Business context and reporting period
Healthcare Triangle, Inc. (Nasdaq: HCTI) provides cloud, data, software, and managed IT services to healthcare and life sciences organizations. This unaudited Form 10-Q covers the three months ended March 31, 2022; comparisons are with the first quarter of 2021 unless otherwise noted. Amounts below are in U.S. dollars, generally millions unless stated otherwise.
The company reports Software Services, Managed Services and Support, and Platform Services. Results include Devcool, acquired in December 2021, with financials consolidated from November 1, 2021.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue | $11.06 million | $7.95 million; up 39% |
| Gross profit and margin | $2.89 million; 26.2% | $2.18 million; 27.4% |
| Operating loss | $1.97 million | $0.72 million |
| Net loss | $2.01 million; $0.057 per share | $0.81 million; $0.028 per share |
| Operating cash flow | +$0.30 million | −$2.06 million |
| Cash and cash equivalents | $1.56 million at March 31 | $1.77 million at December 31, 2021 |
| Current assets / current liabilities | $9.69 million / $5.54 million | $11.80 million / $6.25 million at December 31, 2021 |
| Total liabilities | $7.77 million | $8.48 million at December 31, 2021 |
Gross margin declined as cost of revenue grew 41%, faster than revenue. Operating expenses rose to $4.16 million from $2.90 million, including higher sales and marketing, research and development, and depreciation and amortization. Amortization increased substantially following the Devcool acquisition. Interest expense fell to $16,000 from $95,000, primarily because convertible notes had been converted into equity.
Cash fell by $208,000 during the quarter: $302,000 provided by operations and $20,000 used in investing were more than offset by $490,000 of financing outflows, including repayment of acquisition-related borrowing. Management reported a current ratio of 1.7 and said cash and expected operating cash flows should fund requirements for the next 12 months, while noting that additional financing might be needed if cash generation or funding sources prove inadequate.
At March 31, short-term borrowing was $1.71 million and the PPP loan was $1.07 million. The company also reported $2.23 million of long-term contingent consideration and a $55,000 warrant liability. The filing says the acquisition promissory note matured April 30, 2022; it does not clearly state whether the remaining balance was settled by the filing date.
Material changes and segment performance
- Software Services revenue doubled to $5.46 million, which management attributed primarily to Devcool; segment operating result moved from $468,000 profit to a $199,000 loss.
- Managed Services and Support revenue was $4.27 million, compared with $4.23 million; segment operating profit increased to $1.25 million from $889,000.
- Platform Services revenue increased 33% to $1.33 million, while its operating loss widened to $572,000 from $268,000.
- Overall segment operating profit declined to $483,000 from $1.09 million. Unallocated costs increased to $2.46 million from $1.81 million, contributing to the larger consolidated operating loss.
- Accounts receivable decreased to $6.74 million from $9.67 million at year-end, while amounts due from affiliates rose to $1.27 million from $816,000.
Outlook, commentary, and risks
The filing gives no quantified revenue, earnings, or cash-flow guidance. Management says it is investing in research and development and sales and marketing to grow managed, platform, and subscription services. CloudEz, DataEz, and Readabl.AI became commercially available as SaaS offerings in the first quarter of 2022; the company says customer acceptance and the potential contribution of recurring subscription revenue remain uncertain.
Management identifies customer adoption, long procurement cycles, competition, scaling costs, employee and subcontractor capacity, and the ability to develop and market new solutions as important challenges. COVID-19 had not materially adversely affected results to date, but its future effects remained uncertain. The company was awaiting a lender decision on forgiveness of its $1.07 million PPP loan. It reported no material litigation outside the ordinary course, no material changes to previously disclosed risk factors, and no reportable subsequent events through May 16, 2022.
Customer concentration remains significant: the top five customers accounted for 76% of Q1 revenue, versus 83% a year earlier; one customer represented 35%. The company also relies on its parent for certain shared services and office facilities. Management concluded disclosure controls were effective as of March 31, 2022.
Key facts for investors to verify
- Whether the $1.71 million acquisition-related note due April 30, 2022 was repaid or otherwise amended, and the resulting current debt and liquidity position.
- The status and likely timing of PPP loan forgiveness, and any cash impact if forgiveness is denied.
- Devcool’s contribution to reported growth, performance against earnout targets, and the assumptions supporting the $2.23 million contingent consideration liability.
- Whether new SaaS offerings are gaining customers and producing recurring revenue, given management’s stated uncertainty about adoption and materiality.
- Customer concentration, receivable collectability, and the increase in amounts due from affiliates.
- The sustainability of operating cash generation and whether revenue growth can improve margins amid rising operating costs and ongoing investment.