Carecloud, Inc. (metadata); filing registrant: Medical Transcription Billing, Corp. (MTBC)
Reporting period: Form 10-Q for the quarter and six months ended June 30, 2014. The filing identifies the company as MTBC, a healthcare information technology and revenue-cycle-management provider; it does not identify Carecloud, Inc. as the registrant.
Financial performance and position
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Revenue | $2.61 million | $5.19 million | $2.30 million and $4.54 million; up 13% and 14% |
| Operating loss | $389,000 | $711,000 | $158,000 and $157,000 loss |
| Net loss | $289,000 | $673,000 | $87,000 and $76,000 loss |
| Basic and diluted loss per share | $0.06 | $0.13 | $0.02 and $0.01 |
| Adjusted EBITDA (non-GAAP) | $18,000 | $32,000 | $167,000 and $351,000 |
| Adjusted EBITDA margin (non-GAAP) | 0.7% | 0.6% | 7.3% and 7.7% |
Margins and costs: Direct operating costs were 42.6% of Q2 revenue and 43.7% for the first half, versus 39.8% and 40.6% in 2013. Operating margins were negative 14.9% and 13.7%, respectively, versus negative 6.9% and 3.4%. Higher direct costs, general and administrative expense, and amortization contributed to worsening operating results.
Cash flow and liquidity: First-half operating cash flow was $102,000, investing cash outflow $104,000, and financing cash outflow $447,000. Cash declined from $498,000 at year-end 2013 to $33,000 at June 30. Current assets were $1.47 million against current liabilities of $3.93 million, a working-capital deficiency of approximately $2.5 million. The $1.215 million TD Bank credit line was fully drawn at quarter-end and had no remaining availability; it was repaid on August 14, 2014.
Debt and equity: Total liabilities were $5.92 million and shareholders’ equity was negative $375,000 at June 30. Debt included the $1.215 million line of credit, $736,000 owed to the majority shareholder, and a $496,000 convertible note. The IPO subsequently generated $15.6 million in net proceeds; $11.3 million funded cash consideration for three acquisitions. The company reported 10,983,433 common shares outstanding as of August 28, 2014.
Material changes versus 2013
- Revenue rose, but management attributed the increase primarily to customers acquired from Metro Medical, which contributed about $578,000 in Q2 and $1.20 million in the first half; the acquired revenue more than offset losses from existing customers.
- Operating expenses rose 22% in Q2 and 25% in the first half. General and administrative expense increased 19% and 26%; amortization increased 66% and 67%, largely reflecting Metro Medical intangibles. Hiring and preparation for the IPO and acquisitions also increased costs.
- First-half other expense was $182,000, compared with $96,000 of other income in 2013, primarily reflecting a $184,000 foreign-exchange loss versus an $81,000 gain.
- First-half operating cash flow fell from $289,000 to $102,000; cash ended the period $465,000 below its beginning balance.
Outlook, risks, contingencies, and unusual items
- Following the IPO, management expected cash and operating cash flow to cover working capital, capital expenditures, and acquisition financing needs for at least 12 months. It also cautioned that further financing might be needed for growth and could be unavailable or dilutive.
- On July 28, 2014, MTBC completed acquisitions of Omni Medical Billing Services, Practicare Medical Management, and CastleRock Solutions for approximately $17.5 million, preliminarily allocated to $266,000 of net tangible assets, $12.1 million of intangible assets, and $5.2 million of goodwill. Purchase accounting remained incomplete and final valuations could differ materially.
- The company cited a material weakness in internal control: insufficient personnel and processes for timely recording of complex transactions, and an accounting system lacking controls needed for a public company. Remediation was expected to continue over several quarters.
- About half of first-half expenses were incurred in Pakistan while revenue was U.S.-based and U.S.-dollar-denominated. The company reported foreign-exchange exposure, no hedging contracts, and political, economic, banking, and currency risks related to its Pakistan operations.
- The TD Bank credit line matured November 29, 2014; management was discussing an extension or increase, with no assurance of success. The filing also describes related-party loans, leases, aircraft expenses, and guarantees.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. The filing reports a prior cash-flow presentation error for 2013, restated in this filing; management concluded it was not material and did not require amendment of previously filed statements.
- The filing’s cover-page response indicates the company had not filed all required reports during the preceding 12 months.
Investor verification priorities
- Confirm the issuer identity and whether this MTBC filing is relevant to Carecloud, Inc.; the filing names Medical Transcription Billing, Corp.
- Review the final acquisition valuations, purchase-price adjustments, customer retention, integration progress, and realized cost savings.
- Assess post-IPO cash, debt repayment, ongoing liquidity, credit-line renewal, and any additional financing or dilution needs.
- Track remediation of the material weakness and effectiveness of public-company financial reporting controls.
- Evaluate whether revenue growth is sustainable beyond acquired customers and whether expense growth and foreign-exchange exposure can be contained.