CareCloud, Inc. (CCLD) Earnings Call Transcript & Summary

Thank you. Greetings. Welcome to the CareCloud, Inc. Second Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keyboard. Please note this conference is being recorded. I will now turn the conference over to Brendan Covello, Corporate Counsel. Thank you, Brendan. You may begin.

Good morning, everyone. Welcome to CareCloud's second quarter 2026 conference call. On today's call, I'm Mahmood Haque, our founder and executive chairman, Stephen Snyder, our chief executive officer, A. Hadi Chaudhry, our chief strategy officer, and Norman Roth, our interim chief financial officer and corporate controller. Before we begin, I would like to remind you that certain statements made during this call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than the statements of historical fact are not in the meaning of Section 27A. during this call are forward-looking statements, including without limitation statements regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook, and potential organic growth and acquisition. Forward-looking statements may sometimes be identified with words such as will, may, expect, plan, anticipate, approximately, upcoming, believe, estimate, or similar terminology and a negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of rules. risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. statements reflect our opinions only as to the date of this presentation and we undertake no obligation to revise these four looking statements in light of new information or future events. Please refer to our press release and our reports filed with the Securities and Exchange Commission, where you will find a comprehensive discussion of our performances and factors that could cause actual results to differ materially from these forward-looking statements. For anyone who dialed into the call by telephone, you may want to download our second quarter 2026 earnings presentation. please visit our investor relations site, ir.carrycloud.com. Click on News and Events, then click on Events, and under Second Quarter 2026 Results Conference Call, click on the earnings presentation to download. Finally, on today's call, we may refer to certain non-GAAP financial measures. Please refer to today's press release announcing our second quarter 2026 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results. That said, I'll now turn the call over to CEO Steven Snyder. Steven?.

