CareCloud(CCLD) - 2020 Q4 - Annual Report

Forward-Looking Statements Forward-Looking Statements This section outlines the nature of forward-looking statements within the 10-K report, emphasizing that they are predictions subject to substantial known and unknown risks and uncertainties, including growth management, client retention, offshore operations, industry changes, regulatory compliance, and the impact of the COVID-19 pandemic - Forward-looking statements are predictions about future events, results of operations, or financial performance, identifiable by terms like 'may,' 'will,' 'expects,' 'plans,' 'believes,' 'estimates,' or 'potential'[10] - Key risks include managing growth and integrating acquisitions (Meridian Medical Management, CareCloud), retaining clients, maintaining cost-effective offshore operations in Pakistan and Sri Lanka, adapting to rapid healthcare industry changes, ensuring regulatory compliance, protecting data privacy and intellectual property, attracting and retaining key personnel, complying with debt covenants, competing effectively, and the impact of the COVID-19 pandemic[11][12] - The company does not guarantee future results and is not obligated to update or revise forward-looking statements, except as required by law[13] Summary Risk Factors Summary Risk Factors This section provides a high-level overview of the principal risks that could materially impact the company's business, financial condition, and results of operations, categorized into risks related to acquisition strategy, business/industry/operations, regulatory compliance, and ownership of common/preferred stock - Risks related to acquisition strategy include ineffective growth management, potential liabilities from acquired entities, inability to complete future acquisitions, and dilutive issuances of equity or increased indebtedness[15] - Business, industry, and operational risks encompass the adverse effects of the COVID-19 pandemic, intense industry competition, failure to innovate or introduce new products, heavy reliance on offshore operations, changes in the healthcare industry affecting demand, customer churn, historical operating losses, variable sales/implementation cycles, loss of key personnel, and intellectual property protection challenges[16][19] - Regulatory risks highlight the heavily regulated healthcare industry, potential non-compliance liabilities (e.g., HITECH Act, HIPAA, false claims), and the risk of employee misconduct like embezzlement or identity theft[18][20] - Risks related to stock ownership include fluctuating revenues/operating results, potential dilution from future stock sales, significant control by Mahmud Haq (34.3% common stock), anti-takeover provisions, and limited voting rights/fixed dividends for Series A Preferred Stock holders[21][22] PART I Item 1. Business MTBC, Inc. is a healthcare information technology company providing cloud-based solutions and business services to healthcare providers in the U.S., with offerings including RCM, PM, EHR, business intelligence, telehealth, and PXM solutions, supported by a cost-effective global workforce - MTBC provides a full suite of proprietary cloud-based solutions (SaaS) and related business services to healthcare providers and hospitals in the U.S., including Revenue Cycle Management (RCM), Practice Management (PM), Electronic Health Record (EHR), Business Intelligence, Telehealth, and Patient Experience Management (PXM)[24][25] - The U.S. healthcare spending is projected to reach $8.3 trillion by 2040, with the healthcare IT market estimated at $177 billion in 2019, growing at a 12% CAGR for RCM, 6% for EHR, and 27% for Analytics/AI[29][31] - The company's business strategy focuses on providing comprehensive solutions, enhancing existing offerings, expanding into new categories/markets, growing its client base, strengthening client relationships, leveraging cost advantages from its global workforce (primarily in Pakistan and Sri Lanka), pursuing acquisitions, and developing a partner ecosystem[38][40][46][47][48] - As of December 31, 2020, MTBC served approximately 40,000 providers across 2,600 independent medical practices and hospitals in 80 specialties, plus 200 non-medical practice clients[64][65] - MTBC has a competitive advantage due to its proprietary software automating workflows and a global team of 3,700 employees (3,100 offshore in Pakistan/Sri Lanka) at significantly lower labor costs, enabling competitive pricing and industry consolidation[76][78] Overview MTBC, Inc. is a healthcare information technology company offering a full suite of proprietary cloud-based solutions and related business services to healthcare providers and hospitals across the United States - MTBC, Inc. is a healthcare information technology company offering a full suite of proprietary cloud-based solutions and related business services to healthcare providers and hospitals across the United States[24] - The company's Software-as-a-Service (SaaS) platform includes revenue cycle management (RCM), practice management (PM), electronic health record (EHR), business intelligence, telehealth, and patient experience management (PXM) solutions[24][25] - Solutions aim to improve financial and operational performance, streamline clinical workflows, enhance data insights, and reduce administrative burdens for clients[27] Industry The U.S. healthcare spending is projected to reach $8.3 trillion by 2040, with the healthcare IT market estimated at $177 billion in 2019, driven by a shift towards integrated, end-to-end systems - U.S. healthcare spending is projected to reach $8.3 trillion by 2040, with an average annual growth of 5.4% from 2021-2028, outpacing GDP growth[29] US Healthcare IT Market Estimates (2019) | Segment | Market Size (approx.) | CAGR (approx.) | | :----------------------- | :-------------------- | :------------- | | US Healthcare IT Industry | $177 billion | - | | RCM | $87 billion | 12% | | North American EHR | $40 billion | 6% | | Analytics and AI | $30 billion | 27% | | Telehealth | $20 billion | 17% | - The market is shifting towards integrated, end-to-end systems, with standalone billing and practice management solutions declining[31] Our Market Opportunity The company is uniquely positioned to address evolving client needs, driven by the transition to complex value-based reimbursement