CloudMD Software and Services Inc. (DOCRF)

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Earnings Call Transcript - CloudMD Software & Services Inc. (DOCRF) CEO Essam Hamza On Q3 2021 Results.

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https://seekingalpha.com/article/4472428-cloudmd-software-and-services-inc-docrf-ceo-essam-hamza-on-q3-2021-results-earnings-call

Nov. 29, 2021 9:03 PM ET

Company Participants
Julia Becker - Vice President, Investor Relations
Essam Hamza - Chief Executive Officer & Director
Karen Adams - President & Director
Daniel Lee - Chief Financial Officer

Conference Call Participants
Scott Schoenhaus - Stephens
Rob Goff - Echelon
Nick Agostino - Laurentian Bank Securities
Yue Ma - Research Capital
Gabriel Leung - Beacon Securities


Operator
Good afternoon and welcome to the CloudMD Q3 Twenty Twenty One Earnings Conference Call and Webinar. My name is Valerie and I will be a conference facilitator today. As a reminder, this conference call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period.
Thank you. It is now my pleasure to turn the call over to Julia Becker, Vice President, Investor Relations with opening remarks.

Julia Becker
Thank you Valerie and good afternoon everyone. Thank you so much for joining us today, November twenty nineth twenty twenty one for our third quarter earnings conference call and webinar. We’ll start the call with our CEO, Dr. Essam Hamza, followed by our President, Karen Adams, and our Chief Financial Officer Daniel Lee who will provide a recap the company's third quarter twenty twenty one financial results before opening up for a question-and-answer period from our covering analysts.

A friendly reminder that today's discussion contains certain forward-looking information which involve inherent risks and uncertainties and other factors that could cause actual results to differ materially from management's current expectation.

Forward-looking statements should not be interpreted as assurances of future performance or results. The risks related to the forward-looking information are described in the company's most recent AIF and then the Management’s Discussion and Analysis for Q3 twenty twenty one which are both available on SEDAR.

We encourage you to review our public disclosure in the context of all forward-looking information that you may here today during this earnings call. Investors are cautioned not to place undue reliance on such forward-looking information and that such information is considered reasonable, based on information available to management as of today. However, the company disclaims any intention or obligation to update and review any forward-looking information as a result of new information, future events or for any other reason except to the extent required by law.

With that, it is my pleasure to turn the call over to Dr. Essam Hamza, CEO of CloudMD.

Essam Hamza
Thank you, Julia. Good afternoon and thank you for joining us for our third quarter twenty twenty one earnings call. We are delighted to share our financial results representing the first full quarter with all of our previously reported acquisitions closed and consolidated. This is the first quarter where our investors can start to see the full impact of CloudMD’s strategy. Through the execution of the strategy, we generated thirty nine point two million dollars in revenue, representing over one thousand percent year-over-year growth and positive adjusted EBITDA, demonstrating the operating leverage inherent in our business model.

We've increased our adjusted EBITDA margin for six consecutive quarters as we've successfully executed on our integration playbook to generate significant synergies. Let me now talk briefly about the underlying philosophy guidance and has led to those outstanding results. CloudMD was born out of the frustration of dealing with inefficiencies and ineffectiveness of the traditionally broken healthcare system. Many of you are here because like us, you recognize the feelings of that system, for example, inefficient use of resources solid care, how data technology, employers or payers dealing with rising cost despite worsening outcomes and doctors and nurses that are overwhelmed and exhausted.

Our team of dedicated medical professionals understand the historical shortcomings and the different pinpoints of those various stake shorts of stakeholders. As a result, we have created a health tech company leveraging proprietary patented technology which is focused on an integrated outcomes based approach to healthcare delivery, and which improves efficiencies provides better access of care and better health outcomes.

We know that payers and providers prefer integrated end-to-end solutions because of simplifies partnerships, improves return on healthcare spend and leads to better individual health outcomes. We've carefully built a leading integrated solution through a combination of strategic acquisitions and purposeful technology innovation.

All these targeted acquisitions fill an essential part of our healthcare ecosystem in either our Enterprise Health Solutions or Digital Health Solutions product roadmap. Most of these were not for sale on the market and we're found that company is that like you align with the CloudMD vision. We are uniquely positioned to deliver a comprehensive integrated health offering based on our Patented Real Time Intervention Platform or RTIP which supports data and profitability, cybersecurity and the ability to merge separate applications into a single platform. It is the backbone of our comprehensive platform and allows us to integrate various health capabilities such as care navigation, physical health, mental health, virtual care, and health education to name a few. This integration allows us to navigate an individual's unique health journey within one connected platform and provide outcome data back to the stakeholders.

