CareCloud(CCLD) - 2021 Q1 - Quarterly Report

Front Matter & Filing Information Company Information & Filing Status CareCloud, Inc. filed its 10-Q for Q1 2021, identifying as a non-accelerated and smaller reporting company, and disclosed common stock outstanding as of April 29, 2021 - Company filed quarterly report (Form 10-Q) for the period ended March 31, 2021[3] - Registrant name is CareCloud, Inc. (formerly MTBC, Inc.)[3] - Company identified as a non-accelerated filer and smaller reporting company[6] Common Stock Outstanding | Date | Common Stock Outstanding | | :----------- | :--------------- | | April 29, 2021 | 14,400,834 shares | Forward-Looking Statements This report contains forward-looking statements regarding future events, operating results, or financial performance, subject to various known and unknown risks and uncertainties that could cause actual results to differ materially - Forward-looking statements involve expected future events, operating results, or financial performance, identifiable by words like “may,” “will,” “expect”[9] - Company operations involve many risks and uncertainties beyond its control, which may cause actual results to differ materially from forward-looking statements[9] - Risk factors include managing growth, customer retention, international operations, adapting to industry changes, regulatory compliance, data privacy, technology development, retaining key personnel, debt covenants, preferred stock dividend payments, competition, COVID-19 pandemic impact, and market acceptance of products and services[10][11] PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements for the periods ended March 31, 2021, and December 31, 2020, including balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets Key Data (As of March 31, 2021, and December 31, 2020) | Metric | March 31, 2021 (Thousands of USD) | December 31, 2020 (Thousands of USD) | | :--------------- | :----------------------- | :------------- | | Total Assets | $137,426 | $137,999 | | Total Liabilities | $33,913 | $36,754 | | Total Shareholders' Equity | $103,513 | $101,245 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Key Data (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | YoY Change (Amount, Thousands of USD) | YoY Change (Percentage) | | :--------------------------------- | :----------------------- | :----------------------- | :--------------- | :----------------- | | Net Revenue | $29,768 | $21,867 | $7,901 | 36.1% | | Total Operating Expenses | $31,449 | $24,704 | $6,745 | 27.3% | | Operating Loss | $(1,681) | $(2,837) | $(1,156) | -40.7% | | Net Loss | $(1,964) | $(2,502) | $(538) | -21.5% | | Net Loss Attributable to Common Stockholders | $(5,092) | $(5,145) | $(53) | -1.0% | | Net Loss Per Common Share (Basic and Diluted) | $(0.36) | $(0.42) | $(0.06) | -14.3% | Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss Key Data (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | | :----------------------- | :----------------------- | :----------------------- | | Net Loss | $(1,964) | $(2,502) | | Foreign Currency Translation Adjustment | $345 | $(590) | | Comprehensive Loss | $(1,619) | $(3,092) | Condensed Consolidated Statements of Shareholders' Equity Condensed Consolidated Statements of Shareholders' Equity Key Data (As of January 1, 2021, and March 31, 2021) | Metric | January 1, 2021 (Thousands of USD) | March 31, 2021 (Thousands of USD) | | :------------------- | :------------------- | :------------------- | | Preferred Stock | 5 | 6 | | Common Stock | 14 | 15 | | Additional Paid-in Capital | 136,781 | 140,666 | | Accumulated Deficit | (33,889) | (35,853) | | Accumulated Other Comprehensive Loss | (1,004) | (659) | | Less: Treasury Stock, Common | (662) | (662) | | Total Shareholders' Equity | 101,245 | 103,513 | - Preferred stock dividends are paid monthly at an annual rate of $2.75 per share[24] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Key Data (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | YoY Change (Amount, Thousands of USD) | | :--------------------------------- | :----------------------- | :----------------------- | :--------------- | | Net Cash Provided by (Used in) Operating Activities | $958 | $(3,884) | $4,842 | | Net Cash Used in Investing Activities | $(2,219) | $(14,033) | $11,814 | | Net Cash Provided by Financing Activities | $1,157 | $6,810 | $(5,653) | | Effect of Exchange Rate Changes on Cash | $174 | $(492) | $666 | | Net Increase (Decrease) in Cash | $70 | $(11,599) | $11,669 | | Cash at End of Period | $20,995 | $8,395 | $12,600 | Notes to Condensed Consolidated Financial Statements 1. ORGANIZATION AND BUSINESS CareCloud, Inc. is a healthcare information technology company offering cloud-based electronic health record and practice management solutions, expanding