CareCloud Inc. (CCLD:NASDAQ) has halted payments for its Series A and B non-convertible cumulative preferred redeemable perpetual stock, according to Roth MKM analyst Richard Baldry in a March 21 research note.
Baldry noted that this showcases the company's challenges and that while this cost reduction will impact the company's bottom line in a positive way, more will be needed for the company to stabilize financially.
"If cuts do not also result in worsening revenue retention (and/or if revenue growth were to resume ahead of expectation), a path to dividend payment resumption and equity shareholder value improvement could emerge by 2H24," Baldry said, writing that because of this, he will be maintaining his Buy rating and US$2 target price.
However, he pointed out that current costs are still much higher than they should be compared to the company's stalled revenues. Baldry pointed out that Q323 revenue was down 13% year-over-year at US$29.3 million, and did not quite hit the previous estimate of US$30.4 million. Q4 was not much better, once again, skirting the US$120-122 million expectation with revenues of US$31.4-33.4 million.
Baldry wrote, "We believe that the current focus on cost-cutting is limiting growth opportunities, and its MedSR segment continues to be weak, but we do view the cuts as the necessary point of focus near-term."
Due to this, Baldry's 2024 estimate has been lowered slightly to US$118.0M from US$123.5M.
However, Badlry stated that his 2024 AEBITDA forecast will remain as it is, deciding that the lowered revenue forecast will offset any incremental savings.
With this intense pullback, Baldry pointed out that CareCloud's market cap is only at a 1.6x run-rate revenues, "with equity valued at under US$21M and the bulk of its enterprise value in its US$150M in preferred shares (which we treat as debt) and US$10M in credit borrowings."
While all of this may cause short-term pain, it is believed that these pressures will end in additional cost cutting, which will give the company a stable P&L foundation.
"Our US$2.00 price target reflects our view that cost cutting should result in an improved financial foundation," Baldry said.
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