Carecloud, Inc. — 2015 Q1 Form 10-Q summary
Filing identity: The supplied filing is for Medical Transcription Billing, Corp. (MTBC), not CareCloud, Inc. It covers the quarter ended March 31, 2015; the financial statements are unaudited.
Business context and financial results
MTBC provides healthcare technology and revenue-cycle management services, with major operations in Pakistan. Its July 2014 acquisitions of Omni, Practicare and CastleRock materially expanded the business. Q1 2015 revenue included $3.8 million from those acquired businesses.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $6.14 million | $2.57 million |
| Operating loss | $1.17 million | $0.32 million |
| Net loss | $1.17 million | $0.38 million |
| Basic and diluted loss per share | $0.12 | $0.08 |
| Operating cash flow | $(1.30) million | $704 |
| Cash at period end | $1.19 million | $306,504 |
Revenue grew 139% year over year, primarily from acquired customers. Operating expenses rose 152%; direct operating costs increased 208%, general and administrative costs 144%, and depreciation and amortization 329% (from $270,043 to $1.16 million). The increase in amortization largely reflected acquired intangible assets. Operating loss margin was 19.1%, versus 12.5%; net loss margin was 19.1%, versus 14.9%.
Management-reported non-GAAP adjusted EBITDA was a loss of $710,000, compared with a loss of $1,727; adjusted EBITDA margin was (11.6)% versus (0.1)%. Adjusted net loss was $854,000, versus adjusted net income of $83,000. These non-GAAP measures exclude specified items, including amortization and changes in contingent consideration.
Balance sheet, debt and liquidity
At March 31, 2015, total assets were $22.20 million, total liabilities $9.10 million, and shareholders’ equity $13.10 million. Current assets were $4.73 million and current liabilities $8.48 million. The $3.0 million TD Bank revolving line was fully drawn, up from $1.215 million at year-end; it bears interest at prime plus 1% and matures November 30, 2015, subject to lender renewal. The company also owed $470,089 to its CEO, due July 5, 2015, at 7% interest.
Operating cash use of $1.30 million was funded largely by $1.53 million of financing cash flow, including increased line-of-credit borrowings. The filing states that substantial doubt exists about the company’s ability to continue as a going concern: operations were cash-flow negative, the line was fully used and its renewal was not secured. Management said it believed financing options could fund anticipated operations through March 2016, but noted there was no assurance of obtaining financing. As of April 30, cash was approximately $704,000 and line borrowings were $2.9 million.
Material changes, outlook and risks
- The 2014 acquisitions drove most of the revenue increase and added significant staffing and overhead. Management said it had migrated 86% of acquired practices to its platform by Q1 2015.
- Operating results included an $829,000 benefit from reduced contingent consideration, including a $133,000 gain tied to CastleRock’s forfeiture of 53,797 shares. The liability was $1.93 million at quarter-end; settlement was expected by September 30, 2015 and could vary with acquired-business revenue and the company’s share price.
- Operating cash flow deteriorated from near breakeven to a $1.30 million use. Management cited acquisition-related costs and working-capital movements; the company relied on its line of credit for working capital.
- Management expected to invest more in sales and marketing and research and development. It also cited cost reductions and plans to reduce U.S.-based costs, but provided no quantified earnings or revenue guidance.
- Disclosure controls were deemed ineffective as of March 31, 2015 because of a material weakness involving timely and accurate financial close and complex-transaction accounting. Remediation was ongoing and expected to continue through 2015.
- Risks include refinancing or renewing the fully drawn credit line, securing additional capital (potentially dilutive), integrating acquisitions and retaining acquired customers, dependence on Pakistan operations, currency and political risks, and protecting patient information. The CEO guaranteed the credit line and committed up to $400,000 of additional capital if needed.
- Related-party matters include the CEO loan, leases of company offices from the CEO, and an aircraft lease with a CEO-owned company. A proposed Same Day Funding test with a physician related to the CEO was approved for advances of up to $20,000 through May 31, 2015.
Important facts for investors to verify
- Confirm the filing belongs to the intended issuer: this document names Medical Transcription Billing, Corp., not CareCloud, Inc.
- Check the status and terms of the TD Bank line renewal, the July 2015 CEO-loan maturity, and any replacement or additional financing.
- Track operating cash flow, liquidity, cost reductions, and whether management’s stated funding runway is achieved.
- Review acquired-customer retention and migration, and final contingent-consideration settlement relative to the $1.93 million recorded liability.
- Monitor remediation of the material weakness and any subsequent assessment of disclosure controls.