Our techniques that much easier and more effective for us to continue adding new capabilities onto the platform share data in real time and operate as an end-to-end solution. It also allows us to scale rapidly and enter new geographical locations by plugging provider networks into our backend. On the call today,
I'm going to have Karen talk about three key focus areas that are driving growth and shareholder value.
- One, we are driving synergies and integrating capabilities to improve growth and profitability.
- Two, through our Enterprise Health Solutions division, we are delivering an excellent end user experience for all stakeholders which is driving successful customer acquisition.
- Three, through our Digital Health Solutions division, we have developed proprietary technology that enables engagements of individuals in supporting health issues, while at the same time empowering regulated health professionals productivity.
I'll now pass it over to Karen to review in detail how we all execute again each one of these focus points. Karen?

Karen Adams
Thank you, Essam. I'm very proud of our strong solid performance in Q3 twenty twenty one. The team has done an incredible job creating a growth oriented efficient profitable business that provides a superior product for the markets we serve. Our business units have accelerated our ability to transform the way healthcare is provided with a focus on an engagement, proactive measurement and health outcomes.
I want to turn to the focus areas that Essam outlined.
- Focus one, we are driving synergies and integrated capability to improve growth and profitability. In our most hypergrowth phase, we completed fourteen acquisitions. This is the first quarter where we can recognize the full benefits of those acquisitions. We have successfully identified and realized significant revenue expansion and cost synergies as we executed on our integration playbook. We've identified and executed on one point five million dollars in annualized synergies this quarter, significantly more than we announced at the time of those acquisitions.

In Q3, we continue to execute on our integration plan by bringing businesses together in our operating divisions creating strong operational leverage. In addition to that, we drove reductions in administrative technology, finance and data costs through implementation of the shared services model. We also continue to reduce customer acquisition cost by increased revenue synergies, unified sales strategy and an expanded client base from these already proven capabilities.

Internally, we are tracking and focusing on attach rate and while it is not a measure we are sharing yet, this cross selling will be a key driver of growth going forward. We are creating clients success teams that enable our ability to work with clients on their health and productivity needs, while creating multi products solutions with measurable outcomes.

We are able to demonstrate declines for the first time evidence that the programs they implement improved symptoms and well-being using the right group benefit program. The results of our hard work are clear, we've grown annualized revenue per share every quarter with that number more than doubling from Q2 to Q3. We've also improved adjusted EBITDA margin each and every quarter this year as we've given synergies and generated operating leverage

We've taken a disciplined approach to integration with well-defined processes and a dedicated team. Our Mental Health Support Services or MHSS is a perfect example of a focus on growth with the right cost structure. We've integrated people process and technologies of three separate EAT and mental health companies into one solution. Providing what our clients are defining as first end market solution.

We are leading the industry and mental health coaching and navigation while seeing client adoption and annualized organic growth of sixteen percent. The acquisition of MindBeacon is expected to solidify our position as we're leading North American comprehensive mental health solutions that uses a clinical data driven approach to engage in monitor improvement for return to function.

The proven capabilities of MindBeacon internet based cognitive behavioral therapy or commonly referred to as iCBT coupled with our employee assistance program and our industry leading health coach and navigation solutions are a powerful synergistic combination of industry leading program. We are confident that with MindBeacon, we will be able to replicate our integration strategy and upon close with a comprehensive product and media cost savings and revenue expansion through our broad client base.
We plan to continue to create a stronger and more profitable company by sticking to our disciplined approach to M&A are well defined innovative capabilities roadmap and executing on our proven integration playbook.

- Focus two, through our Enterprise Health Solutions Division, we are delivering an excellent end-to-end user experience for all stakeholders which is driving successful customer acquisitions. Our Integrated Health services platform continues to provide an outstanding measurable results for our client. We're seeing a net promoter score of over eighty, a ninety eight percent user satisfaction rate for our Mental Health Support Services and increasing client adoption rate quarter-over-quarter.

This points to the fact that we were providing a measurable return on our client's healthcare spend, which is very important as healthcare costs are rising and it becomes increasingly important to demonstrate value to the market you serve. As a result of these outcomes client adoption of our solution accelerated in Q3. Our strong sales conversion experience has resulted in an additional one hundred and sixty four customers adopting our Enterprise Health Solutions offering, up from one hundred and fifty six in the previous quarter. This includes new clients in such, sectors as retail, transportation, financial and two large drug companies. We now have a total of five hundred and sixty thousand lives on the platform up from two hundred and sixty thousand lives in Q2.

It is also important to note, we are performing incredibly well with a win rate of ninety percent based on our strong assessment, navigation and value proposition. We have a number of proposals out with clients in our absence management and occupational health business to provide comprehensive health and wellness support. We are leveraging our assessment business to provide a more comprehensive offering with the addition of our mental health treatment, resulting in reduced disability dates and higher client satisfaction.

