Business Context and Reporting Period
On January 8, 2020, MTBC, Inc. (the "Company") completed the acquisition of CareCloud, Inc. ("CareCloud") through a merger. CareCloud, a provider of cloud-based practice management, electronic health record, and medical billing software, is now a wholly owned subsidiary of MTBC. The transaction was executed via an Agreement and Plan of Merger dated January 8, 2020.
Key Financial Metrics and Transaction Consideration
The total consideration paid at closing consisted of the following components:
- Cash: $17 million.
- Preferred Stock: 760,000 shares of MTBC's 11% Series A Cumulative Redeemable Perpetual Preferred Stock.
- Warrants: Warrants to purchase 2,000,000 shares of MTBC common stock (1,000,000 at $7.50 exercise price for two years; 1,000,000 at $10.00 exercise price for three years).
- Working Capital: CareCloud closed with net working capital of approximately zero.
The filing does not provide specific revenue, profit, cash flow, or margin figures for CareCloud or MTBC for the reporting period, as this is a transaction announcement rather than a periodic financial report.
Material Changes and Earn-Out Provisions
The transaction structure includes a contingent earn-out provision based on CareCloud's 2020 performance:
- If CareCloud's 2020 revenues exceed $36 million, the seller is entitled to an additional payment equal to the excess amount.
- The earn-out is capped at a maximum of $3 million.
Additionally, 260,000 shares of the preferred stock consideration are held in escrow (160,000 for up to 24 months and 100,000 for up to 18 months) to satisfy indemnification obligations for specified contingent liabilities.
Outlook, Risks, and Management Commentary
Use of Proceeds: The $17 million cash consideration was utilized to repay CareCloud's bank and other indebtedness, current liabilities, and transaction expenses, with the remainder paid to the seller.
Risk Mitigation: MTBC obtained representations and warranties insurance coverage of up to $6 million to protect against losses arising from breaches of representations and warranties in the Merger Agreement.
Regulatory Status: The preferred stock and warrants were issued in a transaction exempt from registration under the Securities Act of 1933. MTBC has agreed to register these securities for resale as soon as practicable after the completion of CareCloud's 2019 financial statement audit.
Investor Verification Checklist
- Verify the final audited 2019 financial statements of CareCloud to confirm the baseline for the earn-out calculation.
- Monitor CareCloud's 2020 revenue performance against the $36 million threshold to assess potential earn-out liability.
- Review the terms of the escrow agreements regarding the 260,000 shares of preferred stock held for indemnification.
- Confirm the timeline for the registration statement for the resale of the preferred stock and warrants.
- Assess the impact of the $17 million cash outflow on MTBC's overall liquidity and debt profile.