Business Context and Reporting Period
This summary covers Medical Transcription Billing, Corp. (MTBC), not CareCloud, Inc. The filing is MTBC’s Form 10-K for the fiscal year ended December 31, 2015; it includes quarterly results, including fourth-quarter 2015, but is not a standalone Q4 filing. MTBC provides web-based healthcare practice-management, electronic health records (EHR), revenue-cycle-management (RCM), mobile-health, clearinghouse, and electronic data interchange services.
Growth is driven substantially by acquisitions and by fees generally tied to customer collections. MTBC completed the MedTech and SoftCare acquisitions in 2015; SoftCare added clearinghouse and EDI services. The company reported approximately 1,100 customers at year-end, including 340 clearinghouse/EDI clients, and billing services for about 730 practices and 1,500 providers. Its operating model depends heavily on a workforce of more than 1,500 in Pakistan.
Financial Results and Key Metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $23.08 million | $18.30 million |
| Operating loss | $4.46 million | $4.04 million |
| Net loss | $4.69 million | $4.51 million |
| Net loss per common share | $0.50 | $0.64 |
| Adjusted EBITDA (non-GAAP) | $(0.68) million | $(1.73) million |
| Operating cash flow | $(1.88) million | $(2.70) million |
| Cash at year-end | $8.04 million | $1.05 million |
| Working capital | $5.13 million | $(3.56) million |
Revenue increased 26%, while operating expenses rose 23%. The operating-loss margin improved to 19.4% of revenue from 22.1%; the net-loss margin improved to approximately 20.3% from 24.6%. Direct operating costs declined to 50.4% of revenue from 58.1%, while depreciation and amortization rose to $4.60 million from $2.79 million, largely reflecting acquired intangible assets. Adjusted EBITDA margin improved to (2.9)% from (9.4)%; this non-GAAP measure excludes, among other items, interest, taxes, depreciation and amortization, stock compensation, acquisition costs, and contingent-consideration changes.
Acquisition contribution was material: FY 2015 revenue included $12.4 million from the 2014 acquisitions and $1.1 million from the 2015 acquisitions. The 2014 acquisitions contributed for only five months in 2014 versus a full year in 2015, so reported growth does not represent purely organic growth. Fourth-quarter revenue was $5.36 million, down from $7.10 million in Q4 2014; quarterly losses continued throughout 2015.
Cash used in investing activities was $0.60 million, versus $12.65 million in 2014, primarily reflecting lower acquisition spending. Financing provided $9.50 million, including net preferred-stock proceeds of about $4.7 million and Opus Bank borrowings. The company reported $8.0 million of the $10 million Opus facility utilized at year-end: $6 million of term loans and a $2 million revolving balance; additional borrowing was conditional on covenant satisfaction. The balance sheet showed total liabilities of $11.78 million and shareholders’ equity of $14.89 million. Contractual debt and note payments totaled $6.65 million, with contingent consideration of $1.17 million also outstanding.
MTBC issued 231,616 shares of 11% Series A cumulative redeemable perpetual preferred stock. Dividends are cumulative and payable monthly when declared. The company reported $207,000 of preferred dividends for 2015. It did not anticipate common-stock dividends, and common dividends are restricted without Opus Bank’s consent.
Changes, Outlook, and Risks
- Acquisitions and operating performance: Revenue growth was acquisition-led. Management reported that 94% of customers from the 2014 acquisitions had been migrated to PracticePro by year-end, but only 48% of those acquired customers were retained 17 months after acquisition. The 2015 overall customer renewal rate fell to 79% from 85%; EHR-user renewal was 99% versus 93%.
- Operating measures: First-pass claim acceptance declined to approximately 95% from 97%, and first-pass resolution to 93% from 96%. Median days in accounts receivable were 35 for primary care and 39 for combined specialties, versus 35 and 38, respectively, in 2014.
- Management outlook: The filing provides no specific revenue or earnings guidance. Management said it expected adequate cash for working capital and capital expenditures for at least 12 months, citing preferred-stock proceeds, bank financing, cost reductions, and anticipated operating cash flows. However, operations used cash in both 2014 and 2015, and the company stated it relies on debt financing. Management also described plans to expand sales and marketing and pursue further acquisitions.
- Financing and contingencies: The Opus facility is secured by substantially all domestic assets and 65% of the Pakistan subsidiary’s shares, carries an interest rate of at least 5%, and includes financial covenants. MTBC reported compliance at year-end. Preferred dividends and future financing remain subject to cash availability, legal requirements, and lender covenants. Contingent acquisition payments may change with acquired-business performance and MTBC’s share price.
- Controls and reporting: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2015 because a material weakness involving complex transactions and the financial reporting and closing process, particularly information technology, had not been fully remediated. Remediation was expected to continue through 2016. The auditor issued an unqualified opinion on the financial statements but did not express an opinion on internal-control effectiveness.
- Principal business risks: The company depends on Pakistan operations, which are exposed to political, security, power, currency, and regulatory risks. Other disclosed risks include customer attrition and acquisition integration, competition and pricing pressure, healthcare regulation and reimbursement changes, data security and service interruptions, and the ability to maintain EHR and clearinghouse certifications. The filing reported no material legal proceedings pending or threatened.
Investor Verification Priorities
- Separate organic growth from acquired revenue and verify acquisition-related customer retention, migration progress, and the sustainability of acquired revenues.
- Track operating cash flow, cash needs, debt service, Opus covenant compliance, and whether the conditional borrowing capacity is available.
- Assess progress in remediating the material weakness and whether the new accounting system and related controls operate effectively.
- Evaluate the drivers of continued GAAP losses, including amortization, acquisition integration costs, and recurring operating expenses; review non-GAAP adjustments alongside GAAP results.
- Confirm the capacity to fund cumulative 11% preferred dividends and meet contingent-consideration obligations without constraining operations or common shareholders.
- Monitor customer renewal and claims-performance trends, and assess exposure to Pakistan operating disruptions, healthcare regulation, and cybersecurity or service failures.