Earnings Call Transcript - CCLD Q4 2025

Operator, Operator

Greetings. Welcome to CareCloud, Inc. Fourth Quarter 2025 Results Conference Call. Please note that this conference is being recorded. I will now hand it over to Brendan Covello, Corporate Counsel. Please begin.

Brendan Covello, Corporate Counsel

Good morning, everyone. Welcome to CareCloud's Fourth Quarter and Full Year 2025 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 21 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 acquisitions. 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 of 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 other reports filed with the Securities and Exchange Commission, where you will find a more comprehensive discussion of our performance and factors that could cause actual results to differ materially from those forward-looking statements. For anyone who dialed into the call by telephone, you may want to download our fourth quarter and full year 2025 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com. Click on News and Events, then click IR Calendar, click on Fourth Quarter and Full Year 2025 Results Conference Call and download the earnings presentation. Finally, on today's call, we may refer to certain non-GAAP financial measures. Please refer to today's press release announcing our fourth quarter and full year 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 our CEO, Stephen Snyder.

Stephen Snyder, CEO

Thanks, Brendan, and good morning, everyone. I'm pleased to report that 2025 was a transformational year for CareCloud, marked by exceptional financial performance, strategic acquisitions that expanded our market reach and a successful launch of our flagship AI platform. We delivered results that underscore the strength of our business model and validate our vision for the company's future. In particular, I'm pleased to be able to talk today about our revenue growth, the remarkable acceleration of our profitability and free cash flow, the current status of our capital structure, the significance of our 2025 acquisitions, the evolution of our services offering and AI platform, our market position and growth drivers as we enter 2026 and our guidance for the year ahead. First, let me start with our top line numbers. For the full year 2025, we generated revenue of $120.5 million, representing nearly 9% year-over-year growth. In Q4 specifically, we achieved revenue of $34.4 million, up nearly 22% year-over-year, demonstrating accelerating momentum as we entered this year. Importantly, we raised our revenue guidance twice during 2025 and still exceeded the final target, a pattern that reflects the underlying health and predictability of our recurring revenue streams. Second, as to profitability, we reported GAAP net income of $10.8 million for 2025, a year-over-year increase of more than 37%. We achieved earnings per share of $0.10, marking our first full year of positive EPS since our 2014 IPO, a remarkable milestone that reflects our multiyear transformation to sustainable profitability. In Q4 alone, we posted GAAP earnings per share of $0.04. Adjusted EBITDA expanded to $27.5 million with a 23% margin, up more than 14% year-over-year. But perhaps most importantly, we generated $28.6 million in GAAP operating cash flow for the full year, a 38% increase year-over-year and $8.7 million in Q4 alone, up 66%. Non-GAAP free cash flow reached approximately $20.5 million for 2025 compared to $13.2 million in 2024 and representing growth of more than 500% from 2023. This dramatic improvement in free cash flow generation has been transformational to our financial flexibility and strategic optionality. It enabled us to resume dividends on our preferred shares at the beginning of 2025 to begin paying double dividends on our Series B preferred stock starting in 2026 to address the accumulated arrearages and to fund multiple acquisitions during 2025, entirely from free cash flow generated during that year. Third, as to our capital structure, during 2025, we completed the conversion of approximately 80% of our Series A preferred shares into common. The conversion eliminated more than $7 million in annual dividend obligations, and we fully repaid our Provident Bank credit line by year-end, entering 2026 with 0 drawn on our credit line. Reducing the complexity of our capital structure remains a core priority. Fourth, we made significant strides during 2025 on the M&A front. We completed multiple transactions during the year, each strategically selected to expand our capabilities and market reach. These deals were all executed at less than 1x revenue multiples, funded entirely through the free cash flow we generated during 2025 and resulted in 0 common shareholder dilution. The most significant of these was our August acquisition of Medsphere Systems, which brought us into the inpatient hospital market. Through Medsphere, we added a suite of ambulatory and inpatient software products, including the #1 Black Book ranked Wellsoft emergency information department system. This was a watershed moment for CareCloud. We evolved from an ambulatory first to a care