CareCloud, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in USD millions unless stated otherwise. CareCloud provides healthcare IT, SaaS, revenue-cycle management and related services, alongside medical practice management.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $37.2 | $34.1 | $72.6 | $63.8 |
| GAAP operating income (loss) | $2.8 | ($0.1) | $4.0 | ($1.8) |
| GAAP operating margin | 7.4% | (0.3%) | 5.5% | (2.8%) |
| GAAP net income (loss) | $2.7 | ($0.2) | $3.9 | ($2.2) |
| Net loss attributable to common shareholders | ($1.0) | ($3.9) | ($3.9) | ($9.0) |
| Adjusted EBITDA (non-GAAP) | $7.0 | $5.7 | $11.7 | $9.3 |
Revenue increased 9% year over year in Q2 and 14% for the first half. Growth included $8.6 million of Q2 and $15.8 million of first-half revenue from the medSR acquisition, partly offset by declining revenue from three large accounts acquired in 2020 that are winding down. Q2 professional-services revenue rose to $9.8 million from $3.5 million; technology-enabled solutions revenue was $23.6 million versus $27.1 million.
First-half operating cash flow was $8.1 million, compared with $2.1 million a year earlier. Investing cash outflow was $5.6 million, including $4.7 million of capitalized software development; financing cash outflow was $2.1 million. Cash and restricted cash totaled $10.2 million at June 30. Working capital was positive by $11.4 million.
At June 30, total assets were $140.1 million, total liabilities $37.4 million and shareholders’ equity $102.7 million. The company had $7.0 million outstanding on its revolving credit line at quarter-end and repaid it in July. Its SVB facility carries interest at prime plus 1.50%, subject to a 6.50% minimum; the company reported compliance with facility covenants. Operating lease liabilities totaled $6.5 million.
Changes and notable items
- GAAP profitability improved from losses in the 2021 comparable periods. First-half adjusted EBITDA rose to $11.7 million from $9.3 million; adjusted operating margin was 12.8%, up from 11.9%.
- Direct operating costs increased 15% for the first half, primarily reflecting medSR-related salary and outsourcing costs. Selling and marketing expense rose 17%, while research and development expense fell 46%; the company attributed the latter partly to shifting resources toward new technology not yet in commercial use.
- CareCloud issued 1,210,248 shares of 8.75% Series B preferred stock, receiving $27.9 million net, and used $20.0 million to redeem 800,000 Series A preferred shares. Preferred dividends were $7.8 million for the first half and reduce earnings attributable to common shareholders.
- The estimated medSR contingent consideration liability fell from $3.1 million at year-end 2021 to $1.9 million at June 30, 2022, producing a $1.2 million favorable fair-value adjustment in first-half results.
Outlook, risks and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management says the company is forecasting a return to profitability, but notes uncertainty around future taxable income. Management reported that COVID-19 did not materially adversely affect first-half 2022 results, while warning that future effects remain uncertain and current results may not indicate full-year performance.
- Controls: Disclosure controls were assessed as not effective at June 30, 2022 because of a material weakness involving completeness and accuracy of key inputs for a non-routine transaction. Remediation measures were implemented by March 31, 2022, but the filing does not report the weakness as resolved.
- Legal: An arbitration involving subsidiary MAC and Randolph Pain Relief and Wellness Center proceeded to a four-day hearing in June 2022. The claimant’s expert estimated damages of $9.8–$10.8 million; the company disputes the allegations and expects any loss, if incurred, would not materially affect its financial statements. Written closing arguments remained pending.
- Other obligations: $934,000 of deferred payroll taxes was due by December 31, 2022. Preferred dividends are cumulative. The SVB credit agreement is secured by domestic assets and 65% of shares in offshore subsidiaries.
- Operational risks: The filing cites client retention and revenue concentration, acquisition integration, offshore operations, healthcare regulation, privacy and cybersecurity, technology development, competition, key-person dependence and ability to pay preferred dividends among relevant risks.
Investor facts to verify
- Whether growth excluding medSR is sufficient to offset revenue declines from the three winding-down large accounts.
- Whether operating cash flow and liquidity remain adequate after preferred dividends, payroll-tax repayment and ongoing software investment.
- The post-quarter repayment of the $7.0 million SVB balance and continued compliance with credit covenants.
- Progress in remediating the material weakness and whether subsequent filings confirm effective controls.
- The outcome of the MAC arbitration and any resulting financial exposure.
- Adjusted EBITDA and other non-GAAP measures against GAAP results; adjusted earnings per share excludes preferred dividends in the company’s presentation.