By Michael Kim
READ THE FULL CCLD RESEARCH REPORT
Pre-market open on 5/6/25, CareCloud (NASDAQ:CCLD) reported 1Q25 earnings results. For the quarter, CCLD reported GAAP net income of $1.9 million – the company’s fourth consecutive positive net income quarter, and a reversal from a net loss of $0.2 million for the year-ago quarter. After taking into consideration preferred stock dividends, the company reported a net loss attributable to common shareholders of $0.9 million, or ($0.04) per share, for 1Q25 compared to a net loss of $1.6 million, or ($0.10) per share, for 1Q24. Much of the year-over-year variance can be attributed to more favorable revenues and operating income, partially offset by higher preferred stock dividends.
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 $0.05, or a couple of pennies short of our $0.07 EPS estimate. Relative to our model, the EPS miss was mostly a function of higher operating expenses.
On a GAAP basis, our updated model calls net income attributable to common shareholders of $0.12 per share for 2025 (within management’s reiterated $0.10 to $0.13 guidance range) followed by $0.24 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 $0.31 for 2025 (compared to $0.33 previously) and $0.40 for 2026 (versus our prior $0.41 estimate). Our slightly lower estimates primarily reflect the 1Q25 EPS miss and modestly higher operating expense assumptions. Focusing on the top line, we forecast total revenues of $112.7 million in 2025 (consistent with management’s unchanged guidance range of $111 million to $114 million) followed by $128.5 million in 2026, as business development initiatives increasingly take hold and management captures incremental economics from existing customers via complementary services. Furthermore, senior executives reiterated 2025 Adjusted EBITDA guidance of $26 million to $28 million.
Turning to valuation, no change to $5.00 DCF-derived price target representing meaningful upside potential from current levels. We continue to look for an upward revaluation for shares of CCLD, as awareness and appreciation of the company’s unique business model, durable competitive advantages, and reaccelerating growth prospects compounds. Moreover, comparable Healthcare Information Services small cap stocks continue to trade at meaningfully higher Price-to-Earnings multiples across the board, thereby reinforcing our valuation work.
We highlight the following key takeaways from 1Q25 results:
1. Increasingly incorporating differentiated AI capabilities across the platform: At a high level, senior officials remain focused on transforming the broader healthcare journey through RCM automation, enhanced patient engagement, and real-time analytics by increasingly deploying innovative and proven AI solutions in a cost-efficient manner. To the point, the company recently announced the launch of a key strategic initiative dubbed CCLD’s “AI Center of Excellence.” By leveraging CCLD’s data (processing 10 million claims/transactions per month), domain expertise, and offshore resources competitive advantages, senior executives plan to incorporate proprietary AI solutions across operations, products, and services to manage workflows more efficiently. Initial programs include: a) iterating AI models designed to streamline revenue cycle management processes, clinical documentation, and compliance efforts; b) improving patient engagement through personalized communications and scheduling; and c) generating predictive analytics. Moreover, management remains committed to increasingly embedding AI functionality to further develop cirrusAI Notes, cirrusAI Voice, and specialty-focused EHRs, while the company’s proprietary technology capabilities enhance CCLD’s value proposition with potential acquisition candidates. From a staffing perspective, 50 new professionals recently joined the company, with plans to build the team to ~500 FTEs by the end of this year. Importantly, related investments will be funded through operating cash flows, with employee costs mostly capitalized on the balance sheet, thereby limiting upfront P&L impacts.
2. All systems go on the M&A front: Last month, CCLD announced the acquisition of RevNu Medical Management, a leading RCM provider focused on the audiology market – following on the heels of the MesaBilling transaction in early March. Management’s well-established playbook involves acquiring clients (often in underserved markets) at lower CACs, and subsequently integrating CCLD’s proprietary technology, AI tools, and economies of scale to unlock growth and drive meaningful synergies and operating leverage. Indeed, ~50% of related cost savings are generally realized in the first 90 days following closings resulting in bottom line accretion thereafter. From a financing perspective, acquisitions typically involve a small upfront payment, with the balance paid over multiple years based on a percentage of run-rate revenue.
Looking ahead, management maintains ample liquidity to fund incremental transactions. First, cash on the balance sheet continues to build, with $6.8 million as of March 31, 2025, up from $4.1 million a year ago. Second, 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) remains on an upward trajectory – $3.6 million in 1Q25, up 66% from $2.2 million in 1Q24 driven by rising operating cash flow combined with lower capitalized software outlays. Third, the recent conversion of Series A Preferred Stock to common stock reduces annual dividend payments by ~$7.7 million. Fourth, the recently approved upsizing of the company’s share authorization by 50 million shares provides for the potential issuance of equity to finance larger acquisitions should they arise (though senior officials seem reluctant to sell stock at current price levels). Finally, management cap tap the company’s $10 million credit facility as needed.
3. Earnings power set to ramp up: While we expect revenue growth to remain modest this year, our model calls for a step up in 2026 (and beyond), as the company’s differentiated value proposition increasingly resonates with healthcare providers and patients. To the point, CCLD offers a comprehensive suite of fully integrated RCM, EHR, and practice management services, with ongoing initiatives to further develop innovative technologies/services and broaden market footprints. Additionally, 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. Turning to profitability, we look for ongoing margin expansion primarily reflecting management’s cost reduction plan implemented in 2023 and 2024. Moreover, we expect CCLD to continue to leverage the company’s lower-cost offshore infrastructure, as well as AI-derived operating efficiencies.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.