CareCloud, Inc. (Medical Transcription Billing, Corp.) — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. The filing identifies the registrant as Medical Transcription Billing, Corp. (MTBC). It provides healthcare IT, practice-management and revenue-cycle-management services. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $5.21 million | $5.97 million | $10.32 million | $12.10 million |
| Operating loss | $(1.07) million | $(1.50) million | $(2.87) million | $(2.67) million |
| Net loss | $(1.29) million | $(1.49) million | $(3.28) million | $(2.65) million |
| Net loss per common share | $(0.15) | $(0.15) | $(0.36) | $(0.27) |
| Adjusted EBITDA (non-GAAP) | $14,000 | $(96,000) | $80,000 | $(805,000) |
| Adjusted EBITDA margin (non-GAAP) | 0.3% | (1.6%) | 0.8% | (6.7%) |
Q2 operating loss margin was (20.5%), compared with (25.1%) a year earlier; six-month operating loss margin worsened to (27.9%) from (22.0%). The six-month net loss attributable to common shareholders was $3.60 million, including $318,000 of preferred dividends.
Six-month operating cash use was $325,000, versus $1.45 million in 2015; Q2 generated $78,000 from operations, compared with $155,000 used in Q2 2015. Investing cash use was $1.62 million, primarily reflecting acquisition payments. Cash declined $1.42 million in the first half to $6.62 million.
At June 30, cash was $6.62 million and current assets were $9.25 million, against current liabilities of $6.91 million. Total liabilities were $13.62 million and shareholders’ equity was $11.35 million. The Opus Bank $10 million facility was fully utilized: $8 million of term loans and a $2 million revolving line. The balance sheet reported $7.33 million of Opus term debt net of discounts and issuance costs, plus $2 million drawn on the line. Term-loan principal payments of approximately $222,000 monthly were scheduled to begin October 2016.
Changes versus the prior comparable period
- Revenue declined 13% in Q2 and 15% for the first half. Management attributed the first-half decline primarily to $3.5 million less revenue from 2014-acquisition customers, partly offset by revenue from 2015 and 2016 acquisitions and a revenue-share arrangement.
- Operating expenses fell 16% in Q2 and 11% for the first half, including lower direct operating costs and general and administrative expense. Selling and marketing expense rose 127% in Q2 and 159% for the first half as the company invested in sales and business development; R&D expense also increased.
- Q2 net loss narrowed, but the first-half net loss increased. Interest expense rose substantially following the 2015 Opus financing. Changes in contingent consideration reduced reported operating expenses in both periods.
- Management reported approximately 1,880 providers and 770 practices served at June 30, 2016, versus approximately 1,760 providers and 817 practices a year earlier. Acquired customers not yet migrated to the company platform are excluded from the platform metrics.
Outlook, risks and notable items
- Management said cash, preferred-stock proceeds and Opus financing were expected to fund anticipated needs for at least the next 12 months, while also citing expense reduction and a goal of improving operating cash flow. The company remained loss-making and had used all available Opus borrowing capacity.
- In July 2016, the company raised approximately $1.4 million net from another Series A preferred-stock offering and amended Opus financial covenants for additional flexibility, paying a $25,000 fee and issuing 100,000 warrants at a $5.00 exercise price.
- Gulf Coast Billing and Renaissance Medical Billing were acquired in the first half, with purchase prices including contingent, revenue-linked payments. A further asset acquisition, WFS Services, closed July 1, 2016, with monthly payments and a share of adjusted EBITDA.
- Nasdaq notified the company that its common-stock bid price had remained below $1.00 for 30 consecutive business days. The initial compliance period ran through December 21, 2016; failure to regain compliance could lead to delisting. The company said it would monitor the price and consider available options.
- Material risk themes include customer retention and migration after acquisitions, integration and growth execution, access to financing, competition, operations and currency/remittance risks in Pakistan, regulatory compliance, data privacy, and Nasdaq listing compliance. The company reported that it remediated a previously disclosed material weakness in internal controls during Q2 and concluded disclosure controls were effective at June 30.
- Management reported no legal proceedings expected to have a material adverse effect. The company had related-party leases and aircraft lease arrangements with entities owned by its CEO. Preferred dividends are cumulative; common dividends are restricted without Opus consent.
Key facts for investors to verify
- Whether revenue trends stabilize as acquired customers are migrated and acquisition-related revenue shares and contingent payments develop.
- Whether operating cash flow improves and the company can meet scheduled debt principal payments with its fully drawn credit facility.
- Progress toward Nasdaq’s minimum bid-price requirement and any action taken to preserve the listing.
- Performance and integration of the 2016 acquisitions, including customer retention, acquired revenue and future contingent consideration.
- Whether the reported internal-control remediation remains effective and whether preferred-stock dividends and related financing terms remain sustainable.