continuum company, able to support the full patient and clinician journey from outpatient clinic to emergency department to inpatient bed through the revenue cycle and into the supply chain. Integration is well underway. We are incorporating our AI tools into the platform, and we are already seeing new customer wins under the CareCloud umbrella. We also acquired MAP App from the Healthcare Financial Management Association, or HFMA, in October of last year, alongside a long-term joint marketing agreement. MAP App is a hospital benchmarking and performance analytics platform used by leading hospitals and integrated delivery networks to measure and compare revenue cycle metrics. MAP App identifies where a hospital is underperforming and CareCloud's RCM and AI provide the solution, a sales motion with built-in urgency and quantifiable ROI that we intend to scale in 2026 and beyond. Through Medsphere and MAP App, we now serve hospital systems and health networks, creating a natural cross-selling runway for our AI solutions and RCM services. Our 2026 growth strategy centers on penetrating these newly acquired health system customers with our RCM and AI products, exactly the kind of operating leverage that justifies these strategic investments. Fifth, we have continued to position ourselves as an emerging leader in health care IT. We recognize that the health care technology market is at an inflection point. AI adoption is moving from pilot programs to production deployment and providers are actively seeking partners who can integrate AI across their clinical and administrative workflows. We are operating in a market with a multibillion-dollar addressable opportunity in the U.S. alone for our AI front desk assistant and that is just one application in our broader AI framework. We launched stratusAI Front Desk Agent in December 2025 and are already seeing strong early traction. Hadi will provide more details on our AI products and roadmap. But from a business perspective, our combination of domain expertise, distribution and clinical data gives us a competitive moat that is extraordinarily difficult to replicate. Sixth, let me turn to our market position and growth drivers. In 2026, we will continue to leverage our dual platform footprint in ambulatory and inpatient markets to drive organic growth and acquisition synergies. Our primary growth vectors, ambulatory cross-selling, deeper hospital penetration of existing relationships and AI monetization represent a compounding opportunity that positions us for durable growth. As we have noted in prior calls, strategic acquisitions have been a cornerstone of our growth historically, and 2025 marked the year where we reignited that momentum after a multiyear pause during which we refreshed our financial foundation, achieved sustainable profitability and launched our AI Center of Excellence. We were patient because we wanted to acquire from a position of strength, and that patience has paid off. All of our 2025 acquisitions follow the same disciplined playbook, acquisition purchases non-dilutive to common shareholders, structured to maintain balance sheet flexibility and priced at attractive valuations of 1x revenue or less. What is particularly exciting now is that AI is further accelerating our acquisition opportunity set. We expect to remain active in the M&A front in 2026 and beyond as we identify complementary targets that extend our reach and can benefit from our AI capabilities. Seventh, turning to our guidance for 2026. It reflects continued growth with accelerating profitability. We expect revenue of $128 million to $130 million and adjusted EBITDA of $29 million to $31 million, reflecting margin expansion. We further expect GAAP EPS of $0.20 to $0.23 per share, which would represent an increase of more than 100% over 2025. We have set this guidance at levels that we believe are achievable and consistent with our track record, and we intend to execute against it with discipline. As we reflect on 2025, we are humbled by the progress we have made across every dimension of our business. We exceeded previously raised revenue guidance. We delivered our first year of positive EPS as a public company. We generated exceptional free cash flow growth, increasing more than 500% over the last 3 years. We executed strategic acquisitions without diluting shareholders. We launched a transformational AI platform that is already gaining market traction, and we strengthened our market position through acquisition-driven diversification. Together, they represent a fundamental repositioning of CareCloud as a full continuum health care technology platform with AI at its core. We believe these achievements position us to deliver sustained value creation for our shareholders, clients, and employees. We are entering 2026 with more momentum, more scale, and a stronger balance sheet than at any point in time in our history, and we look forward to achieving our objectives in 2026 and beyond. With that, I'll turn the call over to Hadi Chaudhry, our Chief Strategy Officer, who will provide more details on our acquisition strategy and product roadmap.

