CareCloud Delivers Growth and Strong Cash Flow in Q1 2025, Advances AI and Acquisition Strategy
- Revenue increased 6% year-over-year to $27.6M
- Turned $241K loss into $1.9M GAAP net income YoY
- Adjusted EBITDA grew 52% to $5.6M
- Series A preferred stock conversion reduced annual dividend commitment by $7.7M
- Successfully completed two strategic acquisitions
- Resumed preferred dividend payments
- Launched AI Center of Excellence with plans for 500 AI specialists
- Significant dilution from conversion of 3.5M Series A preferred shares into 26M common shares
- Still maintaining high dividend rates of 8.75% on remaining preferred stock
Insights
CareCloud's Q1 shows strong turnaround with 52% EBITDA growth, improved capital structure, and resumed dividends while funding AI expansion.
CareCloud's Q1 2025 results signal a remarkable financial turnaround. While the 6% revenue growth to
Most impressive is the
The resumption of preferred dividends in February 2025 signals management's confidence in sustainable cash generation. With
The reaffirmed 2025 guidance of
CareCloud's launch of AI Center of Excellence with 500 specialists planned by Q4 represents major strategic pivot in healthcare tech.
CareCloud's establishment of a dedicated AI Center of Excellence represents a significant strategic pivot toward technological differentiation in the healthcare sector. The company has already onboarded 50 AI professionals with ambitious plans to scale to 500 specialists by Q4 2025 - a considerable commitment for a company of CareCloud's size.
Particularly noteworthy is the company's approach to funding this AI initiative entirely through operating cash flows rather than external capital. This self-funding strategy demonstrates both financial discipline and confidence in the ROI potential of their AI investments. The focus on practical applications - automating clinical workflows, optimizing revenue cycle management, and improving patient outcomes - suggests a pragmatic approach rather than pursuing speculative projects.
The AI initiative, combined with the two recently completed acquisitions in March and April 2025, points to a comprehensive transformation strategy balancing organic technological innovation with inorganic growth. This dual approach could potentially accelerate CareCloud's market position in the evolving healthcare technology landscape.
The scale of CareCloud's AI ambitions is particularly striking in the healthcare sector, where adoption of advanced AI has traditionally moved cautiously. By making such a substantial investment in AI talent, the company is positioning itself to potentially develop proprietary solutions that could differentiate its offerings in a competitive market.
SOMERSET, N.J., May 06, 2025 (GLOBE NEWSWIRE) -- CareCloud, Inc. (Nasdaq: CCLD, CCLDO), a leader in healthcare technology and generative AI solutions, today announced strong financial results for the three months ended March 31, 2025. CareCloud’s strategic execution, AI-driven innovation, and disciplined financial management have fueled a transformational turnaround, positioning the Company for sustained profitability and long-term growth. Management will discuss these results and the Company’s 2025 growth strategies in a live conference call today at 8:30 a.m. ET.
First Quarter 2025 Financial Highlights:
- Revenue of
$27.6 million , compared to$26.0 million in Q1 2024, an increase of6% year-over-year - GAAP net income of
$1.9 million , compared to a net loss of$241,000 in Q1 2024 - Adjusted EBITDA of
$5.6 million , compared to$3.7 million in Q1 2024, an increase of52% - Adjusted net income of
$2.3 million , or$0.05 per share - Cash balance of
$6.8 million and net working capital of$11.7 million as of March 31, 2025
Recent Strategic Updates
- AI Center of Excellence Launched: CareCloud launched its dedicated AI Center of Excellence, onboarding the first wave of over 50 AI professionals and aiming to scale to 500 AI specialists by fourth quarter 2025. The initiative is fully self-funded through operating cash flows.
- Series A Preferred Stock Conversion Completed: Successfully converted 3.5 million Series A preferred shares into 26 million common shares, reducing the annual dividend commitment by approximately
$7.7 million and strengthening cash flow and the capital structure. - Resumption of Preferred Dividends: Payments of preferred dividends resumed in February 2025.
- Acquisition Strategy Reignited: Completed two strategic acquisitions in March and April 2025, with additional acquisition opportunities actively under evaluation.
