Healthcare Triangle, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. Healthcare Triangle provides healthcare and life sciences technology services, including cloud, EHR, managed services, data analytics and software platforms. Most revenue came from employee- and contractor-delivered services; subscription SaaS offerings were still at an early marketing stage.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $45.9 million | $35.3 million |
| Cost of revenue | $34.6 million | $24.7 million |
| Gross profit / margin | $11.3 million / 24.6% | $10.5 million / 29.8% |
| Operating loss | $10.4 million | $5.4 million |
| Net loss | $9.6 million | $5.9 million |
| Net loss per share | $0.26 | $0.20 |
| Operating cash flow | $(2.6) million | $(7.1) million |
| Cash and cash equivalents at year-end | $1.3 million | $1.8 million |
Gross profit and margins are calculated from reported revenue less cost of revenue. Cash used in investing was $3.3 million and cash provided by financing was $5.5 million in FY2022. The company reported a current ratio of 1.3, down from 1.9. Year-end current assets were $7.7 million and current liabilities $6.1 million. Short-term borrowing was $2.4 million; long-term contingent consideration was $2.2 million. The filing reports a debt-to-equity ratio of 0.20.
Changes versus FY2021
- Revenue grew 30%, with management attributing the increase in Software Services primarily to the Devcool acquisition. Customer count rose to 53 from 48.
- Revenue mix shifted: Software Services increased to $25.9 million from $12.4 million; Managed Services and Support declined to $15.2 million from $19.0 million; Platform Services increased to $4.8 million from $3.8 million.
- Cost of revenue grew 40%, faster than revenue, and gross margin fell by about 5.2 percentage points. Operating loss widened to $10.4 million from $5.4 million.
- Net loss included $1.081 million of other income from forgiveness of the 2021 PPP loan. Interest expense declined to $0.2 million from $0.6 million, primarily because convertible notes had been converted into equity in 2021.
- Operating cash use improved year over year, but investing and financing cash flows remained negative and positive, respectively. The company raised approximately $6.5 million gross in a 2022 private placement, receiving $5.9 million net proceeds.
Outlook, risks and notable matters
- Management expects to prioritize Managed Services and Platform Services, cross-selling to existing customers and growing subscription revenue. It said it was too early to determine whether SaaS adoption would materially affect revenue growth. No quantified revenue or earnings guidance was provided.
- Management stated that cash and expected operating cash flows should fund requirements for the next 12 months, while cautioning that additional financing may be needed if cash generation or liquidity proves insufficient.
- Customer concentration is substantial: the largest customer generated 39% of FY2022 revenue and the top five generated 72% (the risk-factor discussion cites 73%). The largest-customer share was 36% in FY2021; the top-five share was 66%.
- Other key risks include competition, dependence on major cloud providers and the parent for services, cybersecurity and privacy exposure, healthcare regulation, long sales cycles, and execution of SaaS growth plans. SecureKloud Technologies, Inc. owned approximately 61.14% of the company and provides significant services under related-party agreements.
- Nasdaq had notified the company of a minimum-bid-price deficiency, with an additional compliance period through May 30, 2023. The company reported that it had regained compliance with specified board and committee independence requirements but had not regained bid-price compliance as of the filing.
- In December 2022, the board suspended founder and CEO Suresh Venkatachari following an Indian securities regulator order concerning him and the parent. The filing says Healthcare Triangle was not the subject of that investigation or order. Venkatachari later resigned from the company’s board; Roy Sookhoo was appointed COO in January 2023 and signed the filing as principal executive officer.
- The financial statement audit opinion was unqualified. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor stated it was not engaged to audit internal control effectiveness. The company changed auditors in January 2023.
Important facts for investors to verify
- Reconcile expense presentations: the MD&A table reports FY2022 sales and marketing of $6.650 million and general and administrative expense of $5.734 million, while the audited statement reports $6.808 million and $5.575 million, respectively. Total operating expenses are $21.711 million in both presentations.
- Confirm reported concentration figures: the filing gives top-five customer concentration as both 72% and 73% for FY2022; it also contains a conflicting Software Services segment revenue figure in one note. The reported segment table and consolidated revenue total indicate $25.883 million.
- Assess cash generation, short-term borrowing and the availability and terms of any further financing, given $1.3 million of year-end cash and continuing operating losses.
- Monitor the largest customer relationship, progress toward recurring SaaS revenue, Nasdaq bid-price compliance, and the effects of the management transition and parent-company control.
- Evaluate potential dilution: the 2022 private placement included shares, pre-funded warrants and preferred investment options; 41.7 million common shares were outstanding at December 31, 2022.