CareCloud(CCLD) - 2023 Q3 - Quarterly Report

Forward-Looking Statements This section outlines forward-looking statements and associated risks, cautioning that actual results may differ due to factors like growth management, client retention, regulatory compliance, and competition, with no duty to update - The report identifies several key risks and uncertainties that could impact future performance, including the ability to manage growth and integrate acquired businesses, compliance with regulations, effective application of artificial intelligence, retention of key officers and employees, ability to pay preferred stock dividends, and competition from companies with greater resources[7][8][21] - The company explicitly states it does not guarantee future results and is under no obligation to update forward-looking statements, advising readers not to rely on them as representations of assessments at any date subsequent to the report's filing[23][24] PART I. FINANCIAL INFORMATION Consolidated Financial Statements (Unaudited) This section presents CareCloud, Inc.'s unaudited consolidated financial statements, including Balance Sheets, Statements of Operations, and Cash Flows, for the periods ended September 30, 2023 Consolidated Balance Sheets The Consolidated Balance Sheets show a decrease in total assets and shareholders' equity, with total assets declining from $136.2 million to $125.9 million and liabilities increasing Consolidated Balance Sheet Highlights ($ in thousands) | Balance Sheet Item | September 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $125,921 | $136,174 | | Total current assets | $27,491 | $34,653 | | Goodwill | $61,186 | $61,186 | | Total Liabilities | $37,769 | $34,485 | | Total current liabilities | $21,942 | $22,398 | | Total Shareholders' Equity | $88,152 | $101,689 | Consolidated Statements of Operations The company reported a net loss for Q3 and the first nine months of 2023, a significant shift from prior year net income, with decreased net revenue and widened net loss per common share Statement of Operations Highlights ($ in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $29,280 | $33,723 | $88,643 | $106,292 | | Operating (Loss) Income | $(1,970) | $1,688 | $(3,482) | $5,658 | | Net (Loss) Income | $(2,749) | $1,056 | $(4,982) | $4,933 | | Net Loss Attributable to Common Shareholders | $(6,665) | $(2,793) | $(16,739) | $(6,729) | | Net loss per common share | $(0.42) | $(0.18) | $(1.07) | $(0.45) | Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $11.7 million for the nine months ended September 30, 2023, resulting in a net decrease in cash of $5.9 million Cash Flow Summary for Nine Months Ended September 30 ($ in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,721 | $15,103 | | Net cash used in investing activities | $(9,322) | $(9,123) | | Net cash used in financing activities | $(8,406) | $(11,144) | | Net Decrease in Cash | $(5,893) | $(5,473) | Notes to Consolidated Financial Statements These notes detail accounting policies and financial statement items, covering revenue recognition, goodwill, debt, and segment reporting, noting a goodwill impairment test found no impairment - A goodwill impairment test was performed as of August 31, 2023, due to a sustained decrease in the company's stock price. Management concluded that goodwill was not impaired[38][64] - As of September 30, 2023, the company had $12 million in borrowings under its revolving line of credit with Silicon Valley Bank (a division of First-Citizens Bank & Trust Company). The remaining borrowing base was approximately $3.3 million[44] Disaggregation of Revenue ($ in thousands) | Revenue Source | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Technology-enabled business solutions | $18,763 | $21,626 | $57,878 | $68,457 | | Professional services | $5,691 | $7,434 | $17,755 | $25,572 | | Medical practice management services | $3,688 | $3,759 | $10,112 | $10,146 | | Total | $29,280 | $33,723 | $88,643 | $106,292 | - The company operates and reports in two segments: Healthcare IT and Medical Practice Management. For the nine months ended September 30, 2023, the Healthcare IT segment generated $78.5 million in revenue and $2.6 million in operating income, while the Medical Practice Management segment generated $10.1 million in revenue and $0.6 million in operating income[139][140][162] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 17% revenue decrease for the first nine months of 2023, driven by service declines and client losses, providing non-GAAP reconciliations and affirming liquidity for the next 12 months Key Performance Measures and Non-GAAP Reconciliations This section introduces non-GAAP measures like Adjusted EBITDA and Adjusted Net Income, showing a decrease in both for the nine-month period, reflecting management's performance evaluation Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA ($ in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | GAAP net (loss) income | $(2,749) | $1,056 | $(4,982) | $4,933 | | Adjusted EBITDA | $3,245 | $4,817 | $11,301 | $16,564 | Reconciliation of GAAP Net (Loss) Income to Non-GAAP Adjusted Net Income ($ in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | GAAP net (loss) income | $(2,749) | $1,056 | $(4,982) | $4,933 | | Non-GAAP adjusted net income | $203 | $3,333 | $3,966 | $12,398 | Results of Operations This section details operating results, showing net revenue decreased by 13% in Q3 and 17% for the nine-month period, driven by service declines and client losses, while operating and G&A costs also decreased - Net revenue decreased by $17.6 million (17%) for the nine months ended Sep 30, 2023, compared to the prior year, primarily due to a $7.8 million decrease in project-based professional services and an approximate $8.0 million decline in revenue from two large clients whose services were winding down[192][218] - Direct operating costs for the nine months ended Sep 30, 2023, decreased by $11.0 million (17%) year-over-year, mainly due to a $7.4 million decrease in salary costs resulting from a favorable Pakistan exchange rate and lower U.S. headcount[219][242] - General and administrative expenses for the nine months ended Sep 30, 2023, decreased by $2.0 million (11%) year-over-year, driven by lower salary costs, reduced computer expenses, and a decrease in community project contributions in Pakistan[220] Liquidity and Capital Resources As of September 30, 2023, the company had $6.4 million in cash and $5.5 million in net working capital, with management focused on revenue growth and cost reduction, affirming sufficient liquidity for the next 12 months - The company had total cash of $6.4 million and net working capital of $5.5 million as of September 30, 2023[249] - Management is pursuing strategies to increase revenue through organic growth and new offerings, while concurrently reducing expenses and capital expenditures in non-critical areas[225] - The company has access to additional funding through its credit line and active at-the-market (ATM) facilities for its common and Series B preferred stock, supporting the belief that it can fund operations for at least the next 12 months[250] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, CareCloud is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, CareCloud is not required to provide quantitative and qualitative disclosures about market risk[257] Controls and Procedures As of September 30, 2023, the CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[259] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[279] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business, financial position, or cash flows[79][233] Risk Factors This section refers to the Annual Report on Form 10-K for detailed risk factors and highlights the risk of holding cash balances exceeding federally insured limits - The report refers investors to the 'Risk Factors' section of its Annual Report on Form 10-K for a comprehensive discussion of risks[234] - A specific risk is noted regarding the company maintaining cash balances at financial institutions, including SVB, in excess of federally insured limits[266] Other Part II Items This section addresses other required disclosures, noting several items as 'Not applicable' and listing the certifications and XBRL data files filed as exhibits - Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), and Item 4 (Mine Safety Disclosures) are not applicable to the company for this reporting period[262][267][236] - Item 6 lists the exhibits filed with the 10-Q, including CEO and CFO certifications and Inline XBRL documents[263][268]