Healthcare Triangle, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial amounts below are in millions of dollars unless stated otherwise. The company provides healthcare and life-sciences technology, software, cloud, data, and managed services.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $11.588 | $10.050 | $22.644 | $18.003 |
| Cost of revenue, excluding D&A | $8.429 | $6.704 | $16.591 | $12.477 |
| Operating income (loss) | $(1.433) | $0.469 | $(3.407) | $(0.248) |
| Net income (loss) | $(0.405) | $0.304 | $(2.416) | $(0.511) |
| Operating cash flow | Not separately reported for the quarter | $0.602 | $(3.486) |
- Revenue grew 15% in Q2 and 26% for the first half. Software Services revenue rose 105% in both comparisons, which management attributed in part to the Devcool acquisition; the company served 44 customers versus 27 a year earlier.
- Growth was offset by declines in Managed Services and Support revenue (26% in Q2; 14% for the first half) and Platform Services revenue (28% in Q2; 4% for the first half). Management attributed the managed-services decline mainly to lower hosting revenue.
- Calculated gross margin, using revenue less cost of revenue excluding D&A, was approximately 27.3% in Q2 2022 versus 33.3% in Q2 2021; for the first half it was approximately 26.7% versus 30.7%. Cost of revenue grew faster than revenue.
- Q2 operating expenses were $4.592 million, up from $2.878 million. Sales and marketing rose 105%, general and administrative rose 38%, and D&A rose 300%, including acquisition-related amortization. Q2 operating loss included a $1.087 million gain from PPP loan forgiveness; excluding that gain and other income/expense, the company remained loss-making.
- For the first half, investing cash outflow was $2.022 million, mainly for intangible assets; financing cash inflow was $1.013 million. Cash declined $0.407 million to $1.363 million from year-end 2021. Operating cash flow improved to positive $0.602 million, which management primarily attributed to customer collections.
Balance sheet and liquidity
- At June 30, 2022, cash was $1.363 million, accounts receivable $6.547 million, current assets $8.578 million, and current liabilities $6.056 million. Working capital was approximately $2.522 million; the company reported a current ratio of 1.4.
- Short-term borrowing was $3.212 million, versus $2.209 million at year-end 2021. The borrowing is under a receivables-backed Seacoast facility at a floating rate of prime plus 1%. Long-term contingent consideration was $2.227 million. The PPP loan was forgiven during Q2, generating the reported other income.
- Total liabilities were $8.283 million and stockholders’ equity was $14.106 million. Management said cash, operating cash flows, and available credit were expected to meet needs for at least 12 months, while cautioning that additional financing may be needed if liquidity or cash generation proves insufficient.
Material changes, outlook, and risks
- Devcool was acquired in December 2021 and consolidated from November 1, 2021, limiting comparability with the prior-year period. The acquisition contributed to higher Software Services revenue and increased amortization.
- The company is marketing CloudEz, DataEz, and Readabl.AI as SaaS offerings, commercially available from Q1 2022. Management described the offerings as early-stage and said customer acceptance and their eventual contribution to recurring revenue remain uncertain. Its strategy is to expand recurring Managed Services, Platform Services, and subscription revenue; no quantified revenue or earnings guidance was provided.
- Customer concentration remains material: the top five customers generated 73% of Q2 revenue, and the largest customer generated 39%. The top five also accounted for approximately 67% of receivables. Management reported no allowance for doubtful accounts.
- Other identified risks include competition, long customer procurement cycles, execution and scaling needs, cybersecurity and privacy incidents, dependence on key personnel and partners, floating interest rates, and uncertainty around customer spending and SaaS adoption. COVID-19 had not materially adversely affected results to date, but future effects remained uncertain. The company reported no material change to previously disclosed risk factors.
- After quarter-end, the company completed a private placement with approximately $6.5 million gross and $5.888 million net proceeds, alongside common shares, pre-funded warrants, and preferred investment options that could result in substantial dilution. It also began a previously announced $2 million share repurchase program and reported several purchases in July 2022.
- The filing reported no material legal proceedings and stated that disclosure controls and procedures were effective as of June 30, 2022. It noted related-party arrangements with its parent, including shared services and office subleasing; $1.350 million was due from affiliates at quarter-end.
Important facts for investors to verify
- Whether revenue growth from the Devcool acquisition is sustainable and how much is organic versus acquired.
- Whether margin pressure, operating losses, and customer concentration improve or worsen in subsequent filings.
- Availability, cost, and terms of the receivables-backed credit facility, and the company’s ability to sustain positive operating cash flow.
- The potential dilution and actual proceeds associated with the July financing instruments, and the size and execution of the share repurchase program.
- Customer adoption and recurring revenue contribution from the SaaS offerings, which the filing does not quantify.