models, increasing legislative and regulatory compliance requirements, rising health insurance costs, and accelerated digital transformation due to COVID-19 - The company is uniquely positioned to address evolving client needs, driven by the transition to complex value-based reimbursement models, increasing legislative and regulatory compliance requirements, rising health insurance costs, and accelerated digital transformation due to COVID-19[32][33][34][35] - Healthcare organizations are consolidating and investing in IT and data strategies, creating a continuous need for robust solutions to replace legacy tools and support future growth[36][37] Our Business Strategy The company's objective is to be a market-leading provider of integrated, end-to-end SaaS and business services solutions for healthcare organizations, achieved through comprehensive product suites, R&D, market expansion, client growth, and strategic acquisitions - Objective: To be a market-leading provider of integrated, end-to-end SaaS and business services solutions for healthcare organizations[38] - Strategies include providing comprehensive product suites, enhancing solutions through R&D and acquisitions, expanding into new categories/markets, growing the client base via sales/marketing, extending relationships with existing clients (upselling RCM services), strengthening client community, leveraging cost advantages from offshore workforce, pursuing strategic acquisitions, and developing a partner ecosystem[40][41][42][43][44][45][46][47][48] - The company plans to utilize its large data repository to provide clinical and process insights, aiming for frictionless information flow and care coordination[49] Our Offerings The company's offerings are organized into four critical areas: Core Software Products, Tech-enabled & Business Services, Apps and App Ecosystem Partners, and On-demand Workforce, all designed to simplify claim reimbursement, reduce denial rates, and improve patient collections - Offerings are organized into four critical areas: Core Software Products (PM, EHR, PXM), Tech-enabled & Business Services (RCM, medical coding, credentialing), Apps and App Ecosystem Partners (BI, RPA, telemedicine, mobile apps), and On-demand Workforce (MTBC Force) for offshore engineering and RCM operations[52][53][54][55] - Integrated solutions aim to simplify claim reimbursement, reduce denial rates, improve accounts receivable days, and increase patient collections[57] - Pricing for complete, integrated solutions is typically a percentage of healthcare-related revenues, with a monthly minimum fee and a nominal one-time setup fee[59] Additional Business Services MTBC operates a Group Purchasing Organization (GPO) serving over 4,000 physician and mid-level provider members, negotiating discounts on pharmaceuticals and other products/services - MTBC operates a Group Purchasing Organization (GPO) serving over 4,000 physician and mid-level provider members, negotiating discounts on pharmaceuticals and other products/services[60] Research and Development R&D focuses on enhancing and expanding service offerings, ensuring regulatory compliance, and continually updating software and technology infrastructure through an agile development life cycle, supported by both onshore and offshore teams - R&D focuses on enhancing and expanding service offerings, ensuring regulatory compliance, and continually updating software and technology infrastructure through an agile development life cycle[61][62] - Teams are located both onshore and offshore, complemented by third-party technology providers for infrastructure and ecosystem connectivity[62] Clients As of December 31, 2020, the company served approximately 40,000 providers in 2,600 medical practices and hospitals across 80 specialties in 50 states, plus 200 non-medical practice clients, ranging from small independent practices to large enterprise medical groups and health systems - As of December 31, 2020, the company served approximately 40,000 providers in 2,600 medical practices and hospitals across 80 specialties in 50 states, plus 200 non-medical practice clients[64][65] - Client base ranges from small independent practices to large enterprise medical groups and health systems[66] Sales and Marketing Sales and marketing efforts are aimed at driving growth in the client base, including small practices, large groups, and health systems, through direct sales, MTBC Force deals, partner initiatives, and marketing campaigns - Sales and marketing efforts are aimed at driving growth in the client base, including small practices, large groups, and health systems, through direct sales, MTBC Force deals, partner initiatives, and marketing campaigns[67][69][70] Our Growth Levers Growth is driven by organic sales, partnerships, and strategic acquisitions, leveraging the highly fragmented healthcare IT service industry for consolidation opportunities - Growth is driven by organic sales (segmented sales force, demand generation), partnerships (channel partners, integrated solutions), and acquisitions (16 transactions since 2014, leveraging technology and offshore teams for cost reduction and value delivery)[69][71][72] - The healthcare IT service industry is highly fragmented, presenting significant opportunities for consolidation[72] Competition The market for practice management, EHR, and RCM solutions is highly competitive, with MTBC maintaining an advantage through competitive pricing, proprietary software, and a global team of over 3,700 employees, primarily offshore - The market for practice management, EHR, and RCM solutions is highly competitive, with rivals including larger healthcare IT companies (e.g., athenahealth, eClinicalWorks) and regional RCM firms[74][75] - MTBC maintains a competitive advantage by delivering solutions at competitive prices, leveraging proprietary software for automation and a global team of over 3,700 employees (3,100 offshore) with significantly lower labor costs[76][78] - The company has a reputation for acquiring and transforming distressed competitors into profitable operations[77] Employees As of December 2020, the company employed approximately 3,700 full-time people worldwide, with anticipated increases tied to revenue growth or specific functional emphasis like marketing and sales - As of December 2020, the company