CareCloud Inc (CCLD) 2019 Q3 法說會逐字稿

Good day, and welcome to the MTBC Third Quarter 2019 Earnings Conference Call and Webcast.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Shruti Patel, General Counsel.

Please go ahead.

Thank you, and good morning, everyone.

Welcome to the MTBC 2019 Third Quarter Conference Call.

On today's call are Mahmud Haq, our Founder and Executive Chairman; Stephen Snyder, our Chief Executive Officer and a Director; A. Hadi Chaudhry, our President 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 Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended.

All statements other than statements of historical facts 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 acquisitions.

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.

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 those dialed into the call by telephone, you may download our third quarter 2019 earnings presentation by visiting our Investor Relations site at ir.mtbc.com, click on Events and there, you will find a link to download the earnings presentation.

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 2019 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results.

With that said, I'll now turn the call over to the Chief Executive Officer of MTBC, Stephen Snyder.

Steve?

Thank you, Shruti, and thank you, everyone, for joining us on our third quarter 2019 earnings call.

We are very pleased to report that the first 9 months of 2019 marked another period of strong growth.

In fact, we increased our year-to-date revenues by 43% year-over-year.

The $48.7 million, validating the strength of our unique, integrated offering and growth strategy.

If you're an investor who has been following MTBC since we went public, you know that a high rate of growth is not a new phenomenon for us.

In fact, our CAGR for the period of 2013 through 2018 was approximately 37%.

We've been able to achieve this growth through a parallel growth strategy that focuses on acquiring customers through traditional organic growth, together with purchasing them from our competitors.

Over the last few years, we've acquired customers from 3 distressed groups of companies, each of which lacked the technology, team and experience needed to meet their customers' needs.

We were able to acquire these companies at very attractive average multiples of approximately 1.5x revenue.

These acquisitions, like the prior transactions before them, played an important role in helping us grow our revenue and expand margins.

Today, we're better positioned than ever to move forward as and when we have the right buying opportunities.

During this year, we're pleased to report that our inflow of transaction opportunities is moving at an accelerated pace as we now review an average of one new opportunity per week.

We've broadened our network of bankers and intermediaries to nearly 20 who have identified and provided us with acquisition leads year-to-date.

In fact, these inbound leads now represent approximately 3/4 of our new leads.

This heightened volume of leads increases our likelihood of acquiring the very best targets at the optimal valuations and structures as we remain steadfastly committed to our disciplined and persistent yet patient approach to acquiring customer relationships.

While we remain focused on the larger opportunities, we have added a new element of optionality to our strategy as well, which is already beginning to yield fruit.

Approximately 2/3 of our 2019 targets have estimated revenues below $10 million, making them suboptimal acquisition targets.

However, we have begun to offer smaller targets the opportunity to leverage our team and technology to support their existing operations through partnerships with them, and this strategy has been gaining traction.

Our first new revenue cycle-management company customer went live last month, and we are in active discussions with other revenue-cycle-management companies regarding similar partnerships.

The conversion of revenue-cycle management company acquisition targets into customers represents only one aspect of MTBC's organic growth strategy.

As we've scaled, we have been steadily increasing our focus on organic growth initiatives and the launch of telemedicine, both of which will further fuel our industry-leading revenue growth rate and margin expansion during 2020 and beyond.

During the third quarter, we added marketing managers to our team who are primarily focused on cross promoting and selling our wide array of solutions to our existing customer base and generating new business leads.

We've also reoriented the role and revamped the bonus structure of our customer success team members such that cross-selling and generating referrals is a core focus.

Finally, we have broadened the scope of our offerings to include things like co-sourcing and other solutions that are attractive to larger groups.

All these efforts are beginning to gain traction, and we believe that they will continue to do so in the year ahead and beyond.

We're very pleased that our growth strategy has enabled us to achieve such strong top line growth however, we're equally excited to see that our actions have resulted also in expanded margins.

Year-to-date, we have increased our adjusted EBITDA by 57% to $5.3 million.

In fact, 9 months into the year, our adjusted EBITDA already exceeds the amount we reported for the full year of 2018.