I'm also proud of our mental Health Support Solutions team in the announcement this morning by Sun Life. Sun Life started as a paid pilot earlier this year for their employees. The pilot delivered measurable mental health results, including eighty nine percent of those suffering from depression and ninety one percent suffering from anxiety, experiencing major improvement. It also saw forty six percent increase in plan members, utilizing their mental health benefits for the first time.

It is my authorization that during the last year companies are clearly demonstrating their commitment to mental health by expanding EAP programs and including an increase of paramedical spend to ensure access to care. Our EAP program was founded on nurse navigators to improve the planned member experience. This increased spend in paramedical benefits for mental health will only be a benefit when you pair it with health coach to ensure the right program with the right therapist and accountabilities for outcomes. This program is proving to deliver on just that.

Based on the results Sun Life converted from a pilot to a partner and will roll out our health coach product across planned sponsors throughout twenty twenty two as part of its group benefits offering. We are appreciative of the supportive Sun Life in recognizing the importance of this type of program we have developed.

To compete in the future, you need to provide whole person team based care that produces measurable results. Our comprehensive platform is providing this clients and their members driving new client wins and growing share of clients well. Our comprehensive platform addresses mild, moderate and acute and chronic mental and physical health with a variety of treatment options from low intensity to high intensity, and most importantly, one that shows data across all treatment types to continue to improve outcomes for individuals, practitioners and payers.

Finally,
- focus three. Through our Digital Health Solutions division, we are developing proprietary technology that enables engagement of individuals and supporting health issues, while improving regulated health professionals productivity. The Digital Health Solutions division launched a new unpaid pilot program in Q3, which is a long-term care product focused on lowering risks and improving the quality of life through better digital screening, tracking and monitoring. We've also been in user testing for our new online eye examination expected to launch in early twenty twenty two.

These are just some of the examples of our team working hard on new innovations that will drive growth in the future. MindBeacon speaking [Indiscernible] box and another development we are excited about and believe will be additive to the various tools, we can provide practitioners in our clinical network. It has a white label iCBT that they can use to augment their care. One of the other large drivers of growth in the quarter was our real time intervention platform. While RTIP is the backbone of our comprehensive health ecosystem. We also sell it on a contract basis.

During the quarter, it’s strong growth from new contracts with various federal and state level entities in the United States. RTIP is being used in the battle against substance as an innovative health data integration and Security Technologies Solution leveraging various information sharing standards and is already operational across thirty eight states and local agencies to adjust equal point crisis.
With that, I'll pass the call to Daniel to further discuss our financials.

Daniel Lee
Thank you, Karen. By Essam and Karen touched on, this was the first quarter with all of our previously announced acquisitions before we consolidated providing a clear view into our business. We have built this company for sustainable growth and operating leverage which will allow us for future tuck in acquisitions, but we are very pleased to share the early results on those efforts with you. Q3 twenty twenty one total revenue was thirty nine point two million dollars compared to fifteen point seven million dollars in Q2 twenty twenty-one and three point six million dollars in Q3 twenty twenty. The increase is attributed to having a full quarter contribution and the four acquisitions completed in Q2 twenty twenty one. Excluding acquisitions, the company had achieved a strong year-over-year overall organic growth rate of eleven percent.

Enterprise Health Solutions contributed nineteen point six million dollars in the quarter as Q3 included full quarter contribution from Oncidium. During the quarter, Oncidium had elevated revenues above and beyond the previously announced run rate due to some short term pandemic related services. The pandemic has highlighted the need from mental health and are comprehensive offering and help employers improve the well-being of their employees.

The Enterprise Health Solutions Division also achieved a sixteen percent annualized growth rate from the Mental Health Support Services to business compared to Q2 twenty twenty one. As Karen stated, we continue to add new customers in the quarter, and we are excited about the proposed acquisition of MindBeacon and how its iCBT solution will augment our comprehensive offering and expand a number of treatment options for individuals.

We continue to market these solutions as standalone but are winning based on offering a variety of solutions and the option for end-to-end integration care. Digital Health Solutions generated ten million dollars in revenues as we signed and executed new customer contracts adding to our strong recurring and recurring revenue base.

Digital Health Solutions achieved a forty three percent annualized organic growth rate over Q2 twenty twenty one. This increase was primarily due to solid execution of delivering contract services to various U. S. Government agencies. Clinics and pharmacies continues to perform well with nine point six million dollars revenue during the quarter, representing two twenty nine percent year-over-year growth. Including the proposed acquisition of MindBeacon, which will be integrated into the enterprise Health Solutions Division upon close. We expect approximately fifty five percent of our revenues to be earned from the enterprise Health Solutions Division approximately twenty five percent from Digital Health Solutions and approximately twenty percent from clinics and pharmacies.