A. Hadi Chaudhry, Chief Strategy Officer

Thank you, Steve. Good morning, everyone, and thank you for joining today. Steve has walked you through an outstanding financial year. That performance gives us the platform to do something really important, invest aggressively and deliberately in AI. My job today is to take you inside that effort, what we have built, what's working and where we are taking it in 2026. In April 2025, we launched CareCloud's AI Center of Excellence, a fully operational production-grade initiative with one mandate, build AI solutions that create measurable impact for health care providers. This is not a research lab or a pilot program. It is the engine behind everything in our AI portfolio. We built this capability in-house because AI and health care cannot be generic. It must be trained on the right data, integrated into real clinical and administrative workflows, and designed around health care-specific compliance and accuracy. The AI Center of Excellence brings together engineering, data science, clinical informatics, and product development to deliver exactly that. Let me walk you through what we have launched. Our flagship AI product of 2025 is stratusAI Front Desk Agent, which reached full commercial release in December. It is an agentic AI phone receptionist, fully autonomous, operating 24 hours a day, 7 days a week, ending patient calls with natural human-like conversation. The scope of what it manages is significant, including appointment scheduling, rescheduling and cancellations, real-time insurance eligibility verification and demographic capture, prescription refill routing, lab results inquiries, referral requests, and automated confirmations and reminders. When a call requires human judgment, it escalates intelligently to a live staff member. The system is deeply integrated within our EHR and practice management platforms, which means there is no manual data re-entry and no third-party middleware between the AI and the patient record. Our results speak for themselves. Dr. Holden, owner of the Lung Center, shared that stratusAI Desk Agent is now handling nearly 80% of their inbound scheduling-related calls, freeing his staff to focus on more complex patient needs. There is a fundamental shift in how our practice operates, and it is exactly the outcome we designed this product to deliver. Alongside Desk Agent, we have stratusAI Voice Audit, our conversational intelligence platform that gives practice administrators and hospital operations leaders visibility into every patient phone interaction, whether handled by AI or by a staff member. Voice Audit delivers call monitoring, quality scoring, trend analysis, and patient sentiment insights. It shows what's working, where workflows are breaking down, and where there are opportunities to improve the patient experience. Beyond patient access, we are applying AI deeply across revenue cycle management, the core of our business. AI capabilities are already active throughout our RCM operations, helping reduce claim errors, improve appeals and documentation accuracy, and increase first-pass acceptance rates with payers. Importantly, AI also allows us to shift from relying primarily on lagging indicators such as denial rates and days in accounts receivable to monitoring leading indicators earlier in the revenue cycle. By identifying potential issues at intake, eligibility verification, coding, and claim creation, we can prevent problems before a claim is ever submitted rather than reacting after a denial occurs. Our longer-term ambition is to establish a new industry benchmark, zero-touch claims, a fully automated workflow where AI manages intake, validation, submission, and payer follow-up with minimal human intervention. This enables billing teams to focus their expertise on true exceptions rather than routine processing. We are also developing AI-driven prior authorization capabilities, which represent one of the most significant administrative bottlenecks in health care today. Prior authorization delays drive revenue leakage, delay patient care, and consume enormous staff time. Our approach is to use AI to predict authorization requirements, pre-populate supporting documentation, and route requests automatically, reducing turnaround time and the rate of initial denials. We are also actively developing an AI-assisted medical coding product. Accurate coding is foundational to revenue cycle performance. Errors at that stage cascade into denials, delays, and lost reimbursement. For clients using CirrusAI Notes, the two products work in concert, taking a clinical encounter seamlessly from documentation through accurate coding assignment. On the clinical side, CirrusAI Notes addresses documentation burden, a primary driver of physician burnout. It captures the clinical encounter and generates structured notes for physicians to review and sign off on rather than authoring from scratch. It is live and in use today, and it earns clinician trust precisely because it does not try to replace physician judgment; it removes the administrative burden around it. I want to spend a moment on the intersection