CareCloud, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Amounts are in U.S. dollars unless noted. CareCloud provides healthcare information technology, revenue-cycle management, software-as-a-service and medical practice management services.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $29.8 million | $21.9 million; up 36% |
| Operating loss / margin | $1.7 million / (5.6%) | $2.8 million / (13.0%) |
| Net loss | $2.0 million | $2.5 million |
| Net loss attributable to common shareholders; diluted loss per share | $5.1 million; $0.36 | $5.1 million; $0.42 |
| Adjusted EBITDA (non-GAAP) | $3.7 million | $0.8 million |
| Operating cash flow | $1.0 million provided | $3.9 million used |
| Cash and working capital at March 31 | $21.0 million cash; $17.9 million working capital | Cash was $20.9 million at December 31, 2020 |
Revenue growth primarily reflected the 2020 acquisitions of CareCloud Health and Meridian: management attributed approximately $17.2 million of Q1 2021 revenue to customers from those acquisitions. Healthcare IT revenue was $27.0 million, versus $18.8 million; Practice Management revenue was $2.7 million, versus $3.0 million.
Operating expenses rose 27% to $31.4 million. Direct operating costs increased 33% to $18.1 million, while depreciation and amortization increased to $2.8 million from $1.3 million, mainly due to acquired assets. Impairment and unoccupied lease charges were $1.0 million versus $0.3 million. The GAAP operating margin improved, while adjusted operating income (non-GAAP) increased to $3.0 million from $0.4 million. Adjusted measures exclude items including stock compensation, acquired-intangible amortization, integration costs, and impairment or lease charges.
Cash increased by $0.1 million during the quarter. Investing used $2.2 million, including $1.5 million of capitalized software development; financing provided $1.2 million, including $6.4 million of warrant-exercise proceeds, partly offset by $3.6 million of preferred dividends and $1.4 million in employee tax-withholding payments.
Total liabilities were $33.9 million. Notes payable totaled approximately $0.2 million; no borrowings were outstanding on the $10 million Silicon Valley Bank revolving facility. Operating lease liabilities totaled $9.5 million. The company reported compliance with its SVB covenants. Preferred dividends of $3.1 million were charged to equity in the quarter; $3.8 million was payable at quarter-end.
Changes versus the prior comparable period
- Revenue rose $7.9 million, but acquisition-related revenue was a significant contributor; the filing does not separately quantify comparable organic growth.
- GAAP operating loss narrowed by $1.2 million, and net loss narrowed by $0.5 million. Loss attributable to common shareholders remained approximately $5.1 million, with per-share loss improving from $0.42 to $0.36.
- Operating cash flow improved by $4.8 million, from cash used to cash provided. Cash was broadly stable in Q1 2021, compared with an $11.6 million decrease in Q1 2020.
- Common shares issued increased during the quarter, including 858,000 shares from warrant exercises; the company received $6.4 million in proceeds.
Outlook, commentary and risks
- No specific quarterly or annual revenue or earnings guidance is provided. Management stated it was forecasting a return to profitability, but cautioned that Q1 results are not necessarily indicative of full-year results.
- Management said COVID-19 did not materially adversely affect consolidated Q1 results. However, roughly 65% of revenue is tied to collections by healthcare-provider customers, leaving revenue exposed to patient visits, customer collections and the pandemic’s broader effects. The outlook remains uncertain.
- Integration of CareCloud Health and Meridian, client retention and migration, regulatory compliance, data privacy, offshore operations, competition, and the ability to meet debt covenants and pay preferred dividends are among the cited risks.
- A civil investigation concerning an acquired business was settled in April 2021, substantially within the escrowed funds. The company had accrued approximately $4.2 million, with up to $4.0 million covered by escrow; the settlement is a subsequent event.
- In a separate arbitration matter, Randolph Pain Relief and Wellness Center’s stated damages varied, including a $20 million disclosure and a later estimate of approximately $11 million plus costs. CareCloud was held not to be compelled to arbitrate; the matter continues against subsidiary MAC. Management said claimed damages were speculative and intends to defend MAC.
- Management concluded disclosure controls and procedures were effective as of March 31, 2021; no material quarterly change in internal control over financial reporting was reported.
Important facts for investors to verify
- How much of reported revenue growth is sustainable and organic, given the substantial contribution from the 2020 acquisitions.
- Whether operating cash generation can continue after preferred dividends, software investment and other cash requirements.
- The timing and cash or equity impact of preferred dividends, outstanding dividend payable and potential future dilution.
- The final resolution and accounting for the acquired-business civil investigation, and the outcome and potential exposure in the MAC arbitration.
- Progress on acquisition integration, customer retention and migration, and the effects of COVID-19 on provider collections and demand.