CareCloud, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 14, 2024. CareCloud provides healthcare revenue-cycle management, cloud software and related services, professional services, and medical-practice management. Its reportable segments are Healthcare IT and Medical Practice Management. Financial amounts below are in U.S. dollars; dollar figures are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Revenue | $25.962 | $30.001; down 13% |
| Operating income (loss) | $0.129; 0.5% operating margin | $(0.223); (0.7%) margin |
| Net loss | $(0.241) | $(0.401) |
| Net loss attributable to common shareholders / diluted loss per share | $(0.246) / $(0.02) | $(4.332) / $(0.28), including $3.931 in preferred dividends |
| Adjusted EBITDA (non-GAAP) | $3.687 | $4.237 |
| Adjusted operating income and margin (non-GAAP) | $0.595 / 2.3% | $2.513 / 8.4% |
| Cash from operating activities | $4.066 | $1.023 |
| Cash, March 31 | $4.138 | $3.331 at December 31, 2023 |
| Working capital | $0.474 positive | $0.057 negative at December 31, 2023 |
| Borrowings under revolving credit line | $9.000 | $10.000 at December 31, 2023 |
Operating cash flow less purchases of property and equipment and capitalized software was approximately $2.198 million. Cash increased $0.807 million during the quarter after investing outflows of $1.868 million, financing outflows of $1.374 million, and a $0.017 million adverse foreign-exchange effect. Total current assets were $24.276 million and current liabilities were $23.802 million. Total liabilities were $35.465 million and shareholders’ equity was $41.420 million.
Material changes and drivers
- Revenue fell $4.039 million. Healthcare IT revenue was $22.721 million versus $26.954 million; Medical Practice Management revenue increased to $3.241 million from $3.047 million.
- Professional services revenue declined $2.138 million, reflecting lower project-based work. Two customers transitioning to their acquirers’ systems contributed about $0.8 million of the year-over-year decline; revenue from them is expected to be about $0.09 million for the rest of 2024.
- Cost reductions lowered direct operating costs 16% to $15.177 million, selling and marketing 32% to $1.770 million, and general and administrative expense 27% to $3.721 million. Management cited lower headcount and reduced spending.
- Depreciation and amortization rose 29% to $3.930 million, including amortization expense up 35% to $3.427 million, largely as additional internally developed software entered production. Consequently, operating expenses fell 15%, but adjusted EBITDA and adjusted operating margin also declined.
- Interest expense increased to $0.365 million from $0.150 million, primarily due to greater use of the credit line and higher rates. The line carried interest at prime plus 2.0% during the quarter; the rate reverted to prime plus 1.5% on April 1. CareCloud repaid $1 million on the line during Q1 and another $1 million in April. The unused borrowing base was approximately $3.6 million at quarter-end.
- Q1 net loss was lower than in 2023, but the common-share loss comparison also reflects preferred dividends of $3.931 million in Q1 2023 versus $0.005 million in Q1 2024.
Outlook, risks, contingencies, and unusual items
- Liquidity and going concern: The company reported that its 2023 losses, cash decline, and working-capital deficit had raised substantial doubt about its ability to continue as a going concern. Management says cost-control plans alleviate that doubt and forecasts sufficient liquidity for at least 12 months from issuance, while acknowledging there is no guarantee. The filing also says additional liquidity may be needed absent further action.
- Cost plan: Management expects approximately $20 million in annualized savings from reductions and attrition, including approximately $14 million to be realized in 2024. A restructuring plan is expected to be completed by year-end 2024; $0.322 million of restructuring expense was recorded in Q1.
- Preferred dividends: Cash dividends on Series A and Series B preferred stock were suspended beginning in December 2023, saving approximately $1.3 million monthly. Dividends continue to accrue while suspended. The filing reports $5.438 million of previously declared dividends payable at March 31 and approximately $1.3 million of undeclared accrued dividends not recorded as a balance-sheet liability. It separately reports approximately $3.2 million of dividends in arrears as of the filing date; investors should verify the timing and reconciliation of these amounts. Resumption of dividends is uncertain.
- Credit facility: The $25 million secured revolving facility matures October 31, 2025. CareCloud reported compliance with all covenants at March 31; covenants include minimum adjusted EBITDA and liquidity requirements. The facility is secured by domestic assets and 65% of shares in offshore subsidiaries.
- Change Healthcare incident: CareCloud relies on Change Healthcare for claims submissions. It reported no identified compromise of its own systems and no material Q1 financial impact, but experienced disruption, used alternative platforms, and continued processing accumulated claims. Management expected some cash-flow effects to be recognized later in 2024.
- Goodwill: A $42.0 million Healthcare IT goodwill impairment was recorded in Q4 2023; no additional impairment was identified in Q1. Management cautions that further share-price declines could trigger another valuation review.
- Legal matters: CareCloud paid its approximately $0.032 million share of a Ramapo arbitration award in Q1. In a separate former-customer dispute, the company offered $0.200 million in April 2024, which the plaintiff indicated willingness to accept; final documentation was still being completed.
- Other principal risks include client retention and revenue trends, integration and execution of cost reductions, offshore operating conditions, healthcare regulation, cybersecurity and patient-data protection, competition, and maintaining debt-covenant compliance.
Most important facts for investors to verify
- Whether revenue declines, particularly in professional services and Healthcare IT, stabilize or continue, and how much of expected 2024 revenue depends on remaining customer transitions.
- Whether cost savings are realized as forecast and translate into sustained positive operating cash flow and covenant compliance.
- Cash availability, future credit-line borrowing capacity, debt costs, and the timing of any further repayments.
- The current status and reconciliation of declared preferred dividends payable versus cumulative dividends accrued but undeclared, and the Board’s plans for reinstatement.
- The effect of the Change Healthcare disruption on claim backlogs, collections, and cash flows later in 2024.
- Final resolution and financial exposure in the former-customer legal matter, and any indicators requiring another goodwill impairment test.