Looking ahead to Q4, it will be a quarter of strict organic growth as we do not anticipate closing any new acquisitions during the quarter. We target ten percent year-over-year organic growth but recognized that a quarter-over-quarter growth is in straightforward due to things like contract timing and seasonality. Gross profit in the quarter was thirty four percent down from thirty five point five percent in Q2. The slight decline was due to a change in mix of revenue, notably, our online eyewear platform, specialty drug wholesaler and patient support programs which are currently lower margin businesses grew rapidly in the quarter and made up a larger proportion of total revenues. While we expect some fluctuation in gross margins going forward, due to the shifting mix, we continue to target a low to mid thirty percent gross margins. We've done an incredible job and I'll take a second to pause and commend the team on their ability to drive synergies and control costs as we've scaled.

This quarter, we added an incremental twenty three point five million dollars in revenues while only increasing operating expenses by five point six million dollars. To put it another way, we decreased operating expense as a percentage of revenue from seventy nine percent in Q3 twenty twenty to thirty two percent a year later in Q3 twenty twenty one.

We believe we are proving we can integrate acquisitions, drive cost savings and increased profitability. While there may be some momentary step backs in this trend as we consolidate my begin. I have complete confidence in our ability to once again execute and produce a same cost savings and profitability. I'm proud to say that this quarter, we reached positive adjusted EBITDA for the first time. We generated eight hundred thousand dollars in positive adjusted EBITDA were at two percent adjusted EBITDA margin. We expect continued improvement into Q4 as we find additional cost savings and improve our operating leverage for a temporary step back as we consolidate MindBeacon in Q1 twenty twenty two.

We ended in Q3 with fifty four million dollars in cash. Following the closing of the MindBeacon acquisition and after all payments in respect of that transaction, we expect to have over sixty million dollars in cash on hand. We expect that there will be more than enough to continue to execute on a strategic roadmap, integrate our capabilities and improve profitability.
I'll now pass it back to Essam for some final comments.

Essam Hamza
Thank you, Daniel. So, we've outlined the vision for our shareholders of an integrated outcome driven health tech platform. We are executing on that vision adding capabilities through acquisition and innovation to create a full service offering that eliminates Indiscernible care and through our patented data onto our profitability platform interact smoothly together to create individual – better individual outcomes.

Each quarter, the fundamentals of our business have improved, and we demonstrated that the plan we have in place is the correct one and that we have the team necessary to execute on it. Over the last year, we've grown revenues over a thousand percent and even on a per share basis, which accounts for dilution used to build the platform, we've grown it four eighty five percent year-over-year. We've improved profitability every quarter and most importantly, the offering we have represents to – find the represent to client stage is now stronger than when it was years ago – a year ago.

Our recently announced transaction with MindBeacon is another step on our roadmap, which will bring in another important capability by buying the leading product provider in the market today. While we expect to take a short-term step back in profitability, we anticipate that we will once again drive improved profitability and per share revenue as we integrate the scale and scale this new capability. To that end, we've already identified an additional two million dollars in potential synergies over and above will be announced at the time of the – that MindBeacon announcement. I'm incredibly proud of what our team is building. Their hard work, dedication to cost control and focus on delivering superior healthcare outcomes has made this possible.
With that, I'd like to open the call for questions. Operator?

Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen. Our first question comes from Scott Schoenhaus with Stephens. Your is open.

Scott Schoenhaus
Hi Essam and team. Congrats on the strong quarter. I wanted to dig further into the pending MindBeacon acquisition you recently announced. I believe MindBeacon had us around fifty five hundred corporate clients currently, just wondering if there was any client overlap there at all with any of your EHS customers and how you see the cross selling opportunities once this pending acquisition is closed?

Essam Hamza
Yes, thanks Scott. It's a great question. The great thing about our roadmap that we had and with each one of our acquisitions that we targeted. There are great companies on their own growing on their own, but together, we saw a lot of opportunities for cross selling. There is some overlap of the customers and I'll have Karen kind of explain a little bit in terms of our cross selling strategies going forward.

Karen Adams
Thanks for the question. So, there are some clients that are overlap, but the interesting thing is that as clients are looking to consolidate capabilities and delivers the superior product to their employee. We see this as a great opportunity for the iCBT product and our Mental Health Support Solutions to come together to provide access to care and really start to align to people's preferences for how they receive treatment. So for us, this is going to be a win win for the clients and our ability to come together with a solution that I think we will provide stronger outcomes for the people using services. And I should mention we've already had some of the clients reach out to both organizations asking to get together to start to talk about what this new products offering can look like as a cohesive platform.

Scott Schoenhaus
Great. That's great color, Karen. Then as a follow-up, how should we think about ongoing growth and adjusted EBITDA margin expansion in the longer term. Should we expect gross margins to expand in EHS past the legacy fifty percent levels that MindBeacon was achieving on the gross margin side given the larger scale and then the cost synergies over the next several years on the EBITDA margin side. Thanks guys.