its business and customer base through acquisitions like CareCloud Health, Inc. and Meridian Medical Management - CareCloud, Inc. (formerly MTBC, Inc.) is a healthcare information technology company providing proprietary cloud-based electronic health record and practice management solutions and related business services[31] - Company acquired CareCloud Corporation (now CareCloud Health, Inc.) in January 2020 and Meridian Billing Management Co. and its affiliates (“Meridian”) in June 2020[33] - Company owns subsidiaries including MTBC Private Limited (Pakistan), MTBC Acquisition Corp. (MAC), its Sri Lankan subsidiary RCM MediGain Colombo, Pvt. Ltd., and CareCloud Practice Management, Corp. (CPM)[32] 2. BASIS OF PRESENTATION These condensed consolidated financial statements are prepared under US GAAP and Regulation S-X, Rule 8-03, relying on management's estimates and assumptions, with recent accounting updates having no material impact, though ASU 2020-06's effect is still being evaluated - Unaudited condensed consolidated financial statements are prepared in accordance with GAAP and Regulation S-X, Rule 8-03 for interim financial reporting purposes[35] - Preparation of financial statements involves management's estimates and assumptions regarding assets, liabilities, contingencies, and revenues and expenses[35] - Recent accounting pronouncements such as ASU 2018-02, ASU 2018-07, and ASU 2019-12 had no impact on the condensed consolidated financial statements[38][39][40] - Company is evaluating the potential impact of ASU 2020-06 (Debt—Debt with Conversion and Other Options) on its condensed consolidated financial statements[41] 3. ACQUISITIONS The company completed acquisitions of Meridian Medical Management and CareCloud Health, Inc. (CCH) in 2020, expanding its customer base, geographic reach, and technological capabilities, with consideration including cash, preferred stock, and warrants, and preliminary purchase price allocations completed - On June 16, 2020, company acquired Meridian Billing Management Co. and its affiliates (“Meridian”) for a total consideration of $21,634 thousand, including $11,864 thousand cash, $5,000 thousand preferred stock, and $4,770 thousand warrants[42][43][45] - On January 8, 2020, company acquired CareCloud Corporation (now CareCloud Health, Inc., “CCH”) through a merger for a total consideration of $32,153 thousand, including $11,853 thousand cash, $19,000 thousand preferred stock, $300 thousand warrants, and $1,000 thousand contingent consideration[51][52][53] - Meridian acquisition brought additional customers, expanding the company's presence in the healthcare IT industry through geographic expansion of its client base and increased client relationship resources[47] - CCH acquisition increased the company's customer base and provided CCH's software technology and related businesses, further expanding geographic coverage and client relationship resources in the healthcare IT industry[56] Revenue from Acquired Customers in Q1 2021 | Source | Revenue (Thousands of USD) | | :------ | :------------- | | Meridian | 8,900 | | CCH | 8,300 | 4. GOODWILL AND INTANGIBLE ASSETS-NET As of March 31, 2021, the company's goodwill remained stable, net intangible assets slightly decreased, but capitalized software increased, with amortization expenses significantly rising due to acquisitions Goodwill and Net Intangible Assets (As of March 31, 2021, and December 31, 2020) | Metric | March 31, 2021 (Thousands of USD) | December 31, 2020 (Thousands of USD) | | :------------------- | :------------------- | :------------------- | | Total Goodwill at Period End | 49,291 | 49,291 | | Capitalized Software | 7,284 | 5,760 | | Net Intangible Assets | 29,166 | 29,978 | Amortization Expense (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | YoY Change (Percentage) | | :----------- | :----------------------- | :----------------------- | :--------------- | | Amortization Expense | $2.4 million | $1.1 million | 118% | - Remaining weighted-average amortization period is approximately 3.4 years[62] 5. NET LOSS PER COMMON SHARE As of March 31, 2021, the company's basic and diluted net loss per common share improved, with unvested restricted stock units and unexercised warrants excluded due to their anti-dilutive nature Net Loss Per Common Share (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | | :--------------------------------- | :----------------------- | :----------------------- | | Net Loss Attributable to Common Stockholders | $(5,092) thousand | $(5,145) thousand | | Weighted-Average Common Shares Used in Basic and Diluted Loss Per Share Calculation | 14,084,749 | 12,310,818 | | Net Loss Per Common Share (Basic and Diluted) | $(0.36) | $(0.42) | - All unvested restricted stock units and unexercised