I've mistyped in my model or not, but it looked like R&D spending was dramatically lower than it had been. So I'm sort of curious that the driver behind that, if there's some sort of reversal or approval, or if this is a new sustainable level with certain projects completed or something like that. Thanks. Sure, Rich.

47:12 The R&D number that's there, I think one of the things as we continue to integrate CareCloud and Meridian, as you know, we picked up a great talented team of developers who continue to be putting a lot of work into new products. Now, you probably know sort of the GAAP accounting rules for what gets counted as as capitalized R&D expense versus numbers that hit the P&L. So we had some things that sort of crossed that boundary, which changed the accounting definition. There was also some hosting of systems that have now gone into production. And so some of that cost actually moved from the R&D line into the direct operating cost line.

48:01 And I think that as you're forecasting going forward, I would say that you could probably look at third quarter and assume that future quarters the R&D expense is going to be more in line with third quarter than it was with first and second. And sort of the opposite side of that is with some of that hosting cost moved into direct operating cost, you'll see some of that additional expense in the cross line as opposed to the R&D line. Good observation there. Okay. Maybe a broader question. How will your sales motion sort of alter or how are you fine-tuning it given you've got a much broader set of products and services now, really sort of a tech versus services size with RCM and your services outsource abilities. Do you have to revamp sort of how you go to market with which products for which target customers.

49:07 Is there any meaningful changes to that that could spark faster growth as we go forward on an organic basis? Thanks. Thank you for the question, Richard. If you think about it, and this is a very good question and a point, we started for the first time aggressively focusing towards organic sales initiatives and market initiatives last year, sometime in the last year, and we keep on evolving and readjusting and making changes to the overall strategy. And if you think about it more recently, when we acquired MedSR, that was also the whole rationale of the pieces behind that acquisition was, yes, one was that non-recurring revenue that we will be able to add, But more importantly, as I alluded to earlier, that's giving us a seat at the table in these health systems where neither MedSR was in the position before to go off to those opportunities for recurring revenue RCM deals, neither we were in the position to be reaching out to those opportunities and fight for it. I think now with that acquisition with the team there and with the recent promotions as we made earlier this year, whether it's the new head of the sales on the MedSR side, this new addition of our chief operating officer with MedSR, this new team together, those moves are exactly to your point, keeping in view the

50:41 new addressable market and the more opportunities that we have now that we want to capture. And then in addition to that, we have a number of our internal promotions and the changes we keep on making. New team members that have been working in this healthcare IT space for 15, 20 years, they have been moved into the more senior positions. And the team has been distributed between focusing on each area or different areas of product and the services we have to offer now. And we are very excited, especially with this health system opportunities, the possible opportunities coming. We are already fighting for or participating in a number of the RFPs, multi-million dollar deals, and we are very optimistic about it.

51:34 Thanks. Thank you. Thank you. Our next question comes from Joseph Downing in . Just go ahead. Hey, guys. Good morning. Thanks for taking the question. I'm just sitting in for Steve Halper today. And, yeah, just broadly speaking, I was wondering if you can give an update on how normalized the operating environment is with regard to COVID, anything on patient volumes, and how normal everyday business is for these practices. and then ultimately, you know, how this comes around and affects the M&A environment. Are people more willing to sell any color that would be helpful? Thanks. Great. Thank you, Joseph, for the question and good morning.

52:20 In terms of the COVID, the volumes are pretty much back to the pre-COVID levels, even as Bill mentioned earlier, too, the VCC, some uptake in this third quarter, which was a sort of the catch-up, and I mentioned that earlier as well. Catcher from some of the previous visits that were sort of on board. So it's back to the almost at the pre-COVID levels. It just keeps moving up and down slightly on the month-to-month basis. But we see that to be back to a normal situation. And when it comes to from the M&A perspective, I will turn the floor over to Steve if you want to add some color, Steve, please. Sure, I'd be happy to. And Joseph, thanks for the question. So again, from an M&A perspective, our perspective relative to COVID-driven dynamics really is that there's a bit of a dichotomy in the market from our vantage point.

53:17 On the one side, if you think about healthy, growing, profitable companies in the private market and also public companies at scale, they're obviously seeing historically high valuations. So there's froth in that market for sure, it seems. Now, on the other side, if you think about the companies that are really our core focus, have been historically continue to be today, companies that have some element of distress. So they're good companies with good leadership teams. But nevertheless, there's something in their existing model that we believe we could enhance through an acquisition. From our vantage point, valuations of companies that would fall into that category, those valuations appear to be relatively flat, albeit deal flow relative to the distressed companies that may be temporarily a little slower. And just as a reference point, if you think about on one end of the spectrum, new commercial bankruptcy filings for the 12 months through the end of the second quarter of this year, and they hit historic lows. So it might be somewhat counterintuitive thinking about being in the midst of COVID, but the reality is they hit lows that haven't been seen since Ronald Reagan was president. So clearly the

54:48 governmental initiatives, the forgivable PPP loans, creditors taking a more pragmatic and flexible view, All those factors have enabled companies that would have otherwise sought an exit sooner to remain in business. So what does all that mean? Obviously, you know, COVID probably has humbled all of us in terms of making, you know, real bold predictions about the future. But we really view that as being a bit transitory and believe that will lead to a buyer's market over time. Having said that, you know, we continue to review many opportunities, continue to be very proactive in terms of reviewing those opportunities, continue to feel good about where the market is. But again, from our company's perspective, we'll nevertheless be patient, we'll be Thank you.

