CloudMD is a show-me story, this portfolio manager says

Shares for Canadian telehealth stock CloudMD Software and Services (CloudMD Stock Quote, Charts, News, Analysts, Financials TSXV:DOC) are down by plenty this year, but that doesn’t necessarily make it a buy. So says portfolio manager Stephen Takacsy, who sees a number of question marks surrounding the still-maturing business. 

Telemedicine was an early pandemic favourite for investors looking to hitch their pony to this rising star of the tech field, as virtual doctor’s visits became much more common during COVID, just as Zoom calls and continuous Amazon deliveries changed the day-to-day reality for many of us. 

And that’s where a name like CloudMD came in. Formerly Premier Health where it had a cloud-based Electronic Medical Records business along with medical billing software, the company put its new focus on telehealth in February 2020 with the name change to CloudMD and a launch of its direct-to-consumer telemedicine app.

Investors took to the stock in droves, pushing up DOC from $0.50 as of early 2020 to over $3.00 by October of that year. Since then, however, shares have been diving steadily, hitting $1.17 by the end of 2021 and currently trading down to about $0.38 per share here in July, a huge pullback that has erased all of DOC’s pandemic-era gains.

For Takacsy, CEO of Lester Asset Management, CloudMD still carries a lot of promise due to continued uptake of telehealth services across the spectrum of health providers, but the company has some work ahead of it.

“That whole sector got decimated,” said Takacsy, speaking on BNN Bloomberg on Thursday. “CloudMD is one of the fastest growing healthcare technology solutions providers to the enterprise health segment. It offers employers and insurance companies a centralized platform that integrates primary care, mental health and other specialty care to help get employees’ health issues resolved quickly and reduce absenteeism.”

“I think they’re in the right segment because, as we saw, Telus announced recently that it’s buying [digital health solutions company LifeWorks], so I think CloudMD has the right strategy,” he said.

At the same time, the company has gone through more evolutionary changes this year, both from an M&A perspective but also internally by way of a corporate shakeup and realignment. On the latter, CloudMD moved its business under three main verticals in Clinic Services and Pharmacies, Digital Services and Enterprise Health Solutions, with Clinic Services still being the company’s largest revenue source.

On its C-Suite moves, the company saw CFO Daniel Lee step down in February of this year, with previous SVP Finance Sean Carr taking over the role in the interim. Then in April, the company saw its founder and CEO Dr. Essam Hamza give up the helm and President Karen Adams assume interim CEO responsibilities. 

At the time, Hamza said the move was reflective of the company’s evolving vision.

“The business has changed from a connected network of clinics to a leading comprehensive healthcare provider, and I could not be prouder of the team on their ability to execute,” Hamza said in an April 6 press release. “It is time for the Company to move away from its founder, and I will be stepping down as CEO and passing the baton so a new CEO can lead the Company through its next phase of growth. I look forward to supporting the entire executive team through the Company’s next stage.”

But those moves have put the company in a different light, according to Takacsy, including in terms of the acquisitions recently made. Last year, the company bought digital eyeware platform VisionPros for up to $100 million including earnouts, while this year they acquired digital mental healthcare platform MindBeacon for about $116 million, with the full impact of those buys still to be realized.

“They’re still integrating a lot of acquisitions they made over the last year and the positive EBITDA has been pushed out because they also bought MindBeacon recently, which was losing some money,” Takacsy said.

“[And] there have been some issues with one of their acquisitions, VisionPros, which I think is back on track. But there’s also been some turnover up at the top, with a resignation by the CFO at one point, the CEO stepped back and the chairman resigned,” he said. “So, I think it’s still well managed by the CEO Karen Adams, but it’s still a bit of a show-me story.”

CloudMD reported its most recent quarter in late May where the company’s first quarter 2022 featured revenue up 372 per cent to $41.4 million and a net loss of $5.6 million or $0.02 per share compared to a loss of $5.3 million or $0.03 per share a year earlier.