Thank you, Brendan, and good morning, everyone. The second quarter reflected disciplined execution across our strategic priorities and another quarter of meaningful progress against our long-term plan. We delivered 16% revenue growth year over year. Our ninth consecutive quarter of positive gap net income completed the full redemption of our Series B preferred stock and entered an entirely new market, healthcare compliance and audit defense. through our acquisition of Empower Healthcare and Compliance Partners. This morning, I'll take you through the quarter's results, of our Series B preferred stock, our entry into the compliance market, where we are taking the company, and the path to our full-year guidance. Let me start first. For the second quarter, revenue was $31.9 million, up 16% from $27.4 million in the second quarter of last year. During the first half of 2026, revenue was $63.2 million, up 15% year over year. Just as important as our overall growth is the composition of that growth. Our recurring technology-enabled business solutions represented approximately 75% of revenue this quarter, up from 69% a year ago. That continuing shift towards recurring subscription-based revenue is foundational. On the bottom line, GAAP net income was $1.1 million, our ninth consecutive quarter of GAAP profitability, and adjusted EBITDA was $5.9 million. Both are lower than the prior year quarter for REITs reasons that reflect investment strategy rather than margin erosion. Amortization and integration costs from the acquisitions are driving our growth. A more than doubling of our R&D expense as we accelerate AI development with more of a work now expense rather than capitalized and new interest expense on the facility that retired our high cost preferred stock. In each case, We traded year-term reported earnings for durable earnings power, and we expect that trade to begin paying off through the second half of the year. Shifting our focus now to our capital structure, the recent retirement of our Series B preferred stock marked the most significant simplification of CareCloud's balance sheet since our IPO. On May 15th, we redeemed 100% of our outstanding Series B preferred stock, funded through a $50 million credit facility with Citizens Bank and Provident Bank, with zero dilution to common shareholders. That single step eliminates approximately $3.3 million of annual preferred debt. and with it the preferred overhang that shaped our capital structure for many years. Let me take a moment to explain what this means for our financial results and, more importantly, for our shareholders moving forward. through the first six months of 2026 we paid approximately six point four million dollars of preferred evidence with the With Series B fully redeemed, the substantial majority of that preferred dividend obligation is now permanently behind us Beginning the third quarter, far more of every dollar of net income we generate flows through to our common shareholders, reduced only by the cost of the debt that replaced the preferred, which is meaningfully less costly. That structural shift combined with our operating plan is an important part of the earnings per share outlook we are reaffirming today. So that's the balance sheet. Let me now turn to the business we're building on top of it, starting with our most recent acquisition. In May, we acquired Empower Healthcare and Compliance Partners, a full service compliance and advisory firm founded by industry veteran, Mitchell Brey, who joined us as president of Empower. The transaction was funded from operating cash flow and follows the same discipline tuck-in playbook we have now executed more than 20 times since our IPO. Empower takes CareCloud into an entirely new category, compliance, audit defense, and regulatory readiness. At precisely the moment, demand for those services is accelerating. The providers we serve are contending with rising payer scrutiny and audit activity. industry-wide denial rates, expanding privacy and security obligations, and a new layer of governance questions raised by the very AI adoption now sweeping through healthcare. Compliance has moved from back office checkbox to an operational priority, and Power gives our providers a trusted partner for all of it, delivered through the platform they already to rely upon every day. We saw that value proposition in action within a few weeks of closing. In June, Empower's certified coding and compliance team helped a wound care provider reverse more than a million dollars in alleged overpayments in a successful audit defense before a hearing and appeals board. That is the kind of concrete high stakes outcome that builds durable client relationships. And it is a story we can now tell across our entire client base. Looking ahead, we plan to launch AI-enabled compliance software solutions during the fall of 2026, converting Empower's expertise into a scalable recurring revenue model. This will include a tiered subscription-based proactive compliance program driven by our AI-powered SaaS platform and supported by Empower's certified compliance professionals. It is the same motion we have run with every acquisition. Acquire trusted capability, integrate that capability into our platform, and amplify it with AI. And that motion, acquire, integrate, amplify with AI, is a thread that runs through everything we're doing because our AI portfolio continues to scale. Hadi will walk you through our AI progress in a moment. What I'll offer here is the market context, because the environment is moving decisively in our direction. Industry surveys show that physician adoption of AI has more than doubled over the past three years, with administrative burden consistently ranked as the single largest opportunity for AI in medicine. At the same time, the pressures on provider economics, denial, staffing, documentation, regulatory complexity, are intensifying, not easing. Taken together, these secular trends reinforce our strategy and strengthen our confidence in a long-term opportunity for our solution, an integrated platform that pairs AI with clinical, financial, and now compliance workflows, allows providers to rely upon our solution as the one that they trust. Separately, it was a true pleasure to have the opportunity to spend time with many of you in person last quarter. For those who are not able to attend, in May, we hosted our analyst day at the NASDAQ market site and rang the NASDAQ closing bell, where we laid out four themes that define CareCloud. An AI first operating model, second a clean common stock story, third compounding free cash flow, and finally a proven acquisition engine. And in June, our shareholders overwhelmingly approved every proposal in our annual meeting. The second quarter was, in every respect, execution against these four themes. All that brings me to our outlook. We are reaffirming our full year 2026 guidance of revenue of $128 to $132 million, adjusted EBITDA of $29 to $31 million, and gap earnings per share of $0.20 to $0.23. With $63.2 million in revenue and $11.3 million in adjusted EBITDA in the first half, our guidance implies a meaningfully stronger second half. The shape of our plan is first half weighted towards investment and integration, and second half that focuses on harvesting those investments. Building blocks of that ramp are specific and they're underway. Continued growth in our recurring revenue base. The expansion of relationships with existing enterprise clients. expense management and integration initiatives designed to align our cost structure with our profitability objectives. on earnings per share, specifically the elimination of the Series B preferred dividend for the entire second half of the year. As always, our expectations depend on the signing and continuation of certain client and vendor relationships, the anticipated timing and scope of client projects, and our timely execution of the integration and expense management initiatives that support these objectives. It is an important but demanding plan, and our team is working hard to deliver it. Before I hand it over to Hadi, let me step back and leave you with where we stand. Healthcare providers we serve are operating under enormous pressure, rising denials, workforce shortages, documentation burden, and a regulatory environment that grows more complex every year. Every one of these pressures increases the value of what CareCloud delivers. We entered the second half of 2026 with more than 40,000 providers on our platform, nine consecutive quarters of gap profitability, the cleanest capital structure our company has had in a decade, growing recurring revenue base. In addition to that, an AI portfolio that is in market and scaling and within power, a foothold in one of the fastest growing needs in healthcare operations. The market opportunity in front of us is as large as it has ever been, and CareCloud is better positioned to capture it at any point in time in our history. With that, I'll turn the call over to Hadi Chaudhry, our Chief Strategy Officer, who will walk you through our AI strategy and product progress. Hadi?.

