Carecloud, Inc. — 2014 Q3 filing summary
Filing identity: The supplied 10-Q is for Medical Transcription Billing, Corp. (MTBC), not Carecloud, Inc. It covers the quarter and nine months ended September 30, 2014; the financial statements are unaudited.
Business context and reporting period
MTBC provides healthcare technology and revenue-cycle management services to healthcare providers. It completed its IPO on July 28, 2014 and acquired Omni Medical Billing Services, Practicare Medical Management, and CastleRock Solutions that day. The acquisitions materially changed the business and contributed $3.6 million of revenue in the quarter.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $6.01 million | $2.95 million | $11.20 million | $7.49 million |
| Operating loss | $(2.83) million | $(0.22) million | $(3.54) million | $(0.38) million |
| Net loss | $(3.27) million | $(0.14) million | $(3.94) million | $(0.27) million |
| Basic and diluted loss per share | $(0.35) | $(0.03) | $(0.61) | $(0.05) |
| Adjusted EBITDA (non-GAAP) | $(0.88) million | $0.21 million | $(0.89) million | $0.54 million |
| Adjusted EBITDA margin (non-GAAP) | (14.6)% | 7.0% | (8.0)% | 7.3% |
Revenue increased 104% in Q3 and 50% for the nine-month period, principally reflecting acquired customers. Operating expenses grew faster than revenue: Q3 expenses rose 179%, including higher direct costs, general and administrative expense, and acquisition-related amortization. Direct operating costs were 61.1% of quarterly revenue, versus 45.4% a year earlier; reported operating margins were (47.1)% and (7.4)%, respectively. The filing attributes higher expenses in part to acquired operations, IPO bonuses and costs, public-company costs, and acquisition transaction costs.
For the nine months, operating cash flow was $(2.02) million, versus $0.62 million provided in 2013. Investing used $12.11 million, mainly for the acquisitions; financing provided $16.13 million, including IPO proceeds. Cash at September 30 was $2.49 million. Current assets were $6.43 million and current liabilities $5.50 million (working capital approximately $0.92 million). The balance sheet showed $1.20 million drawn on the revolving credit line and approximately $1.37 million of notes payable, including $0.47 million owed to the CEO; total reported borrowings were approximately $2.57 million.
The IPO sold 4.08 million shares at $5.00 per share. The company reported approximately $15.6 million net proceeds after underwriting discounts and other offering expenses, and used approximately $11.4 million in cash plus shares to fund the acquisitions. Shares outstanding were 11.0 million at September 30.
Changes, outlook, risks, and unusual items
- The acquisitions were recorded using preliminary purchase accounting: aggregate consideration was approximately $17.8 million, including $11.4 million cash and shares. The allocation included $8.94 million of customer contracts and relationships and $7.63 million of goodwill; management expected to finalize the allocation by the end of Q1 2015.
- Management said IPO funding and operating cash flow should cover working capital and capital expenditures for at least 12 months. It expected planned cost reductions from integrating the acquired businesses to support positive operating cash flow beginning in Q1 2015. This is an outlook statement, not a guarantee; management also said future growth and acquisitions may require additional financing.
- The company reported a material weakness in internal control: insufficient personnel and processes for timely recording of complex transactions and an accounting system lacking controls needed for a public company. Remediation was underway, including additional accounting staff, system upgrades, and added controls. Disclosure controls were concluded to be ineffective as of September 30.
- Foreign exchange was a notable earnings factor: nine-month 2014 other expense was $109,000, including a $74,000 foreign-exchange loss, compared with $236,000 of other income in 2013. A 10% adverse exchange-rate change was estimated to increase costs by 4%; the company had no currency hedges. Revenue was U.S.-based while a substantial portion of expenses was incurred in Pakistan.
- Despite losses, the company recorded a $474,000 quarterly and $157,000 nine-month tax provision and maintained valuation allowances against deferred tax assets, citing cumulative losses. It also settled a former-owner referral-fee liability for $55,614 and reversed $105,523 of accrued expense.
- Management stated that ordinary-course legal proceedings were not expected to have a material adverse effect. Other disclosed risks include acquisition integration and customer retention, dependence on Pakistan operations, and uninsured Pakistani bank deposits.
Most important facts for investors to verify
- Confirm the issuer: this document identifies Medical Transcription Billing, Corp. (MTBC), not Carecloud, Inc.
- Review acquisition performance, customer retention, final purchase-price allocation, and any contingent share or cash adjustments.
- Track whether cost-reduction plans delivered positive operating cash flow as projected for Q1 2015, and whether additional financing became necessary.
- Assess the persistence of losses and non-GAAP adjustments, including acquisition amortization and transaction costs.
- Monitor remediation of the material weakness and effectiveness of the company’s financial reporting controls.
- Review Pakistan currency, banking, operational, and political exposures, together with the company’s liquidity and debt obligations.