CareCloud, Inc. / MTBC, Inc. — FY 2019 Form 10-K Summary
Reporting-period note: This is MTBC, Inc.’s annual report for the fiscal year ended December 31, 2019, not a standalone fourth-quarter filing. CareCloud Corporation was acquired in January 2020, after year-end; the filing’s financial results are for MTBC before that acquisition. The registrant’s name in the filing is MTBC, Inc.
Business context
MTBC provides healthcare revenue-cycle management (RCM), cloud-based electronic health records and practice-management software, and related services to providers. It reported approximately 10,500 providers across 1,800 practices at year-end. Most RCM revenue is tied to customers’ collections. The company relies substantially on an offshore workforce in Pakistan and Sri Lanka for service delivery.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $64.4 million | $50.5 million |
| Operating income (loss) | $67,000 | $(2.54) million |
| Net loss | $(872,000) | $(2.14) million |
| Net loss attributable to common shareholders | $(7.26) million | $(6.96) million |
| Adjusted EBITDA (non-GAAP) | $8.1 million | $4.8 million |
| Adjusted operating margin (non-GAAP) | 10.5% | 7.4% |
| Cash provided by operating activities | $7.62 million | $6.81 million |
Revenue increased 27%, primarily reflecting the Orion and ETM acquisitions, partly offset by customer attrition. GAAP operating margin improved to approximately 0.1% from negative 5.0%. The company remained GAAP-loss-making; preferred dividends of $6.39 million increased the loss attributable to common shareholders. Fourth-quarter 2019 revenue was $15.76 million, compared with $16.51 million in fourth-quarter 2018; fourth-quarter net income was $333,000 versus a $576,000 loss.
At December 31, 2019, cash was $19.99 million, working capital was $19.82 million, and total liabilities were $13.57 million. There were no borrowings under the SVB revolving credit facility; notes payable totaled approximately $367,000. Cash flow from investing was $(4.16) million and financing was $1.42 million. The company raised $9.6 million net through preferred-stock issuance and paid $6.1 million in preferred dividends during 2019.
Material changes, outlook and risks
- FY 2019 revenue growth included $29 million from Orion and $5.1 million from ETM. Operating costs also rose, including direct operating costs, which increased 32% to $41.2 million.
- Foreign-exchange and other expense was $626,000 in 2019, compared with $494,000 of income in 2018; the filing attributes the change mainly to foreign-currency transaction losses.
- Management said it expects sufficient liquidity to meet obligations for the 12 months following issuance of the financial statements and is focused on revenue growth, expense management and profitability. It forecast a return to profitability but gave no specific financial guidance.
- In January 2020, MTBC acquired CareCloud. Consideration included $11.9 million cash, assumption of an approximately $5.1 million working-capital deficiency, 760,000 preferred shares and warrants for 2 million common shares. A potential earn-out of up to $3 million depends on CareCloud’s 2020 revenue exceeding $36 million. The acquisition adds CareCloud’s EHR, practice-management and patient-experience platform; integration and earn-out performance remain uncertain.
- Key exposures include acquisition integration and customer retention, healthcare regulation and reimbursement changes, data privacy and cybersecurity, dependence on offshore operations, competition and pricing pressure, and SVB covenant compliance. The filing also describes a civil investigation involving elements of CareCloud technology; MTBC said it expected no material financial-statement impact, while noting the outcome is uncertain.
- RPRWC seeks $6.6 million plus costs in an arbitration relating to an acquired business. In February 2020, a court ruled MTBC could not be compelled to arbitrate; the claim was proceeding against subsidiary MAC. The filing says the possible loss range could not yet be estimated.
Most important facts for investors to verify
- How CareCloud’s acquisition financing, integration costs, customer retention and 2020 revenue compare with management’s expectations and the earn-out threshold.
- Whether operating performance supports a sustained return to GAAP profitability, given the FY 2019 net loss and reliance on non-GAAP adjustments.
- Preferred-stock dividend capacity and restrictions under the SVB credit agreement, including covenant compliance and the effect of the 11% preferred dividend burden.
- Developments in the CareCloud-related civil investigation and the RPRWC arbitration, including any change in estimated exposure.
- Cash-flow conversion and working-capital trends, as well as customer attrition, offshore operating continuity and security/regulatory compliance.