As you unpack our margin story even further, you'll notice that our adjusted EBITDA for the third quarter alone was $2.6 million, which is a new record for MTBC, but we're not stopping there.

We expect our adjusted EBITDA in Q4 to reflect another new record high as we remain on track for growing our full year adjusted EBITDA to $8 million to $10 million, which represents growth of more than 85% at the midpoint of our guidance range.

Also, we remain virtually debt-free and ended the third quarter with positive working capital of nearly $15 million, together with an untapped $10 million line of credit.

With such strong year-to-date performance, we are very pleased to reaffirm our full year 2019 guidance of $63 million to $65 million in revenue and $8 million to $10 million in adjusted EBITDA.

I'll now turn the floor over to our President.

Hadi?

Thank you, Steve, and thank you, everyone, for joining us on our third quarter 2019 call.

Since our last call, we have made significant progress on the integration of our acquisition of Etransmedia in April.

We have reduced overall expenses by more than 71% and over 30% of Etransmedia clients are leveraging MTBC technology platform, ultimately helping us outperform our client retention goals.

We believe that the steps we have taken have positioned us to achieve our full year revenue and adjusted EBITDA guidance.

We are also pleased to state that we are on track to launch the first phase of our new telemedicine solution during the fourth quarter.

We have reached out to a subset of 500 providers from our existing client base to gauge their interest in our telehealth solution and have received interest from 150 providers.

We have also received interest from 65 providers who have opted to be beta-testers and use the beta version of the product.

This overwhelming response from our existing client base reassures the direction of the telemedicine industry.

We look forward to providing more details regarding next phases of our telemedicine solution as we announce the full launch next month.

I will now turn the floor over to our Chief Financial Officer, Bill Korn.

Bill?

Thank you, Hadi.

As Stephen and Hadi said, we had a great quarter, and I'm pleased to give you some details.

Our revenue for the first 9 months of 2019 was $48.7 million, an increase of 43% or $14.7 million compared to $34 million in the last -- in the same period last year.

Revenues for the first 9 months of 2019 were almost equal to our full year revenue of $50.5 million in 2018.

Our revenues grew at a compound annual growth rate of 37% from 2013 through 2018 and our 43% year-over-year growth demonstrates that our business is continuing to grow at a rate that far outpaces the rest of the industry.

Our GAAP net loss for the first 9 months of 2019 was $1.2 million, an improvement of $358,000 from the first 9 months of 2018.

GAAP net loss includes noncash amortization and depreciation expense of $2.4 million.

Stock-based compensation expense of $2.3 million and transaction and integration costs of $1.4 million.

GAAP net loss per share of $0.48 is calculated using the net loss attributable to common shareholders, which takes into account the preferred stock dividends declared during the quarter, divided by the weighted average number of common shares outstanding.

Our non-GAAP adjusted net income for the first 9 months of 2019 was $4.3 million, an increase of $1.8 million or 75% compared to adjusted net income of $2.5 million in the same period last year.

Non-GAAP adjusted net income was $0.35 per share, calculated using the end-of-period common shares outstanding.

Adjusted EBITDA for the first 9 months of 2019 was $5.3 million or 11% of revenue compared to adjusted EBITDA of $3.4 million in the same period last year.

Year-to-date adjusted EBITDA increased by $1.9 million or 57% compared to the corresponding period in 2018 and already exceeds the 2018 full year adjusted EBITDA of $4.8 million.

During the first 9 months of 2019, we generated $4.8 million in cash from operations.

Third quarter was MTBC's eighth consecutive quarter with positive cash flow from operations.

Management uses non-GAAP measures of profitability, such as adjusted EBITDA, adjusted net income and adjusted operating income, in part because they better approximate the cash impact of our operations.

Revenue for the third quarter of 2019 was $16.9 million, an increase of 1% compared to the second quarter of 2019 and a decrease of 1% compared to third quarter of 2018.

This decrease was expected.

We purchased Orion on July 1, 2018, with full knowledge that the third quarter of 2018 would include some onetime revenue, which would not be recurring.

