CareCloud, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; balance sheet compared with December 31, 2022. CareCloud provides healthcare technology-enabled services, including revenue cycle management, cloud software, professional services, and management of three medical practices. Unless otherwise noted, financial amounts are in U.S. dollars.
Financial highlights
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $29.3 million | $33.7 million | $88.6 million | $106.3 million |
| Operating income (loss) | $(2.0) million | $1.7 million | $(3.5) million | $5.7 million |
| GAAP operating margin | (6.7%) | 5.0% | (3.9%) | 5.3% |
| Net income (loss) | $(2.7) million | $1.1 million | $(5.0) million | $4.9 million |
| Net loss attributable to common shareholders | $(6.7) million | $(2.8) million | $(16.7) million | $(6.7) million |
| Adjusted EBITDA (non-GAAP) | $3.2 million | $4.8 million | $11.3 million | $16.6 million |
| Adjusted operating margin (non-GAAP) | 1.8% | 10.1% | 5.4% | 12.0% |
Preferred dividends were $3.9 million in Q3 and $11.8 million for the first nine months, widening the loss attributable to common shareholders. Basic and diluted GAAP loss per common share was $0.42 for Q3 and $1.07 for the nine-month period.
Cash flow and liquidity: Cash from operations was $4.3 million in Q3 and $11.7 million for the first nine months, versus $7.0 million and $15.1 million in the comparable 2022 periods. Nine-month investing cash use was $9.3 million, including $6.6 million of capitalized software development and $2.7 million of property and equipment purchases. Financing used $8.4 million, including $11.7 million of preferred dividends. Cash declined $5.9 million from year-end to $6.4 million. Management reported net working capital of $5.5 million.
Debt: The SVB revolving credit line had $12.0 million outstanding at September 30, 2023, up from $8.0 million at year-end; approximately $3.3 million of borrowing base remained available. The company repaid $2.0 million in October, after which it reported an approximately $5.3 million borrowing base. The facility matures October 31, 2025; its rate was amended to prime plus 2.00% through March 31, 2024, then reverts to prior terms. CareCloud said it was in compliance with covenants. Current and long-term notes payable totaled $0.5 million; operating lease liabilities totaled $4.6 million.
Material changes and operating trends
- Revenue fell 13% in Q3 and 17% for the nine months year over year. The decline reflected lower project-based professional services and the wind-down/transition of two acquired customer accounts. Those accounts generated $0.7 million in Q3 2023 versus $3.0 million in Q3 2022; management expected about $0.3 million from them for the rest of 2023.
- Nine-month technology-enabled business solutions revenue was $57.9 million, professional services revenue $17.8 million, and medical practice management revenue $10.1 million. Digital health services revenue increased to approximately $1.2 million for the nine months from $30,000 a year earlier.
- Direct operating costs decreased 17% for the nine months, broadly tracking lower revenue. General and administrative costs fell 11%, while research and development increased 8%. Depreciation and amortization rose 18% overall, including increased amortization as internally developed software entered production.
- In Q3 2022, a $1.7 million reduction in contingent consideration benefited reported operating results; there was no corresponding benefit in 2023. The company reported no goodwill impairment after testing triggered by a sustained stock-price decline and lower market capitalization.
- At September 30, total assets were $125.9 million and shareholders’ equity was $88.2 million. Goodwill was $61.2 million and net intangible assets were $26.7 million.
Outlook, risks, and unusual items
No numerical revenue or earnings guidance is provided. Management said it was pursuing organic growth, including its CareCloud Wellness offering and professional services, while reducing noncritical spending and reviewing capital expenditures. Management stated that cash on hand, operating cash flows, and potential access to capital and the credit line should be sufficient to fund operations for the next 12 months and beyond. This assessment depends in part on the company’s ability to generate cash and obtain financing.
In October 2023, CareCloud announced a workforce reduction intended to align resources with business priorities and improve profitability; most affected employees were expected to leave in Q4 2023. The company also identifies risks involving customer retention and revenue, execution of cost reductions and growth plans, offshore operations and foreign exchange, regulatory and data-protection requirements, technology development, bank deposits above insured limits, debt covenants, and payment of preferred dividends. Further stock-price declines could trigger another goodwill valuation review.
The company sold 59,773 Series B preferred shares for approximately $1.4 million net during the nine months; no common shares were sold under its common-stock ATM. A goodwill impairment test found no impairment. Management reported no pending legal proceeding expected to have a material adverse effect; a prior arbitration decision dismissing a customer’s claims became final after no timely court challenge.
Most important facts for investors to verify
- Whether revenue declines from professional services and the two transitioned accounts stabilize, and whether new offerings produce offsetting growth.
- Whether operating cash flow remains sufficient after software investment, capital expenditures, and preferred dividends; cash was $6.4 million at quarter-end.
- Available borrowing capacity, credit-facility terms after March 31, 2024, covenant compliance, and the effect of the October repayment.
- Execution and realized savings from the October workforce reduction, alongside any effects on service delivery and growth.
- Progress toward sustained GAAP profitability, including the effect of ongoing amortization, preferred dividends, and potential future goodwill impairment.