of our acquisition strategy and our AI capabilities because I think this is one of the most compelling and underappreciated aspects of our story. Each platform in the Medsphere portfolio is embedded in real clinical operations, serving workflows previously outside CareCloud's reach, and none of them had a dedicated AI team behind them until now. Clients across this portfolio will also benefit from access to CareCloud's ambulatory AI-enabled solutions as our integration work progresses, bringing the full capability of our platform to bear across the care continuum. Our AI Center of Excellence is actively scoping AI enhancements across this portfolio, prioritizing the highest impact use cases in supply chain efficiency, emergency department workflow, and clinical documentation. As those enhancements are completed and validated, they will be made available to the clients. To be clear about sequencing, the new clients we are winning today are selecting these platforms on the strength of what they deliver right now. Our contract win with Memorial Hospital in Ohio, deploying HealthLine for supply chain management, is a strong signal of that underlying demand. As our AI capabilities for HealthLine mature, Memorial and clients like them will be positioned to adopt these enhancements when they are ready. The same logic applies to Wellsoft. In January, Affinity Urgent Care in the Houston-Galveston area selected Wellsoft, bringing our emergency-grade documentation system into urgent care settings for the first time. With approximately 11,000 urgent care facilities across the United States, this channel represents a meaningful expansion of our addressable market. The AI layer for Wellsoft is in development. And when it is ready, it will strengthen our competitive position in the channel considerably. On the AI side, MAP App becomes more powerful over time. Our roadmap adds recommendations that go beyond identifying a revenue cycle gap to quantifying its dollar impact and surfacing the automation that closes it quickest, moving us from analytics to action—a conversation hospital CFOs are very receptive to. The HFMA relationship also gives us distribution into hospital finance leadership that would take years to build organically. And combined with our AI roadmap for MAP App, we have compelling reasons to be in those conversations in 2026. Looking ahead, I want to be direct about what 2026 means for our AI strategy. We have spent 2025 building the AI Center of Excellence, the stratusAI product suite, the acquisitions that expand our platform. 2026 is the year we execute. Let me walk you through our priorities. First, we will continue expanding our AI product suite across the full platform. StratusAI Desk Agent and Voice Audit are live and scaling. CirrusAI Notes is deployed and being integrated across the Medsphere suite. AI-assisted coding and prior authorization AI are both targeted for release this year. Second, we will execute on the cross-sell opportunity at the product level. Steve outlined the strategic case Medsphere relationships, RCM capabilities, and HFMA partnership. My focus is making sure the AI products are ready to support that motion. CirrusAI Notes integrated into Medsphere’s suite, the coding product available to hospital billing teams, and stratusAI Desk Agent deployable in hospital patient access centers. Third, we will continue building the AI Center of Excellence, deepening our clinical data sets, developing proprietary models trained on health care-specific workflows, and partnering selectively with AI leading infrastructure providers where it helps us move faster. The principle is always the same. Health care native AI built with the right guardrails delivers better and more defensible outcomes than generic AI applied to health care settings. Fourth and most importantly, we will hold ourselves accountable to client outcomes, not just product releases. The measure of AI investment is not feature ship. It is revenue improvements, denial rate reductions, time saved per provider, and patient satisfaction scores. Those are the metrics we track internally, and they are the ones we will be sharing with you as our AI business matures. I want to close with the thought on why this moment is meaningful. Providers across every care setting are seeking purpose-built AI that integrates into the systems they already use. This is precisely what we are building across ambulatory, emergency, inpatient, and hospital billing operations. CareCloud sits at a rare intersection, long-standing relationships with over 45,000 providers across the care continuum, a fully integrated platform spanning EHR, practice management, RCM, supply chains, and hospital systems, and a dedicated AI organization focused entirely on solving health care operational problems. We are a profitable, growing company with a clear AI strategy and the operational discipline to execute it. I look forward to sharing our progress with you throughout the year. With that, I will turn the call over to Norm Roth, our Interim CFO and Corporate Controller, who will walk you through the detailed financial results.

