CareCloud(CCLD) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q1 2020 report a net loss on increased revenues, primarily driven by acquisitions, with total assets significantly rising due to the CareCloud acquisition and detailed notes on key events and segment performance Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash | $8,395,321 | $19,994,134 | | Total current assets | $23,405,685 | $31,002,135 | | Goodwill | $38,351,775 | $12,633,696 | | Intangible assets - net | $17,337,093 | $5,977,225 | | Total Assets | $89,832,645 | $56,403,465 | | Liabilities & Equity | | | | Total current liabilities | $18,177,371 | $11,177,836 | | Borrowings under line of credit | $9,750,000 | $0 | | Total Liabilities | $32,635,686 | $13,565,140 | | Total Shareholders' Equity | $57,196,959 | $42,838,325 | - The significant increase in Goodwill and Intangible Assets is primarily due to the acquisition of CareCloud in January 2020[17][44] Condensed Consolidated Statements of Operations Statement of Operations Summary (Unaudited, for the three months ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Revenue | $21,867,169 | $15,080,211 | | Total operating expenses | $24,704,371 | $15,318,208 | | Operating Loss | ($2,837,202) | ($237,997) | | Net Loss | ($2,501,770) | ($295,691) | | Net loss attributable to common shareholders | ($5,144,686) | ($1,788,391) | | Net loss per common share (basic and diluted) | ($0.42) | ($0.15) | - Revenue grew 45% year-over-year, primarily driven by acquisitions, however, operating expenses also increased significantly, leading to a larger operating and net loss compared to the prior year[19][187] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Unaudited, for the three months ended March 31) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($3,883,414) | $937,509 | | Net cash used in investing activities | ($14,033,196) | ($510,938) | | Net cash provided by (used in) financing activities | $6,809,586 | ($2,586,271) | | Net Decrease in Cash | ($11,598,813) | ($1,945,836) | | Cash - end of the period | $8,395,321 | $12,526,647 | - Cash used in investing activities surged due to $11.9 million paid for the CareCloud acquisition, while cash from financing activities was positive due to drawing $9.75 million from the line of credit[28][205] - Operating cash flow was negative $3.9 million, primarily because the company assumed and paid approximately $5.1 million of net payables from the CareCloud acquisition[203][207] Notes to Condensed Consolidated Financial Statements - On January 8, 2020, the Company acquired CareCloud Corporation for a total consideration including approximately $11.9 million in cash, assumption of approximately $5.1 million in working capital deficiency, 760,000 shares of Preferred Stock, and warrants, which added $7.6 million in revenue for the quarter[38][39][46] Disaggregation of Revenue (for the three months ended March 31) | Revenue Source | 2020 | 2019 | | :--- | :--- | :--- | | Revenue cycle management services | $13,189,963 | $10,516,840 | | SaaS solutions | $3,613,514 | $40,602 | | Practice management services | $3,026,304 | $2,960,467 | | Other Services | $1,938,388 | $1,262,302 | | Total | $21,867,169 | $15,080,211 | - The company reports in two segments: Healthcare IT and Practice Management, with Healthcare IT generating $18.8 million in revenue and an operating loss of ($1.7 million), and Practice Management generating $3.0 million in revenue with an operating loss of ($19 thousand) for Q1 2020[133] - Subsequent to the quarter end, in April 2020, the Company sold 828,000 shares of its Series A Preferred Stock, receiving net proceeds of approximately $19.1 million[134] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the 45% year-over-year revenue growth to $21.9 million for Q1 2020, primarily due to acquisitions, alongside significant increases in operating expenses, a decline in Adjusted EBITDA, and the potential impacts of the COVID-19 pandemic on future results and liquidity Q1 2020 vs Q1 2019 Results of Operations ($M) | Metric | Q1 2020 | Q1 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $21.9 | $15.1 | +45% | | Direct Operating Costs | $13.6 | $9.8 | +38% | | Selling and Marketing | $1.6 | $0.4 | +338% | | Research and Development | $2.3 | $0.3 | +816% | | General and Administrative | $5.6 | $4.2 | +34% | | Operating Loss | ($2.8) | ($0.2) | N/A | - The COVID-19 pandemic did not materially adversely affect Q1 2020 results, but management expects it to impact the second quarter and beyond, particularly as a majority of revenue is tied to client collections which may decline due to fewer patient visits[139][140][225] Non-GAAP Financial Measures (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | GAAP net loss | ($2,502) | ($296) | | Adjusted EBITDA | $767 | $1,580 | | GAAP operating loss | ($2,837) | ($238) | | Non-GAAP adjusted operating income | $428 | $1,147 | | Non-GAAP adjusted net income | $354 | $1,277 | - Liquidity was managed by drawing the full $9.75 million available on its SVB line of credit in Q1 2020, and in April 2020, the company raised an additional $19.1 million in net proceeds from a preferred stock sale, a portion of which was used to repay the credit line[204][211] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, MTBC, Inc. is not required to provide the information requested under this item - The company is a smaller reporting company as defined by 17 C.F.R. 229.10(f)(1) and is not required to provide information under this item[214] Controls and Procedures Based on an evaluation as of March 31, 2020, the company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the disclosure controls and procedures were effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective at the reasonable assurance level[218] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[219] PART II. OTHER INFORMATION Legal Proceedings The company refers to Note 8 of the financial statements regarding an arbitration demand filed by Randolph Pain Relief and Wellness Center (RPRWC) against its subsidiary, MTBC Acquisition Corp. (MAC), seeking $6.6 million in damages, though MTBC, Inc. itself is not compelled to participate - The company is involved in an arbitration proceeding where a claimant, RPRWC, seeks $6.6 million in damages from its subsidiary, MAC, for an alleged breach of a billing services agreement[73][75] - On February 6, 2020, a court granted summary judgment in favor of MTBC, Inc., holding that it cannot be compelled to participate in the arbitration, which will proceed only against the subsidiary, MAC[74] Risk Factors This section primarily focuses on the risks associated with the COVID-19 pandemic, including its negative impact on healthcare provider customers and the company's revenue, challenges to global operations, and volatility in financial markets - The business is subject to significant risks from the COVID-19 pandemic, which could harm operations, financial condition, and growth[224] - A key risk is the financial health of healthcare provider customers, as suspended elective procedures and fewer patient visits will likely harm their financial condition, adversely affecting MTBC's revenue, since approximately 60% of it is tied to customer cash collections[225] - The pandemic has caused significant volatility in financial markets, which could reduce the company's ability to access capital and negatively affect liquidity and the value of its stock[227] Unregistered Sales of Equity Securities and Use of Proceeds On January 8, 2020, in connection with the CareCloud acquisition, the company issued 760,000 shares of its Series A Preferred Stock to the seller, exempt from registration under Section 4(a)(2) of the Securities Act as a private offering - As partial consideration for the CareCloud acquisition, the company issued 760,000 shares of Series A Preferred Stock on January 8, 2020[229] - The transaction was exempt from registration under Section 4(a)(2) of the Securities Act as a private offering not involving public distribution[229] Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information Not applicable Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL (eXtensible Business Reporting Language) data files - The report includes required certifications from the CEO and CFO under Exchange Act Rules 13a-14(a)/15d-14(a) and Section 1350 of the Sarbanes-Oxley Act[234] - Interactive Data Files (XBRL) are included as exhibits, covering the instance document, schema, and various linkbases (calculation, label, presentation, definition)[234]