CareCloud, Inc. (then Medical Transcription Billing, Corp.) — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. The filing identifies the registrant as Medical Transcription Billing, Corp. (MTBC); it describes healthcare IT, revenue-cycle management, electronic health records and practice-management services.
Financial performance and liquidity
| Metric | Q3 2015 | Nine months 2015 |
|---|---|---|
| Revenue | $5.61 million | $17.72 million |
| Operating loss | $1.28 million | $3.95 million |
| Net loss | $1.23 million | $3.89 million |
| Net loss per share, basic and diluted | $0.13 | $0.40 |
| Adjusted EBITDA (non-GAAP) | $(184,000) | $(989,000) |
| Adjusted EBITDA margin (non-GAAP) | (3.3)% | (5.6)% |
- Q3 revenue fell 7% year over year; nine-month revenue rose 58%. Revenue from the 2014 acquisitions was $2.8 million in Q3 and $10.1 million year to date. The 2015 acquisitions contributed about $450,000 in the period.
- Q3 operating loss margin was 22.8%, improved from 40.0% in Q3 2014; nine-month operating loss margin was 22.4%, versus 27.7%. Q3 direct operating costs and general and administrative expenses declined year over year, while the year-to-date expense base increased with acquired businesses.
- Cash used in operating activities was $1.90 million for the first nine months, compared with $2.02 million in 2014. Cash at September 30 was $1.61 million. Investing used $448,000; financing provided $2.94 million.
- Current assets were $4.77 million against current liabilities of $6.55 million. Total liabilities were $11.00 million and shareholders’ equity was $10.58 million.
- Opus Bank financing included a $4 million term loan and a $2 million revolving line, both fully utilized at quarter-end. Long-term debt carrying value was $3.39 million; the $2 million line balance was current. The company reported compliance with Opus covenants. Debt is secured by substantially all domestic assets and 65% of the Pakistan subsidiary’s shares.
Changes, outlook and significant matters
- Revenue growth for the nine-month period was acquisition-driven, while Q3 revenue declined as revenue from existing customers decreased. Management reported migrating 88% of practices acquired in 2014 and 14% of 2015-acquired practices to its platform by September 30.
- The company acquired SoftCare’s RCM assets and Med Tech customer contracts in Q3. Their preliminary purchase prices included contingent consideration; purchase-price allocations were preliminary and subject to valuation work.
- On November 4, 2015, after quarter-end, MTBC completed a preferred-stock offering of approximately 204,000 shares at $25 each, generating about $4.0 million net proceeds. The 11% cumulative preferred dividends are payable monthly if declared; about $1.1 million of proceeds was reserved for two years of dividends. Opus agreed to release an additional $2 million as a term loan after the offering.
- Management said the preferred-stock proceeds and expected operating resources should fund anticipated cash requirements through September 2016; elsewhere it stated it believed resources were sufficient for at least the next 12 months. This outlook depends on execution and cash generation. The company had previously identified substantial doubt about going concern due to operating cash use and reliance on financing.
- Management planned to increase sales, marketing and business-development investment in Q4 2015 and continued to target regular positive operating cash flow. No numeric revenue or profitability guidance was provided.
- A $1.28 million year-to-date reduction in contingent consideration benefited reported results; the adjustment was primarily driven by lower acquired-company revenue estimates and the company’s stock price, and is subject to further remeasurement. Amortization expense rose 97% year over year for the first nine months.
- Disclosure controls were deemed ineffective due to a material weakness in timely and accurate financial close and reporting, including accounting for complex transactions. Remediation included additional accounting staff and controls and an accounting-system upgrade.
- Risks include customer retention and acquisition integration, ability to obtain further financing, competition, healthcare regulation and patient-data protection, and operating exposure in Pakistan, including currency, political and banking risks. The company also disclosed related-party transactions with its CEO, including prior lending and leases.
Key facts investors should verify
- Whether the post-quarter preferred offering and additional Opus borrowing improved liquidity as intended, and the effect of the 11% cumulative dividend obligation.
- Whether operating cash flow improves and the company can meet debt, contingent-consideration and other obligations without further financing.
- Organic revenue trends, retention of acquired customers, and progress migrating acquired practices to MTBC’s platform.
- Final purchase-price allocations and contingent-consideration settlements, including the potential effect of future fair-value changes.
- Progress in remediating the material weakness and management’s subsequent assessment of internal-control effectiveness.