CareCloud, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing also reports quarterly results, including the quarter ended December 31, 2022. Financial amounts below are in U.S. dollars; “million” is abbreviated as “m.”
Business context
CareCloud provides healthcare technology and technology-enabled services, including revenue cycle management (RCM), cloud software, professional services and medical practice management. It served approximately 40,000 providers across 2,600 practices and hospitals. Most revenue is generated in the United States, while a substantial portion of service delivery and development relies on offshore teams, primarily in Pakistan.
Key financial metrics
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $138.8m | $139.6m | Down 1% |
| Operating income | $6.6m; 4.8% margin | $3.5m; 2.5% margin | Improved |
| Net income | $5.4m | $2.8m | Improved |
| Net loss attributable to common shareholders | $(10.1)m; $(0.67) per share | $(11.2)m; $(0.77) per share | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $22.2m; 16.0% of revenue | $22.1m; 15.8% of revenue | Nearly flat |
| Adjusted operating income (non-GAAP) | $16.7m; 12.0% margin | $18.7m; 13.4% margin | Down |
| Cash provided by operations | $21.2m | $13.3m | Up $7.8m |
Preferred-stock dividends were $15.5m in 2022, exceeding GAAP net income and resulting in a net loss attributable to common shareholders. The company paid $15.3m of preferred dividends during the year.
| Quarter ended December 31 | Q4 2022 | Q4 2021 |
|---|---|---|
| Revenue | $32.5m | $37.5m |
| Operating income | $1.0m | $3.9m |
| Net income | $0.5m | $3.5m |
| Net loss attributable to common shareholders | $(3.4)m | $(0.1)m |
| Adjusted EBITDA (non-GAAP) | $5.7m | $6.1m |
Liquidity and debt: At year-end, cash was $12.3m and working capital was $12.3m. The company reported $8.0m outstanding on its SVB revolving line of credit at December 31, 2022 and said it repaid that balance in early January 2023. It reported total liabilities of $34.5m and shareholders’ equity of $101.7m at year-end. In February 2023, SVB increased the credit-line commitment to $25m and extended its term by two years. The company was in compliance with SVB covenants at year-end.
Material changes versus the prior period
- Annual revenue was nearly flat, but the mix shifted: technology-enabled business solutions revenue declined to $88.1m from $105.5m, while professional-services revenue rose to $34.0m from $19.0m.
- Two large customer accounts acquired in 2020 were winding down. Their combined revenue fell to $12.1m in 2022 from $21.5m in 2021.
- medSR contributed approximately $29.7m of 2022 revenue, compared with $15.9m in 2021, when it was owned for only part of the year.
- Operating income and GAAP net income increased as operating expenses fell 3%; direct operating costs declined, while selling and marketing expense rose 11% as the company increased growth investment.
- Operating cash flow increased, and investing cash outflow decreased to $11.8m from $23.1m, principally because the prior year included the medSR acquisition. Capitalized software costs increased to $9.2m from $7.6m.
- CareCloud raised $30.9m net from Series B preferred stock and used $20.0m to redeem 800,000 Series A shares. Series A and B carry annual dividend rates of 11% and 8.75%, respectively.
Outlook, commentary, risks and unusual items
- Outlook: No specific revenue or earnings guidance is provided. Management said its forecasts indicated sufficient liquidity to meet obligations for the twelve months following issuance of the financial statements. It expected revenue from the two winding-down accounts to be approximately $1m–$2m in 2023, versus $12.1m in 2022.
- Operating conditions: Management said patient volumes were at or near normal levels, COVID-19 had not caused significant employee terminations or furloughs, and inflation had not materially affected the business to date.
- Acquisition accounting: No earn-out was due for medSR after the earn-out period ended. The $3.1m contingent consideration liability was reversed through earnings in 2022. No goodwill impairment was recorded; the Healthcare IT goodwill valuation was identified by the auditor as a critical audit matter due to significant forecast and valuation assumptions.
- Controls: Management concluded disclosure controls and internal control over financial reporting were effective at year-end. A material weakness identified in 2021 concerning review of key inputs for non-routine transactions was reported as remediated in 2022. The auditor did not provide an internal-control attestation.
- Legal matter: An arbitrator dismissed a former client’s claims against subsidiary MAC in December 2022. The claimant could seek court review by April 5, 2023; management did not expect the matter to materially affect consolidated financial statements. The claim had sought $6.6m, and claimant’s expert had estimated damages of $9.8m–$10.8m.
- Principal risks: Dependence on offshore operations, customer retention and collections, competition and pricing, acquisition integration, healthcare regulation and privacy, cybersecurity and system reliability, foreign exchange, and compliance with lender covenants. Preferred dividends may be restricted by covenants or insufficient cash. Common-stock dividends are not anticipated.
Investor facts to verify
- Track the expected 2023 revenue decline from the two winding-down accounts and whether new business offsets it.
- Review cash generation, liquidity and compliance with SVB covenants, including the effect of the expanded credit facility and its terms.
- Assess the sustainability of preferred dividends relative to earnings and operating cash flow, and the priority of debt and other liabilities over preferred stock.
- Compare GAAP results with non-GAAP adjusted EBITDA and operating income, including the significance of exclusions such as stock compensation, amortization and contingent-consideration changes.
- Monitor Healthcare IT goodwill valuation assumptions, capitalized software spending and future amortization expense.
- Confirm the outcome of any court challenge to the arbitration decision and review continuing related-party arrangements and offshore operational risks.