Essam Hamza
Yeah. Thank you. Dan, if you can speak a little bit to the gross margin and the plans for that.

Daniel Lee
Sure, great. Thanks for your questions, Scott. So with respect to MindBeacon, they do operate a much higher gross margin. And so we do expect that with upon the completion of MindBeacon, which will occur, which we anticipate, will incur sometime in January that will increase our gross margin. For Q3 twenty twenty-one, our gross margin for Enterprise Health Solutions, I believe we reported on our financials forty two point nine percent and so we do expect that to gravitate to the mid-forty percent if not even higher than that. And so we can, we do expect that there will be significant synergies as it relates to the cost of sales within MindBeacon as well as within CloudMD.

With respect to EBITDA, we are – so we did announce initially a ten million dollars and annualized cost synergies. In addition to what Essam had mentioned earlier on the call, we've identified a further two million dollars and so we've begun having discussions with MindBeacon on integration plan and we will provide a further update to the markets following that, but we do have plans to return back to profitability and what I would say is that, we do expect sometime in the back half or as we exit twenty twenty two for us to be approaching back to profitability once we start executing on some of these integration efforts and start realizing synergies.

Scott Schoenhaus
Thanks, Steve.

Operator
Thank you. Our next question comes from Rob Goff of Echelon. Your line is open.

Rob Goff
Thanks for taking my question and congrats on a very [Indiscernible] total of quarter. My question would be on the Sun Life contracts. To the extent possible, can you talk to the model behind the contract? In terms of the potential addressable market for [Indiscernible] perhaps with a competitive win and how MindBeacon fit into this contract?

Essam Hamza
Thanks, Rob and you're right. It has been pretty eventful. We've incredibly excited with our relationship with Sun Life. They're incredible leaders in their space and innovators and they share a lot of the same values that we have, and it validates what we've been talking about in terms of measurable results for employees and showing outcome data the value of that. So we're incredibly excited to partner with them. What I'll do is, I'll hand it over to Karen talk a little bit about the structure and the plans with Sun Life.

Rob Goff
Great. Thank you.

Karen Adams
Thank you. Great question. So, we refer to the throughout the year as the paid pilot where in Sun Life rolled it out to their employees and we're very proud of the results. This is a price, this is basically a model where employee connects as a platform and really start to get some help for mental health through a coach and one of the biggest challenges for individuals to get help is just the whole starting treatment. And so, we find that the coach is really good at producing stigma creating engagement and really creating a treatment plan with objectives that people can adhere to. So, that's really the product that we have created.
It is an evidence based product. I think you would have seen in the press release, we're seeing very good improvements in depression and anxiety that plan members are actually using their mental health benefits now to access for treatment. The plan with Sun Life is to roll it out for all of their plans sponsors over time. And we're just really excited that they selected CloudMD and the program – the platform that has the health coaches that enable people to get access to care.

Rob Goff
Thank you. And if I may one follow-up Karen.

Karen Adams
Sure.

Rob Goff
Skew with the EHS, could you talk to your cadence for contract wins and that win rate on quarter?

Karen Adams
Yes. So, I mean when we get in front of a customer, I think our big opportunity here is just the breadth of services that we provide, and I think that where we've really seen when we do debrief with clients when they select us, and I can ask why they select us. And I think we're seeing quite a traction around the value proposition of the assessment and the tools and the innovation around the platform, but really what speaks to people is that all of the capabilities that we brought to the forefront has been capabilities that have proven for twenty plus years. And so, we've taken them consolidated them and really created one cohesive platform for people to access the service.

From the win rate, so I would say that the largest posture for us is these nurse navigators. In this whole concept of using a regulated health professional as the lead to build the trust to really ensure that people are actually accessing the right group benefit programs. So, it's really getting in front of the customer and that's where that win rate is coming from.

Rob Goff
Thank you again.

Operator
Thank you. Our next question comes from Nick Agostino of Laurentian Bank. Your line is open.

Nick Agostino
Yes, good evening. I guess couple of questions for clarification. First, for Dan, you mentioned gross margins forty percent as you include MindBeacon. Can you just clarify, was that forty percent on the EHS side or was that a forty percent comment or forty five percent comment related to the overall business and what were the timelines on that?

Daniel Lee
Yes. So Nick, just to clarify, so the comment I made was more so just with respect to EHS. So one of the things that we've now disclosed in our notes to our financial statements is the gross margin profile of our divisions and so what you'll find is that we reported forty two point nine percent gross margin for Enterprise Health Solutions in Q3.

Nick Agostino
Okay. That's very helpful. And then on those further two million dollars of identified synergies. Can you guys, can you provide commentary as to what areas like what the nature of the two million dollars of additional synergies? Where is it coming from?