This is normal when we complete an acquisition of a distressed target company.

Third quarter 2018 included residual revenue from certain clients who were in the process of terminating their relationships with Orion at the time of the acquisition.

Additionally, third quarter 2018 included some onetime revenue as our team completed processing our clients' claims at a faster pace than Orion had done previously.

Since most of our revenue comes from fees that are a percentage of what our clients collect, processing claims faster means that our clients, practices and hospitals are paid faster, and therefore, we recognize revenue faster.

The small reduction in revenue year-over-year is consistent with the trend from other acquisitions.

Our third quarter 2019 GAAP operating income was a record $669,000 compared to a GAAP operating loss of $1.8 million for third quarter 2018.

During the quarter, we reduced our direct operating costs by $1.6 million, and our General and Administrative Expenses by $679,000 compared to third quarter 2018, which resulted in a $2.5 million improvement in GAAP operating income compared to the third quarter of 2018 and a $1.9 million improvement compared to second quarter of 2019.

Non-GAAP adjusted operating income for third quarter was $2.3 million or 14% of revenue compared to $594,000 in third quarter 2018.

This is our 10th consecutive quarter of positive adjusted operating income.

It represents 283% growth over last year as a record for MTBC.

Our GAAP net loss for the third quarter of 2019 was $138,000 or $0.14 per share compared to GAAP net loss of $1.8 million or $0.25 per share for third quarter 2018.

This represents a $1.7 million improvement in the GAAP net loss.

GAAP net loss includes noncash amortization and depreciation expense of $814,000; stock-based compensation of $775,000 and foreign exchange losses of $704,000 as well as transaction and integration costs of $464,000.

Non-GAAP adjusted net income for third quarter of 2019 was $2.2 million, an increase of $1.7 million compared to net income of $507,000 in the same period last year and was our eighth consecutive quarter of positive adjusted net income.

Non-GAAP adjusted income was $0.18 per share, an increase of $0.14 compared to $0.04 per share during third quarter of 2018.

Adjusted EBITDA for the third quarter of 2019 was a record $2.6 million or 15% of revenue compared to adjusted EBITDA of $865,000 in the same period last year.

This is our 10th consecutive quarter of positive adjusted EBITDA, and our third quarter 2019 adjusted EBITDA by itself was almost as large as our total adjusted EBITDA for the first 2 quarters of 2019 put together.

This acceleration demonstrates that we are on track to achieve our guidance of $8 million to $10 million of adjusted EBITDA for the full year of 2019, driven by the investments we made while integrating the Orion and Etransmedia acquisitions.

We have reduced quarterly costs and operating expenses by $1.8 million, while maintaining our focus on long-term revenue growth.

The difference of $2.7 million between adjusted EBITDA and the GAAP net loss in the third quarter of 2019 reflects $814,000 of noncash amortization and depreciation expense, $775,000 of stock-based compensation, $704,000 of foreign exchange losses and $464,000 of integration and transaction costs related to acquisitions.

As of September 30, we had approximately $14 million in cash and positive working capital, which is current assets less current liabilities of approximately $15 million.

We have an untapped $10 million revolving line of credit with Silicon Valley Bank to help finance growth initiatives, including potential future acquisitions with the bank's approval.

In addition to common stock, we have non-convertible Series A preferred stock which is perpetual, traded on the NASDAQ global market under the ticker MTBCP, pays monthly cash dividends at the rate of 11% per annum and can be redeemed at our option at $25 per share starting in November 2020.

We can choose whether to redeem shares, choosing the quantity of shares and setting timing for any actions that we deem most beneficial.

We also have the option of issuing more shares of preferred stock if needed for an attractive acquisition opportunity and can wait until the price of our common stock reaches levels we consider attractive to raise capital to retire a portion or all of the preferred stock.

Our balance sheet reflects that we adopted ASC 842, the new accounting standard for leased assets on January 1, 2019.

This new standard requires all leased assets, including those that were previously categorized as operating leases to be recorded on the balance sheet as "right-of-use assets" and the corresponding discount to future lease payments to be included as liabilities.

