CareCloud, Inc. Common Stock 2026 Q2 Earnings Call

Good morning, everyone. Welcome to CareCloud's second quarter 2026 conference call. On today's call are Mahmud Haq, 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 made 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 the negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of 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. These statements reflect our opinions only as to the date of this presentation, and we undertake no obligation to revise these forward-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.carecloud.com, click on News & Events, then click on Events, and under second quarter 2026 results conference call, click on the earnings presentation to download. 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. With that said, I'll now turn the call over to CEO Stephen 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 GAAP 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 & Compliance Partners. This morning, I'll take you through the quarter's results, the redemption 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 with the numbers. 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 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 that work now expensed rather than capitalized, and new interest expense on the facility that retired our high-cost preferred stock.

In each case, we traded near-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 dividends. 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 $6.4 million of preferred dividends. With the Series B fully redeemed, the substantial majority of that preferred dividend obligation is now permanently behind us. Beginning in 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. 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 & Compliance Partners, a full-service compliance and advisory firm founded by industry veteran Mitchell Brie, who joined us as President of Empower.

The transaction was funded from operating cash flow and follows the same disciplined 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. Empower gives our providers a trusted partner for all of it, delivered through the platform they already 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 $1 million 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.

That motion, acquire, integrate, amplify with AI, is a thread that runs through everything we're doing because our AI portfolio continues to scale. Patty 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 the 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 were 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. Finally, a proven acquisition engine. 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 GAAP 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. The building blocks of that ramp are specific, and they are 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.