10-Q: CareCloud Reports Strong Revenue Growth, Net Income Turnaround

CareCloud, Inc. announced a significant increase in net revenue and a return to net income for common shareholders for the three and nine months ended September 30, 2025, driven by strategic acquisitions and operational efficiencies.

Summary

• Net revenue for the three months ended September 30, 2025, increased by 9% to $31.1 million, up from $28.5 million in the prior year period.
• Net revenue for the nine months ended September 30, 2025, grew by 4% to $86.1 million, compared to $82.6 million in the same period last year.
• The company achieved a net income attributable to common shareholders of $1.7 million ($0.04 per share) for the three months ended September 30, 2025, a significant improvement from a net loss of $0.7 million ($0.04 per share) in the prior year.
• For the nine months ended September 30, 2025, net income attributable to common shareholders was $2.4 million ($0.07 per share), a substantial turnaround from a net loss of $4.5 million ($0.28 per share) in the comparable period of 2024.
• Adjusted EBITDA increased by 13% to $7.7 million for the three months and by 17.4% to $19.9 million for the nine months ended September 30, 2025.
• Adjusted operating income rose by 22.6% to $4.5 million for the three months and by 35.4% to $10.2 million for the nine months ended September 30, 2025.
• The company completed the acquisition of Medsphere Systems Corporation on August 22, 2025, for $16.5 million, adding $3.4 million in revenue during the quarter.
• The acquisition of RevNu Medical Management on April 1, 2025, contributed approximately $281,000 in revenue for the three months and $613,000 for the nine months ended September 30, 2025.
• Research and development expenses increased significantly by 98% for the three months and 39% for the nine months, primarily due to a shift in development activities resulting in fewer costs qualifying for capitalization.
• Selling and marketing expenses decreased by 18% for the three months and 30% for the nine months, attributed to headcount reductions and lower spending.
• The company voluntarily terminated its credit facility with Silicon Valley Bank in August 2025 and secured a new $10 million revolving line of credit with Provident Bank in September 2025, with $6.5 million borrowed as of September 30, 2025.
• Preferred stock dividends, suspended in December 2023, resumed in February 2025, with approximately $7.0 million in dividends in arrears as of the filing date.
• A majority of Series A Preferred Stock was converted into common stock on March 6, 2025, increasing common shares outstanding from approximately 16.2 million to 42.4 million.
• The company purchased MAP App, a hospital benchmarking tool, for $468,000 cash and assumed $353,000 in liabilities, effective October 1, 2025.

Sentiment

Score: 7

Explanation: The company demonstrated strong revenue growth and a significant turnaround in GAAP net income and EPS for common shareholders. Strategic acquisitions and investments in AI are positive for future growth. However, the substantial dilution from preferred stock conversion negatively impacted adjusted EPS, and preferred dividends in arrears remain a concern, albeit with resumed payments. Overall, the operational improvements and strategic moves are positive, but dilution presents a challenge for per-share metrics.

Positives

• Net revenue increased by 9% for the three months and 4% for the nine months ended September 30, 2025, demonstrating continued growth.
• Achieved a significant turnaround from a net loss to a net income attributable to common shareholders, reporting $1.7 million for the quarter and $2.4 million for the nine-month period.
• Adjusted EBITDA and Adjusted Operating Income showed strong growth, indicating improved underlying operational performance.
• Successful integration of Medsphere Systems Corporation and RevNu Medical Management acquisitions, contributing to revenue growth.
• Strategic investment in AI technology, including the launch of CareCloud cirrusAI suite, positions the company for future innovation and efficiency.
• Reduced selling and marketing expenses by 18% for the quarter and 30% for the nine months, reflecting effective cost management.
• Secured a new $10 million revolving line of credit with Provident Bank, enhancing liquidity and financial flexibility.
• Resumption of preferred stock dividend payments, addressing a prior suspension.