employed approximately 3,700 full-time people worldwide, with anticipated increases tied to revenue growth or specific functional emphasis like marketing and sales[78] Voting Rights of Our Directors, Executive Officers, and Principal Stockholders As of December 31, 2020, directors and executive officers held approximately 40% of both common stock shares and voting power, enabling them to control significant corporate decisions - As of December 31, 2020, directors and executive officers held approximately 40% of both common stock shares and voting power, enabling them to control significant corporate decisions[79] Corporate Information MTBC, Inc. was incorporated in Delaware on September 28, 2001, changed its name on February 6, 2019, and maintains its principal executive offices in Somerset, New Jersey - MTBC, Inc. was incorporated in Delaware on September 28, 2001, and changed its name from Medical Transcription Billing, Corp. on February 6, 2019. Its principal executive offices are in Somerset, New Jersey[80] Where You Can Find More Information The company's website and the SEC's website provide free access to its SEC filings, including 10-K, 10-Q, and 8-K reports - The company's website (www.mtbc.com) provides access to SEC filings (10-K, 10-Q, 8-K) free of charge, and SEC filings are also available at the SEC's Public Reference Room or website (www.sec.gov)[84](index=84&type=chunk) Item 1A. Risk Factors This section details the significant risks facing MTBC, categorized by acquisition strategy, business operations, regulatory environment, and stock ownership, including challenges in integrating acquisitions, the impact of the COVID-19 pandemic, intense competition, reliance on offshore operations, and the complex regulatory landscape - Acquisition strategy risks include difficulties in managing growth, retaining customers post-acquisition, potential liabilities from acquired entities (e.g., CareCloud's civil investigation), inability to secure future financing for acquisitions, and dilutive equity issuances or increased debt[85][86][87][89][90][94] - Business risks are significantly impacted by the COVID-19 pandemic, which caused patient volume decreases, potential revenue decline (65% of revenue tied to customer collections), and challenges in completing acquisitions. Other risks include intense competition, failure to innovate, heavy dependence on cost-effective offshore operations (Pakistan, Sri Lanka), changes in healthcare industry demand, customer churn, and historical operating losses[95][97][101][104][105][107][109][112][117][118] - Regulatory risks stem from the heavily regulated healthcare industry, including potential non-compliance with federal and state laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, HITECH Act), which could lead to liabilities, adverse publicity, and penalties, with evolving telehealth regulations also posing risks[181][182][183][184][186][187][191][193][194][196][197] - Risks related to common stock ownership include revenue/operating result fluctuations, potential market price depression from future stock sales, and significant control by Executive Chairman Mahmud Haq (34.3% ownership); preferred stock risks include junior ranking to debt, potential inability to pay dividends due to loan covenants or insufficient cash, and limited voting rights[204][207][208][222][224][239][240] Risks Related to Our Acquisition Strategy Ineffective management of growth, customer churn post-acquisition, potential liabilities from acquired entities, and challenges in financing future acquisitions pose significant risks to the company's revenue and operating results - Ineffective management of growth, including integration of acquired businesses (Meridian, CareCloud), can harm revenue and operating results[85] - Acquisitions may lead to customer churn, especially if non-competition clauses are unenforceable, resulting in revenue decreases[86] - The company may incur liabilities from acquired businesses' creditors, customers, and shareholders, despite due diligence and indemnities[87] - The CareCloud acquisition involved a civil investigation into pre-acquisition regulatory compliance, with a potential settlement covered by escrowed funds, but an unfavorable outcome could materially affect the company[89] - Future acquisitions may be difficult to implement due to financing challenges, competition, and the risk of not achieving anticipated cost savings or cross-selling opportunities[90][91] - Acquisitions can result in dilutive equity issuances, increased debt, assumed liabilities, and higher amortization expenses[94] Risks Related to Our Business The company faces significant business risks, including the negative impact of the COVID-19 pandemic on revenue, intense competition, reliance on offshore operations, and the challenge of maintaining profitability amidst industry changes and intellectual property protection issues - The COVID-19 pandemic has negatively impacted business, financial condition, and growth, causing patient volume decreases and potential revenue decline (65% of revenue tied to customer collections)[95][97] - The company operates in a highly competitive industry with larger, more resourced competitors, risking adverse effects on revenue, growth, and market share[103][104] - Failure to introduce new products or keep pace with technological advances could lead to customer loss and hinder business growth[105] - Heavy dependence on offshore operations in Pakistan and Sri Lanka (3,100 employees, 98% in Pakistan) for cost-effective services means any disruption could severely impact the business[107][109] - Changes in the healthcare industry, such as provider consolidation or healthcare reform (e.g., ACA revisions), could reduce demand for services and decrease revenues[112][113] - The company has incurred net losses of $8.8 million in 2020 and $872,000 in 2019, and may not achieve or maintain profitability due to acquisition costs and increased operating expenses[118][119] - Loss of key management, particularly Mahmud Haq, could harm the business due to his instrumental role in offshore operations[133][134] - Inability to protect intellectual property rights or claims of infringement by others could lead to significant costs, litigation, and business disruption[135][138][139][141][142][147] - Proprietary or acquired software