warrants were excluded from the calculation due to their anti-dilutive nature[64] 6. DEBT The company has a revolving credit facility agreement with SVB, which was undrawn as of March 31, 2021, and also holds vehicle financing notes and insurance financing - Company has a revolving credit facility agreement with SVB, which was undrawn as of March 31, 2021, and December 31, 2020[65] - SVB revolving credit facility interest rate is prime plus 1.50%, with a minimum rate of 6.5%, and an annual fee of 0.5% on the unused portion[65] - Company also finances through vehicle financing notes (three to six-year terms) and insurance financing (annual interest rate of 4.0%)[66] 7. LEASES The company primarily uses operating leases for facilities and some equipment, recognizing right-of-use assets and lease liabilities at fair value upon acquisition, with 36 leased properties and total lease liabilities of $9,456 thousand as of March 31, 2021 - Company primarily uses operating leases and has no finance leases[67] - Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term[68] Lease Liabilities and Right-of-Use Assets (As of March 31, 2021, and December 31, 2020) | Metric | March 31, 2021 (Thousands of USD) | December 31, 2020 (Thousands of USD) | | :----------------------- | :------------------- | :------------------- | | Operating Lease Right-of-Use Assets, Net | 7,075 | 7,743 | | Current Operating Lease Liabilities | 4,236 | 4,729 | | Non-Current Operating Lease Liabilities | 5,220 | 6,297 | | Total Operating Lease Liabilities | 9,456 | 11,026 | Lease Expenses (For the Three Months Ended March 31, 2021, and March 31, 2020) | Lease Expense Category | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | | :----------- | :----------------------- | :----------------------- | | Operating Lease Cost | $1,057 thousand | $800 thousand | | Short-Term Lease Cost | $22 thousand | $9 thousand | | Variable Lease Cost | $6 thousand | $13 thousand | | Total Lease Cost | $1,085 thousand | $822 thousand | - As of March 31, 2021, the company has 36 leased properties with remaining lease terms ranging from less than one year to five years[74] 8. COMMITMENTS AND CONTINGENCIES The company is involved in a legal arbitration with RPRWC against MAC, claiming between $11 million and $20 million, and a civil investigation related to the CCH acquisition was resolved in April 2021, with costs largely covered by escrow funds - Company is involved in an arbitration initiated by Randolph Pain Relief and Wellness Center (RPRWC) against MTBC Acquisition Corp. (MAC), with claims ranging from $11 million to $20 million[78][81] - Civil investigation related to the CCH acquisition was resolved in April 2021, with the company accruing $4.2 million, of which $4.0 million is covered by escrow funds[82] - Management believes the company is not currently involved in any legal proceedings that, individually or in aggregate, would have a material adverse effect on its business, consolidated results of operations, financial condition, or cash flows[83] 9. RELATED PARTIES The company engages in various related party transactions, including service sales to an entity owned by the Executive Chairman's wife, aircraft leases with a company owned by the Executive Chairman, and office and facility leases from the Executive Chairman Related Party Transaction Revenue (For the Three Months Ended March 31, 2021, and March 31, 2020) | Transaction Type | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | | :------- | :----------------------- | :----------------------- | | Sales Revenue | $4 thousand | $5 thousand | Related Party Lease Expenses (For the Three Months Ended March 31, 2021, and March 31, 2020) | Lease Type | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | | :------- | :----------------------- | :----------------------- | | Aircraft Lease | $30 thousand | $41 thousand | | Office Lease | $47 thousand | $47 thousand | - talkMD Clinicians, PA, a variable interest entity (VIE) formed by the Executive Chairman's wife to provide telehealth services, had not commenced operations or engaged in any transactions with the company as of March 31, 2021[89] 10. REVENUE Company revenue primarily derives from revenue cycle management services, SaaS solutions, and practice management services, recognized under ASC 606 upon satisfaction of performance obligations, involving estimates and judgments for variable consideration - Company recognizes revenue under ASC 606 (Revenue from Contracts with Customers), with all revenue recognized upon satisfaction of performance obligations[90] Revenue Disaggregation (For the Three Months Ended March 31, 2021, and March 31, 2020) | Revenue Source | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | | :----------------------- | :------------------------------- | :------------------------------- | | Revenue