Thank you, Steve, and good morning, everyone. Last quarter, I laid out our AI strategy across three tracks, using AI internally to do our existing work faster and at lower cost, embedding AI into the products our clients already use, and building new standalone AI products. I'm pleased to report that we have made significant progress on all three, and I want to give you the substance behind that this morning. Let me start with our new AI product. Our AI prior authorization and AI assisted medical coding remain on track to bring to market this year. Both have continued to mature through the quarter. Prior authorization is moving through pilot deployments and coding continues to run internally as we refine it to the accuracy levels our clients expect. These are two of the most painful, most costly problems in healthcare administration, and we intend to meet the timeline we gave you. On Stratus AI front desk, our AI voice agent, demand is strong and we are continuing to sign new business. With a new category like this, the work right now is in the implementation and we are prioritizing getting each deployment right or maximizing the count. The depth before breadth approach I described last quarter. It's still in its early stages, but the product is performing in production, and we are building the operational foundation that turns these deployments into durable recurring revenue. We will report that revenue as it scales. Now let me turn to our platform work, because last quarter, I made you some specific dated commitments and I want to report against them directly. On our inpatient revenue cycle platform, we have completed the parity gaps between the legacy system and RCM Cloud. On CareVue, the parity items we committed for this quarter, bringing legacy CareVue onto this modern platform are complete. And on Wellsoft, we completed two integrations this quarter, our brief patient experience layer, and CITES AI notes are both now live in the emergency department workflow. The Stratis AI integration follows next quarter, and the modernization of Wellsoft into a full cloud-based SaaS platform is on track to complete later this year. The takeaway is simple. These were specific commitments and we delivered them. We saw the same execution in Marketware, our physicians' relationship platform. This quarter, we completed our flagship integration with Practice Match, added an integration with DocCafe, and launched a new candidate-facing portal that lets physicians and hospital staff apply and submit their credentials, degrees, experience levels, and more. letters, licensure directly to the hiring manager. We also brought over AI candidate matching engine live, turning market from a relationship management tool into an AI powered recruitment engine. It was part of more than 20 enhancements delivered this quarter, with another 20 plus including Workday and DocuSign integrations underway for next quarter. I also want to flag something new that we are excited about. We are in active conversations with an existing private equity-based enterprise client about an AI-powered platform. engagement. I will hold the details for now, but it's a strong validation of the capabilities we have built and we will share the specifics as they materialize. Finally, a word on where all this thing is heading. Our growth through acquisitions has, over time, left us running a number of independent platforms, each with its own backend. We have begun the work of consolidating them, moving towards a single modular platform on a shared backend with the common data and AI fundamentals. foundation underneath. In that model, a client simply turns on the modules they need, ambulatory, inpatient, revenue cycle, compliance, patient engagement, while everything runs on one foundation with one patient record and one place to bring our AI to bear. I'm not going to put a timeline on the full journey today. This is a multi-year vision, and we will be disciplined about how we sequence it. But the direction is deliberate. Fewer, stronger platforms built so that every new AI capability we create can be deployed everywhere at once. So across all three tracks, internal efficiency, smarter products, and new AI offerings, this was the quarter of visible measurable progress. With that, I will turn the call over to our interim chief financial officer and corporate controller, Norman Roth, to walk you through the quarter's financials in more detail.

