CCLD — Q2 2026 Financial Report Analysis

Revenue up 16%, but bought growth and a new debt load cut profit by 61%

CareCloud's second-quarter revenue rose 16% to $31.9 million, and every dollar of that growth came from acquisitions. Clients from Medsphere, a hospital-software business bought in August 2025, brought in $6.8 million this quarter. Without them, revenue would have been about $25.1 million, roughly 8% below last year's $27.4 million. Net income fell 61% to $1.1 million. Three things drove the drop: research and development spending more than doubled, amortization of acquired assets grew (amortization is the gradual write-down of what was paid for an acquired company's customer lists and technology), and interest on the $49 million CareCloud borrowed in April to buy back all of its Series B preferred stock. After dividends on the preferred stock that is still outstanding, common shareholders earned $181,000, which rounds to $0.00 per share against $0.04 a year ago.

At a glance

• $6.8 million of revenue came from Medsphere clients, while total revenue grew only $4.5 million. The business CareCloud owned a year ago shrank, mostly because of a $1.3 million fall in project-based medSR revenue.
• Adjusted EBITDA fell 9% to $5.9 million, and its margin dropped from 23.8% to 18.7% of revenue. Adjusted EBITDA is management's preferred profit measure: earnings before interest, tax, depreciation and amortization, also excluding stock pay and deal costs.
• The full-year guidance now needs a much stronger second half. CareCloud reaffirmed $29–31 million of adjusted EBITDA and $0.20–0.23 of GAAP EPS. After the first half's $11.3 million and –$0.01, that means $17.7–19.7 million of EBITDA and $0.21–0.24 of EPS in the last six months.

The quarter in numbers

Source: Form 10-Q for the quarter ended June 30, 2026, and the earnings release filed the same day. Adjusted EBITDA, adjusted EPS and free cash flow are company-defined non-GAAP measures.

Where the revenue came from

Most of CareCloud's revenue comes from revenue cycle management (RCM): it handles medical billing and collections for doctors' practices and hospitals and usually charges a percentage of what the client collects, with its health-record and practice-management software included in that fee. In the 10-Q these "technology-enabled business solutions" brought in $24.0 million, or 75% of revenue, up from 69% a year ago. The other lines were:

• Professional services (consulting, implementations, IT staffing): $3.2 million.
• Medical practice management (running three medical practices for a cost-plus fee): $3.7 million, a steady 12% of revenue.
• Printing/mailing and group purchasing: $1.0 million.

The mix shift toward recurring RCM fees looks good, but much of it came from a shrinking project business. The 10-Q says medSR revenue, "which is project based, decreased approximately $1.3 million" from a year ago, and fell $4.2 million over the first half. Other healthcare IT services dropped from 19% of revenue to 13%. Recent small acquisitions added a little: Empower Healthcare & Compliance (a compliance and audit-defense advisory bought in May) brought in about $262,000 and MAP App about $167,000. RevNu was already in the year-ago quarter.

The client count grew to about 44,000 providers from 40,000, which is mostly Medsphere's hospital and ambulatory base rather than organic wins.

Why profit fell faster than revenue grew

Total operating expenses rose 23% while revenue rose 16%. The 10-Q points to three lines:

• Direct operating costs rose $3.0 million (+21%), led by a $1.9 million increase in "outsourcing and processing costs" and $889,000 more in salaries. This is the cost of serving the larger, Medsphere-enlarged client base.
• R&D more than doubled to $2.2 million (+115%). Some of this is an accounting change rather than a sudden increase in spending. The 10-Q attributes it to "a shift in the nature of development activities, with fewer costs qualifying for capitalization." Capitalized software costs go on the balance sheet and are expensed over several years; expensed costs hit this quarter's profit in full. Capitalized development was $1.6 million in the first half, against $1.7 million a year earlier. The interim CFO tied the increase to "increased R&D spending on our AI-enabled capabilities" (products such as the stratusAI phone agent and cirrusAI tools).
• G&A rose $1.0 million (+23%), including $530,000 more in salaries and $276,000 for running the company aircraft bought in late 2025 "to support business development."

Below operating income, interest expense jumped from $68,000 to $815,000. That covered only about 2½ months of the new credit facility, so a full quarter will cost more.

The capital-structure swap: preferred stock out, bank debt in

This was the quarter's biggest strategic event. In April CareCloud signed a $50 million facility with Citizens Bank and Provident: a four-year $40 million term loan at SOFR + 3.5% and a $10 million revolving credit line at SOFR + 2.5%. SOFR is a benchmark short-term interest rate. On May 15 it used about $41.6 million of the borrowing to redeem all of its Series B preferred stock at $27.52 a share: the $25.25 redemption value plus all accumulated, unpaid dividends.

