Carecloud, Inc. (as requested) — 2016 Q3 Form 10-Q summary
Registrant clarification: The supplied filing identifies the registrant as Medical Transcription Billing, Corp. (MTBC), not Carecloud, Inc. This summary reflects the filing’s reported company and results. The quarter ended September 30, 2016; financial statements are unaudited.
Business context and reporting period
MTBC provides healthcare technology and revenue-cycle management (RCM) services, including practice-management software, electronic health records, and medical billing. It serves U.S. healthcare providers and operates major back-office facilities in Pakistan, with additional operations in Poland. Management’s strategy includes acquiring RCM businesses and migrating acquired customers onto its platform.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2016: $5.34 million; 2015: $5.61 million | 2016: $15.66 million; 2015: $17.72 million |
| Operating loss | 2016: $1.27 million; 2015: $1.28 million | 2016: $4.14 million; 2015: $3.95 million |
| Net loss | 2016: $1.49 million; 2015: $1.23 million | 2016: $4.77 million; 2015: $3.89 million |
| Net loss attributable to common shareholders / diluted loss per share | 2016: $1.73 million / $0.17; 2015: $1.23 million / $0.13 | 2016: $5.32 million / $0.53; 2015: $3.89 million / $0.40 |
| Adjusted EBITDA (non-GAAP) | 2016: $130,000; 2015: $(184,000) | 2016: $209,000; 2015: $(989,000) |
| Adjusted EBITDA margin (non-GAAP) | 2016: 2.4%; 2015: (3.3%) | 2016: 1.3%; 2015: (5.6%) |
At September 30, cash was $7.11 million, total current assets were $9.93 million, and current liabilities were $7.66 million. Net cash used in operating activities was $494,000 for the first nine months, versus $1.90 million in 2015. Cash used in investing activities was $1.74 million; financing activities provided $1.30 million.
The Opus Bank facility was fully utilized: $8 million of term loans and a $2 million revolving line. The term loans mature in 2019, with principal payments of approximately $222,000 per month beginning October 2016; the line expires in 2018 unless renewed. Reported balance-sheet long-term debt, net of discounts and issuance costs, was $4.65 million, in addition to its $2.67 million current portion and the $2 million line of credit. The company reported compliance with its loan covenants at quarter-end.
The 11% cumulative Series A preferred stock carries annual dividends of $2.75 per share. Preferred dividends were $550,000 for the first nine months; $203,000 was declared but unpaid at September 30. Total shareholders’ equity was $11.07 million.
Material changes versus prior comparable periods
- Revenue fell 5% in Q3 and 12% year to date. Management attributed the year-to-date decline mainly to $4.7 million less revenue from customers acquired in 2014 who terminated, partly offset by revenue from newer acquisitions.
- Year-to-date direct operating costs declined 21% and general and administrative expense declined 13%, reflecting lower staffing and completed integration-related cost reductions. Selling and marketing expense increased 203% year to date as the company invested in sales and business development.
- Although adjusted EBITDA improved to positive levels, GAAP net losses increased. Interest expense rose 201% year to date, primarily because of additional Opus borrowings; foreign-exchange results also worsened versus 2015.
- Cash used in operations improved substantially year over year, but cash declined by $929,000 over the first nine months. Acquisition cash payments contributed to higher investing outflows.
Outlook, acquisitions, risks, and unusual items
- Management said it was reducing expenses with the goal of generating positive operating cash flow and forecast a return to profitability, but provided no specific financial guidance.
- After quarter-end, on October 3, MTBC acquired MediGain and Millennium assets for $7 million through a strict foreclosure. It paid $2 million at closing and owed an additional unsecured $5 million within 90 days, expected in January 2017. Management planned a preferred-stock offering to fund the balance; it cautioned that the offering might not raise enough and said it would seek other financing if necessary.
- Management expected the MediGain acquisition to contribute at least $10 million in annual revenue and to be accretive to earnings in 2017, while cautioning that acquired customers might not remain. Integration and expanded operations in India and Sri Lanka were expected.
- Liquidity is dependent on financing: the company said it expected to have sufficient resources for at least 12 months upon completion of the planned preferred offering, but acknowledged uncertainty around raising the funds. The company had cumulative losses and a valuation allowance against deferred tax assets.
- Nasdaq notified MTBC in June that its common stock had traded below the $1 minimum bid price for 30 consecutive business days. The initial compliance period ran through December 21, 2016; failure to regain compliance could lead to delisting. Management said it would monitor the share price and consider available options, including a reverse split if needed.
- Other disclosed risks include customer retention and acquisition integration, competition, key-personnel retention, regulatory and patient-data privacy requirements, and operating in Pakistan. Cash held in Pakistani banks was not covered by deposit insurance. Management said ordinary-course legal matters were not expected to have a material adverse effect. Related-party leases and aircraft costs involving the CEO were also disclosed.
Important facts for investors to verify
- Confirm the intended issuer: the supplied 10-Q is for Medical Transcription Billing, Corp. (MTBC), not Carecloud, Inc.
- Check whether the planned preferred-stock financing was completed and whether the $5 million MediGain balance was paid on time, and assess the resulting liquidity and dividend burden.
- Track customer retention, revenue contribution, integration costs, and actual earnings and cash-flow effects from MediGain and the 2016 acquisitions against management’s expectations.
- Review progress toward positive operating cash flow, the monthly Opus principal repayments, and continued compliance with debt covenants.
- Verify Nasdaq bid-price compliance and any resulting listing action or capital-structure changes.
- Assess the effect of continued revenue attrition, customer concentration or churn, and reliance on overseas operations and banking access.