CareCloud, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Financial statement amounts are in thousands of dollars unless otherwise stated. CareCloud provides healthcare technology-enabled services, including revenue cycle management, cloud software, professional services, digital health and medical practice management.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $30.0 million | $35.3 million |
| Operating income (loss) | ($0.2 million); (0.7%) margin | $1.2 million; 3.4% margin |
| Net income (loss) | ($0.4 million) | $1.1 million |
| Net loss attributable to common shareholders | ($4.3 million); ($0.28) per share | ($2.9 million); ($0.19) per share |
| Adjusted EBITDA (non-GAAP) | $4.2 million | $4.7 million |
| Adjusted operating income / margin (non-GAAP) | $2.5 million / 8.4% | $3.6 million / 10.1% |
| Adjusted net income (non-GAAP) | $2.4 million | $3.5 million |
| Cash provided by operating activities | $1.0 million | $3.1 million |
| Cash used in investing activities | $3.0 million | $2.8 million |
| Cash and working capital at March 31, 2023 | $8.2 million cash; $12.3 million positive working capital | — |
At March 31, 2023, total assets were $131.0 million and total liabilities were $32.9 million. Borrowings under the revolving credit facility were $10.0 million; notes payable were about $96,000. The company reported approximately $5.5 million of unused borrowing capacity. The credit facility is secured by domestic assets and 65% of shares in offshore subsidiaries. Operating lease liabilities totaled $4.9 million and are separate from reported borrowings.
Material changes versus Q1 2022
- Revenue declined $5.3 million, or 15%. Two large accounts acquired in 2020 contributed $1.0 million in Q1 2023 versus $3.6 million in Q1 2022. Excluding those accounts, revenue declined 8.8% year over year.
- Healthcare IT revenue was $27.0 million versus $32.2 million; Medical Practice Management revenue was $3.0 million versus $3.2 million.
- Direct operating costs fell 20% to $18.1 million, but the reduction in revenue and the absence of a $600,000 contingent-consideration gain recorded in Q1 2022 contributed to the change from operating income to an operating loss.
- Operating cash flow decreased by $2.1 million. Cash fell $4.1 million during the quarter, including a $335,000 adverse foreign-exchange effect.
- Q1 2023 investing included $2.2 million of capitalized software development and $835,000 of property and equipment purchases. Preferred dividends paid were $3.9 million.
Outlook, risks and unusual items
- No formal revenue or earnings guidance is provided in the filing. Management stated that the two winding-down accounts are expected to contribute approximately $1.0 million for the remainder of 2023. Management also said the company is forecasting a return to profitability, while noting uncertainty around future taxable income.
- Management reported compliance with all credit-facility covenants at March 31, 2023. The facility was increased to $25 million and extended for two years in February 2023; borrowing availability depends on the credit agreement’s borrowing-base formula and covenants.
- Preferred dividends remain a substantial cash obligation: $3.9 million was paid in Q1, and $4.1 million was payable at quarter end. The company raised $1.4 million net by issuing Series B preferred shares through its ATM; no common shares were issued through its common-stock ATM in the quarter.
- CareCloud holds cash above FDIC insurance limits at its U.S. bank and reported $1.4 million held at banks in Pakistan and Sri Lanka, where deposits are not insured. The filing says the company had full access to its cash balances following SVB’s transition to a division of First-Citizens Bank & Trust Company.
- Key business risks include client retention and revenue concentration, integration of acquired businesses, healthcare regulation and privacy requirements, offshore operations and foreign exchange, competition, and the ability to maintain access to capital and pay preferred dividends. The filing identifies these as risks but does not provide a specific forecast of their financial impact.
- Unusual items included $269,000 of lease termination and unoccupied-space charges. CareCloud adopted the expected-credit-loss standard on January 1, 2023, recording a $186,000 increase to the allowance for doubtful accounts and a corresponding accumulated-deficit adjustment. A legal claim against a subsidiary was dismissed by arbitration, and the deadline to challenge the decision passed without an action being filed.
- Management concluded disclosure controls and procedures were effective as of March 31, 2023 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue and margins stabilize as the two large accounts wind down, and how much remaining revenue they generate during 2023.
- Actual borrowing availability under the $25 million credit facility, continued covenant compliance, and the company’s ability to refinance or repay borrowings.
- Cash needs for preferred dividends and whether future operating cash flow can support dividends, investment and debt service.
- Underlying operating trends alongside non-GAAP adjusted results, including the adjustments excluded from adjusted EBITDA and adjusted income measures.
- Progress toward management’s anticipated return to profitability, which the filing does not quantify with a timetable or financial target.
- Exposure to uninsured bank deposits, foreign exchange movements, client concentration and potential share dilution from preferred or common-stock issuance.