What that does to the numbers:

• Preferred dividends drop. They were $1.37 million in Q1 and $0.94 million in Q2, which still included Series B through mid-May. From Q3 only the 8.75% Series A remains: 984,530 shares at $2.1875 a year, about $0.54 million a quarter.
• Interest expense rises. Preferred dividends are deducted after net income. Interest is deducted before it. So the swap lowers reported net income and adjusted EBITDA is unaffected, while it should raise what is left for common shareholders.
• The balance sheet is now leveraged. At June 30 the company owed $39.2 million on the term loan and $9.0 million on the credit line, against $13.4 million of cash: roughly $35 million of net debt. Shareholders' equity fell from $59.5 million to $17.4 million because the redemption was charged against paid-in capital. Working capital (current assets minus current liabilities) is only $695,000. Of that debt, $10 million of term-loan principal is due within 12 months under monthly amortization that started June 1. The company says it complied with all covenants (the financial tests its lenders set). The facility is also secured by a pledge of shares held by Executive Chairman Mahmud Haq.

CareCloud also set up a $60 million at-the-market share program in April, which lets it sell new stock gradually on the open market. No shares had been sold under it by June 30. If it is used, it would dilute existing shareholders, and the stated uses include "repayment of indebtedness" and "the redemption of preferred stock."

Takeaway: CareCloud's growth is bought, not organic. Strip out Medsphere and revenue fell about 8%. Meanwhile the swap from preferred stock to bank debt moved a large fixed cost from below net income to above it. The reaffirmed full-year guidance requires second-half adjusted EBITDA about 55–75% above the first half's and roughly $9–10 million of earnings for common shareholders, after just $181,000 this quarter. Q3 is the test of whether that ramp is real.

What the headline numbers hide

• Cash conversion is strong, and that is the best part of the report. First-half operating cash flow was $10.7 million against $2.0 million of net income, because $7.9 million of depreciation and amortization is a non-cash charge. After $0.9 million of equipment purchases and $1.6 million of capitalized software, free cash flow was about $8.1 million for the half and $5.7 million in Q2. That comfortably covers the roughly $2.2 million a year of remaining Series A dividends. The $10 million of annual term-loan principal will take a larger share.
• The working-capital help won't repeat. Receivables fell $0.8 million in the half (a cash inflow), while payables and other liabilities fell $2.1 million (an outflow). The net effect is a modest drag, not a flattering boost.
• The GAAP vs adjusted gap is large and structural. Adjusted EPS of $0.06 is six cents above GAAP EPS. Three cents of that is preferred dividends, which adjusted EPS ignores entirely. Two cents is amortization of purchased intangibles, $945,000 against $193,000 a year ago as Medsphere's intangibles amortize over about three years. Adjusted EPS is also calculated on period-end shares and ignores preferred dividends, so it overstates what a common shareholder actually earns.
• "Transaction and integration costs" are small but growing: $166,000 against $11,000. This is the main recurring add-back for an acquisitive company.
• One-off items are minor: no restructuring this year (against $23,000), a $50,000 deferred tax charge on goodwill amortization, and a $104,000 foreign-exchange gain.
• No tax drag for now. CareCloud pays only state minimum and foreign taxes ($52,000 current tax in Q2) because of old loss carryforwards held under a full valuation allowance. The low tax rate is not an operating improvement.
• A cybersecurity incident in March took one of six health-record environments offline for about eight hours. The forensic review found no further unauthorized activity, and the company expects insurance to respond, subject to policy terms.

Guidance and outlook

Management reaffirmed its calendar-2026 targets of $128–132 million in revenue, $29–31 million in adjusted EBITDA and $0.20–0.23 in GAAP EPS. These are the same ranges it reaffirmed in May. Here is what they imply for July–December:

The revenue target looks reachable. Q1 was $31.3 million and Q2 $31.9 million, so a modest step-up gets there. The profit targets are much harder. Quarterly adjusted EBITDA would need to rise about 50–65% from Q2's $5.9 million. EPS would need roughly $9–10 million of income for common shareholders in two quarters, against $0.2 million in Q2 and a loss in Q1, and that is before a full quarter of interest on $48 million of debt.

In May management said Q1 profit was held down by Medsphere transition costs that had "largely been eliminated by the end of Q1" and that margin expansion would "resume as we move through 2026." Q2 adjusted EBITDA margin did improve from Q1, to 18.7% from about 17.2%, but it stayed well below last year's 23.8%. The interim CFO's comment that profitability "reflects deliberate investments," mainly R&D and higher interest, suggests those costs are not going away soon.

The next things to watch in the Q3 report, likely in early November:

1. Whether revenue from the pre-2025 business stops shrinking as the medSR project decline laps.
2. Whether adjusted EBITDA moves toward the $9–10 million quarterly pace the guidance implies.
3. A full quarter of interest expense, and whether the ATM share program is used.

Bonnie Boyer took over as CFO on October 1, replacing interim CFO Norman Roth. The announcement repeated the roughly $130 million revenue guidance but did not restate the profit targets.

Our read: CareCloud is a cash-generative, acquisition-led RCM business whose first-half profit trend points well below its full-year EPS guidance. Unless the second half improves sharply, or the company finds one-off gains, expect either a guidance cut or a result at the low end, especially on GAAP EPS.