Cycle Management Services | 19,448 | 13,190 | | SaaS Solutions | 5,261 | 3,614 | | Professional Services | 617 | 391 | | Ancillary Services | 984 | 721 | | Group Purchasing Services | 188 | 177 | | Printing and Mailing Services | 383 | 429 | | Clearinghouse and EDI Services | 152 | 319 | | Practice Management Services | 2,735 | 3,026 | | Total | 29,768 | 21,867 | - Contract assets, primarily from revenue cycle management and group purchasing services, were approximately $4.4 million as of March 31, 2021[113][114] 11. STOCK-BASED COMPENSATION The company grants common and preferred stock restricted stock units (RSUs) to employees, executives, directors, and consultants through its equity incentive plan, with a slight decrease in stock-based compensation expense in Q1 2021 and executive bonuses approved for payment in preferred stock - Company grants incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, and RSUs under its 2014 Equity Incentive Plan (as amended and restated)[118] Stock-Based Compensation Expense (For the Three Months Ended March 31, 2021, and March 31, 2020) | Expense Category | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | | :------------------- | :------------------------------- | :------------------------------- | | Direct Operating Costs | 305 | 171 | | General and Administrative Expenses | 624 | 851 | | Research and Development Expenses | 137 | 76 | | Sales and Marketing Expenses | 201 | 209 | | Total Stock-Based Compensation Expense | 1,267 | 1,307 | - In January 2021, the Compensation Committee approved executive bonuses payable in preferred stock, with approximately $154 thousand recorded as expense in Q1 2021[121] 12. INCOME TAXES The company recorded a $1 thousand income tax benefit in Q1 2021, primarily from deferred tax benefits offsetting state minimum and foreign income taxes, and established a valuation allowance against deferred tax assets due to historical losses and uncertainty of future U.S. taxable income Income Tax Benefit/Expense (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | | :----------- | :----------------------- | :----------------------- | | Income Tax Benefit | $1 thousand | $30 thousand | - Q1 2021 income tax benefit included $35 thousand in current tax expense and $36 thousand in deferred tax benefit[126] - Company has established a valuation allowance against federal and state deferred tax assets due to historical accumulated losses and uncertainty regarding future U.S. taxable income[129] - Company deferred approximately $1.9 million in payroll taxes under the CARES Act[128] 13. FAIR VALUE OF FINANCIAL INSTRUMENTS As of March 31, 2021, the carrying values of short-term financial instruments like accounts receivable, accounts payable, and accrued expenses approximated their estimated fair values, with notes payable classified as Level 2 fair value, and contingent consideration (Level 3 liability) fully settled by December 31, 2020 - As of March 31, 2021, and December 31, 2020, the carrying values of accounts receivable, accounts payable, and accrued expenses approximated their estimated fair values[130] - Notes payable are presented at cost and classified as Level 2 fair value due to interest rates approximating market rates[131] - Contingent consideration, a Level 3 liability, was fully settled by December 31, 2020, with no additional contingent consideration in Q1 2021[132] 14. SEGMENT REPORTING The company operates in two reportable segments, Healthcare IT and Practice Management, with Healthcare IT being the primary revenue driver, and both segments recording operating losses or minimal profit in Q1 2021 - Company is organized into two operating and reportable segments: Healthcare IT and Practice Management[135] Segment Revenue and Operating Loss (For the Three Months Ended March 31, 2021) | Metric | Healthcare IT (Thousands of USD) | Practice Management (Thousands of USD) | Unallocated Corporate Expenses (Thousands of USD) | Total (Thousands of USD) | | :--------------- | :------------------- | :----------------- | :--------------------- | :------------- | | Net Revenue | 27,033 | 2,735 | - | 29,768 | | Operating Loss | (55) | 52 | (1,678) | (1,681) | Segment Revenue and Operating Loss (For the Three Months Ended March 31, 2020) | Metric | Healthcare IT (Thousands of USD) | Practice Management (Thousands of USD) | Unallocated Corporate Expenses (Thousands of USD) | Total (Thousands of USD) | | :--------------- | :------------------- | :----------------- | :--------------------- | :------------- | | Net Revenue | 18,841 | 3,026 | - | 21,867 | | Operating Loss | (1,662) | (19) | (1,156) | (2,837) | 15. SUBSEQUENT EVENT The company resolved the civil investigation discussed in Note 8 in April 2021, with