CareCloud, Inc. — Filing identity and reporting period
Important identity note: The supplied filing is Medical Transcription Billing, Corp. (MTBC), not CareCloud, Inc. It is the Form 10-K for the fiscal year ended December 31, 2016, filed March 31, 2017. The filing reports annual results, with quarterly data including the fourth quarter.
Business context
MTBC provides web-based healthcare practice-management, electronic health records (EHR), revenue-cycle management (RCM), and related services. Most revenue is based on a percentage of customer collections. The company expanded through acquisitions, including Gulf Coast Billing, Renaissance, WFS, and MediGain in 2016; it acquired MediGain assets for $7 million, paid $2 million at closing, and owed the remaining $5 million.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $24.49 million | $23.08 million |
| Operating loss | $(7.90) million | $(4.46) million |
| Net loss | $(8.80) million | $(4.69) million |
| Net loss attributable to common shareholders | $(9.55) million | $(4.89) million |
| Adjusted EBITDA (non-GAAP) | $(0.61) million | $(0.68) million |
| Cash from operating activities | $(0.90) million | $(1.88) million |
| Cash at year-end | $3.48 million | $8.04 million |
| Working capital | $(7.42) million | $5.13 million |
| Total liabilities | $21.26 million | $11.78 million |
Revenue increased 6%, but operating expenses rose 18%; operating margin fell to approximately negative 32% from negative 19%. Direct operating costs were 54.8% of revenue versus 50.4%. Net loss widened despite slightly improved adjusted EBITDA. Interest expense increased to $682,000 from $288,000. The company recorded $4.58 million of depreciation and amortization, including $4.40 million of purchased-intangible amortization.
Fourth-quarter revenue was $8.83 million versus $5.36 million in fourth-quarter 2015; fourth-quarter net loss was $4.03 million versus $802,000. Fourth-quarter 2016 included about $3.7 million of MediGain revenue.
Cash used in investing activities was $3.83 million, largely reflecting acquisition payments. Financing activities provided $157,000, versus $9.50 million in 2015. The Opus Bank facility was fully utilized at year-end: $2 million revolving borrowings and term loans with a $7.33 million face balance (approximately $6.70 million carrying value). The company also owed Prudential $5 million for MediGain; $3 million was demanded immediately in March 2017, together with interest.
Changes, outlook, and material risks
- Acquisitions and integration: 2016 acquisitions contributed revenue, but also increased costs, amortization, and integration demands. Management said MediGain was expected to generate at least $10 million of annual revenue and be accretive to earnings in 2017; these expectations are not assured.
- Going concern: Management and the independent auditor stated that substantial doubt exists about MTBC’s ability to continue as a going concern. Cash and the fully drawn credit facility are insufficient for anticipated needs without additional financing. The auditor’s opinion on the financial statements was unqualified but included a going-concern paragraph.
- Financing and debt: MTBC said it planned to raise capital and was seeking to refinance Opus debt. A March 2017 amendment added a $1 million month-end minimum cash requirement and minimum revenue and adjusted EBITDA requirements, restricted further acquisitions and changes to the Prudential terms without Opus consent, and provided for stepped interest-rate increases totaling 3.5 percentage points by year-end 2017. Financing is not assured.
- Prudential obligation: Prudential demanded immediate payment of $3 million of the $5 million unpaid purchase price. MTBC had not paid it as of the filing; nonpayment could lead to claims and materially affect the business.
- Listing: Nasdaq extended the deadline to June 19, 2017 to regain compliance with the $1 minimum bid-price rule. A reverse stock split was proposed for shareholder authorization.
- Operating risks: The business depends substantially on offshore operations, especially in Pakistan, and faces acquisition-retention and integration risks, competition, healthcare regulation, data security and privacy exposure, and reimbursement-policy uncertainty.
- Other notable items: The company paid $709,000 in preferred dividends and spent $546,000 repurchasing common shares in 2016. Common dividends were not anticipated and were restricted by the senior lender. Management expected expense reductions after MediGain but did not assure a near-term return to profitability.
Most important facts for investors to verify
- Whether MTBC obtained sufficient financing to meet the Prudential demand and other near-term obligations, and the current status of that dispute.
- Current cash, working capital, operating cash burn, Opus facility availability, covenant compliance, interest rates, and debt maturities.
- Whether MediGain and the other acquired businesses retained customers, migrated to MTBC’s platform, and delivered the projected revenue and earnings contribution.
- Nasdaq bid-price compliance and the outcome and terms of the proposed reverse stock split.
- Whether cost reductions improved operating results and cash flow, and whether the company achieved sustained profitability.