By Michael Kim

NASDAQ:CCLD

READ THE FULL CCLD RESEARCH REPORT

Pre-market open on 3/13/25, CareCloud (NASDAQ:CCLD) reported 4Q24 earnings results. For the quarter, CCLD reported GAAP net income of $3.3 million – the company’s third consecutive positive net income quarter, and a reversal from a net loss of $43.7 million for the year-ago quarter (skewed by a $42 million goodwill impairment charge). After taking into consideration preferred stock dividends, the company reported net income attributable to common shareholders of essentially breakeven, or $0.00 per share, for 4Q24 compared to a net loss of $47.6 million, or ($3.00) per share, for 4Q23. Looking through the impairment charge, much of the year-over-year improvement can be attributed to lower operating expenses across-the-board.

Excluding stock-based compensation expense, amortization of purchased intangible assets, other (income)/expense, transaction and integration costs, as well as preferred stock dividends, Adjusted EPS totaled $0.23, a couple of pennies ahead of our $0.21 EPS estimate. Relative to our model, the EPS beat was mostly a function of more favorable revenues and lower shares outstanding.

On a GAAP basis, our model calls net income attributable to common shareholders of $0.13 per share for 2025 (at the high end of management’s $0.10 to $0.13 guidance range) followed by $0.25 per share in 2026. Excluding stock-based compensation expense, amortization of purchased intangible assets, other (income)/expense, integration costs, transaction costs, goodwill impairment charges, changes in contingent considerations, and related tax impacts, as well as preferred stock dividends, we forecast Adjusted EPS of $0.33 for 2025 compared to our prior estimate of $0.94. Our lower EPS estimate primarily reflects a step up in the share count given the recent conversion of Series A Preferred Stock into common stock resulting in an incremental ~26 million shares. Importantly, our Adjusted Net Income, and Adjusted EBITDA estimates remain unimpacted by the conversion of Series A Preferred Stock. On a GAAP basis, the conversion is modestly accretive to Net Income/(Loss) Attributable to Common Shareholders reflecting lower dividend payments (~$7.7 million on an annual basis). Looking ahead, we are introducing a 2026 adjusted EPS estimate of $0.41 representing 23% year-over-year growth.

Turning to valuation, we are lowering our price target from $7.00 to $5.00 to account for the conversion of Series A Preferred Stock into common stock. That said, we still see outsized upside potential for CCLD, as awareness and appreciation of the company’s unique business model, durable competitive advantages, and reaccelerating growth prospects increasingly take hold. Furthermore, despite what we believe to be conservative inputs/assumptions, our DCF model suggests a wide disconnect between CCLD’s fundamentals and the stock’s current price. Finally, comparable Healthcare Information Services small cap stocks continue to trade at meaningfully higher Price-to-Earnings multiples across the board. While we recognize most peer companies are meaningfully larger, with considerable infrastructure, resource, and financial advantages, CCLD maintains a sizeable advantage in terms of projected growth, thereby justifying a comparable P/E multiple, in our minds.

We highlight the following key takeaways from 4Q24 results:

1. Pivoting to growth: The midpoint of management’s updated revenue guidance range for 2025 translates into a modest 1.5% growth rate for the year, with much of the step up likely coming in the back half of the year, we believe. That said, we look for a steeper/more sustainable growth curve looking out to 2026 and beyond reflecting several powerful drivers. First, CCLD’s comprehensive suite of fully integrated RCM, EHR, and practice management services remains a key differentiating factor versus more limited service providers lacking proprietary technology. Second, management continues to launch targeted marketing initiatives centered on raising brand awareness, expanding the company’s client footprint, and increasingly cross-selling to existing clients. Third, senior executives remain focused on broadening the company’s services capabilities, innovative technologies, and market footprints to more fully address customer needs. Finally, recent efforts to more fully leverage existing relationships with third parties for sales/promotional support, as well as to provide access to complementary products and services via the company’s building ecosystem of partners likely further strengthens engagements with existing clients.

From an industry perspective, we look for sustainable growth reflecting: a) stepped-up outsourcing of RCM services to improve collection rates, streamline operations, and reduce escalating expenses related to progressively more complex billing/payments/reimbursement models; b) shifting demographics, as Federal health insurance programs including Medicaid and Medicare – that typically pay out lower reimbursement rates relative to private insurance plans – are becoming more prevalent; and c) regulatory reform, with healthcare services providers often facilitating compliance with ongoing changes.

2. Accelerating capital management: Cash on the balance sheet totaled $5.1 million as of December 31, 2024, up from $3.3 million at the end of 2023, even as senior officials leveraged building free cash flow to fully pay down the outstanding balance on the company’s line of credit last year. Indeed, free cash flow (net cash provided by operating activities less cash used for purchases of property and equipment and cash used to develop capitalized software and other intangible assets) totaled $3.0 million in 4Q24, up more than 2x from $1.4 million in 4Q23. For the full year, CCLD generated $13.2 million of free cash flow compared to $3.8 million for 2023 driven by rising operating cash flow ($20.6 million, up from $15.5 million for the prior year) combined with lower purchases of equipment and capitalized software outlays.

Looking ahead, the Board recently approved the early resumption of preferred stock dividend payments and declared dividends for January and February. Prior plans targeted March for the reinstatement following the suspension of dividend payments in December 2023 across Series A and Series B Preferred Stock. Stepping back, capital allocation priorities likely remain reinvesting in the business to accelerate growth and increasingly capitalizing on M&A opportunities.

3. Reigniting the M&A engine: Earlier this month, CCLD announced the acquisition of MesaBilling, the first M&A transaction since 2021. While related accretion is likely to be modest, the acquisition seemingly heralds the start of a renewed wave of deal flow for the company that should meaningfully enhance growth prospects over time. Indeed, CCLD posted a revenue CAGR of 30%+ from 2012 to 2022 – a period of robust/sustained M&A activity. From a financing perspective, the MesaBilling transaction likely followed CCLD’s well established playbook involving a small upfront payment (10% to 20% of TTM revenue), with the balance paid over multiple years based on a percentage of run-rate revenue. Beyond acquiring incremental customers via acquisition, management typically extracts sizeable efficiencies by leveraging CareCloud’s proprietary technology and offshore infrastructure, with ~50% of related cost savings usually realized in the first 90 days following closing.

Looking ahead, CCLD shareholders overwhelmingly approved upsizing the company’s share authorization by 50 million shares earlier this year. Furthermore, the Board recently announced the conversion of Series A Preferred Stock to common stock effective March 6, 2025. As result, CCLD’s common stock share count increases by approximately 26 million shares, while annual dividend payments decline by ~$7.7 million, with the savings earmarked for reinvestments for growth, namely M&A, we believe.

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