CareCloud, Inc. (filing registrant: Medical Transcription Billing, Corp.) — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. The filing identifies the registrant as Medical Transcription Billing, Corp. (“MTBC”), not CareCloud, Inc.; investors should verify the entity and filing match their intended review.
Business context
MTBC provides healthcare technology and services, including revenue cycle management (RCM), electronic health records, practice management, and group purchasing. In July 2018, it acquired substantially all of Orion Healthcorp’s RCM, practice management, and group purchasing assets for $12.6 million. Orion contributed about $9.4 million of revenue from July through September. The company reported serving more than 12,000 providers and approximately 1,800 practices and hospitals at September 30, 2018.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $17.0 million | $7.5 million | $34.0 million | $23.5 million |
| Operating loss | ($1.8 million) | ($0.3 million) | ($1.7 million) | ($4.1 million) |
| Net loss | ($1.8 million) | ($1.0 million) | ($1.6 million) | ($5.4 million) |
| Net loss attributable to common shareholders | ($2.9 million) | ($1.6 million) | ($4.6 million) | ($6.7 million) |
| Basic and diluted loss per common share | ($0.25) | ($0.14) | ($0.40) | ($0.62) |
| Adjusted EBITDA, non-GAAP | $0.9 million | $0.6 million | $3.4 million | $0.8 million |
- Q3 revenue increased 127%; nine-month revenue rose 45%. Growth was substantially acquisition-driven, with Orion contributing about $9.4 million in Q3.
- GAAP operating margin was (10.5%) in Q3 and (4.9%) for the nine-month period, versus (3.6%) and (17.3%) in the comparable 2017 periods. Non-GAAP adjusted operating margin was 3.5% in Q3 and 7.7% for nine months.
- Direct operating costs increased 191% in Q3 and 54% for nine months, primarily due to Orion. Q3 G&A rose 107%, also attributed mainly to the acquisition and related salaries, facilities, and professional fees.
- At September 30, cash was $1.26 million, working capital was $5.7 million, total assets were $36.1 million, total liabilities were $8.8 million, and shareholders’ equity was $27.3 million. The company reported no bank borrowings outstanding.
- Nine-month operating cash flow was positive $4.75 million, versus cash used of $1.31 million in 2017. Investing cash outflow was $13.34 million, including the $12.6 million Orion purchase price; financing cash inflow was $5.78 million. Cash declined $3.10 million during the period.
- The secured SVB revolver was increased from $5 million to $10 million and extended; the full facility was available at quarter-end. The company reported compliance with its covenants. Other notes payable totaled about $640,000, excluding the unused revolver.
Material changes and unusual items
- ASC 606 adoption changed RCM revenue recognition to recognize estimated fees over time as services are provided. The transition increased opening accumulated equity by about $1.44 million. The standard’s reported revenue impact was a decrease of $251,000 for Q3 and an increase of $76,000 for nine months; management’s estimates are subject to potential revision.
- Q3 included approximately $806,000 of integration, transaction, and restructuring costs in the non-GAAP reconciliation, and $986,000 of stock-based compensation. Nine-month stock-based compensation was $1.52 million.
- In April 2018, MTBC issued 420,000 preferred shares for net proceeds of about $9.4 million. Preferred dividends were $3.08 million for the first nine months; $1.06 million was payable at quarter-end.
- After quarter-end, in October 2018, the company issued 600,000 Series A preferred shares for net proceeds of approximately $13.4 million.
Outlook, risks, and contingencies
- No formal revenue or earnings guidance is provided. Management said it forecasts a return to profitability, while noting cumulative losses and maintaining a valuation allowance against deferred tax assets.
- Management cited risks involving acquisition integration and growth, client retention and revenue levels, offshore operations, healthcare regulation, privacy and security, competition, key personnel, lender covenants, and the ability to pay preferred dividends. It also identified the ability to continue as a going concern and raise additional capital among forward-looking matters; the filing does not provide a specific quantified liquidity runway.
- Revenue recognition depends on estimates of client collections, billing rates, payment-to-charge ratios, contract periods, and group-purchasing volumes. The September 30 contract asset was $2.48 million, including about $0.7 million of group-purchasing revenue earned but not paid.
- A former customer’s arbitration claim relating to services provided by other parties was stayed pending appeal. The company and its subsidiary dispute responsibility and consider the claim without merit; the appeal remained pending. Management said other legal proceedings were not expected to have a material adverse effect.
- The company expected adoption of the new lease standard to have a significant, but then unquantifiable, balance-sheet impact, principally from recognition of right-of-use assets and lease liabilities.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for Medical Transcription Billing, Corp., despite the CareCloud, Inc. request metadata.
- Separate organic performance from Orion’s contribution and assess whether acquisition revenue and operating costs are sustainable after integration.
- Review cash conversion, the build in accounts payable and accrued liabilities, the $2.48 million contract asset, and the accuracy of ASC 606 estimates.
- Assess ongoing preferred-stock financing, dividend obligations, potential dilution, and liquidity after the October 2018 proceeds.
- Check SVB facility terms and covenant headroom, acquisition-related obligations, and the status and potential exposure of the arbitration.