CareCloud, Inc. (filing registrant: Medical Transcription Billing, Corp.) — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. The filing identifies the registrant as Medical Transcription Billing, Corp. (MTBC), not CareCloud; investors should verify the company and filing match.
Business context and financial performance
MTBC provides healthcare technology and revenue-cycle-management services to U.S. healthcare providers, using operating facilities in Pakistan and a subsidiary in Poland. The 2014 acquisitions of Omni, Practicare and CastleRock materially expanded the business and are the main driver of reported year-over-year revenue growth.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $5.97 million | $2.61 million | $12.10 million | $5.19 million |
| Operating loss | $(1.50) million | $(0.39) million | $(2.67) million | $(0.71) million |
| Net loss | $(1.49) million | $(0.29) million | $(2.65) million | $(0.67) million |
| Loss per share, basic and diluted | $(0.15) | $(0.06) | $(0.27) | $(0.13) |
| Adjusted EBITDA (non-GAAP) | $(0.10) million | $(0.01) million | $(0.81) million | $(0.01) million |
Revenue increased 128% in Q2 and 133% for the six-month period; acquired customers contributed approximately $3.5 million and $7.3 million, respectively. Direct costs were 48.8% of Q2 revenue versus 42.6% a year earlier, while depreciation and amortization rose sharply following the acquisitions. Operating margin was (25.1)% in Q2 and (22.0)% for the six months, compared with (14.9)% and (13.7)%, respectively, in 2014. Gross margin, calculated as revenue less direct operating costs, was approximately 51.2% for Q2 and 46.6% for the six months, versus 57.4% and 56.3% in 2014.
Cash flow, debt and liquidity
- Cash was $632,000 at June 30, down from $1.05 million at year-end 2014. Six-month operating cash flow was negative $1.45 million, versus positive $102,000 in 2014; investing cash use was $261,000.
- Financing provided $1.30 million in the first half, primarily reflecting increased net borrowings. The $3.0 million TD Bank revolver was fully drawn at June 30; it bears interest at prime plus 1%, is secured by company assets and guaranteed by the CEO, and was due to mature November 30, 2015.
- Current assets were $3.67 million and current liabilities $7.40 million at June 30 (current ratio approximately 0.50). Total liabilities were $8.49 million. Notes payable, excluding the revolver, totaled approximately $664,000, including $470,000 owed to the CEO.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing operating losses, cash needs and reliance on financing. The filing says the company had no signed additional financing agreement at the time of the statements.
Material changes, outlook and risks
- Costs and losses rose alongside acquisition-driven growth. Management cited integration costs, acquired-company staffing and facilities, and increased amortization. It had migrated 90% of acquired practices to its platform by June 30; acquired customers not yet migrated were serviced on other platforms.
- Management said it expected cash sources to fund anticipated operations through June 2016, while warning there was no assurance of success. It expected to increase sales, marketing and business-development investment in the second half of 2015 and anticipated higher research and development spending in absolute dollars.
- The company’s $3.0 million credit line was fully utilized and renewal remained subject to the bank’s approval. Management reported no indication the bank would refuse renewal, but stated that failure to renew or obtain other financing could require business reductions. A proposed preferred-stock offering was registered in July 2015; success was not assured and equity financing could dilute shareholders.
- After quarter-end, the CEO loan was amended to permit reborrowing subject to a $1.0 million cap, and the company borrowed an additional $410,000 from the CEO. Also after quarter-end, MTBC acquired SoftCare divisions for an initial $21,888, with additional revenue-linked payments and uncertain collectability of an assigned delinquent receivable of about $260,000.
- Acquisition-related contingent consideration declined by $916,000 in the first half, including a $133,000 gain from CastleRock’s forfeiture of shares. The company also changed to accelerated amortization for CastleRock customer relationships, adding $128,000 of Q2 amortization.
- Management reported ineffective disclosure controls due to a material weakness in review of the financial close and complex transactions. Remediation was underway and expected to continue through 2015. Other risks include customer retention and acquisition integration, access to capital, operations and currency exposure in Pakistan, healthcare regulation, competition, and protection of patient information.
No specific full-year revenue or earnings guidance is provided in the filing.
Important facts for investors to verify
- Confirm the filing’s issuer identity: the supplied filing is for Medical Transcription Billing, Corp. (MTBC), despite the request metadata naming CareCloud, Inc.
- Check the outcome and terms of the November 2015 revolver renewal, the preferred-stock financing effort, and subsequent liquidity developments.
- Assess whether operating cash flow improved, whether acquisition customers were retained and migrated, and whether cost reductions translated into better margins.
- Review the resolution and final cash or share impact of acquisition contingent consideration, and the financial terms and performance of the SoftCare and other revenue-sharing arrangements.
- Track remediation of the disclosed material weakness and any subsequent changes to disclosure controls.