Management Commentary:
"The launch of our AI Center of Excellence marks a pivotal moment in CareCloud’s evolution," said A. Hadi Chaudhry, Co-CEO of CareCloud. "By building one of the largest dedicated healthcare AI teams globally, we believe we are creating real-world solutions to automate clinical workflows, optimize revenue cycle management, and improve patient outcomes. This initiative is intended to accelerate our operational efficiency as well as positioning CareCloud at the forefront of intelligent healthcare transformation — driving sustainable profitability and long-term growth for ourselves and the healthcare providers who use our services."
“After record profits and a successful turnaround in 2024, we are excited to announce continued momentum and strength as we enter 2025,” said Co-CEO Stephen Snyder. “With two recent acquisitions and the launch of our AI Center of Excellence, CareCloud is not just responding to the market shift — we are intending to lead it.”
“We are pleased to announce our fourth consecutive quarter of positive GAAP net income and an increase in revenue and adjusted EBITDA year over year,” said Norman Roth, Interim CFO and Corporate Controller of CareCloud. “We have resumed paying our Preferred Stock dividends monthly out of internally-generated free cash flow, while generating additional profits and cash flow to reinvest for future growth. To date we have declared six months of Preferred Stock dividends.”
Capital
On March 31, 2025, the Company had 984,530 shares of Series A Preferred Stock and 1,511,372 shares of non-convertible Series B Preferred Stock outstanding. As of March 31, 2025, the Series A and B shares both accrued dividends at the rate of
2025 Guidance: Poised for Growth
CareCloud is reconfirming its earnings guidance for 2025, expecting:
| For the Fiscal Year Ending December 31, 2025 Forward-Looking Guidance | |
| Revenue | |
| Adjusted EBITDA | |
| Net Income Per Share (EPS) | |
The Company continues to anticipate full year 2025 revenue of approximately
Adjusted EBITDA is expected to be
Conference Call Information
CareCloud management will host a conference call today at 8:30 a.m. Eastern Time to discuss the first three months of 2025 results. The live webcast of the conference call and related presentation slides can be accessed at ir.carecloud.com/events. An audio-only option is available by dialing 201-389-0920 and referencing “CareCloud First Quarter 2025 Results Conference Call.” Investors who opt for audio-only will need to download the related slides at ir.carecloud.com/events.
A replay of the conference call and related presentation slides will be available approximately three hours after conclusion of the call at the same link. An audio-only option can also be accessed by dialing 412-317-6671 and providing the access code 13753440.
Use of Non-GAAP Financial Measures
In our earnings releases, prepared remarks, conference calls, slide presentations, and webcasts, we use and discuss non-GAAP financial measures, as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the condensed consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investor Relations section of our web site at ir.carecloud.com.
Forward-Looking Statements
This press release contains various forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to anticipated future events, future results of operations or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “shall,” “should,” “could,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “seeks,” “estimates,” “forecasts,” “predicts,” “possible,” “potential,” “target,” or “continue” or the negative of these terms or other comparable terminology.
Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Forward-looking statements in this press release include, without limitation, statements reflecting management's expectations for future financial performance and operating expenditures, expected growth, profitability and business outlook, the impact of pandemics on our financial performance and business activities, and the expected results from the integration of our acquisitions.
These forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements, including without limitation, risks and uncertainties relating to the Company’s ability to manage growth, migrate newly acquired customers and retain new and existing customers, maintain cost-effective global operations, increase operational efficiency and reduce operating costs, predict and properly adjust to changes in reimbursement and other industry regulations and trends, retain the services of key personnel, develop new technologies, upgrade and adapt legacy and acquired technologies to work with evolving industry standards, compete with other companies’ products and services competitive with ours, manage and keep our information systems secure and other important risks and uncertainties referenced and discussed under the heading titled “Risk Factors” in the Company’s filings with the Securities and Exchange Commission.
The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company does not assume any obligations to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.
About CareCloud
CareCloud (Nasdaq: CCLD, CCLDO) brings disciplined innovation and generative AI solutions to the business of healthcare. Our suite of technology-enabled solutions helps clients increase financial and operational performance, streamline clinical workflows and improve the patient experience. More than 40,000 providers count on CareCloud to help them improve patient care while reducing administrative burdens and operating costs. Learn more about our products and services, including revenue cycle management (RCM), practice management (PM), electronic health records (EHR), artificial intelligence (AI), business intelligence (BI), patient experience management (PXM) and digital health, at carecloud.com.
