CareCloud, Inc. Q4 FY2024 earnings call

• 2024 was a transformative year with record - breaking profitability, including record free cash flow, significant growth in adjusted EBITDA and net income.
• Completed conversion of Series A preferred shares into common stock, which aligned interests of preferred and common shareholders, optimized capital structure, and freed up resources for growth.
• Advanced cirrusAI, an AI - powered solution, with cirrusAI Notes expanded to multiple specialties, enhancing clinical documentation and workflow efficiency.
• Introduced AI - powered call center auditing and monitoring solution, deployed internally and set for market launch in the next quarter.
• Focused on specialty - based EHR solutions, with plans to launch in various specialties by the end of the second quarter of 2025, aiming to address distinct needs of medical specialties and leverage AI - driven automation.

In 2024, CareCloud achieved record - breaking profitability. Adjusted EBITDA rose to $24.1 million, a 56% increase year - over - year. Net income surged to an all - time high of $7.9 million despite a modest decline in revenue. Free cash flow reached $13.2 million, a year - over - year increase of nearly 250%. For the fourth quarter of 2024, revenue was $28.2 million compared to $28.4 million in the same period of 2023. Recurring technology - enabled business solution revenues were $24.8 million, essentially flat with the prior year, while non - recurring professional services revenues from medSR declined approximately $400,000. Adjusted EBITDA for the fourth quarter was $7.1 million or 25% of revenue, an increase of 73% year - over - year. For the full year 2024, revenue was $110.8 million compared to $117.1 million in 2023. GAAP net income was $7.9 million, the highest since inception, and adjusted EBITDA was $24.1 million, a 56% increase from the prior year.

• Anticipates revenue in the range of $111 million to $114 million in 2025.
• Projects adjusted EBITDA to be between $26 million and $28 million in 2025.
• Expects earnings per share to range between $0.10 and $0.13 in 2025, which is the first anticipated positive EPS since the company went public in 2014.
• Growth drivers include upsells to existing client base, net new opportunities from specialty - specific EHR products and RCM, life sciences adds, and acquisitions of RCM client bases.

Q: Hey, everyone. Good morning, and thanks for taking my questions. Just first, appreciate the revenue and EBITDA guidance for this year, but focusing on the top - line, I guess, the midpoint suggests modest revenue growth year - over - year. So just curious as to how you're thinking about sort of the mix of growth drivers looking forward, across engaging new clients, introducing new services and/or tapping into new markets?

A: Great. Thanks for the question, Michael. To your point, for 2024, we were very pleased to be able to report the highest net income, highest adjusted EBITDA, highest cash flow in our history. And as we look at this year, we believe that we're really poised to be able to continue to advance along all of those metrics. And in particular, maybe we'll start actually with EPS. So, for this year, we expect EPS to be between $0.10 and $0.13, which is particularly significant because it represents the first anticipated positive EPS for the company since we went public in 2014. So, as we think about it, this really reflects the strength of our business transformation that we've been talking about during 2024. Also the benefits of the AI automation that Hadi has been talking about together with the benefits associated with the recent Series A preferred stock conversion, which has further strengthened our capital structure and eliminated dividend obligations. If we move for a minute, Michael, then to adjusted EBITDA, again, we're projecting this year $26 million to $28 million in adjusted EBITDA. Again, reflecting this disciplined approach that we've been taking to cost management and also the investment that we're making to innovation. And then finally, if we're thinking about revenue, we anticipate revenue in the range of about $111 million to $114 million, which represents -- while, of course, Q1, you'll recall, represents typically seasonally low level of revenue due to the reset of deductibles. On the -- for the full year, we anticipate this year actually having a revenue increase after a few years of revenue declines. So, we believe those declines are behind us and we're excited about being able to be in a position where we're actually increasing revenue this year. I think those -- as we look at the opportunity sets that we have before us, some of those increases will come from upsells, so RCM and digital health upsells to our existing client base. Some of them will come from net new opportunities, including those that leverage the specialty - specific EHR products that Hadi was talking about a moment ago and other solutions along the lines of RCM. Life sciences will represent some additional adds. RCM with AI solutions being sold by the medSR team in particular in the small hospitals represent some additional. And then finally, some tuck - ins associated with a focus on RCM client bases that we acquire. And that acquisition of RCM client bases is really very consistent with our historical patterns in the past, being able to grow from a very attractive cost of customer acquisition through those acquisitions. So again, if we think overall in terms of 2025 guidance, it really reflects the strategic shift back into growth, while continuing to approach the overall spend responsibly and represents also the stronger capital structure.