platforms may not operate properly, leading to reputational damage, liability claims, and diversion of resources[149][151][152] - Security breaches or failures in protecting customer data could lead to significant liabilities, reduced customer confidence, and reputational harm[157][158] - Disruptions in internet/telecommunication services or damage to data centers could adversely affect business reliability and customer confidence[162][163][164] Regulatory Risks The heavily regulated healthcare industry, with complex and evolving laws, poses significant compliance risks, potentially leading to liabilities, adverse publicity, and penalties, particularly concerning data privacy, false claims, and employee misconduct - The heavily regulated healthcare industry, with complex and evolving laws (e.g., Anti-Kickback Statute, False Claims Act, Stark Law), poses significant compliance risks, potentially leading to liability, adverse publicity, and negative business impact[181][182][183][184] - Failure to maintain EHR solution certification under the HITECH Act could adversely affect business, financial condition, and results of operations[188][190] - Breaches of personal data protected by HIPAA or the HITECH Act could result in significant civil and criminal liabilities, including penalties up to $1.5 million per incident[191][193][194] - Non-compliance with federal and state laws governing false claims or financial relationships among healthcare providers could lead to civil/criminal penalties or loss of eligibility for government programs[195][196][197] - Potential healthcare reform and new regulatory requirements could increase costs, delay new product introductions, or impair existing services[199][200] - Additional regulation on medical information disclosure outside the U.S. could adversely affect offshore operations and increase costs[201][202] - Services involving handling patient payments and data present potential for embezzlement, identity theft, or other illegal behavior by employees, leading to liability and reputational damage[203] Risks Related to Ownership of Shares of Our Common Stock Fluctuations in revenues, potential dilution from future stock sales, significant control by the Executive Chairman, anti-takeover provisions, and the absence of cash dividends pose risks to common stockholders - Fluctuations in revenues, operating results, and cash flows may cause the common stock price to decline if investor expectations are not met[204][205] - Future sales of a substantial number of common stock shares could depress the market price[207] - Mahmud Haq, the founder and Executive Chairman, controls 34.3% of outstanding common stock, preventing other investors from influencing significant corporate decisions and potentially delaying or preventing a change of control[208][209] - Provisions of Delaware law and the company's charter/bylaws may make a takeover more difficult, potentially causing the common stock price to decline[210][211] - Future issuances of additional preferred stock could dilute the rights of existing common stockholders[212] - The company does not intend to pay cash dividends on common stock, making capital appreciation the sole source of gain for stockholders[213] - Complying with public company laws and regulations (e.g., Sarbanes-Oxley Act Section 404) increases costs and management demands, potentially harming operating results and investor perception if deficiencies are found[214][216][217] - As a smaller reporting company, reduced disclosure requirements may make common stock less attractive to investors, leading to a less active trading market and higher stock price volatility[219][220] Risks Related to Ownership of Shares of Our Preferred Stock Ownership of Series A Preferred Stock carries risks including junior ranking to debt, potential inability to pay dividends due to loan covenants or insufficient cash, dilution from future issuances, market interest rate sensitivity, limited voting rights, and no conversion to common stock - Series A Preferred Stock ranks junior to all company indebtedness and other liabilities, meaning assets would first pay creditors in bankruptcy or liquidation[222] - The company may be unable to pay dividends on Series A Preferred Stock if it falls out of compliance with loan covenants (e.g., SVB Credit Agreement) or has insufficient cash[224][225][226] - Issuance of additional preferred stock (pari passu or senior) could dilute existing Series A Preferred Stock holders' rights to dividends or liquidation amounts[227][228][230] - Market interest rates can materially and adversely affect the value of Series A Preferred Stock, as higher rates may lead to expectations of higher dividend yields[232] - Holders of Series A Preferred Stock may not be eligible for the dividends-received deduction or preferential tax rates if the company lacks sufficient current or accumulated earnings and profits[233][234] - The company may redeem Series A Preferred Stock at any time, potentially if market conditions allow for lower-rate financing, ending dividend accrual and holder rights[237] - The market price of Series A Preferred Stock is variable and influenced by factors like interest rates, dividend history, economic conditions, and company performance[238] - Series A Preferred Stock holders have extremely limited voting rights, primarily for electing directors if dividends are in arrears or for certain charter amendments[239][240] - The Series A Preferred Stock is not convertible into common stock, so investors will not realize upside from increases in common stock price[242][243] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[244] Item 2. Properties MTBC's corporate headquarters are in Somerset, New Jersey, occupying 2,400 square feet, with approximately 190,000 square feet leased across 19 U.S. locations and additional offshore facilities in Pakistan and Sri Lanka, all deemed adequate by management - Corporate headquarters: 2,400 sq ft in Somerset, New Jersey (month-to-month lease)[245] - U.S. leased space: Approximately 190,000 sq ft across 19 locations, including five pediatric offices (leases expiring 2021-2026); a new 8,000 sq ft pediatric office in Ohio was leased in February 2021 for 15 years[245] - Offshore leased space: Approximately 48,000 sq ft in Islamabad, Pakistan (lease expires July 2021), and 