CareCloud, Inc. (formerly MTBC, Inc.) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing is an annual report, not a standalone fourth-quarter filing. The registrant was MTBC, Inc. when it filed on February 25, 2021; its board approved the name change to CareCloud, Inc. in February 2021.
Business context
The company provides cloud-based healthcare software and services, including revenue cycle management (RCM), practice management, electronic health records, SaaS, telehealth, and related offerings. It reported serving approximately 40,000 providers across 2,600 practices and hospitals at year-end. Growth in 2020 principally reflected the CareCloud and Meridian acquisitions.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $105.1 million | $64.4 million |
| Operating income (loss) | $(8.3) million | $0.1 million |
| Operating margin | (7.9)% | 0.1% |
| Net income (loss) | $(8.8) million | $(0.9) million |
| Net loss attributable to common shareholders | $(22.7) million | $(7.3) million |
| Adjusted EBITDA (non-GAAP) | $10.9 million | $8.1 million |
| Cash from operating activities | $(0.9) million | $7.6 million |
| Cash and working capital at year-end | $20.9 million; $15.8 million | $20.0 million; $19.8 million |
- Revenue rose 63%, including $53.3 million from acquired CareCloud and Meridian customers. RCM and bundled services generated $65.3 million; SaaS generated $18.7 million; practice management generated $11.8 million.
- Direct operating costs were 61.7% of revenue, versus 63.9% in 2019. Adjusted operating margin declined to 8.6% from 10.5%; this non-GAAP measure excludes specified acquisition, compensation, amortization, and other costs.
- Fourth-quarter revenue was $32.0 million, operating income was $0.4 million, and net income was $0.2 million. Preferred dividends of $3.7 million meant the net loss attributable to common shareholders was $3.6 million for the quarter.
- Investing cash outflow was $31.5 million, including $23.7 million net cash paid for acquisitions and $5.2 million of capitalized software. Financing provided $33.4 million, including $44.5 million net preferred-stock proceeds; cash dividends paid on preferred stock were $11.4 million.
- Total liabilities were $36.8 million and shareholders’ equity was $101.2 million at year-end. Notes payable were approximately $0.4 million current and $0.04 million long-term; the $10 million SVB revolver had no balance outstanding. Operating lease liabilities were $11.0 million.
Material changes versus 2019
- CareCloud was acquired in January 2020 and Meridian in June 2020. The acquisitions materially increased revenue, goodwill and intangible assets, and contributed to higher operating costs.
- Depreciation and amortization increased to $9.9 million from $3.0 million, including $8.6 million of amortization expense. Selling and marketing rose to $6.6 million from $1.5 million, and R&D rose to $9.3 million from $0.9 million.
- Operating cash flow declined by $8.5 million, including $10.3 million used to pay pre-acquisition obligations assumed with CareCloud and Meridian. Management said these payments were anticipated and reflected in the purchase prices.
- Preferred shares outstanding increased to 5.48 million from 2.54 million. Preferred dividends were $13.9 million for 2020, versus $6.4 million in 2019, increasing the loss attributable to common shareholders.
- Customer renewal rate was 88%, compared with 90% in 2019. Reported providers served increased from approximately 10,500 to 40,000, in part due to acquisitions.
Outlook, risks, and unusual items
- Management said it expects sufficient liquidity to meet obligations for the 12 months following issuance of the financial statements, based on its forecasts. It emphasized profitability, revenue growth, and expense management but provided no quantified revenue or earnings guidance.
- COVID-19 reduced patient volumes in the second quarter; volumes returned to near-normal levels in the third and fourth quarters. About 65% of revenue was directly tied to customer cash collections, leaving results exposed to provider volumes and collections.
- The company estimated it would need approximately $4.2 million in 2021 to resolve a civil investigation concerning acquired CareCloud operations; $4.0 million was covered by escrowed consideration. The company accrued $4.2 million and said the outcome was not yet determined.
- A separate arbitration involving an acquired subsidiary has speculative damages claims reported at varying amounts: $6.6 million, $20 million, and approximately $11 million. The company said it expected any award to be substantially below the claimed amounts and intended to defend the case.
- Key risks include acquisition integration and customer retention, regulatory and privacy compliance, cybersecurity and software reliability, dependence on lower-cost offshore operations, customer collections and provider volumes, and SVB covenant compliance. The company reported compliance with SVB covenants at year-end.
- Series A preferred stock carries an 11% cumulative dividend, ranks behind liabilities, and may be restricted from payment under lender covenants. The filing states that common-stock dividends are not anticipated.
Important facts for investors to verify
- How much of the 63% revenue increase reflects sustainable organic growth rather than acquisitions, and whether acquired customers are retained and migrated successfully.
- Whether operating cash flow recovers after acquisition-related payments, given 2020 negative operating cash flow and substantial preferred dividends.
- Whether adjusted EBITDA and adjusted operating margin translate into improved GAAP profitability; assess the size and recurrence of excluded expenses.
- The final resolution and funding of the CareCloud regulatory investigation and the outcome of the RPRWC arbitration.
- The cash cost and financing flexibility associated with preferred dividends, lease obligations, and SVB covenant requirements.
- The CareCloud and Meridian purchase-price allocations were not equally final: Meridian’s allocation remained preliminary, and acquired intangible-asset valuations involved significant estimates.