Follow CareCloud on LinkedIn, X and Facebook.
For additional information, please visit our website at carecloud.com. To listen to video presentations by CareCloud’s management team, read recent press releases and view the latest investor presentation, please visit ir.carecloud.com.
SOURCE CareCloud
Company Contact:
Norman Roth
Interim Chief Financial Officer and Corporate Controller
CareCloud, Inc.
nroth@carecloud.com
Investor Contact:
Stephen Snyder
Co-Chief Executive Officer
CareCloud, Inc.
ir@carecloud.com
| CARECLOUD, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| ($ in thousands, except share and per share amounts) | ||||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 6,805 | $ | 5,145 | ||||
| Accounts receivable - net | 13,887 | 12,774 | ||||||
| Contract asset | 4,457 | 4,334 | ||||||
| Inventory | 609 | 574 | ||||||
| Current assets - related party | 16 | 16 | ||||||
| Prepaid expenses and other current assets | 2,843 | 1,957 | ||||||
| Total current assets | 28,617 | 24,800 | ||||||
| Property and equipment - net | 5,323 | 5,290 | ||||||
| Operating lease right-of-use assets | 3,097 | 3,133 | ||||||
| Intangible assets - net | 16,877 | 18,698 | ||||||
| Goodwill | 19,186 | 19,186 | ||||||
| Other assets | 456 | 507 | ||||||
| TOTAL ASSETS | $ | 73,556 | $ | 71,614 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4,951 | $ | 4,565 | ||||
| Accrued compensation | 2,865 | 1,817 | ||||||
| Accrued expenses | 5,002 | 4,951 | ||||||
| Operating lease liability (current portion) | 1,355 | 1,287 | ||||||
| Deferred revenue (current portion) | 1,297 | 1,212 | ||||||
| Notes payable (current portion) | 133 | 310 | ||||||
| Contingent consideration (current portion) | 47 | - | ||||||
| Dividend payable | 1,299 | 5,438 | ||||||
| Total current liabilities | 16,949 | 19,580 | ||||||
| Notes payable | 23 | 26 | ||||||
| Contingent consideration | 60 | - | ||||||
| Operating lease liability | 1,776 | 1,847 | ||||||
| Deferred revenue | 571 | 387 | ||||||
| Total liabilities | 19,379 | 21,840 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS' EQUITY: | ||||||||
| Preferred stock, | 2 | 6 | ||||||
| Common stock, | 43 | 17 | ||||||
| Additional paid-in capital | 123,537 | 121,046 | ||||||
| Accumulated deficit | (64,682 | ) | (66,630 | ) | ||||
| Accumulated other comprehensive loss | (4,061 | ) | (4,003 | ) | ||||
| Less: 740,799 common shares held in treasury, at cost at March 31, 2025 and December 31, 2024 | (662 | ) | (662 | ) | ||||
| Total shareholders' equity | 54,177 | 49,774 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 73,556 | $ | 71,614 | ||||
| CARECLOUD, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 | ||||||||
| ($ in thousands, except share and per share amounts) | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024* | |||||||
| NET REVENUE | $ | 27,632 | $ | 25,962 | ||||
| OPERATING EXPENSES: | ||||||||
| Direct operating costs | 15,464 | 15,177 | ||||||
| Selling and marketing | 1,131 | 1,770 | ||||||
| General and administrative | 4,332 | 3,721 | ||||||
| Research and development | 1,235 | 913 | ||||||
| Depreciation and amortization | 3,337 | 3,930 | ||||||
| Restructuring costs | 114 | 322 | ||||||
| Total operating expenses | 25,613 | 25,833 | ||||||
| OPERATING INCOME | 2,019 | 129 | ||||||
| OTHER: | ||||||||
| Interest income | 42 | 27 | ||||||
| Interest expense | (58 | ) | (365 | ) | ||||
| Other (expense) income - net | (14 | ) | 7 | |||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 1,989 | (202 | ) | |||||
| Income tax provision | 41 | 39 | ||||||
| NET INCOME (LOSS) | $ | 1,948 | $ | (241 | ) | |||
| Preferred stock dividend | 2,811 | 1,312 | ||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (863 | ) | $ | (1,553 | ) | ||
| Net loss per common share: basic and diluted | $ | (0.04 | ) | $ | (0.10 | ) | ||
| Weighted-average common shares used to compute basic and diluted loss per share | 23,813,943 | 16,014,309 | ||||||
* Restated to include the preferred stock dividends earned, but not declared, during the three months ended March 31, 2024.