Norman Roth, Interim CFO and Corporate Controller

Thank you, Hadi, and thanks, everyone, for joining our call today. As you have just heard, we had another strong quarter and a strong finish to the year. We have accomplished and exceeded the goals we set for ourselves for 2025. In particular, we are now generating record levels of free cash flow and resumed paying dividends on our preferred shares, which started in February 2025, and we've also been catching up on the dividend arrearage for the Series B preferred stock. Further, we have fully repaid our Provident Bank line of credit at the end of the year, we had borrowed funds for the Medsphere acquisition and now have the full $10 million line of credit available. We generated $20.5 million of free cash flow in 2025, which we measure as cash from operations less purchases of property and equipment and capitalized software and other intangible assets. In 2025, we began seeking out acquisition opportunities, and during the year, we completed 4 acquisitions. We continue to evaluate acquisition opportunities that will be accretive to the company. The key to growing our free cash flow continues to be reducing expenses and growing our GAAP net income. Fourth quarter 2025 GAAP net income was $2.9 million as compared to $3.3 million in the same period last year. This is our seventh consecutive quarter achieving positive GAAP net income. Revenue for the fourth quarter 2025 was $34.4 million compared to $28.2 million for the fourth quarter of 2024. There was approximately $7.2 million in revenue related to the Medsphere acquisition in the fourth quarter. Adjusted EBITDA for the fourth quarter 2025 was $7.7 million or 22% of revenue compared to $7.1 million in the same period last year. This was an increase of 8% year-over-year. For the full year, the story is similar. With our emphasis on improving profitability, revenue for the year 2025 was $120.5 million compared to $110.8 million in 2024. Our GAAP operating income was $11.3 million compared to $9.1 million in the same period last year, and our GAAP net income was $10.8 million compared to a GAAP net income of $7.9 million for 2024. This was the highest GAAP net income for the company since inception. Non-GAAP adjusted net income was $14.4 million or $0.34 per share, calculated using the end-of-period common shares outstanding. Since going public, this is the first year we have had positive full-year GAAP EPS. For the year 2025, adjusted EBITDA was $27.5 million, an increase of 15% or $3.4 million from $24.1 million last year. Our adjusted EBITDA for the full year 2025 was also the highest amount ever achieved by the company. During the year 2025, we generated $28.6 million of cash from operations compared to $20.6 million in the prior year and $20.5 million of free cash flow as defined. The free cash flow amount of $20.5 million increased by 55% compared to $13.2 million in the same period last year. As of December 31, 2025, the company had approximately $3.6 million of cash. Net working capital was approximately $1.3 million. Now that we have repaid our line of credit, free cash flow during 2026 will allow us to increase our cash balance and build additional cushion in our net working capital. Our financial position continued to improve during the year 2025. We are happy to report strong financial results, no amounts outstanding on our line of credit, cash savings from the Series A preferred stock conversion that occurred in March 2025 and look forward to continuing to report strong results next year. With that, I'll now turn the call over to Mahmud for his closing remarks.

Mahmud Haq, Founder and Executive Chairman

Thank you, Norm. 2025 was a milestone year for CareCloud. We delivered strong profitability and free cash flow, expanded into the hospital market through strategic acquisitions, and launched an AI platform that positions us well for the future. What is most exciting is that we are just getting started. We enter 2026 with strong momentum, a stronger balance sheet, and significant opportunities to drive growth across our platform. I want to thank our employees, clients, and shareholders for their continued trust and support. We remain focused on disciplined execution, innovation, and creating long-term value for all of our stakeholders. Operator, please open the line for questions.

Operator, Operator

Our first question is from Allen Klee with Maxim Group.

Allen Klee, Analyst

Great quarter. So when I'm listening to your talk, the two big themes I'm hearing among others, are your emphasis on AI and acquisitions and how you can combine them and get benefits. So could you expand a little more on how you're planning on monetizing the AI in 2026? You've talked about, but I think it's important.

