CareCloud, Inc. (as identified in the request) — 10-Q summary
The supplied filing names the registrant as Medical Transcription Billing, Corp. (MTBC), not CareCloud. It reports unaudited results for the quarter and six months ended June 30, 2017; comparisons are with the corresponding 2016 periods.
Business context and reporting period
MTBC provides cloud-based healthcare technology and services, including revenue cycle management, electronic health records, and practice management. The 2016 MediGain acquisition contributed substantially to the reported revenue increase. The company operates primarily in the United States, with significant back-office operations in Pakistan and Sri Lanka; it began winding down operations in India and Poland during 2017.
Key financial results
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Six months ended June 30, 2017 | Six months ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | $7.785 million | $5.213 million | $16.005 million | $10.323 million |
| Operating loss | $1.383 million | $1.070 million | $3.793 million | $2.875 million |
| Net loss | $1.694 million | $1.294 million | $4.402 million | $3.278 million |
| Net loss per common share | $0.20 | $0.15 | $0.48 | $0.36 |
| Adjusted EBITDA, non-GAAP | $468,000 | $14,000 | $154,000 | $80,000 |
Revenue increased 49% for the quarter and 55% for the six-month period, including $4.2 million and $8.7 million, respectively, from the 2016 acquisitions. Management also cited customer attrition. GAAP operating margins improved to negative 17.8% for the quarter (from negative 20.6%) and negative 23.7% for the six months (from negative 27.8%). Adjusted operating income was $149,000 for the quarter versus a $136,000 loss; for the six months it was a $422,000 loss versus a $211,000 loss. These are non-GAAP measures.
Cash and cash equivalents were $5.81 million at June 30, 2017, versus $3.48 million at December 31, 2016. Working capital was negative approximately $4.1 million. Operating cash flow was positive $179,000 in the second quarter but negative $689,000 for the first six months, compared with negative $317,000 in the prior-year half. Six-month investing cash outflow was $345,000; financing provided $3.39 million. Total liabilities were $15.64 million.
Opus credit borrowings were approximately $5.2 million, including a fully drawn $2 million revolving line. The balance sheet reports $2.21 million of current and $448,000 of long-term debt, net, while the filing also describes $5 million still owed to Prudential for the MediGain purchase, due during 2017. The company raised approximately $2.0 million net from common stock and $6.2 million net from preferred stock in the second quarter; a portion of the proceeds was used to repay Opus.
Material changes versus the prior comparable period
- Acquisition-related revenue growth was accompanied by higher direct operating costs: up 81% for the quarter and 104% for the six-month period. Operating expenses grew 46% and 50%, respectively, while GAAP net losses widened.
- Interest expense rose 69% in the quarter and 82% for the six months, primarily due to debt and acquisition-related obligations.
- Cash from operations improved to positive $179,000 in Q2, but the six-month operating cash outflow increased year over year.
- Second-quarter equity financings increased cash and reduced the working-capital deficit from $9.6 million at the end of Q1 to $4.1 million at June 30. Common shares outstanding increased; the common offering also included warrants to purchase up to 2 million shares.
- MTBC closed its India and Poland operations and recorded $276,000 of first-half restructuring charges. A further $45,000 remained accrued at June 30.
Outlook, risks, contingencies, and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern, citing the working-capital deficit, the overdue Prudential obligation, and the need for additional financing. The statements assume continued operations. Management’s plans include replacing Opus, seeking further financing or equity, and generating sufficient operating cash; success is not assured.
- Debt and liquidity: Opus covenants require minimum cash, revenue, and adjusted EBITDA levels; MTBC reported compliance at June 30. Opus was exiting technology-company lending. The Opus facility was fully utilized, and its interest rate was scheduled to increase in steps to prime plus 5.25% by January 1, 2018. Opus approval is required for payments to Prudential. Prudential had demanded immediate payment of the overdue amount, including accrued interest at 18%; negotiations continued without an approved payment arrangement.
- Management outlook: Management said it was forecasting a return to profitability and expected expense reductions and revenue growth to improve liquidity, but provided no quantitative earnings or revenue guidance. It expected the MediGain acquisition to be accretive in 2017, while acknowledging customer-retention and integration uncertainty.
- Dividends and dilution: The 11% Series A preferred stock carries cumulative dividends of $2.75 annually per share, payable monthly when declared. Preferred dividends declared but unpaid totaled $422,206 at June 30. The common offering included two million one-year warrants at a $5 exercise price. Common dividends are restricted without Opus consent.
- Other items: A $59,000 receipt related to the early termination of an acquired-business client contract contributed to other income. The company reported no legal proceedings believed by management to be material. Nasdaq minimum-bid compliance had been regained by May 9, 2017. A subsequent July 1 acquisition of Washington Medical Billing required an initial $205,000 payment plus contingent revenue-based payments.
- Operating and regulatory risks: The filing highlights client retention and migration, acquisition integration, financing and covenant compliance, the ability to repay Prudential, competition, overseas operating conditions, healthcare regulation, and protection of patient information. Management reported disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether MTBC secures replacement financing or another acceptable arrangement with Opus and Prudential, and whether it can meet its liquidity needs without further capital.
- Whether operating cash flow remains positive and cost reductions translate into sustained GAAP profitability, rather than only adjusted results.
- Revenue retention and migration of acquired MediGain customers, and the extent to which acquisition-driven growth offsets customer attrition and higher operating costs.
- Compliance with Opus cash, revenue, and adjusted EBITDA covenants as interest rates rise and the facility approaches its September 2018 end date.
- The cash and dilution effects of cumulative preferred dividends, additional equity financing, outstanding warrants, and contingent acquisition payments.
- Execution and costs of the India and Poland wind-down, and the financial contribution and contingent payment terms of the July 2017 Washington Medical Billing acquisition.