CareCloud(CCLD) - 2020 Q2 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements (Unaudited) The company's financial position significantly changed in the first half of 2020, driven by acquisitions that doubled total assets to $125.9 million, increased liabilities to $46.5 million, and despite 30% revenue growth to $41.4 million, resulted in a $7.3 million net loss and negative $2.9 million operating cash flow Condensed Consolidated Balance Sheets As of June 30, 2020, total assets increased to $125.9 million from $56.4 million at year-end 2019, primarily due to acquisitions significantly boosting goodwill and intangible assets, while total liabilities rose to $46.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $31,000 | $31,002 | | Goodwill | $49,708 | $12,634 | | Intangible Assets, net | $31,793 | $5,977 | | Total Assets | $125,915 | $56,403 | | Total Current Liabilities | $28,289 | $11,178 | | Borrowings under line of credit | $9,750 | $0 | | Total Liabilities | $46,548 | $13,565 | | Total Shareholders' Equity | $79,367 | $42,838 | Condensed Consolidated Statements of Operations For the six months ended June 30, 2020, revenue grew 30% to $41.4 million driven by acquisitions, but operating expenses increased faster, resulting in a $7.3 million net loss, significantly wider than the prior year Financial Performance (Unaudited, in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $19,579 | $16,749 | $41,446 | $31,830 | | Operating Loss | ($4,610) | ($1,228) | ($7,447) | ($1,466) | | Net Loss | ($4,793) | ($771) | ($7,294) | ($1,067) | | Net Loss Per Share | ($0.65) | ($0.19) | ($1.07) | ($0.34) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2020, net cash used in operating activities was $2.9 million, a significant shift from the prior year, while investing activities used $27.2 million primarily for acquisitions, offset by $23.1 million from financing activities Cash Flow Summary (Unaudited, in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($2,929) | $3,313 | | Net cash used in investing activities | ($27,155) | ($2,504) | | Net cash provided by (used in) financing activities | $23,059 | ($4,258) | | Net Decrease in Cash | ($7,462) | ($3,889) | - The company paid $23.7 million in cash for acquisitions during the first six months of 2020[28] - Financing activities were primarily driven by $19.0 million in net proceeds from issuing preferred stock and drawing $19.5 million from a line of credit, offset by a $9.75 million repayment of the same line[28] Notes to Condensed Consolidated Financial Statements The notes detail the significant impact of the 2020 CareCloud and Meridian acquisitions, which involved $23.7 million cash and substantial stock, adding $37.1 million to goodwill, driving SaaS revenue growth, and shaping the company's two operating segments - The company is a healthcare IT firm offering a suite of cloud-based EHR and practice management solutions, primarily growing through acquisitions[29][30] 2020 Acquisitions Summary | Acquisition | Date | Cash Paid (net) | Stock/Warrants Issued | | :--- | :--- | :--- | :--- | | CareCloud | Jan 2020 | ~$11.9M | 760,000 Preferred Shares, 2M Warrants | | Meridian | June 2020 | ~$11.9M | 200,000 Preferred Shares, 2.25M Warrants | - Goodwill increased by $37.1 million in the first six months of 2020, with $22.9 million from the CareCloud acquisition and $14.2 million from the Meridian acquisition[44][56][65] Revenue Disaggregation (Q2 2020 vs Q2 2019, in thousands) | Revenue Source | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue cycle management | $11,365 | $11,367 | ~0% | | SaaS solutions | $3,757 | $66 | +5592% | | Practice management | $2,453 | $3,289 | -25% | | Total | $19,579 | $16,749 | +17% | - The company operates in two segments: Healthcare IT and Practice Management; for the six months ended June 30, 2020, Healthcare IT generated $36.0 million in revenue with a ($4.5 million) operating loss, while Practice Management generated $5.5 million in revenue with $81 thousand operating income[145] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 30% revenue growth to acquisitions, which also significantly increased operating expenses, while acknowledging potential COVID-19 impacts on client patient volumes and managing liquidity challenges from negative operating cash flow through a preferred stock offering - The COVID-19 pandemic did not materially adversely affect financial results for the first two quarters of 2020, but future patient visit volumes for clients remain uncertain[155][157] - The company's competitive advantage stems from leveraging its offshore workforce in Pakistan and Sri Lanka, where labor costs are approximately one-tenth of comparable U.S. costs[162][170] Adjusted EBITDA Reconciliation (in thousands) | Metric | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | | GAAP Net Loss | ($7,294) | ($1,067) | | Stock-based compensation | $3,188 | $1,550 | | Depreciation & amortization | $3,738 | $1,593 | | Transaction & integration costs | $1,100 | $939 | | Other adjustments | $226 | ($195) | | Adjusted EBITDA | $958 | $2,720 | - Revenue for the first six months of 2020 increased by $9.6 million (30%), with acquired customers contributing approximately $18.6 million of the total $41.4 million revenue[207][208] - Operating expenses for the first six months of 2020 increased significantly due to acquisitions, with Selling & Marketing up 331% and Research & Development up 847% compared to the prior year period[209][210][212] - Negative operating cash flow of $2.9 million was primarily due to paying down approximately $9.9 million in net payables assumed as part of the CareCloud and Meridian acquisitions[224] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is not required to provide disclosures regarding market risk - The company is a smaller reporting company and is not required to provide disclosures about market risk[234] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[237] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[238] Part II. Other Information Legal Proceedings The company is involved in an arbitration proceeding with Randolph Pain Relief and Wellness Center (RPRWC) seeking approximately $11 million in damages from its subsidiary, MAC, which the company intends to vigorously defend - The primary legal proceeding involves an arbitration demand from Randolph Pain Relief and Wellness Center (RPRWC) against the company's subsidiary, MAC[82] - RPRWC's claimed damages have varied, with the latest estimate being approximately $11 million plus costs; the company plans to defend vigorously against the claims[84] Risk Factors The primary risk factor is the ongoing COVID-19 pandemic, which could reduce client patient volumes, impacting 65% of revenue, challenge acquisition integration, and negatively affect liquidity and access to capital - The COVID-19 pandemic poses a significant risk, as approximately 65% of the company's revenue is directly tied to cash collected by its healthcare provider customers, which could decline due to fewer patient visits[244] - The pandemic creates challenges for the integration of the CareCloud and Meridian acquisitions, potentially delaying the realization of expected benefits[248] - The ultimate impact of the COVID-19 pandemic is highly uncertain and will depend on the spread of the virus, its severity, duration, and governmental responses[249] Unregistered Sales of Equity Securities and Use of Proceeds On June 16, 2020, the company issued 200,000 shares of Series A Preferred Stock and warrants for 2,250,000 common shares at $7.50 per share as partial consideration for the Meridian acquisition, exempt from registration under Section 4(a)(2) of the Securities Act - On June 16, 2020, the company issued 200,000 shares of Series A Preferred Stock and warrants to purchase 2,250,000 shares of common stock as partial consideration for the Meridian acquisition[251] - The issuance was an unregistered sale, exempt from registration under Section 4(a)(2) of the Securities Act as a transaction not involving a public offering[251]