| CARECLOUD, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 | ||||||||
| ($ in thousands) | ||||||||
| 2025 | 2024 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 1,948 | $ | (241 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 3,407 | 4,020 | ||||||
| Lease amortization | 480 | 509 | ||||||
| Deferred revenue | 269 | 58 | ||||||
| Provision for expected credit losses | 70 | 37 | ||||||
| Foreign exchange gain | (1 | ) | (11 | ) | ||||
| Interest accretion | 107 | 168 | ||||||
| Stock-based compensation expense (benefit) | 108 | (708 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,183 | ) | (111 | ) | ||||
| Contract asset | (105 | ) | (361 | ) | ||||
| Inventory | (35 | ) | (15 | ) | ||||
| Other assets | (908 | ) | - | |||||
| Accounts payable and other liabilities | 956 | 721 | ||||||
| Net cash provided by operating activities | 5,113 | 4,066 | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (624 | ) | (298 | ) | ||||
| Capitalized software and other intangible assets | (846 | ) | (1,570 | ) | ||||
| Initial payment for acquisition | (40 | ) | - | |||||
| Net cash used in investing activities | (1,510 | ) | (1,868 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Preferred stock dividends paid | (1,730 | ) | - | |||||
| Settlement of tax withholding obligations on stock issued to employees | (21 | ) | (151 | ) | ||||
| Repayments of notes payable | (181 | ) | (223 | ) | ||||
| Repayment of line of credit | - | (1,000 | ) | |||||
| Net cash used in financing activities | (1,932 | ) | (1,374 | ) | ||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (11 | ) | (17 | ) | ||||
| NET INCREASE IN CASH | 1,660 | 807 | ||||||
| CASH - Beginning of the period | 5,145 | 3,331 | ||||||
| CASH - End of the period | $ | 6,805 | $ | 4,138 | ||||
| SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of preferred stock and accrued dividends to common stock | $ | 2,435 | $ | - | ||||
| Dividends declared, not paid | $ | 1,299 | $ | 5 | ||||
| Purchase of prepaid insurance with assumption of note | $ | - | $ | 96 | ||||
| Reclass of deposits for property and equipment placed in service | $ | - | $ | 296 | ||||
| SUPPLEMENTAL INFORMATION - Cash paid during the period for: | ||||||||
| Income taxes | $ | 15 | $ | 6 | ||||
| Interest | $ | 18 | $ | 295 | ||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
The following is a reconciliation of the non-GAAP financial measures used by us to describe our financial results determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). An explanation of these measures is also included below under the heading “Explanation of Non-GAAP Financial Measures.”
While management believes that these non-GAAP financial measures provide useful supplemental information to investors regarding the underlying performance of our business operations, investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies, and management may utilize other measures to illustrate performance in the future. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP.
Adjusted EBITDA to GAAP Net Income (Loss)
Set forth below is a reconciliation of our “adjusted EBITDA” to our GAAP net income (loss).