Stephen Snyder, CEO

For sure. Thanks for the question, Allen. So if we step back for those who haven't followed our story so closely, and we'll just talk about M&A first and then we'll dig a little bit deeper into the AI question specifically that you asked. So first of all, from an M&A perspective, the environment today continues to be increasingly favorable. AI is a catalyst for smaller billing companies and for health care companies that focus on delivering software products to the inpatient, also the ambulatory space because they recognize the fact that without AI, their competitive position continues to weaken in the market. So that's driving more sellers into our pipeline than ever before. Our strategy continues to be one of patience and discipline like we've followed for years. So we wait for an opportunity where the recurring revenue associated with, first of all, it has to be recurring revenue relationships, a portfolio of recurring relationships, revenue relationships. And then secondly, from a valuation perspective, we really target valuations of between 0.6 and 1x revenue. That compares very favorably to the CAC in our space, which is typically about 1.5x or greater revenue. So we move forward with these acquisitions. And then with regard to that, those base companies that are part of that portfolio, we aim to bring them from a status of typically breakeven or operating at a loss to about 25% to 30% profitability margins typically within about 9 months. So that's the base strategy. You've asked about the AI overlay to that, and that's where I think the whole strategy gets even more interesting. So if we think about the, just as an example, if we think about the Medsphere acquisition, we've purchased software products that lack that AI capability. And what our team has been doing is that it's been really focused in on taking the core AI products, taking the CirrusAI product, the stratusAI product, taking the AI Notes applications and the like and then weaving that and incorporating that fully into those platforms. And we expect to have that done within the next couple of quarters. So we're able to take those platforms and to make them increasingly more attractive and platforms that as opposed to lagging behind where the space is will be increasingly leading in their particular markets. So we see some exciting potential there. The second thing would be if we think about this from the perspective of revenue cycle companies, we now are increasingly using AI and automation to handle a lot of the services that before were being handled by individuals here in the U.S. or members of our team globally. So AI and automation is increasingly assisting with the back-office processing enabling us to further drive margins. And Hadi might have something else to add to that from an AI perspective.

A. Hadi Chaudhry, Chief Strategy Officer

Sure. Thank you, Steve. Just to add on to what Steve has mentioned, our strategy from the AI perspective has been the same and threefold. One, continue to focus on the improvement and implementation of AI in the back-end operations, whether it's the basic denial management, whether it's the automation of, as an example, the referrals and verification of the benefits, and the like, and then there are many others. And the second is the AI enablement or AI integration into the existing product suite that we have, whether it's our own EHR practice management platform or these other companies, as Steve mentioned that we are acquiring, the team continues to focus on building the AI layer to make it more attractive and more marketable. And then continue to focus on any other net new applications that we can bring to the market such as the stratusAI FDA.

Allen Klee, Analyst

That's very helpful. Then it was encouraging to see like contract wins with new customers. Could you talk about how you think, what was behind the win and how you think that's an opportunity going forward?

Stephen Snyder, CEO

Allen, if we think about our overall sales team and our marketing team, we've expanded that team by 2 or 3x. So we have an increased team that's focused on cross-selling and also these net new opportunities. Having said that, we continue to see the real opportunities this year being primarily in expanding the wallet share of those existing customers, many of whom we've acquired more recently through the Medsphere and the MAP App transactions. So through those transactions, we've acquired more than 100 new hospitals and health systems who we're working with. And we see significant opportunity to sell more deeply into these existing clients by providing additional services and solutions, AI products, RCM solutions with a real focus on stratusAI and CirrusAI that can add value, and we believe will resonate with this market. So yes, 100%, we've had some new wins. We talked about a new Wellsoft win. Wellsoft is our recently #1 Black Book ranked EHR that's focused on the emergency departments. So we had a win there. And we also had a win with regard to our supply chain product as well. So we have those new wins, but we really think that the real opportunity will be continuing to cross-sell and upsell to the existing customers.

Allen Klee, Analyst

Okay. You mentioned that you launched the front-end AI in December, and you believe it's a very large opportunity. How are you targeting that, and what early indications do you have of interest? Any comments on that?

Stephen Snyder, CEO

For sure. Yes. Allen, you're talking about our stratusAI product. And again, the market opportunity is estimated to be $4 billion-plus. And Hadi can provide a little bit more visibility with regard to the early response, but we've really been encouraged by how well that's resonated with regards to our existing base. Our sales efforts are almost exclusively focused on our existing base, and we're getting significant traction there. But over to Hadi.

A. Hadi Chaudhry, Chief Strategy Officer

Thank you. To your point, Steve, so we are seeing a very encouraging early adoption since the launch in the commercial launch in December. While we are not disclosing a specific client count at this stage, our deployment pipeline is really robust across the existing ambulatory client base. And we yet need to tap into aggressively into the Medsphere client base that our team has aggressively been working towards integrating across the product suite there. So at the moment, we have seen exceptional interest from our existing client base. So we expect to share more specific adoption metrics as we progress through 2026.

Operator, Operator

Our next question is from Michael Kim with Zacks Small-Cap Research.

Michael Kim, Analyst

So first, there continues to be a lot of uncertainty in the markets as it relates to AI and the potential impacts on SaaS companies. So just wondering how investors should think about CareCloud's exposure to AI disruption versus maybe being more of an AI beneficiary?