the settlement amount largely within the escrow funds - Company resolved the civil investigation discussed in Note 8 in April 2021, with the settlement amount largely within the escrow funds[138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's Q1 2021 and 2020 financial condition and operating results, covering COVID-19 impact, business overview, key performance indicators, revenue, expenses, taxes, accounting policies, and liquidity COVID-19 Pandemic Impact The COVID-19 pandemic did not materially adversely affect the company's consolidated financial results and operations in Q1 2021, with expanded telehealth services as an alternative to in-office visits, though the full impact remains uncertain - COVID-19 pandemic did not materially adversely affect the company's consolidated financial results and operations in Q1 2021[142] - Company expanded telehealth operations as an alternative to in-office visits[142] - Full impact of the pandemic on the company's business, operations, and financial condition remains uncertain and beyond company control[143][144] - Approximately 65% of revenue is directly tied to collections from healthcare provider clients, and reduced patient visits during social distancing may lead to short-term revenue declines[228] Overview of Business and Solutions CareCloud, Inc. is a healthcare IT company providing a full suite of proprietary cloud-based solutions and related business services, including RCM, PM, EHR, business intelligence, telehealth, and patient experience management - CareCloud, Inc. is a healthcare information technology company offering a full suite of proprietary cloud-based solutions and related business services, including revenue cycle management (RCM), practice management (PM), electronic health records (EHR), business intelligence, telehealth, and patient experience management (PXM) solutions[146] - Company's solutions include RCM services, proprietary healthcare IT software (EHR, PM software, mobile health, telehealth, medical claims clearinghouse, business intelligence) and medical office practice management services[147] - Company provides industry-leading solutions at competitive prices by combining proprietary software with a global team of approximately 3,800 employees across the U.S., Pakistan, and Sri Lanka[150][156] - Company serves over 40,000 healthcare providers and approximately 2,600 independent medical groups and hospitals, covering 80 specialties and sub-specialties[151] Key Performance Measures (Non-GAAP) Management uses 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 - Management uses Adjusted EBITDA, Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income, and Adjusted Net Income Per Share as non-GAAP financial measures to assess performance[157] Adjusted EBITDA (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | | :------------- | :------------------------------- | :------------------------------- | | Adjusted EBITDA | 3,691 | 767 | Adjusted Operating Income and Operating Margin (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | | :------------------- | :------------------------------- | :------------------------------- | | GAAP Operating Loss | (1,681) | (2,837) | | GAAP Operating Margin | (5.6%) | (13.0%) | | Non-GAAP Adjusted Operating Income | 2,971 | 428 | Non-GAAP Adjusted Net Income and EPS (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | | :------------------------- | :----------------------- | :----------------------- | | Non-GAAP Adjusted Net Income | $2,896 thousand | $354 thousand | | Non-GAAP Adjusted EPS | $0.20 | $0.03 | | Non-GAAP Adjusted Diluted EPS | $0.17 | $0.03 | Key Metrics & Sources of Revenue As of March 31, 2021, the company served over 40,000 healthcare providers and approximately 2,600 independent medical groups and hospitals, with revenue primarily from RCM and bundled services - As of March 31, 2021, the company serves over 40,000 healthcare providers and approximately 2,600 independent medical groups and hospitals[168] Revenue Source Composition (For the Three Months Ended March 31, 2021, and March 31, 2020) | Revenue Source | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | | :----------------------- | :----------------------- | :----------------------- | | Revenue Cycle Management Services and Bundled Services | Approximately 65% | Approximately 60% | | SaaS Services | Approximately 18% | Approximately 17% | | Other Healthcare IT Services | Approximately 8% | Approximately 9% | | Practice Management Services | Approximately 9% | Approximately 14% | Operating Expenses Analysis This section details the components of operating expenses, including direct operating costs, sales and marketing, general and administrative, research and development, depreciation and amortization, and impairment and