Essam Hamza
Yes. I mean, first of all, when we first announced the first two million dollars with the MindBeacon announcement, it was really the public market costs associated with just running the company and since then, we've continued to work with the teams at time at MindBeacon and internally and those are synergies between the two companies. I'll have Dan maybe speak a little bit more in terms of color around that, but we're also going to keep updating the market next on that so on close we will update that number further.

Nick Agostino
Okay.

Daniel Lee
Yes. So Nick, I can just expand a little bit more in terms of that additional two million dollars. So that's two million dollars and I just want to be clear here as well. So, in addition to the initial ten million dollars that we announced on the announcement date for MindBeacon and in addition to the two million dollars that's Essam mentioned, which is further identification of synergies that we've called out in Q3 itself. We've also executed on identified and execute on further one point five million dollars of annual cost savings that Karen had mentioned. So there's a lot of cost savings and what that is, it’s all coming from the, given the fact that CloudMD has completed, I believe we completed nine acquisitions in twenty twenty one and our integration is very, very much in progress and through those efforts, we've identified, well number one, I think we’ve focused the strategy as part of being CloudMD and advancing our corporate strategy and part of that has helped us be able to be more efficient with other dollar spent and the much more focused in terms of our product roadmap and where we want ahead strategically, but there is also other costs we're taking out the organization just as result of us streamlining our systems. And there has been some duplicate roles where we're now ready to have identified and we will be executing in the very near future. So, two million dollars that Essam had mentioned, it’s, I would say it’s the combination of our existing synergy – synergies from our existing acquisitions we completed in twenty twenty one and partly also influenced by MindBeacon as we welcome them to the organization, hopefully in January.

Nick Agostino
Okay. That was helpful. So, actually just some clear, is that additional two million dollars, was that across, is that MindBeacon specific additional two million dollars or that's MindBeacon plus all your other acquisitions, the additional two million?

Daniel Lee
So it's, I would say it's a bit a book to perfectly on this, right? Because there are, let's just say, two hundred employees from MindBeacon coming in and so we have line of sight in terms of the talent and they have a lot of great people there and so as we – we also did inventory in terms of the people and the processes and cost base within CloudMD as well and so that's why I'm saying it's a bit of both where, we wouldn't be able to execute these ten million dollars in synergies without MindBeacon, right? So, I think it's in anticipation of the other people on the process of some systems that we do have.

Nick Agostino
Okay. Now, that's very helpful. And then just one last question for me on the Sun Life, the coaching angle. Just so I'm unclear with this. You guys provide a coaching service, which I understand when it comes to if there's a therapist that's involved, is that therapist somebody that is on your – somebody internal to CloudMD or is that something you – were you are referring them to a third party group and also maybe speak to how has there been any preliminary discussions with Sun Life to provide iCBT as we move through twenty twenty two on rollouts and adding to all that, can you maybe talk a little bit about what the gross margins are associated with the coaching service.

Essam Hamza
Yeah. Thanks. So with regards to the therapist network. I think we got to kind of talk about two different things. First of all, our comprehensive platform that we offer, we use our own therapist network. So we have steps focus that we can refer to. With regards to the Sun Life one, I'll have Karen speak to the way that was structured?

Karen Adams
So the Mental Health coaching product is a product that we are offering within our Enterprise Health Solution. We have customized it specifically for Sun Life and I would say right now, about fifty percent of the therapist come from a therapist network, it is available on the Lumino platform, that is a Sun Life platform and fifty percent comes from our therapist. It really comes down to preferences type of therapist that they're looking for and the group benefit package that the employer will have. So that's basically where the therapist network comes from with regards to the question on iCBT, we haven't had discussions with Sun Life, it is brand new the MindBeacon, MindBeacon is part of the Sun Life offering. So in due course, we will be able to open up the discussion with Sun Life.

Nick Agostino
Okay. And then with regards to, just maybe a range on gross margins associated with the coaching service?

Essam Hamza
Yes, we don't report on the details of the contract unfortunately at this time.

Nick Agostino
Okay, okay, yeah, appreciate it. Thank you. Thanks guys.

Essam Hamza
Yes. Thank you.

Nick Agostino
Thank you. Bye bye.

Operator
Thank you. Our next question comes from Yue Ma of Research Capital. Your line is open.

Yue Ma
Hi, good afternoon. Thanks for taking my questions. So first for the employer market, the company has been offering multiple solutions. So, for example virtual care, mental health support, we have absence management that's so on. So because my question is based on the curve them, market the penetration rates for those solutions, which area do you expect the generate of the most the cross setting opportunities going forward?

Daniel Lee
Sorry. The most fastest growing…

Yue Ma
Yeah, which area – yeah, which area do you or which solution do you expect generated the most cross setting opportunities?