Our consolidated balance sheet on September 30, 2019, includes approximately $4.3 million of such assets and $4.5 million of special liabilities under this new accounting standard.

The new standard affects our balance sheet, but does not materially impact our statement of operations or cash flows and does not change our actual payments on these leases or any other contractual relationships.

I'd like to close by reaffirming our 2019 guidance.

2019 revenue will be in the guidance range of $63 million to $65 million, which represents growth of 24% to 29% over 2018 revenue.

With revenue of $48.7 million during the first 3 quarters, including $16.9 million during the most recent quarter, we are very well positioned to achieve our revenue guidance.

We anticipate adjusted EBITDA will be $8 million to $10 million for 2019, representing growth of 67% to 108% over 2018 adjusted EBITDA.

This follows a record 2018, when our adjusted EBITDA was double 2017's adjusted EBITDA.

Our third quarter adjusted EBITDA was $2.6 million, which was almost equal to the $2.7 million of adjusted EBITDA we achieved during the first 6 months of 2019.

Our efforts integrating the Orion and Etransmedia acquisitions are bearing fruit.

The elimination of third-party subcontractors, leveraging our technology to improve operational efficiency and moving our work to offshore employees gives us confidence that we will achieve our adjusted EBITDA guidance.

I'll now turn the floor over to our Chairman, Mahmud, for his concluding remarks.

Thank you, Bill.

2019 will be another year of record-breaking growth and profitability.

We thank our investors, customers, employees for their support.

We will now open the call to questions.

Operator?

(Operator Instructions) The first question comes from the line of Gene Mannheimer with Dougherty.

Congrats on all this great progress this quarter.

Steve or Bill, I wanted to ask -- or Hadi, I wanted to ask a question on your new strategy to partner with customers, what do the economics look like under those circumstances?

Maybe you can share with us how you get paid there?

Is it you collect a percent of a percent of their charges?

And is the partner strategy, is this to suggest that the pace of -- or the pipeline of deals is perhaps slowing in the market?

Absolutely.

Thank you, Gene, and thank you for your question.

So maybe, first of all, addressing the overall strategy and the rationale behind it.

From the perspective of the opportunities that we see in the market, we've seen in the market in 2019, which candidly are not dissimilar from what we've seen in prior periods, but there's a pretty significant percentage, roughly 2/3 of those opportunities in terms of -- from the acquisition of RCM companies that relate to companies that have revenues below $10 million.

From the perspective of the dynamics and everything that's involved in acquiring a company, we believe that the most beneficial way to be able to add value to MTBC and our shareholders with regard to those smaller companies, unless the valuation is a rock-bottom valuation like Etransmedia, but absent that scenario, it's really through partnerships.

These companies typically will be leveraging 2 things that we have: either technology; or leveraging offshore team members to assist their onshore team members.

So there are really 2 different prongs to this model and 2 different motivating factors that are drawing these billing companies to seek a partner like MTBC.

One would be the labor component.

So from the perspective of being able to assist billing companies, what we're providing them and offering, is an FTE-based cost structure.

We are billing companies with a minimum of 10 FTEs, 10 employees, full-time employees per month can be leveraging.

Our experienced team members offshore who are acting as support for their onshore operations, helping perform things like charge entry and payment posting and follow-up and the like.

And then we're charging a monthly fee for each one of those individuals.

The second, again, rationale or reason why some of these companies would be seeking out a partner like MTBC is the technology.

And from a pricing perspective on that technology, right now, the model that we're using is a percentage of collections, where we're charging a percentage of collections and then providing that billing company with our platform, that's private label for their particular billing company.

And then we're also providing the clearinghouse services on the back end that facilitate the submission of claims and follow-up and the like.

And frankly, for a billing company, some billing companies may choose both of those, the solution or the first relationship that I mentioned that went live is only focused on the personnel support aspect of that.

So it's a per-FTE model, but we're in active discussions with billing companies.

And one of those discussions revolves around the private-label solution related to our technology.