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| ($ in thousands) | ||||||||
| Net revenue | $ | 27,632 | $ | 25,962 | ||||
| GAAP net income (loss) | 1,948 | (241 | ) | |||||
| Provision for income taxes | 41 | 39 | ||||||
| Net interest expense | 16 | 338 | ||||||
| Foreign exchange loss (gain) / other expense | 19 | (5 | ) | |||||
| Stock-based compensation expense (benefit) | 108 | (708 | ) | |||||
| Depreciation and amortization | 3,337 | 3,930 | ||||||
| Transaction and integration costs | 12 | 12 | ||||||
| Restructuring costs | 114 | 322 | ||||||
| Adjusted EBITDA | $ | 5,595 | $ | 3,687 | ||||
Non-GAAP Adjusted Operating Income to GAAP Operating Income
Set forth below is a reconciliation of our non-GAAP “adjusted operating income” and non-GAAP “adjusted operating margin” to our GAAP operating income and GAAP operating margin.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| ($ in thousands) | ||||||||
| Net revenue | $ | 27,632 | $ | 25,962 | ||||
| GAAP net income (loss) | 1,948 | (241 | ) | |||||
| Provision for income taxes | 41 | 39 | ||||||
| Net interest expense | 16 | 338 | ||||||
| Other expense (income) - net | 14 | (7 | ) | |||||
| GAAP operating income | 2,019 | 129 | ||||||
| GAAP operating margin | 7.3 | % | 0.5 | % | ||||
| Stock-based compensation expense (benefit) | 108 | (708 | ) | |||||
| Amortization of purchased intangible assets | 89 | 840 | ||||||
| Transaction and integration costs | 12 | 12 | ||||||
| Restructuring costs | 114 | 322 | ||||||
| Non-GAAP adjusted operating income | $ | 2,342 | $ | 595 | ||||
| Non-GAAP adjusted operating margin | 8.5 | % | 2.3 | % | ||||
Non-GAAP Adjusted Net Income to GAAP Net Income (Loss)
Set forth below is a reconciliation of our non-GAAP “adjusted net income” and non-GAAP “adjusted net income per share” to our GAAP net income (loss) and GAAP net loss per share.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| ($ in thousands) | ||||||||
| GAAP net income (loss) | $ | 1,948 | $ | (241 | ) | |||
| Foreign exchange loss (gain) / other expense | 19 | (5 | ) | |||||
| Stock-based compensation expense (benefit) | 108 | (708 | ) | |||||
| Amortization of purchased intangible assets | 89 | 840 | ||||||
| Transaction and integration costs | 12 | 12 | ||||||
| Restructuring costs | 114 | 322 | ||||||
| Non-GAAP adjusted net income | $ | 2,290 | $ | 220 | ||||
| End-of-period common shares | 42,321,129 | 16,118,492 | ||||||
| Non-GAAP adjusted net income per share | $ | 0.05 | $ | 0.01 | ||||
For purposes of determining non-GAAP adjusted net income per share, we used the number of common shares outstanding as of March 31, 2025 and 2024.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| GAAP net loss attributable to common shareholders, per share | $ | (0.04 | ) | $ | (0.10 | ) | ||
| Impact of preferred stock dividend | 0.09 | 0.08 | ||||||
| Net income (loss) per end-of-period share | 0.05 | (0.02 | ) | |||||
| Foreign exchange loss (gain) / other expense | 0.00 | 0.00 | ||||||
| Stock-based compensation expense (benefit) | 0.00 | (0.04 | ) | |||||
| Amortization of purchased intangible assets | 0.00 | 0.05 | ||||||
| Transaction and integration costs | 0.00 | 0.00 | ||||||
| Restructuring costs | 0.00 | 0.02 | ||||||
| Non-GAAP adjusted earnings per share | $ | 0.05 | $ | 0.01 | ||||
Net cash provided by operating activities to free cash flow
Set forth below is a reconciliation of our non-GAAP “free cash flow” to our GAAP net cash provided by operating activities.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| ($ in thousands) | ||||||||
| Net cash provided by operating activities | $ | 5,113 | $ | 4,066 | ||||
| Purchases of property and equipment | (624 | ) | (298 | ) | ||||
| Capitalized software and other intangible assets | (846 | ) | (1,570 | ) | ||||
| Free cash flow | $ | 3,643 | $ | 2,198 | ||||
| Net cash used in investing activities 1 | $ | (1,510 | ) | $ | (1,868 | ) | ||
| Net cash used in financing activities | $ | (1,932 | ) | $ | (1,374 | ) | ||
| 1 Net cash used in investing activities includes purchases of property and equipment and capitalized software and other intangible assets, which are also included in our computation of free cash flow. | ||||||||
Explanation of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States of America, or GAAP. However, management believes that, in order to properly understand our short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items, when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. Management also uses results of operations before such items to evaluate the operating performance of CareCloud and compare it against past periods, make operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. In addition, management understands that some investors and financial analysts find this information helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors.