Thanks Heidi and thanks everyone for joining our call today I will provide some financial results for the second quarter and year to date Our second quarter reflects continued execution of our long-term strategy. We return to revenue growth following the Nedsphere acquisition, Thank you. Revenue for the second quarter of 2026 was $31.9 million compared to $27.4 million for the second quarter of 2025. Recurring technology-enabled business solution revenue was $24 million during the second quarter of 2026, up approximately $5 million from the second quarter of 2025, while the non-recurring project-based professional services revenue from NetSR decreased approximately $1.5 million. $1.3 million. Revenue increased 16% from the second quarter of 2025, driven primarily by the Midsphere acquisition. We're confident that the Midsphere will continue to do so. recurring revenue continues to represent the foundation of our business model and provides increased visibility into our future financial performance. Second quarter, 2026, GAAP net income was $1.1 million, as compared to net income of $2.9 million in the same period last year. As expected, profitability this quarter reflects continued strategic investments in AI-enabled capabilities that we believe will enhance our platform, strengthen our competitive position, and drive long-term customer value. Higher interest expense due to the borrowings to redeem the Series B preferred stock and additional amortization expense due to the intangibles acquired in our recent acquisitions also impacted net income. Gross margins remain consistent between periods. Earnings per share for the three months ended June 30, 2026 was breakeven after deducting $941,000 of preferred stock dividends. As part of our ongoing capital allocation strategy, we redeemed all outstanding Series B preferred stock during the quarter, reducing our annual preferred dividend obligation by $3.3 million. dividend obligation going forward will be just for the remaining Series A preferred shareholders. Free cash flow generation, as defined for the second quarter of 2026, was $5.7 million as compared to $5.4 million in the second quarter of 2025, reflecting the cash generative nature of our recurring revenue model and continued financial discipline. Adjusted EBITDA for the second quarter was $5.9 million. Adjusted net income was $2.4 million, or $0.06 per share, compared to $3.3 million, or $0.07 per share, in the same period last year, calculated using the end-of-period commonwealth. shares outstanding. As of June 30, 2026, the company had approximately $13.4 million of cash and net working capital of $695,000. Our balance sheet remains well positioned to support our strategic priorities. During the quarter, we strengthened our capital structure through a new $50 million credit facility and established a $60 million at-the-market equity program, providing additional capital to support future growth opportunities when conditions warrant. Given our technology-enabled services model, we believe CareCloud remains relatively insulated from tariff-related risks affecting the physical goods industries. Additionally, healthcare demand has historically proven resilient through varying macroeconomic environments, supporting continuing demand for our solutions. Revenue for the first six months of 2026 was $63.2 million compared to $55 million in the prior period. For the first six months of 2026, the company's GAAP net income was $2 million, compared to a GAAP net income of $4.9 million for the same period in 2025. This equates to a loss of one cent per share after subtracting the preferred stock dividends. 926 was $4.5 million or 11 cents per share. Year-to-date, adjusted EBITDA was $11.3 million compared to $12.1 million in the same period last year. We generated $8.1 million of free cash flow as defined for the first six months of the year, compared to $9.1 million in the same period last year. Near-term profitability reflects the investment phase we planned, and we are focusing on converting it in the second half of the year. Our long-term strategy remains unchanged. We continue to see meaningful opportunities in our core markets and believe I believe the investments we have made in our platform, AI capabilities, and recent acquisitions position us well for long-term growth. With that, I'll now turn the call over to our chairman, Mahmoud, for his closing remarks. Mahmoud?.

Thank you, Norm. This quarter marks an exciting milestone for CareCloud. We have simplified our capital structure, are delivering profitable growth, and are accelerating our AI-driven healthcare compliance strategy. With strong momentum and a clear path forward, we believe the best is yet to come. is yet to come. I would like to thank our employees for their dedication, our clients for their continued trust, and our shareholders for their confidence and support. Operator, we are now ready to open the line for questions. Thank you.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. moment please while we pull for questions. Our first question is from Alan Klee with Maxim Group. Please proceed with your question.

Good morning. What would you say are the major factors that you expect to make second half 26 different from first half?.

from a financial perspective. Alan, forgive us, would you mind just repeating that? We lost the volume for a minute.

Oh, just what are the major factors that you expect to make second half 26 financially different from first half 26?.