And the other one revolves around primarily FTEs, but also has a technology component.

So for us, we really see it as a way to -- as opposed to simply passing by some of these smaller acquisition opportunities, we see it as a way to be able to convert them into really attractive high-margin organic growth adds.

Secondly, from the perspective of the deal inflow, really quite the contrary, actually, for us, we're seeing more deals today than we've seen historically, I would say, significantly more deals.

I'm not sure, candidly, if that is more related to the fact that we've really significantly broadened our network of intermediaries and bankers who we're working with, and we're now known as a leading acquirer in this space.

The deals are coming to us, perhaps in a way that they didn't come -- get on to our radar screen a few years ago, that might be part of it.

Part of like we also think this relates to what's happening in the industry overall.

But with regard to those deals, we're really very discriminating and want to make sure that the deal is an appropriate size and also that it fits very squarely within our model, that it will be accretive to MTBC.

The next question comes from the line of Matthew Galinko with National Securities.

I guess a follow-up to that sort of new strategy for the smaller RCM participants.

Do you see, I guess, competitors that you bring on to your platform, either with labor, technology or both as sort of a qualified mechanism?

So if you sort of fast forward a couple of years, do you see those as sort of being -- sort of lower cost of entry to roll them into your P&L entirely?

We definitely see that as a possibility long term.

There's absolutely -- it's much easier to go ahead and to complete an acquisition when we're already very well acquainted with the company, and already actively managing their operations.

So for sure, that's an option.

And candidly, the companies that we're speaking with, actually have an interest, at least 2 of the 3 of those in exactly that scenario.

So without a doubt, there is a possibility for that long term.

And candidly, as we give them the tool that they need in terms of the personnel and the technology, we're really equipping them to grow.

Growth in this space is really heavily driven by leveraging existing relationships, one professional referring his or her colleague to the company so that this really enables us to assist local billing companies to be able to grow.

And for sure, down the road, acquisitions of those companies is a possibility.

Great.

And one follow-up for me.

With respect to the 500 providers in your network that you're engaging with for your telemedicine platform.

I'm curious how you selected that initial group?

And if you're finding that any patterns in the sort of customers that return with an interest, that could help you with follow-up targeting with the telemedicine platform, whether it's in network or sort of beyond your network?

Okay, sure.

And thank you for the question.

So it's the one subset of the -- out of the 5,000 providers that we have.

So we picked up a certain subset there, they were using MTBC's technology at a certain percent level.

So there was a more probability of -- from their perspective, quickly going through and adapt to that workload, to the change and start using the telemedicine.

So this 500 provider was a subset of over 5,000 provider base that we have, more focused it seems in terms of the primary care and the psychiatry practices.

So they will be -- they opted to -- they showed their interest in using the product, either today in the beta-testing phase or when the full product will be launched.

So we will be -- we already have started conducting the demonstrations, the webinars have been conducted and 60-plus, 65 providers who already have in the process of getting on board from the beta-testing perspective.

So they will be helping us out in the beta test.

And there are certain providers who already started to use those -- out of those 65 beta testers.

So from the in-network perspective, these are our existing RCM clients who are using some part of MTBC product today.

The next question comes from the line of Kevin Dede with H.C. Wainright.

Kevin Dede.

Just on this telemedicine, could you go through the rollout you expect, you've got 65 on beta now and 500 ultimately targeted at some level, at some point?

You mentioned something about rolling it out next month.

I just was hoping you could drill in a little bit on the time line?

Please.

Yes.

Absolutely.

And thank you, Kevin, and thank you for your question.

So this 5,000 out of the entire -- so we will launch it, we will push it to the entire MTBC client base.

We picked it up from 2 perspective: one is to find out and to understand the overall interest, how the existing client base will respond to it; and the second purpose was to find the right initial beta testers, who can help us fix the issues and improve the product.

So we are working at the same time for both of those 2 things, and we have not stopped here just by sending it out to the 500 providers.

The launch, along with the launch, it will be communicated to the entire, the rest of the client base, which we expect before the end of the year, we will do a full launch of this first phase of telemedicine product.