Negatives

• Adjusted net income per share decreased to $0.10 for the three months and $0.24 for the nine months ended September 30, 2025, compared to $0.21 and $0.41 respectively in the prior year, primarily due to significant share dilution from preferred stock conversion.
• Operating income for the three months ended September 30, 2025, slightly decreased by 1.7% compared to the prior year.
• Approximately $7.0 million in preferred stock dividends remain in arrears as of the filing date, despite resumed payments.
• General and administrative expenses increased by 12% for both the three and nine months ended September 30, 2025.

Risks

• Ability to manage growth, including acquiring, partnering with, and effectively integrating recent acquisitions like Medsphere Systems Corporation and RevNu Medical Management, and avoiding associated legal exposure and liabilities.
• Ability to retain clients and maintain revenue levels, including effectively migrating new clients and maintaining or growing revenue from existing clients.
• Ability to maintain operations in offshore offices (Pakistan, Azad Jammu and Kashmir, Sri Lanka) to continue offering competitively priced products and services.
• Ability to keep pace with the rapidly changing healthcare industry and consistently achieve and maintain compliance with federal, state, foreign, local, payor, and industry requirements.
• Ability to maintain and protect the privacy of confidential and protected company, client, and patient information, and to integrate, manage, and secure information systems against cyber-attacks.
• Ability to develop new technologies, upgrade and adapt legacy and acquired technologies, and protect intellectual property rights.
• Ability to attract and retain key officers and employees, including the continued involvement of Mahmud Haq as Executive Chairman and A. Hadi Chaudhry and Stephen Snyder as Co-Chief Executive Officers.
• Ability to realize expected cost savings and benefits from restructuring activities and structural cost reductions.
• Ability to comply with covenants contained in the credit agreement with Provident Bank and other future debt facilities.
• Ability to continue to pay monthly dividends to holders of Series A and Series B Preferred Stock, especially with $7.0 million in arrears.
• Ability to incorporate AI into products faster and more successfully than competitors, protecting the privacy of medical records, and mitigating cybersecurity threats.
• Ability to compete with other companies that may have greater resources and name recognition.
• Uncertainty resulting from pandemics, epidemics, or other public health emergencies and their impact on operations and demand for services.
• Ability to keep and increase market acceptance of products and services.
• Exposure to changes in domestic and foreign business, market, financial, political, and legal conditions.
• Maintaining cash balances at financial institutions (SVB, Provident, and banks in Pakistan and Sri Lanka) in excess of federally insured limits, posing a risk in case of bank instability.

Future Outlook

Management expects to have sufficient liquidity to meet its obligations for the next twelve months, driven by ongoing efforts to improve overall profitability, manage expenses, and grow revenue. The company plans to continue declaring monthly preferred dividends. The valuation and purchase price allocation for the Medsphere and RevNu acquisitions are expected to be finalized within one year and by year-end, respectively. The company will become an accelerated filer for the year ending December 31, 2025, requiring an attestation by its independent registered public accounting firm regarding the effectiveness of its internal controls over financial reporting.

Management Comments

• Our offshore operations in the Pakistan Offices and Sri Lanka give us a competitive advantage over many industry participants due to significantly lower personnel-related costs.
• We are able to achieve significant cost reductions and leverage technology to reduce manual work and strategically transition a portion of the remaining manual tasks to our highly-specialized, cost-efficient team in the U.S., the Pakistan Offices and Sri Lanka.
• Management continues to focus on the Company’s overall profitability, including managing expenses, and to the extent possible growing revenue, and expects that these efforts will continue to enhance our liquidity and financial position.
• We believe that we will be able to pass on any price increases for fixed rate contracts to our customers, as the prices that we charge are not governed by long-term contracts.

Industry Context

CareCloud operates in a highly complex and regulated healthcare IT industry, providing technology-enabled services and AI solutions to healthcare providers. The company's strategy of leveraging offshore operations for cost efficiency and actively pursuing acquisitions like Medsphere and RevNu, along with significant investment in AI (cirrusAI suite), positions it to address physician burnout, staffing shortages, and evolving industry standards. The acquisition of MAP App further strengthens its offerings in hospital benchmarking. The company's focus on revenue cycle management, cloud-based software, and digital health services aligns with broader industry trends towards value-based care, remote patient monitoring, and enhanced patient experience management.

