Healthcare Triangle, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are to FY2020. Healthcare Triangle provides healthcare and life sciences technology, software implementation, cloud hosting, managed support, and platform services. Its platforms include CloudEz, DataEz, and Readabl.AI.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $35.27 million | $31.34 million |
| Cost of revenue, excluding depreciation and amortization | $24.75 million | $22.75 million |
| Gross profit, calculated from above | $10.52 million; approximately 29.8% margin | $8.59 million; approximately 27.4% margin |
| Operating income (loss) | $(5.36) million | $1.18 million |
| Net income (loss) | $(5.95) million | $2.35 million |
| Operating cash flow | $(7.29) million | $(0.73) million |
| Investing cash flow | $(7.63) million | $(0.48) million |
| Financing cash flow | $15.29 million | $1.64 million |
| Cash and cash equivalents at year-end | $1.77 million | $1.40 million |
Fourth-quarter 2021 revenue was $9.19 million, up 2% year over year; the quarter recorded a net loss of $3.45 million versus net income of $1.88 million in Q4 2020. The filing reports a current ratio of 1.9, compared with 1.2 in 2020. At year-end, current assets were $11.80 million and current liabilities $6.25 million; total liabilities were $8.48 million and stockholders’ equity $16.13 million.
Interest expense increased to $0.57 million from $0.08 million. Year-end liabilities included a $2.21 million short-term borrowing due to the Devcool seller, a $1.07 million PPP loan, and $2.23 million of acquisition-related contingent consideration. The 2021 PPP loan forgiveness application was pending; the loan remained recorded as a liability. The earlier $1.51 million PPP loan was forgiven and recognized as other income in 2020.
Changes versus FY2020
- Revenue grew 13%, led by Managed Services and Support, up 25% to $19.00 million, and Platform Services, up 18% to $3.84 million. Software Services declined 4% to $12.43 million.
- Operating expenses rose materially: R&D increased 202% to $5.26 million, sales and marketing increased 96% to $4.76 million, and general and administrative expense increased 82% to $4.44 million. Management cited platform investment, sales expansion, and stock-based compensation among the drivers.
- The company moved from net income to a net loss. Higher operating expenses, increased amortization and interest, and the absence of 2020 PPP forgiveness income contributed to the change.
- Operating cash use increased to $7.29 million, while cash increased modestly, supported by financing inflows and the October 2021 IPO.
Outlook, risks, and unusual items
Management is prioritizing recurring Managed Services, Platform Services, and SaaS subscriptions, with further investment planned in product development, sales, and marketing. CloudEz, DataEz, and Readabl.AI were commercially available as SaaS offerings beginning in the first quarter of 2022. Management stated that customer acceptance and the potential material contribution of subscription revenue remain uncertain; the filing provides no numeric revenue or earnings guidance.
The December 2021 Devcool acquisition had stated consideration of $7.7 million, including $4.5 million cash, $0.7 million in company shares, and up to $2.5 million in earnouts. The financial statements report aggregate consideration of approximately $7.77 million and recognize $6.02 million of acquired intangible assets and $1.29 million of goodwill. The acquisition valuation of customer relationships was a critical audit matter.
Customer concentration remains significant: the largest customer generated 36% of FY2021 revenue and the five largest generated 66%, down from 57% and 79%, respectively, in FY2020. Other principal risks include competition, dependence on third-party cloud providers and parent-company services, cybersecurity and privacy obligations, healthcare regulation, hiring and retention, execution of acquisitions and growth, and uncertainty around SaaS adoption.
SecureKloud Technologies, Inc. owned approximately 72% of the company at year-end and has a controlling influence. The CEO also holds 6,000 super-voting preferred shares, each with 1,000 votes. The company completed its IPO in October 2021, receiving $11.80 million in net proceeds; it reported use of proceeds for the Devcool acquisition, an IP platform acquisition, note repayment, and working capital. The independent auditor issued an unqualified opinion on the financial statements; the report did not include an auditor opinion on internal control over financial reporting. Management concluded disclosure controls were effective.
Investor verification points
- Reconcile the reported operating loss, net loss, and segment results, and assess the drivers of the sharp increase in unallocated costs.
- Track operating cash burn, receivable collections, and the adequacy of $1.77 million of year-end cash against current obligations.
- Verify the status and any forgiveness of the $1.07 million PPP loan, and repayment of the $2.21 million Devcool seller note due March 2022.
- Monitor Devcool earnout conditions, acquisition integration, and the assumptions supporting acquired customer-relationship valuations and goodwill.
- Assess whether SaaS subscriptions gain customers and recurring revenue, given low Platform Services revenue and the segment’s FY2021 operating loss of $3.04 million.
- Review customer concentration, parent-company related-party arrangements, controlling ownership and voting rights, and potential dilution from equity awards and securities.