And in this first phase, this is primarily the SaaS-based product, a SaaS-based model, which is being integrated into the existing platform.

It will be part of the scheduling process, it will be part of the practice management part and the EHR.

On the patient side, they can continue to use the current existing PHR through the app or the desktop version.

And it's one of an additional feature into the existing PHR portal and the app.

So when it comes to then for the next phase, which we will communicate the details along with the launch at the end of this year, in the first quarter next year, we are planning to launch it even beyond the U.S. perspective, in the developing world in countries like even Pakistan, India and Sri Lanka, and we believe that we are very uniquely situated in this -- in order to succeed in this launch because of our existing presence in these countries.

And also, we already have these 5,000 providers in the primary care and the psychiatry using one of the solution.

So this is the very high level time line.

I hope this answers some of your questions.

Okay.

Just to summarize, Hadi, I'll make sure I have it through my thick skull.

You've got 65 beta running now, but 500 of your 5,000 total client base have been introduced to it.

And then by the end of the year, you're expecting to have it rolled out to the entire 5,000 client base that you have.

Is that the way to look at it?

Yes.

Yes, it will be a communication in some shape or form along with the official announcement to all the 5,000 providers.

And when I say all the 5,000 providers, some of those, due to the nature of the specialty or the hospital settings, may not be the right population to use it, but it will be a communication as a different subset of these 5,000 provider base.

Very good.

Okay.

And you're saying SaaS-based model.

My understanding was it was just an adjunct to the full RCM service quotient that you already offered?

Am I not thinking about that correctly either?

Kevin.

I'm sorry, can you repeat that, please?

Yes.

Sorry, Hadi.

Sorry, I apologize.

You mentioned a SaaS-based model, but my thought was and of course, I probably had it wrong, my thinking was that this was just an adjunct to the full RCM service quotient that you're offering your clients and that there weren't additional fees involved.

Have I -- am I not looking at that correctly?

You are very right, Kevin.

You are looking at it correctly.

When I say this is SaaS-based models, it is becoming the part of the existing SaaS-based practice management system or the EHR system.

So it's being added in the existing workflow.

And yes, to your point, they will be paying their same contract percent in the current, let's say, if they are paying a 13% for the RCM services, so they will be -- they will continue to pay the same fee to us, and there could be some additional credit card processing fees for the self pays and the like.

Perfect.

Steve, before I go, one -- 2 quick little things.

Number one, on your -- in your partnership scenario, I get the -- I sort of get the first one where you're sort of assisting folks on an FTE basis, right?

I get that.

The second model on tech pricing.

What's to prevent you, MTBC, from just taking those customers, those customers from your billing clients.

I mean once they're sucked into your tech platform, there's really no difference, and you can cut -- easily cut out a middleman, and they'd probably be happy to go along with that.

Good question, Kevin.

And probably that same risk exists really in both scenarios, whether we're simply providing the human capital that's really making the revenue-cycle management actually function and work or whether they're on our technology platform, we're certainly in a position where we are essential to the day-to-day operations of the billing company.

And also, we're a key part of the engine that will enable their future growth.

So the way that we're making sure that we do the right thing and protect the billing companies is we're having standard non-solicitation provisions in the agreements to ensure that we're not ever in a position where we could be perceived as a risk in terms of poaching those accounts.

Needless to say, in an acquisition context, that would -- there'd be a natural transition, whether we're handling this from a human capital perspective or technology, puts us all in a great position to be able to take the next step with regard to a transaction, but absent that scenario, we have a contractual commitment that we're making, that we're not going to solicit those clients.

All right.

One quick last thing for Bill.

So Bill, let's see, you only need to hit $16 million this quarter, right, to hit the high end of your guidance.

It just seems you're -- I think you're okay on the EBITDA side, but I think you're being ultra conservative on the top line.

I just wanted to hear your thinking behind that

We like to be ultra conservative.

We like for people to know that we are totally confident that we're going to hit our numbers.

Yes.

Well, yes, I think that's my point, Bill.

You're not going to hit them, you're going to beat them.