Stephen Snyder, CEO

Thank you, Michael. You are absolutely correct. The recent sell-off in the SaaS market has been significant and affects all companies without distinction. It has not selectively targeted companies at higher risk versus those at lower risk. We believe that the most vulnerable companies are the horizontal per-seat tools for generic tasks, such as scheduling apps and basic CRM systems, where AI can easily replicate and replace essential functions. However, this is not the nature of our business. I would like to emphasize our focus on the health care sector. The health care IT space, in particular, has strong industry barriers that horizontal SaaS companies lack. For instance, our AI products must undergo rigorous testing and certification by government-approved entities before launch and for any major changes. Consequently, new market entrants from AI companies face significant limitations. Additionally, we operate under HIPAA and a plethora of other health care regulations that present substantial entry barriers. We serve as the primary system of record for our providers across clinical, financial, and administrative functions, with all relevant data residing on our existing platform. Fundamentally, what our clients achieve by leveraging our services is largely about transferring their risk to us. They depend on us to securely handle their data, ensure compliance, and fundamentally produce revenue for their practices. Thus, our SaaS offering is not just a standalone tool; it serves as the technological backbone that supports our integrated revenue cycle management services. Our clients pay us based on the actual value we provide since most of them compensate us with a percentage of their practice collections for both our electronic health record and revenue cycle management offerings. This approach is fundamentally different from many other companies facing similar challenges. Additionally, we have over 25 years of proprietary data spanning hundreds of millions of claims. This information informs our AI products, ensuring coding accuracy, managing denials, and providing benchmarking, which new market entrants typically lack. In our view, with our valuation at 5x or 6x EBITDA, despite generating $20.5 million in free cash flow last year, we continue to trade at a fraction of the market's overall valuations and even less than other health care IT peers, which are valued at more than double that. As the market shifts away from indiscriminately treating all companies working with AI, we believe it will adopt a more nuanced perspective, distinguishing between companies genuinely threatened by AI and those for whom AI enhances their competitive advantages and value in existing relationships. We clearly belong to that latter group.

Michael Kim, Analyst

Got it. Makes a lot of sense. And then second, clearly, earnings power and free cash flow continue to build. So just wondering what sort of assumptions you're building in as it relates to the 2026 guidance ranges and then how you think about sort of the trajectory of growth looking out beyond next year?

Stephen Snyder, CEO

For us, 2025 was a significant year. It marked our first year of producing positive earnings per share since going public in 2014. We achieved 7 consecutive quarters of GAAP profitability, with free cash flow increasing by 55% compared to 2024, reaching $20.5 million in 2025. Our EPS guidance for this year is between $0.20 and $0.23, indicating over 100% growth, and we are very confident in this guidance. The overall growth is largely driven by top line growth, integration savings from acquired companies, and efficiencies gained from AI. Additionally, we've eliminated more than $7.5 million in preferred dividend obligations annually through conversions in 2025, which enhances our free cash flow and provides flexibility for funding mergers and acquisitions. Last year, we successfully acquired four companies using the cash flow generated in 2025 without diluting common shareholders. We also invested in our AI development and fully resumed payments to our Series A and Series B shareholders. Furthermore, we are paying double dividends to address the arrears related to Series B. From a funding standpoint, our operations are driving flexibility and opening new opportunities. Looking beyond 2026 and 2027, we believe we will continue to fundamentally expand our overall margin profile as we scale.

Operator, Operator

Our next question is from Michael Galantino with Chaplin Davis.

Michael Galantino, Analyst

It’s been a great year and a great quarter, finishing strong. I’ve been with the company for a little over nine years, and we’ve all witnessed significant changes in the industry. Nine years ago, AI was hardly a concept, and now it’s central to our strategy. The team has done an excellent job navigating this shift, especially over the last two to three years. I have a couple of questions. Steve, first regarding AI: does the company’s AI technology help save money operationally, and does it boost our margins? Also, you mentioned the significant pressure on software stocks over the past few months. Can you comment on that? My second question is about our substantial excess cash flow, which is a great challenge to have. How do you plan to utilize that excess cash if there are no acquisition opportunities this year?