unoccupied lease expenses - Direct operating costs primarily include personnel compensation and benefits, claims processing costs, and operating costs for managed practices[171] - Sales and marketing expenses primarily include compensation and benefits, commissions, travel, and advertising costs[172] - General and administrative expenses primarily include administrative personnel compensation and benefits, travel, facility lease costs, insurance, software license fees, and external professional fees[173] - Research and development expenses primarily include personnel-related costs and third-party contractor costs[174] - Depreciation and amortization expenses are amortized over 3 to 12 years using the straight-line method and accelerated or straight-line methods, respectively[174] - Impairment and unoccupied lease expenses include costs for leased facilities and vendor contracts no longer in use, and lease-related costs for unoccupied space[175] Interest and Other Income (Expense) Interest expense primarily covers credit lines, term loans, and acquisition-related payments, offset by interest income, while other income/expense mainly stems from foreign currency transaction gains/losses and temporary cash investments - Interest expense primarily includes interest costs on credit lines, term loans, and acquisition-related payments, offset by interest income[177] - Other income (expense) primarily arises from foreign currency transaction gains and losses and income from temporary cash investments[177] Income Tax The company estimates income taxes across jurisdictions and assesses temporary differences, establishing a valuation allowance against all deferred tax assets due to historical losses and future U.S. taxable income uncertainty - Company estimates income taxes in each jurisdiction when preparing condensed consolidated financial statements and assesses temporary differences arising from tax and financial reporting treatments[178] - Company has established a valuation allowance against all deferred tax assets due to historical losses and uncertainty regarding future U.S. taxable income[178] Critical Accounting Policies and Estimates Key accounting policies and estimates remain consistent with the company's 2020 Form 10-K annual report, covering leases and capitalized software costs - Critical accounting policies and estimates in this report are not materially different from those described in the company's annual report on Form 10-K for December 31, 2020[190] - Leases: Company incorporates operating leases into right-of-use assets and lease liabilities, with no finance leases[180] - Capitalized Software Costs: Company capitalizes certain costs of internally developed software and amortizes them over three years using the straight-line method once the asset is placed in service[184][187] Internally Developed Capitalized Software Carrying Value | Date | Carrying Value (Thousands of USD) | | :--------------- | :--------------- | | March 31, 2021 | 6,800 | | December 31, 2020 | 5,500 | Results of Operations Comparison (Q1 2021 vs Q1 2020) This section compares the company's operating results for Q1 2021 versus Q1 2020, highlighting changes in net revenue, operating expenses, and net loss, primarily driven by acquisitions and software capitalization Operating Results Key Data (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | YoY Change (Amount, Thousands of USD) | YoY Change (Percentage) | | :--------------------------------- | :------------------------------- | :------------------------------- | :--------------- | :----------------- | | Net Revenue | 29,768 | 21,867 | 7,901 | 36% | | Direct Operating Costs | 18,060 | 13,567 | 4,493 | 33% | | Sales and Marketing Expenses | 1,890 | 1,581 | 309 | 20% | | General and Administrative Expenses | 5,624 | 5,593 | 31 | 1% | | Research and Development Expenses | 2,026 | 2,333 | (307) | (13%) | | Depreciation | 460 | 275 | 185 | 67% | | Amortization | 2,371 | 1,058 | 1,313 | 124% | | Impairment and Unoccupied Lease Expenses | 1,018 | 297 | 721 | 243% | | Operating Loss | (1,681) | (2,837) | (1,156) | (41%) | | Net Loss | (1,964) | (2,502) | (538) | (21%) | - Net revenue growth primarily attributed to approximately $17.2 million in revenue from CCH and Meridian acquisitions[192] - Research and development expenses decreased primarily due to additional capitalization of software costs[196] Interest and Other Income (Expense) (For the Three Months Ended March 31, 2021, and March 31, 2020) | Metric | For the Three Months Ended March 31, 2021 (Thousands of USD) | For the Three Months Ended March 31, 2020 (Thousands of USD) | YoY Change (Amount, Thousands of USD) | YoY Change (Percentage) | | :----------------------- | :------------------------------- | :------------------------------- | :--------------- | :----------------- | | Interest