So -- okay.

I guess it's all perception, right?

I get it.

The next question comes from the line of Marc Wiesenberger with B. Riley.

Earlier this year, you talked about you're in the process of on-boarding your first facility billing hospital client.

I'm wondering if you could update us on that and if that's potentially leading to maybe some additional opportunities in the hospital space?

With regard to the -- when we kind of think about the overall opportunities, frankly, with regard to the facility billing, that probably is not going to be part of our long-term strategy.

We've actually begun assisting another existing practice with some of their facility billing from a follow-up perspective.

But in terms of the technology platform, in terms of that existing relationship, we're in the process of actually winding that down.

Again, we didn't build any revenue into our model for the year relative to that relationship that you're referencing.

And we're really testing it out on a beta basis.

And frankly, as we look at all the other opportunities, telemedicine, RCM, GPO and the other opportunities from an acquisition perspective, our belief is that, that is one that is -- doesn't have a favorable return on the investment.

Understood.

Fair enough.

And maybe if you could update or provide a little more insight into where you're seeing some of the best cross-selling results coming from?

Certainly.

We're really seeing the best cross-selling results right now coming from a GPO perspective.

But overall, I would say, our team is just doing a phenomenal job laying the foundation for their cross-selling, great deal of activity in terms of getting everything up and running, and the results will follow, I think, across the board from a cross-selling perspective with the variety of solutions that we have today, that many of which we, frankly, didn't have the ability to extend just a few years ago, and we look forward to providing additional insight in terms of how we're making out when we provide our year-end results.

But really, what that team has been doing is really working on developing collateral, training all of our client-facing team members on our solutions.

They've been working on doing things like collecting and filtering internal data in order to create customer profiles, things like the specialty and size and workflow patterns and the like.

That, in turn, enable our team to target the appropriate customers within our existing base for cross-selling.

So things along those lines have laid the foundation.

And already, the outbound communications are occurring.

There's messaging in places, for instance, like within the internal platform, our proprietary platform that's being leveraged, for instance, by our EHR clients now has messaging regarding the GPO.

And that same sort of dynamic is really rippling throughout our entire ecosystem of applications and is finding its way into the various communications that we have with our clients on a day-to-day basis.

That's very helpful.

One final one for me.

With regards to telemedicine, you talked about the international opportunities?

And maybe early next year in Pakistan, Sri Lanka and India.

I'm wondering, could you tell us what you're kind of doing now to get ready for that launch next year?

And what will that look like in those international markets?

Okay.

Sure.

And thank you, Marc, for the question.

It's two things from the technology platform perspective, we don't have to go through a lot of technological changes because it's going to be the same or the product with some modifications that will be needed.

So the first and the most critical -- an important point -- part for us was to get that product ready, start -- put in place so the providers in the U.S. start using it.

And then in order to go and launch it to these developing world in different countries like Pakistan, India or Sri Lanka.

As we will communicate more details as we get to this launch of the first phase, we may end up creating an entity and from the revenue or the bookkeeping perspective, it could even be considered as a VIE model.

So we can leverage all those 5,000 providers on the U.S. side and the patients there in those countries can connect to the U.S. physician using that app to get those services.

So that's the kind of the initial thought process or the idea because there are many instances where the patients in those countries look for an expert opinion or the second opinion from a U.S. or similar other countries with the providers, or with the doctors from similar other countries.

So we believe, since we already have a presence there, we already understand the cultural and the different moving parts there, so this will put us in a very unique situation to have a success in that implementation.

Our next question comes from the line of Brian Marckx with Zacks.

Congrats on the quarter.

One on -- one question on revenue.

Bill, revenue was about $800,000 stronger than what we were expecting.

Just kind of wondering if there was any new acquisitions or tuck-in deals that contributed in the quarter?

And can you give us what Etransmedia's contribution was in Q3?

Thanks, Brian.

So in answer to the first part of the question, there were no new acquisitions, no new tuck-ins.

So this was a combination of additional revenue from existing clients.

A little bit stronger revenue on the practice management side.

So this is just business as usual.