Q: Good morning. Thank you for taking our questions. So, I wondered if you could talk a little bit about your user base and talk a little bit about expanding the user base coupled with expanding the offerings and the types of customers that you've had and what you're seeing with the current customer base as far as where it's headed?

A: For sure, yeah, and thank you for the question, Jeff. So, in terms of the user base, the user base, of course, from a specialty perspective continues to be diversified with about one - third of the overall customers practicing in primary care and then the balance coming from a wide variety of different specialties and subspecialties. Geographically, it's distributed throughout the country. So, we do business, of course, in all 50 states with the heaviest concentrations of clients in New Jersey, New York, California, Florida and also the West. So, just on a high level, that's a little bit of an overview in terms of our overall customer base. From the perspective of the services that our customers use, the majority of our customers are leveraging our integrated platform. So, the EHR and the RCM and the PM in an integrated model, we, of course, have clients that are leveraging other solutions on a standalone basis, but the majority are using our overall integrated solution. So, for us, the real upside in the opportunities in that existing base relate primarily to being able to sell a variety of different solutions, including digital health, that's RPM and CCM, into this existing base and also being able to take HER - only users and being able to upsell them, so that they're all leveraging our revenue cycle management solutions. And then finally, being able to rollout AI across the entirety of that base.

Q: Yes. Hi. I had questions on the preferred stocks. The Series A forced conversion, tell me if I understand this right, and if you can explain it. It looks like you forced conversion on 3.5 million or so of the preferred As, but I believe there was around 4.5 million outstanding. So, of the remaining close to 1 million shares, does -- what happens with that? Does that still -- is that still outstanding and still pay an 8.75% dividend or -- and can that be redeemed? And then, kind of going forward like on the Series B, you -- on the Series B, will you be paying at a higher rate than what you've lowered it to, to try to catch up on the amount that was not paid in the prior year? And, if so, how long -- how much is that and how long you have to pay it at the higher rate to get that to fully catch up on that? And maybe just if you could then just say what the preferred -- the total preferred dividends that you expect to pay in the March quarter, and then, what you expect it to be for the quarters going forward after that?