33,000 sq ft in Bagh, Pakistan (annually renewable lease); office space in Sri Lanka (lease expires March 2021, to be renewed)[246] - Management believes current facilities are adequate and suitable additional space will be available[247] Item 3. Legal Proceedings MTBC is involved in an arbitration with Randolph Pain Relief and Wellness Center (RPRWC) where MTBC Acquisition Corp. (MAC) is defending against claims of up to $11 million, and a civil investigation related to the CareCloud acquisition is ongoing, with an estimated $4.2 million settlement covered by a $4 million escrow - Randolph Pain Relief and Wellness Center (RPRWC) filed an arbitration demand against MTBC, Inc. and MTBC Acquisition Corp. (MAC) for alleged breach of a billing services agreement by an acquired subsidiary, Millennium Practice Management Associates, Inc. (MPMA)[248] - The Chancery Court ruled that MTBC, Inc. cannot be compelled to participate in the arbitration, but MAC is required to; RPRWC's claimed damages have varied, from $6.6 million to $20 million, and then an estimated $11 million plus costs; MAC intends to vigorously defend, anticipating a substantially lower award[249][250] - A civil investigation related to CareCloud Corporation's acquired software technology is ongoing, with an estimated $4.2 million settlement (including costs) expected to be substantially covered by a $4 million escrow from the acquisition[89][559] - Management believes no current legal proceedings, individually or collectively, would have a material adverse effect on the company's business, consolidated results of operations, financial position, or cash flows[253] Item 4. Mine Safety Disclosures The company reported no disclosures related to mine safety - There are no mine safety disclosures[254] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MTBC's common stock trades on the Nasdaq Global Market under 'MTBC' since July 2014, with approximately 6,800 common stockholders as of February 2021; the company has not declared cash dividends and is prohibited from doing so without senior lender consent, with no unregistered securities sold or equity repurchased in Q4 2020 - MTBC common stock has been listed on the Nasdaq Global Market under the symbol 'MTBC' since July 23, 2014[255] - As of February 8, 2021, there were approximately 6,800 holders of record of the company's common stock[256] - The company has not declared cash dividends on common stock since going public and does not anticipate paying any in the foreseeable future, being prohibited without prior written consent from its senior lender, SVB[257] - No unregistered equity securities were sold, and no share repurchase activity occurred during the three months ended December 31, 2020[258][259] Equity Compensation Plan Information (as of December 31, 2020) | Plan Category | Number of securities to be issued upon vesting | Number of securities remaining available for future issuance | | :------------------------------------------------ | :--------------------------------------------- | :----------------------------------------------------------- | | Equity compensation plan approved by security holders - common shares | 369,436 | 1,718,012 | | Equity compensation plan approved by security holders - preferred shares | 44,000 | 370,075 | | Total | 413,436 | 2,088,087 | Item 6. Selected Financial Data This section presents selected consolidated financial data for MTBC, Inc. for the years ended December 31, 2016-2020, including statements of operations and balance sheet data, and a reconciliation of GAAP net loss to Adjusted EBITDA, highlighting significant increases in revenue and expenses due to recent acquisitions Consolidated Statements of Operations Data (Selected, in thousands) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :----------------------------------- | :---------- | :--------- | :--------- | :--------- | :--------- | | Net revenue | $105,122 | $64,439 | $50,546 | $31,811 | $24,493 | | Total operating expenses | $113,393 | $64,372 | $53,085 | $36,333 | $32,394 | | Operating (loss) income | $(8,271) | $67 | $(2,539) | $(4,522) | $(7,901) | | Net loss | $(8,813) | $(872) | $(2,138) | $(5,565) | $(8,797) | | Preferred stock dividend | $13,877 | $6,386 | $4,824 | $2,030 | $753 | | Net loss attributable to common shareholders | $(22,690) | $(7,258) | $(6,962) | $(7,595) | $(9,550) | | Net loss per common share (basic and diluted) | $(1.79) | $(0.60) | $(0.59) | $(0.69) | $(0.95) | Consolidated Balance Sheet Data (Selected, as of December 31, in thousands) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------- | :---------- | :--------- | :--------- | :--------- | :--------- | | Cash | $20,925 | $19,994 | $14,472 | $4,362 | $3,477 | | Working capital - net | $15,795 | $19,823 | $17,916 | $4,608 | $(7,418) | | Total assets | $137,999 | $56,402 | $47,623 | $25,526 | $28,324 | | Long-term debt | $41 | $83 | $222 | $121 | $4,200 | | Shareholders' equity | $101,245 | $42,837 | $38,870 | $20,250 | $7,067 | Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :----------------------------------- | :---------- | :--------- | :--------- | :--------- | :--------- | | Net loss | $(8,813) | $(872) | $(2,138) | $(5,565) | $(8,797) | | Depreciation | $1,354 | $909 | $689 | $634 | $527 | | Amortization | $8,551 | $2,097 | $2,165 | $3,666 | $4,581 | | Interest expense - net | $446 | $121 | $250 | $1,307 | $646 | | Income tax provision (benefit) | $103 | $193 | $(157) | $68 | $197 | | Stock-based compensation expense | $6,502 | $3,216 | $2,464 | $1,487 | $1,928 | | Transaction and integration costs | $2,694 | $1,735 | $1,891 | $515 | $976 | | Restructuring, impairment and unoccupied lease charges | $963 | $219 | - | $276 | - | | Change in contingent consideration | $(1,000) | $(344) | $73 | $152 | $(716) | | Adjusted EBITDA | $10,871 | $8,101 | $4,802 | $2,291 | $(605) | - Adjusted EBITDA is a non-GAAP financial measure used by management to evaluate profitability and efficiency, excluding income tax, interest, foreign exchange, stock-based compensation, depreciation, amortization, transaction/integration costs, restructuring, and changes in contingent consideration[267] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of MTBC's financial condition and results of operations for 2020 and 2019, covering revenue sources, operating expenses, key