CareCloud, Inc. Q2 FY2026 earnings call

• Recent Acquisitions
  • The MedSphere acquisition closed prior to 2026 H1, and management reports it has performed to expectations. Significant first half 2026 resources were allocated to remediate pre-existing MedSphere tech debt, integrate the business, and align the MedSphere platform with the company's AI-powered ambulatory platform architecture, with the majority of integration work completed in H1 2026.
  • The Empower Healthcare and Compliance Partners acquisition closed in mid-May 2026, with minimal impact on Q2 2026 revenue and adjusted EBITDA. Empower brings healthcare compliance and defense services, which management plans to convert to a scalable SaaS offering augmented by existing Empower professional staff to enable cross-selling. Empower founder Mitch Brie has already referred business representing ~10% of the company's annualized revenue prior to the acquisition, and the acquisition structure uses a 30% down payment at closing with remaining earn-out tied to cross-selling growth targets.
• AI Product Development
  • The company continues to see strong demand for Stratus AI front desk and other AI products, with new deals being signed consistently. The company currently includes AI revenue in broader technology-enabled services revenue, and will disclose separate AI revenue once it reaches scalable size. AI initiatives follow three tracks: internal efficiency improvements, customer-facing AI applications, and supporting enterprise AI partnership opportunities.
• Sales Force Expansion
  • The company has significantly expanded its sales force, primarily focused on cross-selling to existing customers to expand wallet share. Most new sales team members joined through the MedSphere acquisition, and they are already fully up to speed on company solutions and cross-selling positioning.
• Cross-selling Progress
  • Cross-selling initiatives for the recently closed Empower acquisition are already underway, with no new signings recorded as of the call (only two months post-close). For MedSphere, management notes meaningful cross-selling traction with acquired hospital customers but states the company is still in the early innings of tapping full cross-selling potential.
• Cyber Incident Response
  • A limited cyber breach impacting a single CareCloud environment occurred on March 16, 2026. The system was fully restored and the threat actor removed the same day, and third-party forensic analysis has confirmed no ongoing threat. The company is currently sending notifications to impacted patients, and all costs are expected to be covered by existing insurance coverage.

No absolute or percentage-based financial performance data for individual product segments is provided in the transcript.

Management reaffirms its full-year 2026 guidance, and expects a material sequential improvement in financial performance in H2 2026 relative to H1 2026. To hit full-year targets, the company needs to grow revenue from ~$32 million in Q2 2026 to $33-$34 million per quarter in the remaining two quarters of 2026, and management states this target is achievable. Key drivers of the H2 2026 improvement include: 1) normal industry seasonality; 2) completion of the majority of MedSphere integration and tech debt remediation work, reducing near-term costs and positioning the business for growth; 3) declining intangible asset amortization from acquisitions due to the company's accelerated declining-balance amortization schedule; 4) growing revenue from cross-selling to existing customer bases of both acquired businesses and organic customer relationships.

• Cyber security risk: A limited security breach occurred in Q1 2026, though management states it is well contained, has no material impact on operations or financials, and all related costs are expected to be covered by insurance.
• Acquisition integration risk: Uncertainty around the timeline and financial impact of remaining MedSphere tech debt remediation and post-acquisition integration work.
• New business opportunity risk: Early-stage discussions with private equity groups focused on healthcare do not guarantee new client or partnership wins.
• Cross-selling execution risk: Realizing the full expected revenue benefits of cross-selling after the MedSphere and Empower acquisitions depends on successful execution of sales and product integration plans.

Q: What key factors will drive a financially stronger second half of 2026 compared to the first half? / A: Management cites natural industry seasonality as one factor, with additional growth coming from expanded existing customer relationships and ongoing Empower cross-selling. They note the $33-$34 million per quarter revenue target needed to hit full-year guidance is achievable. Most MedSphere integration and tech debt remediation work was completed in H1, so H1 profitability was pressured by these one-time efforts, with profitability improvements expected in H2. Declining accelerated amortization for acquisition intangibles will also improve H2 results. (567 chars)

Q: What is the strategic benefit of the Empower acquisition, and how will it contribute financially? / A: It will not have material impact on 2026 revenue or EBITDA. The core strategic benefits are adding in-demand compliance and defense capabilities to the company's platform, enabling cross-selling: the company will offer the new SaaS compliance product to its existing customer base, and cross-sell its core revenue cycle and EHR solutions to Empower's existing clients. The Empower founder already referred ~10% of the company's current annualized revenue pre-acquisition, and the earn-out structure aligns his incentives with cross-selling growth targets. (609 chars)

Q: Can you give more detail on new business demand for your AI products referenced in the investor presentation? / A: The company continues to see strong demand and sign new deals for Stratus AI and other AI products, and is currently in the implementation phase for these deals. AI revenue is currently grouped with broader technology-enabled services revenue, but will be disclosed separately once it reaches a scalable size. Management is also in early active conversations with healthcare-focused private equity groups to partner on AI optimization for their portfolio companies, and while no deals are finalized, these discussions are promising. (521 chars)

Q: What is the latest update on the Q1 2026 cyber breach, and will costs be covered by insurance? / A: The breach impacted only a single limited environment, the system was fully restored and the threat actor removed the same day the incident occurred, and third-party forensic analysis confirms no ongoing threat. The company is currently sending notifications to impacted patients. Management reaffirms the breach will not have a material impact on operations or financial condition, and all related costs (forensics, notifications, legal/liability) are expected to be fully covered by existing insurance coverage. (448 chars)