Our largest clients continues to grow and set new records for revenue each month.

And in terms of Etransmedia, we try not to break out a lot of the details.

There will be some information that comes out in the 10-Q, but I'll say that we've been -- we've actually been really pleased that the retention of that business is a lot better than what we had initially anticipated.

We understood their history from before we bought them.

And I'd say we've kept far more of the business than we originally thought.

We turned around a couple of clients who were thinking about canceling.

So we had sort of modeled that, that was going to be shrinking, and it's actually pretty much stabilized.

and we're really happy about that.

Okay.

That's great to hear.

One question on the partnership strategy.

I wonder if you can kind of help frame for us what your expectations are for upfront costs to set up a new client?

And then do you have kind of an idea of, kind of, payback period to cover those upfront costs?

And then the second part of the question relates to capacity and whether you might have to add capacity offshore to take on a partnership client?

Absolutely.

Thanks for the question, Brian.

So from a capacity perspective, we have the capacity today to handle all 3 of those opportunities, assuming they go live that I had mentioned, and we're in the process right now.

We have a team member who is spending roughly 70%, 80% of his time focused solely on outreach to billing companies, pitching this model that we're talking about, together with the possibility of acquisitions.

So there are 1,500-plus billing companies.

And we would estimate that out of those 1,500-plus, at least 1,000 would fall into this category and would be prospects for this sort of solution.

From an upfront cost perspective, really, the upfront costs are very de minimis.

In the context of providing FTEs, it's simply providing the training to the extent that they're not leveraging our platform, but leveraging another platform.

We already have individuals who are working on close to 30 other unique platforms, which covers the overwhelming majority of the scenarios that we'll see with regard to these billing companies.

So we already have experienced team members who we can deploy on most of these sorts of relationships.

So the upfront costs are negligible.

From a software perspective, again, with our business model, it puts us in a very unique position.

We have more than 300 IT, R&D team members offshore, and for us, there's very little involved in terms of white labeling the software itself in the software scenario with kind of a 1 to 10 labor cost arbitrage when we look at Pakistan versus the U.S., the costs associated with that are de minimis.

So that is one advantage, too, in the context of -- especially the smaller acquisitions, unlike the acquisition of a smaller revenue cycle management company where there will still be some legal costs, there will still be some accounting costs.

There'll still be due diligence efforts that have to go into it.

There'll be costs associated with redundancy as we're rolling their operations into ours.

And all those sorts of things that go into the -- any acquisition, but in relative terms, place even more stress on the smaller acquisitions because of their size.

Those don't exist in this particular scenario.

Okay.

One more related to that.

And it has to do with the due diligence period and how much access you might get if a competitor is going to work with you?

And do you see that as a potential area of risk, if you couldn't get enough depth of due diligence to look at one of these opportunities?

We really don't see any material risk associated with that scenario.

We have the ability going into a relationship.

And of course, we'll make sure that we ensure that any partner we're working with, we feel comfortable with their overall business practices going into that relationship.

And typically, these relationships, either party has the ability to terminate that relationship upon a relatively short period of notice.

Of course, that becomes a little bit more difficult for a customer of ours because they have to find a new group of individuals who can take over the operations.

It's candidly more difficult from their end or from a software end, they have to be able to migrate the data.

But from our end, it's relatively straightforward, being able to terminate those relationships.

So as we go into these relationships, we're ensuring we're choosing the right partners to work with, much like in the acquisition scenarios.

We're making sure that we feel comfortable from a business ethics perspective.

And that we have a partner who is going to pay our invoice on a timely basis.

We're incorporating going forward with things like automatic payment ACH as a key part of that relationship.

So there's very limited downside, candidly, in terms of these relationships.

In the interest of time, we will now conclude our question-and-answer session.

I would now like to turn the conference back over to Ms. Shruti Patel for any closing remarks.

Thank you.

Thank you.

We'd like to thank everyone for joining today and your continued support.

We look forward to speaking again in the near future.

Thank you.

Thank you, everyone.

Bye-Bye.

The conference has now concluded.

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