55:47 Next question from Kevin Dede in HCW. Hi, guys. Kevin Dede, HCW. Steve, Matt, if you were to sense, please, on how to rationalize cannibalization here. You've got your core CareCloud. You've got the new products that Hadi's introducing. You've got CareCloud Force. It just seems like you've got a lot of angles in what I would consider a pretty broad market, and it just seems difficult for me to rationalize How do you prioritize each of them when you're looking at customer growth?

56:54 Sure. Yeah, I'd be happy to get us started and would love to hear Hadi's thoughts on that as well. And if we kind of step back for a minute to your point, Kevin, the reality is in terms of the breadth and the depth of our overall solutions, pretty unique in this space. So if you go to HIMSS, you can walk down, when it's in person, you can walk down the aisle at HIMSS and you can find 30 companies and those companies individually are just providing one individual aspect of our overall solution. So we have this kind of this really, this rich, deep, broad solution. But if we think about now the market for just a moment, Even though, like we were talking about before, even though we couldn't be more excited to have grown from one provider 20 years ago to serving 40,000 providers today, that still means we're only working with maybe one out of every 25 healthcare providers in the U.S.

57:56 So there's still such significant addressable market and opportunities there, which I think kind of leads to your question, which is, really question in some respects of excess of opportunities and how do we prioritize. Obviously, fine-tuning that priority is something that as a team we're all very focused on. So if you think about now, if you think about Conductor, we think about some of these other solutions and coming back to this concept of is one cannibalizing the other. I think maybe we look at it a little bit differently. Instead, our thought is There's an opportunity with regard to cross-selling and upselling that's really unique as we add additional solutions. So use MedSR as an example. So as we're working with clients on the MedSR side, providing the traditional types of IT consultation and other related solutions and services, now there's an opportunity to say, well, is there an opportunity for business intelligence Is there an opportunity for revenue cycle management solutions?

59:04 How about conductor? How about something else that can add value to that relationship? So we really see it as an opportunity to be able to upsell and cross-sell. And if we think about the overall sales team, a big part of the reason for that scaling and that expansion and having individuals focus on different areas of the market is really to be able to meet that need head-on. recognizing that it's important to have folks who really know force, focus on force like Carl, individuals who really understand selling into net SR, hence the chief revenue officer focus only on the net SR opportunities, and other individuals focused on the discrete products and opportunities that we see in the market. And maybe I'll throw the floor over, toss the ball over to Hadi's court there to fill in some of those gaps.

59:56 Thank you, Steve. Just adding a couple of things to your point. I think, Kevin, the way we are looking at this space, first of all, we started from servicing the real small clients and have continued to move towards the bigger and the larger and the enterprise-level clients. And if you think about it, from an enterprise client standpoint, you need one product for, let's say, a practice management and EMR. Then you need some company to help you with interfaces. Then you need another company to provide support in terms of the resources. Then an enterprise or the large client probably absolutely need a business intelligence solution which can help you to take the right business decisions.

1:00:41 So all these, the products and the solution that you're looking for, you end up going to many different companies and then try to interoperate between all that data. So I think our pieces or our one thing is let's try to be a one-stop shop for these groups as we are starting to hit the large and larger segment of the industry. and because we are creating these solutions in most of the part in an integrated way, it also adds another efficiency level by providing a consolidated integrated solution versus a separate disintegrated system solution. So that would be probably another way to look at it. I think your question is the right one, but we are looking at it as a good problem to have and try to be more creative in the teams we have.

1:01:36 I think we are confident that we can make it work. And just another aspect that I mentioned earlier, There are many things that we have developed and used internally, which became one of, we believe, the differentiator over the last 20 years, such as we started working on creating the direct connects with government peers from the submission standpoint probably 18 years ago, 19 years ago. and that puts us in a very unique position when it comes to those direct connects with many other vendors out there. So now since we already had that library, why not just package it and start giving it to the other and helping the other healthcare vendors out there, which ultimately will also generate a good amount of revenue for us.

1:02:32 Yes, yes. Bill, just maybe your insight, please. I appreciated that the graphic you offered on slide 12, but I was wondering if you could dive in from a hospital service perspective in light of Santa Rosa, Medmatica, and MedSR. I wonder whether Jerry, who's with us from MedSR, can actually help and talk to you a little bit about what he's seeing, because there's lots of exciting stuff that's going on there.