Daniel Lee
Yes. I mean I think Karen would agree with me, but we can confirm here, but I believe at the Mental Health Services right now is by far what's really driving adoption and it's kind of the leading product and the great thing about it is, it is something that has been underdiagnosed, it's been underutilized, it's been funded and you're seeing kind of right across the board around the world that the stigma has gone and more and more employers and governments and payers are spending more money or allowing more money to be spent on Mental Healthcare and you've seen that with a few announcements from some of the financial institutions where they've increased funding that too, I think ten thousand dollars per member, per employee.
And so the opportunity really is to not only navigate that patient and provide the proper diagnosis, but also provide them the right care and help them identify where to spend that money as well because that's been really where they, I think they fall through the cracks where they don't know exactly what the diagnosis lot of times, they don't get the right therapy and also they don't know how to spend the money and it becomes on spent. Karen, do you have anything else to add it?

Karen Adams
Yes, I'd say I think you asked an interesting question you said and what is, do we anticipate is going to be the highest usage product. So right now, we know that over thirty percent of claim, number of claims for disability or for drug claims is related to mental health and we know that it consumed more than forty percent of the cost for employers. And still, the mental health will continue to be an escalating where people are looking for a solution to truly tackle mental health, not just superficially, but truly tackling report outcome. We anticipate though as a company that health coaching will become our fastest growing service because there's always a large comorbidities between mental and physical health.
So things like carpal tunnel syndrome, things like there's always a comorbidity usually between, not always but you know a large number of cases, the comorbidity where we're presenting with the physical health issue, but the mental health issues rate aside. So what you're going to see I think, from perspective is we will be expanding our Enterprise Health solutions Services to be all income to same to be both a mental and physical health and then you will only see the true impact on absenteeism improving well-being and people reporting better help outcomes.

Yue Ma
Okay. So now you have five hundred sixty thousand covered the lives, based on what you said Mental Health Solutions are expected to be the generally the most cross setting opportunities. Is it fair to say that the market penetration rate of mental health solutions as lowest the penetration rate when you compared to other product solutions?

Essam Hamza
I'm not sure the question, but Karen, did you capture that question?

Karen Adams
Yes. So, I think what you're asking is, I'm going to just answer in a different way you can tell me if it answers your question. There is a large addressable market. I think what we have to be cognizant of is there are a number of solutions out there solving mental health issue and so, I think the market is asking for a more robust solution. They're willing to spend money on it. We've seen a number of organizations increase their paramedical spend. I think that organizations have offered paramedical spend for mental health, the challenge has been employees did not have the right access to care or knowhow to – how do I actually access the therapist spend those dollars. So, I think the addressable market is actually increasing for us. Do we have a low penetration versus some of the larger EAP company? Yes, but we're competing on a comprehensive solution and we're seeing that ninety percent win rate is the adoption rate towards our mental health solutions and enterprise health where people are seeing the benefit of the nurse navigators.

So, we continue to believe that the product developments and the focus we will continue to expand our market share in the verticals that we compete against the capabilities, but we'll also be creating this new market sector around this comprehensive mental health solution. So does that answer your question?

Yue Ma
Yeah. I think so because the way I thought is the product currently has a lower market penetration rate which means has better cross setting opportunities that amount of five hundred sixty thousand cover the lives. That's a point I ask?

Essam Hamza
Yeah.

Yue Ma
I believe that makes sense to you. Okay. I guess my second question is at a high level, can you also please talk about what we can expect for next year in terms of major milestones CloudMD is looking to achieve as well as potential catalysts.

Essam Hamza
Yeah, now, that's a good question. We've done a lot obviously in the last year, we had the roadmap that we laid out and targeted the different acquisitions and brought on different capabilities to execute on what you're seeing now in terms of some of these deliverables. So, we're quite excited about where we are right now, and I don't think you'll see the same acquisition strategy that we had before because we got the – we got most of the capabilities that we needed to execute and so that's important for us. I think now it's about the fact that we've created this, proprietary healthcare platform, it's a health tech conference, it's patented and now we have the ability and to offer it in different locations and so geographical kind of expansion is going to be important, but also being able to offer it and scale basically is really what we're going to be looking for kind of going forward.

And the exciting thing about it is that this is a universal problem that we've kind of identified around North American and around the world. And it's easy to kind of plug and play in the matter where you are with the different service providers and a different provider networks and so that's exciting for us. We have it in different languages and now we are going to look for opportunities to expand it.

So with the MindBeacon acquisition, I think it fits perfectly. We are planning on closing that, I believe in January of this year and we're going to take some time to make sure that we have full integration of that offering. It's a very complementary to what we do. There's going to be a lot of cross selling, we already seeing it as Karen mentioned cross selling interest from our customers, which is great. And then kind of moving forward, I do believe we mentioned earlier that we will be up listen to a senior exchange in the new year and that's going to be another milestone we can look forward to and then just continue to grow and execute on our business plan and what we've shown that we build, it can be scaled quite rapidly. So that would be the main major points.

