CareCloud, Inc. — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021; includes fourth-quarter results. The filing was signed March 14, 2022. CareCloud provides healthcare IT software and services, including revenue cycle management (RCM), practice management, EHR, telehealth, and consulting. The company changed its legal name from MTBC, Inc. in March 2021; its listed symbols at filing were MTBC common, MTBCP Series A preferred, and MTBCO Series B preferred.
Financial performance and position
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $139.6 million | $105.1 million |
| GAAP operating income (loss) | $3.5 million; 2.5% margin | $(8.3) million; (7.9)% margin |
| GAAP net income (loss) | $2.8 million | $(8.8) million |
| Net loss attributable to common shareholders | $(11.2) million; $(0.77) per share | $(22.7) million; $(1.79) per share |
| Adjusted EBITDA (non-GAAP) | $22.1 million | $10.9 million |
| Adjusted operating income / margin (non-GAAP) | $18.7 million / 13.4% | $9.0 million / 8.6% |
| Cash from (used in) operating activities | $13.3 million | $(0.9) million |
| Cash and restricted cash at year-end | $10.3 million | $20.9 million |
| Working capital | $6.0 million | $15.8 million |
| Borrowings under SVB line of credit at year-end | $8.0 million | None |
All dollar amounts are U.S. dollars. Common-shareholder losses reflect preferred dividends of $14.1 million in 2021 and $13.9 million in 2020, despite positive GAAP net income in 2021. Adjusted measures are non-GAAP and exclude specified items, including stock compensation, amortization, integration costs, lease-related charges, and contingent-consideration changes.
2021 revenue comprised $105.5 million from technology-enabled business solutions, $19.0 million from professional services, $12.5 million from medical practice management, and $2.5 million from printing, mailing, and group purchasing. Technology-enabled business solutions represented about 76% of revenue, versus 84% in 2020. Direct operating costs were 62.3% of revenue, compared with 61.7% a year earlier.
Fourth quarter: Revenue was $37.5 million versus $32.0 million in Q4 2020; operating income was $3.9 million versus $0.4 million; and GAAP net income was $3.5 million versus $0.2 million. Adjusted EBITDA was $6.1 million versus $5.7 million. Preferred dividends meant Q4 net loss attributable to common shareholders was $0.1 million, or $0.01 per share.
Material changes versus 2020
- Revenue rose 33%, with acquisitions a major contributor. Management attributed approximately $71.4 million of 2021 revenue to customers acquired in the CareCloud Corporation and Meridian transactions and $15.9 million to medSR, acquired in June 2021. The year included a full year of Meridian revenue.
- Operating expenses increased 20% to $136.1 million, principally alongside acquisition-related growth. Direct operating costs rose 34% and selling and marketing costs rose 33%; research and development expense fell 53%, partly because more internally developed software costs were capitalized.
- The company swung to positive GAAP operating income and net income. Adjusted EBITDA more than doubled, though it excludes significant expenses; amortization of purchased intangible assets was $10.3 million in 2021.
- Operating cash flow improved to $13.3 million, but year-end cash and working capital declined. Investing outflows included $12.6 million for acquisitions and $7.6 million of capitalized software costs.
- Customer renewal rate increased to 91% from 83%. The company reported about 40,000 providers across approximately 2,600 practices, plus about 200 other healthcare-sector clients.
Liquidity, debt, outlook, and notable items
- CareCloud reported $10.3 million of cash and restricted cash and $6.0 million of positive working capital at year-end. Its $20 million SVB revolving facility had $8.0 million outstanding at December 31, 2021; the filing says the line was repaid after year-end. The company reported compliance with SVB covenants at year-end.
- Management forecast sufficient liquidity to meet obligations for 24 months from issuance of the financial statements, citing focus on revenue growth, profitability, and expense management. No quantified revenue or earnings guidance is provided in the supplied filing text.
- Preferred dividends are a substantial cash obligation: $14.4 million was paid in 2021, and $3.9 million was declared but unpaid at year-end. Common dividends are not anticipated, and payment is restricted by the SVB agreement.
- After year-end, CareCloud issued 1,100,810 shares of 8.75% Series B preferred stock in January and early February 2022, raising about $25.5 million net. In February it announced plans to redeem 800,000 Series A preferred shares on March 18, 2022, at $25 per share plus accrued unpaid dividends. It also reported further Series B sales through its at-the-market facility through March 11.
- Management said patient volumes, which fell in Q2 2020 during COVID-19, returned near normal in the second half of 2020 and remained fairly consistent. About 60% of revenue is directly tied to customer collections, leaving revenue exposed to provider volumes and reimbursement trends.
- The auditor gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. A material weakness involved controls over the completeness and accuracy of inputs used to measure a non-routine transaction. Management said there were no resulting financial-statement restatements and targeted remediation by the end of 2022. The auditor’s ICFR assessment excluded medSR, which contributed $15.9 million of 2021 revenue and had $21.1 million of acquired assets.
- Contingent consideration associated with the medSR acquisition was initially valued at $5.6 million and reduced to about $1.5 million at year-end based partly on operating results. The company recorded a $2.5 million favorable change in contingent consideration in 2021.
- An acquired-business dispute involving Randolph Pain Relief and Wellness Center remained in arbitration against subsidiary MAC. The claimant sought up to $20 million plus costs and its expert estimated damages of $9.8 million to $10.8 million; the company disputed the claim and expected any loss, if one occurred, to be substantially below the amount claimed. The hearing was scheduled for April 2022.
- Other risks include dependence on offshore operations, acquisitions and customer retention, healthcare regulation, cybersecurity and patient-data protection, competitive and pricing pressures, and the ability to meet preferred dividend obligations. The filing also discloses related-party arrangements with the founder and Executive Chairman.
Important facts for investors to verify
- Whether the reported operating improvement and cash generation persist as acquisition contributions, integration costs, capitalized software spending, and non-GAAP adjustments change.
- Current cash, working capital, SVB facility status and covenants, and the cash impact of preferred dividends and the Series A redemption following year-end.
- Progress and independent testing of the material-weakness remediation, including controls at medSR after its exclusion from the 2021 ICFR assessment.
- Actual acquired-client retention, medSR earn-out outcomes, and the sustainability of the 91% renewal rate.
- Resolution and financial exposure of the RPRWC arbitration, along with any other material litigation or contingencies.
- How customer collections, healthcare-provider volumes, reimbursement changes, and offshore operating conditions affect revenue and margins.