CareCloud, Inc. (then Medical Transcription Billing, Corp.) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; compared with Q1 2017. The filing identifies the registrant as Medical Transcription Billing, Corp. (MTBC), a healthcare information technology and revenue-cycle-management provider operating in the U.S., Pakistan and Sri Lanka.
Key financial results
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $8.31 million | $8.22 million |
| Operating income (loss) | $39,000 | $(2.41) million |
| Net income (loss) | $75,000 | $(2.71) million |
| Net loss attributable to common shareholders | $(700,000); $(0.06) per share | $(2.91) million; $(0.29) per share |
| Operating cash flow | $673,000 | $(867,000) |
| Adjusted EBITDA (non-GAAP) | $974,000 | $(313,000) |
| Adjusted operating margin (non-GAAP) | 8.9% | (6.9)% |
Revenue was approximately 88% medical billing services. At March 31, cash was $3.54 million, working capital was $5.4 million, total liabilities were $4.94 million, and shareholders’ equity was $20.68 million. The company had no borrowings under its $5 million Silicon Valley Bank revolving facility; the full facility was reported available, and the company was in compliance with its covenants. Other notes payable totaled about $197,000, excluding contingent consideration.
Changes versus Q1 2017
- Revenue increased 1%, with about $66,000 from the 2017 WMB acquisition and about $47,000 attributable to adopting ASC 606, partly offset by customer attrition.
- Operating expenses fell 22%, including lower direct costs, general and administrative expense, and amortization. Amortization declined by about $916,000 as older acquired intangibles became fully amortized; Q1 2017 also included $276,000 of restructuring charges.
- Interest expense declined 73% to $74,000, largely following repayment of prior borrowings and MediGain-related amounts in 2017. Other income increased to $151,000, primarily reflecting foreign-currency transaction gains.
- Cash from operations improved by about $1.54 million year over year. Cash nevertheless declined $821,000 during Q1 2018, mainly reflecting preferred dividends paid, employee tax-withholding settlements, debt repayments and foreign-exchange effects.
Accounting, outlook and risks
- ASC 606 adoption on January 1, 2018 changed medical-billing revenue recognition: the company began recognizing estimated fees over the service period rather than generally waiting until customer collections made fees determinable. The adoption increased opening accumulated earnings by about $1.44 million and established a $1.34 million opening contract asset. At quarter-end, the contract asset was $1.39 million; about $1.4 million of revenue related to remaining performance obligations was expected to be recognized substantially over the next three months. Estimates depend on client collections, payment-to-charge ratios, billing rates and contractual periods.
- Management said it was forecasting a return to profitability, but the filing gives no quantified earnings or revenue guidance. It described continued sales and marketing investment, organic growth initiatives and acquisition-led expansion. Its talkEHR product had about 550 sign-ups, 85 active users and nine upgrades to premium billing as of the filing’s discussion.
- After quarter-end, the company raised approximately $9.4 million net from an April preferred-stock offering. On May 3, 2018, it signed a stalking-horse asset purchase agreement for Orion Healthcorp assets, with an estimated purchase price of $10–12 million, potentially higher. The transaction remained subject to bankruptcy auction, court approval and other closing conditions; completion was not assured.
- Key stated risks include client retention and attrition, integrating acquisitions, competition, healthcare regulation and privacy obligations, dependence on offshore operations, retaining key personnel, and compliance with lender covenants. The company highlighted uncertainty in ASC 606 revenue estimates. Management reported no legal proceeding expected to have a material adverse effect and said disclosure controls were effective.
Important facts for investors to verify
- Whether the positive operating cash flow and improved adjusted results persist, and how customer attrition affects revenue.
- The assumptions supporting the $1.39 million contract asset and the timing and collectability of associated customer claims.
- The preferred-stock terms, dividend burden and resulting effect on common shareholders; Q1 preferred dividends were $775,000, while GAAP net income was $75,000.
- Whether the Orion acquisition closes, its final price and liabilities assumed, and the funding and integration plan.
- Available borrowing capacity and continued compliance with SVB covenants, alongside cash needs for dividends, acquisitions and operations.