CareCloud, Inc. — 2020 Q2 10-Q summary
Filing identity: The supplied filing is MTBC, Inc.’s Form 10-Q for the quarter ended June 30, 2020; MTBC acquired CareCloud Corporation in January 2020. It is not a 10-Q filed by CareCloud, Inc.
Business context and reporting period
MTBC provides healthcare IT, revenue cycle management (RCM), software-as-a-service (SaaS), and practice management services. Results cover the three and six months ended June 30, 2020, compared with the same 2019 periods. The 2020 results include CareCloud and Meridian, acquired during the first half, as well as Etransmedia, acquired in 2019.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $19.6 million | $16.7 million | $41.4 million | $31.8 million |
| Operating loss | $4.6 million | $1.2 million | $7.4 million | $1.5 million |
| Net loss | $4.8 million | $0.8 million | $7.3 million | $1.1 million |
| Net loss attributable to common shareholders; diluted loss per share | $8.1 million; $0.65 | $2.3 million; $0.19 | $13.2 million; $1.07 | $4.0 million; $0.34 |
| Adjusted EBITDA (non-GAAP) | $0.2 million | $1.1 million | $1.0 million | $2.7 million |
GAAP operating margin was negative 23.6% in Q2 2020 versus negative 7.3% a year earlier; for the first half it was negative 18.0% versus negative 4.6%. Non-GAAP adjusted operating margin was negative 0.8% in Q2 and 0.6% for the first half, compared with 5.1% and 6.3%, respectively, in 2019. These non-GAAP measures exclude specified costs and should not be viewed as substitutes for GAAP results.
For Q2, RCM revenue was $11.4 million, SaaS revenue $3.8 million, and practice management revenue $2.5 million. Acquired businesses contributed approximately $9.8 million of Q2 revenue and $18.6 million for the first half, limiting direct comparability with 2019.
Cash flow, debt, and liquidity
- Cash was $12.5 million at June 30, down from $20.0 million at year-end. Current assets were $31.0 million and current liabilities $28.3 million, leaving approximately $2.7 million of working capital.
- First-half operating cash flow was negative $2.9 million, compared with positive $3.3 million in 2019. Investing cash outflow was $27.2 million, including $23.7 million for acquisitions and $2.6 million of capitalized software costs. Financing cash inflow was $23.1 million, including $19.0 million of preferred-stock proceeds.
- The company had drawn the full $9.75 million available under its SVB line of credit at quarter-end; it repaid the balance in July. The filing reports $54,000 of long-term notes payable and $129,000 current notes payable at quarter-end.
- In July, MTBC sold additional Series A preferred stock for net proceeds of approximately $25.6 million. Operating lease liabilities totaled $12.3 million at June 30.
Material changes, outlook, and risks
- Revenue increased 17% in Q2 and 30% in the first half, substantially reflecting acquisitions. Expenses grew faster: first-half operating expenses rose 47%, with higher selling and marketing, research and development, and amortization costs among the main increases. Management attributed much of the cost growth to acquired businesses and integration-related activity.
- CareCloud and Meridian acquisitions added customers and products, but also brought working-capital deficits, lease obligations, and substantial purchase-accounting goodwill and intangible assets. At June 30, goodwill was $49.7 million and net intangible assets were $31.8 million. Meridian’s purchase-price allocation was preliminary.
- Management said COVID-19 had not materially adversely affected consolidated results through the first half, but warned that effects could persist and were uncertain. Approximately 65% of revenue was directly tied to customer collections; reduced patient visits and collections could pressure revenue. Telehealth operations were expanded, though not all providers used telehealth to the same extent as in-person visits.
- The filing provides no quantified earnings or revenue guidance. Management cautioned that first-half results may not indicate full-year performance and identified acquisition integration, customer retention, financing and covenant compliance, preferred dividends, offshore operations, and pandemic effects as risks.
- RPRWC’s arbitration claim against subsidiary MAC was estimated by the claimant at approximately $11 million plus costs in a July 2020 filing, after earlier higher and lower claims. MTBC had obtained a ruling that it could not be compelled to arbitrate; MAC intends to defend the claim. Management said the damages were speculative and expected any award, if applicable, to be substantially below the amount claimed.
- Preferred dividends were $3.3 million in Q2 and $5.9 million in the first half; $3.2 million was payable at quarter-end. The preferred-stock issuance and acquisition warrants also create potential dilution and ongoing dividend obligations.
Most important facts for investors to verify
- How much revenue growth is organic versus attributable to CareCloud, Meridian, and other acquisitions, and whether acquired clients are retained.
- Whether operating cash flow improves after acquisition-related payments and how much liquidity remains after the July debt repayment and preferred-stock issuance.
- Integration progress, recurring operating costs, and the impact of amortization, stock compensation, and capitalized software on reported and adjusted performance.
- Final Meridian purchase accounting, acquisition earn-out or other contingent obligations, and any changes in goodwill or intangible-asset values.
- Developments in the RPRWC arbitration, COVID-19 effects on provider collections, and the company’s ability to meet preferred-dividend and debt obligations.