performance measures, and liquidity, highlighting significant revenue growth driven by acquisitions, increased operating expenses, and a net loss, with liquidity enhanced by preferred stock offerings despite negative cash flow from operations - Net revenue increased by $40.7 million (63%) to $105.1 million in 2020 from $64.4 million in 2019, with $53.3 million from CareCloud and Meridian acquisitions[323] - Operating expenses increased by $49.0 million (76%) to $113.4 million in 2020, primarily due to acquisitions, leading to an operating loss of $8.3 million in 2020 compared to operating income of $67,000 in 2019[323][325] - Net loss was $8.8 million in 2020, up from $872,000 in 2019, largely due to increased non-cash amortization expense ($8.1 million in 2020 vs. $1.9 million in 2019)[118] Adjusted EBITDA and Operating Income (in thousands) | Metric | 2020 | 2019 | | :------------------------- | :---------- | :--------- | | Adjusted EBITDA | $10,871 | $8,101 | | Non-GAAP adjusted operating income | $9,015 | $6,770 | | Non-GAAP adjusted operating margin | 8.6% | 10.5% | - Cash used in operating activities was $892,000 in 2020, compared to cash generated of $7.6 million in 2019, including $10.3 million used to pay acquisition-related obligations in 2020[345][350] - Cash provided by financing activities was $33.4 million in 2020, primarily from issuing 1,932,000 shares of Preferred Stock for $44.5 million, offset by $11.4 million in Preferred Stock dividends[345][354] - The company had $20.9 million in cash and $15.8 million in positive working capital at year-end 2020, with management forecasting sufficient liquidity for the next twelve months[343][346] Overview MTBC is a healthcare IT company providing cloud-based RCM, PM, EHR, business intelligence, telehealth, and PXM solutions to U.S. healthcare providers and hospitals, leveraging cost-effective offshore operations in Pakistan and Sri Lanka - MTBC is a healthcare IT company providing cloud-based RCM, PM, EHR, business intelligence, telehealth, and PXM solutions to U.S. healthcare providers and hospitals[273] - Offshore operations in Pakistan and Sri Lanka accounted for approximately 10% of total expenses in 2020 (14% in 2019), with personnel-related costs being significantly lower than in the U.S., providing a competitive advantage and enabling cost reductions post-acquisition[275] Key Performance Measures Management utilizes non-GAAP financial measures such as Adjusted EBITDA, Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income, and Adjusted Net Income Per Share to evaluate performance and provide additional insight, excluding various non-cash and non-recurring items - Management uses non-GAAP financial measures like Adjusted EBITDA, Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income, and Adjusted Net Income Per Share to evaluate performance and provide additional insight[277][279] - Adjusted EBITDA excludes income tax, interest, foreign exchange, stock-based compensation, depreciation, amortization, integration costs, restructuring charges, and changes in contingent consideration[280] Adjusted EBITDA (in thousands) | Metric | 2020 | 2019 | | :---------------- | :---------- | :--------- | | GAAP net loss | $(8,813) | $(872) | | Adjustments | $19,684 | $8,973 | | Adjusted EBITDA | $10,871 | $8,101 | Adjusted Operating Income and Margin (in thousands) | Metric | 2020 | 2019 | | :------------------------- | :---------- | :--------- | | GAAP operating (loss) / income | $(8,271) | $67 | | Adjustments | $17,286 | $6,703 | | Non-GAAP adjusted operating income | $9,015 | $6,770 | | Non-GAAP adjusted operating margin | 8.6% | 10.5% | Non-GAAP Adjusted Net Income and EPS | Metric | 2020 | 2019 | | :----------------------------------- | :---------- | :--------- | | GAAP net loss | $(8,813) | $(872) | | Adjustments | $17,257 | $7,610 | | Non-GAAP adjusted net income | $8,459 | $6,738 | | Non-GAAP adjusted earnings per share | $0.63 | $0.55 | | Non-GAAP adjusted diluted earnings per share | $0.50 | $0.53 | Quarterly Results of Operations This section presents the company's quarterly net revenue, net income (loss), and Adjusted EBITDA for the periods ending December 31, 2020, and December 31, 2019 Quarterly Net Revenue (in thousands) | Quarter | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | | :---------------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Net revenue | $32,037 | $31,639 | $19,579 | $21,867 | $15,758 | $16,851 | $16,750 | $15,080 | Quarterly Net Income (Loss) and Adjusted EBITDA (in thousands) | Quarter | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | | :---------------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Net income (loss) | $155 | $(1,674) | $(4,791) | $(2,503) | $333 | $(139) | $(771) | $(295) | | Adjusted EBITDA | $5,702 | $4,213 | $191 | $765 | $2,786 | $2,594 | $1,141 | $1,580 | Key Metrics As of December 31, 2020, the company served approximately 40,000 providers across 2,600 practices, demonstrating an 88% customer renewal rate in 2020 - As of December 31, 2020, the company served approximately 40,000 providers across 2,600 practices, an increase from 10,500 providers and 1,800 practices in 2019[290] - Customer renewal rates were 88% in 2020 and 90% in 2019, measuring the percentage of RCM clients utilizing the technology platform who remained clients throughout the year[291] Sources of Revenue Primary revenue is derived from revenue cycle management (RCM) services and bundled services, typically billed as a percentage of customer collections, with other contributions from SaaS fees, printing/mailing, clearinghouse, EDI, ancillary RCM, group purchasing, and practice management services - Primary revenue is derived from revenue cycle management (RCM) services and bundled services (including EHR and PM software), typically billed as a percentage of customer collections[292] Revenue Contribution by Source | Revenue Source | 2020 Revenue (%) | 2019 Revenue (%) | | :------------------------------------------- | :--------------- | :--------------- | | RCM and bundled services | 62% | 66% | | Software-as-a-service (SaaS) fees (standalone) | 18% | 1% | | Printing and mailing operations, clearinghouse, EDI, ancillary RCM | 6% | 8% | | Group purchasing services | 1% | 2% | | Practice management services | 11% | 21% | - Telehealth services, launched in