CareCloud, Inc. — Q3 2022 Form 10-Q
Business context and period. CareCloud provides cloud-based healthcare IT, revenue-cycle management and related services, plus medical practice management. This unaudited filing covers the three and nine months ended September 30, 2022; financial amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $33.7 | $38.3 | $106.3 | $102.1 |
| Operating income (loss) | $1.7 | $1.4 | $5.7 | ($0.4) |
| Net income (loss) | $1.1 | $1.5 | $4.9 | ($0.7) |
| Net loss attributable to common shareholders | ($2.8) | ($2.1) | ($6.7) | ($11.1) |
| GAAP operating margin | 5.0% | 3.7% | 5.3% | (0.4)% |
| Adjusted EBITDA (non-GAAP) | $4.8 | $6.7 | $16.6 | $16.0 |
- Q3 revenue fell 12%; nine-month revenue rose 4%. The filing attributes revenue pressure primarily to three large accounts acquired in 2020 winding down, partly offset by medSR revenue of $6.4 million in Q3 and $22.2 million year to date.
- Q3 operating income improved despite lower revenue, while net income declined. A $1.7 million Q3 reduction in estimated medSR contingent consideration benefited operating results. Common shareholders nevertheless had a loss after preferred dividends of $3.8 million for the quarter and $11.7 million year to date.
- Q3 adjusted EBITDA declined about 28% year over year; nine-month adjusted EBITDA increased about 3%. These are company-defined non-GAAP measures and exclude specified costs and adjustments.
- Cash from operations was $7.0 million in Q3 and $15.1 million for nine months, versus $5.1 million and $7.2 million, respectively, in 2021. Nine-month investing cash use was $9.1 million, including $7.0 million of capitalized software development. Financing used $11.1 million, including $11.5 million of preferred dividends and $20.0 million to redeem Series A preferred shares, partly offset by Series B issuance proceeds.
- At September 30, cash was $3.9 million, restricted cash was $1.0 million, and working capital was $5.1 million. Current assets were $29.7 million and current liabilities $24.6 million.
- No borrowings were outstanding under the $20 million Silicon Valley Bank revolving facility. Notes payable totaled about $0.6 million; operating lease liabilities totaled $5.5 million. The company reported compliance with its credit covenants.
Material changes and notable items
- CareCloud issued 1,299,216 Series B preferred shares in 2022, raising approximately $30.3 million net. It used part of the proceeds to redeem 800,000 Series A shares for $20.0 million. Series B carries an 8.75% cumulative dividend; Series A carries an 11% cumulative dividend. Dividends are payable monthly when declared.
- Revenue mix shifted: technology-enabled business solutions accounted for 64% of revenue in both the three- and nine-month 2022 periods, down from 71% and 78%, respectively, in 2021. Professional services revenue increased substantially year to date.
- Research and development expense rose to $1.2 million in Q3 from $0.5 million, while nine-month expense declined to $3.3 million from $4.3 million. The company capitalized $7.0 million of software development costs year to date, compared with $5.3 million in 2021.
- Cash and restricted cash decreased by $5.5 million during the first nine months. The balance-sheet cash decline reflects, among other items, preferred dividends, preferred-share redemption and debt repayments.
Outlook, risks and contingencies
- The filing gives no specific revenue, earnings or cash-flow guidance. Management says 2022 results may not indicate full-year results and describes the future effects of COVID-19 as uncertain; it reported no material adverse COVID-19 effect on results through September 30, 2022.
- Management identifies risks including customer retention and revenue levels, acquisition integration, healthcare regulation and privacy, technology development, offshore operations, key personnel, credit-agreement covenants, preferred dividends, competition and economic conditions. The filing discusses the ability to continue as a going concern and raise capital as forward-looking matters, but the supplied text does not provide a specific going-concern conclusion.
- An arbitration involving subsidiary MAC and Randolph Pain Relief and Wellness Center remains pending. The claimant’s latest expert estimate was $9.8 million to $10.8 million; the filing describes possible loss as $0 to $10.8 million. CareCloud says it is not a party and does not expect the outcome to materially affect consolidated financial statements.
- The company had $0.9 million of deferred payroll taxes due by December 31, 2022. Its balance sheet also included $4.0 million of dividends payable at September 30.
- Related-party arrangements include leases from the Executive Chairman; related-party rent expense was approximately $0.1 million for the first nine months of 2022. Management reported disclosure controls and procedures were effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the three large accounts winding down continue to pressure revenue, and whether medSR and professional services growth can offset that decline.
- Cash conversion and liquidity after preferred dividends, payroll-tax repayment, software investment and other financing needs; also confirm access to the SVB facility and covenant compliance.
- The sustainability and cash cost of cumulative preferred dividends, including the Series B 8.75% rate, and the effect of preferred claims on common shareholders.
- How much reported profitability depends on noncash or unusual items, particularly contingent-consideration remeasurement, and whether capitalized software spending generates expected returns.
- The outcome of the MAC arbitration and any resulting financial exposure, and progress on the company’s stated operational and integration risks.