Income | 15 | 38 | (23) | (61%) | | Interest Expense | (79) | (118) | 39 | (33%) | | Other (Expense) Income, Net | (220) | 445 | (665) | (149%) | | Income Tax (Benefit) Expense | (1) | 30 | (31) | (103%) | - Change in other (expense) income, net, primarily reflects foreign currency transaction gains and losses[203] Liquidity and Capital Resources In Q1 2021, the company generated positive cash flow from operations, held approximately $21 million in cash, had an undrawn revolving credit facility, and a working capital of $17.9 million, while expecting to pay $4.2 million for a civil investigation - Q1 2021 operating activities generated $958 thousand in positive cash flow, compared to $3.9 million in negative cash flow in the prior year period[205][211] - As of March 31, 2021, the company had approximately $21 million in cash, an undrawn revolving credit facility, and $17.9 million in working capital[205] - In Q1 2021, the company received $6.4 million from the exercise of common stock warrants[215] - Company expects to pay approximately $4.2 million in 2021 to resolve a civil investigation, with $4.0 million covered by escrowed preferred stock[210] - As of March 31, 2021, the company was in compliance with all SVB covenants[216] Contractual Obligations and Commitments The company has contractual obligations under its credit facility and operating leases - Company has contractual obligations under its credit facility and operating leases[216] Off-Balance Sheet Arrangements As of March 31, 2021, and 2020, the company had no off-balance sheet arrangements with unconsolidated entities or financial partnerships, and talkMD Clinicians, PA, a variable interest entity, had not commenced operations - As of March 31, 2021, and 2020, the company had no off-balance sheet arrangements with unconsolidated entities or financial partnerships[217] - talkMD Clinicians, PA (a variable interest entity) had not commenced operations or engaged in any transactions with the company as of March 31, 2021[217] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is not required to provide information for this item under Regulation S-K Item 305(e) - As a smaller reporting company, the company is not required to provide information for this item pursuant to 17 C.F.R. 229.10(f)(1) and Regulation S-K Item 305(e)[218] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management evaluated and concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[221] - No material changes to internal control over financial reporting occurred during the quarter[222] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to the discussion of legal proceedings in Note 8, "Commitments and Contingencies," of the condensed consolidated financial statements - Discussion of legal proceedings can be found in Note 8, “Commitments and Contingencies,” to the condensed consolidated financial statements in this quarterly report[225] Item 1A. Risk Factors This section highlights risks related to the COVID-19 pandemic, including potential impacts on business, financial condition, operations, customer collections, capital access, acquisition delays, and integration challenges - COVID-19 pandemic may harm the company's business, financial condition, results of operations, and growth[227] - Pandemic may lead to constrained employee resources, difficulties in international operations, and challenges for healthcare provider clients, such as resource diversion and suspension of non-essential medical procedures[227][228] - Approximately 65% of revenue is directly tied to customer collections, and reduced patient visits may lead to revenue declines; an economic recession or market adjustment due to the pandemic may affect capital access[228][230] - Pandemic may cause delays in future acquisitions and increase the difficulty of integrating CCH or Meridian[231][232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable - This section is not applicable[235] Item 3. Defaults Upon Senior Securities This section is not applicable - This section is not applicable[236] Item 4. Mine Safety Disclosures This section is not applicable - This section is not applicable[237] Item 5. Other Information This section is not applicable - This section is not applicable[238] Item 6. Exhibits This section lists exhibits filed with the report, including certifications from the CEO and CFO, and XBRL taxonomy files - Exhibits include certifications from the company's Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL instance and taxonomy files[240] Signatures Signatures This report was signed by CEO A. Hadi Chaudhry and CFO Bill Korn on May 6, 2021 - This report was signed by Chief Executive Officer A. Hadi Chaudhry and Chief Financial Officer Bill Korn on May 6, 2021[245]