December 2019, generated approximately $7,000 in revenue in 2020, included within RCM services[297] Operating Expenses Operating expenses include direct operating costs, selling and marketing, general and administrative, research and development, changes in contingent consideration, depreciation and amortization, and restructuring charges, with offshore operations contributing to cost efficiency - Direct operating costs primarily consist of salaries, benefits, claims processing, and other direct service costs; offshore operations accounted for 10% of direct operating costs in 2020 (13% in 2019)[298] - Selling and marketing expenses include compensation, commissions, travel, and advertising; Research and development expenses are mainly personnel-related and third-party contractor costs[299] - General and administrative expenses cover administrative salaries, benefits, travel, occupancy, insurance, software license fees, and professional fees; offshore offices accounted for 15% of G&A in 2020 (16% in 2019)[300] - Contingent consideration is adjusted to fair value each period, reflecting changes in forecasted revenue of acquired entities[301] - Depreciation is calculated straight-line over 3-5 years; amortization for most intangible assets is over 3-4 years, while practice management client value is amortized over 12 years[302] - Restructuring, impairment, and unoccupied lease charges relate to unused facilities and vacant space, with one lease obligation settled in February 2021[303] Interest and Other Income (Expense) Interest expense includes costs related to the working capital line of credit and acquisition amounts, offset by interest income, while other income (expense) primarily results from foreign currency transaction gains/losses - Interest expense includes costs related to the working capital line of credit and acquisition amounts, offset by interest income; other income (expense) primarily results from foreign currency transaction gains/losses[304] Income Taxes Income taxes are estimated based on current tax exposure and temporary differences, resulting in deferred tax assets and liabilities, with a valuation allowance recorded against all deferred tax assets due to historical losses and uncertainty regarding future U.S. taxable income - Income taxes are estimated based on current tax exposure and temporary differences, resulting in deferred tax assets and liabilities; a valuation allowance is recorded against all deferred tax assets due to historical losses and uncertainty regarding future U.S. taxable income[306] - The company accounts for Global Intangible Low-Taxed Income (GILTI) provisions as incurred[306] Critical Accounting Policies and Estimates Key accounting policies requiring significant judgment and estimates include revenue from contracts with customers (especially RCM), contingent consideration, goodwill impairment, and business combinations, with revenue recognition for RCM services involving estimation of variable consideration - Key accounting policies requiring significant judgment and estimates include revenue from contracts with customers (especially RCM), contingent consideration, goodwill impairment, and business combinations[307][308][309][317][318][319] - Revenue recognition for RCM services involves estimating variable consideration (payment-to-charge ratios, billing rates, payment periods) and is recognized over the performance period using the input method[309][311][314] - Goodwill is tested for impairment annually (October 31) at the reporting-unit level (Healthcare IT and Practice Management), using discounted cash flow and market approaches, with no impairment recorded in 2020 or 2019[318] - Business combinations are accounted for using the acquisition method, recording acquired assets and assumed liabilities at fair value, with goodwill representing the excess purchase price[319] Results of Operations This section presents the consolidated results of operations as a percentage of total revenue for 2020 and 2019, detailing the proportional contribution and changes in various revenue and expense categories Consolidated Results of Operations as a Percentage of Total Revenue | Metric | 2020 | 2019 | | :--------------------------------------- | :---------- | :---------- | | Net revenue | 100.0% | 100.0% | | Direct operating costs | 61.7% | 63.9% | | Selling and marketing | 6.3% | 2.4% | | General and administrative | 21.7% | 27.8% | | Research and development | 8.9% | 1.4% | | Change in contingent consideration | (1.0)% | (0.5)% | | Depreciation and amortization | 9.4% | 4.7% | | Restructuring, impairment and unoccupied lease charges | 0.9% | 0.3% | | Total operating expenses | 107.9% | 100.0% | | Operating (loss) income | (7.9)% | 0.0% | | Interest expense - net | 0.4% | 0.2% | | Other income (expense) - net | 0.0% | (1.0)% | | Loss before income taxes | (8.3)% | (1.2)% | | Income tax provision | 0.1% | 0.3% | | Net loss | (8.4)% | (1.5)% | Comparison of 2020 and 2019 Net revenue increased by $40.7 million (63%) in 2020, primarily due to acquisitions, while total operating expenses surged by $49.0 million (76%), driven by higher direct operating costs, selling and marketing, R&D, and amortization expenses Revenue and Operating Expenses Comparison (in thousands) | Metric | 2020 | 2019 | Change Amount | Change Percent | | :--------------------------------------- | :---------- | :---------- | :------------ | :------------- | | Net revenue | $105,122 | $64,439 | $40,683 | 63% | | Direct operating costs | $64,821 | $41,186 | $23,635 | 57% | | Selling and marketing | $6,582 | $1,522 | $5,060 | 332% | | General and administrative | $22,811 | $17,912 | $4,899 | 27% | | Research and development | $9,311 | $871 | $8,440 | 969% | | Change in contingent consideration | $(1,000) | $(344) | $(656) | 191% | | Depreciation | $1,354 | $909 | $445 | 49% | | Amortization | $8,551 | $2,097 | $6,454 | 308% | | Restructuring, impairment and unoccupied lease charges | $963 | $219 | $744 | 340% | | Total operating expenses | $113,393 | $64,372 | $49,021 | 76% | - Net revenue growth in 2020 was significantly driven by $53.3 million from CareCloud and Meridian acquisitions[323] - Direct operating costs increased due to higher salary costs ($12.2 million) from acquisitions, outsourcing, and facility costs[325] - Selling and marketing expense surged by 