Stephen Snyder, CEO

Thank you, Mike. I value your questions. Let me start by addressing the first one. If we take a moment to reflect on the overall revenue of the company, looking back at the fourth quarter of 2024, we were around $110 million on an annualized basis. Today, we are likely at about $125 million. These are approximate figures, but they indicate that we have grown our overall revenue by roughly 14% to 15%. Notably, we’ve achieved this growth while actually reducing our workforce compared to 2024. This fundamentally highlights our capabilities, largely driven by AI and automation. As the year moves on, I expect to show that we can accomplish much more with fewer resources. We anticipate that the savings and margins will continue to improve as we progress. Moreover, we are likely just at the beginning of this journey. Our AI Center of Excellence was launched less than a year ago, meaning the long-term impacts are yet to be fully reflected in our financials. However, based on the current data, we believe there's a significant chance for us to reduce overall expenses tied to revenue as we keep growing it. Regarding our use of free cash flow, we are actively seeking opportunities to invest that capital into acquisitions, focusing on companies in our sector and ideally funding these from our internally generated cash flow. Another key area of focus will be seeking ways to strengthen our capital structure as our profit margins grow. Lastly, we will continue to invest in AI and look for opportunities to expand the capacity of our software products, allowing us to take on an increasing share of the responsibilities managed by our clients today.

Michael Galantino, Analyst

Just a quick follow-up. When you guys are competing for this business, who is your competition? Who's out there bidding on the same business that CareCloud is right now? Are there much larger firms? Are they smaller startups? Or who is our direct competition for this business?

Stephen Snyder, CEO

Good question, Mike. To address that, we would need to examine a few different areas. From an EHR standpoint, we often compete with companies like eClinicalWorks, AdvancedMD, and others that are focused on the ambulatory space. These would be two of the main competitors, along with athenahealth, which emphasizes integrated solutions that include both software and revenue cycle management services. When it comes to AI, the competition is broader and varies by product. For example, our CirrusAI product, which utilizes audio and ambient sounds from interactions between the provider and the patient in the exam room to populate the chart, faces competition from similar solutions offered by other companies. Some of those solutions are built in-house, while others come from third-party applications that integrate into their platforms. However, regarding the product Hadi mentioned earlier, many of our competitors do not provide that specific solution. One company to consider is SoundHound, which has a product called Amelia that shares similar functionality. Unlike us, SoundHound does not take a vertical approach and sells horizontally in this space, lacking its own EHR to incorporate the product. Notably, SoundHound has a valuation of about 20x today, which we believe creates significant opportunities for investors as the market recognizes our proof of concept and our ability to successfully implement our solution for our current customers.

Operator, Operator

Our final question is a follow-up from Allen Klee with Maxim Group.

Allen Klee, Analyst

Yes. Just on the financials quick thing. In terms of your outlook, any comments on thoughts of CapEx and capitalized software spending? And your guidance overall, does it include any unannounced acquisitions?

Stephen Snyder, CEO

Great question. I'll let Norm handle the first part of that, but the answer to your second part of your question is no. It does not include any unannounced material acquisitions.

Norman Roth, Interim CFO and Corporate Controller

And I think, Allen, you're looking at CapEx and software, I think if you look at the levels from this year, I think they'd be the same or maybe a little less. So if you wanted to use that as your forecast.

Allen Klee, Analyst

Okay. Just to follow up on the operating expenses run rate, I understand you're increasing R&D, but do you still expect that utilizing AI will help you achieve some benefits on the expense side?

Stephen Snyder, CEO

Absolutely, we do believe we can achieve everything we're aiming for in AI compared to a year ago, and we can do it with a smaller team than we initially anticipated. There has been significant progress in the key AI models we use, which form the backbone of our overall framework. We truly believe we can accomplish our AI objectives with a leaner team. Consequently, we expect to spend less on the AI Center of Excellence. Furthermore, the investments we are making now will help us become more efficient and further improve our margins.

Operator, Operator

With no further questions, I would like to turn the conference back over to Norman for closing remarks.

Norman Roth, Interim CFO and Corporate Controller

Thank you, everyone, for attending our call today. Have a great day.

Operator, Operator

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.