1:03:19 Jerry? Sure. So as far as MedSR, we've met all of our expectations for this year and are looking forward to continued growth. Investing in growth, we've added salespeople, we've kicked off a new brand awareness campaign, and have also developed some enhanced service offerings. All with the idea of going to market, listening to our clients, and bringing them the services that they need. The increased revenue that we hope to see will be primarily as a result of the evolving cross-selling capabilities between MedSR and traditional CareCloud services. We've already signed two hospitals where we're providing revenue cycle management services to them. We've got a new behavioral health organization that we've done a total revenue cycle management outsource. as well as a handful, at least two or three new physician groups that are using a variety of CareCloud services.

1:04:36 So we expect to continue to evolve our service offerings, increase our revenue as a combination of organic growth with our hospital clients, but also Increasing the amount of recurring revenue that we're able to put on the books through revenue cycle services that we're now offering our clients. So we've gotten very good traction, as Hadi mentioned earlier. We do have a couple very significant proposal opportunities that we are responding to now and hopefully we should here by the end of the year. which is really proof that the cross-pollination between the two service areas is working because as Hadi said, I need to emphasize this, that neither CareCloud nor MedSR would have been at the table with some of these large deals if it wasn't for our combined synergies.

1:05:41 So Bill, when I look at slide 12, yeah, so Bill, I'm sorry, when I look at slide 12 then, The revenue allocation is broken down on technology and service and not client. I guess that's really sort of where I was going. That's right. And you see that 10% of the revenue year to date come from professional services. And a lot of those, I mean, sort of by definition, you're not seeing a doctor in solo practice saying, hey, I want these technology resources. You're seeing bigger practices and hospitals. So most of that 10% relates to MedSR, and most of it relates to the larger enterprise client and hospital.

1:06:37 Perfect, perfect. Thank you, Steve. Thank you, Hadi. Thanks, Bill. And thank you, too, Jerry. Thanks, everyone. Thank you. As a reminder, to ask a question, please press star one. And we'll just pause for a moment. Okay, and we'll take our next question from Michael Galantino in Chapman, Davis. Good morning, everybody. Congratulations, all. It was a great, great quarter. I'm looking for a little more color, either from Hadi or from Steve, on the Clare County Collective IQ and the connector slide that you guys talked about. Where do you see that business headed?

1:07:38 and what kind of growth do we expect the shareholders out of that segment of your company? Great. Good morning, Michael, and thank you for your question. So a couple of aspects, and if I go back again to explain the rationale, these are some of our specialty areas that we have been able to develop over the last 20 years. First of all, we proved it internally that these areas can work successfully. We have resolved those problems for us internally and then helped us in many, many integrations of the merging and integration of the companies that we have acquired. So those libraries are a result of the 20 years of work, which is the biggest differentiator. So I think now we have packaged that together and made this package available. If I can first of all talk about the connector product.

1:08:36 This connector will be available for other software vendors out there. You understand, let's say, for a company who may have started three years back, a new company, or five years back, and they have introduced an EHR. As an EHR, they may have started by creating interfaces with four labs, for example, but there are another 20 labs out there, and for them, it will take a tremendous amount of time to be able to develop and create interfaces over the next couple of years, probably. So all that time gets shortened if they sign up for other products. And when it comes to the pricing, when it comes to the go-to-market strategy, as I mentioned, we are still finalizing some of those details. And we will do a proper launch later in this quarter, sometime during December. And then we will be further communicating and can talk about it further on the next earning calls as well. But we do see from the shareholders' advantage perspective, this is an area where there are other big, and again, this is such as an LK who specializes in the interfaces, the data export, import, and the interoperability.

1:09:50 So we will be competing. We will start to compete with those companies as well because of our 20 years of experience Packaged together and now the same tools will be available for other vendors to utilize. Collective IQ is our rule-based, primarily a rule-based engine, the rule-based system that we have established, developed for the first time probably 15 years back and that has helped us generate an industry-leading first-time pass rate and and then keeping and making sure that we submit the team claims. Now the same database, the same library can be used and can be leveraged by other software vendors who do not have such rule-based coupling systems available.

1:10:40 Again, the price point will be different. It could be for instance basis, it could be for client basis. There are a number of different ways we are looking at to price the whole product together. Thank you. Thank you. Thanks for the question, Michael. Thank you, and I'd like to hand the call back to the speaker today, Kim Blanche. We'd like to thank everyone who's joined us on today's call. We truly appreciate your participation and your interest in us as a company, and we look forward to speaking to you again next quarter. Thank you all, and have a great day. Thank you. Thank you. This will conclude today's conference call.

1:11:27 Thank you for your participation, ladies and gentlemen. You may now disconnect.