A: Of course. Thanks, Allen, for the question. So, I think your question is about both the As and the Bs. So, maybe just for a moment, if it's okay with you, if you'll indulge us, let me just step back and talk about the conversion and then I can talk about the specific numbers you were talking about, the 4.5 million and the 3.5 million and then the 1 million that's left over and redemption and the like. So, again, if we step back, for us, it was really very important to ensure that the preferred shareholders, the preferred A we're talking about in this context now, were treated fairly and had the opportunity to participate equally in the company's long - term growth. And this is why if we go back to September of last year, this is why the Board proposed through the proxy a structure in that proxy that provided for change of control protections so that As could not be acquired and left outstanding. Together with conversion and that conversion -- unlike many other companies that have been in our position, that conversion wasn't simply a multiple of the much lower market price, but it was really a conversion that would make the preferred shareholders whole by having the conversion occur at the full redemption price of $25. So, if we kind of think about the what, the when and the why, first in terms of the what, to your point, it was a mandatory conversion. It was approved of by an overwhelming majority of the Series A preferred shareholders back in September of 2024. And because there's been a little bit of confusion, let me just talk about the mechanics of that -- of the overall conversion. [It involve] (ph) the Series A preferred shares being, again, valued at the redemption price of $25, which represented a premium over the price at the time the market price was about $19. So, it represented a premium to that market price, but it was the right thing to do to be able to provide full value to the Series A. Plus, we added all accumulated and unpaid dividends. So, then, we took the sum of those numbers and divided them by the 20 - day VWAP of the common shares and then issued the shares, which is how we got to the conversion of 1 share of preferred being converted to 7.3, 7.4 shares of common stock. So, to your point, Allen, in total, there were 3.5 million shares of preferred that were converted and they were converted into about $26 million -- 26 million shares rather of common, which left out 1 million shares -- a little shy of 1 million shares in total. And I'll come back to that in just in a minute. That, of course, happened on September -- I'm sorry, on March 6. And in terms of -- if we think about the why do we convert, again, the conversion was really part of an overall strategy to simplify the capital structure and to enhance overall shareholder value by converting that roughly $100 million in fixed obligations. And $100 million I'm talking really about the shares that [converted] (ph) over together with the accumulated dividends, together with the perpetual $10 million obligation to take that -- the entirety of that $100 million that -- we're obligated to pay an additional $10 million on per year to convert that into common and to allow those shareholders again to benefit from the long - term growth of the company on equal footing with the common shareholders. So, it really provided immediate benefits to the preferred shareholders by converting, again, at the premium to the market price and ensuring their opportunity to participate in long - term growth. And from a common shareholder perspective, it had the benefit of eliminating the monthly dividend obligation, which if we compare that to what it was before September of last year, it was about $10 million a year in savings. It improved the liquidity and the public float. And it, on balance, overall, really makes our financial model more attractive to investors and positions everyone to benefit from that same long - term value creation. And one last thing, and then I'll -- I haven't forgotten, Allen, I'll get back to your question in one more -- in just one second. But one thing I think is probably worthwhile for investors to think about is the fact that there really is full alignment with regard to the insiders, the Board and the management team and the shareholders because you'll recall that pre - conversion, almost 40% of the shares of common stock were held by insiders. And of course, the largest of which is our Executive Chairman and Founder, who's been a net buyer of the common, purchased about 0.5 million shares roughly back in 2023, in fact, owns more shares today than when we went public back in 2014. So, he believes, we all believe, frankly, very strongly that the conversion truly supports the long - term value creation and is in the best interest of all shareholders, common shareholders, preferred A, preferred B and the like. But coming more specifically to your question, Allen, in that conversion, almost 1 million shares did not convert over. What we did in the terms of that proxy is we gave the -- we proposed giving the material shareholders those with 100,000 shares or more the opportunity to opt out. Again, appreciating the fact that if those much larger shareholders also were converted over and if they decided to exit the common stock, it could be highly -- it could have a negative impact on the overall shares, including the shares that were just converted over relative to the As. So, those 1 million shares are still out there, and we'll continue to pay dividends on those 1 million shares. Can they be redeemed? Yes, they can be redeemed. Frankly, we believe they could also be converted over again if we move forward with another mandatory conversion down the road. They [indiscernible] continue to have the option to opt out, but that's always a possibility. With regard to the Bs, the Bs will, again, continue to be paid 8.75% just like the remaining As. But from the perspective of the catch up, what we're intending to continue to do is to continue to make one monthly payment each month as we've always done. So, it will continue to be payments in arrears. And those accumulative payments at some point in time, will have to be called up, whether it be at a redemption because we have the ability to redeem the Bs at $25.50 today and that will become [$25.25] (ph) even in a couple of years. So, we have the ability to redeem the Bs. But in a redemption scenario, we'd also have to make them whole in terms of any accumulated dividends. So, those accumulated dividends remain out there. And our intention again is with regard to the As and the Bs, just to continue to make monthly payments for the time being. And then, at some point in time, we may do better than that in terms of a larger catch up. But then again, that may not happen until redemption.

Q: Just, what will be the preferred dividend total payment in the March quarter, and then, what do you expect it to be in the quarters thereafter?

A: Okay, fair enough. And on an annualized basis going forward, it'll be about $5.5 million roughly. And I'm sorry, but you asked another question, not the annualize dividend, you asked for what period?

Q: So, in the first quarter, it's two - thirds of that, because it's two months. And then, in the following quarters, it's annualized of -- it's a quarter of $5.5 million. Is that the way to think about it?

A: Yeah. On a monthly basis, it'll be about $450,000 roughly on a monthly basis, and that's both the As and the Bs. So, if we think about the fact that conversion happened here in the midst of the quarter, that will be, Norm, roughly? Norman Roth: So, yeah, so the payment for March would be about $500,000 and that would go forward because remember the As are getting the 11% up until the time we catch up to September 11, then the payment will drop to $450,000 a month after that. But if you remember, in February, we made a larger payment because we had all the As and Bs outstanding at that time.

A: And Allen, again, from the perspective of the conversion, relative to all the As, of course, who were converted over, we caught them all up in terms of the dividends right up until March 5th or 6th when we actually convert it. So, there won't be any cash payment relative to those particular investors because we've already paid them in kind at the time of the conversion.