332% due to increased emphasis post-CareCloud acquisition; R&D expense increased by 969% for new product development related to CareCloud and Meridian technologies[326][328] - Amortization expense increased by 308% due to intangible assets acquired from CareCloud and Meridian[331] Interest and Income Tax Comparison (in thousands) | Metric | 2020 | 2019 | Change Amount | Change Percent | | :------------------------- | :---------- | :---------- | :------------ | :------------- | | Interest income | $42 | $262 | $(220) | (84)% | | Interest expense | $(488) | $(383) | $(105) | 27% | | Other income (expense) - net | $7 | $(625) | $632 | 101% | | Income tax provision | $103 | $193 | $(90) | 47% | - Interest income decreased due to lower earnings on temporary cash investments; other income (expense) shifted from a net expense to a net income, primarily due to foreign currency transaction gains[334][336] - A valuation allowance was recorded against all deferred tax assets due to historical losses and uncertainty regarding future U.S. taxable income[338] - As of December 31, 2020, the company had a total federal NOL carryforward of $270.9 million, with $237.6 million from CareCloud and Meridian acquisitions subject to Section 382 limitations[341] Liquidity and Capital Resources As of December 31, 2020, the company had $20.9 million in cash and $15.8 million in positive working capital, despite negative cash flow from operations of $892,000 for the year, with liquidity enhanced by $44.5 million in net proceeds from Preferred Stock issuances - As of December 31, 2020, the company had $20.9 million in cash and $15.8 million in positive working capital, despite negative cash flow from operations of $892,000 for the year[343] - Cash used by operations in 2020 included $10.3 million for outstanding obligations from CareCloud and Meridian acquisitions[343] - The company raised $44.5 million in net proceeds from issuing 1,932,000 shares of Preferred Stock in 2020, and $9.6 million from 373,000 shares in 2019[343] Cash Flows Summary (in thousands) | Cash Flow Activity | 2020 | 2019 | Change Amount | Change Percent | | :--------------------------------- | :---------- | :--------- | :------------ | :------------- | | Net cash (used in) provided by operating activities | $(892) | $7,618 | $(8,510) | (112)% | | Net cash used in investing activities | $(31,469) | $(4,158) | $(27,311) | (657)% | | Net cash provided by financing activities | $33,422 | $1,422 | $32,000 | 2,250% | | Effect of exchange rate changes on cash | $(130) | $640 | $(770) | (120)% | | Net increase in cash | $931 | $5,522 | $(4,591) | (83)% | - Management expects sufficient liquidity for the next twelve months through continued focus on profitability, revenue growth, and expense management[346] - The company estimates a $4.2 million payment in 2021 to resolve a civil investigation related to an acquired subsidiary, with $4.0 million from escrowed preferred stock[349] Operating Activities Cash used by operating activities was $892,000 in 2020, a decrease from $7.6 million generated in 2019, primarily due to a $7.9 million increase in net loss, including higher non-cash depreciation and amortization and stock-based compensation - Cash used by operating activities was $892,000 in 2020, a decrease from $7.6 million generated in 2019, primarily due to a $7.9 million increase in net loss, including higher non-cash depreciation and amortization ($7.1 million) and stock-based compensation ($3.3 million)[350] - Accounts payable, accrued compensation, and accrued expenses increased by $11.9 million in 2020, compared to $1.4 million in 2019, with cash used for pre-acquisition obligations shown as operating cash outflow[352] Investing Activities Cash used in investing activities increased by $27.3 million to $31.5 million in 2020, primarily due to $23.7 million paid for CareCloud and Meridian acquisitions, and higher capitalized software costs - Cash used in investing activities increased by $27.3 million to $31.5 million in 2020, primarily due to $23.7 million paid for CareCloud and Meridian acquisitions, compared to $1.6 million for ETM in 2019[353] - Capitalized software costs were $5.2 million in 2020, up from $538,000 in 2019[353] Financing Activities Cash provided by financing activities was $33.4 million in 2020, a significant increase from $1.4 million in 2019, primarily driven by $44.5 million net proceeds from Preferred Stock issuance, offset by $11.4 million in Preferred Stock dividends and $2.2 million in tax withholding obligations - Cash provided by financing activities was $33.4 million in 2020, a significant increase from $1.4 million in 2019[354] - This includes $44.5 million net proceeds from Preferred Stock issuance, offset by $11.4 million in Preferred Stock dividends and $2.2 million in tax withholding obligations[354] - No borrowings were outstanding under the revolving line of credit as of December 31, 2020 and 2019[354] Contractual Obligations and Commitments The company has contractual obligations under its line of credit and operating leases for property and equipment, and was in compliance with all SVB covenants in 2020 - The company has contractual obligations under its line of credit and operating leases for property and equipment, and was in compliance with all SVB covenants in 2020[355] Off-Balance Sheet Arrangements As of December 31, 2020 and 2019, the company had no relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements, though a variable interest entity (VIE), talkMD Clinicians, PA, was formed in Q1 2020 to provide telehealth services - As of December 31, 2020 and 2019, the company had no relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[356] - A variable interest entity (VIE), talkMD Clinicians, PA, was formed in Q1 2020 to provide telehealth services, controlled by the company but had not commenced operations or transactions by year-end 2020[356] Item 7A. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, MTBC is exempt from providing quantitative and qualitative disclosures about market risk - MTBC is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[357] Item 8. Financial Statements and Supplementary Data This section refers to the company's consolidated financial statements and supplementary data, which are included starting on page F-1 of the Annual Report on F