CareCloud, Inc. — Q3 2021 Form 10-Q
Business context and period. CareCloud provides cloud-based healthcare software and services, including revenue cycle management, practice management, electronic health records and professional services. This unaudited report covers the quarter and nine months ended September 30, 2021. Unless noted otherwise, amounts below are in millions of dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $38.3 | $31.6 | $102.1 | $73.1 |
| Operating income (loss) | $1.4 | ($1.2) | ($0.4) | ($8.7) |
| Net income (loss) | $1.5 | ($1.7) | ($0.7) | ($9.0) |
| Net loss attributable to common shareholders | ($2.1) | ($5.9) | ($11.1) | ($19.1) |
| Basic and diluted loss per common share | ($0.15) | ($0.46) | ($0.77) | ($1.53) |
| Adjusted EBITDA (non-GAAP) | $6.7 | $4.2 | $16.0 | $5.2 |
| Adjusted operating margin (non-GAAP) | 15.4% | 11.5% | 13.2% | 5.3% |
Revenue increased 21% year over year in Q3 and 40% for the nine-month period. Management attributed much of the increase to acquisitions, including medSR, Meridian and CareCloud Health (CCH); acquired-customer revenue was approximately $24.5 million in Q3 and $63.1 million for the nine months. Q3 GAAP net income did not translate into income for common shareholders because of $3.6 million of preferred dividends. For the nine months, preferred dividends were $10.4 million.
Q3 revenue mix included $27.1 million from technology-enabled business solutions, $6.9 million from professional services and $3.6 million from medical practice management. Higher direct operating costs reflected acquisition-related salary and processing costs. Selling and marketing expense rose 51% in Q3, while research and development expense fell as more development spending was capitalized.
Cash flow, liquidity and debt
- Operating cash flow: $7.2 million provided during the first nine months of 2021, compared with $4.3 million used in the comparable 2020 period. Q3 operating cash flow was $5.1 million.
- Investing cash flow: $19.9 million used in the first nine months, including $12.6 million for acquisitions, $5.3 million of capitalized software and $2.0 million of property and equipment.
- Financing cash flow: $1.3 million provided for the nine months. The company paid $10.8 million of preferred dividends and received proceeds from warrant exercises, common-stock sales and its credit line.
- Cash and working capital: At September 30, cash was $8.3 million, plus $1.0 million restricted cash; working capital was $9.9 million. Current assets were $36.4 million and current liabilities were $26.5 million.
- Debt and obligations: The SVB revolving facility was expanded from $10 million to $20 million and extended through October 2023. $6.0 million was drawn at quarter-end and repaid in October 2021. The facility carries interest at prime plus 1.50%, with a 6.5% minimum. The balance sheet also showed $0.6 million of current notes payable, $6.5 million of contingent acquisition consideration, and $1.9 million of deferred payroll taxes.
Material changes, outlook and risks
- The June 2021 medSR acquisition had preliminary total consideration of $20.3 million, including $6.5 million of estimated contingent consideration. The agreement permits earn-outs of up to $13 million, subject to revenue and EBITDA targets over 18 months. The purchase-price allocation remained preliminary.
- Management provided no numerical revenue or earnings guidance in the supplied filing text. It said it was forecasting a return to profitability, while noting historical cumulative losses and maintaining a valuation allowance against deferred tax assets.
- Management said COVID-19 had not materially adversely affected results for the nine months, but its future effects remained uncertain. The company also cited acquisition integration, client retention, regulatory compliance, data privacy, offshore operations, competition, key-person dependence, SVB covenant compliance and preferred-dividend payments as risks.
- CareCloud paid approximately $4.2 million to resolve a civil investigation involving a business acquired in 2020; $4.0 million was funded through cancellation of escrowed preferred shares. A separate arbitration against subsidiary MAC involves claimed damages described as ranging from $6.6 million to $20 million; the company said the amount was unclear and anticipated any award would be substantially below the amount claimed.
- Other notable items included $1.7 million of lease termination, impairment and unoccupied-space charges for the nine months, and a $1.6 million cash receipt made in error during Q3 that was repaid in October. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much of revenue growth and adjusted profitability is organic versus acquisition-related, and whether acquisition integration produces durable margins.
- Whether operating cash generation remains sufficient after acquisition spending, software investment and recurring preferred dividends.
- The final medSR purchase-price allocation and potential earn-out payments, alongside compliance with SVB covenants and available borrowing capacity.
- Progress in resolving the MAC arbitration and any other material legal or contingent exposures.
- Share dilution, preferred-stock dividend obligations and the distinction between GAAP losses attributable to common shareholders and non-GAAP adjusted results.