Yue Ma
Yes, that is helpful. Thank you.

Operator
Thank you. And we do have time for one final question. Our question comes from Gabriel Leung of Beacon Securities. Your line is open.

Gabriel Leung
Good afternoon and thanks for taking my questions. Just a couple of things. First, just wondering if you guys can provide us with a glimpse of what your pipeline currently looks like on the EHS side as it relates to sort of the composition of the potential customers that you're talking to, are they, do you have any more potential customers sort of the quantum of the Sun Life, number one and number two is what product are you finding that you're leading in with most of these potential prospects is that the mental health coaching is that the rehab assessments some of the more traditional EAP stuff, Just curious of your thoughts there?

Essam Hamza
Yeah. Thanks, Gabriel. Great question. I'm not sure if we could to be able to give you the full answer, but I'll hand it over to Karen talk a little bit about the pipeline.

Karen Adams
So we have a robust pipeline. I'm very confident with the pipeline as being able to sustain our organic growth. The pipeline has many facets to a distribution partners and has direct to organizations. I would say for the Mental Health coach, our relationship is with Sun Life and delivering that product through a distribution insurance relationship at this time. We have insurance relationships with all of the insurers for a variety of our products, including disability, assessment businesses. We have a couple of clients in the United States – prospects from the United States who are inquiring around the mental health coach, which would be distribution partners that we are currently engaged in talking to.

So, this is all net new for us as you can imagine going out in the marketplace with this product and because the product the Mental Health Coach is a North American product and has been translated into spanish is quite high adoption rate is quite easy for us in the United States.

We feel really confident that we have the right balance between direct to organizations, insurance, partnerships, and then we call our distribution partnerships are also our brokers and advisors who sell our products on our behalf to the clients that they represent and it's important of that balance because you want to have the relationship with all three in order to create a balanced portfolio. So, we monitor our pipeline, and we measure it on a monthly and quarterly basis with the sales team to ensure that the weighted averages aligned to our sales activities and so far, we're very confident with the sales operations of the way the pipeline flows right now matches to our sales forecast. We're very close every month and every quarter to our sales, which is all based on our pipeline.

Gabriel Leung
Got it. Thanks for answered my question.

Karen Adams
Did I answer your question?

Gabriel Leung
Yeah. Now, that's super helpful. Thank you. And we spend a lot of time in talking about EHS, but can you just spend a minute just talking about some of the key growth initiatives you guys focused on within digital health and perhaps even clinics and pharmacies as well. What do you see as the biggest opportunities, I guess within those two other segments?

Essam Hamza
Yeah, another a great question. So maybe I'll start with clinics and pharmacies. I mean, it's not our main focus, obviously to go and acquire a large network of clinics it typically is low margin type of business. We have to be careful on managing that, but I think what's important about the clinics and pharmacies is that there's incredible amount of patients and providers on that network, but we also own the technology aspects of it in the EHS with the EMR and so we can test everything within the clinics.

And so, for instance now with regards to the MindBeacon acquisition. We're looking forward to integrate that solution right into our EMR into the providers, if seeing the patients in the clinic or online being able to refer to that iCBT program and have that patient go through the dashboard or the mental health coach even on top of it. So the integration between the three divisions, I think is really kind of integral with the EHS, I think Dan mentioned some of the, actually I think it is Karen, sorry, mentioned some of the sales that we're seeing even outside of our own products that we're offering.

So this platform that we talked about this interoperability the RTIP platform has so much potential because one of the big drawbacks in healthcare is the lack of the ability to share information in real time and offer good outcomes data and so that really translates well right outside like right across healthcare and so when she mentions the opioid crisis, that's a big deal and for instance, what happens is that if a patient is seeing a doctor in one clinic, that provider can check in real time to make sure that patient didn't get an over year prescription from a clinic across the street or across the lines or across the country and that is something incredibly important as we start fighting the opioid addiction and a lot of the issues that we're seeing because of this use of these products. So there's a lot of opportunities there.

So, with regards to EHS, you're right, that is definitely our fastest growing division, but I think we've kind of made it clear that all our divisions work together as well. We have the ability to use the resources from each of the others to support the other one and so that is kind of an important strategy that we use internally.

Gabriel Leung
Got it. Thanks for that. And so just one last thing for Dan, just a point of clarification. Dan, just say organic revenue growth in the quarter was, it was ten percent in the quarter?

Daniel Lee
Yes, so it was eleven percent year-over-year.

Gabriel Leung
Got it. Okay. That’s helpful. Perfect. Thanks a lot for your time guys.

Essam Hamza
Thank you.

Operator
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.