CareCloud, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 9, 2022. CareCloud provides healthcare IT software and services, including revenue cycle management, SaaS products, professional services and medical practice management. Amounts below are in U.S. dollars; financial-statement figures are generally in millions unless noted.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $35.341 | $29.768 | Up 19%; growth included $7.3 million from medSR, acquired in June 2021. |
| Operating income (loss) | $1.216 | $(1.681) | Operating margin 3.4%, versus (5.6%). |
| Net income (loss) | $1.140 | $(1.964) | Positive GAAP net income in Q1 2022. |
| Preferred dividends | $4.037 | $3.128 | Q1 2022 net loss attributable to common shareholders was $2.897 million, or $(0.19) per share, versus $(5.092) million, or $(0.36) per share. |
| Adjusted EBITDA (non-GAAP) | $4.730 | $3.691 | Company-defined measure; up approximately 28%. |
| Net cash from operating activities | $3.087 | $0.958 | Increase of $2.129 million. |
| Cash and restricted cash at quarter-end | $10.136 | $20.995 | Includes $9.136 million cash and $1.000 million restricted cash. |
| Working capital at quarter-end | $8.657 | Not stated here | Current assets $36.757 million; current liabilities $28.100 million. |
| Borrowings under line of credit | $6.000 | — | Balance outstanding at March 31; repaid in early April. Separate notes payable totaled approximately $0.113 million. |
Revenue mix shifted materially: technology-enabled business solutions generated $23.242 million, professional services $8.314 million, medical practice management $3.188 million, and printing, mailing and group purchasing services together $0.597 million. Direct operating costs rose 26% to $22.673 million, while selling and marketing expense rose 26% to $2.384 million. Research and development expense declined 51% to $0.985 million; the company said it capitalized $2.253 million of software development costs, compared with $1.524 million a year earlier.
Material changes and financial position
- Reported revenue increased by $5.573 million year over year, but the comparison includes medSR revenue in Q1 2022 and not in reported Q1 2021 results. Unaudited pro forma revenue, assuming medSR had been acquired on January 1, 2021, was $39.455 million for Q1 2021; Q1 2022 revenue was $35.341 million. The filing cautions that pro forma results are not indicative of actual or future results.
- Operating expenses rose 9% to $34.125 million. Higher direct costs and sales and marketing expense were partly offset by lower R&D and lease-related charges. A $0.600 million reduction in estimated medSR contingent consideration benefited operating results.
- Investing cash outflow was $2.797 million, mainly $2.253 million of capitalized software and $0.544 million of property and equipment purchases. Financing cash outflow was $0.342 million, reflecting preferred dividends, debt repayments and stock-award tax withholding, alongside preferred-stock proceeds and line-of-credit activity.
- Q1 financing included net proceeds of approximately $26.6 million from Series B preferred stock and redemption of 800,000 Series A preferred shares for $20.0 million, plus accrued dividends. The Series B carries an 8.75% cumulative dividend rate; preferred dividends totaled $4.037 million for the quarter.
- Total liabilities were $38.922 million at March 31, down from $42.917 million at December 31, 2021. Total shareholders’ equity was $102.293 million. Operating lease liabilities totaled $7.732 million.
Outlook, risks, contingencies and unusual items
- The filing provides no quantified revenue, earnings or cash-flow guidance. Management says Q1 results may not indicate full-year results and notes uncertainty about the future effects of COVID-19, including potential impacts on operations, demand and patient visits.
- Management identifies risks including client retention and migration, acquisition integration and growth, healthcare regulation and privacy, technology development, offshore operations, competition, key-person retention, SVB covenant compliance and the ability to pay preferred dividends. The company was in compliance with SVB covenants at March 31.
- CareCloud reported positive working capital and operating cash flow, but also cited the need to manage capital, debt covenants and preferred dividends. The filing’s forward-looking discussion references the ability to continue as a going concern and raise additional capital; it does not provide a clear quantified liquidity forecast.
- In a pending arbitration, Randolph Pain Relief and Wellness Center alleges breach of contract by a CareCloud subsidiary and has stated damages ranging from $9.8 million to $10.8 million in an expert report, after earlier assertions of up to $20 million. The company disputes the claims, says it expects any loss to be substantially below the amount claimed, and noted a hearing was scheduled for June 2022.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2022 because of a material weakness involving completeness and accuracy of inputs for a non-routine transaction. Management said remediation actions were completed by quarter-end; investors should distinguish completion of remediation from demonstrated effectiveness over time.
- Other notable items include $0.158 million of lease termination, impairment and unoccupied-lease charges in Q1 2022, compared with $1.018 million in Q1 2021. The company reported a $0.105 million gain on a lease termination and no lease impairments or restructuring charges in Q1 2022.
Important facts for investors to verify
- How much of revenue and operating performance reflects medSR, and how Q1 2022 compares with the unaudited pro forma Q1 2021 baseline.
- Whether operating cash flow remains sufficient after preferred dividends, capitalized software investment, lease payments and repayment of the SVB draw.
- The terms, ongoing dividend burden and potential future issuance or redemption of Series A and Series B preferred stock, including use of the available at-the-market facilities.
- Progress and outcomes in the RPRWC arbitration, including any subsequent ruling, settlement or change in estimated exposure.
- Whether the identified control weakness is fully remediated and whether subsequent reporting demonstrates effective controls.
- Execution of growth and technology plans, including client retention, sales and marketing investment, software capitalization and integration of acquired operations.