Management Changes

Corporate Governance

Legal Proceedings

• Settled a claim with Ramapo Anesthesiologists, PC for $32,000 (Company's portion) in Q1 2024.
• Settled a former customer complaint in New Jersey for $200,000 in July 2024.
• Settled a dispute with a prior acquisition seller for $316,000 in September 2024.
• Settled a former customer dispute in Massachusetts for $100,000 in February 2025.
• Settled a former customer dispute in New York for $29,000 in June 2025.

Related Party Transactions

• Sales to a physician who is the wife of the Executive Chairman: $32,000 for Q3 2025 and $83,000 for 9M 2025.
• Leases for corporate office, temporary housing, storage, backup operations center, and Dubai apartment from the Executive Chairman: $71,000 for Q3 2025 and $213,000 for 9M 2025.
• Expenditures of approximately $1.3 million during 9M 2025 to upgrade related party leased facilities, primarily for the company's AI center expansion.
• Employment of the son of one of the Co-Chief Executive Officers: $38,000 in salary expense for 9M 2025.
• Consulting agreement with an entity owned and controlled by the son of the Executive Chairman for AI technology: $15,000 per month, with $38,000 expense recorded in Q3 2025.
• Consulting agreement with an entity owned and controlled by a former non-independent director (now Co-CEO) for investor relations and other services: $1,000 for Q3 2025 and $12,000 for 9M 2025.
• talkMD Clinicians, PA, a variable interest entity formed by the wife of the Executive Chairman, has not yet commenced operations; the company has paid approximately $6,500 on its behalf for income taxes.

Stakeholder Impact

• Shareholders: Common shareholders benefit from the return to net income and positive EPS, but face significant dilution from preferred stock conversion, impacting adjusted EPS. Preferred shareholders have seen dividend payments resume, but $7.0 million in arrears remains.
• Employees: Restructuring activities involved workforce reductions, but the company continues to invest in its AI center and offshore operations, which are key to its competitive advantage.
• Customers: Acquisitions like Medsphere and RevNu expand the customer base and service offerings, while AI investments aim to enhance clinical decision-making, streamline workflows, and improve patient care.
• Creditors: The company terminated its SVB credit facility and secured a new $10 million line of credit with Provident Bank, demonstrating continued access to financing and compliance with covenants.
• Suppliers: No specific impact mentioned, but general operational growth may lead to increased demand for services and supplies.

Next Steps

• Finalize the valuation and purchase price allocation for the Medsphere acquisition no later than August 22, 2026.
• Finalize the purchase price allocation for the RevNu acquisition by December 31, 2025.
• Continue declaring monthly dividends for preferred shareholders.
• Prepare for the requirement of an attestation by an independent registered public accounting firm regarding the effectiveness of internal controls over financial reporting for the year ending December 31, 2025.
• Transition to an accelerated filer status for the year ending December 31, 2025.

Key Dates

Recommendation

CareCloud's Q3 2025 filing shows strong operational improvements, including robust revenue growth and a significant turnaround to net income for common shareholders. Strategic acquisitions and substantial investments in AI are positive long-term drivers. However, the considerable dilution from the preferred stock conversion has negatively impacted adjusted EPS, which is a key metric for many investors. While the resumption of preferred dividends is positive, the outstanding arrears remain a point of caution. For existing investors, holding the stock allows for observation of the integration of new acquisitions and the realization of AI investments, while monitoring the impact of dilution on future per-share profitability. New investors might consider buying on dips, acknowledging the growth potential alongside the dilution challenge.

Keywords

Healthcare IT, Revenue Cycle Management, RCM, EHR, Practice Management, AI, Artificial Intelligence, Medsphere, RevNu, Acquisition, Financial Results, 10-Q, SEC Filing, CareCloud