CareCloud, Inc. (then Medical Transcription Billing, Corp.) — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The filing identifies the registrant as Medical Transcription Billing, Corp. (MTBC), a healthcare technology and services provider offering revenue-cycle management, practice-management software, and electronic health records.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $8.22 million | $5.11 million |
| Operating loss | $2.41 million | $1.80 million |
| Net loss | $2.71 million | $1.98 million |
| Net loss attributable to common shareholders; loss per share | $2.91 million; $0.29 | $2.14 million; $0.21 |
| Net cash used in operating activities | $867,000 | $404,000 |
| Adjusted EBITDA (non-GAAP) | $(313,000) | $65,000 |
- Revenue increased 61%, substantially reflecting about $4.5 million from the 2016 acquisitions, partly offset by customer attrition. The acquisitions’ contribution makes the year-over-year comparison less indicative of organic growth.
- Direct operating costs rose 127% to $5.22 million; direct costs were 63.5% of revenue versus 45.0%. Operating margin improved to negative 29.3% from negative 35.1%, while the company remained loss-making.
- Cash fell to $1.25 million from $3.48 million at year-end. The company reported a working-capital deficit of approximately $9.6 million and had fully drawn its $2 million Opus line of credit.
- Opus term loans had a $6.67 million face amount; the Opus facility was fully utilized. The balance sheet reported $6.09 million of long-term debt, net of discounts and issuance costs. The remaining $5 million MediGain purchase price was also outstanding.
- Preferred dividends of $203,000 were paid in the quarter. Preferred stock dividends are included in the loss attributable to common shareholders.
Material changes, outlook, and risks
- The 2016 MediGain acquisition expanded revenue but also increased U.S. and offshore staffing, subcontracting, software, and integration costs. Management said integration progress was made but the acquired operations weighed on first-quarter expenses.
- The company recorded $276,000 in restructuring charges related to planned closures of its Poland and India operations; about $174,000 remained payable at March 31. The filing describes the closure decision as occurring in March in one section and April in another. Management expected a roughly six-month wind-down and transfer of much of the work to Pakistan.
- Going concern: Management stated that available cash was insufficient for current and anticipated needs without additional financing and that substantial doubt existed about the company’s ability to continue as a going concern within twelve months after issuance of the financial statements. The statements assume continued operations and include no adjustments for a possible failure to continue.
- Prudential demanded immediate payment of $3 million of the MediGain purchase price, plus accrued interest at 18%; the remaining $2 million was due May 15, 2017. The company said it lacked financing for these obligations and was negotiating a payment plan subject to Opus approval.
- Opus covenants required at least $1 million in month-end cash, among other requirements; MTBC reported compliance at March 31. Interest rates on Opus debt were scheduled to step up during 2017, reaching prime plus 5.25% on January 1, 2018. Additional equity or debt financing was considered necessary but was not assured and could dilute shareholders or increase financing costs.
- Management expected the MediGain acquisition to be accretive in 2017 and said it expected at least $10 million of annual revenue from acquired customers, but cautioned that customer retention and these expectations were uncertain. No specific company-wide financial guidance was provided.
- Nasdaq’s minimum-bid-price compliance remained a risk. Shareholders approved authority for a potential 1-for-3 to 1-for-8 reverse split; the company said its common stock had closed above $1 for ten consecutive trading days ended May 9, 2017 and therefore expected likely compliance without a split.
- The company disclosed a $15,000 settlement resolving claims by certain former MediGain shareholders seeking to invalidate the acquisition. Management described the settlement terms as favorable.
Most important facts for investors to verify
- Whether MTBC obtained financing or a payment arrangement for the $5 million Prudential obligation, including accrued interest, and met the May 15, 2017 payment date.
- Subsequent cash balances, operating cash use, and compliance with Opus’s minimum-cash and other covenants.
- Whether MediGain customer retention, integration, and cost reductions delivered the expected revenue and earnings contribution.
- The outcome of Nasdaq bid-price compliance and whether a reverse split was ultimately required.
- The effect of the Poland and India wind-down, including final restructuring costs and operational transition to Pakistan and other providers.