Management uses adjusted EBITDA, adjusted operating income, adjusted operating margin, and non-GAAP adjusted net income to provide an understanding of aspects of operating results before the impact of investing and financing charges and income taxes. Adjusted EBITDA may be useful to an investor in evaluating our operating performance and liquidity because this measure excludes non-cash expenses as well as expenses pertaining to investing or financing transactions. Management defines “adjusted EBITDA” as the sum of GAAP net income (loss) before provision for income taxes, net interest expense, foreign exchange loss (gain) / other expense, stock-based compensation expense (benefit), depreciation and amortization, transaction and integration costs, and restructuring costs.
Management defines “non-GAAP adjusted operating income” as the sum of GAAP operating income before stock-based compensation expense (benefit), amortization of purchased intangible assets, transaction and integration costs, and restructuring costs, and “non-GAAP adjusted operating margin” as non-GAAP adjusted operating income divided by net revenue.
Management defines “non-GAAP adjusted net income” as the sum of GAAP net income (loss) before foreign exchange loss (gain) / other expense, stock-based compensation expense (benefit), amortization of purchased intangible assets, transaction and integration costs, and restructuring costs, and “non-GAAP adjusted net income per share” as non-GAAP adjusted net income divided by common shares outstanding at the end of the period.
Management defines “free cash flow” as the sum of net cash provided by operating activities less cash used for purchases of property and equipment and cash used to develop capitalized software and other intangible assets.
Management considers all of these non-GAAP financial measures to be important indicators of our operational strength and performance of our business and a good measure of our historical operating trends, in particular the extent to which ongoing operations impact our overall financial performance.
In addition to items routinely excluded from non-GAAP EBITDA, management excludes or adjusts each of the items identified below from the applicable non-GAAP financial measure referenced above for the reasons set forth with respect to that excluded item:
Foreign exchange loss (gain) / other expense. Other expense is excluded because foreign currency gains and losses and other non-operating expenses are expenditures that management does not consider part of ongoing operating results when assessing the performance of our business, and also because the total amount of the expense is partially outside of our control. Foreign currency gains and losses are based on global market factors which are unrelated to our performance during the period in which the gains and losses are recorded.
Stock-based compensation expense (benefit). Stock-based compensation expense (benefit) is excluded because this is primarily a non-cash expenditure that management does not consider part of ongoing operating results when assessing the performance of our business, and also because the total amount of the expenditure is partially outside of our control because it is based on factors such as stock price, volatility, and interest rates, which may be unrelated to our performance during the period in which the expenses are incurred. Stock-based compensation expense includes cash-settled awards based on changes in the stock price.
Amortization of purchased intangible assets. Purchased intangible assets are amortized over their estimated useful lives and generally cannot be changed or influenced by management after the acquisition. Accordingly, this item is not considered by management in making operating decisions. Management does not believe such charges accurately reflect the performance of our ongoing operations for the period in which such charges are recorded.
Transaction costs. Transaction costs are upfront costs related to acquisitions and related transactions, such as brokerage fees, pre-acquisition accounting costs and legal fees, and other upfront costs related to specific transactions. Management believes that such expenses do not have a direct correlation to future business operations, and therefore, these costs are not considered by management in making operating decisions. Management does not believe such charges accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
Integration costs. Integration costs are severance payments for certain employees relating to our acquisitions and exit costs related to terminating leases and other contractual agreements. Accordingly, management believes that such expenses do not have a direct correlation to future business operations, and therefore, these costs are not considered by management in making operating decisions. Management does not believe such charges accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
Restructuring costs. Restructuring costs primarily consist of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. Management believes that such expenses do not have a direct correlation to future business operations, and therefore, these costs are not considered by management in making operating decisions. Management does not believe such charges accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
Free cash flow. Management believes that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net operating results as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. Additionally, the Company's definition of free cash flow is limited, in that it does not represent residual cash flows available for discretionary expenditures, due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our condensed consolidated statements of cash flows.
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