Okay, very good. And I'll let Norm dig into that a little bit more. As you said, the second half of the year, we expect to be much stronger than the first half of the year. Part of that is simply related to the natural seasonality that exists in our space. So a component of that is seasonality. But if we look at the revenue, only part of that is really seasonality. to the fact that we will continue to layer growth on top of the existing business that we have, both through the expansion of the existing customer relationships, some of the enterprise relationships, and also through the Empower cross-selling that is well underway. So part of the story will be revenue. You think about from a revenue perspective, need to go from roughly $32 million in Q2 to $33, $34 million per quarter in the balance of the year to achieve our guidance. And we feel comfortable that that is very doable. The other part of it really relates more to the adjusted EBITDA and EPS component. So if we think about some of the downward pressure from a profitability perspective, some of the downward pressure really relates to the fact that we've been spending significant energies integrating the MedSphere acquisition. So from the perspective of the performance of the Meds for Acquisition, we've really been very pleased. But as we talked about at the time when we acquired MedSphere, there's significant tech debt that we knew going into the acquisition really had to be remediated. So we've been working hard to deploy the research and development resources that are necessary to accomplish that to really ensure that we're able to do that. sure that we have a solid foundation moving forward. Some of that development work relates to also making sure that the platform is really driven by AI, like the balance of our ambulatory platform. And a lot of that energy and those resources have really been spent during the first half of the year, but we believe we'll see the benefits of that in the second half of the year. Also, from an integration perspective and cost duplication. You see a significant amount of that integration efforts. really being in our rear view mirror having already been accomplished there's still some more work to be done but but the lion's share of that was completed during the first and second quarters of the year we'll see that the benefits of that in the second half of the year.

Are there other areas that would be helpful to talk about? Well, I think, you know, see those comments. You know, our amortization will be decreasing. Alan, you know, we use a declining balance. It's an accelerated amortization that's related to the intangibles. That will be decreasing over time. And as Steve said, you know, we look very carefully at our forecasted revenue and expenses. You know, we feel comfortable with the sales pipeline and what opportunities will turn into recognized revenue. You know, so, you know, how we're going to manage those expenses going forward.

That was very comprehensive. Thank you. And then for the Empower Healthcare and Compliance Partners acquisition, be thinking of this as minor on a financial impact but then maybe becomes bigger from the cross-selling perspective or how should we think about it?.

Yes, that's exactly how I think it makes sense to think about it. So again, the acquisition we closed in the middle of May. So from the perspective of Q2 results, it had minimal impact and frankly, overall it won't have a material impact on the financial data from the perspective of revenue contribution or overall EBITDA. But the benefit that we see really will be twofold. First of all, we're able now to be able to take the healthcare compliance and all the defense services that are really critical and becoming more and more important to the providers who we serve. And we're able to incorporate that expertise and and that knowledge base now into our broader platform. And we expect to be able to roll out a SAS version of what has been up to this point in time, delivered manually from the perspective of the professional delivering these services, we'll scale that and be able to bring that to the market in a SaaS platform that we further supplement and augmented by the professionals who we have on board through Empower. So part of it will be taking our existing customer base and cross-selling that customer base into the SaaS platform. The other part will be being able to leverage cross-selling from the perspective of the existing Empower clients and cross-selling our revenue cycle management services and EHR solution into that base. The individual who now serves as the President of Empower, Mitch Bre, joined us through that acquisition for the company that he founded and grew. And just as a side note, we've known Mitch for some time. And Mitch has referred business to us that today represents about 10% of our overall revenue on an annualized basis. So he's really been instrumental in terms of partnering with with us and helping us grow our business from an organic perspective. And we think that he can do far more by being a member of the team and by having a overall structure as part of the acquisition that's heavily aligned, the headway lines, and empower with what we're trying to achieve in terms of growth. And in terms of the overall structure, I would just note that the overall structure of the acquisition really followed and tracked the same sort of structure you've seen in prior acquisitions with a minimal amount down, roughly 30% of the trailing revenue. revenue, 12 months revenue paid at closing, and then the balance of that will be paid from a, that's really based upon the ability of Empower to help us grow and to be successful in leading cross-selling initiatives. Thank you. On slide 11 of the presentation,.

I think it's Stratis AI Frontesque, it might be referring to, you know, it has a section called demand and you say, you talk of new business sign through due to demand across. Basically, I was wondering if you could dig into a little bit of the, when you say new business sign through Q2 and demand from across the client base?.