CareCloud, Inc. (as identified in request) — Filing summary
Filing identity: The supplied Form 10-Q is filed by MTBC, Inc. (Nasdaq: MTBC; MTBCP), not CareCloud, Inc. It covers the quarter and six months ended June 30, 2019; statements are unaudited.
Business context and reporting period
MTBC provides healthcare IT and revenue-cycle management services, including cloud-based software, and practice management services. It reported more than 11,000 providers and approximately 1,800 practices and hospitals served. Results include the Orion acquisition (2018) and the ETM acquisition, completed effective April 1, 2019 for $1.6 million.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $16.75 million | $8.68 million | $31.83 million | $16.99 million |
| Operating income (loss) | $(1.23) million | $0.07 million | $(1.47) million | $0.11 million |
| Net income (loss) | $(0.77) million | $0.20 million | $(1.07) million | $0.27 million |
| Net loss attributable to common shareholders | $(2.26) million | $(1.05) million | $(4.05) million | $(1.75) million |
| Basic and diluted loss per common share | $(0.19) | $(0.09) | $(0.34) | $(0.15) |
| Adjusted EBITDA (non-GAAP) | $1.14 million | $1.56 million | $2.72 million | $2.53 million |
Revenue increased 93% in Q2 and 87% for the first half, largely reflecting acquired businesses. GAAP operating margin was negative 7.3% in Q2 versus positive 0.9% a year earlier, and negative 4.6% for the half versus positive 0.7%. Non-GAAP adjusted operating margin was 5.1% in Q2 (15.0% prior year) and 6.3% for the half (12.0% prior year). These adjusted measures exclude, among other items, stock compensation, acquired-intangible amortization, and integration and transaction costs.
Cash from operations was $3.31 million for the first half, versus $1.97 million in 2018. Investing used $2.50 million, including $1.60 million for ETM; financing used $4.26 million, including $2.96 million of preferred dividends and $0.93 million of employee stock-award tax withholding. Cash declined $3.89 million to $10.58 million. At June 30, working capital was approximately $11.2 million. The $10 million SVB revolving facility had no borrowings; the filing reports compliance with its covenants and no bank debt. Notes payable totaled approximately $312,000. Operating lease liabilities were $4.95 million.
Material changes versus the prior comparable period
- Revenue growth came with sharply higher direct operating costs: up 163% in Q2 and 141% for the half, versus revenue growth of 93% and 87%. Direct costs included increased payroll, processing and facility expenses, as well as costs for managed practices.
- General and administrative expense rose 68% in Q2 and 65% for the half, primarily due to acquisition-related salaries, facilities and professional fees. Depreciation and amortization also increased, mainly due to acquired assets.
- Preferred dividends charged against earnings attributable to common shareholders were $1.49 million in Q2 and $2.98 million for the half, exceeding reported net losses in both periods.
- Cash from operations improved year over year, but cash declined in the first half, partly reflecting acquisitions, dividends, employee stock-tax withholding and foreign-exchange effects.
Outlook, management commentary, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management says it is forecasting a return to profitability, while noting cumulative losses and maintaining a valuation allowance against deferred tax assets.
- Management identifies acquisition integration and growth, client retention, overseas operations, healthcare regulation, privacy and security, key-person retention, competition, SVB covenant compliance, and the ability to pay preferred dividends as risks.
- A New Jersey dispute seeks $6.6 million in damages relating to a billing-services agreement. An appeals court ruled MTBC is not required to arbitrate at this stage but upheld arbitration participation by its subsidiary, MAC, and remanded the question of MTBC’s participation. The company says it cannot estimate a loss range, intends to defend the claim, and expects any loss to be substantially below the amount claimed.
- The company adopted lease accounting standard ASC 842 on January 1, 2019, recognizing right-of-use assets and lease liabilities; it reported no material effect on earnings, equity or cash flows. The ETM purchase price was $1.6 million, excluding approximately $125,000 of acquisition costs.
- Q2 GAAP results included $545,000 of other income, primarily foreign-currency transaction gains. Adjusted EBITDA and other adjusted measures are non-GAAP and exclude significant recurring or acquisition-related charges; consider them alongside GAAP results.
Most important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for MTBC, Inc., not CareCloud, Inc.
- Assess how much reported revenue growth reflects acquisitions and whether acquired businesses can sustain revenue and improve margins.
- Review the drivers of the widening GAAP operating loss and the gap between GAAP and adjusted results, particularly stock compensation and integration costs.
- Track cash conversion, cash balances, preferred dividend obligations, lease liabilities and remaining debt; confirm ongoing compliance with SVB covenants.
- Monitor the RPRWC litigation, including the arbitration determination and any later estimate or disclosure of potential exposure.